Regulatory News Item
News release
On track for growth in FY18
Highlights
· Group underlying revenue broadly flat at
· Operating profit impacted by programme phasing in Detection and higher R&D costs in Medical associated with the significant programme of new product launches
· Underlying operating margin down (20)bps, including the adjustment for restructuring and pension administration costs which are now headline items
· Continued focus on working capital with improved stock turns at 3.6x
· Good cash generation with cash conversion of 98%
· Continued investment for sustainable growth, R&D at 4.6% of sales
· Further progress on portfolio high grading:
o Morpho integration on track
o Agreement to sell John Crane's Bearings business for
· ROCE declined (110)bps to 15.2% reflecting the impact of the Morpho acquisition
· Headline tax rate now expected to be 25.5-26.5% for FY2018 falling to 22-24% in FY2019
· Headline basic EPS down (11)% at 40.4p per share, down (2)% on an underlying basis. Statutory basic EPS 26.0p
· Interim dividend of
· 2018 full year outlook reaffirmed
Results for the six months ended
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Headline1 |
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Statutory |
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|
H1 2018 |
H1 2017 |
Reported growth |
Underlying2 growth |
|
H1 2018 |
H1 2017 |
|
Revenue |
1,549 |
1,617 |
(4)% |
(1)% |
|
1,549 |
1,617 |
|
Operating profit |
247 |
277 |
(11)% |
(2)% |
|
229 |
377 |
|
Operating margin |
16.0% |
17.1% |
(110)bps |
(20)bps |
|
14.8% |
23.3% |
|
Pre-tax profit |
217 |
248 |
(12)% |
(3)% |
|
199 |
346 |
|
Free cash-flow |
113 |
176 |
(36)% |
|
|
113 |
176 |
|
Return on capital employed |
15.2% |
16.3% |
(110)bps |
|
|
|
|
|
Continuing basic EPS |
40.4p |
45.7p |
(11)% |
(2)% |
|
26.0p |
76.5p |
|
Dividend |
13.80p |
13.55p |
1.8% |
|
|
13.80p |
13.55p |
1 In addition to statutory reporting,
2 Underlying modifies headline performance to: adjust prior year to reflect an equivalent period of ownership for divested businesses; include restructuring and pension administration costs as headline for both years; and exclude the effects of foreign exchange, acquisitions and supplemental sales for divested businesses.
"
This year we have commenced our previously announced policy of including restructuring and pension administration costs as part of underlying profit. On an underlying basis the Group margin was down 20 basis points, whilst we continued to invest in commercially focused R&D and innovation. Our relentless focus on operational efficiency and cash generation delivered further stock turn improvements and good cash conversion during the period.
The outlook for 2018 is reaffirmed (on a constant currency basis). The Group's current trading, the strong order books in John Crane and Smiths Detection, as well as the substantial ongoing programme of new product launches in Smiths Medical, support our confidence that the Group's growth rate will accelerate over the balance of the year. At current rates, foreign exchange will remain a headwind for the full year.
Over the medium-term, we are confident that we will achieve organic revenue growth above our chosen markets, which in aggregate are growing 3-4% annually. This is founded on our strategy to maintain and continue to develop leadership positions in attractive growth markets, our increasing investment in technology and new products, our established operating model for excellence, and our strong financial framework. In parallel with our continued active portfolio management this will deliver long-term sustainable growth and attractive returns."
Statutory reporting
Statutory reporting takes account of all items excluded from headline performance. On a statutory basis, pre-tax profit from continuing operations was
See Accounting policies for an explanation of the presentation of results and note 3 to the accounts for an analysis of non-headline items.
Contact details
Investor enquiriesJemma Spalton, Smiths Group Marion Le Bot, Smiths Group |
Media enquiriesAndrew Lorenz, FTI Consulting
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Presentation
The presentation slides and a live webcast of the analyst presentation will be available at www.smiths.com/investors at 09.00 (
Photography
Original high-resolution photography and broadcast quality video is available to the media from the media contacts above or from www.smiths-images.com.
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
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Group results overview |
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Headline revenue |
Headline operating profit margin |
Headline return on capital employed |
|||
|
|
Underlying growth2 |
Reported growth |
H1 2018 |
H1 2017 |
H1 2018 |
H1 2017 |
|
John Crane |
3% |
(2)% |
21.3% |
20.8% |
23.4% |
21.3% |
|
Smiths Medical |
0% |
(5)% |
18.1% |
21.0% |
15.8% |
16.3% |
|
Smiths Detection |
(11)% |
15% |
16.2% |
16.8% |
10.6% |
14.7% |
|
Smiths Interconnect |
(3)% |
(41)% |
10.3% |
11.3% |
11.4% |
11.3% |
|
Flex-Tek |
10% |
5% |
18.6% |
18.3% |
36.4% |
32.8% |
|
Group |
(1)% |
(4)% |
16.0% |
17.1% |
15.2% |
16.3% |
Group revenue declined (4)% on a reported basis, reflecting
Revenue from higher-growth regions, which represents 17% of Group sales, grew 6% on an underlying2 basis, driven by good sales growth in
Group headline operating profit of
The Group's headline operating profit margin decreased (110)bps on a reported basis, reflecting the programme phasing in Smiths Detection and higher R&D costs associated with the significant programme of new product launches in Smiths Medical. The Group operating margin on an underlying2 basis was broadly flat (including the 2017 adjustment for the restructuring and pension administration costs that are now recorded as headline items).
Driving operational excellence remains a key focus for the Group as we continue to improve speed and efficiency supporting further structural working capital reductions and strong cash generation. This focus drove further improvements in stock turns at 3.6x (
Group investment in R&D increased to 4.6% of sales (2017: 4.5%), to drive future growth through the development of innovative, commercially focused products.
During the period the Group made further progress on the high grading of the portfolio for long-term growth in attractive markets and in January reached agreement to sell the John Crane Bearings business to
ROCE declined (110)bps to 15.2% (2017: 16.3%) primarily reflecting the 10 month impact of the Morpho asset base.
The headline tax charge for the first half of 2018 of
Following the Group's announcement on
Net debt at
Basic headline earnings per share from continuing activities decreased (11)% to 40.4p (2017: 45.7p), (2)% on an underlying2 basis.
Pension
The net pension position has improved to a surplus of
The Group continues to work with the Trustees to de-risk the pension schemes. In
Dividend
The Board has a progressive dividend policy, with the aim of increasing dividends in line with the long-term underlying2 growth in earnings and cash flow. This policy will enable us to retain sufficient cash flow to finance our investment in the drivers of growth and to meet our financial obligations. In setting the level of dividend payments, the Board will take into account prevailing economic conditions and future investment plans, along with the objective to maintain minimum cash dividend cover of around 2.0x. The Board has declared an interim dividend per share of 13.80p (2017: 13.55p per share). The interim dividend will be paid on 23 April to shareholders registered at close of business on 6 April. The ex-dividend date is 5 April.
Statutory results
On a statutory basis, after taking into account all items excluded from headline performance, operating profit of
Outlook
The outlook for 2018 is reaffirmed (on a constant currency basis). The Group's current trading, the strong order books in John Crane and Smiths Detection, as well as the substantial ongoing programme of new product launches in Smiths Medical, support our confidence that the Group's growth rate will accelerate over the balance of the year. At current rates foreign exchange will remain a headwind for the full year.
We anticipate continued growth in John Crane, as it leverages its leading OE and aftermarket service offering in strengthening markets. In Smiths Medical, we anticipate a return to growth for the year overall supported by its significant programme of product launches. In Smiths Detection we anticipate a strong second half, driven by Air Transportation, which should generate good overall growth for the year. In Smiths Interconnect, our focus on fewer, higher-growth end markets is expected to offset declining sales associated with the segments it is exiting. Flex-Tek is expected to deliver continued strong growth.
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Business review |
John Crane
John Crane is a leading provider of mission-critical engineered solutions for global energy and process industries. John Crane's revenue is currently comprised of 66% aftermarket sales. c.55% of revenue is derived from the energy sector (downstream and midstream oil & gas, power generation) with c.45% coming from other process industries, including chemical, pharmaceutical, power generation, water and wastewater, and pulp and paper. John Crane represents 28% of Group revenue.
|
|
H1 2018 |
H1 2017 |
Reported |
Underlying2 |
|
Revenue |
428 |
435 |
(2)% |
3% |
|
Headline operating profit |
91 |
90 |
1% |
5% |
|
Headline operating margin |
21.3% |
20.8% |
50bps |
30bps |
|
Statutory operating profit |
86 |
87 |
(1)% |
|
|
Return on capital employed |
23.4% |
21.3% |
210bps |
|
Performance
John Crane delivered a good performance, returning to growth with revenue up 3% on an underlying2 basis. Reported revenue decreased (2)%, reflecting
Underlying2 sales from John Crane's oil & gas and non-oil & gas activities were up c.4% and c.3%, respectively, reflecting the improving trend in global energy markets and good growth in John Crane's chemical, pharma and pulp & paper activities. These market conditions were also reflected in the improving underlying2 sales of Original Equipment ('OE') that were flat. Investment in OE projects and expansion of the installed base continued during the period. Multiple new project agreements were secured, including for petro-chemical plants in
Revenue from higher-growth regions, which represents 25% of sales, grew 12% on an underlying2 basis with strong sales growth in
Headline operating profit increased 5% on an underlying2 basis, driven by the improved volumes. Headline operating profit margin increased by 30bps to 21.3%, on an underlying2 basis reflecting the favourable mix from strong aftermarket growth. The difference between statutory and headline operating profit primarily reflects the movements in provisions for asbestos litigation.
Return on capital increased 210bps to 23.4%, principally due to increased profitability and the impact of the Artificial Lift disposal in 2016.
John Crane has made further progress on focusing the business on scalable leading positions in attractive growth markets. During the period we announced that we had reached agreement to sell the Bearings business to
R&D expenditure during the period increased by 13% to 1.4% of sales.
John Crane continued to develop Sense™, its predictive diagnostics platform, covering both wet and dry gas applications. John Crane also made further investments in research to support the enhancement of seals performance, such as reducing methane emissions with the new gas seal, the unique secondary sealing technology of John Crane's new crude oil pipeline seal and single-use seal for general industries.
Smiths Medical
Smiths Medical supplies high-quality, cost effective medical devices and consumables that are vital to patient care globally. Our portfolio incorporates established brands and strong positions in select segments of the Infusion Systems, Vascular Access, and Vital Care markets. 82% of Smiths Medical's sales are from consumable and disposable products. Smiths Medical represents 29% of Group revenue.
|
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H1 2018 |
H1 2017 |
Reported |
Underlying2 |
|
Revenue |
451 |
473 |
(5)% |
0% |
|
Headline operating profit |
82 |
99 |
(18)% |
(5)% |
|
Headline operating margin |
18.1% |
21.0% |
(290)bps |
(90)bps |
|
Statutory operating profit |
79 |
189 |
(58)% |
|
|
Return on capital employed |
15.8% |
16.3% |
(50)bps |
|
Performance
During the period Smiths Medical made significant progress on its return to growth with underlying2 revenue improving to be flat year over the year. This was supported by the launch of 11 new products across its segments to support core-market category leadership. Reported revenue declined (5)%, impacted by
Underlying2 revenue was flat in Infusion Systems with good growth in the sales of disposables offset by lower sales in infusion hardware. Vascular Access underlying2 revenue declined by (1)% where an improved performance in sharps safety supported by the launch of NeoHeelTM, a safety lancet to collect blood samples for infants, was offset by declines in peripheral intravenous catheters ('PIVC'). Underlying2 revenue from
Revenue from higher-growth regions, which represents 9% of sales, increased 7% on an underlying2 basis driven by growth in
Headline operating profit declined (5)% on an underlying2 basis. This movement reflects both the adjustment for restructuring costs in the prior year,
Return on capital employed decreased (50)bps to 15.8%, reflecting the lower profitability during the period.
R&D expenditure during the period represented 6.0% of sales (2017: 6.8%). Smiths Medical continues to invest in research and development to support its long-term, sustainable growth, with the development of innovative, commercially focused products across the portfolio. Since the beginning of the financial year 11 new products have been launched. These included:
- CADDTM Solis connected pump, our first wireless connected pump
- Upgrades to the PharmGuard® server platform
- Jelco® Seriva PIVC targeted at higher growth markets
- HemoDrawTM plus closed blood sampling system which reduces the risk of injury and infection
- NeoHeelTM a safety lancet to collect blood samples from infants
- DeltaVenTM a closed system IV catheter
Sales from the 11 new products are gradually ramping up, contributing to the division's anticipated return to growth in the second half of the year, alongside around 12 further product launches expected during the second half.
Smiths Detection
Smiths Detection is a leader in the detection and identification of security threats and contraband. It produces equipment for customers in the Air Transportation, Ports and Borders, Military and Urban Security end-use markets. 48% of Smiths Detection's sales derived from the aftermarket. Smiths Detection represents 24% of Group revenue.
|
|
H1 2018 |
H1 2017 |
Reported |
Underlying2 |
|
Revenue |
367 |
318 |
15% |
(11)% |
|
Headline operating profit |
59 |
54 |
11% |
(13)% |
|
Headline operating margin |
16.2% |
16.8% |
(60)bps |
(40)bps |
|
Statutory operating profit |
39 |
47 |
(17)% |
|
|
Return on capital employed |
10.6% |
14.7% |
(410)bps |
|
Performance
As expected, Smiths Detection underlying2 revenue decreased by (11)%. This reflected continued good growth in Air Transportation, despite a strong comparator, that was offset by programme phasing in the non-aviation segments. Overall aftermarket revenue grew by 2% on an underlying2 basis, now accounting for 48% of total revenue (2017: 35%). On a reported basis, revenue increased by 15% including
Revenue in Air Transportation increased 8% on an underlying2 basis. Air Transportation is Smiths Detection's largest segment and following the acquisition of Morpho now represents 66% of Smiths Detection's total revenue. During the period there was strong growth in EMEA as a result of deliveries associated with the ECAC standard 3 regulation for hold baggage, and strong growth in Asia Pacific. Major deliveries were completed for
Revenue from higher-growth regions represented 20% of sales, in line with prior year on an underlying2 basis. We continue to experience pricing pressure in some end-use markets, and in unregulated parts of the market from lower-priced competitors.
Headline operating profit declined (13)% on an underlying2 basis, reflecting the programme phasing. Headline reported operating margin decreased by (40)bps to 16.2%, on an underlying2 basis with the impact of lower volumes partially offset by a higher mix of aftermarket revenue and the Morpho synergies. The difference between statutory and headline operating profit largely constitutes the integration costs associated with the acquisition of Morpho and amortisation of acquired intangibles. The integration of Morpho continues to progress well and we are on track to the deliver the
Return on capital employed decreased (410)bps to 10.6% driven primarily by the impact of Morpho's asset base.
Total R&D expenditure during the period represented 6.6% of sales, or 6.0% excluding customer funded R&D (2017: 6.3% and 5.4% respectively). Specific highlights include continued investment in:
- X-ray machines capable of meeting the new EU/ECAC Standard C3
- Newer and faster CT machines for hold baggage screening
- Next generation chemical warfare detection devices for the military market
- Launch of CORAL, our advanced predictive analytics suite for hold baggage detection systems
In February it was announced that
Smiths Interconnect
Smiths Interconnect designs solutions for high-speed, secure connectivity in reliability applications for the defence, aerospace, space, rail, medical and semiconductor test markets. Smiths Interconnect represents 9% of Group revenue.
|
|
H1 2018 |
H1 2017 |
Reported |
Underlying2 |
|
Revenue |
135 |
230 |
(41)% |
(3)% |
|
Headline operating profit |
14 |
26 |
(46)% |
(1)% |
|
Headline operating margin |
10.3% |
11.3% |
(100)bps |
20bps |
|
Statutory operating profit |
11 |
45 |
(76)% |
|
|
Return on capital employed |
11.4% |
11.3% |
10bps |
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Performance
Following the significant strategic and structural change at Smiths Interconnect last year, declining sales associated with certain products and customers that we are exiting to complete the restructuring process offset 3% revenue growth in Smiths Interconnect's six key market segments. As a result underlying2 revenue was down (3)%.
On a reported basis, revenue declined by (41)%, reflecting the
Underlying2 revenue in the Defence segment grew by 10% supported by increased defence spending in the US,
Revenue from higher-growth regions, which represents 15% of sales, decreased by (17)% as a result of the phasing of semiconductor sales in
Headline operating profit declined (1)% on an underlying2 basis to
During the period we signed a memorandum of understanding to form a joint venture with
Return on capital employed increased 10bps to 11.4% driven by the Power and Telecoms businesses in FY2017.
Total R&D expenditure represented 7.7% of revenue (2017: 6.4%) (6.8% excluding customer funded R&D, 2017: 5.7%). Product developments during the period included:
- Volta semiconductor solutions for testing integrated chip packages
- SpaceNXTTM HC Series - a range of high reliability microwave components qualified for next-generation commercial space applications.
- Eclipta TM connector - a double ended edge card contact technology for disposable medical applications.
Flex-Tek
Flex-Tek provides engineered components that heat and move fluids and gases for the aerospace, medical, industrial, construction and domestic appliance markets. Flex-Tek represents 10% of Group revenue.
|
|
H1 2018 |
H1 2017 |
Reported |
Underlying2 |
|
Revenue |
168 |
161 |
5% |
10% |
|
Headline operating profit |
31 |
30 |
7% |
15% |
|
Headline operating margin |
18.6% |
18.3% |
30bps |
80bps |
|
Statutory operating profit |
39 |
37 |
5% |
|
|
Return on capital employed |
36.4% |
32.8% |
360bps |
|
Performance
Flex-Tek delivered a strong performance with revenue up 10% on an underlying2 basis, supported by growth in all segments. On a reported basis revenue increased 5%, despite a
Construction revenue grew 4% on an underlying2 basis, with both Gastite and Thermaflex benefiting from the continued growth in the US housing market. Fluid Management revenue was up 14% on an underlying2 basis, driven by strong sales of its aerospace solutions across a range of engine and airframe platforms. Heat Solutions revenue increased by 14% on an underlying2 basis, principally due to growth in its engineered solutions as well as increased sales of clothes dryer elements and HVAC systems. Flexible Solutions underlying2 revenue growth of 8% was driven by increased demand from the medical sector, partially offset by a decline in the floor care segment. We anticipate Flex-Tek to continue to deliver a strong performance.
Revenue from higher-growth regions, which represents 10% of sales, increased 22% driven by strong sales into
On an underlying2 basis headline operating profit increased 15% to
Return on capital employed increased 360bps to 36.4%, driven by improved profitability.
In
R&D expenditure remained consistent at 0.6% of sales (2017: 0.7%), focused on market-leading innovative solutions to meet specific customer needs such as Gastite's FlashShield II, the next generation of flexible gas piping, which is expected to launch by the end of the year.
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Financial review |
Headline revenue
Reported revenue decreased by
Operating profit
Headline operating profit of
John Crane margin of 21.3% (2017: 20.8%) improved 30bps on an underlying2 basis driven by the improved volumes. Smiths Medical margin of 18.1% (2017: 21.0%) decreased (90)bps on an underlying2 basis with lower revenue and higher R&D costs associated with the launch of new products. Smiths Detection margin of 16.2% (2017: 16.8%) decreased (40)bps on an underlying2 basis due to lower volumes, partially offset by favourable mix and synergies. Smiths Interconnect margin of 10.3% (2017: 11.3%) increased 20bps on an underlying2 basis driven by the disposal of lower profitability businesses. Operating margin in Flex-Tek of 18.6% (2017: 18.3%) improved 80bps on an underlying2 basis, reflecting the impact of increased revenue and efficiencies. Central costs increased by
Operating profit on a statutory basis, after taking account of the items excluded from the headline figures, was
Headline finance costs
Headline finance cost during the period totalled
Non-headline items relating to continuing activities excluded from headline profit before tax
These items amounted to a charge of
• £nil for restructuring (2017:
•
•
•
•
• £nil operating charge for pension administration costs (2017:
•
•
•
•
•
Research and development
The Group invested
Taxation
The
The Group continues to take advantage of global manufacturing, research and development and other tax incentives, to allocate its capital in the most tax-efficient manner where the regulatory environment allows, and to ensure the effective and timely management of its tax filings and other compliance requirements.
An effective headline tax rate of between 25.5% and 26.5% is expected in the current year ending
Earnings per share
Basic headline earnings per share from continuing activities decreased (11)% to 40.4p (2017: 45.7p), (2)% on an underlying2 basis, driven by lower operating profit, which was partly offset by a decrease in the effective tax rate to 25.8% from 26.5%.
On a statutory basis, the basic earnings per share from continuing activities were 26.0p (2017: 76.5p), reflecting the impact of non-headline items which included a profit on disposal of businesses of
Cash generation and net debt
Headline operating cash-flow decreased to
Free cash-flow decreased by
On a statutory basis, net cash inflow from operations was
Net debt at
At the end of the period, the Group had gross debt of
Acquisitions and Disposals
In
In
Dividend
The Board has declared an interim dividend of 13.80p per share (2017: 13.55p per share). The interim dividend will be paid on
Retirement benefits
As required by IFRS, the balance sheet reflects the net surplus or deficit in retirement benefit plans, taking assets at their market values at
The tables below disclose the net status across a number of individual plans. Where any individual plan shows a surplus under IAS 19, this is disclosed on the balance sheet as a retirement benefit asset. The IAS 19 surplus of any one plan is not available to fund the IAS 19 deficit of another plan. The net pension position has improved to a surplus of
The retirement benefit position is shown below:
|
|
31-Jan-18 |
31-Jul-17 |
|
Funded plans |
|
|
|
UK plans - funding status |
111% |
111% |
|
US plans - funding status |
96% |
91% |
|
Other plans - funding status |
82% |
81% |
|
Total - funding status |
110% |
109% |
|
|
|
|
|
|
31-Jan-18 |
31-Jul-17 |
|
Surplus / (deficit) |
|
|
|
Funded plans |
364 |
354 |
|
Unfunded plans |
(127) |
(130) |
|
Total surplus / (deficit) |
237 |
224 |
|
|
|
|
|
Retirement benefit assets |
383 |
390 |
|
Retirement benefit liabilities |
(146) |
(166) |
|
|
237 |
224 |
Return on capital employed
The headline return on capital employed (ROCE) is calculated over a rolling 12-month period and the percentage that headline operating profit comprises of monthly average capital employed. Capital employed comprises total equity adjusted for goodwill recognised directly in reserves, post-retirement benefit-related assets and liabilities net of tax, litigation provisions relating to non-headline items net of tax, and net debt. ROCE decreased (110)bps to 15.2% (2017: 16.3%) primarily as a result of a higher asset base from the Morpho acquisition.
Exchange rates
The results of overseas operations are translated into sterling at average exchange rates. The net assets are translated at period-end rates. The principal exchange rates, expressed in terms of the value of sterling, are shown in the following table.
|
|
31 January |
31 January |
|
|
31 July 2017 |
|
|
|
Average rates: |
|
|
|
|
|
|
|
|
US dollar |
1.33 |
1.26 |
|
Dollar weakened 6% |
1.27 |
|
Dollar weakened 5% |
|
Euro |
1.12 |
1.16 |
|
Euro strengthened 3% |
1.16 |
|
Euro strengthened 3% |
|
Period-end rates: |
|
|
|
|
|
|
|
|
US dollar |
1.42 |
1.26 |
|
Dollar weakened 13% |
1.32 |
|
Dollar weakened 8% |
|
Euro |
1.14 |
1.17 |
|
Euro strengthened 3% |
1.12 |
|
Euro weakened 2% |
Risk management
The principal risks and uncertainties affecting the business activities of the Group and relevant mitigating activities were set out on pages 62-67 of the Annual Report for the year ended
Developments since the Annual Report
In the view of the Board, the principal risks and uncertainties affecting the Group for the remaining six months of the financial year continue to be those set out briefly below and more fully in the Annual Report.
Technology disruption by existing or future competitor
Developing differentiated new products and services is critical to our success. Failure to maintain technological differentiation could lead to a loss of market share and competitive advantage.
People
People are our only truly sustainable source of competitive advantage. The inability to attract key talent could lead to a loss of competitive advantage and materially affect our growth prospects.
Wrong acquisitions and poor integration
Failure to identify suitable acquisition targets or successfully integrate newly-acquired businesses may result in less value generation, fewer synergies or require more investment than anticipated, impacting the Group's financial performance.
Not operating in the right markets
Failure to select the right markets and geographies could impact our strategic progress and financial performance.
Economic outlook and geo-political environment
Economic and financial market conditions may cause adverse effects on customers or suppliers with consequential capacity or cash-flow implications for
Interruption to supply chain - manufacturing concentration
Our manufacturing continues to be exposed to risk of a number of external events such as natural catastrophes, disease pandemics and terrorist attacks which may result in supply disruption.
Interruption to supply chain - sole source of supply
We rely on sole source component suppliers to provide raw materials or purchased components for some of our products. Any failure on their part or unforeseen adverse consequences in the region or market where they operate would impact our ability to deliver solutions to customers and drive growth.
Product quality issue - recall / litigation / catastrophic event
Manufacturing flaws, component failures and / or design defects could require us to recall products. The group, in particular, Smiths Detection and Smiths Medical may be exposed to losses in the event of a cyber security breach relating to the Group's products.
Failure to meet contractual obligations
There is a risk that we may fail to deliver, in a timely fashion, or at all, the products and services we are required to deliver, or fail in our contractual execution due to delays by our suppliers or counterparties.
Significant ethical or compliance breach
We operate in highly regulated markets, as well as in countries where the risks of bribery, corruption and modern slavery are high, creating a risk that a significant ethical or compliance breach may occur which could seriously harm our reputation and impact our financial performance, customer relationships and ability to retain talent.
Cyber security
Cyber attacks could compromise the confidentiality, integrity and availability of our assets, impacting our ability to deliver to customers and ultimately, financial performance and reputation.
Statement of directors' responsibilities
The Interim report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim report in accordance with the Disclosure and Transparency Rules ("DTR") of the
The directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' as adopted by the
· the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements as required by DTR 4.2.7;
· the principal risks and uncertainties for the remaining six months of the year as required by DTR 4.2.7; and
· related party transactions that have taken place in the first six months of the current financial year that have materially affected and changes in the related party transactions described in the previous annual report that could have materially affected the financial position or performance of the
Having reassessed the principal risks, the directors consider it appropriate to adopt the going concern basis of accounting in preparing the Interim report.
The directors of the Parent Company are listed in the
· On
For and on behalf of the Board of Directors:
|
Andy Reynolds Smith |
John Shipsey |
|
Chief Executive |
Chief Financial Officer |
Independent review report to
Report on the condensed interim financial statements
Our conclusion
We have reviewed
What we have reviewed
The condensed interim financial statements comprise:
· the consolidated balance sheet (unaudited) as at
· the consolidated income statement (unaudited) and consolidated statement of comprehensive income (unaudited) for the period then ended;
· the consolidated cash-flow statement (unaudited) for the period then ended;
· the consolidated statement of changes in equity (unaudited) for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the interim report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Our responsibility is to express a conclusion on the interim financial statements in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
What a review of condensed interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (
We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Chartered Accountants
(a) The maintenance and integrity of the
(b) Legislation in the
Consolidated income statement (unaudited)
|
|
|
Period ended 31 January 2018 |
|
Period ended 31 January 2017 |
||||
|
|
Notes |
Headline |
Non-headline |
Total |
|
Headline |
Non-headline |
Total |
|
Continuing operations |
|
|
|
|
|
|
|
|
|
Revenue |
2 |
1,549 |
|
1,549 |
|
1,617 |
|
1,617 |
|
Cost of sales |
|
(838) |
|
(838) |
|
(870) |
|
(870) |
|
Gross profit |
|
711 |
|
711 |
|
747 |
|
747 |
|
Sales and distribution costs |
|
(219) |
|
(219) |
|
(223) |
|
(223) |
|
Administrative expenses |
|
(245) |
(17) |
(262) |
|
(247) |
(26) |
(273) |
|
(Loss)/profit on business disposal |
|
|
(1) |
(1) |
|
|
126 |
126 |
|
Operating profit/(loss) |
|
247 |
(18) |
229 |
|
277 |
100 |
377 |
|
Interest receivable |
|
3 |
|
3 |
|
1 |
|
1 |
|
Interest payable |
|
(33) |
|
(33) |
|
(30) |
|
(30) |
|
Other financing losses |
|
|
(3) |
(3) |
|
|
(3) |
(3) |
|
Other finance income - retirement benefits |
|
|
3 |
3 |
|
|
1 |
1 |
|
Finance costs |
|
(30) |
|
(30) |
|
(29) |
(2) |
(31) |
|
Profit/(loss) before taxation |
|
217 |
(18) |
199 |
|
248 |
98 |
346 |
|
Taxation |
5 |
(56) |
(39) |
(95) |
|
(66) |
23 |
(43) |
|
Profit/(loss) for the period |
|
161 |
(57) |
104 |
|
182 |
121 |
303 |
|
Attributable to: |
|
|
|
|
|
|
|
|
|
Smiths Group shareholders - continuing operations |
|
160 |
(57) |
103 |
|
181 |
121 |
302 |
|
Non-controlling interests in respect of continuing operations |
|
1 |
|
1 |
|
1 |
|
1 |
|
|
|
161 |
(57) |
104 |
|
182 |
121 |
303 |
|
Earnings per share |
4 |
|
|
|
|
|
|
|
|
Basic |
|
|
|
26.0p |
|
|
|
76.5p |
|
Diluted |
|
|
|
25.7p |
|
|
|
75.6p |
|
Dividends per share (declared) |
14 |
|
|
13.80p |
|
|
|
13.55p |
Consolidated statement of comprehensive income (unaudited)
|
|
|
Period ended |
Period ended |
|
Profit for the period |
|
104 |
303 |
|
Other comprehensive income: |
|
|
|
|
Actuarial losses on retirement benefits |
6 |
(24) |
(62) |
|
Taxation recognised on actuarial movements |
|
(4) |
9 |
|
Other comprehensive income and expenditure which will not be reclassified to the consolidated |
|
(28) |
(53) |
|
|
|
|
|
|
Other comprehensive income which will be, or has been, reclassified: |
|
|
|
|
Exchange (losses)/gains |
|
(179) |
107 |
|
Cumulative exchange gains recycled on disposal |
|
|
(31) |
|
Fair value gains/(losses) and reclassification adjustments: |
|
|
|
|
- deferred in the period on cash-flow and net investment hedges |
|
90 |
(62) |
|
- reclassified to income statement on cash-flow and net investment hedges |
|
(1) |
21 |
|
Total other comprehensive income/(expenditure) |
|
(118) |
(18) |
|
Total comprehensive income/(expenditure) |
|
(14) |
285 |
|
Attributable to: |
|
|
|
|
Smiths Group shareholders |
|
(14) |
285 |
|
Non-controlling interests |
|
|
|
|
|
|
(14) |
285 |
Consolidated balance sheet (unaudited)
|
|
Notes |
31 January |
31 July |
|
Non-current assets |
|
|
|
|
Intangible assets |
7 |
1,908 |
2,015 |
|
Property, plant and equipment |
8 |
291 |
315 |
|
Financial assets - other investments |
|
18 |
21 |
|
Retirement benefit assets |
6 |
383 |
390 |
|
Deferred tax assets |
|
199 |
272 |
|
Trade and other receivables |
|
64 |
57 |
|
Financial derivatives |
|
86 |
56 |
|
|
|
2,949 |
3,126 |
|
Current assets |
|
|
|
|
Inventories |
|
439 |
452 |
|
Current tax receivable |
|
37 |
62 |
|
Trade and other receivables |
|
640 |
722 |
|
Cash and cash equivalents |
9 |
591 |
782 |
|
Financial derivatives |
|
11 |
13 |
|
|
|
1,718 |
2,031 |
|
Assets of business held for sale |
13 |
19 |
|
|
Total assets |
|
4,686 |
5,157 |
|
Current liabilities |
|
|
|
|
Financial liabilities |
|
|
|
|
- borrowings |
9 |
(21) |
(151) |
|
- financial derivatives |
|
(10) |
(10) |
|
Provisions for liabilities and charges |
11 |
(81) |
(85) |
|
Trade and other payables |
|
(529) |
(576) |
|
Current tax payable |
|
(58) |
(45) |
|
|
|
(699) |
(867) |
|
Liabilities of business held for sale |
13 |
(4) |
|
|
Non-current liabilities |
|
|
|
|
Financial liabilities |
|
|
|
|
- borrowings |
9 |
(1,531) |
(1,598) |
|
- financial derivatives |
|
(4) |
(2) |
|
Provisions for liabilities and charges |
11 |
(245) |
(283) |
|
Retirement benefit obligations |
6 |
(146) |
(166) |
|
Deferred tax liabilities |
|
(69) |
(111) |
|
Trade and other payables |
|
(22) |
(26) |
|
|
|
(2,017) |
(2,186) |
|
Total liabilities |
|
(2,720) |
(3,053) |
|
Net assets |
|
1,966 |
2,104 |
|
Shareholders' equity |
|
|
|
|
Share capital |
|
148 |
148 |
|
Share premium account |
|
358 |
355 |
|
Capital redemption reserve |
|
6 |
6 |
|
Revaluation reserve |
|
1 |
1 |
|
Merger reserve |
|
235 |
235 |
|
Retained earnings |
|
1,404 |
1,634 |
|
Hedge reserve |
|
(201) |
(290) |
|
Total shareholders' equity |
|
1,951 |
2,089 |
|
Non-controlling interest equity |
|
15 |
15 |
|
Total equity |
|
1,966 |
2,104 |
Consolidated statement of changes in equity (unaudited)
|
|
|
Share capital |
Other |
Retained earnings |
Hedge |
Equity |
Non-controlling |
Total |
|
At 31 July 2017 |
|
503 |
242 |
1,634 |
(290) |
2,089 |
15 |
2,104 |
|
Profit for the period |
|
|
|
103 |
|
103 |
1 |
104 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
Exchange losses net of recycling |
|
|
|
(178) |
|
(178) |
(1) |
(179) |
|
Actuarial losses on retirement benefits and tax |
|
|
|
(28) |
|
(28) |
|
(28) |
|
Fair value gains/(losses) |
|
|
|
|
89 |
89 |
|
89 |
|
Total comprehensive income/(expenditure) for the period |
|
|
|
(103) |
89 |
(14) |
|
(14) |
|
Transactions relating to ownership interests: |
|
|
|
|
|
|
|
|
|
Exercises of share options |
|
3 |
|
|
|
3 |
|
3 |
|
Purchase of own shares |
|
|
|
(15) |
|
(15) |
|
(15) |
|
Dividends - equity shareholders |
14 |
|
|
(117) |
|
(117) |
|
(117) |
|
Share-based payment |
|
|
|
5 |
|
5 |
|
5 |
|
At 31 January 2018 |
|
506 |
242 |
1,404 |
(201) |
1,951 |
15 |
1,966 |
|
|
Notes |
Share capital |
Other |
Retained earnings |
Hedge |
Equity shareholders' |
Non-controlling |
Total |
|
At 31 July 2016 |
|
500 |
242 |
1,205 |
(301) |
1,646 |
14 |
1,660 |
|
Profit for the period |
|
|
|
302 |
|
302 |
1 |
303 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
Exchange gains net of recycling |
|
|
|
77 |
|
77 |
(1) |
76 |
|
Actuarial losses on retirement benefits and tax |
|
|
|
(53) |
|
(53) |
|
(53) |
|
Fair value losses |
|
|
|
|
(41) |
(41) |
|
(41) |
|
Total comprehensive income for the period |
|
|
|
326 |
(41) |
285 |
|
285 |
|
Transactions relating to ownership interests: |
|
|
|
|
|
|
|
|
|
Exercises of share options |
|
2 |
|
|
|
2 |
|
2 |
|
Purchase of own shares |
|
|
|
(9) |
|
(9) |
|
(9) |
|
Dividends - equity shareholders |
14 |
|
|
(114) |
|
(114) |
|
(114) |
|
Share-based payment |
|
|
|
8 |
|
8 |
|
8 |
|
At 31 January 2017 |
|
502 |
242 |
1,416 |
(342) |
1,818 |
14 |
1,832 |
Consolidated cash-flow statement (unaudited)
|
|
|
Period ended |
Period ended |
|
Net cash inflow from operating activities |
15 |
159 |
225 |
|
Cash-flows from investing activities |
|
|
|
|
Expenditure on capitalised development |
|
(13) |
(19) |
|
Expenditure on other intangible assets |
|
(5) |
(3) |
|
Purchases of property, plant and equipment |
|
(28) |
(29) |
|
Disposals of property, plant and equipment |
|
2 |
2 |
|
Investment in financial assets |
|
(2) |
|
|
Disposal of investment |
|
6 |
|
|
Acquisition of businesses |
|
(15) |
|
|
Disposals of businesses - continuing operations |
|
|
320 |
|
Net cash-flow used in investing activities |
|
(55) |
271 |
|
|
|
|
|
|
Cash-flows from financing activities |
|
|
|
|
Proceeds from exercise of share options |
|
3 |
2 |
|
Purchase of own shares |
|
(15) |
(9) |
|
Dividends paid to equity shareholders |
|
(117) |
(114) |
|
Cash inflow/(outflow) from matured derivative financial instruments |
|
4 |
(2) |
|
Increase in borrowings |
|
|
1 |
|
Reduction and repayment of borrowings |
|
(132) |
(1) |
|
Net cash-flow used in financing activities |
|
(257) |
(123) |
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
(153) |
373 |
|
Cash and cash equivalents at beginning of the period |
|
781 |
430 |
|
Exchange differences |
|
(37) |
10 |
|
Cash and cash equivalents at end of the period |
|
591 |
813 |
|
Cash and cash equivalents at end of the period comprise: |
|
|
|
|
- cash at bank and in hand |
|
229 |
307 |
|
- short-term deposits |
|
362 |
509 |
|
- bank overdrafts |
|
|
(3) |
|
|
|
591 |
813 |
Reconciliation of net cash-flow to movement in net debt
|
|
|
Period ended |
Period ended |
|
Net debt at start of period |
9 |
(967) |
(978) |
|
Net (decrease)/increase in cash and cash equivalents |
|
(153) |
373 |
|
Increase in borrowings |
|
|
(1) |
|
Reduction and repayment of borrowings |
|
132 |
1 |
|
Movement in net debt resulting from cash-flows |
|
(21) |
373 |
|
Capitalisation, interest accruals and unwind of capitalisation of fees |
|
|
(6) |
|
Fair value movement from interest rate hedging |
|
3 |
12 |
|
Foreign exchange gains/(losses) |
|
24 |
(36) |
|
Movement in net debt in the period |
|
6 |
343 |
|
Net debt at end of period |
9 |
(961) |
(635) |
Notes to the condensed interim financial statements
1 Basis of preparation
The financial information for the period ended
The financial information included in this announcement has been prepared on a going concern basis using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted by the
The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended
Accounting policies
The same accounting policies, estimates, presentation and methods of computation are followed in the half year report as applied in the Group's latest annual audited financial statements.
A number of new standards and amendments to standards and interpretations have been issued but are not yet effective for the current accounting period. None of these are expected to have a material impact on the consolidated financial statements of the Group, except the following set out below:
-- IFRS 9 - Financial Instruments, is effective for the Group's year ending
Receivables provisioning will move from an incurred to an expected loss model, accelerating the recognition of provisions for credit risk, impacting the timing and value of provision recognition on higher risk balances. At
-- IFRS 15 - Revenue from contracts with customers, is effective for the Group's year ending
The Group is undertaking a detailed contract level review of the impact of IFRS 15 across all revenue streams and is making good progress in developing policies and disclosures. Further details of the impact of IFRS 15 will be provided later in the year.
-- IFRS 16 - Leases, is effective for the Group's year ending
Having assessed the principal risks discussed above, the Directors believe that the Group is well placed to manage its financing and other business risks satisfactorily, and have a reasonable expectation that the Group have adequate resources to continue in operation for at least 12 months from the signing date of these financial statements. They therefore consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements.
The interim financial information was approved by the Board on
Presentation of results
In order to provide users of the accounts with a clear and consistent presentation of the underlying performance of the Group's ongoing trading activity, the Group presents its results in the income statement with amounts relating to costs of acquisitions (including integration costs) and disposals (including transition services), amortisation of acquired intangibles, impairments, legacy liabilities, material one-off items and certain re-measurements in a separate column. See note 3 for a breakdown of the items excluded from headline operating profit and headline finance costs.
Measures of the underlying performance of the Group's ongoing trading activity are described as 'headline' and used by management to measure and monitor performance. See note 2 for disclosures of headline operating profit and note 17 for more information about the calculation of return on capital employed and credit metrics.
In addition, the Group reports underlying growth rates for sales and profit measures, which exclude the impact of acquisitions, divestments, presentational changes and the effects of foreign exchange translation, by making the following adjustments:
• Exclude acquisitions from the current period for the first 12 months of ownership;
• Exclude the divested businesses performance after the date of disposal from comparative period;
• Include restructuring and pension administration costs as headline items for both the current and comparative periods; and
• Retranslate the comparative to current year exchange rates before calculating growth measures.
2 Segment information
Analysis by operating segment
The Group is organised into five divisions: John Crane, Smiths Medical, Smiths Detection, Smiths Interconnect and Flex-Tek. These divisions design and manufacture the following products:
· John Crane - mechanical seals, seal support systems, power transmission couplings and specialised filtration systems;
· Smiths Medical - infusion systems, vascular access products (including safety needles), patient airway and temperature management equipment and specialised devices in areas of diagnostics and emergency patient transport;
· Smiths Detection - sensors and systems that detect and identify explosives, narcotics, weapons, chemical agents, biohazards and contraband;
· Smiths Interconnect - specialised electronic and radio frequency board-level and waveguide devices, connectors, cables, test sockets and sub-systems used in high-speed, high reliability, secure connectivity applications;
· Flex-Tek - engineered components, flexible hosing and rigid tubing which heat and move fluids and gases.
The position and performance of each division is reported at each Board meeting to the Board of directors. This information is prepared using the same accounting policies as the consolidated financial information except that the Group uses headline operating profit to monitor divisional results and operating assets to monitor divisional position. See note 3 for an explanation of which items are excluded from headline profit measures. Intersegment sales and transfers are charged at arm's length prices.
Segment trading performance
|
|
|
Period ended 31 January 2018 |
|||||
|
|
John Crane |
Smiths |
Smiths |
Smiths Interconnect |
Flex-Tek |
Corporate |
Total |
|
Revenue |
428 |
451 |
367 |
135 |
168 |
|
1,549 |
|
Divisional headline operating profit |
91 |
82 |
59 |
14 |
31 |
|
277 |
|
Corporate headline operating costs |
|
|
|
|
|
(30) |
(30) |
|
Headline operating profit/(loss) |
91 |
82 |
59 |
14 |
31 |
(30) |
247 |
|
Items excluded from headline measures (note 3) |
(5) |
(3) |
(20) |
(3) |
8 |
5 |
(18) |
|
Operating profit/(loss) |
86 |
79 |
39 |
11 |
39 |
(25) |
229 |
|
Headline operating margin |
21.3% |
18.1% |
16.2% |
10.3% |
18.6% |
|
16.0% |
|
|
|
Period ended 31 January 2017 |
|||||
|
|
John Crane |
Smiths |
Smiths |
Smiths Interconnect |
Flex-Tek |
Corporate |
Total |
|
Revenue |
435 |
473 |
318 |
230 |
161 |
|
1,617 |
|
Divisional headline operating profit |
90 |
99 |
54 |
26 |
30 |
|
299 |
|
Corporate headline operating costs |
|
|
|
|
|
(22) |
(22) |
|
Headline operating profit/(loss) |
90 |
99 |
54 |
26 |
30 |
(22) |
277 |
|
Items excluded from headline measures (note 3) |
(7) |
(10) |
(7) |
(3) |
7 |
(6) |
(26) |
|
Profit on disposal of businesses |
4 |
100 |
|
22 |
|
|
126 |
|
Operating profit/(loss) |
87 |
189 |
47 |
45 |
37 |
(28) |
377 |
|
Headline operating margin |
20.8% |
21.0% |
16.8% |
11.3% |
18.3% |
|
17.1% |
Segment assets and liabilities
Segment assets
|
|
31 January 2018 |
||||||
|
|
John Crane |
Smiths |
Smiths |
Smiths Interconnect |
Flex-Tek |
Corporate and |
Total |
|
Property, plant, equipment, development projects, |
83 |
220 |
101 |
33 |
33 |
19 |
489 |
|
Inventory, trade and other receivables |
309 |
241 |
367 |
100 |
102 |
24 |
1,143 |
|
Segment assets |
392 |
461 |
468 |
133 |
135 |
43 |
1,632 |
|
|
31 July 2017 |
||||||
|
|
John Crane |
Smiths |
Smiths |
Smiths Interconnect |
Flex-Tek |
Corporate and |
Total |
|
Property, plant, equipment, development projects, |
96 |
233 |
107 |
40 |
35 |
20 |
531 |
|
Inventory, trade and other receivables |
337 |
256 |
389 |
118 |
104 |
27 |
1,231 |
|
Segment assets |
433 |
489 |
496 |
158 |
139 |
47 |
1,762 |
Segment liabilities
|
|
31 January 2018 |
||||||
|
|
John Crane |
Smiths |
Smiths |
Smiths Interconnect |
Flex-Tek |
Corporate and |
Total |
|
Divisional liabilities |
(110) |
(102) |
(242) |
(38) |
(37) |
|
(529) |
|
Corporate and non-headline liabilities |
|
|
|
|
|
(348) |
(348) |
|
Segment liabilities |
(110) |
(102) |
(242) |
(38) |
(37) |
(348) |
(877) |
|
|
31 July 2017 |
||||||
|
|
John Crane |
Smiths |
Smiths |
Smiths Interconnect |
Flex-Tek |
Corporate and |
Total |
|
Divisional liabilities |
(124) |
(120) |
(246) |
(48) |
(39) |
|
(577) |
|
Corporate and non-headline liabilities |
|
|
|
|
|
(393) |
(393) |
|
Segment liabilities |
(124) |
(120) |
(246) |
(48) |
(39) |
(393) |
(970) |
Non-headline liabilities comprise provisions and accruals relating to non-headline items, acquisitions and disposals.
Reconciliation of segment assets and liabilities to statutory assets and liabilities
|
|
|
Assets |
|
Liabilities |
||
|
|
|
31 January |
31 July |
|
31 January |
31 July |
|
Segment assets and liabilities |
|
1,632 |
1,762 |
|
(877) |
(970) |
|
Goodwill and acquired intangibles |
|
1,728 |
1,820 |
|
|
|
|
Derivatives |
|
97 |
69 |
|
(14) |
(12) |
|
Current and deferred tax |
|
236 |
334 |
|
(127) |
(156) |
|
Retirement benefit assets and obligations |
|
383 |
390 |
|
(146) |
(166) |
|
Cash and borrowings |
|
591 |
782 |
|
(1,552) |
(1,749) |
|
Assets and liabilities of business held for sale |
|
19 |
|
|
(4) |
|
|
Statutory assets and liabilities |
|
4,686 |
5,157 |
|
(2,720) |
(3,053) |
Segment capital employed
Capital employed is a non-statutory measure of invested resources. It comprises statutory net assets adjusted to add goodwill recognised directly in reserves in respect of subsidiaries acquired before
The 12-month rolling average capital employed by division, which Smiths use to calculate divisional return on capital employed, is set out below:
|
|
|
31 January 2018 |
|||||
|
|
John Crane |
Smiths |
Smiths |
Smiths Interconnect |
Flex-Tek |
Corporate |
Total |
|
Average total capital employed |
874 |
1,212 |
1,027 |
385 |
185 |
8 |
3,691 |
|
Return on capital employed |
23.4% |
15.8% |
10.6% |
11.4% |
36.4% |
|
15.2% |
|
|
|
31 January 2017 |
|||||
|
|
John Crane |
Smiths |
Smiths |
Smiths Interconnect |
Flex-Tek |
Corporate |
Total |
|
Average total capital employed |
908 |
1,246 |
629 |
562 |
175 |
(30) |
3,490 |
|
Return on capital employed |
21.3% |
16.3% |
14.7% |
11.3% |
32.8% |
|
16.3% |
Analysis of revenue
The revenue for the main product and service lines for each division is:
|
John Crane |
|
|
|
|
Original |
Aftermarket |
Total |
|
Revenue period ended 31 January 2018 |
|
|
|
|
144 |
284 |
428 |
|
Revenue period ended 31 January 2017 |
|
|
|
|
158 |
277 |
435 |
|
Smiths Medical |
|
|
Infusion |
Vascular |
Vital care |
Specialty |
Total |
|
Revenue period ended 31 January 2018 |
|
|
149 |
150 |
122 |
30 |
451 |
|
Revenue period ended 31 January 2017 |
|
|
150 |
154 |
134 |
35 |
473 |
|
Smiths Detection |
|
|
Air |
Ports and |
Military |
Urban |
Total |
|
Revenue period ended 31 January 2018 |
|
|
241 |
31 |
11 |
84 |
367 |
|
Revenue period ended 31 January 2017 |
|
|
140 |
43 |
45 |
90 |
318 |
|
Smiths Interconnect |
|
|
|
Connectors |
Microwave |
Power |
Total |
|
Revenue period ended 31 January 2018 |
|
|
|
95 |
40 |
|
135 |
|
Revenue period ended 31 January 2017 |
|
|
|
83 |
100 |
47 |
230 |
|
Flex-Tek |
|
|
Fluid management |
Flexible |
Heat |
Construction |
Total |
|
Revenue period ended 31 January 2018 |
|
|
41 |
31 |
41 |
55 |
168 |
|
Revenue period ended 31 January 2017 |
|
|
39 |
30 |
37 |
55 |
161 |
3 Non-statutory profit measures
Headline profit measures
The Group seeks to present a measure of underlying performance which is not impacted by material non-recurring items or items considered non-operational in nature. This measure of profit is described as 'headline' and is used by management to measure and monitor performance. See the disclosures on presentation of results in accounting policies for an explanation of the adjustments. The items excluded from 'headline' are referred to as 'non-headline' items.
Non-headline operating profit items
The non-headline items included in statutory operating profit are as follows:
|
|
Notes |
Period ended |
Period ended |
|
Restructuring programmes |
|
|
(15) |
|
Integration programmes |
|
(12) |
|
|
Acquisition cost provision release/(accrual) |
|
2 |
(6) |
|
Provision for Titeflex Corporation subrogation claims |
11 |
8 |
8 |
|
Provision for John Crane, Inc. asbestos litigation |
11 |
(4) |
(3) |
|
Administration costs for post-retirement benefit schemes |
|
|
(4) |
|
Settlement gain/(losses) on post-retirement benefits schemes |
6 |
4 |
|
|
Amortisation of acquired intangible assets |
7 |
(15) |
(6) |
|
Profit/(Loss) on disposal of businesses |
|
(1) |
126 |
|
Non-headline items in operating profit |
|
(18) |
100 |
Material items for the period ended
Integration programmes comprise
A provision release of
The operating charge in respect of
Non-headline finance costs items
|
|
Notes |
Period ended |
Period ended |
|
Adjustment to discounted provisions |
11 |
(3) |
(3) |
|
Other finance income - retirement benefits |
6 |
3 |
1 |
|
Non-headline items in finance costs |
|
|
(2) |
|
Non-headline (loss)/profit before taxation |
|
(18) |
98 |
Non-headline taxation items
A non-headline tax charge of
4 Earnings per share
Basic earnings per share are calculated by dividing the profit for the period attributable to equity shareholders of the Parent Company by the average number of ordinary shares in issue during the year.
|
|
Period ended |
Period ended |
|
Profit attributable to equity shareholders for the period |
|
|
|
- total |
103 |
302 |
|
Average number of shares in issue during the period |
395,690,311 |
395,383,836 |
Diluted earnings per share are calculated by dividing the profit attributable to ordinary shareholders by 401,246,135 (period ended
A reconciliation of basic and headline earnings per share is as follows:
|
|
Period ended 31 January 2018 |
|
Period ended 31 January 2017 |
||
|
|
£m |
EPS |
|
£m |
EPS |
|
Profit attributable to equity shareholders of the Parent Company |
103 |
26.0 |
|
302 |
76.5 |
|
Exclude: |
|
|
|
|
|
|
Non-headline items and related tax (note 3) |
57 |
14.4 |
|
(121) |
(30.8) |
|
Headline profit attributable to equity shareholders of the Parent Company |
160 |
40.4 |
|
181 |
45.7 |
|
Statutory EPS - diluted (p) |
|
25.7 |
|
|
75.6 |
|
Headline EPS - diluted (p) |
|
39.9 |
|
|
45.2 |
5 Taxation
The interim tax rate of 47.5% (
A reconciliation of total and headline tax charge is as follows:
|
|
Period ended 31 January 2018 |
|
Period ended 31 January 2017 |
||
|
|
Continuing |
Tax rate |
|
Continuing |
Tax rate |
|
Profit before taxation |
199 |
|
|
346 |
|
|
Taxation |
(95) |
47.5% |
|
(43) |
12.4% |
|
Adjustments |
|
|
|
|
|
|
Non-headline items excluded from profit before taxation (note 3) |
(18) |
|
|
(98) |
|
|
Taxation on non-headline items and non-headline tax adjustment |
(39) |
|
|
23 |
|
|
Headline |
|
|
|
|
|
|
Headline profit before taxation |
217 |
|
|
248 |
|
|
Taxation on headline profit |
(56) |
25.8% |
|
(66) |
26.5% |
The changes in the value of the net tax asset/(liability) in the period were:
|
|
|
|
|
Current |
Deferred |
Net tax |
|
At 31 July 2017 |
|
|
|
17 |
161 |
178 |
|
Foreign exchange gains and losses |
|
|
|
(2) |
(6) |
(8) |
|
Credit/(charge) to income statement |
|
|
|
(56) |
6 |
(50) |
|
Exceptional one-off impact of US tax reform |
|
|
|
(18) |
(27) |
(45) |
|
Debit to reserves |
|
|
|
|
(4) |
(4) |
|
Tax paid |
|
|
|
38 |
|
38 |
|
At 31 January 2018 |
|
|
|
(21) |
130 |
109 |
The deferred tax charge to reserves derives from the revaluation of deferred tax related to US pension plans. The exceptional one-off impact to US tax reform is discussed in more detail below.
Developments in the Group tax position
US Tax Reform
The Tax Cuts and Jobs Act enacted on
FII GLO
Claims related to the impact of the Foreign Income Dividends (FID) regime are included in the FII GLO litigation claims the Group issued in 2009. Under the final relevant ECJ decision, FID claims are now conclusively successful and the only outstanding matters that could affect restitution payments are court decisions awaited regarding the amount of interest (compound or simple) and withholding tax. Accordingly the Group made its claim in respect of FID's and received
EU Commission Investigation regarding Claims for Partial (75%) Exemption for Profits from qualifying loan relationships under Chapter 9 FA2012
In
6 Post retirement benefits
The Group provides post-retirement benefits to employees in a number of countries throughout the world. The arrangements include defined benefit and defined contribution plans and, mainly in the
Where any individual scheme shows a surplus under IAS 19, this is disclosed on the balance sheet as a retirement benefit asset. The IAS 19 surplus of any one scheme is not available to fund the IAS 19 deficit of another scheme. The retirement benefit asset arises from the rights of the employers to recover the surplus at the end of the life of the scheme. The schemes in surplus are mature, with a duration averaged over all scheme participants of 17 years. However 35% of the liabilities of these schemes are expected to be paid after 2038.
The amounts recognised in the balance sheet were as follows:
|
|
|
31 January |
31 July |
|
Market value of funded plan assets |
|
4,189 |
4,259 |
|
Present value of funded scheme liabilities |
|
(3,825) |
(3,905) |
|
Unfunded pension plans |
|
(110) |
(111) |
|
Postretirement healthcare |
|
(17) |
(19) |
|
Net retirement benefit asset |
|
237 |
224 |
|
Retirement benefit assets |
|
383 |
390 |
|
Retirement benefit obligations |
|
(146) |
(166) |
|
Net retirement benefit asset |
|
237 |
224 |
The principal assumptions used in updating the valuations are set out below:
|
|
31 January 2018 |
|
31 July 2017 |
||
|
|
UK |
US |
|
UK |
US |
|
Rate of increase in salaries |
n/a |
n/a |
|
n/a |
n/a |
|
Rate of increase for active deferred members |
4.2% |
n/a |
|
4.1% |
n/a |
|
Rate of increase in pensions in payment |
3.3% |
n/a |
|
3.2% |
n/a |
|
Rate of increase in deferred pensions |
3.3% |
n/a |
|
3.2% |
n/a |
|
Discount rate |
2.6% |
3.80% |
|
2.6% |
3.85% |
|
Inflation rate |
3.3% |
n/a |
|
3.2% |
n/a |
|
Healthcare cost increases |
4.7% |
n/a |
|
4.2% |
n/a |
The methods for setting the mortality assumptions for the
Present value of funded scheme liabilities and assets for the main
|
|
31 January 2018 - £m |
|
31 July 2017 - £m |
||||
|
|
SIPS |
TIGPS |
US schemes |
|
SIPS |
TIGPS |
US schemes |
|
Present value of funded scheme liabilities |
|
|
|
|
|
|
|
|
- Active deferred members |
(61) |
(60) |
(95) |
|
(81) |
(92) |
(101) |
|
- Deferred members |
(847) |
(616) |
(121) |
|
(891) |
(625) |
(160) |
|
- Pensioners |
(1,110) |
(826) |
(29) |
|
(1,053) |
(809) |
(31) |
|
Present value of funded scheme liabilities |
(2,018) |
(1,502) |
(245) |
|
(2,025) |
(1,526) |
(292) |
|
Market value of scheme assets |
2,227 |
1,675 |
234 |
|
2,238 |
1,703 |
266 |
|
Surplus/(deficit) |
209 |
173 |
(11) |
|
213 |
177 |
(26) |
SIPS uses repurchase arrangements, total return swaps, inflation swaps and interest rate swaps to hedge the interest and inflation risks of the scheme liabilities. At
Contributions
Group contributions to the funded defined benefit pension plans totalled
Contributions in the second half of the year are expected to be:
The changes in the present value of the net pension balance in the period were:
|
|
|
|
Period ended |
Year ended |
|
At beginning of period |
|
|
224 |
80 |
|
Exchange adjustment |
|
|
4 |
(6) |
|
Current service cost |
|
|
(2) |
(4) |
|
Scheme administration costs |
|
|
(3) |
(7) |
|
Past service cost, curtailments and settlements |
|
|
5 |
(1) |
|
Finance credits/(charges) - retirement benefits |
|
|
3 |
2 |
|
Contributions by employer |
|
|
30 |
105 |
|
Actuarial (loss)/gain |
|
|
(24) |
55 |
|
Net retirement benefit asset |
|
|
237 |
224 |
Actuarial losses are entirely due to a loss of
7 Intangible assets
|
|
Notes |
Goodwill |
Development |
Acquired |
Software, |
Total |
|
Cost |
|
|
|
|
|
|
|
At 31 July 2017 |
|
1,658 |
330 |
574 |
206 |
2,768 |
|
Exchange adjustments |
|
(92) |
(19) |
(35) |
(8) |
(154) |
|
Business combinations |
12 |
22 |
|
6 |
|
28 |
|
Additions |
|
|
14 |
|
5 |
19 |
|
Disposals |
|
|
|
|
(8) |
(8) |
|
Assets held for sale |
|
(1) |
|
(28) |
|
(29) |
|
At 31 January 2018 |
|
1,587 |
325 |
517 |
195 |
2,624 |
|
Amortisation |
|
|
|
|
|
|
|
At 31 July 2017 |
|
88 |
180 |
324 |
161 |
753 |
|
Exchange adjustments |
|
(5) |
(11) |
(18) |
(5) |
(39) |
|
Charge for the period |
|
|
14 |
15 |
9 |
38 |
|
Disposals |
|
|
|
|
(8) |
(8) |
|
Assets held for sale |
|
|
|
(28) |
|
(28) |
|
At 31 January 2018 |
|
83 |
183 |
293 |
157 |
716 |
|
Net book value at 31 January 2018 |
|
1,504 |
142 |
224 |
38 |
1,908 |
|
Net book value at 31 July 2017 |
|
1,570 |
150 |
250 |
45 |
2,015 |
8 Property, plant and equipment
|
|
Land and |
Plant and |
Fixtures, |
Total |
|
Cost |
|
|
|
|
|
At 31 July 2017 |
204 |
635 |
209 |
1,048 |
|
Exchange adjustments |
(10) |
(33) |
(9) |
(52) |
|
Additions |
3 |
20 |
5 |
28 |
|
Disposals |
(4) |
(21) |
(16) |
(41) |
|
Assets held for sale |
(1) |
(19) |
(2) |
(22) |
|
At 31 January 2018 |
192 |
582 |
187 |
961 |
|
Depreciation |
|
|
|
|
|
At 31 July 2017 |
107 |
461 |
165 |
733 |
|
Exchange adjustments |
(5) |
(24) |
(7) |
(36) |
|
Charge for the period |
4 |
16 |
7 |
27 |
|
Disposals |
(3) |
(20) |
(15) |
(38) |
|
Assets held for sale |
(1) |
(14) |
(1) |
(16) |
|
At 31 January 2018 |
102 |
419 |
149 |
670 |
|
Net book value at 31 January 2018 |
90 |
163 |
38 |
291 |
|
Net book value at 31 July 2017 |
97 |
174 |
44 |
315 |
9 Borrowings and net debt
This note sets out the calculation of net debt, an important measure in explaining our financing position. The net debt figure includes accrued interest and the fair value adjustments relating to hedge accounting.
|
|
31 January |
31 July |
|
Cash and cash equivalents |
|
|
|
Net cash and deposits |
591 |
782 |
|
Long-term borrowings |
|
|
|
$250m 7.20% US$ Guaranteed notes 2019 |
(176) |
(189) |
|
$400m 3.625% US$ Guaranteed notes 2022 |
(276) |
(301) |
|
€600m 1.25% Eurobond 2023 |
(519) |
(533) |
|
€650m 2.00% Eurobond 2027 |
(559) |
(574) |
|
Bank and other loans |
(1) |
(1) |
|
|
(1,531) |
(1,598) |
|
Short-term borrowings |
|
|
|
Bank overdrafts |
|
(1) |
|
$175m 7.37% US$ Private placement 2018 |
|
(133) |
|
Bank and other loans |
(1) |
(1) |
|
Interest accrual |
(20) |
(16) |
|
|
(21) |
(151) |
|
Borrowings |
(1,552) |
(1,749) |
|
Net debt |
(961) |
(967) |
On
Movements in net debt
|
|
|
|
Net cash |
Other |
Long-term borrowings |
Net debt |
|
At 31 July 2017 |
|
|
781 |
(150) |
(1,598) |
(967) |
|
Foreign exchange gains and losses |
|
|
(37) |
1 |
60 |
24 |
|
Net cash outflow |
|
|
(153) |
|
|
(153) |
|
Repayment and drawdown of borrowings |
|
|
|
132 |
|
132 |
|
Capitalisation, interest accruals and unwind of capitalisation of fees |
|
|
|
1 |
(1) |
|
|
Fair value movement from interest rate hedging |
|
|
|
(5) |
8 |
3 |
|
At 31 January 2018 |
|
|
591 |
(21) |
(1,531) |
(961) |
10 Fair value of financial instruments
|
|
Carrying value |
Fair value |
Carrying value |
Fair value |
|
Level 2 valuations |
|
|
|
|
|
Financial assets - other investments |
13 |
13 |
11 |
11 |
|
Financial derivatives - assets |
97 |
97 |
69 |
69 |
|
Borrowings |
(1,552) |
(1,581) |
(1,749) |
(1,792) |
|
Financial derivatives - liabilities |
(14) |
(14) |
(12) |
(12) |
|
Level 3 valuations |
|
|
|
|
|
Financial assets - other investments |
5 |
5 |
10 |
10 |
Derivatives are valued at the net present value of the future cash-flows calculated using market exchange rates and yield curves at the balance sheet date. Borrowings are valued at the net present value of the future cash-flows using credit spreads and yield curves derived from market data.
Cash, trade receivables and trade payables are excluded from this table because carrying value is a reasonable approximation to fair value for all these assets and liabilities.
11 Provisions and contingent liabilities
|
|
|
Trading |
|
Non-headline and legacy |
|
Total |
||
|
|
|
£m |
|
John Crane, Inc. |
Titeflex |
Other |
|
£m |
|
Current liabilities |
|
25 |
|
30 |
21 |
9 |
|
85 |
|
Non-current liabilities |
|
6 |
|
207 |
63 |
7 |
|
283 |
|
At 31 July 2017 |
|
31 |
|
237 |
84 |
16 |
|
368 |
|
Exchange adjustments |
|
(2) |
|
(16) |
(5) |
|
|
(23) |
|
Provision charged |
|
9 |
|
2 |
|
6 |
|
17 |
|
Provision released |
|
(5) |
|
|
(8) |
(2) |
|
(15) |
|
Unwind of provision discount |
|
|
|
2 |
1 |
|
|
3 |
|
Utilisation |
|
(6) |
|
(11) |
(4) |
(3) |
|
(24) |
|
At 31 January 2018 |
|
27 |
|
214 |
68 |
17 |
|
326 |
|
Current liabilities |
|
25 |
|
31 |
15 |
10 |
|
81 |
|
Non-current liabilities |
|
2 |
|
183 |
53 |
7 |
|
245 |
|
At 31 January 2018 |
|
27 |
|
214 |
68 |
17 |
|
326 |
Warranty provision and product liability
At
Commercial disputes and litigation in respect of ongoing business activities
The Group has on occasion been required to take legal action to protect its intellectual property and other rights against infringement. It has also had to defend itself against proceedings brought by other parties, including product liability and insurance subrogation claims. Provision is made for any expected costs and liabilities in relation to these proceedings where appropriate, though there can be no guarantee that such provisions (which may be subject to potentially material revision from time to time) will accurately predict the actual costs and liabilities that may be incurred.
Contingent liabilities
In the ordinary course of its business, the Group is subject to commercial disputes and litigation such as government price audits, product liability claims, employee disputes and other kinds of lawsuits, and faces different types of legal issues in different jurisdictions. The high level of activity in the US, for example, exposes the Group to the likelihood of various types of litigation commonplace in that country, such as 'mass tort' and 'class action' litigation, legal challenges to the scope and validity of patents, and product liability and insurance subrogation claims. These types of proceedings (or the threat of them) are also used to create pressure to encourage negotiated settlement of disputes. Any claim brought against the Group (with or without merit), could be costly to defend. These matters are inherently difficult to quantify. In appropriate cases a provision is recognised based on best estimates and management judgement but there can be no guarantee that these provisions (which may be subject to potentially material revision from time to time) will result in an accurate prediction of the actual costs and liabilities that may be incurred. There are also contingent liabilities in respect of litigation for which no provisions are made.
The Group operates in some markets where the risk of unethical or corrupt behaviour is material and has procedures, including an employee 'Ethics Alertline', to help it identify potential issues. Such procedures will, from time to time, give rise to internal investigations, sometimes conducted with external support, to ensure that the Group properly understands risks and concerns and can take steps both to manage immediate issues and to improve its practices and procedures for the future. The Group also co-operates with relevant authorities in investigating business conduct issues whenever requested to. The Group is not aware of any issues which are expected to generate material financial exposures.
Non-headline and legacy
The table below summarises the JCI claims experience over the last 38 years since the start of this litigation:
|
|
|
|
|
31 January 2018 |
31 July 2017 |
|
JCI claims experience |
|
|
|
|
|
|
Claims against JCI that have been dismissed |
|
|
|
275,000 |
273,000 |
|
Claims JCI is currently a defendant in |
|
|
|
50,000 |
50,000 |
|
Cumulative final judgments, after appeals, against JCI since 1979 |
|
|
|
140 |
138 |
|
Cumulative value of awards ($'m) since 1979 |
|
|
|
164 |
160 |
While JCI has excess liability insurance, the availability of such insurance and scope of the cover are currently the subject of litigation in
The provision is based on past history and published tables of asbestos incidence projections and is determined using asbestos valuation experts,
The JCI asbestos litigation provision has developed in the period as follows:
|
|
Period ended |
Year ended |
|
John Crane, Inc. litigation provision |
|
|
|
Gross provision |
238 |
260 |
|
Discount |
(24) |
(23) |
|
Discounted provision |
214 |
237 |
|
Operating profit charge/(credit) |
|
|
|
Increased provision for adverse judgments and legal defence costs |
8 |
17 |
|
Decreased provision for change in US risk free rates |
(6) |
(13) |
|
Litigation management expense - legal fees in connection with litigation against insurers and defence strategy |
2 |
11 |
|
Recoveries from insurers |
|
(6) |
|
Operating profit charge |
4 |
9 |
|
Cash-flow |
|
|
|
Provision utilisation |
(11) |
(24) |
|
John Crane, Inc. litigation spend |
13 |
32 |
The reduction to the provision in the period is principally due to foreign exchange.
The provision may be subject to potentially material revision from time to time if new information becomes available as a result of future events. There can be no guarantee that the assumptions used to estimate the provision will result in an accurate prediction of the actual costs that may be incurred because of the significant uncertainty associated with the future level of asbestos claims and of the costs arising out of related litigation.
Statistical reliability of projections over the ten year time horizon
In order to evaluate the statistical reliability of the projections, a population of outcomes is modelled using randomised verdict outcomes. This generated a distribution of outcomes with future spend at the 5th percentile of
Sensitivity of the projections to changes in the time horizon used
If the asbestos litigation environment becomes more volatile and uncertain, for example if defendants are successful in legal cases against plaintiff law firms and this impacts the nature of claims filed, the time horizon over which the provision can be calculated may reduce. Conversely, if the environment became more stable, or JCI changed approach and committed to long term settlement arrangements, the time period covered by the provision might be extended.
The projections use a 10 year time horizon. Reducing the time horizon by one year would reduce the provision by
We consider, after obtaining advice from
Provision has been made for future defence costs and the cost of adverse judgments expected to occur. JCI's claims experience is significantly impacted by other factors which influence the US litigation environment. These can include: changing approaches on the part of the plaintiffs' bar; changing attitudes amongst the judiciary at both trial and appellate levels; and legislative and procedural changes in both the state and federal court systems. As a result, whilst the Group anticipates that asbestos litigation will continue beyond the period covered by the provision, the uncertainty surrounding the US litigation environment beyond this point is such that the costs cannot be reliably estimated.
Although the methodology used to calculate the JCI litigation provision can in theory be applied to show claims and costs for longer periods, the Directors consider, based on advice from
In recent years
The continuing progress of claims and the pattern of settlement, together with the recent market place activity, provide sufficient evidence to recognise a liability in the accounts. Therefore provision has been made for the costs which the Group is expected to incur in respect of future claims to the extent that such costs can be reliably estimated.
The assumptions made in assessing the appropriate level of provision, which are based on past experience, include:
· the period over which expenditure can be reliably estimated;
· the number of future settlements;
· the average amount of settlements;
· and the impact of statutes of repose and safe installation initiatives on the expected number of future claims.
The provision of
|
|
31 January |
31 July |
|
Gross provision |
112 |
136 |
|
Discount |
(44) |
(52) |
|
Discounted pre-tax provision |
68 |
84 |
|
Deferred tax |
(17) |
(33) |
|
Discounted post-tax provision |
51 |
51 |
The significant uncertainty associated with the future level of claims and of the costs arising out of related litigation mean that there can be no guarantee that the assumptions used to estimate the provision will result in an accurate prediction of the actual costs that may be incurred. Therefore the provision may be subject to potentially material revision from time to time, if new information becomes available as a result of future events.
The projections incorporate a long-term assumption regarding the impact of safe installation initiatives on the level of future claims. If the assumed annual benefit of bonding and grounding initiatives were 0.5% higher, the provision would be
Other non-headline and legacy
Legacy provisions comprise provisions relating to former business activities and properties no longer used by the Group. Non-headline provisions comprise all provisions which were disclosed as non-headline items when they were charged to the income statement.
These provisions cover non-headline reorganisation, vacant properties, disposal indemnities and litigation in respect of old products and discontinued business activities.
12 Acquisitions
On
The intangible assets recognised on this acquisition comprise technology and customer relationships. Goodwill represents synergies and the value of the expertise in the assembled workforce. The goodwill recognised is expected to be deductible for tax purposes.
From the date of acquisition to
The provisional balance sheet at the date of acquisition is:
|
|
|
Tutco Sureheat |
|
|
|
£m |
|
Non-current assets |
|
|
|
- acquired intangible assets |
|
6 |
|
Current assets |
|
|
|
- inventory |
|
1 |
|
- trade and other receivables |
|
1 |
|
Net assets acquired |
|
8 |
|
Goodwill on current year acquisitions |
|
7 |
|
Total consideration |
|
15 |
|
Cash paid during the year |
|
15 |
|
Total consideration |
|
15 |
Acquisitions in previous years
The Group acquired the Morpho Detection business from Safran S. A. on
13 Businesses held for sale
At
|
|
|
|
John Crane Bearings |
|
Non-current assets |
|
|
|
|
Tangible assets |
|
|
6 |
|
Intangible assets |
|
|
1 |
|
|
|
|
7 |
|
Current assets |
|
|
|
|
Inventories |
|
|
7 |
|
Trade and other receivables |
|
|
5 |
|
Total assets of business held for sale |
|
|
19 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
|
(4) |
|
Total liabilities of business held for sale |
|
|
(4) |
14 Dividends
The following dividends were declared and paid in the period:
|
|
Period ended |
Period ended |
|
Ordinary final dividend of 29.70p for 2017 (2016: 28.75p) paid 17 November 2017 |
117 |
114 |
An interim dividend of
15 Cash-flow from operating activities
|
|
|
Period ended 31 January 2018 |
|
Period ended 31 January 2017 |
||||
|
|
|
Headline |
Non-headline |
Total |
|
Headline |
Non-headline |
Total |
|
Operating profit |
|
247 |
(18) |
229 |
|
277 |
100 |
377 |
|
Amortisation of intangible assets |
|
21 |
17 |
38 |
|
23 |
6 |
29 |
|
Depreciation of property, plant and equipment |
|
27 |
|
27 |
|
29 |
|
29 |
|
Loss on disposal of property, plant and equipment |
|
1 |
|
1 |
|
4 |
|
4 |
|
Profit on disposal of business |
|
|
|
|
|
|
(126) |
(126) |
|
Profit on disposal of investment |
|
|
(1) |
(1) |
|
|
|
|
|
Share-based payment expense |
|
5 |
|
5 |
|
8 |
|
8 |
|
Retirement benefits |
|
2 |
(32) |
(30) |
|
1 |
(39) |
(38) |
|
(Increase)/decrease in inventories |
|
(19) |
1 |
(18) |
|
(2) |
|
(2) |
|
Decrease/(increase) in trade and other receivables |
|
33 |
|
33 |
|
62 |
5 |
67 |
|
(Decrease)/increase in trade and other payables |
|
(30) |
(1) |
(31) |
|
(28) |
|
(28) |
|
(Decrease)/increase in provisions |
|
(2) |
(20) |
(22) |
|
(5) |
(31) |
(36) |
|
Cash generated from operations |
|
285 |
(54) |
231 |
|
369 |
(85) |
284 |
|
Interest paid |
|
(34) |
(5) |
(39) |
|
(23) |
|
(23) |
|
Interest received |
|
3 |
2 |
5 |
|
1 |
9 |
10 |
|
Tax paid |
|
(38) |
|
(38) |
|
(46) |
|
(46) |
|
Net cash inflow from operating activities |
|
216 |
(57) |
159 |
|
301 |
(76) |
225 |
The split of tax payments between headline and non-headline only considers the nature of payments made. No adjustment has been made for reductions in tax payments required as a result of tax relief received on non-headline items.
Headline cash measures
The Group measure of headline operating cash excludes interest and tax and includes capital expenditure supporting organic growth.
|
|
Period ended 31 January 2018 |
|
Period ended 31 January 2017 |
||||
|
|
Headline |
Non-headline |
Total |
|
Headline |
Non-headline |
Total |
|
Net cash inflow from operating activities |
216 |
(57) |
159 |
|
301 |
(76) |
225 |
|
Include: |
|
|
|
|
|
|
|
|
Expenditure on capitalised development, other intangible assets and property, plant and equipment |
(46) |
|
(46) |
|
(51) |
|
(51) |
|
Disposals of property, plant and equipment |
2 |
|
2 |
|
2 |
|
2 |
|
Investment in financial assets relating to operating activities |
(2) |
|
(2) |
|
|
|
|
|
Free cash-flow |
170 |
(57) |
113 |
|
252 |
(76) |
176 |
|
Exclude: |
|
|
|
|
|
|
|
|
Investment in financial assets relating to operating activities |
2 |
|
2 |
|
|
|
|
|
Interest paid |
34 |
5 |
39 |
|
23 |
|
23 |
|
Interest received |
(3) |
(2) |
(5) |
|
(1) |
(9) |
(10) |
|
Tax paid |
38 |
|
38 |
|
46 |
|
46 |
|
Headline operating cash-flow |
241 |
(54) |
187 |
|
320 |
(85) |
235 |
Reconciliation of free cash-flow to total movement in cash and cash-equivalents
|
|
Period ended |
Period ended |
|
Free cash-flow |
113 |
176 |
|
Acquisition of businesses |
(15) |
|
|
Disposal of businesses |
|
320 |
|
Disposal of investments |
6 |
|
|
Net cash-flow used in financing activities |
(257) |
(123) |
|
Net (decrease)/increase in cash and cash equivalents |
(153) |
373 |
16 Related party transactions
The related party transactions in the period were consistent with the nature and size of transactions disclosed in the Annual Report for the year ended
17 Non-statutory capital and credit metrics
In addition to the non-statutory profit measures explained in note 3, the Group calculates credit metrics and return on capital employed incorporating the same adjustments. See the disclosures on presentation of results in accounting policies for an explanation of the adjustments.
Return on capital employed (ROCE)
The Group's ROCE is calculated over a rolling 12-month period and is the percentage which headline operating profit comprises of monthly average capital employed.
See note 2 for the divisional headline operating profit and average divisional capital employed used to calculate divisional ROCE.
Capital employed
Capital employed is a non-statutory measure of invested resources. It comprises statutory net assets adjusted to add goodwill recognised directly in reserves in respect of subsidiaries acquired before
|
|
Notes |
31 January |
31 January |
|
Net assets |
|
1,966 |
1,832 |
|
Adjust for: |
|
|
|
|
Goodwill recognised directly in reserves |
|
787 |
801 |
|
Post-retirement benefit assets and liabilities |
6 |
(237) |
(51) |
|
Tax related to post retirement benefit assets and liabilities |
|
30 |
(18) |
|
John Crane, Inc. litigation provisions and related tax |
|
168 |
168 |
|
Titeflex Corporation litigation provisions and related tax |
|
51 |
59 |
|
Net debt |
9 |
961 |
635 |
|
Capital employed |
|
3,726 |
3,426 |
Return on capital employed
|
|
Notes |
31 January |
31 January |
|
Headline operating profit for previous twelve months |
|
560 |
570 |
|
Average capital employed |
2 |
3,691 |
3,490 |
|
ROCE |
|
15.2% |
16.3% |
Credit metrics
Headline earnings before interest, tax, depreciation and amortisation (Headline EBITDA)
|
|
Notes |
Period ended |
Period ended |
|
Headline operating profit |
2 |
247 |
277 |
|
Exclude: |
|
|
|
|
- depreciation |
8 |
27 |
29 |
|
- amortisation of development costs |
7 |
14 |
14 |
|
- amortisation of software, patents and intellectual property |
7 |
9 |
9 |
|
Headline EBITDA |
|
297 |
329 |
Annualised headline EBITDA
|
|
Notes |
Period ended |
Period ended |
|
Headline EBITDA for the period |
|
297 |
329 |
|
Add: |
|
|
|
|
- headline EBITDA for the previous year |
|
690 |
606 |
|
Exclude: |
|
|
|
|
- headline EBITDA for the first six months |
|
(329) |
(262) |
|
Annualised headline EBITDA |
|
658 |
673 |
|
|
Notes |
31 January |
31 January |
|
Annualised headline EBITDA |
|
658 |
673 |
|
Net debt |
9 |
961 |
635 |
|
Ratio of net debt to headline EBITDA |
|
1.5 |
0.9 |
This information is provided by RNS