14 March 2012

Interim results for the six months ended 28 January 2012

  Headline*     Statutory
  2012
£m
2011
£m
Growth Underlying# 2012
£m
2011
£m
Continuing activities            
Revenue 1,415 1,372 3% 1% 1,407 1,372
Operating profit 244 239 2% 2% 132 208
Operating margin 17.2% 17.4% (20)bps  – 9.4% 15.2%
Pre-tax profit 217 212 2% 2% 111 189
Basic EPS 40.4p 39.9p 1%   21.4p 35.7p
Free cash flow 81 70        
Dividend 11.75p 11.25p 4%   11.75p 11.25p
Return on capital employed 16.0% 16.6% (60)bps      

*In addition to statutory reporting, Smiths Group reports its continuing operations on a headline basis. Headline revenue and profit is before exceptional items, amortisation of acquired intangible assets, profit/loss on disposal of businesses, costs of acquisitions, pensions finance credit and financing gains/losses from currency hedging. Free cash-flow and return on capital employed are described in the Financial review.

#Organic growth at constant currency.


Highlights

  • Resilient performance in a difficult trading environment
  • Headline revenue up 3%; headline operating profit up 2%
  • Continued investment in new products and new markets driving growth
  • Emerging market sales up from 12.5% to 15% of Group sales
  • Good headline margin progression in John Crane, Smiths Medical and Flex-Tek
  • Performance improvement initiatives on track in Smiths Detection; improving order book
  • Improved headline operating cash conversion at 82% - with free cash-flow of £81m
  • Dividend up 4%

 

"The Group has made good progress despite the challenging economic environment, particularly for businesses serving government-funded customers such as Smiths Detection and Smiths Interconnect, where performance has been disappointing. Remediation in Smiths Detection is on track, although the benefits will be weighted to the second half. Elsewhere, John Crane continues to report strong growth driven by investment in oil and gas infrastructure. Performance at Flex-Tek was encouraging and Smiths Medical has been resilient against a tough trading backdrop. Our results continue to benefit from restructuring initiatives and operational improvements. These savings are being reinvested to build a solid foundation to accelerate medium-term revenue growth.

"We have increased our focus on top-line growth through new product development, sales effectiveness, expansion of our emerging market exposure and targeted acquisitions. The trading environment remains uncertain and sustained pressures on government spending are likely to affect some of our divisions. However, we continue to see further potential to grow sales, drive operational improvements and deliver strong cash conversion. We remain confident of meeting expectations for the full year."

Philip Bowman

Chief Executive
Smiths Group plc



Divisional highlights*

John Crane: Sales up 13% and headline operating profit up 24%; margin up to 20.9%

  • Sales driven by growth in both original equipment and aftermarket revenue, particularly in the oil and gas sector
  • Margins improved 190 basis points to 20.9%, benefiting from increased volumes
  • TCE acquisition completed and integration well underway; expands our bearings aftermarket offering
  • Strong order book supports growth for the full year in sales and margins

Smiths Medical: Sales down 1% and headline operating profit up 4%; margin up to 23.5%

  • Margins up 90 basis points to 23.5% through cost saving initiatives and mix benefits despite some price pressure
  • Tough operating environment with healthcare spend squeezed by government budgets and unemployment
  • Increased investment in sales capabilities in emerging markets and new product development
  • Investment will step up further during the second half; which is expected to support future sales growth

Smiths Detection: Sales down 11% and headline operating profit down 36%; margin down to 9.3%

  • Revenue declined reflecting reduced demand in most sectors, particularly military and ports & borders
  • Margins affected by lower volumes, restructuring costs and the impact of historic low margin contracts
  • Performance improvement programme on track; delivered £5m of savings from £40m target by FY 2014
  • Full year sales expected to be similar to last year, margins will benefit from restructuring initiatives
  • Strong product pipeline and significant contract wins lay a solid foundation for 2013

Smiths Interconnect: Sales down 6% and headline operating profit down 29%; margin down to 13.1%

  • Sales affected by lower sales in military and connectors offsetting growth in telecoms
  • Margins reduced by lower volumes, operational gearing, adverse pricing/mix and restructuring costs
  • Integration of Power Holdings, Inc. is on track, expanding our product offering into new markets
  • Several new contract wins and contract phasing is expected to support some improvement in second half sales
  • Second half margins are expected to benefit from better volumes and restructuring

Flex-Tek: Sales up 2% and headline operating profit up 36%; margin up to 15.5%

  • Improved volumes, mix and pricing contributed to a strong increase in margins
  • Sales growth driven primarily by the aerospace sector and with modest growth in US residential construction
  • Fluid management is expected to see continued growth while construction and appliances markets are uncertain
  • Margins are geared to volume improvements across Flex-Tek’s end markets

*Sales and profit are at constant currency and exclude the impact of acquisitions and disposals

 

To view the full press release please click here

 

Statutory reporting
Statutory reporting takes account of all items excluded from headline performance. On a statutory basis, pre-tax profit from continuing operations was £111m (2011: £189m) and earnings per share were 21.4p (2011: 35.7p).

The items excluded from headline performance comprise:

  • amortisation of acquired intangible assets of £25m (2011: £22m);
  • £18m in connection with John Crane, Inc. asbestos litigation (2011: £5m);
  • £52m for the establishment of a provision to resolve potential future claims alleging product liability in Titeflex Corporation (2011: nil);
  • £12m of exceptional restructuring costs (2011: £5m);
  • £8m in relation to a change in the basis of estimating sales rebates;
  • acquisition costs of £2m (2011: £1m);
  • £1m profit on disposal of businesses (2011: nil);
  • £11m for retirement benefit finance income (2011: £12m); and
  • financing losses of £1m (2011: £2m).

 

Presentation
The presentation slides and a live webcast of the presentation to analysts are available at www.smiths.com/results at 09.00 (UK time) on Wednesday 14 March. A recording of the webcast is available later that day. A live audio broadcast of the presentation is also available by dialling (no access code required):
UK toll free: 0800 368 1916
International: +44 (0)20 3140 0722
US/Canada toll free: +1 855 716 1594

An audio replay is available for seven days on the following numbers (access PIN 382043#):
UK toll free: 0800 368 1890
International: +44 (0)20 3140 0698
US/Canada toll free: +1 877 846 3918

Photography
Original high-resolution photography and broadcast quality video is available to the media from the media contacts above or from http://www.smiths.com/images.aspx.