20 March 2013

Interim results for the six months ended 31 January 2013

  Headline*     Statutory
  2013
£m
2012
£m
Growth Underlying# 2013
£m
2012
£m
Revenue 1,475 1,415 4% 6% 1,475 1,407
Operating profit 253 244 4% 5% 215 132
Operating margin 17.1% 17.2% (10) bps  – 14.6% 9.4%
Pre-tax profit 223 217 3% 6% 188 111
Basic EPS 40.9p 40.4p 1%   35.8p 21.4p
Free cash flow 71 81        
Dividend 12.50p 11.75p 6%   12.50p 11.75p
Return on capital employed 16.7% 16.0% 70 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 and impairment of acquired intangible assets, profit/loss on disposal of businesses, costs of acquisitions, pension 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

  • Underlying headline revenue up 6%; growth across all divisions
  • Headline operating profit 5% higher, margin affected by increased growth investment
  • Company-funded investment in new product development up 8% to £54m
  • Emerging market revenue up 9%; representing 15% of Group revenues
  • Improved headline operating cash conversion at 88%
  • Dividend up 6%; reflecting strong cash conversion in the period

 

"Smiths Group has continued to make good progress with underlying revenue growth across all its businesses. Headline margins rose in all divisions except Smiths Medical where, as part of our growth strategy, we have significantly increased our investment in sales and marketing in emerging markets and new product development. We delivered improved cash conversion and return on capital against last year.

"Our priority is driving operational improvements and efficiencies across our businesses while increasing our investment in high growth markets and new product development to accelerate medium-term revenue growth.

"Looking to the second half, we see tough trading conditions as a result of the US medical device tax, slower demand in some parts of John Crane, and the impact of further government budget cuts. However, despite these challenges, there remain significant opportunities to generate value for shareholders over the medium term. We will continue to focus on investing to drive sales growth, and delivering further operational improvements, while maintaining strong cash conversion and improved returns."

Philip Bowman
Chief Executive



Divisional highlights*

John Crane: Revenue up 3% and headline operating profit up 7%; margin up to 21.8%

  • Revenue up 3% driven by both original equipment and aftermarket revenue
  • Demand from first-fit OEM customers has slowed, particularly turbo machinery and general industrial applications
  • Margins improved 90 basis points to 21.8%, while increasing investment in future growth drivers
  • Order book points to a slower growth rate with a similar level of sales in the second half as prior period last year

Smiths Medical: Revenue up 2% and headline operating profit down 10%; margin down to 21.1%

  • Revenue up 2% driven by growth in emerging markets (up 12%) while developed markets remain challenging
  • Extra £10m investment in strategic growth initiatives: emerging markets and new product development (up 16%)
  • New product pipeline: e.g. CADD-Solis VIP cleared by FDA in February for sale in USA
  • Despite continued focus on cost savings, profitability expected to be lower with investment and US device tax

Smiths Detection: Revenue up 19% and headline operating profit up 56%; margin up to 12.0%

  • Revenue up 19% as transportation and ports and borders lead recovery momentum
  • Margins up 270 basis points on higher volumes and cost savings
  • Strong batch of new products: including Hi-Scan 10080 XCT scanner, and CIP-300 car screener
  • Targeting a similar level of sales in the second half as the same strong period last year, with improving margins

Smiths Interconnect: Revenue up 4% and headline operating profit up 13%; margin up to 13.5%

  • Revenue up 4% against a weak comparator period
  • Delivering growth in Connectors and Microwave, partially offset by weak demand in Power
  • Margins up 40 basis points with better volumes and restructuring efficiencies
  • Markets remain challenging, particularly for US defence customers affected by sequestration

Flex-Tek: Sales up 11% and headline operating profit up 20%; margin up to 16.7%

  • Revenue up 11% driven mainly by aerospace and US residential construction
  • Margins continued to improve, helped by better volumes, mix and pricing.
  • Aerospace and revival in US construction should support continued sales growth
  • Margins are geared to volume improvements across Flex-Tek’s end markets

*All figures are on a headline basis. Revenue and profit growth 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 £188m (2012: £111m) and earnings per share were 35.8p (2012: 21.4p).

The items excluded from headline performance comprise:

  • amortisation of acquired intangible assets of £23m (2012: £25m);
  • £11m in connection with John Crane, Inc. asbestos litigation (2012: £18m);
  • £3m in connection with Titeflex Corporation litigation (2012: £52m);
  • £5m of exceptional restructuring costs (2012: £12m);
  • £1m of gains on changes to pension plans (2012: £nil);
  • £1m profit on disposal of businesses (2012: £1m);
  • £6m for retirement benefit finance income (2012: £11m); and
  • financing losses of £1m (2012: £1m)

In the period to 28 January 2012, in addition to the above, acquisition costs of £2m and an £8m charge in relation to a change in the basis of estimating sales rebates in Smiths Medical were also excluded from headline performance.

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 things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should be construed as a profit forecast. The Company and its directors accept no liability to third parties in respect of this document save as would arise under English law.

This press release contains brands that are trademarks and are registered and/or otherwise protected in accordance with applicable law.

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 20 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: 0808 237 0030
International: +44 (0)20 3139 4830
US/Canada toll free: 1 866 928 7517
Access code: 40110528#

An audio replay is available for seven days on the following numbers (access PIN 636069#):
UK toll free: 0808 237 0026
International: +44 (0)20 3426 2807
US/Canada toll free: 1 866 535 8030

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.