23 September 2015

Annual results for the year ended 31 July 2015

  Headline*     Statutory
  2015
£m
2014
£m
Reported Underlying# 2015
£m
2014
£m
Revenue 2,897 2,952 (2)% (2)% 2,897 2,952
Operating profit 511 504 1% 1% 394 378
Operating margin 17.6% 17.1% 50 bps   13.6% 12.8%
Pre-tax profit 459 445 3% 3% 325 302
Basic EPS 86.1p 81.8p 5%   62.4p 59.0p
Free cash-flow 158 143        
Dividend 41.00p 40.25p 2%   41.00p 40.25p
Return on capital employed 16.0% 15.7% 30 bps      

*In addition to statutory reporting, Smiths Group reports its continuing operations on a headline basis. Headline profit is before exceptional items, impairment of goodwill and amortisation of acquired intangible assets, pension charges and financing gains/losses from currency hedging. Free cash-flow and return on capital employed are described in the Financial review.

#Organic growth adjusting for foreign exchange translation.


Highlights

  • Headline EPS up 5% and continued strong headline operating cash conversion at 95%
  • Smiths Medical delivered highest revenue growth in almost a decade
  • John Crane aftermarket strength underpinned a resilient performance
  • Smiths Detection achieved margin improvement and strengthened order book
  • Difficult trading conditions at Smiths Interconnect; continued positive results from Flex-Tek
  • Increased investment in growth initiatives through Engineered for Growth programme
  • Net accounting pension deficit reduced to £108m – its lowest reported level since 2008

 

“While Group revenues fell 2% with tougher trading in Smiths Interconnect, Smiths Detection and John Crane, headline operating margin rose on a recovery in profitability at Detection as management action strengthened its business performance. Smiths Medical achieved its highest revenue growth in almost 10 years helped by innovation in infusion pumps and some competitor disruption. John Crane delivered a resilient performance supported by its robust business model, focused on aftermarket services. Smiths Interconnect reported lower revenues with continued tough trading conditions; the impact on operating profit was exacerbated by the division’s high operational gearing. Flex-Tek benefited from continued growth in US residential construction, specialty heating elements and aerospace demand.

“Over the last eight years, we have increased our investment in revenue growth opportunities through investment in innovation, expansion in emerging markets and better sales & marketing effectiveness. Our Fuel for Growth restructuring programme is on track and has generated £33m of annual savings which were largely reinvested in growth initiatives as part of our Engineered for Growth plans.

“Looking ahead, our investment initiatives are building a solid foundation to accelerate medium-term revenue growth. We see positive momentum in Smiths Medical, Smiths Detection and Flex-Tek, albeit against the backdrop of continuing global economic uncertainty. John Crane is likely to experience further pressures from lower capital expenditure by energy services customers, although the aftermarket services business is expected to prove more resilient. Smiths Interconnect is expected to see modest improvement in some of its commercial markets. Overall, the phasing of group results is expected to be slightly more weighted towards the second half than usual.”

Philip Bowman
Chief Executive



Divisional highlights*

    Headline operating profit margin* Return on capital employed*
  % of Group revenue Underlying revenue growth* Underlying headline operating profit growth* 2015 2014 2015 2014
John Crane 31% (2)% (2)% 24.8% 24.9% 25.8% 26.7%
Smiths Medical 29% 4% 2% 19.8% 19.8% 14.7% 14.5%
Smiths Detection 16% (7)% 167% 11.9% 4.8% 9.6% 3.9%
Smiths Interconnect 15% (9)% (34)% 11.6% 16.0% 9.1% 13.7%
Flex-Tek 9% 4% 1% 18.5% 18.9% 33.6% 34.0%
Group 100% (2)% 1% 17.6% 17.1% 16.0% 15.7%

*All figures are on a headline basis. Revenue and profit growth are at constant currency and exclude the impact of acquisitions and disposals.



John Crane

  • Revenue down 2% driven mainly by weaker demand from first-fit customers
  • Aftermarket for rotating equipment resilient with revenue up 4%
  • Margins broadly maintained at 24.8% benefiting from product mix and continued focus on cost controls
  • Absent any market improvement, revenue likely to decline on weaker first-fit demand despite aftermarket resilience

Smiths Medical

  • Revenue up 4% due to strong ambulatory infusion performance and recovery in disposables
  • Margins maintained with higher volumes and efficiencies and despite increased investment and price pressure
  • Strong emerging market performance led by much improved results in key markets such as China
  • Revenue growth expected to moderate after strong infusion year; margins likely to improve despite investment

Smiths Detection

  • Revenue down 7% with tough trading and a variable contract flow; but good progress on stabilising operations
  • Margins up 710 bps as last year’s £30m of one-off charges were not repeated and helped by efficiency gains
  • Recent contract wins have strengthened order book for delivery in FY16
  • Margins are expected to continue to benefit from cost saving actions despite price and mix pressures

Smiths Interconnect

  • Revenue 9% lower with continued pressures across Microwave and Connectors offsetting growth in Power
  • Margins down 440 basis points on lower volumes, adverse operational gearing and adverse mix
  • Market conditions expected to improve slightly enabling a modest performance improvement next year

Flex-Tek

  • Revenue up 4% driven by US residential construction, specialty heating elements and aero/automotive hoses
  • Margins down 40 bps reflecting increased investment in new product development and adverse product mix
  • US construction and aerospace demand supports growth; margin outlook stable despite increased investment

 

To view the full press release please click here

 

Contact details

Investor enquiries
Peter Durman, Smiths Group
+44 (0)20 7808 5535
+44 (0)7825 145336
peter.durman@smiths.com

Andrew Lappin, Smiths Group
+44 (0)20 7004 1657
+44 (0)7805 007035
andrew.lappin@smiths.com

Media enquiries
Colin McSeveny, Smiths Group
+44 (0)20 7808 5534
colin.mcseveny@smiths.com

Anthony Cardew, Cardew Group
+44 (0)20 7930 0777
anthony.cardew@cardewgroup.com

 

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 23 September. 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 0062
International: +44 (0)20 3426 2890
US/Canada toll free: 1 877 841 4558

An audio replay is available for seven days on the following numbers (access PIN 660764#):

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.

Statutory reporting
Statutory reporting takes account of all items excluded from headline performance. On a statutory basis, pre-tax profit from continuing operations was £325m (2014: £302m) and earnings per share were 62.4p (2014: 59.0p).

See note 3 to the accounts for the definition of headline profit measures and note 4 for an analysis of exceptional items.

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.

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