|Reported growth||Underlying growth#||2016
|Operating margin||15.8%||16.4%||(60) bps||(60) bps||13.3%||11.6%|
|Headline free cash-flow||174||132||32%|
|Return on capital employed||15.4%||15.4%||- bps|
*In addition to statutory reporting, Smiths Group reports its continuing operations on a headline basis. Headline profit is before material non-recurring items or items considered non-operational in nature. Definitions of headline free cash-flow and return on capital employed, and information about items treated as non-headline, are provided in note 14 to the Interim report.
#Organic growth adjusting for foreign exchange translation.
- Revenue and headline operating profit down in line with expectations
- John Crane impacted by challenging oil and gas markets, although aftermarket revenues proved more resilient; operating margin down 330bps to 19.9%
- Continued growth at Smiths Medical; operating margin up 150bps to 20.5%
- Good profit growth at Smiths Detection; operating margin up 210bps to 12.4%
- Cash conversion strong at 101%; headline free cash flow up 32% to £174m
- Pension trustee negotiations concluded; £50m cash flow improvement from FY17
- Interim dividend increased 2% to 13.25 pence per share
Smiths Group Chief Executive Andy Reynolds Smith said:
“In my first six months at Smiths Group, I have visited many of our sites around the world, meeting over a thousand colleagues and listening to our customers. I have been highly impressed by our cutting edge technologies, our market leading positions, the depth of experience and expertise of our people and the strength of our customer relationships. I am confident that we can unlock substantial value through improving our operational efficiency, which will generate resources to invest in growth. Overall, the Group will drive simplification and speed to promote adaptability and innovation.
“From a trading perspective, this is a solid set of results. Group performance in the first six months of the year demonstrated the benefits of our range of end market exposures. As expected, John Crane was down in the first half, in persistently tough oil and gas end markets, but we benefited from growth in profits at Smiths Medical and Smiths Detection. Good progress has been made to improve Smiths Detection’s competitive positioning through initiatives on value engineering, programme management and aftermarket servicing, which are clearly having a positive impact on the bottom line. Against a tough prior year comparator, Smiths Medical delivered another strong performance as it benefited from consumables sales for its expanded installed base of infusion pumps. Performance at Smiths Interconnect and Flex-Tek was in line with expectations.
“As previously stated, Group performance is anticipated to be slightly more weighted to the second half than usual. We expect global energy markets to remain challenging in the second half of the year, and are taking action to ensure that John Crane remains well positioned in an uncertain environment. I expect Smiths Medical to deliver a similar revenue performance in the second half, driven by growth in Infusion Systems and Vital Care. Smiths Medical’s margins should benefit further from the effect of operational efficiencies and restructuring actions. Smiths Detection’s strong order book underpins anticipated higher levels of sales growth in the second half, although the margins seen in the first half will moderate somewhat given contract mix and investment in new business capabilities. Our expectations for the full year remain unchanged.”
Andy Reynolds Smith
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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 16 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):
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Statutory reporting takes account of all items excluded from headline performance. On a statutory basis, pre-tax profit from continuing operations was £168m (2015: £131m) and earnings per share were 32.8p (2015: 21.8p).
See note 14 to the interim report for the reconciliation of headline and statutory profit measures.
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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