23 March 2018

Interim results for the six months ended 31 January 2018


On track for growth in FY18

Highlights

  • Group underlying revenue broadly flat at £1,549m, reflecting an improving trend. Reported revenue (4)% due to adverse foreign exchange translation
  • 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:
    • Morpho integration on track
    • Agreement to sell John Crane’s Bearings business for $35m
  • 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 13.80 pence per share, up 1.8%
  • 2018 full year outlook reaffirmed

 

Results for the six months ended 31 January 2018

  Headline1 Statutory
  H1 2018
£m
H1 2017
£m
Reported growth Underlying2 growth H1 2018
£m
H1 2017
£m
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, Smiths Group reports its continuing operations on a headline basis. Definitions of headline metrics, and information about the adjustments to statutory measures are provided in the notes to the financial statements.

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.

 

Andy Reynolds Smith, Group Chief Executive, commented:

“Smiths Group made an encouraging start to the year as we continued to execute our strategy for sustainable growth. Underlying revenue was broadly in line with the prior year, with John Crane returning to growth, the new product introductions in Smiths Medical contributing to its gradual improvement and strong growth in Flex-Tek. As anticipated, Smiths Detection continued to achieve good growth in Air Transportation but this was offset by programme phasing in the non-aviation segments. Following a period of significant strategic and structural change at Smiths Interconnect, sales declined as the division completes its restructuring process.

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 £199m (2017: £346m) and continuing basic earnings per share were 26.0p (2017: 76.5p).

See Accounting policies for an explanation of the presentation of results and note 3 to the accounts in the full press release for an analysis of non-headline items.

 

To view the full press release please click here

 

Contact details

Investor enquiries
Jemma Spalton, Smiths Group
+44 (0)20 7004 1637
+44 (0)78 6739 0350
jemma.spalton@smiths.com

Marion Le Bot, Smiths Group
+44 (0)20 7004 1672
+44 (0)75 8315 4386
marion.lebot@smiths.com

Media enquiries
Andrew Lorenz, FTI Consulting
+44 (0)20 3727 1323
+44 (0)77 7564 1807
smiths@fticonsulting.com

Deborah Scott, FTI Consulting
+44 (0)203 727 1459
+44 (0)797 953 7449
smiths@fticonsulting.com

 

Presentation
The presentation slides and a live webcast of the analyst presentation will be available at www.smiths.com/investors at 09.00 (UK time) today. A recording of the webcast will be made available from 13.00 (UK time).

Photography
Original high-resolution photography and broadcast quality video is available to the media from the media contacts above or from http://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 Smiths Group plc (the “Company”) and its subsidiaries (together, the “Group”) and those of their respective officers, directors and employees concerning, amongst other things, the results of operations, financial condition, liquidity, prospects, growth, strategies and the businesses operated by the Group. 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. This presentation contains brands that are trademarks and are registered and/or otherwise protected in accordance with applicable law.