Slides

Smiths Group
Alan Thomson
Financial Director
Speaking at JP
JP Morgan
Morgan Capital
Capital Goods
Goods Conference
Conference
www.smiths-group.com/ir
www.smiths-group.com/ir
½
th 2004
Tylney
Tylney Hall
Hall -- Hants,
Hants, Thursday,
Thursday, June
June 10
10th
2004
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Focusing
Focusing on
on activities
activities with
with
strong
strong growth
growth potential
potential
Aerospace
Aerospace
Systems
Systems and
and equipment
equipment for
for
military
military and
and commercial
commercial aircraft
aircraft
approx.
approx. contrib
contrib
to
to 2003
2003 sales
sales
approx
approx contrib.
contrib.
to
to 2003
2003 profit
profit
£1
£1 billion
billion
margin
margin 11%
11%
Detection
Detection
Protecting
Protecting against
against threats
threats to
to
national
national security
security
£300
£300 million
million
margin
margin 26%
26%
Medical
Medical
Devices
Devices used
used in
in critical
critical care
care
and
and for
for medication
medication delivery
delivery
£500
£500 million
million
margin
margin 18%
18%
Specialty
Specialty Engineering
Engineering
Highly
Highly engineered
engineered products
products
for
for specific
specific industrial
industrial applications
applications
£800
£800 million
million
margin
margin 12%
12%
JPM 04 | 2
Smiths
Smiths Group:
Group:
Good
Good progress
progress on
on reshaping
reshaping the
the company
company
Acquisitions
Acquisitions
MERGER
MERGER
Medical
Medical £46m
£46m
Barringer
Barringer £39m
£39m
Jan
Jan 2001
2001
Heimann
Heimann £233m
£233m
Total
Total cost
cost £190m
£190m
Able
Able £19m
£19m
Jan
Jan 2002
2002
Jan
Jan 2003
2003
DEBT
DEBT £1.7bn
£1.7bn
Jan
Jan 2004
2004
NET
NET DEBT
DEBT £206m
£206m
Marine
Marine Seals
Seals £215m
£215m
TI
TI Auto
Auto
£615m
£615m cash
cash
£325m
£325m prefs
prefs
5
5 acquisitions
acquisitions
since
since March
March 2004
2004
Misc.
Misc. Eng.
Eng. £50m
£50m
Polymer
Polymer Seals
Seals £495m
£495m
Air
Air Movement/Lodge
Movement/Lodge £158m
£158m
Disposals
Disposals
JPM 04 | 3
Adding
Adding valuable
valuable bolt-ons
bolt-ons in
in each
each division:
division:
Five
Five acquisitions
acquisitions since
since March
March 04
04 for
for £190m
£190m
Detection
II
Cyrano,
Cyrano, SensIR
SensIR
II
Medical
II
Full
Full ownership
ownership of
of
Japanese
Japanese distribution
distribution
II
Engine
Engine Components
Components
Smiths
Smiths Medical
Medical
Japan
Japan
Aerospace
Miniaturised
Miniaturised detector
detector
Hazmat
Hazmat kit
kit
TRAK
TRAK
£41m
£16m
£60m
DGT
DGT
Spec Eng
£10m
II
Microwave
Microwave components
components for
for
military
military communications
communications
airborne
airborne antennae
antennae
£63m
JPM 04 | 4
Delivering
Delivering improved
improved operational
operational performance
performance
Higher
Higher R&D
R&D is
is increasing
increasing the
the pace
pace of
of top
top line
line growth
growth
The
The latest
latest products
products will
will drive
drive sales
sales ahead
ahead
Aerospace
Aerospace
Medical
Medical
Needle-Pro,
Needle-Pro, Cozmo,
Cozmo,
Cozmore
Cozmore
(systems
(systems for)
for)
A380,
A380, B7E7,
B7E7, F-35
F-35
(Continuing
(Continuing activities)
activities)
10%
10% of
of
sales
sales
5%
5% of
of
sales
sales
£190m
£190m
Detection
Detection
Bio-Seeq,
Bio-Seeq, Sentinel
Sentinel II,
II,
Hi-Scan
Hi-Scan
£205m
£205m
£245m
£245m
£260m
£260m
company
company
funded
funded
customer
customer
funded
funded
2001
2001
2002
2002
2003
2003
2004
2004 (E)
(E)
JPM 04 | 5
Delivering
Delivering improved
improved operational
operational performance
performance
Operating
Operating globally
globally to
to reduce
reduce the
the cost
cost base
base
and
and get
get closer
closer to
to customers
customers
Mexico
Poland
Medical
Medical I I
II
John
John Crane
Crane
Aero
Aero components
components
II
Malaysia
II
Flex-Tek
Flex-Tek
China
Costa Rica
II
II
Interconnect
Interconnect
II
II
Czech Republic
China
II
Aerospace
Aerospace I I
II
130,000
130,000 sq
sq ft
ft
Engine
Engine
components
components
customer
customer GE
GE
John
John Crane
Crane
John
John Crane
Crane I I
Interconnect
Interconnect
JPM 04 | 6
Generating
Generating aa valuable
valuable return
return on
on investment
investment
Cost of capital (WACC)
Smiths Group: total return on
invested capital (assets
(assets +
+ goodwill)
goodwill)
Investments criteria for:
II
Acquisitions
Acquisitions
II
Capital
Capital programmes
programmes
II
Research
Research &
& Development
Development
8%
12%
12%
rate
rate of
of return
return
after
after 3
3 years
years
JPM 04 | 7
Current
Current outlook:
outlook: performing
performing strongly
strongly
in
in second
second half
half of
of 2004
2004
Sales
Sales
Pre-tax
Pre-tax
profit
profit
Analysts’
Analysts’ consensus
consensus
for
for H2/04
H2/04 growth
growth
(compared
with
(compared with H2/03)
H2/03)
Measured
Measured at
at constant
constant
Y-on-Y
Y-on-Y exchange
exchange rate
rate
+4%
+11%
+3%
+12%
The
The company
company expects
expects to
to meet
meet analysts’
analysts’ consensus
consensus earnings
earnings for
for FY
FY 2004
2004
JPM 04 | 8
Continuing
Continuing growth
growth forecast
forecast for
for FY
FY 2005
2005
Market
Market outlook
outlook
£1bn
£1bn
Aftermarket
Aftermarket
improves
improves
Homeland
Homeland
defence
defence
commercial
commercial
divisional sales
sales
divisional
Oil/gas
Oil/gas
investment
investment
New
New products
products
drive
drive growth
growth
Procurement
Procurement
budget
budget up
up
Flex/marine
Interconnect
defence
defence
Aerospace
Aerospace
defence,
defence,
telecoms
telecoms up
up
John Crane
Detection
Detection
Medical
Medical
Spec.Eng
Spec.Eng
Performance
Performance outlook:
outlook: Smiths-wide
Smiths-wide cost
cost reduction
reduction programme
programme
will
will benefit
benefit performance
performance of
of all
all activities
activities
All
All four
four divisions
divisions are
are expecting
expecting increased
increased sales
sales and
and profits
profits
JPM 04 | 9
Smiths
Smiths Aerospace:
Aerospace: Smiths
Smiths is
is aa leader
leader in
in aircraft
aircraft
approx
approx contrib.
contrib.
to
to 2003
2003 profit
profit
electronics,
electronics, actuation
actuation systems
systems and
and engine
engine components
components
Aftermarket
Defence
Aftermarket
Defence
First tier
tier supplier
supplier
9 First
Systems integrator
integrator
9 Systems
Significant investment
investment in
in R&D
R&D
9 Significant
Commercial
OE
Restructuring benefits
benefits will
will be
be retained
retained
Commercial
OE
9 Restructuring
sales
Recovery delivers
delivers rapid
rapid improvement
improvement in
in margins
margins
sales
9 Recovery
Commercial
Commercial
II
II
II
OE
OE recovery
recovery starts
starts FY06
FY06
And
And aftermarket
aftermarket in
in FY05
FY05
Smiths:
Smiths: strong
strong presence
presence on
on next-generation
next-generation aircraft
aircraft
Defence
Defence
II
II
II
Current
Current programmes
programmes performing
performing strongly
strongly
New
New programmes
programmes will
will sustain
sustain growth
growth
Procurement
Procurement budget
budget continues
continues to
to increase,
increase, but
but will
will slow
slow
JPM 04 | 10
AA strong
strong presence
presence on
on next
next generation
generation
commercial
commercial aircraft:
aircraft: Smiths
Smiths systems
systems on
on the
the 7E7
7E7
Common
Common data
data network
network
Common
Common
computing
computing
resource
resource
Common
Common core
core system
system
remote
remote data
data concentrators
concentrators
Enhanced
Enhanced airborne
airborne
flight
flight recorder
recorder
Common
Common core
core system
system
remote
remote data
data concentrators
concentrators
Common
Common data
data network
network
Smiths
Smiths Common
Common Core
Core Systems
Systems (CCS)
(CCS) is
is the
the
central
central nervous
nervous system
system of
of the
the aircraft
aircraft
JPM 04 | 11
approx
approx contrib.
contrib.
to
to 2003
2003 profit
profit
Smiths
Smiths Detection
Detection
A
A rapidly
rapidly evolving
evolving business,
business, finding
finding
new
new applications
applications for
for core
core technologies
technologies
II
II
II
II
Strong
Strong organic
organic growth
growth
Technology
Technology acquisitions
acquisitions
Hazmat
detection
Ports,
Commitment
Commitment to
to R&D
R&D
World-wide
World-wide presence
presence
Military
Military
(WMD
(WMD detection)
detection)
border control
Homeland
defence
Homeland
defence
Business
premises
Business
premises
Airports
Airports
Airports
Airports
(passengers,
(passengers,
baggage)
baggage)
(passengers,
baggage)
(passengers,
baggage)
Military
Military
Military
Military
2000
2000
2002
2002
2004
2004
1998
1998
Current
Current orderbook
orderbook
US
US
UK
UK
Germany
Germany
Italy
Italy
Greece
Greece
Poland
Poland
Senegal
Senegal
Nigeria
Nigeria
China
China
JPM 04 | 12
Extending
Extending the
the Detection
Detection market
market with
with new
new
applications,
applications, new
new technologies
technologies
Cargo inspection at borders
Not
Not only
only for
for security
security services,
services, but
but also
also
for
for tax
tax revenue
revenue collection
collection by
by customs
customs
II
New
New opportunities
opportunities for
for container/
container/
truck
truck inspection
inspection
Fixed
Fixed &
& mobile
mobile systems
systems
II
Cost/benefit
Cost/benefit attractive
attractive for
for poorer
poorer nations
nations
II
Detecting hazardous materials
Specialised
Specialised kit
kit for
for ‘first
‘first responders’
responders’
(emergency
(emergency services)
services)
II
II
II
Rugged
Rugged ‘hazmat’
‘hazmat’ detectors
detectors
Portable
Portable kit,
kit, using
using infra-red
infra-red spectometry
spectometry
Rapid
Rapid identification
identification of
of liquids/
liquids/
solids
solids at
at scene
scene of
of incident
incident
JPM 04 | 13
approx
approx contrib.
contrib.
to
to 2003
2003 profit
profit
Smiths
Smiths Medical:
Medical: innovative
innovative products
products are
are
driving
driving profitable
profitable growth
growth
II
II
II
II
II
Strong
Strong market
market niches
niches in
in two
two
specialised
specialised areas
areas
Increased
Increased healthcare
healthcare spending
spending
assures
assures steady
steady market
market growth
growth
Japan
Japan
Europe
Europe
sales
sales
Technology
Technology leadership
leadership sustains
sustains
18%
18% margins
margins
World-scale
World-scale business
business driven
driven by
by
dynamic
dynamic US
US market
market
40%
40% of
of production
production in
in low-cost
low-cost areas
areas
US
US
RoW
RoW
Medication
Medication
Delivery
Delivery
&
& Patient
Patient
Monitoring
Monitoring
Anaesthesia
Anaesthesia
&
& Safety
Safety
Devices
Devices
JPM 04 | 14
Smiths
Smiths Medical:
Medical: leading
leading the
the way
way in
in treating
treating
serious
serious (Type
(Type 1)
1) diabetes
diabetes
Cozmo
Cozmo -- insulin
insulin delivery
delivery pump
pump
II
8,000
8,000 sold
sold since
since launch
launch (Nov
(Nov 02)
02)
II
50%
50% of
of sales
sales to
to people
people under
under 20
20
II
Gaining
Gaining strong
strong market
market share
share in
in US
US
II
Also
Also now
now available
available in
in France
France and
and Canada
Canada
II
Combined
Combined pump/glucose
pump/glucose monitor
monitor has
has
510K
510K approval
approval in
in US
US
Use
Use of
of insulin
insulin pumps
pumps in
in the
the US
US
1.3m
1.3m
The
The next
next step…Cozmonitor
step…Cozmonitor
0.8m
0.8m
II
Monitor
Monitor combined
combined with
with pump
pump
II
Blood/glucose
Blood/glucose level
level displayed
displayed
II
Easily
Easily stored/retrieved
stored/retrieved data
data
Type 1 diabetics
0.3m
0.3m
PUMPS
PUMPS
98
98
00
00
02
02
04E
04E
JPM 04 | 15
approx
approx contrib.
contrib.
to
to 2003
2003 profit
profit
Specialty
Specialty Engineering
Engineering
Business
Business units
units are
are performing
performing well
well
John
John Crane
Crane
II
Strengthening
Strengthening its
its market
market presence
presence in
in
Russia,
Russia, China
China and
and South
South America
America
II
Oil
Oil &
& gas
gas sector
sector showing
showing growth,
growth,
except
except in
in Middle
Middle East
East
II
Productivity
Productivity improvement
improvement continues
continues
John
John
Crane
Crane
Marine
Marine
Ducting
Ducting
Interconnect
Interconnect
sales
sales
Interconnect
Interconnect
II
Defence
Defence business
business forging
forging ahead
ahead (incl.
(incl. wins
wins on
on F-35)
F-35)
II
Strong
Strong recovery
recovery in
in wireless
wireless telecoms,
telecoms, with
with intro
intro of
of 3G
3G services
services
Flex-Tek
Flex-Tek
II
Achieving
Achieving growth
growth in
in difficult
difficult markets
markets
Marine
Marine
II
Margins
Margins improving
improving from
from aa low
low level
level
II
Shipping
Shipping market
market buoyant
buoyant
JPM 04 | 16
Smiths
Smiths Group:
Group:
Strong
Strong track
track record:
record: turning
turning profits
profits into
into cash
cash
Operating profit
80%
Operating cash-flow (after capex)
Free cash-flow
7%
7% yield
yield on
on equity
equity
Self-funded
Self-funded acq.
acq. prog.
prog.
Generates
Generates
additional
additional growth
growth
Dividend
Dividend programme
programme
Current
Current yield
yield 3.7%
3.7%
Over
Over the
the past
past 3yrs
3yrs Smiths
Smiths has
has generated
generated £790m
£790m of
of free
free cash-flow
cash-flow
JPM 04 | 17
Smiths
Smiths Group:
Group: The
The fundamental
fundamental strengths
strengths
Now a highly-competitive group of businesses
Operating in markets with excellent growth prospects
With technology-leadership in their defined niches
Generating strong cash-flow for;
- Re-investment in growth
- Maintaining a beneficial dividend policy
JPM 04 | 18
½
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