Annual Results 19 September 2012 Bringing technology to life investor.relations@smiths.com www.smiths.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 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 presentation contains brands that are trademarks and are registered and/or otherwise protected in accordance with applicable law. Smiths Group plc Annual Results 2012 | 2
Introduction Philip Bowman Chief Executive GUARDION, Smiths Detection’s dual-technology chemical identifier Smiths Group plc Annual Results 2012 | 3
Results highlights Reported headline revenue up 7%; underlying up 5% Headline operating profit up 7%, underlying up 7% Headline EPS up 7% to 92.6p Cash conversion strong at 99% - free cash flow of £217m Return on capital employed up 10 basis points to 16.5% Dividend up 5% to 38.0 pence Smiths Group plc Annual Results 2012 | 4
Delivering against our operational priorities Launch new products from the divisional pipelines to drive top-line growth Company-funded new product investment up 9% - Strong pipeline of new product launches Increased investment in emerging markets to deliver faster sales growth Emerging market sales up 14% - now representing 15% of Group revenues – Expanding resources in China, Brazil, India, among other markets Deliver the performance improvement programme benefits in Smiths Detection Programme beginning to deliver operational and efficiency benefits – £15m of savings in period; against £40m target by FY2014 Sustain strong cash generation to fund growth initiatives and enhance value Remain committed to strong cash conversion – Targeting 90-100% cash conversion for the coming year Effective capital allocation to drive improved returns and value for shareholders Focus on acquisitions and disposals – Acquisitions in Interconnect and John Crane; disposal of non-core asset in Smiths Detection Smiths Group plc Annual Results 2012 | 5
Promoting responsibility: An increased focus is delivering improvements Recordable & lost time incident rates continue to improve Solid progress on environmental targets*** Lost time incident rate • Energy: 1.03 16% reduction Recordable incident rate * • Greenhouse gases: 0.71 19% reduction 0.66 Incident rate 0.60** • Water: 0.51 19% reduction • Non-recycled waste: 0.30 0.29 18% reduction 0.21 2009 2010 2011 2012 *** Calculated over rolling 12-month period to Jul 2012 compared to current goal baseline of FY2010. Normalised to revenue at FY2012 exchange rates. * Measured per 100 employees per year using US OSHA definition ** 0.58 excluding recently acquired businesses Smiths Group plc Annual Results 2012 | 6
Financial review Peter Turner Finance Director John Crane supplies seals, filtration systems and bearings for oil and gas applications in Brazil Smiths Group plc Annual Results 2012 | 7
Annual results 2012 Headline* Statutory £m 2012 2011 2012 2011 reported underlying** Revenue 3,038 2,842 7% 5% 3,030 2,842 Operating profit 554 517 7% 7% 407 438 Margin 18.2% 18.2% - - 13.4% 15.4% Pre-tax profit 497 463 7% 7% 366 398 Basic EPS (p) 92.6 86.5 7% 65.4 77.8 Free cash flow 217 236 Dividend (pps) 38.0 36.25 5% 38.0 36.25 Return on capital employed 16.5% 16.4% 10 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, net pensions finance credit and financing gains/losses from currency hedging. Free cash-flow and return on capital employed are defined in the Financial review in the press release. 2011 headline pre-tax profit, headline basic EPS and return on capital employed has been restated (see notes 1 and 3 to the 2012 Annual report and accounts) ** Organic growth at constant currency. Smiths Group plc Annual Results 2012 | 8
Underlying headline sales and profit performance Revenue growth Revenue Operating profit H1 H2 growth growth John Crane +13% +5% +9% +11% Smiths Medical -1% +6% +2% +2% Smiths Detection -11% +17% +3% +13% Smiths Interconnect -6% +12% +3% -9% Flex-Tek +2% +7% +5% +36% Group +1% +8% +5% +7% Smiths Group plc Annual Results 2012 | 9
Headline profit progression 2011 to 2012 • Volume : Volume growth across all divisions • Price : Positive in John Crane and Flex-Tek offsetting negative pricing pressure elsewhere • Mix : Adverse mix in Interconnect and Detection • Increased R&D: Higher new product investment across nearly all divisions • Sales & marketing: Increased investment in sales & marketing – particularly in emerging markets • Efficiencies: Detection restructuring and other operational efficiency initiatives across other divisions • Cost inflation: Largely wage-related (represents c. 1.5% increase) Price £8m £10m £15m Volume Mix £7m £26m Interest PBT: Cost Increased £3m £497m Sales & £10m inflation R&D marketing Sales & Efficiencies marketing £41m £34m Average exchange rates PBT: US$ 1.58 (2011: 1.60) £463m Euro 1.20 (2011: 1.16) Smiths Group plc Annual Results 2012 | 10
Group cash conversion £m (for continuing activities) 2012 2011 Headline operating profit 554 517 Changes in working capital (23) (47) Share based payment 14 14 Capital expenditure (Property, plant & equipment) (46) (46) Depreciation 64 59 Development costs & other intangibles (9) (13) (net of amortisation and deferred income) Operating cash-flow 489 549 Conversion rate 99% 95% Smiths Group plc Annual Results 2012 | 11
Improved return on capital from Flex-Tek, John Crane, Medical and Detection 12 months to 31 Jul 2012 12 months to 31 Jul 2011 30.0 28.4% 25.0 24.0% 21.9% 21.8% 20.0 16.9% 17.6% 16.4% 16.5% 15.7% % 15.0 12.3% 10.3% 9.8% 10.0 5.0 0.0 Smiths Group Flex-Tek John Crane Smiths Medical Smiths Smiths Detection Interconnect Return on capital employed is calculated over a rolling 12-month basis and is the percentage that headline operating profit comprises of monthly average capital employed. Capital employed comprises total equity adjusted for goodwill recognised directly in reserves, post- retirement benefit assets and liabilities and litigation provisions relating to exceptional items, both net of tax and net debt. 2011 capital employed has been restated – see note 2 to the 2012 Annual accounts. Smiths Group plc Annual Results 2012 | 12
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 554 Restructuring programmes (15) Litigation provision: John Crane, Inc. (40) Litigation provision: Titeflex Corporation (55) Revision of estimated rebates in Smiths Medical (8) Net acquisition and disposal exceptionals 31 Exceptional operating items (85) Amortisation and impairment of acquired intangible assets (62) Statutory operating profit 407 Key exceptional items below operating profit Pension finance credit* 24 UK deferred tax asset write-off (38) * Under IAS 19 (revised 2011), this would be a £13m charge Smiths Group plc Annual Results 2012 | 13
Exceptional items: Restructuring programme delivering benefits Group-wide restructuring FY08-12 – now largely complete Costs to date Total planned costs Total planned savings £55m £56m £70m £m 2012 costs 2012 savings Savings to date Group-wide 3 14 70 Detection performance improvement FY12-14 Costs to date Total planned costs Total planned savings £20m ‡ £40m £40m £m Savings to date 2013 forecast savings 2013 costs Smiths Detection 15 11 9* ‡ Comprising £13m of exceptional costs and £7m charged against headline operating profit *All to be treated as exceptional Smiths Group plc Annual Results 2012 | 14
Smiths Detection: Performance improvement programme – achievements to date • Reducing costs – achieved net global headcount reduction of c. 200 or 8% • Sales and admin site at Morristown, NJ closed • Aligning X-ray manufacturing footprint to customer needs – focusing on 3 hubs: - Americas, Europe and a new site in Asia opened • Opportunities in materials and component sourcing • Value engineering initiatives to reduce scrap, rework and warranty liabilities Smiths Group plc Annual Results 2012 | 15
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