Interim Results - 6 Months to 31 January 2000
Smiths Industries PLC
15 March 2000
SMITHS INDUSTRIES: INTERIM RESULTS 2000
For the 26 weeks ended 31 January 2000
2000 1999 Change
Turnover £649m £607m +7%
Operating profit * £113m £103m +10%
Pre-tax profit * £110m £100m +10%
Operating cash-flow (after capex) £72m £73m ---
Earnings per share * 24.5p 22.2p +10%
Interim dividend 8.1p 7.4p +9.5%
* before goodwill amortisation
Commenting on the results, Keith Butler-Wheelhouse, Chief Executive said:
'Earnings have continued to grow consistently and the growth is coming from
all three divisions. Medical and Industrial made good progress, regaining
their former momentum. Aerospace civil business is slowing down, but our three
times larger defence business has secured the programmes that ensure future
growth. And we have stepped up the acquisitions, spending nearly £250m so far
this year in areas of great opportunity. Overall, I am confident we can
maintain this pace of growth in the period ahead.'
Further information: Russell Plumley: Tel: 020 8457 8203
Wednesday am: Tel: 020 7568 2088
Home: Tel: 020 8992 9751
Page 1 of 13
Smiths Industries: Interim Results 2000
In the six months ended 31 January, Smiths Industries recorded pre-tax profits
of £110m before goodwill amortisation, an increase of 10% on the first half of
the previous year. At 24.5p (1999: 22.2p), earnings per share were also up by
10%, and the Board has declared a dividend increased by 9.5% to 8.1p (7.4p),
with a scrip dividend alternative available to shareholders. Amortisation of
goodwill on acquisitions amounted to £2.6m (£0.5m) for the period.
The company earned operating profits of £113m (£103m) before amortisation, on
turnover of £649m (£607m) for the half year, a half point increase in margin
to 17.4%. The 10% improvement in operating profits came equally from organic
growth and from a full six months' contribution from acquisitions announced
during the previous financial year. Cash-flow from operations (measured after
capital expenditure) was £72m, almost identical to last year despite an
increase in working capital to finance higher production volumes in all three
operating divisions.
During the six months' period, the company spent £157m to acquire four
businesses which complement its existing activities. Most of these were
completed towards the end of the period, and so did not make a significant
contribution to the results. Since the end of the period, the company has
announced the acquisition of the interconnect company EMC Technology and the
Actuation Systems division of BAE Systems. In total these six recent
additions, which cost £246m, have an annualised turnover of more than £150m,
and are expected to make a contribution to profits in excess of their funding
costs by the year end. Net debt at 31 January stood at £245m, up from £93m at
the end of last year.
All three of the company's operating divisions contributed to the increase in
sales and profits. While Industrial and Medical improved significantly, the
gains in Aerospace were modest, following a 42% increase in first-half profits
last time. On a geographical market basis, the company's operations in the
United States continued to perform strongly in a favourable economic
environment, while trading conditions in the UK and other countries have been
more variable. Although currency variations have had a negligible effect on
the translation of foreign earnings, the continued strength of sterling
against the euro has not been helpful for UK exports.
Page 2 of 13
Smiths Industries: Interim Results 2000
Sales and profits in Aerospace increased by 2% to £242m and £39m respectively,
leaving margins unchanged at 16%. Whilst not as rapid as the rise in the
comparable period, the improvement continued a trend which has seen first half
profits double over the past four years. Sales in the defence sector are now
ramping up strongly, more than compensating for the slowdown in deliveries of
equipment for new civil aircraft.
The company's major defence programmes include systems for several aircraft
now moving out of the development phase and into production, including
Eurofighter Typhoon. Defence order intake during the period was high, assuring
a strong position on the major programmes which will span the decade. The
company has signed an agreement with Boeing, worth $85 million, to supply an
improved power management system for the US Army's Apache Longbow helicopter.
Firm agreements now concluded with both contenders for the US Joint Strike
Fighter offer the prospect of high volume, high shipset sales later in the
decade, whichever aircraft wins the contest. The company has teamed with
Boeing to become the primary contractor for the development of aircraft stores
management for the US Navy, and has commenced operation of a new-style Direct
Vendor Delivery agreement with the US Navy to maintain and upgrade existing
stores management systems on most of its carrier-borne aircraft, with a 15
year timescale.
There is also a strong momentum on a large number of programmes with a secure
long-term future, including contracts to upgrade and provide product support
for military aircraft already in service. Altogether, the company's
defence-related activity is three times the size of the civil aircraft
original equipment business.
Deliveries of OE civil systems have already started to decline from last
year's peak of production, ahead of the expected reduction in aircraft build
rates, and the company is well-prepared for this civil downturn.
As well as supplying Boeing and Airbus, the company also deals directly with
airline operators, particularly in the upgrade of systems installed on
aircraft in current service. The first half of the prior year benefited from
deliveries of the new-generation Flight Management System to a number of
airlines for their older Boeing 737s. There was no comparable benefit this
time, but the operational advantages of the new FMS are self-evident, and
orders continue to be won: Lufthansa is the latest airline to make the switch.
Meanwhile, the company's Product Support business, also dealing with the
airlines, continued to perform strongly.
Page 3 of 13
Smiths Industries: Interim Results 2000
The acquisition of ETG for £7m was completed in August 1999, and the business
has made a satisfactory start within Smiths Industries. It is a leading US
maker of chemical and biological detection systems, and complements Graseby
Dynamics in the UK, which has also been performing well. Working together,
these two have significant opportunities for growth ahead, with healthy order
books.
At the end of this first half-year, the company completed the acquisition of
the aerospace division of Invensys for £110m. Employing 850 at four main
locations in the US, the business specialises in products for electrical power
management and aircraft utilities, areas in which Smiths Industries is already
a technology leader. The acquisition of BAE Systems' Actuation Systems
division in the US for £63m was announced in February and will be completed
shortly. Employing 290 people in New Jersey, this company is a leading
supplier of electrically-operated actuators, mainly for military applications.
Together, these two acquisitions signal an important strategic step: Smiths
Industries Aerospace is building an industry-leading position in the control
and management of aircraft utilities, the vital electrical, mechanical and
hydraulic systems which can account for 20 percent of the value of equipment
on a new aircraft. Valuable repair and overhaul business is a feature of both
acquisitions.
Smiths Industries Medical Systems (SIMS) moved ahead strongly, sustaining an
upward trend which started in the second half of last year. Sales improved by
15% to £198m and profits by 16% to £38m, and margins held firm at 19%.
The better performance resulted from greater emphasis on marketing and
selling, introducing new products and more direct control of worldwide
distribution. At the same time, the bottom line has been improved through
operational efficiency gains, re-engineering products to remove cost and
moving some US assembly work into Mexico. Additionally, SIMS BCI, the
monitoring equipment company acquired in January 1999, made a full
contribution this time and is performing well.
In geographical terms, it has been the US businesses which have seen the
strongest growth. There has been a sustained upswing in the number of surgical
procedures being carried out, mostly reflecting an increase in elective
surgery. The US market is also driven by medical product innovation, and with
its 'first to market' approach to new product development, SIMS is reaping the
benefit. By focusing additional resources on winning key accounts with the
largest hospital purchasing groups, valuable long-term agreements are being
established.
page 4 of 13
Smiths Industries: Interim Results 2000
In the UK, the businesses have learned to live with the high value of sterling
when selling into Europe, although promises of additional government funding
for the NHS in the home market have yet to generate higher levels of
purchasing by the health trusts.
The important Japanese business is recovering well, helped by the stronger
yen. Distributors in Nordic and Benelux territories and in South Africa have
been taken into company ownership in recent times and are achieving higher
market penetration. All of the company's sales subsidiaries around the world
now handle the complete SIMS range, including products made by recently
acquired companies.
The SIMS product range broadly divides into two sectors: single-use
anaesthesia and respiratory devices used during surgery and critical care; and
infusion therapy and patient monitoring equipment used in intensive care and,
increasingly, for patients who do not need to remain in hospital to receive
continuing treatment. In both areas, organic growth is enhanced by a
continuing flow of new products. The latest Blue Line Ultra tracheostomy range
has won an increased market share for SIMS Portex; the Deltec Legacy infusion
pump has been well received by clinicians requiring a single therapy unit; and
SIMS BCI has introduced two hand-held monitors for pulse oximetry and
capnography measurement.
These new products, and many of the existing items in the range, have
benefited from a major programme to engineer costs out of their production.
The payback is fastest in single-use items which are made in very high
volumes: a few cents off the finished cost quickly translates into substantial
profit improvement. Similarly, a number of complex manual assembly operations
can now be carried out more cost-effectively in Mexico, enabling the US plants
to refocus on those activities where they can add most value.
Through all these actions, and an assured market growth outlook, Smiths
Industries Medical Systems is set to resume its pattern of strong year-on-year
improvement. In the product sectors in which it specialises, it will continue
to be the provider of innovative, market leading devices and equipment which
can command a price premium.
page 5 of 13
Smiths Industries: Interim Results 2000
Sales in Industrial were 5% up at £209m, while profits rose 14% to £37m,
leading to a healthy increase in margins to 18%. The division subdivides into
Interconnect and Air Movement. Interconnect moved ahead rapidly, improving its
profits by a quarter, even before seeing the benefit of current year
acquisitions. Air Movement made slower progress.
Within Air Movement, the US activities continued to perform well, on the back
of a strong economy. In the UK and in continental Europe, demand has been more
restrained. A restructuring exercise is currently underway in the fans
business which will bring the broad range of industrial ventilation systems
into a unified organisation. Even in these difficult conditions, this business
remains highly profitable, with margins close to the norm for Smiths
Industries.
The Interconnect business specialises in highly-engineered products which meet
demanding customer specifications in aerospace, defence, transportation,
automation and now, increasingly, in telecoms infrastructure. Interconnect has
capitalised on the fast expanding market in wireless telecom installations by
providing high-integrity connectors, surge suppressors and filters for power
and RF signals, microwave assemblies and cable protection. This cluster of
products is essential to the reliable operation of a cellular telephone base
station.
The company's involvement in the interconnect sector has been built up through
a series of acquisitions, which during this half-year included electronic
filter company Sabritec for £33m and transient suppressor company LEA for £7m,
both completed in January. Just after the end of the period the acquisition of
RF attenuator company EMC Technology was completed at a cost of £26m.
Together with earlier acquisitions in this sector, Smiths Industries now has a
valuable niche in this specialised market and is poised for further growth,
both in telecommunications and in defence electronics.
Overall, this has been a much better first half for Industrial. The benefit of
focusing on a range of highly engineered components for advanced technology
applications is starting to show through, and this will be the driver for
further growth ahead from this division
Page 6 of 13
Smiths Industries: Interim Results 2000
The Board of Smiths Industries has been strengthened by recent appointments.
Lawrence Kinet(52), a US citizen with broad international experience in the
healthcare sector, joined as an executive in February. He will take over as
head of Medical Systems following the retirement of George Kennedy CBE in
August. John Ferrie(53), a UK citizen currently responsible for a major Rolls
Royce business unit in North America, will join the company as an executive in
April. He will succeed Norman Barber as head of Aerospace from the start of
the next financial year. Julian Horn-Smith (51), a UK citizen and Chief
Executive of Vodafone AirTouch International, joined as a non-executive in
February.
The Prospects for the company are for continued organic growth in sales and
profits which, boosted by the benefit from recent acquisitions, are expected
to result in sustained improvements in profits, cash and earnings per share.
An Interim Dividend will be paid on 17 May 2000 to holders of all ordinary
shares whose names are registered at close of business on 31 March 2000, and a
scrip dividend will be offered as an alternative. Copies of the half yearly
report are being sent to shareholders and will be made available to the public
at the company's registered office, 765 Finchley Road, London NW11 8DS.
By Order of the Board, 14 March 2000, Alan Smith, Secretary.
Tabular information below
Profit and Loss Account
Summarised Balance Sheet
Summarised Cash-Flow Statement
Analyses of turnover and profits
Acquisitions
Borrowings and net debt
Movements in shareholders' equity
Note:
These results have been prepared in accordance with accounting policies set
out in the company's accounts for 52 weeks to 31 July 1999. Figures reproduced
relating to that period are abridged; full accounts on which the auditors made
an unqualified report have been delivered to the Registrar of Companies.
page 7 of 13
Smiths Industries: Interim Results 2000 - unaudited
PROFIT AND LOSS ACCOUNT
26 Weeks ended 26 Weeks ended 52 Weeks ended
31 January 2000 31 January 1999 31 July 1999
£m £m £m
Continuing operations 640.7 606.7 1323.9
Acquisitions 8.0
------ ------ ------
Turnover 648.7 606.7 1323.9
------ ------ ------
Continuing operations 112.3 102.7 247.5
Acquisitions 0.8
------ ------ ------
Operating profit before
goodwill amortisation 113.1 102.7 247.5
Goodwill amortisation
- continuing operations (2.4) (0.5) (3.0)
- acquisitions (0.2)
------ ------ ------
Operating profit after
goodwill amortisation 110.5 102.2 244.5
Net interest payable (2.9) (3.1) (7.0)
------ ------ ------
Profit before taxation* 107.6 99.1 237.5
Taxation (33.0) (30.7) (74.0)
------ ------ ------
Profit after taxation 74.6 68.4 163.5
Minority interests (0.2) (0.1) (0.3)
------ ------ ------
Profit for the period 74.4 68.3 163.2
Dividends (25.5) (23.1) (67.9)
------ ------ ------
Retained Profit 48.9 45.2 95.3
====== ====== ======
*Profit before taxation
and goodwill amortisation 110.2 99.6 240.5
Earnings per share
Basic - before goodwill
amortisation 24.5p 22.2p 53.5p
- after goodwill
amortisation 23.7p 22.0p 52.5p
Fully-diluted 23.5p 21.9p 52.0p
Dividends per share 8.1p 7.4p 21.65p
page 8 of 13
Smiths Industries: Interim Results 2000 - unaudited
SUMMARISED BALANCE SHEET
31 January 2000 31 January 1999 31 July 1999
£m £m £m
Fixed assets
Intangible assets 232.1 78.0 91.5
Tangible assets 236.6 225.4 231.5
Investments and advances 0.2 0.2 0.2
------ ------ ------
468.9 303.6 323.2
Current assets
Stocks 223.4 209.0 203.9
Debtors 357.0 320.9 351.3
Cash at bank 70.6 88.2 93.4
------ ------ ------
651.0 618.1 648.6
Creditors: amounts falling due
within one year (535.7) (454.2) (446.1)
------ ------ ------
Net current assets 115.3 163.9 202.5
Total assets less
current liabilities 584.2 467.5 525.7
Creditors: amounts falling due
after one year (100.4) (98.1) (99.2)
Provisions for liabilities
and charges (68.4) (74.8) (68.0)
------ ------ ------
415.4 294.6 358.5
====== ====== ======
Capital and reserves
Share capital and
share premium account 182.9 154.3 169.5
Reserves 225.5 134.4 182.8
------ ------ ------
Shareholders' equity 408.4 288.7 352.3
Minority equity interests 7.0 5.9 6.2
------ ------ ------
Capital employed 415.4 294.6 358.5
====== ====== ======
page 9 of 13
Smiths Industries: Interim Results 2000 - unaudited
SUMMARISED CASH-FLOW STATEMENT
26 Weeks ended 26 Weeks ended 52 Weeks ended
31 January 2000 31 January 1999 31 July 1999
£m £m £m
Operating profit 110.5 102.2 244.5
Goodwill amortisation 2.6 0.5 3.0
Depreciation 18.3 17.2 35.6
Movements in working capital (39.8) (22.2) (39.7)
------ ------ ------
Net cash in-flow from
operating activities 91.6 97.7 243.4
Capital expenditure
(net of disposals) (19.8) (24.4) (48.4)
------ ------ ------
Operating cash-flow after
capital expenditure 71.8 73.3 195.0
Interest paid (2.1) (2.4) (8.1)
Tax paid (27.8) (22.8) (70.4)
------ ------ ------
Free cash-flow 41.9 48.1 116.5
Dividends (37.6) (22.9) (37.0)
New shares 2.8 2.8 9.1
------ ------ ------
7.1 28.0 88.6
Acquisitions and disposals (156.9) (89.0) (98.7)
Cash/(borrowings) with
acquisitions 5.0 5.0
------ ------ ------
(149.8) (56.0) (5.1)
Exchange variation (2.1) (0.7) (5.5)
------ ------ ------
Increase in net debt (151.9) (56.7) (10.6)
Net debt at beginning
of period (93.4) (82.8) (82.8)
------ ------ ------
Net debt at end of period (245.3) (139.5) (93.4)
====== ====== ======
page 10 of 13
Smiths Industries: Interim Results 2000 - unaudited
Analyses of turnover and profit
26 Weeks ended 26 Weeks ended 52 Weeks ended
31 January 2000 31 January 1999 31 July 1999
£m £m £m
Market
Aerospace 241.9 236.2 528.5
Medical Systems 197.8 171.8 376.2
Industrial 209.0 198.7 419.2
------ ------ ------
648.7 606.7 1323.9
====== ====== ======
Profit
Aerospace 38.7 38.0 98.5
Medical Systems 37.6 32.5 76.0
Industrial 36.8 32.2 73.0
------ ------ ------
113.1 102.7 247.5
Goodwill amortisation (2.6) (0.5) (3.0)
------ ------ ------
Operating profit 110.5 102.2 244.5
Net interest (2.9) (3.1) (7.0)
------ ------ ------
Profit before taxation 107.6 99.1 237.5
====== ====== ======
Geographical origin
Turnover
United Kingdom 281.0 281.5 603.6
USA 312.8 277.6 612.2
USA dollars $506.7 $460.9 $1004.0
Europe 60.6 64.6 135.0
Other overseas 43.8 35.5 76.5
Inter-company (49.5) (52.5) (103.4)
------ ------ ------
648.7 606.7 1323.9
====== ====== ======
Profit
United Kingdom 44.7 42.6 101.9
USA 60.2 51.3 124.3
USA dollars $97.5 $85.2 $203.9
Europe 4.0 5.9 14.3
Other overseas 4.2 2.9 7.0
------ ------ ------
113.1 102.7 247.5
Goodwill amortisation (2.6) (0.5) (3.0)
------ ------ ------
Operating profit 110.5 102.2 244.5
====== ====== ======
Dividends
An interim dividend of 8.1p per share (1999 7.4p) has been declared and will
be paid on 17 May 2000 to holders of all ordinary shares whose names are
registered at close of business on 31 March 2000.
Earnings per share
Separate figures are given for earnings per share related to the average
number of shares in issue for each period -
26 Weeks ended 26 Weeks ended Year ended
31 January 2000 31 January 1999 31 July 1999
Basic 314,276,749 309,388,518 310,932,199
Effect of dilutive
share options 2,247,677 2,237,831 2,558,478
Fully-diluted 316,524,426 311,626,349 313,490,677
page 11 of 13
Smiths Industries: Interim Results 2000 - unaudited
ACQUISITIONS
During the period the company acquired the issued share capitals of
Environmental Technologies Group (ETG) and a number of businesses from
Invensys plc for Aerospace, and Sabritec and LEA International Inc (LEA) for
Industrial.
Details of the consideration paid, amounted treated as goodwill and the net
assets acquired are set out below. These values are provisional, and
following completion of the ongoing review, will be finalised in subsequent
financial statements.
Date of Net
Acquisition Consideration Goodwill Assets
£m £m £m
ETG 4.8.99 7.4 7.8 (0.4)
Invensys business 31.1.00 110.2 100.8 9.4
Sabritec 14.1.00 32.5 28.1 4.4
LEA 28.1.00 6.8 6.2 0.6
------ ------ ------
156.9 142.9 14.0
====== ====== ======
In accordance with the provisions of FRS10, the company amortises goodwill
arising on acquisitions after 1 August 1998 on a straight-line basis over a
period of up to 20 years. The charge for the period to 31 January 2000 was
£2.6m.
BORROWINGS AND NET DEBT
Fixed borrowings
Interest Years Floating Total Total
rate fixed Amount borrowings 2000 1999
£m £m £m £m
Currencies:
Sterling 9.18% 3.8 8.5 12.3 8.7
US dollar 8.32% 2 16.8 254.1 270.9 164.0
EMU participants 6.7 6.7 9.3
Yen 1.75% 3.6 22.4 26.0 44.1
Other 1.6
------ ------ ------ ------
24.2 291.7 315.9 227.7
------ ------
Cash and deposits 70.6 88.2
------ ------
Net debt 245.3 139.5
------ ------
Maturity:
On demand/under one year 7.4 240.8 248.2 160.5
One to two years 0.2 2.1 2.3 3.8
Two to five years 16.6 48.8 65.4 63.4
------ ------ ------ ------
24.2 291.7 315.9 227.7
------ ------ ------ ------
page 12 of 13
Smiths Industries: Interim Results 2000
MOVEMENTS IN SHAREHOLDERS' EQUITY
2000 1999
£m £m
Profits for the period 74.4 68.3
Dividends (25.5) (23.1)
------ ------
48.9 45.2
Exchange variations (2.8) 3.2
Share issues 10.0 19.9
Goodwill on prior year acquisitions (1.3)
------ ------
Net increase in shareholders' equity 56.1 67.0
Shareholders' equity:
at 1 August 1999 352.3 221.7
------ ------
at 31 January 2000 408.4 288.7
------ ------
Page 13 of 13
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