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Smiths Group plc (LON:SMIN) today announced its Annual Results for the year ended 31 July 2019.
Continuing Operations – excluding Smiths Medical
· Further good growth, in line with expectations
o Underlying revenue +3%, building on the Group’s return to growth last year. Strong performances in John Crane, Flex-Tek and Interconnect, moderated by the timing of deliveries in Smiths Detection
o The net impact of acquisitions and disposals and favourable foreign exchange translation each added a further 2% to revenue growth. As a result, reported revenue increased 7%
· Focused on operational excellence
o Good underlying headline operating profit growth, +4%
o Continued margin improvement, +40bps to 17.1%
· Value creative investment
o Continued investment for sustainable growth, with cash R&D 4.5% of sales (FY2018: 4.1%)
o Further progress on portfolio optimisation – now over 90% well positioned. Two acquisitions completed during the year including Flex-Tek’s acquisition of United Flexible for $345m in February 2019
Discontinued Operations – Smiths Medical
· Separation of Smiths Medical on track for H1 CY2020
o Returned to growth in H2, with underlying revenue +2%; flat for the year with an improved margin in H2
o Further New Product Introductions (NPIs) and submission of its large volume pump to the US regulator for first phase review
o New Smiths Medical CEO, JehanZeb Noor, joined in July
Total Group
· Strong financial framework
o The differences between headline and statutory operating profit are non-headline items as defined in note 3 to the accounts, of which the largest constituents are the amortisation of acquired intangibles, and the Guaranteed Minimum Pensions (GMP) equalisation
o Basic headline EPS up 7% to 96.8p but down 19% on a statutory basis due to the reasons stated above
o Continued strong balance sheet; net debt to EBITDA 1.8x
o Operating cash conversion 83%, temporarily impacted by working capital – increase in current receivables following strong end to the year and higher inventory associated with order phasing in Smiths Detection and John Crane
o Proposed final dividend of 31.80 pence per share. Full year dividend increased by 3%
Outlook
o Further progress expected in FY2020, with year on year growth weighted towards the first half; resulting in a more even balance in overall performance between the first and second halves
o If current rates prevail, foreign exchange will provide a tailwind
o Improved operational excellence and cash generation
o On course to grow faster than our markets over the medium-term
Andy Reynolds Smith, Group Chief Executive, commented:
“FY2019 was a significant year in the evolution of Smiths. We continue to build sustainable growth, paving the way to outperform our markets. Importantly, this growth was coupled with enhanced margins, we have now delivered a 300 basis points margin improvement since 2016. In addition, we continued to optimise our portfolio, with two acquisitions completed in the year.
In this context of progress and confidence in the future, we announced plans to separate Smiths Medical to create two stronger, industry-leading companies. I am delighted to have welcomed JehanZeb Noor as CEO of Smiths Medical. The separation process is progressing well; we are on track for demerger by the end of the first half of CY2020.
In FY2020 we expect to make further progress, with year on year growth weighted towards the first half and resulting in a more even balance in overall performance between the first and second halves. At current rates, foreign exchange will provide a tailwind to revenue and profit.
We remain on course to grow faster than our markets over the medium-term. Our strategy is to focus the portfolio for growth and deliver world-class competitiveness, within a strong financial framework. The Board remains confident that this will drive long-term sustainable growth and attractive returns.”
Statutory reporting
Statutory reporting takes account of all items excluded from headline performance. On a statutory basis, total Group profit for the year was £227m (FY2018: £279m) and basic earnings per share were 56.8p (FY2018: 70.0p).
See accounting policies for an explanation of the presentation of results and note 3 to the financial statements for an analysis of non-headline items.
Footnotes
The following definitions are applied throughout the document:
1Headline: In addition to statutory reporting, Smiths Group reports on a headline basis except for balance sheet and cash-flow. Definitions of headline metrics, and information about the adjustments to statutory measures, are provided in note 3 to the financial statements
2 FY2018 has been restated for IFRS 15 and the Smiths Medical reclassification as discontinued operations
3 Underlying modifies headline performance to adjust prior year to reflect an equivalent period of ownership for divested businesses and excludes the effects of foreign exchange, acquisitions and supplemental sales for divested businesses
4 Continuing operations exclude Smiths Medical which is accounted for as ‘discontinued operations – businesses held for distribution to owners’, given the intended separation of Smiths Medical by the end of the first half of CY2020
5 Discontinued operations is defined in note 27 to the financial statements
6 Revenue from higher growth regions is comprised of territories whose real GDP growth exceeds the G7 average