1 Underlying excludes the impact of acquisitions and divestments, and the effects of foreign exchange translation
|Reported growth||Underlying growth#||2016
|Operating margin||17.3%||17.6%||(30) bps||(40)bps||13.1%||13.6%|
|Headline free cash-flow||400||339||18%|
|Return on capital employed||15.3%||16.0%||(70)bps|
*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
#Organic growth adjusting for foreign exchange translation
Andy Reynolds Smith, Group Chief Executive, commented:
“Smiths Group delivered a robust performance this year. We achieved good growth in headline operating profits with associated margin expansion in our Medical, Detection and Interconnect divisions, driven by revenue growth and business improvement initiatives. However, significant headwinds in the global energy markets impacted John Crane, primarily in the sales of first-fit equipment; aftermarket was more resilient with underlying revenue down 4%. For Smiths Group as a whole, more than half of our revenue continued to come from the recurring aftermarket for our products and services.
“In the first year as CEO, my aim has been to lay the foundations for future value creation through stronger growth, improved competitiveness, more robust and consistent execution and a better focused portfolio. We have undertaken a strategic review across the Group to examine in detail the sustainable growth characteristics of the markets we serve and our competitive positioning within those markets. We start from a solid base with a Group of well-run and well-positioned businesses, with nearly two-thirds of Group revenues coming from market segments that have attractive growth rates. We see clear potential to increase our exposure to faster growing market segments and to improve our overall market competitiveness in the medium term as we take steps to focus our portfolio.
“Our strategic review gives us a clearer sense of where to focus investment in order to drive future growth and technological differentiation, and we have aligned our capital allocation process accordingly. As a result, we were able to commit $710m for the acquisition of Morpho Detection, and to make progress on the disposal of non-core assets. We will increase expenditure on research and development by around £20m in the coming year to invest in future growth opportunities, with a particular focus on our digital future. In parallel, we are implementing measures across the business to ensure continuous improvement and greater consistency of execution in everything we do in order to deliver productivity improvements across the Group. I am confident that, over the long term, our strategy will drive Smiths to become one of the world’s leading technology companies.
“We anticipate a broad continuation of the trends experienced in 2016, with ongoing challenges in John Crane’s end markets being more than offset by moderate underlying revenue growth in our other divisions. As is typically the case, Group performance in 2017 is expected to be weighted towards the second half. We expect cash conversion to continue to be strong in the coming year and the recent depreciation of sterling is expected to provide a tailwind to reported revenue and operating profit, should current rates prevail.”
Statutory reporting takes account of all items excluded from headline performance. On a statutory basis, pre-tax profit from continuing operations was £346m (2015: £325m) and earnings per share were 65.6p (2015: 62.4p).
See Accounting policies for an explanation of the presentation of results and note 3 to the accounts for an analysis of non-headline items.
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Andrew Lorenz, FTI Consulting
+44 (0)20 3727 1323
+44 (0)77 7564 1807
The presentation slides and a live webcast of the presentation to analysts are available www.smiths.com/results at 09.00 (UK time) on Wednesday 28 September. A recording of the webcast is available later that day. A live audio broadcast of the presentation is also available by dialling (no access code required):
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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.
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