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www.smiths.com
Interim Results
20 March 2013
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Smiths Group plc Interim Results 2013 | 2
This document contains certain statements that are forward-looking statements. Theyappear in a number of places throughout this document and include statementsregarding 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 weoperate. By their nature, these statements involve uncertainty since future events and
circumstances can cause results and developments to differ materially from thoseanticipated. The forward-looking statements reflect knowledge and informationavailable at the date of preparation of this document and, unless otherwise requiredby applicable law, the Company undertakes no obligation to update or revise theseforward-looking statements. Nothing in this document should be construed as a profitforecast. The Company and its directors accept no liability to third parties in respectof this document save as would arise under English law. This presentation contains
brands that are trademarks and are registered and/or otherwise protected inaccordance with applicable law.
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Philip BowmanChief Executive
Introduction
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Agenda
Introduction and overview Philip Bowman
Financial review Peter Turner
Operational review introduction Philip Bowman
John Crane Duncan Gillis
Smiths Medical Srini Seshadri
Operational review and priorities Philip Bowman
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Key messages
Resilient results in a challenging trading environment
Channelling greater sales and marketing resource to high growth marketsEmerging market sales up 9% - now representing 15% of Group revenues
Focus on operational improvement to improve margins/fund growthSmiths Detection restructuring programme and continuous improvement elsewhere
Further opportunities to generate value for shareholders
Delivering growth in profit and returns while investing more in growth drivers
Increased investment in new product developmentCompany-funded R&D investment up 8% in H1 up c. 60% over five years
Raising the bar for talent across the organisation
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Results highlights
Reported headline revenue up 4%; underlying up 6%
Headline operating profit up 4%, underlying up 5%
Headline EPS up 1% to 40.9p
Cash conversion strong at 88% - free cash flow of 71m
Return on capital employed up 70 basis points to 16.7%
Dividend up 6% to 12.5 pence, reflecting the strong cash conversion
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Recordable & lost time incident rates continue to improve
1.03
0.710.66
0.600.54**
0.51
0.30 0.29
0.21 0.22
2009 2010 2011 2012 H1 2013
Recordable incident rate*
Lost time incident rate
Incidentrate
Energy:21% reduction
Greenhouse gases:
25% reduction Water:
24% reduction
Non-recycled waste:21% reduction
*** Calculated over rolling 12-month period
to Jan 2013 compared to current goal
baseline of FY2010. Normalised to
revenue at H12013 exchange rates.
Solid progress onenvironmental targets***
Promoting responsibility: An increased focus is delivering improvements
* Measured per 100 employees per year using US OSHA definition
** 0.50 excluding recently acquired businesses
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Peter TurnerFinance Director
Financial review
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* 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 financinggains/losses from currency hedging. Free cash-flow and return on capital employed are defined in the Financial review in the press release.
** Organic growth at constant currency.
Headline* Statutory
reported underlying**
2013 2012 2013 2012
Revenue 1,475 1,415 4% 6% 1,475 1,407
Operating profit 253 244 4% 5% 215 132
Margin 17.1% 17.2% (10) bps - 14.6% 9.4%
Pre-tax profit 223 217 3% 6% 188 111
Basic EPS (p) 40.9 40.4 1% 35.8 21.4
Free cash flow 71 81
Dividend (pps) 12.50 11.25 6% 12.50 11.25
Return on capital employed 16.7% 16.0% 70 bps
m
Interim results 2013
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Revenue Operating profit
growth growth
John Crane +3% +7%
Smiths Medical +2% -10%
Smiths Detection +19% +56%
Smiths Interconnect +4% +13%
Flex-Tek +11% +20%
Group +6% +5%
Underlying headline sales and profit performance
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Headline profit progression 2012 to 2013
PBT:217m
PBT:223m15m
Volume
Associates
4m
5m
Average exchange rates
US$ 1.60 (H1 2012: 1.58)Euro 1.24 (H1 2012: 1.16)
Translation FX ready reckoner1 US cent = c. 2m HOP
1 Euro cent = c. 1m HOPCost
inflation
5mIncreased
R&D
5m5m
Price/mix
Sales &marketing
7m10m
Efficiencies
FX
3m
Volume: Volume growth across all divisions
Price: Positive in John Crane and Flex-Tek offsetting negative pricing in Medical and adverse mix
Increased R&D: Higher new product investment across 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 inflationary increases
Associates: The impact from the sale of Crossmatch Technologies in July 2012
Foreign exchange: Translation losses of 4m offset by transactional gains of 1m
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m (for continuing activities) 2013 2012
Headline operating profit 253 244
Changes in working capital (43) (51)
Share based payment 6 5
Capital expenditure (Property, plant & equipment) (21) (21)
Depreciation 27 28
Development costs & other intangibles 1 (4)
Operating cash-flow 223 201
Conversion rate 88% 82%
(net of amortisation and deferred income)
Group cash conversion
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Return on capital employed is calculated over a rolling 12-month basis and is the percentage that headline operating profit comprises ofmonthly 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.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Smiths Group Flex-Tek John Crane Smiths Medical SmithsInterconnect
Smiths Detection
12 months to 31 Jan 2013
12 months to 28 Jan 2012
% 16.0%16.7%
25.1%
29.8%
23.8% 24.3%
12.8% 12.3%
17.3% 16.9%
7.6%
12.2%
Improved return on capital from Flex-Tek, John Crane and Detection
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m
Headline operating profit 253
Restructuring programmes (5)
Litigation provision: John Crane, Inc. (10)
Litigation provision: Titeflex Corporation (2)
Gains on changes to pension plans 1
Profit on disposal of businesses 1
Exceptional operating items (15)
Amortisation and impairment of acquired intangible assets (23)
Statutoryoperating profit 215
Key exceptional items below operating profitPension finance credit 6
Reconciliation: Headline operating profit to statutory profit
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*Treated as exceptional costs except for 7m charged against headline operating profit in FY2012
m H1 2013 savings H1 2013 costs Total savings to date Total costs to date*
4 5 19 25
Revised
by FY2015Total planned savings Total planned costs*
36m 33m
Exceptional items: Restructuring programme in Detection delivering benefits
Original
by FY2014Total planned savings Total planned costs*
40m 40m
Achievements over 18 months
Site closures Morristown NJ, Rhode Island, Boston MA, Hopewell Junction NY, Milford CT,Laval, Canada
Aligning X-ray manufacturing footprint to customer needs focusing on 3 hubs:
- Americas - Expansion of Edgewood to include X-ray manufacture
- Asia - New site in Malaysia is now serving the Asian market
- Europe Agreed a restructuring plan with Wiesbaden to remove 170 roles
Beginning to establish a local supply chain to support new footprint
Senior management restructuring programme at key sites
Delivered these changes while growing the business and building the order book
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Cash contributionsDeficit movement since 31 July 2012
m 31 January 2013 31 July 2012 28 January 2012
Assets 3,517 3,348 3,232Liabilities (3,899) (3,968) (3,691)
Deficit (382) (620) (459)
UK bond yields 4.5% 4.1% 4.7%UK inflation 3.4% 2.8% 3.0%US bond yields 4.2% 3.8% 4.5%
2013
Funded schemecontributions 90m
- Smiths Industries PS 36m
- TI Group PS 16m
- US and other 38m
Escrow contributions 24m
m
Deficit at 31 July 2012 (620)
Foreign exchange 1
Return on assets 238
Contributions (net of service costs) 41
Change in liabilities (42)
Deficit at 31 Jan 2013 (382)
Inc luding escrow gi l ts of 74m (308)
Pensions: Deficit improved to 382m, driven by asset performance
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Interest split Currency split Debt split
Bank
Public
USD
Euro
other
Net debt m
Borrowings 1,109
Cash (254)
Net debt 855Fixed
Floating
Undrawn committed bank facilities of US$800m at 31 January 2013
Strong balance sheet supports investment in acquisitions and growth
Credit Rating:BBB+ (stable)/Baa2 (stable)
Successful $400m bondissue with 10 year maturityand fixed coupon of 3.625%
Weighted average life of debt is 5.9 years
Bonds$ Privates $ Bonds Bonds
m
0
50
100
150
200
250
300
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
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Philip BowmanChief Executive
Operational review and priorities
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Delivering shareholder value two key themes
Investing to accelerate revenue growth over the medium-term Increasing exposure to high growth markets, e.g. China, Brazil, India
New product development to sustain technology leadership
Rebalancing portfolio away from government-funded customers
Continue to look for value enhancing acquisitions
Operational improvements to fund growth and drive returns
Further opportunities for efficiencies scale varies by division
Improving performance and capabilities through cross-divisional working
Sustain strong cash generation to fund growth
Balance investment for long-term competitive advantage vs short-term returns
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Duncan GillisCEO & PresidentJohn Crane
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Sales growth across all sectors, particularly oil & gas and chemical
Aftermarket sales grew 4%
- Pipeline expansion projects in North America for shale oil
- Oil and gas aftermarket up 4%
- Chemical and pharmaceutical aftermarket up 6%
First-fit OEM sales up 1% - customer investments in new projectsslowed
Margins benefited despite increased investment in first-fit projects,sales & marketing and new product development
2013 H1 Revenue (469m)
1 First-fit OEM 36%
5 General Industry 9%
2 Oil, gas & petrochem 39%
3 Chemical and pharma 9%
4 Distributors 7%
1
2
3
45
Aftermarket 64%
Underlying revenue Headline operating marginUnderlying headline profit
John Crane: Delivering sales growth, improving margins and returns
+3% +7%+90bps21.8%
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Investments in growth markets are starting to pay off Emerging markets and fast-growth businesses represent over 21% of John Crane sales
First-half sales up in several regions
>10% in Middle East & Africa, >13% in China, >20% in Australia
New products expected to drive mid-term growth
16% increase in new product development and engineering
Plans to expand R&D infrastructure in select regions Focused on addressing customer demands in challenging operating situations
John Crane: Investments position John Crane for future growth
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Outlook
First fit customer slowdownexpected to continue
Order book slightly better due toaftermarket business
Overall, H2 revenues at a similarlevel versus last year
Margins will benefit fromproductivity efforts
John Crane: Outlook
Fitting a locking sleeve into the inboard stage of a gas seal
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Positive long-term customer relationships deliver sustainable and strong cash flow High net promoter scores speak to strength of customer relationships
Several, large, multi-year customer contracts signed
Strong operational leadership focused on meeting customer needs and local demand
Business strategy is under evaluation some adjustment in direction anticipated
May reorganise to enhance customer service
Continue to build core business Accelerate growth in select segments
Drive productivity
Explore acquisitions
John Crane: Accelerating growth to increase value to shareholders
Investor Day currently planned for December
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Srini SeshadriPresidentSmiths Medical
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+2% (10)%(240)bps21.1%
Sales growth despite challenging operating environment
Consumables up 2%; hardware up 1%
Safety devices - sales flat
- Growth in sharps offset by declines in PIVC and vascular access
Medication delivery - sales slightly up
- Capital budget constraints continue but pipeline is promising
Vital care - sales up 4%- Gains in most product areas offset by veterinary and kitting
Margins affected by additional 10m investment in emerging marketexpansion and new product development
1 Medication delivery 27%
2 Vital care 42%
3 Safety devices 31%
1
2
3
Smiths Medical: Delivering sales growth from emerging markets and consumables
* Headline revenue
2013 H1 Revenue* (413m)Underlying revenue Headline operating marginUnderlying headline profit
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Building sales capabilities in high-growth emerging markets Added almost 300 heads over last 18 months
Investing to accelerate sales and generate returns over the medium term
Lead time in recruiting and training people and to build brand presence
Product registration process can be lengthy
Strategy is delivering faster growth rates but more work to be done Emerging markets up 12%: China up 17% and Brazil up 18%
Now represent 11% of sales (2012: 10%)
Smiths Medical: Investing in growth opportunities emerging markets
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Accelerating new product launches: investment up 16% to 4.4% of sales (2012: 3.8%)
Continued to streamline the organisation, upgrade talent and improve processes
Expanded Chinese engineering team by >20%
Strategy is delivering new product launches
Medfusion 4000 strong start; growth rate has slowed recently
CADD-Solis VIP recently received FDA clearance Good progress with Graseby 2000/2100 syringe pumps in China and other developing
markets
Recent safety devices launches: Jelco IntuitIV and ViaValve
Smiths Medical: Investing in growth opportunities new product launches
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Outlook
Developed markets are likely toremain challenging
Focus will remain on investment innew product development
Investing in sales and marketing;increasing emerging marketexposure
Lower margins: regulatory costs:US medical device tax (2.3%) andREACH/RoHS compliance
Focus on cost savings such asvalue engineering to offset highercosts
Smiths Medical: Outlook
Portex EpiFuse Catheter Connector reduces risk of catheterdisconnection
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+19% +56%+270bps
Revenue growth driven by transportation and ports and bordersoffset by declines in critical infrastructure
Margins benefit from better volumes and restructuring savings
Transportation underlying sales up 40%- Doha contract and smaller orders at various European airports
Critical infrastructure underlying sales down 22%- US budget pressure and caution around the fiscal cliff
Ports & borders underlying sales up 41%- Contracts in Brazil and other emerging markets; customs protection
Military underlying sales up 14%- US JCAD programme and other integrated systems programmes
1 Transportation 52%
5 Critical infrastructure 16%
2 Ports & borders 17%
3 Military 10%
4 Emergency responders 3%
6 Non security 3%
1
2
3
4
5
6
12.0%
Smiths Detection: Improving sales trend; margins benefit from restructuring
2013 H1 Revenue (255m)Underlying revenue Headline operating marginUnderlying headline profit
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Increased investment in new products strong pipeline of new launches Company funded spend maintained at 17m or 6.6% of sales (2012: 7.6%) Total spend of 20m or 8.0% of sales with 3m of customer funded projects
Recent product launches CIP-300: low energy X-ray scanner for rapid screening of cars and light vehicles HI-SCAN 10080 XCT: next generation explosives scanner under evaluation by USA
Continued focus on emerging market sales
Emerging market sales up 14% to represent around 19% of sales Malaysian factory supplying Asia; Focus on opportunities in Middle East and North Africa
Aftermarket revenues grew 5% Global organisation and increased focus is delivering benefits New training programme in place leading to reduced service interventions
Smiths Detection: Investing in future growth through new products and markets
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Outlook
Targeting a similar level of revenuein second half as very strongequivalent period last year
Remains subject to government
budgets and project timing
Order book remains strong
Margins will benefit from costsavings and operational efficiencies
Smiths Detection: Outlook
An emergency responder using GUARDION to identify potentiallydangerous chemicals
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+4% +13%+40bps13.5%
1 Connectors 34%
2 Microwave 44%
3 Power management 21%
1
2
3
Smiths Interconnect: Sales and margins improve against a weak comparator
Sales growth from Connectors and Microwave offset by Power
Margins benefited from better volumes and cost savings
Connectors sales up 7%- Recovery in medical; growth in commercial aerospace and space
- Robust demand from military customers,
Microwave sales up 13%- Good growth in military, aerospace and test markets
- Telecom declines against a strong comparator period
Power management underlying sales down 21%- Difficult market conditions facing PDI- Delays in US orders for power and EMP protection devices
2013 H1 Revenue (219m)Underlying revenue Headline operating marginUnderlying headline profit
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Continued investment in new product development Company-funded R&D increased 3% to 11m or 5.2% of sales (2012: 5.5%)
Customer-funded portion declined 33% due to US defence budget cuts
Total R&D spend of 13m or 5.9% of sales (2012: 6.6%)
New product initiatives include:
- New lightweight battery-powered PIM tester for mobile communications networks
- Microwave filter for train communications to prevent interference from public mobile
phones
Expansion in emerging markets
Emerging market sales up 21% to represent c. 15% of sales
Smiths Interconnect: Investing in new products and emerging markets
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Smiths Interconnect: Outlook
Outlook
Cautious outlook
Defence market is likely to remainchallenging
Commercial markets (telecoms,semiconductor test, data centres)are expected to deliver long-termgrowth
However, timing on marketrecoveries is uncertain
Assembly of static transfer switches, a key component of PDIsproduct offer
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+11% +20%+120bps16.7%
1 Fluid Management 34%
2 Construction 30%
3 Heat Solutions 21%
1
2
4
4 Flexible Solutions 15%
3
Strong sales growth from aerospace and US residential construction- margins up 120 bps from higher volumes and price
Fluid Management - sales grew 11%- Volume growth on major airframe platforms and engines- US automotive sales for fuel/brake applications remained robust
Construction - sales up 26%- Improved demand; single family home starts up 18% to December
Heat Solutions - sales down 1%- Weak sales of HVAC components; growth in specialty heating elements
Flexible Solutions - sales up 4%- Sales of new sleep apnoea product offset US floorcare declines
Flex-Tek: Strong growth from Fluid Management and Construction; margins benefit
2013 H1 Revenue (120m)Underlying revenue Headline operating marginUnderlying headline profit
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Outlook
Order book for aerospacecustomers remains positive
Residential construction marketshould continue to improve
Solid foundation for H2 albeitagainst a strong comparator
Margins will benefit from highervolumes but face pressure fromincreased R&D investment,competitive pricing and potential
commodity inflation
Flex-Tek: Outlook
Fluorescent penetrant shows hidden imperfections in aerospace tubes
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Deliver new product launches to accelerate sales growth
Invest in sales and marketing capabilities in high growth markets
Drive operational efficiencies to improve margins and support investment
Sustain strong cash conversion to fund growth initiatives and enhance value
Effective capital allocation to drive improved returns and value for shareholders
Operational priorities for 2013
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Questions & Answers
Interim Results
20 March 2013
www.smiths.com
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1
A world-leading provider of products andservices for the major process industries,including oil and gas, power generation,chemical, pharmaceutical, pulp and paper,and mining sectors.
973m32%
36%Employees:
7,000
Percentage relates to headlineoperating profit before corporate costs
2012 Revenue by sector
1 First-fit OEM 37%
5 General Industry 9%
2 Oil, gas & petrochem 39%
3 Chemical and pharma 8%
4 Distributors 7%
Aftermarket
Revenue m
626
790 786
894973
2008
Contribution to2012 Group revenue:
Contribution to 2012headline operating profit:
John Crane
2009 2010 2011 2012
2
3
45
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Customers: John Crane serves oil and gas andpower generation companies, refineries, pumpand compressor manufacturers, chemical andother process industries. Its main customersinclude Chevron, BP, China Petroleum,Suncor/Petro Canada, Valero, Petrobras,ExxonMobil, Gazprom, TOTAL, Sabic, PDVSA,
Pemex, Saudi Aramco, Shell, Petrom, Sulzer,ITT Goulds, Flowserve, GE Nuovo Pignone, GEEnergy and Power, Andritz Hydro, Rolls Royce,Siemens, Mitsubishi, Solar Turbines, Elliot, York,BASF, Weir Group, Bayer, and Dow. Nocustomer is larger than 3% of sales.
Competitors: For rotatingequipment technologies, JohnCranes main competitors are
Flowserve and Eagle BurgmannIndustries (mechanical seals);Kingsbury and Waukesha(engineered bearings); Pall and
Hydac (filtration systems); Rexnordand Emerson (couplings). Forequipment in upstream energy, JohnCranes principal global competitors
include Weatherford and Norris.
Suppliers: John Craneoperates its supply chainglobally, using global, regionaland local partnerships to meetthe required service levels. Itsmain suppliers are MorganCrucible, CoorsTek, Penn
United Carbide, Schunk,Metalized Carbon, ESK, EarleM. Jorgensen, Femax, BEGroup, DuPont, GreeneTweed, and Ashland Chemical.
John Crane
Delivering engineered solutions that keep process plants running, John Craneenhances customer productivity by providing advanced technology industrialproducts and performance-enhancing services backed by an exceptional globalnetwork.
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m 2013 2012 reported underlying
Revenue 469 469 +0% +3%
Headline operating profit 102 98 +4% +7%
Margin 21.8% 20.9% +90 bps
ROCE 24.3% 23.8% +50 bps
Volume: Driven by both aftermarket and OEM
Price/mix: Mainly aftermarket price increases
Investment: Increased R&D spend
Inflation: Increased labour/other costs partly
offset by and savings in material cost andoverheads
FX: Net impact of translation/transaction
Headline operating profit m
2011/12 98
Volume 1
Price/mix 10
Investment (1)Cost inflation (4)
Foreign exchange (2)
2012/13 102
John Crane: Margins ahead on volumes and price despite inflation and investment
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A leading supplier of specialist medical devicesand equipment for global markets.
Our products are focused on the medicationdelivery, vital care and safety devices marketsegments.
Headline revenue m
28%
35%Employees:
7,750
Percentage relates to headlineoperating profit before corporate costs
864m2012 Headline revenue by sector
1
2
3
1 Medication delivery 28%
2 Vital care 41%
3 Safety devices 31%
Contribution to2012 Group revenue:
Contribution to 2012headline operating profit:
Smiths Medical
2008 2009 2010 2011 2012
703
834 858 838 864
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Customers: We estimatethat three-quarters of ourend customers arehospitals, with theremainder comprising thealternate care market suchas homecare, clinics and
other surgery centres. Wehave a direct salespresence in over 20countries, and distributionarrangements inapproximately 100 others.
Competitors: The competitive landscape for SmithsMedical is complex as we compete with differentcompanies across the broad product portfolio. Ourmajor competitors include Covidien, Teleflex, BBraun, Becton Dickinson, C R Bard, 3M (Arizant),Hospira and CareFusion. We often compete with asmall portion of a major competitors medical
business, as well as with any number of smaller,single product line companies trying to gain entranceinto a particular market. This makes comparisonbetween peers far from straightforward. In emergingmarkets, we compete with both large multinationalcompanies and smaller domestic players.
Suppliers: Our strategy is to activelyengage suppliers in productinnovation, value engineering and acommitment to quality. Our goal is toreduce product and supply chaincosts, improve delivery performanceand ensure supply continuity plans.
The majority of our direct spending ison resins, plastic injection mouldings,and electronics. Among indirectpurchases, freight, services, travel,temporary labour and capitalequipment represent the majority.
In medication delivery, our devices help treat cancer patients and provide reliefto those in pain. Our vital care products reduce hospital-acquired infections,manage patients airways before, during, and after surgery, maintain body
temperature and assist reproduction through IVF therapy. Our safety productsprotect health workers by helping prevent needlestick injuries and reducingcross-infections.
Smiths Medical
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m 2013 2012 reported underlying
Headline revenue 413 417 (1)% +2%
Headline operating profit 87 98 (11)% (10)%
Operating margin 21.1% 23.5% (240) bps
ROCE 16.9% 17.3% (40) bps
Volume: Growth in consumables andemerging markets
Price: Negative pricing in many markets
Efficiencies: Value engineering, manufacturing
savings and lower overheads Investment: Mainly sales and marketing and
new product development
FX: Impact of translation/transaction
Headline operating profit m
2011/12 98
Volume 2
Price (4)
Operational efficiencies 2
Growth investment (10)
Foreign exchange (1)
2012/13 87
Smiths Medical: Growth in tough markets; margins affected by growth investment
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A world-leading designer and manufacturerof sensors that detect and identifyexplosives, narcotics, weapons, chemicalagents, biohazards, nuclear & radioactivematerial and contraband.
519m1 Transportation 47%
2 Ports and borders 16%
3 Military 11%
4 Emergency responders 4%
5 Critical infrastructure 21%
6 Non-security 1%
Contribution to2012 Group revenue: 17%
Contribution to 2012headline operating profit:
12%Employees:
2,300
Percentage relates to headlineoperating profit before corporate costs
2012 Revenue by sector
1
2
3
4
5
6
Revenue m
Smiths Detection
2008 2009 2010 2011 2012
509 501
574
510 519
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Customers:A significantmajority of sales areinfluenced by more than 100governments and theiragencies, including homelandsecurity authorities, customsauthorities, emergency
responders and the military.These include the USDepartment of Defense, USTransportation SecurityAdministration (TSA), and theUK Ministry of Defence.
Our technology helps customers in the global transportation, ports andborders, critical infrastructure, military and emergency responder markets.We have the most comprehensive range of detection technologies in theworld, including X-ray, trace detection, infra-red and gamma rayspectroscopy, and millimetre-wave.
Competitors: Smiths Detections broad portfolio in
the homeland security and defence sectors bringsit into competition with a wide range of companiesin individual segments. Principal competitorsinclude: Morpho (air transportation), Rapiscan (airtransportation, ports and borders, criticalinfrastructure), L3 Security & Detection Systems
(air transportation), Nuctech (ports and borders),AS&E (ports and borders), FLIR (air transportation,defence), SAIC (ports and borders), Chemring(military), Bruker (military, emergencyresponders), Thermo Fisher (military, emergencyresponders).
Suppliers: We are actively developingsynergies across sites and restructuringour purchasing group to ensure that wefully leverage the size of our business.These developments will be ongoingtaking into account the demand for localcontent with some of our major
customers as well as our stringentquality and delivery requirements. Ourprocurement team has now beencentralised and our engagement withsuppliers is being standardised acrossall business operations.
Smiths Detection
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Volume: Transportation and ports and bordersoffset by critical infrastructure
Efficiencies: 4m of savings and 3m of costsnot repeated from prior period
One-off costs: Legal costs and additionalrestructuring
Cost inflation: Labour related
FX: Net impact of translation/transaction
Headline operating profit m
2011/12 20
Volume 12
Operational efficiencies 7
One-off costs (5)Cost inflation (2)
Net foreign exchange (1)
2012/13 31
Smiths Detection: Delivering improvements in revenue, margins and returns
m 2013 2012 reported underlying
Revenue 255 220 +16% +19%
Headline operating profit 31 20 +49% +56%
Margin 12.0% 9.3% +270 bps
ROCE 12.2% 7.6% +460 bps
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A leader in electronic components andsub-systems that connect, protect and controlcritical systems for wireless telecommunications,aerospace, defence, space, test, medical, railand industrial markets.
449m15%
11%Employees:
4,100
Percentage relates to headlineoperating profit before corporate costs
2012 Revenue by sector
1 Connectors 35%
2 Microwave 45%
3 Power management 20%
1
2
3
Contribution to2012 Group revenue:
Contribution to 2012headline operating profit:
Smiths Interconnect
Revenue m
2008 2009 2010 2011 2012
261
318340
379
449
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Customers: Smiths Interconnect supplies tomultiple levels of the supply chain and itsblue chip customers include primes andservice providers, OEMs, system suppliersand sub-system manufacturers. Amongstour largest customers are Raytheon,Finmeccanica, BAE Systems, Boeing,
EADS, AAI/Textron, Northrop Grumman,General Dynamics, Lockheed Martin,Row44, Ericsson, Motorola, AT&T, Verizon,Sprint, ZTE, Huawei, Facebook, APC,Foxconn, GE Healthcare, Varian,Qualcomm, NVIDIA and Alstom.
We design and manufacture products that connect, protect and control criticalsystems for the global data centre, wireless telecommunications, aerospace,defence, space, medical, rail, test and industrial markets.
Our products are application-specific and incorporate innovative technologiesto provide our customers with a competitive advantage.
Competitors: Smiths Interconnect operates in afragmented market with many small and medium-sized competitors in various product andtechnology areas. Connector competitors includeAmphenol, Deutsch (part of TE Connectivity),Everett Charles (part of Dover), Glenair, ODU andHarting. Microwave competes with, amongst
others, Anaren, PowerWave, KMW, Dover,CommScope, Cobham, EMS (part of Honeywell)and Teledyne. Emerson Network Power, Cyberex(part of ABB), Eaton, Starline (part of UniversalElectric), Huber & Suhner, Dehn + Shne andPhoenix Contact offer competitive power products
Suppliers: SmithsInterconnect maintains astrong supply base withmachined parts andelectronic componentstogether representingapproximately half of the
total spend. No individualsupplier accounts formore than 4% of totalpurchased value.
Smiths Interconnect
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m 2013 2012 reported underlying
Revenue 219 200 +9% +4%
Headline operating profit 30 26 +13% +13%
Margin 13.5% 13.1% +40 bps
ROCE 12.3% 12.8% (50) bps
Volume: Positive volume offset by adverseoperational gearing in certain facilities
Price/mix: Mainly mix driven by Microwave andConnectors
Operational efficiencies: Site rationalisationbenefits and procurement savings more thanoffset cost inflation
Headline operating profit m
2011/12 26
Volume 3
Price/mix (2)
Operational efficiencies 3
2012/13 30
Smiths Interconnect: Revenue and margins up despite tough trading environment
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233m8%
6%Employees:
2,000
Percentage relates to headlineoperating profit before corporate costs
2012 Revenue by sector
1 Fluid Management 35%
2 Flexible Solutions 15%
3 Heat Solutions 24%
4 Construction 26%
1
2
4
3
Contribution to2012 Group revenue:
Contribution to 2012headline operating profit:
A global provider of engineered componentsthat heat and move fluids and gases for theaerospace, medical, industrial, constructionand domestic appliance markets.
Flex-Tek
Revenue m
2008 2009 2010 2011 2012
206222
212221
233
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Customers: We serve mainlyaerospace engine and airframemanufacturers, domesticappliance manufacturers and theUS construction industry. Largecustomers include Boeing, Airbus,Pratt & Whitney, GE Aerospace,
Whirlpool, Electrolux, Trane, andCarrier. Our notable distributors inthe US construction marketinclude Ferguson and Watsco.
Our flexible hosing and rigid tubing provide fluid management for fuel and hydraulicapplications on commercial and military aircraft, deliver fuel gas and conditioned air inresidential and commercial buildings, and provide respiratory care for medicalapplications. Flex-Tek heating elements and thermal systems improve the performanceof a range of devices; from medical and diagnostic equipment to domestic appliancessuch as clothes tumble dryers and HVAC equipment.
Competitors: Competitors for our FluidManagement business include specialty segmentsof Parker-Hannifin, Eaton, and Kongsberg; as wellas vertically integrated capacity from keycustomers. Heat Solutions competitors in the USinclude: Zoppas, Nibe, Watlow and Chromalox; andin China, Kawai and Dongfang manufacture a wide
variety of electric heaters. Flex-Teks Constructionproducts compete with US manufacturers: Hitachi,Atco, Omega-Flex, Hart & Cooley and Goodman.Flexible Solutions competes globally with a numberof smaller privately owned businesses whichmanufacture specialty hoses.
Suppliers: Flex-Tek sourceskey raw materials from world-class companies includingelectrical resistance wire fromSandvik, fibreglass insulationfrom Owens Corning, specialtyplastic resins from DuPont and
PolyOne, and stainless steelfrom Allegheny Ludlum. Eachof these supply chain partnersis chosen based on its abilityto provide exceptional quality,service and value.
Flex-Tek
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m 2013 2012 reported underlying
Revenue 120 109 +9% +11%
Headline operating profit 20 17 +18% +20%
Margin 16.7% 15.5% +120 bps
ROCE 29.8% 25.1% +470 bps
Volume: Gains in aerospace and constructionsectors
Price: Improved price helped offset inflation
Input cost inflation: PTFE, tubes, etc.
Headline operating profit m
2011/12 17
Volume 3
Price/mix 2
Input cost inflation (2)2012/13 20
Flex-Tek: Volumes and pricing offset inflation pressures to grow margins
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m 2013
Net debt at start of period (791)
Operating cash (after capex etc.) 223
Interest and tax (83)
Exceptionals/Pensions (69)
Free cash flow 71
Dividends (103)
Financing including net investment hedges (6)
Foreign exchange (14)
Movement in fair value of swapped debt and interest accrual (12)
Change in net debt (64)
Net debt at end of period (855)
Net debt increased by 64m driven by dividends
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0
40000
80000
120000160000
200000
240000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Claims dismissed Claims outstanding
Cumulative claim trends
0
20
40
6080
100
120
2004 2005 2006 2007 2008 2009 2010 2011 2012
Awards ($m) Adverse judgments
Cumulative claim history
Cumulative charts as at 31 July 2012
Key figuresKey facts
Asbestos litigation
Production ceased in 1985
Exposure within John Crane, Inc.
Resists claims based on safe product defense
Provision determined using independentvaluation experts based on 10-year timehorizon
Number of outstanding claims continues to fall
Gross provision 226m
Discounted pre-tax provision 209m
Claims dismissed 229,000
Claims outstanding 80,000
Adverse judgments 117
Adverse judgment awards paid $113mProvisions and claims as at 31 January 2013