Smiths Group Plc FY2018 marks an important milestone

Smiths Group Plc (LON:SMIN), today announced the annual results for the year ended 31 June 2018.

¹In addition to statutory reporting, the Group reports its continuing operations on a headline basis.  Definitions of headline metrics, and information about the adjustments to statutory measures are provided in note 3 to the financial statements.

² Underlying modifies headline performance to: adjust prior year to reflect an equivalent period of ownership for divested businesses; include restructuring and pension administration costs as headline for both years; and exclude the effects of foreign exchange, acquisitions and supplemental sales for divested businesses.

³ Working capital as a percentage of sales is calculated as the 12 month rolling average of inventory, trade receivables and associated provisions, unbilled receivables, trade payables and deferred revenue as a percentage of total annual sales

⁴ Includes disposals and 2018 performance from acquisitions that do not have comparators for the prior year

Highlights

· Return to growth with underlying2 revenue up 2% to £3,213m. Reported revenue down (2)% due to adverse foreign exchange translation

· Underlying2 headline1 operating profit up 3%. Reported headline operating profit down (8)% due to the reclassification of restructuring and pension administration costs as headline items, and adverse foreign exchange translation

· Continued focus on operational excellence with stock turns at 3.7x (FY2017: 3.5x)

· Good cash generation with cash conversion of 99% and strong balance sheet

· Continued investment for sustainable growth with R&D at 4.6% of sales (FY2017: 4.6%)

· Further progress on portfolio optimisation:

o $30m synergies from the Morpho acquisition will be delivered ahead of schedule

o Agreement to sell Smiths Medical’s sterile water bottling business for $40m

· Proposed final dividend of 30.75 pence per share. Full year dividend growth of 3%.

Andy Reynolds Smith, Smith Group Plc Chief Executive, commented:

“FY2018 marks an important milestone on our journey. We said that this would be the year we returned to growth, and we’ve done that. Our next objective is to deliver continued, sustainable growth, on the way to outperforming our markets.

With the exception of Smiths Medical, where the second half was disappointing, we delivered a good performance. As anticipated, our growth rate accelerated in the second half of the year driven by John Crane, Smiths Detection, Smiths Interconnect and Flex-Tek.

We continued to progress the high-grading of the portfolio through organic and inorganic investment with approximately 80% of the Group now well positioned in attractive markets. Our acquisitions of Morpho Detection, Seebach and the heating element division of Osram are being successfully integrated, with synergies being delivered ahead of schedule. The disposal of two non-core businesses in Smiths Medical and John Crane has supported our increasing focus on products and services with scalable, technology-differentiated leadership positions in our chosen markets.

We’re focused on world-class competitiveness. We delivered further stock turn improvements, now at 3.7x, and good cash conversion of 99%. This has helped to fund disciplined investment in commercially focused R&D and innovation.

In FY2019 we anticipate at least sustaining the rate of underlying2 revenue growth. As in previous years, Group performance in FY2019 is expected to be weighted towards the second half. Foreign exchange will provide a tailwind to reported revenue and operating profit, if current rates prevail.

Over the medium-term, we remain confident that we can grow faster than our markets. This is driven by our strategy to focus the portfolio for growth and deliver world-class competitiveness, underpinned by our strong financial framework. In parallel with continued active portfolio management, Smith Group Board remain confident that this will drive long-term sustainable growth and attractive returns.”