Interim Results
Smiths Group PLC
14 March 2001
Smiths Group: Interim Results and Automotive Update
For the 6 months ended 31 January 2001
Highlights:
* Merger with TI completed with no disruption to business performance
* Merger-related savings now expected to yield £80m by July 2003
* Automotive demerger to LCE holders and Smiths to receive;
£625m in cash
£315m in preference shares
19.9% of the equity in the new, independent company
* Integration of combined businesses proceeding quickly
* Consolidation into single HQ nearing completion
* Strong double-digit growth in sales and operating profits
* Conversion of profits into cash continues at a high level
* Interim dividend increased by 8%
Commenting on the results, Keith Butler-Wheelhouse, Chief Executive said:
'This first set of results since the merger shows we are on track to gain the
benefits of lower overheads and improved profitability for the enlarged
company. We now have a mechanism to secure value from Automotive, and
meanwhile it has made a useful contribution in the period. Operating profits
in the four mainstream activities improved 17%, and their current outlook is
positive.'
Further information:
Russell Plumley: Tel: 020 8457 8203
Page 1 of 21
Smiths Group: Interim Results 2001
Financial performance
£m 2001 2000
Turnover 2479 2168
Operating profit * 316 278
Pre-tax profit * 260 242
Earnings per share * 33.1p 30.7p
Interim dividend 8.75p 8.1p
* before merger costs and goodwill amortisation
For the six months ended 31 January 2001, Smiths Group (including the
Automotive division) recorded a 14% improvement in operating profits before
goodwill amortisation to £316 million, and a similar increase in turnover, to
£2.48 billion, compared with those achieved by Smiths Industries/TI Group in
the comparable period last year.
Before merger/restructuring costs and goodwill amortisation, the enlarged
company generated pre-tax profits of £260 million and earnings per share of
33.1p, both increased by 8%. The Board has declared an interim dividend of
8.75p, an increase of 8% for the continuing Smiths shareholders. Former TI
shareholders received a special interim dividend of 12p per TI share on
completion of the merger.
The company's results are reported on a merger accounting basis, which allows
like-for-like comparisons between the new Smiths Group and its predecessor
companies over a full six months in both this period and a year earlier. The
Automotive division, which will not form part of the continuing operations,
has been consolidated for this and the comparative period. There have been no
'fair value' adjustments resulting from the merger, and the only restatement
of prior figures has been that arising from different reporting periods.
Page 2 of 21
Smiths Group: Interim Results 2001
Merger & restructuring costs and benefits
The merger and restructuring costs already identified, covering HQ and the
continuing activities, amount to £122 million. The costs of establishing a
unified HQ have proved higher than anticipated, since many TI staff opted for
termination rather than transfer. Further operational restructuring as a
result of the merger is expected in the second half.
In total, these measures are now expected to yield annualised cost savings of
£80m by July 2003. Separately, a £17m charge has been incurred in Automotive
for the integration of acquisitions prior to the merger and for an overhead
reduction completed in January. The cash effect of the restructuring costs is
expected to occur 3-6 months later than the charge against the Profit & Loss
account.
Cash-flow
£m 2001 2000
Operating profit 316 278
Associates (3) (2)
Depreciation 70 64
Capex (106) (111)
Working capital (56) (28)
Operating cash-flow 221 201
The company continues to convert a high proportion of profits directly into
cash, and operating cash-flow after capital expenditure increased by 10% on
the comparable period. Net debt at 31 January was £1.7 billion, compared to £
1.47 billion at the start of the financial year, the difference reflecting
merger costs, acquisitions made before and after the merger and the special
dividend paid to former TI shareholders on completion. Smiths Group has
recently had its credit rating re-affirmed at A minus by Standard & Poors and
rated at A3 by Moody's. Interest costs were £56m in this period, compared to £
36m a year earlier.
Page 3 of 21
Smiths Group: Interim Results 2001
Automotive Division: Trading
£m 2001 2000
Turnover 796 738
Operating profit 73.1 70.0
The Automotive division has been consolidated in this first half year, and has
made a contribution to the company's result which is well in excess of its
carrying costs. Sales improved by 8% and profits by 4% over the year before,
and the margins were held at 9%.
The business trades internationally and, outside North America, continues to
perform strongly. Just less than half total sales are to customers in the US,
where the slowdown in automobile production affected shipments in December and
January. The division has, however, responded quickly, with a 5% workforce
reduction in the US which has taken £10m out of the cost base. Vehicle output
by the three US majors has fallen sharply over the winter period as dealers
have reduced their inventories. Equilibrium between production and sales is
expected to be achieved over the next three months, allowing a return to
sustainable output levels by the industry.
Update regarding sale of Automotive Division ('Automotive')
The sale process of Automotive continues to be supervised by a Trust Board
comprising Mr Rudolf Mueller, Mr Brian Walsh and Mr Keith Butler-Wheelhouse
and in accordance with the trust deed and the merger documents, the role of
the trustees will end on 30 April 2001, when responsibility for the process
passes to Smiths. The right of the former TI shareholders holding letters of
contingent entitlement ('LCE Holders') to participate in the proceeds of sale
of Automotive continues until 30 April 2002.
Discussions with purchasers regarding the sale of Automotive are continuing.
However, the Board of Smiths and the Trust Board only wish to realise a sale
of the business if the valuation achieved reflects its underlying strength and
quality, notwithstanding current automotive market conditions. At the current
offer levels, LCE Holders would receive no benefit from their contingent value
rights.
Page 4 of 21
Smiths Group: Interim Results 2001
As has been stated before, the retention of Automotive does not form part of
Smiths' strategy for creating future shareholder value and therefore Smiths
will not retain the business as part of its portfolio. In the event that no
bid for Automotive is received at satisfactory levels, Smiths intends to
'demerge' Automotive to the LCE Holders. JPMorgan have been working for Smiths
on options for disposal of Automotive including 'demerger' since January and
work on the 'demerger' will continue leading to appropriate documentation
being sent to Smiths' shareholders and to LCE Holders, both of whom need to
approve such a sale.
It is anticipated that the independent automotive division ('Automotive
Company') would be a stand alone unlisted entity, run by its existing
management team led by Bill Laule, the former CEO of TI Group, as chief
executive, with its own independent financing facilities and board. Smiths
currently expect that the Automotive Company would have £625 million of senior
debt facilities, in addition to its working capital requirements. This debt
has been underwritten by JPMorgan. Smiths would hold preference shares of £315
million and part of the coupon would be paid in cash every year with the
remainder being rolled up and paid on redemption of the preference shares. Of
the ordinary equity, the LCE Holders would hold the majority, Smiths would
hold 19.99 per cent. and the balance would be available for management. The
senior management team of the Automotive Company would benefit from
significant incentivisation packages linked to the overall performance of the
business. The Automotive Company would have an independent, predominantly
non-executive board of which the chief executive would be the only executive
member and, in due course, the present intention would be to float the
Automotive Company as and when market conditions improve.
page 5 of 21
Smiths Group: Interim Results 2001
The 'demerger' structure is designed to ensure that the full value of
Automotive is retained for the benefit of Smiths' shareholders and LCE Holders
in the event that a satisfactory value cannot be achieved through the ongoing
sale process. As a consequence of the 'demerger', LCE Holders would exchange
their limited life contingent value rights for ordinary equity in the
Automotive Company, thereby extending indefinitely their potential for
receiving future value.
A further announcement will be made on or before 1 May 2001.
Company results excluding Automotive (pro-forma)
£m 2001 2000
Turnover 1683 1430
Operating profit* 243 208
Profit before tax* 219 203
Earnings per share * 27.8p 25.8p
* before merger costs and goodwill amortisation
Excluding Automotive, the company's continuing activities showed strong growth
in the first half of the year. Turnover increased by 18% to £1.68 billion,
operating profit increased by 17% to £243m, and margins were constant at 14%.
More than half of the improvement was generated by organic growth, with
current and prior year acquisitions providing the balance.
After interest of £24m, profit before tax rose 8% to £219m. These results for
the continuing operations exclude Automotive and attributable interest based
on a value of £900m.
All four divisions contributed to the good progress in this first half. Market
conditions remained generally positive, a number of significant new products
have been introduced and substantial productivity gains have been made,
particularly from re-locating to lower-cost manufacturing regions. With the
exception of some of the consumer-related products, sales and profits in the
US, the company's largest market, have held up well through this period.
Currency effects, with translation benefits partly offset by transaction
disbenefits, were not material.
Page 6 of 21
Smiths Group: Interim Results 2001
Aerospace
£m 2001 2000
Turnover 609 514
Operating profit 84.4 75.0
Smiths Aerospace achieved an 18% increase in sales and a 12% increase in
profits for the period, with more than half the improvement coming from
acquisitions made in the previous year, now fully integrated and making a good
initial contribution above their funding costs. Margins were down one point at
14%.
The combination of Smiths and Dowty puts the enlarged business in a stronger
position among avionics and equipment suppliers, with higher shipset value on
the most successful commercial and military platforms. The combined resources
will in future enable the company to submit bids and proposals for more highly
integrated systems on new aircraft programmes, such as the A380 and B747X.
Doubling in size will also enable Smiths to retain its first-tier status among
the diminishing number of suppliers directly contracted by the prime
manufacturers.
The integration of the two aerospace businesses is currently underway and is
expected to yield significant cost savings by 2003, bringing further
competitive advantage.
Sales are split 50/50 between defence and civil applications, and business is
strong in both sectors. Although industry forecasts predict a slowdown in the
civil sector, this is less likely to affect the particular aircraft that are
important to Smiths. Meanwhile, the outlook for defence sales remains
positive. Upgrading existing aircraft is an important activity, subject to
large swings in the orderbook, and in this period deliveries of retrofit
Flight Management Systems were modest. Similarly, deliveries of chemical agent
monitors had been at a particular high in the comparable period, not repeated
this time. The Customer Services unit, serving airlines and airforces, has
seen profitable growth: it is now in the process of taking aftermarket
responsibility for the complete range, including Dowty and other recently
acquired products.
page 7 of 21
Smiths Group: Interim Results 2001
Aerospace (cont.)
In October, Fairchild Defense in the US was acquired for $100m. It has added
to Smiths' expertise in data recording and complements the rapidly growing
HUMS and related product range. Just two days ago, the company made a
recommended offer for Barringer Technologies, also in the US, of $49m (net of
cash). This specialist in explosive and narcotic detection equipment,
typically used at airports, extending the company's expertise in the detection
of chemical and biological agents.
Sealing Solutions
£m 2001 2000
Turnover 582 509
Operating profit 65.2 58.6
Sealing Solutions combines the former TI mechanical seals (trading as John
Crane) and polymer seals businesses. Sales increased by 14% and profits by
11%, largely through organic growth of the continuing operations. Busak &
Shamban, acquired in October 1999, contributed for six months this time
compared to four in the prior period. Margins were down one point to 11%.
The division has commenced a major restructuring programme which will provide
significant cost savings by 2003. This includes moving some North American
production to Mexico to reduce labour costs, rationalising product ranges to
achieve greater standardisation and the closer integration of recent
acquisitions.
Sealing Solutions trades throughout the world and, while business has
continued to grow in Europe and Latin America, it has been only steady in the
US. Within mechanical seals, there has been an improvement in the
Middle-Eastern oil and gas market, and sales into the Nordic pulp and paper
industry have been strong. Deliveries of marine propulsion systems have been
higher, against a strong orderbook, but this can vary considerably from one
period to the next. The vacuum and filtration business, part of the EIS
acquisition, is not as profitable as the rest of the division, and this is
being addressed.
page 8 of 21
Smiths Group: Interim Results 2001
Sealing Solutions (Cont.)
A number of the markets for polymer seals have been relatively flat through
this period, including the off-highway vehicles, construction and
semi-conductor sectors. On the other hand the markets for general industrial
seals and for aerospace spares were more positive.
Medical
£m 2001 2000
Turnover 225 198
Operating profit 43.4 37.6
Strong organic growth continues to be a feature of Smiths Medical, resulting
from gaining market share, reducing costs and benefiting from a dynamic world
market for healthcare devices. With no acquisitions in the period, sales
increased by 14% and profits by 15%, while margins remained firm at 19%. The
division is unaffected by the merger with TI Group.
There has been further good progress in the sales of respiratory and other
single-use devices in the US. This country invests 14% of GDP in the provision
of healthcare, twice the rate of spending in the UK. Consequently, the US
medical device industry is the real driver of new technologies, subsequently
adopted around the world.
As an example, during this period there has been an exponential rise in demand
for safe needle closure devices, to counteract the one million a year reported
needlestick injuries in US hospitals. Federal legislation has just been
enacted requiring all healthcare institutions to introduce safety programmes
to minimise this serious problem. Smiths has one of the very few so-far
approved needle closure devices, giving it a head start in what is now a huge
market. Other countries will soon follow the US lead in this field.
page 9 of 21
Smiths Group: Interim Results 2001
Medical (Cont.)
Sales of infusion products in the US are benefiting from changing approaches
to the provision of healthcare. In ambulatory pumps, which allow medical
treatment to be continued in a non-hospital setting, Smiths has reaffirmed its
market leadership, following the recent introduction of enhancements to the
Deltec range.
The UK businesses in both respiratory and infusion sectors have also performed
well. In the home market, the increase in government spending on the NHS has
already proved beneficial, while exports from the UK to mainland Europe are
recovering in step with more favourable currency movements. The Japanese
subsidiary is an important contributor to the growth of the division, and
assures a good market position for a widening range of Smiths medical products
in this country.
While the future of Medical will be underpinned by continued organic growth,
the search continues for acquisitions which can add products complementary to
the existing range. The division is also focusing on productivity measures,
including moving labour-intensive production to lower cost areas such as
Mexico.
Industrial
£m 2001 2000
Turnover 267 209
Operating profit 50.2 36.8
Industrial is currently enjoying the fastest rate of growth among all the
activities of Smiths Group, and it, too, is unaffected by the merger. In this
period, sales jumped by 28% and profits by 36%. Margins moved up by one point
to 19%, equalling those of the Medical division. The improvement came from the
existing businesses and recent acquisitions, concentrated in the
rapidly-growing Interconnect activities, which account for two thirds of the
division's profits.
page 10 of 21
Smiths Group: Interim Results 2001
Industrial (Cont.)
Five new US Interconnect businesses were acquired during the year 2000,
including Radio Waves, making microwave antennae, which joined in December.
These additions have performed well and are contributing profits well in
excess of their funding costs. The division continues the search for similar
companies with niche RF and microwave technologies. The focus has been
primarily on products which provide protection for and improve the performance
of communications equipment. The company has very quickly established a
significant presence in this communications infrastructure sector, with niche
products which connect and protect the data communications towers on buildings
and other installations.
Interconnect also finds applications in aerospace and defence, rail traction
and signalling, medical equipment and industrial plant. Business in these
sectors has been strong too, and is perhaps best typified by the
high-integrity Hypertac connectors extensively used on the Eurofighter
Typhoon.
The other Industrial activities all involve Air Movement. Taken together, they
earn mid-teen margins and generate cash-flow close to their profits. Although
not currently in a growth phase, they make a valuable contribution to the
performance of the company. The fans business has suffered from poor economic
conditions in the UK, although Vent-Axia has been gaining an increased share
in the commercial fans market.
The ducting and hose business, which operates internationally, has been
similarly affected in the UK and continental Europe. In the US, where its
products are more consumer-oriented, sales of hoses and heater elements for
domestic appliances began to soften towards the end of the period.
The Smiths Hydraulics company in the UK has since been sold to SPX Corporation
for £12m.
page 11 of 21
The Board
The merger with TI Group has led to the establishment of a combined Board of
Directors of Smiths Group. Two executives joined with specific
responsibilities: David Lillycrop (44) has been appointed General Counsel, and
is also Company Secretary, roles that he previously held at TI. John Langston
(51) has been appointed Group Managing Director, Sealing Solutions. He was
Chief Executive of TI's Speciality Polymer Products division. Three TI
non-executives have also joined: Sir Colin Chandler (61) who is now Deputy
Chairman of the company and Chairman of the Audit Committee; Sir Nigel
Broomfield, KCMG (63); and John Hignett (66). All the new Board members are UK
citizens. Three of TI's non-executives have resigned: John Harris, Henry
Kravis and Rudolf Mueller, CBE. Alan Pink, Roger Leverton and Peter Hollins,
three Smiths non-executives, have also resigned and , sadly, Mr Pink has since
passed away.
Prospects
Growth Prospects for the mainstream Smiths Group businesses remain positive.
The integration plans resulting from the merger are proceeding ahead of
original expectations, resulting in cost savings which will contribute
significantly to profit growth over the next two years. The company is
confident that within that time-frame it can deliver attractive returns on
shareholder investment in the enlarged company.
Dividend
An Interim Dividend will be paid on 18 May 2001 to holders of all ordinary
shares whose names are registered at the close of business on 20 April. The
ex-dividend date will be 18 April. The Board has decided not to offer a scrip
dividend alternative on this occasion. Copies of the Interim Report will be
sent to shareholders shortly, and will be available at the company's
registered office,
765 Finchley Road, London NW11 8DS.
page 12 of 21
Tables attached
+ Profit & loss
+ Summarised balance sheet
+ Cash-flow statement
+ Notes to the Accounts
The financial statements attached have been prepared in accordance with merger
accounting principles and the accounting policies set out in the Company's
accounts for the year ended 31 July 2000.
Figures reproduced relating to that period are abridged; full accounts for
Smiths Industries plc to 31 July 2000 and TI Group plc to 31 December 1999
on which the auditors made unqualified reports have been delivered to the
Registrar of Companies.
Page 13 of 21
Smiths Group: Interim Results 2001 - Unaudited
Profit and loss account
6 months ended 31 January 2001
Before Restructuring
goodwill and merger
amortisation, Goodwill costs
restructuring amortisation Total
& merger
costs
Note £m £m £m £m
Turnover
Continuing 2,458.2 2,458.2
operations
Acquisitions 20.5 20.5
_______ _______
1 2,478.7 2,478.7
_______ _______
Operating
profit
Continuing 311.4 (85.3) 226.1
operations
Acquisitions 2.1 2.1
_______ _______ _______
313.5 (85.3) 228.2
Share of profits of 2.8 2.8
associated companies _______ _______ _______
Operating profit before
goodwill
amortisation and exceptional 316.3 (85.3) 231.0
items
Goodwill
amortisation:
Continuing (22.9) (22.9)
operations
Acquisitions (1.0) (1.0)
______ ______ ________ _______
Operating profit after 316.3 (23.9) (85.3) 207.1
goodwill amortisation
Exceptional items: merger (53.8) (53.8)
costs ______ ______ ________ _______
Profit before interest and 316.3 (23.9) (139.1) 153.3
tax
Net interest
payable (56.1) (56.1)
______ ______ ________ _______
Profit before 260.2 (23.9) (139.1) 97.2
taxation
Taxation (78.1) 2.6 21.0 (54.5)
______ ______ ________ _______
Profit after 182.1 (21.3) (118.1) 42.7
taxation
Minority (0.6) (0.6)
interests
______ ______ ________ _______
Profit for the 181.5 (21.3) (118.1) 42.1
period
Dividends 2 (109.1) (109.1)
______ ______ ________ _______
Retained Profit 72.4 (21.3) (118.1) (67.0)
/ (Loss)
______ ______ ________ _______
Earnings per 3
share
Basic 33.1p (3.9p) (21.5p) 7.7p
Fully-diluted 33.0p (3.9p) (21.5p) 7.6p
Dividends per 8.75p
share
Footnotes
Dividends totalling £109.1m include an interim dividend of 12p per share (£
60.6m) paid on TI Group plc shares in issue prior to the merger, and an interim
dividend of 8.75p per share (£48.5m) declared on the enlarged Smiths Group plc
shares for the period of six months ended 31 January 2001.
Comparative figures for the interim dividend cannot be given due to the
significant disparity in accounting periods between the merged groups of
companies.
page 14 of 21
Smiths Group: Interim Results 2001 - Unaudited
Profit and loss account
(CONT.)
6 months ended 31 January 2000
Before
goodwill
amortisation Goodwill Exceptional
and amortisation items Total
exceptional
items
£m £m £m £m
Turnover
Continuing 2,168.4 2,168.4
operations
Acquisitions ______ ______
2,168.4 2,168.4
Operating profit
Continuing 276.1 (17.4) 258.7
operations
Acquisitions ______ ______ ______
276.1 (17.4) 258.7
Share of profits 1.9 1.9
of associated ______ _____ ______
companies
Operating profit
before goodwill 278.0 (17.4) 260.6
amortisation and
exceptional items
Goodwill
amortisation
Continuing (14.2) (14.2)
operations _____ ______ ______ ______
Operating profit 278.0 (14.2) (17.4) 246.4
after goodwill
amortisation
Exceptional (3.3) (3.3)
items: asset _____ ______ ______ ______
disposals
Profit before 278.0 (14.2) (20.7) 243.1
interest and tax
Net interest (35.9) (35.9)
payable _____ ______ ______ ______
Profit before 242.1 (14.2) (20.7) 207.2
taxation
Taxation (74.1) 5.5 (68.6)
_____ ______ ______ ______
Profit after 168.0 (14.2) (15.2) 138.6
taxation
Minority (0.6) (0.6)
interests _____ ______ ______ ______
Profit for the 167.4 (14.2) (15.2) 138.0
period
Dividends (85.6) (85.6)
_____ ______ ______ ______
Retained Profit 81.8 (14.2) (15.2) 52.4
_____ ______ ______ ______
Earnings per
share
Basic 30.7p (2.6p) (2.8p) 25.3p
Fully-diluted 30.6p (2.6p) (2.8p) 25.2p
Dividends per Footnote p 14
share
page 15 of 21
Smiths Group: Interim Results 2001 - Unaudited
Profit and loss account (CONT.)
Year ended 31 July 2000
Before goodwill
amortisation
and exceptional items Goodwill Exceptional
amortisation items Total
£m £m £m £m
Turnover
Continuing 4,652.9 4,652.9
operations
Acquisitions ______ ______
4,652.9 4,652.9
Operating profit
Continuing 618.5 (19.3) 599.2
operations
Acquisitions ______ ______ ______
618.5 (19.3) 599.2
Share of profits 4.3 4.3
of associated ______ ______ ______
companies
Operating profit
before goodwill
amortisation and 622.8 (19.3) 603.5
exceptional items
Goodwill
amortisation
Continuing (35.5) (35.5)
operations ______ _______ ______ ______
Operating profit 622.8 (35.5) (19.3) 568.0
after goodwill
amortisation
Exceptional (3.3) (3.3)
items: asset ______ _______ ______ ______
disposals
Profit before 622.8 (35.5) (22.6) 564.7
interest and tax
Net interest (80.7) (80.7)
payable ______ _______ ______ ______
Profit before 542.1 (35.5) (22.6) 484.0
taxation
Taxation (166.0) 1.6 6.1 (158.3)
_______ _______ _______ _______
Profit after 376.1 (33.9) (16.5) 325.7
taxation
Minority (1.7) (1.7)
interests ______ _______ ______ ______
Profit for the 374.4 (33.9) (16.5) 324.0
period
Dividends (165.6) (165.6)
______ _______ ______ ______
Retained Profit 208.8 (33.9) (16.5) 158.4
______ _______ ______ ______
Earnings per
share
Basic 68.6p (6.2p) (3.0p) 59.4p
Fully-diluted 68.4p (6.2p) (3.0p) 59.2p
Dividends per Footnote p
share 14
page 16 of 21
Smiths Group: Interim Results 2001 - unaudited
Summarised balance sheet
31 January 2001 31 January 2000 31 July 2000
£m £m £m
Fixed assets
Intangible assets 923.0 766.9 851.4
Tangible assets 1,017.5 921.4 977.2
Investments and advances:
Associates 18.9 16.0 13.8
Other 9.2 24.3 27.8
________ _______ _______
1,968.6 1,728.6 1,870.2
Current assets
Assets held for resale 7.0
Stocks 663.4 566.2 616.8
Debtors 1,255.6 1,081.6 1,180.1
Cash at bank 120.6 171.4 322.1
________ _______ _______
2,039.6 1,819.2 2,126.0
Creditors: amounts falling due
within one year (1,435.1) (1,374.6) (1,273.1)
Net current assets 604.5 444.6 852.9
________ _______ _______
Total assets less current liabilities 2,573.1 2,173.2 2,723.1
Creditors: amounts falling due after
one year (1,586.2) (1,316.8) (1,715.8)
Provisions for liabilities & charges (230.1) (196.3) (205.2)
________ _______ _________
Net assets 756.8 660.1 802.1
Capital and reserves
Share capital and share
premium account 277.3 235.0 251.2
Reserves 465.5 412.6 536.2
________ _______ _________
Shareholders' equity 742.8 647.6 787.4
Minority equity interests 14.0 12.5 14.7
________ _______ _________
Capital employed 756.8 660.1 802.1
________ _______ _________
page 17 of 21
Smiths Group: Interim Results 2001 - Unaudited
Cash - flow statement
6 months 6 months Year
ended ended ended
31 January 31 January 31
2001 2000 July
2000
Note £m £m £m
Operating profit (before 292.4 263.8 587.3
restructuring and merger costs)
Goodwill amortisation 23.9 14.2 35.5
Depreciation 69.8 63.6 132.0
Share of profits of associated (2.8) (1.9) (4.3)
companies
(Increase) / decrease in (28.3) 3.3 (12.2)
stocks
(Increase) / decrease in (22.8) 26.1 36.5
debtors
Decrease in creditors (5.3) (56.9) (85.6)
_____ ______ _____
Net cash inflow from normal 326.9 312.2 689.2
operating activities
Restructuring costs (30.9) (20.7) (22.6)
Net cash inflow from operating 296.0 291.5 666.6
activities
Merger costs (49.6)
Dividends received from joint 0.2 0.1
ventures and associates
Returns on investments and servicing (51.0) (38.4) (69.6)
of finance
Tax paid (60.7) (46.1) (114.9)
Capital expenditure and financial (105.7) (110.8) (168.2)
investment
Acquisitions and disposals 4 (95.4) (472.7) (590.5)
Deferred consideration re (26.3)
prior-year acquisitions
Equity dividends paid (122.8) (66.7) (145.3)
Management of liquid 195.2 69.0 87.4
resources
Financing (123.1) 307.9 326.7
_______ ______ _____
Decrease in cash (143.2) (66.3) (7.7)
Reduction in short-term deposits (195.2) (69.0) (87.4)
Increase / (decrease) in term 127.9 (316.7) (329.4)
borrowings
Loan note issues (net of repayments) 2.2 0.7
Term debt of acquisitions (0.5) (37.9) (37.9)
assumed
Term deposits of acquisitions 8.4 8.4
acquired
Exchange variations (22.8) 14.5 (38.3)
________ _________ ______
Increase in net debt (231.6) (466.3) (492.3)
Net debt at beginning of 5 (1,465.7) (973.4) (973.4)
period ________ _________ ______
Net debt at end of period (1.697.3) (1,439.7)(1,465.7)
________ ________ _______
page 18 of 21
Smiths Group: Interim Results 2001 - unaudited
Notes to the accounts
6 months ended 6 months ended year ended
31 January 2001 31 January 2000 31 July 2000
1. Analyses of
turnover and profit Turnover Profit Turnover Profit Turnover Profit
£m £m £m £m £m £m
Market
Aerospace 608.9 84.4 514.4 75.0 1,144.5 177.7
Sealing Solutions 582.1 65.2 509.4 58.6 1,064.0 121.1
Medical 225.2 43.4 197.8 37.6 418.8 85.5
Industrial 266.9 50.2 209.0 36.8 461.5 82.4
Automotive 795.6 73.1 737.8 70.0 1,564.1 156.1
_______ ______ _______ ______ _______ _____
2,478.7 316.3 2,168.4 278.0 4,652.9 622.8
Goodwill amortisation (23.9) (14.2) (35.5)
Exceptional items (139.1) (20.7) (22.6)
_____ _____ _____
Profit before interest and tax 153.3 243.1 564.7
Net interest (56.1) (35.9) (80.7)
______ _____ _____
Profit before taxation 97.2 207.2 484.0
______ _____ _____
Geographical origin
United Kingdom 566.4 74.7 559.2 78.8 1,157.5 160.9
USA 1,166.4 155.6 967.8 132.6 2,124.2 307.6
US dollars $1,702.9m $227.2m $1,567.8m $214.8m $3,356.2m $486.0m
Europe 547.9 61.1 485.2 49.6 1,029.3 112.0
Other overseas 256.6 24.9 205.7 17.0 444.8 42.3
Inter - company (58.6) (49.5) (102.9)
_______ _____ _______ _____ ______ _____
2,478.7 316.3 2,168.4 278.0 4,652.9 622.8
Goodwill amortisation (23.9) (14.2) (35.5)
Exceptional items (139.1) (20.7) (22.6)
Profit before interest and tax 153.3 243.1 564.7
_____ _____ _____
2. Dividends
An interim dividend of 8.75p per share ( 2000: 8.1p) has been declared and will
be paid on 18 May 2001 to holders of all ordinary shares whose names are
registered at close of business on 20 April 2001. A special dividend of 12p per
share was paid to the holders of TI Group shares on 29 December 2000 in
accordance with the terms of the merger agreement approved by shareholders in
November 2000.
3. Earnings per share
Separate figures are given for earnings per share related to the average number
of shares in issue for each period -
6 months ended 31 January Year ended 31
July
2001 2000 2000
Basic 548,963,057 544,663,149 545,391,448
Effect of dilutive share options 1,343,271 2,247,677 1,568,652
Fully - diluted 550,306,328 546,910,826 546,960,100
page 19 of 21
Smiths Group: Interim Results 2001 - unaudited
Notes to the accounts continued
4. Acquisitions
During the period the Company acquired the business and assets of Fairchild
Defense for Aerospace, and the issued share capital of Radio Waves, Inc. for
Industrial. The Company also increased its holdings in a small number of
existing interests in joint ventures and associates.
Details of the consideration paid, amounts 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
Acquisition Consideration Goodwill Net Assets
£m £m £m
Fairchild Defense 30.10.00 71.4 58.2 13.2
Radio Waves 18.12.00 17.0 15.9 1.1
Other Various 18.6 14.5 4.1
______ _____ ____
107.0 88.6 18.4
Proceeds of disposals (11.6)
______
Net expenditure on acquisitions 95.4
During the period the Company sold its investment in Lambda Advanced Analog,
Inc. for £9.4m net of expenses. The surplus over holding costs of £2.2m has
been set against the goodwill arising on other businesses acquired from
Invensys in January 2000.
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 2001 was £
23.9m.
5. Borrowings and net debt
Fixed Floating 31 January 31 January 31 July
2001 2000 2000
£m £m £m £m £m
Maturity:
On demand/under one year 43.0 319.4 362.4 414.3 245.3
One to two years 38.0 166.2 204.2 127.1 430.0
Two to five years 546.0 400.7 946.7 1,054.9 811.1
Greater than five years:
Bank loans 8.8 8.8 14.8 5.5
TI Eurosterling bond 2010 148.3 148.3 148.3
Smiths Eurosterling bonds 147.5 147.5 147.6
2016 _____ _____ _______ _______ _______
931.6 886.3 1,817.9 1,611.1 1,787.8
Cash deposits (120.6) (171.4) (322.1)
Net debt 1,697.3 1,439.7 1,465.7
page 20 of 21
Smiths Group: Interim Results 2001 - unaudited
Notes to the accounts continued
6. Movements in shareholders' equity 2001 2000
£m £m
Profit for the period 42.1 138.0
Dividends (109.1) (85.6)
(67.0) 52.4
Exchange variations (2.9) (6.0)
Share issues 25.3 13.4
_____ _____
Net (reduction) increase in shareholders' equity (44.6) 59.8
Shareholders' equity:
at 1 August 2000 787.4 587.8
at 31 January 2001 742.8 647.6
7. Restructuring and merger costs 2001 2000
£m £m
Restructuring of trading operations 40.0 17.4
Change of control and redundancy costs 32.9
Head office closure costs 12.4
____ ____
85.3 17.4
Merger costs - fees and related charges 53.8
Asset disposals 3.3
____ ____
139.1 20.7
_____ ____
8. Accounting policies
The Company merged with TI Group plc on 4 December 2000, and has consolidated
the results and balance sheets of the two companies under merger accounting
principles. The accounting periods of TI Group plc (years to 31 December) have
been realigned to accord with those of the Company. In accordance with FRS10 -
Goodwill and Intangible Assets, the Company capitalises goodwill arising on
acquisitions made after 1 August 1998. In consequence, goodwill on
acquisitions made between 1 January 1998 and 31 July 1998, previously
capitalised by TI Group plc, has now been written off to reserves. The
original cost of this goodwill amounted to £529.4m.
Save for the above, no accounting policy adjustments have been made in
reporting the merged results for the current or prior periods.
9. UK Capital Gains Tax note for former TI Group shareholders
On the basis of the closing market prices for the shares of Smiths Group plc
and TI Group plc, the Inland Revenue has agreed a market value on 4 December
2000 for the Letters of Contingent Entitlement of 14.29p per unit entitlement,
for the purposes of calculating UK Capital Gains Tax.
-ends-
page 21 of 21
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