TIDMSMIN
RNS Number : 2915Z
Smiths Group PLC
14 March 2012
News releaseLondon, Wednesday 14 March 2012
For immediate release
Interim results for the half year ended 28 January 2012
Headline* Statutory
======================================= ==============
2012 2011 2012 2011
GBPm GBPm Growth Underlying(#) GBPm GBPm
=========================== ====== ====== ======= ============== ====== ======
Continuing activities
Revenue 1,415 1,372 3% 1% 1,407 1,372
Operating profit 244 239 2% 2% 132 208
(20)
Operating margin 17.2% 17.4% bps - 9.4% 15.2%
Pre-tax profit 217 212 2% 2% 111 189
Basic EPS 40.4p 39.9p 1% 21.4p 35.7p
Free cash-flow 81 70
Dividend 11.75p 11.25p 4% 11.75p 11.25p
(60)
Return on capital employed 16.0% 16.6% bps
=========================== ====== ====== ======= ============== ====== ======
*In addition to statutory reporting, Smiths Group reports its
continuing operations on a headline basis. Headline revenue and
profit is before exceptional items, amortisation of acquired
intangible assets, profit/loss on disposal of businesses, costs of
acquisitions, pensions finance credit and financing gains/losses
from currency hedging. Free cash-flow and return on capital
employed are described in the Financial review.
(#) Organic growth at constant currency.
Highlights
-- Resilient performance in a difficult trading environment
-- Headline revenue up 3%; headline operating profit up 2%
-- Continued investment in new products and new markets driving growth
-- Emerging market sales up from 12.5% to 15% of Group sales
-- Good headline margin progression in John Crane, Smiths Medical and Flex-Tek
-- Performance improvement initiatives on track in Smiths Detection; improving order book
-- Improved headline operating cash conversion at 82% - with free cash-flow of GBP81m
-- Dividend up 4%
"The Group has made good progress despite the challenging
economic environment, particularly for businesses serving
government-funded customers such as Smiths Detection and Smiths
Interconnect, where performance has been disappointing. Remediation
in Smiths Detection is on track, although the benefits will be
weighted to the second half. Elsewhere, John Crane continues to
report strong growth driven by investment in oil and gas
infrastructure. Performance at Flex-Tek was encouraging and Smiths
Medical has been resilient against a tough trading backdrop. Our
results continue to benefit from restructuring initiatives and
operational improvements. These savings are being reinvested to
build a solid foundation to accelerate medium-term revenue
growth.
"We have increased our focus on top-line growth through new
product development, sales effectiveness, expansion of our emerging
market exposure and targeted acquisitions. The trading environment
remains uncertain and sustained pressures on government spending
are likely to affect some of our divisions. However, we continue to
see further potential to grow sales, drive operational improvements
and deliver strong cash conversion. We remain confident of meeting
expectations for the full year."
Philip Bowman
Chief Executive
Divisional highlights*
% of Underlying Underlying Headline operating Headline return
Group headline headline profit margin on capital employed
headline sales profit
sales growth* growth*
========= ========== ========== ==================== ======================
2012 2011 2012 2011
==================== ========= ========== ========== ========= ========= ========== ==========
John Crane 33% 13% 24% 20.9% 19.0% 23.8% 20.5%
Smiths Medical 29% (1)% 4% 23.5% 22.6% 17.3% 16.0%
Smiths Detection 16% (11)% (36)% 9.3% 13.9% 7.6% 13.0%
Smiths Interconnect 14% (6)% (29)% 13.1% 18.1% 12.8% 17.4%
Flex-Tek 8% 2% 36% 15.5% 11.6% 25.1% 20.6%
==================== ========= ========== ========== ========= ========= ========== ==========
Group 100% 1% 2% 17.2% 17.4% 16.0% 16.6%
==================== ========= ========== ========== ========= ========= ========== ==========
John Crane
-- Sales driven by growth in both original equipment and
aftermarket revenue, particularly in the oil and gas sector
-- Margins improved 190 basis points to 20.9%, benefiting from
increased volumes
-- TCE acquisition completed and integration well underway;
expands our bearings aftermarket offering
-- Strong order book supports growth for the full year in sales
and margins
Smiths Medical
-- Margins up 90 basis points to 23.5% through cost saving
initiatives and mix benefits despite some price pressure
-- Tough operating environment with healthcare spend squeezed by
government budgets and unemployment
-- Increased investment in sales capabilities in emerging
markets and new product development
-- Investment will step up further during the second half; which
is expected to support future sales growth
Smiths Detection
-- Revenue declined reflecting reduced demand in most sectors,
particularly military and ports & borders
-- Margins affected by lower volumes, restructuring costs and
the impact of historic low margin contracts
-- Performance improvement programme on track; delivered GBP5m
of savings from GBP40m target by FY 2014
-- Full year sales expected to be similar to last year, margins
will benefit from restructuring initiatives
-- Strong product pipeline and significant contract wins lay a
solid foundation for 2013
Smiths Interconnect
-- Sales affected by lower sales in military and connectors
offsetting growth in telecoms
-- Margins reduced by lower volumes, operational gearing,
adverse pricing/mix and restructuring costs
-- Integration of Power Holdings, Inc. is on track, expanding
our product offering into new markets
-- Several new contract wins and contract phasing is expected to
support some improvement in second half sales
-- Second half margins are expected to benefit from better
volumes and restructuring
Flex-Tek
-- Improved volumes, mix and pricing contributed to a strong
increase in margins
-- Sales growth driven primarily by the aerospace sector and
with modest growth in US residential construction
-- Fluid management is expected to see continued growth while
construction and appliances markets are uncertain
-- Margins are geared to volume improvements across Flex-Tek's
end markets
*Sales and profit growth are at constant currency and exclude
the impact of acquisitions and disposals
Contact details
Investor enquiries
Peter Durman, Smiths Group +44 (0)20 7808 5535
+44 (0)7825 145336 peter.durman@smiths.com
Media enquiries
Colin McSeveny, Smiths Group +44 (0)20 7808 5534
colin.mcseveny@smiths.com
Anthony Cardew, Cardew Group +44 (0)20 7930 0777
anthony.cardew@cardewgroup.com
Presentation
The presentation slides and a live webcast of the presentation
to analysts are available at www.smiths.com/results at 09.00 (UK
time) on Wednesday 14 March. 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):
UK toll free: 0800 368 1916
International: +44 (0)20 3140 0722
US/Canada toll free: 1 855 716 1594
An audio replay is available for seven days on the following
numbers (access PIN 382043#):
UK toll free: 0800 368 1890
International: +44 (0)20 3140 0698
US/Canada toll free: 1 877 846 3918
Photography
Original high-resolution photography and broadcast quality video
is available to the media from the media contacts above or from
http://www.smiths.com/images.aspx.
Statutory reporting
Statutory reporting takes account of all items excluded from
headline performance. On a statutory basis, pre-tax profit from
continuing operations was GBP111m (2011: GBP189m) and earnings per
share were 21.4p (2011: 35.7p).
The items excluded from headline performance comprise:
-- amortisation of acquired intangible assets of GBP25m (2011:
GBP22m);
-- GBP18m in connection with John Crane, Inc. asbestos
litigation (2011: GBP5m);
-- GBP52m for the establishment of a provision to resolve
potential future claims alleging product liability in Titeflex
Corporation (2011: nil);
-- GBP12m of exceptional restructuring costs (2011: GBP5m);
-- GBP8m in relation to a change in the basis of estimating
sales rebates;
-- acquisition costs of GBP2m (2011: GBP1m);
-- GBP1m profit on disposal of businesses (2011: nil);
-- GBP11m for retirement benefit finance income (2011: GBP12m);
and
-- financing losses of GBP1m (2011: GBP2m).
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.
Chief Executive's review
The Group continued to make solid progress against a challenging
economic environment, gaining further benefits from its programme
of operational improvements. These results also demonstrate the
overall strength and breadth of our diversified portfolio of
businesses. In summary, overall headline sales and profitability
benefited from organic growth in John Crane and Flex-Tek and recent
acquisitions. These more than offset sales declines in our
businesses with exposure to government-funded customers,
particularly Smiths Interconnect and Smiths Detection. In these
businesses, constraints on government spending in areas such as
defence have held back the Group's overall sales and profit
performance. Smiths Medical delivered further margin improvement
despite sustained tough trading conditions for medical devices. We
continue to see gains from our Group-wide restructuring initiatives
and we are now delivering the initial cost savings from the
performance improvement programme in Smiths Detection. At this
early stage, Detection's margins are bearing some of the costs
while the benefits will be weighted towards the second half and
next financial year. Across the Group, we remain focused on
delivering against our four key financial criteria: driving sales
growth, enhancing margins, generating cash and improving
returns.
Investing in sales growth
We have increased our focus on investment in new product
development and innovation, a key driver of future sales and margin
growth as new products typically command higher margins and deliver
superior returns. We increased company-funded investment in R&D
by 1% to GBP50m and secured a further GBP5m of customer-funded
investment to bring our total spend to GBP55m, or 3.9% of sales
(2011: 4.0%). This is a long-term commitment that is delivering new
product launches across the Group. Smiths Detection is scheduled to
unveil a record number of products over the next 18 months. Two
notable launches already achieved are RadSeeker, a new radiological
detector that has received its first order from US homeland
security, and GUARDION, our first portable chemical identifier to
use gas chromatography/mass spectrometry technology. The
development of a next generation explosives detection system for
screening airport checked baggage, in co-operation with Analogic
Corporation, is meeting our programme milestones. In Smiths
Medical, one of our largest recent product developments,
Medfusion(TM) 4000, received FDA 510(k) clearance in September
enabling a US launch which should benefit the second half. New
product sales are also gaining from the recent introduction of
Graseby pumps in the emerging markets and CADD(R)-Solis VIP in
Europe. Through new product development, John Crane has continued
to enhance its portfolio of environmentally focused seals and
extend the high pressure capabilities of its compressor dry gas
seals. John Crane's strategy to broaden its portfolio outside
mechanical seals in product lines such as bearings and filters is
also delivering results, with these products growing at 16% in the
period.
We have also directed investment into improving our capabilities
in the emerging markets. For example, in Smiths Medical we intend
to recruit an additional 300 employees this fiscal year into
targeted markets to build our sales opportunities. John Crane
continued to build out its service network and test rig capacity
around the world, with new or expanded facilities in the Middle
East, Asia and Latin America, as well as in the developed markets.
It has also broadened its product offering in China. Smiths
Detection plans to establish a manufacturing facility in Asia
during the second half in order to serve the fast-growing local
market better and benefit from the lower costs. Overall, emerging
market sales for the Group grew 24%, so that they now represent
around 15% of total sales.
Enhancing margins and cash generation
Margins remain a key focus and have continued to benefit from
the major restructuring programme that began in 2008, delivering
further savings of GBP5m in the period. To date, we have generated
savings of GBP61m against our total planned savings of GBP70m when
completed next financial year.
The full year results will also benefit from the performance
improvement programme underway in Smiths Detection. It is expected
to deliver annualised savings of GBP40m by the end of financial
year 2014, at a cost of GBP40m. We have delivered GBP5m of the
GBP15m savings that we expect this year. These initiatives will
lower the fixed cost base and make the business better able to
respond to variations in demand while improving customer
service.
Headline operating cash generation improved by GBP15m to GBP201m
resulting in a headline operating cash conversion of 82%. We expect
the cash conversion at the full year to be in the range of
90-100%.
Managing our legacy liabilities
We manage two areas of material historic liabilities: actuarial
deficits on our defined benefit pension plans and ongoing product
liability litigation.
The net funding position for the pension schemes has
deteriorated in recent years as a result of increased liabilities
caused by low bond yields (exacerbated by quantitative easing) and
increased longevity, and the poor asset performance of equities
versus gilts. Since the end of July, the accounting deficit has
deteriorated by GBP260m to GBP459m, primarily reflecting further
declines in bond discount rates. Over recent years, the Group has
taken steps to minimise this liability by closing the defined
benefit schemes and capping obligations for post-retirement health
benefits. In addition, the Group agreed 10-year funding plans with
the UK Trustees and these plans will be reviewed at the next
triennial review commencing in March 2012.
For more than 30 years, John Crane, Inc. ("JCI"), a US
subsidiary of John Crane, has defended product liability litigation
relating to various sealing products containing asbestos that JCI
ceased making in 1985. We disclose in our accounts details of
recent claims experience and of the provisions established for
these liabilities. During the period, the number of claims in which
JCI is a defendant continued to fall.
Over recent years, Titeflex Corporation, a subsidiary of
Flex-Tek, has also experienced subrogated product liability claims
relating to alleged defects in its flexible gas piping products.
The number of claims received each year and the cost of resolving
them has varied. The associated costs of between GBP3m and GBP5m a
year have historically been charged against headline profit.
Equivalent third party products in the US marketplace face similar
challenges with the profile of legal activity appearing to increase
in recent times. The continuing progress of claims and the pattern
of settlement, together with the recent marketplace activity, now
provide sufficient evidence to recognise a provision in these
accounts to defend potential future claims over the next 10 years.
This has resulted in an exceptional charge of GBP52m. Titeflex
believes that its products are a safe and effective means of
delivering gas when installed in accordance with manufacturer's
instructions and local and national codes. Further details are
given in notes 4 and 12 to the accounts.
Dividend
Having reached our target dividend cover of around 2.5 times
last year, the Board has adopted a progressive dividend policy for
future payouts while maintaining this prudent level of cover. This
policy will enable us to retain sufficient cash-flow to meet our
legacy liabilities and finance our investment in the drivers of
growth.
The Board has declared an interim dividend of 11.75p per share,
an increase of 4%. The interim dividend will be paid on 20 April to
shareholders registered at the close of business on 23 March. The
ex-dividend date is 21 March.
Outlook
The economic environment remains uncertain and continued
pressures on government spending are likely to affect some of our
divisions. However, we still see further potential to grow sales,
drive operational improvements and deliver strong cash conversion.
We remain confident of meeting expectations for the full year.
Outlook statements for the divisions are provided in the Business
review.
Business review
Revenue
Headline revenue increased by 3%, or GBP43m, to GBP1,415m. The
net impact of acquisitions and disposals contributed GBP24m and
currency translation added another GBP6m. On an underlying basis,
excluding currency translation and acquisitions, sales grew 1%, or
GBP13m. This underlying increase was driven primarily by strong
growth at John Crane (up GBP55m), and Flex-Tek (up GBP2m) that more
than offset sales declines in Smiths Detection (down GBP28m),
Smiths Interconnect (down GBP11m) and Smiths Medical (down GBP5m).
Reported revenue at GBP1,407m includes a one-off adjustment of
GBP8m in respect of a change in basis of estimating customer
rebates at Smiths Medical (see note 4 to the accounts for further
details). This change has been prompted by the availability of
better data and estimation techniques.
Profit
Headline operating profit rose GBP5m to GBP244m comprising a
GBP4m, or 2%, underlying increase in headline operating profit and
GBP1m benefit from the net impact of acquisitions and disposals.
The main drivers of this GBP4m underlying improvement were higher
volumes and cost savings at John Crane (up GBP19m), higher volumes,
prices and mix at Flex-Tek (up GBP5m), operational efficiencies at
Smiths Medical (up GBP3m), partly offset by lower volumes and
adverse mix at both Smiths Detection (down GBP13m) and Smiths
Interconnect (down GBP10m). Smiths Detection's profitability was
also held back as it began its restructuring programme and charged
GBP3m of costs to headline operating profit. Corporate centre costs
were broadly in line with last year. Group headline operating
margin fell slightly to 17.2% (2011: 17.4%).
Operating profit on a statutory basis, after taking account of
the items excluded from the headline figures, was GBP132m (2011:
GBP208m). The reduction in operating profit is due to exceptional
items of GBP88m (2011: GBP8m - see note 4 to the accounts).
The net interest charge on debt increased slightly to GBP31m
(2011: GBP29m), reflecting the higher average levels of debt.
Contribution from associates increased by GBP2m to GBP4m. As a
result, headline profit before tax increased by GBP5m to GBP217m
(2011: GBP212m). On an underlying basis, headline profit before tax
grew by 2%. Headline pre-tax profit now excludes the pension
finance credit and the comparative figures have been restated
accordingly.
The Group's tax rate on headline profit for the period was 26.5%
(2011: 26.0% - restated). Headline earnings per share increased by
1% to 40.4p (2011: 39.9p).
On a statutory basis, pre-tax profit was GBP111m (2011:
GBP189m); it was stated after taking account of the pensions
finance credit of GBP11m (2011: GBP12m) and other items excluded
from the headline measure.
Cash generation
Operating cash generation remained strong with headline
operating cash of GBP201m (2011: GBP186m) representing 82% (2011:
78%) of headline operating profit (see note 14 to the accounts for
a reconciliation of headline operating cash to statutory cash-flow
measures). Free cash-flow improved GBP11m to GBP81m (2011: GBP70m).
Free cash-flow is stated after interest and tax but before
acquisitions, financing activities and dividends.
On a statutory basis, net cash inflow from continuing operations
was GBP133m (2011: GBP107m).
Dividends paid in the period on ordinary shares amounted to
GBP98m (2011: GBP92m).
Net debt at 28 January was GBP957m, up from GBP729m at 31 July
2011. The increase in net debt reflects the net effect of
acquisitions and disposal (GBP168m) and dividends (GBP98m).
Divisional review
The divisional performances are reviewed below in descending
order of their size by revenue.
John Crane
2012 2011 Reported Underlying
GBPm GBPm growth growth
=========================== ===== ===== ======== ==========
Sales 469 412 14% 13%
Headline operating profit 98 79 25% 24%
190
Headline operating margin 20.9% 19.0% bps
Statutory operating profit 75 68
330
Return on capital employed 23.8% 20.5% bps
=========================== ===== ===== ======== ==========
John Crane grew sales by GBP57m (13.8%) reflecting a GBP55m
(13%) underlying increase in revenue and a GBP2m benefit from the
acquisition of the business of Turbo Components and Engineering
Inc. (TCE), which completed in October 2011. Higher sales for
first-fit original equipment and increased aftermarket revenue
across all end markets, particularly oil, gas and petrochemical,
drove the underlying growth.
Reported headline operating profit rose 25% driven by a GBP19m
(24%) increase in underlying profit and a GBP1m contribution from
TCE, offset by adverse currency translation (GBP1m). Margins
increased 190 basis points to 20.9% from the prior year. The
profitability improvement stems from increased volumes, benefits
from our cost-saving initiatives and better pricing on aftermarket
sales. These were partly offset by adverse mix as a result of
faster growth in first-fit original equipment sales. Investment in
lower margin original equipment projects which are expected to
deliver long-term aftermarket revenues also slightly constrained
the improvement. Return on capital employed rose 330 basis points
to 23.8% on the back of the improved profitability.
On an underlying basis, overall aftermarket sales grew 12%,
benefiting principally from strong demand in the oil, gas and
petrochemical sectors. Aftermarket revenue from rotating equipment
(seals, seal support systems, couplings, bearings and filtration,
together representing 89% of sales) increased 11% with growth
across all sectors. Sales for John Crane Production Solutions, our
upstream energy services business (JCPS, representing 11% of
sales), advanced 15% as a result of greater activity in US onshore
gas and oil production.
First-fit original equipment revenue rose 16% on an underlying
basis as customers continued to invest in new capital projects. We
saw growth in activity across the globe, primarily centred on the
oil, gas and petrochemical sectors. Despite some pricing pressure,
we continue to invest heavily in certain original equipment
projects around the world to ensure a robust pipeline of future
aftermarket activity.
Our sales and service network continues to expand in response to
growing market demands in all regions. Service centres have opened
in Arizona and Alaska in the USA, and our first service centre in
Turkey is due to open in summer. In the UK, the relocated and
expanded Aberdeen service centre became operational in December
2011, offering condition monitoring expertise and product servicing
capabilities. In Western Australia a new sales and service facility
opened to support the oil and gas, and minerals and mining
industries. The greatly expanded Dubai facility was officially
opened in February 2012. It houses one of the world's largest gas
seal test rigs, allowing customers to watch testing on site or
online. Full service including diagnostic, inspection and
refurbishment capabilities for all seals is now available at the
Dubai facility which also features a new central parts warehouse
serving the Middle East and Africa.
Expansion of manufacturing of the 'Safematic' and metal bellows
seal lines in China continued with the recent introduction of a
seal line for pipelines. Our presence in China has also grown with
the opening of a new training facility and the upgrade, relocation
and opening of three other service facilities. In March 2012,
expansion work began on the Rio Claro plant in Sao Paolo, Brazil,
for the manufacture of the American Petroleum Institute (API)
standard seal system reservoirs and Indufil filters to meet local
customer requirements.
Research and development
Approximately GBP5m in research and development has been
invested in improved materials, emission control seals, condition
monitoring, and in expanding the performance range of our high duty
couplings, hydrodynamic bearings and gas seal product lines. This
includes development of a gas seal compliant with the new API 692
specification which addresses critical operating conditions
associated with slow roll, use of seal face coatings and
bi-directional capabilities. Other new product investment targets
high duty slurry seals and un-cooled boiler feed water seals
developed for "green" applications within the expanding Power
Generation industry. As process industries strive to reduce their
carbon footprint, John Crane has invested significantly in
developing a new test rig that advances the measurement of seal
energy consumption. This will promote design enhancements that both
minimise energy requirements and environmental impact.
To support advanced material development projects and further
improve our forensics capabilities, we have invested in a new
scanning electron microscope to help us precisely analyse material
properties in support of research activities. It will also provide
critical and timely information to our customers by analysing
problematic field applications and reliability solutions. We
continue to invest in developing seal interface groove
technologies, diamond coatings, surface texturing, and
nano-composites to improve performance in difficult-to-seal
environments.
As a leader in the design and application of hydrodynamic
bearings, John Crane Bearing Technologies has not only invested in
a major test facility in Gottingen, Germany, but also now joined
the Texas A&M Turbomachinery Research Consortium. This gives
access to and collaboration with academic experts in the field of
bearings and rotor dynamics, specialised test facilities, and
state-of-the-art analytical design software.
All John Crane's R&D initiatives focus firmly on improving
the overall reliability, safety, environmental compliance and
up-time of our customers rotating equipment and plants which use
our products. Following a strategic review of our new product
development opportunities, we are embarking on initiatives that are
expected to deliver an increase in R&D investment of about 15%
annually over the next few years.
Business developments
Building on a globally established market leading position in
mechanical seals, we have expanded addressable market opportunities
by developing closely aligned new product lines in hydrodynamic
bearings, power transmission couplings and filtration systems.
These new product lines now represent about 16% of our total
rotating equipment product sales revenue, and achieved organic
sales growth of over 14% in the first half. An emphasis on cross
selling and aftermarket penetration of the OEM bearings and
filtration businesses is now generating significant new gas
filtration system upgrade opportunities in the Middle East. It has
also resulted in several large filter element spares orders in
Latin America. Integration of TCE is progressing well and sets the
foundation for the future growth of our bearings aftermarket
services.
John Crane's customer-centric focus on local service excellence
and technical expertise combine to achieve maximum equipment
reliability and plant up-time which ultimately drive production
performance and customer profitability.
Outlook
John Crane's order rate remains strong and is expected to
support sales growth in the second half, although the rate of
growth is expected to ease against a strong comparator period.
Margins will benefit from the additional volume and the full year
impact of the cost saving initiatives. However, we will continue to
make strategic investments in longer term growth opportunities such
as the expansion of our sales and service network, targeted large
first-fit installation projects and greater presence in growth
markets.
Smiths Medical
2012 2011 Reported Underlying
GBPm GBPm growth growth
=========================== ===== ===== ======== ==========
Headline sales 417 418 0% (1)%
Headline operating profit 98 94 4% 4%
Headline operating margin 23.5% 22.6% 90 bps
Statutory sales 409 418 (2)%
Statutory operating profit 82 85
130
Return on capital employed 17.3% 16.0% bps
=========================== ===== ===== ======== ==========
Smiths Medical's headline operating profit rose 4% (GBP4m) and
headline operating margin increased 90 basis points to 23.5%.
Margins benefited from our ongoing initiatives to cut manufacturing
costs and overheads, as well as a favourable product mix.
At reported exchange rates, sales were broadly flat with GBP4m
of positive foreign currency translation offset by a GBP5m (1%)
decline in underlying sales. The slight fall reflected difficult
trading conditions in the medical devices sector. These stemmed
from adverse pricing and capital spending constraints in some
countries and a slowdown in procedure growth rates in the US and
Europe because of economic pressures and unemployment. These
pressures were particularly acute in Europe given the prevailing
austerity measures and economic uncertainty. In addition, flooding
in Thailand temporarily halted supplies of large volume infusion
pump disposable sets to the European market, which is expected to
have some residual impact in the second half. Overall consumables
sales, which represent almost 85% of our total revenue, were flat
despite continued erosion of diabetes disposables (GBP1m) and an
additional GBP5m decline from product areas such as patient
monitoring and kitting, where we continue to focus on more
profitable product lines. Hardware sales fell 5%, largely due to
the timing of infusion pump shipments, as well as the tougher
trading environment.
Headline sales and operating profit both exclude an GBP8m charge
which reflects our decision to change the basis for estimating the
accrual for rebates to distributors. This change has been prompted
by the availability of better data and estimation techniques.
Return on capital employed improved 130 basis points to 17.3% as
a result of the increased profits.
While developed markets remain challenging, emerging markets
continue to provide growth opportunities as the quality of and
access to healthcare improves. We are expanding our efforts and
presence in these markets. We intend adding approximately 300
headcount this year into selected countries, including China,
Brazil, India, and various Southeast Asia and Middle East markets
in order to leverage our broad product portfolio more effectively.
We are already seeing early signs of success from this strategy,
with robust sales growth in the first half in markets such as India
(up 40%) and Latin America (up 11%).
Sales of safety devices grew 2%, primarily due to the strong
performance of safety needles and arterial blood sampling devices
in many developed and emerging markets, as well as improved safety
catheter sales in the US. Interest in both safety needle and
catheter products remains high in developed markets and is growing
in emerging markets. In Europe, Smiths Medical is also well placed
to benefit from the EU Directive, adopted in 2010, to improve
workplace safety by preventing sharps injuries. In addition, we
have seen a recovery in vascular access, particularly huber needles
(3%) and central venous catheters (10%), in most markets.
Medication delivery sales, excluding diabetes, declined 3%.
Ambulatory infusion sales grew 2% through the continued success of
our CADD(R)-Solis pumps and dedicated disposable sets. However,
revenues from our infusion disposables declined, reflecting the
Thai supply disruption. Also, sales of Medfusion(TM) 3500 syringe
pumps slowed ahead of the February 2012 launch of the Medfusion(TM)
4000 wireless pump and platform. Our Medfusion(TM) 4000 order
pipeline is strong and we are well positioned for growth in this
market.
Vital care underlying sales declined 2% amid continued sluggish
procedure volumes in developed countries and reimbursement pricing
pressure in Japan. The assisted reproduction business grew by 19%,
while the temperature management, general anaesthesia, invasive
blood pressure monitoring, respiratory and tracheostomy businesses
all contributed single digit growth. These gains were offset by
declines in patient monitoring and kitting product lines where we
have continued to eliminate low margin stock-keeping units.
We also continue to optimise our manufacturing and distribution
footprint to deliver a more efficient supply chain. At the
beginning of this fiscal year, the operational responsibility for
our European distribution centre in Nijmegen, Netherlands, was
brought in-house to reduce costs and improve performance. Our
operational footprint strategy of enhancing regional manufacturing
is supporting our growth in emerging markets, and we will consider
selective investment in China, Eastern Europe and Brazil over the
next few years. We continue to pursue variable cost productivity
initiatives aggressively, which have contributed to margin
expansion and enabled further investment in sales and marketing
resources.
Research and development
Investment in R&D remains a priority. Our total first half
R&D spend of GBP16m (2011: GBP16m) amounted to 3.8% of sales
(2011: 3.7%). At the same time, we have launched an initiative to
streamline the organisation, upgrade talent, improve processes and
invest in emerging market R&D in particular, expanding our
product development team in Shanghai.
Revenue from products launched in the last three years
represented 8% of sales, partially driven by the launches of our
Graseby 2000/2100 large volume pumps in emerging markets and the
CADD(R)-Solis VIP in Europe. The recent North American launch of
Medfusion(TM) 4000 leaves us well positioned to support further
growth in the important hospital syringe pump segment. Likewise,
our neuraxial safety device, CorrectInject(R), has launched in the
UK and represents an important new product line in our pain
management business. In addition to new launches, we are also
extending the penetration of existing products into new regions,
broadening our offering particularly in emerging markets.
Outlook
While developed markets are expected to remain challenging in
the short term as healthcare cost controls and persistent
unemployment put pressure on price and volumes, we will continue to
seek cost saving initiatives such as value engineering and
footprint optimisation. These will help fund investments in new
product development and further expansion of sales and marketing
resources in growth markets. Emerging market revenues are expected
to continue to grow strongly, albeit from a small base, and we
expect to generate significant growth as our investments gain
further traction.
Smiths Detection
2012 2011 Reported Underlying
GBPm GBPm growth growth
=========================== ===== ===== ======== ==========
Sales 220 248 (11)% (11)%
Headline operating profit 20 34 (41)% (36)%
(460)
Headline operating margin 9.3% 13.9% bps
Statutory operating profit 9 33
(540)
Return on capital employed 7.6% 13.0% bps
=========================== ===== ===== ======== ==========
Reported sales at Smiths Detection declined 11% as underlying
revenue fell GBP28m. A GBP2m gain from foreign currency translation
was offset by a GBP2m net impact from acquisitions and disposals.
Underlying sales fell mainly because of government budget cuts
around the world, most notably affecting the military sector. A
significant majority of sales are influenced by more than 100
governments and their agencies. The impact offset strong growth in
certain other markets, notably in critical infrastructure and in
the emerging markets.
Servicing the market-leading installed base of our equipment is
also providing growth opportunities. A greater focus led to a 9%
increase in aftermarket sales in the first half of the year.
Operating margins fell 460 basis points to 9.3% as headline
operating profit declined by GBP13m on an underlying basis. This
was driven by the fall in sales volumes, restructuring costs of
GBP3m charged against headline operating profit, the impact of some
low margin contracts negotiated in previous years and an
unfavourable product mix from reduced military sales. A major cost
reduction programme is starting to deliver benefits and will
contribute even more in the second half as implementation gathers
pace. This, combined with anticipated sales growth, should lead to
better margins in the remainder of the year. The profitability
decline also caused the 540 basis point fall in return on capital,
to 7.6%.
The performance improvement programme, announced at the start of
the period, is expected to deliver GBP40m of annualised savings by
the end of the 2014 fiscal year and is on target to deliver
benefits of GBP15m this year. The programme will cost GBP40m, of
which GBP33m will be treated as an exceptional item over three
years. The remaining GBP7m will be charged against headline
operating profit this financial year, of which GBP3m was incurred
in the first half.
Site rationalisation and headcount reduction, notably in the US
with closure of a major office in New Jersey already announced, has
begun. Value engineering projects are being widely adopted and a
close focus on daily operating expenditure is delivering
significant savings. A new production facility for X-ray systems
will be opened in Asia-Pacific, giving Smiths Detection a local
supply of its core technology into the world's fastest growing air
transportation market. Production at the plant will begin this
calendar year. Wiesbaden, Germany, will remain as a major
production centre and the R&D centre of excellence for X-ray
technology. Production of X-ray systems has already been
established in the US as part of our global development strategy to
create a flexible manufacturing base, where customer proximity
provides a major competitive advantage.
Transportation sales were in line with last year despite
depressed investment by most airport operators and governments. The
US Transportation Security Administration budget approval process
was significantly delayed and project investment levels were much
reduced for 2012. However, in Europe some operators have decided to
invest in current standard explosives detection equipment for hold
baggage and freight, ahead of the introduction of new legislation
requiring upgraded X-ray systems.
In contrast, delays in adopting a uniform standard in Europe for
detecting liquids in hand luggage slowed re-investment in the
latest technologies. The new deadline of April 2013 should allow
screened liquids to be carried on to aircraft without the need for
containers to be opened. Where investment is taking place, our
Advanced Threat Identification X-ray (aTiX) system, the first to
receive EU Standard 2 Type C certification, is the clear system of
choice. Around 50 aTiX machines were ordered by Frankfurt
International Airport. A larger version of the scanner gained EU
Explosive Detection Systems approval for hold luggage.
Underlying revenue from critical infrastructure grew 21% as
greater focus on the market, supported by increased sales
resources, helped secure contracts in various regions. These
included the first sale of the new radiation detector, RadSeeker, a
$4.5m order from the U.S. Domestic Nuclear Detection Office. More
than 150 security systems, including X-ray scanners, trace
detectors and people-screening systems, were supplied to the prison
service in Argentina.
Underlying sales in ports and borders fell some 26%, reflecting
lower levels of government spend. Recent market activity is strong,
with enquiry levels and backlog improving markedly as countries
recognise the revenue-generating potential from better contraband
detection as well as strengthened border security. Major contracts
for high energy cargo scanners were awarded by Nigeria and Cayman.
The latter has provided the customs department with the most
sophisticated systems now operating in the Caribbean to deter the
regional flow of weapons, narcotics and contraband.
Underlying military sales fell 42% due to extended phasing of
major contracts and cuts in military budgets. A drop in the number
of conflicts involving US and international forces has seen
military spending revert to more normal levels and fewer programmes
implemented. However, production has continued on the latest JCAD
(Joint Chemical Agent Detector) for the US Army, under our main
long-running military contract. Activity in some major integrated
programmes remains at encouraging levels.
At the start of the second half of the year, the US Navy
announced the award of a $9 million contract for our mobile weather
information systems which support mission planning and military
operations.
Research and development
Smiths Detection remains committed to the funded development of
its principal technologies and new products and systems, the great
majority funded and managed internally. Company funded R&D held
steady at GBP17m although it increased as a percentage of sales to
7.6% (2011: 7.0%). This includes GBP7m of capitalised projects.
Smiths Detection actively seeks customer and government support for
R&D which totalled GBP3m in the period (2011: GBP4m). Total
R&D spend was GBP20m (2011: GBP21m) or 9.1% of sales.
Our next generation explosives scanner for hold baggage will be
launched this year. It will combine multi-view X-ray technology and
three-dimensional computed tomography (CT) in a single system
providing both greater security screening potential and high
throughput - an extremely attractive offering for airport
operators. Prototype testing has progressed well.
This year sees the highest number of product launches in Smiths
Detection's history. In addition to the RadSeeker radiation
detector, the programme includes advanced GUARDION portable
chemical identifier; a successor to the HazMatID which has been
used extensively by emergency response teams; X-ray systems for air
cargo screening; and a lower weight mobile cargo inspection
systems.
Outlook
The current order book is ahead of the same period last year and
is expected to support a similar level of sales for the full year,
subject to the timing and profile of contracts. There has been
encouraging growth in the order book for delivery during FY2013, as
it benefits from significant recent contract wins. Headline
operating margins will benefit from our restructuring initiatives.
Product launches will open up opportunities for new technologies
while expansion in emerging markets will help offset the impact of
lower government spending in western countries.
Smiths Interconnect
2012 2011 Reported Underlying
GBPm GBPm growth growth
=========================== ===== ===== ======== ==========
Sales 200 186 7% (6)%
Headline operating profit 26 34 (23)% (29)%
(500)
Headline operating margin 13.1% 18.1% bps
Statutory operating profit 16 27
(460)
Return on capital employed 12.8% 17.4% bps
=========================== ===== ===== ======== ==========
Reported sales for Smiths Interconnect grew 7%, or GBP14m,
driven mainly by the acquisition of Power Holdings Inc. (PDI) which
added GBP24m. Underlying sales fell GBP11m, or 6%, against a strong
comparator period. Challenging conditions in several end markets,
particularly military, medical, and semiconductor testing,
depressed sales of connectors and power protection components.
Wireless telecommunications proved a notable positive in the period
and resulted in growth in microwave communications sales.
Reported headline operating profit decreased 23%, or GBP8m.
Excluding the GBP2m profit benefit from the PDI acquisition,
underlying headline operating profit fell 29% (GBP10m), with
margins down 460 basis points to 13.5%. This margin decrease
stemmed mainly from the lower volumes and the associated
operational gearing caused by the lower military sales. The
business also experienced weaker gross margins due to sales mix and
pricing pressure. Associated headcount reductions were made in
several facilities and one manufacturing plant was closed. At two
further facilities, we transferred a significant portion of the
manufacturing capacity to low-cost countries as part of an ongoing
initiative. In addition, we continue to benefit from procurement
initiatives which helped to offset cost inflation. There was a
further 40 basis points of margin decline associated with the lower
relative margins at PDI, although plans are already in place to
improve PDI's margins through operational and procurement
initiatives.
Return on capital employed declined to 12.8% as a result of the
lower profitability in the underlying business and the impact of
the PDI acquisition. The PDI acquisition forms part of Group
strategy to invest in complementary technologies and gain access to
attractive markets with the aim of delivering improved growth and
post-tax returns of at least 12% by the third year of
ownership.
From an end market perspective, underlying sales in wireless
telecoms grew 12%, largely as a result of growth in Asia and
Australia. The military and aerospace segment declined 15%,
reflecting US Department of Defense budget cutbacks and delays to
some military programmes. Underlying sales to the rail, medical,
automation and test markets fell 7% because of lower demand from
medical and semiconductor test customers.
Looking ahead, Smiths Interconnect will align its reporting
segments to its three technology areas of Connectors, Microwave and
Power.
In Connectors, underlying sales declined 14% due to a mixture of
effects. The military market was soft in both the US and Europe and
orders from two major medical equipment customers slowed markedly
against strong prior year comparators. In addition, the seasonal
slowdown in the semiconductor test and the more general board test
markets was unusually pronounced, reflecting the impact on customer
supply chains from the flooding in South East Asia. The industrial
sector remained robust despite uncertainty surrounding the economic
environment in Europe. Transportation markets, both rail and
aerospace, were positive and we were selected as a preferred
supplier by a major European railway locomotive and rolling stock
company. We gained significant orders for electronic warfare and
phased-array radar applications and achieved design wins for new
missile and radar programmes.
Microwave sales grew 6%. In wireless telecommunications, we
outperformed the prevailing market conditions as projects to
optimise existing networks, particularly by Australian operators,
led to significant sales growth of filter products. In addition,
sales of our passive intermodulation test instruments benefited
from certain European and Chinese operators adopting the technology
to help improve the performance of their networks. In contrast, US
operator spending slowed considerably and the defence market
remained weak. Towards the end of the period, military bookings
began to show some signs of recovery. These included the release of
a delayed $5.4m order for sub-assemblies used in an anti-IED
device, strong orders for space applications and a follow-on $7.4m
order related to a naval satellite communication system. Sales of
the KuStream airborne satellite antenna system increased during the
period albeit at a slower rate than anticipated because of
programme and production issues.
The addition of PDI, which achieved sales and profits in line
with expectations, boosted Power sales by 88%. Excluding PDI,
underlying revenues declined 18% primarily due to a combination of
delays in expected US military orders and a strong prior comparator
period which included a significant one-off military programme.
Sales into wireless telecommunications applications weakened, hit
by a reduction in US operator capital expenditure and strong
competition in China. Growth in public safety applications and
recent contract wins with telecommunication equipment manufacturers
proved notable exceptions. Although the medical market was also
soft over the period, Smiths Interconnect succeeded in developing a
relationship with a medical equipment manufacturer for the global
supply of power conditioning units.
Research and development
Company-funded R&D spend increased 8% to GBP11m or 5.5% of
sales. Excluding PDI, spend of GBP10m, or 5.6% of sales, increased
on the prior period with higher investments in commercial products
offset by lower spend on military projects. In addition, we
received a further GBP2m of customer-funded investment,
predominantly within Microwave defence applications, which was
slightly above last year.
Investments continue to be spread across the division, although
we focus on opportunities that provide the best returns, evidenced
by over 30% of sales coming from products developed in the last
three years. Examples include: smaller, higher density connectors
for semiconductor test applications, millimetre-wave components for
a new radar system that will enable helicopters to operate safely
in poor visibility such as fog and sand/dust, a major product
enhancement for our passive intermodulation test equipment, and new
power and radio frequency protection devices for wireless
telecommunications tower top electronics.
Business developments
In October 2011, Smiths Interconnect acquired PDI, a leading
designer and manufacturer of specialist power distribution,
conditioning and monitoring systems. Based in Richmond, Virginia,
PDI is the parent company for Power Distribution, Inc., Marelco
Power Systems, Inc. and Onyx Power, Inc. With additional facilities
in Santa Ana, California and Howell, Michigan, PDI employs around
370 people. More than 90% of its revenues come from non-government
funded markets.
The acquisition transforms Smiths Interconnect's power offering,
adding a new range of products and growth potential through access
to more attractive and higher growth end markets such as data
centres as well as sales and operational synergy opportunities.
Integration is progressing according to plan and should be
substantially complete before the end of the financial year. Value
creation opportunities have been identified and actions plans are
in place with benefits expected to start accruing within months. A
focus on international expansion opportunities, with new sales
resources and channels added in Europe, India and China, will help
drive additional sales growth. The sharing of manufacturing best
practices will benefit margins.
Outlook
Although the full year sales outlook remains uncertain with
sustained weaknesses in some industrial and defence markets,
margins are expected to improve in the second half as a result of
the benefits of first half cost reduction actions and ongoing
operational initiatives. Full year performance will also benefit
from the acquisition of PDI. In wireless telecommunications,
several network optimisation projects will end in the second half,
although both the Microwave and Power businesses are well placed to
benefit if the expected increase in US network operator capital
expenditure materialises. The semiconductor test market is
generally expected to improve in 2012 although whether this will be
early enough to provide a benefit this financial year is still
uncertain. Industrial markets are expected to be adversely impacted
by the continuing uncertainty in the Eurozone. Market conditions
affecting PDI are likely to be mixed with growth of data centre
applications partly offset by continued volatility in the
alternative energy sector. We are alert to the need to manage costs
aggressively and we continue to monitor markets closely to this
effect. In the event of further deterioration, we will take the
appropriate actions to reduce costs.
Flex-Tek
2012 2011 Reported Underlying
GBPm GBPm growth growth
================================== ===== ===== ======== ==========
Sales 109 107 2% 2%
Headline operating profit 17 12 36% 36%
390
Headline operating margin 15.5% 11.6% bps
Statutory operating (loss)/profit (35) 11
450
Return on capital employed 25.1% 20.6% bps
================================== ===== ===== ======== ==========
Flex-Tek's sales grew 2%, or GBP2m, on an underlying and
reported basis. This improvement, driven by sales growth in
aerospace components, was slightly offset by weakness in our
heating element business for the household appliance sector,
depressed by the flat US residential construction market. Headline
operating profit margins rose 390 basis points to 15.5% as a result
of the increased volumes and associated operational gearing and
positive mix from the faster growing aerospace sales. The
underlying increase in operating profit of GBP5m stemmed from
higher volumes (GBP2m) and pricing and benefits of our cost saving
initiatives (GBP1m). There was also a GBP2m gain from the change in
accounting treatment for the legal defence costs associated with
the flexible gas piping business. In previous years these costs had
been charged to headline operating profit but are now being treated
as an exceptional item (see notes 4 and 12 to the accounts). Return
on capital employed rose 450 basis points as a result of the
improved profitability.
In Fluid Management, sales of components to aerospace customers
improved 14% on an underlying basis, helped by higher volumes on
major airframe platforms from Airbus and Boeing and engines from
Pratt & Whitney and GE. The order book for our commercial
aviation OEM business remains strong and we have gained market
share in our overhaul & repair service segment. In addition,
sales to the US automotive market for both fuel and brake
applications remain robust.
Sales to the construction market were up 4% despite the
continued uncertainty in US housing. According to the US Census
Bureau, the2011 seasonally adjusted annual rate of new single
family home starts was slightly above 300,000, the lowest since
records began in 1963. However, we continue to gain market share by
cross-selling our ducting, flexible gas piping and HVAC heating
element product lines to the US distribution market.
Heat Solutions underlying revenues fell 12% as sales of heating
elements to residential HVAC customers weakened by comparison to
the prior year. Consumer confidence remains cautious in the US and
OEM appliance manufacturers continue to project low single growth
rates in the US markets.
Underlying sales of flexible hose from the Flexible Solutions
division were down 1% against the prior year with a slight uptick
in industrial products offset by weakness in the floor care
market.
Flex-Tek has increased R&D spend in Heat Solutions and Fluid
Management as well as investment in its Asian manufacturing
facilities in China and India. We continue to seek new investments
to grow our market share, expand our product portfolio, and target
potential bolt-on acquisitions to build on the strength of the
management team.
Outlook
The first half benefitted from the culmination of restructuring
gains, a fairly stable environment for commodities and continued
strength in aerospace. These have enhanced our margins and lay a
solid foundation for the second half. Flex-Tek remains leveraged to
a recovery in housing and should continue to benefit from a robust
commercial aerospace cycle. Future performance may be influenced by
a rise in commodity prices as well as increased investment in new
product development.
Financial review
Earnings per share
Basic headline earnings per share from continuing activities
were 40.4p (2011: 39.9p), a growth of 1%. This reflects increased
headline pre-tax profit which has been partly offset by a higher
tax charge.
On a statutory basis, the basic earnings per share from
continuing activities were 21.4p (2011: 35.7p).
Exceptional and other items relating to continuing activities
excluded from headline profits
These items amounted to a charge of GBP106m compared to a charge
of GBP23m in 2011. They comprised:
-- Amortisation of intangible assets acquired in business
combinations of GBP25m (2011: GBP22m). The charge relates
principally to technology and customer relationships;
-- A charge of GBP18m (2011: GBP5m) in connection with John
Crane, Inc. asbestos litigation;
-- A charge of GBP52m (2011: nil) to resolve potential future
claims alleging product liability in Titeflex Corporation. In
previous years, the costs of resolving notified claims were charged
to headline operating profit;
-- A charge of GBP12m (2011: GBP5m) in respect of restructuring,
mostly in connection with the performance improvement programme in
Smiths Detection announced last year;
-- A charge of GBP8m in relation to a change in the basis of
estimating sales rebates in Smiths Medical;
-- Acquisition costs of GBP2m (2011: GBP1m);
-- GBP1m profit on disposal of businesses (2011: nil);
-- Pension finance income of GBP11m (2011: GBP12m); this was
previously treated as part of headline profit and the prior year
income statement has been restated; and
-- Financing costs of GBP1m (2011: GBP2m). These represent
exchange movements on derivatives and other financing instruments
not hedge accounted under IFRS.
Cash generation and net debt
Operating cash generation remained strong with headline
operating cash of GBP201m (2011: GBP186m) representing 82% (2011:
78%) of headline operating profit (see note 14 to the accounts for
a reconciliation of headline operating cash to statutory cash-flow
measures). Free cash-flow improved GBP11m to GBP81m (2011: GBP70m).
Free cash-flow is stated after interest and tax but before
acquisitions, financing activities and dividends.
On a statutory basis, net cash inflow from continuing operations
was GBP133m (2011: GBP107m).
Dividends paid in the period on ordinary shares amounted to
GBP98m (2011: GBP92m).
Net debt at 28 January was GBP957m, up from GBP729m at 31 July
2011. The increase in net debt reflects the net effect of
acquisitions and disposal (GBP168m) and dividends (GBP98m).
Headline interest and other financing costs
Interest payable on debt, net of interest earned on cash
deposits, was GBP31m compared with GBP29m in 2011. This reduction
reflects the higher average levels of debt. Interest costs were
covered 7.8 times by headline operating profits.
The Group accounts for pensions using IAS19. As required by this
standard, a finance credit is recognised reflecting the expected
return on pension scheme assets and a finance charge is recognised
reflecting the unwinding of the discount on the future pension
liability. The net financing credit was GBP11m (2011: GBP12m). As
of 1 August 2011, we now report headline pre-tax profit excluding
this item. The headline measures are intended to report the
underlying performance of the Group excluding factors which are
outside management control.
Research and development
Investment in research and development (R&D) drives future
performance and is a measure of the Group's commitment to the
future organic growth of the business.
We invested a total of GBP55m in R&D (2011: GBP56m) on
continuing operations, equivalent to 3.9% of sales (2011: 4.0%). Of
that total, GBP50m was funded by the Company compared with GBP49m
in 2011, an increase of 1%. We actively seek funding from customers
to support R&D and this amounted to GBP5m (2011: GBP7m). Under
IFRS, certain development costs are capitalised, and this amounted
to GBP14m in the period (2011: GBP16m). The gross capitalisation is
shown as an intangible asset. Where customers contribute to the
costs of development, the contribution is included as deferred
income and disclosed within trade and other payables.
Taxation
The headline tax charge of GBP57m (2011: GBP55m - restated)
represented an effective rate of 26.5% on the headline profit
before taxation (2011: 26.0% - restated). This rate is expected to
be sustained for the full year. On a statutory basis, the tax
charge on continuing activities was GBP26m (2011: GBP48m).
The Group continues to take advantage of global manufacturing,
research and development and other tax incentives, the
tax-efficient use of capital and tax compliance management.
However, our increased profitability in areas with higher tax rates
will cause the headline tax rate to increase over time with a rate
of between 27-29% expected over the medium term.
Return on capital employed
The return on capital employed (ROCE) is calculated over a
rolling 12-month period and is the percentage that headline
operating profit comprises of monthly 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. In the light of the
recognition of the Titeflex litigation provision, the Board has
decided to restate capital employed to exclude significant
litigation provisions (see note 2 to the accounts). The ROCE
declined 60 basis points to 16.0% (2011: 16.6%), reflecting the
lower profitability in Smiths Detection and Smiths Interconnect as
well as the investment in the Power Holdings acquisition that
completed in October 2011.
Retirement benefits
As required by IFRS the balance sheet reflects the net surplus
or deficit in retirement benefit plans, taking assets at their
market values at 28 January 2012 and evaluating liabilities at
period-end AA corporate bond interest rates.
The tables below disclose the net status across a number of
individual plans. Where any individual plan shows a surplus under
IAS 19, this is disclosed on the balance sheet as a retirement
benefit asset. The IAS 19 surplus of any one plan is not available
to fund the IAS 19 deficit of another plan.
The net pension deficit has risen to GBP459m at 28 January 2012
from GBP199m at 31 July 2011. The increase reflects a fall in
discount rates of over 50 basis points since 31 July 2011.
The retirement benefit position was:
28 January 31 July 29 January
2012 2011 2011
====================== ========== ======= ==========
Funded plans
UK plans - funding
status 94% 101% 104%
US plans - funding
status 70% 76% 78%
Other plans - funding
status 77% 77% 70%
====================== ========== ======= ==========
28 January 31 July 29 January
2012 2011 2011
GBPm GBPm GBPm
=================== ========== ======= ==========
Surplus/(deficit)
Funded plans (367) (108) (29)
Unfunded plans (92) (91) (90)
=================== ========== ======= ==========
Total deficit (459) (199) (119)
=================== ========== ======= ==========
Retirement benefit
assets 51 141 151
Retirement benefit
liabilities (510) (340) (270)
=================== ========== ======= ==========
(459) (199) (119)
=================== ========== ======= ==========
The accounting basis under IAS 19 does not necessarily reflect
the funding basis agreed with the Trustees and, should the schemes
be wound up while they had members, they would need to buy out the
benefits of all members. The buyouts would cost very significantly
more than the present value of scheme liabilities calculated in
accordance with IAS 19.
In the current year, cash contributions to the schemes are
expected to total approximately GBP110m (2011: GBP64m), including a
conditional GBP50m to the TI Group Pension Scheme (TIGPS). In
addition, the Group will invest GBP24m in an escrow account as part
of the 10-year funding plan agreed with the Smiths Industries
Pension Scheme (SIPS).
The approximate pension membership for the three main schemes at
around the end of January 2012 is set out in the table below:
Pension scheme membership SIPS TIGPS US plans Total
========================== ====== ====== ======== ======
Deferred active 700 320 3,940 4,960
Deferred 12,480 15,180 6,510 34,170
Pensioners 12,910 18,890 5,470 37,270
========================== ====== ====== ======== ======
Total 26,090 34,390 15,920 76,400
========================== ====== ====== ======== ======
Exchange rates
The results of overseas operations are translated into sterling
at average exchange rates. The net assets are translated at
period-end rates. The principal exchange rates, expressed in terms
of the value of sterling, are shown in the following table.
28 January 29 January 31 July
2012 2011 2011
=========== ========== ========== ==================== =======
Average
rates:
Dollar weakened
US dollar 1.58 1.57 1% 1.60
Euro strengthened
Euro 1.16 1.18 2% 1.16
Period end
rates:
Dollar strengthened
US dollar 1.57 1.58 1% 1.64
Euro weakened
Euro 1.19 1.16 3% 1.14
=========== ========== ========== ==================== =======
Risk management
The principal risks and uncertainties affecting the business
activities of the Group and relevant mitigating activities were set
out on pages 52 to 56 of the Annual Report for the year ended 31
July 2011, a copy of which is available at the Company's website at
www.smiths.com. The key risks and uncertainties are summarised
below:
Economic outlook
Economic and financial market conditions may lead to recession
and may cause adverse effects on customers or suppliers with
consequential capacity or cash-flow implications for Smiths
Group.
Financial risks
Financial risk, whether from foreign exchange fluctuations,
availability of funding, changes in tax rates or availability of
insurance cover may cause adverse effects on the Group's net
assets, earnings or liquidity.
Global supply chain/concentration of manufacturing
Reliance on sole suppliers or concentration of manufacturing in
the supply chain - especially in areas exposed to natural
catastrophe - may result in disruption to the supply of
products.
Government customers
Over 40% revenues are from governments or influenced by
governments. Many such governments are reducing expenditure in the
present economic environment with consequential risks to
revenue.
Information technology
Information systems are subject to security risk and play an
important part in business processes, both internally and
externally.
Acquisitions and disposals
Acquisitions are subject to execution risk and it may be
difficult to integrate than expected so that the full benefits are
not realised.
Compliance with legislation and regulations
A complex legislative and regulatory environment applies to the
Group's activities such that failure to comply could lead to
financial penalty.
Pension funding
Defined benefit pension scheme obligations are funded by Group
companies based on actuarial assumptions. Changes in discount
rates, inflation, returns or mortality could lead to material
changes in funding requirements.
Product liability and litigation
Product liability claims and litigation, particularly given the
Group's significant sales exposure to the US market, may have a
significant impact on the financial results.
Technology and innovation
Product innovation is key to long-term revenue growth. Failure
of the Group to innovate its products and services could materially
affect market share and sales growth.
Talent and succession planning
Suitably qualified personnel are an important asset that
underpins the Group's success; failure to attract or retain such
personnel may result in weaker growth and returns.
Developments since the Annual Report
In the view of the Board, the risks and uncertainties affecting
the Group for the remaining six months of the financial year
continue to be those set out briefly above and more fully in the
Annual Report. Since the Annual Report, there has been a sustained
risk that certain Eurozone members fail to meet their sovereign
debt obligations which could destabilise the Euro currency and
result in currency devaluations in some of our Eurozone markets. We
are preparing plans to mitigate these effects should they occur.
Continued constraints on government budgets are likely to put
pressure on public sector spending in areas such as healthcare,
defence and homeland security in markets in which the Group
operates. This budgetary pressure has also caused payment terms to
lengthen with some government-funded customers, particularly in
Southern Europe, although we continue to manage any overdue debts
very closely. Otherwise, there may be other effects, such as
changes in the fiscal and regulatory policies in the countries
where the Group conducts its business.
___________________________________________
Statement of directors' responsibilities
The Interim report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Interim report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Services
Authority. The Disclosure and Transparency Rules ("DTR") require
that the accounting policies and presentation applied to the
half-yearly figures must be consistent with those applied in the
latest published annual accounts, except where the accounting
policies and presentation are to be changed in the subsequent
annual accounts, in which case the new accounting policies and
presentation should be followed, and the changes and the reasons
for the changes should be disclosed in the Interim report, unless
the United Kingdom Financial Services Authority agrees
otherwise.
The directors confirm that this condensed set of financial
statements has been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting' as adopted by
the European Union, and that the interim management report herein
includes a fair review of:
-- the important events that have occurred during the first six
months of the financial year and their impact on the condensed set
of financial statements as required by DTR 4.2.7;
-- the principal risks and uncertainties for the remaining six
months of the year as required by DTR 4.2.7; and
-- related party transactions that have taken place in the first
six months of the current financial year and changes in the related
party transactions described in the previous annual report that
have materially affected the financial position or performance of
the group during the first six months of the current financial year
as required by DTR 4.2.8.
The directors of Smiths Group plc are listed in the Smiths Group
plc Annual Report for the year ended 31 July 2011, and there have
been no changes in the membership of the board.
For and on behalf of the Board of Directors:
Philip Bowman Peter Turner
Chief Executive Finance Director
13 March 2012
Independent review report to Smiths Group plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the Interim report for the period ended
28 January 2012, which comprises the consolidated income statement,
consolidated statement of comprehensive income, consolidated
balance sheet, consolidated statement of changes in equity,
consolidated cash flow statement and related notes. We have read
the other information contained in the Interim report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The Interim report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the Interim report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Services
Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this Interim financial report has been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the Interim report
based on our review. This report, including the conclusion, has
been prepared for and only for the Company for the purpose of the
Disclosure and Transparency Rules of the Financial Services
Authority and for no other purpose. We do not, in producing this
report, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands
it may come save where expressly agreed by our prior consent in
writing.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the Interim financial report for the period ended 28 January
2012 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants 13 March 2012 London
(a) The maintenance and integrity of the Smiths Group plc
website is the responsibility of the Directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since
they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Consolidated income statement (unaudited)
Period Period Year
ended ended ended
28 29 31
January January July
2012 2011 2011
Notes GBPm GBPm GBPm
============================================ ====== ======== ======== =========
Continuing operations
Revenue 2 1,407.4 1,371.7 2,842.0
Cost of sales (764.6) (734.5) (1,534.0)
============================================ ====== ======== ======== =========
Gross profit 642.8 637.2 1,308.0
Sales and distribution costs (200.3) (192.4) (384.3)
Administrative expenses (311.8) (236.4) (490.1)
Profit on disposal of businesses 4 0.9 4.4
============================================ ====== ======== ======== =========
Operating profit 131.6 208.4 438.0
============================================ ====== ======== ======== =========
Comprising
-------------------------------------------- ------ -------- -------- ---------
- headline operating profit 3 244.0 238.7 516.9
-------------------------------------------- ------ -------- -------- ---------
- exceptional items, amortisation
of acquired intangibles 3 (112.4) (30.3) (78.9)
============================================ ====== ======== ======== =========
131.6 208.4 438.0
============================================ ====== ======== ======== =========
Interest receivable 1.3 0.9 1.8
Interest payable (32.6) (29.8) (60.3)
Other financing losses (3.8) (4.7) (9.2)
Other finance income - retirement
benefits 10.5 12.0 23.3
============================================ ====== ======== ======== =========
Finance costs (24.6) (21.6) (44.4)
Share of post-tax profits of associated
companies 4.2 1.8 4.3
============================================ ====== ======== ======== =========
Profit before taxation 111.2 188.6 397.9
============================================ ====== ======== ======== =========
Comprising
-------------------------------------------- ------ -------- -------- ---------
- headline profit before taxation
(restated)* 3 216.9 211.6 462.7
- exceptional items, amortisation
of acquired intangibles and other
financing gains and losses 3 (105.7) (23.0) (64.8)
============================================ ====== ======== ======== =========
111.2 188.6 397.9
============================================ ====== ======== ======== =========
Taxation 5 (26.4) (48.3) (91.8)
============================================ ====== ======== ======== =========
Profit after taxation - continuing
operations 84.8 140.3 306.1
============================================ ====== ======== ======== =========
(Loss)/profit after taxation - discontinued
operations (0.1) 34.1 79.0
============================================ ====== ======== ======== =========
Profit for the period 84.7 174.4 385.1
============================================ ====== ======== ======== =========
Attributable to
Smiths Group shareholders 83.8 173.8 383.8
Non-controlling interests 0.9 0.6 1.3
============================================ ====== ======== ======== =========
84.7 174.4 385.1
============================================ ====== ======== ======== =========
Earnings per share 7
Basic 21.4p 44.4p 98.0p
Basic - continuing operations 21.4p 35.7p 77.8p
Diluted 21.2p 44.0p 97.1p
Diluted - continuing operations 21.2p 35.4p 77.1p
============================================ ====== ======== ======== =========
Dividends per share (declared) 6
- interim 11.75p 11.25p 11.25p
- final 25.00p
============================================ ====== ======== ======== =========
11.75p 11.25p 36.25p
============================================ ====== ======== ======== =========
*As disclosed in the Annual Report 2011, from 1 August 2011 the
definition of headline profit has been amended to exclude financing
credits and charges relating to retirement benefits, see note
3.
Consolidated statement of comprehensive income (unaudited)
Period Period Year
ended ended ended
28 29 31
January January July
2012 2011 2011
Notes GBPm GBPm GBPm
=========================================== ======= ======== ======== ======
Profit for the period 84.7 174.4 385.1
==================================================== ======== ======== ======
Other comprehensive income
Exchange gains/(losses) 30.3 16.0 (9.3)
Actuarial (losses)/gains on retirement
benefits (286.4) 150.4 (0.2)
Taxation recognised on actuarial movements 18.2 (30.0) 10.9
Fair value gains/(losses)
- on available for sale financial assets 4.5 1.2 4.1
- deferred in the period on cash-flow
and net investment hedges (22.7) (8.6) 8.3
- reclassified to income statement 3.2 1.2 (0.2)
==================================================== ======== ======== ======
Total other comprehensive income (252.9) 130.2 13.6
Total comprehensive income (168.2) 304.6 398.7
==================================================== ======== ======== ======
Attributable to
Smiths Group shareholders (169.4) 303.8 397.0
Non-controlling interests 1.2 0.8 1.7
==================================================== ======== ======== ======
(168.2) 304.6 398.7
=================================================== ======== ======== ======
Consolidated balance sheet (unaudited)
28 January 29 January 31 July
2012 2011 2011
Notes GBPm GBPm GBPm
======================================= ===== ========== ========== =========
Non-current assets
Intangible assets 9 1,779.8 1,639.6 1,610.2
Property, plant and equipment 10 279.7 290.4 282.8
Investments accounted for using the
equity method 21.8 15.2 18.5
Financial assets - other investments 48.3 28.6 31.6
Retirement benefit assets 8 51.4 151.0 140.6
Deferred tax assets 231.8 154.8 174.8
Trade and other receivables 36.3 32.7 33.6
Financial derivatives 6.5 7.8 6.4
======================================= ===== ========== ========== =========
2,455.6 2,320.1 2,298.5
Current assets
Inventories 476.6 431.9 432.5
Current tax receivable 15.0 16.4
Trade and other receivables 616.2 613.3 612.8
Cash and cash equivalents 11 145.8 136.8 261.1
Financial derivatives 13.1 8.3 5.7
======================================= ===== ========== ========== =========
1,266.7 1,190.3 1,328.5
Total assets 3,722.3 3,510.4 3,627.0
======================================= ===== ========== ========== =========
Non-current liabilities
Financial liabilities
- borrowings 11 (907.0) (993.4) (978.4)
- financial derivatives (1.3) (2.4) (1.5)
Provisions for liabilities and charges 12 (239.0) (214.4) (174.1)
Retirement benefit obligations 8 (510.3) (270.3) (339.6)
Deferred tax liabilities (92.3) (77.0) (77.6)
Trade and other payables (44.3) (35.0) (45.1)
======================================= ===== ========== ========== =========
(1,794.2) (1,592.5) (1,616.3)
Current liabilities
Financial liabilities
- borrowings 11 (195.8) (22.9) (11.7)
- financial derivatives (12.3) (6.9) (8.9)
Provisions for liabilities and charges 12 (81.0) (67.0) (74.7)
Trade and other payables (432.2) (418.6) (454.2)
Current tax payable (94.9) (78.9) (81.3)
======================================= ===== ========== ========== =========
(816.2) (594.3) (630.8)
======================================= ===== ========== ========== =========
Total liabilities (2,610.4) (2,186.8) (2,247.1)
======================================= ===== ========== ========== =========
Net assets 1,111.9 1,323.6 1,379.9
======================================= ===== ========== ========== =========
Shareholders' equity
Share capital 147.2 147.0 147.1
Share premium account 330.7 326.5 329.1
Capital redemption reserve 5.8 5.8 5.8
Revaluation reserve 1.7 1.7 1.7
Merger reserve 234.8 234.8 234.8
Retained earnings 524.6 738.5 775.6
Hedge reserve (140.2) (136.2) (120.6)
======================================= ===== ========== ========== =========
Total shareholders' equity 1,104.6 1,318.1 1,373.5
Non-controlling interest equity 7.3 5.5 6.4
======================================= ===== ========== ========== =========
Total equity 1,111.9 1,323.6 1,379.9
======================================= ===== ========== ========== =========
Consolidated statement of changes in equity (unaudited)
Share
capital
and Equity
share Other Retained Hedge shareholders' Non-controlling Total
premium reserves earnings reserve funds Interest equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ====== ======== ========= ========= ======== ============== =============== =======
At 31 July 2011 476.2 242.3 775.6 (120.6) 1,373.5 6.4 1,379.9
========================== ====== ======== ========= ========= ======== ============== =============== =======
Profit for the period 83.8 83.8 0.9 84.7
Other comprehensive
income
Exchange gains/(losses) 30.1 (0.1) 30.0 0.3 30.3
Actuarial losses
on retirement benefits
net of tax (268.2) (268.2) (268.2)
Fair value gains/(losses) 4.5 (19.5) (15.0) (15.0)
========================== ====== ======== ========= ========= ======== ============== =============== =======
Total comprehensive
income for the period (149.8) (19.6) (169.4) 1.2 (168.2)
Transactions relating
to ownership interests
Exercises of share
options 1.7 1.7 1.7
Taxation recognised
on share options (0.9) (0.9) (0.9)
Purchase of own shares (9.7) (9.7) (9.7)
Dividends
- equity shareholders 6 (98.1) (98.1) (98.1)
- non-controlling
interest (0.3) (0.3)
Share-based payment 7.5 7.5 7.5
========================== ====== ======== ========= ========= ======== ============== =============== =======
At 28 January 2012 477.9 242.3 524.6 (140.2) 1,104.6 7.3 1,111.9
========================== ====== ======== ========= ========= ======== ============== =============== =======
Share
capital
and Equity
share Other Retained Hedge shareholders' Non-controlling Total
premium reserves earnings reserve funds Interest equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ===== ======== ========= ========= ======== ============== =============== =======
At 31 July 2010 461.8 242.3 519.5 (128.8) 1,094.8 5.0 1,099.8
========================== ===== ======== ========= ========= ======== ============== =============== =======
Profit for the period 173.8 173.8 0.6 174.4
Other comprehensive
income
Exchange gains 15.8 15.8 0.2 16.0
Actuarial gains on
retirement benefits
net of tax 120.4 120.4 120.4
Fair value gains/(losses) 1.2 (7.4) (6.2) (6.2)
========================== ===== ======== ========= ========= ======== ============== =============== =======
Total comprehensive
income for the period 311.2 (7.4) 303.8 0.8 304.6
Transactions relating
to ownership interest
Exercises of share
options 11.7 11.7 11.7
Purchase of own shares (8.6) (8.6) (8.6)
Dividends
- equity shareholders 6 (91.9) (91.9) (91.9)
- non-controlling
interest (0.3) (0.3)
Share-based payment 8.3 8.3 8.3
========================== ===== ======== ========= ========= ======== ============== =============== =======
At 29 January 2011 473.5 242.3 738.5 (136.2) 1,318.1 5.5 1,323.6
========================== ===== ======== ========= ========= ======== ============== =============== =======
Consolidated cash-flow statement (unaudited)
Period Period Year
ended ended ended
28 29 31
January January July
2012 2011 2011
Notes GBPm GBPm GBPm
=========================================== ===== ======== ======== =======
Net cash inflow from operating activities 14 133.2 106.6 321.7
Cash-flows from investing activities
Expenditure on capitalised development (13.1) (15.5) (30.6)
Expenditure on other intangible assets (5.5) (2.9) (10.2)
Purchases of property, plant and equipment (21.1) (19.6) (49.3)
Disposals of property, plant and equipment 1.5 4.5
Investment in financial assets (12.0) (0.2) (0.3)
Acquisition of businesses (169.0) (10.9) (18.5)
Disposal of Aerospace (6.8) (6.2)
Disposals of businesses 0.9 (0.3) 3.9
=========================================== ===== ======== ======== =======
Net cash-flow used in investing activities (219.8) (54.7) (106.7)
Cash-flows from financing activities
Proceeds from exercise of share options 1.7 11.7 14.4
Purchase of own shares (9.7) (8.6) (8.6)
Dividends paid to equity shareholders (98.1) (91.9) (136.1)
Dividends paid to non-controlling
interests (0.3) (0.3) (0.3)
Cash outflow from matured derivative
financial instruments (2.6) (1.5) 1.0
Increase in new borrowings 92.3 0.9 1.6
Reduction and repayment of borrowings (16.7) (0.7) (1.2)
=========================================== ===== ======== ======== =======
Net cash-flow used in financing activities (33.4) (90.4) (129.2)
Net (decrease)/increase in cash and
cash equivalents (120.0) (38.5) 85.8
Cash and cash equivalents at beginning
of the period 260.7 172.2 172.2
Exchange differences 1.4 2.3 2.7
=========================================== ===== ======== ======== =======
Cash and cash equivalents at end of
the period 142.1 136.0 260.7
=========================================== ===== ======== ======== =======
Cash and cash equivalents at end of
the period comprise
- cash at bank and in hand 122.3 121.0 232.0
- short-term deposits 23.5 15.8 29.1
- bank overdrafts (3.7) (0.8) (0.4)
=========================================== ===== ======== ======== =======
142.1 136.0 260.7
=========================================== ===== ======== ======== =======
Notes to the Interim report (unaudited)
1 Basis of preparation
The condensed interim financial information covers the six month
period ended 28 January 2012 and has been prepared under
International Financial Reporting Standards (IFRS) as adopted by
the European Union, in accordance with International Accounting
Standard 34 'Interim Financial Reporting' and the Disclosure and
Transparency Rules of the Financial Services Authority. It is
unaudited but has been reviewed by the auditors and their report is
attached to this document.
The interim financial information does not constitute statutory
accounts within the meaning of Section 434 of the Companies Act
2006. It should be read in conjunction with the statutory accounts
for the year ended 31 July 2011, which were prepared in accordance
with IFRS as adopted by the European Union and have been filed with
the Registrar of Companies. The auditors' report on these statutory
accounts was unqualified and did not contain a statement under
Section 498(2) or (3) of the Companies Act 2006.
Accounting policies
The condensed interim financial information has been prepared on
the basis of the accounting policies applicable for the year ending
31 July 2012. These accounting policies are consistent with those
applied in the preparation of the financial statements for the year
ended 31 July 2011, except for the inclusion of income and
expenditure relating to Titeflex Corporation litigation in
exceptional items (see note 4) and the adoption of:
-- Amendment to IFRIC 14, 'Prepayment of a Minimum Funding
Requirement'
-- IAS 24 (revised) 'Related party disclosures'
-- Amendment to IFRS 7, 'Financial instruments:Disclosures'
There have been no material changes as a result of adopting
these new accounting requirements.
Significant judgements, key assumptions and estimates
The preparation of the accounts in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the accounts and the reported amounts of
revenues and expenses during the reporting period. Actual results
may differ from these estimates. The key estimates and assumptions
used in these consolidated financial statements are set out
below.
Revenue recognition
The timing of revenue recognition on long-term funded contracts
depends on the assessed stage of completion of contract activity at
the balance sheet date. This assessment requires the expected total
contract revenues and costs to be estimated based on the current
progress of the contract.
Revenue of GBP11.6m (31 July 2011: GBP27.9m) has been recognised
in respect of contracts in progress at the period end with a total
expected value of GBP130.2m (31 July 2011: GBP129.3m). A 5%
increase in the proportion of the contract activity recognised in
the current year would have increased operating profit by an
estimated GBP0.2m (31 July 2011: GBP1.1m).
Revenue recognition requires the estimation of rebates that will
be provided in respect of sales which have been made before the
balance sheet date. Smiths Medical has rebate arrangements in place
with some distributors in respect of sales to end customers where
the sales prices have been negotiated directly by Smiths Medical.
During the period, as a result of the availability of better
information, the basis of estimating these rebates was revised. The
estimation is based on the level of discount derived from sales
data from distributors, the amount of inventory held by
distributors and the time lag between the initial sale to the
distributor and the rebate being claimed. The rebate accrual at 28
January 2012 was GBP18m (31 July 2011: GBP10.2m).
Impairment
Goodwill is tested at least annually for impairment in
accordance with the accounting policy for goodwill set out in the
Annual Report 2011. The recoverable amounts of cash generating
units are determined based on value in use calculations. These
calculations require the use of estimates including projected
future cash-flows and other future events.
Provisions for liabilities and charges
The consolidated financial statements include a provision for
litigation of GBP258.0m (2011: GBP196.1m).
As previously reported, John Crane, Inc., a subsidiary of the
Group, is currently one of many co-defendants in litigation
relating to products previously manufactured which contained
asbestos. Provision has been made for the future defence costs
which the Group is expected to incur and the expected costs of
future adverse judgments against John Crane, Inc. However, because
of the significant uncertainty associated with the future level of
asbestos claims and of the costs arising out of the related
litigation, there can be no guarantee that the assumptions used to
estimate the provision will result in an accurate prediction of the
actual costs that may be incurred and, as a result, the provision
may be subject to potentially material revisions from time to time
if new information becomes available as a result of future events.
John Crane, Inc. takes account of the advice of an expert in
asbestos liability estimation in quantifying the expected
costs.
In recent years Titeflex Corporation, a subsidiary of the Group
in the Flex-Tek division, has received a number of claims from
insurance companies seeking recompense on a subrogated basis for
the effects of damage allegedly caused by lightning strikes in
relation to its flexible gas piping product. Titeflex Corporation
believes that its products are a safe and effective means of
delivering gas when installed in accordance with the manufacturer's
instructions and local and national codes, however some claims have
been settled on an individual basis without admission of liability.
Provision has now been made for the costs which the Group is
expected to incur in respect of future subrogation claims. However,
because of the significant uncertainty associated with the future
level of subrogation claims, there can be no guarantee that the
assumptions used to estimate the provision will result in an
accurate prediction of the actual costs that may be incurred. As a
result the provision may be subject to potentially material
revisions if new information becomes available.
The Group has on occasion been required to take legal action to
protect its intellectual property and other rights against
infringement. It has also had to defend itself against proceedings
brought by other parties, including product liability and insurance
subrogation claims. Provision is made for any expected costs and
liabilities in relation to these proceedings where appropriate,
though there can be no guarantee that such provisions (which may be
subject to potentially material revision from time to time) will
accurately predict the actual costs and liabilities that may be
incurred.
Retirement benefits
The consolidated financial statements include costs in relation
to, and provision for, retirement benefit obligations. The costs
and the present value of any related pension assets and liabilities
depend on such factors as life expectancy of the members, the
returns that plan assets generate and the discount rate used to
calculate the present value of the liabilities. The Group uses
previous experience and impartial actuarial advice to select the
values of critical estimates.
At 28 January 2012 there is a retirement benefit asset of
GBP51.4m (31 July 2011: GBP140.6m) which arises from the rights of
the employers to recover the surplus at the end of the life of the
scheme. If the pension schemes were wound up while they still had
members, the schemes would need to buy out the benefits of all
members. The buy outs would cost significantly more than the
present value of the scheme liabilities calculated in accordance
with IAS 19: Employee benefits.
Taxation
The Group has recognised deferred tax assets of GBP29.5m (31
July 2011: GBP26.0m) relating to losses and GBP44.4m (31 July 2011:
GBP50.6m) relating to the John Crane, Inc. litigation provision.
The recognition of assets pertaining to these items involves
judgement by management as to the likelihood of realisation of
these deferred tax assets and this is based on a number of factors,
which seek to assess the expectation that the benefit of these
assets will be realised, including appropriate taxable temporary
timing differences and it has been concluded that there are
sufficient taxable profits in future periods to support
recognition.
2 Segment information
Analysis by operating segment
The Group is organised into five divisions: John Crane, Smiths
Medical, Smiths Detection, Smiths Interconnect and Flex-Tek. These
divisions design and manufacture the following products:
-- John Crane - mechanical seals, seal support systems,
engineered bearings, power transmission couplings and specialist
filtration systems;
-- Smiths Medical - medication delivery systems, vital care
products and safety devices that prevent needlestick injuries and
reduce cross-infection;
-- Smiths Detection - sensors that detect and identify
explosives, narcotics, weapons, chemical agents, biohazards and
contraband;
-- Smiths Interconnect - specialised electronic and radio
frequency components and sub-systems that connect, protect and
control critical systems;
-- Flex-Tek - engineered components that heat and move fluids
and gases, flexible hosing and rigid tubing.
The position and performance of each division is reported
monthly to the Board of Directors. This information is prepared
using the same accounting policies as the consolidated financial
information except that the Group uses headline operating profit to
monitor divisional results and operating assets to monitor
divisional position. See note 3 for an explanation of which items
are excluded from headline measures.
Intersegment sales and transfers are charged at arm's length
prices.
Period ended 28 January 2012
==============================================================
John Smiths Smiths Smiths
Crane Medical Detection Interconnect Flex-Tek Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ====== ======== ========== ============= ======== =======
Revenue 469.3 408.7 220.0 200.1 109.3 1,407.4
============================== ====== ======== ========== ============= ======== =======
Divisional headline operating
profit 97.9 97.9 20.5 26.2 16.9 259.4
Corporate headline operating
costs (15.4)
============================== ====== ======== ========== ============= ======== =======
Headline operating profit 97.9 97.9 20.5 26.2 16.9 244.0
=======
Divisional exceptional
operating items (note
4) (15.8) (8.2) (11.0) (1.9) (51.7) (88.6)
Corporate exceptional
operating items (note
4) 1.0
Amortisation of acquired
intangible assets (7.5) (7.9) (0.7) (8.6) (0.1) (24.8)
============================== ====== ======== ========== ============= ======== =======
Operating profit/(loss) 74.6 81.8 8.8 15.7 (34.9) 131.6
=======
Exceptional finance costs
- adjustment to discounted
provision (note 4) (2.4) (2.4)
Net finance costs - other (22.2)
Share of post-tax profits
of associate companies 4.2 4.2
============================== ====== ======== ========== ============= ======== =======
Profit before taxation 111.2
============================== ====== ======== ========== ============= ======== =======
Smiths Medical revenue includes the impact of the GBP7.8m charge
for revision of estimated rebates, which has been included in
divisional exceptional operating items (see note 4). Revenue
calculated on the same basis as headline operating profit would be
GBP416.5m for Smiths Medical and GBP1,415.2m for Smiths Group.
Period ended 29 January 2011
==============================================================
John Smiths Smiths Smiths
Crane Medical Detection Interconnect Flex-Tek Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ====== ======== ========== ============= ======== =======
Revenue 412.4 417.9 247.7 186.3 107.4 1,371.7
============================== ====== ======== ========== ============= ======== =======
Divisional headline operating
profit 78.5 94.3 34.4 33.8 12.4 253.4
Corporate headline operating
costs (14.7)
============================== ====== ======== ========== ============= ======== =======
Headline operating profit 78.5 94.3 34.4 33.8 12.4 238.7
=======
Divisional exceptional
operating items (note
4) (3.0) (0.8) (0.7) (0.6) (1.8) (6.9)
Corporate exceptional
operating items (note
4) (1.1)
Amortisation of acquired
intangible assets (7.3) (8.4) (0.6) (6.0) (22.3)
============================== ====== ======== ========== ============= ======== =======
Operating profit 68.2 85.1 33.1 27.2 10.6 208.4
=======
Exceptional finance costs
- adjustment to discounted
provision (note 4) (3.0) (3.0)
Net finance costs - other (18.6)
Share of post-tax profits
of associate companies 1.8 1.8
============================== ====== ======== ========== ============= ======== =======
Profit before taxation 188.6
============================== ====== ======== ========== ============= ======== =======
Year ended 31 July 2011
==============================================================
John Smiths Smiths Smiths
Crane Medical Detection Interconnect Flex-Tek Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================== ====== ======== ========== ============= ======== =======
Revenue 893.9 838.4 509.9 379.0 220.8 2,842.0
============================== ====== ======== ========== ============= ======== =======
Divisional headline operating
profit 188.7 196.2 65.5 67.6 27.6 545.6
Corporate headline operating
costs (28.7)
============================== ====== ======== ========== ============= ======== =======
Headline operating profit 188.7 196.2 65.5 67.6 27.6 516.9
=======
Divisional exceptional
operating items (note
4) (30.9) (1.6) (0.3) (1.4) (1.8) (36.0)
Corporate exceptional
operating items (note
4) 6.6
Amortisation of acquired
intangible assets (14.5) (16.6) (1.2) (17.2) (49.5)
============================== ====== ======== ========== ============= ======== =======
Operating profit 143.3 178.0 64.0 49.0 25.8 438.0
=======
Exceptional finance costs
- adjustment to discounted
provision (note 4) (6.1) (6.1)
Net finance costs - other (38.3)
Share of post-tax profits
of associate companies 4.3 4.3
============================== ====== ======== ========== ============= ======== =======
Profit before taxation 397.9
============================== ====== ======== ========== ============= ======== =======
The net operating assets of the five divisions are set out
below:
28 January 2012
==================================================================
Smiths Smiths Smiths
John Medical Detection Interconnect Flex-Tek Total
Crane GBPm GBPm GBPm GBPm GBPm
GBPm
================================== ======= ======== ========== ============= ========= =========
Property, plant, equipment,
development projects and other
intangibles 97.2 159.9 106.0 35.8 22.4 421.3
Investments in associates 21.8 21.8
Working capital assets 337.7 258.0 296.2 159.1 66.4 1,117.4
================================== ======= ======== ========== ============= ========= =========
Operating assets 434.9 417.9 424.0 194.9 88.8 1,560.5
Derivatives, tax and retirement
benefit assets 317.8
Goodwill and acquired intangibles 1,625.4
Corporate assets 72.8
Cash 145.8
================================== ======= ======== ========== ============= ========= =========
Total assets 3,722.3
================================== ======= ======== ========== ============= ========= =========
Working capital liabilities (145.3) (97.0) (144.3) (62.4) (23.3) (472.3)
Corporate and non-headline
liabilities (324.2)
Derivatives, tax and retirement
benefits (711.1)
Borrowings (1,102.8)
================================== ======= ======== ========== ============= ========= =========
Total liabilities (2,610.4)
================================== ======= ======== ========== ============= ========= =========
Average divisional capital
employed 874.6 1,153.6 679.5 467.2 127.8 3,302.7
Average corporate capital
employed (45.5)
================================== ======= ======== ========== ============= ========= =========
Average total capital employed 3,257.2
================================== ======= ======== ========== ============= ========= =========
Non-headline liabilities comprise provisions and accruals
relating to exceptional items, acquisitions and disposals.
Capital employed is a non-statutory measure of invested
resources. It comprises statutory net assets adjusted to add
goodwill recognised directly in reserves in respect of subsidiaries
acquired before 1 August 1998 of GBP815.2m (29 January 2011:
GBP815.2m) and eliminate post-retirement benefit assets and
liabilities and litigation provisions relating to exceptional
items, both net of related tax, and net debt. In the light of the
recognition of the Titeflex litigation provision in 2012, the board
has decided to exclude significant litigation provisions from the
definition of capital employed. Accordingly, capital employed in
2011 has been restated to exclude the John Crane, Inc. litigation
provision and related deferred tax.
29 January 2011
==============================================================
John Smiths Smiths Smiths
Crane Medical Detection Interconnect Flex-Tek Total
GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ====== ======== ========== ============= ======== =======
Average divisional capital
employed (restated) 865.8 1,202.2 659.1 415.5 128.9 3,271.5
Average corporate capital
employed (122.4)
=============================== ====== ======== ========== ============= ======== =======
Average total capital employed
(restated) 3,149.1
=============================== ====== ======== ========== ============= ======== =======
31 July 2011
=================================================================
John Smiths Smiths Smiths
Crane Medical Detection Interconnect Flex-Tek Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======= ======== ========== ============= ======== =========
Property, plant, equipment,
development projects and other
intangibles 99.8 158.4 104.8 34.1 22.3 419.4
Investments in associates 18.5 18.5
Working capital assets 327.9 246.5 304.1 129.6 63.5 1,071.6
================================== ======= ======== ========== ============= ======== =========
Operating assets 427.7 404.9 427.4 163.7 85.8 1,509.5
Derivatives, tax and retirement
benefit assets 343.9
Goodwill and acquired intangibles 1,464.1
Corporate assets 48.4
Cash 261.1
================================== ======= ======== ========== ============= ======== =========
Total assets 3,627.0
================================== ======= ======== ========== ============= ======== =========
Working capital liabilities (160.1) (93.6) (152.2) (61.5) (34.8) (502.2)
Corporate and non-headline
liabilities (245.9)
Derivatives, tax and retirement
benefits (508.9)
Borrowings (990.1)
================================== ======= ======== ========== ============= ======== =========
Total liabilities (2,247.1)
================================== ======= ======== ========== ============= ======== =========
Average divisional capital
employed (restated) 863.9 1,159.4 664.8 431.2 126.1 3,245.4
Average corporate capital
employed (86.3)
================================== ======= ======== ========== ============= ======== =========
Average total capital employed
(restated) 3,159.1
================================== ======= ======== ========== ============= ======== =========
Analysis of revenue
The revenue for the main product and service lines for each
division is:
Original
equipment
manufacture Aftermarket Total
============= ======================================================== =====
Oil,
gas Chemical
and and General
petrochemical pharmaceutical Distributors industry
John Crane GBPm GBPm GBPm GBPm GBPm GBPm
===================== ============ ============== =============== ============ ========= =====
Revenue period ended
28 January 2012 172.4 181.7 38.2 33.1 43.9 469.3
Revenue period ended
29 January 2011 147.0 161.5 34.7 30.3 38.9 412.4
====================== ============ ============== =============== ============ ========= =====
Medication Vital Safety
delivery care devices Total
Smiths Medical GBPm GBPm GBPm GBPm
===================== ========== ===== ======== =====
Revenue period ended
28 January 2012 112.4 168.4 127.9 408.7
Revenue period ended
29 January 2011 117.9 172.4 127.6 417.9
===================== ========== ===== ======== =====
Ports
and Emergency Critical
Transportation borders Military responders infrastructure Non-security Total
Smiths Detection GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===================== ============== ======== ======== =========== =============== ============ =====
Revenue period ended
28 January 2012 97.2 32.5 21.6 9.7 53.7 5.3 220.0
Revenue period ended
29 January 2011 97.0 42.5 37.4 11.2 41.6 18.0 247.7
===================== ============== ======== ======== =========== =============== ============ =====
Power
Connectors Microwave Management Total
Smiths Interconnect GBPm GBPm GBPm GBPm
============================ ========== ========= =========== =====
Revenue period ended
28 January 2012 71.9 86.3 41.9 200.1
Revenue period ended
29 January 2011 (restated) 83.4 80.6 22.3 186.3
============================ ========== ========= =========== =====
Fluid Flexible Heat
Management Solutions Solutions Construction Total
Flex-Tek GBPm GBPm GBPm GBPm GBPm
===================== =========== ========== ========== ============ =====
Revenue period ended
28 January 2012 37.8 17.1 25.5 28.9 109.3
Revenue period ended
29 January 2011 33.1 17.3 29.1 27.9 107.4
===================== =========== ========== ========== ============ =====
Following the acquisition of Power Holdings Inc, Smiths
Interconnect has reviewed its product groupings, and determined
that reporting sales by technology sub-group would provide more
consistent information about trends in sales of similar products.
Consequently, the 29 January 2011 sales, which were previously
reported by end market, have been restated into the current
technology sub-group structure. Revenue for the period by end
market is Telecom GBP53.0m (2011: GBP46.5m), Military and aerospace
GBP70.2m (2011: GBP82.7m) and Rail, medical, automation, test and
data centres GBP76.9m (2011: GBP57.1m).
3 Headline profit measures
The Company seeks to present a measure of underlying performance
which is not impacted by exceptional items or items considered
non-operational in nature. This measure of profit is described as
'headline' and is used by management to measure and monitor
performance.
The following items have been excluded from the headline
measure:
-- exceptional items, including income and expenditure relating
to material litigation in respect of products no longer in
production;
-- amortisation of intangible assets acquired in a business
combination - the amortisation charge is a non-cash item, and the
directors believe that it should be added back to give a clearer
picture of underlying performance;
-- other financing gains and losses, which represent the
potentially volatile gains and losses on derivatives and other
financial instruments which do not fall to be hedge accounted under
IAS 39; and
-- financing credits and charges relating to retirement
benefits.
The excluded items are referred to as 'non-headline' items.
Period Period Year
ended ended ended
28 29 31
January January July
2012 2011 2011
(restated) (restated)
Notes GBPm GBPm GBPm
============================================ ===== ========= ============ ============
Operating profit 131.6 208.4 438.0
Exclude
- exceptional operating items 4 87.6 8.0 29.4
- amortisation of acquired intangible
assets 9 24.8 22.3 49.5
============================================ ===== ========= ============ ============
Non-headline items in operating profit 112.4 30.3 78.9
============================================ ===== ========= ============ ============
Headline operating profit 244.0 238.7 516.9
============================================ ===== ========= ============ ============
Finance costs (24.6) (21.6) (44.4)
Exclude
- exceptional finance costs 4 2.4 3.0 6.1
- other financing gains and losses 1.4 1.7 3.1
- other finance income - retirement
benefits (10.5) (12.0) (23.3)
============================================ ===== ========= ============ ============
Non-headline items in finance costs (6.7) (7.3) (14.1)
============================================ ===== ========= ============ ============
Headline finance costs (31.3) (28.9) (58.5)
============================================ ===== ========= ============ ============
Profit before taxation 111.2 188.6 397.9
Non-headline items in operating profit 112.4 30.3 78.9
Non-headline items in finance costs (6.7) (7.3) (14.1)
============================================ ===== ========= ============ ============
Headline profit before taxation 216.9 211.6 462.7
============================================ ===== ========= ============ ============
Profit after taxation - continuing
operations 84.8 140.3 306.1
Exclude
- non-headline items in profit before
taxation 105.7 23.0 64.8
- tax on excluded items (31.1) (6.7) (30.9)
============================================ ===== ========= ============ ============
74.6 16.3 33.9
============================================ ===== ========= ============ ============
Headline profit after taxation - continuing
operations 159.4 156.6 340.0
============================================ ===== ========= ============ ============
The comparative figures disclosed in the table above have been
restated to exclude financing credits and charges relating to
retirement benefits from headline profit measures.
4 Exceptional items
An analysis of the amounts presented as exceptional items in
these financial statements is given below:
Period Period Year
ended ended ended
28 29 31
January January July
2012 2011 2011
GBPm GBPm GBPm
================================================== ======== ======== ======
Operating items
Restructuring programmes (11.4) (5.4) (15.7)
Revision of estimated rebates (7.8)
Release of diabetes provision 1.5
Gains on changes to post-retirement benefits 10.2
Profit on disposal of businesses 0.9 4.4
Costs of acquisitions (2.0) (0.4) (1.5)
Litigation
- provision for Titeflex Corporation subrogation
claims (note 12) (51.7)
- provision for John Crane, Inc. asbestos
litigation (note 12) (15.6) (2.2) (28.3)
================================================== ======== ======== ======
(87.6) (8.0) (29.4)
Financing items
Exceptional finance costs - adjustment
to discounted provision (note 12) (2.4) (3.0) (6.1)
================================================== ======== ======== ======
(90.0) (11.0) (35.5)
================================================== ======== ======== ======
Period ended 28 January 2012
Restructuring costs comprise GBP11.0m in respect of the
improvement programme in Smiths Detection announced in September
2011 and GBP0.4m in respect of the restructuring of the corporate
headquarters and divisional reorganisation which began in 2008.
These two programmes, which involve redundancy, relocation and
consolidation of manufacturing, are considered exceptional by
virtue of their size.
A charge of GBP7.8m has been made by Smiths Medical to reflect a
change to the historical basis of estimating the accrual for
rebates to distributors (See note 2). This change has arisen due to
the availability of improved data from distributors. Had this
approach been used in prior years, there would have been no
material impact on the revenue or operating profits of Smiths
Medical in any of the prior five financial years and no material
impact is expected on future revenue or profit. The charge has been
recorded as an exceptional item on the basis that it is an unusual
non-recurring item that distorts current year trading
performance.
The profit on disposal of businesses arises from the resolution
of indemnities in respect of disposals in previous years.
A charge of GBP51.7m has been made by Titeflex Corporation in
respect of the estimated cost of future claims from insurance
companies seeking recompense for damage allegedly caused by
lightning strike (see note 12).
The operating charge in respect of John Crane, Inc. litigation
comprises GBP8.3m in respect of increased provision for adverse
judgments and legal defence costs, GBP0.4m in respect of legal fees
in connection with litigation against insurers, and GBP6.9m arising
from the reduction in US risk free rates.
5 Taxation
The interim tax charge of 23.8% is calculated by applying the
estimated effective headline tax rate of 26.5% for the year ended
31 July 2012 to headline profit before tax and then taking into
account the tax effect of non-headline items in the interim
period.
The figures for 29 January 2011 and 31 July 2011 have been
restated to reflect the change in the definition of headline
profit, see note 3.
A reconciliation of total and headline tax charge is as
follows:
Period ended Period ended Year ended
28 January 29 January 31 July
2012 2011 2011
(restated) (restated)
================================ ================== ================== ==================
Continuing Continuing Continuing
operations Tax operations Tax operations Tax
GBPm rate GBPm rate GBPm rate
================================ =========== ===== =========== ===== =========== =====
Profit before taxation 111.2 188.6 397.9
Taxation (26.4) 23.8% (48.3) 25.6% (91.8) 23.0%
================================ =========== ===== =========== ===== =========== =====
Adjustments
Non-headline items excluded
from profit before taxation
(note 3) 105.7 23.0 64.8
Taxation on non-headline items (31.1) (6.7) (30.9)
================================ =========== ===== =========== ===== =========== =====
Headline
Headline profit before taxation 216.9 211.6 462.7
Taxation on headline profit (57.5) 26.5% (55.0) 26.0% (122.7) 26.5%
================================ =========== ===== =========== ===== =========== =====
The net deferred tax balance has increased GBP42.3m to GBP139.5m
(31 July 2011: GBP97.2m). Movements in the period include a credit
of GBP18.2m to other comprehensive income relating to the
recognition of actuarial losses on retirement benefits and a credit
of GBP26.3m in respect of movements on litigation provisions (see
note 4).
6 Dividends
The following dividends were declared and paid in the
period:
Period Period Year
ended ended ended
28 29 31
January January July
2012 2011 2011
GBPm GBPm GBPm
========================================== ======== ======== ======
Ordinary final dividend of 25.0p for 2011
(2010: 23.50p) paid 25 November 2011 98.1 91.9 91.9
Ordinary interim dividend of 11.25p for
2011 paid 21 April 2011 44.2
========================================== ======== ======== ======
98.1 91.9 136.1
========================================== ======== ======== ======
An interim dividend of 11.75p per share was declared by the
Board on 13 March 2012 and will be paid to shareholders on 20 April
2012. This dividend has not been included as a liability in these
accounts and is payable to all shareholders on the register of
Members at close of business on 23 March 2012.
7 Earnings per share
Basic earnings per share are calculated by dividing the profit
for the year attributable to equity shareholders of the Parent
Company by the average number of ordinary shares in issue during
the year.
Period Period Year
ended ended ended
28 January 29 January 31 July
2012 2011 2011
GBPm GBPm GBPm
=========================================== =========== =========== ===========
Profit attributable to equity shareholders
for the year
- continuing 83.9 139.7 304.8
- total 83.8 173.8 383.8
=========================================== =========== =========== ===========
Average number of shares in issue during
the year 392,520,793 391,253,353 391,718,941
=========================================== =========== =========== ===========
Diluted earnings per share are calculated by dividing the profit
attributable to ordinary shareholders by 394,811,180 (period ended
29 January 2011: 394,628,373; year ended 31 July 2011: 395,240,785)
ordinary shares, being the average number of ordinary shares in
issue during the year adjusted by the dilutive effect of employee
share schemes.
A reconciliation of basic and headline earnings per share -
continuing is as follows:
Period ended Year ended
29 January 31 July
2011 2011
Period ended
28 January
2012 (restated) (restated)
============== ============== ==============
EPS EPS EPS
GBPm (p) GBPm (p) GBPm (p)
=============================== ======= ===== ======= ===== ======= =====
Profit attributable to equity
shareholders of the Parent
Company 83.9 21.4 139.7 35.7 304.8 77.8
Exclude
Non-headline items and related
tax (note 3) 74.6 19.0 16.3 4.2 33.9 8.7
=============================== ======= ===== ======= ===== ======= =====
Headline 158.5 40.4 156.0 39.9 338.7 86.5
=============================== ======= ===== ======= ===== ======= =====
Headline EPS - diluted (p) 40.1 39.5 85.7
=============================== ======= ===== ======= ===== ======= =====
The figures for 29 January 2011 and 31 July 2011 have been
restated to reflect the change in the definition of headline
profit, see note 3.
8 Post-retirement benefits
Smiths operates a number of defined benefit plans throughout the
world. The principal schemes are in the United Kingdom and in the
United States and assets are held in separate trustee-administered
funds. Where any individual scheme shows a surplus under IAS 19,
this is disclosed on the balance sheet as a retirement benefit
asset. The IAS 19 surplus of any one scheme is not available to
fund the IAS 19 deficit of another scheme. These schemes are
closed, and no further benefits are being accrued. The Group also
provides defined contribution plans for its UK and US
employees.
The principal assumptions used in updating the valuations are
set out below:
28 January 29 January 31 July
2012 2011 2011
UK US UK US UK US
============================= ===== ===== ===== ===== ==== ====
Rate of increase in salaries n/a n/a n/a n/a n/a n/a
Rate of increase for active
deferred members 3.9% n/a 4.4% n/a 4.4% n/a
Rate of increase in pensions
in payment 3.0% n/a 3.5% n/a 3.5% n/a
Rate of increase in deferred
pensions 3.0% n/a 3.5% n/a 3.5% n/a
Discount rate 4.7% 4.5% 5.6% 5.5% 5.3% 5.1%
Inflation rate 3.0% n/a 3.5% n/a 3.5% n/a
Healthcare cost increases 5.0% n/a 5.0% n/a 5.0% n/a
============================= ===== ===== ===== ===== ==== ====
A current service charge of GBP1.9m and an interest credit of
GBP10.5m have been recognised in the six month period to 28 January
2012 in respect of defined benefit pension and post-retirement
healthcare plans.
There were no significant changes in the market value of
post-retirement benefit scheme assets in the interim period. The
increase in the present value of scheme liabilities is largely due
to lower corporate bond yields leading to lower discount rates.
The amounts recognised in the balance sheet were as follows:
28 January 29 January 31 July
2012 2011 2011
GBPm GBPm GBPm
=================================== ========== ========== =========
Balance sheet
Market value of funded plan assets 3,231.6 3,230.9 3,272.6
Present value of funded scheme
liabilities (3,597.4) (3,260.2) (3,379.7)
Unfunded pension plans (69.1) (66.9) (68.2)
Post-retirement healthcare (22.9) (22.3) (22.5)
Unrecognised asset due to surplus
restriction (1.1) (0.8) (1.2)
=================================== ========== ========== =========
Net retirement benefit liability (458.9) (119.3) (199.0)
=================================== ========== ========== =========
Retirement benefit assets 51.4 151.0 140.6
Retirement benefit obligations (510.3) (270.3) (339.6)
=================================== ========== ========== =========
Net retirement benefit liability (458.9) (119.3) (199.0)
=================================== ========== ========== =========
The retirement benefit asset arises from the rights of the
employers to recover the surplus at the end of the life of the
scheme. If the pension schemes were wound up while they had
members, the schemes would need to buy out the benefits of all
members. The buy outs would cost significantly more than the
present value of scheme liabilities calculated in accordance with
IAS 19: Employee benefits.
9 Intangible assets
Software,
patents
and
Development Acquired intellectual
Goodwill costs intangibles property Total
GBPm GBPm GBPm GBPm GBPm
================================== ======== =========== ============ ============= =======
Cost
At 1 August 2011 1,389.7 162.5 351.9 132.2 2,036.3
Exchange adjustments 23.3 4.4 11.4 1.5 40.6
Business combinations 105.5 53.2 158.7
Additions 13.6 5.5 19.1
Disposals (0.1) (0.1)
================================== ======== =========== ============ ============= =======
At 28 January 2012 1,518.5 180.5 416.5 139.1 2,254.6
================================== ======== =========== ============ ============= =======
Amortisation
At 1 August 2011 93.9 63.4 183.6 85.2 426.1
Exchange adjustments 1.4 1.4 5.9 1.1 9.8
Charge for the period 7.6 24.8 6.6 39.0
Disposals (0.1) (0.1)
================================== ======== =========== ============ ============= =======
At 28 January 2012 95.3 72.4 214.3 92.8 474.8
================================== ======== =========== ============ ============= =======
Net book value at 28 January 2012 1,423.2 108.1 202.2 46.3 1,779.8
Net book value at 29 January 2011 1,300.8 94.3 198.3 46.2 1,639.6
Net book value at 31 July 2011 1,295.8 99.1 168.3 47.0 1,610.2
================================== ======== =========== ============ ============= =======
The increase in goodwill and acquired intangibles relates to new
businesses acquired during the period. See note 15 for details.
10 Property, plant and equipment
Fixtures,
fittings,
Land Plant tools
and and and
buildings machinery equipment Total
GBPm GBPm GBPm GBPm
================================== ========== ========== ========== =====
Cost or valuation
At 1 August 2011 190.3 495.7 209.5 895.5
Exchange adjustments 3.2 10.7 1.2 15.1
Business combinations 0.3 1.0 0.2 1.5
Additions 2.9 12.1 6.1 21.1
Disposals (0.5) (4.4) (3.2) (8.1)
================================== ========== ========== ========== =====
At 28 January 2012 196.2 515.1 213.8 925.1
================================== ========== ========== ========== =====
Depreciation
At 1 August 2011 87.1 362.7 162.9 612.7
Exchange adjustments 1.8 8.4 1.0 11.2
Charge for the period 3.6 17.3 7.4 28.3
Disposals (0.1) (4.0) (2.7) (6.8)
================================== ========== ========== ========== =====
At 28 January 2012 92.4 384.4 168.6 645.4
================================== ========== ========== ========== =====
Net book value at 28 January 2012 103.8 130.7 45.2 279.7
Net book value at 29 January 2011 104.0 139.0 47.4 290.4
Net book value at 31 July 2011 103.2 133.0 46.6 282.8
================================== ========== ========== ========== =====
11 Borrowings and net debt
This note sets out the calculation of net debt, an important
measure in explaining our financing position. The net debt figure
includes accrued interest and the fair value adjustments relating
to hedge accounting.
28 January 29 January 31 July
2012 2011 2011
GBPm GBPm GBPm
======================================= ========== ========== =======
Cash and cash equivalents
Net cash and deposits 145.8 136.8 261.1
======================================= ========== ========== =======
Short-term borrowings
Bank overdrafts (3.7) (0.8) (0.4)
$250m 5.45% US$ Private placement 2013 (163.4)
Bank and other loans (2.8) (1.4) (1.2)
Interest accrual (25.9) (20.7) (10.1)
======================================= ========== ========== =======
(195.8) (22.9) (11.7)
======================================= ========== ========== =======
Long-term borrowings
$250m 5.45% US$ Private placement 2013 (165.9) (158.3)
$250m 6.05% US$ Guaranteed notes 2014 (158.5) (156.9) (151.4)
$800m Revolving Credit Facility 2015 (73.2)
GBP150m 7.25% Sterling Eurobond 2016 (149.4) (149.2) (149.3)
EUR300m 4.125% Eurobond 2017 (254.6) (253.0) (260.2)
$175m 7.37% US$ Private placement 2018 (111.3) (110.4) (106.4)
$250m 7.20% US$ Guaranteed notes 2019 (158.0) (156.5) (151.0)
Bank and other loans (2.0) (1.5) (1.8)
======================================= ========== ========== =======
(907.0) (993.4) (978.4)
======================================= ========== ========== =======
Borrowings (1,102.8) (1,016.3) (990.1)
======================================= ========== ========== =======
Net debt (957.0) (879.5) (729.0)
======================================= ========== ========== =======
Cash and overdraft balances in interest compensation cash
pooling systems are reported gross on the balance sheet. This gross
up increased cash and overdrafts by GBP2.1m at 28 January 2012 (29
January 2011: GBP0.4m; 31 July 2011: GBP0.1m).
Movements in net debt
Net
cash
and Other
cash short-term Long-term Net
equivalents borrowing borrowings debt
GBPm GBPm GBPm GBPm
================================== ============ =========== =========== =======
At 31 July 2011 260.7 (11.3) (978.4) (729.0)
Foreign exchange gains and
losses 1.4 (14.2) (12.8)
Net cash inflow/(outflow) (120.0) (120.0)
Repayment of borrowings 0.7 16.0 16.7
Drawdown of borrowings (1.5) (90.8) (92.3)
Capitalisation, interest accruals
and unwind of capitalised
fees (11.9) (0.1) (12.0)
Fair value movement from interest
rate hedging (4.0) (3.6) (7.6)
Change in maturity analysis (164.1) 164.1
================================== ============ =========== =========== =======
At 28 January 2012 142.1 (192.1) (907.0) (957.0)
================================== ============ =========== =========== =======
12 Provisions for liabilities and charges
Warranty
provision John
and Crane,
product Inc. Other
liability Reorganisation Property Disposal litigation litigation Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
====================== ========== ============== ======== ======== =========== =========== ======
At 31 July 2011 37.6 7.8 3.4 3.9 181.7 14.4 248.8
Exchange adjustments 0.2 8.4 0.7 9.3
Business combinations 0.4 0.4
Provision charged 11.3 10.8 0.2 16.2 51.9 90.4
Provision released (1.4) (0.7) (0.5) (1.0) (3.6)
Unwind of provision
discount 2.4 2.4
Utilisation (7.8) (3.0) (0.2) (12.4) (4.3) (27.7)
====================== ========== ============== ======== ======== =========== =========== ======
At 28 January 2012 40.1 15.1 2.9 3.9 195.3 62.7 320.0
====================== ========== ============== ======== ======== =========== =========== ======
Analysed as:
28 January 29 January 31 July
2012 2011 2011
GBPm GBPm GBPm
======================== ========== ========== =======
Current liabilities 81.0 67.0 74.7
Non-current liabilities 239.0 214.4 174.1
======================== ========== ========== =======
320.0 281.4 248.8
======================== ========== ========== =======
Reorganisation
The increase in the reorganisation provision is in respect of
the performance improvement programme in Smiths Detection.
Litigation
John Crane, Inc.
John Crane, Inc. ("JCI") is one of many co-defendants in
numerous lawsuits pending in the United States in which plaintiffs
are claiming damages arising from alleged exposure to, or use of,
products previously manufactured which contained asbestos. Until
2006, the awards, the related interest and all material defence
costs were met directly by insurers. In 2007, JCI secured the
commutation of certain insurance policies in respect of product
liability. While JCI has excess liability insurance, the
availability of such insurance and scope of the cover are currently
the subject of litigation in the United States. An adverse judgment
at first instance from the Circuit Court of Cook County, Illinois
is currently under appeal. Pending the outcome of that litigation,
JCI has begun to meet defence costs directly. Provision is made in
respect of the expected costs of defending known and predicted
future claims and of adverse judgments in relation thereto, to the
extent that such costs can be reliably estimated. No account has
been taken of recoveries from insurers as their nature and timing
are not yet sufficiently certain to permit recognition as an asset
for these purposes.
The JCI products generally referred to in these cases consist of
industrial sealing product, primarily packing and gaskets. The
asbestos was encapsulated within these products in such a manner
that causes JCI to believe, based on tests conducted on its behalf,
that the products were safe. JCI ceased manufacturing products
containing asbestos in 1985.
JCI is actively monitoring the conduct and effect of its current
and expected asbestos litigation, including the most efficacious
presentation of its 'safe product' defence, and intends to continue
to resist all asbestos claims based upon this defence.
Approximately 206,000 claims against JCI have been dismissed before
trial over the last 32 years. JCI is currently a defendant in cases
involving approximately 99,000 claims. Despite the large number of
claims brought against JCI, it has had final judgments against it,
after appeals, in only 113 cases over the period, and has had to
pay awards amounting to approximately US$109m. JCI has also
incurred significant additional defence costs and, whilst the
number of claims being filed against JCI and other defendants has
been declining, the proportion of mesothelioma claims has
increased, and JCI's ability to defend these cases is likely to
have a significant impact on its annual aggregate adverse judgment
and defence costs.
The assumptions made in assessing the appropriate level of
provision include:
-- The periods over which the expenditure can be reliably
estimated.
-- The future trend of legal costs.
-- The rate of future claims filed.
-- The rate of successful resolution of claims.
-- The average amount of judgments awarded.
The provision is based on past history and allows for decreasing
levels of new claims based on published tables of asbestos
incidence projections and is determined using asbestos valuations
experts, Bates White LLC. The projections use a 10 year time
horizon on the basis that Bates White LLC consider that there is
substantial uncertainty in the asbestos litigation environment so
probable expenditures are not reasonably estimable beyond this time
horizon, see note 13.
However, because of the significant uncertainty associated with
the future level of asbestos claims and of the costs arising out of
related litigation, there can be no guarantee that the assumptions
used to estimate the provision will result in an accurate
prediction of the actual costs that may be incurred and, as a
result, the provision may be subject to potentially material
revision from time to time if new information becomes available as
a result of future events.
The provision in respect of JCI is a discounted pre-tax
provision using discount rates, being the risk-free rate on US debt
instruments for the appropriate period. The deferred tax asset
related to this provision is shown within the deferred tax balance.
Set out below is the gross, discounted and post-tax information
relating to this provision:
28 January 29 January 31 July
2012 2011 2011
GBPm GBPm GBPm
============================== ========== ========== =======
Gross provision 211.2 207.1 203.1
Discount (15.9) (38.9) (21.4)
============================== ========== ========== =======
Discounted pre-tax provision 195.3 168.2 181.7
Deferred tax (44.4) (44.7) (50.6)
============================== ========== ========== =======
Discounted post-tax provision 150.9 123.5 131.1
============================== ========== ========== =======
Titeflex Corporation
In recent years Titeflex Corporation, a subsidiary of the Group
in the Flex-Tek division, has received a number of claims from
insurance companies seeking recompense on a subrogated basis for
the effects of damage allegedly caused by lightning strikes in
relation to its flexible gas piping product. Titeflex Corporation
believes that its products are a safe and effective means of
delivering gas when installed in accordance with the manufacturer's
instructions and local and national codes, however some claims have
been settled on an individual basis without admission of liability.
The number of claims received each year and the cost of resolving
them has varied. The associated costs of between GBP3m and GBP5m a
year have historically been charged against headline operating
profit. Equivalent third-party products in the US marketplace face
similar challenges with the profile of legal activity appearing to
increase in recent times. The continuing progress of claims and the
pattern of settlement, together with the recent market place
activity, now provide sufficient evidence to recognise a liability
in the accounts. Therefore provision has been made for the costs
which the Group is expected to incur in respect of future
subrogation claims to the extent that such costs can be reliably
estimated. Titeflex Corporation sells flexible gas piping with
extensive installation and safety guidance (revised in 2008)
designed to assure the safety of the product and minimise the risk
of damage associated with lightning strikes.
The assumptions made in assessing the appropriate level of
provision, which are based on past experience, include:
-- The period over which expenditure can be reliably estimated
-- The number of future settlements
-- The average amount of settlements
The projections use a rolling 10 year time horizon on the basis
that there is substantial uncertainty in the US litigation
environment so probable expenditures are not reasonably estimable
beyond this time horizon, see note 13.
However, because of the significant uncertainty associated with
the future level of claims and of the costs arising out of related
litigation, there can be no guarantee that the assumptions used to
estimate the provision will result in an accurate prediction of the
actual costs that may be incurred and, as a result, the provision
may be subject to potentially material revision from time to time
if new information becomes available as a result of future
events.
The provision is a discounted pre-tax provision using discount
rates, being the risk-free rate on US debt instruments for the
appropriate period.
The JCI and Titeflex Corporation litigation provisions are the
only provisions which are discounted.
13 Contingent liabilities and commitments
John Crane, Inc.
As stated in note 12, John Crane, Inc. ("JCI") is involved in
numerous law suits pending in the United States in which plaintiffs
are claiming damages arising from exposure to, or use of, products
containing asbestos. The JCI products generally referred to in
these cases are ones in which the asbestos fibres were encapsulated
in such a manner that, according to tests conducted on behalf of
JCI, the products were safe. JCI ceased manufacturing products
containing asbestos in 1985.
Provision has been made for future defence costs and the cost of
adverse judgments expected to occur. The Group anticipates that
asbestos litigation will continue beyond the period covered by this
provision; however, because of the uncertainty surrounding the
outcome of litigation beyond this period, the costs cannot be
reliably estimated.
Titeflex Corporation
As stated in Note 12, Titeflex Corporation has made provision
for the cost of expected future subrogation claims. The Group
considers claims might continue beyond the period covered by the
provision; however because of the uncertainty surrounding the US
litigation environment beyond this period, the costs cannot be
reliably estimated.
Other contingent liabilities and commitments
In the ordinary course of its business, the Group is subject to
litigation such as product liability claims, employee disputes and
other kinds of lawsuits, and faces different types of legal issues
in different jurisdictions. The high level of activity in the US,
for example, exposes the Group to the likelihood of various types
of litigation commonplace in that country, such as 'mass tort' and
'class action' litigation, and legal challenges to the scope and
validity of patents. These types of proceedings (or the threat of
them) are also used to create pressure to encourage negotiated
settlement of disputes. Any claim brought against the Group (with
or without merit), could be costly to defend. These matters are
inherently difficult to quantify. In appropriate cases a provision
is recognised based on best estimates and management judgement but
there can be no guarantee that these provisions (which may be
subject to potentially material revision from time to time) will
result in an accurate prediction of the actual costs and
liabilities that may be incurred. There are also contingent
liabilities in respect of litigation for which no provisions are
made.
14 Cash-flow from operating activities
Period Period Year
ended ended ended
28 29 31
January January July
2012 2011 2011
GBPm GBPm GBPm
============================================== ======== ======== ======
Operating profit - continuing 131.6 208.4 438.0
Amortisation of intangible assets 39.0 36.1 72.3
Impairment of intangible assets 5.5
Profit on disposal of property, plant
and equipment 1.3 (0.7)
Profit on disposal of business (0.9) (4.4)
Depreciation of property, plant and equipment 28.3 32.2 63.4
Share-based payment expense 7.5 8.3 13.8
Retirement benefits (22.1) (23.7) (77.6)
Increase in inventories (32.3) (38.5) (46.7)
Decrease/(increase) in trade and other
receivables 25.5 (27.3) (33.1)
(Decrease)/increase in trade and other
payables (37.8) 1.2 43.7
Increase/(decrease) in provisions 59.1 (13.7) 5.2
============================================== ======== ======== ======
Cash generated from operations 199.2 183.0 479.4
Interest (20.6) (26.2) (66.8)
Tax paid (45.4) (50.2) (90.9)
============================================== ======== ======== ======
Net cash inflow from operating activities 133.2 106.6 321.7
============================================== ======== ======== ======
Headline operating cash-flow
Period Period Year
ended ended ended
28 29 31
January January July
2012 2011 2011
GBPm GBPm GBPm
=========================================== ======== ======== ======
Net cash inflow from operating activities 133.2 106.6 321.7
Exclude
Interest 20.6 26.2 66.8
Tax paid 45.4 50.2 90.9
Cash outflow in respect of exceptional
operating items 22.4 18.8 34.8
Pension deficit payments 19.3 21.0 60.1
Include
Expenditure on capitalised development,
other intangible assets and property,
plant and equipment (39.7) (38.0) (90.1)
Disposals of property, plant and equipment
in the ordinary course of business 1.5 4.5
=========================================== ======== ======== ======
Headline operating cash-flow 201.2 186.3 488.7
=========================================== ======== ======== ======
Free cash-flow
Period Period Year
ended ended ended
28 29 31
January January July
2012 2011 2011
GBPm GBPm GBPm
=========================================== ======== ======== =======
Net cash inflow from operating activities 133.2 106.6 321.7
Expenditure on capitalised development,
other intangible assets and property,
plant and equipment (39.7) (38.0) (90.1)
Disposals of property, plant and equipment
in the ordinary course of business 1.5 4.5
Investment in financial assets relating
to pensions financing (12.0)
=========================================== ======== ======== =======
Free cash-flow 81.5 70.1 236.1
Investment in other financial assets (0.2) (0.3)
Acquisition of businesses (169.0) (10.9) (18.5)
Disposal of Aerospace (6.8) (6.2)
Disposal of businesses 0.9 (0.3) 3.9
Net cash-flow used in financing activities (33.4) (90.4) (129.2)
=========================================== ======== ======== =======
Net (decrease)/increase in cash and cash
equivalents (120.0) (38.5) 85.8
=========================================== ======== ======== =======
15 Acquisitions
During the six months ended 28 January 2012, the Group acquired
the business of Turbo Components and Engineering Inc. ("TCE")
(October 2011) on behalf of John Crane and 100% of the equity share
capital of Power Holdings Inc. ("PDI") (October 2011) on behalf of
Smiths Interconnect.
TCE services, repairs and builds replacement bearings and seals
used in critical rotating equipment. This acquisition adds
capability for servicing bearings to the John Crane aftermarket
platform, creating an end-to-end product and service solution for
John Crane's customers. The intangible assets recognised on this
acquisition comprise the order book on acquisition, customer
relationships and a contractual non-compete agreement. Goodwill
represents the potential future growth from expanding the business
through the John Crane global service network. The goodwill
recognised is expected to be deductible for tax purposes.
PDI designs and manufactures specialist power distribution,
conditioning and monitoring systems. PDI will be incorporated into
Smiths Interconnect's power protection group, where it expands the
range of power quality technologies into new, specialised, high
growth markets. The intangible assets recognised on this
acquisition comprise technology, customer relationships and
trademarks. Goodwill represents the potential future growth from
expanding the customer base and developing new technologies.
GBP28.0m of the goodwill recognised is expected to be deductible
for tax purposes.
From the date of acquisition to 28 January 2012, the
acquisitions contributed GBP25.9m to revenue, GBP2.8m to headline
profit before taxation and loss of GBP2.3m to profit before
taxation due to the amortisation of acquired intangible assets. If
Smiths had acquired the businesses at the beginning of the
financial period, the acquisitions would have contributed GBP44.5m
to revenue and a loss of GBP8.9m to profit before tax.
The values set out below are provisional pending finalisation of
the fair values attributable, and will be finalised by October
2012.
Power Holdings
Inc. Other acquisitions
================================= ================================= ======
Fair Provisional Fair Provisional
Book value fair Book value fair
value adjustments value value adjustments value Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================== ====== ============ =========== ====== ============ =========== ======
Non-current assets
- intangible assets 49.5 49.5 3.7 3.7 53.2
- land and buildings 0.3 0.3 0.3
- plant and equipment 0.8 0.8 0.5 (0.1) 0.4 1.2
Current assets
- trade and other receivables 24.4 (0.1) 24.3 1.8 1.8 26.1
- other current assets 7.3 (1.0) 6.3 0.4 (0.1) 0.3 6.6
Non-current liabilities
- other liabilities (0.4) (12.2) (12.6) (12.6)
Current liabilities
- overdrafts (0.4) (0.4) (0.1) (0.1) (0.5)
- other current liabilities (11.9) (0.1) (12.0) (0.4) (0.4) (12.4)
============================== ====== ============ =========== ====== ============ =========== ======
Net assets acquired 20.1 36.1 56.2 2.2 3.5 5.7 61.9
Goodwill on current year
acquisitions 98.1 7.4 105.5
============================== ====== ============ =========== ====== ============ =========== ======
Total consideration 154.3 13.1 167.4
============================== ====== ============ =========== ====== ============ =========== ======
Cash paid during the
period - current year
acquisitions 168.2
Deferred consideration
- current year acquisitions (0.8)
============================== ====== ============ =========== ====== ============ =========== ======
Total consideration 167.4
============================== ====== ============ =========== ====== ============ =========== ======
16 Related party transactions
The related party transactions in the period were consistent
with the nature and size of transactions disclosed in the Annual
Report for the year ended 31 July 2011.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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