Spectris plc 2018 Full Year Results...Omega product refresh & new e-commerce platform/digital...
Transcript of Spectris plc 2018 Full Year Results...Omega product refresh & new e-commerce platform/digital...
Spectris plc ©
Spectris plc
2018 Full Year Results
Agenda
▪ FY 2018 Highlights
▪ Financial Performance
▪ Strategy for Profitable Growth
▪ Summary
Spectris plc © 2
2018 Highlights
Spectris plc ©
▪ Sales of £1,604.2 million reflects a 5% LFL sales increase, building on progress in 2017
▪ Adjusted operating profit of £248.3 million, LFL adjusted operating margin up 0.3pp
▪ Adjusted earnings per share up 7%, dividend per share increase of 8%
▪ Strategy for profitable growth:
▪ Profit improvement programme to deliver benefits of more than £30 million, with £15-20 million in 2019
▪ Strategic review initial conclusions presented:
– Group would benefit from becoming a more focused and simplified business
– Assessing which operating companies can drive the greater shareholder value:
▪ Scalable, in attractive high growth markets, with strongest capabilities & greatest performance potential
▪ Identified three platform businesses so far - Malvern Panalytical, HBK, Omega
▪ Greater focus on shareholder value creation - asset optimisation, portfolio management, capital allocation
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Spectris plc ©
Financial Performance
Clive Watson
Group Finance Director
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Financial Performance – Adjusted Measures
Spectris plc ©
FY 2018 FY 2017 ChangeLike-for-like
change (2)
Sales (£m) 1,604.2 1,525.6 5% 5%
Adjusted operating profit (£m) (1) 248.3 239.3 4% 7%
Adjusted operating margin (%) (1) 15.5% 15.7% (0.2pp) 0.3pp
Project Uplift costs (£m) (10.8) (15.8) 32%
Adjusted operating profit after Project Uplift costs (£m) (1) 237.5 223.5 6%
Adjusted profit before tax (£m) (1) 241.4 234.2 3%
Adjusted effective tax rate (%) (1) 19.7% 21.3% (1.6pp)
Adjusted EPS (pence) (1) 164.9 154.6 7%
DPS (pence) 61.0 56.5 8%
Adjusted operating cash conversion (%) (1) 59% 77% (18pp)
Notes
(1) These adjusted performance measures represent the statutory results excluding certain items.
(2) At constant exchange rates and including acquisitions and disposals on a comparable basis (‘LFL’).
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Spectris plc ©
+4.9% (1.5%) +5.2% +5.2%Contribution
to yoy change
Sales
72.1
77.5
1,600
1,460
1,580
20
1,620
0
1,520
1,540
1,500
1,480
1,560
LFLAcquisitions 2018
1,525.6
2017
(22.5)
£m
1,604.2
(48.5)
1,477.1
Disposals Currency2017 organic
£m
USD (17.2)
EUR 6.1
Other (net) (11.4)
Total (22.5)
£m
Pricing 15.7
Volume/Mix 61.8
Total 77.5
(3.2%)
6
45.3
230
240
250
0
260
270
280
(0.1)
Gross
margin
(28.7)
Overheads
248.3
2018 Adjusted
operating profit
£m
Currency2017 Adjusted
operating profit
Disposals net
of acquisitions
239.3
(7.5)
Spectris plc ©
Adjusted Operating Profit
ROS 15.7% ROS 15.5%
£m
Pricing 15.7
Volume/mix 43.6
MLO increase (25.2)
Procurement 11.2
Total 45.3
£m
Employee-related (19.4)
Depreciation (1.6)
Other (7.7)
Total (28.7)
£m
Acquisitions 1.2
Disposals (8.7)
Total (7.5)
7
(50.5)
(297.1)
(100.5)
(114.9)
-300
-250
-200
-150
-100
-50
0
50
100
150
200
250
Net debt
31 Dec 2017
(5.9)
Divis/tax/
int/other
(94.1)
Share
buyback
£m
283.6
Adjusted
EBITDA
(42.8)
Change in
working
capital
Capex
(8.6)
Restructuring
costs
(207.2)
Net debt
31 Dec 2018
Acquisitions
43.8
Disposals Currency
8Spectris plc ©
Cash Flow
Net debt: adjusted EBITDA
Average working capital
1.0x
11.4%
0.2x
11.9%
Adjusted operating cash flow = £146.7m (2017: £184.6m)
2.7x dep’n
£m
Dividends (68.2)
Tax (37.7)
Net interest/other (9.0)
Total (114.9)
£m
Receivables (21.6)
Inventory (17.4)
Payables/Other (3.8)
Total (42.8)
Adjusted operating cash conversion = 59% (2017: 77%)
Sales by Destination
Region/country
LFL change
FY 2018 vs
FY 2017
LFL change
FY 2017 vs
FY 2016
North America +4% +4%
Europe
Germany
UK
+3%
+2%
+7%
+6%
+5%
+13%
Asia
China
Japan
+10%
+16%
+3%
+9%
+11%
+9%
Rest of the world +1% +1%
Group +5% +6%
Spectris plc ©
North America
31%
Europe 34%
Asia 30%
ROW 5%
FY 2018 % of Group sales
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Spectris plc ©
Summary Segment Performance
Materials
Analysis
Test and
Measurement
In-line
Instrumentation
Industrial
ControlsTotal
FY
2018
FY
2017
FY
2018
FY
2017
FY
2018
FY
2017
FY
2018
FY
2017
FY
2018
FY
2017
Sales (£m) 541.1 464.9 522.6 487.3 312.2 310.9 228.3 262.5 1,604.2 1,525.6
LFL sales change 8% 6% 1% 3% 5%
Adjusted operating profit (£m) (1) 95.4 87.3 67.2 74.2 42.6 36.0 43.1 41.8 248.3 239.3
LFL operating profit change (1) 11% (9%) 17% 19% 7%
Adjusted operating margin (1) 17.6% 18.8% 12.9% 15.2% 13.6% 11.6% 18.9% 15.9% 15.5% 15.7%
LFL adjusted operating margin
change (1)0.4pp (2.0pp) 1.8pp 2.6pp 0.3pp
Project Uplift cost (£m) (3.0) (4.2) (3.3) (5.3) (2.0) (2.8) (2.5) (3.5) (10.8) (15.8)
Adjusted operating profit after
Project Uplift costs (£m)92.4 83.1 63.9 68.9 40.6 33.2 40.6 38.3 237.5 223.5
(1) These adjusted performance measures represent the statutory results excluding certain items. They also exclude restructuring costs relating to
Project Uplift and the Group profit improvement programme. 10
FY
2017
FY
2018Change vs. FY 2017
Reported Organic FX Acq. Reported Reported LFL
Sales (£m) 464.9 39.3 (7.6) 44.5 541.1 +16% +8%
Adjusted operating
profit (£m)87.3 9.5 (0.2) (1.2) 95.4 +9% +11%
Adjusted operating
margin (%)18.8% 17.6% (1.2pp) +0.4pp
Spectris plc ©
Materials Analysis
▪ Sales growth +16%: LFL sales +8%, acquisitions +10%, currency (2%)
▪ Good LFL pharma sales growth; investment in biopharma/generics, increasing regulation
▪ Good growth in minerals/mining impacted by weaker demand in metals
▪ Strong growth in academic research, especially N. America/Asia as funding/win-rate improves
▪ Strong growth in electronics/semiconductor continues for PMS, especially in Asia
▪ Concept Life Sciences below expectations, but remedial action already impacting
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Spectris plc ©
Test and Measurement
▪ Sales growth +7%: LFL sales +6%, acquisitions (net of disposals) +2%, currency (1%)
▪ Strong LFL sales growth in automotive, from Millbrook capacity expansion and at BKSV
▪ Acquired Revolutionary Engineering and VI-grade to expand automotive offering
▪ Aerospace LFL sales lower year-on-year, but good pipeline of opportunities
▪ From January 2019, BKSV and HBM merging their activities into new company, HBK
FY
2017
FY
2017
FY
2018Change vs. FY 2017
Reported
Reported
excl.
disposal
Organic FX Acq. Reported Reported LFL
Sales (£m) 487.3 471.7 28.6 (3.6) 25.9 522.6 +7% +6%
Adjusted operating
profit (£m)74.2 70.0 (6.2) 0.7 2.7 67.2 (9%) (9%)
Adjusted operating
margin (%)15.2% 14.8% 12.9% (2.3pp) (2.0pp)
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FY
2017
FY
2018Change vs. FY 2017
Reported Organic FX Acq. Reported Reported LFL
Sales (£m) 310.9 3.6 (4.0) 1.7 312.2 +0.4% +1%
Adjusted operating
profit (£m)36.0 6.2 0.7 (0.3) 42.6 +18% +17%
Adjusted operating
margin (%)11.6% 13.6% +2.0pp +1.8pp
Spectris plc ©
In-line Instrumentation
▪ Sales growth 0.4%: LFL sales +1%, acquisitions +1%, currency (1%)
▪ Sales grew strongly in Asia, especially China, mostly offset by lower sales in EU/N. America
▪ Modest LFL sales growth in pulp/paper; diversifying towards tissue/pulp/packaging markets
▪ Growth in energy despite tough year-on-year comparator for wind business
▪ NDCT sales lower but key development in sensors for lithium-ion battery manufacturing
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Spectris plc ©
Industrial Controls
▪ Sales decline (13%): LFL sales +3%, disposal of Microscan (13%), currency (3%)
▪ Good LFL sales growth in Asia, especially China and Japan
▪ Operational improvements at Omega deliver higher gross and operating margins
▪ Omega product refresh & new e-commerce platform/digital marketing to drive sales growth
▪ Red Lion’s focus on key vertical markets drives growth in sales and access to new markets
FY
2017
FY
2017
FY
2018Change vs. FY 2017
Reported
Reported
excl.
disposal
Organic FX Reported Reported LFL
Sales (£m) 262.5 229.6 6.0 (7.3) 228.3 (13%) +3%
Adjusted operating
profit (£m)41.8 37.3 7.1 (1.3) 43.1 +3% +19%
Adjusted operating
margin (%)15.9% 16.2% 18.9% +3.0pp +2.6pp
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Spectris plc ©
2019 FY Guidance
▪ H1:H2 phasing – sales and adjusted operating profit
▪ Acquisitions and disposals
▪ 2018 acquisitions/disposals – sales £10 million, adjusted operating profit £1 million
▪ Profit improvement programme benefits
▪ Underlying effective tax rate – up to 22%
▪ Planned capex of c. £90 million, of which growth capex £45 million, principally Millbrook
▪ Foreign exchange sensitivities
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Impact of 1 cent change versus GBP
2019 FY sales
£m
2019 FY adjusted operating profit
£m
EUR 4.0 0.6
USD 4.0 0.6
Spectris plc ©
Strategy for Profitable Growth
Andrew Heath
Chief Executive
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Key Impressions
Spectris plc ©
Strong fundamentals
▪ High-quality businesses and products
▪ Strongly-recognised brands & leading technologies
▪ Domain knowledge and application expertise
▪ Strong market positions
▪ Exposure to growing end markets
▪ Good customer relationships
▪ Talented people
▪ High gross margins
▪ Good cashflow generation
▪ Strong balance sheet
▪ Enhance operational efficiency to drive margin
expansion
▪ Strengthen Lean deployment
▪ Reduce complexity
▪ Focus on attractive end markets where best
placed to drive growth and profitability
▪ Asset optimisation supported by active portfolio
management and synergistic acquisitions
▪ More rigorous capital allocation
Areas for improvement
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Spectris plc ©
Profit Improvement Programme – Overview
▪ Spectris has strong gross margin businesses…
▪ …but operating margin performance remains
below both historic highs and our peers
▪ Undertaking self-help measures to drive
margin expansion:
▪ Numerous initiatives identified
▪ Programme now being implemented
▪ Driving greater operational gearing in 2019…
▪ …and beyond – continuous improvement
culture being strengthened
▪ Aim to return our operating margin to at least
our previous highs
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10%
12%
14%
16%
18%
20%
2010 2012 2014 2016 2018
30%
35%
40%
45%
50%
55%
60%
Adjusted operating margin (RHS)
Gross margin
Spectris margins 2010-2018
Spectris plc ©
People
• Simplify organisational structures
• Greater organisational effectiveness
Product
• Rationalise product portfolio
• Exit lower margin products
Property
• Site consolidation
• Shared resources
• Relocation to lower cost sites
Process
• Simplify processes
• Lean initiatives
• Value analysis/value engineering
Annualised benefits of more than £30 million,of which £15-20 million in 2019
Costs to achieve of £35 million
Profit Improvement Programme Initiatives
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Spectris plc ©
Strategic Review – Overview
▪ Spectris has a diverse portfolio of high-quality businesses
▪ …but will benefit from becoming a more focused and simplified business
▪ Ongoing strategic assessment of every OpCo to consider its value creation potential
▪ Identify platform businesses which are:
▪ Scalable and strongly aligned to attractive markets with GDP+ growth characteristics
▪ High gross margins and asset light
▪ Have the strongest capabilities and greatest value creation potential
▪ Will continue to extend our instrumentation businesses into associated services & software
▪ Greater focus on performance management and capital allocation to deliver:
▪ Sales growth and margin expansion
▪ Operating cash conversion and FCF growth
▪ Shareholder value creation
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Spectris plc ©
Pharma
Technology-
led
industrials
Electronics
and semi-
conductors
Automotive
Metals,
minerals,
mining
▪ Drug complexity
▪ Reducing development time and cost
▪ More stringent trials
▪ Advanced data analytics
▪ IIoT
▪ Process automation
▪ Additive manufacturing
▪ Processing power and speed
▪ Miniaturisation
▪ 5G
▪ Rate of new product launches
▪ Vehicle electrification - hybrid/EVs
▪ Connected & autonomous vehicles
▪ Rising use of simulation/software
▪ Energy efficiency
▪ Autonomous operations
▪ Predictive analytics
▪ Increasing spend on R&D
▪ Increasing requirements for
instruments & test equipment
▪ Increasing sophistication of
instruments & test equipment
▪ Increasing use of software
▪ Customers seeking greater
insights through software and
advanced analytics
Attractive GDP+ Growth Markets
Opportunities for SpectrisMarket trend
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Spectris plc ©
Scale of potential Key requirements OpCo classification
Strategic
plan
Targets and
performance
Resources
and risks
Profit
potential
Operating
margin
▪ Sales growth
▪ Return on capital
▪ Cash conversion
Financial
performance
▪ Current operating margin
▪ Expansion potential
Market
growth
▪ Addressable market growth
▪ Strong growth drivers
▪ Headroom/market share
▪ Technology product roadmap
Share
gain
potential
▪ Competitive position
▪ Degree of differentiation
▪ Inorganic adjacent opportunities
Growth
potential
▪ Clear strategic direction
▪ Strategic priorities
▪ Platform potential
▪ Scale of financial targets
▪ Historical performance vs.
plan
▪ Identified profitable
growth initiatives
▪ Required resources and
capabilities
▪ Level of investment/capex
required
▪ Key execution risks
OpCo Assessment Framework
➢ Platform OpCos
➢ Non-platform
OpCos
22
% of 2018 sales
Spectris plc ©
▪ 3 platform businesses identified to date:
▪ Malvern Panalytical
▪ HBK
▪ Omega
▪ Scalable characteristics
▪ Positioned in attractive end markets
▪ High margin and asset light
▪ Attractive growth and profit potential
▪ Top priority for investment
Platform OpCos
Platform OpCos
% of 2018 adjusted operating profit
Platform
OpCosPlatform
potential
Run for
value
Platform
OpCosPlatform
potential
Run for
value
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MalPan
HBKOmega
MalPan
HBKOmega
Spectris plc ©
▪ Portfolio still being fully evaluated
▪ Platform potential:
▪ Attractive growth and profit potential
▪ Targeted investments
▪ Manage for full potential
▪ Possible future platforms
▪ Run for value:
▪ Focus on performance enhancement
▪ Manage for value
▪ Potential divestment candidates
Non-platform OpCos
Non-platform OpCos
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% of 2018 sales
% of 2018 adjusted operating profit
Platform
OpCosPlatform
potential
Run for
value
Platform
OpCosPlatform
potential
Run for
value
MalPan
HBKOmega
MalPan
HBKOmega
Spectris plc ©
▪ Highly complementary portfolio of instruments for materials analysis
▪ Serving a broad range of industries: pharma/advanced materials/minerals & mining
▪ Strong reputation for quality of instruments and customer support
▪ Served addressable market of c.£3bn, growing at 4-5% pa
▪ Concept Life Sciences to become part of the Malvern Panalytical platform
▪ Growth potential:
▪ Existing markets through additional products and instruments
▪ Extension into insight-creating software and solutions
▪ Adjacent markets, leveraging and replicating its domain expertise
▪ Scalable go-to-market approach:
▪ Significant market headroom and increased value-based selling
▪ Opportunities for bolt-on M&A
Platform – Malvern Panalytical
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Spectris plc ©
▪ Highly complementary portfolio of testing and measurement products
▪ Leading player in technically advanced segments of mechanical & noise,
vibration, harshness testing
▪ Diversified end-market presence: automotive, aerospace, telecoms, industrials
▪ Recognised by customers for leading technology & application expertise
▪ Large addressable market worth £3bn+ globally, growing at 4-6% pa
▪ VI-grade to become part of the HBK platform
▪ Broad range of growth opportunities:
▪ Increasing share in core markets
▪ Technology adjacencies plus new and emerging applications
▪ Expanding offering in application analytics
▪ Merger presents additional value-enhancing opportunities:
▪ Greater customer intimacy and joint product/solutions design
▪ Broader ‘product physics’ offer
▪ Common data handling capabilities
Platform – HBK
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Spectris plc ©
▪ Specialist distributor of temperature, pressure, flow sensors & instrumentation
▪ Differentiated business model, a leader in North America & overseas presence
▪ Provides domain and application expertise via technical product support
▪ Highly diversified customer base of engineers across numerous end markets
▪ c.£2bn addressable market, growing at 4-5% pa
▪ Financially efficient and highly scalable business model
▪ Benefits from long-term purchasing trend towards remote & online ordering
▪ Significant value-creation opportunities:
▪ Further expansion through product extension and enhanced online platform
▪ Targeted international expansion
▪ Evaluating curated market-place for third-party products
Platform – Omega
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Spectris plc ©
▪ Focusing on high-end instrumentation plus associated software and services
▪ Improving productivity and operational efficiency
▪ Simplifying the portfolio with fewer platform businesses and a focused end-market strategy
▪ Actively managing the portfolio to prioritise and optimise
▪ More disciplined and targeted capital allocation
▪ Improving financial performance:
▪ Sustainable organic revenue growth and enhanced margins
▪ Stronger free cashflow generation
▪ Higher returns on capital employed
Enhancing shareholder value
Strategy for Profitable Growth
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Spectris plc ©
Appendix
Spectris plc
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Spectris plc ©
Automotive 14%
Pharma & fine chemicals
15%
Semicon, telecoms, electronics
10%
Energy & utilities 9%
Metals, minerals & mining
9%
Machine building 7%
Pulp, tissue & paper
7%
Academic research
7%
Aerospace & defence
4%
Other18%
Sales by End-user Market
End-user market
LFL change
FY 2018
LFL change
FY 2017
Pharma & fine chemicals +7% +7%
Automotive +11% +15%
Semicon, telecoms &
electronics+7% +14%
Metals, minerals & mining +2% +15%
Energy & utilities +6% +8%
Machine building +5% (3%)
Pulp, tissue & paper +3% +2%
Academic research +13% (8%)
Aerospace & defence (5%) +9%
FY 2018 % of Group sales
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Spectris plc ©
Laboratory/off-line businesses Process/manufacturing businesses
Materials Analysis
Metals/minerals/mining
Pharma/fine chemicals
Academic research
Semiconductors
Automotive
Aerospace
Electronics
Energy
Academic research
In-line Instrumentation
Process industries
Pulp, paper & tissue
Energy & utilities
Web/converting
Industrial Controls
Manufacturing
Process industries
Energy
Electronics
Healthcare
Business Segments
% Group Sales FY 2018:
34% 33% 19% 14%
Test and Measurement
31
39%
20%
9%
7%
6%
6%
13%
Automotive
Machine building
Aerospace & defence
Semicon, telecoms & electronics
Academic research
Energy & utilities
Other
37%
21%
13%
12%
17%
Pharma & fine chemicals
Metals, minerals & mining
Semicon, telecoms & electronics
Academic research
Other
37%
27%
11%
25%
Pulp, paper & tissue
Energy & utilities
Converting, extrusion & packaging
Other
22%
32%
39%
7%
North America Europe Asia ROW
Spectris plc ©
2018 Segmental Sales
Materials Analysis Test and Measurement In-line Instrumentation Industrial Controls
2018 sales by end-user market
2018 sales by destination
22%
50%
25%
3%
North America Europe Asia ROW
31%
28%
35%
6%
North America Europe Asia ROW
74%
11%
14%1%
North America Europe Asia ROW
36%
21%
43%
Distribution
Semicon, telecoms & electronics
Other
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Spectris plc ©
Disclaimer
This presentation is for distribution only to authorised persons within the meaning of the Financial Services and Markets Act 2000 (as amended by the
Financial Services Act 2012) and any relevant statutory instrument thereunder or to whom it would otherwise be lawful to distribute it. The information
contained herein is not for publication, distribution or reproduction, in whole or in part, to persons in any jurisdiction in which such publication or
distribution is unlawful.
The information contained in this presentation is provided purely for information purposes regarding Spectris plc. Any reliance upon the information
presented is at your own risk. This announcement includes “forward-looking statements”. All statements other than statements of historical fact
included in this announcement, including, without limitation, those regarding the Company’s financial position, business strategy, plans and objectives
of management for future operations (including development plans and objectives relating to the Company’s products), are forward-looking
statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual
results to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the
environment in which the Company will operate in the future. You should not place undue reliance on forward-looking statements, which speak only as
at the date of this announcement. The Company assumes no responsibility to update any of the forward-looking statements contained herein.
Neither Spectris, its directors, employees, agents, nor its affiliated companies, makes any warranty nor assumes legal responsibility for the reliability,
accuracy or completeness, or fitness for purpose of any of the information.
The information shall not constitute or be deemed to constitute any offer or invitation to invest or otherwise deal in shares or other securities of Spectris
plc. Recipients of this presentation are not to construe its contents, or any prior or subsequent information as investment, legal or tax advice.
All information in the presentation is the property of Spectris plc.
Spectris makes no representations and disclaims all warranties (whether express or implied) and shall not be liable for any direct, indirect, special,
punitive or consequential damages or loss (including but not limited to lost profits or revenues) whether arising in statute, contract, tort, equity or
otherwise to the fullest extent permitted by law.
These terms and conditions shall be governed by and construed in accordance with English Law and the exclusive jurisdiction of the English courts.
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