2004 Preliminary Results Presentationfiles.investis.com/tomkins/pdfs/2004_prelims_pres.pdf · 4...

2004 Preliminary Results23 February 2005

2

Agenda

• Introduction – David Newlands

• Financial Review – Ken Lever

• Operational & Strategic Review – Jim Nicol

3

Agenda




4

Financial highlights

• Underlying* sales ahead by 5.7 per cent

• Underlying* operating profit** up by 12.8 per cent

• Reported operating profit† up by 10.5 per cent

• Group operating margin** 9.3 per cent (2003: 8.6 per cent)

• Basic earnings per share before non-operating exceptional items and goodwill amortisation grew by 20.1 per cent

• Full year dividend increased by 5.0 per cent to 12.6p (2003: 12.0p)

• Net debt lower at £244.5m

• US dollar operating income under US GAAP up by 23.7 per cent

* See results’ announcement for definition of underlying** before operating exceptional items and goodwill amortisation† before goodwill amortisation

from continuing operations

Financial review

5

Summary profit & loss

*includes associates and before goodwill amortisation

179.9

132.447.5

140.8(8.4)

152.7(11.9)

235.9(83.2)

271.8(35.9)

295.8

(24.0)

3,150.4

2003(£1=$1.63)

0.6%180.9Profit after tax

68.7%223.4(42.5)

Profit before taxTax at 19%

69.4%(79.8%)

238.5(15.1)

Profit before interestInterest

64.4%(5.0%)

251.0(12.5)

Profit before goodwill amortisationGoodwill amortisation

10.5%88.5%

260.6(9.6)

Operating profitNon-operating exceptional items

2.3%51.3%

278.1(17.5)Operating exceptional items

2.0%

1.3%

301.8

(23.7)

Operating profit before operating exceptional items*:Business groups

Central costs

(5.4%)2,980.3Sales

Change(%)

2004(£1=$1.83)

£m

Financial review

6

Sales bridge

3,150.4

(265.7)

(63.8) 79.4

21.1 58.9

2,980.3

2003 2004

Acquisitions & Disposals

Currency translation

Air Systems Components

Engineered & Construction

Products

Industrial & Automotive

Underlying sales change

+5.7%

£m

£=$1.63

£=$1.83

Underlying sales up 5.7%, but reported sales reduced by 5.4%

Financial review

(8.4%)

7

235.9

9.42.5

(25.0)

1.816.4

20.0

(0.4)

260.6

Operating profit* bridge

CentralCosts

Currency translation

Air SystemsComponents

Engineered &Construction

Products

Industrial &Automotive

2003

£m

Acquisitions &Disposals

+12.8%

Underlying operating profit change

£=$1.63

£=$1.83

2004

*before goodwill amortisation

Reported operating profit ahead by 10.5 per cent despite currency effect

Financial review

Restructuring

(10.6%)

8

Underlying growthGroup

Financial review

Underlying growth against prior year:

4.1%

5.7%

2.3%

12.8%

-

2%

4%

6%

8%

10%

12%

14%

2003 v 2002 2004 v 2003

Sales Operating Profit*

On an underlying basis, sales and operating profit significantly ahead* before operating exceptional items and goodwill amortisation

9

Underlying growthIndustrial & Automotive

Achieved higher operating profit growth in 2004

Financial review

6.3%

4.3%

9.9%

11.4%

-

2%

4%

6%

8%

10%

12%

14%

2003 v 2002 2004 v 2003



* before operating exceptional items and goodwill amortisation

10

Underlying growthAir Systems Components

Financial review


( 1.8% )

5.3%

24.9%

( 9.6% )( 10% )

( 5% )

-

5%

10%

15%

20%

25%

30%

2003 v 2002 2004 v 2003


Turnaround in sales and profit growth* before operating exceptional items and goodwill amortisation

11

Underlying growthEngineered & Construction Products

Financial review


2.3%

10.5%

2.6%

4.4%

-

2%

4%

6%

8%

10%

12%

14%

2003 v 2002 2004 v 2003


Sales significantly ahead compared to last year* continuing operations, before operating exceptional items and goodwill amortisation

12

Underlying growthAftermarket

Financial review

11.5%1.9%5.3%100.0%Group

9.1%13.6%11.5%5.0%Rest of World

£338.2m£558.1m£896.3m

IndustrialAutomotiveTotal

7.2%

19.1%

68.7%

Proportion of 2004 Aftermarket

Sales

3.6%0.9%1.7%Europe

21.6%

12.5%

Industrial Aftermarket

Growth2003 to 2004

Automotive Aftermarket

Growth2003 to 2004

Total Aftermarket

Growth2003 to 2004

Region

44.1%33.3%Asia

(1.2%)3.7%North America

Strong growth in China and other emerging markets

13

Full year operating margins*

10.1%

11.2%

9.3%8.8%

9.8%9.4%

9.6% 9.6%

7%

8%

9%

10%

11%




Products

Group

2003 2004

I&A and ASC maintained double digit margins through the year

Financial review

* continuing operations, before operating exceptional items and goodwill amortisation

14

Raw materials

6.14.2

7.7

18.0

0

5

10

15

20




Products

Group

£m

Effective management of increased costs

Net impact of raw material cost increases for the year:

Financial review

15

Financial review

Strategic manufacturing initiatives

46.1

35.9

17.5

25.4

34.3

20.1

0

5

10

15

20

25

30

35

40

45

50

2002 2003 2004

Operating Exceptional Items Charge Operating Exceptional Items Cash Spend

Cash cost exceeding charge as SMI projects move to conclusion

£m

16

Non-operating exceptional items

(9.6)

-

(9.6)

-29.6

(39.2)

(13.1)-

(3.7)(4.1)

(18.3)

2004

(32.6)33.1

Other items relating to disposals:- Provision for exit from non-core businesses- Reversal of provisions relating to business disposals

(91.4)

(90.9)

7.7Profit on asset disposals

(29.9)(51.4)

Goodwill relating to disposals:- Sold during the year- Sold after the year end

11.4(21.5)

-

Book (loss)/ profit on the disposal of businesses:- Sold during the year- Sold after the year end- Cost of exit of business

(83.2)Total

2003£m

Financial review

17

TaxFinancial review

223.4

-

223.4

(9.6)

(12.5)

245.5

Profit

19.0%(42.5)As reported

-15.0Tax contingency release

22.4%2.8Goodwill amortisation

25.7%(57.5)Profit before tax

26.0%

25.6%

EffectiveRate

Tax (charge)/credit£m

2.5Non-operating exceptional items

(62.8)Tax on profit before non-operating exceptional items and goodwill amortisation

Tax rate of 19.0% after tax contingency release

18

(384.5)-Redemption of preference shares

(105.1)(2.7)Acquisitions and disposals

20.2

6.9

16.0

(165.7)

181.7

394.0

(20.1)(18.0)

-

(10.0)(142.2)(25.9)

3.9

278.1115.9

2004

16.6Currency and other

50.7Cash flow after tax, interest and dividends(167.3)Tax, interest and dividends

(422.3)Change in net debt

218.0Cash flow from operations after exceptional items

397.3

(34.3)-

13.7

(29.9)(97.8)(26.8)(4.2)

EBITDACash effect of exceptional items:- Strategic manufacturing initiatives- Exit from businesses- Asset proceedsCapital expenditure:- Strategic manufacturing initiatives- Business operations Working capital, excluding the effect of operating exceptional itemsOther operating cash flows

271.8125.5

Operating profit before operating exceptional items and goodwill amortisationDepreciation and amortisation before operating exceptional items

2003£mAverage exchange rate $/£: 2004 - 1.83, 2003 - 1.63

Cash flow

Net debt lower at £244.5 million

Financial review

19

Capital investment

Capital Expenditure Depreciation

Industrial & Automotive

119.0111.0

134.7

85.6 90.8 86.6

020406080

100120140160

2002 2003 2004

£mGroup152.9

141.1157.7

128.8 128.6115.9

020406080

100120140160

2002 2003 2004

£m

Investments in Stackpole, China expansion and systems development

Financial review

20

Capital investmentFinancial review

Capital Expenditure Depreciation

Engineered & Construction Products

19.620.7

14.6

24.121.4

14.4

0

5

10

15

20

25

2002 2003 2004

Air Systems Components

14.2

8.6 8.0

19.1

16.214.6

0

5

10

15

20

25

2002 2003 2004

£m£m

Investments in Dexter, Bathware and Fittings to improve efficiency

21

Working capital

Continue to effectively manage investment in working capital

Financial review

18.017.9Industrial & Automotive

8.29.0Air Systems Components

6.54.0Engineered & Construction Products

13.4

2003%

2004%Working capital as percentage of total sales

13.5Group

22

Financial summaryFinancial review

• Good underlying growth in sales and operating profits

• Improved operating margins

• Strong cash generation

• Continuing to invest for profitable growth

• SMI programme largely complete

• Good dividend

• Strong financial position

Strong financial position going into 2005

23

Agenda




24

Value building strategy

Dynamic growth in value:

Operational & Strategic Review

Dynamic growth in value:

• Organic growth– business efficiency – business development– product and process innovation

• Geographic expansion– higher growth markets

• Strategic acquisitions– Value enhancing– Complementary product lines– Growth prospects

Moving up the tempo

25

Business excellenceOperational & Strategic Review

CREATING VALUE

DisciplinedCapital Allocation

Value CreatingAcquisitions

Attractive Markets

Innovation / Technology

Manufacturing Excellence

Incentive Scheme

26

Business efficiency

• Plant rationalisations, closed 10 facilities

• £25.4m lean savings across the Group

• 20% of manufacturing in low-cost jurisdictions

Mexicali – Holland Produced Parts Kan Ban Mexicali - TDCAA Cell Design


27

Business development – Powertrain

Gates

• $101m in new business• 30% non traditional markets• 65% non “Big 3”

Stackpole

• C$98m new business • DCX 62TE Carrier - $6m

31.8 30.4

20.0

12.0

7.0

0

5

10

15

20

25

30

35

NA EU Korea China Japan

Mill

ions


$

28

Business development – Air SystemsOperational & Strategic Review

• Order backlog continues to improve

• Key orders Q4 2004 $5.4m ($4.2m in Q3 2004)

• New product sales of $20m

29

Business development – Aftermarket

Trico Beam Blade Transmission Oil Cooler

• Launched in Q4 2004

• New customers launch 2005

• Popular Mechanic Editor’s Choice


• Previously only sourced through auto dealer network

30

Product innovationOperational & Strategic Review

Quick-Lok™ coupling

9.3 per cent of 2004 sales from new products

GEM10®

• 1st program in Europe

• 1st program in N. America• 4.0 litre engine module

• $78 content per engine

• Strong Citroen C3 volumes

• 30 programmes under development

• 1st program in N. America• $56 content per engine

• Facilitates port-to-port

• Reduces after sales service

• Reduces assembly time

31

Expand in higher growth marketsOperational & Strategic Review

Gates, Suzhou 2

Lu Hai, Joint Venture

Ideal, Suzhou, Scheduled Q4 2005

Trico, Suzhou, Scheduled Q4 2005

32

Stackpole progress

• Business development activity remains strong– Expected CAGR of 15 - 20% (2004 – 2009)

• Variable displacement oil pumps• Carrier systems & modules

– Diverse customers

• Successful launch of 3 facilities

• Near term results impacted by– GM car volumes down 20%– Customer launch delays

• On-track to achieve strategic objectives


33

Acquisition process – ASC case studyOperational & Strategic Review

Hart & CooleyAir Diffusion

American Metal Products/

Superior Rex

WardJohnson

Milcor

Combined business

Original business

1999 2000 2001 2002 2005 Current

Enterprise value

Residential market

UK presence

Low cost Mexico facility

Product diversification

Product diversification

China cost base

Synergy value

Higher growth

Increasing margin

Rationalise production Lean manufacturing Value creation

34

Acquisitions – Milcor

• Acquired Jan 2005• Product line extension• Product and customer synergies• Expands distribution capability• Manufacturing capability in China• Annual sales of $47m


35

Acquisitions – Mectrol

• Acquired Dec 2004• Product line extension to Gates• Access to new markets and customers• Asia expansion opportunity• Integration progressing smoothly• Annual sales of $25m


36

Acquisitions – L E TechnologiesOperational & Strategic Review

• Acquired Feb 2005• RV buyer age group (55-64) to grow

45% between 2001 and 2010• Modular frame capability (Frame + Axle)• Purchasing / Manufacturing synergies• Access to a new customer base• Potential for additional frame content• Annual sales of $86m

37

2004 recap

Good performance– underlying sales 5.7%– underlying operating profit 12.8%– operating margin 9.3% vs 8.6%

Performance driven by:– organic growth:

• new product and process development• manufacturing excellence

– geographic expansion– acquisitions


38

End market outlook

Outlook

Automotive OE

Automotive Aftermarket

Industrial OE

Industrial Aftermarket

Residential Construction

Non-Residential Construction

Forecast to grow slightly

Should grow by 4%

Positive forecast

Positive forecast

Small decline

Forecast to grow 5%

Market 2005


39

2005 outlook

• Coming into the year we have:– Some continuing effect of raw material costs– Weak Q1 N. American automotive volumes

• Build momentum throughout the year– Dynamic growth– Culture of business excellence

• Expect underlying progress

Moving up the tempo


40

• Questions & Answers

41

• Appendices

42

Q4 operating profit*

After operating

exceptional items

Operating exceptional

items

Before operating

exceptional items

After operating

exceptional items


items

Before operating

exceptional items

£m

53.0(8.4)61.458.5(5.1)63.6Total before goodwill amortisation

(6.1)-(6.1)(4.9)-(4.9)Central costs

59.1(8.4)67.563.4(5.1)68.5Total of business groups

10.7(0.6)11.311.10.210.9Engineered & Construction Products

9.4(1.2)10.610.1(0.7)10.8Air Systems Components

39.0(6.6)45.642.2(4.6)46.8Industrial & Automotive

Q4 2003Q4 2004

*before goodwill amortisation

Appendices

Group Q4 reported operating profits ahead despite translation impact

43

Full year operating profit*

After operating

exceptional items


items

Before operating

exceptional items

After operating

exceptional items


items

Before operating

exceptional items

£m

239.9(35.9)271.8260.6(17.5)278.1Total before goodwill amortisation

(24.0)-(24.0)(23.7)-(23.7)Central costs

259.9(35.9)295.8284.3(17.5)301.8Total of business groups

52.5(11.1)63.657.6(1.7)59.3Engineered & Construction Products

38.2(4.1)42.346.2(1.0)47.2Air Systems Components

169.2(20.7)189.9180.5(14.8)195.3Industrial & Automotive

20032004

Reported operating profits ahead for the group despite translation impact*before goodwill amortisation

Appendices

44

US GAAP highlights

Currency translation hides strong performance in sales and operating income

(12.5)-Goodwill Impairment

13.4%(45.5)(39.4)Central Costs

6.0%104.2110.5Engineered & Construction Products

37.2%61.183.8Air Systems Components

15.8%278.3322.2Industrial & Automotive

23.7%385.6477.1Operating Income

11.0%988.11,097.1Engineered & Construction Products

5.8%730.3772.3Air Systems Components

11.4%3,129.03,486.7Industrial & Automotive

10.5%4,847.45,356.1Net Sales

% change20032004$m

Appendices

2004 Preliminary Results Presentationfiles.investis.com/tomkins/pdfs/2004_prelims_pres.pdf · 4...

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