Investor Presentation August / September 2003files.investis.com/tomkins/pdfs/bond_pres.pdfSales...
Transcript of Investor Presentation August / September 2003files.investis.com/tomkins/pdfs/bond_pres.pdfSales...
1
August / September 2003Investor Presentation
2
Agenda
Section 1 Summary of Bond Offering
Section 2 Company Overview
Section 3 Business Profiles
Section 4 Strategy
Section 5 Financial Summary
Section 6 Investment Highlights
Appendix 1 Further Divisional Information
Appendix 2 Interim Results
3
Section 1 Summary of Bond Offering
4
Summary of Bond Offering
Issuer: Tomkins Finance plcGuarantor: Tomkins plcRatings: Moody's: Baa2 (Stable Outlook)
S&P: BBB (Stable Outlook)Size: GBP 200m BenchmarkMaturity: 10 year expectedListing: UKLA Documentation: EMTN ProgrammeJoint Bookrunners: BNP Paribas, Citigroup and HSBCPurpose: Term-out existing bank debtRoadshow Timetable: Friday 29th August 2003 – London
Monday 1st September 2003 – ScotlandTuesday 2nd September 2003 – London (Investor Lunch)
5
Section 2 Company Overview
6
Three Operating Groups
Market Cap: £2.0 bn Employees: 40,000
Annualised AnnualisedTurnover: £3,145m EBIT*: £273.9m
* Pre operating exceptional items and goodwill amortisation
60.3% Group sales
58.1% Group EBIT*
Industrial & AutomotiveIndustrial & Automotive
15.5% Group sales
17.1% Group EBIT*
24.2% Group sales
24.8% Group EBIT*
Air Systems ComponentsAir Systems Components Engineered & ConstructionProducts
Engineered & ConstructionProducts
7
Our Brands
8
End-Markets
10%--Other
11%--Non-residential construction
17%--Residential construction
19%9%10%Industrial
14%9%5%RoW auto
29%15%14%North American auto
TotalOEAMPercentage of Group Sales
43%19%
10%
28%
Automotive
Construction
Industrial
Other
• Diversity of end-markets provides resilience
• Market-leading positions in many of our markets
• 75% of Group sales into markets where we are number 1 or 2
• No one customer accounts for more than 6% of group sales
9
Management Structure
Ken LeverFinance Director
Dave CarrollExecutive Vice President
Richard BellPresident
The Gates Corporation
Tony ReadingChairman
Tomkins Industries Inc
Terry O'HalloranPresident
Air Systems Components
Jim NicolChief Executive
BOARD OF DIRECTORSDavid Newlands
Chairman
• Significant depth and breadth of experience
• Extremely active and knowledgeable Board
• Commended by NAPF for corporate governance structure ‘equal with the best’
• Ranked second in Euromoney corporate governance poll for developed markets
10
Section 3 Business Profiles
11
• 41% of sales
• #1 Globally
• Innovative product pipeline
• Powder metal technology
• 17% of sales
• Quality customer base
• Wide product range
• 15% of sales
• One of world’s largest suppliers
• #1 in North Am aftermarket
• 12% of sales
• World leader in RTPMS
• Large aftermarket presence
• 15% of sales
• High, stable margins
• Strong distribution chain
Industrial & Automotive
Power Transmission
Power Transmission
Fluid PowerFluid Power
Wiper SystemsWiper
SystemsFluid
SystemsFluid
SystemsOther
AftermarketOther
Aftermarket
12
Air Systems Components
Residential ConstructionResidential Construction Industrial / Commercial ConstructionIndustrial / Commercial Construction
• 39% of sales
• Highly branded product
• 30% share in highly fragmented market
• Strong distribution network
• 61% of sales
• Strong route to market; technical sales links with architects and engineers
• Strong market position in fragmented market
Highly branded product
ASC Hart & Cooley Lau Ruskin
13
Engineered & Construction Products
• 36% of sales
• Produces 1/4 of bath fixtures sold annually in the US
Strong customer relationships
LascoLasco PhilipsPhilips DexterDexter Material HandlingMaterial Handling
• 15% of sales
• Strong engineering capability
Held for disposal
• 27% of sales
• Very strong market position
Highly cash generative
• 23% of sales
Strong national distribution channels
14
Section 4 Strategy
15
Business Strategy
Product/process innovation
Commercialise new technologies• Electro-Mechanical Drive ‘EMD’
• Gates Engine Module ‘GEM 10®’
• Third generation RTPMS
• Moulded Micro-V® belt
• Asymmetric tensioner
• Validator®
Gates Engine Module
Asymmetric tensioner
Validator®
Moulded Micro-V® belt
16
Business Strategy
Expand Tomkins aftermarket presence• Market leadership
– ADI supplier of the year
– Aftermarket Award of Excellence (EITM)
– NAPA “Club 95”
• Expand upon major US presence
• New products including 3rd party
• Tomkins parts Gates
– European Teflon® blade
Timing Component Kit
Water Pump
Aftermarket expansion
17
Business Strategy
Manufacturing excellence
Implement lean manufacturing• Company wide initiative• 100% participation – staged • Net savings 2003
– Objective £18m– YTD savings £11m– Revised objective £20m
• Additional benefits– Reduced inventory– Freed up floor space
18
Business Strategy
Manufacturing excellence
Strategic Manufacturing Initiatives• Consolidated 19 facilities since May 2000
– £110m one time restructuring costs
– £90m capital expenditure
– Fixed cost elimination £50m (2004)
– Manpower reductions of 3,400
– Released property valued at £40m
• Exit non core businesses– Cobra
– Milliken Valve Company
– Gates Formed-Fibre
– European Automotive Hose
• Accelerating the programme– Production to lower cost areas
– Mexico, Poland, Asia
19
Business Strategy
Geographic expansion
Gates Unitta Asia• Excellent growth performance• Thailand plant
– AOE business launched
• China– Dominant market share– Investment in new capacity– Develop aftermarket business
GUATCSingapore
GUIC
GUTC
GUATCHong Kong
GUATC Taiwan
GNBC
Gates Korea
GUA (Unitta)
20
Business Strategy
Acquisitions & disposals
Powertrain hard-parts strategy• Stackpole acquired 18 June 2003
• Excellent growth
• Market leadership– Proprietary technology
– New products
– Leverage powertrain market– Outsourcing
– Modules
Focus on value enhancement• Powertrain• Bolt-on acquisitions in ASC• Disposal of non-core activities• Rigorous acquisition process
Powder metal transmission components
21
Business Strategy
Acquisitions & disposalsPowertrain hard-parts strategy
2002 2010
Total Value = $230 bnTotal Value = $230 bn
Outsourced$138 bn(60%)
Outsourced$30 bn(20%)
Insourced$120 bn(80%)
Insourced$92 bn(40%)
PowertrainContent per
VehicleTotal Value = $150 bnTotal Value = $150 bn
Source: Merrill Lynch
22
Section 5 Financial Summary
23
Highlights From Interim Results’ Announcement
• Performance in line with market expectations
• Positive performance in the Business Groups
• Continuing investment in Strategic Manufacturing Initiatives
• Improvements in margins in I&A
• ASC recovering from a weak Q1
• Cash positive before acquisitions and disposals
24
Summary Financials
£mSales 1,599.0 1,713.2EBITDA 184.6 208.2Operating profit 120.1 142.3
Net interest (1.9) 1.0
Net cash inflow from operating activities 136.3 255.1Capital expenditure (51.3) (70.7)Operating cash flow 85.0 184.4
Total Assets 2,352.2 2,492.2Total Debt (191.0) (207.4)Net Debt/Cash 29.6 203.8
H1 03 H1 02
25
Funding Considerations
• Strong cash generation in the business
• Net investment in SMIs tailing off
• Capital expenditure of around £160 million per annum
• Growth projects in Stackpole
• Pensions not a significant issue - funding requirement of around £30 million per annum (current year £20m)
• Cautious dividend policy
26
Redemption of Redeemable Preference Shares
Benefits:• Refinancing risk removed• $19m discount on redemption• Net financing costs reduced ($16m present value) • Efficiency of balance sheet increased
Sterling Bond Refinancing:• Preference shares redeemed on 26 August with bank debt/surplus cash• Part of bank debt to be refinanced with Sterling Bond• Interest hedges in place• Currency composition of net debt in line with currency hedging policy
27
Financial Strategy
Conservative financial policies with focus on value creation
• Ongoing strategic financial planning process aims to maintain:
• Overall prudent financial profile
• Current investment grade credit rating
• Aim to simplify capital structure (e.g. early redemption of redeemable preference shares)
• Aim to extend debt maturity profile and diversify funding sources
• Rigorous acquisition due diligence process provides high hurdle for acquisitions/disposals
• Targeted minimum level of EBIT/(net interest+preference share dividends) of >5x through the cycle
28
Current and Pro Forma Debt Maturity ProfileGroup Funding - Debt Facilities Maturity
0
200
400
600
800
1,000
1,200
Jun 0
3
Dec 0
3
Jun 0
4
Dec 0
4
Jun 0
5
Dec 0
5
Jun 0
6
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Jun 1
3
Date
£m
Current• Preference shares refinanced from debt facilities and existing cash resources
•£400m of committed bank facilities to remain largely un-drawn
• Significant proportion of total funding requirement drawn under long term instruments
0
200
400
600
800
1,000
1,200
Jun 0
3
Dec 0
3
Jun 0
4
Dec 0
4
Jun 0
5
Dec 0
5
Jun 0
6
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Jun 1
3
Date
£m
Pro Forma
29
Section 6 Investment Highlights
30
Key Investment Criteria
Global engineering and manufacturing group, leading across three businessesWorld class company
Strong brands with leading market shares
Top-of-mind brands with significant market shares
Resilience through diverse product portfolio, customer base and end marketsBusiness resilience
Strong management Significant experience in the automotive and industrial sectors
Continual focus on product/process technology and innovation Lowest cost manufacturer of quality productsExpansion of aftermarket and geographical presence
Clear strategic direction
Aim to maintain current investment grade ratingsConservative financial profile
Baa2 (Moody’s) and BBB (S&P) ratings, with stable outlook
31
August / September 2003Investor Presentation
32
Appendix 1 Further Divisional Information
33
Industrial & Automotive
Source: CSM Auto/ US Census Bureau
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Prod
uctio
n un
its '0
00s
0.02.04.06.08.010.012.014.016.018.020.0
US S
AAR
2002 Production 2003 Production2002 SAAR 2003 SAAR
Auto Production & SAAREight months to: Dec ‘02 Dec ‘01Sales 1,263.9 1,301.1Operating profit* 115.0 106.4Operating margin* 9.1% 8.2%Net operating assets** 743.9 845.1Return on net operating assets* 15.5% 12.6%Return on invested capital* 8.0% 6.2%Capital expenditure 82.4 61.5Depreciation 57.0 58.2Cash generation* 80.2 59.2Employees 22,637 23,674*before operating exceptional items** excluding goodwill£ million
• North American production in H1 2003 was 3.2% below the level in H1 2002
• Western European production was down 0.2% in H1
• Seasonally adjusted annualised rate (SAAR) for H1 2003 was 16.1m units
• At the half year, the index of industrial production was 1.2% lower than June 2002.
• Industrial production rose 0.5% in July for the first time in the year
34
Air Systems Components
North American Construction
0
50
100
150
200
250
300
350
Jan
Feb Mar Apr May Jun Jul
Aug Sep Oct Nov Dec
Mill
ion
sq. f
t.
2002 Res 2003 Res2002 Non-Res 2003 Non-Res
Sales 325.7 341.7Operating profit* 33.8 36.7Operating margin* 10.4% 10.7%Net operating assets** 122.2 153.0Return on net operating assets* 27.7% 24.0%Return on invested capital* 11.4% 10.2%Capital expenditure 9.1 10.8Depreciation 12.4 11.0Cash generation* 40.7 45.9Employees 6,942 6,688*before operating exceptional items** excluding goodwill £ million
Eight months to: Dec ‘02 Dec ‘01
• Non-residential construction was down 8% in H1 03– Dodge forecasts a fall of 6% for 2003
• Housing starts have risen 2.6% vs H1 02
Source: Dodge
35
Engineered & Construction Products
Index of US Industrial Production
107
108
109
110
111
112
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2002 2003
Sales 507.6 582.8Operating profit* 49.0 54.4Operating margin* 9.7% 9.3%Net operating assets** 195.9 251.1Return on net operating assets* 25.0% 21.7%Return on invested capital* 14.7% 12.3%Capital expenditure 14.2 9.0Depreciation 14.8 16.3Cash generation* 66.3 76.8Employees 9,953 10,291*before operating exceptional items** excluding goodwill £ million
Eight months to: Dec ‘02 Dec ‘01
• Benefit from strong US residential construction
• Year to date shipments of recreational vehicles are up 2.5%
• Manufactured housing market remains tough
Source: US Census Bureau
36
Appendix 2 Interim Results
37
Summary Statement of Profit & Loss – Half Year
159.0136.0
1.0(1.9)Interest149.094.7Profit before tax(35.0)(25.6)Tax at 27% (estimated rate for full year)
148.096.6Profit before interest
114.069.1Profit after tax
(5.3)(5.1)Goodwill amortisation153.3101.7Profit before goodwill amortisation
11.0(18.4)Non-operating exceptional items142.3120.1Operating profit(16.7)(15.9)Operating exceptional items
(4.7)(11.7)- Centre163.7147.7- Business Groups
Operating profit before operating exceptional items*:1,713.21,599.0Sales
June 2002June 2003£m
1. Encouraging performance
2. One off item in 2002
3. Investment in SMIs
4. Exit from non core businesses
*includes associates and before goodwill amortisation
38
Operating Profit – Half Year
142.3(16.7)159.0120.1(15.9)136.0Total before goodwill amortisation
(4.7)-(4.7)(11.7)-(11.7)Centre
147.0(16.7)163.7131.8(15.9)147.7Total of business groups
40.6-40.623.5(9.1)32.6Engineered & Construction Products
25.7(1.6)27.315.0(2.3)17.3Air Systems Components
80.7(15.1)95.893.3(4.5)97.8Industrial & Automotive
After operating
exceptional items
Operating exceptional
items
Before operating
exceptional items
After operating
exceptional items
Operating exceptional
items
Before operating
exceptional items
£m
June 2002June 2003
• Strong performance in Industrial & Automotive
• Good recovery in Q2 for Air Systems Components
• Engineered and Construction Products suffers from difficult business conditions
• Centre costs of ~ £2m per month
39
Non-operating exceptional items
-(32.6)Exit from non-core businesses
£m
(18.4)
2.9
33.1
(21.0)
(0.8)
June 2003 June 2002
11.0
-Profit on asset disposals
-Reversal of other provisions
(9.4)- Reinstated goodwill
20.4- Book (loss)/profit
Profits/losses on the disposal of businesses:
• Disposals of overseas valves and pumps
• Provision reversal mitigates effect of exit from European Curved Hose
• Profit on asset disposal due to insurance receipts
40
1.0(16.9)- Other
157.51,595.2June 2003
1.37.6- Fluid Systems
2.231.8- Wiper Systems
(4.9)2.2- Fluid Power
0.56.7- Powertrain
18.991.6- Power Transmission
Movement in:
138.51,472.2June 2002
Operating profit before
operating exceptional
items *
Sales$m
9.4%9.9%- before Operating Exceptional items
7.9%9.4%- after Operating Exceptional Items
Operating margin:
116.8150.3- after Operating Exceptional items
138.5157.5- before Operating Exceptional items
Operating profit*:
1,472.21,595.2Sales
June 2002
June 2003
$m
• Margins benefit from mix and cost reduction
• PT grows from non USA regions and aftermarket
• Aftermarket benefits Wiper Systems
• Growth in RPTMS in Fluid Systems
• Weak markets in Fluid Power
*before goodwill amortisation
Sales grow by 8.4% and operating profit up by 13.7%
Industrial & Automotive
41
Air Systems Components
27.9366.2June 2003
0.21.4- UK
(7.6)-- Plant closings
(1.8)(3.8)- Residential
(2.5)(14.7)- Industrial & Commercial
Movement in:
39.6383.3June 2002
Operating profit before
operating exceptional
items*
Sales$m
10.3%7.6%- before Operating Exceptional items
9.7%6.6%- after Operating Exceptional Items
Operating margin:
37.324.2- after Operating Exceptional items
39.627.9- before Operating Exceptional items
Operating profit*:
383.3366.2Sales
June 2002
June 2003
$m
*before goodwill amortisation
• Margin improvement in Q2
• Double digit margins in H2
• Weak OE market in Fans & Blowers
• Impact of plant closings
Market share gains in industrial and commercial construction when market down 8%
42
9.4%8.5%- before Operating Exceptional items
9.4%6.1%- after Operating Exceptional Items
Operating margin:
58.737.7- after Operating Exceptional items
58.752.3- before Operating Exceptional items
Operating profit*:
624.1614.4Sales
June 2002
June 2003
$m
• Lower OE business in Bathware• Input costs in Fittings• Mix benefit in Wheels and Axles• Residential offsets MH weakness in Doors & Windows
• Recovering orders and margins in Material Handling• Negative underlying trend in Valves and Taps
*before goodwill amortisation
0.415.9- Valves & Taps
(3.7)(1.4)- Fittings
(4.7)(18.7)- Disposals & Other
52.3614.4June 2003
3.00.3- Material Handling
(0.9)(0.5)- Doors & Windows
0.7(2.9)- Wheels & Axles
(1.2)(2.4)- Bathware
Movement in:
58.7624.1June 2002
Operating profit before
operating exceptional
items *
Sales$m
Difficult business conditions led to lower sales and operating profits and reduced margins.
Engineered & Construction Products
43
Sales and Operating Profit Bridge
- Business Groups – underlying change:13.154.6- Industrial & Automotive
(7.0)-- Centre
120.11,599.0June 2003
(2.8)(4.0)- Engineered & Construction Products
(7.3)(12.0)- Air Systems Components
(0.8)-- Operating exceptional items
(2.5)(27.1)- Acquisitions and disposals
(14.9)(125.7)- Currency impact
Movements:
142.31,713.2June 2002
Operating profit*
Sales£m• Underlying net increase
in sales and operating profits in Business Groups
• £/$ exchange rate reduces operating profit by 10.5%
• Centre costs lower in prior period – benefit from provision reversal.
*before goodwill amortisation
44
Strategic Manufacturing InitiativesCurrent year investment for Strategic Manufacturing Initiatives
Capital expenditure
One off costs
Capital expenditure
One off costs
Cash flowOperating exceptional
costs
16.5
13.5
2.0
-
11.5
3.0
-
-
3.0
£m
Best estimate for balance of year
30.3
18.8
8.4
0.8
9.6
11.5
0.2
0.3
11.0
£m
Six months to June 2003
--3.711.5
Projects started in 2003:
Operating exceptional
costs
Business Cash flow
11.1
0.7
3.0
-
7.4
0.4
0.9
6.1
£m
5.017.315.9Total Group
--9.1- Engineered & Construction Products
---- Air Systems Components
--2.4- Industrial & Automotive
5.017.34.4
---- Engineered & Construction Products
--2.3- Air Systems Components
5.017.32.1- Industrial & Automotive
Projects in progress in 2002:
£m£m£m
• Major new cost in H1 due to E&CP
• H2 mainly impacted by Elizabeth-town and the Wiper Systems European project
45
Strategic Manufacturing InitiativesEstimated future investment for Strategic Manufacturing Initiatives in progress
Capital expenditure
One off costs
Best estimate for 2004
-11.310.5
Projects started in 2003:
Operating exceptional
costs
Business Cash flow
18.7
-
0.4
10.9
7.4
-
1.6
5.8
£m
8.913.1Total Group
-1.0- Engineered & Construction Products
--- Air Systems Components
-9.5- Industrial & Automotive
8.92.6
--- Engineered & Construction Products
--- Air Systems Components
8.92.6- Industrial & Automotive
Projects in progress in 2002:
£m£m
• Well on with programme• Level of benefits in 2004
increased to ~ £50m• ~ £40m of property released
- £15m realised – further proceeds and profit on disposal.
• Relocation of Denver facility creates a further property profit opportunity.
46
Business disposals and exit from non-core businessesImpact on sales and profits of business disposals and planned business exits
Approximate financial performance in a full
year
June 2003£m
0.2
-
(0.9)
(2.4)
2.3
1.2
Operating profit/(loss)
272.8
97.9
63.4
20.0
49.8
41.7
Sales
(5.0)10.9- European automotive curved hose (I&A)
(2.7)31.2- UK valves and taps (E&CP)
1.349.3- Material handling (E&CP)
Planned exit:
4.916.6Six months to June 2003:
- Overseas Valves & taps (E&CP)
4.625.8Subsequent to June 2003:
- Formed fibre (I&A)
3.1133.8
Disposals:
Operating profit/(loss)
Sales
• Exit from European curved hose business eliminates operating loss in due course.
• Impact of Cobra and Formed Fibre disposals in full year ~ £10m operating profit
• Overall disposals and exits will improve operating margin and ROIC of remaining group
47
Cash Flow - Group
196.3EBITDA
(38.6)Working capital, excluding the effect of operating exceptional items
8.8Cash before acquisitions and disposals
9.2- Exceptional items – asset proceeds
(17.3)- Strategic manufacturing initiatives(43.2)- Business operations (net)
60.3Depreciation and amortisation before operating exceptional items
(136.8)Acquisitions and disposals
(128.0)Movement in net funds
(2.2)Currency and other(74.0)Tax, interest and dividends
85.0Cash flow from operations after exceptional items(4.8)Other operating cash flows
Capital expenditure:
(16.6)- Strategic manufacturing initiativesCash effect of exceptional items (including working capital):
136.0Operating profit before operating exceptional items and goodwill amortisationJune 2003£m
Cash positive after finance and tax
48
Cash Flow – Business Groups
(21.2)- Centre
106.2
(7.4)
85.0Cash flow from operations after exceptional items
113.6
(3.9)- Air Systems Components1.8- Engineered & Construction Products
76.8- Industrial & Automotive
24.2- Engineered & Construction Products10.5- Air Systems Components71.5- Industrial & Automotive
Cash flow from operations after exceptional items:
(5.3)- Industrial & AutomotiveExceptional items:
22.4- Engineered & Construction Products14.4- Air Systems Components
Cash flow from operations before exceptional items:June 2003£m
49
Pensions
Defined Benefit Schemes – deficit position
58.4Deferred tax at assumed rate of 30%
(136.4)Net of deferred tax deficit
(194.8)FRS 17 pension deficit on funded defined benefit schemes
December 2002 £m
Defined Benefit Schemes – pension charges and contributions
4.28.8Cash contributions
4.39.9Pension charge
June 2002June 2003 £m
H2 defined benefit pension charges and cash contributions broadly similar to H1