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2005/06 First Quarter Performance

2005/06 First Quarter Performance. 25 August 2005. Financial Review. Adrian Hennah, CFO. This presentation comprises the following sections…. Income statement Segmental analysis Free cash flow Balance sheet Movement in net debt Analysis of financing Legacy liabilities. Income statement.

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2005/06 First Quarter Performance

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  1. 2005/06 First Quarter Performance 25 August 2005

  2. Financial Review Adrian Hennah, CFO

  3. This presentation comprises the following sections… • Income statement • Segmental analysis • Free cash flow • Balance sheet • Movement in net debt • Analysis of financing • Legacy liabilities

  4. Income statement

  5. Income statement

  6. Segmental analysis – revenue, OPBIT Note: 1. Before exceptional items and goodwill impairment.

  7. Free cash flow

  8. Balance sheet Note: 1. Includes intangible development costs of £70m; 31 Mar 05 £66m; 30 Jun 04 £61m. 2. Total Group net debt is £874m; £885m is disclosed in net debt, offset by £11m of net cash included in assets held for sale.

  9. Movement in net debt Note: 1. Including net cash divested (Q1 05/06 £nil; Q1 04/05 £18m; FY 04/05 £18m). 2. Including pre-disposal working capital movement (Q1 05/06 £nil; Q1 04/05 £(9)m; FY 04/05 £(11)m).

  10. Debt financing at 30 June 05 comprised… Notes: 1. Excluding scheduled repayments. 2. L+ = margin over LIBOR. 3. Cash subject to “escrow” restrictions on usage.

  11. Movement in “legacy” liabilities… Notes: 1. The pension P&L charge comprises service cost, finance charge and settlement/curtailments for defined benefit schemes only. 2. Represents the Group’s total pension deficit, not actuarially assessed since March 2005. Includes £13m pension liability held for sale. 3. Changes in value of investments and liabilities.

  12. Operational reviewUlf Henriksson, CEO

  13. EPS Grow market share Build a foundation • Understand & deal with the past P/E Approach to create value • Reduce legacy liabilities • Divest businesses for sale • Execution efficiency • Improve capabilities to grow • Increase operating margin • Improve free cash flow

  14. Recent divestments • ABS EMEA sold for $150 million to Schneider • Lambda sold for $235 million to TDK • Smaller sales remain e.g. Baker

  15. Operational accomplishment in Q1 05/06 Operating cash flow pre legacy Group operating cash flow at CER before legacies • £7m operating cash outflow before legacies • Working capital outflow of £36m due to timing of certain annual payments of £25m £m (7) (8) Operating margin Operating margin for continuing operations 5.5 • Q1 operating margin improved to 5.5% • Corporate costs reduced to £9m (Q1 04/05: £14m) • SG&A costs down by £6m 2.9 % Orders received Orders received at CER for continuing operations • Orders for continuing operations were up 3% at CER • Strong order growth in Process Systems, APV and Rail • Orders up in Europe, South America and Africa & Middle East 642 617 £m

  16. Working capital drivers Days purchases outstanding Days sales outstanding • Improved linearity • Stabilised DPO and DSO • Improved inventory turns • Continued progress in Unbilled • Working capital outflow due to higher Lambda inventory and timing of annual disbursements Days Days 78 66 71 60 Inventory turns Unbilled (project business) Turns £m 79 9.4 8.8 34

  17. Capabilities for growth (continuing operations at CER)

  18. Controls • Background • Continued weakness in appliance market • Climate market is satisfactory • Orders down 7% at CER • Actions • Global Leader 07 programme launched • Procurement • Manufacturing efficiency • Sales efficiency • Product capabilities • Leadership Orders received 223 209 £m Operating margin 8.2 7.5 %

  19. Process Systems • Background • Orders up 5% at CER • Top seven global key accounts grew by 43% in Q1 • Strength in global solutions, measurement and instrumentation and Wonderware • Asia Pacific orders are encouraging • Actions • 70-week programme completed • Drive further operational efficiencies • Go for growth Orders received 176 167 £m Operating margin 7.5 % 2.0

  20. Rail Systems • Background • Orders up 3% at CER despite Network Rail deferrals • All businesses showed positive growth except IRS Australia • £30m Network Rail orders received since quarter end • US Transportation Bill enacted • Actions • Manage overheads • Reap benefits of increased US spending • Continue to work with Network Rail Orders received 116 111 £m Operating margin 14.4 10.2 %

  21. APV • Background • Orders up 27% at CER • Stronger product and project bookings • Rise in industrial heat exchange orders • Actions • 50-week programme completed • Continue to drive top line growth • Improve linearity • Extract greater operational efficiencies Orders received 111 85 £m Operating margin 1.1 % (9.8)

  22. Eurotherm • Background • Orders down 4% at CER • Q1 04/05 included some large systems orders • High energy prices have led to a slowdown in the US plastics business • Actions • Growth in Asia Pacific • Improve manufacturing efficiency Orders received 31 30 £m Operating margin 10.7 10.7 %

  23. Outlook • Continued recovery at Process Systems and APV • Controls remains difficult but GL07 in place • Rail Systems order improvement will gradually benefit sales Overall 2005/06 performance expected to remain in line with expectations

  24. Q&A

  25. Appendices

  26. IAS 19 pension charge Note: 1. Includes defined contribution charge of £2m (Q1 04/05: £2m and FY 04/05: £8m).

  27. Profit - discontinued

  28. Net finance costs for the quarter to 30 June 05

  29. Free cash flow

  30. Reconciliation of free cash flow to IAS 7 net cash flow from operating activities

  31. Currency of net debt, finance rate fixing

  32. Intangible development costs by Business Group Note: In addition to these intangible development costs, there is £8m of computer software included within the balance sheet caption ‘Intangible assets – other’.

  33. Controls

  34. Process Systems

  35. Rail Systems

  36. APV

  37. Eurotherm

  38. Revenue and OPBIT – at constant exchange rates (CER) – Q1 Note: 1. CER movement % calculated using £000’s.

  39. Exchange rates

  40. Important notice • Safe Harbor • This presentation contains certain statements that are forward-looking. These statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition and liquidity, and the development of the industries in which the Group operates, may differ materially from those made in or suggested by these statements and a number of factors could cause the results and developments to differ materially from those expressed or implied by these forward-looking statements.

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