Smiths Group Plc · LSE:SMIN
Smiths — Investor Day (November 2023)
70 slides from Smiths's investor day presentation, Nov 30, 2023
Slide 1: John Crane Deep Dive
John Crane Deep Dive 30th November 2023 Improving our world through smarter engineering 1
Slide 2: Agenda
Agenda Smiths Group update New energy solutions 09:00 Paul Keel 10:45 Frank Ma CEO VP New Energy Solutions John Crane: a powerful example of Smiths’ strategy in action Optimising customer delivery 09:30 11:15 Rob Sharman Bernard Cicut John Crane President VP Customer Operations 10:00 Coffee break 11
Slide 3: Executive summary
Executive summary • Our Purpose of improving our world through smarter engineering has been our North Star for over 172 years • Fundamental strengths in engineering, market positions, global reach and financial strength underpin our The Smiths Value Engine long-term potential is delivering for our •
Slide 4: Smiths Value Engine
Smiths Value Engine OUR PURPOSE OUR STRENGTHS OUR PRIORITIES World-Class Engineering Growth Leading Positions in Critical Markets Execution PIONEERS OF Global PROGRESS Capabilities Improving our world through smarter Robust Financial People engineering Framework 4
Slide 5: Our fundamental strengths
Our fundamental strengths OUR PURPOSE OUR STRENGTHS OUR PRIORITIES World-Class Engineering Growth Leading Positions in Critical Markets Execution PIONEERS OF Global PROGRESS Capabilities Improving our world through smarter Robust Financial People engineering Framework 5
Slide 6: World-class engineering
World-class engineering • Highly-skilled engineers in new product Mission-critical technologies and services for development, operations and service energy, new energy and process industries • Meaningful investment in developing Differentiated proprietary technologies for differentiated, proprietary
Slide 7: Leading, defensible positions in structurally attractive markets
Leading, defensible positions in structurally attractive markets Medium- % of Group Business term growth Market update outlook1 • Strong demand continues in all industrial markets served by John Crane General Industrial 40% 2-3% • Softness in Flex-Tek’s US construction and Smiths Interconnect’s conn
Slide 8: Global capabilities
Global capabilities Smiths Group FY23 Revenue by geography Americas Europe 19% 54% 16% 11% APAC Rest of world Operations in Over 100 Over 200 over 50 countries manufacturing / R&D sites service centres Our global presence allows us to deliver real-time, mission-critical support to our customers 8
Slide 9: Robust financial framework
Robust financial framework Accelerating Growth Expanding Margins Strong Cash Generation Operating Cash Conversion Operating Profit Growth Revenue Growth FY23 Growth +12% +20% +30% 9
Slide 10: Our priorities
Our priorities OUR PURPOSE OUR STRENGTHS OUR PRIORITIES World-Class Engineering Growth Leading Positions in Critical Markets Execution PIONEERS OF Global PROGRESS Capabilities Improving our world through smarter Robust Financial People engineering Framework 10
Slide 11: Delivering consistent growth
Delivering consistent growth FY23 PROGRESS FY24 FOCUS • Plastronics acquisition • HCP acquisition Disciplined M&A • Advanced Diamond build-out • Strong pipeline of additional • Royal Metal Products scale-up bolt-on acquisitions • Process electrification • Energy transition Building out priority • Se
Slide 12: Q1 adds to our growing track record
Q1 adds to our growing track record Ten consecutive quarters of organic revenue growth 13.2% 13.6% 13.4% COVID-19 6.7% 5.8% 5.7% 5.0% 3.5% 1.0% 2.9% (2.2%) (4.6%) (7.1%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 FY21 FY22 FY23 FY24 12
Slide 13: SES delivers results, develops talent, and advances our culture
SES delivers results, develops talent, and advances our culture SES operating profit contribution (£m) Smiths Excellence System • • Continuous improvement programme +43% cc now embedded across Smiths • SES is scaling quickly with 20 projects Programme completed and another 60 underway launch • 6 Mas
Slide 14: People – delivering for all our stakeholders
People – delivering for all our stakeholders Customers Colleagues Communities Shareholders • • • • Helping them achieve their Empowering and inspiring Improving our world Performance matching goals potential cc cc cc cc • Refreshed leadership team • Numerous government • New product innovation with
Slide 15: Sustainability underpins our growth, execution, and people priorities
Sustainability underpins our growth, execution, and people priorities Our priorities Focus Progress • H2 Green Steel programme progressing to plan; Commercialising high-value £8m of £45m contract received green technology solutions Growth that help our customers meet • ~30% of John Crane sales from
Slide 16: Delivering significant progress against all medium-term targets
Delivering significant progress against all medium-term targets 100%+ +M&A 18-20% 15-17% +M&A 7-10% 4–6% Organic Revenue Growth1 EPS Growth ROCE2 Operating Profit Margin Operating Cash Conversion2 FY2021 (2.2)% +19.3% 13.9% 15.5% 129% FY2022 +3.8% +17.8% 14.2% 16.3% 80% FY2023 +11.6% +39.6% 15.7% 16
Slide 17: Group-wide Capabilities
Shared Purpose, strengths, and Group-wide capabilities are woven across Smiths Growth: R&D, M&A Group-wide Capabilities Execution: SES, Sustainability People: Talent, Compensation Group Access to Capital Shared Infrastructure End Market Overlap Similar Business Models Shared Purpose Cc • 17
Slide 18: How John Crane employs the Value Engine to create value
How John Crane employs the Value Engine to create value for its stakeholders OUR STRENGTHS JOHN CRANE 13% • ~1,000 engineers in R&D and World-Class Engineering Design 26% Engineering • ~1,000 engineers in operations Smiths and service FY23 revenue 25% £3.0 billion • Largest installed base in traditi
Slide 19: Closing remarks
Closing remarks Smiths is a fundamentally strong business with defensible positions in secularly attractive markets Our businesses share a common purpose, business models and Group-wide capabilities We have a clear strategy that is delivering value for all stakeholders Today, we’ll take a closer loo
Slide 20: John Crane: a powerful example of Smiths' strategy in action
John Crane Deep Dive John Crane: a powerful example of Smiths’ strategy in action 20
Slide 21: Bernard Cicut, President, John Crane
Bernard Cicut, President, John Crane John Crane President, April 2022 - present 3M - 38 years in multiple roles and divisions including: – President of $4.5bn Personal Safety Division – Senior VP / Managing Director East Europe, Middle East & Africa / France, Mexico – Master Black Belt MBA - Institu
Slide 22: Executive summary
Executive summary We are a leading provider of mission-critical technologies Highly-engineered products, technical service capabilities and customer intimacy create a sustainable competitive advantage Leading positions in attractive markets with long-term growth opportunities Global capabilities, ex
Slide 23: John Crane: improving our world with mission-critical technology
John Crane: improving our world with mission-critical technology Key data Revenue breakdown Revenue breakdown Revenue breakdown by end market by type by geography FY2023 revenue £1,079m (36% of Smiths) Chemicals, Energy Original Aftermarket APAC RoW1 Americas FY2023 organic revenue growth Pharma Equ
Slide 24: The Smiths Value Engine advancing John Crane
The Smiths Value Engine advancing John Crane OUR PURPOSE OUR STRENGTHS OUR PRIORITIES World-Class Engineering Growth Leading Positions in Critical Markets PIONEERS OF Global Execution PROGRESS Capabilities Improving our world through smarter Robust Financial People engineering Framework 24
Slide 25: John Crane's fundamental strengths
John Crane’s fundamental strengths • Over 100 years of bringing highly engineered mission-critical products to market World-Class • Unique expertise helping customers solve critical needs Engineering • Engineered-to-order model creates sustainable competitive advantage • Largest installed base, in s
Slide 26: World-class engineering
World-class engineering Strong Original Equipment portfolio Differentiated Aftermarket services Gas compression Wet seal solutions Predictive Field service seal solutions maintenance Broad range of 29% mission-critical 71% technologies Training, education, Repair and replace Auxiliary systems Filter
Slide 27: John Crane has built leading positions in critical markets
John Crane has built leading positions in critical markets Total addressable market (£bn) and nominal growth (%) Energy Solutions New Energy Solutions Industrial Solutions 12.0 4.9% £11.0bn 10.0 £8.9bn 4.3% £8.6bn 8.0 £7.4bn £6.4bn 6.0 £5.9bn 4.0 17.8% 2.0 £1.3bn £0.4bn 0.0 £0.1bn 2018 2023 2030 201
Slide 28: Our industrial market segments have attractive growth opportunities
Our industrial market segments have attractive growth opportunities Industrial Market Market John Crane market segment segment size segment growth opportunities • Energy efficient products Chemical/ pharmaceutical +++ • Service to reduce emissions (decarbonisation) Products to minimise environmen
Slide 29: Global footprint enables unparalleled customer intimacy
Global footprint enables unparalleled customer intimacy Global Capabilities Total locations ~200 Sales & Service 163 Centres Manufacturing 35 Centres Sales & Service Centre Engineering 9 Manufacturing Centre and R&D Hubs R&D &/or Engineering Hubs >3 Installed base million 29
Slide 30: John Crane enjoys a robust financial framework
John Crane enjoys a robust financial framework FY2022 FY2023 Reported Organic change change Summary: Revenue £901m £1,079m 19.8% 15.2% • Strong organic revenue Original equipment revenue £279m £314m 12.5% 8.1% growth across all geographic and customer end markets Aftermarket revenue £622m £765m 23.0
Slide 31: John Crane is accretive to Smiths' medium-term financial targets
John Crane is accretive to Smith’s medium-term financial targets John Crane actuals FY2023 +15.2% +25.2% 23.8% 22.6% 95% Smiths Group financial targets 100%+ +M&A 18-20% 15-17% +M&A 7-10% 4–6% Organic Revenue Growth EPS Growth1 ROCE Operating Profit Margin Operating Cash Conversion 1 John Crane orga
Slide 32: The Smiths Value Engine advancing John Crane
The Smiths Value Engine advancing John Crane OUR PURPOSE OUR STRENGTHS OUR PRIORITIES World-Class Engineering Growth Leading Positions in Critical Markets Execution PIONEERS OF Global PROGRESS Capabilities Improving our world through smarter Robust Financial People engineering Framework 32
Slide 33: How John Crane is accelerating growth
How John Crane is accelerating growth Focus Examples • Accelerating access to new technology and • Acquired Advanced Diamond Technologies Disciplined products (e.g., in energy transition) industrial division – superior diamond chemical M&A • Geographical expansion deposition process for industrial a
Slide 34: Executing our strategy to deliver success
Executing our strategy to deliver success Priorities Metrics New Product Commercialisation % growth from new products • High levels of demand for % growth from pricing, covering input our products and services Pricing inflation • Executing well to deliver Energy efficiency Sustainability for our cus
Slide 35: Sustainable execution
Sustainable execution Progress in sustainability Our roadmap to achieve net zero Growth Commercialising high-value green technology Supported by our initiatives: • Supporting hydrogen and CCUS Our Commitment projects globally • Improving energy efficiency • ~30% of sales from products and • On-site
Slide 36: John Crane Senior Leadership Team
John Crane Senior Leadership Team Today’s presenters President Bernard Cicut Strategy, Chief Sales & Customer New Energy Portfolios Technology Aftermarket Operations Solutions & Marketing Officer Sook Won Moon Rob Sharman Frank Ma Ruben Alvarez Mike Eason Chief Engineering Human General Master Finan
Slide 37: Closing remarks
Closing remarks We are a leading provider of highly-engineered, mission-critical technologies with a sustainable, competitive advantage We are well-positioned in markets with attractive, long-term growth drivers We have global capabilities and service expertise, which supports deep customer relation
Slide 38: Customer-led growth
John Crane Deep Dive Customer-led growth 38
Slide 39: Sook Won Moon, VP Sales and Aftermarket, John Crane
Sook Won Moon, VP Sales and Aftermarket, John Crane • John Crane - 26 years in multiple roles including: – VP Sales and Aftermarket – Global Director of Projects – Key account & Project manager across EMEA & AP • BSc Chemistry - ChungNam National University 39
Slide 40: Executive summary
Executive summary We operate in attractive growth markets Our customers demand and value engineering capability and product reliability – often in harsh operating environments We have a leading position in a technically advanced market We deliver for our global customers from first fit through to af
Slide 41: Providing mission-critical technologies and services
Providing mission-critical technologies and services Seal gas system What is a mechanical seal? • Highly engineered device combined with rotating and stationary parts, sealing gas or fluid in critical applications to prevent leakage • Embedded deep into a pump, agitator or compressor • Primary safet
Slide 42: Providing mission-critical technologies and services
Providing mission-critical technologies and services Why is it difficult to do? • Required to operate across a range of: - Speeds: up to 200 m/s - RPM: up to 50,000 - Temperatures: (195)0C to 3500C - Pressures: up to 450 bar(g) LNG mega-trains Pharmaceuticals & bio-chemicals Why is it important? • S
Slide 43: John Crane has a leading position in a technically advanced market
John Crane has a leading position in a technically advanced market Highly Customised • The global sealing market is sizeable with varying degrees of technical requirements Technical capability requirements Highly engineered • John Crane has a leading position seals for critical applications in the h
Slide 44: How we win
How we win Strong reputation and customer Our technical and service capability ranks us Customer recognition for thought and technology significantly ahead of our peers1 Commitment leadership, as well as reliability Product reliability and technology High Impact on Net Promoter Score (NPS) Technolog
Slide 45: Gaining market share in OE supports recurring aftermarket revenue stream
Gaining market share in OE supports recurring aftermarket revenue stream Original equipment Aftermarket service Design Repair and Feasibility F.E.E.D Bid Commission Spares Reliability management Upgrade and retrofit and build maintenance John Crane – engaged from beginning to end with multiple custo
Slide 46: Success in capturing original equipment sales secures 25+ years of aftermarket
Success in capturing original equipment sales secures 25+ years of aftermarket Original equipment purchasing criteria - why customers select John Crane • 100+ years of industry experience and reputation • Product technology leadership and in-field reliability • Engineering to order capability and hi
Slide 47: Long-term, recurring aftermarket and service revenue
Long-term, recurring aftermarket and service revenue Aftermarket purchasing criteria - why customers select John Crane • Service quality and responsiveness of support, underpinned by a network of 160+ service centres and industry-leading service engineers • Engineering capability and product reliabi
Slide 48: Closing remarks
Closing remarks We have attractive growth opportunities across all end markets Our distinct customer proposition delivers a sustainable, competitive advantage We support our customers’ reliability goals, increase plant safety and help them to reduce their carbon footprint Our aftermarket offer is “s
Slide 49: New energy solutions
John Crane Deep Dive New energy solutions 49
Slide 50: Frank Ma, VP New Energy Solutions, John Crane
Frank Ma, VP New Energy Solutions, John Crane • John Crane - 9 years across various roles including: – VP of New Energy Solutions – VP and GM of Filtration Solutions – Strategy and M&A Director • Previously held roles at Boston Consulting Group and General Electric Power Systems • MBA - London Busin
Slide 51: Executive summary
Executive summary Evolution of energy sources will happen – even if the pace of change is uncertain John Crane already active in both conventional and new energy, and is well-positioned in all energy transition scenarios Our existing portfolio helps our energy and industrial customers decarbonise ex
Slide 52: Evolution of energy to meet decarbonisation goals
Evolution of energy to meet decarbonisation goals Total cumulative energy Planned carbon emission Composition of energy supply1 investment from 20221 reductions by 2050 by technology $150tn 100% Efficiency CCUS Alternative fuels 37% 15 50% $100tn 9% 70% 8% 79% 50% 12 14% 37% 109 $50tn 63% 50% 7 68 3
Slide 53: Our energy transition solutions
Our energy transition solutions Energy & industrial decarbonisation Scaling high growth new energy markets LNG Energy LNG1 as GHG CCUS2 Hydrogen Bioenergy efficiency bridge fuel emissions & SAF3 Proven portfolio of solutions to support our customers’ energy transition journey New technologies and se
Slide 54: Improving our customers' energy efficiency
Improving our customers’ energy efficiency • Our end markets are spending ~$45bn p.a. on energy efficiency, which is expected to double to achieve net zero targets • Pumps, compressors and other rotating equipment accounts for 25-50% of our customer sites energy consumption • Today, we help our cust
Slide 55: Enabling LNG for energy security
Enabling LNG for energy security Servicing a major LNG facility to minimise • LNG is critical for energy security and as a downtime & enhance energy security bridge fuel to a low-carbon energy system - ~50% reduction in CO2 and ~80% reduction in nitrogen dioxide emissions vs. coal • Demand expected
Slide 56: Delivering significant reductions in GHG emissions
Delivering significant reductions in GHG emissions • Reducing GHG emissions offers an economical pathway to decarbonisation • GHG emissions leaks account for 3-4% of total gas production, translating to revenue loss of up to $30bn • Regulation is accelerating and prompting action from key O&G player
Slide 57: We are well positioned in CCUS
We are well positioned in CCUS Captured CO2 (Total market, million tonnes CO2 per year) • Market is here today across multiple energy producing regions c.6x • We have been active in CCUS for decades as a Operational 279 224 238 238 market leader with c.80% of CO2 injected Forecasted 191 153 undergro
Slide 58: Our solutions are critical to scale clean hydrogen ecosystem
Our solutions are critical to scale clean hydrogen ecosystem Forecast hydrogen supply Clean hydrogen Million tonnes of H2 per year Conventional hydrogen • John Crane has been serving customers in hydrogen applications 1 3 7 29 47 for over 40 years 13 22 28 • Clean hydrogen market is a small 95 94 93
Slide 59: New energy in action
New energy in action CCUS: Largest offshore CCS project in Hydrogen: Blue hydrogen flagship the world, based in Malaysia project in the Gulf Coast, USA Background John Crane solutions Background John Crane solutions • Largest offshore CCS • Providing 24 dry gas seals • Project is a $4.5 billion • Pr
Slide 60: Closing remarks
Closing remarks Energy transition is a $100 trillion megatrend that will drive growth in both decarbonising existing operations and scaling new markets We are a market leader with proven solutions helping our customers to decarbonise The breadth of our technical expertise and capabilities enables us
Slide 61: Optimising customer delivery
John Crane Deep Dive Optimising customer delivery 61
Slide 62: Rob Sharman, VP Customer Operations, John Crane
Rob Sharman, VP Customer Operations, John Crane • John Crane - 5 years across various roles including: – VP Customer Operations – Operations Director • Previously held roles at GKN Aerospace; UK Government, Department for Trade & Industry and Ministry of Defence • PhD Materials Science & Engineering
Slide 63: Executive summary
Executive summary We are executing well to meet strong and sustained demand Our technical expertise enables us to deliver our customers' requirements through an engineered to order process Our global footprint provides unparalleled agility, efficiency and customer intimacy Automation and digitisatio
Slide 64: Rapid scaling to meet strong and sustained demand
Rapid scaling to meet strong and sustained demand Optimising • Two years of double-digit order growth +15% organic supply chain to • Building in resilience with multi-source strategy • Lean management to support continuous improvement revenue growth deliver orderbook Refining • Reducing complexity t
Slide 65: Maximising our technical capabilities in an engineered to order process
Maximising our technical capabilities in an engineered to order process • Customers select John Crane for our ability to meet and customise their bespoke requirements • Our operational processes are deployed to be efficient and agile within this engineered-to-order process • Demonstrated ability to
Slide 66: Global footprint enables unparalleled customer intimacy
Global footprint enables unparalleled customer intimacy Global Capabilities Total locations ~200 Sales & Sales & Service Centre Service 163 Manufacturing Centre Centres R&D &/or Engineering Hubs Manufacturing 35 Centres Engineering • Local presence and capabilities enables rapid customer response 9
Slide 67: Manufacturing automation is improving operations
Manufacturing automation is improving operations Enquiry to order Order to manufacture Manufacture to delivery Entire value stream Drawing Bill of materials Programming Robotic 3-D printing Collaborative Warehouse automation automation automation machine loading assembly automation Lowers overhead c
Slide 68: SES is embedded in the way we work at John Crane
SES is embedded in the way we work at John Crane SES is deeply embedded Projects • Reducing inventory stocks • SES delivers results • Predictive AI to optimise scheduling • SES develops our talent • Delivering against record orderbook • SES advances our culture • Building in additional supply chain
Slide 69: SES is delivering results
SES is delivering results Case study: Single source supplier mitigation Opportunity Solution Results to date • Further supply • Embedded Black Belt • Supply back log chain resilience at specialist supplier more than halved to maximise their • Improve on-time output • Significant delivery improvement
Slide 70: Closing remarks
Closing remarks We are executing well to meet strong and sustained demand Our engineered-to-order strategy delivers to meet our customers highly technical requirements Our global presence provides agility to respond to customer needs Automation and digitisation are improving our operations through t