Smiths Group Plc · LSE:SMIN
Smiths — Investor Day (November 2022)
23 slides from Smiths's investor day presentation, November 2022
Slide 1: Financial Progress
Financial Progress Chief Financial Officer Clare Scherrer
Slide 2: Top investor questions
Top investor questions • What attracted you to Smiths and what are your early impressions? • How is FY23 going so far? • Do you remain confident in the FY23 guidance? • What is management’s view on cash conversion, and in particular working capital? • What are the Group’s capital allocation prioriti
Slide 3: Top investor questions
Top investor questions • What attracted you to Smiths and what are your early impressions? • How is FY23 going so far? • Do you remain confident in the FY23 guidance? • What is management’s view on cash conversion, and in particular working capital? • What are the Group’s capital allocation prioriti
Slide 4: A great opportunity in a great company
A great opportunity in a great company Market leading businesses with Growth A unique opportunity significant potential and strong growth levers Focused structure and clear Execution At an exciting time priorities already helping to unlock that potential Bringing my experience of a fast People As pa
Slide 5: Significant value creation potential
Significant value creation potential EV / Next 12 months EBIT Key financial metrics ~18x Top Smiths medium- quartile term targets Top ~15x quartile US mid-cap engineering peers ~14.5x Sales growth1 ~5.5% 4-6% EBIT margin2 >20% 18-20% ~12x ~12x Cash conversion3 >100% 100%+ Median UK engineering peers
Slide 6: Top investor questions
Top investor questions • What attracted you to Smiths and what are your early impressions? • How is FY23 going so far? • Do you remain confident in the FY23 guidance? • What is management’s view on cash conversion, and in particular working capital? • What are the Group’s capital allocation prioriti
Slide 7: Q1'23 – a very strong start to the year
Q1’23 – a very strong start to the year Organic revenue growth (%) • Q1’23: +13.2% organic revenue growth, our 6 consecutive quarters of growth sixth consecutive quarter of growth • John Crane posted steady growth and 13.2% demand remains strong • Smiths Detection benefitted from a strong Q1 orderbo
Slide 8: Strong balance sheet provides security and flexibility
Strong balance sheet provides security and flexibility Net debt : EBITDA1 £107m share buyback in Q1 • Share buyback now 83% complete with £617m returned Proforma leverage • FY22 proforma net debt:EBITDA of 0.8x adjusts for the completion of the 1.9x full £742m share buyback expected to 1.8x 1.6x com
Slide 9: Top investor questions
Top investor questions • What attracted you to Smiths and what are your early impressions? • How is FY23 going so far? • Do you remain confident in the FY23 guidance? • What is management’s view on cash conversion, and in particular working capital? • What are the Group’s capital allocation prioriti
Slide 10: Capitalising on opportunities and navigating headwinds
Capitalising on opportunities and navigating headwinds Tailwinds Headwinds - Strong demand reflected in record orderbook - Supply chain disruption currently expected to continue - Targeted actions to simplify end to end value chain throughout FY23 - Methane remediation and energy transition underpin
Slide 11: Maintaining FY23 guidance
Maintaining FY23 guidance Tailwinds • Clear strategy with better focused execution priorities • Strong order books • Pricing power across most of the portfolio (and improve in weaker markets through technology diversification) Expect to deliver • High impact new product launches 4.0-4.5% organic • S
Slide 12: Top investor questions
Top investor questions • What attracted you to Smiths and what are your early impressions? • How is FY23 going so far? • Do you remain confident in the FY23 guidance? • What is management’s view on cash conversion, and in particular working capital? • What are the Group’s capital allocation prioriti
Slide 13: Strong operating cash conversion
Strong operating cash conversion Average operating cash conversion: 100% Current working Return to 100%+ operating capital status cash conversion over time Receivable as we: Payables 129% Inventory • Manage inventory levels as supply chains stabilise 112% through FY23/FY24 104% 100%+ • Continue to m
Slide 14: Managing growth and supply chain whilst maintaining inventory discipline
Managing growth and supply chain whilst maintaining inventory discipline FY22 inventory composition FY23 action plan Raw materials WIP Finished goods Examples of SES projects • Improved demand and capacity planning John Crane John Crane • Continued reduction of single source supply Smiths Smiths • I
Slide 15: Continued active management of free cashflow
Continued active management of free cashflow 5 yr average operating 5 yr average free cash conversion1:100% cashflow conversion1:46% LTIP Target: 45-55% of operating profit Repaid $400m Reduction in bond in Feb effective tax 22; upcoming rate to 27.6% €600m bond No material in FY22 (FY21: FY23 forec
Slide 16: Top investor questions
Top investor questions • What attracted you to Smiths and what are your early impressions? • How is FY23 going so far? • Do you remain confident in the FY23 guidance? • What is management’s view on cash conversion, and in particular working capital? • What are the Group’s capital allocation prioriti
Slide 17: Capital allocation priorities: driving growth and shareholder returns
Capital allocation priorities: driving growth and shareholder returns 1000 Cash spend (£m) Organic investment: £661m Priority Share R&D, sales & Capital 1 marketing and capex returned to buyback 800 shareholders Dividends 600 M&A Priority 2 M&A: acquisitions Capex 400 Sales and Marketing Capital ret
Slide 18: Priority 1: Organic investment
Priority 1: Organic investment R&D investment (% sales) Representative R&D projects Average: 4.2%: Top quartile 4.5% 4.7% Enhanced CarbonLF Gas seal recovery 4.1% 4.2% seals for LNG system for methane 3.9% Customer funded Capitalised Expensed High volume air cargo Next-gen chemical screening detecti
Slide 19: Priority 1: Organic investment
Priority 1: Organic investment Capital expenditure (% sales) Representative capex projects Average: 2.6% Asset light Investment in CNC capabilities and in quality management 2.8% systems 2.5% 2.7% 2.6% 2.6% R&D Investment in chem- bio technologies facilities FY18 FY19 FY20 FY21 FY22 New duct plant i
Slide 20: Priority 2: Targeted M&A
Priority 2: Targeted M&A Accelerate organic strategy Cultivate an attractive M&A pipeline • Focus on our core and adjacencies Cross–divisional/transformational through bolt-ons and selective Adjacencies larger strategic opportunities Targets • Strengthen market/ geographical Core positions ADT Royal
Slide 21: Priority 2: Targeted M&A – Disciplined vetting
Priority 2: Targeted M&A Average # of opportunities Disciplined approach Structured process reviewed per year1 • All division generate opportunities aligned to the ~100 strategy Ideas considered Disciplined vetting • Group expertise supports prioritisation, review and progression of opportunities In
Slide 22: Priority 3: Capital returns to shareholders
Priority 3: Capital returns to shareholders Progressive dividend • Target to increase dividends in line with long-term growth in earnings • While maintaining dividend cover of at least two times • FY22 dividend yield of 2.6%, attractive relative to peers • 70 years of uninterrupted dividend Surplus
Slide 23: Well positioned for the near and longer term
Well positioned for the near and longer term FY2023 Medium-term Organic Maintain guidance of 4-4.5% organic Strong positions in attractive markets revenue supports medium-term target of 4-6% growth, with a very strong start in Q1 growth Operating Moderate margin improvement in FY23 as SES delivering