Smiths Group Plc · LSE:SMIN
Smiths — FY2023 Earnings Presentation
41 slides from Smiths's earnings presentation, Sep 26, 2023
Slide 1: Smiths Group Full Year Results FY2023
IMPROVING OUR WORLD THROUGH SMARTER ENGINEERING SMITHS GROUP PLC FULL YEAR RESULTS FY2023 26 SEPTEMBER 2023
Slide 2: Disclaimer
Disclaimer This presentation contains certain statements that are forward-looking statements. They appear in a number of places throughout this presentation and include statements regarding the intentions, beliefs and/or current expectations of Smiths Group plc (the “Company”) and its subsidiaries (
Slide 3: Agenda
Agenda Opening Remarks Paul Keel, Chief Executive Officer FY2023 Financial Results Clare Scherrer, Chief Financial Officer Strategic & Operational Update Paul Keel, Chief Executive Officer Q&A | 3 |
Slide 4: FY2023 – A record growth year
FY2023 – A record growth year Record organic revenue growth1 of +11.6%; reported growth of +18.3%; record EPS growth of +39.6% Nine consecutive quarters of organic revenue growth delivered Growth +20bps operating margin improvement to 16.5%; 150bps ROCE expansion; and year-on-year improvement in cas
Slide 5: Smiths Value Engine
Smiths Value Engine OUR PURPOSE OUR STRENGTHS OUR PRIORITIES World-Class Engineering Growth Leading Positions in Critical Markets PIONEERS OF Execution Global PROGRESS Capabilities Improving our world through smarter Robust Financial People engineering Framework | 5 |
Slide 6: Significant progress against all medium-term targets
Significant progress against all medium-term targets; well positioned for FY2024 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
Slide 7: FY2023 Financial Results
FY2023 Financial Results CLARE SCHERRER CHIEF FINANCIAL OFFICER
Slide 8: FY2023 – Growth in all key metrics
FY2023 – Growth in all key metrics Reported Organic FY20231 FY20221 change change Summary: ▪ Record revenue growth ahead of Smiths Group guidance, equally balanced between price and volume Revenue £3,037m £2,566m +18.3% +11.6% ▪ Strong operating profit growth and delivered on our guidance of Operati
Slide 9: Building a track record of consistent growth
Building a track record of consistent growth Organic revenue 9 consecutive quarters of growth growth 13.2% 13.6% 13.4% 5.8% 5.7% 6.7% Medium Covid-19 5.0% -term target: 1.0% 2.9% 4-6% (2.2%) (4.6%) (7.1%) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY21 FY22 FY23 | 9 |
Slide 10: Delivering moderate operating margin improvement as guided
Delivering moderate operating margin improvement as guided Summary: Operating ▪ Margin expansion +10bps (100)bps margin (%) +40bps - Scale economies from +40bps increased volume - High-value model capturing +40bps price in excess of input (100)bps inflation +90bps - Impact from SES - Savings project
Slide 11: Record EPS growth
Record EPS growth Earnings per share EPS growth +39.6% | 11 |
Slide 12: Improving cash conversion
Improving cash conversion ▪ 86% FY23 cash conversion, up from 80% in FY22 FY23 FY22 FY22 to FY23 - Operating Cash Conversion Actuals Summary: ▪ Working capital initiatives resulted (OCC) in a £17m inflow in H2 £m £m ▪ 86% FY23 cash ▪ Targeted plans and SES projects1%reducing 86% inventory Operating
Slide 13: Business Update
JOHN CRANE SMITHS DETECTION Business Update FLEX-TEK SMITHS INTERCONNECT
Slide 14: John Crane – record organic revenue and operating profit growth
John Crane – record organic revenue and operating profit growth Revenue Operating profit Business update £1,079m +15.2% 1 £244m +25.2% 1 ▪ Continued strong demand with orders up +15% ▪ Increasing demand for energy security, Operating margin efficiency and emissions reduction Strong growth across all
Slide 15: Smiths Detection – strong original equipment led growth
Smiths Detection – strong original equipment (OE) led growth Revenue Operating profit Business update £803m +16.4% 1 £90m +15.4% 1 ▪ FY23 orders up +6% supporting growth for FY24 and beyond ▪ OE aviation wins globally across the year Growth across all segments throughout Operating margin ▪ Strong gr
Slide 16: Flex-Tek – continued growth within softer market
Flex-Tek – continued growth within softer market Revenue Operating profit Business update £768m +10.1% 1 £149m +3.4% 1 ▪ Growth in FY23 despite expected slowdown in construction market ▪ Continued aerospace expansion supported Strong growth across both segments: Operating margin by strong order book
Slide 17: Smiths Interconnect – solid performance amidst challenging markets
Smiths Interconnect – solid performance amidst challenging market conditions Revenue Operating profit Business update £387m (2.8)% 1 £62m (11.9)% 1 ▪ Targeted new product pipeline including next generation radio frequency components and transceivers Growth in industrial partly offset declines Operat
Slide 18: Capital allocation
Capital allocation ▪ Strong balance sheet - net debt to EBITDA of 0.7x as at 31 July 2023; net debt £387m ▪ £350m returned to shareholders in FY2023: £143m in dividends and £207m in share buyback ▪ €600m bond repaid in April 2023; strong liquidity with $800m RCF refinanced until May 2028 Organic ▪ £
Slide 19: FY2024 outlook expects revenue growth in medium-term target range
FY2024 outlook expects revenue growth in medium-term target range Tailwinds ▪ Strong order books in John Crane and Smiths Detection ▪ New product launches driving growth ▪ SES gaining momentum with further benefits next year FY24 organic revenue ▪ Energised organisation executing at a faster pace gr
Slide 20: CEO Review
CEO Review PAUL KEEL CHIEF EXECUTIVE OFFICER
Slide 21: Our priorities
Our priorities Growth Execution People | 21 |
Slide 22: Growth – well positioned in attractive markets
Growth – well positioned in attractive markets Market Smiths % of Group Growth Growth Market update FY20231 FY2023 + Strong demand across John Crane portfolio General 40% +3.8% +7.8% + Fourteen consecutive years of growth in Flex-Tek’s HVAC business Industrial - Slowing in US construction market in
Slide 23: Growth – Innovation focused on megatrends and adjacencies
Growth – Innovation focused on megatrends and adjacencies Energy Supporting the move to low carbon fuels and Sustainability Consistent focus on delivering solutions to transition reducing our customers’ emissions improve our customers’ energy efficiency Examples: Examples: ▪ Won tender for one of th
Slide 24: Growth - Acquisition of Heating & Cooling Products
Growth - Acquisition of Heating & Cooling Products ▪ HCP manufactures HVAC solutions in North America concentrated in the Midwest ▪ Attractive acquisition price at $82m (c.£65m) in August 2023, <7x estimated 2023 EBITDA ▪ HCP being integrated into Flex-Tek: - broadens product range to include HCP’s
Slide 25: Execution - SES is now the way we work at Smiths
Execution - SES is now the way we work at Smiths Smiths Excellence System SES operating profit contribution (£m) ▪ SES delivers results +43% ▪ SES develops our talent ▪ SES advances our culture Programme launch £20m £12m £14m FY23 expected FY23 actual FY24 expected | 25 |
Slide 26: Execution – SES in action
Execution – SES in action Case study video: Flex-Tek aircraft tubing systems manufacturing capacity Opportunity Solution Results to date ▪ Improve on-time ▪ Site optimisation ▪ Manufacturing delivery and improving assembly lead times halved, reduce lead times line efficiency significantly improving
Slide 27: People – inspiring and empowering our people
People – inspiring and empowering our people ▪ Maintained top quartile industry performance with Group Recordable Safety – Incident Rate (RIR) down 26% to 0.41 committed to world class ▪ Lost-Time Incident Rate (LTIR) at record lows safety record ▪ 80% reduction in incidents at Royal Metal Developme
Slide 28: Progress advancing our sustainability strategy
Progress advancing our sustainability strategy Growth ▪ Commercialising high-value green technology - Supporting numerous hydrogen and CCS customer projects around the world - Supplying high-performance electric heating elements for customer decarbonisation projects - Continue to increase investment
Slide 29: Significant sustainability progress
Significant sustainability progress UN Sustainable Linked to FY2022 FY2023 Development remuneration Goals (SDGs) Absolute Scope 1 & 2 GHG emissions reductions 1% reduction 12% reduction ✔ Energy efficiency1 n/a 8% improvement ✔ Proportion of electricity from 63% 70% renewable sources Non-recyclable
Slide 30: Sustainability at Smiths in action
Sustainability at Smiths in action Component recycling in Malaysia solar installation Turn-it-Off campaign Smiths Detection ▪ Component repair and reuse - including use ▪ £400k invested to install c.2k panels ▪ Group-wide campaign to reduce site energy of refurbished parts as standard. In FY23, expe
Slide 31: Strong performance in FY2023, good momentum into FY2024
Strong performance in FY2023, good momentum into FY2024 Record growth in FY2023 Well positioned for FY2024 Record full year organic revenue growth of Revenue growth within our 4-6% medium- +11.6% and record EPS growth of +39.6% term target range Growth Year-over-year improvement against all Continue
Slide 32: Questions & Answers
~> Questions & Answers
Slide 33: Appendix
—> Appendix
Slide 34: Bridge – reported to organic
Bridge – reported to organic £m - Smiths Group1 FY2022 Headline2 Foreign exchange FY2022 Organic3 Organic movement3 Acquisitions FY2023 Headline2 John Crane 901 36 937 142 1,079 Smiths Detection 655 34 689 114 803 Flex-Tek 647 50 697 71 768 Smiths Interconnect 363 26 389 (10) 8 387 Headline revenue
Slide 35: Income statement
Income statement1 £m FY2023 FY2022 Reported change Revenue 3,037 2,566 +18.3% Headline2 operating profit 501 417 +20.0% Amortisation of acquisition related intangible assets (52) (51) Legacy pension scheme arrangements 1 (214) Non-headline litigation provision movements (2) (9) Restructuring costs (
Slide 36: FX sensitivity
FX sensitivity FY2023 FY2022 Currency % change average rate average rate - For each $0.10 move, the annual USD 1.21 1.32 8.3% operating profit impact is c.£23m EUR 1.15 1.18 2.5% - For each €0.10 move, the annual Translation impact FY2023 operating profit impact is c.£7m Revenue +£146m or +5.7% Oper
Slide 37: Net debt movement
Net debt movement Net debt movement (£m) | 37 |
Slide 38: John Crane – Improving our world through innovative technologies
John Crane – Improving our world through innovative technologies, services and energy transition solutions FY Revenue COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE £1,079m (36% of Group) - Strong and differentiated proprietary - Near-term global demand for stable energy supply - Competi
Slide 39: Smiths Detection – Making our world safer through smarter engineering
Smiths Detection – Making our world safer through smarter engineering FY Revenue COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE £803m (26% of Group) - Global reach and market-leading brand - Persistent and evolving threats to national security, - Competitors range from FY Headline Operat
Slide 40: Flex-Tek – safer and more efficient fluid and gas management
Flex-Tek – Improving our world through safer and more efficient fluid and gas management FY Revenue COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE £768m (25% of Group) - Leading capability in design, - Through-cycle growth of the US housing - Competitors range from FY Headline Operating
Slide 41: Smiths Interconnect – smarter Interconnect solutions
Smiths Interconnect - Improving our world through smarter Interconnect solutions FY Revenue COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE £387m (13% of Group) - Broad portfolio of cutting-edge - Increased demand for faster data transmission, - Competitors range from FY Headline Operatin