Smiths Group (LSE:SMIN) — Introduction

0:00 Good afternoon, and welcome to The SMITHS Group PLC Introduction Presentation. Company The may not be in a position to answer every question received during the meeting itself, but the company can review all questions submitted today and publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to the SMITHS Group PLC team. Good afternoon.

0:27 Good afternoon. Thanks very much, Paul, and thanks, everyone, for your time joining us today. My name is Steph Heathers. I'm Head of Investor Relations, and I'm joined by Anna Pitta, who's our Senior IR Manager. Today, I want to take you through an introduction to SMITHS, including an update on our strategy and also our recent performance having announced our Q3 trading update earlier this week. Just for those who may not be aware of financial year end is the July 31. So when we're talking about financial year, that's what we're talking about. Slightly unusual, I know, but it takes a while to get your head around. We'll then have plenty of time for Q and A at the end. So please, as Paul says, submit your questions and we'll be happy to answer those. So SMITHS GROUP today is a GBP 7,000,000,000 market cap engineering business.

1:17 We solve our customers' problems every day with our products. You will find SMITHS products across a range of settings. We are in over a third of energy products globally. We're in over 50% of US homes. We are in over 90% of the world's largest airports, and we are in a quart sorry, three quarters of satellites launched in The US and Europe. Last year, we generated over 3,000,000,000 in revenue and over £05,000,000,000 in profit. We're a truly global company with over 15,000 employees across the globe. SMITHS has a long and valued history. It's been around since 1851 in some form or another, and it's been listed on the 5,100 for over a hundred years.

2:04 Today, SMITHS operates through four businesses, and I'll take you through each of these now, starting with our largest, John Crane. Crane accounts for roughly a third of revenues and 50% of profits for the group. John Crane provides highly engineered seals and sealing solutions to energy and industrial customers. Typically, you'll find us in refineries or industrial processing plants such as water treatment plants or chemical processing. This advanced technology that's used in these seals allows the seals to operate at extreme temperatures, speeds and pressures and in harsh environments. The seals are critical to our customers. Failure of the seals will result in closure of the facilities, which can cost millions of pounds a day for our customers.

2:53 So John Crane, over time, has built a strong reputation for reliability and quality that is really valued by customers. They also have an unrivaled global service network, which allows us to be really responsive to our customers' needs and requirements. The business model for John Crane is such that for every seal that is installed, follows up to twenty five years of aftermarket servicing revenue. This is highly attractive as the margin on these aftermarket contracts can be as much as 1.75 times that of OE. And today, aftermarket revenues represent about 70% of the business. So that's John Crane. Moving on to FlexTech, which represents about a quarter of group revenues and roughly a third of group profit.

3:39 FlexTech provides flexible ducting and tubing as well as heat kits into a range of settings, homes, aircraft, as well as industrial facilities. Roughly 60% of the business services The US construction market, where our heat kits and our tubing goes into HVAC systems in typically new homes across The US. Roughly 20% of the business is industrial heating, and this includes our new product of electric heating systems, which is now being implemented into the production of green steel. Lastly, 20% of the business is aerospace, and this is where we provide flexible and rigid tubing, which goes into the aircraft bodies.

4:28 Flex Tech's strong customer relationships, U. Presence and innovative products which allow easy installation compared to some of our competitors positions it well and a leading position across across its markets. Next to detection, which accounts for roughly a quarter of group revenues. So detection is probably our best known business in terms of its products, and it provides detection technology screening predominantly in airports, but also across other settings, including ports and borders and urban security such as courthouses or stadiums. It also has an exposure to the defense market where it provides chemical detectors which are used in the field. As I said, predominantly, the main product that we sell is into aviation, which represents about 70% of revenues. And if you've traveled recently, hopefully, you've come across our product, which means you don't need take your liquids and laptops out of your bags and going through security, which I think we can all agree is a bit of a game changer.

5:32 SMITHS detection had the leading market position within the aviation markets due to the innovative products products that it has as well as the high barriers to entry and the highly regulated nature of the market.

5:48 As with Crane, FlexTech sorry, Detection operates under the same model with the OE securing aftermarket, which typically lasts up to ten years in the case of detection. And roughly half of their business today is aftermarket servicing. And that, similar to Crane has a much higher margin, roughly two to 2.5 times that of the OE. So again, very attractive from a margin perspective. And then finally, interconnect, which accounts for just over 10% of group revenues. So Interconnect designs and manufactures highly differentiated connectivity solutions. For example, it provides electronic components, integrated component assemblies, radio frequency products, and also semiconductor test beds.

6:35 Interconnect services, the aerospace and defense market, which accounts for roughly half of their revenues, with the other half going into general industrial applications. Their products are highly customized. They need to be durable yet lightweight and powerful. Interconnect has a reputation for quality and reliability and provides best in class engineering and technology. So these are the four businesses we operate through today. And as you can see, they've all got similar characteristics around world class engineering, global capabilities, mark leading market positions in which they operate, and a robust financial framework.

7:15 So these strengths have translated into a strong financial performance over the past five years. As you can see here, SMITHS has started to build a track record of consistent organic revenue growth, increasing return on capital employed, improvement in margin, all while maintaining strong cash conversion. The targets you can see here was set in FY 2021. And as you can see, with the exception of margin, we are already in or above those targets. So moving on to today, and we have recently released announced in January our strategic actions.

8:00 Against the strong financial performance that I've just showed you, SMITHS is now on the next phase of its journey. Despite the strong financial position, financial performance, SMITHS today still trades at a discount to its peers. To unlock the value that we know is inherent in these businesses, in January, we announced a number of strategic actions. The first of these was to focus the business, which we talk now about FuturesMITHS, on our John Crane and Flex Tech businesses. These businesses are focused on efficient flow and heat management, and as I demonstrated two slides ago, have strong market positions. We will separate SMITHS Interconnect and SMITHS detection.

8:46 The timetable for the separations is such that SMITHS Interconnect, we will announce sale by the end of the calendar year this year, with a separation of detection to follow by way of either a UK demerger or a sale. As part of the strategic actions, we also extended the share buyback to GBP 500,000,000, of which we've currently already completed GBP $260,000,000. This is on top of the dividend that we increased 5% in the first half. In addition, we're also committed to returning a large proportion of sales proceeds from the divestments to our shareholders. With that, I'll hand over to Anna to talk us through the strategic actions in more detail. Thanks, Steph. As Steph said, we will unlock significant value by focusing and importantly growing future SMITHS, and that would be through expansion into higher growth geographic and product adjacencies, through better pricing and through further differentiating ourselves and our products to gain further competitive advantages.

9:54 In terms of the high level financial profile of Future Smiths as of full year '24, Future Smiths revenue was £1,900,000,000 with 59% coming from John Crane, and operating margin was 19.5%. It is exposed to three attractive and growing markets that is general industrial by 54%, energy 38% and aerospace 8% at revenue level. We will also separate SMITHS Detection and SMITHS Interconnect from a position of strength. Both businesses have been showing really strong financial performance, and this was one of the board's preconditions for the launch of the strategic actions announced in January.

10:48 Both processes are currently underway. We have established a board oversight committee and an executive committee steering committee, and we've obviously been engaging with our people internally. On interconnect, we've committed to announce by the end of the current calendar year in 2025, and the process is underway. And you although we cannot say much on where we are in the process, there's been an FDA article in the last few weeks reporting essentially where we are. Just to anticipate or maybe question later on, is inappropriate for us to talk about valuation and all we can say is that the number reported in that article is within a very wide range of sales out forecasts.

11:41 These then will be followed by a UK demerger or a sale of SMITHS detection. And we often get asked why the timing and this is for three main reasons. One is we're cognizant that the buyer universe for detection is smaller than that of Interconnect, given detection's leading position in the market and its exposure to defense market, which means that we will face something competitive and regulatory clearances. Secondly, if we were to do a demerger, this would have to be done off a fresh start of books. And as Steph mentioned, we have a July year end, so we normally report our half year results in March and our full year results in September.

12:34 And lastly, we expect Detection to be continuing to expand its operating margins, which hopefully will help with evaluation too. We are running a dual track either way for detection in order to assess the which option provides the maximum value for our shareholders.

13:01 The decision to focus on John Crane and Flexstack is compelling. They have complementary business models and financial profile, offering significant potential for growth and value creation. They operate in attractive markets playing into the megatrends of energy efficiency, electrification and aerospace with growth expectations ranging from 3% to 6% over the next four years and with us expecting to perform better than the market. They have high levels of recurring revenues. So as Steph mentioned earlier, John Crane revenues, over 70 percent of those are aftermarket services and in Flexstack, over 90% of revenues come from repeat business.

13:53 And then finally, they have expansion opportunities both from an organic and inorganic perspective. And these are likely to be in the way of geographic expansion, that's more likely to be the case in flex tech construction, and I'll talk about it in a bit, or technology or also in services within John Crane, for example. As you can see in this slide, FuturesMIS has a superior financial profile with a stronger track record of organic revenue growth, higher margins and most notably returns as well as good cash conversion.

14:42 Based on this strong financial profile and considering further opportunities for growth and improved profitability, we have now issued a new set of medium term financial targets that are through cycle and due to start from full year 2027, accepting that full year '26 will be a transition year given the separation of interconnect and detection. We have upgraded four and

15:13 one half left unchanged. So organic revenue growth now is expected to be 5% to 7%. Our current is 4% to six EPS growth above 10%, current is EUR 7,000,000 to 10,000,000 operating margin at EUR 21,000,000 to EUR 23,000,000. And as a reminder, our full year 2024 for Futuresmiths, a fully loaded central cost was 19.5%, and this is an upgrade of the target from 2018% to 20%. This is underpinned by operating leverage, so we expect to grow and grow faster, efficiency improvements under an acceleration plan that we currently have in place and then right size central cost functions, which we expect to be 1.5 to 1.7% of sales.

16:17 In terms of return on capital employed, our target of over 20% is really a floor, and then operating cash conversion at around 100% is unchanged. We view these targets as ambitious but achievable. And we think the execution of these strategic decisions and the delivery of these targets will deliver a premium rating for future SMITHS. Finally, our approach to capital allocation remains disciplined with enhanced shareholder returns. We will continue to invest for organic growth. In full year 2024, we invested GBP 181,000,000 in CapEx and R and D, and we have said that in the current financial year, we will spend around GBP 100,000,000 in CapEx.

17:12 The majority of the increase year on year is related to an upgrade in capacity and automation in John Crane. And we said also that we expect R and D spend to be three to 4% of sales on a run rate basis. We will continue our bolt on m and a strategy by making value creative acquisitions, most likely in Flexstack. So as an example, in the last few months or year to date, we've made three acquisitions, two of them in the construction business, modular metal fabricators and duct pack, and then one in industrial heat process which is called Wotco.

18:02 The valuations have been attractive, broadly eight to seven times, and this is the type of acquisitions that we want to continue doing. The pipeline is more active in Flexstack than in John Crane and this is due to the fact that Flexstack market is quite fragmented and we are the consolidator there. So also we have said that in the short term, we're ruling out large scale acquisitions. Then we will continue our enhanced shareholder returns. As Steph talked about our buyback program in the last three years, we've delivered around £900,000,000 in in share buybacks, and we've got the three well, 350,000,000.

18:59 It was this was as of end of March. So now we've got less than that, 240,000,000 to execute by the end of the calendar year.

19:09 And then we also said that we will commit a large portion of the sale proceeds to shareholder returns. And this is in support of also the progressive dividend policy that we have, which has been really uninterrupted in the last seventy years and that has grown around 5% year on year, including our last interim dividend. And apologies, I should go back to the buyback because the reason why we haven't given the exact this exact allocation of how much prices we are going to to to return to shareholders goes down to three three reasons. One is is yet to be seen what the actual prices from the sales are going to be.

20:09 Then we will have a new leverage ceiling. So currently, we have a very strong balance sheet of 0.5 times net debt to EBITDA. Our current leverage ceiling is around two times, so there's a lot of headroom, but we expect that ceiling to go down slightly given the we will be a slightly smaller company and also a little bit less diversified and also taking into account the M and A pipeline that we have to deliver further growth. So with that, I'll hand over back to Steph to go through the latest financial performance. Thanks, Anna. So let's take a look at the recent performance. So we announced our half year results, which was to the six months, the end of January, back in March. And as I said, we announced our Q3 trading update earlier this week, which was for the nine months to the end of April.

21:03 So firstly, John Crane. So in the first half, they delivered good growth of 3.8%. They were impacted by a cyber incident that was an impact across the group, but Crane had the largest impact in the half. And so that cyber incident happened in January with all system critical systems back up and running in Q3. But in the half, that had about a one to two percentage points impact on growth to Crane. Nevertheless, operating margin for the half remained strong at 22.9%. In Q3, they delivered marginal growth, which was an improvement on Q2, but it was constrained to some extent by the impact of the cyber incident.

21:47 However, we expect the second half growth to be broadly aligned with that of the first half. The demand in Crane remains healthy and they have a strong order book and good momentum going into Q4. Moving on to Flex Tech. H1, they grew 2.5% with good growth in the aerospace business and also modest growth within construction, which was a good performance given the market backdrop in U. S. Construction.

22:12 Margins were high at 19.8%. Although down year on year, this was primarily reflecting an impact on mix from the prior year. In Q3, they delivered high single digits, a great performance given The US construction market is still rather subdued. In SMITHS detection, they had a very strong first half, delivering 15.3% organic revenue growth, and this continued into Q3. This strong growth is driven by the rollout of the Ctix machines, which are the machines I referred to earlier where you don't have to take your liquids and laptops out of the bag. We're roughly halfway through that rollout with two or three years left to run. We also saw good margin improvement in the first half in Detection.

23:01 Finally, SMITHS interconnect, they had a very strong first half and delivered low double digit growth organic revenue growth into Q3. Operating leverage can be seen here with the margin improvement of over 500 basis points in the first half, delivering 17% margin. Overall, at the group level, year to date, we've had organic revenue growth of 9.6%. And in the first half, operating profit grew 12.6% with a margin of 16.7%. Moving to the full year outlook. We have already raised guidance twice this fiscal year. And on Tuesday, we guided to the upper end of the organic revenue growth range of 6% to 8% for the year, with margin expansion expected between 40 to 60 basis points.

23:49 This reflects a strong order book that we have across the group. It reflects continued demand strong demand in our end markets and also the innovative nature of our products. That said, there remains some macro uncertainty and the impact of tariffs, whilst we are mostly local for local, does require mitigation actions in certain places to limit the impacts from results.

24:17 And on operating cash, we've guided to low 90s percent. As Anna said, we are investing particularly in crane and automation capacity expansion, which is why we're guiding to low nineties versus our target of roughly a 100%. So in summary, it's a very interesting time to SMITHS with compelling value creation strategy to be executed. Performance across the business continues to be strong. For John Crane and Flexstack, their track record and strong financial returns makes for an attractive future Smith's equity story. And for SMITHS Interconnect and Smith's detection, their performance positions them well for the separation process.

24:59 Margin improvement will be delivered through the strategic actions, through the acceleration plan and through the rightsizing of the central costs. We have and will continue to have a strong capital allocation framework with organic investment first, supplemented by bolt on m and a and increasing returns to shareholders.

25:24 Through the strategic action and delivery of the new medium term financial targets, this will position SMITHS as a premium rated company. Thank you for the time, and we will now turn to questions. Right. Should I write yeah. You can do that. So, Steph, with strong order books, typically, how much visibility do you have over future revenues? This is a great question, and it's it's not the same across all of the other businesses. So I'll take them each in turn. So John Crane, typically, the OE visibility, it takes lead times is about nine months. Aftermarket is shorter, so typically three to six months in the aftermarket. So we do have relatively good visibility here.

26:16 In in FlexTech, it's much more shorter cycle. Aerospace, which is the 20% that I referred to, that is longer term. So it's obviously linked to aircraft builds. And so we have incredibly good long visibility over the order book there. On the construction side, it's much shorter. We typically the order orders kind of come in and go out within the month, so much harder to see. The lead indicators we look at in Flex Tech are builders' confidence and new housing permits and new housing starts, which is publicly available information. It's released every month. So we have good market data to see the drivers, but it's relatively short cycle. From a detection perspective, the orders that we get typically multi year.

27:03 So again, really good visibility both within year and beyond.

27:07 And with interconnect, it's a bit of a mixture. Some of it's programmatic, so things like the transceivers that go on on satellites, that's more longer term. Some of the semi test conduct testing is is more short cycle. So a bit of a mixed bag, but overall, I'd say we have relatively good visibility in in the short term.

27:28 There are a couple of questions around tariffs. So one is around how we out our local for local model and how we're differentiated. And also following on from that is in terms of the acceleration of if we see an acceleration of M and As and following the separation processes and how do tariffs influence that? Okay. I'll take the first one and then Luca take the second.

28:02 So our local for local model. So as we said in our q three release, we've obviously got a lot of questions about this since April. Roughly 45% of our sales today is in The USA, and the the majority of those products that are sold in The US are produced in The US. So it's very typically, we manufacture where we sell. The I the vast majority of The US, those products are produced in country, but we do have some some instances where we are importing across across the border, like most companies today. But we're able to use make use of mitigations. So a lot of our products, due to the nature of them, are apply for exemptions to those tariffs.

28:53 And we also have good pricing power. So we are able to either kind of price in the increasing in our input costs to the customers or add surcharges in certain cases. So although we're not immune, our local for local business model really, really helps us in this situation at tariff. So the guidance that we've given, the 6% to 8% organic revenue growth, of which we're guiding to the upper end of the range and the margin guidance hasn't changed even with the tariffs in place. So hopefully, that demonstrates the relatively low impact that we're expecting on tariffs on our business. Yes. So and so in that context of being having limited exposure to tariffs and given the fact that we will have substantial amount of cash from potential processes, then the M and A pipeline will be considered in that context, notwithstanding the fact that both John Crane and Flexstack are have very good cash generation, and therefore, that shouldn't really impact our M and A strategy.

30:12 We will continue, though, to be disciplined and being very good allocators of capital to improve returns. And,

30:22 like, the examples of of the last few deals are these sort of things that you would expect to see from us, margin accretive, good valuations, although we can't promise we will do everything at eight times. And and yeah. So just like a good guardian of of of of capital really. There was one about the strong organic revenue growth of both 10%, how does that split between volume and price and that relates mainly to Q3? Yes. So yes, so year to date, we've delivered 9.6. And currently, we're seeing about just under a third of that being price. Again, it does vary between divisions.

31:13 But typically, given the nature of our products, which are kind of highly engineered, customized and highly valued by our customers, we do generally have quite a lot of pricing power. The one thing I would call out in detection in particular with airports, typically,

31:34 there are relatively few players in the market that are able to provide the products that our customers require. But often that pricing power is limited given the power of the customers the customer base. So that's probably where we have the weakest pricing power. On the flip side of that, John Crane, again, it's there's ready to be few players in the market that are able to deliver the products that are required

32:04 to meet the demands of our customers. And therefore, they have relatively high pricing power. But overall, I'd say, as said, it's roughly sort of a third pricing. Okay.

32:19 Since you just finished on John Crane, there is question on John Crane's sire incident and whether we've we are with it's a rearview mirror.

32:33 And the answer is yes. So trough for us was really Q2. We've seen sequential improvement quarter on quarter, and we expect the fourth quarter to continue improvement on that. So and the reason why the impact has been longer than expected is is down to a few reasons, really. One, John Crane was most impacted because he had the most advanced systems, which shut down the fastest, and it it was the harder to to access following the cyber incident. And a lot of the products that we produce in John Crane are customized, and therefore, we required of drawings to be able to to customize those products for our customers.

33:31 And so we were not able for a number of weeks to access those drawings. At the same time, as we've said, we are undergoing a program of upgrading our automation and capacity equipment. And so what that means is that our ability to execute on orders has not been what it normally is and therefore we have a very, very strong order book,

34:01 but that hasn't really materialized into that much revenue. However, we are very confident in the growth of the market. We think the market is healthy. We have a strong order book. And as a matter of fact, in the third quarter, we saw growth in OE, in energy and in industrial. With the separation of the two businesses, what actions are you taking to rightsize group cost? And are there any risks of stranded costs? So in terms of the central cost, as we said, we've put out a target of 1.5% to 1.7% of revenues as being our central cost, which is where we are today, which is pretty low compared to some of our peers.

34:59 So that's where we're aiming to get to. In terms of of central costs, management are committed to having a business model that has center light that is center light and really giving power to to John Crane and Flex Tech to be able to run their businesses with support from the center really around focusing around some of the the functions such as M and A or obviously the cost of running a public company. There is a plan, obviously, to deliver to right size that cost. As Anna said, FY 2026 will be a transition year while we close out the separations. In terms of stranded costs, again, obviously, with these things, there are there is a journey to go on, and there will be costs that we need to manage.

35:52 However, we're committed to delivering the 1.5% to 1.7% of revenue, and that reflects dealing with any stranded costs that there may be. Then we also have question on FlexSec on why are we outperforming the weak construction U. S. Market. And it's a great question. And it is down to our competitive position, really. The market is a very fragmented market, and we are the largest in the market and the consolidator. We're also the rest of our competitors are essentially mom and pop businesses. This means that we have the capital and the ability and the resource and the knowledge and expertise to launch the most innovative products in the market.

36:46 And this means that we we we can focus on what do contractors which are our customers tend to be the distributors, so the like of Watsco and Ferguson. But contractors who are their customers is what we're we're looking to satisfy the most. And what they essentially want is really easy to install products that don't require skilled labor. So this means that when they get our products, they can carry out two, three jobs on the same day as opposed to one. And also, it means that they're more efficient, I. E, they have fewer leakages than than some of our competitors.

37:34 So that's there's just a few reasons why we we we win in in that market. At the end of the day, it is down to having very strong relationships, and we believe we have the best partners with our customers in that market. So we've got another question about John Crane and how applicable are John Crane's products outside of oil and gas. So as I said at the beginning, Crane services both energy and industrial markets. Energy typically accounts for 60%. So there is a large portion of the business, 40%. It goes into industrial. And that covers a broad range of industries, but it's a growing area for us in the first half and that business saw good growth as well as within energy.

38:27 And these products and the customer relationships are really important to Crane given the size of industries sorry, given the size of revenues that we get there. Typically, the dynamics are the same with OE versus aftermarket servicing. I think generally the aftermarket potentially from some of our industrial products isn't quite as long as it is under under in the energy space. But nevertheless, it has that same attractive profile of getting the OE, getting the installed base and securing the aftermarket servicing revenues for that. One of the things that I don't think we have actually mentioned yet is just how sticky that aftermarket is. So it's very difficult for our competitors to service John Crane sales and vice versa, which is why it's such an attractive revenue stream for Crane, and that's true across energy and industrial.

39:25 We have a question. What are the plans for the proceeds from any divisional sales? So as I was mentioning earlier, we don't yet know how much those process would be. We will have to go down to execution time to be able to assess those. We said we have committed a large portion of those. And the reason why we haven't been more specific than that in terms of giving a percentage number or something is, as I mentioned, one, we will take into account our M and A pipeline. We have quite a lot of firepower, but we obviously want to make sure we are not missing out on opportunities for growth in the remaining businesses.

40:18 To the new leverage ceiling is going to decline from 2x to somewhere between one and two. So we need to make sure that we have that investment grade credit rating in order to be able to access the bond markets. And the rest really will be returned to shareholders, really, most likely via buybacks because that's what we've been told the our shareholders to prepare. Right. And then we've got a question here about technology.

41:03 So you mentioned detection technology breaking new ground. How important is innovation to the group and what other new technologies you're bringing to the market? It's a really great question because innovation is incredibly important to SMITHS and it's what sets us apart from our competitors. Maybe if I talk about detection in Crane and then I'll hand it to Flex, over to you, Anna. So firstly, detection since that was where the question started. So as I said, obviously, the moment, we're seeing the rollout of the Cetix machines. And this is kind of the next generation technology, which does, as I say, allow you to keep your liquids and laptops in your bag. But we're already working on we're already trialing the next generation of technology, which is called X-ray diffraction.

41:50 And this is really where we're seeing it we're deploying it in, firstly, in the hold baggage and space. So these machines are able to use diffraction to tell the molecular density of certain items, so it can tell the difference between I think the the example that they use is is cheese. They can tell the difference between whether it's a block of cheese or a block of exposure without having to open the bag. And this diffraction technology is really going to be a game changer for our customers. The way that it works through the whole baggage system is that rather than having when an alarm goes off, when you go when it when you put it through a Cetus machine, typically, at the moment, that would then set an alarm that would go to an airport worker so you then have to open the bag, look through the bag, and and you check why why the alarm's gone off.

42:47 What the diffraction machine does is it it actually sends from the cease and descriptor, it goes to the diffraction machine, which will then mean that it can automatically be checked for for for for for the content, so therefore, not needing to be opened by baggage handler. If the product if if the baggage alarm still goes off after the diffraction machine, then it will then go to the baggage handler, but it will reduce that need for manual interaction in most cases. So that's diffraction. And as I said, detection is one of the market leaders and its technology really does set it apart and make it a really valuable product to our customers. For John Crane, their innovation at the moment is focused around efficiency.

43:36 So as our customers are very much focused on improving their ESG performance, as well as obviously looking for opportunities to reduce cost. Crane are developing products that reduce leakage. The seal typically in a refinery or in a plant is where you do get leakage And therefore, working on reducing that for customers allows them to operate more efficiently and at a lower cost. Some of the capabilities around that includes digital monitoring of of the seals. So this is where we have detection using similar technology that's used in detection.

44:25 We're using our John Crane Sense products and that will allow customers to monitor the performance of the seal and make sure they they they identify any issues before they become bigger problems for them and allows them to maintain the seals at an optimum optimum next time before it needs replacing. You do you want to go to Flexstack innovation? Yes. So in Flexstack, a couple of examples, one I already referred to earlier. So we've launched the the new seal registered box for our heating, cooling, and air conditioning systems. And what this means is that when the the the person that's going to carry out the installation in a house, in the old days, you would have to use a lot of duct tape to be able to make sure there are no leakages between the tube or the the ducting or and then and and and voice the ventilator.

45:35 And, essentially, we're we're moving to a new technology that ensures there really virtually no leakages at all and is easier to install, which means that it takes less time, takes less space, which is a really key factor in in this in this sector because, essentially, when you transport, when you install anything, it's just it's you're carrying air. You're transporting air. And and enables unskilled labor to actually carry out these installations. And we know that in The US, the majority of the workforce that make up construction is unskilled. And then another innovation is in terms of packaging. So we are designing the way that we make the packaging of our products to be able to be easier to transport and more in a more cost efficient way.

46:29 And and really that is setting us apart from from our from our competitors. The majority of what we focus on is on packaging and efficiency with lower materials, which gives a cost advantage and an edge versus our peers too. And then interconnect, we haven't talked about interconnect. The latest well, the product that is currently delivering the majority of the growth in our semiconductor testing business is called the DaVinci 112. This is really award winning with the major AI chip manufacturers around the world.

47:22 And and it just say the the level of innovation that goes into detection and interconnect mainly because they require quite a lot of r and d and and and just effort into looking at what's going to be the next big thing. It's proof that we have the expertise and resource and and we do it in efficient way to be able to to to win in the market. Yep. And I think we've got we've got one more question around ESG. So how has SMITHS progressed its own ESG targets? Does it remain a priority in the current environment? So yes, absolutely. ESG is very important to SMITHS as it is to our customers.

48:09 We recently introduced the last couple of years an ESG metric into our annual bonus targets, which reflects, I think, the importance that it's given within the organization. And like our customers, ESG, what we found is when we take on these ESG initiatives and we implement processes or projects around, be it renewable energy or reduced packaging, which I was just talking about from a customer's perspective, but we do it internally as well. It has the the kind of dual benefit of it obviously being better for the environment, but also reducing our running costs. And that's a lot of what we're seeing with our customers as well, that these initiatives, which primarily may have been first and foremost to improve their ESG performance, also has the benefit of reducing their costs.

49:03 So yes, it remains important at SMITHS, and we are progressing well. We provide ESG data just on an annual basis. And in FY 2024, which is our last set of results, we've made good progress against all of our targets. So it continues to be a focus. Do you want take that one? How are you using AI in the business? Well, given we use AI across all four businesses, it probably is not called AI, but we call it automation. We call it machine learning. So in the in the detection in John Crane, we use three d printers. We use a lot of the most advanced technology really to produce our products and best service our customers. Within within central functions, we also use AI, but then to different degrees really, of course, within safety and and and and security given risks.

50:14 I'm not sure if there's anything I guess I'll just point out the detection ICMORE Yeah. Yes. That's okay. Software. So part of the offering of detection is that digitally enabled detection software. So this is a catalog of threats, essentially, that helps the users of the SMITHS detection machines at airports to ident automatically identifies risks. So that covers weapons, but also money, so identifying money laundering, drugs, and narcotics in general. So is probably the best example that we've got today of our products using AI and that that that library of threats is continuing to increase. So we're continuing to upgrade to upgrade that software.

51:10 And we have one more question on SES and the acceleration plan and how are they helping us improve margins. So SES is our SMITHS excellent system and is based on the Lean Six Sigma methodology to improve efficiency of every process regularly. So this program was given a higher focus in the last three years, two to three years, and we actually delivered very good savings from this program. In '23, this was I think 14,000,000, in '24 it was 23,000,000 above our target of 20,000,000.

52:02 Now as the business has been used in these methodologies really internalized within the business, it's really embedded in the business, so we've still we haven't stopped reporting externally those savings, although they're still coming through, it's just the way we work really. The acceleration plan is a plan that was launched by our CEO, Roland Carter, in September last September, and is really a plan that tackles the scalability and resilience of the business to prepare it for growth when the market is is positive and helps it thrive through more difficult times.

52:53 And one third relates to footprint optimization, as site consolidation, headcount reduction, but two thirds is about processes. It's about how we can, for example, have a more streamlined procurement process or IT or HR. There are several things that we can do in a more standard way. And so that is ongoing. We've said that there will be 60,000,000 to 65,000,000 cost between the current financial year and the next with 40,000,000 to 45,000,000 benefit from full year '27 onwards.

53:41 And this we've already upgraded the benefits target once. So we continue refining the program. And I should say that around two thirds of this program relates to futures in the SIE John Crane, Flex Tek and the Centre Coast right sizing. Fantastic. Anna, Steph, I think you've covered off everything you can and covered and answered every single question you can. So thank you very much indeed. And of course, any further questions do come through, you will have the ability to review those. Before redirecting investors to provide you with their feedback, know it's particularly important the team, Steph, if I could just ask you for a few closing comments, please. Yes, sure. I just want to say thank you very much for your time. It's much appreciated, and I hope you found it useful. There's no doubt that SMITHS at the moment is under a period of change. It's incredibly exciting opportunity.

54:34 We have set out the strategy, which is going to create value. So we're focused on executing and on delivering that for shareholders. We will be announcing our full year results sorry, sorry, we'll be announcing our full year results in September, so please look out for that. And if you've got any questions in the meantime, please do contact us. Fantastic, Anna. Thanks indeed for updating investors today. Please ask investors not to close this session as we automatically redirected to provide your feedback in order the team can better understand your views and expectations. This only takes a few moments to complete and is greatly valued by the company. On behalf of the team at SMITHS Group PLC, we'd like to thank you very much for attending today's presentation. That concludes today's session, and good afternoon to you all. Thank you.