Smiths Group Plc · LSE:SMIN
Smiths — H1 2022 Earnings Presentation
48 slides from Smiths's earnings presentation, Mar 25, 2022
Slide 1: Pioneers of Progress: Interim Results FY2022
www.smiths.com PIONEERS OF PROGRESS SMITHS GROUP PLC IMPROVING OUR WORLD THROUGH SMARTER ENGINEERING Interim Results FY2022 25 March 2022
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: Opening Remarks: Paul Keel
OPENING REMARKS CHIEF EXECUTIVE OFFICER PAUL KEEL
Slide 4: Opening Remarks and H1 2022 Results
INTERIM RESULTS FY2022 Opening Remarks Paul Keel, Chief Executive Officer H1 2022 Results John Shipsey, Chief Financial Officer CEO Review Paul Keel, Chief Executive Officer | INTERIM RESULTS FY2022 | 4 |
Slide 5: Executing Against Our Strategy
EXECUTING AGAINST OUR STRATEGY Good H1: +3.4% organic revenue growth, 11.1% operating profit growth, and 13.8% EPS growth Strong demand across most end markets with good order growth More focused portfolio following completed sale of Smiths Medical Meaningful progress on new phase of Smiths Excellen
Slide 6: Smiths Value Engine
SMITHS VALUE ENGINE OUR PURPOSE OUR STRENGTHS OUR PRIORITIES World-Class Growth Engineering Leading Positions in Critical Markets Execution PIONEERS OF Global PROGRESS Capabilities Improving our world through smarter £ Robust Financial People $ engineering Framework | INTERIM RESULTS FY2022 | 6 |
Slide 7: Progress Towards Medium-Term Financial Targets
PROGRESS TOWARDS MEDIUM-TERM FINANCIAL TARGETS 100%+ +M&A 18-20% 15-17% +M&A 7- 10% 4–6% ORGANIC REVENUE GROWTH1 EPS GROWTH1 ROCE OPERATING PROFIT MARGIN2 OPERATING CASH CONVERSION3 H1 FY20 +3.1% +4.5% 15.3% 15.0% 109% H1 FY21 (4.8)% (6.2)% 10.3% 14.4% 158% H1 FY22 +3.4% +13.8% 14.0% 15.9% 93% 1 Org
Slide 8: Introduction: John Shipsey
INTRODUCTION CHIEF FINANCIAL OFFICER JOHN SHIPSEY
Slide 9: Accelerated Organic Growth with Strong Conversion into Profit and Cash
ACCELERATED ORGANIC GROWTH WITH STRONG CONVERSION INTO PROFIT AND CASH Operating Operating Cash Profit Conversion Growth 93%3 Organic +11.1%2 Revenue Growth +3.4%1 1 Organic modifies headline revenue to exclude the effects of foreign exchange and acquisitions. | INTERIM RESULTS FY2022 2 Operating pr
Slide 10: H1 2022 – Good Progress in Executing Our Strategy
H1 2022 – GOOD PROGRESS IN EXECUTING OUR STRATEGY Reported Underlying H1’20221 H1’20211 change change3 Accelerated organic revenue Smiths Group2 growth to +3.4% Revenue £1,192m £1,150m +3.7% +3.4% Converted into operating profit with +110bps underlying margin Operating profit £189m £166m +13.9%
Slide 11: Step Up in Revenue Growth
STEP UP IN REVENUE GROWTH Organic1 revenue growth Organic revenue: Progress towards our medium- 3.5% 3.4% term target of 4-6% 3.1% 2.6% +3.4% organic revenue growth with strong performance in 3 of 4 divisions 0.3% Reported revenue: H1'19 H2'19 H1'20 H2'20 H1'21 H2'21 H1'22 (3.3)% FX impact +
Slide 12: Strong Conversion of Growth into Profit
STRONG CONVERSION OF GROWTH INTO PROFIT Operating profit (£m) and margin (%) +150bps margin improvement Primarily driven by growth +150bps Margin 11 1 (7) +15.9% Benefits of restructuring 1 (5) 8 programme 14 Margin High-value model enabled +14.4% 15.9%= offsetting inflation with price Under
Slide 13: Delivering Strong EPS Growth
DELIVERING STRONG EPS GROWTH Earnings per share Underlying1 growth +13.8% 2.2p 0.3p 0.1p (1.3)p 1.2p 2.1p 30.6p 26.0p H1'21 Headline Revenue growth Margin expansion Acquisitions Restructuring charges Share buyback FX H1'22 Headline 1 Underlying modifies headline performance to exclude the effects of
Slide 14: H1 Cash Generation
H1 CASH GENERATION Operating cash conversion1 (£m) Operating cash flow 7 (31) 93% operating cash conversion; a 39 good result in a challenging supply (29) chain environment Free cash flow Cash contributions to pension schemes reduced £(6)m reflecting 189 Operating cash conversion1: +93% strong f
Slide 15: Divisional Update
SMITHS DETECTION JOHN CRANE FLEX-TEK SMITHS INTERCONNECT DIVISIONAL UPDATE A stronger, more focused group
Slide 16: John Crane – Growth on All Fronts
JOHN CRANE – GROWTH ON ALL FRONTS REVENUE OP. PROFIT & MARGIN BUSINESS UPDATE £416m +5.1% 1 £83m +6.3% 1 Strong orderbook growth New contract wins including: - Filtration for sustainable polymers Growth across all segments - Energy +7.5% 20.0% +20bps 1 - - Carbon capture and storage Asset mana
Slide 17: Smiths Detection – Managing Expected Challenges in Aviation OE Market
SMITHS DETECTION – MANAGING EXPECTED CHALLENGES IN AVIATION OE MARKET REVENUE OP. PROFIT & MARGIN BUSINESS UPDATE Managing supply chain challenges £313m (7.2)% 1 £36m (13.0)% 1 Expect macro uncertainty to continue in near term Growth in orderbook (many FY23 dated) Aviation OE market remains
Slide 18: Flex-Tek – Firing on All Cylinders
FLEX-TEK – FIRING ON ALL CYLINDERS REVENUE OP. PROFIT & MARGIN BUSINESS UPDATE Positive medium-term US housing £297m +10.0% 1 £62m +18.3% 1 indicators Commercial aerospace market recovery is on pace Continued strong growth in Industrials, +8.5% 20.9% +150bps 1 Python line set new product pla
Slide 19: Smiths Interconnect – A Step Up in Performance
SMITHS INTERCONNECT – A STEP UP IN PERFORMANCE REVENUE OP. PROFIT & MARGIN BUSINESS UPDATE £166m +12.9% 1 £28m +58.7% 1 Strong order momentum High demand across all end markets Contract wins for space-qualified Maximising growth in strong end markets 16.9% +490bps 1 products and new semicond
Slide 20: Sale of Smiths Medical: A Stronger, More Focused Portfolio
SALE OF SMITHS MEDICAL: A STRONGER, MORE FOCUSED PORTFOLIO £1bn profit on disposal recognised following sale of Medical in Profit on disposal January 2022 £0.4bn recognised as an asset on the balance sheet for stake in ICU Medical Further value to come Potential $100m earnout £1.35bn immedia
Slide 21: The Smiths Financial Framework
THE SMITHS FINANCIAL FRAMEWORK SOURCES OF CASH USES OF CASH Revenue Accelerating Organic Growth Free Operating Profit Leverage Cash Complementary M&A Flow1 Operating Cash Conversion Returns to Shareholders | INTERIM RESULTS FY2022 1 Headline operating cash-flow less taxation, interest, pension, non-
Slide 22: FY2022 Outlook
FY2022 OUTLOOK TAILWINDS Strong demand in most customer end markets Clear strategy with improving execution Continued good operating leverage Further new product launches on schedule Maintaining full year guidance of 3% organic revenue growth HEADWINDS Expect more challenging Aviation OE m
Slide 23: CEO Review: Paul Keel
CEO REVIEW CHIEF EXECUTIVE OFFICER PAUL KEEL
Slide 24: Our Priorities
OUR PRIORITIES Growth Execution People | INTERIM RESULTS FY2022 | 24 |
Slide 25: Our Priorities – Accelerating Growth
OUR PRIORITIES – ACCELERATING GROWTH Growth Execution People | INTERIM RESULTS FY2022 | 25 |
Slide 26: Accelerating Growth with Four Actionable Levers
WE’RE ACCELERATING GROWTH WITH FOUR ACTIONABLE LEVERS Disciplined M&A Building out priority adjacencies New product development and commercialisation Strong execution to maximise market recovery opportunity | INTERIM RESULTS FY2022 | 26 |
Slide 27: Growth Lever 1: Strong Execution to Access Market Demand
GROWTH LEVER 1: STRONG EXECUTION TO ACCESS MARKET DEMAND H1’22 Smiths revenue by market H1’22 Smiths growth1 by market Aerospace: General Industrial: 20% H1 Smiths Growth Demand for Flex-Tek’s OE and AM growth in John aerospace products Crane’s industrial segment, increasing with rising aircraft
Slide 28: Growth Lever 2: New Product Development and Commercialisation
GROWTH LEVER 2: NEW PRODUCT DEVELOPMENT AND COMMERCIALISATION High impact products launched in H1 Upcoming new product launches Smiths Interconnect: Flex-Tek: Multi- Optical transceivers for layer refrigerant space line sets Smiths Interconnect: John Crane: gas seal Optical connectors for John Crane
Slide 29: Growth Lever 3: Building Out Priority Adjacencies
GROWTH LEVER 3: BUILDING OUT PRIORITY ADJACENCIES SMITHS DETECTION iCMORE – launched March ‘22 JOHN CRANE SENSE TURBO – launched December ‘21 iCMORE is Smiths Detection’s automated detection algorithm John Crane SENSE platform uses sensors and machine learning to Extended to include currency r
Slide 30: Growth Lever 4: Disciplined M&A – Royal Metal Products
GROWTH LEVER 4: USING DISCIPLINED M&A TO AUGMENT OUR ORGANIC GROWTH FOCUS FLEX-TEK: ACQUISITION OF ROYAL METAL PRODUCTS 45% Revenue growth REVENUE (£M) since acquisition 45 Provider of engineered ducting systems 35 Acquired for $107m in February 2021, 7.6x trailing EBITDA 25 15 Revenue growth
Slide 31: Our Priorities – Executing Better
OUR PRIORITIES – EXECUTING BETTER Growth Execution People | INTERIM RESULTS FY2022 | 31 |
Slide 32: Smiths Excellence System 2.0 – Beginning to Have an Impact
SMITHS EXCELLENCE SYSTEM 2.0 – BEGINNING TO HAVE AN IMPACT SES 2.0 (FY22 and beyond) What has been achieved so far… - Set delivery targets tied directly to GOOD PROGRESS BEING MADE external commitments - Resourcing full-time Black Belts and PLAN Master Black Belts in key businesses - Put in place de
Slide 33: SES 2.0 Case Study: Improving Probe Testing Capabilities
SES 2.0 IN ACTION SES 2.0 CASE STUDY: IMPROVING PROBE TESTING CAPABILITIES TO WIN NEW ORDERS SMITHS INTERCONNECT LEAN SIX SIGMA PROJECT Opportunity: Improve spring probe quality process for semiconductor test product Improve customer acceptance levels and process efficiency Project Result: Sor
Slide 34: Our Priorities – Inspiring and Empowering Our People
OUR PRIORITIES – INSPIRING AND EMPOWERING OUR PEOPLE Growth Execution People | INTERIM RESULTS FY2022 | 34 |
Slide 35: Investing in Our People
INVESTING IN OUR PEOPLE – ENGAGED, EXPERIENCED, EXPERT AND DIVERSE Safety and wellbeing at the forefront: Special focus on all employees impacted by CHAMPIONING DIVERSITY & INCLUSION Russia/Ukraine crisis; continually building on our strong safety culture across Smiths Inspiring and empowering our p
Slide 36: Our Longstanding Commitment to Sustainability
OUR LONGSTANDING COMMITMENT TO SUSTAINABILITY GHG EMISSIONS NON-RECYCLABLE WASTE WATER USAGE ENERGY USAGE 60% 63% 53% 38% Reduction in last 15 years Reduction in last 15 years Reduction in last 15 years Reduction in last 15 years 2007 H1’22 2007 H1’22 2007 H1’22 2007 H1’22 | INTERIM RESULTS FY2022 |
Slide 37: Accelerating Growth and Multiplying Our Sustainability Influence
ACCELERATING GROWTH AND MULTIPLYING OUR SUSTAINABILITY INFLUENCE RE-ENERGISED FOCUS ON Accessing the growth opportunities that sustainability enables for Smiths SUSTAINABILITY EXCELLENCE Solutions for increased efficiency, emission reduction, and energy transition 1. Science, Sustainability & Excell
Slide 38: Smiths Value Engine
SMITHS VALUE ENGINE OUR PURPOSE OUR STRENGTHS OUR PRIORITIES OUR COMMITMENTS Organic Revenue World-Class Growth 4-6% (+M&A) Engineering Growth EPS Leading Growth 7-10% (+M&A) Positions in Critical Markets Execution PIONEERS OF ROCE 15-17% PROGRESS Global Capabilities Operating Improving our world Pr
Slide 39: Questions & Answers
QUESTIONS & ANSWERS
Slide 40: Appendix
APPENDIX
Slide 41: Income Statement
INCOME STATEMENT1 £m H1’2022 H1’2021 Reported change Revenue 1,192 1,150 +3.7% Headline2 operating profit 189 166 +13.9% Amortisation of acquisition related intangible assets (26) (27) Legacy pension scheme arrangements (8) (6) Post acquisition integration costs and fair value adjustment unwind (1)
Slide 42: Reported to Underlying Bridge
REPORTED TO UNDERLYING BRIDGE 1 £m H1’2021 Foreign H1’2021 H1’2022 Acquisitions and H1’2022 Restructuring costs Underlying3 Smiths Group1 Headline2 exchange Underlying3 Underlying3 Disposals Headline2 John Crane 410 (14) 396 20 416 416 Detection 350 (13) 337 (24) 313 313 Flex-Tek 238 (6) 232 23 255
Slide 43: FX Sensitivity
FX SENSITIVITY H1’2022 H1’2021 Currency % change Average rate average rate - For each $0.10 move, USD 1.36 1.32 2.7% the annual operating profit impact is c.£20m EUR 1.18 1.11 6.3% - For each €0.10 move, the annual operating Translation impact H1’2022 profit impact is c.£8m Revenue £(38)m or (3.3)%
Slide 44: Strong Balance Sheet
STRONG BALANCE SHEET Free cashflow: £91m; 48% of operating profit 175 (15) (13) (8) (6) (5) (37) 1,018 1,348 (262) (16) (103) 63 (103) Net debt at Operating cash Tax Lease Other non- Restructuring Pension Interest Medical FX & Other Dividends Share buy- Purchase of Net cash at July 2021 repayments h
Slide 45: John Crane – Solutions for Efficiency, Emission Reductions and Energy Transition
JOHN CRANE – SOLUTIONS FOR INCREASED EFFICIENCY, EMISSION REDUCTIONS AND ENERGY TRANSITION HY REVENUE £416m (35% of Group) COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE - Strong and differentiated proprietary - Long-term growth in energy, especially in emerging markets - Competitors ran
Slide 46: Smiths Detection – Supporting Safety and Security
SMITHS DETECTION – SUPPORTING SAFETY AND SECURITY HY REVENUE £313m (26% of Group) COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE - A global market leader with - Persistent and evolving terror and other threats to - Competitors range from HY HEADLINE OP differentiated technologies leverag
Slide 47: Flex-Tek – Solutions for Safe, Efficient Movement of Fluids and Gases
FLEX-TEK – SOLUTIONS FOR THE SAFE, EFFICIENT MOVEMENT AND HEATING OF FLUIDS AND GASES HY REVENUE £297m (25% of Group) COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE - High-performance differentiated - Through-cycle growth of the US housing construction - Competitors range from HY HEADLIN
Slide 48: Smiths Interconnect – High-Speed, Secure Connectivity
SMITHS INTERCONNECT - SOLUTIONS FOR HIGH-SPEED, SECURE CONNECTIVITY IN DEMANDING APPLICATIONS HY REVENUE £166m (14% of Group) COMPETITIVE STRENGTHS GROWTH DRIVERS COMPETITIVE LANDSCAPE - Broad portfolio of technically - Increased demand for connectivity in space, defence - Competitors range from HY