Smiths Group plc

Good morning, everyone, and thank you for joining us today. As I said in March, it is an honour to be CEO of Smiths. This is a great company doing many outstanding things. As you'll see, the business is in a strong position, delivering good results. I'll start with some initial thoughts and a short recap of our FY 2024 performance before turning it over to Claire to walk us through the numbers. I'll then come back and update you on how I view our strategy and outlook. And we'll have plenty of time at the end for Q&A. As many of you know, I've been at Smith's for well over 30 years. And during that time, I've had the privilege to run several of our businesses. This has given me a deep appreciation of the group's impressive attributes that have seasoned over time. Smith's is a portfolio of market-leading businesses and has many strengths. talented people, many of them with world-class engineering expertise, differentiated proprietary technology, and strong brands. We're well positioned in attractive markets that offer significant opportunity for profitable growth, and we're helping our customers to make the world safer, more energy efficient and productive, and better connected. a great foundation, and I firmly believe that we are well placed to create more value in the future. We have diverse and immense talent in the company, and we're committed to nurturing, supporting and developing this most precious of resources. I've always and continue to see my role as creating value for shareholders, customers and colleagues. And indeed, I have benefited from my experience across different businesses and regions, developing and sharing best practice. I intend to ensure that more of our people have similar development opportunities. In addition, our commitment to safety, engagement and inclusion, talent development and sustainability will continue to strengthen our culture. Although our business is strong, there's always more to do from delivering improved performance in partnership with our customers and suppliers to sharing best practice across the group and inspiring and empowering our people. Each business has a clear roadmap to improve profitability and enhance capabilities. This will take time. And although we're not looking at a radical reset, there are a number of initiatives which will drive improvements centered around our acceleration plan. I look forward to sharing these with you today and updating you regularly as we deliver. To be clear, this plan is about value creation, not just transformation. So we will optimize footprint to support customers as well as invest to enable our processes to scale efficiently as we grow. we propose to invest approximately 60 to 65 million pounds over the next two years and deliver 30 to 35 million pounds of annualized savings by FY27. I will also outline where I think we can improve things to achieve further growth and drive our margins sustainably to deliver the medium-term financial targets we've set and which I reaffirm today. With that, let me turn to the results. I'm pleased to report we have continued to have a robust delivery against our strategy with a good operational and financial performance. Both organic revenue growth and operating margin were in line with our guidance. Our cash flow conversion has improved, and we've deployed cash into organic R&D investment and into M&A. This morning, we are pleased to announce two acquisitions which will be integrated into Flextech, enhancing its HVAC and industrial heating platforms. Our balance sheet remains strong to support our continued growth strategy. Overall, we're making good strategic, operational and financial progress. So looking beyond next year, we have reaffirmed our medium term targets. Our focused strategy and leading businesses mean that we are well positioned to create value for all our stakeholders. The opportunities ahead are significant, and we look forward to executing on them. With that, I will now turn it over to Claire to walk you through the financial results.

Thank you, Roland, and good morning, everyone. Organic revenue growth for the year was 5.4%. Acquisitions added 2%. and there was a negative 4.3% FX impact, bringing reported growth to 3.1%. We increased operating profit to $526 million, up 7.1% organically. Importantly, we continued investing for the future and at the same time improved operating margin by 30 basis points. Operating profit, acquisitions, and our share buyback activity contributed to constant currency EPS growth of 12.9%. Including the impact of FX, our basic EPS growth was 8.3%. We also increased operating cash conversion by 11 percentage points to 97%. And ROKI was up 70 basis points to 16.4%, driven by increased profitability. Finally, in line with our progressive dividend policy, we're recommending a final dividend of 30.2 pence, resulting in a total full-year dividend of 43.75 pence, a 5.2% increase. Turning to results in more detail and starting with organic revenue growth. We continue to extend our track record of growth and are pleased to report our third consecutive year of organic revenue growth, building on FY23's record organic growth. we converted revenue growth into 7.1% organic operating profit growth, pricing more than offset inflation, contributing 50 basis points of margin expansion. With respect to volume, John Crane and detection volume drove 60 basis points of margin expansion, of which 40 basis points was offset by volume declines in FlexTech and Interconnect. Mix also reduced margin by 40 basis points. And finally, Consistent with our philosophy of saving where we can in order to invest where we want, we invested in several growth initiatives. These were funded by benefits from SES and other savings projects. So in summary, we delivered a 16.8% operating profit margin and a 30 basis point expansion in line with our guidance for continued margin improvement. For the year, The primary drivers of EPS were growth in operating profit, our accretive acquisition of heating and cooling products, or HCP, and the benefit of our share buyback activity. On a constant currency basis, we delivered 12.9% EPS growth, and including the impact of FX, our reported EPS growth was 8.3%. we delivered an 11 percentage point increase in operating cash conversion to 97%. This reflects both a tailwind from disciplined working capital management, as well as a headwind from increased CapEx, supporting capacity expansion and automation investment in John Crane. John Crane's machining upgrade program started in FY24, but it's largely weighted toward and will complete in FY25. Therefore, at the group level for FY25, we anticipate spending approximately $110 million in CapEx. In addition to our normal CapEx, FY25's higher-than-usual spend will cover the completion of the John Crane Efficiency Investment Program, which I just mentioned, as well as some additional CapEx initiatives that Roland will speak to later, all of which will support continued profitable growth. and we anticipate returning to recent trend levels of CapEx in FY26. Finally, this year's $509 million of operating cash converted to $298 million of free cash flow, a notable 67% year-on-year increase. Now turning to each of our divisions and starting with John Crane. John Crane delivered organic revenue growth of 9.8%, with an exceptional performance in the first half before moderating to strong growth as expected in the second half. Growth was led by energy, especially in aftermarket sales and notably in the Middle East and Latin America. This revenue growth translated into strong operating profit growth and 60 basis points of organic margin expansion and due to good operating leverage, disciplined pricing, and SES benefits, which more than offset cost inflation and mix. John Crane delivered this margin expansion while continuing to invest for future growth, including hiring additional sales reps and service engineers. Given our ability to help customers improve efficiency and reduce emissions from their operations, we had notable wins across the world. From Kazakhstan to Canada, John Crane's energy diversification pipeline also continues to expand, and we're now actively pursuing around 125 carbon capture and hydrogen projects. Finally, our strong recent order intake growth supports our positive outlook for FY25. The Smith's Excellence System, or SES, also underpins our outlook. At our John Crane Deep Dive event last November, we spoke about how we're using SES, lean, and automation to improve efficiency and customer responsiveness. As just one example, we previously invested in machine data capture in John Crane's check plant. This enabled us to analyze and optimize machine utilization, operator productivity, and scheduling, as well as shop floor layout at that location. We then invested in and rolled out those learnings to another nine John Crane locations across seven countries. We've also centralized and standardized our programming in India. So in summary, using our SES framework to apply lean principles to automation across key value streams, has driven both efficiency and cost improvements in our John Crane operations and enables us to rapidly respond to customer demand in FY25 and beyond. Detection also executed on a strong order book and delivered organic revenue growth of 11.1%, with growth in both segments. In aviation, OE sales increased 25%, reflecting strong demand for our CT airport checkpoint scanners, with multiple new wins across the globe, including the U.S., the U.K., South Korea, Saudi Arabia, New Zealand, and Germany. And we estimate that globally, the current checkpoint upgrade is about 45% of the way through, so good demand should continue for the next roughly three years. Of note, Our win rate to date on CTICS tenders remains above 50%. And importantly, the OE sales we secure come with an attractive aftermarket that we expect to continue to add to margin expansion over the medium term. 2.6% organic revenue growth in other security systems reflects a strong performance in defense and urban security partially offset by weaker ports and borders. As a reminder, in FY24, we received an initial $88 million multi-year contract from the UK Ministry of Defence for next-generation chemical detection equipment. Operating profit grew 18% and margin expanded by 70 basis points. This reflects higher volumes and improving operational efficiency in the second half, even including Detection's continued investment in field service engineers to support record installation activity. Order intake growth in the year was exceptionally strong, and we ended the year with a record order book that will support growth in FY25 and beyond. This anticipated growth, ongoing SES activities, and increasing defense and aftermarket revenue underpin our expectation for continued margin expansion in the coming years. In detection, we have a heritage of innovating to meet the world's evolving security needs. And most recently, we pre-launched X-ray diffraction at the Frankfurt Passenger Terminal Expo in April. We're now working closely with regulators to gain necessary certifications. And in parallel, we're educating a range of hold baggage customers on the merits of this new technology. We expect to achieve modest first orders for this product in FY25, with associated revenue coming through in FY26 and beyond. Here's a short video which brings diffraction to life.

X-ray screening is one of the most effective and efficient technologies used at airports, ports and borders, and other critical infrastructure to ensure the safety of people and goods and detect contraband. There are three different key X-ray techniques. transmission X-ray, computer tomography, and X-ray diffraction. Conventional X-ray and CT technologies both analyze the absorption of X-rays by the scanned item to differentiate materials and reflect the result in X-ray images. Conventional X-ray scanners create 2D images from fixed generators and detectors. CT scanners rotate the generator and detector around the item and reconstruct hundreds of views into 3D images. X-ray diffraction uses a different approach. It measures how the X-rays interfere with the molecular structure of the scanned item. As X-ray diffraction can even differentiate between materials with very similar densities, it's ideal for compounds such as improvised explosives and narcotics, in powder, liquid, or solid forms.