Full Year 2024 Smiths Group PLC Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Lushanthan Mahendrarajah - JPMorgan - Analyst : I've got three, I think. The first is just really on current trading and orders, please, and sort of what you're seeing across the division. I think at the H1 point, you guys said orders across the group were up 16.5% and then get some divisional detail there to sort of any sort of similar kind of sort of numbers for the second half that would be quite helpful just to see what the trends are. The second question is just on John Crane and general industrial, a bit of a slowdown in the second half, particularly in aftermarket. Just any color in terms of what's happening there and sort of how you expect to develop over the next year. And then the third is just on capital allocation and sort of the buyback and M&A, I guess. Sort of your point around not starting the second tranche yet, just given the sort of M&A pipeline and the sort of the deal was done today. I guess even post that leverage doesn't seem particularly high. Just wanted to get a bit more color around that pipeline that you said is more active. Are these bigger deals than perhaps you've been used in the last couple of years? Or are these sort of still bolt-ons? And is it just Flex-Tek or these sort of across all four divisions? Thank you.

Question: Lushanthan Mahendrarajah - JPMorgan - Analyst : Okay. Can I just get a point of clarification on John Crane? Were orders up in the second half and sort of were they similar to sort of H1?

Question: Lushanthan Mahendrarajah - JPMorgan - Analyst : Okay, brilliant. Thank you very much.

Question: Mark Davies Jones - Stifel Europe - Analyst : Could I turn to the subject of the balance between the divisions and the center and particularly some more color around what you're saying about global shared services. The operating companies have always been quite autonomous within Smith. Are you flagging effectively that you're going to run those more from the center? Does that have implications for what the ongoing level of central cost might be? And can you give us some slightly more tangible examples of what will be changing and what processes will be now managed from the center and what benefit you think that brings?

Question: Mark Davies Jones - Stifel Europe - Analyst : Okay. And does that have implications for the cost base held centrally? You have to invest more at the center in terms of ongoing central costs? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 24, 2024 / 7:30AM, SMIN.L - Full Year 2024 Smiths Group PLC Earnings Call

Question: Mark Davies Jones - Stifel Europe - Analyst : Thank you. And then Clare, just to get back to Lusha's point on buybacks, it does seem odd in the circumstances, even with M&A on the horizon, that an additional GBP50 million is an issue given your current balance sheet. So is the message that that's on hold until you know what you're buying? Or is it just that you're being a little more careful on the timing?

Question: Mark Davies Jones - Stifel Europe - Analyst : Okay. Thank you.

Question: Kyle Summers - Redburn Atlantic - Analyst : Just one for me, please. I just wanted to ask for other security systems within detection. Could you please provide just a bit more color as to the contract timing issues you're seeing there in ports and borders.

Question: Kyle Summers - Redburn Atlantic - Analyst : Thank you.

Question: Jonathan Hurn - Barclays - Analyst : Just three questions for me. First question was just on John Crane. Obviously, you continue to put capacity into that business. And talking about that, obviously, concluding in FY25. But if you look about or if we look at the comments in terms of the outlook, you are saying that the growth is going to slow '25 versus '24. So the question what you focus on, obviously, the capacity is going in, growth is slowing. Are we going to have a bit of an overhang in terms of overhead in that business? And could that become ultimately a drag to the margin going forward? That was the first question. Yeah, let's go one by one.

Question: Jonathan Hurn - Barclays - Analyst : Okay. Okay. The second question is just on SES. I mean probably two parts. One is, could you just give us a feel for maybe the scale of the benefits you expect in '25 for SES? And then secondly, if we look to '24, you obviously got benefits from SES, but they are all offset by taking that money and reinvesting it back into growth opportunities. So as we go to '25, are we going to see any net benefits coming through from your SES program?

Question: Jonathan Hurn - Barclays - Analyst : Okay. That's very clear. And then the last one is just on the aerospace market. Obviously, you're putting it out there as an area of strength in terms of order book going into '25. But if you just kind of look at the wide aerospace market, there's quite a lot of disruption there in terms of build or supply chain. I mean have you seen that at all? And obviously, in terms of how you're guiding, are you factoring any of that potential weakness coming through to the businesses that are exposed to that aerospace order book?

Question: Jonathan Hurn - Barclays - Analyst : Okay, very clear. Thank you very much.

Question: Bruno Gjani - BNP Paribas Exane - Analyst : The first one was just on the John Crane margin. I think you highlighted in the release the systems headwind in John Crane. I wonder if you could provide us with some color around the magnitude of the mix impact or the systems mix headwind in H2 of this year, if that's possible.

Question: Bruno Gjani - BNP Paribas Exane - Analyst : Okay. That's understood. And what I thought was quite interesting as well was just the detection margin half of the half and improved quite a bit, 80 basis points, but I look at the mix within that it's heavily skewed to the OE. So a lot of the incremental sales came from OE. So can you help us understand what drove the better detection margin half of the half? Is it the OE margins improving or executing on richer priced orders? Just any color there would be appreciated.

Question: Bruno Gjani - BNP Paribas Exane - Analyst : Understood. And the last thing, I was struggling a little bit with -- in terms of the restructuring program. So there's quite a bit of incremental benefits to flow through. That add about circa 100 basis points to the margin. But the midterm margin aspirations don't change. So I guess, are we reinvesting a lot of these cost savings back into growth. So therefore, you haven't revisited the midterm margin aspiration? Or why haven't you, I guess?

Question: Bruno Gjani - BNP Paribas Exane - Analyst : That's very clear. Thank you very much.