Half Year 2024 Smiths Group PLC Earnings Presentation Transcript

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

Question: Lush Mahendrarajah - JPMorgan Chase & Co. - Analyst : Good morning all, and thanks for taking my question. I've got 2, I think. The first is just on margins. And I guess, going back to that operating bridge you showed in terms of both the 80 basis point headwind, I think from Interconnect volumes and then the 30 basis points from Detection and sort of field service engineers. I guess how do we think about both those moving parts going forward, presumably, interconnect that reversed in the second half, perhaps not fully. And in Detection, I guess, how much do you have to go in terms of the field service engineers. Is that going to be an incremental headwind going forward as well or have you sort of done that?

Question: Lush Mahendrarajah - JPMorgan Chase & Co. - Analyst : Okay. Helpful. Thank you very much. And the second one is just on sort of the orders, which are very strong in the first half and for some of these divisions a bit more obvious than the others, but it would be helpful just to get a reminder in terms of the sort of timing of orders and sort of for each division in terms of when that sort of leads to sales and also particularly for Interconnect and Flex-Tek, what percentage of revenue is -- do you have visibility on orders? I guess I'm just trying to get an idea of H2 and the underpinning there that order growth you've seen in H1.

Question: Lush Mahendrarajah - JPMorgan Chase & Co. - Analyst : Very clear. Thanks very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 26, 2024 / 8:30AM, SMIN.L - Half Year 2024 Smiths Group PLC Earnings Presentation

Question: Mark Davies Jones - Stifel, Nicolaus & Company, Incorporated - Analyst : Thank you very much. Morning Paul, Roland, and Clare. Can I ask a bigger picture one to start. Paul, as you plan to depart, firstly, sorry, to see you go, but can you tell us any more hints about where you're heading to? And can you give us a little reflection on where you think Smiths is relative to the US industrial peer group operationally. I know you did some benchmarking when you turned up, where are we now, do you think? Because obviously, there is still quite a big valuation gap?

Question: Mark Davies Jones - Stifel, Nicolaus & Company, Incorporated - Analyst : Thank you. Can I ask one slightly more specific one around Flex-Tek? Very impressive margins there in the period. You talked about mix within industrial, what's driving that?

Question: Mark Davies Jones - Stifel, Nicolaus & Company, Incorporated - Analyst : Thanks very much.

Question: Christian Hinderaker - Goldman Sachs International - Analyst : Thanks. Morning, Clare, Roland, and Paul. Can I just ask firstly on the Interconnect business in terms of the mix, 19% semi test, 26% other industrial, 40% safety security, and the rest aerospace. I think the semi test and sat com dynamics may be a bit better understood. Can you just remind us of the technology applications and growth dynamics for the other parts? And then also maybe add some color on which of those areas drove that sharp inflection in orders in the second quarter.

Question: Christian Hinderaker - Goldman Sachs International - Analyst : Well, I've got two now on the capital allocation. I guess, the buyback, GBP100 million and how we think about that in the context of the GBP70 million proceeds from the ICU stake sale. Should we assume that one sort of spurred the other? And how do we think about the remaining equity stake in ICU?

Question: Christian Hinderaker - Goldman Sachs International - Analyst : Thanks, Clare. And maybe just if you could add to that, what are the sort of views here in terms of comfort levels on leverage, I think, 0.9 times net debt to EBITDA today. And then in terms of the M&A piece, are there particular priorities across the portfolio that we should be thinking of? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 26, 2024 / 8:30AM, SMIN.L - Half Year 2024 Smiths Group PLC Earnings Presentation

Question: Christian Hinderaker - Goldman Sachs International - Analyst : Very clear. Thank you all.

Question: Jonathan Hurn - Barclays - Analyst : Hey, guys, good morning. Just three questions from me. Firstly, I just wondered if we can just come back to the margin bridge for '24, but sort of take it up to a group level. Maybe Clare, could you just give us a little bit of color about how we should think on a full year basis, the impacts from mix, from investment, from growth? And also, what kind of tailwinds on a full-year basis we could see from price cost in SES?

Question: Jonathan Hurn - Barclays - Analyst : Okay. But just on a sort of a basis points impact, is it going to be any significant difference full year relative to what we saw in the half year bridge?

Question: Jonathan Hurn - Barclays - Analyst : Okay. That's very clear. The second question was just on, obviously, the defense contracts that you won. I think you sort of alluded to them being mix beneficial. Can you just talk a little bit about the margins of those defense contracts, please?

Question: Jonathan Hurn - Barclays - Analyst : Okay. And is that significantly above where the current margin for Detection is in terms of relative to those defense contracts?

Question: Jonathan Hurn - Barclays - Analyst : Okay. That's clear. And just finally, just maybe on John Crane. Obviously, you talked about the order book and most of that being delivered, not all of that being delivered in the second half. If we look to John Crane to next year, FY25, I mean, obviously, you're coming up against tougher comps. How do we think about that sort of growth of that business? Do you think it starts to slow down to sort of mid-single digits growth? Or do you think next year could be another year of high to maybe double-digit growth for John Crane? Thanks.

Question: Jonathan Hurn - Barclays - Analyst : Okay. That's clear. Thanks very much, guys. Thank you.

Question: Andrew Douglas - Jefferies - Analyst : Morning, guys. Three questions from me, please. Can you talk about the kind of broader investments in the group? You've got 30 basis points and then 120 basis points headwinds this year. We've got Flex-Tek recovering clearly. We've got John Crane staying strong. Is this business under invested? What's the rationale behind putting a 150 basis points of cost into business or is it (technical difficulty) last year? On the cash flow, can you just talk about the building blocks going towards 100%, you doubles the cash flow, it's a good improvement in the first half against the low base. But can you just talk about how we get to that 100%? And then second -- and lastly, sorry, on the M&A buyback debate, the buy back is a little less than 2% of your market cap. You've probably got over [GBP1 billion of firepower], yet you appear Clare to talk about kind of more bolt-ons in terms of future M&A. Is that right? Or is there any kind of maybe on transformational, but kind of large-scale M&A that could be happening. Otherwise, I don't quite understand the GBP100 million. Thanks.

Question: Andrew Douglas - Jefferies - Analyst : Does that continue into '25, Paul, sorry?

Question: Andrew Douglas - Jefferies - Analyst : Yeah.

Question: Andrew Douglas - Jefferies - Analyst : Okay. Thanks very much and good luck with your next event.