REG - Smiths Group PLC - Strategic Update

SmithsAnnouncement

31/01/2025 07:00

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RNS Number : 3695V  Smiths Group PLC  31 January 2025

31 January 2025

For immediate release

This announcement contains inside information

SMITHS GROUP PLC

Strategic actions to unlock significant value and enhance returns to
shareholders

Building on our strong operational and financial performance, Smiths Group plc
("Smiths" or "the Group") announces a number of strategic actions to unlock
significant value and enhance returns to shareholders:

·    Smiths to focus on high performance industrial technologies for
efficient flow and heat management

o Focus on world-class John Crane and Flex-Tek businesses

o Leading positions in attractive markets with structural growth mega-trends

o Track record of organic growth, strong operational and financial
performance, and attractive financial returns

·    Smiths Interconnect to be divested, targeting a transaction
announcement by end of calendar year 2025

·    Smiths Detection to be separated either by UK demerger or sale
following the sale of Smiths Interconnect

·    Acceleration Plan continues and will deliver a streamlined Group cost
base

·    Share buyback programme increased to £500m

o Completion of £150m already announced by end March 2025

o Additional £350m to be returned by end December 2025

·    A large portion of all disposal proceeds to be returned to
shareholders in addition to share buyback programme announced today

·    Capital allocation strategy will deliver enhanced returns to
shareholders, together with disciplined investment for growth, while
maintaining a strong balance sheet with an intended investment grade rating

·    New Board committee appointed to oversee execution of the strategic
actions

·    Commitment to execute the strategy at pace and in the right way for
colleagues and all relevant stakeholders

Roland Carter, CEO of Smiths Group plc said, "We are pleased with the
financial and operating performance of the Group over recent years, including
the recent upgrade to earnings. Against this strong backdrop and since my
appointment, the Board has spent considerable time evaluating the options to
maximise shareholder value and address the persistent discount to the
significant value embedded within the Group.

"We start from a position of strength and as we execute this strategy, we will
become a more focused business with significant potential for future growth
and value creation. Focusing on our world-class John Crane and Flex-Tek
businesses and carefully managing the separation of Smiths Interconnect and
Smiths Detection, we will deliver significant value for all stakeholders.

We are conscious of the impact of making such changes on our people and will
do so in a manner that is respectful of our employees, our customers and our
suppliers and in the long-term interests of all our stakeholders."

Background

Over the past three years, Smiths Group has delivered strong financial
performance and clear progress on its growth strategy:

-     7% compound annual organic revenue growth (FY2021-FY2024)

-     130bps reported operating margin expansion to 16.8%

-     Average cash conversion of 88%

-     Continued investment in growth with R&D spend at 3-4% of revenue

-     Concluded five acquisitions for a combined £255m at an average
multiple of 8.0x EV/EBITDA

-     Returned in excess of £1.2bn to shareholders by way of dividends
and buybacks

Against this backdrop of strong delivery and continued performance
improvement, together with recent upgrades to FY2025 guidance, Smiths Group
today announces an updated strategy to drive improved future value creation
for shareholders.

Strategic focus

Focus on John Crane and Flex-Tek

Capitalising on our strong financial and operational momentum, we will now
simplify the Group to focus on high performance industrial technologies for
efficient flow and heat management. These technologies are delivered by our
world-class John Crane and Flex-Tek businesses, which serve attractive energy
and industrial end markets and are set to deliver continued growth and margin
expansion. The Group is excited by the potential for the future value creation
that these two strong platforms offer, including pursuing shared opportunities
such as process heat control. We will provide an update on our future
strategic focus for the Group at the interim results in March.

Separation of Smiths Interconnect and Smiths Detection

Smiths Interconnect and Smiths Detection are both attractive businesses with
strong market positions, leading technologies and close customer
relationships. Both businesses have delivered significant recent performance
improvement, with Smiths Interconnect's markets returning to growth and Smiths
Detection benefiting from the continued airport investment upgrade cycle.

Recognising this improvement, the Board has decided that the separation of
these two divisions now best serves the prospects of these businesses, the
Group as a whole and our shareholders.

Smiths today announces that it will launch a sale process for Smiths
Interconnect and is targeting a transaction announcement by the end of
calendar year 2025. Smiths will subsequently progress the separation of Smiths
Detection either by way of a UK demerger or sale. Smiths is focused on
delivering separation processes that recognise and value the strengths of each
of these businesses.

The Board has established a committee of the Board to oversee the
implementation of these strategic actions.  This will comprise the Chairman,
Steve Williams and independent non-executive directors Alister Cowan, Richard
Howes, Simon Pryce and Mark Seligman, all of whom have significant value
creation, capital markets and M&A experience.

Future business profile

Following the separation of Smiths Interconnect and Smiths Detection, Smiths
will become a simpler business with more attractive future growth potential
and a higher quality financial profile.

·    Market position: high performance industrial technology businesses
with leading positions

·    Attractive end markets: well-positioned in attractive markets with
the potential to cover a broad range of energy diversification scenarios

·    Strong margins and returns: John Crane and Flex-Tek each delivered
operating profit margins in excess of 20% and returns on capital employed in
excess of 25% in FY2024

·    Further improvement potential: continued execution of our
Acceleration Plan to improve our businesses and create a streamlined Group
cost base in line with portfolio changes

Further details of our updated strategy and new medium-term financial targets
will be presented at the Group's interim results in March.

Disciplined capital allocation, with enhanced capital returns

On 13 November 2024, Smiths announced the increase in its share buyback
programme from £100m to £150m. Today, Smiths announces a further increase in
its share buyback programme from £150m to £500m.

We have completed £85m of the previously announced £150m and will complete
the remaining £65m by the end of March 2025 - ahead of our original target.

We expect the additional £350m announced today to be completed by the end of
calendar year 2025.

Additionally, we will return a large portion of all disposal proceeds, whilst
maintaining a strong balance sheet with an intended investment grade rating.

We are excited by the future potential of a more focused Smiths Group and will
continue to invest in the business organically as well as to pursue value
creating bolt-on acquisitions.

Our updated strategy enables us to deliver enhanced returns to shareholders
alongside disciplined investment for growth whilst maintaining a strong
balance sheet with an intended investment grade rating.

Impact on our people

We acknowledge the impact that this announcement will have on our people. We
will undertake all the necessary planning, engagement and consultation with
all relevant stakeholders to facilitate this process.

Update on cyber incident

Further to Tuesday's announcement regarding a cyber incident, we continue to
manage our response.  The impact was limited to the Company's internal
enterprise systems, and we have made good progress in the recovery of these,
with most critical systems being back online.

As a result of the immediate, proactive measures that we took, we have been
able to minimise the impact on our operations.

In terms of financial impact, our guidance for the full year is unchanged
noting that, given the proximity of the incident to our half year close, we
anticipate a portion of the revenue from the last week of January will shift
into the second half of the financial year.

 

ENDS

 

Presentation

A webcast presentation and Q&A will begin at 09.00 (UK time) today at:
https://smiths.com/investors/results-reports-and-presentations
(https://smiths.com/investors/results-reports-and-presentations) .

A recording will be available from 13.00 (UK time).

 

 

 IR contacts                                                      Media contacts

 Siobhán Andrews, Smiths Group                                    Tom Steiner, Smiths Group

+44 (0) 7920 230093
+44 (0)7787415891

siobhan.andrews@smiths.com                                      tom.steiner@Smiths.com (mailto:tom.steiner@smiths.com)

 Ana Pita da Veiga, Smiths Group                                  Alex Le May, John Waples, Edward Bridges, FTI Consulting

+44 (0) 2037271340
 +44 (0)7386 689442                                               Smiths@fticonsulting.com (mailto:smiths@fticonsulting.com)

 ana.pitadaveiga@Smiths.com

 Company Secretary

 Matthew Whyte

+44 (0) 7775 982879
 matthew.whyte@Smiths.com (mailto:matthew.whyte@smiths.com)

 

 

 About Smiths Group

 

For over 170 years, Smiths has been pioneering progress by engineering a
better future. We serve millions of people every year, to help create a safer,
more efficient and productive, and better-connected world across four global
markets: energy, safety & security, aerospace & defence, and general
industrial. Listed on the London Stock Exchange, Smiths employs c.15,000
colleagues in over 50 countries. For more information visit www.
(http://www.smiths.com) smiths (http://www.smiths.com) .com
(http://www.smiths.com)

 

This announcement contains inside information in relation to Smiths for the
purposes of Article 7 of the Market Abuse Regulation.

The person responsible for arranging the release of this announcement on
behalf of Smiths is Matthew Whyte, Company Secretary

Legal Entity Identifier (LEI): 213800MJL6IPZS3ASA11

 

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