Smiths Group PLC Half
Year Results FY2024
Tuesday, 26th March, 2024

Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

Opening Remarks
Paul Keel
Chief Executive Officer, Smiths Group
Good morning, everyone, and thanks for joining us.

As we typically do, I will provide a short

recap of our first-half results and then turn it over to Clare, to walk us through the numbers.
I will come back and update you on our progress with respect to strategy and operations, andthen we will open up for your questions.
Before we get to results though, let me say a few words about today's announcement
regarding our CEO transition.

As you will have seen, I am leaving Smiths to take a new rolein the US, and our board has appointed Roland Carter as my successor.
have been a period of strong progress for Smiths.
action in FY22.

The last three years

We completed a transformative portfolio

We delivered record performance in FY23 and we have now posted 11

consecutive quarters of growth with, as we will cover in just a moment, significant
momentum for the second half of FY24 and beyond.

Roland is the right leader to build on all

this momentum.
Clare and I will cover results in Q&A today, but I did want to take this opportunity tointroduce and personally congratulate Roland.
Roland Carter: Thank you very much.

Hello, I am Roland Carter.

been appointed as CEO of Smiths Group.
Smiths for over three decades.

Roland, over to you.
I am delighted to have

I am a chartered engineer, and I have been at

In this time, I have had the opportunity and the privilege tolead many parts of this company.

This has enabled me to develop an in-depth operationaland strategic understanding of Smiths and its fundamental growth drivers.
years, I have been president of Smiths Detection.
Interconnect and Asia Pacific.

For the past six

Prior to that, I was president of Smith

I have worked for Smiths in the UK, China, France, Germany,and several other places, and I am responsible for some of the acquisitions that form part ofSmiths and also for some of the divestments that have reshaped us.
business with great people and a wonderful culture.

Smiths is a fantastic

It has a hugely exciting growthpotential.
I would like to thank Paul for all he has done for Smiths.

We are making great strategic

progress and our operational and financial performance has improved, with Smiths wellpositioned to deliver on its significant potential.
Paul Keel: Thank you, Roland.

Thank you.

And again, congratulations.

CEO transition, let us now turn to our first-half results.

Okay.

Having covered theI will open with a short recap of our

first-half performance before turning it over to Clare to walk us through the numbers.

I willthen come back and update you on our progress with respect to strategy and operations, andas always, we will have plenty of time at the end for Q&A.
HY2024 – Solid growth, building on a record year
GrowthWe delivered 3.9% organic revenue growth in the first half, building on a record year in FY23.
We have now posted our 11th consecutive quarter of growth, extending our track record of2

Smiths Group PLC Half Year Results FY2024
consistent performance.

Tuesday, 26 th March 2024

Driven by strong underlying demand in energy security andaerospace, our orders grew 16.5% in H1, providing good momentum for the second half andbeyond.
Execution
Our execution focus and Smiths' Excellence System are delivering further tangible benefits.
Organic operating profit increased over 5%, resulting in a 20 basis point increase in operating
margin and a 50 basis point improvement in ROCE.
cash flow is much improved.

Our balance sheet remains strong, andOperating cash conversion increased 26% points to 89% andfree cash flow more than doubled.

As such, we increased our dividend by 5% and haveannounced a new £100 million share buyback programme.
PeopleWith respect to people, we continue to actively develop our global talent.

For example, we

more than doubled our investment in leadership development, and our wave one cohort ofBlack Belts and Master Black Belts are now completing their assignments and re-entering into
high-impact leadership roles across our company, backfilled by an even larger cohort of wave
2 talent.
We are also continuing to make good progress on advancing our sustainability strategy as the
Science Based Targets initiative, SBTi, validated our Net Zero targets and plans lastDecember.

In support of our communities, I mentioned the launch of our new Smiths

Foundation on our FY23 call in September.

I am now excited to share that we are making

our first wave of grants in support of charitable causes that link to our purpose of improving
our world through smarter engineering.
In summary, we are off to a successful start in fiscal 2024 and carry strong momentum into
the second half, and as such, we are reaffirming our full-year guidance of 4-6% Organic
revenue growth, with continued margin expansion.
Smiths Value Engine
You are familiar with our Smiths Value Engine, which connects the three components of our
success: our purpose, our strengths, and our priorities.

For today's presentation, we havealso added our financial commitments to the slide to illustrate how our strategy is
purposefully shaped to deliver the financial commitments we make to all of you.

Let us turnto those now.
Sustained progress against our medium-term targets
Clare will provide details on each of these in just a moment, so I will just hit the high points.
It was yet another period of strong, well-balanced performance for Smiths, 4% organic topline growth and 6% with M&A, good operational execution, turning this into 4.5% EPS growth,or 11% on a constant currency basis, and improved capital efficiency, resulting in a significant
increase in operating cash conversion and more than doubling free cash flow.

As all of you

know, when this business grows, as it has now for 11 straight quarters, it generates a lot of
profit and cash.
And with that as an overview, I will hand it over to Clare.

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Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

HY2024 Financial Results
Clare Scherrer
Chief Financial Officer
HY2024 – Growth across all key metrics
Thank you, Paul.

As previously mentioned, organic revenue growth for the half was 3.9%.

Acquisitions added 2.2%, and there was a negative 5.4% FX impact, bringing reported growth
to 0.7%.

We grew our operating profit to ₤246 million, up 5.3% organically, and we

improved margin by 20 basis points while at the same time investing for growth.

This

operating profit growth, combined with the net impact of the previous share buyback
programme and FX, contributed to EPS growth of 4.5%.

We increased cash conversion by 26

percentage points to 89%, with improvements in working capital.
points to 15.7%, reflecting increased profitability.

ROCE was up 50 basis

In line with our progressive dividend

policy, we are announcing a 5% interim dividend increase.
announce a new share buyback programme of £100 million.

And I am also pleased to
We launched the initial trancheof up to ₤50 million to be completed by the end of September.
Building a track record of consistent growth
We continue to extend our track record of delivering growth, now having grown revenue onan organic basis for 11 consecutive quarters, with growth in the first half against strong
comparators last year.
target range.

Notably, eight of those quarters were in or above our medium-term

H1 performance reflected growth in our two largest divisions, John Crane andDetection, and was delivered despite softness in certain end markets at Flex-Tek andInterconnect.

Our portfolio helps provide resilience when end-market performance isvariable, underpinning a more consistent growth performance for Smiths.
Moderate operating margin expansion
We converted revenue growth into 5.3% organic operating profit growth.

On the positiveside, acquisitions added 10 basis points and pricing more than offset inflation, leading to afurther 20 basis point expansion.

Benefits from the Smiths Excellence System, together withthe 2023 savings projects, added 130 basis points.
Flex-Tek together contributed 100 basis points.

Volume in John Crane, Detection and

The market-driven sharp volume contraction

at Interconnect compressed margin by 80 basis points.

To support the elevated activity at

Smiths Detection, we invested in additional field service engineers, increasing the number ofengineers by 11%, and this impacted margin by 30 basis points.

We also invested 120 basis

points to support future growth, primarily in John Crane, reflecting additional hiring andoperations, together with increased spending on marketing and systems.
In summary, we delivered a 16.3% operating profit margin, a 20 basis point expansion and inline with our full-year guidance for continued margin improvement.
Delivering EPS growth
For the half, the primary drivers of EPS growth were growth in operating profit and thebenefit from our previous share buyback programme.

FX netted EPS growth down to 4.5%.

However, on a constant currency basis, we delivered 11.3% EPS growth.

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Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

Improving cash conversion
Cash conversion in the first half was 89%, a 26 percentage point increase from last year,
driven by working capital improvement.

Our medium-term target is 100% cash conversion,

and we looked to make further improvements in the second half toward this level.
increased CAPEX 5.6% to ₤38 million, representing 1.5 times depreciation.
capacity expansion and investment in automation at John Crane.

We

This included

Finally, operating cash

performance translated to ₤112 million of free cash flow, more than doubling year-on-year.
Business Update
John Crane – strong organic revenue and operating profit growthNow, turning to each of the divisions.

John Crane delivered organic revenue growth of

12.7%, with a particularly strong performance in the first quarter, and this was against astrong comparator last year.

Growth was broad-based by end market and in both original

equipment and aftermarket sales.

This revenue growth translated into strong operating

profit growth and 110 basis points of organic margin expansion.
impact of cost inflation, and SES also drove performance.

Pricing discipline offset the

And we delivered this margin

progression while also continuing to invest in growth to service the strong demand we see
now and in the future.

This encompasses additional hiring and operations to support thestrong growth, together with increased spending on marketing and systems.

Order intake

grew 10.9% in the half, and the sustained high order book supports our positive outlook andexpectation for continued growth through the second half of the year.

John Crane is playing

an increasingly important role in helping our customers improve efficiency and reduce
emissions from their operations and is now present in more than 100 hydrogen and carbon
capture projects.

We will talk later about some of these recent contract wins.

Smiths Detection – significant growth in order book
Smiths Detection delivered strong organic revenue growth of 8.9%, with growth in bothaviation and other security systems.

In aviation, we continue to have strong demand for ourCT airport checkpoint scanners, and we continue to secure new contracts, with multiple wins
across the globe during the first half.

We estimate that the industry is only about 40% of theway through the checkpoint upgrade.

Importantly, these OE sales secure an attractive

aftermarket for us that we expect to continue to contribute to margin expansion over the
medium term. In other security systems, aftermarket revenue growth was particularly strongat 34%.

We expect growth overall to remain strong in the second half.

Operating profit growth was 10.3%.

Margin expanded by 20 basis points, reflecting thepositive benefits of SES and cost actions and the investment we made in increasing our field
service engineering team by 11% to support our record activity.
38%.

Orders were up more thanOrder intake in defence was particularly strong, driven by a multi-year contract for an

initial £88 million award from the UK Ministry of Defence for the next generation of chemical
detection equipment.

This followed an earlier award from the US Department of Defense tosupply chemical agent detectors.

Orders in Detection are for multi-year deliveries, witharound a third of the order book expected to contribute to revenue this year.
In summary, Smiths Detection is delivering on its growth potential, and we believe SES
benefits, increasing aftermarket revenue, and the impact of new contracts will support margin
expansion in the coming years.
5Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

Flex-Tek – soft construction market impacting growth
Now let us look at Flex-Tek where revenue declined 4.1% organically.

Flex-Tek's industrial

segment declined 7.6% in the first half, as expected, mainly in HVAC and due to soft US
residential construction.
aircraft builds.

Offsetting this, aerospace sales grew more than 12%, linked to new

Despite the overall lower sales, organic operating profit increased 2.6%, andwe expanded margins by 140 basis points.

The margin expansion resulted from tight cost

control plus positive mix impacts reflecting new industrial contracts.

This was supplemented

by the contribution of HCP, the acquisition we made in Q1, where integration is ahead of plan.
Looking forward, we expect our HVAC sales to improve as the US construction market
recovers.

Combined with continued strong aerospace sales, we anticipate that Flex-Tek will

return to growth in the second half of the year.
Smiths Interconnect – quarter-on-quarter momentum, with orders returning to growthin Q2
Turning now to Smiths Interconnect, organic revenue contracted 13.7% in the first half as aresult of challenging semiconductor and connector end markets, although importantly themarket backdrop improved through the half.

In Q1, Smiths Interconnect had double-digit

organic revenue decline, and in Q2 this improved to flat.

Order activity has also improved.

We had order growth in the second quarter, and we now have a positive book-to-bill ratio.
Reflecting lower sales, organic operating profit declined by a third, resulting in an operating
margin contraction of 370 basis points.

Despite the challenging first half, we maintained

R&D investment to support our new product pipeline, with recent product launches in medical,
space and defence markets.

Our orders have returned to growth, and the market backdrop

is showing signs of gradual improvement, underpinning our expectation for an improved
second half and underscoring our confidence and our medium-term outlook.
Capital allocation
Organic investment
Now to our capital allocation framework.

Our first priority is to support organic growth, andwe invested ₤83 million in R&D and CAPEX in the first half.
Portfolio changes
We supplement organic growth with strategic acquisitions, and we have spent £90 million on
three bolt-on acquisitions since the start of 2023, most recently Flex-Tek's acquisition of HCP,
which we announced in the first half.

We will maintain a disciplined approach as we actively

look for further additions to complement our portfolio. At the end of the first half, we soldaround a third of our stake in ICU Medical, raising almost £70 million, and have flexibility on
future monetisations.
Returns to shareholders
Our third priority is returning capital to our shareholders, and we are increasing our interim
dividend by 5%.

And given the strength of our balance sheet, we are also announcing a new₤100 million buyback programme with an initial tranche of up to £50 million to be completed
by the end of September.

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Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

Our leverage at the end of the half was 0.9 times net debt to EBITDA, so we have thestrength and financial flexibility to execute our growth strategy and to continue to deliver
against our medium-term financial targets.
H2 outlook reaffirms our FY guidance
Finally, with respect to our guidance, we are well-positioned for the remainder of the year.
With record order books at John Crane and Smiths Detection and expected gradual market
recovery in semicon and US construction and our new product pipeline, we expect growth toimprove in the second half, and we reiterate our 4-6% organic growth guidance.

We alsoexpect to see continued margin expansion.
With that, I will hand back to Paul.

Operational Update
Paul Keel
Chief Executive Officer, Smiths Group

Thank you, Clare.

I will now give an update on some of our strategic and operational

progress, beginning with growth.
Growth – market update
Building on what Clare said earlier, underlying demand remains strong in three of our largest
end markets, energy, security, and aerospace, while two other markets, construction andsemiconductors, contracted in H1.
John Crane
In the interest of time, I will touch on current dynamics in just one end market for eachbusiness, beginning in the top left, with energy, for John Crane.
growing market in the first half where we grew 17%.

Energy was our fastest-

Energy volume is a key metric for John

Crane as it determines capacity needs for our customers, which in turn drives demand forboth OE and aftermarket services for our products.

As you can see from the chart, energy

output continues to climb steadily, a trend we expect to continue throughout the second halfand beyond.
Flex-Tek
Moving counter clockwise to Flex-Tek, in the lower left, our construction sales in H1, around
15% of total Smiths were down 10%, consistent with the housing start data that you see
here.

We track a number of indicators in this part of our business: housing starts permit

applications, mortgage rates, builder confidence, etc.

And some of these factors, forinstance, housing permits and builder confidence, are trending positively.

Others, however,like US mortgage rates, still have further to go before a sustained construction uptick canconfidently be expected.

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Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

Now, as Clare mentioned, in total, we expect Flex-Tek to return to growth in H2, behind
continued

momentuminaerospace andindustrial electrification,

alongside gradually

improving conditions in HVAC.
Smiths Interconnect
Moving to the lower right, you see semiconductor market growth over time.

Semi-test

represents just under 3% of group sales, and after bottoming out in the spring of last year,
this market is now showing signs of recovery.

As such, we expect semi-tests specifically,

and Interconnect more broadly, to also return to growth in the second half.
Smiths Detection
Finally, for Detection in the top right.

Revenue passenger kilometres, one important metricfor our business, were up almost 30% in the half.

Regulatory mandates are anotherimportant driver, such as required checkpoint CT upgrades, which are underway across theglobe and of which I will say more in just a moment.

The strength of these and otherdynamics underpin good ongoing growth for Smiths Detection.
One final item to note on this chart is the clear benefit that comes from a balanced portfolio.
H1 softness in Flex-Tek and Interconnect was more than offset by strength in John Crane andDetection.

You will remember that the exact opposite took place in FY22 when Flex-Tek andInterconnect both grew double digits while Crane and detection were still recovering fromCOVID.

With a well-balanced portfolio – balanced by market, balanced by geography, andbalanced between OE and service – we are now demonstrating that we can deliver profitable
growth as well as stability.
Growth – H1 progress against long-term megatrends
Let me now say a few words about our near-term progress, accessing longer-term
megatrends.
Energy transition
Energy transition describes the world's multi-year, multi-trillion dollar commitment to movingfrom fossil-based to low-carbon fuels.

As we covered in some detail at our H1 capital

markets event, John Crane is uniquely positioned to support our customers along thisjourney.

We continue to see strong growth in this part of our business with a number of newcontract winds in H1, two of which you see here.

On the top left, a contract to supply drygas seals for critical compressors in a large-scale blue hydrogen project in Texas; and in thelower left, a significant contract to supply wet seals for an electric battery facility in
Tennessee.

The scope and diversity of these wins further demonstrates the breadth anddepth of John Crane's capabilities in energy transition.
Insatiable data demandWith respect to supporting the world's insatiable demand for data and connectivity, Smiths
Interconnect is similarly well-positioned. Our orders in satellite communications grew double
digits in H1.

Further bolstering momentum here, we received a £2 million grant from the UK

Space Agency to expand our space qualification lab in Dundee, Scotland, a major satellite
manufacturing hub for Europe.

8Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

Ever-rising security needs
On the right side of the chart, Smiths Detection plays a central role in protecting our worldfrom ever-rising security threats.

During H1, we secured two awards to develop and supply

next-generation chemical detector systems, one from the US Department of Defense and theother from the UK Ministry of Defence.

These multi-year awards will contribute accretive

growth in H2 and beyond.
As mentioned on the previous slide, mandated upgrades of airport security checkpoints are
now well underway.

40% of the roughly 6,000 checkpoints around the world have thus farordered new machines.

Smiths Detection has won more than half of all awards, and we wereparticularly active in H1.

These are just a few of the many growth programmes underway

across our company.
Growth – organic investment and acquisitions support geographical build-out at
Flex-Tek
At our Capital Markets event in 2022, we discussed our strategy of building Pan-North
American coverage for our highly successful HVAC business headquartered in South Carolina.
This is a great business for us, one where geographic proximity to customers is especially
important due to freight costs, cycle times, and regional product differences.

The first step inour expansion several years back was opening greenfield locations in Florida and Arizona, twoof the fastest-growing states in America.

In 2021, we acquired Royal Metal Products in

Georgia, another fast-growth state, further bolstering our position in the southeast.

In 2022,

we opened our third greenfield site in Texas, strengthening our coverage in yet another top10 housing market.

Earlier this fiscal, we acquired heating and cooling products in Ohio, amarket leader in important Midwest and Northeast states.
While we are now able to competitively serve customers across North America, we willcontinue to look for additional organic and inorganic opportunities to deepen our penetrationin markets where our customers need us most.
Execution – SES in action
Having covered a few of the many growth initiatives underway, let us now turn to execution,
where our Smiths Excellence System is at the core of our strategy.

As we did on the full-year call, today, I will share another example of SES in action, this time in Smiths
Interconnect.

Let me quickly set the stage.

In partnership with a major global healthcare customer, we designed a custom medical
connector, leading to a £10 million contract.

As the size of the programme necessitatedmore than a tenfold increase in line capacity, we charted a Black Belt project to map thevalue stream, optimise line layouts, and implement visual management systems, enabling ourteam to respond in real-time.
customer and for Smiths.

The results of the project have been encouraging for both ourThis project delivered a five-point improvement in gross margins

and a follow-on order, for an additional £4million, with line of sight to still more opportunity
down the road.
Let us now hear from Allyssa Skidmore, one of our senior engineering managers.
[VIDEO STARTS]
Case study video: Medical connector scale-up at Smiths Interconnect9Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

Allyssa Skidmore (Senior Engineering Manager): Smiths Interconnect supplies advanced
electronic components and subsystems and optical and radio frequency products forcustomers requiring reliable high-speed and secure connectivity across many end markets.
One end market our connectivity solutions supplies is medical devices, where our products areused in applications ranging from MRI systems to defibrillators
Lee Keller (Principal Engineer): As the principal engineer for medical connectors andcables, I was the lead on this important project where we partnered with a leading medical
device manufacturer to develop an extension cable for next-generation heart mapping
catheters used to map the electrical activity of the heart.
micro coax cables, each finer than a human hair.

Each cable consists of dozens of

Our cross-functional team designed andare in the process of patenting a method that connects each tiny wire in a way that achieves
reliable electrical and mechanical performance.
Oscar Romero (Black Belt): At the start of the project, we were producing 50 cables per
week with an average first-pass yield of 85 per station.

Our Black Belt project began by

improving the measurement system so we could first understand the baseline state of our
production line with high level of position and accuracy.

We now achieved this by having

implemented an hour-by-hour tracker for each workstation to measure and track output andquality performance.

Our team analysed the data and performed a value stream map andprocess mapping to quantify our current state.

And as is value flow, we used a statisticalprocess control to identify the main bottlenecks in our process.

Using lean tools including

5S, standard work and kaizens, an optimised line layout has now been established.

We haveintroduced standardised documentation to support our efforts, which the teams audit at thestart of each shift.

In addition, the cross-functional team participates in daily meetings tobuild ownership and identify opportunities to continuously improve the process.
Lee Keller (Principal Engineer): We now deliver a fully validated and technically superior
product within the aggressive 18-month timeline that our customer required.

We recognisethat the SES toolbox contains great methodologies and tools to support this required
expansion, so we initiated a Black Belt project to rapidly scale assembly line output andposition us to realise this £10 million annual sales opportunity.
Allyssa Skidmore (Senior Engineering Manager): We are currently building at a rate thatexceeds 20,000 cables per year, with an average first-pass yield per station greater than98%.

Our customer is delighted and what is more, the capabilities we developed for thisprogramme have positioned Smiths Interconnect to deliver tremendous value to ourcustomers and end-users across the medical field.

It is a great testimonial to how SES

makes profound difference for us and for our customers every day.
[VIDEO ENDS]Paul Keel: Thank you, Alyssa and team.

Another 50 or so projects like this are currently

underway across the company, and we are on track for £20 million in SES contribution for thefull year.
Execution/People – Smiths Excellence Awards: Advancing our high-performing andinclusive culture
Consistent with this, our Smiths Excellence Awards, which we celebrated last fall, recognised
distinctive contributions in support of the highest priorities you see here.

They are organised
10Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

around our strategies for growth, execution and people.

The Excellence Awards are one of abroad array of initiatives that can continually reinforce and advance our high-performing andinclusive culture.
years.

You have seen a marked uptick in Smiths performance over the past three

The many actions we have taken across this time, for example, strengthening ourleadership team, revitalising our new product engine, improving our portfolio, and embedding
SES and the Smiths leadership behaviours, are all interconnected building blocks of a muchbroader, stronger, and more stable foundation for Smiths.

It is our culture of continuous

improvement that underpins our sustained performance, and it is this foundation that will
provide continued success as we move forward.
People - Smiths Group Foundation awarding first grants
I will close my comments on H1 with a quick update on people and culture before wrapping
things up, with a look forward to H2.

With an eye to supporting all stakeholders, welaunched the Smiths Group Foundation last summer.

Across the first half of this fiscal,

employees from around the world nominated close to 100 different causes for funding
consideration, and after a rigorous selection process, the first wave of grants are now beingmade.

We have asked Hannah Constantine, Group Director of Legal Operations and Chair of

the Smiths Group Foundation, to say a few words about how we are advancing our purpose
and supporting stakeholder success.
[VIDEO STARTS]
Hannah Constantine (Group Director): I am Hannah Constantine, Chair of the Smiths
Group Foundation.

We launched the foundation in August, 2023 with an initial commitmentof £10 million from Smiths Group.

The foundation supports our goal of contributing

positively to our communities by providing grants to charitable organisations that align with
our purpose to improve our world through smarter engineering.

Each year, we aim to donate

between £0.5 million and £1 million, with individual grants ranging in size from £10,000 to£200,000.

The charities all support causes with activities in three key areas.

expanding access to STEM education and skills for underrepresented groups.
safety and connectedness within our communities.
sustainability

of

our

communities.

One,

Two, improving

And three, improving the environmental

Importantly,

Smithsemployees

nominatetheorganisations that will benefit from these grants, choosing courses that are close to theirhearts and within their own communities.
Now, having reviewed and vetted this first round of nominees with the help of the Charities
Aid Foundation, I am excited to announce that we are making our first grants worth around£1m in total.

Let me share with you just a few of the organisations that we will besupporting and the impact the grants will have: Inspire, GEANCO Foundation, Palace for Life,and STEMAZINGKids will provide greater access for STEM learning, mentoring, and career
support for underrepresented groups in a number of communities. Meanwhile, Just a Dropand Flint Global will support activities to safeguard safety and environmental sustainability.
I look forward to seeing the outcomes and impacts of these first grants and to the many
awards we will make in the future.

Thank you.

[VIDEO ENDS]Paul Keel: Thank you, Hannah.

Exciting to think about the positive impact that these grants

will support.
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Double-digit order growth and gradually improving market conditions – reaffirming
full-year guidance
Now, just a few comments by way of summary, and then we will open it up for yourquestions.

Double-digit order growth in H1, coupled with gradually improving market

conditions, has us well on track to deliver our full-year organic growth guidance of 4-6%.
The operating leverage that comes with this, alongside additional benefits from SES and otherproductivity initiatives, has us reaffirming our guidance of continued margin expansion.

And

on the back of our strong balance sheet and much-improved cash flow, we are announcing a
5% dividend increase and a new £100 million share buyback.

In short, a good start in H1

with even more to come in H2.
Our wonderful people make all this progress possible.

I want to recognise my colleagues

around the world for doing what we do best, improving our world through smarterengineering.

In the same way, we are grateful for the strong support that we enjoy from

customers and shareholders.
And with that, I will ask the operator to please open it up for Q&A.

Thank you.

Q&A
Lushanthan Mahendrajah (JP Morgan Casenove): Morning, all.
questions.

I have got two, I think.

Thanks for taking my

The first is just on margins, and going back to that

operating bridge you showed us in terms of both the 80 basis points headwind I think fromInterconnect volumes and then the 30 basis points from Detection and field service engineers.
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, how much further you
have to go in terms of the field service engineers?

Is that going to be an incremental

headwind going forward as well or are you done there?
Paul Keel: Morning Lush, thanks for the question.

With respect to margins, you asked about

Interconnect and Detection, let me take the two in sequence.

For Interconnect, yes, yourhypothesis is correct. As that business gradually returns to growth here in the second half,
margins will gradually return as well.

You remember that was an 18% margin business in

FY22, and as it gets back to the same volume levels, that same ballpark is about right forwhat you should expect.
With respect to Detection, we are clearly prioritising growth over margin in that business rightnow, and that is for two reasons.

First, we are as interested in operating profit growth as weare in operating margin for Detection.

It has had double-digit operating profit growth, bothin 2023 and in the first half, just that the top line is growing so quickly that the margin
percentage probably is not as pronounced as you would typically think with that much top-line
growth.
The second important thing is the market share piece for Detection.

The world is going

through an upgrade of all checkpoint systems from 2D to 3D scanners.

Those machines will

be in service for 10 years, and the gross margin on the service is better than two times what
it is on the OE.

So, we are pleased with our market share performance there.

As I

mentioned in my earlier comments, the world is maybe 40% through the total upgrade, and12

Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

we have won better than half of all tenders.

So the NPV of those awards will generate a lotof value moving forward.
Lushanthan Mahendrajah: Okay.

Very helpful, thank you very much.

one is just on the orders which are very strong in the first half.

And the second

And for some of thesedivisions, it is a bit more obvious than the others, but it would be helpful just to get areminder in terms of the timing of orders and for each division in terms of when that leads tosales.

And also particularly for Interconnect and Flex-Tek, what percentage of revenue doyou have visibility on an orders.

I am just trying to get an idea of H2 and then theunderpinning there of that order growth we have seen in H1.
Paul Keel: Yeah, let us see.
them.

The first is orders.

A couple questions in there.

Let me see if I can remember

We are up 17% in the first half, and we expect roughly half ofthat to convert to revenue in fiscal 2024.

A little bit different business by business.

largest percent of order book conversion, or the shortest cycle time, is in John Crane.
all of their double-digit order growth will convert here in fiscal 2024.

The

AlmostProbably the lowest

number would be Detection. Those are typically multi-year contracts.

In particular, the twolarge defence contracts, those are eight to ten-year contracts.

So maybe a third of

Detection's record order book will convert in this fiscal.
and for Interconnect.
by orders.

Let us see.

And then it is about half for Flex-Tek

You asked how much of Flex and Interconnect is covered

Roughly a third of Flex-Tek is order driven, and roughly two-thirds ofInterconnect.
Lushanthan Mahendrajah: Brilliant.

Thanks very much.

Mark Davies Jones (Stifel): Thank you very much.

Morning, Paul.

Morning, 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 are heading to?

Can you give us a little

reflection on where you think Smiths is relative to that 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?
Paul Keel: Thanks for the question, Mark.

As I mentioned in my introductory comments, I

am going back to the US to lead a US-listed company and doing so principally for personalreasons. I come from a big and close-knit family, and our kids, our siblings, our parents are
all in the States, and this is just a great opportunity to be closer to them.
With respect to US versus UK industrials, I took this job, and you and I talked a lot about thatwhen I did because I saw an opportunity for a fundamentally good company to perform at ahigher level, in line with Smiths' vast potential.

And as I reflect back on the last three years,

that proved to be even more true than I imagined at the time.
And my second reflection would build on that. For all Smiths has accomplished over the last
three years, I have not a shred of doubt that our brightest days are still ahead.

I do not see

any meaningful performance difference between the high-performing UK industrials and ourpeers in the US.

I think you are accurate though that there is a valuation difference inaggregate, but there is not in specific.

The highest valued UK engineering companies tradeat multiples, as good or better than what they would trade in the US.

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Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

Mark Davies Jones (Stifel): Thank you.

Can I ask one slightly more specific one aroundFlex-Tek?

Very impressive margins there in the period.

industrial.

What is driving that?

You talked about mix within

Paul Keel: Our industrial business is 80% of total Flex-Tek. Of the 80%, two-thirds of that,or 60%, is HVAC, and 20%, or one-third, of it is other industrial.
our process electrification business.
process electrification.

And a big part of that is

So the mix comment we made there would be specific to

In particular, we talk about the H2 green steel project, that very highmargin. The last 20% then of Flex-Tek is aerospace, and of course that is margin accretive
as well.
Mark Davies Jones (Stifel): Thanks very much.
Christian Hinderaker (Goldman Sachs): Yes.

Morning, Clare, Roland, Paul.

Can I justask firstly, on the Interconnect business in terms of the mix, 19% semi-test, 26% otherindustrial for the 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 colouron which of those areas drove that sharp inflection in orders in the second quarter?
Paul Keel: You set the table well.
come back to that.

Roughly half of all Interconnect is connectors.

Maybe a quarter is sat com, and then a quarter is semi-test.

also right that the dynamics are well understood.
growth and no signs of softening.

I will
You areSat com market, strong double-digit

I spoke about semi semi-test earlier, gradually recovering.

We expect it to return to growth in the second half.
Now for the connectors’ part, there is a couple different pieces to that.
connectors business.

A typical application would be rail.

vibration environments.

We have an industrial

Our connectors are good in high-So the connectors between two rail cars is a typical example.

market is still in recovery, up and down.

That

We have a medical connector business that we

gave an example of the SES project for. That is going well because of these big contracts
that we are winning.

And then we have a small defence electronics piece of that as well,connectors that go into those applications, and as you would expect, that market is growing,
but they are typically forward-dated contracts.
Christian Hinderaker: Well, I have got two now on the capital allocation, the buyback £100
million, and how we should think about that in the context of the £70 million proceeds fromthe ICU estate[?] sale.

Should we assume that one spurred the other, and how do we think

about the remaining equity stake in ICU?
Paul Keel: Clare, do you want to take that?
Clare Scherrer: Yes. So thanks Christian.

The decision to initiate a new buyback

programme reflects our improved cash conversion and also our commitment to return excess
capital to shareholders.

So we took that decision looking holistically at our anticipatedsources and uses of cash.

We took into account firstly our first priority for capital allocation,

which is organic investment.

[Inaudible] we looked at our anticipated acquisition [inaudible]–[BREAK IN AUDIO 44.39 – 45.12]

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Smiths Group PLC Half Year Results FY2024
Christian Hinderaker: Thanks, Clare.

Tuesday, 26 th March 2024

Maybe just if you could add to that, what are theviews 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 portfoliothat we should be thinking of?
Clare Scherrer: At 0.9 times net debt to EBITDA, we are sitting very comfortably.

We feelthat that is a balance sheet that allows us to pursue all of the organic and inorganic
opportunities that we have in our sight.

It is a very comfortable place for us to be.

of our M&A pipeline, I would describe that as active and growing.

In terms

And you have seen the

successful acquisitions we have made recently since the start of FY 2023.

We deployed£90 million for acquisitions, the largest of which was HCP and Flex-Tek, which is performing
ahead of plan.

And we are really happy with that integration.

We would love to do moreacquisitions like that.
Christian Hinderaker: Very clear.

Thank you.

Jonathan Hurn (Barclays): Hey guys.

Good morning.

Just three questions from me.

Firstly, I just wonder if we can just come back to the margin bridge for 2024, but take it up toa group level.

Maybe Clare, could you just give us a little bit of colour about how would you

think on a full-year basis, the impact from mix, from[?] investment growth, and also, what
tailwinds on a full-year basis we could see from price, cost and SES?
Clare Scherrer: So when you think about the full year, we reiterate our guidance forcontinued margin expansion.
we want.

We will continue to save where we can in order to spend where

And that is what you see when you look at the group-level margin bridge. We willcontinue to achieve more in price than in input inflation.
SES benefits.

We intend to continue to deliver

We have almost 50 Black Belt projects in flight.

described here today.

That will continue to deliver benefit.

You saw one of thoseWe also have the full-year

benefit of the savings programmes that we put in place last year.
Then on the other side, we will of course have the benefit of the order books coming throughin Crane and Detection and gradual recovery in Flex-Tek and Interconnect, which will improve
volume and operating leverage.

And as Paul mentioned though, we are going to continue tolean into growth, and that is where you saw the investment in field service engineers for
Detection.

You also saw the investment primarily in John Crane, in commercial aftermarket

support and systems and marketing, because we have momentum, and we want to continue
to build that momentum.
Jonathan Hurn: Okay.

But just on a basis points’ impact, is there going to be any

significant difference full-year relative to what we saw in the half-year bridge?
Clare Scherrer: It will not be significantly different.
Jonathan Hurn: Okay.

That is very clear.

Thank you.

obviously, the defence contracts that you won.
beneficial.

The second question was just on,

I think you alluded to them being mixed

Can you just talk a little bit about the margins of those defence contracts, please?

Clare Scherrer: Well, we certainly do not talk about margin by contract, but that segment,
the defence segment within Detection, is margin accretive.
Jonathan Hurn: Okay.

And is that significantly above where the current margin for

Detection is in terms of relative for those defence contracts?
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Smiths Group PLC Half Year Results FY2024

Tuesday, 26 th March 2024

Paul Keel: Jonathan, these are chemical detector contracts to develop the next generation oflightweight mobile chemical detector to be used in defence and civil applications.
is with the US DoD, one is with the UK MoD.

Again, one

So the first piece of it is development revenue

that tends to be high margin, and then it turns into production units.

Those units are also

margin accretive to Detection.
Jonathan Hurn: Okay.

That is clear.

And just finally, maybe on John Crane, obviously,

you talked about the order book and most of that being delivered, if not all about being
delivered in the second half.

If we look to John Crane to next year FY25, obviously, you arecoming up against tougher comps.

How do we think about that growth of that business? Do

you think it starts to slow down towards 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.
Paul Keel: I might say two things.

First is we do not see any evidence in the market datathat we get, or in our order book, or in our customer behaviour of near-term slowing in thatmarket.

Both the traditional energy side and certainly the new energy side are buoyant rightnow.
With respect to the second half, as I mentioned, half of our total order book for Smiths will
convert in FY24, but almost all of the John Crane order book.
the second half.

So we have good visibility to

Rolling into FY25, it is a little early to provide guidance on that.

the market to remain strong.

We expect

We expect John Crane to be accretive to group growth.

So if

the group is going to be at 4-6%, we expect John Crane to be at the north end of that or alittle bit higher.
Jonathan Hurn: Okay.

That is clear.

Thank very much guys.

Andrew Douglas (Jefferies): Morning, guys.

Thank you.

Three questions for me please.

Can youtalk about the broader investments in the group? You have got 30 basis points and then a
120 basis points headwinds this year.
got John Crane.

We have got Flex-Tek recovering clearly, and we have

Hopefully[?] what you are saying is wrong[?].

Is this business underinvested? What the rationale behind putting 150 basis points of cost into this business? Or is
it [inaudible] and last year?
On the cash flow, can you just talk about the building blocks for getting towards 100%? You
doubled your cash flow, which is a good improvement in the first half against a low base.
But can you just talk about how we get to that 100%?
And then lastly, on the M&A buyback debate, the buybacks are less than 2% of your market
cap, you have probably got over ₤1 billion of firepower, yet you appear, Clare, to be talking
about more bolt-ons in terms of future M&A.

Is that right?

Or is there any, maybe nottransformational, but large-scale M&A that could be happening?

Otherwise, I do not quite

understand the ₤100 million.

Thanks.

Paul Keel: All right, Andy.

Let me take the first one, group growth.

I will let Clare tohandle cash flow, and then you called it a debate between M&A and buyback.
there is a debate.

I am not sureI think our allocation strategy is clear, but I will let Clare answer that one.

Investments in growth, the answer to your question is embedded in the question itself.
Market demand is so strong in 70% of the company right now, in John Crane and in Detection
and in the aerospace part of Flex-Tek, that I think we would be silly not to be in investing in
16

Smiths Group PLC Half Year Results FY2024
that growth.

Tuesday, 26 th March 2024

All of these businesses have a combination of an original equipment and ahigher margin aftermarket component to it.
perspective is the easiest maths you will run.
seems like a value accretive decision.

And capturing share now from an NPV

So taking advantage of that opportunity, to us,

That is why we are doing it.

Andrew Douglas: Does that continue into 2025, Paul?
Paul Keel: Will that continue into 2025?
Andrew Douglas: Yeah.
Paul Keel: If the market dynamics continue to give opportunity, we will continue to prioritise
growth.

And along with that comes not just top-line growth, Andy, but the operating profit

growth.

Over the last three years, the company has a compounded annual growth rate ofoperating profit of 14% alongside the 7% CAGR on organic growth.

So we are getting strong

top-line growth and converting it to even stronger profit growth.

We are very pleased withthat dynamic.
Andrew Douglas: Okay.
Clare Scherrer: And then Andy, in terms of your other questions, as we look to the second
half, we do have the opportunity to continue to improve working capital.
have the opportunity to improve inventory and our inventory turns.

We also specificallyThat is why I said that

we do believe as we go to the second half, we will continue to improve upon the 89%
operating cash conversion.
From an M&A perspective, primarily what we look at are what you would describe as bolt-ons,
consistent with what we have done in the past, most recently HCP and Plastronics.
course, we look at opportunities for all of the divisions across all geographies.

Of

We are always

looking to see if there are new technologies that enhance our core or strengthen us inadjacencies.

We do, of course, look at larger opportunities when they come along, but our

primary focus continues to be on bolt-on opportunities.
And then finally, in terms of your question around the balance sheet, prior to the sale ofMedical, we ran the balance sheet at around 1.5 times leverage.

We are now at 0.9 times,

so we have ample headroom if we were to find an interesting and larger acquisition.
However, right now, it is a very comfortable place for us to be.

It allows us to execute on

what we have consistently communicated as the priority ranking, organic first, M&A second,
and then returning excess capital to shareholders.
Andrew Douglas: Okay.

Thanks very much, and good luck, Paul, with your next venture.

Paul Keel: Thanks, Andy.

Okay, well, thanks everyone, for tuning in today.

As wementioned, we are pleased with the start to FY24, good top-line growth, again, converting toeven higher EPS growth on a constant currency basis.

And the very strong order growth in

the first half leaves us confident of continued margin expansion and acceleration in thesecond half, causing us to reaffirm guidance of 4-6% for the year.
So with that, well, thank you for your kind attention and we will leave it at that.
[END OF TRANSCRIPT]

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