SMITHS GROUP PLC - HALF YEAR
RESULTS FOR 6 MONTHS ENDED 31 JANUARY 2024
Pioneers of progress -
improving our world through smarter engineering
+3.9% organic revenue growth
and +16.5% order growth in H1;
reaffirming full-year guidance of 4-6% organic revenue
growth
· Solid first half performance
with good momentum for the second half
o
Organic revenue growth1 of +3.9%
against record comparator, led by strong growth at
John Crane +12.7% and Smiths Detection +8.9%
o
Revenue declines at Flex-Tek of (4.1)% and Smiths Interconnect of (13.7)%;
with improved performance in the second quarter
in both divisions
o
Group orders2 up +16.5%, driven by
John Crane +10.9%, Smiths Detection +38.2% and Flex-Tek aerospace
+11.6%; double-digit order growth at Smiths Interconnect in Q2,
following a
double-digit decline in Q1
· Commercial wins underpinning
full-year guidance and future growth
o
Continued improvement in demand for John Crane's
solutions supporting energy security and energy transition,
including wins across carbon capture, blue hydrogen and battery
manufacturing
o
Smiths Detection secures multiple next-generation
CTiX platform contracts globally; an award from the US DOD to
supply portable aerosol and vapour chemical detectors and an
initial £88m contract with the UK MoD to provide chemical detection
technology
· Execution focus driving
performance improvements; SES delivering further tangible
benefits
o
Headline organic operating
profit3 +5.3%; headline operating margin3 expansion of +20bps to
16.3%, alongside reinvestment for growth
o
ROCE4 up +50bps to 15.7%, driven by
the profit improvement
o
SES benefit of £10m; on track for
full-year contribution of £20m
o
Cash conversion4 up 26 percentage points
year-on-year to 89%, resulting from working capital improvement;
free cash-flow more than doubled to £112m
· Strong balance sheet
supports investment in organic and inorganic
growth
o
Net debt to EBITDA4 of 0.9x
o
Acquisition of Heating & Cooling Products
for <7x EBITDA; integration progressing ahead of plan
o
Interim dividend of 13.55p, up 5.0%
o
New £100m share buyback programme announced, with
first tranche of up to £50m to be completed by the end of September
2024
· Roland Carter appointed as
the Group's Chief Executive Officer, with immediate effect,
following Paul Keel's decision to step down to take on a new role
as chief executive of a US public company
FY2024
Outlook
· Reaffirming
FY2024 organic revenue growth within our medium-term target range
of 4-6%, with continued margin expansion
Headline3
|
HY2024
|
HY2023
|
Reported
|
Organic1
|
Revenue
|
£1,507m
|
£1,497m
|
+0.7%
|
+3.9%
|
Operating
profit
|
£246m
|
£241m
|
+2.1%
|
+5.3%
|
Operating
profit margin4
|
16.3%
|
16.1%
|
+20bps
|
+20bps
|
Basic
EPS
|
48.7p
|
46.6p
|
+4.5%
|
|
ROCE4
|
15.7%
|
15.2%
|
+50bps
|
|
Operating
cash conversion4
|
89%
|
63%
|
+26pps
|
|
Statutory
|
HY2024
|
HY2023
|
Reported
|
Revenue
|
£1,507m
|
£1,497m
|
+0.7%
|
Operating
profit
|
£192m
|
£187m
|
+2.7%
|
Profit for the half year (after
tax)
|
£111m
|
£109m
|
+1.8%
|
Basic EPS
|
32.0p
|
30.6p
|
+4.6%
|
Dividend per share
|
13.55p
|
12.9p
|
+5.0%
|
Paul Keel, Chief Executive
Officer, commented:
"We are off to a
good start in FY24 with +3.9% organic revenue growth and +16.5%
order growth in the first half, against a record comparator last
year, and marking our 11th consecutive quarter of
revenue growth.
"We continue to focus on
innovation as an enduring driver of value, as highlighted through
the roll-out of our next-generation threat detection technology in
airports around the world. We also continue to strengthen our
energy transition impact, with significant project wins in carbon
capture, blue hydrogen and electric battery
manufacturing.
"We expect growth to improve in
the second half, driven by a record order book for Smiths Group,
continued strength in end markets like aerospace, security and
energy, as well as gradually improving conditions in the industrial
segments that were softer in the first half. Together, this gives
us confidence in reaffirming our
full-year 2024 guidance of 4-6% organic revenue growth, with
continued margin expansion.
"As we continually advance our Purpose of improving our world
through smarter engineering, we are
pleased to announce that the Smiths Group
Foundation is now awarding its first set of grants to charities
which are aligned with our Purpose.
"Thank you to my colleagues around
the world for all you do. It has been a
tremendous honour to have led this wonderful company over the past
three years, working alongside our many talented employees, and I
am proud of everything we have achieved together. I'm excited for
what lies ahead for Smiths and to see Roland continue to build on
its successes and deliver further value for all Smiths Group's
stakeholders."
UPCOMING
EVENTS
Date
|
Event
|
21 May
2024
|
Q3
Trading Update
|
24
September 2024
|
FY2024
Full Year Results
|
13
November 2024
|
Q1
Trading Update and Annual General Meeting
|
Statutory reporting
Statutory
reporting takes account of all items excluded from headline
performance.
See
accounting policies for an explanation of the presentation of
results and note 3 to the financial statements for an analysis
of
non-headline items.
Definitions
The
following definitions are applied throughout the financial
report:
1 Organic is headline adjusted to exclude the effects of
foreign exchange and acquisitions.
2 Order intake growth excludes
the effects of foreign exchange.
3 Headline: In addition to
statutory reporting, the Group reports on a headline basis.
Definitions of headline metrics, and information about the
adjustments to statutory measures, are provided in note 3 to the
financial statements.
4 Alternative Performance
Measures ("APMs") and Key Performance Indicators ("KPIs") are
defined in note 19 to the financial statements.
Presentation
The
webcast presentation and Q&A will begin at 08.30 (UK time)
today at: https://smiths.com/investors/results-reports-and-presentations.
A recording will be available from 13.00 (UK time).
Legal
Entity Identifier (LEI): 213800MJL6IPZS3ASA11
This document contains certain
statements that are forward-looking statements. They appear in a
number of places throughout this document and include statements
regarding the intentions, beliefs and/or current expectations of
Smiths Group plc (the "Company") and its subsidiaries (together,
the "Group") and those of their respective officers, directors and
employees concerning, amongst other things, the results of
operations, financial condition, liquidity, prospects, growth,
strategies, and the businesses operated by the Group. By their
nature, these statements involve uncertainty since future events
and circumstances can cause results and developments to differ
materially from those anticipated. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this document and, unless otherwise required by
applicable law, the Company undertakes no obligation to update or
revise these forward-looking statements. The Company and its
directors accept no liability to third parties. This document
contains brands that are trademarks and are registered and/or
otherwise protected in accordance with applicable
law.
Our
Purpose
We are pioneers of progress -
improving our world through smarter engineering. Smarter
engineering means helping to solve the toughest problems for our
customers, our communities and ourselves. We help to create a
safer, more efficient and better-connected world.
Our Priorities and Targets
Smiths is intrinsically strong
with world-class engineering, leading positions in critical
markets, and distinctive global capabilities, all underpinned by a
strong financial framework. We continue to make progress and
deliver on our potential by focusing on three top priorities of
accelerating growth, strengthening execution and doing ever more to
inspire and empower our people.
Our focused plan, the Smiths Value
Engine, is the means through which we are delivering the
medium-term targets that we have set. We have continued to make
solid progress across these targets, including eleven consecutive
quarters of organic revenue growth.
Targets
|
Medium-Term
Target
|
HY2023
|
HY2024
|
Progress
|
Organic Revenue
Growth
|
4-6%
(+
M&A)
|
+13.5%
|
+3.9%
|
Reaffirmed full-year guidance of 4-6%
|
Headline EPS
Growth
|
7-10%
(+
M&A)
|
+52.1%
|
+4.5%
|
EPS
growth driven by operating profit growth and benefit of share
buyback, partially offset by FX
|
ROCE
|
15-17%
|
15.2%
|
15.7%
|
ROCE
within our medium-term target range, reflecting growth in operating
profit
|
Operating Profit
Margin
|
18-20%
|
16.1%
|
16.3%
|
Continued
margin improvement, benefiting from SES, with continued investment
in growth
|
SmiOperating Cash
Conversion
|
100%+
|
63%
|
89%
|
Improvement in working capital delivers solid cash
conversion
|
These targets are underpinned by
Smiths operational KPIs and environmental targets, including a
commitment to Net Zero for Scope 1 and 2 emissions by 2040 and Net
Zero for Scope 3 emissions by 2050.
HY2024 Business Performance
Smiths delivered organic revenue
growth of +3.9% in the first half. We generated £246m of headline
operating profit, up +5.3% on HY2023 on an organic basis, and
delivered moderate margin improvement as we continue to drive
growth, improve execution and invest in our
people.
£m
|
HY2023
|
Foreign
exchange
|
Acquisitions
|
Organic
movement
|
HY2024
|
Revenue
|
1,497
|
(76)
|
31
|
55
|
1,507
|
Headline
operating profit
|
241
|
(14)
|
6
|
13
|
246
|
Headline
operating profit margin
|
16.1%
|
|
|
|
16.3%
|
GROWTH
Accelerating growth is the
primary driver of unlocking enhanced value creation for the Group.
We have now delivered eleven consecutive quarters of organic
revenue growth. Momentum improved in the second quarter, with
organic growth of 4.2%, following 3.5% organic growth in the first
quarter, against record comparators of 13.2% and 13.6% in Q1 and Q2
of FY23.
Organic revenue growth (by
business)
|
H1 2023
|
H2 2023
|
HY2024
|
John
Crane
|
+14.6%
|
+15.8%
|
+12.7%
|
Smiths
Detection
|
+14.0%
|
+18.8%
|
+8.9%
|
Flex-Tek
|
+17.0%
|
+3.6%
|
(4.1)%
|
Smiths
Interconnect
|
+3.3%
|
(8.4)%
|
(13.7)%
|
Smiths
Group
|
+13.5%
|
+9.9%
|
+3.9%
|
Strong growth continued in the
first half for our two largest businesses. John Crane posted double
digit growth in both revenue and orders. Smiths Detection delivered
+8.9% organic revenue growth and +38.2% order growth, with
particular strength in computed tomography ("CT") for airport
checkpoints and chemical detection for defence. For Flex-Tek,
strength in aerospace was not enough to overcome softness in the US
construction market, leading to a (4.1)% overall decline.
We anticipate that Flex-Tek will return to growth
in the second half. Smiths Interconnect
declined (13.7%). This was anticipated, as FY23 orders were down
(17%). We are seeing early signs of recovery in Smiths
Interconnect, with positive order growth and flat revenues in the
second quarter, after a sharply negative first
quarter.
Revenue grew +0.7% on a reported
basis across the Group, to £1,507m (HY2023: £1,497m). This included
a (£76m) negative foreign exchange translation impact and +£31m
from the acquisitions of Plastronics and Heating and Cooling
Products ("HCP").
Strong execution to access end market
opportunity is the first of the
four levers for accelerating growth.
Our business operates across four
major global end markets: General Industrial, Safety &
Security, Energy, and Aerospace. Our strong market positions,
coupled with the balanced market exposure we have across our
businesses, are distinctive long-term advantages for
Smiths.
Organic revenue growth
(by end market)
|
% of
Smiths
revenue
|
H1 2023
|
H2 2023
|
HY2024
|
General
Industrial
|
39%
|
+15.4%
|
+1.0%
|
(5.5)%
|
Safety
& Security
|
31%
|
+9.4%
|
+14.4%
|
+7.2%
|
Energy
|
23%
|
+17.1%
|
+21.8%
|
+16.6%
|
Aerospace
|
7%
|
+10.1%
|
+10.8%
|
+5.4%
|
Smiths
Group
|
100%
|
+13.5%
|
+9.9%
|
+3.9%
|
Organic revenue in our largest end
market, General Industrial, declined (5.5)% in HY2024, with good
demand in John Crane's industrial markets more than offset by
weaker demand for Flex-Tek's heating,
ventilation and air conditioning ("HVAC")
products and Smiths Interconnect semiconductor test and connectors
products. Organic revenue growth in Safety & Security was
+7.2%, reflecting Smiths Detection's strong delivery against its
orderbook, partially offset by a decline in Smiths Interconnect
from the timing of defence programmes. The +16.6% growth in Energy
reflected the broad-based strong demand at
John Crane and execution against its record order book. Aerospace
organic revenue increased +5.4% with new aircraft build programmes
supporting demand at Flex-Tek offsetting the impact of delays in
aerospace programmes in Smiths Interconnect.
Our second lever for faster growth
is improved new product development and
commercialisation. In HY2024, 200bps of growth was delivered
from high impact new products including John Crane's
next-generation diamond coating product offering for high-speed and
high-heat applications, Smiths Detection iCMORE software which uses
AI and advanced detection algorithms for automated detection, and a
high-density electrical connector for the medical market from
Smiths Interconnect. Gross vitality, which measures the proportion
of revenues coming from products launched in the last five years,
was 31.5% (HY2023: 29.5%), supported by our successful new product
commercialisation.
As an industrial technology
leader, continuing to invest in R&D ensures we capitalise on
the wealth of opportunities in our pipeline, with increasing demand
from our customers for solutions that help them achieve their
sustainability objectives. In the first half, we invested £52m in
R&D (HY2023: £59m), of which £35m (HY2023: £41m) was an income
statement charge, £7m was capitalised (HY2023: £8m) and £10m
(HY2023: £10m) was funded by customers. Partly accounting for the
year-on-year decline is the decision to move certain R&D
projects to lower cost jurisdictions, resulting in more efficient
R&D spend.
To support new product launches,
and the strong demand for our existing solutions, we increased
capex +5.6% in HY2024 to £38m (HY2023: £36m), with a key project
being investment in automation at
John Crane. This equates to 1.5x depreciation and amortisation
(HY2023: 1.4x).
Our third growth lever is
building out priority
adjacencies. Each of our four businesses are executing
strategies to expand beyond their existing core markets and ensure
we capitalise on the long-term megatrends of energy transition and
sustainability, ever-rising security needs and enhanced
connectivity. Examples in HY2024 include Flex-Tek's heating
solutions used by our customers in various process electrification
applications, and building out Smiths Detection's defence business,
with two multi-year chemical detection awards, from the US
Department of Defence and an initial £88m contract from the UK
Ministry of Defence.
Our fourth growth lever is using
disciplined M&A to
augment our primarily organic growth focus. We acquired HCP in
August 2023. HCP provides geographic synergy to Flex-Tek's existing
HVAC business and its patented axial and radial seal duct products
help our customers meet increasing efficiency regulations in
residential and light commercial construction. The acquisition is
off to a good start with integration progressing ahead of
plan.
EXECUTION
Stronger execution is our
second key priority.
In HY2024, headline operating
profit grew +5.3% (+£13m) on an organic basis, and +2.1% (+£5m) on
a reported basis, to £246m (HY2023: £241m). Group headline
operating profit benefited from +18.3% organic growth in John Crane
and +10.3% in Smiths Detection. Flex-Tek delivered +2.6% organic
headline operating profit growth as positive mix impact and good
cost control offset the lower sales. Organic headline operating
profit declined (33.3)% in Smiths Interconnect, behind sharply
lower volumes.
£m
|
HY2023
|
Foreign
exchange
|
Acquisitions
|
Organic
movement
|
HY2024
|
Headline
operating profit
|
241
|
(14)
|
6
|
13
|
246
|
Headline
operating profit margin
|
16.1%
|
(10)bps
|
+10bps
|
+20bps
|
16.3%
|
Headline operating profit margin
was 16.3%, up +20bps on both an organic and a reported
basis.
Headline operating profit
margin (by business)
|
HY2023
|
HY2024
|
John
Crane
|
22.0%
|
23.0%
|
Smiths
Detection
|
10.5%
|
10.7%
|
Flex-Tek
|
19.5%
|
21.2%
|
Smiths
Interconnect
|
16.6%
|
12.2%
|
Smiths
Group
|
16.1%
|
16.3%
|
By division, strong operating
leverage on the higher sales volume resulted in margin expansion
at
John Crane. Smiths Detection improved its margin moderately.
Flex-Tek delivered a higher margin, despite the lower organic
revenue, helped by positive mix impact and good cost control. The
sharply lower organic revenue at Smiths Interconnect resulted in an
associated margin decline.
Headline EPS grew +4.5%, driven by
the headline operating profit growth and the benefit from the share
buyback programme, partially offset by foreign exchange impacts.
The headline tax charge was £59m (HY2023: £58m) which represents an
effective rate of 26.0% (HY2023: 26.0%).
ROCE increased +50bps to 15.7%
(HY2023: 15.2%) reflecting the higher profitability of the Group.
For further detail, please refer to note 19 of the financial
statements.
Headline operating cash conversion
for HY2024 was 89% (HY2023: 63%), supported by a marked
improvement in working capital versus the same period last year.
Headline operating cash-flow4 was £218m
(HY2023: £151m).
In HY2024, free cash-flow4 generation more than doubled
to £112m (HY2023:
£46m) or 45% of headline operating profit (HY2023: 19%).
The Smiths Excellence System
("SES") is one of the key initiatives to enhance execution and
support the delivery of our medium-term financial targets. In the
first half, SES projects delivered a £10m benefit to operating
profit (HY2023: £5m). The Group continues to expect the full-year
benefit to amount to £20m.
Supporting this delivery, there
are 46 Black Belt projects currently underway. Our first cohort of
Black Belts and Master Black Belts are now completing their roughly
two-year assignments and returning to leadership roles across the
Group. This accelerates the cultural benefits of SES as programme
graduates incorporate SES learnings into leadership roles across
the Group. New Master Black Belts are being appointed, whilst we
continue to expand our Black Belt cohort. SES is fast becoming the
way we work at Smiths and to celebrate the contribution it is
making, the Smiths Excellence Awards in November recognised a
number of outstanding achievements across the Group.
PEOPLE
Inspiring and empowering our people
is our third key priority and our people plan is
focused around four key areas of safety; leadership development;
diversity, equity and inclusion; and engagement.
The first area, safety, alongside
health and well-being, is an essential foundation of our
success. In the first half of the year,
our recordable incident rate was 0.46 (HY2023: 0.42), demonstrating
the need to continue to focus on strengthening culture and reducing
risk across all sites. A key event in the
first half was our three-day global HSE conference in February
which covered topics including safety culture, the connection
between SES and HSE, and hazard perception and risk assessment.
Safety leading indicator activities, comprising peer-to-peer
observations and leadership tours, reinforce these messages on a
day-to-day basis.
Following the rollout of our
Smiths Leadership Behaviours through the course of FY2023, we have
embedded them into our key people-related activities such as talent
development, performance management and learning programmes across
all our operating businesses and geographies.
In terms of talent development,
our Accelerate Leadership Development programme ("Accelerate")
rollout continues. We have doubled the number of workshops to date
this year and expanded it to 15 new countries, including Brazil and
Singapore. With 300 employees having participated to date; we
expect to have around 600 participants complete the programme by
the fiscal year end. Accelerate improves the effectiveness of our
leaders and the engagement of our teams. In parallel with this, we
have also launched an initiative focused specifically on building
capability in leading change. The Leading Change & Action
Learning programme was piloted in John Crane and is now being
extended across the Group.
Our commitment to fostering
diversity, equity, and inclusion is integral to our people
strategy. We prioritise enhancing gender diversity across all
organisational levels, striving for equity in advancement
opportunities. Our efforts to foster an environment of inclusivity
and belonging is further bolstered by active employee resource
groups ("ERGs") such as the Black Employee Network, Veterans
Network, Pride Coalition and Women@Work, and the recently launched
Neurodiversity ERG.
Through this focus on inspiring
and empowering our people, our voluntary attrition rate continues
to improve, down 170bps at the end of the first half for our global
employees, and down 100bps for our engineering
employees.
OUR ESG APPROACH
Environment, Social and Governance
("ESG") is at the very centre of our Purpose, and fundamental to
each of our three key priorities.
Growth
An important element of our ESG
plan centres on supporting our customers on their sustainability
journeys. Many of our new products and R&D initiatives are
focused on commercialising high-value green technology, as well as
enhancing production efficiency for our customers. One example is
John Crane's growing presence (now more than 100 projects) in
hydrogen and carbon capture markets. Another example is Flex-Tek
supporting the development of the world's first green steel
production facility in northern Sweden. A third example is in
Smiths Detection, where our new CTiX scanners improve our airport
customers' energy efficiency by using up to 20% less electricity
when compared to alternative systems.
Execution
We are executing well against our
ESG framework, with significant progress
and performance against our sustainability metrics, which are now
fully incorporated into both our annual and long-term
incentives.
We were pleased to receive
validation of our net zero GHG emission targets by the Science
Based Targets initiative ("SBTi") in the first half. Smiths'
targets align with the UN's critical
global climate objectives under the Paris Agreement and our
ambition to limit global warming to 1.5°:
Net Zero GHG emissions from Smiths operations (Scope 1&2) by
2040; and Net Zero GHG emissions from Smiths value chain (Scope 3)
by 2050.
Both targets are supported by a
robust and credible, bottom-up decarbonisation pathway and delivery
plan using fiscal year 2021 as the baseline year and, in accordance
with SBTi methodology, include 2032 interim targets for supplier
engagement and reducing Scope 1&2 emissions by
50%. Both overall and interim targets in
the plan have been validated by the SBTi. We continue to implement
programmes to deliver on our targets, with energy efficiency the
primary focus, but are also making progress in other areas such as
renewable electricity sourcing and a greater number of fleet cars
being switched to EVs.
People
Engagement with our communities
has long been a strength of Smiths. Following the launch in FY2023
of our new charitable foundation, "The Smiths Group Foundation", we
are making our first grants, totalling c.£1m, to charities around
the world. The Foundation has committed an initial £10m of funding
aligned with our Purpose of improving the world through smarter
engineering. These cover three key areas: expanding access to STEM
education and skills for under-represented groups; improving safety
and connectedness within communities, for example, cleaner air or
water or food security; and improving the environmental
sustainability of communities, for example climate change
resilience, recycling or water conservation. We look forward to
seeing the impacts achieved with these grants at the charities
supported in this first round.
Governance
The Board has appointed Roland
Carter as the Group's Chief Executive Officer and as a Director of
Smiths, with immediate effect. This follows Paul Keel's decision to
step down from his position as Chief Executive Officer and from the
Board with immediate effect, to return to the USA to take on a new
role as chief executive of a US public company. (See separate RNS
announcement published today).
In November, Steve Williams was
appointed as Chairman for Smiths Group. We announced that Bill
Seeger will retire from the Board of Smiths on 31 May 2024, at
which point Mark Seligman will take over as the Senior Independent
Director.
CAPITAL ALLOCATION
With our strong technology, market
positions and growth opportunities, and financial framework, our
highest capital priority continues to be organic growth. Accretive
M&A, either to strengthen core positions or to accelerate
penetration of priority adjacencies comes second. Third, we have a
strong track record of returning capital to shareholders, with more
than £1.1bn returned to shareholders in the past two and a half
years, via dividends and the share buyback
programme.
Organic investment
In the first half, we invested
£38m in capex projects, including investment in automation at John
Crane. This spend included £7m in capitalised R&D on programmes
such as next-generation hold and cabin baggage screening and
further advancements in our defence portfolio. A further £35m in
R&D was charged to the income statement, supporting new product
development.
M&A
Plastronics, acquired in January
2023, has now successfully been integrated into Smiths
Interconnect.
We also completed the acquisition of HCP in August 2023, a US-based
manufacturer of HVAC solutions.
Its integration into our Flex-Tek division is progressing ahead of
plan.
These acquisitions support our
strategy to make complementary inorganic investments to accelerate
our presence in adjacent markets or expand our product offering. We
have an active acquisition pipeline and disciplined M&A
approach across the Group.
Shareholder
returns
During the first half, we
completed the Group's £742m share buyback programme, with the final
£29m spent in the period. A new share buyback programme of £100m is
now being launched, with up to £50m to be completed by the end of
September 2024.
In line with our progressive
dividend policy, the Board is declaring an interim dividend of
13.55p, a year-on-year increase of +5.0% (HY2023: 12.9p). The
interim dividend will be paid on 13 May 2024 to shareholders on the
register at close of business on 5 April 2024. Our dividend policy
aims to increase dividends in line with growth in earnings and
cash-flow, with the objective of maintaining minimum dividend cover
of around two times. The policy enables us to retain sufficient
cash-flow to finance investment in growth and meet our financial
obligations. In setting the level of dividend payments, the Board
considers prevailing economic conditions and future investment
plans.
The Company offers a Dividend
Reinvestment Plan ("DRIP") enabling shareholders to use their cash
dividend to buy further shares in the Company - see our website for
details. To participate in the DRIP, shareholders must submit their
election notice to be received by 19 April 2024 ("the Election
Date"). Elections received after the Election Date will apply to
dividends paid after 13 May 2024. Purchases under the DRIP are made
on, or as soon as practicable after, the dividend payment date and
at prevailing market prices.
Net debt
Net debt4 at 31 January
2024 was £505m (FY2023: £387m), as we paid £100m in dividends and returned £29m to
shareholders via our share buyback which completed during the half.
Net debt to headline EBITDA4 was 0.9x
(FY2023:
0.7x).
As at 31 January 2024, borrowings
were £673m (FY2023: £654m) comprising a €650m bond which matures in
February 2027 and £125m of lease liabilities. There are no
financial covenants associated with these borrowings. Cash and cash
equivalents as at 31 January 2024 were £180m (FY2023: £285m).
Together with our $800m (c.£629m at the period-end exchange rate)
revolving credit facility, which matures in May 2028, total
liquidity was £809m at the end of the period.
ICU Medical stake
Since the sale of Smiths Medical
in January 2022, the Group has held a financial asset reflecting
our equity ownership in ICU Medical, Inc ("ICU").
See note 12 of the financial statements for
further detail.
In February, we sold
830,000 shares in ICU, representing approximately 3.44% of ICU's
issued share capital, and equivalent to approximately 33% of
Smiths' holding in ICU, with net proceeds of c.$88m (£70m) from the
sale. Smiths continues to hold 1,670,000 shares representing
approximately 6.92% of ICU's issued share capital. In anticipation
of Bill Seeger's retirement from the Smiths Board on 31 May
2024,
Bill resigned as the Smiths nominated Director on the Board of ICU,
effective 28 February 2024.
STATUTORY RESULTS
Income Statement
The £54m difference between
headline operating profit of £246m and statutory operating profit
of £192m is due to non-headline items as defined in note 3 of the
financial statements. The largest non-headline items relate to the
amortisation of acquired intangible assets of £25m, an increase of
£22m in costs for asbestos litigation in John Crane Inc, offset by
a provision reduction of £7m for subrogation claims in Titeflex
Corporation. The statutory operating profit of £192m was £5m higher
than last year
(HY2023: £187m), reflecting the higher headline operating
profit.
Statutory finance costs were £21m,
broadly flat with the prior half-year (HY2023:
£20m).
The statutory effective tax rate
was 35.0% (HY2023 38.4%) and includes a non-headline tax charge of
£1m (HY2023 £6m). Please refer to notes 3
and 5 of the financial statements for further details
Total Group profit after tax and EPS
Statutory profit after tax for the
Group was £111m (HY2023: £109m) and statutory basic EPS was 32.0p
(HY2023: 30.6p).
Statutory
cash-flow
Statutory net cash inflow from
operating activities for the total Group was £168m (HY2023: £100m).
See note 16 of the financial statements for a reconciliation of
headline operating cash-flow to statutory
cash-flow.
Pensions
Included within free cash-flow was
£3m of pension contributions (HY2023: £3m). These contributions
relate to unfunded, overseas schemes and healthcare
arrangements.
As previously announced, it is not
anticipated that any further contributions will be made to the TI
Group Pension Scheme ("TIGPS"), as the liabilities of which have
now been insured via a series of buy-in annuities. Smiths and the
TIGPS Trustee are working toward final buy-out of the scheme to
deliver certainty for the Scheme's 20,000 members and remove future
risk for Smiths.
The other major pension scheme,
Smiths Industries Pension Scheme ("SIPS") is estimated to be in
surplus on the Technical Provisions funding basis, and no cash
contributions are currently being made. The Group and the SIPS
Trustee continue to work together to progress towards the long-term
funding target of full buy-out funding.
The two
main UK pension schemes and the US pension plan are well hedged
against changes in interest and inflation rates. The entirety of
their assets are invested in third-party annuities, government
bonds, investment grade credit or cash, with no remaining equity
investments. As at 31 January 2024, over 60% of the UK liabilities
had been de-risked through the purchase of annuities from third
party insurers.
Foreign
exchange
The results of overseas operations
are translated into sterling at average exchange rates. Net assets
are translated at period-end rates. The Group is exposed to foreign
exchange movements, mainly the
US Dollar and the Euro. The principal exchange rates, expressed in
terms of the value of Sterling, are shown in the following
table.
|
Average rates
|
Period-end rates
|
|
31 Jan
2024
(6
months)
|
31 Jan
2023
(6
months)
|
31 Jan
2024
|
31 Jan
2023
|
USD
|
1.25
|
1.18
|
1.27
|
1.23
|
EUR
|
1.16
|
1.15
|
1.17
|
1.13
|
|
|
|
|
|
| |
Outlook
For FY2024, we reaffirm our
guidance of organic revenue growth within our medium-term target
range of 4-6%, underpinned by record order books. We expect growth
to improve in the second half, supported by continued strength in
end markets such as aerospace, security and energy, and gradually
improving market conditions in US HVAC and semiconductors. We also
reaffirm our expectation for continued margin expansion in
FY2024.
JOHN CRANE
John Crane is a leading provider
of mission-critical engineered solutions, improving customers'
reliability and sustainability in process industries. 63% of
revenue is derived from the energy sector (downstream and midstream
oil & gas and power generation, including renewable and
sustainable energy sources).
37% is from other process industries including chemical, life
sciences, mining, water treatment and
pulp & paper. 73% of John Crane revenue is from aftermarket
sales. John Crane represents 37% of Group revenue.
|
HY2024
|
HY2023
|
Reported
|
Organic
|
|
£m
|
£m
|
growth
|
growth
|
Revenue
|
555
|
519
|
+7.1%
|
+12.7%
|
Original Equipment
|
80
|
83
|
(4.3)%
|
+0.3%
|
Aftermarket
|
271
|
233
|
+16.5%
|
+22.5%
|
Energy
|
351
|
316
|
+11.0%
|
+16.6%
|
Original Equipment
|
72
|
73
|
(0.0)%
|
+5.0%
|
Aftermarket
|
132
|
130
|
+1.7%
|
+7.4%
|
General Industrial
|
204
|
203
|
+1.1%
|
+6.5%
|
Headline operating profit
|
128
|
114
|
+12.7%
|
+18.3%
|
Headline operating profit
margin
|
23.0%
|
22.0%
|
+100bps
|
+110bps
|
Statutory operating profit
|
106
|
99
|
|
|
Return on capital employed
|
25.1%
|
21.7%
|
|
|
R&D cash costs as % of sales
|
1.6%
|
2.0%
|
|
|
Revenue
£m
|
HY2023
reported
|
Foreign
exchange
|
Organic
movement
|
HY2024
reported
|
Revenue
|
519
|
(26)
|
62
|
555
|
John Crane continued its strong
organic growth performance and has now delivered eleven consecutive
quarters of growth as it executes on its record order book. For the
first half, John Crane delivered organic revenue growth of +12.7%,
with a particularly strong performance in the first quarter.
Aftermarket sales, which comprise 73% of sales (HY2023: 70%), grew
+17.1%, while OE grew +2.5%, both on an organic basis.
Order intake grew +10.9% in the
half, and the sustained high order book supports a
positive outlook and continued growth through the second half of the
year.
Reported revenue grew to £555m,
which was up +7.1%, reflecting strong organic growth, partially
offset by a negative foreign exchange impact.
In Energy, organic revenue grew
+16.6%, benefiting from an increased focus on energy security and
higher demand for energy efficiency and emissions reduction.
Regionally, there was a strong performance in the Middle East and
Asia for our advanced seals and gas compression
products.
John Crane is well positioned to
support customers with their decarbonisation goals with 30% of its
sales coming from products and services which provide some type of
decarbonisation benefit. John Crane won several notable energy
transition project contracts in the first half - including one to
supply dry gas seals for three supercritical CO2
compressors of a large-scale blue hydrogen project in the USA, and
a significant contract to supply wet seals for almost a hundred
pumps to a zero-emission vehicle electric battery manufacturing
facility, also in the USA.
In January,
John
Crane celebrated a key
milestone for its CCUS offering, supplying its 1,100th
sealing product for CO2-related applications. John Crane
has been a constant enabler of technology since installing its very
first dry gas seal at a carbon capture facility in 1996, working to
reduce emissions for its customers. The pipeline of opportunities
John Crane is pursuing within energy transition in CCUS, hydrogen
and biofuels continues to expand rapidly.
The Industrial segment grew +6.5%
organically, with good growth across both OE and aftermarket sales,
driven by broad-based demand and particular strength in water,
pharmaceutical and marine sales.
Operating profit and ROCE
£m
|
HY2023 reported
|
Foreign
exchange
|
Organic
movement
|
HY2024 reported
|
Headline operating profit
|
114
|
(6)
|
20
|
128
|
Headline operating profit
margin
|
22.0%
|
|
|
23.0%
|
Headline operating profit of £128m
grew +18.3% on an organic basis, resulting in +110bps of margin
expansion. This was driven by increased volumes with good operating
leverage, partially offset by higher investment in growth to
service the strong demand and deliver future opportunities. Pricing
offsetting inflation and the benefits from SES projects supported
margin expansion to 23.0%.
On a reported basis, headline
operating profit was up +12.7%, which
included a negative foreign exchange impact. The difference between statutory and headline operating
profit mainly relates to the net cost of the provision for John
Crane, Inc. asbestos litigation.
ROCE was 25.1%, up 340bps,
reflecting headline operating profit growth.
R&D
Cash R&D expenditure was 1.6%
of sales (HY2023: 2.0%). John Crane's continued investment in
R&D is primarily focused on gas compression projects and
enhancing the efficiency, performance and sustainability of
heavy-duty seals and hydrogen compressors.
John Crane is well placed to
support energy transition projects with its extreme
temperatures/high pressure sealing solutions. John Crane continues
to work with universities to develop and bring to market these
innovative technologies and solutions that will help solve customer
challenges and accelerate the decarbonisation agenda.
SMITHS DETECTION
Smiths Detection is a global
leader in the detection and identification of threats and
contraband, supporting safety, security and freedom of movement. It
produces equipment for customers in the Aviation market and Other
Security Systems for ports & borders, defence and urban
security markets.
54% of Smiths Detection's sales are derived from the aftermarket.
Smiths Detection represents 27% of Group revenue.
|
HY2024
|
HY2023
|
Reported
|
Organic
|
|
£m
|
£m
|
growth
|
growth
|
Revenue
|
404
|
390
|
+3.6%
|
+8.9%
|
Original Equipment
|
112
|
110
|
+0.8%
|
+5.7%
|
Aftermarket
|
157
|
153
|
+2.7%
|
+8.0%
|
Aviation
|
269
|
263
|
+1.9%
|
+7.0%
|
Original
Equipment
|
74
|
79
|
(5.3)%
|
(0.1)%
|
Aftermarket
|
61
|
48
|
+27.8%
|
+34.1%
|
Other Security
Systems
|
135
|
127
|
+7.2%
|
+12.8%
|
Headline operating profit
|
43
|
41
|
+4.1%
|
+10.3%
|
Headline operating profit
margin
|
10.7%
|
10.5%
|
+20bps
|
+20bps
|
Statutory operating profit
|
33
|
24
|
|
|
Return on capital employed
|
7.9%
|
7.2%
|
|
|
R&D cash costs as % of sales
|
7.6%
|
8.4%
|
|
|
Revenue
£m
|
HY2023
reported
|
Foreign
exchange
|
Organic
movement
|
HY2024
reported
|
Revenue
|
390
|
(19)
|
33
|
404
|
Smiths Detection delivered +8.9%
organic revenue growth in the first half, converting strong orders
to revenue, with growth across most segments. Aftermarket revenue
grew +14.2% organically, making up 54% of sales (FY2023:
51%).
Orders grew +38.2% in the half,
with several large multi-year contracts awarded, supporting revenue
growth in FY2024 and beyond.
Reported revenue was up +3.6%
reflecting organic growth, partially offset by an unfavourable
foreign exchange impact.
In Aviation, organic revenue grew
+7.0%, reflecting continued strong demand for Smith Detection's
latest range of 3D-image computed tomography ("CT") machines for
cabin baggage, CTiX. Smiths Detection continues to achieve a strong
win rate in aviation with key contract wins in all regions globally
and to date, has now sold more than 1,200 CTiX scanners. Notable
wins in the first half included Australia,
Czech Republic, France, Germany, Japan, Saudi Arabia, the UK and
the USA.
Other Security Systems sales grew
+12.8% organically, notably in aftermarket. Order intake in defence
was particularly strong for chemical detection, driven by a
multi-year contract for an initial
£88 million from the UK Ministry of Defence, for next generation
chemical detection equipment. This followed an award from the US
Department of Defense to supply next generation portable aerosol
and vapour chemical agent detectors. In urban security, Smiths
Detection provided security screening at COP28 and its X-ray
screening equipment was used to protect the NFL Super
Bowl.
Operating profit and ROCE
£m
|
HY2023
reported
|
Foreign
exchange
|
Organic
movement
|
HY2024
reported
|
Headline operating profit
|
41
|
(2)
|
4
|
43
|
Headline operating profit
margin
|
10.5%
|
|
|
10.7%
|
Headline operating profit was up
+10.3% on an organic basis for the year, supported by the strong
organic revenue growth and SES benefits. On a reported basis,
headline operating profit was up +4.1%, including a moderate
negative foreign exchange translation.
Headline operating profit margin
of 10.7% was up 20bps on both an organic and a reported basis
reflecting the positive benefits of SES
and cost actions. This was partly offset by the expansion in field
service engineers to support the high installation
activity. Further, over the longer term,
higher margin aftermarket revenue associated with new OE sales, our
continued SES initiatives, and a positive mix impact from new
defence contracts coming online are expected to support continued
margin expansion.
The difference between statutory
and headline operating profit primarily reflects amortisation of
acquired intangibles.
ROCE increased by +70bps to 7.9%,
driven by the headline operating profit growth.
R&D
Cash R&D representing 7.6% of
sales (HY2023: 8.4%) supports Smiths Detection investment in
next-generation detection capabilities and included £9m in customer
funded projects (FY2023: £9m). Smiths
Detection also benefits from external R&D funding, and during
the first half, was selected for EU funding as part of a consortium
to develop new AI-based algorithms for automatic detection of
narcotics in passenger baggage, and to develop a maritime customs
border control screening system for portable screening technology
for shipping containers.
FLEX-TEK
Flex-Tek provides innovative
solutions to heat and move fluids and gases for industrial and
aerospace applications that support energy efficiency and improved
air quality. 81% of Flex-Tek's revenue is derived from Industrials
and 19% from the Aerospace sector. Flex-Tek represents 25% of Group
revenue.
|
HY2024
|
HY2023
|
Reported
|
Organic
|
|
£m
|
£m
|
growth
|
growth
|
Revenue
|
384
|
395
|
(2.8)%
|
(4.1)%
|
General
Industrial
|
310
|
326
|
(4.8)%
|
(7.6)%
|
Aerospace
|
74
|
69
|
+6.3%
|
+12.1%
|
Headline operating
profit
|
81
|
77
|
+5.3%
|
+2.6%
|
Headline operating profit
margin
|
21.2%
|
19.5%
|
+170bps
|
+140bps
|
Statutory operating
profit
|
74
|
64
|
|
|
Return on capital
employed
|
26.1%
|
26.6%
|
|
|
R&D cash costs as % of
sales
|
0.4%
|
0.4%
|
|
|
Revenue
£m
|
HY2023
reported
|
Foreign
exchange
|
Acquisitions
|
Organic
movement
|
HY2024
reported
|
Revenue
|
395
|
(22)
|
26
|
(15)
|
384
|
Organic revenue declined (4.1)% in
the first half. Revenue on a reported basis declined (2.8)%, with a
(£15m) organic decline and a (£22m) negative foreign exchange
translation impact, partly offset by a +£26m contribution from HCP,
which was acquired in August
2023.
In General Industrial, organic
revenue was (7.6)% lower in the first half versus a tough
comparator last year. As expected, soft US residential construction
activity continued to impact our HVAC sales, which started to slow
in the second half of last year. Market expectations that mortgage
rates will continue to moderate, combined with a meaningful housing
inventory deficit and improving builder confidence, inform our
expectation that our HVAC sales will improve in the second half.
Combined with continued strong aerospace sales, we anticipate that
Flex-Tek will return to growth in the second half.
In Aerospace, organic revenue grew
+12.1% in the first half, supported by an increasing number of
aircraft builds. A strong order book supports our expectation for
continued good growth into the second half.
Operating profit and ROCE
£m
|
HY2023
reported
|
Foreign
exchange
|
Acquisitions
|
Organic
movement
|
HY2024
reported
|
Headline operating profit
|
77
|
(4)
|
6
|
2
|
81
|
Headline operating profit margin
|
19.5%
|
|
|
|
21.2%
|
Headline operating profit grew
+2.6% on an organic basis. The decline in revenue was offset by a
higher gross margin, reflecting tight cost control in light of the
lower volume, plus positive mix impacts reflecting new industrial
heating contracts and the contribution of HCP.
The difference between statutory
and headline operating profit is due to amortisation of acquired
intangible assets and the provision for Titeflex Corporation
subrogation claims.
ROCE decreased (50)bps to 26.1%,
with profit growth offset by the foreign exchange
impact.
The integration of HCP is
progressing ahead of plan. The acquisition expanded Flex-Tek's
presence in the North American HVAC market by extending its
customer base in the midwest and
north-east, and broadened its product
range, including HCP's patented axial and radial seal duct
technology.
R&D
Cash R&D expenditure grew
in-line with sales, remaining at 0.4% of sales (HY2023: 0.4%).
R&D is focused on developing new products for the construction
and aerospace markets, and new electrification opportunities within
industrial markets.
SMITHS
INTERCONNECT
Smiths Interconnect designs high
performance connectivity solutions for demanding applications in
the aerospace and defence, semiconductor test, and industrial
end-markets. Smiths Interconnect represents 11% of Group
revenue.
|
HY2024
|
HY2023
|
Reported
|
Organic
|
|
£m
|
£m
|
growth
|
growth
|
Revenue
|
164
|
193
|
(15.3)%
|
(13.7)%
|
Headline operating profit
|
20
|
32
|
(37.4)%
|
(33.3)%
|
Headline operating profit margin
|
12.2%
|
16.6%
|
(440)bps
|
(370)bps
|
Statutory operating profit
|
19
|
30
|
|
|
Return on capital employed
|
10.5%
|
15.8%
|
|
|
R&D cash costs as % of sales
|
6.8%
|
6.5%
|
|
|
Revenue
£m
|
HY2023
reported
|
Foreign
exchange
|
Acquisitions
|
Organic
movement
|
HY2024
Reported
|
Revenue
|
193
|
(9)
|
5
|
(25)
|
164
|
Smiths Interconnect's organic
revenue declined in the first half, reflecting continued weakness
in the semiconductor market and a slower market in connectors
resulting in part from customer destocking, as well as a tough
year-on-year comparator in both these segments. A
double-digit contraction in the first quarter was followed by a flat second quarter,
resulting in a (13.7)% organic decline overall for the first
half.
Reported revenue decreased (15.3)%
reflecting a negative foreign exchange impact and a £5m
contribution from Plastronics which has strengthened the semiconductor product portfolio and provided
greater exposure to automotive and industrial end
markets.
Although the semiconductor market
downturn has been longer than expected, activity levels are
starting to increase and alongside good growth in space and
defence-related programmes, orders returned to growth in the second
quarter, with a positive book to bill for the division.
Operating profit and ROCE
£m
|
HY2023
reported
|
Foreign
exchange
|
Acquisitions
|
Organic
movement
|
HY2024
|
Headline operating profit
|
32
|
(2)
|
(0)
|
(10)
|
20
|
Headline operating profit margin
|
16.6%
|
|
|
|
12.2%
|
Headline operating profit declined
(33.3)% on an organic basis, resulting in a (370)bps reduction in
operating profit margin to 12.2%. The decline was driven by lower
volumes more than offsetting pricing, SES benefits and the impact
of cost control initiatives. Headline operating profit was down
(37.4)%, mostly reflecting the organic revenue decline.
The difference between statutory
and headline operating profit reflects the amortisation of acquired
intangibles, acquisition costs.
ROCE reduced (530)bps to 10.5%
driven by the lower operating profit.
R&D
Cash R&D expenditure as a
percentage of sales was 6.8% of sales (HY2023: 6.5%). R&D is
focused on developing new products that improve connectivity and
product integrity in demanding operating environments. Product
launches during the first half included a high-density electrical
connector for the medical market and a new series of fixed
attenuators and Thermopad® products for use in space, defence and
aerospace applications.
Space grade products are a key
development focus, and in the first half, Smiths Interconnect
received funding from the UK Space Agency of around £2m through its
'Space Clusters Infrastructure Fund'. Smiths Interconnect will use
the funding to enhance its Dundee-based Space Qualification
Laboratory, which simulates the extreme conditions of space to
assure the quality and durability of space components.
PRINCIPAL RISKS AND
UNCERTAINTIES
The Group has a risk management
structure and internal controls in place which are designed to
identify, manage and mitigate business risks. Smiths faces a number
of risks and uncertainties which could have a material impact on
the Group's long-term performance.
Principal risks and uncertainties
The Group has a risk management structure and internal controls in
place which are designed to identify, manage and mitigate business
risks. Smiths faces a number of risks and uncertainties which could
have a material impact on the Group's long-term performance. The
Group's principal risks and uncertainties at 31 July 2023 are
detailed on pages 68 to 74 of the 2023 Annual Report. The principal
risks and uncertainties affecting the Group for the remaining six
months of the financial year continue to be those set out briefly
below and more fully in the Annual Report.
· Organic
growth: Failure to deliver
anticipated organic growth, which may lead to missing strategic
growth targets and shareholder value erosion.
· Climate
change:
Failure to identify and act on the significant opportunities
arising from the world's transition to a low-carbon economy and/or
failure to respond appropriately to climate change risks and
regulation.
· Technology: If we fail to
maintain our technological differentiation and our innovation
pipeline does not meet customers' evolving requirements, we may
lose market share to a new or existing competitor. This could
impact our financial performance and our ability to attract and
retain talent.
· People: Failing to attract,
develop, and retain the right people with the right skills may
affect our ability to achieve our commercial ambitions.
· Business
continuity: Disruption to our
supply chain, manufacturing or service operations, or customers'
operations could impact our financial performance.
· Economy and
geopolitics: The challenging
economic and geopolitical environment in which we operate may have
an adverse effect on demand for our products, our cost structure,
pricing strategies, profitability and market share. External
adverse events could cause an unanticipated and sudden disruption
to our business.
· Commercial: Failure to act in
a timely manner and adapt our market strategy in response to
changes in the commercial environment in which we operate may
result in an adverse effect on our financial performance and market
share.
· Product
quality:
Failure of one of our products, including failure due to
non-compliance with product regulation, may result in financial
loss and reputational damage. In the ordinary course of business,
we could be subject to material product liability claims and
lawsuits, including potential class actions from customers or third
parties.
· Cyber
security: Cyber-attacks attempting
to compromise the confidentiality, integrity and availability of IT
systems and the data held on them are a continuing risk. We operate
in markets and product areas which are known to be of interest to
cyber criminals. Digitalisation and increased interconnectivity of
our products intensifies the risk.
· Legal and
compliance: We have more than
15,000 colleagues in more than 50 countries. Individuals may not
all behave in accordance with the Group's Values and in accordance
with ethical and legal requirements. We operate within increasingly
complex legal regimes, often in highly regulated markets and with
governments, customers and suppliers requiring strict adherence to
laws. We may fail to deliver contracted products and services or
fail in our contractual execution due to delays or breaches by our
suppliers or other counterparties.
STATEMENT OF DIRECTORS'
RESPONSIBILITIES
The
directors confirm that, to the best of our knowledge:
· the condensed set of
financial statements has been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the United Kingdom and in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006; and
· the interim management
report includes a fair review of the information required
by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have
occurred during the first six months of the financial year and
their impact on the condensed set of financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken
place in the first six months of the current financial year and
that have materially affected the financial position or performance
of the entity during that period; and any changes in the related
party transactions described in the last annual report that could
do so.
For and
on behalf of the Board of directors:
Paul Keel
|
Clare
Scherrer
|
Chief Executive
Officer
|
Chief Financial
Officer
|
25 March
2024
Independent review report to
Smiths Group plc
Conclusion
We have been engaged by Smiths Group
Plc ("the Company") to review the condensed set of financial
statements in the half-yearly financial report for the six months
ended 31 January 2024 which comprises the consolidated income
statement, the consolidated statement of comprehensive income, the
consolidated balance sheet, the consolidated statement of changes
in equity, the consolidated cash flow statement and the related
explanatory notes.
Based on our review, nothing has
come to our attention that causes us to believe that the condensed
set of financial statements in the half-yearly financial report for
the six months ended 31 January 2024 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted for use in the UK and the Disclosure Guidance
and Transparency Rules ("the DTR") of the UK's Financial Conduct
Authority ("the UK FCA").
Basis for conclusion
We conducted our review in
accordance with International Standard on Review Engagements (UK)
2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use
in the UK. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. We read the other information contained in the half-
yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial
statements.
A review is substantially less in
scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion
Conclusions relating to going concern
Based on our review procedures,
which are less extensive than those performed in an audit as
described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that
the directors have inappropriately adopted the going concern basis
of accounting, or that the directors have identified material
uncertainties relating to going concern that have not been
appropriately disclosed.
This conclusion is based on the
review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the Group to cease
to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is
the responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the half-yearly financial
report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual
financial statements of the Group are prepared in accordance with
UK-adopted international accounting standards.
The directors are responsible for
preparing the condensed set of financial statements included in the
half-yearly financial report in accordance with IAS 34 as adopted
for use in the UK.
In preparing the condensed set of
financial statements, the directors are responsible for assessing
the Group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Our responsibility
Our responsibility is to express to
the Company a conclusion on the condensed set of financial
statements in the half-yearly financial report based on our review.
Our conclusion, including our conclusions relating to going
concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion section of
this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the
Company in accordance with the terms of our engagement to assist
the Company in meeting the requirements of the DTR of the UK FCA.
Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report
and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company for our review work, for this report, or for the
conclusions we have reached.
Mike Barradell
for and
on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
25 March 2024
Consolidated income
statement (unaudited)
|
|
Six
months ended 31 January 2024
|
|
Six
months ended 31 January 2023
|
|
Notes
|
Headline
£m
|
Non-headline
(note 3)
£m
|
Total
£m
|
|
Headline
£m
|
Non-headline
(note 3)
£m
|
Total
£m
|
Continuing
operations
|
|
|
|
|
|
|
|
|
Revenue
|
2
|
1,507
|
-
|
1,507
|
|
1,497
|
-
|
1,497
|
Operating costs
|
2
|
(1,261)
|
(54)
|
(1,315)
|
|
(1,256)
|
(54)
|
(1,310)
|
Operating
profit/(loss)
|
|
246
|
(54)
|
192
|
|
241
|
(54)
|
187
|
Interest receivable
|
|
11
|
-
|
11
|
|
21
|
-
|
21
|
Interest payable
|
|
(29)
|
-
|
(29)
|
|
(38)
|
(2)
|
(40)
|
Other financing losses
|
|
-
|
(6)
|
(6)
|
|
-
|
(5)
|
(5)
|
Other finance income - retirement
benefits
|
|
-
|
3
|
3
|
|
-
|
4
|
4
|
Finance costs
|
|
(18)
|
(3)
|
(21)
|
|
(17)
|
(3)
|
(20)
|
Profit/(loss) before
taxation
|
|
228
|
(57)
|
171
|
|
224
|
(57)
|
167
|
Taxation
|
5
|
(59)
|
(1)
|
(60)
|
|
(58)
|
(6)
|
(64)
|
Profit/(loss) for the period
from continuing operations
|
|
169
|
(58)
|
111
|
|
166
|
(63)
|
103
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
Profit for the period from
discontinued operations
|
3
|
-
|
-
|
-
|
|
-
|
6
|
6
|
PROFIT/(LOSS) FOR THE
PERIOD
|
|
169
|
(58)
|
111
|
|
166
|
(57)
|
109
|
Attributable
to
|
|
|
|
|
|
|
|
|
Smiths Group shareholders -
continuing operations
|
|
169
|
(58)
|
111
|
|
166
|
(63)
|
103
|
Smiths Group shareholders -
discontinued operations
|
|
-
|
-
|
-
|
|
-
|
6
|
6
|
|
|
169
|
(58)
|
111
|
|
166
|
(57)
|
109
|
Earnings per
share
|
4
|
|
|
|
|
|
|
|
Basic
|
|
|
|
32.0p
|
|
|
|
30.6p
|
Basic - continuing
|
|
|
|
32.0p
|
|
|
|
28.9p
|
Diluted
|
|
|
|
32.0p
|
|
|
|
30.5p
|
Diluted - continuing
|
|
|
|
32.0p
|
|
|
|
28.9p
|
Dividends per share
(declared)
|
14
|
|
|
13.55p
|
|
|
|
12.90p
|
Consolidated statement of
comprehensive income (unaudited)
|
Notes
|
Six
months ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Profit for the
period
|
|
111
|
109
|
Other comprehensive income (OCI)
|
|
|
|
|
|
|
|
OCI which will not be reclassified to the income
statement:
|
|
|
|
Re-measurement of
post-retirement benefits assets and obligations
|
|
(100)
|
(109)
|
Taxation on post-retirement
benefits movements
|
|
12
|
14
|
Fair value movements on
financial assets at fair value through OCI
|
|
(167)
|
27
|
|
|
(255)
|
(68)
|
OCI which will be reclassified and
reclassifications:
|
|
|
|
Fair value gains and
reclassification adjustments:
|
|
|
|
- deferred in the period on
cash-flow and net investment hedges
|
|
(2)
|
(13)
|
- reclassified to income
statement on cash-flow hedges
|
|
-
|
3
|
|
|
(2)
|
(10)
|
Foreign exchange movements net of
recycling:
|
|
|
|
Exchange gains on
translation of foreign operations
|
|
5
|
2
|
|
|
5
|
2
|
Total other comprehensive
expenditure for the period, net of taxation
|
|
(252)
|
(76)
|
Total comprehensive
income
|
|
(141)
|
33
|
Attributable to
|
|
|
|
Smiths Group
shareholders
|
|
(141)
|
33
|
Non-controlling
interests
|
|
-
|
-
|
|
|
(141)
|
33
|
|
|
|
|
Total comprehensive income attributable to Smiths Group
shareholders arising from
|
|
|
|
Continuing operations
|
|
(141)
|
27
|
Discontinued operations
|
|
-
|
6
|
|
|
(141)
|
33
|
Consolidated balance sheet
(unaudited)
|
Notes
|
31
January
2024
£m
|
31
July
2023
£m
|
Non-current
assets
|
|
|
|
Intangible assets
|
7
|
1,557
|
1,521
|
Property, plant and
equipment
|
8
|
259
|
247
|
Right of use assets
|
9
|
112
|
105
|
Financial assets - other
investments
|
10
|
193
|
371
|
Retirement benefit
assets
|
6
|
101
|
195
|
Deferred tax assets
|
|
97
|
95
|
Trade and other
receivables
|
|
86
|
75
|
|
|
2,405
|
2,609
|
Current
assets
|
|
|
|
Inventories
|
|
649
|
637
|
Current tax receivable
|
|
51
|
47
|
Trade and other
receivables
|
|
777
|
772
|
Cash and cash
equivalents
|
11
|
180
|
285
|
Financial derivatives
|
11
|
3
|
5
|
|
|
1,660
|
1,746
|
Total
assets
|
|
4,065
|
4,355
|
Current
liabilities
|
|
|
|
Financial liabilities:
|
|
|
|
- short-term borrowings
|
11
|
(8)
|
(3)
|
- lease liabilities
|
11
|
(32)
|
(26)
|
- financial derivatives
|
11
|
(3)
|
(2)
|
Provisions
|
13
|
(71)
|
(70)
|
Trade and other
payables
|
|
(679)
|
(723)
|
Current tax payable
|
|
(76)
|
(74)
|
|
|
(869)
|
(898)
|
Non-current
liabilities
|
|
|
|
Financial liabilities:
|
|
|
|
- long-term borrowings
|
11
|
(540)
|
(534)
|
- lease liabilities
|
11
|
(93)
|
(91)
|
- financial derivatives
|
11
|
(12)
|
(18)
|
Provisions
|
13
|
(225)
|
(216)
|
Retirement benefit
obligations
|
6
|
(114)
|
(106)
|
Corporation tax payable
|
|
(3)
|
(3)
|
Deferred tax
liabilities
|
|
(43)
|
(43)
|
Trade and other
payables
|
|
(40)
|
(40)
|
|
|
(1,070)
|
(1,051)
|
Total
liabilities
|
|
(1,939)
|
(1,949)
|
Net assets
|
|
2,126
|
2,406
|
Shareholders'
equity
|
|
|
|
Share capital
|
18
|
130
|
131
|
Share premium account
|
18
|
365
|
365
|
Capital redemption
reserve
|
|
25
|
24
|
Merger reserve
|
|
235
|
235
|
Cumulative translation
adjustments
|
|
391
|
386
|
Retained earnings
|
|
1,148
|
1,431
|
Hedge reserve
|
|
(190)
|
(188)
|
Total shareholders'
equity
|
|
2,104
|
2,384
|
Non-controlling interest
equity
|
|
22
|
22
|
Total
equity
|
|
2,126
|
2,406
|
Consolidated statement of
changes in equity (unaudited)
|
Notes
|
Share
capital
and share
premium
£m
|
Other
reserves
£m
|
Cumulative
translation
adjustments
£m
|
Retained
earnings
£m
|
Hedge
reserve
£m
|
Equity
shareholders'
funds
£m
|
Non-controlling
Interest
£m
|
Total
equity
£m
|
At 31 July 2023
|
|
496
|
259
|
386
|
1,431
|
(188)
|
2,384
|
22
|
2,406
|
Profit
for the period
|
|
-
|
-
|
-
|
111
|
-
|
111
|
-
|
111
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
- foreign exchange movements net of
recycling
|
|
-
|
-
|
5
|
-
|
-
|
5
|
-
|
5
|
- re-measurement of post-retirement benefits and
related tax
|
|
-
|
-
|
-
|
(88)
|
-
|
(88)
|
-
|
(88)
|
- fair value gains/(losses) and related
tax
|
|
-
|
-
|
-
|
(167)
|
(2)
|
(169)
|
-
|
(169)
|
Total comprehensive income
for the period
|
|
-
|
-
|
5
|
(144)
|
(2)
|
(141)
|
-
|
(141)
|
|
|
|
|
|
|
|
|
|
|
Transactions relating to
ownership interests
|
|
|
|
|
|
|
|
|
|
Purchase
of shares by Employee Benefit Trust
|
|
-
|
-
|
-
|
(16)
|
-
|
(16)
|
-
|
(16)
|
Share
buybacks
|
18
|
(1)
|
1
|
-
|
(29)
|
-
|
(29)
|
-
|
(29)
|
Dividends:
|
|
|
|
|
|
|
|
|
|
- equity shareholders
|
14
|
-
|
-
|
-
|
(100)
|
-
|
(100)
|
-
|
(100)
|
Share-based payment
|
|
-
|
-
|
-
|
6
|
-
|
6
|
-
|
6
|
At 31 January
2024
|
|
495
|
260
|
391
|
1,148
|
(190)
|
2,104
|
22
|
2,126
|
|
Notes
|
Share
capital
and share
premium
£m
|
Other
reserves
£m
|
Cumulative
translation
adjustments
£m
|
Retained
earnings
£m
|
Hedge
reserve
£m
|
Equity
shareholders'
funds
£m
|
Non-controlling
Interest
£m
|
Total
equity
£m
|
At 31 July 2022
|
|
501
|
254
|
487
|
1,659
|
(202)
|
2,699
|
22
|
2,721
|
Profit
for the period
|
|
-
|
-
|
-
|
109
|
-
|
109
|
-
|
109
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
- foreign exchange movements net of
recycling
|
|
-
|
-
|
2
|
-
|
-
|
2
|
-
|
2
|
- re-measurement of post-retirement benefits and
related tax
|
|
-
|
-
|
-
|
(95)
|
-
|
(95)
|
-
|
(95)
|
- fair value losses and related tax
|
|
-
|
-
|
-
|
27
|
(10)
|
17
|
-
|
17
|
Total comprehensive income
for the period
|
|
-
|
-
|
2
|
41
|
(10)
|
33
|
-
|
33
|
|
|
|
|
|
|
|
|
|
|
Transactions relating to
ownership interests
|
|
|
|
|
|
|
|
|
|
Purchase
of shares by Employee Benefit Trust
|
|
-
|
-
|
-
|
(24)
|
-
|
(24)
|
-
|
(24)
|
Share
buybacks
|
18
|
(3)
|
3
|
-
|
(144)
|
-
|
(144)
|
-
|
(144)
|
Dividends:
|
|
|
|
|
|
|
|
|
|
- equity
shareholders
|
14
|
-
|
-
|
-
|
(97)
|
-
|
(97)
|
-
|
(97)
|
Share-based payment
|
|
-
|
-
|
-
|
8
|
-
|
8
|
-
|
8
|
At 31 January
2023
|
|
498
|
257
|
489
|
1,443
|
(212)
|
2,475
|
22
|
2,497
|
Consolidated cash-flow
statement (unaudited)
|
Notes
|
Six
months ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Net cash inflow from
operating activities
|
16
|
168
|
100
|
Cash-flows from investing
activities
|
|
|
|
Expenditure on capitalised
development
|
|
(7)
|
(7)
|
Expenditure on other intangible
assets
|
|
(1)
|
(3)
|
Purchase of property, plant and
equipment
|
|
(30)
|
(26)
|
Return of capital from financial
assets
|
|
1
|
-
|
Acquisition of
businesses
|
|
(65)
|
(22)
|
Payments on disposal of
subsidiaries, net of cash disposed
|
|
-
|
(7)
|
Net cash-flow used in
investing activities
|
|
(102)
|
(65)
|
|
|
|
|
Cash-flows from financing
activities
|
|
|
|
Share buybacks
|
18
|
(29)
|
(144)
|
Purchase of shares by Employee
Benefit Trust
|
|
(16)
|
(24)
|
Settlement of share awards in
cash
|
|
(2)
|
-
|
Dividends paid to equity
shareholders and non-controlling interests
|
|
(100)
|
(97)
|
Cash inflow/(outflow) from matured
derivative financial instruments
|
|
1
|
(10)
|
Lease payments
|
|
(19)
|
(18)
|
Net cash-flow used in
financing activities
|
|
(165)
|
(293)
|
|
|
|
|
Decrease in cash and cash
equivalents
|
|
(99)
|
(258)
|
Cash and cash equivalents at
beginning of the period
|
|
285
|
1,055
|
Exchange differences
|
|
(6)
|
(2)
|
Cash and cash equivalents at
end of the period
|
|
180
|
795
|
Cash and cash equivalents at end
of the period comprise:
|
|
|
|
- cash at bank and in
hand
|
|
111
|
197
|
- short-term deposits
|
|
69
|
598
|
|
|
180
|
795
|
Notes to the condensed
interim financial statements (unaudited)
1 Basis of preparation
The financial information for the
period ended 31 January 2024 does not constitute statutory accounts
as defined in section 434 of the Companies Act 2006. A copy of the
statutory accounts for the year ended 31 July 2023 has been
delivered to the Registrar of Companies. The auditor's report on
those accounts was not qualified, did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying the report, and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
The condensed consolidated interim
financial report for the half-year reporting period ended 31
January 2024 included in this announcement has been prepared on a
going concern basis using accounting policies consistent with
UK-adopted International Accounting Standards, in accordance with
IAS 34 Interim Financial Reporting, and in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
The interim report does not include
all of the notes of the type normally included in an annual
financial report. Accordingly, this report is to be read in
conjunction with the annual report for the year ended 31 July 2023,
which has been prepared in accordance with UK-adopted International
Accounting Standards.
The interim financial statements are
prepared on a going concern basis. The Directors have
assessed the principal risks discussed on page 19. The
Directors believe that the Group is well placed to manage its
financing and other business risks satisfactorily, and have a
reasonable expectation that the Group will have adequate resources
to continue in operation for at least 12 months from the signing
date of these condensed consolidated interim financial statements.
They therefore consider it appropriate to adopt the going concern
basis of accounting in preparing the financial
statements.
The interim financial information
was approved by the Board on 25 March 2024.
Accounting
policies
The same accounting policies,
estimates, presentation and methods of computation are followed in
the condensed interim financial
statements as applied in the Group's
latest annual audited financial statements.
New standards and interpretations not yet
adopted
No new standards, new
interpretations, or amendments to standards or interpretations have
been published which are expected to have a significant impact on
the Group's financial statements.
Presentation of
results
In order to provide users of the
accounts with a clear and consistent presentation of the
performance of the Group's ongoing trading activity, the income
statement is presented in a three column format with 'headline'
profits shown separately from non-headline items in a form
consistent with the prior year.
Judgement is required in determining
which items should be included as non-headline. The amortisation of
acquired intangibles, legacy liabilities, material one-off items
and certain re-measurements are included in a separate column of
the income statement. See note 3 for a breakdown of the items
excluded from headline profit.
Performance measures for the Group's
ongoing trading activity are described as 'headline' and used by
management to measure and monitor performance. See note 2 for
disclosures of headline operating profit and note 19 for more
information about the alternative performance measures ('APMs')
used by the Group.
In addition, the Group reports
organic growth rates for revenue and underlying growth rates for
profit where the determination of adjustments requires judgement.
See note 19 for more information about the key performance
indicators (KPIs) used by the Group.
2 Analysis of revenue, operating costs and
segment information
Analysis by operating
segment
The Group is organised into four
divisions: John Crane, Smiths Detection, Flex-Tek and Smiths
Interconnect. These divisions design and manufacture the following
products:
- John Crane
- mechanical seals, seal support systems, power
transmission couplings and specialised filtration
systems;
- Smiths
Detection - sensors and systems
that detect and identify explosives, narcotics, weapons, chemical
agents, biohazards and contraband;
- Flex-Tek
- engineered components, flexible hosing and
rigid tubing that heat and move fluids and gases; and
- Smiths
Interconnect - specialised
electronic and radio frequency board-level and waveguide devices,
connectors, cables, test sockets and sub-systems used in
high-speed, high reliability, secure connectivity
applications.
The position and performance of
each division is reported at each Board meeting to the Board of
Directors. This information is prepared using the same accounting
policies as the consolidated financial information, except that the
Group uses headline operating profit to monitor divisional results
and operating assets to monitor divisional position. See note 3 and
note 19 for more information on which items are excluded from
headline profit measures.
Intersegment sales and transfers are
charged at arm's-length prices.
Segment trading
performance
|
|
Six
months ended 31 January 2024
|
|
|
John
Crane
£m
|
Smiths
Detection
£m
|
Flex-Tek
£m
|
Smiths
Interconnect
£m
|
Corporate
costs
£m
|
Total
£m
|
Revenue
|
|
555
|
404
|
384
|
164
|
-
|
1,507
|
Divisional headline operating
profit
|
|
128
|
43
|
81
|
20
|
-
|
272
|
Corporate headline operating
costs
|
|
-
|
-
|
-
|
-
|
(26)
|
(26)
|
Headline operating
profit/(loss)
|
|
128
|
43
|
81
|
20
|
(26)
|
246
|
Items excluded from headline
measures (note 3)
|
|
(22)
|
(10)
|
(7)
|
(1)
|
(14)
|
(54)
|
Operating profit/(loss) for
the period
|
|
106
|
33
|
74
|
19
|
(40)
|
192
|
Headline
operating margin
|
|
23.0%
|
10.7%
|
21.2%
|
12.2%
|
|
16.3%
|
|
|
Six
months ended 31 January 2023
|
|
|
John
Crane
£m
|
Smiths
Detection
£m
|
Flex-Tek
£m
|
Smiths
Interconnect
£m
|
Corporate
costs
£m
|
Total
£m
|
Revenue
|
|
519
|
390
|
395
|
193
|
-
|
1,497
|
Divisional headline operating
profit
|
|
114
|
41
|
77
|
32
|
-
|
264
|
Corporate headline operating
costs
|
|
-
|
-
|
-
|
-
|
(23)
|
(23)
|
Headline operating
profit/(loss)
|
|
114
|
41
|
77
|
32
|
(23)
|
241
|
Items
excluded from headline measures (note 3)
|
|
(15)
|
(17)
|
(13)
|
(2)
|
(7)
|
(54)
|
Operating profit/(loss) for
the period
|
|
99
|
24
|
64
|
30
|
(30)
|
187
|
Headline
operating margin
|
|
22.0%
|
10.5%
|
19.5%
|
16.6%
|
|
16.1%
|
Segment assets and
liabilities
Segment assets
|
|
31
January 2024
|
|
|
John
Crane
£m
|
Smiths
Detection
£m
|
Flex-Tek
£m
|
Smiths
Interconnect
£m
|
Corporate and
non-headline
£m
|
Total
£m
|
Property,
plant, equipment, right of use assets, development projects, other
intangibles and investments
|
|
161
|
147
|
101
|
66
|
200
|
675
|
Inventory, trade and other receivables
|
|
513
|
571
|
244
|
164
|
20
|
1,512
|
Segment
assets
|
|
674
|
718
|
345
|
230
|
220
|
2,187
|
|
|
31 July
2023
|
|
|
John
Crane
£m
|
Smiths
Detection
£m
|
Flex-Tek
£m
|
Smiths
Interconnect
£m
|
Corporate and
non-headline
£m
|
Total
£m
|
Property,
plant, equipment, right of use assets, development projects, other
intangibles and investments
|
|
162
|
142
|
84
|
66
|
375
|
829
|
Inventory, trade and other receivables
|
|
489
|
599
|
226
|
160
|
10
|
1,484
|
Segment
assets
|
|
651
|
741
|
310
|
226
|
385
|
2,313
|
Non-headline assets comprise
receivables relating to non-headline items, acquisitions and
disposals.
Segment liabilities
|
|
31
January 2024
|
|
|
John
Crane
£m
|
Smiths
Detection
£m
|
Flex-Tek
£m
|
Smiths
Interconnect
£m
|
Corporate and
non-headline
£m
|
Total
£m
|
Divisional liabilities
|
|
(192)
|
(340)
|
(87)
|
(56)
|
-
|
(675)
|
Corporate and non-headline
liabilities
|
|
-
|
-
|
-
|
-
|
(340)
|
(340)
|
Segment
liabilities
|
|
(192)
|
(340)
|
(87)
|
(56)
|
(340)
|
(1,015)
|
|
|
31 July
2023
|
|
|
John
Crane
£m
|
Smiths
Detection
£m
|
Flex-Tek
£m
|
Smiths
Interconnect
£m
|
Corporate and
non-headline
£m
|
Total
£m
|
Divisional liabilities
|
|
(200)
|
(357)
|
(91)
|
(62)
|
-
|
(710)
|
|
|
|
|
|
|
|
|
Corporate and non-headline
liabilities
|
|
-
|
-
|
-
|
-
|
(339)
|
(339)
|
Segment
liabilities
|
|
(200)
|
(357)
|
(91)
|
(62)
|
(339)
|
(1,049)
|
Non-headline liabilities comprise
provisions and accruals relating to non-headline items,
acquisitions and disposals.
Reconciliation of segment assets and liabilities to statutory
assets and liabilities
|
|
Assets
|
|
Liabilities
|
|
|
31
January
2024
£m
|
31
July
2023
£m
|
|
31
January
2024
£m
|
31
July
2023
£m
|
Segment assets and
liabilities
|
|
2,187
|
2,313
|
|
(1,015)
|
(1,049)
|
Goodwill and acquired
intangibles
|
|
1,446
|
1,415
|
|
-
|
-
|
Derivatives
|
|
3
|
5
|
|
(15)
|
(20)
|
Current and deferred
tax
|
|
148
|
142
|
|
(122)
|
(120)
|
Retirement benefit assets and
obligations
|
|
101
|
195
|
|
(114)
|
(106)
|
Cash and borrowings
|
|
180
|
285
|
|
(673)
|
(654)
|
Statutory assets and
liabilities
|
|
4,065
|
4,355
|
|
(1,939)
|
(1,949)
|
Segment capital
employed
Capital employed is a non-statutory
measure of invested resources. It comprises statutory net assets
adjusted to add goodwill recognised directly in reserves in respect
of subsidiaries acquired before 1 August 1998 of £478m (31 July
2023: £478m), and eliminate post-retirement benefit assets and
liabilities and litigation provisions relating to non-headline
items, both net of related tax, and net debt. See note 19 for
additional details.
The 12-month rolling average
capital employed by division, which Smiths uses to calculate
divisional return on capital employed, is set out below:
|
|
|
31
January 2024
|
|
|
|
John
Crane
£m
|
Smiths
Detection
£m
|
Flex-Tek
£m
|
Smiths
Interconnect
£m
|
Total
£m
|
Average
divisional capital employed
|
|
|
1,026
|
1,158
|
587
|
477
|
3,248
|
Average
corporate capital employed
|
|
|
|
|
|
|
(30)
|
Average capital
employed
|
|
|
|
|
|
|
3,218
|
|
|
|
31
January 2023
|
|
|
|
John
Crane
£m
|
Smiths
Detection
£m
|
Flex-Tek
£m
|
Smiths
Interconnect
£m
|
Total
£m
|
Average
divisional capital employed
|
|
|
1,006
|
1,088
|
558
|
435
|
3,087
|
Average
corporate capital employed
|
|
|
|
|
|
|
(4)
|
Average capital employed -
continuing operations
|
|
|
|
|
|
|
3,083
|
Analysis of
revenue
The
revenue for the main product and service lines for each division
is:
John Crane
|
|
|
|
|
Original
equipment
£m
|
Aftermarket
£m
|
Total
£m
|
Revenue six months ended 31
January 2024
|
|
|
|
|
152
|
403
|
555
|
Revenue six months ended 31
January 2023
|
|
|
|
|
156
|
363
|
519
|
Smiths
Detection
|
|
|
|
|
Aviation
£m
|
Other
security
systems
£m
|
Total
£m
|
Revenue six months ended 31
January 2024
|
|
|
|
|
269
|
135
|
404
|
Revenue six months ended 31
January 2023
|
|
|
|
|
263
|
127
|
390
|
Flex-Tek
|
|
|
|
|
Aerospace
£m
|
Industrials
£m
|
Total
£m
|
Revenue six months ended 31
January 2024
|
|
|
|
|
74
|
310
|
384
|
Revenue six months ended 31
January 2023
|
|
|
|
|
69
|
326
|
395
|
Smiths
Interconnect
|
|
|
|
|
|
|
Components, Connectors & Subsystems
£m
|
Revenue six months ended 31
January 2024
|
|
|
|
|
|
|
164
|
Revenue six months ended 31
January 2023
|
|
|
|
|
|
|
193
|
Divisional revenue is analysed by the Smiths Group key global
markets as follows:
John Crane
|
|
|
General Industrial
£m
|
Safety
& Security
£m
|
Energy
£m
|
Aerospace
£m
|
Total
£m
|
Revenue six months ended 31
January 2024
|
|
|
204
|
-
|
351
|
-
|
555
|
Revenue six months ended 31
January 2023
|
|
|
203
|
-
|
316
|
-
|
519
|
Smiths
Detection
|
|
|
|
|
|
|
|
Revenue six months ended 31
January 2024
|
|
|
-
|
404
|
-
|
-
|
404
|
Revenue six months ended 31
January 2023
|
|
|
-
|
390
|
-
|
-
|
390
|
Flex-Tek
|
|
|
|
|
|
|
|
Revenue six months ended 31
January 2024
|
|
|
310
|
-
|
-
|
74
|
384
|
Revenue six months ended 31
January 2023
|
|
|
326
|
-
|
-
|
69
|
395
|
Smiths
Interconnect
|
|
|
|
|
|
|
|
Revenue six months ended 31
January 2024
|
|
|
74
|
66
|
-
|
24
|
164
|
Revenue six months ended 31
January 2023
|
|
|
95
|
71
|
-
|
27
|
193
|
Total
|
|
|
|
|
|
|
|
Revenue six months ended 31
January 2024
|
|
|
588
|
470
|
351
|
98
|
1,507
|
Revenue six months ended 31
January 2023
|
|
|
624
|
461
|
316
|
96
|
1,497
|
The
Group's statutory revenue is analysed as follows:
|
|
|
|
|
Six
months ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Sale of
goods recognised at a point in time
|
|
|
|
|
1,093
|
1,113
|
Sale of
goods recognised over time
|
|
|
|
|
28
|
31
|
Services
recognised over time
|
|
|
|
|
386
|
353
|
Revenue
|
|
|
|
|
1,507
|
1,497
|
Operating
costs
Headline
operating costs are analysed as follows:
|
Six
months ended 31 January 2024
|
|
Six
months ended 31 January 2023
|
|
Headline
£m
|
Non-headline
(note 3)
£m
|
Total
£m
|
|
Headline
£m
|
Non-headline
(note 3)
£m
|
Total
£m
|
Cost of
sales - direct materials, labour, production and
distribution overheads
|
945
|
-
|
945
|
|
945
|
-
|
945
|
Selling costs
|
107
|
-
|
107
|
|
112
|
-
|
112
|
Administrative expenses
|
209
|
54
|
263
|
|
199
|
54
|
253
|
Operating
costs
|
1,261
|
54
|
1,315
|
|
1,256
|
54
|
1,310
|
3 Non-statutory profit measures
Headline profit
measures
The Group seeks to present a measure
of performance which is not impacted by material non-recurring
items or items considered non-operational in nature. This measure
of profit is described as 'headline' and is used by management to
measure and monitor performance. See the disclosures on
presentation of results in accounting policies for an explanation
of the adjustments. The items excluded from 'headline' are referred
to as 'non-headline' items.
Non-headline operating
profit items
i. CONTINUING
OPERATIONS
The non-headline items included in
statutory operating profit are as follows:
|
|
Six
months ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Fair value adjustment changes to financial
assets
|
|
|
|
Fair value (loss) / gain on
contingent consideration
|
|
(10)
|
5
|
Acquisition and disposal related transaction
costs
|
|
|
|
Business acquisition
costs
|
|
(1)
|
(1)
|
Legacy pension scheme arrangements
|
|
|
|
Past service costs for benefit
equalisation
|
|
-
|
(10)
|
Scheme administration
costs
|
|
(3)
|
(1)
|
Settlement losses on
post-retirement benefit schemes
|
|
-
|
(1)
|
Non-headline litigation provision movements
|
|
|
|
Provision for John Crane, Inc.
asbestos litigation
|
|
(22)
|
(13)
|
Cost recovery for John Crane, Inc.
asbestos litigation
|
|
-
|
3
|
Movement in provision held against
Titeflex Corporation subrogation claims
|
|
7
|
-
|
Other items
|
|
|
|
Amortisation of acquisition
related intangible assets
|
|
(25)
|
(26)
|
Restructuring costs
|
|
-
|
(8)
|
Irrecoverable VAT on chain export
transactions
|
|
-
|
(2)
|
Non-headline items in operating profit
|
|
(54)
|
(54)
|
Fair value adjustment changes to financial
assets
Following the sale of Smiths Medical
to ICU Medical, Inc. (ICU) in FY22, the Group holds a financial
asset for the fair value of $100m additional sales consideration
that is contingent on the future share price performance of
ICU. In HY24 a fair value loss of £10m (31 January 2023: £5m
gain) has been recognised on this financial asset. This is
considered to be a non-headline item on the basis that these
charges result from acquisition accounting and do not relate to
current trading activity.
Acquisition and disposal related transaction
costs
The £1m (31 January 2023: £1m)
business acquisition costs represented incremental transaction
costs including the acquisition of HCP in HY24. These costs did not
include the cost of employees working on transactions and were
reported as non-headline because they are dependent on the level of
acquisition and disposal activity in the year.
Legacy pension scheme arrangements
In the prior year, £10m of past
service costs were recognised in respect of the equalisation of
retirement benefits for men and women, no further costs have been
recognised in the current year. These were treated as non-headline
items as they are non-recurring and relate to legacy pension
schemes.
Scheme administration costs of £3m
(31 January 2023: £1m) relates to the TIGPS legacy pension scheme
and SIPS 'path to buy-in' costs. As the Group has no expectation of
receiving a refund from the scheme, an economic benefit value of
zero has been placed on the TIGPS surplus. These are non-headline
charges as the Smiths Group effectively has no economic exposure to
these costs and they are paid from cash retained in the
scheme.
Non-headline litigation provision movements
The following litigation costs and
recoveries have been treated as non-headline items because the
provisions were treated as non-headline when originally recognised
and the subrogation claims and litigation relate to products that
the Group no longer sells in these markets:
- The £22m charge (31 January 2023: £13m) in respect of John
Crane, Inc. asbestos litigation is driven primarily by adverse
judgements impacting the future expected indemnity costs. In the
prior period, £3m of costs were recovered via insurer settlements.
See note 13 for further details; and
- The £7m credit (31 January 2023: £nil) recognised by Titeflex
Corporation was principally driven by a continued reduction in the
number of claimants.
Other items
Acquisition related intangible asset
amortisation costs of £25m (31 January 2023: £26m) were recognised
in the current period. This is considered to be a non-headline item
on the basis that these charges result from acquisition accounting
and do not relate to current trading activity.
In the prior year, £8m of
restructuring charges were incurred and treated as non-headline due
to being material and part of a pre-approved programme, no further
charges have been recognised in the current year.
In the prior year, £2m irrecoverable
VAT was recognised that relates to a historic VAT classification
error. This error had resulted in certain intercompany chain export
transactions being treated as VAT exempt when they should have been
initially classified as subject to German VAT, no further charges
have been recognised in the current year. This was treated as
non-headline as it relates to six years of past VAT practice and
involves the payment and recovery of German VAT over multiple
financial years.
Non-headline finance
(costs)/income items
The non-headline items included in
finance (costs)/income are as follows:
|
|
Six
months ended
31 January 2024
£m
|
Six months ended
31 January 2023
£m
|
Interest on overdue VAT
|
|
-
|
(2)
|
Other financing losses
|
|
(2)
|
(1)
|
Unwind of discount on
provisions
|
|
(4)
|
(4)
|
Other
finance income - retirement benefits
|
|
3
|
4
|
Non-headline items in
finance (costs)/income
|
|
(3)
|
(3)
|
Non-headline loss before
taxation
|
|
(57)
|
(57)
|
In the prior half year a £2m loss
was recognised in respect of interest on the late payment of German
VAT noted above, no further charges have
been recognised in the current year. This interest charge was
excluded from headline finance costs to maintain consistent
treatment with the underlying issue to which it related.
Other financing losses represent
foreign exchange movements on borrowings and fair value movements
on financial instruments. The current period loss includes £1m (31
January 2023: £nil) due to foreign exchange translation losses and
£1m (31 January 2023: £1m) due to hedge ineffectiveness on the
Group's 2027 Eurobonds, which will reverse over the remaining
period to maturity. These foreign exchange and fair value movements
are excluded from headline net finance costs when the following
requirements are met:
- Fair value gains and losses on the interest element of
derivative financial instruments hedging the Group's net debt
exposures are excluded from headline, as they will either reverse
over time or be matched in future periods by interest
charges.
- Fair value gains and losses on the currency element of
derivative financial instruments hedging the Group's net debt and
exposures, and exchange gains and losses on borrowings are
excluded, as the relevant foreign exchange gains and losses on the
commercially hedged items are recognised as a separate component of
other comprehensive income, in accordance with the Group's foreign
currencies accounting policy.
The financing elements of
non-headline legacy liabilities, including the £4m (31 January
2023: £4m) unwind of discount on provisions, are excluded from
headline finance costs because these provisions were originally
recognised as non-headline and this treatment has been maintained
for ongoing costs and credits.
Other finance income comprises £3m
(31 January 2023: £4m) of financing credits relating to retirement
benefits. These are excluded from headline finance costs because
the ongoing costs and credits are a legacy of previous employee
pension arrangements.
Non-headline taxation
items
The non-headline items included in
taxation are as follows:
|
|
Six
months ended
31 January 2024
£m
|
Six months ended
31 January 2023
£m
|
Increase in unrecognised UK
deferred tax asset
|
|
(12)
|
(14)
|
Tax
credit on non-headline loss
|
|
11
|
8
|
Non-headline taxation
(charge)/credit- continuing operations
|
|
(1)
|
(6)
|
Continuing operations -
non-headline gain/(loss) for the year
|
|
(58)
|
(63)
|
The non-headline taxation charge
comprises a charge of £12m (31 January 2023: £14m charge) to adjust
non-recognition of a deferred tax asset, where the offsetting
deferred tax liability related to the UK legacy pension scheme
surplus has been taken to OCI. Offsetting this charge are credits
for the tax attributable to the non-headline items
above.
ii.
DISCONTINUED OPERATIONS
The non-headline items for
discontinued operations are as follows:
|
|
Six
months ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Gain on sale of discontinued operation
|
|
|
|
Gain on the sale of Smiths Medical
to ICU Medical, Inc.
|
|
-
|
6
|
Non-headline items in profit from discontinued
operations
|
|
-
|
6
|
Profit for the period - non-headline items for continuing and
discontinued operations
|
|
(58)
|
(57)
|
In the prior half year the Group
recognised an additional £6m
gain on the sale of Smiths Medical following the
release of provisions that are no longer required, no further gain
has been recognised in the current year.
4 Earnings per share
Basic earnings per share are
calculated by dividing the profit for the period attributable to
equity shareholders of the Company by the average number of
ordinary shares in issue during the period.
|
Six
months ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Profit attributable to equity
shareholders for the period
- Continuing
- Discontinued
|
111
-
|
103
6
|
Total
|
111
|
109
|
|
|
|
|
Six
months ended
31 January 2024
No. of shares
|
Six months ended
31 January 2023
No. of shares
|
Weighted average number of shares
in issue for basic earnings per share
|
346,626,154
|
356,572,308
|
Adjustment for potentially
dilutive shares
|
161,251
|
294,496
|
Weighted average number of shares
in issue for diluted earnings per share
|
346,787,405
|
356,866,804
|
|
|
|
|
Six
months ended
31 January 2024
pence
|
Six months ended
31 January 2023
pence
|
Statutory earnings per share
continuing operations - basic
|
32.0p
|
28.9p
|
Statutory earnings per share
continuing operations - diluted
|
32.0p
|
28.9p
|
Statutory earnings per share total
- basic
|
32.0p
|
30.6p
|
Statutory earnings per share total
- diluted
|
32.0p
|
30.5p
|
A reconciliation of statutory and
headline earnings per share is as follows:
|
Six
months ended 31 January 2024
|
|
Six
months ended 31 January 2023
|
|
£m
|
Basic
EPS
(p)
|
Diluted
EPS
(p)
|
|
£m
|
Basic
EPS
(p)
|
Diluted
EPS
(p)
|
Basic earnings per share:
|
|
|
|
|
|
|
|
Total profit attributable to
equity shareholders of the Parent Company
|
111
|
32.0p
|
32.0p
|
|
109
|
30.6
|
30.5
|
Exclude: Non-headline items (note
3)
|
58
|
|
|
|
57
|
|
|
Headline earnings per share
|
169
|
48.7p
|
48.7p
|
|
166
|
46.6
|
46.5
|
Profit from continuing operations
attributable to equity shareholders of
the Parent Company
|
111
|
32.0p
|
32.0p
|
|
103
|
28.9
|
28.9
|
Exclude: Non-headline items (note
3)
|
58
|
|
|
|
63
|
|
|
Headline earnings per share - continuing
operations
|
169
|
48.7p
|
48.7p
|
|
166
|
46.6
|
46.5
|
5 Taxation
The interim tax rate of 35.0% (31
January 2023: 38.4%) is calculated by applying the estimated
effective headline tax rate for continuing operations of 26.0% (31
January 2023: 26.0%) for the year ended 31 July 2024 to headline
profit before tax and then taking into account the tax effect of
non-headline items in the interim period.
A reconciliation of headline and
total tax charge is as follows:
|
Six
months ended 31 January 2024
|
|
Six
months ended 31 January 2023
|
|
Continuing
operations
£m
|
Tax
rate
|
|
Continuing
operations
£m
|
Tax
rate
|
Headline tax
rate
|
|
|
|
|
|
Headline profit before
taxation
|
228
|
|
|
224
|
|
Taxation on headline
profit
|
(59)
|
26.0%
|
|
(58)
|
26.0%
|
Adjustments
|
|
|
|
|
|
Non-headline items excluded from
profit before taxation (note 3)
|
(57)
|
|
|
(57)
|
|
Taxation on non-headline items and
non-headline tax adjustment
|
(1)
|
|
|
(6)
|
|
Total interim tax rate
|
|
|
|
|
|
Profit before taxation
|
171
|
|
|
167
|
|
Taxation
|
(60)
|
35.0%
|
|
(64)
|
38.4%
|
The changes in the value of
the net tax asset in the period were:
|
|
|
|
Current
tax
£m
|
Deferred
tax
£m
|
Net
tax
balance
£m
|
At 31
July 2023
|
|
|
|
(30)
|
52
|
22
|
Charge to
income statement
|
|
|
|
(50)
|
(10)
|
(60)
|
Charge to
other comprehensive income
|
|
|
|
-
|
12
|
12
|
Tax
paid
|
|
|
|
52
|
-
|
52
|
At 31 January
2024
|
|
|
|
(28)
|
54
|
26
|
Developments in the Group
tax position
In December 2021, the Organisation
for Economic Co-operation and Development ("OECD") published rules
relating to global minimum taxation called "Pillar 2 rules" and the
UK Finance (No.2) Act 2023 was enacted in July 2023, addressing the
implementation of BEPS Pillar 2 to apply in the UK to accounting
periods beginning on or after 1 January 2024 (year ending 31 July
2025 for Smiths). Smiths is actively working to fully understand
the impact of the new rules and developing processes to enable
compliance. The current estimate of additional tax payable is not
expected to have a material impact on the Group.
6 Post-retirement benefits
The Group provides post-retirement
benefits to employees in a number of countries throughout the
world. The arrangements include defined benefit and defined
contribution plans and, mainly in the United Kingdom (UK) and
United States of America (US), post-retirement healthcare. The
principal defined benefit pension plans are in the UK and US, and
these have been closed so that no future benefits are
accrued.
Where any individual scheme shows a
post restriction surplus under IAS 19, this is disclosed on the
balance sheet as a retirement benefit asset. The IAS 19 surplus of
any one scheme is not available to fund the IAS 19 deficit of
another scheme. The surplus is recognised as a retirement benefit
asset to the extent the employers have the right to recover the
surplus at the end of the life of the scheme, assuming all
liabilities have been extinguished. The schemes are mature with a
duration averaged over all scheme participants of 12
years.
The amounts recognised in
the balance sheet are as follows:
|
|
31
January
2024
£m
|
31
July
2023
£m
|
Market
value of scheme assets
|
|
2,635
|
2,573
|
Present
value of funded scheme liabilities
|
|
(2,547)
|
(2,383)
|
Surplus
restriction
|
|
(14)
|
(16)
|
Surplus
|
|
74
|
174
|
Unfunded
pension plans
|
|
(81)
|
(79)
|
Post-retirement healthcare
|
|
(6)
|
(6)
|
Present
value of unfunded obligations
|
|
(87)
|
(85)
|
Net retirement benefit
(obligation)/asset
|
|
(13)
|
89
|
Post-retirement assets
|
|
101
|
195
|
Post-retirement liabilities
|
|
(114)
|
(106)
|
Net retirement benefit
(obligation)/asset
|
|
(13)
|
89
|
The increase in the value of
scheme liabilities is principally due to changes in market
conditions and the resulting reduction in the discount rate
assumptions, as well as actuarial experience losses arising from
the calibration to the latest valuation data. The changes in market
conditions also led to a corresponding increase in the value of
scheme assets and whilst this increase was broadly sufficient to
offset the reduction in discount rate assumptions, it was not
sufficient to offset the actuarial experience losses, leading to an
overall reduction in the surplus recognised in the balance sheet at
31 January 2024.
The change in market conditions
has had no impact on any funding arrangements.
The principal assumptions
used in updating the valuations are set out
below:
|
31
January 2024
|
|
31 July
2023
|
|
UK
|
US
|
|
UK
|
US
|
Weighted average rate of increase
in benefits for active deferred members
|
4.0%
|
n/a
|
|
4.0%
|
n/a
|
Rate of increase in pensions in
payment
|
3.3%
|
n/a
|
|
3.3%
|
n/a
|
Rate of increase in deferred
pensions
|
3.3%
|
n/a
|
|
3.3%
|
n/a
|
Discount rate
|
4.8%
|
5.1%
|
|
5.1%
|
5.2%
|
The preliminary results of the
2023 triennial funding valuations for TIGPS and SIPS have been
considered in order to determine the DBO as at 31 January 2024. The
methods for setting the mortality assumptions for TIGPS and the US
scheme are consistent with those used for the 31 July 2023
valuation. The method for setting the mortality assumptions for
SIPS has been updated following analysis undertaken by the Scheme
Actuary for the triennial funding valuation at 31 March 2023.
The RPI inflation assumption of 3.3% has been derived using the Aon
UK Government Gilt Prices Only Curve with an Inflation Risk Premium
of 0.1% p.a. The Inflation Risk Premium used for the 31 July 2023
valuation was 0.2% p.a. The impact of changing the Inflation Risk
Premium was to increase the DBO for TIGPS by £10m and for SIPS by
£14m. The UK discount rate has been set based on the weighted
average duration across the two key pension arrangements.
Present value of funded
scheme liabilities and assets for the main UK and US
schemes
|
31
January 2024 - £m
|
|
31 July
2023 - £m
|
|
SIPS
|
TIGPS
|
US
schemes
|
|
SIPS
|
TIGPS
|
US
schemes
|
Present value of funded scheme
liabilities
|
|
|
|
|
|
|
|
- Active deferred
members
|
(14)
|
(10)
|
(31)
|
|
(25)
|
(18)
|
(31)
|
- Deferred members
|
(408)
|
(316)
|
(88)
|
|
(388)
|
(326)
|
(86)
|
- Pensioners
|
(937)
|
(631)
|
(87)
|
|
(838)
|
(561)
|
(85)
|
Present value of funded scheme
liabilities
|
(1,359)
|
(957)
|
(206)
|
|
(1,251)
|
(905)
|
(202)
|
Market value of scheme
assets
|
1,460
|
971
|
187
|
|
1,446
|
921
|
186
|
Surplus restriction
|
-
|
(14)
|
-
|
|
-
|
(16)
|
-
|
Surplus/(deficit)
|
101
|
-
|
(19)
|
|
195
|
-
|
(16)
|
Contributions
Company contributions to unfunded
defined benefit pension and post-retirement healthcare plans
totalled £3m (FY23: £3m). There have been no contributions to
funded schemes in either the current or prior year.
The changes in the present
value of the net pension balance in the period
were:
|
|
|
Six
months ended
31 January
2024
£m
|
Year
ended
31 July
2023
£m
|
At
beginning of period
|
|
|
89
|
194
|
Foreign
exchange rate movements
|
|
|
(1)
|
1
|
Current
service cost
|
|
|
(2)
|
(2)
|
Headline
scheme administration costs
|
|
|
(2)
|
(4)
|
Non-headline scheme administration costs
|
|
|
(3)
|
(2)
|
Past
service costs, curtailments and settlements - benefit
equalisations
|
|
|
-
|
4
|
Finance
income - retirement benefits
|
|
|
3
|
7
|
Contributions by employer
|
|
|
3
|
5
|
Actuarial
(losses)/gains
|
|
|
(100)
|
(114)
|
Net retirement benefit
(obligation)/asset at end of period
|
|
|
(13)
|
89
|
Past service costs,
curtailments and settlements
In SIPS, it has been discovered
that the methods used in the early 1990s to equalise retirement
ages between men and women in some of its smaller benefits sections
was incorrect. An additional liability of £12m was recognised
within the defined benefit obligation at 31 July 2023 to reflect
these equalisation obligations, whilst £16m of previously
recognised additional liabilities were released following the
identification of additional evidence, resulting in a net past
service credit of £4m at 31 July 2023. A wider review is
being undertaken to determine if equalisation was undertaken
correctly in other sections, with no further material additional
liabilities currently identified or expected. This review is
expected to be completed by the FY24 year-end.
7 Intangible assets
|
|
Goodwill
£m
|
Development
costs
£m
|
Acquired
intangibles
£m
|
Software,
patents and intellectual property
£m
|
Total
£m
|
Cost
|
|
|
|
|
|
|
At 31 July 2023
|
|
1,273
|
193
|
612
|
159
|
2,237
|
Exchange adjustments
|
|
7
|
-
|
5
|
1
|
13
|
Additions
|
|
-
|
7
|
-
|
1
|
8
|
Business combinations
|
|
12
|
-
|
34
|
-
|
46
|
At 31 January
2024
|
|
1,292
|
200
|
651
|
161
|
2,304
|
Amortisation
|
|
|
|
|
|
|
At 31 July 2023
|
|
64
|
124
|
406
|
122
|
716
|
Exchange adjustments
|
|
-
|
-
|
2
|
-
|
2
|
Charge for the period
|
|
-
|
1
|
25
|
3
|
29
|
At 31 January
2024
|
|
64
|
125
|
433
|
125
|
747
|
Net book value at 31 January
2024
|
|
1,228
|
75
|
218
|
36
|
1,557
|
Net book value at 31 July
2023
|
|
1,209
|
69
|
206
|
37
|
1,521
|
Review for impairment assessment trigger
events
In accordance with IAS 34 'Interim
financial reporting', management has undertaken a review for
indications of impairment and concluded that no impairment
assessment trigger events have occurred in the half year. It
was noted in the FY23 annual report that Smiths Detection was the
only Group CGU where a reasonable change in the impairment testing
assumptions could result in the recognition of impairment
charges.
8 Property, plant and equipment
|
Land
and
buildings
£m
|
Plant
and
machinery
£m
|
Fixtures,
fittings,
tools and
equipment
£m
|
Total
£m
|
Cost or
valuation
|
|
|
|
|
At 31 July 2023
|
178
|
463
|
120
|
761
|
Exchange adjustments
|
-
|
1
|
-
|
1
|
Additions
|
4
|
22
|
4
|
30
|
Business combinations
|
-
|
5
|
-
|
5
|
Disposals
|
(2)
|
(7)
|
(1)
|
(10)
|
At 31 January
2024
|
180
|
484
|
123
|
787
|
Depreciation
|
|
|
|
|
At 31 July 2023
|
110
|
302
|
102
|
514
|
Exchange adjustments
|
1
|
1
|
-
|
2
|
Charge for the period
|
4
|
14
|
4
|
22
|
Disposals
|
(2)
|
(7)
|
(1)
|
(10)
|
At 31 January
2024
|
113
|
310
|
105
|
528
|
Net book value at 31 January
2024
|
67
|
174
|
18
|
259
|
Net book value at 31 July
2023
|
68
|
161
|
18
|
247
|
9 Right of use assets
|
Properties
£m
|
Vehicles
£m
|
Equipment
£m
|
Total
£m
|
Cost
|
|
|
|
|
At 31 July 2023
|
190
|
27
|
2
|
219
|
Business combinations
|
12
|
-
|
-
|
12
|
Recognition of right of use
assets
|
7
|
5
|
-
|
12
|
Derecognition of right of use
assets
|
(5)
|
-
|
-
|
(5)
|
At 31 January
2024
|
204
|
32
|
2
|
238
|
Depreciation
|
|
|
|
|
At 31 July 2023
|
94
|
19
|
1
|
114
|
Charge for the year
|
14
|
3
|
-
|
17
|
Derecognition of right of use
assets
|
(5)
|
-
|
-
|
(5)
|
At 31 January
2024
|
103
|
22
|
1
|
126
|
Net book value at 31 January
2024
|
101
|
10
|
1
|
112
|
Net book value at 31 July
2023
|
96
|
8
|
1
|
105
|
10 Financial assets - other investments
|
Investment in ICU Medical, Inc equity
£m
|
Deferred
contingent consideration
£m
|
Investments in early stage businesses
£m
|
Cash
collateral deposit
£m
|
Total
£m
|
At 31 July 2023
|
347
|
13
|
7
|
4
|
371
|
Fair value change through Profit
and Loss
|
-
|
(10)
|
(1)
|
-
|
(11)
|
Fair value change through Other
Comprehensive Income
|
(167)
|
-
|
-
|
-
|
(167)
|
At 31 January
2024
|
180
|
3
|
6
|
4
|
193
|
Following the sale of Smiths Medical
the Group has recognised a financial asset for its investment in
10% of the equity in ICU Medical, Inc (ICU) and a financial asset
for the fair value of $100m additional sales consideration that is
contingent on the future share price performance of ICU.
In February 2024, the Group sold 830,000 shares
in ICU representing approximately 33% of Smiths' holding in ICU for
net proceeds of circa £70m.
11 Borrowings and net cash/(debt)
This note sets out the calculation
of net debt, an important measure in explaining our financing
position. The net debt figure includes accrued interest and fair
value adjustments to debt relating to hedge accounting.
|
31
January
2024
£m
|
31
July
2023
£m
|
Cash and cash
equivalents
|
|
|
Net cash and cash
equivalents
|
180
|
285
|
Short-term
borrowings
|
|
|
Lease liabilities
|
(32)
|
(26)
|
Interest accrual
|
(8)
|
(3)
|
|
(40)
|
(29)
|
Long-term
borrowings
|
|
|
€650m 2.00% Eurobond
2027
|
(540)
|
(534)
|
Lease liabilities
|
(93)
|
(91)
|
|
(633)
|
(625)
|
Borrowings/gross
debt
|
(673)
|
(654)
|
Derivatives managing interest rate risk and currency profile
of the debt
|
(12)
|
(18)
|
Net debt
|
(505)
|
(387)
|
Analysis of financial
derivatives on balance sheet
|
|
Non-current assets
£m
|
Current
assets
£m
|
Current
liabilities
£m
|
Non-current liabilities
£m
|
Net
balance
£m
|
Derivatives managing interest rate
risk and currency profile of the debt
|
|
-
|
-
|
-
|
(12)
|
(12)
|
Foreign exchange forward
contracts
|
|
-
|
3
|
(3)
|
-
|
-
|
At 31 January
2024
|
|
-
|
3
|
(3)
|
(12)
|
(12)
|
Derivatives managing interest rate
risk and currency profile of the debt
|
|
-
|
-
|
-
|
(18)
|
(18)
|
Foreign exchange forward
contracts
|
|
-
|
5
|
(2)
|
-
|
3
|
At 31 July
2023
|
|
-
|
5
|
(2)
|
(18)
|
(15)
|
Movements in net
debt
|
|
Cash and
cash equivalents
£m
|
Short-term borrowings
£m
|
Long-term borrowings
£m
|
Interest
rate and cross currency swaps
£m
|
Net
debt
£m
|
At 31 July 2023
|
|
285
|
(29)
|
(625)
|
(18)
|
(387)
|
Foreign exchange
gains/(losses)
|
|
(6)
|
-
|
2
|
-
|
(4)
|
Net (decrease)/increase in cash
and cash equivalents
|
|
(99)
|
15
|
-
|
-
|
(84)
|
Lease liabilities acquired in a
business combination
|
|
-
|
-
|
(12)
|
-
|
(12)
|
Net movement in lease
liabilities
|
|
-
|
(12)
|
-
|
-
|
(12)
|
Fair value movement from interest
rate hedging
|
|
-
|
-
|
(8)
|
-
|
(8)
|
Revaluation of derivative
contracts
|
|
-
|
-
|
-
|
6
|
6
|
Net movement in finance cost
accruals
|
|
-
|
(4)
|
-
|
-
|
(4)
|
Reclassification to
short-term
|
|
-
|
(10)
|
10
|
-
|
-
|
At 31 January
2024
|
|
180
|
(40)
|
(633)
|
(12)
|
(505)
|
12 Fair value of financial instruments
|
|
As at
31 January 2024
|
|
As at
31 July 2023
|
|
Basis
for determining fair value
|
At
amortised
cost
£m
|
At fair
value through profit or loss
£m
|
At fair
value through OCI
£m
|
Total
carrying
value
£m
|
Total
fair
value
£m
|
|
At
amortised cost
£m
|
At fair
value through profit or loss
£m
|
At fair
value through OCI
£m
|
Total
carrying
value
£m
|
Total
fair
value
£m
|
Financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments
|
A
|
-
|
4
|
180
|
184
|
184
|
|
-
|
4
|
347
|
351
|
351
|
Other
investments
|
F
|
-
|
3
|
6
|
9
|
9
|
|
-
|
13
|
7
|
20
|
20
|
Cash and
cash equivalents
|
A
|
180
|
-
|
-
|
180
|
180
|
|
285
|
-
|
-
|
285
|
285
|
Trade and
other financial receivables
|
B/C
|
719
|
-
|
-
|
719
|
719
|
|
726
|
-
|
-
|
726
|
726
|
Derivative financial instruments
|
C
|
-
|
3
|
-
|
3
|
3
|
|
-
|
5
|
-
|
5
|
5
|
Total
financial assets
|
|
899
|
10
|
186
|
1,095
|
1,095
|
|
1,011
|
22
|
354
|
1,387
|
1,387
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and
other financial payables
|
B
|
(426)
|
-
|
-
|
(426)
|
(426)
|
|
(476)
|
-
|
-
|
(476)
|
(476)
|
Short-term borrowings
|
B/D
|
(8)
|
-
|
-
|
(8)
|
(8)
|
|
(3)
|
-
|
-
|
(3)
|
(3)
|
Long-term
borrowings
|
D
|
(540)
|
-
|
-
|
(540)
|
(535)
|
|
(534)
|
-
|
-
|
(534)
|
(520)
|
Lease
liabilities
|
E
|
(125)
|
-
|
-
|
(125)
|
(125)
|
|
(117)
|
-
|
-
|
(117)
|
(117)
|
Derivative financial instruments
|
C
|
-
|
(15)
|
-
|
(15)
|
(15)
|
|
-
|
(20)
|
-
|
(20)
|
(20)
|
Total financial
liabilities
|
|
(1,099)
|
(15)
|
-
|
(1,114)
|
(1,109)
|
|
(1,130)
|
(20)
|
-
|
(1,150)
|
(1,136)
|
The fair value of a financial
instrument is the price at which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an
arm's-length transaction. Fair values have been determined with
reference to available market information at the balance sheet
date, using the methodologies described below:
A
|
Carrying value is assumed to be a
reasonable approximation to fair value for all of these assets and
liabilities (Level 1 as defined by IFRS 13 Fair Value
Measurement).
|
B
|
Carrying value is assumed to be a
reasonable approximation to fair value for all of these assets and
liabilities (Level 2 as defined by IFRS 13 Fair Value
Measurement).
|
C
|
Fair values of derivative
financial assets and liabilities and trade receivables held to
collect or sell are estimated by discounting expected future
contractual cash-flows using prevailing interest rate curves.
Amounts denominated in foreign currencies are valued at the
exchange rate prevailing at the balance sheet date. These financial
instruments are included on the balance sheet at fair value,
derived from observable market prices (Level 2 as defined by IFRS
13 Fair Value Measurement).
|
D
|
Borrowings are carried at
amortised cost. Amounts denominated in foreign currencies are
valued at the exchange rate prevailing at the balance sheet date.
The fair value of borrowings is estimated using quoted prices
(Level 1 as defined by IFRS 13).
|
E
|
Leases are carried at amortised
cost. Amounts denominated in foreign currencies are valued at the
exchange rate prevailing at the balance sheet date. The fair value
of the lease contract is estimated by discounting contractual
future cash-flows (Level 2 as defined by IFRS 13).
|
F
|
The fair value of instruments is
estimated by using unobservable inputs to the extent that relevant
observable inputs are not available. Unobservable inputs are
developed using the best information available in the
circumstances, which may include the Group's own data, taking into
account all information about market participation assumptions that
is reliably available (Level 3 as defined by
IFRS 13).
IFRS 13 defines a three level
valuation hierarchy:
Level 1 - quoted prices for
similar instruments
Level 2 - directly observable
market inputs other than Level 1 inputs
Level 3 - inputs not based on
observable market data
|
13 Provisions and contingent liabilities
|
|
Headline
|
|
Non-headline and legacy
|
|
Total
|
|
|
£m
|
|
John
Crane, Inc.
litigation
£m
|
Titeflex
Corporation
litigation
£m
|
Other
£m
|
|
£m
|
Current
liabilities
|
|
6
|
|
27
|
13
|
24
|
|
70
|
Non-current liabilities
|
|
2
|
|
177
|
28
|
9
|
|
216
|
At 31
July 2023
|
|
8
|
|
204
|
41
|
33
|
|
286
|
Foreign
exchange rate movements
|
|
-
|
|
2
|
-
|
-
|
|
2
|
Business
combinations
|
|
1
|
|
-
|
-
|
-
|
|
1
|
Provision
charged
|
|
6
|
|
22
|
-
|
-
|
|
28
|
Provision
released
|
|
(1)
|
|
-
|
(7)
|
-
|
|
(8)
|
Unwind of
provision discount
|
|
-
|
|
3
|
1
|
-
|
|
4
|
Utilisation
|
|
(3)
|
|
(8)
|
(1)
|
(5)
|
|
(17)
|
At 31 January
2024
|
|
11
|
|
223
|
34
|
28
|
|
296
|
Current
liabilities
|
|
9
|
|
31
|
12
|
19
|
|
71
|
Non-current liabilities
|
|
2
|
|
192
|
22
|
9
|
|
225
|
At 31 January
2024
|
|
11
|
|
223
|
34
|
28
|
|
296
|
The John Crane, Inc. and Titeflex
Corporation litigation provisions are the only provisions which are
discounted.
Headline provisions and contingent
liabilities:
Warranty provision and
product liability
At 31 January 2024 there are
warranty and product liability provisions of £8m (31 July 2023:
£6m). Warranties over the Group's products typically cover periods
of between one and three years. Provision is made for the likely
cost of after-sales support based on the recent past experience of
individual businesses.
Commercial disputes and
litigation in respect of ongoing business
activities
The Group has on occasion been
required to take legal action to protect its intellectual property
and other rights against infringement. It has also had to defend
itself against proceedings brought by other parties, including
product liability and insurance subrogation claims. Provision is
made for any expected costs and liabilities in relation to these
proceedings where appropriate, although there can be no guarantee
that such provisions (which may be subject to potentially material
revision from time to time) will accurately predict the actual
costs and liabilities that may be incurred.
Contingent
liabilities
In the ordinary course of its
business, the Group is subject to commercial disputes and
litigation such as government price audits, product liability
claims, employee disputes and other kinds of lawsuits, and faces
different types of legal issues in different jurisdictions. The
high level of activity in the US, for example, exposes the Group to
the likelihood of various types of litigation commonplace in that
country, such as 'mass tort' and 'class action' litigation, legal
challenges to the scope and validity of patents, and product
liability and insurance subrogation claims. These types of
proceedings (or the threat of them) are also used to create
pressure to encourage negotiated settlement of disputes. Any claim
brought against the Group (with or without merit) could be costly
to defend. These matters are inherently difficult to quantify. In
appropriate cases a provision is recognised based on best estimates
and management judgement, but there can be no guarantee that these
provisions (which may be subject to potentially material revision
from time to time) will result in an accurate prediction of the
actual costs and liabilities that may be incurred. There are also
contingent liabilities in respect of litigation for which no
provisions are made.
The Group operates in some markets
where the risk of unethical or corrupt behaviour is material and
has procedures, including an employee 'Ethics Alertline', to help
it identify potential issues. Such procedures will, from time to
time, give rise to internal investigations, sometimes conducted
with external support, to ensure that the Group properly
understands risks and concerns and can take steps both to manage
immediate issues and to improve its practices and procedures for
the future. The Group is not aware of any issues which are expected
to generate material financial exposures.
Non-headline and legacy provisions and contingent
liabilities:
John Crane,
Inc.
John Crane, Inc. ("JCI") is one of
many co-defendants in numerous lawsuits pending in the US in which
plaintiffs are claiming damages arising from alleged exposure to,
or use of, products previously manufactured which contained
asbestos. The JCI products generally referred to in these cases
consist of industrial sealing product, primarily packing and
gaskets. The asbestos was encapsulated within these products in
such a manner that causes JCI to believe, based on tests conducted
on its behalf, that the products were safe. JCI ceased
manufacturing products containing asbestos in 1985.
The table below summarises the JCI
claims experience over the last 40 years since the start of this
litigation:
|
31
January 2024
|
31 July
2023
|
31 July
2022
|
31 July
2021
|
31 July
2020
|
JCI claims
experience
|
|
|
|
|
|
Claims
against JCI that have been dismissed
|
311,000
|
310,000
|
306,000
|
305,000
|
297,000
|
Claims in
which JCI is currently a defendant
|
20,000
|
20,000
|
22,000
|
22,000
|
25,000
|
Cumulative final judgments, after appeals, against JCI since
1979
|
154
|
154
|
149
|
149
|
149
|
Cumulative value of awards ($m) since 1979
|
190
|
190
|
175
|
175
|
175
|
John Crane, Inc. litigation
insurance recoveries
JCI has certain excess liability
insurance which may provide coverage for certain asbestos claims.
JCI has also collected recoveries from its insurers in settlement
of now concluded litigation in the US. JCI meets its asbestos
defence costs directly. The calculation of the provision does not
take account of any recoveries from insurers. See table below
for the cost recovery achieved in both the current and prior
periods.
John Crane, Inc. litigation
provision
The provision is based on past
history and published tables of asbestos incidence projections and
is determined using asbestos valuation experts, Bates White LLC.
The assumptions made in assessing the appropriate level of
provision include: the period over which the expenditure can be
reliably estimated; the future trend of legal costs; the rate of
future claims filed; the rate of successful resolution of claims;
and the average amount of judgments awarded.
The JCI asbestos litigation
provision has developed in the period as follows:
|
Six
months ended
31 January 2024
£m
|
Year
ended
31 July
2023
£m
|
Year
ended
31 July
2022
£m
|
Year
ended
31 July
2021
£m
|
Year
ended
31 July
2020
£m
|
John Crane, Inc. litigation
provision
|
|
|
|
|
|
Gross
provision
|
264
|
246
|
258
|
220
|
235
|
Discount
|
(41)
|
(42)
|
(29)
|
(8)
|
(4)
|
Discounted provision
|
223
|
204
|
229
|
212
|
231
|
Taxation
|
(56)
|
(51)
|
(57)
|
(54)
|
(59)
|
Discounted post-tax
provision
|
167
|
153
|
172
|
158
|
172
|
Operating profit
(credit)/charge
|
|
|
|
|
|
Increased
provision for adverse judgments and legal defence costs
|
19
|
28
|
24
|
10
|
14
|
Change in
US risk free rates
|
2
|
(15)
|
(18)
|
(5)
|
16
|
Subtotal
- items charged to the provision
|
21
|
13
|
6
|
5
|
30
|
Litigation management expense - legal fees in connection with
litigation
against insurers and defence strategy
|
1
|
2
|
1
|
1
|
1
|
Recoveries from insurers
|
-
|
(7)
|
-
|
(9)
|
(3)
|
Total operating profit
charge/(credit)
|
22
|
8
|
7
|
(3)
|
28
|
Cash-flow
|
|
|
|
|
|
Provision
utilisation - legal defence costs and adverse judgements
|
(8)
|
(32)
|
(21)
|
(13)
|
(23)
|
Litigation management expense
|
-
|
(2)
|
(1)
|
-
|
(1)
|
Recoveries from insurers
|
-
|
7
|
-
|
9
|
3
|
Net cash
outflow
|
(8)
|
(27)
|
(22)
|
(4)
|
(21)
|
John Crane, Inc. litigation
provision sensitivities
The provision may be subject to
potentially material revision from time to time if new information
becomes available as a result of future events. There can be no
guarantee that the assumptions used to estimate the provision will
result in an accurate prediction of the actual costs that may be
incurred because of the significant uncertainty associated with the
future level of asbestos claims and of the costs arising out of
related litigation.
Statistical reliability of
projections over the ten year time horizon
In order to evaluate the statistical
reliability of the projections, a population of outcomes is
modelled using randomised verdict outcomes. This generated a
distribution of outcomes with future spend at the 5th percentile of
£202m and future spend at the 95th percentile of £259 (31 July
2023: £180m and £245m, respectively). Statistical analysis of
the distribution of these outcomes indicates that there is a 50%
probability that the total future spend will fall between £248m and
£274m (31 July 2023: between £228m and £257m), compared with the
gross provision value of £264m (31 July 2023: £246m).
Sensitivity of the projections to
changes in the time horizon used
If the asbestos litigation
environment becomes more volatile and uncertain, the time horizon
over which the provision can be calculated may reduce. Conversely,
if the environment became more stable, or JCI changed approach and
committed to long term settlement arrangements, the time period
covered by the provision might be extended.
The projections use a 10 year time
horizon. Reducing the time horizon by one year would reduce the
discounted pre-tax provision by £16m (31 July 2023: £16m) and
reducing it by five years would reduce the discounted pre-tax
provision by £89m (31 July 2023: £87m).
We consider, after obtaining advice
from Bates White LLC, that to forecast beyond ten years requires
that the litigation environment remains largely unchanged with
respect to the historical experience used for estimating future
asbestos expenditures. Historically, the asbestos litigation
environment has undergone significant changes more often than every
ten years. If one assumed that the asbestos litigation environment
would remain unchanged for longer and extended the time horizon by
one year, it would increase the discounted pre-tax provision by
£14m (31 July 2023: £13m); extending it by five years would
increase the discounted pre-tax provision by £49m (31 July 2023:
£48m). However, there are also reasonable scenarios that, given
certain recent events in the US asbestos litigation environment,
would result in no additional asbestos litigation for JCI beyond
ten years. At this time, how the asbestos litigation environment
may evolve beyond 10 years is not reasonably estimable.
John Crane, Inc. contingent
liabilities
Provision has been made for future
defence costs and the cost of adverse judgments expected to occur.
JCI's claims experience is significantly impacted by other factors
which influence the US litigation environment. These include:
changing approaches on the part of the plaintiffs' bar; changing
attitudes amongst the judiciary at both trial and appellate levels;
and legislative and procedural changes in both the state and
federal court systems. As a result, whilst the Group anticipates
that asbestos litigation will continue beyond the period covered by
the provision, the uncertainty surrounding the US litigation
environment beyond this point is such that the costs cannot be
reliably estimated.
Although the methodology used to
calculate the JCI litigation provision can in theory be applied to
show claims and costs for longer periods, the directors consider,
based on advice from Bates White LLC, that the level of uncertainty
regarding the factors used in estimating future costs is too great
to provide for reasonable estimation of the number of future
claims, the nature of such claims or the cost to resolve them for
years beyond the 10 year time horizon.
Titeflex Corporation litigation
In recent years Titeflex
Corporation, a subsidiary of the Group in the Flex-Tek division,
has received a number of claims from insurance companies seeking
recompense on a subrogated basis for the effects of damage
allegedly caused by lightning strikes in relation to its flexible
gas piping product. It has also received a number of product
liability claims regarding this product, some in the form of
purported class actions. Titeflex Corporation believes that its
products are a safe and effective means of delivering gas when
installed in accordance with the manufacturer's instructions and
local and national codes; however some claims have been settled on
an individual basis without admission of liability. Equivalent
third-party products in the US marketplace face similar
challenges.
Titeflex Corporation litigation
provision
The continuing progress of claims
and the pattern of settlement provide sufficient evidence to
recognise a liability in the accounts. Therefore provision has been
made for the costs which the Group is expected to incur in respect
of future claims to the extent that such costs can be reliably
estimated. Titeflex Corporation sells flexible gas piping with
extensive installation and safety guidance (revised in 2008)
designed to assure the safety of the product and minimise the risk
of damage associated with lightning strikes.
The assumptions made in assessing
the appropriate level of provision, which are based on past
experience, include: the period over which expenditure can be
reliably estimated; the number of future settlements; the average
amount of settlements; and the impact of statutes of repose and
safe installation initiatives on the expected number of future
claims. The assumptions relating to the
number of future settlements exclude FY21 claims history as the
number of claims arising in this financial year is considered to be
artificially deflated due to the impact of COVID-19
lockdowns.
The provision of £34m (31 July 2023:
£41m) is a discounted
pre-tax provision using discount rates, being the risk-free rate on
US debt instruments for the appropriate period. The deferred tax
asset related to this provision is shown within the deferred tax
balance.
|
31
January
2024
£m
|
31
July
2023
£m
|
Gross provision
|
64
|
78
|
Discount
|
(30)
|
(37)
|
Discounted pre-tax
provision
|
34
|
41
|
Taxation
|
(8)
|
(9)
|
Discounted post-tax
provision
|
26
|
32
|
Titeflex Corporation litigation
provision sensitivities
The significant uncertainty
associated with the future level of claims and of the costs arising
out of related litigation means that there can be no guarantee that
the assumptions used to estimate the provision will result in an
accurate prediction of the actual costs that may be incurred.
Therefore the provision may be subject to potentially material
revision from time to time, if new information becomes available as
a result of future events.
The projections incorporate a
long-term assumption regarding the impact of safe installation
initiatives on the level of future claims. If the assumed annual
benefit of bonding and grounding initiatives were 0.5% higher, the
discounted pre-tax provision would be £2m (31 July 2023:
£2m) lower, and if the
benefit were 0.5% lower, the discounted pre-tax provision would
be £2m (31 July
2023: £2m)
higher.
The projections use assumptions of
future claims that are based on both the number of future
settlements and the average amount of those settlements. If the
assumed average number of future settlements increased 10%, the
discounted pre-tax provision would rise by £3m (31 July 2023:
£3m), with an equivalent
fall for a reduction of 10%. If the assumed amount of those
settlements increased 10%, the discounted pre-tax provision would
rise by £2m (31
July 2023: £2m),
also with an equivalent fall for a reduction of 10%.
Other non-headline and
legacy
Legacy provisions comprise
provisions relating to former business activities and properties no
longer used by Smiths. Non-headline provisions comprise all
provisions that were disclosed as non-headline items when they were
charged to the consolidated income statement. These provisions
include non-headline reorganisation, separation expenses, disposal
indemnities and litigation in respect of old products and
discontinued business activities.
14 Dividends
The following dividends were
declared and paid in the period:
|
Six
months ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Dividends paid in the period
|
100
|
97
|
In the current period an ordinary
final dividend of 28.7p
(31 January 2023: 27.3p) was paid on
24 November
2023.
An interim dividend of
13.55 pence per share
was declared by the Board on 26 March 2024 and will be paid to
shareholders on 13 May 2024. This dividend has not been included as
a liability in these accounts and is payable to all shareholders on
the register of members at close of business on 5 April
2024.
15 Acquisitions
On 30 August 2023, the Group
acquired the business of Heating & Cooling Products (HCP), for
consideration of £64m, financed using the Group's own cash
resources. HCP is a US-based manufacturer of Heating, Ventilation
& Air Conditioning (HVAC) solutions. This acquisition will further expand the Flex-Tek division's
presence in the North American HVAC market, enabling Smiths to
serve customers with an even broader product range.
The intangible assets recognised on
acquisition comprise customer relationships, intellectual property
and technology. Goodwill represents the
expected synergies from the strategic fit of the acquisition and
the value of the expertise in the assembled workforce.
From the date of acquisition to 31 January 2024,
HCP contributed £26m to revenue and £6m to profit before taxation
and amortisation. If the Group had acquired this business at the
beginning of the financial year, the acquisition would have
contributed a further £4m to revenue and £1m to profit before
taxation.
On 27 October 2023, the Group's
Flex-Tek division acquired the business of Burns Machine (Burns)
for consideration of approximately £1m, financed using the Group's
own cash resources.
The provisional balance sheets at
the dates of acquisition are:
|
|
HCP
£m
|
Burns
£m
|
Total
£m
|
Non-current assets
|
- acquired intangible
assets
|
34
|
-
|
34
|
|
- plant and machinery
|
4
|
1
|
5
|
|
- right of use assets
|
12
|
-
|
12
|
Current assets
|
- inventory
|
10
|
-
|
10
|
|
- trade and other
receivables
|
7
|
-
|
7
|
Current liabilities
|
- trade and other
payables
|
(3)
|
-
|
(3)
|
Non-current
liabilities
|
-
deferred tax
|
(12)
|
-
|
(12)
|
Net assets acquired
|
|
52
|
1
|
53
|
Goodwill on current period
acquisitions
|
12
|
-
|
12
|
Total consideration
|
|
64
|
1
|
65
|
16 Cash-flow from operating activities
|
|
Six
months ended 31 January 2024
|
|
Six
months ended 31 January 2023
|
|
|
Headline
£m
|
Non-headline
(note 3)
£m
|
Total
£m
|
|
Headline
£m
|
Non-headline
(note 3)
£m
|
Total
£m
|
Operating profit/(loss)
|
|
246
|
(54)
|
192
|
|
241
|
(54)
|
187
|
Amortisation of intangible
assets
|
|
4
|
25
|
29
|
|
5
|
26
|
31
|
Depreciation of property, plant
and equipment
|
|
22
|
-
|
22
|
|
21
|
-
|
21
|
Depreciation of right of use
assets
|
|
17
|
-
|
17
|
|
17
|
-
|
17
|
Loss/(gain) on fair value of
contingent consideration
|
|
-
|
10
|
10
|
|
-
|
(5)
|
(5)
|
Share-based payment
expense
|
|
8
|
-
|
8
|
|
8
|
-
|
8
|
Retirement benefits
|
|
4
|
-
|
4
|
|
1
|
10
|
11
|
(Increase) in
inventories
|
|
(2)
|
-
|
(2)
|
|
(116)
|
-
|
(116)
|
(Increase)/decrease in trade and
other receivables
|
|
(7)
|
3
|
(4)
|
|
21
|
-
|
21
|
(Decrease)/increase in trade and
other payables
|
|
(38)
|
(8)
|
(46)
|
|
(8)
|
2
|
(6)
|
Increase/(decrease) in
provisions
|
|
2
|
(1)
|
1
|
|
(3)
|
(16)
|
(19)
|
Cash generated from
operations
|
|
256
|
(25)
|
231
|
|
187
|
(37)
|
150
|
Interest paid
|
|
(22)
|
-
|
(22)
|
|
(29)
|
-
|
(29)
|
Interest received
|
|
11
|
-
|
11
|
|
22
|
-
|
22
|
Tax paid
|
|
(63)
|
11
|
(52)
|
|
(43)
|
-
|
(43)
|
Net cash inflow/(outflow)
from operating activities
|
|
182
|
(14)
|
168
|
|
137
|
(37)
|
100
|
The split of tax payments between
headline and non-headline only considers the nature of payments
made. No adjustment has been made for reductions in tax payments
required as a result of tax relief received on non-headline
items.
Headline cash measures -
continuing operations
The Group measure of headline
operating cash excludes interest and tax, and includes capital
expenditure supporting organic growth. The Group uses operating
cash-flow for the calculation of cash conversion and free cash-flow
for management of capital purposes. See note 19 for additional
details.
The table below reconciles the
Group's net cash-flow from operating activities to headline
operating cash-flow and free cash-flow:
|
Six
months ended 31 January 2024
|
|
Six
months ended 31 January 2023
|
|
Headline
£m
|
Non-headline
£m
|
Total
£m
|
|
Headline
£m
|
Non-headline
£m
|
Total
£m
|
Net cash inflow/(outflow)
from operating activities
|
182
|
(14)
|
168
|
|
137
|
(37)
|
100
|
Include:
|
|
|
|
|
|
|
|
Expenditure on capitalised development, other intangible
assets and property, plant and equipment
|
(38)
|
-
|
(38)
|
|
(36)
|
-
|
(36)
|
Repayment
of lease liabilities
|
(19)
|
-
|
(19)
|
|
(18)
|
-
|
(18)
|
Investment in financial assets relating to operating
activities
|
1
|
-
|
1
|
|
-
|
-
|
-
|
Free
cash-flow
|
|
|
112
|
|
|
|
46
|
Exclude:
|
|
|
|
|
|
|
|
Investment in financial assets relating to operating
activities
|
(1)
|
-
|
(1)
|
|
-
|
-
|
-
|
Repayment
of lease liabilities
|
19
|
-
|
19
|
|
18
|
-
|
18
|
Interest
paid
|
22
|
-
|
22
|
|
29
|
-
|
29
|
Interest
received
|
(11)
|
-
|
(11)
|
|
(22)
|
-
|
(22)
|
Tax
paid
|
63
|
-
|
63
|
|
43
|
-
|
43
|
Operating
cash-flow
|
218
|
(14)
|
204
|
|
151
|
(37)
|
114
|
Headline cash conversion
Headline operating cash conversion
for continuing operations is calculated as follows:
|
|
|
|
|
|
|
Six
months
ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Headline operating
profit
|
|
|
|
|
|
|
246
|
241
|
Headline operating
cash-flow
|
|
|
|
|
|
|
218
|
151
|
Headline operating cash conversion
|
|
|
|
|
|
|
89%
|
63%
|
Reconciliation of free
cash-flow to total movement in cash and cash
equivalents
|
Six
months
ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Free
cash-flow
|
112
|
46
|
Investment in financial assets and acquisition of
businesses
|
(65)
|
(22)
|
Disposal
of businesses and discontinued operations
|
-
|
(7)
|
Other net
cash-flows used in financing activities (note: repayment of lease
liability is included in free cash-flow)
|
(146)
|
(275)
|
Decrease in cash and cash
equivalents
|
(99)
|
(258)
|
17 Related party transactions
The related party transactions in
the period were consistent with the nature and size of transactions
disclosed in the Annual Report for the year ended 31 July
2023.
18 Share capital and share premium
|
|
|
|
Number
of shares
|
Share
capital and share premium
£m
|
Consideration
£m
|
Ordinary shares of 37.5p each
|
|
|
|
|
|
|
At 31
July 2022
|
|
|
|
362,356,159
|
501
|
|
Share
buybacks
|
|
|
|
(9,295,685)
|
(3)
|
(144)
|
At 31 January
2023
|
|
|
|
353,060,474
|
498
|
|
At 31 July 2023
|
|
|
|
349,302,990
|
496
|
|
Share
buybacks
|
|
|
|
(1,764,660)
|
(1)
|
(29)
|
At 31 January
2024
|
|
|
|
347,538,330
|
495
|
|
Share
buybacks
On 29 September 2023, the Group
completed its share buyback programme announced in FY21 to return
approximately $1bn (or c.£742m) to shareholders. All shares
purchased under the programme have been cancelled.
In total the Group has purchased
48,970,726 shares for a total consideration of £742m. The average
price paid per share for buybacks during the programme was
£15.15p.
19 Alternative performance measures
The Group uses several alternative
performance measures ('APMs') in order to provide additional useful
information on underlying trends and the performance and position
of the Group. APMs are non-GAAP and not defined by IFRS; therefore
they may not be directly comparable with other companies' APMs and
should not be considered a substitute for IFRS measures.
The Group uses APMs which are common
across the industry, in both planning and reporting, to enhance the
comparability of information between reporting periods and business
units. The measures are also used in discussions with the
investment analyst community and by credit rating
agencies.
We have identified and defined the
following key measures which are used within the business by
management to assess the performance of the Group's
businesses:
APM term
|
Definition and
purpose
|
Capital
employed
|
Capital employed is a
non-statutory measure of invested resources. It comprises statutory
net assets and is adjusted as follows:
· to add goodwill recognised directly in reserves in respect of
subsidiaries acquired before 1 August 1998;
· to eliminate the Group's investment in ICU Medical, Inc
equity and deferred consideration contingent on the future share
price performance of ICU Medical, Inc; and
· to eliminate post-retirement benefit assets and liabilities
and non-headline litigation provisions related to John Crane, Inc.
and Titeflex Corporation, both net of deferred tax, and net
debt.
It is used to monitor capital
allocation within the Group. See below for a reconciliation from
net assets to capital employed.
|
Capital
expenditure
|
Comprises additions to property,
plant and equipment, capitalised development and other intangible
assets, excluding assets acquired through business combinations;
see notes 7 & 8 for an analysis of capital expenditure. This
measure quantifies the level of capital investment into ongoing
operations.
|
Divisional headline operating profit ('DHOP')
|
DHOP comprises divisional earnings
before central costs, finance costs and taxation. DHOP is used to
monitor divisional performance. A reconciliation of DHOP to
operating profit is shown in note 2.
|
Free
cash-flow
|
Free cash-flow is calculated by
adjusting the net cash inflow from operating activities to include
capital expenditure, the repayment of lease liabilities, the
proceeds from the disposal of property, plant and equipment and the
investment in financial assets relating to operating activities and
pensions financing outstanding at the balance sheet date. The
measure shows cash generated by the Group before discretionary
expenditure on acquisitions and returns to shareholders. A
reconciliation of free cash-flow is shown in note 16.
|
Gross
debt
|
Gross debt is total borrowings
(bank, bonds and lease liabilities). It is used to provide an
indication of the Group's overall level of indebtedness. See note
11 for an analysis of gross debt.
|
Headline
|
The Group has defined a 'headline'
measure of performance that excludes material non-recurring items
or items considered non-operational/trading in nature. Items
excluded from headline are referred to as non-headline items. This
measure is used by the Group to measure and monitor performance
excluding material non-recurring items or items considered
non-operational. See note 3 for an analysis of non-headline
items.
|
Headline
EBITDA
|
EBITDA is a widely used profit
measure, not defined by IFRS, being earnings before interest,
taxation, depreciation and amortisation. See below for a
reconciliation of headline operating profit to headline
EBITDA.
|
Net
debt
|
Net debt is total borrowings
(bank, bonds and lease liabilities) less cash balances and
derivatives used to manage the interest rate risk and currency
profile of the debt. This measure is used to provide an indication
of the Group's overall level of indebtedness and is widely used by
investors and credit rating agencies. See note 11 for an analysis
of net debt.
|
Non-headline
|
The Group has defined a 'headline'
measure of performance that excludes material non-recurring items
or items considered non-operational/trading in nature. Items
excluded from headline are referred to as non-headline items. This
is used by the Group to measure and monitor material non-recurring
items or items considered non-operational. See note 3 for an
analysis of non-headline items.
|
Operating
cash-flow
|
Comprises free cash-flow and
excludes cash-flows relating to the repayment of lease liabilities,
interest and taxation. The measure shows how cash is generated from
operations in the Group. A reconciliation of operating cash-flow is
shown in note 16.
|
Operating
profit
|
Operating profit is earnings
before finance costs and tax. A reconciliation of operating profit
to profit before tax is shown on the consolidated income statement.
This common measure is used by the Group to measure and monitor
performance.
|
Return on
capital
employed ('ROCE')
|
Smiths ROCE is calculated over a
rolling 12-month period and is the percentage that headline
operating profit represents of the monthly average capital employed
on a rolling 12-month basis. This measure of return on invested
resources is used to monitor performance and capital allocation
within the Group. See below for Group ROCE and note 2 for
divisional headline operating profit and divisional capital
employed.
|
|
|
The key performance indicators
('KPIs') used by management to assess the performance of the
Group's businesses are as follows:
KPI term
|
Definition and
purpose
|
Dividend
cover - headline
|
Dividend cover is the ratio of
headline earnings per share (see note 4) to dividend per share (see
note 14). This commonly used measure indicates the number of times
the dividend in a financial year is covered by headline
earnings.
|
Earnings
per share ('EPS') growth
|
EPS growth is the growth in
headline basic EPS (see note 5), on a reported basis. EPS growth is
used to measure and monitor performance.
|
Free
cash-flow (as a % of operating profit)
|
This measure is defined as free
cash-flow divided by headline operating profit averaged over a
three-year performance period. This cash generation measure is used
by the Group as a performance measure for remuneration
purposes.
|
Greenhouse Gas (GHG) Emissions Reduction
|
GHG reduction is calculated as the
percentage change in normalised Scope 1 & 2 GHG emissions.
Normalised is calculated as tCO2e per £m of revenue.
This measure is used to monitor environmental
performance.
|
Gross
Vitality
|
Gross Vitality is calculated as
the percentage of revenue derived from new products and services
launched in the last five years. This measure is used to monitor
the effectiveness of the Group's new product development and
commercialisation.
|
My Say
Engagement Score
|
The overall score in our My Say
employee engagement survey. The biannual survey is undertaken
Group-wide. This measure is used by the Group to monitor employee
engagement.
|
Operating
cash conversion
|
Comprises cash-flow from
operations before non-headline items, as a percentage of headline
operating profit. This measure is used to show the proportion of
headline operating profit converted into cash-flow from operations
before investment, finance costs, non-headline items and taxation.
The calculation is shown in note 16.
|
Operating
profit margin
|
Headline operating profit margin
is calculated by dividing headline operating profit by revenue.
This measure is used to monitor the Group's ability to drive
profitable growth and control costs.
|
Organic
growth
|
Organic growth adjusts the
movement in headline performance to exclude the impact of foreign
exchange and acquisitions. Organic growth is used by the Group to
aid comparability when monitoring performance.
|
Organic
revenue growth (Remuneration)
|
Organic revenue growth
(remuneration) is compounded annualised growth in revenue after
excluding the impact of foreign exchange and acquisitions. The
measure used for remuneration differs from organic revenue growth
in that it is calculated on a compounded annualised basis. This
measure has historically been used by the Group for aligning
remuneration with business performance.
|
Percentage of senior leadership positions taken by
females
|
Percentage of senior leadership
positions taken by females is calculated as the percentage of
senior leadership roles (G14+ group) held by females. This measure
is used by the Group to monitor diversity performance.
|
R&D
cash costs as a
% of sales
|
This measure is defined as the
cash cost of research and development activities (including
capitalised R&D, R&D directly charged to the P&L and
customer-funded projects) as a percentage of revenue. Innovation is
an important driver of sustainable growth for the Group and this
measures our investment in research and development to drive
innovation.
|
Recordable Incident Rate (RIR)
|
Recordable Incident Rate is
calculated as the number of recordable incidents - where an
incident requires medical attention beyond first aid - per 100
colleagues, per year across Smiths. This measure is used by the
Group to monitor health and safety performance.
|
Capital
employed
Capital employed is a non-statutory
measure of invested resources. It comprises statutory net assets
adjusted to add goodwill recognised directly in reserves in respect
of subsidiaries acquired before 1 August 1998 of £478m (31 January
2023: £478m), and
to eliminate post-retirement benefit assets and liabilities,
litigation provisions relating to John Crane, Inc. and Titeflex
Corporation, both net of related tax, the investment in ICU Medical,
Inc. equity, the deferred consideration
contingent on ICU Medical, Inc's share price and net
debt.
|
Notes
|
31
January
2024
£m
|
31
January
2023
£m
|
Net assets
|
|
2,126
|
2,497
|
Adjust for:
|
|
|
|
Goodwill recognised directly in
reserves
|
|
478
|
478
|
Retirement benefit assets and
obligations
|
6
|
13
|
(75)
|
Tax related to retirement benefit
assets and obligations
|
|
19
|
40
|
John Crane, Inc. litigation
provisions and related tax
|
|
167
|
161
|
Titeflex Corporation litigation
provisions and related tax
|
|
26
|
39
|
Investment in ICU Medical, Inc
equity
|
|
(180)
|
(392)
|
Deferred contingent
consideration
|
|
(3)
|
(24)
|
Net debt
|
|
505
|
429
|
Capital
employed
|
|
3,151
|
3,153
|
Return on
capital employed
|
Notes
|
31
January
2024
£m
|
31
January
2023
£m
|
Headline operating profit for
previous 12 months
|
|
506
|
469
|
Average capital
employed
|
|
3,218
|
3,083
|
Return on capital employed
("ROCE")
|
|
15.7%
|
15.2%
|
Credit
metrics
The Group monitors the ratio of net
debt to headline earnings before interest, tax, depreciation and
amortisation as part of its management of credit ratings. This
ratio is calculated as follows:
Headline
earnings before interest, tax, depreciation and amortisation
("headline EBITDA")
|
Notes
|
Six
months ended
31 January 2024
£m
|
Six
months ended
31 January 2023
£m
|
Headline operating
profit
|
2
|
246
|
241
|
Exclude:
|
|
|
|
- depreciation of property, plant
and equipment
|
8
|
22
|
21
|
- depreciation of right of use
assets
|
9
|
17
|
17
|
- amortisation of development
costs
|
7
|
1
|
1
|
- amortisation of software,
patents and intellectual property
|
7
|
3
|
4
|
Headline
EBITDA
|
|
289
|
284
|
Annualised headline EBITDA
|
Notes
|
Year
ended
31 January 2024
£m
|
Year
ended
31 January 2023
£m
|
Headline EBITDA for the
period
|
|
289
|
284
|
Add:
Headline EBITDA for the
previous year
|
|
584
|
495
|
Exclude:
Headline EBITDA for the first six months of the previous
year
|
|
(284)
|
(228)
|
Annualised headline
EBITDA
|
|
589
|
551
|
Ratio of
net debt to annualised headline EBITDA
|
|
Year
ended
31 January 2024
£m
|
Year
ended
31 January 2023
£m
|
Annualised headline
EBITDA
|
|
589
|
551
|
Net debt
|
|
505
|
429
|
Ratio of net debt to
headline EBITDA
|
|
0.9
|
0.8
|