Smiths Group PLC (LON:SMIN) has announced its full year results for the 12 months ended 31 July 2022.
· ACCELERATING GROWTH – +3.8% organic revenue growth, fastest in nearly a decade
o Organic revenue growth ahead of expectations, +3.8%1 (H1: +3.4%; H2: +4.1%);
5 consecutive quarters of growth; reported growth of +6.7%
o Headline2 EPS growth +17.8%
o High demand across most end markets with strong order growth of +11%3
o £51m of revenue from new products launched in FY2022; R&D investment
increased +14%
o Targeted M&A contributed +1.8% of reported growth
o Increasing returns to shareholders with proposed total dividend of 39.6p, +5%
· STRONGER EXECUTION – Smiths Excellence System fully embedded
o Resilient operating margin of 16.3% with operating profit2 of £417m
o Price offsetting inflation and mitigating other supply chain impacts
o Solid operating cash conversion4 of 80%; investment in working capital and capex to support growth and mitigate supply chain impacts
o More focused portfolio following completion of Smiths Medical sale and rapid return of proceeds with share buyback programme now 76% complete
o Smiths Excellence System now fully embedded, with high impact projects underway and targeted savings actions to drive enhanced efficiency
· INSPIRING & EMPOWERING OUR PEOPLE – an energised and focused team
o A refreshed leadership team with new senior appointments throughout the year
o Introduced Smiths Leadership Behaviours to build on our strong culture
o Driving an even more dynamic and inclusive culture with greater focus on diversity
o Continuing to translate our commitment to ESG leadership into action
· STRONG BALANCE SHEET – well positioned to execute our growth strategy
o £380m reduction in gross debt; leverage of 0.3x net debt/headline EBITDA4
o Final buy-in of the TI Group Pension Scheme, delivering certainty for scheme members and shareholders
| Headline2 | FY2022 | FY2021 | Reported | Organic1 |
| Revenue | £2,566m | £2,406m | +6.7% | +3.8% |
| Operating profit | £417m | £372m | +12.0% | +1.7% |
| Operating profit margin4 | 16.3% | 15.5% | +80bps | (30)bps |
| Basic EPS | 69.8p | 59.3p | +17.8% | |
| Operating cash conversion4 | 80% | 129% | (49)% | |
| ROCE4,5 | 14.2% | 13.9% | +30bps |
| Statutory | FY2022 | FY2021 | Reported |
| Revenue | £2,566m | £2,406m | +6.7% |
| Operating profit | £117m | £326m | (64.1)% |
| Profit for the year (after tax) | £1,035m | £285m | +263.2% |
| Basic EPS | 267.1p | 71.7p | +272.5% |
| Dividend per share | 39.6p | 37.7p | +5.0% |
FY2023 OUTLOOK
· Expect to deliver 4.0-4.5% organic revenue growth with moderate margin improvement
· Strong order books and leading market positions support sustained momentum
· Cost inflation being actively managed through productivity programmes and pricing actions
· Macroeconomic and geopolitical uncertainty as well as supply chain challenges continue
Paul Keel, Chief Executive Officer, commented:
“We continued to demonstrate strong progress in FY2022, executing at pace on our growth strategy. We delivered growth ahead of expectations, our fastest organic growth in nearly a decade. Along with accelerating growth, we further strengthened our company through increased investments in innovation, commercialisation and supply chain. Still more, we returned £661m of cash to our shareholders through dividends and share repurchases.
All of this gives us confidence for continued progress in FY2023. Despite an uncertain macro environment, we expect to deliver 4.0-4.5% organic revenue growth with moderate margin improvement. By focusing on our top priorities of growth, execution, and people, we are creating value for our customers, colleagues, communities and investors. Together, we’re building an ever-stronger future for Smiths.
Many thanks to my colleagues around the world for doing what we do best – improving our world through smarter engineering.”
UPCOMING EVENTS
| Date | Event |
| Wednesday 9 November 2022 | Q1 Trading Update |
| Thursday 10 November 2022 | Capital Markets Event |
| Wednesday 16 November 2022 | 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, acquisitions and restructuring.
2 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. Headline performance is on a Smiths Group basis, excluding the results of Smiths Medical.
3 Order growth excludes the effects of foreign exchange and includes John Crane, Smiths Detection and Smiths Interconnect
4 Alternative Performance Measures (“APMs”) and Key Performance Indicators (“KPIs”) are defined in note 29 to the financial statements.
5 Excludes the impact of restructuring charges
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).
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. At our Capital Markets Event in November 2021, we set out how Smiths will deliver performance in line with our significant potential by focusing on three top priorities:
1) accelerating growth
2) strengthening execution and
3) doing even more to inspire and empower our people.
Our focused plan, the Smiths Value Engine, is the means through which we will deliver the medium-term targets that we have set. In FY2022, we made meaningful progress towards these commitments.
| Priority | Progress |
| Growth | · Five consecutive quarters of organic revenue growth· £51m of revenue from new products launched in FY2022· R&D investment increased +14% to 4.2% of sales (+30bps vs FY2021)· +1.8% additional growth from targeted M&A |
| Execution | · Price offsetting inflation and mitigating other supply chain impacts· Smiths Excellence System (“SES”) fully embedded across the company with a well resourced team and 25 high impact projects underway· New sustainability strategy launched |
| People | · Refreshed senior leadership team leading a faster pace· Introduced Smiths Leadership Behaviours to accelerate cultural change· More ambitious diversity goals in place· >1,000 Lean Six Sigma qualifications through our SES Academy |
| Targets | Medium-Term Target | FY2021 | FY2022 | Progress |
| Organic Revenue Growth | 4-6%(+ M&A) | (2.2)% | +3.8% | Accelerated growth towards target range |
| EPS Growth4 | 7-10%(+ M&A) | +19.3% | +17.8% | Strong growth enhanced by ongoing share buyback programme |
| ROCE | 15-17% | 13.9% | 14.2% | Reflecting higher profitability |
| Operating Profit Margin | 18-20% | 15.5% | 16.3% | Resilient margins amidst challenging macro environment, while continuing to invest in future growth |
| Operating Cash Conversion | 100%+ | 129% | 80% | Solid operating cash conversion while navigating supply chain disruption |
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.
FY2022 BUSINESS PERFORMANCE
The commentary below refers to Smiths Group performance excluding Smiths Medical, which was accounted for as ‘discontinued operations’ before the sale completed on 6 January 2022.
| £m | FY2021 | FY2021 restructuring charges | Foreignexchange | Acquisitions | Organicmovement | FY2022 |
| Revenue | 2,406 | – | 26 | 42 | 92 | 2,566 |
| Headline operating profit | 372 | 21 | 5 | 11 | 8 | 417 |
| Headline operating profit margin | 15.5% | +90bps | +0bps | +20bps | (30)bps | 16.3% |
Smiths delivered growth ahead of expectations with organic revenue up +3.8%. Growth accelerated to +4.1% in the second half, which built on the momentum we had achieved in the first half of +3.4%. We executed well in a challenging environment with positive pricing action covering the impact of elevated input costs and maintained close management of our supply chain to mitigate other impacts.
As we strive to continually inspire and empower our great people, we launched our enhanced sustainability strategy, and set out new Smiths Leadership Behaviours. These behaviours provide a unified description of what leadership means at Smiths and a shared commitment to how we will act as employees.
GROWTH
Growing faster is the primary driver of unlocking enhanced value creation for the Group. Through the year we delivered growth in each quarter and FY organic revenue growth of +3.8%, our best performance in nearly a decade.
| Organic revenue growth (by business) | H1 2022 | H2 2022 | FY2022 |
| John Crane | +5.1% | +2.5% | +3.7% |
| Smiths Detection | (7.2)% | (11.3)% | (9.4)% |
| Flex-Tek | +10.0% | +20.9% | +16.1% |
| Smiths Interconnect | +12.9% | +14.8% | +13.9% |
| Smiths Group | +3.4% | +4.1% | +3.8% |
Growth accelerated in the second half for both Flex-Tek (+20.9%) and Smiths Interconnect (+14.8%). John Crane delivered +2.5% growth in the second half, impacted by cessation of sales into Russia and supply chain disruption, which impacted our ability to convert strong order intake into revenue. As expected, Smiths Detection continued to be affected by the softer Aviation OE market through the second half, but good order growth underpins our confidence in the medium-term prospects for this segment.
Revenue grew +6.7% on a reported basis, to £2,566m (FY2021: £2,406m). This included +£26m of favourable foreign exchange translation, and +£42m from the acquisition of Royal Metal Products LLC (“Royal Metal”) in February 2021. Since February 2022, Royal Metal results have been accounted for as organic growth.
Strong execution to maximise market recovery opportunity is the first of the four actionable 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.
| Smiths organic revenue growth in our end markets | % of Smithsrevenue | H1 2022 | H2 2022 | FY2022 |
| General Industrial | 42% | +5.7% | +16.5% | +11.4% |
| Safety & Security | 31% | (3.5)% | (8.9)% | (6.4)% |
| Energy | 21% | +7.5% | +0.3% | +3.5% |
| Aerospace | 6% | +16.7% | +14.2% | +15.4% |
| Smiths Group | 100% | +3.4% | +4.1% | +3.8% |
Smiths organic revenue growth in our largest end market, General Industrial, was +11.4% in FY2022, with growth accelerating in the second half. This was driven by John Crane’s growth in segments like chemical processing, water treatment and life sciences, demand for Flex-Tek’s construction products and Smiths Interconnect’s semiconductor test solutions which remained strong throughout the year. Smiths organic revenue in Safety & Security was (6.4)%, reflecting continued contraction of the Aviation OE market. This was partially offset by growth in Smith Detection’s other segments as well as growth from Smiths Interconnect’s defence related products. The +3.5% growth in the Energy segment reflected strong demand in John Crane. As mentioned above, second half growth was impacted by cessation of sales into Russia and supply chain disruptions. Our fastest growth in FY2022 came in Aerospace, +15.4%, as increasing aircraft builds drove strong demand for Flex-Tek and Smiths Interconnect’s aerospace solutions.
As part of our growth strategy we have introduced a new approach for our business in China. From the start of FY2023, the Smiths China leadership team now has lead responsibility for our operations in the country (excluding Smiths Interconnect’s semiconductor business unit which will continue to report globally). To reflect this, Ted Wan, President of Smiths China, has joined the Smiths Group Executive Committee.
Our second lever for faster growth is improved new product development and commercialisation. During FY2022, we launched 21 high impact new products including Flex-Tek’s Python line sets, a flexible, multi-layer pipe used in various heating, ventilation and air conditioning (“HVAC”) applications; Smiths Detection’s iCMORE automated detection algorithms; and Smiths Interconnect’s space qualified connectors. Gross Vitality, which measures the contribution of products launched in the last five years increased to 31% (FY2021: 25%), demonstrating our successful commercialisation of new products.
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 for our sustainability-related products. During FY2022, we invested £92m in R&D (FY2021: £84m), of which £80m (FY2021: £76m) was an income statement charge and £12m capitalised (FY2021: £8m). Our customers and third parties contributed a further £15m (FY2021: £10m).
To support new product launches, and the strong demand for existing solutions, we increased capex +14.5% in FY2022 to £(71)m (FY2021: £(62)m). This represents 1.5x depreciation and amortisation (FY2021: 1.2x).
Our third growth lever is building out priority adjacencies. Each of our four businesses are executing strategies to expand their growth beyond their existing core market positions. Examples in FY2022 include the launch of Smiths Interconnect’s medical cable assemblies, and John Crane’s multi-purpose filter; an efficient water-saving solution for the treatment of process water in pulp & paper, mining, power generation plants and refineries.
Our fourth growth lever is using disciplined M&A to augment our organic growth focus. Flex-Tek’s acquisition of Royal Metal in February 2021 is an excellent example of this. Acquired for $107 million (7.6x trailing EBITDA), FY2022 revenue and profit growth were +48% and +70%. During H1 2022, the acquisition contributed £42m of revenue and £11m of operating profit, adding 1.8% on top of organic revenue growth for FY2022. For H2 2022, contribution from Royal Metal was included in our organic results. Royal Metal brought a complementary HVAC portfolio, distribution synergies, and positive pricing. While driving sustained organic growth remains our priority, we continue to explore value accretive M&A opportunities across the Group.
In January 2022, we successfully completed the sale of Smiths Medical to ICU Medical, Inc. (“ICU”), several months earlier than expected. This was our largest portfolio move in over a decade and positions the Group even more strongly to access the growth available in our industrial technology core. The sale generated a profit on disposal of £1.0bn, with immediate net cash proceeds of £1.3bn and further value to come from a potential $0.1bn earnout and our stake in ICU, which is recognised as a £0.4bn asset on our balance sheet. For more information on the divestment, please see note 27 of the financial statements.
EXECUTION
Stronger execution is our second key priority.
In FY2022, headline operating profit grew +1.7% (+£8m) on an organic basis, and +12.0% (+£45m) on a reported basis to £417m (FY2021: £372m).
| £m | FY2021 | FY2021 restructuring charges | Foreignexchange | Acquisitions | Organicmovement | FY2022 |
| Headline operating profit | 372 | 21 | 5 | 11 | 8 | 417 |
| Headline operating profit margin | 15.5% | +90bps | +0bps | +20bps | (30)bps | 16.3% |
Headline operating profit benefited from strong profit leverage in Flex-Tek and Smiths Interconnect. This was partially offset by the impact of supply chain disruption on John Crane and Smiths Detection, lower volumes in the Aviation OE segment of Smiths Detection, and our continued investment in growth. On a reported basis headline operating profit increased given £21m of restructuring costs booked in FY2021, favourable FX translation of £5m and H1 2022 contribution from Royal Metal.
Headline operating profit margin was 16.3%, down (30)bps on an organic basis and up +80bps on a reported basis.
Headline EPS grew +17.8%, driven by headline operating profit growth, a reduction in the effective headline tax rate and the benefit from the ongoing share buyback programme.
The headline tax charge for FY2022 of £104m (FY2021: £96m) represents an effective rate of 27.6% (FY2021: 28.9%).
ROCE increased +30bps to 14.2% (FY2021: 13.9%). This reflects the higher profitability of the Group, more than offsetting the temporary increase in working capital. For further detail of the calculation, please refer to note 29 to the financial statements.
Smiths has a strong track record of operating cash conversion, having averaged 100% over the last five years. This year, we delivered solid operating cash conversion of 80% (FY2021: 129%) while navigating supply chain disruption and the associated investment in working capital. Headline operating cash-flow4 was £332m (FY2021: £510m).
In FY2022, we embedded our Smiths Excellence System across the company. SES is a step change in approach and operating rhythm; executing with greater pace, urgency and consistency in support of our priorities.
SES is well resourced with 6 full-time Master Black Belts (“MBB”) and 23 Black Belts (“BB”) in place and the first high impact Black Belt projects now underway. Both the MBBs and BBs are dedicated resources leading continuous improvement projects across the organisation. Their current projects are focused on improving lead times, order book conversion, increasing capacity and cost reduction which are helping to both navigate the immediate short-term disruptions and support more efficient margin expansion as we grow the top line. SES links our actions to our strategy, prioritises for high impact and creates full-time continuous improvement career paths.
We have also identified some targeted savings projects to drive enhanced efficiency and agility in responding to our end markets. In John Crane, the focus is to simplify the organisation to better serve our customers and maximise growth opportunities. In Smiths Detection, we are restructuring the operations to be more resilient and improve efficiency in response to market conditions. The non-headline charge for these savings projects is expected to be £35-40m in FY2023, with annualised benefits of £25-30m, of which approximately 50% is expected to be delivered in FY2023.
PEOPLE
Inspiring and empowering our people is our third key priority.
Safety and wellbeing are always foremost of our priorities. We have a strong and robust safety culture and strive for a zero-harm workplace, with safety considerations integrated into all of our activities. Our Recordable Incident Rate for FY2022 was 0.54 and continued to track below the industry average and in the top quartile of industry performance, reflecting the importance of safety in everything we do.
We continue to support our colleagues in the Ukraine/Russia region amidst the ongoing conflict. As communicated at the interim results we stopped all sales into Russia following the invasion and are in the process of exiting our operations in Russia. An associated non-headline charge of £19m is included in the accounts, further details can be found in note 3 of the financial statements. We made a Group-wide donation to the Red Cross to support the vital work they are doing for the people of Ukraine, and implemented a donation matching scheme for our colleagues.
During FY2022 a number of senior appointments were made to the leadership team including Clare Scherrer as Chief Financial Officer, Bernard Cicut as President of John Crane, Vera Kirikova as Chief People Officer and John Ostergren as Chief Sustainability Officer. All of these individuals bring a wealth of experience which will help accelerate our progress in executing our strategy.
Under this refreshed leadership as we continue to strengthen our culture, we have introduced a set of behaviours; the Smiths Leadership Behaviours, to bring our values to life. These seven behaviours describe how we work with one another and take ownership and accountability for our actions. They apply to everyone at Smiths – from the shop floor to senior executives.
We developed the Smiths Leadership Behaviours through a robust process of focus groups, which gathered the views of colleagues from 21 countries and 72 sites across the organisation. These were followed by workshops with our Executive Committee to create and refine a set of behaviours that would be relevant and compelling for the whole organisation and support future growth.
The behaviours will become foundational to processes including recruitment, development, career progression and reward. We believe that they will enable the Smiths culture to be even more dynamic and inclusive.
An important step in embedding an inclusive and diverse culture is increasing our gender diversity. We are focused on proactively increasing the number of women in leadership roles at Smiths. We have 45% female representation on the Smiths Board, and we welcomed three new female members to our Executive Committee in FY2022 (31% female). Women make up 28% of our global employee population, but only 24% of our senior leaders are female. We are working to change this with a programme of activities designed to identify, support and advance the careers of women at Smiths.
OUR ESG APPROACH
Environment, Social and Governance (“ESG”) performance is at the very centre of our Purpose, and fundamental to each of our priorities.
During FY2022, we established a Science, Sustainability & Excellence Committee of the Board, chaired by Dame Ann Dowling, to provide guidance and supervision of our sustainability strategy. We put in place the company’s first Chief Sustainability Officer who is leading our sustainability strategy and targets throughout the business. This strategy (which will be set out in full in our inaugural Sustainability at Smiths Report in October), describes how we are embracing and prioritising ESG performance at Smiths to deliver on our Purpose and create genuine and significant value for all our stakeholders. To support the delivery of our strategy, executive compensation is now linked to our sustainability targets, with ESG metrics (GHG reductions and energy usage) included in our annual and our long-term incentive compensation programmes beginning in FY2023.
Delivering sustainable growth means leveraging our unique capabilities to develop and commercialise green technology that will help transform industries and provide our customers with solutions for their operations, enabling them to meet their own environmental targets across climate risk, energy transition and other environmental needs. Examples include methane abatement; more energy efficient critical safety infrastructure; electrical heating solutions; transmission and storage of alternative fuels; carbon capture; and next generation electrical connectors that will safely and reliably support the digitisation and electrification of infrastructure.
Delivering our ESG commitments which include targets for reduction in water, waste and packaging, and our Net Zero GHG emissions commitments for Scope 1,2 and 3, will improve the environmental execution of our operations, our products and our supply chain. In FY2022 we made further progress against these targets reducing normalised GHG emissions by (7.2)%, normalised water usage by (4.5)% and normalised non-recyclable waste by (11.5)%. These reductions are on top of significant progress already made since FY2007, when we first implemented environmental targets.
We have set and communicated FY2024 environmental goals, an important step to support the delivery of our commitment to Net Zero GHG Emissions for Scope 1 and 2 by 2040. We have a clear roadmap for how we will achieve this (as published on our website). It details the path we are taking to achieve Net Zero Scope 1 and 2 emissions by 2040 and, furthermore, our ambition to achieve Net Zero Scope 1, 2 and 3 emissions by 2050.
Our people are a key asset in delivering our ESG commitments. We know that great things happen when we protect, respect, and support our teams. We nurture our people and develop their talents so that they flourish and can help build the Smiths of tomorrow. We are supporting our teams to strengthen our local communities and we are working every day with our unwavering commitment to strong governance and ethical practice.
FINANCIAL FRAMEWORK
Smiths simple and effective framework translates business strengths into financial strengths resulting in strong cash generation that in turn fuels reinvestment in organic growth, complementary M&A and shareholder returns.
Free cash-flow
In FY2022, free cash-flow4 generation was £130m (FY2021: £284m) or 31% of headline operating profit (FY2021: 76%), reflecting an increased investment in inventory and capital expenditure.
Pensions
Included within free cash-flow was £9m of pension contributions, (FY2021: £30m). The significant reduction in pension contributions reflects no contributions needed to the TI Group Pension Scheme (“TIGPS”) and £3m to the Smiths Industries Pension Scheme (“SIPS”) given the well-funded position of both schemes. For FY2023, we expect total cash contributions to be around £(12)m (including a funded US plan, unfunded schemes and post-retirement healthcare plans).
In June 2022, the TIGPS Trustee completed a deal to secure its remaining uninsured pension liabilities, by way of a £640 million bulk annuity buy-in with Rothesay Life plc. This means that all of the Scheme’s liabilities are now insured, with a final buy-out of the scheme to be completed as soon as reasonably practical, delivering certainty for the Scheme’s 21,000 members and removing future risk for Smiths. As a result of the buy-in a £171m non-headline charge was recognised in the FY2022 accounts and the net accounting pension surplus decreased to £194m (FY2021: £413m).
SIPS is estimated to be in surplus on the Technical Provisions funding basis. Given the funding position, no further cash contributions are currently being made. The Group and the SIPS Trustee continue to work together to progress towards 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. Over 90% of their assets are invested in third-party annuities, government bonds, investment grade credit or cash, with no remaining equity investments. As at 31 July 2022, over 60% of the UK liabilities had been de-risked through the purchase of annuities from third party insurers.
Capital allocation
Net debt4 at 31 July 2022 was £150m (FY2021: £1,018m), £868m stronger as a result of the proceeds received from the sale of Smiths Medical in January 2022. Net debt to headline EBITDA4 has improved to 0.3x (FY2021: 1.6x).
Given our strong balance sheet position and capital allocation approach, we initiated a £742m share buyback in November 2021. As at 16 September 2022, we had completed 76% of the programme. At the current run-rate and share price, we would complete the programme in early CY2023, with an anticipated reduction in shares to ~346m (a 13% reduction).
In line with our progressive dividend policy the Board is recommending a final dividend of 27.3p, bringing the total dividend for the year to 39.6p, a year-on-year increase of +5% (FY2021: 37.7p). The final dividend will be paid on 18 November 2022 to shareholders on the register at close of business on 21 October 2022. 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 2 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 28 October 2022 (“the Election Date”). Elections received after the Election Date will apply to dividends paid after 18 November 2022. Purchases under the DRIP are made on, or as soon as practicable after, the dividend payment date and at prevailing market prices.
We also applied proceeds from the sale of Smith Medical to reduce debt by redeeming early a $400m bond on 17 February 2022 which was due to be repaid in October 2022. This resulted in gross debt4 of £1,166m (FY2021: £1,546m) as at 31 July 2022. There are no financial covenants associated with the gross debt. As at 31 July 2022, the weighted average maturity was 2.5 years, with the next maturity due in April 2023. Cash increased to £1,056m (FY2021: £405m).
An $800m (c.£656m at the period-end exchange rate) revolving credit facility (“RCF”) remains undrawn and matures in November 2024. The only financial covenant relates to interest cover, under which EBITDA must be greater than or equal to 3 times net interest. Taking cash and the RCF together, total liquidity was over £1.7bn at the end of the period.
STATUTORY RESULTS
Income Statement
The £300m difference between headline operating profit of £417m and statutory operating profit of £117m is non-headline items as defined in note 3 of the financial statements. The largest constituents relate to the TIGPS buy-in which resulted in an accounting charge of £171m, amortisation of acquired intangible assets of £51m, Russia-related impairment and closure costs of £19m, past service costs for benefit equalisation and improvements of £43m, asbestos litigation in John Crane, Inc, and subrogation claims in Titeflex Corporation. Statutory operating profit of £117m was £209m lower than last year (FY2021: £326m), reflecting higher non-headline charges offsetting the increase in headline operating profit.
Statutory finance costs were £(14)m (FY2021: £(86)m), mainly due to a £22m foreign exchange gain on an intercompany loan with Smiths Medical (FY2021: £(50)m) which was settled on disposal; the matching credit in discontinued operations nets out to zero in total Group earnings.
Non-headline taxation items of £14m relate to amortisation of acquisition-related intangible assets, legacy pension scheme arrangements, litigation provisions and non-headline finance items. The statutory effective tax rate was 87% (FY2021: 35%), driven principally by the non-headline settlement loss from the TIGPS buy-in for which there was no associated deferred tax. Please refer to notes 3 and 6 of the financial statements for further details.
Discontinued operations – Smiths Medical
On 6 January 2022, the Group completed the sale of Smiths Medical to ICU Medical, Inc. (“ICU”) at an enterprise value of $2.7bn and an equity value of $2.4bn after adjustments for debt, liabilities and working capital.
For the five months that Smiths Medical remained in the Group, it delivered headline profit after tax of £49m.
The difference between statutory and headline profit after tax is £973m, which includes £1,036m gain on disposal, £(33)m of regulatory remediation costs, £(14)m from the impairment of investments, £(22)m of foreign exchange losses on the intercompany loan with Smiths Group (continuing operations), and +£6m of tax credit on these non-headline items. Please refer to notes 3 and 27 of the financial statements for further details.
Total Group profit after tax and EPS
Statutory profit after tax for the total Group increased by +263% to £1,035m (FY2021: £285m) which included the profit on sale of Smiths Medical. Statutory basic EPS was up +273% to 267.1p (FY2021: 71.7p).
Statutory Cash-flow
Statutory net cash inflow from operating activities for the total Group was £279m (FY2021: £535m). See note 28 to the financial statements for a reconciliation of headline operating cash-flow to statutory cash-flow.
Foreign exchange
The results of overseas operations are translated into sterling at average exchange rates. Net assets are translated at period-end rates. Smiths 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 31 Jul 2022(12 months) | Average rates 31 Jul 2021(12 months) | Period-end rates 31 Jul 2022 | Period-end rates 31 Jul 2021 | |
| USD | 1.32 | 1.36 | 1.22 | 1.39 |
| EUR | 1.18 | 1.13 | 1.19 | 1.17 |
