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Earnings Transcript for SMIN.L - Q4 Fiscal Year 2024

Roland Carter: Good morning, everyone, and thank you for joining us today. As I said in March, it is an honor to be CEO of Smiths. This is a great company, doing many outstanding things. As you'll see, the business is in a strong position, delivering good results. I'll start with some initial thoughts and a short recap of our FY 2024 performance before turning it over to Clare to walk us through the numbers. I'll then come back and update you on how I view our strategy and outlook, and we'll have plenty of time at the end for Q&A. As many of you know, I've been at Smiths for well over 30 years. And during that time, I've had the privilege to run several of our businesses. This has given me a deep appreciation of the group's impressive attributes that have seasoned over time. Smith is a portfolio of market-leading businesses and has many strengths, talented people, many of them with world-class engineering expertise, differentiated proprietary technology and strong brands. We are well-positioned in attractive markets that offer significant opportunity for profitable growth. And we're helping our customers to make the world safer, more energy efficient and productive and better connected. A great foundation, and I firmly believe that we are well-placed to create more value in the future. We have diverse and immense talent in the company and we're committed to nurturing, supporting and developing this most precious of resources. I've always and continued to see my role as creating value for shareholders, customers and colleagues. And indeed, I have benefited from my experience across different businesses and regions, developing and sharing best practice. I intend to ensure that more of our people have similar development opportunities. In addition, our commitment to safety, engagement and inclusion, talent development and sustainability will continue to strengthen our culture. Although our business is strong, there's always more to do from delivering improved performance in partnership with our customers and suppliers, to sharing best practice across the group, and inspiring and empowering our people. Each business has a clear road map to improve profitability and enhance capabilities. This will take time and although we're not looking at a radical reset, there are a number of initiatives which will drive improvements centered around our acceleration plan. I look forward to sharing these with you today and updating you regularly as we deliver. To be clear, this plan is about value creation, not just transformation, so we will optimize footprint to support customers as well as invest to enable our processes to scale efficiently as we grow. We propose to invest approximately GBP60 million to GBP65 million over the next two years and deliver GBP30 million to GBP35 million of annualized savings by FY '27. I will also outline where I think we can improve things to achieve further growth and drive our margins sustainably to deliver the medium-term financial targets we set and which I reaffirm today. With that, let me turn to the results. I'm pleased to report we have continued to have a robust delivery against our strategy with a good operational and financial performance. Both organic revenue growth and operating margins were in line with our guidance. Our cash flow conversion has improved, and we've deployed cash into organic R&D investment and into M&A. This morning, we are pleased to announce two acquisitions which will be integrated into Flex-Tek, enhancing HVAC and industrial heating platforms. Our balance sheet remains strong to support our continued growth strategy. Overall, we're making good strategic, operational and financial progress. So, looking beyond next year, we have reaffirmed our medium-term targets. Our focused strategy and leading businesses mean that we are well-positioned to create value for all our stakeholders. The opportunities ahead are significant, and we look forward to executing on them. With that, I will now turn it over to Clare to walk you through the financial results.
Clare Scherrer : Thank you, Roland, and good morning, everyone. Organic revenue growth for the year was 5.4%, acquisitions added 2%, and there was a negative 4.3% FX impact bringing reported growth to 3.1%. We increased operating profit to GBP526 million, up 7.1% organically. Importantly, we continued investing for the future and at the same time, improved operating margin by 30 basis points. Operating profit, acquisitions and our share buyback activity contributed to constant currency EPS growth of 12.9%. Including the impact of FX, our basic EPS growth was 8.3%. We also increased operating cash conversion by 11 percentage points to 97%. And ROCE was up 70 basis points to 16.4% driven by increased profitability. Finally, in line with our progressive dividend policy, we're recommending a final dividend of 30.2p, resulting in a total full year dividend of 43.75p, a 5.2% increase. Turning to results in more detail and starting with organic revenue growth. We continue to extend our track record of growth and are pleased to report our third consecutive year of organic revenue growth building on FY '23's record organic growth. We converted revenue growth into 7.1% organic operating profit growth. Pricing more than offset inflation, contributing 50 basis points of margin expansion. With respect to volume, John Crane and Detection volume drove 60 basis points of margin expansion of which 40 basis points was offset by volume declines in Flex-Tek and Interconnect. Mix also reduced margin by 40 basis points. And finally, consistent with our philosophy of saving where we can in order to invest where we want we invested in several growth initiatives. These were funded by benefits from SES and other savings projects. So, in summary, we delivered a 16.8% operating profit margin and a 30-basis-point expansion in line with our guidance for continued margin improvement. For the year, the primary drivers of EPS were growth in operating profit, our accretive acquisition of heating and cooling products or HCP and the benefit of our share buyback activity. On a constant currency basis, we delivered 12.9% EPS growth and including the impact of FX, our reported EPS growth was 8.3%. We delivered an 11 percentage point increase in operating cash conversion to 97%. This reflects both a tailwind from disciplined working capital management as well as a headwind from increased CapEx supporting capacity expansion and automation investment in John Crane. John Crane's machining upgrade program started in FY '24, but it's largely weighted toward and will complete in FY '25. Therefore, at the group level for FY '25, we anticipate spending approximately GBP110 million in CapEx. In addition to our normal CapEx, FY '25 higher-than-usual spend will cover the completion of the John Crane efficiency investment program, which I just mentioned as well as some additional CapEx initiatives that Roland will speak to later, all of which will support continued profitable growth. And we anticipate returning to recent trend levels of CapEx in FY '26. Finally, this year's GBP509 million of operating cash converted to GBP298 million of free cash flow, a notable 67% year-on-year increase. Now turning to each of our divisions and starting with John Crane. John Crane delivered organic revenue growth of 9.8%, with an exceptional performance in the first half before moderating to strong growth as expected in the second half. Growth was led by energy, especially in aftermarket sales and notably in the Middle East and Latin America. This revenue growth translated into strong operating profit growth and 60 basis points of organic margin expansion due to good operating leverage, disciplined pricing and SES benefits, which more than offset cost inflation and mix. John Crane delivered this margin expansion while continuing to invest for future growth, including hiring additional sales reps and service engineers. Given our ability to help customers improve efficiency and reduce emissions from their operations, we had notable wins across the world from Kazakhstan to Canada, John Crane's energy diversification pipeline also continues to expand, and we're now actively pursuing around 125 carbon capture and hydrogen projects. Finally, our strong recent order intake growth supports our positive outlook for FY '25. The Smiths Excellence System, or SES, also underpins our outlook. At our John Crane deep dive event last November, we spoke about how we're using SES, lean and automation to improve efficiency and customer responsiveness. As just one example, we previously invested in machine data capture in John Crane's check plant. This enabled us to analyze and optimize machine utilization, operator productivity and scheduling as well as shop floor layout at that location. We then invested in and rolled out those learnings to another nine John Crane locations across seven countries. We've also centralized and standardized our programming in India. So, in summary, using our SES framework to apply lean principles to automation across key value streams has driven both efficiency and cost improvements in our John Crane operations and enables us to rapidly respond to customer demand in FY '25 and beyond. Detection also executed on a strong order book and delivered organic revenue growth of 11.1%, with growth in both segments. In Aviation, OE sales increased 25%, reflecting strong demand for our CT airport checkpoint scanners with multiple new wins across the globe, including the U.S., the U.K., South Korea, Saudi Arabia, New Zealand and Germany. And we estimate that globally, the current checkpoint upgrade is about 45% of the way through. So good demand should continue for the next roughly 3 years. Of note, our win rate to date on CTiX tenders remains above 50%. And importantly, the OE sales we secure come with an attractive aftermarket that we expect to continue to add to margin expansion over the medium term. 2.6% organic revenue growth in other security systems reflects a strong performance in defense and urban security, partially offset by weaker ports and borders. As a reminder, in FY '24, we received an initial GBP88 million multiyear contract from the U.K. Ministry of Defense for next-generation chemical detection equipment. Operating profit grew 18% and margin expanded by 70 basis points. This reflects higher volumes and improving operational efficiency in the second half even including Detection's continued investment in field service engineers to support record installation activity. Order intake growth in the year was exceptionally strong and we ended the year with a record order book that will support growth in FY '25 and beyond. This anticipated growth, ongoing SES activities and increasing Defense and aftermarket revenue underpin our expectation for continued margin expansion in the coming years. In detection, we have a heritage of innovating to meet the world's evolving security needs. And most recently, we pre-launched X-ray diffraction at the Frankfurt passenger terminal Expo in April. We're now working closely with regulators to gain necessary certifications. And in parallel, we're educating a range of hold baggage customers on the merits of this new technology. We expect to achieve modest first orders for this product in FY '25 with associated revenue coming through in FY '26 and beyond. Here's a short video which brings diffraction to life. [Presentation]
Clare Scherrer : As you've just seen, x-ray diffraction provides significantly enhanced detection accuracy within the hold baggage screening operation. It reduces the number of false alarms, which are time-consuming to resolve and so improved efficiency. Although designed for aviation hold baggage, we're exploring the potential of diffraction with other commercial customers such as cargo operators and customs agencies. A great example of innovation at Smiths. And now turning to Flex-Tek. Revenue declined 0.8% organically with an improved second-half performance when we returned to growth as we guided. Flex-Tek's Industrial segment declined 3.5% as expected, mainly in HVAC and reflecting extended softness in U.S. construction. Partially offsetting this, Aerospace sales grew almost 11% linked to new aircraft builds. Despite overall lower sales, organic operating profit increased 4.2% and Flex-Tek expanded operating margins by 100 basis points. Margin expansion was driven by exceptional cost control in light of lower volumes and the positive mix impact from industrial heating contracts. In addition, the integration of heating and cooling products, which we acquired in August of 2023 is running ahead of plan. Looking forward, the timing and shape of the U.S. housing recovery would be a key determinant for Flex-Tek in FY '25. And we expect aerospace sales to remain strong given they're underpinned by a healthy order book. Today in Flex-Tek, we're also pleased to announce two strategic and disciplined acquisitions for a combined purchase price of GBP95 million, plus up to an additional GBP15 million earnout tied to the performance for one of the acquisitions over the next 3 years. This combined purchase price represents an average trailing EBITDA multiple of roughly 8 times. These acquisitions enable us to meaningfully expand in two of Flex-Tek's core platforms
Roland Carter : Thank you, Clare. As the new CEO, I realize that you're keen to know what's going to change and what will stay the same. So, let me give you a quick overview now and then go into detail afterwards. My remit is simple
Operator: [Operator Instructions]. And your first question comes from the line of Lushanthan Mahendrarajah from JPMorgan.
Lushanthan Mahendrarajah : I've got three, I think. The first is just really on current trading and orders, please, and sort of what you're seeing across the division. I think at the H1 point, you guys said orders across the group were up 16.5% and then get some divisional detail there to sort of any sort of similar kind of sort of numbers for the second half that would be quite helpful just to see what the trends are. The second question is just on John Crane and general industrial, a bit of a slowdown in the second half, particularly in aftermarket. Just any color in terms of what's happening there and sort of how you expect to develop over the next year. And then the third is just on capital allocation and sort of the buyback and M&A, I guess. Sort of your point around not starting the second tranche yet, just given the sort of M&A pipeline and the sort of the deal was done today. I guess even post that leverage doesn't seem particularly high. Just wanted to get a bit more color around that pipeline that you said is more active. Are these bigger deals than perhaps you've been used in the last couple of years? Or are this sort of still bolt-ons? And is it just Flex-Tek or these sort of across all four divisions? Thank you.
Roland Carter : Thank you, Lushanthan. Let me pick up on your first point about current trading first. We have had consistent and good performance over the past 3 years, and that's continued as we see. I think what comforts me for going forward is the order book growth that we've seen and really the strength that we've seen in -- to give you a bit of color by division. The strength that we've seen in John Crane, the strength that we've seen in Flex-Tek, Aerospace as well and also the record order book that we've come into the year with -- from detection. We did see some challenges at the end of last year with Interconnect and also Flex-Tek. But we did see in the second half, there was growth in both of those, which was comforting. As you heard Clare mentioned, U.S. housing use isn't as strong as it might be, but we are encouraged by the Fed count as well. So, and then also in Interconnect connectors, we saw the destocking and we're waiting for that bounce back. But in the medium term, we are confident in our medium-term guidance on the current trading because of the strength of the order books that we're going into the year with around that. On particularly the John Crane industrial point, we did see last year, the comparator in the second half as we were comparing against a very strong comparator on that. We're now seeing strength in the John Crane order book, and we believe that, that will return with the market as well. So again, confidence around that. I'll let Clare talk a little bit about the detail of capital allocation as well. But let me just tee that up. I mean we intend to be very disciplined in our use of capital allocation, whether that's for R&D, supporting organic growth, whether that's M&A or buyback or what you've seen about the acceleration plan that we put forward. I don't know if there's anything you'd like to add on that, Clare.
Clare Scherrer : Well, I would add that we have a clear track record of returning excess capital to shareholders. And over the last 3 years, that's been over GBP1.2 billion through both our progressive dividends and our buybacks. In terms of your question, Lush, we're so excited today that we do have two really strategic acquisitions that we're announcing in Flex-Tek. And as you mentioned, we do have an active pipeline. Our active pipeline of other opportunities we're looking at spans all of the businesses. It's more active in John Crane and in Flex-Tek, but we do look at opportunities across all of the businesses. And finally, you asked about size. So most of the opportunities we look at are bolt-ons, similar to the size of acquisitions we announced today or have announced in the past, but we don't limit ourselves to look only at bolt-ons. Of course, we also explore larger opportunities when we feel that there's real value that we could create and where they would be strategic additions to Smiths. So, we've not yet initiated the second tranche of the buyback in light of the pipeline that we're looking at and also in light of the spends that we'll be making near term as we launch today the acceleration plan.
Lushanthan Mahendrarajah : Okay. Can I just get a point of clarification on John Crane? Were orders up in the second half and sort of were they similar to sort of H1?
Clare Scherrer : We're standing on firm ground in John Crane, our current order intake is strong. When you look at where the softness was in the second half for John Crane, it's very clearly in the Industrial segment. As Roland mentioned, when we look at this second half versus last year, it was a difficult comp in industrials because we had some very strong industrial revenue that came in last year in the second half. And to point to where the particular softness was, it was in chemicals. We had good growth in food and beverage, pharma and marine. But as you know, Chemicals has been a particularly soft end market for everyone recently.
Lushanthan Mahendrarajah: Thank you, very much.
Operator: We will now take the next question, and the question comes from the line of Mark Davis Jones from Stifel. Please go ahead.
Mark Jones : Good morning, guys. Could I turn to the subject of the balance between the divisions and the center and particularly some more color around what you're saying about global shared services. The operating companies have always been quite autonomous within Smith. Are you flagging effectively that you're going to run those more from the center? Does that have implications for what the ongoing level of central cost might be? And can you give us some slightly more tangible examples of what will be changing and what processes will be now managed from the center and what benefit you think that brings?
Roland Carter : Yes. So, thank you. So, I think there's several aspects to the answer for this question. Firstly, and foremost, it really is about empowering the businesses. So, we are very much focused on making sure that the customer-facing parts of this organization really are facing the customer and allowing our customers to differentiate and be more successful. And so, the innovation and the commercialization of that innovation is very much what the business is about. So, you'll also see the other aspect of how SES is maturing within Smith. So, it is the way that we do business. But with the site lean leads that can be driven much, much more from the grassroots, where we believe that it's much more effective. So, there's definitely empowerment of the businesses going on. So, stepping back to what can the group do well and how does it supports the businesses for things that aren't as customer focused or as technology focused. That's about how we support them. So already within Smiths, there's a very, very powerful model for this. And we've seen it work very effectively and we've seen it mature and deliver. And that's our IT infrastructure. So, our IT support and infrastructure is already centrally delivered. We're also seeing the pockets and the businesses have been doing themselves about shared services. So, to get to the nub. So, this is talking about HR services. This is talking about finance services, for example, and to a degree, a little bit of indirect procurement as well. So, we're already seeing that. We've seen successes we did within detection, a lot of success within John Crane. And this is really pulling together those noncustomer-facing aspects of the business. I know there's always challenges about how we do it. So, we're going through a very mature way of approaching and a thoughtful way of approaching this. But we believe that we can deliver value on a global scale on this.
Mark Jones : Okay. And does that have implications for the cost base held centrally? You have to invest more at the center in terms of ongoing central costs?
Roland Carter : So, from the point of view of the efficiency and the effectiveness. You've seen what our central costs look like this is not about increasing central costs substantially at all. This is about becoming more effective in fact. So, the whole point is to empower the businesses rather than to create some large central functions.
Mark Jones : Thank you. And then Clare, just to get back to Lusha's point on buybacks, it does seem odd in the circumstances, even with M&A on the horizon, that an additional GBP50 million is an issue given your current balance sheet. So, is the message that that's on hold until you know what you're buying? Or is it just that you're being a little more careful on the timing?
Clare Scherrer : We always intend to be thoughtful and nimble as we assess all of the options for capital return that are available to us. As we said, we haven't initiated it yet. We do have some other irons in the fire. And so, as you've seen us in the past, we are always looking foremost at what we can do from an organic perspective. We're always looking if there are good acquisitions on the horizon. And as I said, we have a full pipeline. And then when we deem that we have excess that can be returned, our actions have spoken louder than our words in terms of getting after returning the capital. So please continue to think of us as being committed to returning excess capital when we feel we can and to be nimble in terms of constantly evaluating the balance of all of the options where we can put our capital. Our aim is always to get the best return for shareholders.
Mark Jones: Okay. Thank you.
Operator: [Operator Instructions]. We will now go to the next question, and your next question comes from the line of Kyle Summers from Redburn Atlantic. Please go ahead.
Kyle Summers : Thank for taking my question. Just one for me, please. I just wanted to ask for other security systems within detection. Could you please provide just a bit more color as to the contract timing issues you're seeing there in ports and borders.
Roland Carter : Yes. Thank you. Thanks for the question. So, as you saw, we did experience growth in other security systems driven by the urban security market, but especially with our focus on our defense products. As Claire pointed out, we did have weakness in the ports and borders. These are always very long-term contracts usually at ports and borders as you see from the title. So, there's a lot of infrastructure that goes around there, and these are often challenging environments. So, we see this as a hiatus in the revenue in that business. However, we see in the long term, there's still a lot of demand for our products out there.
Kyle Summers: Thank you.
Operator: [Operator Instructions]. And your next question comes from the line of Jonathan Hurn from Barclays. Please go ahead.
Jonathan Hurn : Good morning. Just three questions for me. First question was just on John Crane. Obviously, you continue to put capacity into that business. And talking about that, obviously, concluding in FY '25. But if you look about or if we look at the comments in terms of the outlook, you are saying that the growth is going to slow '25 versus '24. So, the question what you focus on, obviously, the capacity is going in, growth is slowing. Are we going to have a bit of an overhang in terms of overhead in that business? And could that become ultimately a drag to the margin going forward? That was the first question. Let's go one by one.
Roland Carter : Okay. So as with many of our plans, this is about building resilience and about building scalability in our businesses. So, from the point of view of what we just said about the John Crane order book, we actually feel confident in the John Crane order book going into the year. So, we're not seeing that slowing across the broad business of John Crane. In fact, we are very positive on that. So, to answer those two pieces, I think the capacity will help us actually respond to the growth we expect to experience.
Jonathan Hurn : Okay. The second question is just on SES. I mean probably two parts. One is, could you just give us a feel for maybe the scale of the benefits you expect in '25 for SES? And then secondly, if we look to '24, you obviously got benefits from SES, but they are all offset by taking that money and reinvesting it back into growth opportunities. So, as we go to '25, are we going to see any net benefits coming through from your SES program?
Roland Carter : Okay. So, from SES, we -- the previous year, we saw about GBP14 million coming through from SES as it began to mature. What we're seeing this year is we anticipated GBP20 million. We, in fact, managed GBP23 million out of that. As SES changes shape and as I mentioned earlier, we are moving towards a yet more mature model within the building on the great foundations of the black belt and the Master Black Belt. But really, this is going to be driven into the businesses and driven from the grass roots going forward as opposed to a top-down initiative. We've already got site lean leads in pretty much all our sites over 100 people. So, this is going to be mixed in with how we then work with the businesses and support the businesses, not only in the pure SES, but looking across the VAVE, the engineering savings we can make through better engineering and also pure-play procurement savings as well. So, going forward, this will be brought together. So, we won't report the SES savings separately going forward, but I'm very confident we will still be driving savings through the businesses. From the point of view of where we've guided on continued margin expansion, we anticipate that SES just as it has in previous years will contribute to that. But also, we are very keen. If you think about the 200 sort of basis points that we saw from our R&D investment from new products, for example, we're very keen that we continue to invest. This is an engineering business so that we continue to invest in services and new products going forward. So, you'll see us, again, as always, in the same way that Clare was talking about being disciplined in the M&A space. We'll be very disciplined in the organic space as well.
Jonathan Hurn : Okay. That's very clear. And then the last one is just on the Aerospace market. Obviously, you're putting it out there as an area of strength in terms of order book going into '25. But if you just kind of look at the wide Aerospace market. There's quite a lot of disruption there in terms of build or supply chain. I mean have you seen that at all? And obviously, in terms of how you're guiding, are you factoring any of that potential weakness coming through to the businesses that are exposed to that Aerospace order book?
Roland Carter : So, if we think about our -- and thank you for the question. If you think about our Aerospace and Defense business, it's roughly 12% of Smiths at the moment. Much of that is to do with isolators for RS systems, tubing for engines. At the moment, we have actually a very positive outlook, both on across that whole broad range of markets actually. So very aware of the noises in the industry at the moment and some of the engineering challenges people are having. But really, that plays well to our strength. So, we're seeing a positive outlook in our aerospace and defense area.
Operator: [Operator Instructions]. And your next question comes from the line of Bruno Gjani from BNP Paribas. Please go ahead.
Bruno Gjani: Thank you for taking my questions. The first one was just on the John Crane margin. I think you highlighted in the release the systems headwind in John Crane. I wonder if you could provide us with some color around the magnitude of the mix impact or the systems mix headwind in H2 of this year, if that's possible.
Roland Carter : Yes. Let me talk broadly and then I'll hand over to Clare to talk about the mix impact. So, what we see very much in the same form as we see in Smiths Detection as well, that the OE has low, low margins, I'm sure you're aware than the aftermarket. So, all these system sales that we see go in, in either of those businesses are good news from the point of view of the margins that they actually develop over the lifetime of the product through the service tail. So yes, short term, challenging on the margins, longer-term beneficial footprint and market share. Clare, would you like to talk about the margin?
Clare Scherrer : Yes. And the OE aftermarket mix is one that you've heard us talk about frequently, it's the same in John Crane as it is in detection, which is on a relative basis, OE is a lower market -- a lower margin sale than the aftermarket sale is. So, we had a heavy and interesting set of opportunities in OE in the second half for John Crane. As we always say, those will lead to higher market and higher margin aftermarket revenues as we go forward. So, we still had margin expansion in John Crane in the second half. It was 10 basis points.
Bruno Gjani: Okay. That's understood. And what I thought was quite interesting as well was just the detection margin half of the half and improved quite a bit, 80 basis points, but I look at the mix within that it's heavily skewed to the OE. So, a lot of the incremental sales came from OE. So, can you help us understand what drove the better detection margin half of the half? Is it the OE margins improving or executing on richer priced orders? Just any color there would be appreciated.
Roland Carter : Yes. So, thank you for the question, Bruno. So, we did deliver 70 basis points organic improvement in operation margin. Really, that does reflect some of the OE growth. I mean, Clare already mentioned 25% growth in OE and some growth in the aftermarket. Its very much aviation focused and the -- if you recall, we were talking about how long it was taking us to install. So, you definitely saw we installed 21% more last year than we had previously and we only had to bring on another 7% of field service engineers. So definitely, there's improvement through the installation process. The hard work of SES coming through, definitely SES savings large there as well. Then you've got the mix, so with the MOD contracts starting to come in, which are traditionally the defense contracts are traditionally higher margin. And also, obviously, there was a volume recovery as well. Clare, I don't know if there's anything much you can add to that.
Clare Scherrer : We had some good contracts in the second half for detection. It's a programmatic business, all of the trends that Roland was talking about, and we also had some programs where we had very good margins.
Bruno Gjani: Understood. And the last thing, I was struggling a little bit with in terms of the restructuring program. So, there's quite a bit of incremental benefits to flow through. That add about circa 100 basis points to the margin. But the midterm margin aspirations don't change. So, I guess, are we reinvesting a lot of these cost savings back into growth. So therefore, you haven't revisited the midterm margin aspiration? Or why haven't you, I guess?
Roland Carter : No. Thank you for the question about the acceleration plan. This plan is very much focused on improving efficiency, resilience and supporting growth. And through this, we do see and we certainly intend to deliver the better margins, which we've guided to in the medium term. I'm very impatient to get on with and to meet that medium-term guidance, and that's where we're going to see the main thrust of that. So, if we think about how that's broken up in its constituent pieces, one-third of it is about footprint optimization, and this is about the footprint being in the right place for our customers. So as our customers are developing their businesses, we need to be -- we've always said we're local for local. We need to be closer to our customers. So, you'll see about one-third of that going through there. But two-third of it is all about process improvements. So, we've grown a lot, and we intend to grow more, and we need to have those processes in place. So, this is very much setting us up for the future and making it scalable but also resilient for the future as well.
Operator: There are currently no further questions. I will now hand the call back to Roland for closing remarks.
Roland Carter : Thank you very much. So, to summarize, a good set of results, expanding our track record of growth and margin expansion. We are guiding to 4% to 6% organic revenue growth in FY '25 with continued margin expansion. I'm delighted to announce 2 acquisitions today, enhancing Flex-Tek's HVAC and their industrial heating businesses. And we are very clear on our strategic priorities, which will build on and out from solid foundations, a sharpened focus on maximizing growth opportunities through innovation and a step change in execution through the acceleration plan as well as disciplined M&A, all of which will drive increased value for our stakeholders. And our next update to the market will be Q1 trading and the AGM on the 13th of November.