Smiths Group plc

Good morning everyone and thank you for joining us. Today I'll open with a reminder of our strategic actions that we announced in January and a few highlights of our fiscal year 2025 performance before handing over to Julian to walk through the numbers in more detail. I'll then come back to you to provide an update on our strategy. And as always, we'll have plenty of time for questions at the end. I would like to start by saying how pleased I am with the excellent progress we have made this year, operationally, financially and strategically. We are extending our track record of consistent financial performance and advancing the strategic plans we announced earlier this year to reposition Smith's and deliver significant value for all stakeholders. Turning to our strong financial performance, which came in ahead of our twice-raised guidance. Fiscal year 2025 marks our fourth consecutive year of organic revenue growth, with group organic revenue up 8.9% ahead of our 6-8% guidance. We expanded operating profit margins by 60 basis points at the top end of the guided range. we deployed capital in a disciplined and dynamic way with three accretive acquisitions, an enhanced share buyback, alongside a 5.1% dividend increase, marking 74 consecutive years of dividend payments. In January, we announced a number of strategic actions to unlock portfolio value and enhance returns. We are progressing the separation of Smith's interconnect and Smith's detection. And reflecting this, Smith's interconnect is reported as discontinued operations in our four-year results. The acceleration plan is progressing well. Initial benefits are being delivered and we remain on track for the full benefits in fiscal year 2027. We are well positioned for fiscal year 2026 with a strong order book and expect four to 6% organic revenue growth with continuing margin expansion. We enter the next phase of our growth journey from both a position of financial strength and strategic clarity. The strategic actions we announced this year mark a pivotal moment for Smiths. We set out plans to be a focused industrial engineering company, centered on high performance technologies in flow management and thermal solutions. Our businesses are customer centric, hold market leading positions and operate in structurally growing markets. They have a high quality financial profile with a strong through cycle track record and with ample potential for above market growth. This sharper focus, combined with disciplined capital allocation, positions us to deliver superior shareholder value. through consistent execution, operational and financial performance, and strategic delivery. Turning to fiscal year 2025 performance. Keeping our people safe is our number one priority, and I'm pleased to see our safety record improve this year, with our recordable incident rate being the lowest for several years. We delivered strong financial results with growth across all our key metrics. A great performance when one considers the impact of the cyber incident, particularly felt in John Crane, and the ongoing challenging macro and tariff backdrop. We invested organically as well, spending £121 million on acquisitions to support and enhance future growth. we also increased returns to shareholders and are now 80% through our £0.5 billion share buyback programme. Together with dividends, we have returned £460 million to shareholders in the year, taking the total to £1.7 billion over the past four years. With that, I'll now hand over to Julian to talk through the numbers in more detail.

Thank you, Roland. And good morning. I'm pleased to present our fiscal year 2025 financial results, which extend our track record of consistent performance delivery. Organic revenue growth for the group, comprising all four businesses, was up 8.9% ahead of the already twice-raised guidance of 6-8% growth. Reported revenue increased 6.5%, including a 1.4% contribution from acquisitions in Flextech, partly offset by adverse foreign exchange. Operating profit grew 13.1% on an organic basis and 10.3% on a reported basis. Operating profit margin expanded 60 basis points to 17.4% on both an organic and reported basis, at the top end of our guidance of 40 to 60 basis points. Earnings per share increased 14.8%, driven by the strong operating profit performance, supplemented by acquisitions and the benefit of our enhanced share buyback programme. Return on capital employed was up 170 basis points to 18.1%, driven by profit growth and our continuing focus on efficient capital allocation. And we achieved strong operating cash conversion of 99%. As a result of the plan separation, Smith's interconnect is now reported as discontinued operations, with its assets and liabilities classified as held for sale. This means that on a continuing operations basis, organic revenue grew 7.2%, and operating profit grew 8.5%, with an operating profit margin of 17.3%. In line with our progressive dividend policy, we are recommending a final dividend of 31.77 pence, resulting in a total full-year dividend of 46 pence, a 5.1% increase. Now turning to the results in more detail and starting with organic revenue growth. Delivering consistent growth above our markets is a key focus for us. and we've now delivered four consecutive years of organic revenue growth, averaging over 7% per year across this time period. This growth has been underpinned by the strong performance of our portfolio of leading brands, our focus on commercial excellence and innovation, and new product development. Strong revenue growth translated into even stronger operating profit growth, with a 60 basis point margin expansion to 17.4%. Growth was driven by operating leverage, particularly in Smith's interconnect and Smith's detection, continued price discipline, more than offsetting inflation, and efficiency and productivity savings, which delivered 20 basis points of margin improvement. This included benefits from the SMIS Excellence Continuous Improvement Programme and initial benefits from the Acceleration Plan. Offsetting this was a 50 basis point negative effect from mix, with higher growth coming from SMIS detection and some negative product mix, mostly within Flextech. Earnings per share grew very strongly at 14.8%, driven by the organic profit growth, accretive acquisitions, the share buyback, and lower tax and interest charges. Constant currency earnings per share grew 19.6%. Cash generation was very strong at £576 million, representing a 99% conversion, reflecting disciplined cash and working capital management. CapEx was £80 million, £12 million higher than depreciation and amortisation, but lower than originally guided, with a good amount reflecting higher investment in automation capacity and testing in John Crane. Finally, we generated £336 million of free cash flow, a conversion rate of 58%. Generating free cash flow remains a key focus for us as we execute our strategic plan. Turning now to the businesses. John Crane delivered organic revenue growth of 3% against a strong prior year comparator of 9.8% growth. Growth was led by original equipment, whilst aftermarket, having been more affected by the cyber incident, recovered in the fourth quarter. Second half growth was impacted by operational challenges associated with upgrades to our machining and testing capabilities and exacerbated by a longer than anticipated recovery from the January cyber incident. However, we saw sequential quarterly improvement with fourth quarter growth of 3.9%. Notable contract wins in the second half included a large-scale retrofit energy project in the Middle East, and a large managed reliability program in Asia. In June, John Crane launched its coaxial separation dry gas seal, helping customers cut emissions, boost reliability, and lower costs. John Crane operating profit grew 6.3% on an organic basis, with margin expanding 80 basis points to 23.8%. This margin expansion reflected productivity and cost efficiency improvements, price and initial savings from the acceleration plan. Looking ahead, healthy market demand, strong order intake alongside improved execution supports our positive outlook for fiscal year 2026. Now turning to FlexTech. Organic revenue grew 4.4%, with a marked strengthening in performance in the second half. The acquisitions of Modular Metal, Watco and Duck Pack added a further 5.4% to growth. Flextech's industrial segment grew 4%, despite challenging conditions in US construction, reflecting increased demand for heat kits and flexible ducting products, and new customer acquisitions. Revenue in the industrial heat segment was flat year on year, reflecting the phasing of a large industrial contract which is due to conclude in the first half of fiscal year 2026. The business is well positioned for future wins, strengthened by the acquisition of Watco. A recent highlight includes a contract to supply electric heaters for a low carbon electro fuel project in North America. and aerospace grew 6.3%, supported by a strong order book reflecting ongoing aircraft build programmes and renewed long-term agreements that position the business well for the future. Operating margin was 19.5%, down versus the prior year's strong comparator, which benefited from higher margin industrial heat contracts. This underlying performance reflected positive pricing and efficiency savings, a positive contribution from acquisitions of 20 basis points, offset by mixed impact. In the fourth quarter, we identified a non-material balance sheet overstatement at a standalone US industrial site, which had an £8 million in-year impact on headline operating profit and a £15 million impact on statutory profit relating to prior years. This issue was isolated to a single site, has been independently investigated and is now fully resolved. Looking forward, the US construction market remains subdued, although we are well positioned to take advantage from its recovery should mortgage rates moderate and given the meaningful US housing inventory deficit. For aerospace, the strong order book underpins a healthy demand for the coming year. Moving to SNIS detection. Revenue increased 15.2% organically and we successfully converted a strong order book into revenue in both original equipment and aftermarket. We delivered significant growth in aviation with strong demand for checkpoint CT scanners where we continue to secure a good win rate. Smith Detection has now sold around 1,800 CETIX products globally and is the first to receive the up to 2 litres recertification in the UK and the EU. It is anticipated that the global upgrade programme will continue with the current level of cabin baggage activity into fiscal year 2026, along with the associated longer-term aftermarket revenue stream. The business is well positioned for the next upgrade cycle in hold baggage screening supported by the first X-ray diffraction based system in the aviation sector. With four units already in operation and regulatory certification underway, this innovation marks a significant step forward in detection technology and reinforces our leadership in the sector. Other detection systems delivered improved performance in the second half, with growth of 5.2% following a first-half decline on a strong comparator. The business had significant contract wins, particularly in ports and borders, including for large mobile scanners for customs and road cargo in the Americas. Looking ahead, a growing focus on border security is expected to drive growth. Operating profit grew 23.3%, and operating margin expanded 80 basis points, reflecting the good operating leverage, improved pricing, a positive mix effect, and efficiency savings. Underscoring the business's commitment to innovation, our IC-More Automated Prohibitive Items Detection System became the first AI-driven platform to receive regulatory approval for live deployment, now implemented in Schiphol Airport. Looking ahead, our multi-year order book remains strong, supporting a positive outlook for fiscal year 2026. Growth will continue to be supported by the aviation upgrade programme, albeit at a more moderated pace. Finally, Smiths Interconnect increased sales by 22.5% organically. All business units grew, with particular strength in the semiconductor test business, where we achieved large wins, particularly in high-speed GPU and AI programmes. This performance reflected the strength of our product innovation, most recently the DaVinci Generation 5 high-speed test socket, designed to test advanced chips used in AI, data centres and computer processing. Aerospace and defence revenue grew 15.1%, with strong demand for our differentiated technology in fibre optic, radio frequency and connector products. Here, Smiths Interconnect launched the EZ-COAX interposer connector for high-value aerospace and defence applications, enabling secure, precise and reliable communications in systems like satellites and advanced radar. Operating profit was up 57.2%, with margin expanding 390 basis points to 17.8%, as a result of the notably higher volumes, as well as pricing, positive mix and significant benefits from efficiency programmes. As part of the drive to maximise value through the separation process of Smiths Interconnect, we have agreed the sale of its US subsystem business. A non-cash impairment on disposal of £30 million was recorded. Strong market conditions combined with key programme wins underpin our growth expectations for fiscal year 2026. We take a disciplined approach to our use of capital. In fiscal year 2025, we continue to demonstrate consistency in line with our framework. Organically, we invested £219 million in CAPEX and RD&E, which includes customer-related engineering. We invested £121 million in value accretive acquisitions in FlexTech at attractive multiples and higher margins. We increased our total dividend by 5.1% to 46 pence per share, and we paid £152 million in dividends in the year. And we've now executed £398 million of our £500 million enhanced buyback programme, which is on track to complete by the end of the calendar year. Overall, we have returned £1.7 billion to shareholders in the form of dividends and buybacks over the last four years. We did all of this whilst maintaining a strong balance sheet with net debt to EBITDA ending the year at 0.6 times. Our disciplined approach to capital allocation combined with a clear focus on sustainable value creation is designed to maximise long-term returns and drive shareholder value. we will continue to prioritise disciplined investment for organic and inorganic growth and deliver enhanced returns to shareholders whilst maintaining a strong and efficient balance sheet. First, we are committed to supporting innovation and expect to invest 3-4% of revenue in RD&E, enabling new product development and commercialisation. Second, value of creative acquisitions. We will continue to pursue disciplined acquisitions in core and adjacent markets, augmenting our organic growth and strengthening our competitive position. Third, a progressive dividend policy. We balance the cash flow needs of the business with our commitment to deliver consistent and meaningful returns to shareholders. And fourth, returning excess cash to shareholders. Where we generate surplus cash, we will return it to shareholders through share buybacks or other appropriate mechanisms, ensuring capital is deployed efficiently. We intend to maintain an investment-grade credit rating, and we will balance this alongside our desire to have an efficient balance sheet. Our credit rating is underpinned by our strong and consistent financial track record, leading market positions, and significant share of recurring revenue. As we progress the separation of Smith's interconnect and Smith's detection, we remain committed to returning a large portion of disposal proceeds to shareholders. The scale of this return will be determined once we have clarity on the timing and magnitude of the proceeds. Importantly, this decision will be made in the context of our broader capital allocation priorities – organic investment, acquisition pipeline, dividend policy and leverage. Finally, let me take you through our outlook for fiscal year 2026 before handing you back to Roland. We expect organic revenue growth on a continuing operations basis of 4-6%, noting the strong first quarter comparator. This outlook reflects the strength of our order book, as well as the ongoing macro environment with tariffs and increased geopolitical risks causing market uncertainty. In John Crane, growth is supported by a strong order book, solid momentum and improving operational delivery. For FlexTech, our outlook reflects a continued subdued view on US construction, balanced against a strong aerospace order book. Smith's detection will continue to grow, albeit at a moderated pace, supported by the Aviation Upgrade Programme. We expect continuing margin expansion, driven by operating leverage, benefits from the Acceleration Plan and ongoing efficiencies through Smith's excellence. And finally, we expect cash conversion to be around the mid-90s percent, reflecting continued investment for growth and strong underlying cash generation. In summary, while the external environment is challenging, our strategic positioning, operational discipline and our strong order book give us confidence in delivering growth, margin expansion and robust cash flow in fiscal year 26. And with that, let me hand back to Roland.

Thank you, Julian. Firstly, I'll give a brief update on the separation processes. Then I'll turn to Smith's businesses and the opportunity for continued growth and margin expansion. And I'll end with our purpose, people and culture of high performance. We are fully focused on executing the strategic actions that will enhance returns to our shareholders and position Smith's for long-term success. We announced the separation of Smith's interconnect and Smith's detection earlier this year and are progressing these with pace and purpose. Balancing value maximization with execution certainty. We continue to expect to announce a transaction in relation to Smith's interconnect by the end of the calendar year, with completion anticipated in 2026. For Smith detection, we are progressing both the sale and demerger options ahead of a decision on the preferred route. Workstreams are underway internally for both businesses to set them up for the separations. Following the separations, Smith will be a focused industrial engineering company specialising in high-performance technologies in flow management and thermal solutions, with leading positions in these growing market segments, aligned with long-term structural megatrends. Our competitive advantage stems from our leading brands and engineering capabilities, our targeted investment in innovation, and our product development and commercialization to meet customer needs. We have valued customer relationships based on our customized technologies, products, and solutions with more than 70% aftermarket recurring or repeatable revenue. Our businesses have high performance cultures centred on safety, our values, innovation and excellence. They have a strong financial profile of sustainable growth with high returns and good cash generation, as well as organic and inorganic expansion opportunities. Empowered decision-making across our businesses ensure we remain focused on supporting customers to capture growth opportunities and deliver attractive and resilient growth with high returns. We operate a lean corporate centre delivering core competencies including strategy, capital allocation, M&A and compliance. Here we also present Smith's pro forma financial metrics. Smith generated £1.95 billion in revenue in fiscal year 2025 with a pro forma operating profit margin of 19.6% and a 22.8% return on capital employed. We operate in the broad end markets of energy, industrial and construction. with 36% of revenue in energy, 38% in industrial and 26% in construction. With our strategic positions in these markets, we are aligned to some of the most powerful structural megatrends shaping the global economy. energy security and transition, resource efficiency and industrial productivity and sustainability. That underpin long-term growth. These markets are expected to grow at a 4% to 5% CAGR over the next decade. Drilling down further into the sub-segments of these markets, we are typically positioned in faster growth areas, including flow control, HVAC and industrial process heat. In energy, our mechanical seals enhance reliability across the oil and gas value chain, where we are seeing robust demand for traditional energy, as well as increasing opportunities in new energy segments, such as CCUS, hydrogen and biofuels. For industrial markets, the rising demand for process efficiency and emission reduction also supports growth in our flow control business. Aerospace continues to perform strongly with new aircraft build programs supporting demand for our fluid conveyance products. And investment in industrial heat electrification is providing significant potential upside for our process heat portfolio. The construction market growth fundamentals remain strong given the U.S. housing infantry deficit and our deep customer relationships and growing U.S. footprint, positioning us well to capture future demand in this highly fragmented market despite some short-term market challenges. Across all market segments, our solutions help customers reduce emissions, improve efficiency and use fewer raw materials, delivering both sustainability and performance. In summary, we are excited about the opportunities in our markets to deliver long-term, consistent and sustainable growth. Our aim is to continue to deliver above-market growth over the medium term, underpinned by a resilient and recurring revenue base. This provides a strong foundation for sustainable performance. Our enhanced medium-term financial targets announced in March reflect our plans and strategic initiatives for above-market growth and include leveraging our installed base, brand reputation, customer intimacy, and leading product expertise to deepen relationships with customers and expand our share of wallet. Commercial excellence. We will continue to enhance our operational processes to deliver exceptional customer service, enhancing customer value, incumbency and retention versus peers. Innovation. New product development and commercialization are key to sustaining growth. As examples, John Crane this year launched a new coaxial separation seal and is scaling digital solutions including Sense Monitor and Turbo. Market adjacencies. We continue to target higher growth and higher margin sub-segments, geographies, products and customers, both organically and through targeted acquisitions. This multifaceted approach ensures that we remain well positioned to outperform in our markets over the medium term. Let's look at what we're doing in Flextech, where we delivered robust growth in our construction business in fiscal year 2025, despite challenging US market conditions. Building on the strength of our portfolio, we are leveraging our flexible duct product platform to drive deeper and wider penetration through our distribution channels and are adding new customers. We saw increased demand for heat kits with notable growth in key accounts, illustrating the importance of customer intimacy and higher performing products. And our innovation remains a core growth driver. During the year, we launched the Blue Series, a redesigned sealed metal duct system that sets a new standard in performance and is already contributing to revenue. In our heat business, another launch this year supports ultra-low carbon emissions fuel with electric heaters that are being tailored for a cutting-edge electrofuel project. Both are great examples of how our innovative approach leads to new product design, which solves a key customer challenge. Our organic growth strategy is augmented by a disciplined and value accretive approach to M&A. Acquisitions since 2018 supported a more than 13% CAGR in both revenue and operating profit at FlexTech, alongside a 60 basis point margin uplift. This year's acquisitions, Watco, Modular Metal and Duct Pack, strengthen our capabilities in heat transfer technologies and broaden our reach in U.S. construction. These acquisitions also allow us to scale into adjacent markets with our existing product portfolio. Adding new metal ducting businesses this year has increased our addressable market for our flexible ducting products by opening up new geographies and customers. So they are already contributing to growth and margin uplift and we expect further benefits as we scale and integrate these businesses. For fiscal year 2026 we expect the construction market to remain subdued although we will continue to drive the business forward to deliver against this backdrop. Turning to margin. Our journey to our medium-term target of 21% to 23% is supported by a series of structural and tactical initiatives, a combination of operational discipline, cost optimization, and portfolio focus. First, operating leverage, actively driving a higher contribution margin as we grow revenue, for example, through price and product mix. Second, Delivering efficiency savings and productivity improvements through Smith Excellence. This year, through our Smith Excellence Academy, we expanded our Lean and Six Sigma programs to reinforce our high performance culture and scale operational best practice globally. Third, Implementing our acceleration programme, which is on track for £40-45 million annualised benefits in FY2027 and beyond, for a total of £60-65 million of costs, whilst ensuring central costs remain at 1.5-1.7% of revenue. Two thirds of the costs and benefits relate to the retained businesses. And finally, evolving our product portfolio towards higher margin products and market sub-segments, including targeting a greater share of aftermarket, repeat or recurring revenue. Here we show how operational excellence is supporting both revenue growth and margin expansion. Through our acceleration plan, we are simplifying, standardizing and automating core processes across engineering, manufacturing and supply chain functions in John Crane. including investment in advanced manufacturing technologies. We have upgraded automation and machining across multiple sites with a focus on high precision applications. We have installed 72 new CNC machines and are adding nine dry gas seal test rigs. These investments are enhancing throughput and quality, improving lead times, reducing waste and enhancing customer satisfaction. Our supply chain is being optimised to improve agility, resilience and cost competitiveness. We are consolidating manufacturing locations and centralising transactional procurement and finance. These initiatives are delivering measurable benefits, including reduced lead times, improved pricing power and enhanced scalability, and all contribute to growth and improving profitability for the business. Realising these performance improvements underpin our confidence in the outlook for John Crane for fiscal year 2026 and beyond. As already mentioned, we set out new enhanced medium term targets for fiscal year 2027 onwards. These targets are ambitious, yet achievable, and reflect our confidence in our ability to deliver premium returns through the cycle and supports the superior rating for Smiths. At Smiths, our long-term success is built on enduring foundations, our purpose, people, values and commitment to excellence and sustainability. Our purpose is clear, engineering a better future and is embedded in our strategy, culture and decision-making. Our people are always at the heart of our business and I would like to thank them for delivering the strong financial performance this year. Your dedication is very much appreciated. Our culture is built on our values and reflected in our high performance mindset and commitment to delivering for our customers, communities and all stakeholders. we are making meaningful progress on sustainability. Our approach is informed by a double materiality assessment, ensuring our strategy reflects both financial and societal impact. These foundations are central to our pledge to create long-term value for all our stakeholders. So, in summary, in fiscal year 2025, we delivered strong results, extending our track record of consistent financial performance. We have made great progress advancing our strategic plans to focus Smith as a high performance industrial engineering company. As a result, Smith is very well positioned to deliver superior value over the medium and long term. We are growth and returns focus, highly cash generative and have a disciplined approach to capital allocation. We are confident that these strategic actions will unlock significant value and enhance returns to shareholders. Thank you for listening.