Smiths Group plc

Welcome to the Smiths Q3 2026 Trading Update Conference Call. The call will be hosted by Julian Fagg, Chief Financial Officer at Smiths. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star one and one again. Please, the advice of today's conference is being recorded. I would now like to hand the conference over to Julian Fagg, Chief Financial Officer at Smiths. Please go ahead.

Thank you. Good morning and thank you for joining us today.

Given the current market backdrop and in particular the conflict in the Middle East, we thought it was appropriate to hold a call to discuss our quarter three trading update. The missed organic revenue was flat in the quarter, resulting in growth of 0.2% for the first nine months. This was a resilient performance, considering the disruption in global energy markets, continued softness in U.S. construction, and against a tough comparator in FlexTech. In John Crane, organic revenue grew 3%. We began the quarter with a strong opening order book, and operational momentum. However, as a result of the conflict, revenue was negatively impacted by approximately £10 million due to two months of disruption. Encouragingly, our order book continued to strengthen, and we delivered a positive book to bill. In FlexTech, we performed in line with our expected quarterly phasing. In construction, performance reflected ongoing U.S. construction market weakness. However, we did see sequential improvement from the second quarter, which we expect to continue into quarter four, supported by pricing initiatives and targeted customer wins. Former solutions declined, primarily due to the completion of the large ultra-high heating project last October, which had a notably high contribution in Q3 last year. As we look ahead, improving demand for heat kits and a more favourable comparator to report a return to growth in Q4. In aerospace, we delivered strong growth. This reflected solid execution against our order book and the price and volume benefit of recent contract renewals. This underpins our confidence in stronger performance in the second half relative to the first half. Turning now to the outlook, In March, we guided to full organic revenue growth of 3% to 4%, which excluded any impact in John Crane from the Middle East conflict. Reflecting the disruption we've now seen in Q3, and assuming that this continues for the balance of the year, we now expect full year growth for Smith of around 2%. We now expect operating profit margin to be slightly above 20%, reflecting the strength of our operating model, cost control and good delivery supported by the acceleration plan and ongoing some excellent savings. More broadly on the Middle East, our priority remains the safety of our people in the region, but at the same time we're working hard to support our customers and we're well positioned to assist when facilities return to service and production recovers. Whilst the conflict clearly creates near-term headwinds, Of course, we don't know how long this will last. We anticipate that our customers will require additional support from John Crane as and when reopening and rebuilding commence. The situation is reinforcing the global focus on energy security and resilience, which we expect to underpin structural growth in energy infrastructure spending over the medium term. Finally, to note that we completed the divestment of Smith Interconnect in the quarter, we agreed the sale of two of the FlexTech industrial businesses and completed DRC, an acquisition that was consistent with our strategy of allocating capital to high-growth adjacencies with exposure to fast-growing data centre and power generation markets. In summary, we are navigating short-term challenges, continuing to make good progress reshaping the portfolio, deploying capital with discipline, and investing to drive sustainable growth and long-term shareholder value.