Smiths Group plc

Good morning everyone and thank you for joining us for our fiscal year 26 results. 2026 has been a significant year in the company's 175 year history. We have executed the portfolio transformation delivering on our commitments to create significant value for our shareholders. We have proactively supported our customers against the backdrop of challenging external market conditions and we have invested in our businesses to deliver a resilient financial performance both now and into the future. None of this would have been possible without our people. Thank you for your dedication, hard work and commitment. Moving to our agenda for today, I will start with the key highlights from the year. Julian will then take us through the financial results and the outlook for fiscal year 27. I will then return to outline the path to higher growth, further margin expansion and continuing value creation. We will then be pleased to take your questions. Fiscal year 26 was a year of significant strategic progress for Smiths. We completed the sales of Smiths Interconnect and Smiths Detection at very good prices, crystallising £3.3 billion of enterprise value. These transactions have repositioned Smiths as a focused premium industrial engineering company. We have a stronger financial profile, a clear strategy for growth around four vectors of accelerate, innovate, execute and compound, which I will explain more later. We have also made good progress high grading our portfolio exiting lower growth and margin businesses in flex tech and adding exposure to high growth data center opportunities with the acquisition of DRC. In addition today we are announcing the launch of a process to divest the John Crane US legacy asbestos liability to enhance cash flow and strengthen our balance sheet. Thank you for watching. Our results illustrate the underlying strength and resilience of our business, the quality of our technology, and the strength of our customer relationships. As we enter fiscal year 27, the near-term underlying market conditions remain challenging. But with opportunities for growth, our robust order book and business momentum underpin our expectation of organic revenue growth of around 4% and further progress on our operating profit margin, entering our target range of 21-23%. The positive addition of DRC and data centre exposure, the opportunities in John Crane from the structural tailwinds in global energy resulting from the focus on energy security and the repositioning of the FlexTech portfolio underpin our strong conviction that we will more quickly deliver our medium-term 5% to 7% organic revenue growth target and support our 21% to 23% margin target. Our outlook is supported by self-help initiatives and strategic execution. We are not relying on a broad market recovery to deliver that outlook, but purposefully investing in and driving the business forward. With that, I will hand over to Julian.

Thank you, Roland, and good morning, everyone. As usual, I'll take you through our financial performance, capital allocation, and our outlook for fiscal year 27. Before I start, I would like to clarify the reporting perimeter. Smiths, or continuing operations, means the businesses within John Crane and Flextech, excluding the Flextech general industrial businesses, as well as Detection and Interconnect, that have been classified as discontinued operations. Total Group includes the performance of all businesses for the periods during which they were owned. Starting with headline performance. Smith's delivered organic revenue growth of 1.2% to 1.9 billion, a resilient performance in the context of the challenging backdrop in two of our largest markets. Smith's headline operating profit increased by 1.9% organically to £399 million. Headline operating margin was 20.6%, an increase of 20 basis points. This absorbed the impact of the disruption in the Middle East, tariffs, lower volumes and continued investment in growth. Return on capital employed was 23.5%, comfortably above our medium-term target of more than 20%, and reflecting a higher capital base from increased investment in John Crane and the DRC acquisition in Flextech. Smith's headline EPS increased by 6% to 86.8 pence, Total Group Headline EPS increased by 12% to 135.7 pence, with growth in underlying earnings enhanced by the share buyback programme. Smith's operating cash conversion was 96%, reflecting the strong cash flow characteristics of the company, and the board is recommending a final dividend of 33.5 pence, taking the full year dividend to 48.5 pence, an increase of 5.4%. Returning to revenue, organic growth was supplemented by 2.6% of growth from acquisitions, including the contribution from DRC since April. Growth improved in the second half versus the first, as originally guided, but was impacted by a £20 million effect in John Crane from the conflict in the Middle East. FlexTech Aerospace achieved an excellent performance, but the challenging US residential construction market and customer destocking and project phasing in thermal solutions had a negative effect on performance. Thank you for watching. Headline operating profit increased to £399 million and margin expanded 20 basis points to 20.6% organically. Good progress towards our 21-23% medium-term target range. Pricing initiatives, particularly in John Crane and FlexTech aerospace, were positive, as were the benefits from the acceleration plan, including a £5 million reduction in central costs, as well as Smith's excellent savings. Operational gearing, tariffs and increased strategic growth investments were a headwind to margin and we continue to balance near-term margin delivery with investment for sustainable growth. The increase in total group headline EPS reflected the organic operating profit growth, the performance of the discontinued operations and the share buyback programme. Thank you very much. Operating cash flow for Smiths was £384 million, representing cash conversion of 96%, slightly ahead of guidance and demonstrating the strong underlying cash generative quality of the company. This was driven by higher operating profit and lower capital expenditure, although ahead of depreciation, reflecting continued investment in growth and efficiency. For example, John Crane's machining, testing, automation and capacity upgrades last year. Offsetting this, we recorded higher inventory to support the order book and maintain service through geopolitical and supply chain disruption. And an increase in receivables, in part due to slower collections in the Middle East. I will now turn to the performance of our two businesses, beginning with John Crane. John Crane grew revenue 2.3% with the conflict in the Middle East impacting second half performance by £20 million. Excluding this, growth would have been 4% in the year and more than 5% in the second half. Growth was led by original equipment sales, particularly in dry gas seals. The US and Latin America performed strongly, growing mid-single digits. Aftermarket was up 1%, but held back by the impact of the Middle East. Industrial revenue grew 2%, with strong growth in mining and water, offset by weakness in chemicals, largely related to the Middle East and overcapacity in China. Headline operating profit increased 3.5% organically to £270 million and margin expanded 30 basis points to 23.9%. Pricing, mix and the benefits from the acceleration plan more than offset inflation and an £8 million increase in investment in strategic projects. Taking a moment to address the Middle East directly, where the safety of our people and their families remains our first priority. They have been doing an incredible job supporting our customers in the region. Our facilities have remained operational and our focus has been on supporting our customers day to day through difficult circumstances. We have experienced delays in maintenance programs and OE projects have moved to the right. We have also seen a corresponding impact on order intake as customers have reduced capex and optimized opex. Working capital has also been affected as we maintain stock availability and experience slower collections. As we look forward, our fiscal year 27 assumes disruption continues at least through the first half. However, John Crane is well placed to support customers as activity normalises and recovery projects begin, given our local presence, broad installed base and extensive service capability. We are already working hard to put ourselves in the strongest position so that we are commercially and operationally ready and flexible to support our customers when this demand returns. For example, we are rebalancing production capacity, optimizing our supply chain, and as well as investing to increase our local manufacturing and service capability in the region. Longer term, the heightened focus on energy security and reliability is likely to have lasting implications, supporting investment across energy security and infrastructure markets globally. This encompasses capacity expansion and supply diversification, additional backup infrastructure with increased maintenance and reliability spending. This is where the largest opportunity lies. We continue to practically engage and support our customers on our leading technology capabilities and rival service network and deep customer intimacy place us ideally to win. FlexTech revenue declined 0.4% in the year. Construction declined 3.6% against the backdrop of a weak US residential construction market, where housing starts and building permits declined 0.8% and 2.1% respectively across the same period. Performance improved across the year, returning to growth in quarter four at 2.9%, supported by new custom winds, particularly in flexible ducting and multifamily projects. Thermal solutions declined by 6.2%, largely due to the destocking of residential heat kits experienced in the first half and the completion of an ultra-high temperature project. In April, we acquired DRC, which adds cooling and heat removal technologies with exposure to fast-growing data centres and power generation markets. As a result, Thermal Solutions now represents around a third of FlexTech revenue on a pro forma basis. Aerospace grew strongly at 10.6%, with order book execution, contract renewals with major aircraft engine manufacturers delivering pricing and volume growth. We achieved strong double-digit growth in the strategic growth areas of India and MRO. Acquisitions added 6.4% to growth, reflecting our capital allocation decisions targeting higher growth adjacencies. The operating profit and margin performance largely reflected the market impact on construction volumes and a small impact from tariffs, partly offsetting by pricing in aerospace and operational efficiency savings. Thank you very much. We also invested in our commercial and strategic growth initiatives. We acquired DRC for £165 million, consistent with our strategy of building into higher growth adjacencies. In a further move to high-grade the portfolio, we agreed sales for three non-core FlexTech industrial businesses for £40 million, and with these changes, FlexTech is now a more balanced growth portfolio, with exposure across a broad range of attractive end markets with strong growth prospects. Our portfolio management approach also encompasses initiatives to improve balance sheet and enhance cash flow with two major pension transactions completed during the year and today we announced that our US John Crane business will begin a marketing process for the divestiture of its legacy asbestos liability. Thank you very much. We completed the previously announced £500 million buyback and in line with the commitment to return a large portion of sales proceeds we have now completed the £1 billion Smiths Interconnect buyback with a further £1.5 billion related to Smiths detection still to execute. We expect this to be substantially completed by the end of calendar year 27. Our strategy is clear and our actions demonstrate that we make sensible capital allocation decisions to drive growth, financial returns and free cash flow while retaining a strong balance sheet and a solid investment grade credit rating. For fiscal year 27, we're guiding to organic revenue growth of around 4%, supported by operating momentum and our robust order book. John Crane is expected to be weighted towards the second half. We assume continued Middle East disruption during the first half alongside stronger growth in other parts of the world. In FlexTech, we assume a continuation of the subdued US residential construction market, although we will continue to drive performance. We expect a continuing strong performance in aerospace, a return to growth in thermal solutions and a positive organic contribution from fast growth in DRC. As a result, FlexJet growth is expected to be weighted towards the first half, reflecting in part the year-on-year comparator and also our active customer engagement to drive performance. We expect headline operating profit margin of approximately 21%, entering our medium term target range of 21% to 23% sooner than expected. And we expect operating cash conversion in the low 90s range. We've also provided some further technical guidance in the appendix to aid your modelling. We are confident in achieving our medium term targets. Thank you very much. Give us strong conviction in more quickly delivering our 5-7% organic revenue growth over the medium term and underpin our 21-23% operating profit margin target. With that, I'll hand back to Roland.

Thank you, Julian. I will now turn to our strategy and the opportunity ahead. In January last year we took the decision to reposition the portfolio and the completion of the divestments of interconnect and detection this year have been a defining moment for Smiths. The result is a more coherent portfolio with a stronger financial profile allowing greater management focus and a clearer capital allocation model. Our portfolio sits across the clear growth pillars of flow control, construction, thermal solutions and aerospace, and is well placed to deliver sustainable growth, high returns and strong cash generation, underpinned by structural growth trends. First, in energy, growth is driven by the long-term global demand for energy and is expected to accelerate further with the increased need for energy security and resilience, all of which support greater investment in critical infrastructure. Our growth strategy for John Crane is focused on our particular strengths in downstream and midstream energy, where we see considerable runway before the world reaches either peak oil or gas. Our leading position in gas and energy transition position us well to take advantage of the higher level of growth in areas including LNG, hydrogen, geothermal and carbon capture and storage. Next, industrial process electrification is supporting emission reduction, improved safety and greater efficiency across industrial markets. Here too, demand is underpinned by customers' desire to have a single, integrated, customised solution, which our SureHeat, Watco and Farnham businesses are well positioned to support. AI demand is supporting the expansion in digital infrastructure and the subsequent data center developments drive power and thermal management demand. Watco and DRC broaden our heat cooling controls and systems capabilities to access this high growth market and we are excited by the size of this opportunity. Next, the structural housing shortage together with a growing population drive growth prospects in US residential construction. We see increased demand for housing over the medium term and our FlexTech HVAC products are well positioned to capture this growth as we expand our portfolio and geographical coverage. And finally, aviation, where trade, GDP and population growth are underpinning the continuing increase in commercial aircraft production in a market where high qualification barriers and durable supply positions support resilient growth. alongside this the geopolitical backdrop is driving an increase in defense spending and the demand for new military aircraft also underpinning these trends is the ongoing focus on productivity and sustainability customers desire to improve resource efficiency drive production and reduce emissions also supports demand for our products Our customer-centric model, underpinned by a high degree of customer intimacy and a strong understanding of customer needs, allow us to be true experts in developing customized solutions. This creates strong incumbent positions and drives high-quality aftermarket and recurring revenue. John Crane has a large installed base that has been built up over many decades. This drives a substantial aftermarket revenue stream across the operating life of a facility, provides recurring demand and sustains our customer relationships. Aftermarket represents more than 70% of the total revenue. FlexTech maintains strong customer relationships across different parts of the business. Around 70% of construction revenue is repeatable through sustained distributor relationships. Thermal Solutions designs customized products and systems in partnerships with its customers. And more than 75% of aerospace revenue is under long-term agreements, contracted positions, or repeatable programs. These characteristics support resilience through cycles, retention of customer positions, pricing power, margin quality and cash generation, while allowing us to bring additional products and technologies to customers and channels we already know. Our priority is to combine these strengths to enable faster, more consistent organic growth. Our growth strategy is targeted around four connected priorities which we call the growth algorithm. Accelerate growth initiatives, innovate with impact, execute relentlessly and then compound value through disciplined capital allocation into accretive acquisitions. These initiatives, although focused on growth, will support the delivery of all our medium-term targets – revenue and EPS growth, margin, returns and cash conversion – and underpin our strong conviction that we will deliver our 5-7% organic revenue growth target. taking each in turn we are accelerating the pace of delivery of our strategic growth initiatives and increasing investment in our highest return opportunities alongside our pricing power these actions underpin our plans to drive above market growth In John Crane we are leveraging our leadership position in gas projects and have signed a number of major new LNG and NGL contracts, continuing to develop our leadership position in this area. LNG investments continue to accelerate globally due to energy security demand and projects of this scale strengthen our installed base, supporting long-term aftermarket servicing opportunities. To expand our aftermarket position further we have signed new global performance plus agreements with customers in both energy and chemicals with a number of these having been taken over from other suppliers. These agreements provide the customer with a consistent reliability model across their facilities and for John Crane provides predictable recurring revenue. In construction, we have been successfully expanding the distribution of our full range of flexible and metal ducting products that we have built up through acquisition. And we are now harnessing higher growth opportunities such as the Canadian market. In thermal solutions, we're expanding our product offering to provide customised systems and integrated solutions, combining heat and cooling across a range of different end markets, including data centres. And in aerospace, we are targeting an increase in market share of ship set on key engine platforms and the strategic growth areas of India and MRO. And our recent contract renewals have strengthened our position and price capture. Innovation is critical to differentiation and sustainable growth. Through a more deliberate approach to innovation our aim is to accelerate the pace of delivery. Our approach combines sustained investment in product development with disciplined commercialisation ensuring that new product concepts are translated into tangible growth. Our five-year innovation roadmaps for each business span technology, products, materials and manufacturing processes. These support both the evolution of existing products for new performance requirements and applications and the development of new differentiated offerings. For example, John Crane's recently launched 93AX separation seal has seen a very positive response from customers. We have further developed our dry gas seal products for larger machine needs, high pressures and speeds and have seen stronger sales of these and our development of materials support new technologies for hydrogen applications. Capability roadmaps also help identify skills requirements and strategic partnerships opportunities. Our objective is to increase the pace of delivery and the commercial impact. Operational excellence is foundational to growth and value creation. We continue to execute our plans with discipline and excellence, tracking the key operational metrics that underpin performance and support our strategic priorities. Smith's excellence provides a common approach to lean operations, enhance processes, automation, and supply chain resilience, and is embedded and standardized across our business. All these actions help us better serve our customers, helping ensure that we are their partner of choice. We continue to invest in modernising and automating our manufacturing infrastructure and this year we have completed the investment in John Crane machining capabilities and upgrading our test capabilities. We have also added automation to our FlexTech HVAC manufacturing processes to improve efficiency and enhance safety. During the year, the acceleration plan activities continued. These included site consolidation and footprint optimisation, ERP harmonisation and automation. We have delivered £20 million of annual plan benefits to date and remain on track for the £30 to £35 million of annualised benefit for this fiscal year. These initiatives help us better support our customers through improved customer service and reduced delivery times, helping to support our growth ambitions. With the increased focus that the portfolio changes have delivered, we have continued to adapt our culture to encourage a more agile, empowered and accountable organisation focused on delivering for our customers, supported by a lean centre. A high performance culture combines pace and accountability with integrity, respect and uncompromising commitment to safety. And finally, disciplined M&A, which we regard as an important component of our value creation model by recycling free cash flow to augment and compound organic growth. Our track record in FlexTech demonstrates this. Over the past years, we have invested around £700 million of capital into eight acquisitions. Flextech has more than doubled in size over this timeframe, a double-digit compound annual growth rate in revenue. Acquisition returns have notably exceeded the cost of capital, delivering significant value creation under Smith's ownership. Acquisitions have also shifted the mix of the business over time. Today, FlexTech has a lower exposure to US residential construction, around 40%, with a corresponding increased exposure to higher growth thermal solutions and aerospace. These actions demonstrate our active approach to portfolio and capital allocation, to focus our business on areas of higher growth. We focus on identifying acquisitions that give exposure to higher growth adjacencies that strengthen our market position, add technology, geography as well as customer access. Financially we prefer capital light, cash generative businesses that are growth accretive and have attractive margin and returns profile. Our opportunity pipeline is across multiple vectors in each of our business areas, offering growth, margin and synergy potential. We have strengthened our approach to integration with clearer milestones, ownership, contingency planning. Thank you very much. We identified an opportunity to enhance our strategic position by adding heat removal and cooling technologies to our heat solutions. It also brought exposure to attractive higher growth markets with a strong leadership and engineering team who needed support for their next phase of growth. Let's hear directly from the team in this video.