Smiths Group plc
FY2026 Financial Results
Tuesday 22nd September 2026
Smiths FY2026 Financial results
Tuesday 22th September 2026
Opening remarks
Roland Carter
Chief Executive Officer
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.
Agenda
Moving to our agenda for today. I will start with the key highlights from the year. Julian will
then take you 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.
Excellent strategic progress, strengthening focus on higher growth and margin
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 and a clear strategy for
growth around 4 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-Tek and adding exposure to high-growth data centre 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 cashflow and strengthen our balance sheet.
We delivered operationally and financially – we grew organic revenue, expanded margins and
generated strong cashflow. This was despite significant disruption arising from the conflict in
the Middle East, ongoing weakness in US residential construction all alongside continued
investment for growth. I am pleased with our performance given this backdrop. Our results
illustrate the underlying strength and resilience of our business, the quality of our technology
and the strength of our customer relationships.
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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 to 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 Flex-Tek portfolio, underpin our strong conviction that that we will more
quickly deliver our medium-term 5-7% organic revenue growth target, and support our 2123% 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 purposely investing in and driving the
business forward.
With that, I will hand over to Julian.
FY2026 Financial Results
Julian Fagge
Chief Financial Officer
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 Flex-Tek, excluding the Flex-Tek 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.
Resilient Financial Performance
Starting with headline performance. Smiths 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.
Smiths 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.
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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 Flex-Tek.
Smiths 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.
Smiths operating cash conversion was 96%, reflecting the strong cashflow characteristics of
the company.
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%.
Resilient organic revenue growth, enhanced with high-growth acquisitions
Turning 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.
Flex-Tek 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.
Yet despite these headwinds, we achieved good operating momentum, we demonstrated
resilience against the challenging market backdrop, and we added acquisitions / new
businesses to the portfolio that enhance the growth potential of the business.
Operating margin expansion with good operating profit growth
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 Flex-Tek Aerospace, were positive, as were
the benefits from the Acceleration Plan, including a £5 million reduction in central costs, as
well as Smiths Excellence 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.
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Strong EPS growth reflecting operating profit growth and share buyback
The increase in Total Group headline EPS reflected the organic operating profit growth, the
performance of the discontinued operations, and the share buyback programme, partly offset
by higher tax and finance costs.
Reported EPS grew 12% to 135.7 pence, reflecting accretion from Flex-Tek’s acquisitions,
adverse foreign exchange, and the accounting effects related to the sale of Smiths Detection
and Smiths Interconnect, which under IFRS 5 are no longer subject to amortisation or
depreciation.
You can find the Smiths EPS analysis in the presentation’s appendix.
Strong operating cash conversion
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.
Business Update
I will now turn to the performance of our two businesses.
Beginning with John Crane.
John Crane
John Crane grew revenue +2.3% with the conflict in the Middle East impacting second half
performance by £20m. Excluding this, growth would been around +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.
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Headline operating profit increased +3.5% organically to £270 million, and margin expanded
30 basis points to 23.9%. Pricing, mix, the benefits from the Acceleration Plan more than
offset inflation, and an £8m increase in investment in strategic projects.
Middle East in focus
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 programmes and OE projects have moved to the
right.
We have also seen a corresponding impact on order intake as customers have reduced capex
and optimised opex.
Working capital has also been affected as we maintained stock availability and experienced
slower collections.
As we look forward, our fiscal year 27 outlook 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, optimising our supply
chain, 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, and our leading technology
capabilities, unrivalled service network and deep customer intimacy, place us ideally to win.
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Flex-Tek
Flex-Tek 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 Q4 at
+2.9%. supported by new customer wins, particularly in flexible-ducting and multi-family
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 Flex-Tek 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 offset by pricing in Aerospace
and operational efficiency savings.
Our capital allocation framework – deploying cashflow to deliver growth and returns
Our approach to capital allocation remains disciplined and focused on value creation.
Growth is the main priority and we continue to allocate capital to opportunities that have the
potential to accelerate revenue performance. In fiscal year 26, we invested £64 million in
RD&E, or 3.3% of revenue. Capex was £39 million, 2% of revenue. 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 Flex-Tek
industrial businesses for £40 million, and with these changes, Flex-Tek is now a more balanced
growth portfolio with exposure across a broad range of attractive end-markets with strong
growth prospects.
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Our portfolio management approach also encompasses initiatives to improve the balance
sheet and enhance cashflow, 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. These transactions will ultimately remove these
liabilities from the balance sheet, significantly increase free cashflow and available capital. As
a reminder, the annual net cash outflow related to asbestos has averaged around £20m in
the last five years.
In relation to shareholder returns, as I have already mentioned, the Board continues to
support a progressive dividend policy.
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 £1bn
Smiths Interconnect buyback, with a further £1.5 billion related to Smiths Detection still to
execute. We expect this to be substantially completed be 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 cashflow, while retaining a strong balance
sheet and a solid investment-grade credit rating.
FY2027 Outlook
For fiscal year 27, we are 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 Flex-Tek, 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, Flex-Tek 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 mediumterm target range of 21-23% sooner than expected.
And we expect operating cash conversion in the low nineties range.
We have also provided some further technical guidance in the appendix to aid your modelling.
We are confident in achieving our medium-term targets. The structural tailwinds in global
energy resulting from the anticipated response to energy security, our expanded exposure to
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cooling and data centre applications through DRC, and the evolution of the Flex-Tek portfolio,
alongside continued underlying performance, 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 will hand back to Roland.
Strategy update
Roland Carter
Chief Executive Officer
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.
Portfolio focused on strategic growth pillars
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.
Well positioned in attractive markets supported 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 positions 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 emissions reduction, improved safety and
greater efficiency across industrial markets. Here too, demand is underpinned by customers’
desires to have a single, integrated, customised solution which our Sureheat, Wattco and
Farnam businesses are well positioned to support.
AI demand is supporting the expansion in digital infrastructure, and the subsequent datacentre developments drive power and thermal-management demand. Wattco and DRC
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broaden our heat, cooling, controls and systems capability 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 the growth
prospects in US residential construction. We see increased demand for housing over the
medium term, and our Flex-Tek 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 supplier positions support resilient growth. Alongside this, the
geopolitical backdrop is driving an increase in defence spending, and 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.
Customer-centric operating model with high-quality aftermarket and recurring revenue
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 customised
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.
Flex-Tek maintains strong customer relationships across the different parts of the business.
Around 70% of Construction revenue is repeatable through sustained distributor
relationships. Thermal Solutions designs customised products and systems, in partnership
with its customers. And more than 75% of Aerospace revenue is under long-term agreements,
contracted positions or repeatable programmes.
These characteristics support resilience through the 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.
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Smiths Growth Algorithm
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 mediumterm 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.
Accelerate - commercial initiatives and investment to drive sustainable organic growth
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 investment continues 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 are 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 shipset 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.
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Innovate – enhanced approach to drive differentiation and profitable growth
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, higher pressures and speeds and have seen strong sales of these; and our
development of materials support new technologies for hydrogen applications.
Capability roadmaps also help identify skills requirements and strategic partnership
opportunities.
Our objective is to increase the pace of delivery and the commercial impact.
Execute - operational excellence
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.
Smiths Excellence provides a common approach to lean operations, enhanced processes,
automation and supply-chain resilience and is embedded and standardised across our
businesses. 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 testing capabilities. We have also added automation to our Flex-Tek 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 £20m of
annual plan benefits to date and remain on track for £30 to 35 million of annualised benefits
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.
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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-performing culture combines pace and accountability with integrity, respect and an
uncompromising commitment to safety.
Compound – a strong track record of successful M&A
And finally disciplined M&A, which we regard as an important component of our value
creation model by recycling free cashflow to augment and compound organic growth.
Our track record in Flex-Tek demonstrates this. Over the past years, we have invested around
£700m of capital into 8 acquisitions, Flex-Tek 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 Smiths
ownership.
Acquisitions have also shifted the mix of the business over time. Today, Flex-Tek 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 the portfolio and capital allocation, to focus our business on areas of
higher growth.
Compound – reinvesting FCF to augment and compound growth
We focus on identifying acquisitions that give exposure to higher-growth adjacencies that
strengthen our market positions, add technology, geography as well as customer access.
Financially, we prefer capital-light, cash-generative businesses that are growth-accretive, and
have an 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 and
contingency planning. This ensures acquisitions get off to a fast start. This plug and play
blueprint allows us to maximise synergy delivery and value creation.
DRC - allocating capital into structurally faster-growing markets, with clear scalability
DRC is a great example. DRC designs customised heat-transfer and cooling solutions for data
centres auxiliary power. We identified an opportunity to enhance our strategic position by
adding heat removal and cooling technologies to our heat solutions. It also brought exposure
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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.
It is still early days, but in the four months of ownership, it has performed ahead of
expectations, contributing £35.5 million of revenue at a pro-forma growth rate of well over
20%, with an attractive margin.
The data-centre market is expected to grow at more than 20% annually over the next 10 years,
supported by AI and cloud demand. We are investing in people, process and capacity
infrastructure to support this growth opportunity which we expect to be meaningfully
additive to the Smiths Group’s performance over the coming years.
A highly compelling investment case
So, in summary.
We have successfully transformed the portfolio into a focused premium industrial
engineering company with an improved financial profile, delivering sustainable growth, high
returns, robust cash generation and balance sheet strength.
We continue to align our business to attractive end-markets and trends that offer structural
long-term growth.
Our business model is resilient, with a high proportion of aftermarket, contracted and
repeatable revenue, underpinned by customer intimacy, and leading products and
technologies.
Our renewed growth algorithm strategy is focused on accelerating organic growth, driving
innovation, value creating execution and disciplined compounding M&A, supported by a highperforming team and culture.
In fiscal year 26, we unlocked over £3 billion of value.
We continue to be focused on creating value today, and into the future.
Thank you for listening. Julian and I will now be pleased to take your questions.
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Q&A
Christian Hinderaker (Goldman Sachs, Analyst): Morning, Roland. Morning, Julian.
Thank you for the opportunity. I wanted to ask firstly on the Middle East events. I
appreciate a fluid situation over there, but curious firstly, how we think about the £20
million impact in the half across OE and aftermarket. Then as we look forward, just curious
on your thinking in terms of whether or when there may or may not be a catch-up effect
as and when we see a reopening of business in the region.
Roland Carter: Okay. No, thank you very much Christian for the question. Obviously the
situation on the ground remains difficult for our customers and for our people, and
obviously our people have shown excellent commitment in those 10 sites, supporting the
customers. There’s definitely no signs that it’s getting better. We believe in H1 we’ll
continue to see those - the situation as we’ve previously seen.
In H2, we anticipate that year-on-year improvement as we cycle over what happened in
that £20 million. Also, we have seen a little bit of rebalancing of our customers. We saw
that excellent growth in North America already because of what we’ve done with the
organisation and responding to the customers. We believe that that’s only the beginning
of the world rebalancing to this new normal.
We’re definitely preparing for supporting our customers when that bounce-back comes
back from the point of view of we’re already preparing all the drawings, we’re working
with the customers, we’re working with the supply chain, we’re making sure that we’re
qualifying all our facilities around the world, if there is - well, when there is a surge coming
forward.
We are deep in preparation for that. I mean, if you stretch the medium-term - excuse me
- the medium term outlook, I mean, we’ve got even more conviction as I mentioned earlier
in the fact that there will be this need for security within energy, and we’re there, prepared
to support that need for security as it is seen to spread out across the globe because
people are going to want that resilience. Generally, a very challenging situation in the
moment, but absolutely prepared for when that changes.
Christian Hinderaker (Goldman Sachs, Analyst): Thank you, Roland. Maybe turning
to Flex-Tek next. I’m curious how to think about the growth prospects of Thermal solutions
in fiscal ‘27, particularly when we consider the destock effect last year on heat kits and
the distribution chain and also some of the project activity phasing. I guess, DRC is
contributing positively, but yes, interested in the thoughts there.
Roland Carter: Yes, I’ll let Julian talk about the phasing, but broadly when we look across
that market, yes, construction market will be pretty similar to that that it has been. But
you’ve already seen in the Q4 that we’ve had that growth because of, there’s been a lot
of self-help at Smiths, so a lot of commercial activity. We saw that, and we’ve definitely
seen that momentum continue into the year on the construction.
One has to remember that at the moment, construction is really only two fifths of that
Flex-Tek portfolio now, and about a third of that, we’ve been moving away from just that
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traditional resi new build piece as well. There is work behind the scenes within that. But
I’ll let Julian talk about the portfolio restructuring that we’ve done within Flex-Tek and also
DRC perhaps.
Julian Fagge: Sure, thank you. Well, thanks, Roland. I mean, just to pick on the question
on Thermal, I mean, it did return to growth in Q4, so we’re pleased with that. Just to point
at some of the factors that impacted last year’s performance. First thing, we had this
significant contract running through our SureHeat business. That, on a year-on-year basis
was a £7 million impact on the year. That’s now annualised out, so we’ll move forward
from there.
The other factor that Roland mentioned was the destocking of these heat kits. That had a
£13 million impact during the year, and mostly in Q2. We expect to have cycled through
that now as we enter into the new year.
I mean, on the portfolio, I mean, yes, Flex-Tek has over time transitioned and repositioned
to some extent away from its predominant construction position, and yes, Thermal is part
of that, and with the acquisition of DRC will increase that percentage even further. We do
see that to an extent, a high grading of the Flex-Tek portfolio, and pointing it towards area
of faster growth, which should support the business as we look out in the medium-term.
Christian Hinderaker (Goldman Sachs, Analyst): Thank you both. Maybe if I can just
squeeze a quick third one in, just obviously with the change in structure and portfolio, a
lot of moving pieces in the statements, but how do we think about normal thresholds now
for working capital lines? I don’t know if you want to talk days or percent of sales basis?
Julian Fagge: Thank you. I mean, we’ve taken some actions in fiscal year ‘26 to
strengthen our inventory position to better support customers through these challenging
times. You’ve seen a small step up in inventory levels, particularly in John Crane. But other
than that, the levels of working capital are in line with typical levels of receivables,
payables. There’s nothing different there, Christian, within the working capital mix.
Christian Hinderaker (Goldman Sachs, Analyst): Thank you.
Martin Wilkie (Citi, Analyst): Yes, good morning. Thank you. It’s Martin at Citi. I just
had a question on the announcement this morning about the asbestos liability, just to
understand a bit more about how that will be structured in the timetable, and also what
has changed. I think in the past, albeit on the prior management, the view was that, payas-you-go was cheaper, if you like, than settling it and exiting it. So just to understand
what is something that has changed financially that’s made this attractive to get rid of this
liability now. Thank you.
Julian Fagge: Thank you, Martin. I mean, first thing I’d like to say is that it is important
that we recognise that asbestos-related diseases are terrible for those that suffer from
them. I do want to acknowledge that and the impact that it has had. The fact remains that
John Crane knows that its products are safe, and for more than 45 years, has resisted
asbestos claims based on our defence.
I mean, to address your specific questions, Martin, we have worked very hard over the
years to get ourselves into this position today where we have a reliable defence-based
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Tuesday 22th September 2026
strategy. We have a more reliable cost of the asbestos defence, which flows through our
free cash flow statement. Just to remind you, that is around £20 million a year, and has
been for at least the last five years.
I think the way we look at it is that today we are now in a position where we have a case
for presenting this to the market. It also indeed follows some of the broader movements
in the asbestos market where other companies have taken similar approaches. We think
the time’s right, and we thought it was helpful to announce that - this process that will
launch in the coming days.
Roland Carter: To add to that, I mean, this is just one more of those steps of dealing
with legacy liabilities on the balance sheet. You’ve seen the buy-ins and the buyouts on
the pensions. This is a continuation, and we’ve been preparing for this for several years,
and this has now accumulated as the market’s also matured and the vehicles are much
more mature now. This is a continuation of driving free cash flow, and removing the
variability within that.
Martin Wilkie (Citi, Analyst): Thanks. That’s really helpful. Just another question just
on the uses of cash, and obviously you’ve now integrated the DRC acquisition. Anything
changing in the backdrop in terms of how you’re seeing valuations for potential deals and
availability of deals that can still be accretive to value? I guess, particularly in Flex-Tek,
but just more broadly? Thank you.
Roland Carter: Yes, we’re, again, obviously very pleased with the acquisitions that we’ve
been making recently. We have become very active in our scanning of the markets. We
always had an active, but Julian and myself are very involved in that process.
We will always be disciplined in our approach to any form of capital allocation. We’re here
to create value, and that I think is the defining feature of both Julian and myself and how
we approach these things.
We do have an active portfolio across the whole range of businesses. We do assess where
we want to go. Acquisitions are there to accelerate our strategy when we feel that we can’t
do that organically. So we’ll continue with that approach.
As we saw in that video, that’s just been - we weren’t the highest bidder for DRC. It was
really what they felt we could bring to that, and I think you’ll find that we have brought
what we’ve said we would bring to that.
There is obviously a financial aspect to that, but the true aspect is really how we integrate,
how we support them in areas where previously, as a private company, they haven’t been
able to be supported, whether that’s the Smiths Excellence System dealing with the
capacity constraints, whether that’s bringing their safety to a higher level for their
employees, whether that’s helping with their quality issues, whether that’s exposing them
as Rob said in the video to other parts of the Smiths portfolio, to allow them to get new
ideas where we can be better integrated as a whole.
We’ll always be looking for places where we can genuinely add value. We’re not going to
try and just compete on price on those things. Thank you.
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Tuesday 22th September 2026
Martin Wilkie (Citi, Analyst): Great. Thank you very much.
Tore Fangmann (Bank of America, Analyst): Good morning. I hope you can hear me
all right. Thank you for taking my questions too from my side. The first one would be on
the impact in the Middle East. Is there any way for you to quantify the impact that you
expect going into 2027? Should we assume a continued £20 million drag into the first half?
Then to me it sounded like you think about maybe a smaller impact going into H2.
Appreciate it. Thank you.
Julian Fagge: Yes. I mean, I think it’s a fair assumption that the impact going through
the first half of the year will be at a similar level to that that we saw across the second
half of last year. I think that’s reasonable - I mean, just to be clear, that’s largely
aftermarket.
I mean, we are able to keep our facilities operating. Just to repeat what Roland said earlier,
we are doing a lot to support our customers through this time, and indeed prepare for
when things improve. You should expect that impact to be less in the second half as a
result of this annualising, certainly in terms of growth. That’s how we think about it.
Tore Fangmann (Bank of America, Analyst): Perfect. Appreciate it. Then maybe just
second question, more general for the whole Group, but happy to hear if you have more
details on the different segments. How would you describe the current pricing and inflation
environment, especially thinking here about energy costs, steel inflation and so on, and
how, call it happy, are your customers to receive price increases from your end? Thank
you.
Roland Carter: Yes. No, thank you for that. As we know, Smiths is very strong on pricing.
So from the two aspects of, we do have pricing power in the market and also we do execute
well and effectively against that pricing power as well. We saw last year that significant
part of the growth was pricing. This year it will be more balanced between pricing and
volume.
We are in an inflationary environment. We have put through pricing across all of the
businesses that we have, so within John Crane there is pricing. Within Flex-Tek, Aerospace,
slightly different dynamic because those are long-term contracts, which you saw us
negotiating and we continue to negotiate.
We saw positive pricing in Flex-Tek, Aerospace, for example, last year, but that will
continue to be accretive into this year as well.
Thermal, because of the market dynamics, because of the growth, we still - it’s difficult
because - not to price because we’re getting very positive gross margins there, but
because these are new products rolling out, you’ve got to have a benchmark there, and
they’re constantly developing. But we can see there is positive gross margin expansion
from price within that, but there’s that mix issue within that aspect of the business.
Then Construction, we’ve just put through to pricing increases, one on our Metal products,
one on our Flex-Tek flexible products as well. We continue to be able to develop price
across the portfolios as you can see. We are very professional and we professionalise over
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Tuesday 22th September 2026
several years on how we make sure that pricing sticks, and we understand leakage a lot
better than we did maybe three years ago.
Tore Fangmann (Bank of America, Analyst): Thank you. Much appreciated.
Jonathan Hurn (Analyst, Barclays): Hey guys, good morning. Just a few questions
from me please. Firstly, just on tariffs. Did you see any tariff refunds in the period and
also, how do we think about that going into 2027?
The second question was just on mix. How do we think about mix across the two divisions
going forward? Are there some positive tailwinds to come through and help profitability?
The third and final one was just on the order book. Obviously you’re seeing some strong
orders. Can you just remind us where we are in terms of order coverage for the year right
now for both divisions please? Thank you.
Roland Carter: Yes, let me take a couple of those and then I’ll hand over to you, Julian,
if that’s okay.
So, on order book, we came into approximately a 1x order book in John Crane, so in spite
of those headwinds we saw that as a positive. We had very strong order book within
aerospace, so we were very pleased with that. In fact, a modest assessment of that would
be two-thirds of our aerospace revenues are covered going forward into this year – when
we came into the year, I should say.
The other place where we really look into the order book is DRC, and we’ve seen that build
robustly for this calendar year and the next actually, for people developing their capacity
understanding of us. I should also step back on the John Crane perhaps and say, we are
seeing certain customers asking to block capacity because they see the potential for
upturn.
So, on the businesses where order book makes sense to look at it is characterised, as
we’ve said, where it came in relatively resiliently for us. Obviously, there is book and burn
that we need to achieve within the year as well.
From the point of view of tariffs, perhaps you…
Julian Fagge: Yes, shall I take that? So, tariffs were a headwind for us last year and that
was after our mitigation efforts and the pricing adjustments we needed to make behind
those tariffs. I won’t comment on tariff reclaims. I mean, it clearly is a fluid environment
but net it was a headwind to us. As we look out we expect tariffs to be relatively neutral
to us in fiscal year ’27.
Roland Carter: Then on your mix question, so we have robust growth across certain
aspects of the business, you saw that in aerospace, but also, I think the more important
aspect on mix is really everything we’ve been doing in the background about addressing
the CoGS and the gross margin. So you’ve seen that positive impact. You saw our net
margin increase to 20.6% and you saw our guidance around 21%, so you can see that
positive move there. Much of that comes out of better new product pricing, it comes out
of the AP plan really delivering. You’re seeing we are actually delivering against that AP
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Tuesday 22th September 2026
plan, which is good to see when we have the rest of that to deliver the annualised benefits
this year coming through.
We’ve also got our general SE, Smiths Excellence, savings coming through. So, those are
all the reasons why you’ve got the drop through to around 21% going forward on that.
Jonathan Hurn (Analyst, Barclays): Great guys, thank you very much.
Closing remarks
Roland Carter: Well, thank you for joining us today. So, to summarise, fiscal year ’26
was a year of significant strategic progress and also resilient financial performance. We
are guiding to organic revenue growth of around 4% in fiscal year ’27 and operating margin
of around 21%.
We’ve laid out the growth priorities we’re focused on; accelerate, innovate, execute and
compound to deliver above market growth. Plus, the structural tailwinds in data centres
and global energy and also those positive portfolio developments in Flex-Tek. All these
support our strong conviction that we will more quickly move into our 5% to 7% organic
revenue target in the medium term.
Our next update to the market will be Q1 trading and the AGM on 18 November.
Thank you for your interest in Smiths.
[END]
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