Smiths Group H2 Earnings Call Highlights

Fiscal 2026 performance improved: Continuing-operations revenue grew 1.2% organically to £1.9 billion, while operating margin expanded to 20.6% and headline EPS rose 6% to 86.8 pence. Cash conversion reached 96%, and the full-year dividend increased 5.4% to 48.5 pence per share. Smiths completed a major portfolio reshaping by selling Smiths Interconnect and Smiths Detection for £3.3 billion in enterprise value, acquiring DRC Heat Transfer for £165 million, and pursuing the divestment of John Crane’s U.S. asbestos liability. DRC adds exposure to data-center cooling and other thermal-management markets. Fiscal 2027 guidance calls for about 4% organic revenue growth and a 21% operating margin, despite expected first-half Middle East disruption affecting John Crane. Smiths also has £1.5 billion of planned share repurchases remaining from the Detection sale, expected to be substantially completed by the end of calendar 2027. Smiths Group LON: SMIN reported organic revenue growth and margin expansion for fiscal 2026 while completing a major portfolio reshaping that left the company focused on its John Crane and Flex-Tek businesses. The company said it completed the sales of Smiths Interconnect and Smiths Detection, realizing £3.3 billion of enterprise value. It also acquired DRC Heat Transfer in April for £165 million, adding cooling and heat-removal technologies serving data center and power-generation markets, and agreed sales of three non-core Flex-Tek industrial businesses for £40 million. Management said it is also launching a marketing process to divest John Crane’s U.S. legacy asbestos liability. Chief Financial Officer Julian Fagge said the annual net cash outflow related to asbestos has averaged about £20 million over the past five years. The company said the initiative is intended to remove liabilities from its balance sheet, improve free cash flow and increase available capital. Fiscal 2026 Results Continuing-operations revenue rose 1.2% organically to £1.9 billion, while headline operating profit increased 1.9% organically to £399 million. Headline operating margin rose 20 basis points to 20.6% despite Middle East disruption, tariffs, lower volumes in certain markets and continued investment in growth initiatives. Headline earnings per share increased 6% to 86.8 pence. Total group headline EPS rose 12% to 135.7 pence, supported by underlying earnings growth, the performance of discontinued operations and share repurchases, partly offset by higher tax and finance costs. Operating cash flow totaled £384 million, representing cash conversion of 96%. The board recommended a final dividend of 33.5 pence per share, bringing the full-year dividend to 48.5 pence, up 5.4%. Return on capital employed was 23.5%, above the company’s medium-term target of more than 20%. Acquisitions added 2.6% to revenue growth, including DRC’s contribution since April. Smiths invested £64 million in research, development and engineering, equivalent to 3.3% of revenue, and spent £39 million on capital expenditures. Fagge said pricing actions, including in John Crane and Flex-Tek Aerospace, as well as savings from the Acceleration Plan and Smiths Excellence initiatives, supported margin performance. The company reported a £5 million reduction in central costs during the year. These benefits were partly offset by operating leverage, tariffs and increased spending on strategic growth projects. Middle East Disruption Weighed on John Crane John Crane’s revenue rose 2.3%, but the conflict in the Middle East reduced second-half performance by about £20 million. Excluding that effect, management said John Crane would have delivered 4% growth for the year and more tha...