Smiths Aktie

Welcome to the Smiths Q3 2026 Trading Update Conference Call. The call will be hosted by Julian Fagge, Chief Financial Officer at Smiths. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Julian Fagge, Chief Financial Officer at Smiths. Please go ahead.

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 3 trading update.

Smiths organic revenue was flat in the quarter, resulting in growth of 0.2% for the first 9 months. This was a resilient performance considering the disruption in global energy market, continued softness in U.S. construction and against a tough comparator in Flex-Tek.

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 GBP 10 million due to 2 months of disruption. Encouragingly, our order book continued to strengthen, and we delivered a positive book-to-bill.

In Flex-Tek, 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 4, supported by pricing initiatives and targeted customer wins.

Thermal 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 favorable comparator supports a return to growth in quarter 4.

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 Smiths 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 Smiths Excellence 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, and 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 Smiths Interconnect in the quarter. We agreed the sale of two of the Flex-Tek 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 center and power generation markets.

We [indiscernible] 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.

Thank you for listening, and I'm now happy to take questions.

[Operator Instructions] We will now take the first question from the line of Chitrita Sinha from JPMorgan.

I have two, please. My first is just on the Middle East disruption that you saw in Q3 and what you're assuming in terms of disruption in your full year guidance. I mean if I understand correctly from your comments, the organic growth guidance change is only due to the Middle East impact rather than any change in expectations elsewhere?

And then my second question is just on the updated margin guidance. You mentioned in the release that this is with the support of the acceleration plan and excellent savings. Could you provide a bit more color on the moving parts here? Should we expect a slightly higher run rate than the 50% for the plan this year?

Thanks, Chit, now happy to take those questions. So in terms of the Middle East, yes, we saw the disruption from the start of the conflict in Q3, and that had the GBP 10 million impact. We have 10 facilities in the region and all of those facilities were significantly impacted by events. We've been doing our very best to support customers through the time period. But of course, as you can expect, there's been quite significant disruption.

We've been unable to ship against the opening Q3 order book to some extent. And indeed, customers have not been in a position to accept those orders and those shipments. And equally, customers have not been in a position to place their normal level of book and ship orders that we would expect to see running through the quarter. So that's the impact and how it's come through. Things are stabilizing a little bit. But of course, the conflict remains, the straits remain closed, so disruption continues. And it will take time for the situation to improve, which is why we've modeled the effects through into quarter 4.

Yes, your part B of the question was, yes, that is -- those are the two factors that are driving the change in the revenue outlook. Flex-Tek came in line with expectations in Q3. We are expecting to see that improvement and pick up through quarter 4.

Yes, in terms of margins, your second question, the benefits of the acceleration plan will come through. They're unchanged versus our previous position. And just to remind you, the AP has a total cost of GBP 40 million to GBP 45 million with GBP 30 million to GBP 35 million of annualized benefits, and it remains half of those coming through in fiscal year '26. And just to remind you, a small single-digit number came through in fiscal year '25. But overall, we're just managing costs tightly and appropriately as we go through the balance of the year.

We will now take the next question from the line of Christian Hinderaker from Goldman Sachs.

I want to start on Flex-Tek and the guidance there, if I may. On my math, you need to see an organic growth number of north of 6.5% in the fourth quarter following the 2.9% decline in the third quarter. I guess the incremental here is on the construction and Heat kit side, principally. Maybe you can just walk through the assumptions there and whether my math is correct.

Morning Christian, thank you. Yes, so we will see this pickup in Flex-Tek in Q4. If I just unpick the three parts of the business there. So the business that will lead the pack is aerospace, we expect quite some significant continued growth in aerospace through Q4.

And just to remind you, we've said that the second half will grow faster than the first half there. I mean the drivers are a very well-covered order book, which we will be able to chip against, but we also have the benefit of three contract renewals that are delivering positive pricing through the business, which is manifesting itself through Q3. We have a further contract that's close to closing out, which will also deliver benefits. So we're in a good place on aerospace, and we anticipate that to continue nicely through into next year.

On the thermal side of the business, I mean, just to remind you, it grew 25% last year in Q3. So we're cycling up against that very challenging comparator. And as I mentioned, that's to do with the large contract, which is now finished -- so that was the challenge for Q3, but that's now less of an impact through into Q4.

We're also seeing now a bit of an improvement coming through on the OEM side of the business. So these are the heat kits that we sell into a major U.S. customer, and these are now picking up. And if you remember, it was this part of the business that challenged us in Q2. So we've seen a pickup through Q3 and further expectations through Q4. So that's better.

In construction, we saw an 8% growth in Q3 last year and a little bit of that strength was frankly, due to the cyber event. So as we recovered from that, we saw stronger growth in Q3 last year. So that challenged us a little in this year's Q3, but we expect that to pick up through into Q4. We're not necessarily seeing, as you'd expect, any market improvement, but Q4 does give you some seasonal benefit as housebuilding picks up generally. We've also got some positive pricing picking through that will go in, in Q4. And that's market pricing. It's not specific to us necessarily, and that's on the flex side of the business. So overall, a slightly more positive outlook for Flex as we go into Q4.

That's very thorough. Just on John Crane then and the Middle East effect, you've called out the EUR 10 million revenue impact. But presumably, you'll be carrying the overheads, maybe face some additional distribution costs. How do we think about the earnings impact from that EUR 10 million revenue loss in the quarter?

It's not been a significant under absorption for us. It's dropping through a normal gross margin, but we've been able to cover for that through opportunity elsewhere in the business and hence, our small improvement to our margin outlook for the full year. But nothing particular to focus on there, Christian.

[Operator Instructions] We will now take our next question from the line of Andrew Douglas from Jefferies.

Christian has stole my thunder, but just two quick ones. In terms of the pricing that you talked about in Commercial Aerospace in Flex-Tek, you said there's three contracts done, one to be done. Is that then all of the contracts that are being renegotiated? Or do we have more to come through in 2027 and beyond? I appreciate that you'll be doing them on a regular basis, but do we have a big uplift again in '27? Or is it just this year?

Thanks, Andy. No, you shouldn't expect to see a significant pickup through next year. I mean we do have many contracts in this business, but it was distinct that we had these four major contracts renewing through fiscal year '26.

And maybe just a little more color. Typically, in our aerospace business, these contracts are renegotiated every four to five years, and therefore, it presents that opportunity to not only price the order book, but also to win and negotiate different positions in the shipsets. So it's generally been a positive experience for us as we've navigated this year.

Perfect. And then just a little bit on M&A. apologies if I've missed this. How is DRC going now it's under the Smiths umbrella, what we found either positive or negative?

And in terms of the pipeline, what's the M&A pipeline look like? You got a very strong balance sheet, even though you're giving a tonne of cash back to shareholders, there's still plenty of opportunities for M&A. So just what's the pipeline looking like? And what are you guys thinking on that front?

Yes. So I'm very pleased with DRC. I mean, look, it's early days. We've owned the business for around a month now, but it's got off to a good start, and we're pleased with what we found. Just to remind you, I mean, the business has a very nice position supporting gensets or providing the cooling system for gensets for data centers. And clearly, that's a robust market, and we're seeing lots of opportunity.

I think the key thing that we will bring here is the opportunity to drive operational performance and unit output through some investments and also some focus on flow and improvement in the operations there. So that should see the strong potential for us to build and grow that business strongly as we move forward. So we're pleased with that.

On the pipeline, I think we've been relatively consistent here to say that we see bolt-on M&A as an important part of our strategy. We expect that to continue as we move forward. We do have a nice robust pipeline across John Crane and Flex-Tek, and we do see opportunity there. But just to say, of course, we will always be very careful about where we allocate capital, the areas where we invest and the price that we pay to deliver good returns. But as you know, it's been quite a nice success story across Flex-Tek over the last few years. So we hope that, that continues as we move forward.

We will now take the next question from the line of Bowin Tucker from Bloomberg Intelligence.

I just have one on John Crane, where you said there is $10 million worth of impact on your 3Q sales. Could you please share what you are assuming for 4Q? Is it a bit higher than 3Q or at the same level as 3Q?

Thanks for your question. We've said that we expect the Q4 impact to be similar to that of Q3, so around the EUR 10 million. Obviously, we can't anticipate an end to the conflict, and we all hope that, that happens. But for now, we're assuming that, that continues through Q4.

Maybe worth taking the opportunity to note that at the point in which the conflict ends, it will take some time for recovery to come through. I mean, clearly, we'll be supporting customers strongly as they require certain work from John Crane to help build back and reopen facilities. But it will take time. It's not an easy and quick fix for us.

So as you think that through, just bear that in mind. And I will just take the opportunity to note, of course, that the longer-term benefits coming from the crisis, and I think particularly the world's renewed focus on energy security and the requirement for facilities to build resilience into their operations does present an opportunity for John Crane, particularly given the strength and focus on our aftermarket. Which ultimately we see as an opportunity or a positive benefit for the business going forward.

But I will reiterate, it will take time, and I don't think we should be expecting to see a sharp bounce back in anything as we look out.

And just one more, if I can follow up with your acquisition of DRC. What is the growth rate that we can assume for this business going forward, given like the genset makers are seeing double-digit momentum right now? Shall we expect something similar for DRC as well.

Yes. We're not going to give a guide on the growth of the individual business right now. I hope you understand that. But look, I think your assumptions in terms of tracking us up against how genset providers are performing is a sensible one. And clearly, that was a key driver of the decision to acquire this business.

We will now take the next question from the line of Jonathan Hurn from Barclays.

Just one question for me. Just essentially following up on John Crane. So I just wonder if you could just give us a feel for John Crane in terms of the order book for '27. How much of your John Crane order book is from the Middle East for delivery in '27, please?

Thanks, Jonathan. So just to remind you, about 12% John Crane is derived from the Middle East. And we don't break down our order book regionally nor do we give detailed growth rates. So please excuse us for that. But what we have seen, and I think we've noted it, is that we saw a positive book-to-bill in Q3. And look, I think when you break it down, you're seeing variable factors running through the business at the moment, both sort of positive and negative.

And I think that's what we should expect as we look out. I mean, clearly, a require for strength for more resilient we would expect to deliver opportunity for us as we look out into next year as operations and refineries and facilities around the world look to build out their capacity or take advantage of full capacity. We'll see some regional differences. We've seen particular strength this year, particularly in Latin America and in North America. In APAC, a region which is very dependent on Middle East feedstock, there are some challenges there that may continue.

And I think at this stage, it's a little uncertain as to how Europe will respond, what energy security means for Europe. So it's going to be quite a complicated story. But overall, I think we've clearly seen some order impact particularly in the Middle East so far, and I expect that will continue and present some challenges as we go into the first half. But it's a pretty fluid situation, and we'll keep updating as we go.

We will now take the next question from the line of Emanuele Sartori from Kepler Cheuvreux.

I just have two, please. I'm sorry to touch on this again. Just on the Middle East impact again. Just wondering if you expect this disorder disruption to be recovered somewhat in H1 next year and also the amount that it's going to be disrupted in Q4. So just trying to understand if it's lost or orders build of timing there as well? And also here as well, what portion of orders are impacted. So it's just -- it's mainly OEM related or also aftermarket?

And then my second question is just touching on the central costs. So if you can give a bit more color on the central cost run rate for '26 or '27 post disposal, futures and et cetera?

Thanks, Emanuele. So yes, so the impact on the Middle East, I mean, largely, the order impact has been in the aftermarket. So -- and as I mentioned, we came into the Q3 with an opening order book and delivering against that has been challenging. As I said before, we've had a drop in some of that book and bill order and delivery that you'd normally expect to see. So that's been a factor. As we look out and we all wish for an end to the conflict, the -- you shouldn't expect to see a sharp bounce back, but you should expect to see us supporting our customers to our very great ability to help them get back online. But in many cases, it really could take some time for them to come back online.

So we're obviously not providing any guidance today on next year nor indeed the first half, second half split. But I don't expect to see this sharp bounce back that perhaps you might think could happen.

In terms of central costs, I mean, this year is the year of transition. We still had to carry quite a significant portion of the central costs for all four of our businesses prior to their completion and separation. So this year is a little bit mixed, but we've guided going forward that we expect to get our central costs down to around 1.7% of revenue, and we anticipate getting there pretty quickly as we enter into fiscal year '27.

There are no further questions at this time. I would now like to turn the conference back to Julian Fagge for closing remarks.

Well, thank you very much. Thanks for your time this morning. And just to remind you, our full year fiscal year '26 results will come out on the 22nd of September. And as ever, the Investor Relations team here is available to discuss if you have further questions. Thank you very much.

[Presentation]

What a wonderful video to start. So I'd like to welcome people to the Smiths Group investor presentation.

Today, we're joined by Siobhan Andrews, who's the Head of Investor Relations; and Ana Pita da Veiga, who is the Senior Investor Relations Manager.

Questions are encouraged throughout this webinar and can be submitted via the Q&A box situated in the panel on the right-hand side of your screen.

I'd now like to hand over to Siobhan to begin the presentation. Siobhan, over to you.

Great. Thank you very much, and good afternoon, everyone, and thank you for joining us today. We'll cover an overview of Smiths first, including our strategic actions to reposition the portfolio, which we launched last year, and then we'll provide an update on our recent performance, having announced our H1 results last month. And then as Scott said, we'll have plenty of time at the end for Q&A.

We could go to the next slide. Thank you. Being around since 1851 and listed on the FTSE for more than 100 years. Today, we are an GBP 8 billion market cap industrial engineering company. Our technology helps our customers every day solve their most challenging engineering problems. You'll find Smiths products across a range of settings. John Crane's highly engineered seals are present in energy projects globally and Flex-Tek's HVAC products heating, ventilation, air conditioning products are in 50% of the houses in the U.S. markets.

Today, Smiths generates around GBP 1.9 billion in revenue and around GBP 390 million in operating profits. We are a truly global business with almost 11,000 employees across the world.

We can go to the next slide. 2026 marks a significant year of progress for us as we reposition Smiths towards higher growth and higher returns markets. We are focusing Smiths on its high-performance technology businesses for efficient flow control and thermal solutions through John Crane and Flex-Tek. They have complementary business models and financial profile offering a significant potential for growth and value creation. They operate in attractive markets, have a high level of recurring revenue and expansion opportunities both from an organic and inorganic perspective. These businesses are customer-centric with leading positions in growing markets.

As a reminder, John Crane provides highly engineered seals and associated products and aftermarket services to both energy and industrial customers. The performance of these seals are critical to our customers' operations in supporting uptime, safety and reliability. John Crane has a long and strong reputation of quality and service capability, which positions them as a market leader in their space.

Flex-Tek supplies multi-ducting and tubing, which enables heating and cooling of buildings through HVAC systems, industrial process heating and cooling solutions and fluid and gas conveyance in aircraft. Their strong customer relationships, nationwide presence in the U.S., innovative products and reputation for quality and reliability, all contribute to a strong market position.

Our businesses have a strong through-cycle financial track record with momentum, and this is underpinned by our disciplined capital allocation policy and enhanced shareholder returns. We have a sizable share buyback program currently underway and further returns to come.

Next slide. To focus the portfolio on John Crane and Flex-Tek, in January of last year, we announced a number of strategic actions. This decision reflected a recognition that despite an improved track record of performance, Smiths shares traded at a notable discount to the high-quality peers in this sector, with the value inherent in our businesses not fully recognized by the market. To unlock this value, a decision was made to separate Smiths Interconnect via a sale and Smiths Detection via either sale or demerger.

During the first half of our fiscal year 2026, we executed these major portfolio actions. We agreed the sales of both Interconnect and Detection ahead of schedule for a total value of GBP 3.3 billion. And these were at highly attractive multiples that were above market expectations. The sale of Interconnect is now completed, and we remain on track to complete Detection before the end of this calendar year. Both businesses have now been reported as discontinued operations in our results.

Next slide. The proceeds from these 2 transactions support substantial capital returns. We've already begun returning the Interconnect proceeds through a GBP 1 billion share buyback program, which we initiated in December last year. And that builds on the GBP 500 million buyback that we completed prior to that.

For the Detection proceeds, we expect to return a further GBP 1.5 billion. This will be through a combination of a structured return either in the form of a tender offer or a special dividend plus a further share buyback to continue through 2027. We look forward to sharing the details of this in due course.

Our approach is consistent, invest for growth, allocate capital smartly and then return surplus capital to shareholders efficiently.

Next slide. Following the separation, Smiths will be a focused industrial engineering company. We specialize in high-performance technologies in flow control and thermal solutions. We hold leading positions in attractive market subsegments that are aligned to long-term structural megatrends. We are well regarded for the quality of our products, our technologies and solutions, and we are admired for our skills in customization, customer service and our ability to help solve customer problems. We have a portfolio of well-known leading brands with a reputation for innovative and reliable products. We have valued customer relationships which, together with our high-performing culture and a strong financial profile mean we are well positioned to grow faster than the markets in which we operate.

Let me drill a little bit deeper into the growth opportunities in each of our businesses.

If we go to the next slide. Around 60% of John Crane operates in the Flow Control segment of the global energy market, where growth is underpinned by demand for energy security, energy transition and a continuing demand for efficiency and reliability. 40% of John Crane serves other industrial markets such as mining and pulp and paper, which also enjoy similar characteristics. Our growth strategy for John Crane is focused on our strengths in downstream and midstream energy, where we see considerable runway before the world reaches peak oil and gas. We also have a leading position in energy transition and are well positioned to take advantage of the high levels of growth in areas such as hydrogen, geothermal and carbon capture and storage.

In Flex-Tek, while the U.S. construction market is soft in the near term, its future prospects remain favorable. We see increased demand for housing, which is expected to expand with population growth and the shortage of homes in the U.S. markets.

In thermal solutions, the industrial electrification trend is a key driver supporting emissions reduction, improved safety and efficiency and spans industrial markets. Demand is also underpinned by customers' desire to have a single integrated customized solution. Energy demand is also a key underpin, especially for higher performance and efficient heating and cooling.

In Aerospace, rising air travel is driven by increased trade, GDP and population growth, and this supports a continued increase in commercial aircraft production. And heightened security concerns support an increase in defense spending, also increasing demand for new aircraft.

In our key end markets, these trends underpinned a market CAGR forecast of 4% to 5% over the next decade. Our customer market-led approach ensures we fully leverage our leading market positions and the underlying growth trends to drive performance and take advantage of these multiyear tailwinds.

Next slide. 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. We have set out the initiatives we are focusing on to drive this enhanced growth. Leveraging our existing portfolio and long-term customer relationships, driving innovation through new product development and commercialization, driving commercial and operational excellence and accessing higher growth and higher market adjacencies, both organically and through targeted acquisitions. We lay out here our strategic approach within each of our businesses and highlight a few examples.

Pricing is another key area of focus to ensure we capture price that reflects the value we deliver for our customers and also underpins future growth. This multifaceted approach ensures that we remain well positioned to outperform in our markets over the medium term, supporting our 5% to 7% organic revenue growth targets.

Next slide. On this slide, we have set out some examples of the initiatives we have recently executed. John Crane signed a multiyear reliability management agreement with a major energy company improving their equipment reliability and standardizing performance across their global operations.

Flex-Tek extended a 30-year partnership with a space customer and is renegotiating its long-term agreements with major aircraft engine manufacturers. These agreements grow and sustain recurring revenue and customer intimacy across the cycle.

In innovation, John Crane recently launched its coaxial separation seal, which sets a new benchmark in its category and has had positive take-up with customers. Flex-Tek's Blue series offers enhanced emissions control and ease of installation and has also been well received by their customers.

Operationally, investments in automation and machining upgrades, most notably at John Crane improved delivery and lead times. This helps us capture orders and price and expand market share, supporting growth.

And finally, accessing market adjacencies. Here, we have initiated our thermal solution strategy in Flex-Tek to access high-growth market subsegments.

Next slide. To drive growth [Technical Difficulty] active acquisition strategy to supplement our organic revenue growth. This has particularly been the case of Flex-Tek where we have made a number of acquisitions to broaden our geographic position in construction and extend our product offering, particularly in heating and cooling solutions. The combination of organic and inorganic growth has led to a more than 13% CAGR in revenue and the business more than doubling in scale since 2017.

Our most recent acquisition was DRC, which completed earlier this month. DRC designs heat transfer and cooling solutions for data centers, general industrial, transit and energy. Strategically, it adds heat removal cooling to Flex-Tek's industrial heat portfolio. It increases our addressable market and creates clear cross-selling opportunities for our heating technologies. It is aligned with data center expansion and power backup applications, both attractive, structural trends with a strong growth outlook. This is disciplined, accretive growth and aligned with our strategy of accessing high-growth market adjacencies.

If we turn to the next slide, we're now going to look at margins. Supporting the delivery of our medium-term market -- medium-term margin target is our acceleration plan. This encompasses discrete initiatives focused on delivering productivity and capability enhancements. We expected to deliver GBP 30 million to GBP 35 million of annualized benefits in fiscal year 2027 and beyond for a total of GBP 40 million to GBP 45 million of costs. Around half of those benefits are expected to be achieved this fiscal year.

We highlight here some of the initiatives underway in both John Crane and Flex-Tek and we are also working on programs to maintain our central costs at 1.5% to 1.7% of revenue. These are all examples of our strategy in action that will propel us towards and medium-term targets.

And on the next slide, we set out these targets. Organic revenue growth of 5% to 7%, EPS growth of more than 10%, operating margin of 21% to 23%, a return on capital employed above 20%. And operating cash conversion around 100%. We are reshaping Smiths into a focused, faster-growing, higher-margin company with clear growth pillars, higher returns, disciplined capital allocation and substantial value creation potential. This is how we will deliver enhanced returns and support a premium rating for Smiths.

FY 2026 represents a transition year as we reposition the portfolio, and we remain confident in our ability to reach these enhanced through-cycle and medium-term targets. We continue to make progress towards them supported by our disciplined and balanced approach to capital allocation, which we set out on the next slide.

This approach continues to support growth, returns and balance sheet efficiency. We invest around 3% to 4% of revenue in RD&E, research, development and engineering and 2% to 3% in CapEx, investing for future growth and efficiency. We invest in disciplined bolt-on M&A, focused on our core and adjacencies to accelerate growth and create scale. We continue our track record of consistent dividend growth with recent increases of around 5%. We have a policy of returning surplus capital to shareholders.

To date, we have completed GBP 460 million of the planned GBP 1 billion buyback, the Interconnect proceeds, and we expect this to be substantially complete by the end of calendar year 2026 with the first tranche of GBP 600 million by the end of this fiscal year, which finishes in July. A further GBP 1.5 billion will be returned from the Detection proceeds following the completion of the current program and will continue through calendar year 2027.

As I mentioned earlier, we'll update further on the precise mechanism and timing once the divestment completes. Our balance sheet remains strong and we remain committed to a solid investment grade credit rating.

Next slide. Our performance rests on the same foundations that have driven us forward throughout our history of 175 years, as you saw in the video earlier. Firstly, products and service innovation that delivers reliability, efficiency and safety for our customers. Second, a high-performing culture with clear accountability and ownership. Third, operational excellence with our Smiths Excellence framework driving continuous improvement to ensure lean and effective operational execution, and all of it underpinned by Smiths values which we have recently refreshed. And you can see. These foundations are what bind us together to remain focused on delivering value for all our stakeholders.

Let me now hand over to Ana, who will run through our recent financial performance. Thank you.

Thank you, Siobhan. On this slide, the strength that Siobhan has walked you through earlier, have translated into impressive performance over the last 4 years. As you can see here, Smiths has built a track record of top line growth with an average of around 7%, improving profit margins to around 19% and strong return on capital employed in the low to mid-20s, all whilst maintaining strong cash conversion. We believe this financial profile alongside the new medium-term targets illustrated earlier, commanded premium rating for Smiths.

Looking at the next slide, we will talk about our most recent financial performance for the first half of 2026. Smiths delivered organic revenue growth of 0.4%, starting with John Crane. Our mechanical seals business grew 2% in the first half, with momentum building across the half and led by growth in energy. Q2 registered growth in the mid-single digits on the back of a strong order book and improvement in operational execution following the automation and machining capacity upgrades. Performance in Industrial was lower as a result of overcapacity in Chinese chemicals, partly offset by strength in mining and pulp and paper in the Americas.

Aftermarket, which makes around 70% of revenue was strong with increased focus on reliability-based contracts. Sales of original equipment performed solidly particularly in the U.S. and Latin America. John Crane margin expanded 50 basis points to 23.2%, reflecting positive pricing, mix benefits from higher aftermarket growth and Smiths Excellence and acceleration plan benefits offsetting a limited impact from U.S. tariffs.

Moving to Flex-Tek. These results exclude certain industrial businesses, which have been classified as discontinued operations in our decision to focus the business on higher growth and higher-margin sub-segments. Organic revenue for the first half declined 2% with acquisitions delivering growth of 3.4%. The decline in construction reflected our performance in line with the U.S. residential construction market, which remained challenged with housing starts and building permits still negative.

The thermal solutions business declined largely due to the destocking of heat kits of a large customer. This was partly offset by the completion of a large ultra-high heat contract.

Aerospace grew strongly at 10.1%, supported by a full and growing order book across both commercial and defense aircraft build programs.

Operating margin was 20.4%, a 60 basis point decrease compared to last year. This reflected a negative drop-through from lower volumes, the completion of the higher-margin ultra-high heat contract and higher materials costs. This was partly offset by efficiency savings and the initial benefits from the acceleration plan.

Moving to the next slide. We show the outlook for the year. First, it's worth noting that our guidance excludes any impact from the conflict in Iran and surrounding countries. Our main priority is the safety of our people who work in the region. As of the first half, the Middle East region contributed to around 7% of revenue, primarily in John Crane. We are mindful of the uncertainty these events brings, and we continue to monitor developments alongside the potential size and duration of any impact on performance.

In March, we issued a newly defined outlook for Smiths, as John Crane and Flex-Tek following the separations. We expect organic revenue growth of 3% to 4% with second half weighted as originally expected. John Crane entered the second half with momentum supported by a strong order book and a positive book-to-bill.

In Flex-Tek, we expect a stronger second half, driven by continued strength in aerospace, supported by order book visibility and new contract positions. The pace of recovery in U.S. residential construction remains uncertain, and we are driving the business to try and outperform this market. Flex-Tek is well positioned to benefit when the market returns.

We expect operating profit margin of around 20%, progressing nicely towards our new medium target range. These will be driven by operating leverage, benefits from the acceleration plan, and ongoing efficiencies from Smiths Excellence.

Finally, we expect cash conversion to be around the low to mid 90%, reflecting continued investment for growth and strong underlying cash position.

Moving to the next slide. In summary, we have delivered excellent strategic progress, unlocking notable value in the portfolio. We have a strong financial track record and delivered a solid half with momentum into the second half, also supported by our strong order book. We are deploying capital in a disciplined manner in growth and value-accretive acquisitions and see further opportunities on this front while enabling sizable capital returns. We are well positioned in structurally growing end markets with attractive demand trends and are leveraging our strengths and capabilities to outperform this market growth.

We are confident that Smiths is well positioned to continue unlocking significant value and enhance returns to shareholders.

Thank you for listening. We are now ready to take your questions.

Thank you so much to Ana and Siobhan for the presentation today.

We've had a number of questions that have been pre-submitted and also submitted live. And just a reminder to people if you'd like to ask a question, please do so by typing it into the Q&A box situated on the right-hand side of your screen.

The first question we're going to today is, what's the priority? Is it dividends, buybacks or reinvesting?

Okay. Thank you for your question. As I laid out in our capital allocation policy, the primary route is to reinvest back into the business to continue to develop new products, support our customers and underpin future growth. So sort of the 3% to 4% in that product innovation and commercialization and then 2% to 3% in CapEx. Then on that, we will look for potential acquisition opportunities.

Last year, I think we spent about GBP 121 million on 3 acquisitions within Flex-Tek and the DRC acquisition that we completed at the start of this month was GBP 164 million. So we're spending in that sort of range in any typical year on small bolt-on acquisition opportunities in our core markets or in very close adjacencies.

The dividend policy is a progressive one. So as I said, the last few years have been 5%, and we've been paying a dividend for more than 70 years, I believe it is. So a consistent performance there. And then when we have surplus capital, we would actually looking to return it to shareholders. So with notable buybacks, currently underway and more to come. So that's where we have sort of surplus capital. But the primary focus is driving growth within our businesses.

The next question is, what are the key growth drivers for Smiths Group in the coming years across its core segments? And how is the company positioning itself to take advantage of opportunities in the global energy transition?

So I think I ran through quite a lot in detail sort of growth drivers. The trends that we're seeing within our markets be that electrification, energy demand, energy transition is indeed one of those trends that we're seeing that are structurally underpinning the demand and growth within our markets that will deliver that sort of 4% to 5% over the next decade. But we want to do better than that. So we're leveraging our own positions, whether that's our positions with our customers, in terms of our products, to drive growth above that.

So for example, within John Crane, for example, one of the areas that we are looking to push further into its reliability maintenance contracts to grow our aftermarket services and solutions there. Are there particular geographies that we are seeing a higher growth that we can sort of expand further into? Latin America is an area of strong growth at the moment. Are there industrial markets that we could be more strongly positioned and where there's better growth. So I think we're looking at our own portfolio as well to drive that growth.

Within Aerospace and Flex-Tek, we've been renegotiating some of our long-term agreements with aircraft manufacturers, which will help support future growth. In the construction market, which is somewhat challenged, at the moment, we're really looking to ways to continue to underpin or improve our performance against that challenged backdrop by working with our distributors, who we have very strong relationships. And again, looking at white spaces or geographies that we may be underrepresented in that we can sort of tap into to drive growth.

Energy transition is quite an area of interest for us because it's growing faster than sort of typical energy demand. So I think we're well positioned. We have a strong pipeline of opportunities that we look at, particularly in carbon capture and storage, in hydrogen, we're well positioned in LNG, which some see as a transition fuel.

Recently, in our results, in March, we highlighted a couple of key areas where we had some successes, a new carbon dioxide compression facility in North Wales, where they're basically taking carbon dioxide from industrial plants in the region and storing it in depleted offshore fields. So we are able to supply dry gas seals. So that project.

And then in the U.S., a geothermal power generation project. We provided a suite of sealing technologies for that. So I think we're very well positioned to capture growth in that area. We've got a good reputation. We've got great products. We've got service capability, and that's really helping support customers in those type of projects.

Next question is what recent innovations or technologies differentiate Smiths from its competitors? And could you provide an insight into the company's financial performance outlook for the next 1 to 3 years?

Yes. Ana, do you want to take the second one on performance outlook, and I'll just highlight a couple of technologies that we've been delivering on. So I mentioned a couple in the presentation, John Crane's coaxial separation seal has been sort of well received by customers. It really is a strong performer in terms of nitrogen management, emissions control, could operate at extreme temperatures and pressures. So that's been well received by customers.

We have a sealed duct system in Flex-Tek which is their Blue Series. This has zero emissions, much easier to install in a house HVAC system. And when skilled labor is that is quite hard to come by having something that's easy to install and ensure zero emissions for the customer, the people who own the house, ultimately, is a key attraction for those. So there were a couple of examples of products that we brought to market in the last year or so.

Yes. And in terms of the financial performance outlook for the next few years, this really are backed by our track record that I illustrated earlier. So Smiths has been boxed in history saying that it was a low growth company and in the last 4 or 5 years, we've really demonstrated that we can really execute our strategy and our operations to make sure that we deliver consistent growth, which is really what underpins the medium-term targets that we outlined in the presentation.

So over the next, maybe not 1 to 3 years, but over the next 3 to 5 years, medium term, we expect to grow in the 5% to 7%. We expect to deliver margins in the 21% to 23%. And the thing is that once we are in that 21% to 23% margin range, which is really what premium capital goods companies trade at. Then we have an ability to reinvest for growth again. So from a business decision point of view, you could decide to increase margin further into the 24% or 25% or think about what is market going to reward more for, which is growth. So we have that trade-off that we have -- or the optionality of experiencing that we haven't had in the past.

Moving on to our next question. So Flex-Tek organic revenue was down 2% with construction minus 5.8% and Thermal Solutions minus 7.8%. And in brackets, we hear, we've got customer destocking of heat kits. How far through the U.S. construction destocking cycle are you? And what's your read on when the U.S. housing market recovery inflects into Flex-Tek revenue?

Well, that's the $64 million question, right? So the heat kits issue was primarily a one customer destocking effect. So the customer in question, increased their demand last year quite notably, and then it came off this year. So that destocking effect will unwind in the second half will be much more muted in the second half. I think the crystal ball on when the construction market comes back is quite difficult to see through at the moment. I've just come back from the U.S. doing marketing trip at East and West Coast and even the investors there weren't quite clear when that picks up.

I think there is a common view that the market needs new homes. There is a shortage of affordable housing, most notably in the U.S. market. And we're predominantly sell into new builds rather than sort of retrofit. So there's a view that the market needs new homes. So longer term, we're well prepared for that or well positioned for that. But exactly when it turns is quite difficult to predict. We monitor the key metrics we look at is mortgage rates. They dipped below the magic 6% for a matter of days, but have now sort of headed back north above them. So that makes affordability a key issue of discussion both at a sort of micro level, but also a macro governmental level as well.

We look at building starts, housing permits and builders' confidence and all 3 of those metrics have been quite challenged. So that's why we've been sort of quite cautious on the outlook there. As I mentioned in the presentation, we're looking at -- and mentioned, I think to drive growth in this challenged market by making sure we're working closely with our distributors, looking into white spaces where there's opportunities. But it's quite difficult to predict exactly when it comes back. But when it does, we're well positioned.

You are reshaping the business currently. In simple terms, what does Smiths look like in a few years' time?

Yes. So in a few years' time, Smiths will continue to manufacture critical engineering products. It will still have a high proportion of aftermarket revenue. It will be more focused, it will be more resilient. It will have more stable cash flow generation, and it will continue to be a leader in the market as it has been. John Crane is market leader. We manufacture critical components in energy security, the demand trends are strong.

So going forward, you would have a faster growing, more resilient, higher margin, higher returns company that with an ability to grow and demonstrate consistent execution.

Now once the Detection exit closes, Smiths becomes a pure John Crane and Flex-Tek story. How is the new Smiths investment proposition landing with long-only investors who bought Smiths as a diversified industrial? And do you expect much rotation in the share register?

Interesting question. We have been out on the road meeting a lot of investors. I think in 2025, we increased the number of -- number of investor meetings we had by 50%. So there has been an awful lot of interest in the story as a result of the strategic actions that we have taken. I would say, generally, we have a supportive shareholder base. I think people appreciate the quality of the businesses and even the businesses we've exited. We haven't separated Interconnect and Detection from a -- because we didn't like the businesses and we've actually exited them a position of good strength. They were the ones that grew the most in the last year or so.

So there were strong quality businesses, but I think there was a reflection that the margin performance and returns performance of Smiths with 4 businesses was lower than the opportunity with just John Crane and Flex-Tek. So supportive shareholder base, a lot more interest given the change in the portfolio. And I think there was -- there are some people who didn't want to diversify their investment in one stock across 4 different businesses. And like the focus now that the Smiths, new Smiths brings to the portfolio. Inevitably, there will be people that have made a return because they've been long-term shareholders, more value-based oriented investors that may have exited, but we're seeing new people come on to the register.

So we're excited to speak to new investors, meet with new prospective investors and articulate the story. So there's been a bit of a shift. But I would say there's been a lot more interest in the story over the last 18 months and new people coming on to the register, which we -- exciting for us.

And are there any plans for expansion into new markets or sectors?

We like John Crane, and we like Flex-Tek. There is no view of adding a third leg. So any investments we make, the inorganic opportunities will be either in our core markets, or in very close adjacencies. The most recent acquisition at Flex-Tek of DRC was actually in cooling technologies. We provide heating technologies. But ultimately, a customer wants temperature management. They don't necessarily want heating or cooling. They just want the temperature at the right level.

So that was a nice adjacency that we can now cross-sell our heating technologies into those customers and cooling solutions vice versa. So the plan is to stay with where we know, where we've got strong products, strong relationships, great service capability. If you think about John Crane, it's got a vast network of service capability around the globe, which is one of our key calling cards. And we want to leverage those positions and invest in those and in close adjacencies. So there won't be a shift away from that in any way, great shape or form.

And of course the one thing you...

Sorry, I was just going to say in terms of markets, maybe geographically, I think as I mentioned, from a growth perspective, there may be geographies that we want to increase our exposure to. So from a geographic point of view, and if you think about the acquisition strategy in Flex-Tek, that has really been about geographic expansion. We're in the sort of -- on the construction side, we're in the sort of southern states that we've been pushing further northwards, with the acquisition of Duc-Pac we made last year, we moved more into California with the Modular Metal acquisition. So from a geographic play, yes, but in terms of end market exposure, not too far from our home core.

No problem at all. What was the one thing you'd say investors are missing about the story?

Yes, great question. So I think there are 2 aspects to that. As Siobhan said, there have been quite a few people who had not followed Smiths closely in the last few years. So obviously, as the equity story has changed, there's renewed interest about what the business is and also coming from being a 4 business company to a 2 business company, if you like, then people are going deeper and trying to understand the sub layers within John Crane and Flex-Tek and what are the growth prospects of that.

And then in relation to that, there are still question marks of our growth targets. So some people have asked us for very detailed bridges on how we're going to deliver the 5% growth. Again, we are confident that we can achieve those levels of growth over this cycle, over the medium term. So -- but there's -- people always ask for evidence about it. So it's a little bit of wait and see for some people.

That said, we -- as Siobhan was saying, we have a very supportive shareholder base who are happy to support us as we go through this journey.

Next question is, what are the main risks currently facing the business? And how is management addressing them?

I think the risks are more macro because we don't have the control of that. So and also the construction market in the U.S. has been challenged as to the earlier question, it's not quite clear when that market is going to turn. So -- but we need to continue to drive the business forward to try and -- to hit growth even in a more challenged backdrop. So as I mentioned, we're working with distributors tapping into white spaces. Controlling costs, obviously, because if your volume is volume and growth is not coming through as you would like because of the market backdrop, you need to make sure our costs are kept within control.

So I think it's more from a macro point of view. Obviously, the conflict in the Middle East is another risk that we need to manage. It will no doubt cause short-term disruption and impact in some way but it also creates opportunity. Energy security will become front and center for the world, but we need to manage and support with our customers through this sort of interim period where there will be disruption. So I think there's lots of things we can control in terms of driving new product development, keeping costs under control, delivering on our acceleration plan benefits. So I think we worry more about the things we can't control, which are more macro related. So -- but we continue to push the business forward to operate in that environment.

Following the Detection disposal, will there be a drag from the central overhead as the overall revenue base is lower? And if so, how do you plan to mitigate that?

Yes. And that's one of the things the acceleration plan is poised to deliver on. So as I mentioned in the presentation, the acceleration plan has got initiatives underway in John Crane and in Flex-Tek, but we've also got programs to address the central costs because obviously, if you go from 4 businesses to 2, you need to make sure that you have a center-light to support the smaller number of businesses within the portfolio. And these may be simple things where somebody leaves and they're not replaced. There are roles that get combined. So it is definitely something that we are focusing on.

I think at the moment, the central costs are about 2.2%, 2.3% of revenue, and we've made a commitment to keep or to maintain them at 1.5% to 1.7% of revenue going forward. So that's definitely part of the acceleration plan coming through. And that will be, of course, one of the drivers to get to our 21% to 23% margin target over the medium term.

Next question is, how does Smiths Group approach sustainability and ESG initiatives across its operations?

Yes. So sustainability and also our Smiths Excellence or a continuous investment improvement program are more important than ever. About a year ago or so, we combined the functions of sustainability and Smiths Excellence or continuous improvement, health and safety and culture under one leadership. This is because we recognize the importance of these areas and people working together to provide continuity and purpose in delivering the cultural objectives. It's -- we think it's a really powerful combination. And we have examples whereby the sustainability and continuous improvement working together in projects to deliver more efficient but also more sustainable processes. So building these connections and collaborations to leverage our current capabilities is key and to enable consistent strategy execution to support our growth and drive performance.

From a sustainability point of view, we are committed to have net zero by 2040 for Scope 1 and 2, by 2050, for Scope 3. Our targets and plans have been validated by SBTi. And we -- last year, we made very good progress on all of the metrics. We also have AAA rating from MSCI and really good rating sustainability at 29.4, and we are ISS prime rating. Our executive team is deeply involved in this. There also their remuneration is linked to energy reduction. And from a health and safety point of view, for example, is the first item on the agenda that we discuss at every monthly operating review. So [ HS ] and STEM talent is something that our CEO is particularly keen on fostering.

Next question is, are you quietly positioning the company to be broken up or taken over?

We like John Crane, and we like Flex-Tek. We see opportunities to drive growth in both the businesses where we see opportunities to expand margin, improve returns. And we see inorganic opportunities. We have a pipeline of opportunities that we look at on the M&A side to enhance those businesses. So we think we've got a lot of opportunity within our portfolio today to continue to drive forward and create value for all of our stakeholders. So that is our focus. And that's what we're sort of all working towards. So that is the primary plan to work towards delivering the opportunity set within our portfolio.

Now of course, the decision to divest Interconnect and Detection, yes, that's not an easy decision to make. It's actually interesting that our CEO run both those businesses at different times. So there's a sort of emotional pull towards those businesses, but ultimately made the right rational, value-creative decision for the business. If you look at where the Smiths share price is trading, it was probably around 9 or 10x EBITDA. We're now trading 13-ish sort of times. So we've already improved the valuation by making that announcement. As I said, we've got a lot of opportunities to deliver in the portfolio today.

The Board is very much supportive of that decision. We will make the right value-based decisions going forward. But the plan A is to take Crane and Flex-Tek -- John Crane and Flex-Tek forward and deliver on the opportunity set within those 2 businesses in terms of growth, margin returns and improved margin.

Now we're moving on to our final question for today. If you have any further questions, please e-mail the team. Who will respond to any questions that weren't covered this afternoon.

The question is, what is the natural peer group for new Smiths to extend it, it is more skewed to the U.S.? Or would you consider moving the listing to the U.S. as we have seen with other U.K. listed companies?

Yes. So I mean our natural peer group, I mean if you look at most industrial companies, they've got a diversity of end markets and products that they're focusing. So there's not always natural peer groups. We have peers for John Crane, and we have peers for Flex-Tek. We often get compared to the other U.K. listed peer companies because we're competing for capital with those businesses. So there's not sort of one company that you can necessarily point to.

Interestingly, despite us moving from 4 businesses just to 2, the proportion of our revenue, which is exposed to the U.S. market, doesn't change dramatically. It's in the sort of mid-40s percent sort of level. We look at all value-creating opportunities and potential. So of course, the Board has considered whether moving A listing would be the right thing to do because that's one of the opportunities that other companies, as you said, have tapped into.

For us, we like the U.K. as a home market, just by shifting your home market from here to here, doesn't necessarily see you naturally get an uplift in valuation multiples. And indeed, there are U.K. listed companies that trade at substantially higher multiples than where we are trading at. We have a lot of nice lovely U.K.-based shareholders that would potentially not be able to own us in the U.S. market. And if we move to the U.S. market, we would be a much smaller company in -- okay, in a bigger pond, but we'd be competing with a lot more industrial peers.

So of course, it's something we look at. There are no plans to change it. We like where we are. So -- that of course, it's something the Board keeps in mind.

Thank you. Siobhan, with no further questions at the moment. So maybe if I could hand back to you, Siobhan, for any closing remarks.

Right. I just wanted to say thank you very much for listening. Thank you very much for your questions. Please feel free to reach out to myself and to Ana, if you have any further follow-ups or would like to engage with us further.

And thank you very much for hosting us. Thank you.

Thanks very much. I'd like to thank Ana and Siobhan for joining us today. That concludes the Smiths Group investor presentation. If you could please take a moment to fill in the short survey following this event. The recording of the presentation will be made available at Engage Investor, and I hope you've enjoyed today's webinar. Thanks very much for your time today.

Good morning, everyone, and thank you for joining us. I hope you enjoyed the video celebrating our 175-year anniversary, which highlights many significant events over our history. My career at Smiths represents more than 1/5 of this time, and I have been fortunate enough to work on many projects where we have made important contributions to engineering and to our customers. 2026 is yet another momentous period in our history as we reshape the portfolio, and I am delighted at the execution of this strategy so far.

Turning to the agenda for today. I'll start with the key highlights 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.

The first half of fiscal year 2026 has been a strategically important period for Smiths as we executed major portfolio actions, achieving attractive valuations for both Smiths Interconnect and Smiths Detection. It marks a period of progress in which we have delivered a solid financial performance and positioned the company for stronger, more focused growth and improved margin and return profile. These outcomes reflect consistent execution and sustained progress.

We have continued to take a disciplined approach to capital allocation, investing organically and in growth-accretive acquisitions. And divestments have enabled enhanced capital returns to shareholders with a further announcement today of a new GBP 1.5 billion program.

We have updated our fiscal year 2026 outlook for Smiths following our change in reporting for discontinued operations. We expect organic revenue growth of 3% to 4%, reflecting expectations of a stronger second half with its growth in line with our medium-term target range. And we expect an operating profit margin of around 20%, demonstrating clear progress towards our medium-term financial targets.

With that, I'll now hand over to Julian to talk through the numbers in more detail.

Thank you, Roland, and good morning, everyone. I'm pleased to be here today to present our fiscal year '26 half year financial results. As usual, I'll take you through our financial performance, provide more color around the latest developments in our businesses before covering capital allocation.

Before I start, I'd like to flag that the results include more complicated accounting disclosures than as usual as we transition through the separations of Interconnect and Detection. Group refers to John Crane, Flex-Tek and Smiths Detection, which was the basis of our guidance at the beginning of our fiscal year. Smiths refers to John Crane and Flex-Tek, our continuing businesses, and total group includes all 4 businesses across both continuing and discontinued operations.

Starting with group headline performance. Organic revenue growth was plus 4%, which was in line with our expectations. Operating profit grew 7.2% on an organic basis and 5.6% on a reported basis, resulting in a margin expansion of 50 basis points.

Revenue for Smiths grew 0.4% organically, consistent with our expectations for a higher second half weighting. Reported revenue declined 1%, including a plus 1.4% contribution from acquisitions in Flex-Tek, offset by adverse foreign exchange of 2.8%. Smiths margin expanded by 20 basis points to 19.8%, continued progress towards our medium-term target of 21% to 23%.

Total group EPS was up 8.4% organically and 11.7% on a reported basis, supported by the share buyback program. Return on capital employed increased 130 basis points to 18.4% and operating cash conversion was 78%.

Turning to group revenue. The 4% growth was supported by growing momentum in John Crane with a strong second quarter driven by growth in energy. Strong growth in Flex-Tek aerospace, offset by softness in Flex-Tek construction and strong delivery in Smiths Detection, where we continue to build and convert its strong multiyear order book. This growth was supplemented by a positive contribution from Flex-Tek's acquisitions. Across the portfolio, there was a good contribution from new products and innovation as well as strong commercial execution.

Operating profit margin expanded 50 basis points for group. This growth reflected operating leverage and a positive mix impact from growth in John Crane and Smiths Detection, a negative impact from U.S. tariffs with the largest impact coming through in Detection and 70 basis points of efficiencies coming through from the acceleration plan, largely at John Crane, a reduction in central costs alongside savings from the Smiths Excellence program.

Strong organic EPS growth of 8.4% was achieved by the organic operating profit increase, the share buyback, partially offset by higher tax and interest. Reported EPS grew 11.7% to 62p per share, reflecting accretion from Flex-Tek 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 amortization or depreciation.

Total cash generation was GBP 220 million, representing a 78% operating cash conversion. This reflected lower CapEx at GBP 29 million following the completion of the majority of automation and capacity investment last year. This was offset by working capital outflows in John Crane and Smiths Detection to support second half order book delivery. It is worth noting that last year's working capital benefited from better-than-usual payables at the end of the period in the context of the cyber incident.

Turning now to the continuing business. We'll focus today on John Crane and Flex-Tek, but you can find performance reviews for Smiths Detection and Smiths Interconnect in today's RNS. John Crane delivered 2% organic growth with momentum building across the half. Following the marginal decline in quarter 1, John Crane delivered mid-single-digit growth in the second quarter, reflecting healthy demand and improvements in operational execution following the automation and machining capacity investments. Growth was led by energy, which grew 3.9% with a strong performance in the second quarter.

Dry gas seal demand remained healthy, while system sales were impacted by some project phasing in Europe and Asia. Performance in Industrial was lower as a result of overcapacity in Chinese chemicals, partly offset by strength in mining and pulp and paper in the Americas. Aftermarket, which makes around 70% of revenue, was strong with increased focus on reliability-based contracts. Sales of original equipment performed solidly, particularly in the U.S. and Latin America.

John Crane margin expanded 50 basis points to 23.2%, reflecting pricing, mix benefits from higher aftermarket growth, Smiths Excellence and acceleration plan benefits, offsetting a limited impact from U.S. tariffs.

We continue to invest in innovation that strengthens our leadership in critical flow control. In the first half, we saw positive uptake of the new Type 93AX separation seal that we launched last year, and we also launched a new mechanical seal designed for ethane and ethylene pipelines. This has already delivered performance improvements for a leading ethane pipeline operator in the U.S. Gulf Coast.

Looking ahead, we expect John Crane's growth momentum to continue with the second half expected to grow at a similar rate to the second quarter. Our growth outlook is supported by a strong and expanding order book in both OE and aftermarket. And with a positive book-to-bill, we have good visibility through the remainder of fiscal year '26.

Turning to Flex-Tek. To reflect how we run the business, we show the performance of construction, thermal solutions and aerospace. The results exclude certain industrial businesses, which have been classified as discontinued operations. This reflects the strategic decision to high-grade the Flex-Tek portfolio to focus on higher growth and higher-margin market subsegments. Organic revenue for the half declined 2%, largely reflecting market-driven weakness in the U.S. construction market, offset by strong growth in aerospace.

Acquisitions delivered GBP 12 million or 3.4% to growth, which was offset by negative foreign exchange. In construction, performance reflected a challenging period for U.S. residential construction, where housing starts and building permits remain negative over the 6-month period. This continuing market downturn has had a knock-on effect on customer inventories, which has impacted order levels, particularly in residential heat kits.

Second half performance is dependent on the pace of recovery in U.S. housing, which remains uncertain and where builders' confidence remains well below 50. We have taken a cautious view on this. The Thermal Solutions business declined 7.8% in the period, largely related to customer destocking of heat kits that I just mentioned. This was partly offset by the completion of a large ultra-high heating contract. The pipeline of projects in this space remains healthy.

Aerospace grew strongly at 10.1%, supported by healthy demand and a full and growing order book across both commercial and defense aircraft build programs. Alongside renewed long-term agreements, these provide good visibility for the second half and beyond.

Regarding acquisitions, the integration of Modular Metal is largely complete and Duc-Pac is progressing to plan. In thermal solutions, the integration of Wattco is also largely complete, and the business is now focused on accelerating growth from expanded capacity in its new manufacturing facility.

Operating margin was 20.4%, a 60 basis points decrease compared with last year. This reflected negative drop-through from lower volumes, the completion of the higher-margin, ultra-high heat contract and higher material costs. This was partly offset by efficiency savings and the initial benefits from the acceleration plan.

Our approach to capital allocation continues to support growth, returns and balance sheet efficiency. We invested a total of GBP 101 million in RD&E and CapEx, investing for future growth and efficiency. We increased our interim dividend by 5.4% to 15p per share, and we paid GBP 104 million in dividends in the first half, continuing our track record of consistent dividend growth.

We completed the GBP 500 million buyback at the beginning of December, and we started executing the GBP 1 billion buyback related to the sale of Smiths Interconnect. This is expected to be substantially complete by the end of calendar year 2026 with the first tranche of GBP 600 million to be completed by the end of this fiscal year.

We recently announced the acquisition of DRC for GBP 164 million at an attractive valuation of 10x adjusted EBITDA. The transaction is expected to complete in the third quarter of the fiscal year.

Finally, today, we announced we expect to return GBP 1.5 billion of the Smiths Detection proceeds via the combination of a tender offer or special dividend, accompanied by a share buyback program. This will commence upon the completion of the current program and continue through calendar year 2027. We will update further on the precise mechanism and timing once the divestment completes. Our balance sheet remains strong with a leverage of 1.2x as at the end of January, giving us good flexibility to continue investing for growth.

We have updated our fiscal year '26 guidance for continuing operations or Smiths. We expect organic revenue growth of 3% to 4%, with momentum building to deliver stronger growth in the second half, which is expected to fall within our medium-term target range. John Crane enters the second half with good momentum, which combined with a strong order book in both OE and aftermarket supports an improving second half, and we expect growth of mid-single digits, similar to the second quarter. A positive book-to-bill gives us good visibility through fiscal year '26 with the recent investments in advanced manufacturing and testing starting to bear fruit.

In Flex-Tek, we expect a stronger second half, driven by continued strength in aerospace, supported by order book visibility and new contract positions. The pace of recovery in U.S. residential construction remains uncertain. However, Flex-Tek is well positioned to benefit when the market returns. We expect operating profit margin of around 20%, progressing nicely towards our new medium-range target, driven by operating leverage, benefits from the acceleration plan and ongoing efficiencies from Smiths Excellence. We expect cash conversion to be around the low to mid-90s percent, reflecting continued investment for growth and strong underlying cash generation.

Finally, one word on what's happening in Iran and surrounding countries. Our main priority is the safety of our people who work in the region. In half year '26, the Middle East region contributed to around 7% of revenue for Smiths, primarily in John Crane. We are mindful of the uncertainty these events bring, and we continue to monitor developments alongside this potential size and duration of any impacts on performance, which are not incorporated in our current guidance.

In summary, our half year '26 financial results demonstrate a solid delivery, expanding margins and continued discipline on capital allocation.

And with that, I'll hand back to Roland.

Firstly, I'll provide an update on our strategic progress. Then I'll turn to the Smiths businesses and the opportunities for continued growth and margin expansion. And I'll end with our people and culture.

The defining feature of the first half was the value-accretive transformation of our portfolio. We agreed the sales of Interconnect and Detection ahead of schedule for a total value of GBP 3.3 billion at highly attractive multiples that were above market expectations. These transactions reflect our ongoing commitment to maximize value for shareholders and to sharpen our strategic focus.

The regulatory processes are progressing well with Interconnect close to completion, and we remain on track to complete Detection before the end of the calendar year. I would like to express my thanks to all my colleagues for delivering such a great outcome.

The proceeds from these 2 transactions support substantial capital returns. We've already begun returning the Interconnect proceeds through the GBP 1 billion share buyback program initiated in December, building on the GBP 500 million buyback completed last calendar year.

For the Detection proceeds, as Julian mentioned, we expect to return a further GBP 1.5 billion. We look forward to sharing the details in due course. In the past 4.5 years, we have returned more than GBP 2.3 billion to shareholders via dividends and buybacks. With the remainder of the current buyback and the new program announced today, there is still more than GBP 2 billion to be returned continuing through calendar year 2027. Our approach is consistent: invest for growth, allocate capital smartly and return surplus capital to shareholders efficiently.

Following the separations, Smiths will be a focused industrial engineering company. We specialize in high-performance technologies in flow control and thermal solutions. We hold leading positions in attractive market subsegments that are aligned with long-term structural megatrends. We are well regarded for the quality of our products, our technologies and solutions, and we are admired for our skills in customization, customer service and our ability to help solve customer problems.

We have a portfolio of well-known leading brands with a reputation for innovative and reliable products. We have valued customer relationships, which together with our high-performing culture and a strong financial profile mean that we are well positioned to grow faster than the market in which we operate.

Let me drill a little bit deeper into the growth opportunities in each of our businesses. Around 60% of John Crane operates in the flow control segment of the global energy market, where growth is underpinned by demand for energy security, energy transition and a continuing demand for efficiency and reliability. 40% of John Crane serves other industrial markets such as mining, which also enjoy similar characteristics. Our growth strategy for John Crane is focused on our particular strength in downstream and midstream energy, where we see considerable runway before the world reaches peak oil and gas. We also have a leading position in energy transition and are well positioned to take advantage of the high level of growth in areas such as hydrogen, geothermal and carbon capture and storage.

In Flex-Tek, while the construction market is soft in the near term, its future prospects remain favorable. We see increased demand for housing, which is expected to expand with population growth and the shortage of single and multifamily homes in the U.S. In thermal solutions, the industrial electrification trend is a key driver supporting emissions reductions, improved safety and efficiency and spans industrial markets. Here, too, demand is underpinned by customers' desire to have a single integrated customized solution.

Energy demand is also a key underpin, especially for high performance and efficient heating and cooling. The addition of DRC broadens our position by expanding our heating business into cooling technologies. This adds high-growth data center exposure with AI demand supporting the expansion in digital infrastructure.

In aerospace, rising air travel driven by increased trade, GDP and population growth supports a continued increase in commercial aircraft production and heightened security concerns support an increase in defense spending, also increasing demand for new aircraft. In our key end markets, these trends underpin a market CAGR forecast of 4% to 5% over the next decade.

Our customer and market-led approach ensures we fully leverage our leading market positions and the underlying growth trends to drive performance and to take advantage of these multiyear tailwinds. 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. We've set out the initiatives we are focusing on to drive this enhanced growth, leveraging our existing portfolio and long-term customer relationships, driving innovation through new product development and commercialization, driving commercial and operational excellence and accessing higher growth and higher-margin market adjacencies, both organically and through targeted acquisitions. We lay out here our strategic approach within each of our businesses and highlight a few examples.

In John Crane, we continue to leverage our core energy offering and recent product launches to access new OE investments, especially in gas and energy transition. We see opportunities to drive further aftermarket growth by leveraging our global service network, transitioning a higher proportion into reliability management contracts and applying digital solutions. And we are targeting faster-growing geographies such as Latin America.

In Flex-Tek, despite the current low-growth environment, we continue to drive the business forward to capture market opportunities, leveraging our portfolio through our strong distributor relationships, for example, through widening the product lines we offer. We see opportunity to expand our position into more white space in parts of the U.S. and Canada and developing new products like our Blue Series sealed duct system.

In thermal solutions, the addition of DRC brings cooling technologies, widening our addressable market. Here, customers seek tailored solutions and our recent acquisition positions us well. We see greater opportunities for growth as we evolve from a focus on heat and components to systems and integrated platforms to target higher growth areas like data centers. And finally, in aerospace, leveraging our portfolio with aircraft and engine manufacturers to add share on new programs, accessing higher-growth subsegments, for example, defense or repair and service, renegotiating long-term agreements with key aircraft and engine manufacturers, enabling better price capture to augment growth. In fact, across all the businesses, pricing is another key area of focus to ensure we capture the price that reflects the value we deliver for our customers and also underpins future growth. This multifaceted approach ensures that we remain well positioned to outperform in our markets over the medium term, supporting our 5% to 7% organic revenue growth target.

On this slide, we've set out some examples of initiatives we have recently executed. John Crane signed a multiyear reliability management agreement with a major energy company, improving equipment reliability and standardizing performance across their global operations. Flex-Tek extended a 30-year partnership with a space customer and is renegotiating its long-term agreements with major aircraft engine manufacturers. These agreements grow and sustain recurring revenues and customer intimacy across the cycles.

In innovation, John Crane recently launched its coaxial separation seal, which sets a new benchmark in its category and has had positive take-up. Flex-Tek's Blue Series offers enhanced emission control and ease of installation and has been well received by customers. Operationally, investments in automation and machinery upgrades, most notably at John Crane, improves delivery and lead times. This helps us capture orders, earn price and expand market share, supporting growth. And finally, market adjacencies. Here, we have initiated our thermal solutions strategy to access high-growth market subsegments.

Let me turn to our recently announced acquisition, which supports this approach. We are scaling Flex-Tek into high-growth cooling applications with the agreement to acquire DRC Heat Transfer. DRC designs custom heat transfer and cooling solutions for data centers, general industrial, transit and energy. It serves blue-chip customers and brings deep engineering expertise and a strong service culture. It builds on last year's acquisition of Wattco, which expanded our heat business across the temperature spectrum.

Strategically, DRC adds heat removal and cooling to Flex-Tek's industrial heat portfolio. It increases our addressable market and creates clear cross-selling opportunities for our heating technologies. It is aligned with the data center expansion and power backup applications, both attractive structural trends with a strong growth outlook. This is disciplined accretive growth and aligned with our strategy of accessing high-growth market adjacencies.

Turning now to margins. Supporting the delivery of our medium-term target of 21% to 23% is our acceleration plan, where we have updated the benefits and costs for Smiths. We now expect GBP 30 million to GBP 35 million of annualized benefits in fiscal year 2027 and beyond for GBP 40 million to GBP 45 million of cost. Around half the benefits are expected to be achieved this fiscal year. We highlight here some of the initiatives underway in both John Crane and Flex-Tek, and we are also working on programs to maintain our central costs at 1.5% to 1.7% of revenue. These are all examples of our strategy in action that will propel us towards our medium-term targets.

We are reshaping Smiths into a focused, faster-growing, higher-margin company with clear growth pillars, high margin and returns, disciplined capital allocation and substantial value creation potential. Fiscal year 2026 represents a transition year as we reposition the portfolio, and we remain confident in our ability to reach the enhanced through-cycle medium-term targets. We continue to make progress towards these targets, supported by our disciplined balanced approach to capital allocation. This is how we will deliver enhanced returns and support a premium rating for Smiths.

Our performance rests on the same foundations that have driven us forward throughout our history. Firstly, product and service innovation that delivers reliability, efficiency and safety for our customers. We are bolstering our approach here to be even more agile and purposeful, deploying innovation road maps by product, technology, processes and materials to ensure we capture market opportunities. For example, capturing electrification momentum and rising high-temperature applications for Flex-Tek and leveraging John Crane's extreme condition seals and energy transition applications.

Second, a high-performing culture with clear accountability and ownership. As part of this, a strong safety culture is critical and keeping our people safe is our #1 priority. I wasn't satisfied in our safety record performance in the half. A number of targeted activities, including safety stand-downs are being implemented to drive improvements for the second half to ensure that we focus on delivering a zero-harm culture.

Third, operational excellence. With our Smiths Excellence framework driving continuous improvement to ensure lean and effective operational execution, 1,500 colleagues have taken our Smiths Excellence Yellow Belt training, broadening the reach wider and deeper into the business, and all of it underpinned by our Smiths values, which we have recently refreshed. These foundations are what binds us together to remain focused on delivering value for all our stakeholders.

So in summary, we have delivered excellent strategic progress, unlocking notable value in the portfolio. We delivered another solid half in terms of financial performance with the momentum into the second half, also supported by our strong order book. We expect full year organic revenue performance of 3% to 4% with second half growth ahead of that in the first and within our medium-term target range. We expect an operating profit margin of around 20%.

We are deploying capital in a disciplined manner in growth and value-accretive acquisitions and see further opportunities on this front while enabling sizable capital returns. We are well positioned in structurally growing end markets with attractive demand trends and are leveraging our strengths and capabilities to outperform this market growth. We are confident that Smiths is well positioned to continue unlocking significant value and enhance returns to shareholders.

Thank you for listening. Julian and I are now happy to take your questions.

[Operator Instructions] We are now going to proceed with our first question and the questions come from the line of Lushanthan Mahendrarajah from JPMorgan.

I've got 2, please, both on John Crane. And the first is just on the guidance for the second half and the mid-single-digit growth. You talked about sort of good momentum in OE and aftermarket. It would just be interesting to hear what you're seeing in energy and industrial as well amongst that? And also, is the order book that you have sort of fully underpin the second half? Is there more that needs to come in? Could you just give us some sort of comfort around that sort of mid-single-digit guide for the second half?

And the second question, which is, I guess, kind of linked is just on the Middle East. I know your guidance doesn't include what's happening there, but I guess it's been a couple of weeks since that sort of kicked off. So I guess sort of any early thoughts on what are you seeing there currently? What are you seeing more broadly globally elsewhere? And I guess, how should we think about both the short-term and the midterm potential implications as well?

And I guess also on the aftermarket, I guess with the oil price where it is, I know you've historically talked about a range that's sort of below where the oil price today where activity is stronger. So just if you think you could see any impact there as well, that would be interesting.

Thank you very much for the questions. So I think picking up on that first part of your question about H2 and the momentum that we're seeing coming into H2 in John Crane. So we saw in Q2, the strength of Q2. We're definitely seeing that momentum carrying into the second half. We see that visibility through our order book. So that's our order book, both for OE, but also for aftermarket. And one needs to sort of recall that actually, we see a lot more than just our order book because we're being asked to quote on aspects. We're being asked to be involved in the designs as well. So we've got a robust order book supporting that.

Our operational performance, as you've seen, has now really picked up after the challenges we had earlier. So that combination of our ability to deliver within the lead times that we wanted to get to and the fact that we've got that order book, both in OE and aftermarket, and we still see a lot of activity in the market gives us that visibility. So heavily underpinned. There is always a book and burn, as I would say. So orders that do come in associated with aftermarket, associated with spares. So that continues at a healthy rate as well.

So you can see why that we are entering this period within the context that isn't the Middle East crisis in a very robust position for John Crane. So finally dealt with our operational issues and moving forward robustly on that. So we're very pleased with that, and you've already seen and we've evidenced that in Q2, and we believe that in the world that doesn't have the Middle East in it, that's a very robust aspect.

I think on the Middle East, obviously, the thoughts first go to our people. We have many hundreds of people in the Middle East, both within John Crane and within Smiths Detection. And those are people who are based in our service centers. They are people who are based service engineers who are based at airports in the case of Smiths Detection and customer sites in the case of John Crane. So we are doing everything that we can in the situation going forward.

From the point of view of Middle East for Smiths as a whole in H1 to give you a sense of where we are, represented 7% of our revenues. For John Crane itself, it represented 12% of revenues. There's no doubt that on a sort of -- if one was quite myopic about energy and the impact on John Crane, there is noise. We've got customers who need things very quickly. We've got customers who are focused on maintaining their operations. We've got customers who are shutting down their operations in a managed manner. So there will be noise coming into the system within the very short term.

In the long term, I think we've sort of pretty much moved past the energy trilemma, and it really is all about how you deliver that energy security. And I think if you think of that as a backdrop for John Crane, which is all about reliability, safety, security for our customers' supply, over time, we're going to have to be there for the demands that are coming from our customers, whether those are customers in the Middle East trying to repair, rebuild and maintain or whether that's our customers globally who will have to deal with short-term, medium-term shortages. So that ultimately means that we will have to work harder and we'll have to deliver more to our customers.

In the short term, I think we're all grappling with the different messages coming out from the Middle East. I think if you step back, though, I think that's the sort of more important part of our perspective, which is what does this have as an effect on the globe from the point of view of the industrialization and GDP. So I mean, I think we're all sitting there wondering what does that mean in terms of supply chains, in terms of energy costs, in terms of raw materials that are reliant on energy. So I think that's a broader question, which I'm not really the best person to ask on that. But I think we are very ready for those challenges.

If you recall, the acceleration plan, which we are substantial way through, and we're already seeing half the benefits in this fiscal year, and we'll see the full benefits in next fiscal year. I think you've seen us build a resilient and agile cost base within that as well. So we feel very well set up not only to support our direct customers, but also to flex with their needs, whether that moves to the U.S., whether that's more deliveries into the Middle East or Asia.

So absolutely, our short-term focus here is supporting the customers and making sure that where their infrastructure has been damaged, impacted that we make sure that we're as responsive as possible. There will be some sort of movements within that robust order book. We recognize that, and we will be flexible to that.

I would sort of then step back and say, think about John Crane as the shape of the business. That aftermarket is over 70% of the business. So I think what you're seeing there is the fact that's the most resilient sort of part of the market. It's difficult not to look after your equipment, even when it's not being fully utilized or even when you're going through a shutdown or bringing those back up. So that's a very robust piece of our business model.

And then stepping through, you asked about industrial, and we should look at that from the aspect of 40% of John Crane is industrial, so not directly related to that oil and gas energy market. So we saw weakness in oversupply in China for the chemicals. We are seeing that -- actually, we're seeing recovery there for the second half, notwithstanding that we obviously need to get a better understanding from the point of view of feedstocks and the like. So we believe that the industrial will be a positive for us within our present guidance. Hopefully, that answers your question.

We are now going to proceed with our next question. And the questions come from the line of Jonathan Hurn from Barclays.

Just 2 questions from me. Firstly, can I just come back to John Crane in the Middle East. Obviously, you're talking to sort of 5% growth in John Crane in the second half. Can you just tell us how much of the order book that's going to be delivered in H2 actually comes from the Middle East? That was the first question.

And the second question was just coming back to your revenue bridge and obviously, pricing within that. I think you talked about John Crane pricing being positive, but obviously, you're seeing headwinds in Flex-Tek pricing. Can you just talk us through what you're seeing in Flex-Tek? And are we going to continue to see a headwind to pricing going forward, please?

Yes. So as I think we all know, I'm not keen on talking specifics on order books apart from giving you guidance about whether they're strong or not because they can be misleading. But I will give you the guidance of what I mentioned earlier, which is 12% of the first half was in the Middle East for John Crane. So that gives you the kind of indication of what happens for us, which is essentially 7% of Smiths. So that's the sort of guidance I'll give you on the order book. We've seen a mixture of order intake over the half. We saw very strong growth, for example, in Latin America. We saw growth in the U.S. And so we already had a little bit of a quiet time in the Middle East. So I think we feel that, that order book has enough substance to take us through to our guidance on that. But obviously, we're not guiding for that particular Middle East part of that.

On revenue, yes, we still are very active. I mean we really do have those muscles very, very well exercised on pricing, ensuring we are getting paid for appropriate levels of prices, as I mentioned, for our product and the value that we bring to the customer. We do see positive pricing going through the John Crane business. We believe that we will continue to see that pricing go through the business. So pleased there.

If you then go through the aspects of Flex-Tek, yes, our pricing is the thinnest in Flex-Tek construction, and we'll see that continue to be very, very thin because of the market conditions, while the market conditions continue as they were. And we haven't put any sort of guidance for any upturn in construction in our second half, although you saw us overperform against the market in FY -- financial year 2025, and you saw us sort of level with the market in the first half of FY -- of fiscal year 2026. So you could see that as headwinds in there.

We also had a mix effect in there, which you would have seen the Midrex contract as well, so -- but the other aspects of Flex-Tek, so thermal and the aerospace, we're seeing positive price in those aspects. And specifically, we're seeing not only significant growth in the aerospace business, but we're also seeing significant pricing power within that growth as well.

We are now going to proceed with our next question. And the questions come from the line of Martin Wilkie from Citi.

It's Martin from Citi. Just to come back to Flex-Tek and obviously, you made an acquisition this morning with DRC and also a small exit. But you've also given some better disclosure, more disclosure, I should say, in terms of that split of revenue, now splitting out thermal solutions separately. Is there a signal here in terms of more acquisitions in terms of growing that business?

And obviously, in the past, people have thought about Flex-Tek has been very driven by construction and aerospace. And there was obviously quite a structural sort of improvement in some of the other thermal markets like data centers and so forth. Just to understand just this combination of both the acquisition plus this increased disclosure inside Flex-Tek, is there a signal there that we should expect more capital to go into that area just in terms of looking at some of these faster growth areas or Flex-Tek?

So if you step back and review what we said in our strategy. Our strategy is all about moving into this very focused industrial business and pointing ourselves to those higher margin, higher growth parts of the portfolio. We also stated that we would go through that high grading, and you saw that action, and we've been very transparent now, so you can see through into Smiths going forward. So that's what we've said.

What do we believe that the growth trends, the megatrends are? We are believers in the electrification. We see the benefits of electrification, not only from the efficiency, but also from the effectiveness of electrification gives people in their processes. So we believe that electrification is continuing to drive forward. And that's definitely an area where I'm very excited from the point of view of how do we differentiate ourselves. So we will continue to develop and pick up new technologies within that area.

So we're very positive about all our markets. We are specifically positive about the area of thermal, so this heating, cooling aspect of the business. DRC comes, we saw the multiple. We thought we paid a good multiple for a business, which will be accretive to us over the long term, both in growth and in margin. So we're excited that we've got exposure to data centers, which I think everybody is, but we're really more excited that we are starting to offer -- we started with heating elements and then we did subsystems and now we do systems for people really to support their processes.

And we see that we bought Wattco, we had Sureheat, we had Farnam, all building of that really solid Tutco foundation, and now we've added DRC. We are very positive in this area of the market, and it does deserve focus, which is why we brought it out. We're also very positive that over the long term, construction will recover. And also, we are experiencing exceptional performance both market-driven, but also because of our customer focus and intimacy in Flex-Tek aerospace as well. So we keep making good capital allocation decisions, whether those are capital allocation decisions on internal R&D or whether those are capital allocations all the way through to acquisition or as you've seen, to returning capital to our shareholders.

And in terms of potential further acquisitions, I guess, simplistically, if you got GBP 1.85 billion of net proceeds from Detection, the GBP 1.5 billion buyback, you've obviously done the deal today. I mean it seems like you still have some firepower for some similar sized deals. Is that the right way to think about it? Or how should we think about your pipeline for M&A over the next year or so?

I think I'll let Julian, as we haven't heard from Julian yet, answer that.

Yes. I mean -- thank you, Roland. I mean the model of using small bolt-ons to enhance our strategic focus to drive accretive growth and profitability has been successful over the last few years and particularly in Flex-Tek. So we do anticipate that model continuing as evidenced by DRC. And yes, within our balance sheet, we've got the flexibility to do that whilst delivering an appropriate level of leverage and balance sheet efficiency. So that's the model, and we hope to continue with it.

We are now going to proceed with our next question. And the question comes from the line of Christian Hinderaker from Goldman Sachs.

I want to start with Flex-Tek, if I may, and the results, obviously taking us up to the end of January. I appreciate we're now sort of starting the spring season in U.S. construction or at least normally would be. I wonder if you could perhaps share any thoughts on the run rates you've seen as we've entered Feb, March. Have we seen a pickup in terms of the spring activity levels? Or perhaps has there been any issues in terms of the challenging weather over in North America?

So our guidance that we've put out there about the growth rate is well aligned with what we're seeing in the order intake from Flex-Tek. Yes, we have had a little bit of weather, but I think that that's behind us. And as you know, there is seasonality, less seasonality than there was because of the way that the housebuilding has sort of moved down into the more sort of temperate areas of the U.S., and we specifically sort of driven our -- both our organic and our inorganic approach to take advantage of that. So we believe that the business is performing as we anticipate to be able to deliver our guidance on that.

Maybe to come back to the Middle East exposure in John Crane. I appreciate it's obviously a complex and concerning scenario, in particular for the people on the ground. My question is less around the guidance and maybe more how we should think about the mechanics or operational effects. I'm sure the John Crane business over the years has supported many clients with managing force majeures in the past. What does that look like operationally if we have a downstream facility that's shutting operations, do you need to have people move in to support that? What impact does that have on seal wear typically? How do we think about the mechanics in such events?

Yes. So yes, absolutely, we should think about our people, but also their families there as well. So that is absolutely, as you say, Christian, top of our mind. It is complex, but one can simplify this to a great extent, and we've all experienced this personally. I'm sure when you shut things down and when you turn things back on, that is the point. Things don't generally break as they run. Things break when they are switched on and when they are switched off, notwithstanding wear and tear. So this is a point where it's very important for us to be there with our customers to make sure we're not only talking about efficiency, we're talking about safety, safe shutdowns and trying to protect the equipment as much as possible.

If one imagines that this system, a good analogy for this is the fuse in many of these plants is essentially what we make. We make the seal. If they want to sacrifice something within the plant, it is going to be the seal. They don't want to sacrifice the compressor or the pump because of the relative cost. So we are there as almost a safety valve from that point of view. So any exposure of this to damage from heat, damage from the fact that it hasn't been run correctly that the support system hasn't been fully operational, so which is our systems business will cause the seal to have to be refreshed or replaced. So that's the business.

So we are in a much, much better position than we were operationally on our machining, on our lead times, on our agility. So we will be working with those customers who will want more spare parts just in case because they feel they might be cut off for a while. They might have to shut something down and bring it back up. And that's for John Crane, a very important part of our model, this customer intimacy, the knowledge that we are always there for them and the fact that we will produce the spare parts for them and keep them running. So much as one would never like to say that this is a positive situation. Ultimately, from a commercial point of view, this is relatively positive for us.

I'd just add that in those facilities in other parts of the world that are having to meet the gap in demand, you also see them working to much higher capacity, and that is also supportive of our aftermarket business as we support our customers through them doing that process.

We are now going to proceed with our next question. And the questions come from the line of Andrew Douglas from Jefferies.

Most of my questions have been answered, but I've just got 2 quick ones. Can you explain to us how you got to the GBP 1.5 billion in terms of return of cash to shareholders? I appreciate we're going to get more details, hopefully, with the finals, but GBP 1.5 billion was a little bit below what I expected. So I would just be keen to understand how you got to that number.

And then just going back to Flex-Tek, I'm sorry to labor the point there. It looks like you did about minus 4% organic in the second quarter, and we're now assuming that goes back to kind of modest levels of growth in the second half of the year. And I understand that there's lots of moving parts, destocking coming to an end, but that might be offset by that large contract that finished. Can you just explain to us how we get to that plus 2%? Is that market plus 2% with a combination of commercial aerospace strong market in U.S. construction flat? I'm just trying to understand the dynamics and potential downside risk if the housing market doesn't come back in the second half.

Would you like to take the first piece about the GBP 1.5 billion return?

Yes. So the GBP 1.5 billion is -- just to be clear, is a reference to the Detection proceeds, which we announced as a valuation of GBP 2 billion, but of course, the net proceeds will be lower than that. The return is roughly 75% of the valuation. Clearly, we've used some of that capital for the DRC acquisition, and we're trying to model this in such a way that we deliver on all variables in terms of efficient balance sheet, appropriate level of leverage, continuing our model of bolt-on M&A that we talked about earlier and indeed, the kind of balance of operating cash flows and dividend outflows that we'd see across the next 18-month period. So it's largely a balancing act of all of those elements.

So -- and then I'll pick up on the Flex-Tek question. So we have a very strong order book and very, very high level of very visible order book in Flex-Tek Aerospace. So we are very much in operational mode. We're seeing those long-term contracts come in. We're seeing pricing come in on those contracts as well. So we have a very robust aerospace business. So we will see that to continue to accelerate on the deliveries there.

From the point of view of construction, we haven't baked in a massive upturn -- well, an upturn in construction. So we believe that we're well placed to deliver from what we see the run rates that we have. And then with the thermal solutions part, we did have that large single event of destocking that affected some of our heat kits, which won't repeat. So that's why we end up in that region that you're indicating for the second half and therefore, for the full year.

[Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Alex O'Hanlon from Panmure Liberum.

Just one question from me on Flex-Tek. On the part of the Flex-Tek industrial portfolio that you've proposed to exit, where are you with completing those disposals? And just thinking ahead, are you happy with the Flex-Tek portfolio post those disposals or -- and obviously, absent any other acquisitions? Or is there more to do?

Yes. Thanks, Alex. So the decision to divest part of the Flex-Tek industrial portfolio is very much consistent with our portfolio model. We want to focus capital in higher-growth, high-margin areas. We've got parts of the portfolio that are a little dilutive to us. So this decision effectively reflects us doing that and coming out of some of those non-core businesses. Of those divestments that we are taking the opportunity to classify as discontinued, one of those processes is reasonably well progressed. The other 2 will proceed as we come from here, but we have the confidence we'll be able to execute those as we go through the next 6 to 12 months.

To the second part of your question there, I mean, look, we'll continue to evaluate the portfolio. We see the opportunities that Roland pointed out before, particularly in the area of thermal solutions and that growth accretion that we see there. But equally, the roll-up strategy we've had in construction still has opportunity and we'd see opportunity there to push that forward. And equally the same in aerospace. I think we've demonstrated we know how to run a really high-quality aerospace business. So we continue to look for opportunity there. But look, net-net, we're happy with the Flex-Tek portfolio, and we'll keep operating as we have been.

There are no further questions at this time. So I'll now hand back to Roland for closing remarks.

So thank you very much for all the questions. So as you can see, we've delivered excellent strategic progress. We've unlocked a notable value in the portfolio. We've delivered another solid half in terms of financial performance with momentum into the second half. We continue to deploy capital in a disciplined manner while enabling those sizable capital returns that you've heard, so that further GBP 1.5 billion return announced today. So we are well positioned in structurally growing and attractive markets, and we are well positioned to continue significant value creation for our shareholders. Thank you very much.

Hello. Good morning, ladies and gentlemen. And to all of those who are watching online. I hope you can hear me clearly. My name is Steve Williams, Chairman of Smiths. And it's my pleasure to welcome you to Smiths' 2025 Annual General Meeting.

We have up here in front of you, all of the directors who are standing for reelection, who are here with us today. Just for administration and safety purposes, there are no planned fire alarm tests. So if the alarm does go off, then you'll be guided to the nearest exit.

Today's meeting is being webcast to allow all of those who are unable to join us in person today to listen to our presentations and discussion. The webcast is also being recorded and will be available on our website after we finish the meeting today.

So before we turn to the formal business of the meeting, let me begin by saying how pleased the Board is with the group's performance over the last year. In a period marked by global uncertainty and a lot of economic volatility, Smiths continued to deliver very strong results.

And I think that's underpinned by a clear strategy and some very disciplined execution. Despite the challenges posed by uneven regional growth, shifting trade dynamics and the geopolitical risks we're all aware of. We've extended our track record to 4 consecutive years now of consistent organic growth. And through that period, we've averaged over 7%, in fact, nearly 7.5%.

So that's quite remarkable as an achievement and a testament to the resilience and the agility of our businesses and reflects the strength of our order books and the successful execution of what we call the value creation strategy. Now Roland is going to say a little more on this and our Q1 trading update that we issued this morning, and he'll come up and follow me.

So our capital allocation strategy continues to deliver enhanced returns for shareholders. We increased our share buyback program, as you know, to GBP 500 million. And we have a resolution today recommending a dividend, which has been increased by 5.1%, making the 74th consecutive year of dividend payment, something we're very proud of.

And today, we've announced that we'll return a large portion of the Interconnect sale proceeds through an additional GBP 1 billion share buyback program. We remain committed to maintaining a strong balance sheet and a solid investment-grade credit rating.

This financial strength has also allowed us to continue to invest in the future of our businesses, both organically and inorganically through acquisition. At the beginning of 2025, we launched our acceleration plan. We talked about that last year at this meeting to drive productivity, streamline our cost base and improve our margins.

Now we are mindful as a Board and management about the impact of these types of plans on our employees. And so treating our colleagues with respect and in line with our values has been and continues to be an important priority for us. And I'm pleased to report that, that acceleration plan is delivering ahead of expectations.

In addition, embedding of our Smiths Excellence program across the group, also drives continuous improvement in our operations. And perhaps the most significant strategic decision of the year was the separation of the Interconnect and Detection businesses. That decision was the outcome of considerable evaluation by the Board through the prior year, and we looked at all of the appropriate options.

So to consider the direction we've gone, and Roland is going to talk a little bit more about that. And that move reflects our commitment to unlocking the value and creating a best-in-class industrial engineering company focused on high-performance John Crane and Flex-Tek businesses.

We announced the sale of Smiths Interconnect in October and for Smiths Detection, a dual process is being run, giving us options to sell or demerge that business. We have a clear road map for executing these separations with minimal disruption and are managing those transitions with care and sensitivity, ensuring robust governance through what we call the newly established Separation Oversight Committee.

We've welcomed 2 new Board members this year, Julian, welcome, Julian, as CFO, bringing a deep financial and commercial expertise. And we thank his predecessor, Clare Scherrer, for a significant contribution and smoothing -- ensuring a smooth transition as Julian came into the business. We also welcomed Simon Pryce as a nonexecutive director, whose leadership and expertise has been and will be invaluable to us as we move forward.

So welcome both of you to your first Smiths Annual General Meeting. And then finally, I would just like to take a moment to recognize 3 long-serving members who are retiring today. That's Mark, Noel and Karin, who's not with us today. Their contributions have been instrumental in shaping the high-performance businesses we have. So on behalf of the Board and shareholders, I extend our sincere thanks and best wishes for your next chapters.

To our colleagues across the globe, I also say thank you. Your dedication, talent and professionalism continue to drive Smiths forward. The Board is acutely aware that the changes we've announced bring uncertainty. And we're grateful for your continued commitment. Looking ahead, we remain confident in our strategy and our ability to deliver sustainable growth, higher margins and enhanced returns.

2025 has laid strong foundations for the next phase of our journey, and we're looking forward to building on this momentum in the years to come. So unless anyone objects, I'll take the notice of meeting as read and formally propose all resolutions that are set out therein.

In accordance with best practice and the company's Articles of Association, a poll will be taken on each resolution. For shareholders who are not familiar with the poll process, Matthew, our Company Secretary, will explain that process later.

Now before I invite questions on the resolutions proposed or any other matters relating to the company. I would just like to hand over to our Chief Executive, Roland Carter. Roland?

Thank you, Chairman. Good morning, and thank you for joining us today. Looking back on our fiscal year 2025 results, I was also pleased to see our strong financial performance, which came in ahead of our twice raised guidance and does mark our fourth consecutive year of organic revenue growth.

Group organic revenue was up 8.9%, ahead of our 6% to 8% guidance. We expanded operating profit margin by 60 basis points at the top end of our guided range. We deployed capital in a disciplined and dynamic way with 3 acquisitions and an enhanced share buyback. As Steve mentioned, our acceleration plan is progressing well. Initial benefits are being delivered, and we do remain on track for full benefits of GBP 40 million to GBP 45 million in fiscal year '27.

In January, we announced a number of strategic actions to unlock portfolio value and enhanced returns. We have now announced an agreement to sell Smiths Interconnect and continue with the progress on the separation of Smiths Detection. We entered fiscal year '26 with a strong order book.

Today, we announced organic revenue growth of 3.5% for the first quarter, in line with our expectations and we reaffirmed our fiscal year '26 outlook of 4% 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, but also now strategic clarity.

Turning to fiscal year 2025 performance. Keeping our people safe is our #1 priority, and I am pleased to see our safety record improved 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. We invested organically in new product development to underpin future growth as well as spending GBP 121 million on 3 margin accretive acquisitions at attractive valuations in Flex-Tek to further enhance growth.

We also increased returns to shareholders and will shortly complete our current GBP 0.5 billion share buyback program. So together with dividends, we have returned GBP 1.8 billion to shareholders over the past 4 years. All 4 of our businesses delivered growth in fiscal year '25. We exceeded our revenue growth guidance despite the uncertain macro environment and a challenging U.S. construction market and interruption from the now resolved cybersecurity incident in January with the most notable impact being in John Crane.

We saw particularly strong double-digit growth in Detection and Interconnect underpinned by our leading technologies in threat detection and semiconductor test. 3 businesses, John Crane, Detection and Interconnect delivered organic margin expansion reflecting higher volumes, pricing and efficiency benefits. Flex-Tek margin declined versus a strong prior year comparator on mix impacts and an GBP 8 million in-year charge for a nonmaterial balance sheet overstatement. This issue was isolated to a single U.S. industrial site and now has been thoroughly investigated and is now resolved.

Turning to the strategic actions to be a focused industrial engineering company, which does mark a pivotal moment for Smiths. This sharper focus positions us to deliver superior shareholder value through consistent execution, operational and financial performance and strategic delivery. We have now announced an agreement to sell Smiths Interconnect for GBP 1.3 billion to Molex at a highly attractive multiple. In fact, above that of the group.

The transaction is currently going through regulatory approval, and we expect to complete in the second half of fiscal year '26. As promised, we are turning a large portion of this Interconnect sale proceeds through a GBP 1 billion share buyback program, which we will initiate once the current buyback completes. For Smiths Detection, we are progressing both the sale and demerger options ahead of a decision on the preferred route, balancing value maximization with execution certainty.

Following these separations, Smiths will be a focused industrial engineering company specializing in high-performance technologies in flow management and thermal solutions with leading positions in these growing market segments along 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, 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 that we remain focused on supporting customers to capture growth opportunities and deliver attractive and resilient growth with high returns. This is supported by a lean corporate center. To reflect our new structure, we set out enhanced medium-term targets for fiscal year '27 onwards. These targets are ambitious, yet achievable and reflect our confidence in our ability to deliver premium returns through cycle and support a superior rating for Smiths.

So in summary, in fiscal year '25, we delivered strong results, extending our track record of consistent financial performance. Our Q1 performance announced today is in line with our expectations and fiscal year 2026 outlook. We have made great progress advancing our strategic plans to focus Smiths as a high-performance industrial engineering company.

As a result, Smiths is very well positioned to deliver superior value over both the medium and the long term. We are growth and returns focused, highly cash generative and have a disciplined approach to capital allocation. We are confident that these strategic actions will continue to unlock significant value and enhance returns to shareholders.

Thank you. And I'll hand you back to Steve for the Q&A session.

Thank you, Roland. Now before we turn to the vote, I can confirm that we did not receive any questions from shareholders submitted prior to the meeting. And so I invite shareholders here in the room to raise any questions you may have on the resolutions proposed today. And if you want to ask a question, please raise your hand and then wait for a microphone. That's important because we want those online to be able to -- on the webcast to be able to hear the questions and answers as well.

Please state your name and if you are a proxy, or a corporate representative, who you are representing. So feel free to ask questions here, and then the whole Board is going to be available after the meeting as well for slightly smaller groups to talk. Okay. So let's open up for questions. You have the microphone there. Thank you.

[ Nick Steiner ], private shareholder. Thank you for the presentation and the information and I've been sort of having a look at the annual report. It's rather large, but there's useful information in that. And we're down to sort of 2 businesses, and it's flow management and thermal solutions. I've been trying to get my head a little bit around this that there are problems. Otherwise, you don't need solutions.

So the problems, obviously, would be the sort of range of temperatures and pressures and liquids and gases. Could you give some idea of what they are and why this company can lead in a world sense? And of course, we then sort of move on to the sort of heating, the radiation conduction convection, how are you sort of getting those interrelated?

And of course, with the sort of seals and things you've got expansion and contraction. And again, listed with the other physical problems, how you're sort of leading in this? And then, of course, the supply of materials, cheaper materials is obviously good if they are better quality in the field. So perhaps a little more flavor of why this company leads the world and what the problems are.

Okay. Thank you. A great question. And it sort of takes us back to our strategy, if you like. And I'll take you back a couple, maybe even 3 or 4 years. We've looked at the businesses and recognize there's always room for continuous improvement and growth. And we wanted to make the businesses operationally excellent. So we went through that process, and that was very successful. The challenge we had at that point was that, that value wasn't coming through to our shareholders. So we were starting to create these 4 businesses. We're getting deep into the excellence and the expertise of their particular businesses.

The strategy -- the next stage in the strategy was to say, okay, so how do we get that value through to shareholders. And it's popularly called sort of a conglomerate discount where if you have multiple businesses, often it gets viewed below the average value of the business. So we put the strategy together. We looked at the 4 businesses and said, what do we want to be at the end of this process. And of course, you never quite get to the end of it because you're always reviewing it.

And we looked and said, we view ourselves as a primary core strength is the depth of our engineering and our ability to give solutions to industry. And the 2 areas we're strongest in are our flow and thermal. And thermal, you're right, you said it in your question. That means both heating and cooling, not just in one direction. And those opportunities are increasing around the world. A great example would be data centers, where the need for heat transfer and data centers is growing exponentially at the moment. So we were very comfortable that we were focusing the NewCo on those 2. So I'll probably stop there and that's at the highest level. I don't know, Roland, if you want to go into any particular examples or?

Yes. No, no, I can. Let me build on the operational performance because much of what our customers expect is exactly operational performance, and we have a very broad service footprint, which we shouldn't forgotten there as well.

From the point of view of what are the megatrends that are driving this? This is energy. We know energy lifts people out of poverty. And so it is going to be a very compelling megatrend. We also understand there is this electrification of everything, which is another megatrend out there. So why do we have a right to win there? Well, obviously, we have a very strong legacy and a very strong brand in flow control.

We're building on that. We are well balanced between traditional energy and new energy on that. We have invested a considerable amount in our machining footprint. We've also invested a considerable amount on testing. So that really goes to the last part of your question, why are new materials important? And what are they better?

That's part of the unique thing that we offer our customers, which is the fact that our product is very well tested and we've invested and we continue to invest on our new dry gas test rigs, for example, to make sure we can deal with the 3 things that customers really worry about, higher temperatures, higher pressures and higher speeds because those are the things that are driving forward.

And then on -- you mentioned heat and the transfer of heat. You've seen us not only organically grow our capabilities across low temperature, high temperature, but also medium temperature, which is where our customers want to see us and are guiding us, and it's always key that we are listening to our customers.

So essentially, we are building those capabilities both organically and inorganically and you see that through the R&D spend that we put into that. Thank you.

Any more questions?

My name is [ Anthony Lee ] and I suppose I'm a delegate my family investment company. We are long-term shareholders in Smiths. And recently, we proved our faith in Smiths in increasing our investment. So if I have questions which may seem critical, it's a critical friend rather than somebody who wants to get out. If I could use a couple of metaphors, this is a cake that we're happy with the baking. It comes out the oven. We look at the cake, and we think very tasty, very nice.

And then somebody comes in to carve the cake, and we start looking at what's going on individual plates. So I'd like to address that. I'm grateful to Mr. Steiner. I am also an engineer. And when I see things about seals and temperatures, I get lost, but I trust the engineers. And luckily, this is an engineering company, which has engineers on the Board. I trust you to know about what you're actually making.

Regarding the future of the company, I'll train my metaphor. You have 4 divisions. Let's imagine very simply, it's a Boeing 747, 4 divisions, 4 engines. You've decided to shut 2 of the engines off, and you're going to redesign the company as maybe a Boeing 787, a 2-engine company.

Now looking at the results that you published. I managed to get online this morning before I came in, I've now read the press statement. And you're getting rid of Smiths Detection, but Smiths Detection is actually making more money than one of the companies are going to keep, Flex-Tek. So again, it may be a naive question from a naive shareholder. I'd like to know a bit more about the evaluations you gave regarding the companies you decided to keep, the engines you decided to keep and the ones you decided to get rid of because from what you say in your statement, Smiths Detection is actually doing very well. And in a world where security is ever more important. Again, I'm not saying don't do it, but I'd like to know more about why you did do it.

My second question is regarding this return to shareholder -- the return of value to shareholders from the sale of Interconnect. In all the reports that we did on researching the company again before we come to the AGM, you kept it quite vague, we are going to return the value of selling Interconnect. It will be returned to shareholders. Today, we learned that it's going to be returned in the form of a share buyback, and you're buying shares at the moment pretty near the top of the market because, as I said at the beginning, we bought more shares because we have confidence in the company.

But again, if it's only going to come back to shareholders in the form of the share buyback and you will be buying a company whose share price has increased. It seems to us shareholders as that we may be not getting a fair deal in the sense that you could have returned some of it as a special dividend and use the rest of it to do a share buyback. We depend, and I only speak for my company, we like Smiths because there has been capital appreciation, but we also like the dividend.

Now I wonder whether historically, a lot of what is happening at the moment is been driven by engine capital rather than buy anything you might want to do for the company. Their calls might not be our calls. We intend to stay invested for the dividend, but it strikes me again, if you're selling divisions, what's left of the core company is going to be paying -- maybe paying a small dividend, whereas engine capital may be ready to take the money and run. Could you address that, please?

Well, okay, I'm going to have a go at doing that. I mean Roland is going to help me if we need to go into more detail, but I'm going to go at all of that, because it gets to the very root of what a Board is and what its responsibility to its shareholders are.

So I'll move through it quickly. And then we may come back to question particularly around why -- which businesses stay and which businesses go. So I mean, the sequence of events I was describing earlier were about the strategic review. And we consider all options. We looked at different combinations of the company. We looked at where our deep expertise was, where we thought we could add most value and what was going to be the most attractive company in the future.

And that's where we came to the conclusion that industrial engineering, our deep engineering expertise, our ability to work with customers and help them serve solve flow and heat transfer-type problems, and we're confident in that. That didn't mean the other businesses weren't attractive.

So the Interconnect business and Detection are very attractive businesses. Each business has a slightly different market and a slightly different cycle. And you're right, and it couldn't be more fortuitous in a sense because you can plan for everything, but sometimes the following wind helps. And both of the businesses that we've been selling are in very good parts of their cycle, which has meant that we're going to get them fully priced, and we're going to get good deals for them.

In fact, the Interconnect deal that's been announced exceed most analysts' expectations in terms of what we could get. We had a degree of confidence as a group that would happen. So that -- it was that fundamental strategic analysis, looking at our core strengths and looking at what we wanted to be, where we thought we could add most value in the future for shareholders.

The second part of your question, and then when we look at the allocation of capital, how we spend that capital, we look at all options. So we look at starting inside the company, can we invest that money and get a good return there. We look outside the company, are there target opportunities for us, and we've been fairly active. We did 3 acquisitions this year, and we're in the process of looking at some more of those sort of bolt-on type acquisitions.

So we look at share buyback, we look at those organic expenditures, we look dividends. And we go through a broad consultation process with our shareholders, all of our shareholders, engine or Elliott have -- we believe, although the way they hold shares, it's complex to see through exactly what they do own. But we don't treat them any differently. We talked to all of those, particularly the big institutional shareholders, and we talk -- and we take into account their views as we start to look at the best way to allocate that capital. But fundamentally, it's an economic analysis. And part of that is we have to -- we have to form a judgment on what a fair share price is.

And if you see us buying back shares, that's because we believe we're getting them at good value. So -- and my numbers won't be perfect because we're buying every day. But we bought -- 90% of the shares we bought back, I think, Julian, we bought back around GBP 20 a share. So you've got a fabulous return on that.

Now there comes a moment potentially where share buybacks are not the best option. So we will continue to consult. We will continue to look at the other ways of returning. And by far, the strongest message we've got is if you can get the sort of value you getting, continue to buy back your shares for now, we will continue to review that allocation of capital in the future.

So that -- for the -- Roland talked about the trade statement this morning, we've announced the intention to buy the next GBP 1 billion worth of shares back. Probably most of that will be completed in this next year. But we will continue to do the analysis. If we think those shares are overpriced, that won't be the best allocation of your capital. So we'll look at other ways of doing that. And we include in that, as I say, dividends, special dividends.

Our dividend policy for is -- phenomenal dividends is quite clear. We relate the dividend -- we see the dividend as a long-term contract that shareholders can count on. And that's why we're so proud of that 74-year record. And you'll see us moving that dividend in relation to the long-term earnings and cash flow of the company. So that explains, if you like, normal dividends versus these special events where we have from -- normally from divestments, large amounts of cash that we want to most effectively get back to shareholders.

So we've done the consultation with shareholders and very strong support for the program at the moment, but we will continue to review that. I don't know if you would want to add anything to that.

No, I think you've covered that.

One of the privileges of being up here, you can pinch all the easy bits and give all the difficult bits away. I'm going to stop there.

I have 1 or 2 other questions, I'll yield to other shareholders at the moment.

Okay. There's a few more questions in the room. Thank you.

My name is [ Phil Clark ], I'm a very long-term shareholder. You talked about the conglomerate discount, and that's a well-recognized feature, but there's also the strength of being a conglomerate and being a long-term shareholder, I can remember the years when some parts of the group have been horrible and have been bailed out by the continuing success of other parts of the group. And what you're doing is you're taking away that safety net by -- well, by selling parts of the big parts of the business and demerging potentially Detection. So you're increasing the risk to shareholders. So that's not necessarily a good thing.

My question is, though, I don't understand how there can be any value in demerging Detection as opposed to selling it because that way the value just floats and we know better from it. But there's also the negative synergistic benefits of increased cost to be borne by separate companies. So to my mind, it makes no sense at all. So please don't do that.

Okay. No, I mean, thanks for the input. I mean a good commentary in a sense, and all I would add to it is that it depends on the price. If you can look at a range of prices and look at the options. And if you believe within Smiths, it's discounted and then it will get a significant improvement in price if it were on its own valued against its peers in its market.

So those are the very things we consider. That's why we keep the options open. That's why we're running a dual path at the moment. We haven't -- we're keeping both of those tracks active. So we've got -- the sale is we've got interested parties, and we're discussing it and that would come to fruition over the next months and year. And we're keeping the demerge option as well.

Just to make sure if the price -- if there isn't a buyer out there for whatever reason, wants to buy at a reasonable price, we have the alternative. But I take your point.

My name is [ Paul Carlsol ], and I'm here as corporate representative. It's disappointing to hear that you had a cybersecurity incident earlier in the year. How frequently do you have external experts come into the company and assess your preparedness, whether you're keeping up to date with all the procedures to minimize the risk of another security incident. And secondly, you've had one cybersecurity incident. Have you considered increasing your insurance against another incident?

Okay. I mean, again, a very topical and great question. So I'll talk specifically from the Smiths point of view, and then I'll broaden it out. Cybersecurity is a real risk for corporations. It's a real risk for individuals now as well. So do exercise some caution. We have comprehensive discussions and plans around cybersecurity. So we design our systems to implicitly protect themselves against intrusions. And then we have a policy and a process, which escalates any -- because we get hundreds a day of people trying to break into corporation systems. And so we have a process of escalation if any of those become significant and that gets through to the Board in minutes.

So if we have a significant cyber event in play, it will be involved within minutes and hours of that event occurring. And that was the case in this event. The -- I'll just try and then context what actually happened as a -- almost not a complement -- you never want to have an intrusion. It's almost like a war that's going on at the moment. These are often not individuals. They're often state-sponsored groups who are targeting.

And as fast as you design defenses than very clever people on the other side are designing ways of still attacking. The event that happened was immaterial to the group. So we're pleased in the sense that our architecture and then our response was of sufficient quality that had a minimal effect on the company. It did affect John Crane, and we've talked about some of the lessons we've learned, and we've built that in exactly, as you say, we spent probably getting close to GBP 5 million this year on improving that security.

So it's a constant risk, where we talk about it and educate ourselves regularly around the boardroom table, and we have both architecture and a process, which responds and adapts to it very quickly. So you've seen a number of those events going on, and they're having significant impact. I think it's a measure of the success of the leadership here that they actually got on top of it very, very quickly. I mean you did say about insurance, and I don't know if you just wanted to make a quick comment about insurance considerations.

So I won't comment particularly on the insurance, but I will build on the external advice. We always have external advice, and we're very well connected into that external advice.

Any other questions? So we've got 2 more coming.

[ Christophe ], small shareholder. Just a question on your CapEx kind of philosophy and how it links to your creating value for our customers. The background to this question is we're all seeing the dark factories in China. And I'm wondering if that's something you need to transition to more robotization or whether the value on your end, it's more on the R&D to create -- to kind of use AI to create better products. I'm just curious as to how you're going to keep investing well in the business without wasting money?

Okay. Yes, I mean, we have an active R&D policy and demand has been leading at the Board level a lot of those discussions. And that's for exactly the reasons you talk about, we've been taking each of these businesses forward. And you can see some obvious headline examples of where that's been very successful. Detection will be a good example around some of the new technologies, which we're leading that industry in adopting.

Also in terms of investment, normally, we look at organic investment is being funded from normal business. And you've seen us very active in terms of investing inside the company when we have good ideas, and they have to compete with on a return basis with investments outside of the company. So the sort of bolt-on acquisitions we've been doing. So yes, we're very active on R&D. Yes, we look at in terms of all of each of the businesses, and we look geographically around the world the best place to put some of those investments. I don't know if you'd want to add anything, Roland?

Yes. To that, so in fiscal year 2025, we spent GBP 143 million on our R&D. So you can see that the level of investment we have there. Also on CapEx, we spent in fiscal year '25 GBP 80 million on CapEx, and that was much associated with putting in the right machining capabilities specifically, as I've already mentioned, putting in the right test facilities to allow us to sort of enhance our products and continue moving forward. So it is very much a focus for us going forward.

We have a question at the front.

I'd still like to fix a bit more on what we will -- those of us who want to remain shareholders will be left with as a company. And in doing that, if we look at Smiths Detection, one of the things that we've liked about Smiths is the aftermarket, for instance, from a division like Smiths Detection. So I'd like to know a bit more in this new slim down company what is the aftermarket? And is it comparable? Can we be reassured that there is a good income stream to come from that?

And some of the reports that we've read, some of the analyses that we've read about the future of the company, in saying the problem with trying to sell Smiths Detection is that due to regulatory issues, it may be a very difficult sell. That's not a question on the quality of the company, but it may be a difficult sell. And last year, I asked about Smiths Detection at airports because in Italy, when I've been traveling in Italy, at Fumicino. They were boasting of these miraculous new machines which have been installed. No, you don't need to take your computer out. No, you don't need to take the liquids out. We got this marvelous new machine.

And you come back to Britain. And of course, we don't have these marvelous new machines. Now as far as we can tell, these marvelous new machines have gone into Birmingham and Edinburgh, but there might or might not have been a problem with them staying switched on. So I'd like to know again if -- are we getting rid of Smiths Detection because you're beginning to find a reluctance to install these marvelous new machines that the Italians love but certainly as far as we can see in Britain are still not in. There, Birmingham and Edinburgh, I guess most people who are flying from this area are not flying from Birmingham or Edinburgh.

Okay. I'll answer the question, but I'll keep it at a reasonable level for this meeting. And then if after you want to go into more detail around individual locations, we can. Because you touch on 2 really important points in there. Let me start with the aftermarket question first.

Aftermarket is a big consideration for us. And as you say, the Detection, we have a very high market share in Detection, and that's been very successful. John Crane is probably the poster child or aftermarket in that you do the original equipment, but once the original equipment is in, you have a very long tail to that business. And that's one of the attractions to it that the aftermarket is strong, and getting stronger again.

So if you think of a world where people were talking around peak oil and volumes peak, i.e. we're talking about volumes peaking in 2030. They've put their projection back to beyond 2050 now. The beauty of that for John Crane is that that's a significant part of our business in the oil and gas industry. So we're able to extend that piece of business. So aftermarket is very important to us. That's one of the very strong characteristics of the businesses, which remain. There are -- I've got to be cautious, we're in the process of selling Detection. So we have to be very measured in what we say. And I think everything you've said is reasonably well known.

We don't think that the regulatory issues are a barrier to sell. We think we'll be able to sell it. We think that the technology in that industry and the -- I mean, Roland can actually talk to some of the orders we're starting to see coming in, it's looking very good. It's also getting stronger.

So as a business -- if you're the buyer of that business, you'll be looking at it with a very good plan and future outlook. It's in good shape. I don't know if you'd add anything?

No, I'm just glad you had a good experience in Italy with the Smiths machines, and I recommend that you go to London Heathrow or Gatwick, which are also Smith machines, and they are the most modern versions of that. And the regulatory environment in Europe is certainly supporting an even better experience at the airport, of which Smiths is -- Smiths Detection is at the forefront.

That's reassuring. I would just -- if there was a chance to speak afterwards because I don't want to delay people. But I would say as a long-term shareholder. Normally, the Board is sort of milling around at the coffee session before. I was a little disappointed, and I always wonder if a Board is hiding from us, why they're hiding from us. So perhaps you could give reassurance to shareholders like me if you could join us briefly for coffee so that I'm sure you're not mounting the barricade.

No one is hiding. You have your full future board here, plus 2 extras, who are very, very experienced.

Could I just ask one question, what I would call housekeeping. I always ask this, but Mr. Pryce, welcome to Smiths. You joined in February. It's now November. According to the annual report, I still and my company still owns more of Smiths than you do. Would you like to add to the information that's in the report as to whether you are now a Smiths Group shareholder?

Well, firstly, thank you, and it's great to have joined the Board of such a fantastic company with such a great opportunity. You might have noticed, we have been a little busy since I joined, and you'll be aware that, that creates challenges for insiders, directors in their ability to acquire shares in the company. It is my long-term intention when there is perhaps a little less activity going on to indeed acquire some shares in Smiths.

Okay. Yes. So it's been difficult for directors to buy. And we've been black out because we have information about the divestments. Okay. So I don't think there are any more questions in the room. So I'll move on to the formal resolutions to be put to the meeting. I've already declared that the resolutions will be voted on by means of a poll. And I think, Matthew, you're going to explain that process for submitting the vote.

Yes. Hopefully, everyone received a poll card this morning on registration. If not, please speak to a representative of our share registrar, who will assist you.

If you have already voted by proxy, you do not need to vote again unless you wish to change your vote. The details of the resolutions proposed are contained in the Notice of Meeting, copies of which were available this morning when you joined us. Please mark the poll card with a cross in the appropriate box and sign your poll card. Please be aware that a vote withheld will not be counted in the calculation of the proportion of votes for and against the resolution. Once completed, hand your poll card to one of the registrar's representatives, who will be located by the exit. Thank you.

Okay. Well, I mean, the company has already received proxy votes, which will be included in the votes you cast in the room today. And the final results will be announced to the market and published in our website later today.

As you can see from the screens behind me, given the proxy votes that we've already received, we expect all of the resolutions to be passed. So that about concludes the formal proceedings. The voting will close in about 10 minutes from now. So if anyone not yet cast their votes, please do so before then. And it merely remains for me to say thank you for your continued support and I'll declare the meeting closed and welcome you to join us for some refreshments in the room next door. So thank you.

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 Smiths 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% to 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 3 accretive acquisitions and 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 Smiths Interconnect and Smiths Detection. And reflecting this, Smiths Interconnect is reported as discontinued operations in our full 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 4% 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 #1 priority, and I'm pleased to see our safety record improved 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 GBP 121 million on acquisitions to support and enhance future growth. We also increased returns to shareholders, and are now 80% through our GBP 0.5 billion share buyback program. Together with dividends, we have returned GBP 460 million to shareholders in the year, taking the total to GBP 1.7 billion over the past 4 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 4 businesses was up 8.9%, ahead of the already twice raised guidance of 6% to 8% growth. Reported revenue increased 6.5%, including a 1.4% contribution from acquisitions in Flex-Tek, 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 program. 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 planned separation, Smiths 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 31.77p, resulting in a total full year dividend of 46p, 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 4 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 Smiths Interconnect and Smiths 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 Smiths Excellence continuous improvement program and initial benefits from the acceleration plan. Offsetting this was a 50 basis point negative effect from mix with higher growth coming from Smiths Detection and some negative product mix mostly within Flex-Tek.

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 GBP 576 million, representing a 99% conversion, reflecting disciplined cash and working capital management. CapEx was GBP 80 million, GBP 12 million higher than depreciation and amortization, but lower than originally guided, with a good amount, reflecting higher investment in automation capacity and testing in John Crane. Finally, we generated GBP 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 the 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 Flex-Tek. Organic revenue grew 4.4%, with a marked strengthening in performance in the second half. The acquisitions of Modular Metal, Wattco and Duc-Pac added a further 5.4% to growth. Flex-Tek's Industrial segment grew 4% despite challenging conditions in U.S. 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 2026. The business is well positioned for future wins, strengthened by the acquisition of Wattco. 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 programs 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 mix impact.

In the fourth quarter, we identified a nonmaterial balance sheet overstatement at a stand-alone U.S. industrial site, which had an GBP 8 million in-year impact on headline operating profit and a GBP 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 U.S. construction market remains subdued, although we are well positioned to take advantage from its recovery, should mortgage rates moderate and given the meaningful U.S. housing inventory deficit. For aerospace, the strong order book underpins a healthy demand for the coming year.

Moving to Smiths 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 a good win rate. Smiths Detection has now sold around 1,800 CTiX products globally, and is the first to receive the up to 2 liters recertification in the U.K. and the EU. It is anticipated that the global upgrade program 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 4 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' commitment to innovation, our iCMORE 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 multiyear order book remains strong, supporting a positive outlook for fiscal year 2026. Growth will continue to be supported by the aviation upgrade program, 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 programs. This performance reflected the strength of our product innovation, most recently, the DaVinci Generation V high-speed test socket designed to test advanced chips used in AI, data centers and computer processing.

Aerospace and defense revenue grew 15.1% with strong demand for our differentiated technology in fiber optic, radio frequency and connected products. Here, Smiths Interconnect launched the EZiCoax interposer connector for high-value aerospace and defense 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 programs. As part of the drive to maximize value through the separation process of Smiths Interconnect, we have agreed the sale of its U.S. subsystem business, a noncash impairment on disposal of GBP 30 million was recorded. Strong market conditions combined with key program 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 GBP 219 million in CapEx and RD&E, which includes customer-related engineering. We invested GBP 121 million in value-accretive acquisitions in Flex-Tek at attractive multiples and higher margins. We increased our total dividend by 5.1% to 46p per share and we paid GBP 152 million in dividends in the year. And we've now executed GBP 398 million of our GBP 500 million enhanced buyback program, which is on track to complete by the end of the calendar year. Overall, we have returned GBP 1.7 billion to shareholders in the form of dividends and buybacks over the last 4 years. We did all of this whilst maintaining a strong balance sheet, with net debt to EBITDA ending the year at 0.6x.

Our disciplined approach to capital allocation combined with a clear focus on sustainable value creation is designed to maximize long-term returns and drive shareholder value. We will continue to prioritize 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% to 4% of revenue in RD&E, enabling new product development and commercialization. Second, value-accretive 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 Smiths Interconnect and Smiths 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% to 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 Flex-Tek, our outlook reflects a continued subdued view on U.S. construction, balanced against a strong aerospace order book. Smiths Detection will continue to grow, albeit at a moderated pace, supported by the aviation upgrade program. We expect continuing margin expansion driven by operating leverage, benefits from the acceleration plan and ongoing efficiencies through Smiths 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 Smiths 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 Smiths for long-term success. We announced the separation of Smiths Interconnect and Smiths 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 Smiths Interconnect by the end of the calendar year, with completion anticipated in 2026. For Smiths Detection, we are progressing both the sale and demerger options ahead of a decision on the preferred route. Work streams are underway internally for both businesses to set them up for the separations.

Following the separations, Smiths will be a focused industrial engineering company, specializing 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 centered 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 center, delivering core competencies, including strategy, capital allocation, M&A and compliance.

Here, we also present Smiths' pro forma financial metrics. Smiths generated GBP 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 subsegments 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 inventory 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 subsegments, 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 Flex-Tek, where we delivered robust growth in our construction business in fiscal year 2025 despite challenging U.S. 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 electro fuel 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 Flex-Tek alongside a 60 basis point margin uplift. This year's acquisitions, Wattco, Modular Metal and Duc-Pac 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 within 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 Smiths Excellence. This year, through our Smiths 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 program, which is on track for GBP 40 million to GBP 45 million annualized benefits in fiscal year 2027 and beyond for a total of GBP 60 million to GBP 65 million of costs, whilst ensuring central costs remain at 1.5% to 1.7% of revenue. 2/3 of the costs and benefits relate to the retained businesses. And finally, evolving our product portfolio towards higher-margin products and market subsegments, 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 9 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 optimized to improve agility, resilience and cost competitiveness. We are consolidating manufacturing locations and centralizing 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. Realizing 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 Smiths as a high-performance industrial engineering company. As a result, Smiths is very well positioned to deliver superior value over the medium and long term. We are growth and returns focused, 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. Julian and I are now happy to take your questions.

[Operator Instructions] And now we're going to take our first question. And the question comes from the line of Lush Mahendrarajah from JPMorgan.

I've got 3, if that works. The first is on John Crane. I think of the H2 organic growth is perhaps a bit lower than sort of the expectations at the Q3 point. I mean is that being driven by some of those operational issues being worse than expected? And then if so, I guess, where -- I know the Q4 has picked up, but I guess, how far are we from that returning to normal, I guess? And sort of how does that feed into sort of your confidence for growth in FY '26? It sounds like the orders are still positive there. So just how that all fits in, I guess, in terms of 2026.

The second question is just on the margin guidance, obviously, continuing margin expansion is the sort of phrase you use. I guess can you help us just sort of quantify that a little bit and sort of what some of the puts and takes are? I think the acceleration plan should be quite a notable tailwind within that. But yes, just to help us sort of build that bridge, I guess.

And then the third is on Detection. I think you're probably about 3 halves now sort of very strong growth on the OE side with the CT scanner upgrade. I think you said before it's over 2, 3 years of this. I guess where does the OE side peak in that sort of 2- to 3-year time frame? And then how should we think about sort of the aftermarket associated with those OE deliveries coming through over the next 2, 3 years? And I guess how that sort of plays into sort of the margin pickup in Detection over those years as well?

Okay. Thank you very much. I'll try and answer those questions. So from the point of view of John Crane, yes, we saw the John Crane half -- the second half in John Crane. What was comforting in that is Q3 was better than Q2 and Q4 was better than Q3. So that was very, very positive for us.

The operational issues have been a challenge. We highlighted that with the cyber that exacerbated, as I said, 72 CNC machines were being put in place, and we're heading towards 9 new dry gas seals. So that was that was exacerbated by the cybersecurity issue. We have been monitoring the key performance indicators, though, within the business, that's machining hours, both external and internal machine hours. Those are improving. We've been monitoring the number of engineering hours that we need because these are highly engineered products, and that's also improving. We did surge those hours, and now they're back to a very manageable level. And we continue to monitor on-time delivery, lead times, supplier performance, and these are all moving in the right direction.

So that's associated with that strong order book that we're bringing into the year and the fact that we've seen a positive book-to-bill, and we have quite a view out into the marketplace of the activity in the marketplace, we feel positive that we'll see improvement on John Crane in fiscal year 2026. So pleased with how that's moving forward. Yes, did it move forward slightly slower in the second half than we thought it would? Absolutely, but the long-term health is still there within the business.

On the margin, yes, as we said, continuing, and we mean continuing margin expansion on that. So we're seeing that inflation has somewhat moderated, but we still see that we have price in our portfolio. We've learned a lot of lessons about price through the inflationary period. So we see that as very positive. We also saw the initial stages of the acceleration plan. And you'll recall, 2/3 of that acceleration plan is around the future of Smiths. So we saw the early stages of that acceleration plan coming through, which was gratifying. We'll see about half of that coming through in fiscal year 2026 as well. So that will continue to build.

And not forgetting underlying all this, although we don't call out the number, the Smiths Excellence number was strong this year. That was good. It grew again. Smiths Excellence really is starting to bed into the organization. And so that will be another benefit going forward. There are headwinds, and we recognize that there are headwinds of the macroeconomic -- the broader macroeconomic environment and tariffs. Our guidance takes account of tariffs and our current understanding. So we have those mitigations around that as well. So you can see why we are confident in saying that continuing margin expansion.

Coming on to your third question, which was about Detection. So Detection is in a very positive area. You saw that the growth that we recorded this year, we'll see that somewhat moderate going forward in fiscal year 2026 because it has been exceptional, as you point out. The program on CTiX, it's an important but not the only piece of business that Smiths Interconnect (sic) [ Smiths Detection ] does. So it's an important part of the business, but one shouldn't forget the rest of the business, which is also doing relatively well. So from that point of view is we're still in the midst of that program. It still continues. We -- I think last time we spoke, we shipped about 1,600 of those. Now we've shipped about 1,800 of those. The win rate is as good as we highlighted, at least as good as we highlighted.

So that still has a way to run, as we pointed out, through '26 and into '27 is what we are seeing there. So we're pleased with that going forward. Obviously, aftermarket, we've never been shy about talking about the stability of aftermarket. We've never been shy about talking about the margin of aftermarket, which are both very positive for us. So we see the aftermarket will come through not only on the CTiX, but as we roll forward with all the products that we install. So hopefully, those answer your questions, Lush. Thank you.

Now we're going to take our next question. And the question comes from the line of Christian Hinderaker from Goldman Sachs.

I want to start with Interconnect, if I can, 18.9% organic growth for the half. I think that was an acceleration from a low double-digit cadence in Q3. I just wonder if there's any change to note in the comp Q-on-Q or if that's all underlying?

And then secondly, if I look all the way back to Page 85 of the report, APAC revenues for Interconnect have effectively doubled for the full year. That is -- is that all driven by the strength in semi test? And I guess, interested how we think about that regional dynamic for Interconnect, given the same table implies more than 90% of its assets sit in the Americas.

Yes. So thank you. So from the point of view of Interconnect, we were very pleased with the growth in Interconnect. And it continues to be a very strong and well-balanced business, in fact. I think we shouldn't forget, yes, the headline is semiconductor test and the leading position and the excellent sort of products that we have within that are helping us move with the market. Not forgetting that this is also an operational challenge and the fact that we've set ourselves up incredibly well for delivering this amount of growth, which one should understand. So that mixture between operational excellence and product excellence has really delivered for us on that. We continue to see strong orders in that area.

But as I said, not forgetting that this business is exposed -- over half of it is exposed to aerospace and defense, and we're seeing broadly across the business that, that market is definitely being positive going forward on that. I will let Julian comment on Interconnect as he's close to the business having previously run it very recently. But the growth in APAC also does reflect growth in semiconductor, but we don't see that, that changes the shape of the business particularly. But Julian, perhaps you want to add some more color?

Thanks, Roland. Not much to add. The -- we're particularly pleased with the semiconductor performance and particularly the strength of the business in AI, where we performed particularly strongly. It's true that a large portion of the business is in the Americas. We've had that strength in aerospace and defense, particularly coming through in the U.S. But no, very pleased with where Interconnect is as we go into the new year.

Second one, maybe for Julian. I just want -- just clarifying the charges on the balance sheet restatement in Flex-Tek. If I'm reading that correctly, GBP 8 million of the charge is within the adjusted earnings line and a further GBP 15 million one-off that further reduces your reporting earnings for the business. I just want to understand a little bit the rationale for that split and whether I've got that well understood.

Yes. So Christian, in quarter 4, we discovered what ended up being a nonmaterial balance sheet misstatement in one of our Flex-Tek businesses. When we dug into it, it was effectively covering multiple years, which guided our treatment with GBP 8 million, as you say, as a headline charge or indeed reflected in our reported numbers for 2025. And then we had the GBP 15 million charge to non-headline reflecting the balances for previous years.

We thought that was the best presentation of the effect of this through our numbers so that we could show an appropriate organic performance in the year. I will just add that whilst unfortunate and something that we didn't want to have, this particular event has now been fully investigated. It is now fully resolved and the learnings from this have been taken forward into the rest of the business.

Now we're going to take our next question. And it comes from the line of Mark Davies Jones from Stifel.

Can I just ask a bit more about the moving parts of Flex-Tek and the different end markets addressed? The risk of being picky, is 6% growth in aerospace relatively modest given the current trends in that industry? Is that related to the sort of supply chain issues we're hearing about in engines? Julian, I think you mentioned a big industrial electrical heat project coming to a conclusion in the first half of next year. Is that causing any kind of gap in the outlook for that aspect of the business?

And then thirdly, I note that recent acquisitions have been weighted more to the construction end of the business despite the fact that, that market looks relatively soft short term anyway. Is that just availability in terms of where the opportunity to consolidate the market sits at the moment? Or do you think we should see acquisitions in other parts of the business, too?

Thank you for those. From the point of view of the aerospace business, we're actually very pleased with the growth rate we're seeing there. We are working through any sort of supply chain challenges that we have. They're not major for us at all. So we are pleased with the continuing growth rate there. We're pleased with those relationships with the customers. So we will -- as we said, we are coming into the year on aerospace with a very robust order book and a positive book-to-bill ratio. So we see that coming through very strongly, and that's reflected in that 6%, which we think is a good number to think about on that one.

On the industrial engineering projects, yes, we have the large project, which we continue to execute against. And we have a funnel of other projects in that area. So this is the programmatic part of Flex-Tek. So we will continue to build those programs going through. And you can see that we've indicated for Flex-Tek, we anticipate growth going forward in the fiscal year 2026. So yes, is it programmatic? Yes, absolutely. Do we have other projects coming in through the process? Absolutely.

And that leads on to sort of construction. I think much of the numbers might not call it out to such an extent. The standout performance is construction because we know the U.S. market is very muted. We know it continues to be muted. We're not predicting an upturn in how we've looked at our numbers for fiscal year 2026. We are recognizing the market for what it is. There might be some good news, but we're not baking that in from the point of view of the rates and the putative rate changes that might happen.

However, we think that we're in a -- an advantaged position within that market. And why? Well, we've got some empirical evidence. We continue to grow in spite of the market. We've got the new products coming through, which we mentioned the Blue Series that, that will be a changer. We've got Python coming through as well. So we've got the new products. But just as important as the innovation, we've got the customer relationships and the alignment with the correct customers, end customers to really make sure that we continue to outperform that.

As part of the acquisitions, there were acquisitions in construction. And I think we see the megatrend. There is a deficit. We know there's a substantial -- several million homes are missing in America. We know it's going to take them perhaps a decade to sort of fill that deficit from that point of view. So the megatrend is correct for us. So our strategy is aligned with the megatrend. We're advantaged because of the way we play in that market as we are the people who are consolidating, which gives us me comfort about the R&D spend that we've got there because of the new products as well. So you start to put those things together and now is a good time to continue our strategy because when it does turn, you'll see the exceptional performance coming through from that. So the strategy being essentially long term.

One of the acquisitions that we recently announced wasn't in construction. It was in heat. Heat is also another market, which obviously we touched on with the larger programs there, but we're very keen to both develop our presence and our routes to market within heat, but also to fill in technology gaps that we see within that and either through organic investment, but in this case, through inorganic investment.

I would just add to that, Mark, we do have a very active pipeline in Flex-Tek, and we continue to work that pipeline, and we do expect to see more acquisitions in this space as we go into the new year.

Now we're going to take our next question. And the question comes from the line of Margaret Schooley from Redburn Atlantic.

I actually have 2, if you would. The first one, I'll just put up there. In terms of John Crane, again, organic growth, can you give us some indication of the split between what was volume and price?

Yes. So from the point of view of where we've been in the past to sort of contextualize it, essentially, we did experience a lot of price growth in the past. And that also helped us develop the skills and the disciplines we need for managing price growth. What was pleasing this year was actually this year was more about volume growth. And that, I think, is important to me to say, yes, we're managing pricing. Yes, it's not quite such an inflationary environment. However, people are willing to pay for the John Crane brand. But really, we're now driving through volume.

So -- would you like to give us some guidance on the split?

Yes, just to say that we've taken some additional price to reflect tariffs. But the -- as I say, as Roland said, the dynamic of volume and price has been positive this year.

Excellent. And then my just second one, you mentioned some -- several new products in Flex-Tek, which is driving through growth. And in the presentation, you also mentioned in John Crane, the coaxial separation dry steel. Can you just give us a little understanding on the John Crane new product introductions? What markets you're actually targeting to further exploit? Or what other new products and adjacencies we should look forward to in FY '25 to continue to support your growth expectations?

Yes. I think it was pleasing to see, and it does get a lot of focus from both Julian and myself because I think John Crane is an area where we can definitely improve the way we introduce products. We can improve what we're doing with our new product development pipeline. And I think I'm very keen on new product development, new technology development, new process development and new materials development. And I think John Crane, it will take time for these things to crystallize. But we can already see with the separation seal, the focus on getting products out there, getting products aligned with key customers and getting products aligned with key accounts to make sure they're adopted relatively quickly.

I think there is that commercialization, which you'll see us focus on more and more about how do we improve the products that are already out there. So the products introducing new technologies, bringing them -- increasing their specifications and then these new products, which you saw in the separation seal. So you'll see that mixture coming through. Some of those -- the new products will be longer term. The upgraded products will be shorter term, more easily adopted, meeting customers' requirements.

Underlying all that, what are the sort of broad fundamentals? Because the great thing about the John Crane seals is they're not necessarily an end market specific. Obviously, the end markets do drive it. But we're looking -- all these seals need similar characteristics and similar improvements in characteristics. What do I mean by that? I mean they need higher pressures. So we're developing the technologies that allow us to have higher pressures and the products that allow us to have higher pressures. They're looking towards higher temperatures. So we're developing the products and the platforms, I should really say that allow us to higher temperatures.

And then the third one, which is very, very much a focus is high speeds. So -- and then if you mix those sort of 3 ingredients together, that can go for very traditional energy, that can go for hydrogen, that can go for LNG. So you can see all those markets, enjoy the benefits of those improvements. So I think we're becoming much more coherent on how we develop those products, which I think will benefit our customers ultimately.

One last one, if I may, which might be slightly difficult to answer given where you are. But since the announcement of your strategic actions, in particular, on Detection, has your thinking evolved at all as you go through this exercise in separating some of the assets? Can you give us any indication of the level of interest or how the market backdrop has changed or in any way changed your thinking since the point you announced the strategic actions on Detection specifically?

Detection, specifically. Yes. So on the broad approach, we're very pleased with the performance of those assets that we've highlighted for separation. So we knew it was a good time, and we knew they were performing well. We're pleased to see that continuing performance. So absolutely, the timing is working well for us on that. As we said, Interconnect, we will announce something at the end of the calendar year that we've seen -- we're continuing on that track, and we're working through that to announce something at the end of the calendar year.

On Detection, again, we did a lot of the desktop and role playing on this to see how it would work. You saw the outcome of what that said, the clear sale of Interconnect, that was obvious. We wanted to make sure that we were value creating -- value creation is what this is about and surety of delivery. And that's where you see the demerger. We're running the twin track of demerger and sale process for that. The work that we're doing behind the scenes on separation is progressing as we anticipated. So I'm not going to give you a sort of blow-by-blow account, but that's essentially where we are. So yes, obviously, we're always thinking about the value creation and the surety. I wouldn't -- but the strategic direction was well set, and we're very sure that, that is the right strategic direction.

Now we're going to take our next question, and it comes from the line of Alex O'Hanlon from Panmure Liberum.

Well done on a great set of results. Just 1 question from me. Could you give us an idea of the level of employee churn at Smiths and how that compares to recent history? I guess what I'm trying to get at is how are you managing the culture of the business during a time of transition? Is it a case that employees don't feel unsettled given that the businesses are already run very separately and maybe feel empowered, but just kind of any color you can give us on that would be greatly appreciated.

Thank you for the kind comment at the beginning. So this is something we look at very carefully because it is one of those questions which one has to ask in these situations. And what we've made sure is that we've been clear and transparent with people and explain to them what's happening. And that's not only within the businesses that have been separated, but also the businesses which are being retained as well as head office, which we've spoken quite extensively about this 1.5% to 1.7% that our target is for central costs. So we do recognize that this is a moment in time and a difficult moment.

I think of it -- people talk about transformation. I think this is a continuing journey for us. We fully intend to be moving at pace and always with purpose. So we have made sure that we're talking to everybody who we work with on this and preparing people for the necessary sort of questions that would be answered, make sure that we have a unified position to things to make sure that we're dealing with people, with equity as well.

At the moment, what we're seeing in the figures is probably where you'd like me to get to is we're actually seeing our attrition at a slightly lower level than we've been seeing previously. I won't give you the exact numbers. But at the moment, what we're doing seems to be the right thing. Obviously, it does affect individuals, and we are acutely aware that it is a person-by-person thing. But at the moment, in the broad, we're not seeing the uptick one might have anticipated.

Now we're going to take our next question. And the question comes from the line of [ Stephan Klepp ] from BNP Paribas.

I hope you can hear me well. So I have 3 questions. So the first one is on John Crane. Can we just talk again on the execution? I mean I know that you have been very vocal about the fact that it has never been an order problem and execution, obviously, due to the cyber incident was impacted. Well, your peers, your peers have outgrown you. The question is, did you lose some market share? Are your clients patient? And should that not even mean that some pent-up demand in the area? And having said that, shouldn't the visibility in John Crane be larger than normal because you couldn't basically get the orders out [indiscernible]

Right. Struggled to hear that question, but I will repeat it to make sure I've got it and Julian, if you heard it better than me -- so you were asking about how the execution is affecting John Crane and particularly if we've lost market share and has that created pent-up demand, I think that was the question. And has that, therefore, created more visibility in John Crane. Yes, sorry, the line is bad.

Sorry, the line is probably bad. Sorry for that.

That's all right. So from the point of view of the delivery in John Crane, as I said, Q3 was better than Q2, Q4 was better than Q3. But we are ramping up. The cyber incident was definitely an issue for us around engineering, as I mentioned before, but more broadly for John Crane being the most integrated of our businesses. During that period, we obviously were talking to customers. We were obviously making sure that the customers were comforted with that. This is a very sticky business, as we know, although there are opportunities to gain market share as we've laid out. So we were very aware of that and made sure that we worked through that.

Now we are on the path to recovery. As I said, our machining hours, both internal and external are up. Our engineering hours are now stabilized, having gone through a surge to do the deal with the heart of what was the issue, which was we locked down our drawings to protect them and then took time to release our drawings back. So leading indicators on lead time, on supplier delivery, those are all moving in the right direction. So we will see over time that developing.

The answer to what about the order book and what about your visibility, what I pointed out through this period, we have a strong order book. So that was a positive. We also are starting to reduce our own lead times in this period, and we have a positive book-to-bill ratio. And as we've talked to previously, yes, there's a book-to-bill ratio that the orders actually coming in, but also we have visibility into our customers' programs, which are long-term multiyear programs. So we do have that visibility. So we believe if you think about where our guidance is on the 4% to 6%, I think it would be fair to say that John Crane will be at the top end of that guidance.

Roland, I'll just add there that the aftermarket saw some slippage in Q3 around the cyber event. Of course, it's very difficult for anyone else to pick up our aftermarket. So what we're expecting to see is aftermarket returning as our operational improvement starts to come through. And we did see an improvement in aftermarket orders through Q4.

And the second question is Interconnect. I mean...

Excuse me, Stephan. Please accept my apologies. Your line is very breaking up. I believe our speakers will be not able to hear your question. Please, can you adjust the volume.

One second. Can you hear me better now?

Let's try. Let's try.

Yes. I'm very sorry for that. I don't know what's going on. On Interconnect, I mean it is very good news that you are very far in the process and say that at the end of the year, we're going to see the divestment. Is it right from the capital allocation perspective that in this big transition that you're going through, larger deals on the M&A side are off the table? And should we mentally earmark the proceeds of Interconnect all to be deployed for share buybacks?

Do you want to take that one, Julian?

Yes. Thanks, Stephan. So yes, just to repeat the point Roland made, the sale process for Interconnect is progressing well, and our plan to announce that by the end of the calendar remains in place. In terms of the use of proceeds, again, we've been clear that our intention is to return a significant portion of proceeds to shareholders, although we haven't yet determined or agreed the mechanic.

In terms of our capital allocation, again, we've been pretty clear on this in that we allocate our capital to develop and generate the very best returns. And of course, that's illustrated in our very strong ROCE performance in '25. We'll continue with that. We'll allocate capital organically, and Roland has given us some insight into some of the organic R&D investments and programs that we're pushing forward with. We have the investment into the acceleration plan, which is delivering the returns that we expect to see next year. And then inorganically, we will continue to work an active pipeline of inorganic acquisitions. We will continue to see acquisitions as an important part of our story as we go into the future, particularly in higher value, high-return adjacencies in both John Crane and Flex-Tek.

And now we're going to take our last question for today. And it comes from the line of Dylan Jones from Kepler Cheuvreux.

Just a few quick follow-ups. The first one, just on the Flex-Tek restatement, the GBP 8 million that go through the headline number. So if this is a balance sheet restatement, can we expect to get all of this back in FY '26 and going forward? Or is it more of a realization of an accounting policy that was being applied appropriately and it's going to sort of remain in that sort of cost base in future years?

And then just the second question, you obviously touched on some of the R&D and innovation qualitatively, what's sort of going on there. But I guess just given it's sort of more looking at future Smiths, it's sort of identified as one of those areas where you can get that sort of above-market growth. Just wondering how we should think about that, whether it's a step-up in sort of R&D in that Flex-Tek and John Crane business that would need to sort of capture that higher level of growth with the product innovation? Or is it more just a concentrated focus on those 2 businesses should enable a higher level of growth from the innovation piece?

Do you want to take the first?

Yes. Thanks for the question. So of the GBP 8 million that was charged to this year's Flex-Tek profit, we expect some of that to come back next year, but not all of it. That's not necessarily because there's any repeat of the problem. Of course, what it really is, is getting to a point as to understand what is the fundamental underlying profitability of that business as we look out into the future, and the business is working through that as we speak. But some of it will come back, but we're not guiding on the absolute amount.

And then on the R&D, this will be very much a focus. So as some of you will know, my background is innovation and R&D. And I think with that focus and some of those points I was talking about, about enhancing the products within John Crane in that sort of product technology, process and materials approach. So really getting the products we have fit for the future and then developing the products, the long term, new products is important as well. So you'll see that focus, and it's very pleasing to see the separation seal come through, but you'll see that focus really start delivering.

And it's not just about the new product development, it's about the new product commercialization, making sure that we've got the customers, those key opinion leaders, those key accounts ready for those products as well, almost co-collaborating in some cases, hopefully, with that. So we'll see that driving through on John Crane. And for me, Flex-Tek, the focus on Flex-Tek, the Blue Series is really the most recent. But really, there is a lot of innovation about Flex-Tek because Flex-Tek is so close to its customer. And I think there might be a little bit more -- I'd like to see a little bit more discipline driven through that capture of requirements.

But yes, I think you'll see Flex-Tek. I mean you look at the numbers, you say they don't spend a lot on RD&E. But relative to the competition in absolute terms, they do spend and they -- I think they can turn into a real market leader on the innovation as well as the market leader where they already are. Just the same way we saw the effect of R&D on the growth rate that we see within Detection recently or the growth rate that we saw in -- we now see in Smiths Interconnect with that focus on semiconductor that they had, for example. So yes, I think expect more on the innovation side from us, but not necessarily spending more money on that.

Dear speakers, there are no further questions for today. Thank you for joining the conference today. You may all disconnect. Have a nice day.

Thank you very much.

Thank you.