Smiths : Q3 2026 Trading Update (Transcript)

Thursday 21 May 2026

‌Julian Fagge‌

Chief Financial Officer, Smiths Group

‌Good morning, and thank you for joining us.

‌Given the current market backdrop and in particular the conflict in the Middle East, we thought it was appropriate to hold a call this time to discuss our Q3 trading update.

‌Smiths organic revenue was flat in the quarter, resulting in growth of 0.2% for the first nine months. This was a resilient performance considering the disruption in global energy markets, continued softness in US 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 £10 million due to two 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 US construction market weakness. However, we did see sequential improvement from the second quarter, which we expect to continue into Q4, 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. Looking ahead, improving demand for heat kits and a more favourable comparator support a return to growth in Q4.

‌Aerospace delivered strong growth, reflecting solid execution against our order book and the price and volume benefits of recent contract renewals. This underpins our confidence in stronger performance in the second half relative to the first.

‌Turning to outlook.

‌In March, we guided to full-year organic revenue growth of 3 to 4%, which excluded any impact in John Crane from the Middle East conflict. Reflecting the disruption we have seen in Q3, and assuming 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, 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. At the same time, we are working hard to support our customers, and we are well positioned to assist when facilities return to service and production recovers.

‌Whilst the conflict 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, agreed the sale of two of the Flex-Tek industrial businesses, and completed DRC, an acquisition consistent with our strategy of allocating capital to high-growth adjacencies, with exposure to fast-growing data centre and power generation markets. We remain on track to complete the sale of Smiths Detection in the second half of the calendar year.

‌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.

J.P. Morgan. Please go ahead.

Then my second question is just on the updated margin guidance. You've mentioned in the release that this is with the support of the Acceleration Plan and Excellence savings. Could you provide a bit more colour on the moving parts here? Should we expect a slightly higher run rate than the 50% for the plan this year? Thank you.

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 stabilising 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 the effects grew 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 margin to 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 £40 million to £45 million with £30 million to £35 million of annualised 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 cost tightly and appropriately as we go through the balance of the year.

The drivers are a very well covered order book which we'll 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, just to remind you, it grew 25% last year in Q3. So, we're cycling up against that very challenging comparator. 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 US customer, and these are now picking up. 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 expectation through Q4. So, that's better.

In construction, we saw an 8% growth in Q3 last year. A little bit of that strength was, frankly, due to the cyber events. 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 house building 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. That's on the Flex side of the business. So, overall, a slightly more positive outlook for Flex as we go into Q4.

I think the key thing that we will bring here is the opportunity to drive operational performance and unit output through some investment and also some focus on flow and improvement in the

operations there. So, that should see 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.

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.

I think when you break it down, you're seeing variable factors running through the business at the moment, both to the positive and negative, and I think that's what we should expect as we look out. Clearly a require for strength - for more resilience, 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 strengths this year, particularly in Latin America and in North America. In APAC, a region which is very dependent on Middle East and 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 impacts, particularly in the Middle East so far, and I expect that will continue, and present some challenges when we go into the first half, but it's a pretty fluid situation, and we'll keep updating as we go.

Then my second question is just touching on the central costs. So if you can give a bit more colour on the central cost run rate for '26 or '27 post disposal, future mix, etc. Thank you.

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 greatest 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, this year was the year of transition. We've 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 forwards 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.

Emanuele Sartori (Kepler Cheuvreux): Perfect, thank you.

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

Julian Fagge: Well, thank you very much. Thanks for your time this morning. Just to remind you, our full year fiscal year '26 result will come out on 22 September and, as ever, the Investor Relations team here is available to discuss if you have further questions. Thank you very much.