Smiths Group Half Year Results 2025

SMITHS GROUP PLC - HALF YEAR RESULTS FOR 6 MONTHS ENDED 31 JANUARY 2025

Pioneers of progress - engineering a better future

Strong financial results; executing value creation strategy

·    Continued strong financial performance: +9.1% organic¹ revenue growth, +50bps organic operating profit margin expansion to 16.7% and +14.0% headline² EPS growth

·    Reaffirming full year guidance, raised twice this fiscal year, of 6-8% organic revenue growth and margin expansion of 40-60bps

·    Disciplined capital allocation with enhanced returns: +5% increase in dividend; £150m of £500m share buyback completed, £97m invested in accretive acquisitions, with a further £32m bolt-on acquisition announced today

·    Strategic actions to unlock significant value announced in January. Separation processes for Smiths Interconnect and Smiths Detection underway. Continued execution of the Acceleration Plan

·    Focus on high-performance industrial technology businesses of John Crane and Flex-Tek with significant opportunities to enhance growth, improve the financial profile and deliver strong returns

·    New, enhanced medium-term financial targets for FutureSmiths³ with higher growth, margin and returns

Roland Carter, Chief Executive Officer, commented:

"We have delivered another strong financial performance which, combined with ongoing strategic and operational progress, underpins our confidence in achieving our twice-raised full year guidance.

"The portfolio actions that we announced in January 2025 are being advanced with pace and purpose, with the separation processes for Smiths Interconnect and Smiths Detection underway.

"The attraction of FutureSmiths is compelling. By focusing on our world-class, high-performance John Crane and Flex-Tek businesses we will deliver sustainable growth, higher margins, returns and earnings growth, as reflected in our new enhanced medium-term financial targets. Our strong cash generation enables us to continue to invest in the business organically, and inorganically, whilst being able to distribute significant capital to shareholders. We believe this will deliver substantial value creation.

"My thanks to all our Smiths colleagues across the world for your ongoing dedication and commitment as we work through these plans. We remain focused on achieving our purpose of engineering a better future, for the benefit of all our stakeholders."

Statutory reporting and definitions

Presentation

A webcast presentation and Q&A will begin at 08.00 (UK time) today at: https://smiths.com/investors/results-reports-and-presentations. A recording will be available from 13.00 (UK time).

Our Purpose

We are pioneers of progress - engineering a better future. We are focused on solving the toughest problems for our customers, helping address critical global needs such as safety and security, decarbonisation and the ever-increasing demand for connectivity. At the same time, we are building the long-term strength and resilience of Smiths Group and our global operations. We are united by our purpose. It is what we do, how we think, and how we will continue to use our passion for innovative technology and engineering. 

Legal Entity Identifier (LEI): 213800MJL6IPZS3ASA11

This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs and/or current expectations of Smiths Group plc (the Company) and its subsidiaries (together, the Group) and those of their respective officers, directors and employees concerning, amongst other things, the results of operations, financial condition, liquidity, prospects, growth, strategies, and the businesses operated by the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or revise these forward-looking statements. The Company and its directors accept no liability to third parties. This document contains brands that are trademarks and are registered and/or otherwise protected in accordance with applicable law.

UPCOMING EVENTS

SUMMARY

We are pleased to report another period of strong financial performance. Organic revenue grew +9.1%, with operating profit growth of +12.6% and a +50bps margin expansion, both on an organic basis, and headline EPS growth of +14.0%. First half operating cash conversion was good at 94%.

We deployed capital in line with our allocation framework. We enhanced returns to shareholders with £213m returned year to date through both the dividend in the first half and the completion of the first £150m of the £500m share buyback. We also made two value-accretive acquisitions for a total of £97m in the first half and announced today the bolt-on acquisition of Duc-Pac Corporation ("Duc-Pac") for £32m. Our balance sheet remains strong and we enter the next phase of our growth and value creation journey from a position of strength.

We are today reaffirming our twice-raised FY2025 outlook for the Group of 6-8% organic revenue growth and margin expansion of 40-60bps, as well as announcing new medium-term financial targets for FutureSmiths.

STRATEGY UPDATE

In the first half, we focused on driving the performance of our businesses, reflected in today's results, and implementing our Group-wide Acceleration Plan, which is progressing well. We also concluded an evaluation of our strategic options to address the persistent discount to the significant value embedded within the Group. This review culminated in the strategic actions announced on 31 January 2025, designed to maximise value creation and enhance returns to shareholders. As a result, going forward, Smiths will focus on our world-class, high performance industrial technology businesses of John Crane and Flex-Tek, with the sale of Smiths Interconnect, followed by the separation of Smiths Detection by way of a UK demerger or sale. We also announced a substantial increase in our share buyback from £150m to £500m, to be completed by the end of calendar year 2025.

FutureSmiths - focusing on our world-class John Crane and Flex-Tek businesses

Smiths will be a global specialist engineering company, delivering high performance technologies for efficient flow and heat management. A simplified and efficient structure will unlock significant value for all stakeholders and enable greater strategic focus, financial flexibility and operational efficiency.

John Crane and Flex-Tek are high quality industrial engineering businesses, and each is well-positioned to deliver sustainable and resilient growth with high returns. John Crane's product technology, strong customer relationships and global presence positions it as a leader in its field and as a reliable and trusted partner. The large installed base provides a high margin revenue stream from the aftermarket (>70% of revenue) over the long term.

These attractive characteristics position John Crane well to maximise attractive growth opportunities across both energy and industrial markets. Key demand drivers include the global demand for secure energy supply and the increased demand for more efficient and cleaner industrial processes. Market growth is forecast at a compound annual growth rate ("CAGR") of 3-4% in energy and 4-5% in industrial from 2024-2029.

Flex-Tek's strong market position is derived from deep customer relationships based on reliable, high-quality products and customer-led innovation. Flex-Tek is well-placed to meet the ongoing customer demand for efficiency and performance improvement, and emissions reduction in its main product markets of HVAC systems, aerospace tubing and ducting, industrial process heat and specialist industrial tubing. From an end market perspective, construction is predicted to grow 3-4% CAGR, industrial 4-5% CAGR and aerospace 5-6% CAGR over the 2024-2029 period.

We expect to deliver growth above that of our markets, and this organic growth in both businesses will be augmented with disciplined bolt-on M&A, as has been demonstrated by Flex-Tek's strong track record of acquisitions.

On a combined, pro-forma basis, FutureSmiths revenue totals £1,919m (FY2024) with a headline operating profit margin of 19.5% (including FY2024 central costs of £49m). It has a strong track record of financial performance, above that of Smiths Group. Going forward, there are significant opportunities to enhance growth, improve profitability and expand capabilities, supported by our Acceleration Plan.

Acceleration Plan to enhance performance and drive margin expansion

We have made good progress on our Group-wide Acceleration Plan, announced with our FY2024 results. The Acceleration Plan initiatives are focused on productivity and capability enhancements, including delivering end-to-end process improvements, optimising operational footprint and enhancing margin. This will further improve our businesses and create a streamlined cost base.

In the first half, we incurred £7m of cost and now expect FY2025 costs to be £20-25m, following refinements to the programme. The remainder of the total £60-65m costs will be incurred in FY2026. We now expect the Acceleration Plan to deliver £40-45m annualised benefits in FY2027 and beyond. Around two-thirds of both costs and benefits relate to FutureSmiths.

As part of the Acceleration Plan, we have committed to right-sizing the Group central costs in line with the portfolio changes. Following completion of the separation processes, we aim for central costs to remain around 1.5-1.7% of revenue, below the median of our UK industrial peers.

New enhanced medium-term targets

We are announcing today enhanced medium-term financial targets reflecting the attractive financial profiles and growth potential of FutureSmiths. These new targets are through-cycle under the FutureSmiths structure, following the completion of both separation processes, with FY2026 being a transition year.

We have raised our organic revenue growth target from 4-6% to 5-7%. This reflects the growth opportunities in both our core markets and adjacencies, as well as from new products and services. As detailed below, EPS growth, operating profit margin and ROCE are all increased, reflecting the high returns of these businesses, and the further improvement to be delivered through operational excellence and the Acceleration Plan. The operating cash conversion target is unchanged at ~100%, allowing for the opportunity to invest in future growth whilst maintaining a high level of cash generation.

Smiths Interconnect and Smiths Detection separation processes initiated 

The separation processes have both started and are progressing with pace and rigour. We remain on track to announce a sale of Smiths Interconnect by the end of calendar year 2025 and a UK demerger or sale of Smiths Detection will follow. Advisers have been appointed and governance committees established to provide oversight and robust execution to deliver the best value for shareholders.

Since the announcement, we have engaged with our employees and other stakeholders, recognising the impact such changes will have, and we remain committed to respectful and timely engagement as we progress. 

Enhanced shareholder returns

As announced on 31 January 2025, we have increased the previously announced £150m buyback to £500m. As at 24 March 2025, we have completed £150m and expect to complete the remaining £350m by the end of calendar year 2025. As previously guided, we will return a large portion of proceeds from divestments to shareholders via buyback, while aiming to maintain an investment grade rating.

Update on cyber incident

Our strong first half results were delivered despite a cyber security incident at the end of January. Due to our rapid response in isolating our systems and activating business continuity plans, we were able to minimise disruption to our operations. The most notable financial impact in the half was in John Crane where recovery took longer due to the number of systems involved. This affected John Crane's revenue and orders in January which continued into Q3, moderating our full year growth expectations for this business. In FY2025, we expect to recognise costs of £4-5m in relation to the cyber incident. All critical systems across the Group are now fully recovered and operating as usual.

FY2025 outlook - guidance reaffirmed

We reaffirm our FY2025 guidance of 6-8% organic revenue growth and margin expansion of 40-60bps for the Group. This guidance reflects continued strength in our end markets, with the exception of US construction for Flex-Tek where the market remains subdued. It also incorporates the potential impact of US tariffs currently in place and we continue to monitor how the landscape evolves. The second half outlook is supported by good order book visibility and also reflects the tougher year-on-year comparator (H2 2024: +6.8%).

We expect the 40-60bps of margin expansion to be achieved through operating leverage and continued savings driven through the Smiths Excellence System ("SES") in the second half, whilst continuing to invest in the business. We expect cash conversion to be in the low nineties percent, as previously guided, and which we now expect to be more evenly spread between the first and the second half of the year, reflecting the timing of increased capital investment, particularly in John Crane.

HY2025 BUSINESS PERFORMANCE 

Current medium-term targets

In the first half, Smiths delivered strong growth, margin expansion and returns. We exceeded our current Group medium-term financial targets for organic revenue growth, EPS and ROCE, with operating profit margin and operating cash conversion both showing year-on-year improvement in line with our FY2025 guidance.

Growth

Revenue grew +6.7% on a reported basis to £1,608m (HY2024: £1,507m). This included £(48)m of negative foreign exchange translation and +£16m from acquisitions, including the first half acquisitions of Modular Metal Fabricators, Inc ("Modular Metal") and Wattco, Inc ("Wattco") and £4m from the Heating and Cooling Products ("HCP") acquisition made in August 2023.

We continue to extend a track record of consistent organic growth, and first half growth was delivered by all four businesses.

·    John Crane's growth was led by original equipment sales ("OE") across both energy and industrial. The moderation in growth reflects the strong prior year comparator of +12.7%, and the impact of the cyber incident in January;

·    Flex-Tek delivered growth in its construction business despite a subdued US construction market, with continued good growth in aerospace;

·    Smiths Detection's growth reflected strength in aviation, particularly for computed tomography for airport checkpoints; and

·    Smiths Interconnect's performance reflected strong growth in semi-conductor, and good growth in fibre-optic, radio-frequency and connector products reflecting market recovery and product innovation. 

Our business currently operates across four major global end markets: General Industrial, Safety & Security, Energy and Aerospace & Defence.

·    In General Industrial, growth was driven by John Crane most notably in water treatment and marine markets, above market growth in Flex-Tek, and strong growth for Smiths Interconnect  semi-test products;

·    Safety & Security growth reflected Smiths Detection's continued strong delivery of its order book;

·    Energy growth reflected demand for John Crane's OE offering; and

·    In Aerospace & Defence, growth was driven by new aircraft build programmes at Flex-Tek, and strong demand and new programme wins in Smiths Interconnect.

Organic growth is supported by new product development and commercialisation. In the first half, +80bps of growth was delivered from new products including the continued expansion of John Crane's unique Diamond® Seal Face technology portfolio, Flex-Tek's heating solution supporting the production of commercial green steel, the broadening of Smith Detection's digital solutions and next generation high-speed test sockets in Smiths Interconnect.

Execution

We continue to focus on driving efficient execution throughout our operations with the support of SES. Headline operating profit rose +12.6% (+£30m) on an organic basis, and +9.5% (+£23m) on a reported basis, to £269m (HY2024: £246m). Acquisitions contributed £4m to operating profit.

Headline operating profit margin was 16.7%, up +50bps on an organic basis, reflecting volume growth, pricing ahead of inflation, benefits of efficiency savings, including SES, partially offset by product and business mix. On a reported basis, margin expanded +40bps including the impact of FX and acquisitions.

By business, operating margin expansion reflected:

·    Pricing and benefits of SES offset by adverse FX and unfavourable mix from strong OE growth in John Crane, noting this supports future aftermarket revenue;

·    Adverse mix partly due to high margin industrial heating contracts in the prior year comparator for Flex-Tek;

·    Higher volumes and pricing improvement, as well as continued enhancement in operational efficiency in Smiths Detection; and

·    Strong operating leverage from the higher volumes in Smiths Interconnect.

ROCE increased +140 bps to 17.1% (HY2024: 15.7%), above our medium-term target, reflecting the higher profitability and efficient use of capital.

Headline EPS grew +14.0% to 55.5p. This reflected a headline tax charge of £65m (25.5% effective tax rate) (HY2024: £59m, 26.0%), a £5m reduction in headline finance costs and the benefit of the share buyback programme, partially offset by foreign exchange impact. We expect the full year tax rate to be 25.5%.

Headline operating cash conversion was 94% (HY2024: 89%), supported by a year-on-year improvement in working capital. Headline operating cashflow was £254m (HY2024: £218m) and free cashflow generation increased +27.7% to £143m (HY2024: £112m) or 53% of headline operating profit (HY2024: 45%).

Sustainability, Excellence and People

In the first half, we continued to drive sustainable practices throughout the business and are progressing well towards all our FY2025 and FY2027 targets, as outlined in our latest Sustainability at Smiths report. SES, now fully embedded throughout the organisation, continues to yield benefits, as evidenced by our profit margin expansion.

The safety, health and well-being of our people remain an essential foundation of our success at Smiths. Our HY2025 recordable incident rate improved to 0.23 (HY2024: 0.46), an industry top quartile ranking, driven by our continued focus on delivering a zero-harm culture.

Executive Committee and Board changes

Our focus on talent development and succession planning was demonstrated in the half as we announced a number of changes at the Board and Executive Committee level. In January, we announced Clare Scherrer's decision to retire as Chief Financial Officer, being succeeded by Julian Fagge, formerly President of Smiths Interconnect, from 1 February. Julian has been at Smiths for over 12 years in financial, strategic and operational roles including Group Financial Controller, M&A and Strategy Director and President of Flex-Tek. Julian's experience positions him well to deliver on the strategic actions currently underway.

As a result of the CFO change, there were other changes to the Executive Committee, with Vera Parker, previously Chief People Officer, replacing Julian as President of Smiths Interconnect. Kini Pathmanathan's role was expanded to include People in addition to Sustainability and Excellence. We also announced that Bernard Cicut decided to retire as President of John Crane, being succeeded by Ruben Álvarez, a 27-year veteran of John Crane whose prior role was Vice President of Portfolios and Customer Operations.

At Board level, we announced the appointment of Simon Pryce as an independent Non-executive Director, and as a member of both the Audit & Risk Committee and the Separation Oversight Committee, with effect from 1 February 2025. Simon is a highly experienced business leader of customer focused, global, industrial manufacturing and service businesses, with experience that is directly relevant to Smiths Group's key end markets, customers and supply chains.

CAPITAL ALLOCATION

We take a disciplined approach to our use of capital; investing in our businesses to fuel organic growth, pursuing strategic and disciplined bolt-on acquisitions and returning excess capital to shareholders. As announced in January, we are accelerating execution against this with enhanced returns to shareholders through our increased share buyback programme.

Organic investment

In the first half, we invested £48m in R&D (HY2024: £52m), of which £35m (HY2024: £35m) was an income statement charge, £3m was capitalised (HY2024: £7m) all in Smiths Detection, primarily next-generation hold and cabin baggage screening, and £10m (HY2024: £10m) was funded by customers in Smiths Detection and Smiths Interconnect. In addition, there was a further £20m spend (HY2024: £20m) on customer-specific engineering-related projects in John Crane, taking total spend for HY2025 from 3.0% to 4.3% of sales.

Capex increased by £3m to £41m (HY2024: £38m), reflecting planned investment in capacity and automation at John Crane. Further spend on this, as well as capex related to the Acceleration Plan, is forecast in the second half with FY2025 capex expected of ~£100m (FY2024: £86m).

M&A

In the first half, consistent with our strategic and disciplined M&A approach, we completed the acquisitions of Modular Metal and Wattco with a combined value of £97m at an EBITDA multiple of c.8x, expanding Flex-Tek's HVAC and electrical heating solutions platforms. An additional amount of up to £15m is payable subject to the performance of one of the acquisitions over a three-year period.

After the period end, in February 2025, we completed the acquisition of Duc-Pac, a US-based metal ducting manufacturer. This acquisition further builds on the acquisitions of HCP and Modular Metal in expanding our geographical coverage for metal and flexible ducting products to include the north-eastern US through its established brand, deep customer relationships and strong operational business model. Duc-Pac was acquired for $40.5m (~£32m), at a 12-month trailing EBITDA multiple of 7.2x, and with an operating margin accretive to that of Flex-Tek.  

Share buyback and dividend

As announced on 31 January 2025, we increased our share buyback programme to £500m (from £150m announced on 13 November 2024), with the first £150m having now been completed. The remaining £350m will be launched imminently and is expected to be completed by the end of calendar year 2025.

The Board is declaring an interim dividend of 14.23p, a year-on-year increase of +5.0% (HY2024: 13.55p). The interim dividend will be paid on 14 May 2025 to shareholders on the register at close of business on 4 April 2025.

Net debt

Net debt at 31 January 2025 was £299m (FY2024: £213m) with a net debt to headline EBITDA ratio of 0.5x (FY2024: 0.3x). Net headline finance costs for the half decreased by £5m to £13m (HY2024: £18m), principally due to higher average cash balances.  

As at 31 January 2025, borrowings were £675m (FY2024: £659m) comprising a €650m bond which matures in February 2027 and £131m of lease liabilities. There are no financial covenants associated with these borrowings. Cash and cash equivalents as at 31 January 2025 were £392m (FY2024: £459m). Together with a $800m (£642m at the half-year end exchange rate) revolving credit facility, which matures in May 2029, total liquidity was £1bn at the end of the period.

Following the sale of Smiths Medical in January 2022, the Group held a financial asset reflecting our equity ownership in ICU Medical, Inc ("ICU"). During FY2024, we sold 2,030,000 ICU shares (8.34% of ICU's issued share capital), with net proceeds of $240m (£187m). During the first half of this year, we sold the remaining shareholding with net proceeds of $68m (£53m).

STATUTORY RESULTS

Income statement and cashflow

The £27m difference (HY2024: £54m) between headline operating profit of £269m and statutory operating profit of £242m is non-headline items. The largest of these relate to the amortisation of acquired intangible assets of £27m, a £12m net credit for asbestos litigation provision in John Crane Inc, and £7m of cost in relation to the Acceleration Plan, with a total of £5m relating to the fair value movement on sale of ICU shares and acquisition-related costs in Flex-Tek. Statutory finance costs were £14m, £7m lower than prior year (HY2024: £21m). 

The statutory effective tax rate was 26.1% (HY2024: 35.0%) and includes a non-headline tax credit of £5m (HY2024: £1m charge). Statutory profit after tax for the Group was £168m (HY2024: £111m) and statutory basic EPS was 48.8p (HY2024: 32.0p).

Statutory net cash inflow from operating activities for the Group was £205m (HY2024: £168m). 

Pensions

During the first half, £7m of pension contributions (HY2024: £3m) were made, which relate to funded, unfunded and overseas schemes and healthcare arrangements. Of this, £5m related to the US defined benefit pension plan.

No contributions were made in the first half to either the TI Group Pension Scheme ("TIGPS") or the Smiths Industries Pension Scheme ("SIPS") and it is not anticipated that any further contributions will be made.  For the TIGPS, the liabilities have now been insured via a series of buy-in annuities with Smiths and the TIGPS Trustee working toward final buy-out of the scheme. The SIPS is in surplus on the Technical Provisions funding basis, and Smiths and the SIPS Trustee continue to work together to progress towards the long-term funding target of full buy-out funding.

These two UK schemes and the US pension plan are well hedged against changes in interest and inflation rates. Their assets are invested in third-party annuities, government bonds, investment grade credit or cash, with a small proportion of equity investments held by the US pension plan. As at 31 January 2025, 60% of the UK liabilities had been de-risked through the purchase of annuities from third party insurers.

Foreign exchange

The results of overseas operations are translated into sterling at average exchange rates. Net assets are translated at period-end rates. The Group is exposed to foreign exchange movements, mainly US Dollar and Euro. The principal exchange rates, expressed in terms of the value of Sterling, are as follows:

BUSINESS REVIEW

JOHN CRANE

John Crane is a global leader in mission-critical technologies for the energy and process industries and an innovator in rotating equipment, encompassing mechanical seals, couplings, filtration systems and cutting-edge asset management and digital diagnostics solutions. 63% of revenue is derived from the energy sector (downstream and midstream oil & gas and power generation, including renewable and sustainable energy sources). 37% is from other process industries including chemical, life sciences, mining, water treatment and pulp & paper. 71% of John Crane revenue is from aftermarket sales. John Crane represents 34% of Group revenue.

1 Includes cash R&D expenditure (1.5% of sales) and spend on customer-specific engineering-related projects (3.7%)

Revenue

John Crane delivered organic revenue growth of +3.8% in the first half, against a strong prior year growth comparator of +12.7%. Growth was partly constrained by the cyber incident where recovery took longer due to the number of systems involved.

Reported revenue was down marginally year-on-year at £551m, reflecting the organic growth, offset by a negative (4.7)% foreign exchange impact.

In Energy, organic revenue grew +3.3% (HY2024: +16.6%) benefiting from a continued focus on energy security and efficiency, as well as emissions reduction solutions, supporting medium-term growth. OE sales were particularly strong, up +12.2%, especially for John Crane's gas compression and systems offerings. Aftermarket organic revenue was flat year-on-year, partly reflecting large one-off orders in the prior year. During the period, a significant new asset management contract was signed to provide asset management and predictive maintenance technologies to a customer in Saudi Arabia, the third of such contracts in the Kingdom.

Within energy transition, the pipeline of opportunities John Crane is pursuing in CCUS, hydrogen and biofuels continues to expand, currently at 170 projects. A recent example is a strategic partnership to supply dry gas seals and a gas seal system for a groundbreaking supercritical CO₂ ("sCO₂") pilot project to develop an innovative, economically viable and easily replicable sCO₂ power block to enhance the flexibility of concentrated solar power plants.

In Industrial, organic revenue grew +4.6% with growth in both OE and aftermarket. Regionally, growth was largely driven by the Americas and by industry, in water treatment and marine markets. Notable contract wins in the first six months included a multi-year gas seal management programme contract with SK Advanced, a major producer and seller of propylene, located in South Korea.

Growth in the second half is expected to improve compared to the first half supported by a robust order book and market demand. However, the cyber incident disrupted orders in January which continued into Q3, moderating our growth expectations for the full year.

Operating profit and ROCE

Headline operating profit of £126m grew +3.9% on an organic basis, resulting in a margin of 22.9%, a +10bps improvement on an organic basis, albeit 10bps lower on a reported basis reflecting a negative FX translation impact. This organic improvement was driven by increased pricing and SES benefits partly offset by a negative mix impact from strong OE sales and higher investment in growth. This investment to increase capacity and efficiency, including marketing and commercial, are both key to service current demand and propel future growth.

On a reported basis, headline operating profit was down (1.4)%, with the organic improvement offset by a (5.3)% negative foreign exchange impact. The difference between statutory and headline operating profit includes the net changes in relation to the provision for John Crane, Inc. asbestos litigation and costs incurred in relation to the Acceleration Plan.

ROCE was 24.9%, with the headline operating profit growth, offset by a higher capital base and the impact of FX.

R&D and new product development

Cash R&D expenditure was 1.5% of sales (HY2024: 1.6%). In addition, the business spent a further 3.7% of sales (HY2024: 3.6%) on customer-specific engineering-related projects for a total investment in product development of 5.2% of sales (HY2024: 5.2%).

John Crane's R&D is primarily focused on gas compression projects and enhancing the efficiency, performance and sustainability of heavy-duty seals and hydrogen compressors. John Crane is also well placed to support energy transition projects with its extreme temperatures and high-pressure sealing solutions and continues to work with universities and customers to develop and bring to market these innovative solutions. In the first half, it announced a strategic multi-year partnership and collaboration agreement with the University of Sheffield to advance high-performance sealing technologies, crucial for the energy transition.

Data services products are also an area of focus and in August 2024, it launched its John Crane Sense® Monitor solution. This enables customers to track the health of their assets remotely using near real-time data, notifying them of potential faults and helping to minimise unplanned downtime.

FLEX-TEK

Flex-Tek is a global provider of engineered components that heat and move liquids and gases for the construction, industrial and aerospace markets. 81% of Flex-Tek's revenue is derived from the Industrial sector and 19% from the Aerospace sector. Flex-Tek represents 25% of Group revenue.

Revenue

Organic revenue grew +2.5% in the first half, with growth across both Industrial and Aerospace. Revenue on a reported basis grew +4.4%, supported by +£16m from acquisitions, primarily related to the acquisitions of Modular Metal and Wattco (acquired in the first quarter of FY2025), and despite a negative foreign exchange translation effect.

In Industrial, organic revenue was up +2.0%, a result of a good performance in our HVAC business, ahead of a subdued US housing market. HVAC growth for the second half will reflect the pace of market recovery in US housing, the timing for which remains uncertain.

Flex-Tek's solutions for industrial applications includes the partnership with Midrex to deliver electrical heating solutions that enable the production of commercial green steel. Organic revenue declined, as expected, reflecting contract timing. Revenue was helped by a positive contribution from the Wattco acquisition and the business is well placed to capitalise from the transition to electrical industrial heat.

In Aerospace, organic revenue grew +4.8% in the first half, with the second quarter reflecting a slight moderation in growth largely related to customer contract scheduling. A continued strong order book supports a positive outlook for FY2025 and beyond.

Operating profit and ROCE

Headline operating profit declined (5.1)% on an organic basis. Despite positive pricing and SES savings, organic operating margin declined (160)bps to 19.8% partly as a result of a strong comparator in the prior year related to mix benefits from high margin industrial heating contracts. On a reported basis, headline operating profit declined (2.3)% whilst operating margin declined (140)bps.

The difference between statutory and headline operating profit reflects the amortisation of acquired intangible assets and the provision for Titeflex Corporation subrogation claims.

ROCE declined (130)bps to 24.8%, reflecting the headline operating profit decline and the impact of acquisitions.

The integration of Modular Metal is progressing well, with increased revenue in the year against the challenging construction market background. The acquisition expanded Flex-Tek's presence in the North American HVAC market by extending its customer base and product offering of Modular Metal's sealed flexible duct solution.

The integration of Wattco is also progressing well, with revenue contributing positively to the electrical industrial heating business. The acquisition expanded our portfolio to a wider range of industrial electric heating products, including medium temperature immersion and circulation heating, which are highly complementary to our existing open coil electrical heating products.

Building on recent acquisitions, in February, Flex-Tek acquired Duc-Pac, expanding its HVAC presence into the north-eastern US market. The purchase price was $40.5m (~£32m), equating to a 7.2x 12-month trailing EBITDA multiple. Duc-Pac generated revenue of ~£16m in the last twelve months, with an operating margin accretive to that of Flex-Tek.

R&D and new product development

Cash R&D expenditure was 0.3% of sales (HY2024: 0.4%). R&D is focused on developing new products for the aerospace markets and construction and new electrification opportunities within industrial markets.

SMITHS DETECTION

Smiths Detection is a global leader in threat detection and screening technologies for aviation, ports and borders, urban security and defence. Smiths Detection delivers the solutions needed to protect society from the threat and illegal passage of explosives, prohibited weapons, contraband, toxic chemicals, biological agents and narcotics - helping make the world a safer place. 52% of Smiths Detection's sales are derived from the aftermarket. Smiths Detection represents 28% of Group revenue.

Revenue

Smiths Detection delivered +15.3% organic revenue growth, converting its strong order book into revenue. This included significant growth in Aviation, driven by both strong OE and aftermarket sales, partly offset by a decline in OSS revenue.

Reported revenue was up +12.5% reflecting the strong organic growth, partially offset by a (2.8)% unfavourable foreign exchange impact.

Order intake during the period continued to reflect the ongoing demand for airport scanner upgrades. In aftermarket, Smiths Detection announced the award of a contract to service hold baggage X-ray inspection systems at airports across the United States.

In Aviation, organic revenue grew +28.7%, with OE growth of +43.2%, reflecting the continued strong demand for Smiths Detection's latest range of 3D-image computed tomography machines for cabin baggage, CTiX. Smiths Detection has now sold more than 1,600 CTiX scanners and has secured a good win rate of the contracts awarded to date, which cover around half of the units that it anticipates will be upgraded. Notable wins during the first half included airports in Australia, Germany, Japan, Poland and the UAE. Contracts awarded to date support production through FY2025 and into FY2026, and it is expected that the airports' upgrade programme will continue for the next 2-3 years.

OSS sales declined (11.3)% organically, primarily reflecting a tough comparator last year (HY2024 +12.8%), as well as the phasing of service contracts and defence programmes, with OE growth in ports and borders offset by declines in defence and urban security.

In defence, Smiths Detection generated revenue from its multi-year chemical detection contract with the UK Ministry of Defence. It also announced a contract to supply LCD 4 personal chemical detectors to the Japanese Ministry of Defence, for delivery in 2025 and 2026.  

Operating profit and ROCE

Headline operating profit increased +23.2% on an organic basis for the year, reflecting the strong volume growth and pricing improvement, as well as benefits from SES savings and cost actions. Headline operating profit margin increased to 11.3%, +70bps on an organic and +60bps on a reported basis.

On a reported basis, headline operating profit increased +19.3%, including a negative foreign exchange translation, with the difference between statutory and headline operating profit reflecting amortisation of acquired intangibles.

ROCE increased +210bps to 10.0%, reflecting the growth in operating profit.

R&D and new product development

Cash R&D was £26m (HY2024: £30m), representing 5.8% of sales (HY2024: 7.6%), to support Smiths Detection investment in next-generation detection capabilities. Spend included £9m in customer funded projects (HY2024: £9m).

Following the pre-launch last year of its X-ray scanner utilising diffraction technology, the SDX 10060 XDi is currently undergoing certification in Europe.

Smiths Detection is also advancing its software offering. Its iCMORE Automated Prohibited Items Detection Systems ('APIDS') algorithm received approval from the Netherlands' National Coordinator for Security and Counter-terrorism. Smiths Detection becomes the first and only supplier to receive this approval. iCMORE APIDS uses AI to identify a wide range of prohibited objects at airport security checkpoints, automating the detection of an extensive list of prohibited items while bags pass through CT security screening machines. It enhances security, creating a faster and more seamless experience for passengers and is a major step towards full automation and alarm-only viewing, enabling airports to achieve substantial operational savings.

SMITHS INTERCONNECT

Smiths Interconnect is a leading provider of high reliability connectivity products and solutions serving segments of aerospace and defence, medical, semiconductor test and industrial markets. Smiths Interconnect represents 13% of Group revenue.

Revenue

Smiths Interconnect's organic revenue growth was very strong, up +26.8% in the first half, with growth across all business units, albeit against a weak comparator in HY2024 of (13.7)%.

Reported revenue increased +23.5% reflecting a (3.3)% negative foreign exchange impact.

Growth in Industrial was broad based across businesses demonstrating the strength of our innovative product offering, particularly in semi-test markets. We delivered outstanding growth in semi-test reflecting key programme wins, particularly in high-speed GPUs and AI, and end market recovery. Strong growth in Aerospace and Defence reflected high demand for our fibre-optic, radio-frequency and connector products.

The improvement in market activity, together with our view of orders and upcoming pipeline underpin our second half outlook where we expect the growth to continue, albeit at a lower rate given the marginal growth booked in the second half of last year.

Operating profit and ROCE

Headline operating profit increased +80.3% on an organic basis, resulting in a +510bps organic improvement in headline operating profit margin to 17.2%. This primarily reflected the notably higher volume alongside pricing, positive mix effects and benefits from SES and automation. On a reported basis, headline operating profit increased +74.6% and statutory operating profit rose +78.9%.

The difference between statutory and headline operating profit reflects the amortisation of acquired intangibles and acquisition-related costs.

ROCE increased +330bps to 13.8%, driven by the notably higher operating profit.

R&D and new product development

Cash R&D expenditure was £13m (HY2024:£11m) representing 6.1% as a percentage of sales (HY2024: 6.8%). R&D is focused on developing and customising new products that improve connectivity and product integrity in demanding operating environments.

Within Aerospace and Defence, space grade products in particular are a key development focus especially in radio frequency and optical products. During the period, Smiths Interconnect's products supported several high-profile space campaigns, including the forthcoming Europa Clipper mission to explore one of Jupiter's moons and the Sentinel-1C satellite, the EU's leading Earth observation initiative. Smiths Interconnect provided cutting-edge connectivity solutions - supplying isolators, hyperboloid and spring probe solutions, and circulators, which are designed to withstand the harsh conditions of space and ensure consistent performance. 

The success of DaVinci 112, the next generation of Smiths Interconnect's high-speed semiconductor test sockets, has been noted by industry with the receipt of several awards, recognising its significant impact on electronics innovation. Smiths Interconnect received the prestigious Best Test Measurement Award of the Year at the Global Electronics Achievement Awards and Emerging Technology of the Year at the UK's Institution of Engineering and Technology Excellence and Innovation Awards. The DaVinci 112 technology is engineered to meet the high-speed demands of IC chips driven by advancement in AI, data centres, high speed computing and self-driving vehicles.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group has a risk management structure and internal controls in place which are designed to identify, manage and mitigate business risks. Smiths faces a number of risks and uncertainties which could have a material impact on the Group's long-term performance. The Group's principal risks and uncertainties are detailed on pages 42 to 48 of the 2024 Annual Report. The principal risks and uncertainties affecting the Group for the second half of the financial year continue to be those set out briefly below and more fully in the Annual Report.

·      Economy and geopolitics: The challenging economic and geopolitical environment in which we operate may have an adverse effect on demand for our products, our cost structure, pricing strategies, profitability and market share. External adverse events could cause an unanticipated and sudden disruption to our business. The US government has recently proposed new tariffs on international trade, which could affect our profits if we are unable to fully pass-through this cost. 

·      Cyber security: Cyber-attacks attempting to compromise the confidentiality, integrity and availability of IT systems and the data held on them are a continuing risk. We operate in markets and product areas which are known to be of interest to cyber criminals. Digitalisation and increased interconnectivity of our products intensifies the risk. We were affected by a cyber security incident at the end of January 2025. However, due to our rapid response in isolating our systems and activating business continuity plans, there was minimal disruption to our operations. Our cyber risk remains elevated, with an increased likelihood of a cyber event occurring.

·      Business continuity: Disruption to our supply chain, manufacturing or service operations, or customers' operations could impact our financial performance.

·      Technology: If we fail to maintain our technological differentiation and our innovation pipeline does not meet customers' evolving requirements, we may lose market share to a new or existing competitor. This could impact our financial performance and our ability to attract and retain talent.

·      Product quality: Failure of one of our products, including failure due to non-compliance with product regulation, may result in financial loss and reputational damage. In the ordinary course of business, we could be subject to material product liability claims and lawsuits, including potential class actions from customers or third parties.

·      Commercial: Failure to act in a timely manner and adapt our market strategy in response to changes in the commercial environment in which we operate may result in an adverse effect on our financial performance and market share.

·      People: Failing to attract, develop, and retain the right people with the right skills may affect our ability to achieve our commercial ambitions.

·      Legal and compliance: We have c. 15,750 colleagues in more than 50 countries. Individuals may not all behave in accordance with the Group's Values and in accordance with ethical and legal requirements. We operate within increasingly complex legal regimes, often in highly regulated markets and with governments, customers and suppliers requiring strict adherence to laws. We may fail to deliver contracted products and services or fail in our contractual execution due to delays or breaches by our suppliers or other counterparties.

·      Climate change: Failure to identify and act on the significant opportunities arising from the world's transition to a low-carbon economy and/or failure to respond appropriately to climate change risks and regulation. We operate in more than 50 countries, each with varying levels of vulnerability to extreme weather events, which could potentially lead to disruptions at one or more of our sites.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors confirm that, to the best of our knowledge:

the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the United Kingdom and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; and

·   the interim management report includes a fair review of the information required by:

a)    DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)    DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

For and on behalf of the Board of directors:

24 March 2025