Smiths Group completes strategic pivot with £3.3bn in divestments
The industrial engineering company returned £1.5bn to shareholders through buybacks after selling its Interconnect and Detection businesses.
Smiths Group (SMIN), the industrial engineering company, has completed a strategic transformation into a focused premium entity following the divestment of Smiths Interconnect and Smiths Detection. The two transactions generated £3.3bn of enterprise value, with valuations of 15.1x and 12.5x FY2025 EBITDA respectively.
This portfolio reshaping has materially strengthened the company's balance sheet, which ended the year with £1,747m in net cash. The company used the proceeds to fund a £1bn share buyback programme, following the completion of a £500m programme in December. A further £1.5bn is slated to be returned to shareholders through a combination of share buybacks and structured returns through CY2027.
Financial performance for continuing operations remained resilient despite disruption in US residential construction and global energy markets. Organic revenue grew 1.2% to £1,937m. John Crane saw organic growth of 2.3%, though it absorbed a £20m impact from conflict in the Middle East. Flex-Tek experienced a 0.4% organic decline as strong aerospace demand was offset by weakness in construction and thermal solutions.
Headline operating profit margin expanded to 20.6%, driven by positive pricing, cost management, and the company's Acceleration Plan. Headline earnings per share for the total group rose 12.0% to 135.7p, supported by operating profit growth and the share buyback programme. Return on capital employed decreased to 23.5%, which the company said was due to an increase in the capital base from acquisitions and foreign exchange impacts.
Inorganic growth continued with the £165m acquisition of DRC Heat Transfer, which extends Flex-Tek's reach into data centre and industrial cooling markets. The company also agreed to sell three Flex-Tek industrial businesses for a combined £40m.
For FY2027, the company provides guidance of approximately 4% organic revenue growth and a headline operating profit margin of approximately 21%. Management maintains a medium-term target of 5-7% organic revenue growth and an operating profit margin between 21% and 23%.
The company is now launching a process to divest the John Crane US legacy asbestos liability.