Smiths Group plc ($SMIN)

[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 [indiscernible] , 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 bring in the present 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. In 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. And the next one. 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 sales 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 conveyors 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 recycle 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 the sector with the value inherent in our business is not fully recognized by the market. To unlock this value, a decision was made to separate Smiths Interconnect via 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. 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 load 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 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 man our central costs at 1.5% to 1.7% of revenue. These are all examples of our strategy and 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 an 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 pre-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 sales 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 the 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 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 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 laid out 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 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 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. As I said, the last few years have been at 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 -- that's where we have sort of surplus capital. But the primary focus is driving growth within our businesses.

Thank you, Siobhan. 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 of the 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, other 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, in 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 change 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 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 sales. 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 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 field 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 0 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 attractor 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 booked in history and 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 or 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 report more for, which is great. So we have that trade of that we -- or the optionality of experience that we haven't had in the past.

Moving on to our next question. So Flex-Tek's 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 unpin the U.S. housing market recovery in Flex 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 East or 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 selling 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. We're well positioned for that. But exactly when it's terms 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 animation, 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 to that, but when it does, we're well positioned.

Now you are reshaping the business currently. In simple terms, what does Smith 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 highly portion -- 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 companies 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 investment 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 for 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, the 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're 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 calling. 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 the 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 cars. And we want to leverage those positions and invest in those 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...

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 flt, 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, 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 companies, 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 is 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, 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 to hit growth even in a more challenged backdrop. So as I mentioned, we're sort of 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 make our customer 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 moment.

Thank you, Siobhan. 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 cost 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 the 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 PAUSE -- so building these connections and collaborations PAUSE 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 plan 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 MCI and really good rating sustainabilities at 29.4%, and we are ISS prime rating. Our executive team is deeply involved in this. There also the 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 JAK and STEM talent is something that our CEO is particularly keen on fostering.

Thank you, Ana. 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 and plan to work towards delivering the opportunity set within our portfolio. Now of course, the decision to divest Interconnects 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 those are 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 time. 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 going forward and deliver on the opportunity set within those 2 businesses in terms of growth, margin returns and improved margin.

Thank you. 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 pure 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, it doesn't change dramatically. It's in the sort of mid-40s percent sort of level. We PAUSE -- 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, and a bigger point, 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 -- but of course, it's something the Board keeps in mind.

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, I 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 in case you miss, and I hope you've enjoyed today's webinar. Thanks very much for your time today.