Smiths Group plc (SMIN) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us for our fiscal year '26 results. 2026 has been a significant year in the company's 175-year history. We have executed the portfolio transformation, delivering on our commitments to create significant value for our shareholders. We have proactively supported our customers against the backdrop of challenging external market conditions. And we have invested in our businesses to deliver a resilient financial performance. both now and into the future. None of this would have been possible without our people. Thank you for your dedication, hard work and commitment. Moving to our agenda for today. I will start with the key highlights from the year. Julian will then take us through the financial results and the outlook for fiscal year '27. I will then return to outline the path to higher growth, further margin expansion and continuing value creation. We will then be pleased to take your questions. Fiscal year '26 was a year of significant strategic process for Smiths. We completed the sales of Smith Interconnect and Smiths Detection at very good prices, crystallizing GBP 3.3 billion of enterprise value. These transactions have repositioned Smith as a focused, premium, industrial engineering company. We have a stronger financial profile, a clear strategy for growth around four vectors of accelerate, innovate, execute and compound, which I will explain more later. We have also made good progress high-grading our portfolio, exiting lower growth and margin businesses in Flex-Tek and adding exposure to high-growth data center opportunities with the acquisition of DRC. In addition, today, we are announcing the launch of a process to divest the John Crane U.S. legacy asbestos liability to enhance cash flow and strengthen our balance sheet. We delivered operationally and financially, we grew organic revenue, expanded margins and generated strong cash flow. This was despite significant disruption arising from the conflict in the Middle East, ongoing weakness in U.S. residential construction, all alongside continued investment for growth. I am pleased with our performance given this backdrop. Our results illustrate the underlying strength and resilience of our business, the quality of our technology and the strength of our customer relationships. As we enter fiscal year '27, the near-term underlying market conditions remain challenging, but with opportunities for growth. Our robust order book and business momentum underpin our expectation of organic revenue growth of around 4% and further progress on our operating profit margin entering our target range of 21% to 23%. The positive addition of DRC and data center exposure, the opportunities in John Crane from the structural tailwinds in global energy resulting from the focus on energy security and the repositioning of the Flex-Tek portfolio underpin our strong conviction that we will more quickly deliver our medium-term 5% to 7% organic revenue growth target and support our 21% to 23% margin target. Our outlook is supported by self-help initiatives and strategic execution. We are not relying on a broad market recovery to deliver that outlook, but purposefully investing in and driving the business forward. With that, I will hand over to Julian.

Thank you, Roland. And good morning, everyone. As usual, I'll take you through our financial performance, capital allocation and our outlook for fiscal year '27. Before I start, I would like to clarify the reporting perimeter. Smiths or continuing operations means the businesses within John Crane and Flex-Tek excluding the Flex-Tek General Industrial businesses as well as Detection and Interconnect that have been classified as discontinued operations. Total group includes the performance of all businesses for the period during which they were owned. Starting with headline performance. Smiths delivered organic revenue growth of 1.2% to GBP 1.9 billion, a resilient performance in the context of the challenging backdrop in two of our largest markets. Smiths headline operating profit increased by 1.9% organically to GBP 399 million. Headline operating margin was 20.6% and an increase of 20 basis points. This absorbed the impact of the disruption in the Middle East, tariffs, lower volumes and continued investment in growth. Return on capital employed was 23.5%, comfortably above our medium-term target of more than 20% and reflecting a higher capital base from increased investment in John Crane and the DRC acquisition in Flex-Tek. Smiths headline EPS increased by 6% to 86.8p. Total group headline EPS increased by 12% to 135.7p, with growth in underlying earnings, enhanced by the share buyback program. Smiths operating cash conversion was 96%, reflecting the strong cash flow characteristics of the company, and the Board is recommending a final dividend of 33.5p, taking the full year dividend to 48.5p, an increase of 5.4%. Turning to revenue. Organic growth was supplemented by 2.6% of growth from acquisitions, including the contribution from DRC since April. Growth improved in the second half versus the first, as originally guided, but was impacted by a GBP 20 million effect in John Crane from the conflict in the Middle East. Flex-Tek Aerospace achieved an excellent performance, but the challenging U.S. residential construction market and customer destocking and project phasing in Thermal Solutions had a negative effect on performance. Yet despite these headwinds, we achieved good operating momentum. We demonstrated resilience against the challenging market backdrop, and we added acquisitions, new businesses to the portfolio that enhance the growth potential of the business. Headline operating profit increased to GBP 399 million and margin expanded 20 basis points to 20.6% organically. Good progress towards our 21% to 23% medium-term target range. Pricing initiatives, particularly in John Crane and Flex-Tek Aerospace were positive as were the benefits from the acceleration plan, including a GBP 5 million reduction in central costs as well as Smiths excellent savings. Operational gearing, tariffs and increased strategic growth investments were a headwind to margin, and we continue to balance near-term margin delivery with investment for sustainable growth. The increase in total group headline EPS reflected the organic operating profit growth, the performance of the discontinued operations and the share buyback program, partly offset by higher tax and finance costs, reported EPS grew 12% to 135.7p, reflecting accretion from Flex-Tek acquisitions, adverse foreign exchange and the accounting effects related to the sale of Smiths Detection and Smiths Interconnect, which under IFRS 5, are no longer subject to amortization or depreciation. You can find the Smiths EPS analysis in the presentation's appendix. Operating cash flow for Smiths was GBP 384 million, representing cash conversion of 96% and slightly ahead of guidance and demonstrating the strong underlying cash generative quality of the company. This was driven by higher operating profit and lower capital expenditure, although ahead of depreciation, reflecting continued investment in growth and efficiency. For example, John Crane's machining, testing, automation and capacity upgrades last year. Offsetting this, we recorded higher inventory to support the order book and maintain service through geopolitical and supply chain disruption and an increase in receivables, in part due to slower collections in the Middle East. I will now turn to the performance of our two businesses, beginning with John Crane. John Crane grew revenue 2.3% with the conflict in the Middle East, impacting second half performance by GBP 20 million. Excluding this, growth would have been 4% in the year and more than 5% in the second half. Growth was led by original equipment sales, particularly in dry gas seals. The U.S. and Latin America performed strongly, growing mid-single digits. Aftermarket was up 1%, but held back by the impact of the Middle East. Industrial revenue grew 2%, with strong growth in mining and Water, offset by weakness in chemicals, largely related to the Middle East and overcapacity in China. Headline operating profit increased 3.5% organically to GBP 270 million and margin expanded 30 basis points to 23.9%. Pricing, mix and the benefits from the acceleration plan more than offset inflation and an GBP 8 million increase in investment in strategic projects. Taking a moment to address the Middle East directly where the safety of our people and their families remains our first priority. They have been doing an incredible job supporting our customers in the region. Our facilities have remained operational and our focus has been on supporting our customers day-to-day through difficult circumstances. We have experienced delays in maintenance programs and OE projects have moved to the right. We've also seen a corresponding impact on order intake as customers have reduced CapEx and optimized OpEx. Working capital has also been affected as we maintain stock availability and experience slower collections. As we look forward, our fiscal year '27 assumes disruption continues at least through the first half. However, John Crane is well placed to support customers as activity normalizes and recovery projects begin given our local presence, broad installed base and extensive service capability. We are already working hard to put ourselves in the strongest position so that we are commercially and operationally ready and flexible to support our customers when this demand returns. For example, we are rebalancing production capacity, optimizing our supply chain and as well as investing to increase our local manufacturing and service capability in the region. Longer term, the heightened focus on energy security and reliability is likely to have lasting implications supporting investment across energy security and infrastructure markets globally. This encompasses capacity expansion and supply diversification, additional backup infrastructure with increased maintenance and reliability spending. This is where the largest opportunity lies. We continue to practically engage and support our customers on our leading technology capabilities unrivaled service network and deep customer intimacy place us ideally to win. Flex-Tek revenue declined 0.4% in the year. Construction declined 3.6% against the backdrop of a weak U.S. residential construction market, where housing starts and building permits declined 0.8% and 2.1%, respectively, across the same period. Performance improved across the year, returning to growth in quarter 4 at 2.9%, supported by new customer wins, particularly in flexible ducting and multifamily projects. Thermal Solutions declined by 6.2%, largely due to the destocking of residential heat kits experienced in the first half and the completion of an ultra-high temperature project. In April, we acquired DRC, which adds cooling and heat removal technologies with exposure to fast-growing data centers and power generation markets. As a result, Thermal Solutions now represents around 1/3 of Flex-Tek revenue on a pro forma basis. Our space grew strongly at 10.6% with order book execution, contract renewals with major aircraft engine manufacturers delivering pricing and volume growth. We achieved strong double-digit growth in the strategic growth areas of India and MRO. Acquisitions added 6.4% to growth, reflecting our capital allocation decisions targeting high-growth adjacencies. The operating profit and margin performance largely reflected the market impact on construction volumes and small impact from tariffs, partly offsetting by pricing in Aerospace and operational efficiency savings. Our approach to capital allocation remains disciplined and focused on value creation. Growth is the main priority and continue to allocate capital to opportunities that have the potential to accelerate revenue performance. In fiscal year '26, we invested GBP 64 million in RD&E or 3.3% of revenue. CapEx was GBP 39 million, 2% of revenue. We also invested in our commercial and strategic growth initiatives. We acquired DRC for GBP 165 million, consistent with our strategy of building into high-growth adjacencies. In a further move to high-grade the portfolio, we agreed sales for three noncore Flex-Tek Industrial businesses for GBP 40 million. And with these changes, Flex-Tek is now a more balanced growth portfolio with exposure across a broad range of attractive end markets with strong growth prospects. Our portfolio management approach also encompasses initiatives to improve balance sheet and enhance cash flow with two major pension transactions completed during the year. And today, we announced that our U.S. John Crane business will begin a marketing process for the divestiture of its legacy asbestos liability. These transactions will ultimately remove the liabilities from the balance sheet, significantly increase free cash flow and available capital. As a reminder, the annual net cash outflow related to Asbestos has averaged around GBP 20 million in the last 5 years. In relation to shareholder returns, as I have previously mentioned, the Board continues to support a progressive dividend policy. We completed previously announced GBP 500 million buyback and in line with the commitment to return a large portion of sales proceeds, we have now completed the [ GBP 1 billion ] Smiths Interconnect buyback with a further GBP 1.5 billion related to Smiths Detection, still to execute. We expect this to be substantially completed by the end of calendar year '27. Our strategy is clear and our actions demonstrate that we make sensible capital allocation decisions to drive growth, financial returns and free cash flow while retaining a strong balance sheet and a solid investment-grade credit rating. For fiscal year '27, we're guiding to organic revenue growth of around 4%, supported by operating momentum and our robust order book. John Crane is expected to be weighted towards the second half. We assume continued Middle East disruption during the first half alongside stronger growth in other parts of the world. In Flex-Tek, we assume a continuation of the subdued U.S. residential construction market, although we will continue to drive performance. We expect a continuing strong performance in aerospace, a return to growth in Thermal Solutions and a positive organic contribution from fast growth in DRC. As a result, Flex-Tek growth is expected to be weighted towards the first half, referring in part the year-on-year comparator and also our active customer engagement to drive performance. We expect headline operating profit margin of approximately 21%, entering our medium-term target range of 21% to 23% sooner than expected, and we expect operating cash conversion in the low 90s range. We've also provided some further technical guidance in the appendix to aid your modeling. We are confident in achieving our medium-term targets. The structural tailwinds in global energy resulting from the anticipated response to energy security our expanded exposure to cooling and data center applications through DRC and the evolution of the Flex-Tek portfolio, alongside continued underlying performance give us strong conviction in more quickly delivering our 5% to 7% organic revenue growth over the medium term and underpin our 21% to 23% operating profit margin target. With that, I'll hand back to Roland.

Thank you, Julian. I will now turn to our strategy and the opportunity ahead. In January last year, we took the decision to reposition the portfolio and the completion of the divestments of Interconnect and Detection this year have been a defining moment for Smiths. The result is a more coherent portfolio with a stronger financial profile, allowing greater management focus and a clearer capital allocation model. Our portfolio sits across the clear growth pillars of flow control, construction, thermal solutions and aerospace, and is well placed to deliver sustainable growth, high returns and strong cash generation, underpinned by structural growth trends. First, in energy, growth is driven by the long-term global demand for energy and is expected to accelerate further with the increased need for energy security and resilience, all of which support greater investment in critical infrastructure. Our growth strategy for John Crane is focused on our particular strength in downstream and midstream energy, where we see considerable runway before the world reaches either peak oil or gas. Our leading position in gas and energy transition position us well to take advantage of the higher level of growth in areas, including LNG, hydrogen, geothermal and carbon capture and storage. Next, industrial process electrification is supporting emission reduction, improved safety and greater efficiency across industrial markets. Here too, demand is underpinned by customers' desire to have a single integrated customized solution, which are Sureheat, Wattco and Farnam businesses are well positioned to support. AI demand is supporting the expansion in digital infrastructure and the subsequent data center developments drive power and thermal management demand. Wattco and DRC broaden our heat, cooling controls and systems capabilities to access this high-growth market, and we are excited by the size of this opportunity. Next, the structural housing shortage together with a growing population, drive growth prospects in U.S. residential construction. We see increased demand for housing over the medium term and our Flex-Tek HVAC products are well positioned to capture this growth as we expand our portfolio and geographical coverage. And finally, aviation, where trade, GDP and population growth are underpinning the continuing increase in commercial aircraft production in a market where high qualification barriers and durable supply positions support resilient growth. Alongside this, the geopolitical backdrop is driving an increase in defense spending and the demand for new military aircraft. Also underpinning these trends is the ongoing focus on productivity and sustainability. Customers' desire to improve resource efficiency, drive production and reduce emissions also supports demand for our products. Our customer-centric model underpinned by a high degree of customer intimacy and a strong understanding of customer needs, allow us to be true experts in developing customized solutions. This creates strong incumbent positions and drive high-quality aftermarket and recurring revenue. John Crane has a large installed base that has been built up over many decades. This drives a substantial aftermarket revenue stream across the operating life of a facility, provides recurring demand and sustains our customer relationships, after a market represents more than 70% of the total revenue. Flex-Tek maintains strong customer relationships across different parts of the business. Around 70% of construction revenue is repeatable through sustained distributor relationships. Thermal Solutions designs customized products and systems in partnerships with its customers and more than 75% of Aerospace revenue is under long-term agreements, contracted positions or repeatable programs. These characteristics support resilience through cycles, retention of customer positions, pricing power, margin quality and cash generation, while allowing us to bring additional products and technologies to customers and channels we already know. Our priority is to combine these strengths to enable faster and more consistent organic growth. Our growth strategy is targeted around four connected priorities, which we call the growth algorithm, accelerate growth initiatives, innovate with impact, execute relentlessly and then compound value through disciplined capital allocation into accretive acquisitions. These initiatives, although focused on growth, will support the delivery of all our medium-term targets: revenue and EPS growth, margin, returns and cash conversion and under our strong conviction that we will deliver our 5% to 7% organic revenue growth target. Taking each in turn, we are accelerating the pace of delivery of our strategic growth initiatives and increasing investment in our highest return opportunities. Alongside our pricing power, these actions underpin our plans to drive above-market growth. In John Crane, we are leveraging our leadership position in gas projects and have signed a number of major new LNG and NGL contracts, continuing to develop our leadership position in this area. LNG investments continue to accelerate globally due to energy security demand and projects of this scale strengthen our installed base, supporting long-term aftermarket servicing opportunities. To expand our aftermarket position further, we have signed new global performance plus agreements with customers in both energy and chemicals with a number of these having been taken over from other suppliers. These agreements provide the customer with a consistent reliability model across their facilities and for John Crane provides predictable recurring revenue. In construction, we have been successfully expanding the distribution of our full range of flexible and metal ducting products that we have built up through acquisition. And we are now harnessing higher growth opportunities such as the Canadian market. In Thermal Solutions, we're expanding our product offering to provide customized systems and integrated solutions, combining heat and cooling across a range of different end markets, including data centers. And in Aerospace, we are targeting an increase in market share of shipset on key engine platforms and the strategic growth areas of India and MRO, and our recent contract renewals have strengthened our position and price capture. Innovation is critical to differentiation and sustainable growth. Through a more deliberate approach to innovation, our aim is to accelerate the pace of delivery. Our approach combines sustained investment in product development with disciplined commercialization, ensuring that new product concepts are translated into tangible growth. Our 5-year innovation road map for each business span technology, products, materials and manufacturing processes. These support both the evolution of existing products for new performance requirements and applications and the development of new differentiated offerings. For example, John Crane recently loaded 93AX separation seal has seen a very positive response from customers. We have further developed our dry gas seal products for larger machine needs, high pressures and speeds and have seen stronger sales of these, and our development of materials support new technologies for hydrogen applications. Capability road maps also help identify skills requirements and strategic partnership opportunities. Our objective is to increase the pace of delivery and the actual impact. Operational excellence is foundational to growth and value creation. We continue to execute our plans with discipline and excellence, tracking the key operational metrics that underpin performance and support our strategic priorities. Smiths excellence provides a common approach to lean operations, enhance processes, automation and supply chain resilience and is embedded and standardized across our business. All these actions help us better serve our customers, helping ensure that we are their partner of choice. We continue to invest in modernizing and automating our manufacturing infrastructure. And this year, we have completed the investment in John Crane machining capabilities and upgrading our test capabilities. We have also added automation to our Flex-Tek HVAC manufacturing processes to improve efficiency and enhance safety. During the year, the acceleration plan activities continued. These included site consolidation and footprint optimization, ERP harmonization and automation. We have delivered GBP 20 million of annual planned benefits to date and remain on track for the GBP 30 million to GBP 35 million of annualized benefit for this fiscal year. These initiatives help us better support our customers through improved customer service and reduced delivery times, helping to support our growth ambitions. With the increased focus that the portfolio changes have delivered, we have continued to adapt our culture to encourage a more agile, empowered and accountable organization focused on delivering for our customers, supported by a lean center. A high-performance culture combines pace and accountability with integrity, respect and uncompromising commitment to safety. And finally, disciplined M&A which we regard as an important component of our value creation model by recycling free cash flow to augment and compound organic growth. Our track record in Flex-Tek demonstrates this. Over the past years, we have invested around GBP 700 million of capital into eight acquisitions. Flex-Tek has more than doubled in size over this time frame, a double-digit compound annual growth rate in revenue. Acquisition returns have notably exceeded the cost of capital, delivering significant value creation under Smiths ownership. Acquisitions have also shifted the mix of the business over time. Today, Flex-Tek has a lower exposure to U.S. residential construction, around 40% with a corresponding increased exposure to higher-growth Thermal Solutions and Aerospace. These actions demonstrate our active approach to portfolio and capital allocation to focus our business on areas of higher growth. We focus on identifying acquisitions that give exposure to higher-growth adjacencies that strengthen our market position, add technology, geography as well as customer access. Financially, we prefer capital-light, cash-generative businesses that are growth accretive and have attractive margin and returns profile. Our opportunity pipeline is across multiple vectors in each of our business areas, offering growth, margin and synergy potential. We have strengthened our approach to integration with clearer milestones, ownership contingency planning. This ensures a acquisitions get off to a fast start. This plug-and-play blue-print allows us to maximize synergy delivery and value creation. DRC is a great example. DRC designs customized heat transfer and cooling solutions for data centers or auxiliary power. We identified an opportunity to enhance our strategic position by adding heat removal and cooling technologies to our heat solutions. It also brought exposure to attractive higher-growth markets with a strong leadership and engineering team who needed support for their next phase of growth. Let's hear directly from the team in this video. [Presentation]

It is still early days, but in 4 months of ownership, it has performed ahead of expectations, contributing GBP 35.5 million of revenue at a pro forma growth rate of well over 20%, with an attractive margin. The data center market is expected to grow more than 20% annually over the next 10 years, supported by AI and cloud demand. We're investing in people, process and capacity infrastructure to support this growth opportunity, which we expect to be a meaningful additive to Smiths Group's performance over the coming years. So in summary, we have successfully transformed the portfolio into a focused, premium, industrial engineering company with an improved financial profile, delivering sustainable growth, high returns, robust cash generation and balance sheet strength. We continue to align our business to attractive end markets and trends that offer structural long-term growth. Our business model is resilient with a high proportion of aftermarket, contracted and repeatable revenue, underpinned by customer intimacy and leading products and technologies. Our renewed growth algorithm strategy is focused on accelerating organic growth, driving innovation, value-creating execution and disciplined compounding M&A, supported by a high-performing team and culture. In fiscal year '26, we unlocked over GBP 3 billion of value. We continue to be focused on creating value today and into the future. Thank you for listening. Julian and I will now be pleased to take your questions.

[Operator Instructions] And your first question today comes from the line of Christian Hinderaker from Goldman Sachs.

I wanted to ask, firstly, on the Middle East events. I appreciate a fluid situation over there. But curious, firstly, how we think about the GBP 20 million impact in the half across OE and aftermarket? And then as we look forward, just curious on your thinking in terms of whether or when they may or may not be a catch-up effect and when we see the reopening of business in the region.

Okay. Thank you very much, Christian, for the question. Obviously, the situation on the ground remains difficult for our customers and for our people. And obviously, people have shown excellent commitment in those 10 sites supporting the customer. There's definitely no signs that it's getting better. We believe in H1, we'll continue to see those more of the situation as we've previously seen. In H2, we anticipate that year-on-year improvement as we cycle over what happened in that GBP 20 million. Also we have seen a little bit of rebalancing of our customers. So we saw that excellent growth in North America already because of what we've done with the organization and responding to customers, we believe that, that's only the beginning of the world rebalancing to this new normal. We're definitely preparing for supporting our customers when that bounce-back comes back from the point of view of we're already preparing all the drawings drawings, we're working with the customers, we're working with the supply chain. We're making sure that we're qualifying all our facilities around the world, if there is -- well, when there is a surge coming forward. So we are deep in preparation for that. I mean if you stretch the medium-term outlook, I mean, we've got even more conviction, as I mentioned earlier, in the fact that there will be this need for security within energy and where they're prepared to support that need for security as it is seen spread out across the globe because people are going to want that resilience. So generally, a very challenging situation in the moment, but absolutely prepared for when that changes.

Maybe turning to Flex-Tek, next. I'm curious how to think about the growth prospects of Thermal Solutions in Fiscal '27, particularly when we consider the destock effect last year on heat kit in the distribution chain and also some of the sort of project activity phasing, I guess, DRC is contributing positively, but you are interested in the thoughts there.

Yes. So I'll let Julian talk about the phasing. But broadly, when we look across that market, yes, construction market will will be pretty similar to that, that it has been. But you've already seen in the Q4 that we've had that growth because of there's been a lot of sort of self-help as a lot of commercial activity. So we saw that, and we've definitely seen that momentum continue into the year on the construction. One has to remember at the moment, construction is really only 2/3 of that Flex-Tek portfolio now. And about 1/3 of that we've been moving away from just that traditional resi new build piece as well. So there is work behind the scenes within that. But I'll let Julian talk about the portfolio restructuring that we've done within Flex-Tek and also DRC, perhaps.

Sure. Thank you. Well, thanks, Roland. So I mean just to pick on the question on Thermal, I mean, it did return to growth in Q4, so we're pleased with that. And just to point to some of the factors that impacted last year's performance. So first thing, we had this significant contract running through our Sureheat business. That on a year-on-year basis was a GBP 7 million impact on the year. So that's now annualized out. So we'll move forward from there. The other factor that Roland mentioned was the destocking of these heat kits that had a GBP 13 million impact during the year and mostly in Q2. So we expect to cycle through that now as we enter into the new year. I mean on the portfolio, I mean, yes, Flex-Tek has, over time, transitioned and repositioned to some extent, away from its predominant construction position. And yes, Thermal is part of that. And with the acquisition of DRC, we'll increase that percentage even further. We do see that to an extent a kind of high grading of the Flex-Tek portfolio and pointing it towards area of faster growth, which should support the business as we look out in the medium term.

Maybe if I can just squeeze a quick third one. And just obviously, with the change in structure and portfolio, a lot of moving pieces in the statements, but how do we think about sort of normal thresholds now for working capital lines? I don't know if you want to talk days or on a sales basis.

That's definitely one for you.

Thank you. I mean, we've taken some actions in fiscal year '26 to strengthen our inventory position to better support customers through these challenging times. You've seen a small step-up in inventory levels. particularly in John Crane. But other than that, the levels of working capital are in line with our typical levels of of receivables, payables, there's nothing different there, Christian, within the working capital mix.

So next question today comes from the line of Martin Wilke from Citi.

It's Martin at Citi. Just a question on the announcement this morning about the Asbestos liability. Just to understand a bit more about how that will be structured in the timetable. And also what has changed? I think in the past, albeit under our management, the view was that sort of pay-as-you-go was sort of cheaper, if you like, than sort of settling and exiting it. So just to understand, what's something that has changed financially that's made this attractive to get rid of this liability now?

Thank you, Martin. So I mean first thing I'd like to say is that it is important that we recognize that Asbestos-related diseases are terrible for those that suffer from them. So I do want to acknowledge that and the impact that it has had. The factor remains that John Crane knows that its products are safe and for more than 45 years, has resisted Asbestos claims based on our defense. I mean to address your specific questions, Martin, we have worked very hard over the years to get ourselves into this position today where we have a reliable defense-based strategy we have a more reliable cost of the Asbestos defense, which flows through our free cash flow statement. And then just to remind you that, that is around GBP 20 million a year and has been for at least the last 5 years. I think the way we look at it is that today, we are now in a position where we have a case for presenting this to the market. And it also indeed follows some of the broader movements in the Asbestos market where other companies have taken similar approaches. So we think the time is right, and we thought it was helpful to announce that this process that we'll launch in the coming days.

And to add to that, I mean, this is just one more of those steps of dealing with legacy liabilities on the balance sheet. So you've seen the buy-ins and the buyouts on the pensions. So this is a continuation, and we've been preparing for this for several years, and this is accumulated as the markets also matured and the vehicles are much more mature now. So this is a continuation of driving free cash flow and removing the variability within that.