TIDMSMIN
RNS Number : 4923M
Smiths Group PLC
13 October 2016
13 OCTOBER 2016
SMITHS GROUP PLC
ANNUAL FINANCIAL REPORT 2016
1. LISTING RULE LR 9.6.3 R
Smiths Group plc (the 'Company') is submitting today copies of
the documents listed below to the UK Listing Authority, in
compliance with Listing Rule LR 9.6.1 R.
1. Annual Report 2016 (for the financial year ended 31 July 2016);
2. Notice of Annual General Meeting;
3. Notice of the availability of company documents in electronic format; and
4. Annual General Meeting Proxy Form.
The above-mentioned documents will be uploaded to the National
Storage Mechanism website, in pdf file format, and will shortly be
available for viewing by visiting
http://www.morningstar.co.uk/uk/NSM.
Copies of the documents referred to above have been posted to
some shareholders and made available online to the other
shareholders today, in accordance with their respective elections
for company communications.
The Annual Report 2016 and the Notice of Annual General Meeting
are now available online at the Company's website, www.smiths.com.
Printed copies may be obtained by writing to The Company Secretary,
Smiths Group plc, 4th Floor, 11-12 St James's Square, London SW1Y
4LB, UK or sending an e-mail request to secretary@smiths.com.
2. DISCLOSURE GUIDANCE & TRANSPARENCY RULE DTR 6.3.5(2)
A condensed set of the Company's consolidated financial
statements and information on important events that occurred during
the financial year ended 31 July 2016 and their impact on the
financial statements were contained in the Final Results
announcement issued by the Company, through the Regulated News
Service of the London Stock Exchange, at 07:00 on 28 September 2016
(RNS No. 0088L) (the 'Results announcement').
Other than the information set out below (which is extracted
from the Annual Report 2016), the regulated information in the
Annual Report 2016 that is of a type that would be required to be
disseminated in a half-yearly report has already been released in
unedited full text via the Results announcement. Together, the
regulated information set out below and the regulated information
contained in the Results announcement constitute the material
required by Disclosure Guidance & Transparency Rule DTR 6.3.5
to be communicated to the media in full unedited text through a
Regulatory Information Service. Page and note references in the
text extracts below refer to page numbers and to notes to the
financial statements in the Annual Report 2016 (available online
from www.smiths.com and www.morningstar.co.uk/uk/NSM). The
statutory accounts of the Company for the financial year ended 31
July 2016 will be delivered to the Registrar of Companies in due
course.
This announcement is not a substitute for reading the full
Annual Report 2016.
2.1 RISK MANAGEMENT
(Extract comprising the unedited full text on pages 52 to 60 in
the Annual Report 2016. Certain non-reproducible graphics contained
in the Annual Report are described within the text below; some
formatting is not reproduced. The graphic version of pages 52 to 60
of the Report is attached as a pdf file.)
http://www.rns-pdf.londonstockexchange.com/rns/4923M_-2016-10-13.pdf
(Start of extract)
Principal risks and uncertainties
Smiths Group is exposed to a wide range of risks in running its
businesses. We regularly review these risks and ensure we have the
appropriate processes and policies in place to manage them.
Viability statement
In accordance In making this indirectly,
with viability assessment, on
the the directors the Group's
requirements have considered future
of the 2014 the current financial performance
revision position and prospects and
of the UK of the Group, liquidity.
Corporate including the The
Governance current year business assessment
Code, performance, the included
the directors detailed budget stress
have for 2017 and the testing
assessed the Strategic Plan. of the
longer-term Against these Group's
prospects of financial projections financial
the the directors capacity
Group, taking took into account to absorb
into the principal the impact
account the risks (as outlined of such
current on pages 55 to adverse
position of the 60) to develop events,
Group and a a set of plausible either
range scenarios with individually
of internal and potentially high-impact or
external outcomes including: in
factors, combination,
including the * Product liability and litigation; and what
principal mitigating
risks detailed actions the
on pages 55 to * Product liability and programme delivery; Group
60 (the could take
'viability to respond
assessment'). * Supply chain disruption and business continuity; to them in
order
The directors to protect
have * Fraud and corruption; its
determined that business.
a three-year The
period * Compliance with laws and regulations. directors
to 31 July 2019 also
is an considered
appropriate Consideration the Group's
time frame for was then given ability
the viability to the magnitude to raise
assessment. of the gross risks additional
The selected and their potential liquidity.
period impact, directly In
is considered or performing
to this
be appropriate assessment
as, based on the
the directors
historic have
performance taken
of the Group, a comfort from
three-year the
outlook diversity of
represents an the Group's
optimum businesses
balance of across
long-term different
projection and markets,
acceptable industries,
forecasting geographies,
accuracy. This products
time period and
also customers.
takes into
account Based on the
considerations robust
such as the assessment,
maturity the
of the Group's directors
borrowing confirm
facilities that they
and the have
cyclicality a reasonable
of the expectation
performance the Group
of the Group's will
underlying remain
markets. viable for
the period
being
assessed and
will
continue to
operate
and meet its
liabilities
as they fall
due.
The
directors
have
no reason to
doubt
that the
Group
will
continue in
business
beyond
the period
under
assessment.
------------------------------------------------------------------------------------------
Introduction Risk governance
The Group operates The Board and its assesses the effectiveness
in global markets. committees set of internal controls
In pursuing growth the 'tone at the and identifies
targets and strategic top' and approve areas for improvement.
objectives we are the strategy of
prepared to accept the business. On The Executive Committee
certain levels behalf of the Board, is responsible
of risk. We are the Audit Committee for designing the
very clear about is responsible system of internal
the specific risks for reviewing and control and risk
faced by our businesses assessing the effectiveness management, and
and have robust of the Group's ensuring it is
actions in place risk management in place and effectively
to manage them. policies and processes, deployed throughout
Our approach to and the effectiveness the business. It
each risk will of internal controls. is responsible
vary over time The review covers for ensuring the
and will depend all material controls, risk appetite of
on changing circumstances including financial, the Board is understood
and the external operational and by risk owners
environment. compliance controls, and decision makers
as well as the in the business.
Group's principal It is also responsible
risks. for conducting
an annual assessment
The Board ensures of strategic risk.
appropriate oversight
and monitoring Divisional and
through a number functional teams
of Board processes are responsible
(strategy reviews, for the day-to-day
disclosures, Committee management and
meetings, management reporting of risks.
reports and deep They will identify
dives of selected new and emerging
risk areas). The risks, ensure they
Board is supported are escalated where
with input from appropriate and
a number of functions. take action to
Internal Audit manage risks as
is one of them required.
and facilitates
the Group's risk
management processes,
--------------------------- ----------------------------- -----------------------------
<graphic right arrow>
Tone at the Design the Complete
top system risk reviews
Set the strategy
------------------ ----------------- ----------------
Board and Executive Divisional
Audit Committee Committee and
Functional
Teams
------------------ ----------------- ----------------
Review and Identify Management
assess risk and assess of risk/
management strategic risk registers
processes and operational
risks
------------------ ----------------- ----------------
<graphic left arrow>
How we manage risks
Running any business involves constant risk management. It is an
integral and often implicit part of day-to-day operations.
For the purposes of review and assessment we draw out the
principal risks and uncertainties using the Enterprise-wide Risk
Management (ERM) process.
The 'three lines of defence' approach is an industry-recognised
best practice model supporting ERM and an effective controls
framework. It can help increase clarity regarding roles and
responsibilities and improve the effectiveness of risk management
systems. It is a model we have adopted.
Board/Audit Committee
* Tone at the top
* Setting the strategy
* Ensuring sound system of internal control is in place
* Reviewing effectiveness of Group's risk management
system and internal control
* Monitoring through Board processes
--------------------------------------------------------------
Executive Committee and senior management <background
* Designing and establishing the risk management system shaded colour,
and internal control connecting
this line
and first
* Ensuring risk appetite of the Board is understood by two lines
decision makers in table
below, labelled
Regulators>
* Ensuring risks are adequately managed
--------------------------------------------------------------
<graphic up <graphic up <graphic
arrow> arrow> up arrow>
------------------------------------------------------- -------------------------- -----------------------------------
<graphic
First line Second line Third line arrow
of defence of defence of defence connecting
Operational Risk and compliance Internal to
teams audit table
above>
------------------------------------------------------- -------------------------- -----------------------------------
* Establish and apply internal controls systems * Financial controls * Internal audit
* Document and conform to policies and procedures * Risk management * Internal controls assurance
* Understand roles and responsibilities * Security * Programme assurance
* Follow risk process * Quality * IT assurance
* Compliance * Fraud risk management
* Monitoring
------------------------------------------------------- -------------------------- -----------------------------------
Functions Functions Functions
that own and that oversee that provide
manage risks risks independent
assurance
------------------------------------------------------- -------------------------- -----------------------------------
In delivering our In an enhancement This enhanced process
strategy it is of the process provides a framework
important to understand during 2016, risk such that the Group's
and manage the management papers strategic, financial
risks that face have been presented and operational
us. We achieve at four Executive risks are adequately
this through our Committee meetings considered by the
ERM approach which (two in 2015) with Executive Committee
has been built two of the sessions and the Board.
to identify, evaluate, facilitated by
analyse and manage the Director of The Board has reviewed
risks which threaten Internal Audit. the effectiveness
the successful As part of this of the risk management
achievement of focus during the process, considering
our business strategy year a 'clean sheet the principal risks
and objectives. of paper' approach and uncertainties,
was adopted in actions taken by
We do this by combining order to identify management to manage
a top-down strategic and assess strategic those risks and
view of risks driven business risks, the Board's risk
by the Executive with time dedicated appetite in respect
Committee with to identifying of each risk. The
a bottom-up divisional and discussing Board considers
process of identifying emerging risks. the risk management
and managing risks. process to be effective.
The process is Our bottom-up approach It recognises this
continuous and is driven by each is an ongoing process
is reflected in of our divisions. and work will continue
the chart below. They each operate in 2017 to ensure
<concentric circular their own risk it remains the
graphic> <graphic management process, case.
Identify right Evaluate in line with Group
arrow> guidelines, in The principal risks
----------------- order to manage we have identified
<graphic <graphic risks specific We maintain a detailed
up Enterprise-wide down to each business. register of principal
arrow> risk arrow> This is an integral risks and uncertainties
management part of the Group covering strategic,
----------------- ERM process. operational, financial
and compliance
Manage <graphic Analyse Another enhancement risks. We rate
left of the risk management them according
arrow> process was an to likelihood of
---------- ----------------- ---------- additional Audit occurrence and
Committee meeting, their potential
held during May impact. In 2016
2016, with a principal we have begun to
Our top-down approach focus on reviewing rate the 'velocity'
involves a review all divisional of each risk. This
of the internal and corporate risk measure is intended
and external environment, in one session. to reflect the
and an assessment This gave members time we would have
by the Executive of the Audit Committee to react to a risk
Committee of the the opportunity were it to materialise.
principal risks to assess the effectiveness In the table to
that face the Group. of risk management the right we provide
processes, as well a summary of each
as strategic business risk, a description
risks and mitigating of the potential
actions. In addition impact and a summary
to the regular of mitigating actions.
attendees of the We also provide
Audit Committee, ratings describing
the CEO also attended. the potential impact,
the trend versus
In addition to 2015 and the 'velocity'
the Audit Committee of each risk.
meeting held in
May to consider
risk, principal
risks and uncertainties
were reviewed and
discussed at the
March and July
2016 Audit Committee
meetings. The Chief
Executive now attends
Audit Committee
meetings.
------------------------------------------- ----------------------------- --------------------------
2016
Highlights Audit Committee Executive Committee
* An additional Audit Committee meeting in May 2016 * Facilitated risk sessions at two Executive Committee
with the primary focus of reviewing all divisional meetings - 'clean sheet of paper' approach to ensure
risk registers - attended by all divisional principal risks document accurately reflects the
presidents and Chief Information Officer strategic risks of the business, and emerging risks
are understood and managed
* Attendance by the Chief Executive at all Audit
Committee meetings * Executive Committee meeting sessions dedicated to
reviewing specific principal risks
------------------------------------------------------------- ------------------------------------------------------------
Compliance Risk Management
* Requirements of the Financial Reporting Council (FRC) Process
changes to the corporate governance code reviewed, * Velocity of principal risks now captured
understood and addressed (high-velocity risks leave us little time to react)
* Annual 'Letter of Assurance' certification on * Use of multiple measures for the potential impact of
compliance with policies from the divisional a risk reflecting different types of risk facing the
executives to the Chief Executive extended to include business (eg market value, profit, Health & Safety
the topic of risk management. Certification also and reputational)
extended to functional heads
------------------------------------------------------------- ------------------------------------------------------------
Our principal risks as assessed by the Board
Risks caused by uncontrollable external factors
Economic outlook and geopolitical environment
Potential Risk and potential impact Mitigation
impact Global economic and financial The Group has
High market conditions have a diversified
<graphic stabilised after the portfolio of
red circle> turmoil following the businesses that
Trend 2008 financial crisis, mitigates exposure
No change in large part due to to any one country
<graphic the various impacts of or sector.
right quantitative easing and
arrow> austerity measures. However, The divisions
Velocity there remains continued regularly monitor
Medium uncertainty arising from their order flows
<graphic a range of geopolitical and other leading
amber and economic issues across indicators, where
circle> the world. Smiths operates available, so
in more than 50 countries that they may
and is affected by global respond quickly
economic and political to deteriorating
conditions. The business trading conditions.
is affected by government
spending priorities, Maintaining our
in particular in the competitiveness
US and UK, and the willingness and continually
of governments to commit improving our
substantial resources product offering
to homeland security for our customers
and defence. ensures we remain
resilient and
The change in the leadership well placed to
of the UK government take advantage
and the upcoming US presidential of commercial
election are two notable opportunities.
events that are likely
to have an impact on
the economic and political
conditions in which we
operate.
Global security concerns
continue to drive uncertainty.
These include the continuing
situation in Syria and
the Middle East and events
in Ukraine that have
led to economic and political
sanctions against Russia
and the devaluation of
the Russian rouble. With
the UK referendum result
we will see uncertainty
in the UK, Eurozone and
elsewhere as the economic
and political relationship
between the UK and EU
is determined.
The global oil price
continues to trade at
levels well below the
average of the past few
years which impacts the
medium-term capital expenditure
plans of a number of
our customers, predominantly
within the John Crane
division.
------------- ---------------------------------- ---------------------
Compliance with legislation and regulations
Potential Risk and potential impact Mitigation
impact There is a risk that Environmental,
Low to the Group may not always health and safety
medium be in complete compliance data are reported
<graphic with laws, regulations to the Executive
green/amber or permits, for example Committee and
circle> concerning environmental the Board, along
Trend or safety requirements with actions
No change worldwide. The Group to improve performance.
<graphic could be held responsible
right for liabilities and consequences Smiths Medical
arrow> arising from past or has dedicated
Velocity future environmental staff who maintain
High damage, including potentially close contact
<graphic significant remedial with the US Food
red circle> costs. There can also and Drug Administration
be no assurance that and other key
any provisions for expected regulators.
environmental liabilities
and remediation costs All divisions
will adequately cover have ethics and
these liabilities or trade compliance
costs. training and
access to advice.
The Group operates in This includes
highly regulated sectors. training on the
Smiths Detection, Smiths Group's Code
Interconnect and Smiths of Business Ethics
Medical are particularly and assessments
subject to regulation, to support compliance.
with certain customers,
regulators or other enforcement Divisional and
bodies routinely inspecting Group General
the Group's practices, Counsel monitor
processes and premises. legislative changes
(assisted by
Smiths Detection and Government Relations
Smiths Interconnect manufacture staff) and report
security products and and monitor actions
components, which are as necessary.
subject to numerous export This may require
controls, technology modifications
licensing and other government to our supply
regulations. chains and customer
arrangements.
In addition, new legislation,
regulations or certification
requirements may require
additional expense, restrict
commercial flexibility
and business strategies
or introduce additional
liabilities for the Company
or directors.
Should a regulator's
approval process take
a particularly long time,
our products may be delayed
in getting to market,
which could lead to a
loss of revenue or benefit
a competitor with a similar
product.
Fraud or corruption on
the part of a single
employee could have severe
consequences for the
Group.
Failure to comply with
certain regulations may
result in significant
financial penalties,
debarment from government
contracts and/or reputational
damage.
------------- ---------------------------------- -------------------------
Risks caused by uncontrollable external factors
Pension funding
Potential Risk and potential impact Mitigation
impact At 31 July 2016, the All major schemes
Low Group has legacy defined (US/UK) have
<graphic benefit pension plans, been closed to
green with aggregate liabilities new members and
circle> of approximately GBP4.1bn future accrual.
Trend on an accounting basis,
Reduced with 2016 returning accounting Agreed funding
<graphic funding to a surplus plans are in
down arrow> of GBP0.2bn. place with the
Velocity major UK schemes
Low Changes in discount rates, following the
<graphic inflation, asset returns last triennial
green or mortality assumptions reviews. The
circle> could lead to a materially Group seeks a
higher deficit. For example, good working
the cost of a buyout relationship
on a discontinued basis, with the Trustees
and therefore using more through regular
conservative assumptions, update meetings.
is likely to be significantly
higher than the accounting Pension matters
deficit. In addition, are regularly
there is a risk that reported to the
the plan's assets, such Board.
as investments in equity
and debt securities, The investment
will not be sufficient strategies of
to cover the value of the three main
those benefits. plans (UK and
US) are well
The implications of a hedged against
worsening position include changes in interest
a direct impact on the rate and inflation
Group's valuation and movements which
credit rating, and potential has stabilised
additional funding requirements the overall funded
at subsequent triennial position.
reviews.
Read more in
note 8
on page 155
------------- --------------------------------- ---------------------
Financial risks (foreign exchange, funding, tax and
insurance)
Potential Risk and potential impact Mitigation
impact Exchange rate fluctuations The Group's hedging
Low to have had, and could continue strategy, whereby
medium to have, a material impact larger transactions
<graphic on the reported results. are hedge accounted,
green/amber The Group is exposed mitigates the
circle> to two types of currency risk to profitability
Trend risk: transaction and to some extent.
No change translation. The Group's Net investment
<graphic reported results will hedging of overseas
right fluctuate as average assets of approximately
arrow> exchange rates change. 50%, through
Velocity The Group's reported borrowing in
Low net assets will fluctuate non-sterling
<graphic as the year-end exchange currencies, mitigates
green rate changes. the impact of
circle> exchange rate
The Group's ability to fluctuations
refinance its borrowings on net assets.
in the bank or capital
markets is dependent The Group's debt
on market conditions maturity is staggered
and the proper functioning so that the refinancing
of financial markets. risk is minimised.
The Group may be unable As at 31 July
to refinance its debt 2016, the US$800m
when due. committed revolving
credit facility
The Group's future profitability, was undrawn.
particularly in the US
where there are higher The Group's taxation
rates of corporation staff co-ordinate
tax, may cause the headline tax management
tax rate to increase to mitigate possible
over time. Changes in increases in
tax and fiscal regulations the effective
and transfer pricing tax rate. Regular
rules in the countries reporting to
in which we operate could the Board of
affect the Group, particularly tax risks and
at times when public exposures provides
sector debt is high. good visibility
Taxation costs could of issues.
rise and earnings per
share could deteriorate, Insurance risk
which could affect the is spread across
Group's market valuation. a number of carriers
to minimise individual
The Group cannot be certain insured risk
that it will be able and counterparty
to obtain insurance on risk.
acceptable terms or at
all. Furthermore, the Read more on
Group cannot be certain page 29
that its insurance will
cover losses arising
from events or that insurers
will not dispute coverage.
In addition, even if
our coverage is sufficient,
the insurance industry
is subject to credit
risk, particularly in
the event of a catastrophe
or where an insurer has
substantial exposure
to a specific risk. If
insurance cover is inadequate
or does not pay out as
expected, the Group could
be exposed to an unexpected
material cash outflow,
which may impact the
Group's liquidity and/or
share price.
------------- ----------------------------------- -------------------------
Business challenges / thematic risks
Product liability and litigation
Potential Risk and potential impact Mitigation
impact In the ordinary course Quality assurance
Medium of its business, the processes are
<graphic Group is subject to litigation embedded in our
amber such as product liability manufacturing
circle> claims and lawsuits, locations for
Trend including potential class critical equipment,
No change actions, alleging that supporting compliance
<graphic the Group's products with industry
right have resulted or could regulations.
arrow> result in an unsafe condition
Velocity or injury. A global best
High practice programme
<graphic In addition, manufacturing is continuing
red circle> flaws, component failures to enhance product
or design defects could quality processes
require us to recall across the Group.
products. Many of our This is sponsored
products are used in by the Executive
critical applications Committee and
where the consequences leverages the
of a failure could be ongoing work
extremely serious and, in Smiths Medical
in some cases, potentially and John Crane.
catastrophic.
The divisions
Products sold to the have procedures
aviation, security, healthcare, for dealing with
energy and consumer/domestic product liability
industries are critical issues and potential
products, where the consequences product recalls.
of failure could be particularly These procedures
severe. are informed
by crisis management
Furthermore, over half planning workshops
the Group's sales are and rehearsals.
in the US, where there
is potentially increased The Group has
litigation risk. insurance cover
for certain product
Any liability claim against liability risks.
the Group, with or without The US Safety
merit, could be costly Act provides
to defend and could increase legislative protection
our insurance premiums. for certain Smiths
Some claims might not Detection products
be covered by our insurance in the US; and
policies, either adequately we support efforts
or at all. to implement
similar legislation
An adverse event involving in other markets.
one of our products could
damage our reputation Any litigation
and reduce market acceptance is managed under
and demand for all of the supervision
our products. of the Group's
legal function.
We have detailed
action plans
to manage actual
or threatened
litigation.
Read more on
page 30
and in note 22
on page 178
------------- ---------------------------------- ------------------------
Supply chain disruption and business continuity
Potential Risk and potential impact Mitigation
impact The Group's business Business continuity
Medium depends on the availability and disaster
<graphic and timely delivery of recovery plans
amber raw materials and purchased are in place
circle> components, and could and tested for
Trend be affected by a disruption critical locations,
No change to its supply chain. to reduce the
<graphic In particular, we rely impact of an
right on sole suppliers to event.
arrow> provide raw materials
Velocity or components for some Single-source
Medium of our products. supplier risks
<graphic are identified
amber The Group's manufacturing and, where possible,
circle> facilities are exposed key materials
to a number of natural or components
catastrophe risks that, are dual sourced
like other external events to mitigate the
such as terrorist attacks impact of an
or a disease pandemic, event.
could have significant
adverse consequences. The Group regularly
The Group is also affected evaluates its
by the social, economic, key sites for
regulatory and political a range of risk
conditions in the countries factors using
in which it operates. externally benchmarked
These are often unpredictable assessments,
and outside the Group's and takes action
control, particularly to improve these
in developing countries. ratings where
appropriate.
The concentration of
manufacturing in lower The Group has
cost countries, in particular business interruption
in Mexico and China, and property
increases the length damage insurance.
of the supply chain and
means that an adverse
event could have more
significant consequences
for our ability to supply
customers on time. A
longer supply chain also
affects transport costs,
which could be exacerbated
by energy cost inflation.
----------- ------------------------------- ------------------------
Government customers
Potential Risk and potential impact Mitigation
impact We derive a significant The Group has
Medium proportion of our revenues a diversified
<graphic in mature Western economies portfolio of
amber with a notable element businesses that
circle> directly related to government mitigates exposure
Trend expenditure. Additionally, to any one country
No change a high proportion of or sector.
<graphic our products and services
right are in some way influenced Some of our government-related
arrow> by government regulation business has
Velocity and certification. a services or
Medium consumables component,
<graphic Smiths Detection, Smiths which can be
amber Medical and Smiths Interconnect more resilient
circle> frequently tender for during an economic
government contracts. downturn.
The timing of contract
awards and payments under The Group has
these contracts may be a Government
uncertain and uneven Relations function
over a given financial so that it can
year. inform policy
and maintain
Any significant disruption close relationships
or deterioration in relationship with customers.
with these governments
could result in fewer
contracts and lower revenues.
At a time when government
finances are under pressure,
these headwinds may lead
to slower growth across
the business. A decrease
in spending by key government
customers could materially
affect the Group's results
and financial condition.
Delays in awarding government
contracts can affect
the Group's sales, margins
and cash conversion in
a particular reporting
period.
----------- ---------------------------------- --------------------------------
Technology and innovation
Potential Risk and potential impact Mitigation
impact Developing new products The Group has
Medium and improving existing a diversified
<graphic products is critical technology portfolio
amber to our business. There in a range of
circle> is a risk that competitors sectors and geographies.
Trend may innovate more effectively.
No change The emergence of a disruptive Our continued
<graphic technology could have investment in
right an impact on a major R&D supports
arrow> cash-flow contributor new product and
Velocity to the Group over time. service development.
Medium
<graphic The speed of innovation The Group looks
amber in certain markets may to expand the
circle> lead to shorter product addressable markets
lifecycles, increasing of its key businesses
the need for innovation. by building capabilities
Additionally, the entry in adjacent markets,
of new competitors, the through organic
consolidation of existing investment and
competitors and changed through targeted
or irrational competitor acquisitions.
behaviour could significantly
affect the Group's business.
The failure of the Group
to develop its products
and services, or more
effective innovation
by a competitor, could
have a materially adverse
effect on sales growth.
----------- -------------------------------- --------------------------
Talent and succession planning
Potential Risk and potential impact Mitigation
impact The loss of key personnel, Each division
Medium or the failure to plan or function holds
<graphic adequately for succession talent and succession
amber or develop new talent plan reviews
circle> may impact the reputation at least annually.
Trend of the Group, or lead These plans are
Reduced to a disruption in the reviewed by the
<graphic leadership of the business. Nomination Committee.
down arrow>
Velocity Competition for personnel Remuneration
Low is intense and the Group packages, including
<graphic may not be successful variable and
green in attracting or retaining long-term elements
circle> qualified personnel, of the compensation
particularly engineering arrangements,
professionals. In addition, are evaluated
certain personnel may regularly against
be required to receive market practice.
security clearance and
substantial training The Chief Executive
to work on certain programmes. assesses, on
The loss of key employees, an annual basis,
the Group's inability the Top 25 people
to attract new or adequately in the organisation
trained employees, or for performance,
a delay in hiring key skills and competencies
personnel, could seriously and presents
harm the Group's business. development and
succession plans
Over time, our competitive to the Board.
advantage is defined
by the quality of our Leadership development
people - should we fail programmes and
to attract, develop and formal career
retain key talent, in counselling support
time our competitive the talent pipeline.
advantage will erode,
leading to weaker growth Read more on
potential or returns. pages 67-69
------------- -------------------------------- -------------------------
Programme delivery
Potential Risk and potential impact Mitigation
impact Failure to deliver, in Contracts are
Medium a timely fashion or at managed and delivered
<graphic all, the products and by programme
amber services Smiths is obliged management teams
circle> to deliver, or any fault that regularly
Trend in contract execution review contract
No change due to delays or breaches risks and take
<graphic by its suppliers or other appropriate action.
right counterparties, may lead
arrow> to higher costs, liquidated A Group-level
Velocity damages or other penalties. procedure for
Low reviewing and
<graphic Differences between the approving high-risk
green estimated costs in the contracts is
circle> Group's medium- and long-term in place.
contracts and actual
costs may arise from Divisional boards
a number of factors including review significant
production delays, cost contracts.
overruns and other items.
The diversified
Certain of the Group's nature of the
contracts, particularly Group mitigates
those with governments, the exposure
may include terms that to any single
provide for unlimited contract.
liabilities on the part
of the Group or allow
the government body or
counterparty to terminate
unilaterally, reduce
or modify the relevant
contracts or seek alternative
sources of supply at
the Group's expense.
----------- ------------------------------- -----------------------
Acquisitions and disposals
Potential Risk and potential impact Mitigation
impact Targeted acquisitions The Executive
Low and selected disposals Committee and
<graphic form part of the Group's Board review
green growth strategy. The the acquisition
circle> success of our acquisition pipeline. There
Trend strategy depends on identifying are monthly reviews
No change targets, obtaining authorisations by the divisional
<graphic and having available presidents with
right financing. Even if an strategy leads
arrow> acquisition is completed, for each division.
Velocity the acquired products
Low and technologies may We perform comprehensive
<graphic not be successful or strategic and
green may require significantly financial reviews
circle> greater resources and of all opportunities.
investment than anticipated. Detailed due
diligence, including
The Group may not be an assessment
able to integrate the of the target's
businesses that it acquires. talent and competencies,
If integration is unsuccessful, and integration
anticipated benefits planning is undertaken
are not realised or trading and reviewed
by acquired businesses in accordance
falls below expectations, with Group policy.
it may be necessary to
impair the carrying value The Board only
of these assets. authorises acquisitions
after completion
The Group's return on of due diligence,
capital employed may and approval
fall if acquisition hurdle is subject to
rates are not met. The meeting the capital
Group's financial performance allocation and
may suffer from goodwill other financial
or other acquisition-related hurdles set by
impairment charges. Insufficient the Board. The
allowance for indemnities Executive Committee
and warranties given reviews post-acquisition
at disposal may affect performance and
our financial position. integration.
On disposals,
the Group seeks
to minimise its
exposure to indemnities
and warranties
and any that
are provided
are reviewed
on a regular
basis.
----------- ----------------------------------- --------------------------
Information technology and cyber-security
Potential Risk and potential impact Mitigation
impact The Group's information Oversight by
Medium systems, personnel, facilities the Board ensures
to high and products are subject information and
<graphic to security risk. The cyber-security
amber/red Group is dependent on risks have an
circle> information technology ongoing and proactive
Trend systems for both internal focus with an
No change and external communications integrated business--wide
<graphic and for the day-to-day approach.
right management of its operations.
arrow> The incidence and sophistication Over the last
Velocity of cyber-security crime year, Group capabilities
High is on the rise and some were further
<graphic Group companies operate evolved and Information
red circle> in sectors where cyber-criminals Technology and
are active. Product resources
and capabilities
Any disruption to the were expanded.
information systems could
have significant adverse The Group works
consequences on the Group's with advanced
operations or its ability technology partners
to trade. It could result to implement
in the loss of confidential technology solutions
information and intellectual as well as following
property, which could industry-recognised
affect the Group's competitive frameworks.
position and cause reputational
damage. Compulsory awareness
training has
been deployed
to all employees,
alongside a rolling
real-life simulation
programme which
ensure that employees
are fully aware
of the external
threats faced
by individuals
from attacks
such as Phishing
on a daily basis.
The Group also
works with external
cyber sharing
partnerships,
sharing best
practice and
threat information.
------------- ---------------------------------- ---------------------------
(End of extract)
2.2 STATEMENT OF DIRECTORS' RESPONSIBILITIES
(This statement is repeated here solely for the purposes of
complying with Disclosure Guidance & Transparency Rule 6.3.5.
This statement relates to and is extracted from page 124 of the
Annual Report 2016. It is not connected to the extracted
information presented in this announcement or to the Results
announcement released on 28 September 2016.)
(Start of extract)
Statement of directors' responsibilities
The directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the directors to prepare accounts for each
financial year. Under company law the directors must not approve
the accounts unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and the Company and
of the profit or loss of the Group for that period. In preparing
these accounts, the directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether the consolidated accounts comply with
International Financial Reporting Standards ("IFRS"), and the
Parent Company accounts comply with applicable UK Accounting
Standards, subject to any material departures disclosed and
explained in the accounts; and
-- prepare the accounts on the going concern basis unless it is
inappropriate to presume that the Group and the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's and the
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and the Company and enable
them to ensure that the accounts and the Directors' remuneration
report comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation. They are
also responsible for safeguarding the assets of the Group and the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Directors' responsibility statement
The directors consider that the Annual Report, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
Each of the directors (who are listed on pages 72 to 74)
confirms that to the best of his or her knowledge:
-- the Group's financial statements have been prepared in
accordance with IFRS as adopted by the European Union and give a
true and fair view of the Group's assets, liabilities and financial
position as at 31 July 2016 and of its profit for the financial
year then ended; and
-- the Group directors' report and Strategic report include a
fair review of the development and performance of the business and
the position and performance of the Group, together with a
description of the principal risks and uncertainties that the Group
faces.
Signed on behalf of the Board of directors:
Andy Reynolds Smith Chris O'Shea
Chief Executive Chief Financial Officer
27 September 2016
(End of extract)
This announcement contains certain statements that are
forward-looking statements. They include statements regarding the
Company's intentions, beliefs or current expectations and those of
its officers, directors and employees concerning, amongst other
things, our results of operations, financial condition, liquidity,
prospects, growth, strategies and the business we operate. 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 the knowledge and information available at the date of this
announcement and unless otherwise required by applicable law the
Company undertakes no obligation to update or revise these
forward-looking statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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