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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Smiths Group Plc | LSE:SMIN | London | Ordinary Share | GB00B1WY2338 | ORD 37.5P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-12.00 | -0.73% | 1,641.50 | 1,640.00 | 1,641.00 | 1,661.50 | 1,639.50 | 1,655.50 | 1,066,654 | 16:35:29 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Srch,det,nav,guid,aero Sys | 3.04B | 231M | 0.6613 | 24.81 | 5.73B |
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
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October 13, 2016 10:21 ET (14:21 GMT)
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