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SMIN Smiths Group Plc

1,641.50
-12.00 (-0.73%)
28 Mar 2024 - Closed
Delayed by 15 minutes
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

Smiths Group PLC Annual Financial Report (4923M)

13/10/2016 3:21pm

UK Regulatory


Smiths (LSE:SMIN)
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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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