TIDMSMIN
RNS Number : 5114P
Smiths Group PLC
19 October 2021
19 OCTOBER 2021
SMITHS GROUP PLC
ANNUAL FINANCIAL REPORT 2021
LISTING RULE LR 9.6.3 R
Smiths Group plc (the 'Company') is submitting today copies of
the documents listed below to the Financial Conduct Authority, in
compliance with Listing Rule LR 9.6.1 R.
1. Annual Report FY2021 (for the financial year ended 31 July
2021);
2. Notice of Annual General Meeting 2021; and
3. Annual General Meeting Proxy Form.
The above-mentioned documents will be uploaded to the National
Storage Mechanism in pdf file format, and will shortly be available
for viewing by visiting https://data.fca.org.uk .
Copies of the documents referred to above have today been made
available to shareholders in accordance with their elections for
Company communications. The Annual Report FY2021 and the Notice of
Annual General Meeting 2021 can be viewed online by visiting the
Company's website, www.smiths.com. Printed copies may be obtained
by sending an e-mail request to secretary@smiths.com or by writing
to the Company Secretary, Smiths Group plc, 4th Floor, 11-12 St
James's Square, London SW1Y 4LB, UK.
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 2021 and their impact on the
financial statements were contained in the Smiths Group plc Annual
Results for the year ended 31 July 2021 announcement issued by the
Company through the Regulated News Service of the London Stock
Exchange at 07:00 on 28 September 2021 (RNS No. 1392N ) (the
'Results announcement').
Other than the information set out below (which is extracted
from the Annual Report FY2021), the regulated information in the
Annual Report FY2021 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
FY2021 (available online from www.smiths.com and
https://data.fca.org.uk ). The statutory accounts of the Company
for the financial year ended 31 July 2021 will be delivered to the
Registrar of Companies in due course. This announcement is not a
substitute for reading the full Annual Report FY2021.
An extract comprising the unedited full text on pages 72 to 79
in the Annual Report FY2021 is set out below. Certain
non-reproducible graphics contained in the Annual Report FY2021 are
not reproduced. The graphic version of pages 72 to 79 of the Annual
Report FY2021 is attached as a pdf file.
http://www.rns-pdf.londonstockexchange.com/rns/5114P_1-2021-10-19.pdf
Principal risks and uncertainties
We maintain a register of principal risks and uncertainties
covering the strategic, financial, operational and compliance risks
faced by the Group.
We review each risk and rate a number of factors: gross impact,
applying the hypothetical assumption there are no mitigating
controls in place; residual impact and likelihood, taking into
account existing mitigating controls; target impact; the
reputational impact of a risk; and its velocity, which reflects the
expected time we would have to react should a risk materialise.
These, in turn, drive mitigation priorities. A trend metric shows
the net position of the risk year-on-year. We report on the
relationship between risks to help understand the potential for one
risk to have an impact on another. This is presented against each
risk in the form of 'risk relationship' charts indicating the
strength of linkage between each principal risk and others on the
list. This has been used as an input to the viability statement
assessment and will be used more widely in future risk scenario
planning and mitigation work.
We updated our register of principal risks and uncertainties
following review by the Executive Committee and approval by the
Board. Liquidity has been retired from our principal risks in
recognition of our resilient cash performance during COVID-19.
Integrated Supply Chain risk has increased due to our reliance on
critical sites and sole and single source suppliers. We concluded
that our Product Quality risk has increased as a result of changes
in the regulatory landscape in the markets in which we operate. The
risk of COVID-19 impacting our colleagues, customers and suppliers
has decreased following the introduction of global vaccines and
stabilisation within the global economy.
Due to the long-term nature of climate change this is not
considered a principal risk. However, the Board recognises the
importance of considering climate change in its decision-making,
both in terms of risk and on longer-term strategic topics. Our
climate change risks are managed in the same way as other risks.
See page 79 for more details. While we continue to monitor and
manage a wider range of risks, the risk map above and the tables
that follow summarise those risks considered to have the greatest
potential impact.
COVID-19
COVID-19 is impacting our colleagues, customers, suppliers and operations
to varying degrees across different territories and different parts
of our business. This includes, but is not limited to: risks to the
well-being of our people, their families and communities; our customers,
who have in many cases revised their demand forecasts; our suppliers,
whose businesses have had challenges maintaining continuity of supply;
and our own operations and our customer service sites in relation to
which have had to deal with all the combined challenges of the pandemic.
Conversely, the Group is well positioned to identify and grasp opportunities
that this change creates whether through organic development or M&A/joint
venture/investment opportunities. The pandemic has accelerated major
changes such as energy transition, and increased investment in solutions
around safety and sustainability and other major societal problems whether
clean air, virus free transport or greener oil & gas. All of which are
already relevant to our future strategy.
Risk Owner: Mel Rowlands
Trend: Decrease
Included in viability assessment: Yes
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Smiths Group Crisis process was mobilised overseeing are working effectively Our people;
* Significant reduction in global demand for our various workstream sub-groups and reporting to the * Pan Smiths operations and supply nerve centre Our customers;
products Executive Committee continues to provide real-time updates on status of Production and
operations, supply chain and logistics through environment;
dashboards Our supply chain;
* Disruption to our ability to deliver products and * Divisional Crisis Teams and Site Emergency Response Our communities
services to customers in the event of interruptions Teams operationalised Relationship
to our supply chain and manufacturing operations * Fast track issue spotting, escalation and resolution to other principal
through Group and cross-divisional resources risks:
* Smiths support network including partnerships with Technology -
third parties providing pandemic related advice and N/A
support * Over 90% of our manufacturing Economy and
geopolitics
- Strong
* facilities operational during the worst stages of the Group portfolio
pandemic - Moderate
Product quality
- N/A
* Group HSE monitoring employee health across sites and Customers -
within countries/regions Strong
People - Moderate
Cyber security
* Proactive case management of employee health in - Moderate
relation to COVID-19 regularly reported and acted Integrated supply
upon chain - Strong
Markets - Moderate
Ethical breach
- Moderate
Contractual
obligations
- Strong
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TECHNOLOGY
Differentiated new products and services are critical to our success.
We may be unable to maintain technological differentiation or to meet
customers' needs and may face disruptive innovation by a competitor.
Risk Owner: Paul Keel
Trend: No change
Included in viability assessment: N/A
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Proactive repositioning of the portfolio around the are working effectively Our customers;
* Material adverse effect on margin and profitable most attractive markets where we can sustainably hold * Vitality data is part of the SES dashboard Production and
growth a top three position based on technology leadership environment;
Technology and
* Adherence to NPI process is audited and embedded in innovation
* Erosion of our reputation as a leader in our markets * Diversified technology portfolio serving a range of systems with monthly 'pipeline' overview provided by Relationship
and of our ability to attract and retain talent sectors and geographies, mitigating exposure to any divisions to other principal
one sector or area risks:
COVID-19 - N/A
* Technology roadmap is part of the Group strategic Economy and
* Continuing and smarter investment in R&D (FY2021: cycle geopolitics
3.9% of Continuing Operations revenue, FY2020: 5.0%) - Moderate
Group portfolio
* Digital Advisory Committee as a governance mechanism - Strong
* Focus on building a culture of innovation with a to ensure the Digital Forge is working on the most Product quality
long-range technology roadmap for each division value-creating projects for the Group - Moderate
Customers -
Moderate
* Focus on next generation and transformational People - Strong
initiatives Cyber security
- Moderate
Integrated supply
* New Product Introduction (NPI) process operating chain - Moderate
across divisions to accelerate projects Markets - Strong
Ethical breach
-
* Digital Forge works to accelerate digital N/A
transformation across the Group Contractual
obligations
- Moderate
* Vitality Index as a KPI
* Robust IP protection via patents and other
protections, and litigation where appropriate
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ECONOMY AND GEOPOLITICS
COVID-19 triggered a highly significant global economic downturn. In
many sectors, demand has reduced. There is a likelihood that the impact
on demand will be prolonged, especially in commercial aerospace. There
may be an increase in bankruptcies of both customers and suppliers.
Conversely, the crisis is opening up new opportunities, and inorganic
opportunities are likely to arise more frequently and at better values.
Geopolitical tensions have risen further, most notably with problems
in the US/China relationship, which are now extending to China/UK and
EU, and pose threats to the free movement of goods, capital and people.
Governments continue to look for ways to improve tax revenues to ease
fiscal budget pressures. Fiscal deficits are likely to threaten or delay
government spending on programmes (e.g. in defence and security) which
rely on Smiths' products. The consequences of Brexit are becoming clearer.
Effects, applicable to many businesses, include some economic and operational
dislocation.
Risk Owner: John Shipsey
Trend: No change
Included in viability assessment: Yes
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Identification and application of learnings from past are working effectively Our customers;
* Significant and prolonged reduction in global demand downturns through the cycle * Impact of US tariffs to date has been absorbed Our supply chain;
for our products Regulators and
governments
* Diversified portfolio of businesses which mitigates * Order tracking reported and monitored Relationship
* Geopolitical tensions, most notably relating to China, exposure to any one country or sector to other principal
the US, India, the Middle East, South Korea and North risks:
Korea, adversely impact trade * Business indicators reported weekly COVID-19 - Strong
* Geographic spread which mitigates the impact of trade Technology -
barriers between regions Moderate
* Adverse impact on business performance due to the Group portfolio
imposition of tariffs - Strong
* Divisions monitor order flows and other leading Product quality
indicators so that they may respond quickly to - N/A
* The consequences of Brexit are clearer, but deteriorating trading conditions and tariffs/barriers Customers -
uncertainty remains. Potential effects include to free trade Strong
economic and operational uncertainty, volatility of People - N/A
currency exchange, regulatory changes and the Cyber security
imposition of tariffs on trade between the UK and the * Representation of our interests by the Corporate - N/A
Eurozone Affairs team Integrated supply
chain - N/A
Markets - Strong
* Governments continue to look for ways to improve tax * Network of trade compliance officers across the Group Ethical breach
revenues to ease fiscal budget pressures who monitor upcoming changes in regulation and - Strong
oversee import and export activities Contractual
obligations
- N/A
* Monitoring of the ongoing negotiations between the UK
and the EU in order to assess the potential impact of
Brexit
* Sustainable tax strategy to optimise the Group's
position
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GROUP PORTFOLIO
Our strategy is predicated primarily on organic growth. However, acquisitions/divestments
can also play a role in building and/or strengthening competitive positions.
Acquisitions bring risk as well as opportunity. We may invest substantial
funds and resources in acquisitions which fail to deliver on expectations.
The opposite risk is that we miss out on opportunities to build market-leading
positions and growth. Divestments also carry risk. We may divest an
asset at the wrong time or may not realise appropriate value for the
asset. Separation may be complex and, if poorly executed, may impact
the wider business. The Medical separation is a very significant divestment;
there is a risk that it may not be completed or that it will be completed
badly.
Risk Owner: John Shipsey
Trend: No change
Included in viability assessment: N/A
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Investment in greater internal capability for the are working effectively Technology and
* Poor acquisitions/ divestments, or poorly managed evaluation and execution of transactions * Technology acquisitions have established a strong innovation;
integrations/ separations, lead directly to financial track record Production and
damage and indirectly to loss of shareholder environment
confidence * Regular reviews of the acquisition pipeline and a Relationship
stage-gated M&A process * Strong internal team to other principal
risks:
* Newly-acquired products and solutions deliver less COVID-19 -
value, fewer synergies, or require more investment * Detailed due diligence and integration work in * Proper governance and oversight Moderate
than anticipated accordance with our acquisitions and disposals policy Technology -
Strong
* Learnings from previous acquisitions considered and Economy and
* Fall in our return on capital employed measure * Detailed separation planning, in accordance applied geopolitics
- Strong
Product quality
* Financial performance suffers from goodwill or other with our acquisitions * Ongoing evaluation measured against original business - N/A
acquisition-related impairment charges or inheritance and disposals policy case Customers -
of material unknown liabilities * Governance ensures multi-disciplinary sign off Strong
People - Moderate
Cyber security
* Larger transactions approved by the full Board - Moderate
Integrated supply
chain - Moderate
* Post-transaction reviews with lessons learned Markets - Strong
incorporated into future projects Ethical breach
- N/A
Contractual
* Use of external advisers obligations
- N/A
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PRODUCT QUALITY
If a regulatory body identifies a potentially defective product that
may cause or has caused a significant failure, Smiths will be subject
to violations and possible regulatory action. In the ordinary course
of business, we are potentially subject to product liability claims
and lawsuits, including potential class actions. The mission-critical
nature of many of our solutions makes the potential consequences of
failure more serious than may otherwise be the case. Internal risks
can originate from inadequacies or insufficiencies in change control,
manufacturing, internal quality system, adaptation to changing industry
regulations, and systems maintenance and compliance. External risks
can result from inspections and audits or challenges to product registrations
or certifications. An example of this risk materialising includes the
Medfusion(R) 3500 and 4000 syringe pumps recall and subsequent inspection
by the US Food and Drug Administration (FDA) in Smiths Medical.
Risk Owner: Divisional Presidents
Trend: Increase
Included in viability assessment: Yes
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Divisional quality risk assessments that address are working effectively Our customers;
* Damage to our reputation amongst customers and product failures, product * Quality measures (e.g., DPPM, COPQ) are measured and Production and
reduction in market acceptance of, and demand for, action plans put in place to drive their improvement environment;
our products from an adverse event involving one of - these are regularly reported Our supply chain;
our products compliance, regulatory Regulators and
compliance, product governments
performance, product * Group and divisional governance frameworks (including Relationship
* Recall of products due to manufacturing flaws, safety and market Delegation of Authority) ensure to other principal
component failures, damage to persons/property, authorisation risks risks:
and/or design defects * Quality assurance processes embedded in manufacturing COVID-19 - N/A
locations for critical equipment, supporting a close working Technology -
compliance with industry regulations relationship between Moderate
* Customers' losses but also losses arising from a legal and commercial Economy and
potentially large class of third parties teams (includes geopolitics
* Quality development and quality integration built quality) to manage -
into NPI processes risks N/A
* Fewer quality issues at launch of new products Group portfolio
- N/A
* Risk analysis and mitigation processes Customers -
Strong
People - Moderate
relating to product Cyber security
cyber resilience - Moderate
embedded in the product Integrated supply
lifecycle process. chain - Moderate
Proactive steps taken Markets - N/A
to ensure product Ethical breach
cyber related risks - N/A
are continually monitored Contractual
and managed obligations
* Insurance cover for product liability - Strong
* Material litigation managed under the oversight of
the Group General Counsel
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CUSTOMERS
Our markets are evolving at a fast pace, creating potential for customers
to change their business models as they look to deliver products and
services at higher quality, with better service and at lower cost.
Failure of the Group to keep pace with customer changes/requirements
(innovation, go-to-market strategies) could have a materially adverse
impact on Group performance.
Risk Owner: Julian Fagge
Trend: No change
Included in viability assessment: N/A
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * As part of the Group innovation framework and our are working effectively Our people;
* Loss of market share and adverse impact on Group approach to potential technology disruption, we * Megatrend workshops and disruption risks reviewed Our customers;
results include customer disruption as well as competitor and annually Production and
product disruption environment;
Our supply chain
* Material adverse effect on profitable growth * Customer input gathered on a frequent basis Relationship
* New product innovation feedback through market to other principal
research and direct feedback from existing and risks:
* Erosion of our reputation as a leader in our markets potential customers * Pilot programmes to test products, business models COVID-19 - Strong
and partnerships Technology -
Moderate
Economy and
* Strategic review process; divisional deep dives geopolitics
- Strong
Group portfolio
- Strong
Product quality
- Strong
People - Moderate
Cyber security
- Moderate
Integrated supply
chain - Moderate
Markets - Strong
Ethical breach
- Strong
Contractual
obligations
- Strong
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PEOPLE
People are our only truly sustainable source of competitive advantage
and competition for key skills is intense, especially around science,
technology, engineering and mathematics (STEM) disciplines. We may not
be successful in attracting, retaining, developing, engaging and inspiring
the right people with the right skills to achieve our growth ambitions.
Risk Owner: Sheena Mackay
Trend: No change
Included in viability assessment: N/A
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Investment to build a learning organisation with a are working effectively Our customers;
* Inability to attract key talent leading to a loss of focus on culture, reward and recognition * Participation rates in the Smiths learning and Production and
competitive advantage development programmes measured. Capability and environment;
performance of alumni are tracked Our supply chain;
* Implementation of the right HR infrastructure Our communities;
* Difficulty in retaining personnel, at all levels of Technology and
the organisation, leading to a loss of competitive * Benchmarking ratio of hires into senior roles from innovation
advantage * Delivery of a range of learning and development internal and external sources Relationship
opportunities at all levels of the organisation to other principal
risks:
* In acquisitions, losing key personnel from the * Formal and informal measures of culture, for example COVID-19 -
newly-acquired business which may significantly * Talent and succession plan reviews regular engagement surveys with follow-up action Moderate
impact performance and value planning Technology -
Strong
* Remuneration packages evaluated regularly against Economy and
market trends * Measurement of the effectiveness of the Executive geopolitics
education programme through post-completion - N/A
evaluation tests Group portfolio
* Chief Executive assessment of the leadership team - Moderate
Product quality
* Post-acquisition and lessons learned reviews - Moderate
* Annual performance management reviews for the Customers -
majority of employees using best- practice processes Moderate
such as 360-degree feedback surveys Cyber security
- Moderate
Integrated supply
* Formal career counselling for senior people in the chain - Moderate
business Markets - Moderate
Ethical breach
- Strong
* A clearly defined people integration plan for Contractual
acquisitions obligations
- Strong
* People Plan oversight by the Board
* Diversity & Inclusion plan and initiatives
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CYBER SECURITY
Cyber attacks seeking to compromise the confidentiality, integrity and
availability of IT systems and the data held on them are a continuing
risk. We operate in markets and product areas which are known to be
of interest to criminals. Digitalisation and increased interconnectivity
of our products intensify the risk and the number of areas under potential
attack.
Risk Owner: John Shipsey
Trend: No change
Included in viability assessment: Yes
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Board oversight of the approach to mitigating cyber are working effectively Our people;
* Compromised confidentiality, integrity and risk * Formal reviews with the Executive Committee and the Our communities
availability of our assets resulting from a cyber Board Relationship
attack, impacting our ability to deliver to customers to other principal
and, ultimately, financial performance and reputation * Proactive focus on information and cyber security risks:
risks supported by a strong governance framework * Vulnerability scanning/event reporting COVID-19 -
Moderate
* Exposure to significant losses in the event of a Technology -
cyber security breach, particularly relating to our * Group-wide assessment of critical information assets * External reviews of vulnerability controls Moderate
security or medical products. These include not only and protection to enhance security Economy and
customer losses, but also those of a potentially geopolitics
large class of third parties * Mandatory staff training - N/A
* Information Security Awareness programme Group portfolio
- Moderate
* Compliance with recognised standards Product quality
* Security monitoring to provide early detection of - Moderate
hostile activity on Smiths networks and an incident Customers -
management process * Cyber leads at divisions Moderate
People - Moderate
Integrated supply
* Partnership and monitoring arrangements in place with chain - N/A
critical third parties, including communications Markets - N/A
service providers Ethical breach
- Strong
Contractual
* Cyber risk analysis and mitigation processes embedded obligations
in the product lifecycle process to increase - Strong
resilience
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INTEGRATED SUPPLY CHAIN
Timely, efficient supply of raw materials and purchased components is
critical to our ability to deliver to our customers. Manufacturing and
supply chain continuity is exposed to external events that could have
significant adverse consequences, including natural catastrophes, civil
or political unrest, changes in regulatory conditions, terrorist attacks
and disease pandemics - this applies to our own manufacturing sites
and those of our key component suppliers.
Risk Owner: Sheena Mackay
Trend: Increase
Included in viability assessment: Yes
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Supply excellence pillar of our SES operating model are working effectively Our customers;
* Inability to deliver products/solutions to customers, delivers increased focus on resilient and * Business continuity planning (BCP) testing and Technology and
impacting financial performance and reputation cost-effective supply results innovation;
Regulators and
governments
* Business continuity and disaster recovery plans in * Mitigation plans reviewed and reported by divisions Relationship
place and tested for critical locations to other principal
risks:
* Externally provided business interruption risk COVID-19 - Strong
* Regular evaluation of key sites for a range surveys of operational sites Technology -
Moderate
Economy and
of risk factors using * Insurance requirements driven by the risk appetite of geopolitics
externally benchmarked the Group and divisions is validated at least - N/A
assessments - risk annually Group portfolio
reduction measures - Moderate
for critical products Product quality
and dual manufacturing - Moderate
capabilities Customers -
* Mitigation plans for sole source suppliers, Moderate
sub-contractors and service providers developed and People - Moderate
deployed by divisions to include qualification of Cyber security
alternative sources of supply where appropriate - N/A
Markets - N/A
Ethical breach
* Property damage and business interruption insurance - Strong
Contractual
obligations
- Moderate
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MARKETS
A significant proportion of our revenue comes from the US and European
markets, with a notable proportion coming from governments. In addition
to geographical markets, there is a risk that we do not focus on attractive
sectors where we have, or could have, a sustainable position. The Group's
growth strategy is expanding our operations in developing/higher growth
markets - particularly markets that are under served in Asia Pacific.
Risk Owner: Roland Carter
Trend: No change
Included in viability assessment: N/A
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * A diversified portfolio of businesses mitigates are working effectively Production and
* Failure to develop other markets and geographies exposure to any one country, sector or customer * Strong and long-term customer relationships provide environment;
impacts strategic progress and financial performance assurance Our supply chain
Relationship
* Growth strategy which places emphasis on expanding to other principal
* Significant disruption to government budgets results operations in higher-growth markets and regions which * Managing Director councils established in India and risks:
in fewer contracts being awarded to Smiths, impacting are currently underserved, including Asia China COVID-19 -
financial performance Moderate
Technology -
* An Asia Board has been established to oversee the * Carefully crafted JV and Partnership arrangements in Strong
strategy, and the progress we are making in the China Economy and
region geopolitics
- Strong
Group portfolio
* Strategic process to capture continuing - Strong
Product quality
- N/A
opportunities in Customers -
current and adjacent Strong
markets People - Moderate
* Government relations function which collaborates with Cyber security
colleagues across the Group to advise on developments - N/A
Integrated supply
chain - N/A
* More resilient services and consumable components Ethical breach
built into some of our government-related business - Moderate
Contractual
obligations
- Strong
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ETHICAL BREACH
We have more than 21,500 employees in more than 50 countries. Individuals
may not behave in accordance with our values and ethical standards.
We operate in highly regulated markets requiring strict adherence to
laws with risk areas including:
* Bribery and corruption;
* Anti-trust matters;
* International trade laws and sanctions;
* Human rights, modern slavery and international labour
standards;
* General Data Protection Regulation (GDPR); and
* Government contracting regulations.
Risk Owner: Mel Rowlands
Trend: No change
Included in viability assessment: N/A
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Group-wide ethics framework which includes our values, are working effectively Our customers;
* Failure to comply with export regulations leads to the Code of Business Ethics and the Supplier Code of * Multiple sources to assess culture including My Say Technology and
significant fines and a loss of export privileges Conduct results, 'Speak Out' reports, internal audit findings innovation
, Relationship
exit interviews and ethics questions in performance to other principal
* Failure to meet strict conditions within government * Policies and procedures to mitigate distributor and reviews risks:
contracts, particularly in the US, could have serious agent related risks including due diligence, COVID-19 -
financial and reputational consequences contractual controls and internal approvals Moderate
* Monitoring and reporting on compliance with ethics Technology -
and compliance policies N/A
* US fines and penalties imposed for price fixing, bid * Anti-bribery and corruption training for all Economy and
rigging and other cartel-type activities can exceed employees supported by the 'Speak Out' line geopolitics
$100m per violation encouraging the reporting of ethics violations * Tracking of online ethics training and compliance - Strong
(includes ability to report anonymously and a modules Group portfolio
non-retaliation policy) - N/A
* Ethics or compliance breach causes harm to our Product quality
reputation, financial performance, customer * Reporting non-compliance cases to the business, - N/A
relationships and our ability to attract and retain * Reporting and investigation mechanisms Executive and Audit & Risk Committees Customers -
talent Strong
People - Strong
* Anti-trust training programmes and guidance Cyber security
- Strong
Integrated supply
* Network of trade compliance officers across the Group chain - Strong
who monitor upcoming changes in regulation and Markets - Moderate
oversee import and export activities Contractual
obligations
- Strong
* Monitoring and acting on upcoming legislative changes
* Modern Slavery and Transparency Statement and
procedures to reduce the risk of modern slavery
within the Group and our supply chain
* Multi-functional programme for data privacy
compliance
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CONTRACTUAL OBLIGATIONS
We may fail to deliver contracted products and services, or fail in
our contractual execution due to delays or breaches by our suppliers
or other counterparties.
Risk Owner: Mel Rowlands
Trend: No change
Included in viability assessment: N/A
How this could impact Examples of how we Examples of how Link to resources
our strategy or business manage this risk we know the controls and relationships:
model * Contracts managed and delivered by programme are working effectively Our people;
* Production delays; unexpected increases in costs of management teams that regularly review risks and take * Divisional legal teams embedded in the business, Our customers;
labour or materials; freight, quality and warranty appropriate action working cross-functionally throughout the contract Our supply chain;
issues could all cause unexpected losses/reduced lifecycle Our communities;
profits resulting from our failure to manage our Regulators and
contracts * Review and approval process for significant and governments
higher-risk contracts in place at Group and * Review and approval process for contracts determined Relationship
divisional levels by adherence to the Delegation of Authority matrix to other principal
* Breach of contract resulting in significant expenses risks:
due to disputes and claims, loss of customers, damag COVID-19 - Strong
e * Diversified nature of the Group mitigates exposure to * Insurance programme tailored to reflect the risk Technology -
to our reputation with other customers/prospective any single contract appetite of the Group Moderate
customers, and loss of revenue and profit due to Economy and
higher costs, liquidated damages or other penalties geopolitics
* Legal teams deliver training to colleagues * Uniform diligence and contracting process in place - N/A
for agents and distributors Group portfolio
* Contracts, particularly those with governments, may - N/A
include terms that provide for unlimited liabilities * Programmes in place across the Group which harmonise Product quality
, the contract review process - Strong
including for loss of profits, intellectual property Customers -
(IP) indemnities, extended warranties or allowing th Strong
e * Cross-divisional US Government working group People - Strong
counterparty to cancel, modify or terminate determines and shares best practice on government Cyber security
contracting - Strong
Integrated supply
* unilaterally and seek alternative sources of supply chain - Moderate
at our expense Markets - Strong
Ethical breach
- Strong
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CLIMATE CHANGE
Smiths recognises the complex global challenges presented by climate
change and the importance of: (a) understanding the risks and opportunities
that it represents for the Group and (b) embedding these considerations
into strategic decision-making. As described elsewhere in this Report,
Smiths is well positioned to support customers in meeting their own
climate and environmental goals as well as developing future products
and
services targeted at climate risk, energy transition and other environmental
needs.
Climate-related risks and their potential impact on the business and
its strategy form part of risk reporting and risk management across
the Group. Due to its long-term nature, climate change is not considered
to be a
principal risk, but it is related to other principal risks, for example
Technology, Group portfolio, Customers and Integrated supply chain.
In FY2021, the Group undertook an expanded climate risk and opportunity
assessment,
including scenario analysis to consider climate-related physical and
transition risks.
We evaluated two climate change scenarios and identified actions to
mitigate risks and capture opportunities in strategic plans. We have
joined the Task Force on Climate related Financial Disclosures (TCFD)
as supporters and we have committed to the 1.5 degree C Business Ambition
under the UN Race for Zero covering all three scopes of GHG emissions.
Read more climate risk assessment and its findings on p44.
Link to resources and relationships: Our people; Our customers; Our
supply chain; Our communities; Regulators and governments
Physical risk
Smiths locations and key Smiths customers and suppliers (particularly
in India and on the US gulf coast) are exposed to extreme weather events
such as storms/hurricanes, heatwaves and drought.
How this could impact Examples of how we Examples of how
our strategy or business manage this risk we know the controls
model * Diversified geographic base mitigates exposure to any are working effectively
* Damage to key Smiths assets leads to significant one country * No recent business continuity incident from a
disruption and Smiths is unable to meet its significant weather event
obligations to customers (revenue and reputational
impact) * Current and future climate trends considered during
evaluation of potential new sites and acquisitions
* Damage to key supplier assets leads to significant
disruption and Smiths is unable to meet its * Regular evaluation of key sites making critical
obligations to customers products, business continuity and disaster recovery
plans and dual manufacturing capabilities
* Customers in coastal areas relocate their operations
to limit their own physical risk leading them to * Supplier resilience programme evaluating a range of
review their supplier portfolio risk factors, including a review of critical
suppliers operating in high-risk environments
* Impact on safety and well-being of employees
* Global Employee Assistance Programme and ISOS app
* Increased operating and capital investment costs to
regulate temperatures and/or deal with shortages of * Energy reduction projects
resources at operational sites
---------------------------------------------------------------- --------------------------------------------------------------- -------------------
Energy transition risk
The move to a low carbon economy could have a profound effect on some
of Smiths traditional customers and reduce demand for Smiths products.
Smiths may not take full advantage of the market disruption/increased
regulation which provide opportunities to supply new products and services
nor support customers on their energy transition. Smiths may be unable
to improve the environmental performance of its operations and products.
How this could impact Examples of how we Examples of how
our strategy or business manage this risk we know the controls
model * Development of products and services targeted at are working effectively
* New and emerging green technology suppliers taking climate risk, energy transition and other * New product initiatives such as the John Crane
share in Smiths market sectors or move faster to gain environmental needs methane programme and products supporting renewable
incumbency energy systems
* Supporting customers to use Smiths technology to meet
* Changing consumer preferences including a permanent their own environmental goals * Ongoing achievement of environmental targets
reduction in demand for flying and increasing demand
for greener products and services
* Proactively managing reductions in operational GHG * Onsite renewable energy projects
emissions. Increasing use of renewable electricity.
* Margin impact from increased regulation around GHG Targeting Net Zero by 2040
emissions and cost of offsetting/renewable energy * Customer interest consolidated by energy efficiency
of products/programmes such as Smiths Detection's
* Focus on intrinsic sustainability from operations of CTiX scanner
Smiths products through Design for Sustainability -
raw materials, supply chain, durability,
repairability, circularity and end-of-life outcomes
---------------------------------------------------------------- ---------------------------------------------------------------
Statement of Directors' responsibilities IN RESPECT OF THE
ANNUAL REPORT AND THE FINANCIAL STATEMENTS
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 Group and Parent Company financial statements
for each financial year. Under that law they have elected to
prepare the Group financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and applicable law and have
elected to prepare the Parent Company financial statements in
accordance with UK accounting standards and applicable law (UK
Generally Accepted Accounting Practice), including FRS 101 Reduced
Disclosure Framework.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Parent Company
and of their profit or loss for that period. In preparing each of
the Group and Parent Company financial statements, the Directors
are required to:
- Select suitable accounting policies and then apply them
consistently;
- Make judgements and estimates that are reasonable, relevant,
reliable and prudent;
- For the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU;
- For the Parent Company financial statements, state whether
applicable United Kingdom Accounting Standards have been followed
subject to any material departures disclosed and explained in the
Parent Company financial statements;
- Assess the Group and Parent Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern; and
- Use the going concern basis of accounting unless they either
intend to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate governance and financial information included on
the Company's website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions .
Directors' responsibility statement
Each of the Directors (who are listed on pages 87 to 89)
confirms that to the best of
his or her knowledge:
- The financial statements prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole;
- The Group Directors' Report and Strategic Report include a
fair review of the development and performance of the business and
the position of the issuer and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face; and
- As at the date of this report there is no relevant audit
information of which the Company's auditor is unaware. Each
Director has taken all the steps he or she should have taken as a
Director in order to make himself or herself aware of any relevant
audit information and to establish that the Company's auditor is
aware of that information.
We consider the Annual Report and Accounts, 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
Signed on behalf of the Board of Directors:
Paul Keel John Shipsey
Chief Executive Chief Financial Officer
28 September 2021
Enquiries:
Matthew Whyte
Company Secretary
Matthew.Whyte@smiths.com
This document contains certain statements that are
forward-looking statements. They appear in a number of places
throughout this document and include statements regarding the
intentions, beliefs and/or current expectations of Smiths Group plc
(the "Company") and its subsidiaries (together, the "Group") and
those of their respective officers, directors and employees
concerning, amongst other things, the results of operations,
financial condition, liquidity, prospects, growth, strategies and
the businesses operated by the Group. 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 knowledge and information available at the date of
preparation of this document and, unless otherwise required by
applicable law, the Company undertakes no obligation to update or
revise these forward-looking statements. Nothing in this document
should be construed as a profit forecast. The Company and its
directors accept no liability to third parties. This document
contains brands that are trademarks and are registered and/or
otherwise protected in accordance with applicable law.
Legal Entity Identifier (LEI): 213800MJL6IPZS3ASA11
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END
ACSEAXENFLLFFEA
(END) Dow Jones Newswires
October 19, 2021 04:23 ET (08:23 GMT)
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