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Engineering
a better future
Annual Report & Accounts
FY2024
Welcome
Our purpose
We are focused on solving the
toughest problems for our
customers, helping address critical
global needs such as safety and
security, decarbonisation and the
ever-increasing demand for data
connectivity. At the same time,
we are building the long-term
resilience of Smiths Group and our
global operations.
We are pioneers of progress –
engineering a better future.
We are united by our purpose. It is
what we do, how we think, and how
we will continue to use our passion
for innovative technology and
engineering.
How to navigate this report
Throughout this report you will find extra
information, performance data and pointers
to additional data in the right-hand column.
Supporting data, statistics or insights
Pointers to additional content within the report
Pointers to additional external content
Quotes from our team and highlights
Access more information
Read more about
sustainability in our
Sustainability at
Smiths report on
www.smiths.com
Read more about the
Group on our website
www.smiths.com
Scan to read more about the Group
Scan to read our Sustainability
at Smiths report
Overview
Our purpose
IFC
FY2024 highlights
1
Strategic report
Chairman’s statement
2
Markets and megatrends
4
Our strategic framework
5
Our business model
6
Our businesses
7
Our people and culture
9
Q&A with our CEO
10
Progress against our strategy
12
Building our culture
13
Key performance indicators
14
CEO review of the year
17
CFO review
22
Business review
24
Sustainability at Smiths
32
Risk management
40
Principal risks and uncertainties
42
Task Force on Climate-related Financial Disclosures
49
Non-financial and sustainability information Statement
ESG metrics, targets and performance
60
62
Going Concern and Viability Statement
68
Governance
Chairman’s introduction
71
Board biographies
73
Stakeholder engagement and S172 statement
78
Nomination & Governance Committee report
83
Audit & Risk Committee report
87
Innovation, Sustainability & Excellence Committee
report
94
Remuneration & People Committee report
96
Directors’ report
118
Statement of Directors’ responsibilities
120
Financial statements
Independent auditor’s report
121
Consolidated primary statements
135
Accounting policies
140
Notes to the accounts
149
Unaudited Group financial record FY2020–FY2024
195
Unaudited US dollar primary statements
196
Smiths Group plc Company accounts
202
Subsidiary undertakings
210
Shareholder information
217
About this report
This is the
Smiths Group plc
Annual Report &
Accounts FY2024.
Data presented in
this report is for
the 12 months to
31 July 2024 unless
otherwise stated.
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Roland Carter
Chief Executive Officer
FY2024 highlights
I am pleased to report strong organic revenue
growth against a record comparator, continued
headline operating profit margin expansion and
two new acquisitions. I am also pleased to guide
to further growth and margin expansion in
FY2025 and reaffirm our medium-term financial
targets. We are making good strategic,
operational and financial progress, and all our
businesses are well positioned for compelling
value creation.
We have high-quality teams, an incredible
breadth of engineering excellence, and a
relentless focus on our customers. Effective
strategy execution is enhancing our
performance – and we will build on, and out
from, this solid foundation, enabling us to grow
more profitably to make Smiths even better. This
will be delivered through improved prioritisation
of investment in R&D and innovation to power
organic growth; the Group-wide Acceleration
Plan, which is designed to drive productivity and
profitability – bringing delivery of our medium-
term margin target closer; and disciplined M&A,
all of which offer the opportunity to augment
overall performance.
As a team, we focus on solving our customers’
toughest problems and are united by our
purpose of engineering a better future. Thank
you to all my colleagues for a great year. I look
forward to achieving even more together, as we
continue to accelerate value creation for all our
stakeholders."
Headline
2
FY2024
FY2023
Reported
Organic
1
Revenue
£3,132m
£3,037m
+3.1%
+5.4%
Operating profit
£526m
£501m
+5.0%
+7.1%
Operating profit margin
4
16.8%
16.5%
+30bps
+34bps
Basic EPS
105.5p
97.5p
+8.3%
ROCE
4
16.4%
15.7%
+70bps
Operating cash conversion
4
97%
86%
+11pps
Statutory
FY2024
FY2023
Reported
Revenue
£3,132m
£3,037m
+3.1%
Operating profit
£415m
£403m
+3.0%
Profit for the year (after tax)
£251m
£232m
+8.2%
Basic EPS
72.3p
65.5p
+10.4%
Dividend per share
43.75p
41.6p
+5.2%
Statutory reporting and definitions
Statutory reporting takes account of all items excluded from headline performance. See accounting policies for an explanation of the
presentation of results and note 3 to the financial statements for an analysis of non-headline items. The following definitions are applied
throughout the financial report:
1 Organic is headline adjusted to exclude the effects of foreign exchange and acquisitions.
2 Headline: In addition to statutory reporting, the Group reports on a headline basis. Definitions of headline metrics, and information about
the adjustments to statutory measures, are provided in note 3 to the financial statements
3 Heating, ventilation and air conditioning.
4 Alternative Performance Measures (APMs) and Key Performance Indicators (KPIs) are defined in note 29 to the financial statements.
Continued good delivery against our strategy; well positioned for ongoing
value creation
–
Good financial results for the year: +5.4% organic
1
revenue growth, 16.8% headline
2
operating profit
margin and +8.3% headline
2
EPS growth
– Headline
2
operating cash conversion of 97%;
strong balance sheet 0.3x net debt/EBITDA;
proposed final dividend of 30.2p, up +5.2%
–
Announcing today two strategic and disciplined
acquisitions for up to £110m, enhancing Flex-
Tek’s HVAC
3
and industrial heating businesses
–
Continued focus on high-performance, purpose-
based culture and ESG initiatives
–
Launching a Group-wide Acceleration Plan to
enhance profitability and productivity, for one-off
costs totalling £60-65m in the period FY2025-
FY2026; £30-35m of annualised benefits in
FY2027
–
Expect FY2025 organic revenue growth of 4-6%,
with continued margin expansion
–
Reaffirming medium-term financial targets and
strategic focus on growth, people and execution
1
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Dear shareholders,
A warm welcome to our Annual
Report FY2024.
It has been a busy period and I am
delighted to report that my initial
expectations have been exceeded.
This company has a remarkable
history and a very bright future.
Steve Williams
Chairman
The broader business environment has been
challenging. Geopolitical tension, wars and inflationary
pressures have been joined by political uncertainty, as
elections around the world play out. And we continue
to see the ripples of transformatory change expand –
from digitisation and AI; the accelerating response to
climate change; and demographic shifts in all our
markets. With that said, the Group’s ability to deliver
strong revenue growth and continued margin
expansion is testament to the fundamental resilience
and underlying strengths of the Smiths business model.
This Annual Report and its companion Sustainability
at Smiths report describe in detail our approach and
achievements for all stakeholders. Highlights include
the investment we are making to better understand our
supply chains, so that we only choose suppliers who are
explicitly committed to our Values and goals, and the
first round of charitable grants made by the Smiths
Group Foundation to organisations nominated by
our people.
We were very pleased to appoint Roland Carter as CEO
in March. Our ability to respond quickly to Paul Keel’s
decision to leave Smiths, was a result of ongoing robust
succession planning work which has strengthened the
entirety of the senior leadership group. This enabled us
to undertake a rigorous process, ensuring a smooth
transition with minimal disruption to the business.
Roland is a highly regarded leader with a deep
knowledge of our markets and businesses. The bench
strength of our senior leadership team was further
underlined by new internal appointments to the
Executive Committee arising from the change in CEO.
Paul Keel left with our thanks and good wishes for his
new role in the US.
There were also some changes to Non-executive Board
responsibilities during the year. Richard Howes became
Chair of the Audit & Risk Committee in November. Bill
Seeger retired from the Board in May and his
responsibility as Chair of the Remuneration & People
Committee has transitioned to Karin Hoeing. I thank
Bill for his service to Smiths over many years. Mark
Seligman is now the designated Senior Independent
Director. We also welcomed Alister Cowan to the Board
at the beginning of July – his extensive experience in
senior financial roles will be extremely valuable. Finally,
on behalf of the Board and the whole Group, I pay
tribute to Sir George Buckley who retired as Chairman
in November.
We have now recorded a third year of organic revenue
growth and are sustaining progress against all our
medium-term financial targets, with growth in all key
metrics in FY2024. Strong growth continued for our two
largest businesses, John Crane and Smiths Detection
and both Flex-Tek and Smiths Interconnect returned to
growth in the second half of the year.
The health of the business enabled the Board to
approve an additional share buyback programme
during the year and an increase to both the FY2024
interim and final dividends, whilst also supporting our
acquisition objectives.
Importantly, we are successfully investing in and
delivering, significant opportunities to deploy Smiths
technology and capabilities in new markets and end use
applications. John Crane has had great success and
notable contract wins in both the hydrogen and carbon
Chairman’s
statement
2
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
capture markets, as well as continuing to support
efficiency and emission reductions in more traditional
industrial and energy segments. Flex-Tek is pioneering
the use of electrical heating elements in emerging
industries like green steel, and Smiths Detection is
working on projects which harness the potential of
screening technology combined with AI for use in
secondary mining and recycling processes. The
Innovation, Sustainability & Excellence Committee
has an exhilarating front row seat as these projects
take shape.
One area where Smiths has always been innovative is in
the aftermarket. Approximately 51% of Smiths revenue
derives from aftermarket support of our products in the
field. Keeping critical process infrastructure healthy
and in service for longer is both a compelling and
integral part of our customer offer and increasingly
relevant, as customers focus on the sustainability of
their operations.
The sustainability of Smiths operations is also high
on the Board’s agenda. Planning for Net Zero
emissions has accelerated significantly in the last 24
months in every part of Smiths, and we have delivered
another year of robust reductions in GHG emissions
from operations. These are based on fundamental
changes to the way we do things
–
from energy
efficiency projects to transitioning our vehicle fleet to
electric vehicles. Our pathway was validated by the
Science-Based Targets initiative in December 2023
and the Board is pleased to once again align a portion
of both Executive and management remuneration to
achieving our targeted GHG reduction trajectory in the
coming years.
Our Directors’ Remuneration Policy was reviewed
in the year and the updated Policy will be put to
shareholders at the November AGM. We believe that
the Policy serves all our stakeholders well in attracting,
retaining and incentivising our most senior leaders to
deliver the Group’s strategic objectives.
I will close with a particular thanks to Smiths
employees. People make an organisation, and it is
positively true at Smiths. It has been an enormous
pleasure to get to know the Smiths team and absorb
the culture. I know that my fellow Board members
feel the same. We have diverse and immense talent
in the company. It is our most precious resource and
something we commit to nurturing and supporting
as our people build rewarding careers.
I thank every member of the Smiths team for their
contribution during the year and members of the
Smiths Board for their wise counsel and ongoing
support.
Sincerely,
Steve Williams
Chairman
3
Smiths Group plc Annual Report FY2024
Chairman’s statement
continued
Overview
Strategic report
Governance
Financial statements
Markets and
megatrends
We track the evolution of key secular themes and trends and their impact on our
markets and our business.
Megatrends
Our purpose and portfolio are aligned with powerful megatrends and our innovation is focused on these as well as
attractive adjacencies.
Energy efficiency and diversification
The need to cut global emissions is
driving greater energy efficiency in all
sectors as well as accelerating the
adoption of electricity and alternative/
low-carbon fuels.
–
Total energy demand is forecast to
grow by 31% between 2025 and 2050
–
Traditional (i.e. non-renewable)
sources will still account for ~73% of
supply by 2030
–
Investment to deliver the Paris
commitment on global warming is
projected to exceed US$100 trillion
by 2050; 3-4 times the rate of annual
historical investment
Productivity and sustainability
Eliminating waste, improving sustainability
and ensuring natural resources and
environments are used and inhabited
sensitively is a growing requirement. The
circular economy and service solutions are
gaining traction as a way to reduce
environmental footprint, waste and cost.
–
The EU’s recycling rate is c.44% and
circularity rate is 11.5%
–
The EU’s 2020 Circular Economy
Action Plan aims to reduce waste,
create value and preserve the
environment.
Insatiable data demand
Demand for data is continuously
increasing as the world becomes more
connected and computing power
expands. More rapid data transmission,
greater bandwidth and faster processing
power are required across many sectors.
–
Data creation and consumption
almost tripled between 2019 and 2024
(to almost 125 zettabytes)
–
The number of transistors in an
integrated circuit doubles roughly
every two years
–
In 2024 there were 8.9 billion mobile
phone subscriptions – or 109 per 100
population
Increased travel and ever-rising
security needs
Passenger air travel and air freight
continue to grow as well as the volume of
goods transported by land and sea, and
the public, governments and businesses
demand safe environments. Regulatory
requirements amplify demand.
–
World air passenger numbers are
expected to grow by 3.8% CAGR
(compound annual growth rate) 2023 to
2043, representing 4 billion additional
journeys by 2043
–
The urban population is set to double,
with 7 out of 10 people living in cities
by 2050
General Industrial
39%
Safety & Security
27%
Energy
23%
Aerospace & Defence
11%
Revenue by
global market
Americas
54%
Europe
20%
Asia Pacific
15%
Rest of the World
11%
Revenue by
destination
Our markets
We operate in four key global markets that are
large, attractive and growing.
General Industrial
Customers put their trust in our products and
services to support a wide range of general
industrial applications in sectors including
petrochemicals, mining, pulp & paper, water
treatment, semiconductor testing, building, heating
elements, automotive and rail transportation.
Safety & Security
Our threat detection equipment helps keep
people and assets safe. Persistent and evolving
threats are driving security needs in a range of
sectors including aviation, ports & borders, and
urban settings.
Energy
John Crane’s high-performance mechanical seals
and systems support energy operations worldwide
including oil & gas and low-/no-carbon energy
solutions. The need to mitigate climate change and
deliver secure and affordable power is driving a
fundamental revolution in global energy use,
energy sources and energy delivery.
Aerospace & Defence
Satellite launches and emerging activities like deep
space exploration are driving demand for high-
reliability solutions in the space market. Passenger
and freight air traffic is growing, and new fuel-
efficient aircraft are being developed. Defence
spending continues to grow in response to ongoing
geopolitical uncertainty.
4
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Our strategic framework
Priority
Element
Description
KPIs/targets
Growth
Secularly attractive end markets
Markets aligned with important megatrends
Structural growth characteristics
Entry hurdles based on technology and/or customer relationships
Organic revenue growth
Target 4-6%
EPS growth
Target 7-10%
Leading businesses
Industry-leading technology and engineering expertise for competitive advantage
and strong market segment share
Operating profit margin
Target 18-20%
Customer relationships
Mission-critical solutions for tough customer problems – making the world safer,
more efficient and productive, and better connected
Organic revenue growth
EPS growth
Operating profit margin
People
Purpose and Values
Shape and guide who we are, what we do and how we do it
Employee engagement
Target upper quartile score
(75+)
High-performance culture
Relentless focus on safety
Invest in our people – leadership, culture, diversity, equity and inclusion
High colleague engagement
Community involvement
Recordable incident rate
Target <0.4
Employee engagement
Execution
Invest behind growth
Resource allocation to R&D
Capital expenditure and M&A for profitable growth and to access attractive
markets, customers and geographies
Organic revenue growth
EPS growth
Gross vitality
Target 30%
ROCE
Target 15-17%
Operational excellence
Scaled Smiths Excellence System to drive:
–
Agility
–
Margin improvement
–
Cost and working capital management
–
Efficiency
–
Sustainability
ROCE
Operating profit margin
Operating cash conversion
Target ~100%
Net Zero
Target Scope 1 & 2 by 2040
Target Scope 3 by 2050
See our KPIs Page 14
Deliver profitable growth
from secularly attractive
end markets
Invest in technology and
engineering for competitive
differentiation
Implement mission-critical
solutions within long-term
customer partnerships
5
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Our business model
Our strengths
Driven by our strategic priorities
Our business model leverages our strengths to deliver our potential and create value for all stakeholders.
Read more about our stakeholders on page 78
Empowered businesses supported
by an efficient Group centre
Underpinned by our culture
John Crane
Flex-Tek
Smiths
Detection
Global
business
services
Smiths
Interconnect
Compliance
and governance
Functional specialists
and leadership
Customers
–
Solutions that help customers achieve their goals
–
Excellent customer service
Communities
–
Advancing sustainability
–
Investing where we work
–
Leading through ethical governance
Suppliers
–
Partnerships to deliver for our customers
–
Shared commitment to sustainability and doing business
the right way
Shareholders
–
Performance matching our potential
–
Returning surplus capital
People
–
Empower and inspire
–
Inclusive and engaged culture
–
Learning environment
–
Progressive rewards
Regulators and governments
–
Build relationships that demonstrate openness,
transparency and support for policy
Creating value for our stakeholders
World-class engineering
–
Track record of innovation
–
R&D investment ahead of competitors
–
Strong pipeline of new products
Leading positions in critical markets
–
Secularly attractive, growing markets
–
Leading positions based on technology and/or
customer relationships
Global capabilities
–
Present in more than 50 countries
–
Geographic spread and end market
diversification provides stability and growth
Robust financial framework
–
Accelerating revenue growth
–
Recurring aftermarket revenues
–
Good margins and returns on capital
–
Low asset intensity
–
Strong cash generation
Maximise growth
opportunities in core
markets
Drive high-value
innovation/
new product
commercialisation
Invest in growth-
accretive priority
adjacencies
Scale SES to
drive agility,
margin improvement,
cost and working
capital management,
efficiency and
sustainability
Maintain strong
and flexible
balance sheet to
support growth
strategy
6
Smiths Group plc Annual Report FY2024
6
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Overview
Strategic report
Governance
Financial statements
Our businesses
John Crane
Mission-critical flow control
solutions for energy and process
industries that enable efficient and
sustainable operations.
Flex-Tek
Fluid movement and temperature
management.
See next page
Smiths Detection
Detection and screening
technologies for safety, security,
and freedom of movement.
Smiths Interconnect
Advanced connectivity solutions.
See next page
John Crane is a global leader in the design,
manufacture, installation and support of
mission-critical technologies and services
that drive efficiency, safety, and environmental
sustainability in large-scale industrial processes.
Competitive strengths
–
Strong and differentiated proprietary technologies and
expertise across industries
–
Largest installed base in the energy and industrials markets
–
Innovation focused, growing service capabilities through
digitisation and field engineering
–
Customer intimacy and strategic alignment with end users
through a global network of service and support centres with
unique field service capabilities
Growth drivers
–
Global demand for stable, secure and affordable energy
supply
–
Secular growth in energy and primary resource demand,
especially in emerging markets
–
Increasing demand for enhanced efficiency
–
Energy transition – environmental safeguarding and cleaner
processes. Requirement to reduce emissions, with particular
emphasis on methane. Growth of a more diversified and
cleaner low-carbon energy ecosystem, including hydrogen
and carbon capture, which drive more demanding needs in
compression, pumping and filtration
–
Long-term customer partnerships and outsourcing
Smiths Detection is a global leader in the design,
manufacture, installation and support of threat
detection and screening technologies that protect
people and assets.
Competitive strengths
–
Global reach and market-leading brand
–
Differentiated proprietary technologies leveraged across a
broad range of markets
–
Significant research and development and digital capabilities
–
Operating in regulated market segments that require
product certification
–
Increasing product sustainability – energy efficiency, supply
chain and refurbishment
–
Customer intimacy and loyalty through equipment cycle and
aftermarket offer
Growth drivers
–
Persistent and evolving threats to national security, public
safety and critical infrastructure
–
Changing aviation security regulations and customer
requirements across our industries
–
Growing populations and urbanisation
–
Growth of global transportation infrastructure
–
Global growth of international trade and e-commerce
–
Need for integrated digital solutions and cyber security
–
Increasing interest in solutions that enable the circular
economy
–
Staffing constraints are driving demand for digital image
analysis software such as automated threat recognition
–
Equipment replacement cycle, typically ~ten years
7
Smiths Group plc Annual Report FY2024
Smiths Group plc Annual report FY2024
Overview
Strategic report
Governance
Financial statements
John Crane
36%
Smiths Detection
28%
Flex-Tek
25%
Smiths Interconnect
11%
% of FY2024 revenue
John Crane
41%
Smiths Detection
22%
Flex-Tek
24%
Smiths Interconnect 13%
% Employees
Flex-Tek is a global provider of high-performance
engineered solutions for the safe and efficient
movement and temperature management of
liquids and gases in a broad range of industry
sectors.
Competitive strengths
–
Leading capability in design, manufacture and cost
engineering
–
High-performance, differentiated products
–
Innovation focused
–
Strong customer relationships and brand reputation
Growth drivers
–
Through-cycle growth of the US housing construction
market
–
Expanding international market for construction products
–
The electrification of everything, leading to broad adoption of
electrical heating solutions across industrial and domestic
settings
–
Long-term increase in commercial and military aircraft
production
–
Customer focus on efficient performance and environmental
safeguarding
–
Growth in use of medical devices
Smiths Interconnect is a preferred supplier of
advanced electronic components, sub-systems,
optical and radio frequency products for reliable,
high-speed and secure data transfer.
Competitive strengths
–
Broad portfolio of cutting-edge technologies and products
–
Strong research and engineering capabilities
–
Customer intimacy and product customisation
–
Global reach and support
Growth drivers
–
Increased demand for faster data transmission, greater
bandwidth and faster processing power in aerospace,
defence and communications
–
Growth of connectivity, as the world becomes more
connected, driven by trends including the Internet of Things,
Big Data, Internet of Space, and Industry 4.0
–
Development of healthcare technology
–
Growth in defence electronics
8
Smiths Group plc Annual Report FY2024
Our businesses
continued
Overview
Strategic report
Governance
Financial statements
Our culture inspires and empowers
our c.15,750 Smiths colleagues to live
our purpose and to seek new ideas
and execute them with passion and
commitment to deliver our strategic
goals. Our culture has four key elements
which support the Smiths business model
and drive positive outcomes for all our
stakeholders. The strength of our culture
is underpinned by governance processes
set and monitored by the Smiths Board.
The Board has ultimate responsibility for
ensuring that our culture is healthy and
drives the long-term success of the Group.
1.
Our Values
Our Values are the things that are important to us as an
organisation. They make us reliable, trustworthy and
valued partners, and they make Smiths a place where
we are happy and proud to work. We live them every
day, in each action and decision that we take.
2.
Continuous improvement
We have a common approach to continuous
improvement, operational excellence and efficiency
–
the Smiths Excellence System. It is deployed
throughout the Group to determine, accelerate and
deliver critical operational and functional projects that
make us faster to market, more innovative and
responsive to customer needs, and eliminate waste.
3.
Smiths Code of Business Ethics
The Smiths Code of Business Ethics outlines the
standards of behaviour to which we all commit at
Smiths. It is a practical guide to what ‘doing the right
thing’ looks like when conducting business and
relationships legally, ethically and with integrity. See
our Code on www.smiths.com
4.
Smiths Leadership Behaviours
The Smiths Leadership Behaviours take our Values to
the next level. They describe the behaviours needed for
the Group to be dynamic, inclusive and focused on
delivering results. Everyone is encouraged to be a
leader at Smiths.
Sets vision to inspire
Collaborates to uncover future growth opportunities for
Smiths. Shares this in a way that inspires and energises
colleagues to take action.
Innovates for impact
Committed to continuous improvement, takes
opportunities to the market that differentiate Smiths
and deliver sustainable value for all stakeholders.
Takes accountability & ownership
Actively takes accountability, follows through
on commitments and empowers others to own
their outcomes.
Delivers results at pace
Takes an agile, focused and resilient approach that
delivers excellent outcomes to meet customer and
stakeholder expectations.
Leads inclusively & empowers
Champions inclusion at every opportunity. Creates the
environment where others can contribute and thrive,
building trust and nurturing empowerment.
Develops self & others
Visibly commits to their personal development and
encourages the development of others to reach their
full potential.
Lives Smiths Values
Embodies and promotes Smiths Values: integrity,
respect, ownership, customer focus and passion,
using these to guide all actions.
We are united by our
purpose. It is what we
do, how we think, and
how we will continue
to use our passion for
innovative technology and
engineering.
Board oversight
Read more about Board
oversight of our culture.
Page 77
Our people and culture
Our Values
Integrity
We do the right
thing
Respect
We respect each
other
Ownership
We take
responsibility
Customer focus
We earn our
customers’ trust
Passion
We are united in
purpose
9
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
We are driven by fundamental
customer needs and our customers’
goals are the same as our own:
building resilient businesses and
creating value from what we do.
The road ahead is exciting. We will
continue to build on, and out from,
solid foundations, which is what we
have always done at Smiths.
Roland Carter
Chief Executive Officer
with our
CEO
Q&A
Q
How would you describe Smiths culture?
Culture is embedded in our people – the greatest asset
any organisation can utilise. Having worked in the
company for 35 years, I know that we have great people
who are proud to be part of Smiths; and we are proud to
have them. It is our job as an executive team to invest in
them, to develop talent individually and collectively
– and to nurture those things, like culture, engagement
and inclusion, that make our company both special and
successful.
But culture is not something that can be imposed. It
lives in the grassroots of a company, in Smiths that
means in our businesses where our company Values
shape how we think and what we do every day. There is
a natural relationship between our four businesses
– we are experienced engineers; we are focused on
high-reliability, high-integrity solutions; and we are
customer led. Our Values – integrity, respect,
ownership, customer focus and passion – have
emerged from this organically and can be traced back
through our 170 years in business.
Continuous improvement is also instinctive for
engineering and manufacturing businesses like ours;
we apply this thinking beyond manufacturing and
throughout Smiths to create value in all activities,
supported by the Smiths Excellence System (SES).
Our Code of Business Ethics is a natural extension of
our Values. It is a practical reference point for everyone
on how to behave when conducting business to ensure
that we always act appropriately and within the law in
every place we operate and speak out when we see
something not in line with our Values.
The final important aspect of our culture is leadership
and ownership – our businesses will be the most
successful when everyone in the company feels
empowered to lead. That means giving people the
right support, the right tools, and the right
environments to be creative, to be courageous, and
to make good decisions.
Q
How does Smiths purpose align with customer needs?
Everyone in the organisation understands that there is
only one reason that Smiths exists and that is because
we have customers to serve. And our customers’ goals
are the same as our own: building resilient businesses
and creating value from what we do.
Smiths has been – and always will be – shaped by our
focus on growth markets and aligning ourselves with
the trends in those markets to which we can
meaningfully respond with our technology and
engineering capabilities, like electrification or data
connectivity. In addition, we are driven by fundamental
customer needs – for better performance, for
innovation, for keeping critical infrastructure in service,
for products that are designed for excellence and
sustainability.
To be really good at what we do means that we need to
make commercial decisions as close to the customer
as possible. This agility satisfies them and reduces
complexity for us given the high level of customisation
in our final products. It’s why we are in 50 countries and
operate with local supply chains where we can, which
also reduces risk. Being set up in this way enables us to
maximise value across the entirety of our value chains,
which benefits us, our customers, our suppliers, and
our shareholders alike.
Q
What are Smiths growth priorities and what most
excites you about the road ahead?
The first principle for growth is to meet existing and
emerging customer demand for our products whilst
ensuring that we can do this as efficiently and profitably
as possible. So, each business has targets which seek
to maximise opportunities in their current market
segments and to grow share organically. It should
come as no surprise, therefore, that innovation and
commercialisation of new products and ideas has
always been one of our key strengths – applying our
10
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
capabilities and domain expertise appropriately
whether it’s technology, materials science or field
service models. Smiths is an IP-rich company and is
expert in its practical deployment to create profitable
revenue streams, for example as John Crane has done
with the dry gas seal and Smiths Detection in the field of
aviation security screening over many years.
We also continue to explore opportunities in areas
closely adjacent to where we are currently active, or
where we have technology or expertise that can be
repurposed or extended. John Crane’s expansion into
the hydrogen and carbon capture, utilisation and
storage (CCUS) market segments are good examples of
this focused approach. Finally, we will look to acquire
businesses in areas that fit Smiths, but where we do not
currently have the DNA, and which will augment
growth and improve margins. And that’s DNA in the
broadest sense – technology capability, customer
relationships and/or geographical positions. This was
most recently demonstrated with the announcement of
two strategic and disciplined acquisitions, Modular
Metal and Wattco, in September 2024, which enhance
Flex-Tek’s HVAC and industrial heating businesses.
The road ahead is exciting. We will continue to build on,
and out from, solid foundations, which is what we have
always done at Smiths.
Q
As an engineer, what’s your view on innovation and
how does Smiths perform on this front?
We’ve had some significant successes in recent years
– for example Flex-Tek’s electrical heating elements
to support the manufacture of ‘green’ steel. But
innovation for innovation’s sake is worth nothing.
Innovation must have a goal and be driven by an
identified need in a customer, in a market, or in our
own business. It’s then important to create the right
environment and culture for curiosity and ideas to
flourish, to be heard, developed and implemented. This
is true for every kind of idea that contributes to our
objectives – from an energy efficiency project to a new
connector used in space. It’s one of the key reasons for
our focus on diversity and inclusion. Bringing diverse
views into the company and giving all our people the
confidence to speak and know that they will be heard is
powerful. It really is a team effort.
While our businesses operate independently, we also
see opportunities to collaborate more in areas where
specialisms align and there is common interest. We’ve
done this previously on digital and, from an operational
perspective, we collaborate very successfully in areas
such as safety and sustainability – and of course SES is
an excellent example of Group-wide collaboration. We
are working to replicate this elsewhere – for example in
technical collaboration and creativity – without being
too prescriptive about what that means. In its purest
sense we want to empower our people to seek out and
partner with peers from inside and outside Smiths, for
example with academia, to develop our core capabilities
and, potentially, new and interesting products and
services that will sustain our future growth.
Q
How will you allocate capital to achieve Smiths goals?
Our capital allocation policy is unchanged. Our
overriding objective is to maintain a strong and flexible
balance sheet to support investment in our most
profitable growth opportunities.
We prioritise organic growth and, accordingly, we
continue to invest in ourselves – so funds for R&D and
capex. In a business like ours, the strongest risk-
adjusted return will usually come from organic growth.
Nonetheless, we typically generate more cash than we
can deploy internally, which makes acquisitions an
attractive option for amplifying organic strategies. We
maintain a disciplined approach to acquisitions as we
build our pipeline and actively look for further additions
to complement our portfolio.
Finally, direct returns to shareholders. We maintain a
progressive dividend and we will continue to return
capital to shareholders in an appropriate way if not
used for growth.
Q
Why is SES important to the business?
SES is our common, practical approach to delivering
continuous improvement in our operations and
processes. It has been developed over a number of
years as a bespoke set of tools based on Lean and Six
Sigma principles that have been adopted across the
company as a formal framework to accelerate
operational performance.
While embedded most strongly in the more traditional
environments of manufacturing, supply chain and
customer service, SES tools are available and used by
many other parts of the organisation, including for
accelerating the delivery of our environmental targets.
SES is also great for talent development. We have an
expanding network of Green and Black Belt trained
colleagues, giving our people additional routes to grow
and build careers within Smiths. It is very much a
ground up focus these days as it has matured.
Q
How is Smiths progressing on the journey to
Net Zero?
While we have very visible commitments on emissions
and a framework designed to deliver them, we have a
much broader approach to ESG matters. Put very
simply, this is to minimise our net impact – that means
delivering on our targets, and then seeking other ways
to create positive outcomes where we can, whether
that’s through our energy transition solutions, product
design, transparency in our supply chain, or refurbished
parts. We know the right answers and, like the good
engineers that we are, we are taking sensible and
practical steps towards delivering them, which also
make business sense. Ultimately this is what our
customers are asking for, as well as being important to
our people.
3.5%
R&D spend as % of sales.
Innovation must have a
goal and be driven by an
identified need in a
customer, in a market,
or in our own business.
It’s then important to
create the right
environment and
culture for curiosity and
ideas to flourish, to be
heard, developed and
implemented."
11
Smiths Group plc Annual Report FY2024
Q&A with our CEO
continued
Overview
Strategic report
Governance
Financial statements
Progress against
our strategy
Element
FY2024 progress
Outcome
Target
achieved
Growth
Secularly attractive end markets
–
End markets aligned with important megatrends
–
Through cycle demand growth of 4-5% underpins
medium-term organic revenue growth target
Organic revenue growth 5.4%
EPS growth 8.3%
Leading businesses
–
Industry-leading technology and engineering expertise
creates competitive advantage and underpins strong –
and in many cases leading – market segment shares
Organic revenue growth 5.4%
Headline operating profit margin 16.8%
Customer relationships
–
R&D to create differentiated solutions with customer
co-funded/directed investment. £109m R&D spend.
–
John Crane aftermarket >70% revenue
–
Smiths Detection aftermarket >50% revenue
Organic revenue growth 5.4%
Headline operating profit margin 16.8%
People
Purpose and Values
–
Smiths Code of Business Ethics reinforced internally
and across the supply chain
–
Smiths Leadership Behaviours rolled out globally
–
EcoVadis implemented to support delivery of SBTi
pathway and more transparent supply chain
Ethics pulse survey 96% positive
response to ‘I understand how the Code
of Business Ethics applies to me’
N/A
High-performance culture
–
My Say survey participation 85%
–
Active and growing network of employee resource groups
–
Smiths Group Foundation first awards
–
Total safety incidents down 15%
Employee engagement 75
RIR 0.44
Execution
Invest behind growth
–
Focused resource allocation to R&D, capital expenditure
and M&A to deliver profitable growth and access
higher-growth markets with pace
ROCE 16.4%
R&D % sales 3.5%
N/A
Two acquisitions completed
N/A
Operational excellence
–
Deliver operational leverage
–
SES driving margin improvement, cost and working
capital management and process efficiency
Organic operating profit growth/
organic revenue growth 1.3x
N/A
Headline operating cash conversion 97%
Net Zero Scope 1 & 2 GHG reduction
(10.7)%
See our key
performance indicators
Page 14
12
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Building our
culture
Engaging with our people
Our global communications activities are designed to
engage colleagues around the world with our purpose
and strategy and so reinforce our culture. Key
communications materials are translated into our
ten core languages. We run a global social and news
platform, a fortnightly e-newsletter, hold regular virtual
Town Halls and our intranet web portal acts as an
online hub for key information, materials and resources.
We undertook a wide range of engagement activities in
FY2024 including:
–
My Say engagement survey
–
Site visits by members of the Executive Committee
and Smiths Board
–
Global Town Halls in September and March
–
Global leadership summits for our extended and
senior leadership teams in November, February
and June
–
Launch of new www.smiths.com website
–
One-to-one meetings between Board members
and senior leaders
–
Live broadcasts and communications around
our results announcements and our John Crane
investor deep-dive in November 2023
My Say engagement survey
We have been tracking colleague engagement on
cultural measures since 2017. Our annual My Say
survey is used to surface issues and more precisely
understand what we are doing well and where we need
to do better, both at a high level and at grassroots level
in individual teams.
In FY2024, 85% of colleagues completed the survey and
our overall engagement score of 75 was up two points
on the prior year. Key strengths were identified as
safety; being treated with respect; commitment to the
environment; and empowerment. Key opportunities for
improvement were identified as offering equal
opportunities to succeed; recognition; and career
opportunities. Results from the survey and
recommendations are reported to, and discussed by,
the Executive Committee and the Smiths Board before
being incorporated into strategic planning to prioritise
action in lower scoring categories. Each business and
function have also identified improvement opportunities
to work on in the coming year.
Speaking out
Engaging on ethical matters is vitally important, as is
colleague trust in our procedures. Our colleagues and
business partners are expected to be vigilant and
report any activity or behaviour – whether in our
business or those of our partners – that they consider
may be in breach of our Code of Business Ethics,
Policies or inconsistent with our Values. This can be
done via internal channels or by using our confidential
Speak Out reporting hotline, which is accessible to
colleagues and third parties 24 hours a day, seven
days a week. Reports to the hotline can be made
anonymously. How, when and why to Speak Out is
communicated regularly to ensure that awareness
remains high.
Our global Ethics Pulse survey delivers rich data on
colleague perceptions across Smiths. This data is
reported to the Audit & Risk Committee, along with
Speak Out data.
Building Smiths culture in FY2024
A healthy culture requires continuous care and
attention. Here are some of the ways we built our
culture in FY2024:
–
Our annual Smiths Day global celebration of Smiths
culture took place in June 2024. On the day our
teams celebrated our culture and our communities,
undertaking many local community projects
including tree planting in Pune, India; cleaning the
beach in Bontang, Indonesia; and building beds for
underprivileged children in Cookville, USA
–
We continued our ‘internal first’ approach to people
development and talent progression, with 75% of
senior individual contributor roles taken by internal
candidates
–
Our #WeareSmiths week initiative was delivered at
eight target sites featuring engagement, learning,
development and support activities
–
555 colleagues participated in our Accelerate
leadership development programme, equipping
them to build high-performing and impactful teams
–
We completed 12 cross-business Lean
Management System workshops to embed Lean
and build localised SES practice communities
–
We held a global Health & Safety conference and
launched a new suite of safety Policies
–
Our annual Smiths Excellence Awards recognise
achievement across a range of disciplines and are
enthusiastically supported by Smiths colleagues.
This year we had more than 450 submissions to
the Awards
–
The Smiths Group Foundation made its first grants,
worth c.£1m, to 10+ non-profit organisations aligned
to our purpose. These were chosen from 94
nominations made by Smiths colleagues. We also
launched global volunteering principles which
enable every colleague to take one day of paid
volunteering leave every year
–
Events and communications around the world
recognised and celebrated: World Day for Health
and Safety at Work; Earth Day; International Women
in Engineering Day; International Women’s Day;
Black History Month; Veterans’ Day; and PRIDE
75
Score in My Say
engagement survey
73
in FY2023
85%
Response rate to survey
84%
in FY2023
19
Survey scores increased
and
0
scores decreased
Read more about the
Smiths Group Foundation
in our Sustainability at
Smiths report
13
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Key performance
indicators
Our KPIs include both financial and
non-financial metrics.
Alternative Performance Measures (APMs)
and KPIs are defined in note 29 of the
financial statements.
All measures exclude Smiths Medical, which was
sold in January 2022.
See Our strategic framework page 5
Link to strategy
Growth
People
Execution
Financial KPIs
Organic revenue growth
Growing faster is the
primary driver of
unlocking value creation
for the Group.
FY2024 progress
We delivered strong
organic revenue against a
record prior year driven by
our two largest divisions,
John Crane and Smiths
Detection.
Medium-term target
+4-6%
Performance
FY2024
5.4%
FY2023
FY2022
FY2021
FY2020
11.6
%
3.8%
(2.2)
%
(1.0)%
Strategy
Headline operating profit margin
1
Stronger execution will
drive higher margins.
FY2024 progress
We delivered +30bps
expansion in headline
operating profit margin
to 16.8%, while continuing
to invest in growth.
Medium-term target
18-20%
Performance
FY2024
16.8%
FY2023
FY2022
FY2021
FY2020
16.5
%
16.3%
15.5
%
12.8%
Strategy
Earnings per share growth
Strong margins will
convert revenue growth
into earnings growth.
FY2024 progress
We delivered strong EPS
growth of +8.3%, driven by
operating profit growth and
share buybacks; growth
was +12.9% when excluding
the effects of foreign
exchange.
Medium-term target
+7-10%
Performance
FY2024
8.3%
FY2023
FY2022
FY2021
FY2020
39.6
%
17.8%
19.3
%
(27.4)%
Strategy
Linked to remuneration
Read more in CEO review of
the year.
Page 17
Linked to remuneration
Read more in CEO review of
the year.
Page 17
Linked to remuneration
Read more in CEO review of
the year.
Page 17
1 Excludes restructuring costs.
14
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Return on capital employed (ROCE)
1
Monitoring our return on capital acts as a discipline on
both organic and inorganic investment to drive maximum
value from our growth.
FY2024 progress
ROCE increased +70bps within our target range, driven
by operating profit performance.
Medium-term target
15-17%
Strategy
Performance
FY2024
16.4%
FY2023
FY2022
FY2021
FY2020
15.7
%
14.2%
13.9
%
12.8%
Headline operating cash conversion
1
Maintaining our strong track record of cash conversion
is a key component of our robust financial framework.
FY2024 progress
Headline operating cash conversion increased
+11pps to 97%, reflecting a marked improvement
in working capital.
Medium-term target
~100%
Strategy
Performance
FY2024
97%
FY2023
FY2022
FY2021
FY2020
86
%
80%
129
%
112%
Operational and non-financial KPIs
Gross vitality
Measures the revenue contribution of products
launched in the last five years. Improved new product
development and commercialisation is a key
component of our growth strategy.
FY2024 progress
Gross vitality was 28.5%, reflecting continued
investment in R&D and new product development.
Medium-term target
30%
Strategy
Performance
FY2024
28.5%
FY2023
FY2022
31
%
31%
Greenhouse Gas (GHG) reduction
Meeting our SBTi commitment to deliver Net Zero
Scope 1 & 2 GHG emissions by 2040 is a fundamental
part of our sustainability strategy.
FY2024 progress
Scope 1 & 2 emissions were down (10.7)% ((14.3)%
excluding Heating and Cooling Products (HCP)
acquisition) reflecting targeted action during the year.
Target
Net Zero Scope
1 & 2
emissions
by 2040
Strategy
Performance
FY2024
(10.7)
%
FY2023
(11.8)
%
See page 62 for our statement on limited assurance.
Linked to remuneration
Read more in CEO review of
the year.
Page 17
Linked to remuneration
Read more in CEO review of
the year.
Page 17
Linked to remuneration
Read more in Sustainability
at Smiths.
Page 32
1 Excludes restructuring costs.
15
Smiths Group plc Annual Report FY2024
Key performance indicators
continued
Overview
Strategic report
Governance
Financial statements
Recordable incident rate (RIR)
Looking after our colleagues in the workplace and
keeping them safe and healthy is an essential pillar
and our number one focus.
FY2024 progress
RIR increased by 7%, due to the inclusion of Flex-Tek’s
Heating & Cooling Products business (acquired in
August 2023) and an increase in incidents at Smiths
Detection’s US service operations. Despite this
increase, we continue to track below the industry
average and in the top quartile of industry performance.
Medium-term target
Zero harm
organisation
RIR <0.4
Strategy
Performance
FY2024
0.44
FY2023
FY2022
FY2021
FY2020
0.41
0.56
0.47
0.35
My Say survey engagement score
Engaging our people is key to the success of our strategy.
We have been tracking employee engagement on a range
of important cultural measures since 2017.
FY2024 progress
85% of employees completed the FY2024 survey and
our overall engagement score was up two points.
Key strengths were safety; being treated with respect;
commitment to the environment; and empowerment.
Medium-term target
Upper quartile
(75+)
Strategy
Performance
FY2024
75
FY2023
FY2022
FY2021
FY2020
73
72
71
73
Diversity
We are focused on proactively increasing the number of
women in leadership roles at Smiths, with our measure
being percentage of senior leadership positions held
by women.
FY2024 progress
We are making good progress towards our short-term
target and have seen both internal progression and
attrition rates for our senior women improve.
Medium-term target
30%
Strategy
Performance
FY2024
27
%
FY2023
FY2022
25
%
24%
Read more
Read more in Sustainability
at Smiths.
Page 32
Read more
Read more in Building our
culture.
Page 13
Read more
Read more in ESG metrics,
targets and performance
Page 62
16
Smiths Group plc Annual Report FY2024
Key performance indicators
continued
Overview
Strategic report
Governance
Financial statements
Review of the year
I am pleased to report a good
performance at my first set of
results as CEO. We delivered
further progress, with organic
revenue growth of +5.4% and
a +30bps increase in headline
operating profit margin to 16.8%,
both in line with guidance, and
headline earnings per share growth
of 8.3%. We improved headline
operating cash conversion to 97%
through a focus on working capital.
In September 2024 we announced
two highly attractive acquisitions
for up to £110m, deploying capital in
a disciplined way whilst maintaining
our strong balance sheet. We are
well set for continued delivery in
FY2025, and beyond.
CEO review
of the year
During the last six months, we have been reviewing the
Group’s current strategy to define our future direction.
From my 35-year career at Smiths, I have a deep
appreciation of the Group’s compelling attributes.
Smiths has many strengths, and our businesses are
well positioned for the future – leading positions in
attractive markets, world-class engineering expertise,
differentiated proprietary technology, strong brands
and talented people united by a purpose-led, innovative
and continuous improvement culture.
Effective execution of our strategy has enhanced
our performance, but there is more we can do – and
we will build on, and out from, this solid foundation.
Our strategic priorities around growth, people and
execution will remain, although there are a number of
important changes:
–
We remain resolutely focused on delivering
continued profitable organic growth, but we
will work harder to focus our innovation and the
commercialisation of our new products. In addition,
we will increase the importance of moving into
new, higher-growth adjacencies with targeted
allocation of our R&D resources. Highly disciplined
M&A offers additional opportunities. This is
demonstrated by the acquisitions announced for
Flex-Tek, and we now have a more active acquisition
pipeline to accelerate the pace of strategy execution;
–
Our talented people and our purpose-led culture
serve us well in delivering value for our customers,
but the recent foundational work in values,
leadership behaviours and culture must make a
real long-term difference to how we operate. We
will ensure that talent attraction and leadership
development initiatives permeate through the
Group, benefiting all. We are also taking a more
end-to-end approach to improve business-level
processes by implementing a global shared
business services model which will provide
improved cost-effective support; and
–
The Smiths Excellence System (SES) is our way of
working, and Lean and continuous improvement
activities will be driven at the grass roots level,
rather than led ‘top-down’ from Group. In addition,
to deliver our operating margin target faster, we are
launching a Group-wide Acceleration Plan which
identifies a set of business-led transformational
initiatives to enhance margin, improve productivity
and build capabilities.
We see significant opportunities within all our
businesses to deliver substantial additional value
creation from this approach.
Strategy update
Compelling portfolio of leading businesses
Our portfolio position is compelling – with resilient and
competitively advantaged businesses. Our businesses
have independent products, customers and go-to-
market models. Even so, they share similar customer-
facing capabilities and common characteristics, an
opportunity we can, and will, take better advantage of.
For example, deep-seated manufacturing and process
knowledge, aftermarket service, digital, automation
and material technologies are all mutual
characteristics we can better leverage to enhance how
we support our customers, how we perform, and to
create and sustain Group-wide competitive advantage.
Group functions will continue to provide strong,
effective oversight and governance. We will improve
these by developing and expanding the remit of our
global shared business services – to cover all
businesses and key support functions in addition to IT,
which it already manages in a cost-effective way. We
will continue to deploy SES, an important element of
which is Lean – reducing waste and improving
efficiency to enhance our operations - with Lean
leaders at our major sites, maintaining the pace
of continuous improvement. This common Group
approach takes operational excellence to another level
of maturity, alongside talent development and capital
allocation, and will ensure consistent strategy
execution, optimal capital allocation and cost-effective
portfolio management.
Roland Carter
Chief Executive Officer
17
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Positioned in secularly attractive markets
We are positioned in attractive markets that we believe
offer significant opportunities for profitable growth
– energy, safety and security, aerospace and defence,
general industrial – where we are helping our
customers to make the world safer, more energy
efficient and productive, as well as better connected.
These markets are exposed to positive megatrends:
–
Safety and security – in the context of an
increasing prevalence of travel and cross-border
trade, alongside increasing threats and greater
geopolitical instability;
–
Energy efficiency – the requirement for energy
diversification as well as reductions in emissions,
coupled with the rise in infrastructure development;
–
Productivity – within the industrial world, the
need to manage the use of resources and raw
materials efficiently is critical, and will support the
development of the circular economy; and
–
Better connectivity – the demand for data is
continually increasing as the world becomes more
connected and computing power expands, requiring
new technologies across many sectors.
We will continue to focus on accessing the growth that
these markets offer, with a clear view to capturing
market share and expanding our addressable markets.
Participation in attractive new market adjacencies to
accelerate growth
As well as driving growth in our existing markets, we
will look to build out priority adjacencies to accelerate
our growth, for example into new sealing solutions and
services at John Crane; next generation threat
detection at Smiths Detection; electrical industrial
process heat at Flex-Tek; and high-speed satellite
communications at Smiths Interconnect. Accessing
these adjacent opportunities will be done both
organically through dedicated R&D spend, and through
disciplined M&A, to augment our organic growth focus.
We have a strong balance sheet and the flexibility to
support a range of growth opportunities and will
continue to allocate capital in a disciplined way for value
creation. The priorities here are unchanged – organic
investment (R&D and capex) will remain our primary
focus, followed by strategic and disciplined M&A, and
then returning excess capital to shareholders through
our progressive dividend and, when compelling, share
buybacks.
As evidenced by the new acquisitions for Flex-Tek, we
have a more active acquisition pipeline than historically,
providing us with a greater set of opportunities through
which we can grow our businesses, but will maintain
our strict value creation discipline.
Investing in proprietary technology, differentiated
products and service capability
Innovation takes place on many levels within Smiths:
new products and services, new ways of manufacturing
and new ways of exploiting technology. Our innovation
capability and ongoing investment in developing
differentiated, proprietary technologies and solutions
ensures that we maintain a robust, value-oriented
approach to commercialising new products. Our new
product pipeline is focused on responding to emerging
customers’ needs and bringing next-generation
technology to market.
We have a high proportion of recurring revenue through
our aftermarket and services in John Crane and Smiths
Detection, and we are looking at additional ways to
improve customer intimacy and capture greater value
here; for example through expanded services, as well
as digital and software applications. We will also
partner with customers to develop solutions to
demanding specifications, again leveraging Group-wide
skills and experience to better commercialise these
types of growth opportunities.
Launching Acceleration Plan to drive Group-wide
productivity and capability enhancements
We continue to drive productivity and process
improvements and further embed deployment of SES
which has delivered tangible benefits and contributed to
recent margin expansion. However, we now need to
capture the next level of improvements to accelerate
the realisation of our medium-term margin target and
deliver process improvements for resilience and
scalability over the longer term.
To achieve this, and in addition to our planned SES
activity, we are now launching a Group-wide
Acceleration Plan. This comprises a number of discrete
initiatives focused on delivering the next wave of
productivity and capability enhancements across all
our businesses.
This proposed programme has identified £30-35m of
potential annualised benefits, of which around a quarter
are planned to be realised during FY2026, with the full
benefit in FY2027. Delivering these ongoing savings will
result in one-off costs totalling approximately £60-65m,
of which approximately £30-35m will be spent in
FY2025 and £30m in FY2026, plus an additional £10m of
capex in FY2025. Benefits and savings areas are
focused on: process, improving organisational
effectiveness through simplifying interaction and
processes for our customers and our colleagues, and
property, through a footprint optimisation review.
Where required, we will consult appropriately with
colleagues around the planned changes. It is now the
right time to invest in these ambitions, to drive
operating margin expansion and competitiveness more
rapidly as we continue to grow.
Purpose-based and high-performing culture
Delivering on our growth and execution priorities
requires the dedication and commitment of all our
colleagues; and we are committed to doing more to
inspire and empower them. Safety will continue to be
our highest priority and we remain committed to
maintaining our top quartile performance by elevating
the focus on this around the Group even further. Our
purpose-based culture is strong, and we continue to
evolve our approach where talent development,
engagement and inclusion and sustainability all define
how we operate. I have worked with, supported and
been supported by many colleagues over the years, and
I am excited about what the future holds and what we
can deliver together.
Reaffirming medium-term targets, underpinned by
our performance framework
This focused strategic and operational plan is the
means through which we will realise the medium-term
financial targets that we previously set. We have again
18
Smiths Group plc Annual Report FY2024
CEO review of the year
continued
Overview
Strategic report
Governance
Financial statements
made solid progress against these targets in FY2024
and continue to believe these are the right metrics and
set the right ambition.
We are reaffirming these financial targets. In FY2024,
we are already within the target range for three of these
metrics and are clear on the key actions needed to
achieve them for operating profit margin. Each of our
businesses has a clear roadmap to improve
profitability. Given our investment in growth, we now
believe a cash conversion of around 100% through the
cycle is more appropriate than 100%+.
Targets
Medium-term target
FY2024
Organic Revenue Growth
4-6% (+ M&A)
+5.4%
Headline EPS Growth
7-10% (+ M&A)
+8.3%
ROCE
15-17%
16.4%
Headline Operating Profit
Margin
18-20%
16.8%
Headline Operating Cash
Conversion
~100%
97%
FY2025 outlook
For FY2025, we expect organic revenue growth to be
within our medium-term target range of 4-6%. A strong
demand backdrop and good order book visibility
underpin our positive view for John Crane and Smiths
Detection, although growth is expected to moderate
from the strong performance seen in FY2024. Good
demand in aerospace, alongside the pace of market
recovery in US construction, will determine the pace of
growth in Flex-Tek, and recovery in semiconductor test
alongside growth in aerospace and defence-related
programmes underpins our expectation for an
improving performance in Smiths Interconnect.
We also expect continued margin expansion in FY2025,
reflecting operational leverage, continued deployment
of SES and Lean initiatives, and our reinvestment to
support future sustainable growth. Headline operating
cash conversion is expected to be in the low nineties
percent given an increase in capex to around £110m.
This will be weighted towards the second half of the
year, reflecting timing of machining capacity and
automation investments, mainly in John Crane.
FY2024 business performance
Smiths delivered organic revenue growth of +5.4% in
FY2024. We generated £526m of headline operating
profit, up +7.1% on an organic basis year-on-year and a
+30bps margin improvement as we continue to drive
growth, improve execution, and invest in our people.
Revenue grew +3.1% on a reported basis to £3,132m
(FY2023: £3,037m). This included a (£119m) negative
foreign exchange translation impact and +£57m from
the acquisitions of Heating and Cooling Products (HCP)
and Plastronics.
Growth
Accelerating growth is key to value creation for the
Group. We have now delivered three years of organic
revenue growth, with momentum improving through
FY2024. Organic revenue growth of 3.9% in the first half
was followed by 6.8% in the second half.
Strong growth continued for our two larger businesses,
with more challenging end market dynamics in our
other two businesses, although both returned to
growth in the second half:
–
John Crane’s growth was led by energy, especially
in aftermarket, as it executed on its strong order
book;
–
Smiths Detection’s growth reflected strength in
aviation, particularly for computed tomography for
airport checkpoints;
–
Flex-Tek’s performance reflected ongoing US
construction market headwinds, which more than
offset strength in aerospace; and
–
Smiths Interconnect’s performance reflected
weakness in connectors and the semiconductor test
end market.
Organic revenue growth (by business)
H1 2024
H2 2024
FY2024
John Crane
+12.7%
+7.1%
+9.8%
Smiths Detection
+8.9%
+13.2%
+11.1%
Flex-Tek
(4.1)%
+2.6%
(0.8)%
Smiths Interconnect
(13.7)%
+0.4%
(6.5)%
Smiths Group
+3.9%
+6.8%
+5.4%
£m
FY2023
Foreign
exchange
Acquisitions
Organic
movement
FY2024
Revenue
3,037
(119)
57
157
3,132
Headline operating profit
501
(21)
12
34
526
Headline operating profit margin
16.5%
16.8%
Organic revenue growth (by end market
1
)
% of Smiths
revenue
H1 2024
H2 2024
FY2024
General Industrial
39%
(5.5)%
(1.5)%
(3.5)%
Safety & Security
27%
+8.9%
+13.2%
+11.1%
Energy
23%
+16.6%
+15.3%
+15.9%
Aerospace & Defence
11%
+2.9%
+4.8%
+3.9%
Smiths Group
100%
+3.9%
+6.8%
+5.4%
Footnotes
1 Our end market allocations
have been revised such
that Smiths Interconnect’s
revenue related to
aerospace and defence has
been moved from Safety &
Security into Aerospace &
Defence. FY2023 has been
restated on this new basis.
See note 1 to the financial
statements for further
information.
19
Smiths Group plc Annual Report FY2024
CEO review of the year
continued
Overview
Strategic report
Governance
Financial statements
Our business operates across four major global end
markets: General Industrial, Safety & Security, Energy,
and Aerospace & Defence.
–
In General Industrial, the decline reflected weaker
demand in construction for Flex-Tek’s heating,
ventilation and air conditioning (HVAC) products
and Smiths Interconnect semiconductor test and
connectors products, with John Crane’s industrial
performance flat year-on-year;
–
Safety & Security growth reflected Smiths Detection’s
continued strong delivery against its order book;
–
Energy growth reflected robust demand at John
Crane and execution against its strong order book;
and
–
In Aerospace & Defence, new aircraft build
programmes drove demand at Flex-Tek which
was partly offset by phasing in some aerospace
and defence-related programmes in Smiths
Interconnect.
Organic growth is supported by new product
development and commercialisation. In FY2024,
200bps of growth was delivered from high impact new
products including John Crane’s next-generation
diamond coating product, Smiths Detection’s iCMORE
and the latest generation of high-speed semiconductor
test sockets (DaVinci 112) from Smiths Interconnect.
Gross vitality, which measures the proportion of
revenues coming from products launched in the last
five years, was 28.5% (FY2023: 31%), supported by our
successful new product commercialisation.
We also augment our organic growth with disciplined
M&A and in September 2024 we announced two
acquisitions with a combined value of £95m at an
EBITDA multiple of c.8x, enabling expansion in
Flex-Tek’s HVAC and electrical heating solutions
platforms. An additional amount of up to £15m is
payable subject to the performance of one of the
acquisitions over a three-year period.
–
Modular Metal Fabricators, Inc. (Modular Metal) is a
US-based metal and flexible ducting manufacturer
which expands Flex-Tek’s geographical presence
in the western US and broadens its product range to
include Modular Metal’s sealed flexible duct
solution. This acquisition builds on our August
2023 acquisition of HCP, which expanded our
geographical coverage in North America and added
HCP’s patented axial and radial seal duct products.
–
Through the acquisition of Wattco, Inc. (Wattco),
Flex-Tek expands into medium temperature
immersion and circulation heating – an attractive
market adjacency and highly complementary to our
existing open coil electrical heating businesses.
This acquisition follows our successful acquisition
of SureHeat in 2017. Wattco also brings additional
capability in terms of supplying vertically integrated
heating solutions and will be integrated into the
Flex-Tek heat solutions business.
–
The acquisition of Wattco has already completed,
while Modular Metal is expected to complete in Q1
FY2025.
Execution
Stronger execution remains a key priority, with an
improving financial performance again in FY2024.
Headline operating profit rose +7.1% (+£34m) on an
organic basis, and +5.0% (+£25m) on a reported basis,
to £526m (FY2023: £501m).
Headline operating profit margin was 16.8%, up +34bps
on an organic and +30bps on a reported basis, and in
line with guidance of continued margin expansion,
reflecting operational leverage and efficiency
improvements, alongside reinvestment to support
future growth.
Headline operating profit margin (by business)
FY2023
FY2024
John Crane
22.6%
23.2%
Smiths Detection
11.2%
11.9%
Flex-Tek
19.4%
20.5%
Smiths Interconnect
16.0%
13.9%
Smiths Group
16.5%
16.8%
Three of our businesses delivered margin expansion:
–
John Crane had good operating leverage on the
higher sales volume, partially offset by mix impacts
from higher systems sales and while continuing to
reinvest in capacity expansion, sales and service to
support current and future growth;
–
Smith’s Detection delivered a 70bps increase in
margin, reflecting higher volumes and improving
operational efficiency in the second half;
–
Flex-Tek delivered a higher margin, despite the
lower organic revenue, reflecting a positive mix
impact and good cost control; and
–
Smiths Interconnect posted a margin decline
reflecting the lower year-on-year volumes, despite
cost control initiatives.
And at a Group level, we invested in several growth
initiatives which were funded by the benefits from the
Smiths Excellence System and other savings projects,
and which offset each other.
ROCE increased +70bps to 16.4% (FY2023: 15.7%)
reflecting the higher profitability of the Group, which
also translated to growth in headline EPS of +8.3% to
105.5p. This reflected a headline tax charge of £122m
(FY2023: £121m) which represents an effective rate of
25.0% (FY2023: 26.0%) and also benefited from the
share buyback programme, partially offset by foreign
exchange impacts.
The focus on execution also enhanced headline
operating cash conversion, which improved to 97%
(FY2023: 86%), supported by a year-on-year
improvement in working capital. Headline operating
cashflow was £509m (FY2023: £433m) and free
cashflow generation increased +67% to £298m
(FY2023: £178m) or 57% of headline operating profit
(FY2023: 35%).
£m
FY2023
Foreign
exchange
Acquisitions
Organic
movement
FY2024
Headline operating profit
501
(21)
12
34
526
Headline operating profit margin
16.5%
(10)bps
10bps
30bp
16.8%
20
Smiths Group plc Annual Report FY2024
CEO review of the year
continued
Overview
Strategic report
Governance
Financial statements
SES is one of our key initiatives to enhance execution
and support the delivery of our medium-term financial
targets. SES projects delivered a £23m benefit to
headline operating profit in FY2024 (FY2023: £14m), in
line with expectations. SES is the way we work at
Smiths and is supported by our cohort of Black Belts
(BBs) and Master Black Belts (MBBs). As our first
cohort return to leadership roles across the Group, SES
learnings are better embedded within the businesses,
and to continue this process, new MBBs and BBs have
been appointed. In addition, our major sites have Lean
leaders in place to continually assess processes and
ingrain Lean practices at the local level.
We are also executing well against our ESG framework,
with progress against our sustainability metrics, which
are now fully incorporated into both our annual and
long-term incentives. We continue proactively to
manage reductions in the environmental impact of our
operations and manufacturing processes.
We have been tracking our environmental performance
since 2007 and set new three-year targets in FY2022.
Over the three-year period FY2022-FY2024, our Scope
1 and 2 emissions have reduced by 42% – in line with
our net zero Greenhouse Gas (GHG) emission targets
which were validated by the Science Based Targets
initiative during the year. Also over this period, we
improved energy efficiency, around 73% of our
electricity now comes from renewable sources and we
continue to target additional locations for onsite
renewable energy installation.
We have set out new targets for FY2025-FY2027.
These include new metrics on supplier engagement
in support of our ESG commitments and reporting.
In FY2024, we engaged a new third-party supplier
management platform – EcoVadis – and launched a
supply chain due diligence policy which, together, will
help us manage supplier relationships to explicitly
support our ESG commitments and reporting.
People
Safety, alongside health and well-being, is an essential
foundation of our success. Our FY2024 recordable
incident rate was 0.44 (FY2023: 0.41), with the increase
primarily reflecting the acquisition of HCP, where its
safety culture is being aligned with that of Smiths
following its integration. Our key focus is on sustainable
preventative action including active promotion of a
safety culture and engagement, safety leadership,
skills and designing out risk and this is reinforced on a
daily basis through safety leading indicator activities,
comprising peer-to-peer observations and leadership
tours. A key event in the year was our three-day global
Health, Safety & Environment (HSE) conference which
covered topics including safety culture, the connection
between SES and HSE, and hazard perception and risk
assessment. To supplement the focus on our physical
security, we are developing a mental health and
well-being strategy which will be deployed in FY2025.
To support talent development, the rollout of
Accelerate, our bespoke training programme for senior
leaders continued. It is now present in 15 countries,
with 555 participants in FY2024; 50% of our leaders
have now been trained under the programme. Our
commitment to fostering diversity, equity and inclusion
with our initiatives on this are further bolstered by
active employee resource groups (ERGs) such as the
Black Employee Network, Veterans Network, Pride
Coalition, Women@Work and Neurodiversity ERGs.
Our people are enthused about engaging with and
caring for our communities and in June this year, our
annual Smiths Day celebrated our culture and our
communities, with many employees volunteering their
support for local causes. At the Group level, The Smiths
Group Foundation has now made its first grants,
totalling c.£1m, to more than 10 charities around the
world supporting STEM, safety and connectedness and
environmental sustainability.
In combination, these initiatives help to underpin an
engaged workforce and a healthy culture which we
track and measure through the annual My Say survey.
This survey is used to surface issues and more
precisely understand what we are doing well and where
we need to do better, both at a high level and at the
grass roots in individual teams. In FY2024, 85% of
employees completed the survey and it was pleasing to
see our overall engagement score of 75 was up two
points on the prior year.
Environmental metrics
Target FY2025–2027
Energy reduction
6
2% in FY2025
Renewable energy
80% by FY2027
Absolute Scope 1 & 2 GHG
2
17.5% reduction by FY2027
Supplier engagement
40% of supplier spend evaluated on EcoVadis by FY2027
Supplier engagement Scope 3
2
25% of supplier spend committed to SBTi targets by FY2027
Environmental metrics
FY2023
FY2024
FY2022–2024
Target FY2022–2024
Energy efficiency
1
7.9% improvement
5.9% improvement
n/a
n/a
Normalised Scope 1 & 2 GHG
2
emissions reductions
3
21% reduction
20% reduction
42% reduction
16.4% CAGR
5% CAGR
Absolute Scope 1 & 2 GHG
2
emissions reductions
11.8% reduction
10.7% reduction
22% reduction
n/a
Proportion of electricity from
renewable sources
70%
73%
12% increase
5% increase 3Y
Normalised non-recyclable waste
4
9.8% reduction
0.1% increase
19% reduction
5% reduction 3Y
Normalised water use in
stressed areas
4,5
13.3% reduction
0.6% increase
17% reduction
5% reduction 3Y
Footnotes
1 The energy efficiency
ratio is expressed as the
MWh energy consumed
(excluding renewable
electricity produced and
consumed onsite), divided
by revenue (excluding
price growth within the
measurement year), and
excludes HCP.
2 Scope 1, 2 and 3 GHG
emissions calculated in
accordance with the WRI/
WBCSD Greenhouse Gas
Protocol.
3 Normalised for revenue
excluding price increases
and excluding HCP
acquisition.
4 Normalised to reported
revenue
5 Across 10 identified water
stressed areas.
6 Year-on-year reduction in
absolute MWh consumed
(target depending on
revenue).
21
Smiths Group plc Annual Report FY2024
CEO review of the year
continued
Overview
Strategic report
Governance
Financial statements
CFO review
Clare Scherrer
Chief Financial Officer
£109m
Invested in R&D
43.75p
Total dividend
CFO
review
We delivered a good set of financial results in
line with our guidance. Organic revenue growth
of +5.4% extends our track record and headline
operating profit margin increased +30bps to
16.8%. Our headline cash conversion improved
to 97%, supported by an improvement in
working capital.
Our capital allocation priorities remain
unchanged. In FY2024 we increased investment
in R&D and capex and acquired HCP in Flex-Tek.
Following the period end, we announced two
additional acquisitions in Flex-Tek. Lastly, we
returned £70m in share buybacks and are
recommending a 5.2% dividend increase.
Our balance sheet remains strong, providing
ample flexibility to support our continued
growth strategy.
For FY2025, we are expecting organic growth
within our medium-term target range of 4–6%
and continued margin expansion.”
Capital allocation
Our highest capital priority continues to be organic
growth, followed by strategic and disciplined M&A, and
we have a strong track record of returning capital to
shareholders, via dividends and share buybacks. In
FY2024, we invested £109m in R&D (FY2023: £113m), of
which £73m (FY2023: £73m) was an income statement
charge, £14m was capitalised (FY2023: £21m) (primarily
next-generation hold and cabin baggage screening and
further advancements in our defence portfolio) and
£22m (FY2023: £19m) was funded by customers. Partly
accounting for the marginal year-on-year decline was
the relocation of certain R&D projects to lower-cost
jurisdictions, resulting in more efficient R&D spend. In
addition, there was a further £41m spend on customer-
specific engineering-related projects taking the total
spend for FY2024 from 3.5% to 4.8% of sales.
To support new product launches and the strong
demand for our existing solutions, we increased capex
+6% to £86m (FY2023: £81m). This equates to 1.7x
depreciation and amortisation (FY2023: 1.6x). A key
project was investment in machining capacity and
automation at John Crane, which will continue into
FY2025 resulting in Group capex of around £110m for
the year.
We spent £64m on the acquisition of HCP in August
2023, a US-based manufacturer of HVAC solutions and
post the FY2024 year-end, in September 2024, we
announced the acquisitions of Modular Metal and
Wattco for £95 million, with up to an additional £15m
subject to the performance of one of the acquisitions
over a three-year period.
We completed the final £29m of the Group’s £742m
share buyback programme in the first quarter. In
addition, in March, we announced a new share buyback
programme of £100m and initiated buying under the
first £50m tranche. As guided, we completed the first
£50m during September 2024, including £41m during
the fiscal year, and £9m during August and September.
We have not yet initiated the second tranche.
In line with our progressive dividend policy, the Board is
recommending a final dividend of 30.2p, a year-on-year
increase of +5.2%, bringing the total dividend for the
year to 43.75p (FY2023: 41.6p). The final dividend will be
paid on 22 November 2024 to shareholders on the
register at close of business on 18 October 2024. Our
dividend policy aims to increase dividends in line with
growth in earnings and cashflow, with the objective of
maintaining minimum dividend cover of around
two times.
The Company offers a Dividend Reinvestment Plan
(DRIP) enabling shareholders to use their cash dividend
to buy further shares in the Company – see website
for details. To participate in the DRIP, shareholders
must submit their election notice to be received by
1 November 2024. Elections received after the Election
Date will apply to dividends paid after 22 November
2024. Purchases under the DRIP are made on, or as
soon as practicable after, the dividend payment date
and at prevailing market prices.
Driving value through effective capital allocation
Our priorities
FY2024
1
Organic investment
Capex £72m
R&D £109m
2
Acquisitions
Acquisitions spend £65m
(Additional £95m in Sep
2024
1
, with earnout of up to
£15m over 3 years)
3
Shareholder returns
DPS +5.2% / Buyback
2
£70m
(Additional £9m in
Aug-Sep 2024)
FY2024 leverage of 0.3x
Footnotes see page 23
Net debt
Net debt at 31 July 2024 was £213m (FY2023: £387m)
with a net debt to headline EBITDA ratio of 0.3x (FY2023:
0.7x). Net headline finance costs for the year increased
by £3m to £38m (FY2023: £35m) principally due to a
reduced level of cash balances over the year generating
lower interest income.
As at 31 July 2024, borrowings were £659m (FY2023:
£654m) comprising a €650m bond which matures in
22
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
February 2027 and £123m of lease liabilities. There are
no financial covenants associated with these borrowings.
Cash and cash equivalents as at 31 July 2024 were
£459m (FY2023: £285m). Together with our $800m
(£623m at the year-end exchange rate) revolving credit
facility, which matures in May 2029, total liquidity was
£1.1bn at the end of the period.
Since the sale of Smiths Medical in January 2022, the
Group has held a financial asset reflecting our equity
ownership in ICU Medical, Inc (ICU). During FY2024, we
sold 2,030,000 ICU shares (8.34% of ICU’s issued share
capital), with net proceeds of $240m (£187m). After the
year end, we sold a further 415,771 shares (1.70% of
ICU’s issued share capital) with net proceeds of $59.8m
(£46.2m). We continue to own less than 1% of ICU and
will exit over time.
Statutory results
Income statement and cashflow
The £111m difference (FY2023: £98m) between headline
operating profit of £526m and statutory operating profit
of £415m reflects non-headline items. The largest of
these relate to the amortisation of acquired intangible
assets of £49m, a £26m net charge for asbestos
litigation in John Crane Inc and £13m of fair-value loss
on the ICU contingent consideration. The statutory
operating profit of £415m was £12m higher than last
year (FY2023: £403m), reflecting the higher headline
operating profit. Statutory finance costs were £43m,
flat year-on-year (FY2023: £43m).
The statutory effective tax rate was 32.5% (FY2023 37%)
and includes a non-headline tax credit of £1m (FY2023
£13m expense). Statutory profit after tax for the Group
was £251m (FY2023: £232m) and statutory basic EPS
was 72.3p (FY2023: 65.5p).
Statutory net cash inflow from operating activities for
the total Group was £418m (FY2023: £293m).
Pensions
During the year, £16m of pension contributions (FY2023:
£5m) were made, which relate to funded, unfunded and
overseas schemes and healthcare arrangements. Of
this, £10m related to the US defined benefit pension plan.
As previously announced, no contributions were made
in FY2024 and it is not anticipated that any further
contributions will be made to the TI Group Pension
Scheme (TIGPS), as the liabilities have now been insured
via a series of buy-in annuities. The Group and the
TIGPS Trustee are working toward final buy-out of the
scheme. The Smiths Industries Pension Scheme (SIPS)
is in surplus on the Technical Provisions funding basis,
and no cash contributions have been made in the year
nor are scheduled to be made. The Group and the SIPS
Trustee continue to work together to progress towards
the long-term funding target of full buy-out funding.
These two UK schemes and the US pension plan are
well hedged against changes in interest and inflation
rates. Their assets are invested in third-party annuities,
government bonds, investment grade credit or cash,
with no remaining equity investments. As at 31 July 2024,
60% of the UK liabilities had been de-risked through the
purchase of annuities from third party insurers.
Litigation
Smiths Group faces different types of litigation in
different jurisdictions. Please see below an update on
the two significant litigation provisions. For more
information, refer to note 23 of the Financial Statements.
John Crane, Inc. litigation
John Crane, Inc. (JCI) a subsidiary of the Group,
continues to actively monitor the conduct and effect of
its current and expected asbestos litigation, including
the effective presentation of its ‘safe product’ defence,
and intends to resist asbestos cases based on this
defence. Approximately 312,000 claims against JCI have
been dismissed before trial over the last 40 years. JCI is
currently a defendant in cases involving approximately
20,000 claims. Despite these large numbers of claims,
since the inception of asbestos litigation against JCI it
has had 156 cases and has had to pay awards
amounting to approximately $191m. At 31 July 2024, the
aggregate provision for JCI asbestos litigation, including
for adverse judgements and defence costs, amounted
to £220m (FY2023: £204m) expressed at the then
current exchange rate. In deciding upon the amount of
the provision, JCI has relied on independent expert
advice.
Titeflex Corporation litigation
Titeflex Corporation, a subsidiary of the Group in the
Flex-Tek business, has received a number of claims
in recent years from insurance companies seeking
recompense on a subrogated basis for the effects of
damages allegedly caused by its flexible gas piping
products being energised by lightning strikes. It has
also received a number of product liability claims
relating to this product, some in the form of purported
class actions. Titeflex Corporation believes that its
products are a safe and effective means of delivering
gas when installed in accordance with the
manufacturer’s instructions and local and national
codes. However, some claims have been settled on
an individual basis without admission of liability.
The continuing progress of claims and the pattern of
settlement, together with recent market-place activity,
provide sufficient evidence to recognise a liability in
the accounts. At 31 July 2024, a provision of £36m
(FY2023: £41m) has been made for the costs which the
Group expects to incur in respect of these claims.
For the Group’s litigation provisions, because of the
significant uncertainty associated with the future level
of claims and of the costs arising out of the related
litigation, there is no guarantee that the assumptions
used to estimate the provision will result in an accurate
prediction of the actual costs that may be incurred.
Foreign exchange
The results of overseas operations are translated into
sterling at average exchange rates. Net assets are
translated at period-end rates. The Group is exposed to
foreign exchange movements, mainly US Dollar and
Euro. The principal exchange rates, expressed in terms
of the value of Sterling, are as follows:
Average rates
Period-end rates
31 Jul 2024
(12 months)
31 Jul 2023
(12 months)
31 Jul 2024
31 Jul 2023
USD
1.26
1.21
1.28
1.29
EUR
1.17
1.15
1.19
1.17
Footnotes
1 Value of acquisitions
announced in September
2024 with up to £15m earn
out over three years.
2 Final £29m from £742m
buyback completed in
Q1 FY2024, £41m from
the first £50m tranche
of the £100m buyback
announced on 26 March
2024 and completed by
31 July 2024 and further
£9m completed
in August
and September 2024.
23
Smiths Group plc Annual Report FY2024
CFO review
continued
Overview
Strategic report
Governance
Financial statements
Business review
another with a major global energy company in Alberta,
Canada to provide industrial seal support services at
North America’s most efficient integrated hydrocarbon
processing site.
John Crane also won several notable energy transition
contracts – including one to supply dry gas seals for
three supercritical CO
2
compressors of a large-scale
blue hydrogen project in the USA, and a significant
contract to supply wet seals for almost 100 pumps to a
zero-emission electric vehicle battery manufacturing
facility, also in the USA. The pipeline of opportunities
John Crane is pursuing within energy transition in
CCUS, hydrogen and biofuels continues to expand.
In the General Industrial segment, organic growth
moderated to +0.3%, with a (5.3)% decline in the second
half, following a strong FY2023. Growth in OE, largely
driven by water treatment, marine and mining, was
partly offset by a small decline in aftermarket sales.
Order intake growth in FY2024 supports our positive
outlook in FY2025.
Financial performance
FY2024
(£m)
FY2023
(£m)
FY Reported
growth
Organic growth
H1
H2
FY
Revenue
1,133
1,079
+5.0%
+12.7%
+7.1%
+9.8%
Original Equipment (OE)
176
169
+4.8%
+0.3%
+17.5%
+ 9.0%
Aftermarket
550
487
+12.8%
+22.5%
+14.5%
+18.3%
Energy
726
656
+10.7%
+16.6%
+15.3%
+15.9%
Original Equipment
145
145
(0.4)%
+5.0%
+2.7 %
+3.8%
Aftermarket
262
278
(5.8)%
+7.4%
(9.2)%
(1.6)%
General Industrial
407
423
(3.9)%
+6.5%
(5.3)%
+0.3%
Headline operating profit
263
244
+7.7%
+18.3%
+7.4%
+12.4%
Headline operating profit margin
23.2%
22.6%
+60bps
+110bps
+10bps
+60bps
Statutory operating profit
229
217
+5.5%
Return on capital employed
25.3%
23.8%
+150bps
R&D cash costs as % of sales
1.6%
1.7%
(10)bps
Revenue
£m
FY2023
reported
Foreign
exchange
Organic
movement
FY2024
reported
Revenue
1,079
(47)
101
1,133
John Crane delivered organic revenue growth of +9.8%
for the year, as it continued executing against a strong
order book. Following double-digit organic revenue
growth in the first half, growth moderated to +7.1% in
the second half, still a healthy level compared to
record-high growth in FY2023. Organic revenue growth
was driven by a strong performance in Energy.
Aftermarket organic revenue grew +11.1% to make up
72% of sales (FY2023: 71%), whilst OE grew +6.6%.
Reported revenue grew +5.0% to £1,133m, having
crossed the £1bn mark in FY2023 for the first time,
reflecting the organic growth, partially offset by a
negative foreign exchange impact.
In Energy, organic revenue grew +15.9% benefiting from
a continued focus on energy security and efficiency, as
well as emissions reduction solutions. Regionally, there
was a strong performance in the Middle East and Latin
America for our advanced seals and gas compression
products, as well as service contracts, with an +18.3%
growth in aftermarket revenue. Notable contract wins
in the year included one with Karachaganak Petroleum
Operating B.V. for the provision, service and repair of
dry gas seals featuring triple seal technology, and
John Crane
24
Smiths Group plc Annual Report FY2024
Business review
continued
Overview
Strategic report
Governance
Financial statements
Operating profit and ROCE
£m
FY2023
reported
Foreign
exchange
Organic
movement
FY2024
reported
Headline operating profit
244
(11)
30
263
Headline operating profit margin
22.6%
23.2%
Headline operating profit of £263m grew +12.4%
on an organic basis, resulting in +60bps of margin
expansion to 23.2%. This was driven by the increased
volumes and good operating leverage, pricing above
inflation, and the benefits from SES, partly offset by a
negative mix impact and higher investment in growth.
This investment to increase capacity and efficiency,
including marketing and commercial, are both key
to service the strong current demand and propel
future growth.
On a reported basis, headline operating profit was up
+7.7%, including a negative foreign exchange impact.
The difference between statutory and headline
operating profit includes the net cost in relation to the
provision for John Crane, Inc. asbestos litigation.
ROCE was 25.3%, up 150bps, reflecting the headline
operating profit growth.
R&D and new product development
Cash R&D expenditure was 1.6% of sales (FY2023:
1.7%), with the decline reflecting the relocation of
certain R&D projects to lower cost jurisdictions,
resulting in more efficient R&D spend. In addition, the
business spent a further 3.6% of sales (FY2023: 3.4%)
on customer-specific engineering-related projects for a
total investment in new products of 5.2% of sales
(FY2023: 5.2%). John Crane’s continued investment in
R&D is primarily focused on gas compression projects
and enhancing the efficiency, performance and
sustainability of heavy-duty seals and hydrogen
compressors.
John Crane is well placed to support energy transition
projects with its extreme temperatures and high-
pressure sealing solutions and continues to work with
universities and customers to develop and bring to
market these innovative solutions.
Customers
Energy:
mechanical seals and seal support
systems and couplings for down- and mid-
stream activities (e.g., refineries and pipelines) of
energy multinationals and for power generation,
including hydrogen and carbon capture
Industrials:
mechanical seals, seal support
systems and filtration solutions for the chemical,
life sciences, petrochemical, water, mining, and
pulp & paper industries
Aftermarket:
increasing demand for full lifecycle
asset management
Ideally positioned to help customers meet their
decarbonisation and energy transition objectives
Competitors
Competitors include Flowserve, EagleBurgmann,
AES, FSD, A.W. Chesterton, Pall and TM filters
25
Smiths Group plc Annual Report FY2024
Business review
continued
Overview
Strategic report
Governance
Financial statements
Smiths Detection
Financial performance
FY2024
(£m)
FY2023
(£m)
FY Reported
growth
Organic growth
H1
H2
FY
Revenue
859
803
+7.0%
+8.9%
+13.2%
+11.1%
Original Equipment
272
226
+20.3%
+5.7%
+42.9%
+24.8%
Aftermarket
323
309
+4.6%
+8.0%
+9.0%
+8.5%
Aviation
595
535
+11.2%
+7.0%
+23.4%
+15.4%
Original Equipment
144
164
(12.3)%
(0.1)%
(15.9)%
(8.4)%
Aftermarket
120
104
+15.8%
+34.1%
+8.2%
+20.0%
Other Security Systems (OSS)
264
268
(1.4)%
+12.8%
(6.3%)
+2.6%
Headline operating profit
102
90
+14.1%
+10.3%
+24.3%
+18.0%
Headline operating profit margin
11.9%
11.2%
+70bps
+20bps
+120bps
+70bps
Statutory operating profit
83
55
+50.9%
Return on capital employed
9.1%
7.7%
+140bps
R&D cash costs as % of sales
7.8%
8.4%
(60)bps
Revenue
£m
FY2023
reported
Foreign
exchange
Organic
movement
FY2024
reported
Revenue
803
(30)
86
859
Smiths Detection delivered +11.1% organic revenue
growth, converting its strong order book to revenue,
with growth across both market segments, and in both
OE and aftermarket.
Order intake grew strongly during the year, reflecting
the ongoing demand for airport scanner upgrades and
the multi-year defence contracts awarded in OSS which
will support revenue growth in FY2025 and beyond.
Reported revenue was up +7.0% reflecting the strong
organic growth, partially offset by an unfavourable
foreign exchange impact.
In Aviation, organic revenue grew +15.4%, with OE
growth of 24.8%, reflecting the continued strong
demand for Smiths Detection’s latest range of
3D-image computed tomography (CT) machines for
cabin baggage, CTiX. Smiths Detection continues to
achieve a strong win rate globally in aviation, and to
date, has now sold c.1,400 CTiX scanners. Notable wins
during the year included Australia, Czech Republic,
France, Germany, Japan, Saudi Arabia, the UK and the
USA. Contracts awarded to date support production
through FY2025, and it is expected that airports’
upgrade programme will continue for the next
three years.
OSS sales grew +2.6% organically, with a decline in the
second half after a robust first half, reflecting a strong
performance in defence and urban security, partially
offset by weaker ports and borders. Order intake in
defence was particularly strong with two multi-year
chemical detection contracts awarded, one from the
UK Ministry of Defence (for an initial £88 million), and
another from the US Department of Defense.
In urban security, Smiths Detection mobile solutions
were deployed at a number of high-profile events
including security screening at COP28, X-ray screening
equipment at the NFL Super Bowl and more than 200
items of equipment at the UEFA Euro 2024 football
tournament.
26
Smiths Group plc Annual Report FY2024
Business review
continued
Overview
Strategic report
Governance
Financial statements
Operating profit and ROCE
£m
FY2023
reported
Foreign
exchange
Organic
movement
FY2024
reported
Headline operating profit
90
(3)
15
102
Headline operating profit margin
11.2%
11.9%
Headline operating profit increased +18.0% on an
organic basis for the year, reflecting the strong organic
revenue growth and favourable pricing, as well as the
positive benefits of SES and cost actions. This was
partly offset by the expansion in field service engineers
to support the high installation activity and reflecting
the complexity of the CTiX installations, although
operational efficiency on this front improved through
the second half. Headline operating profit margin of
11.9% was up 70bps on both an organic and reported
basis.
Over the medium term, higher margin aftermarket
revenue associated with the expanded installed base
from new OE sales, continued SES initiatives and a
positive mix impact from the new defence contracts
are expected to support continued margin expansion.
On a reported basis, headline operating profit was up
+14.1%, including a moderate negative foreign exchange
translation, with the difference between statutory and
headline operating profit reflecting amortisation of
acquired intangibles.
ROCE increased by +140bps to 9.1%, driven by the
headline operating profit growth.
R&D and new product development
Cash R&D representing 7.8% of sales (FY2023: 8.4%)
supports Smiths Detection investment in next-
generation detection capabilities and included £20m
in customer funded projects (FY2023: £18m).
A notable component of recent R&D spend has been
on a pioneering X-ray scanner utilising diffraction
technology, which was pre-launched in April. The SDX
10060 XDi inspection technology allows highly accurate
material and substance identification based on an
object’s molecular structure. This scanner can
integrate seamlessly with existing baggage handling
systems to support airport customs agencies in
screening for a range of contraband items, including
explosives or narcotics, and can also be deployed in
cargo environments. Commercial deployment within
aviation requires regulatory certification, which is
currently underway. Modest initial sales are first
expected in FY2026, at the earliest.
Smiths Detection also benefits from external R&D
funding, and during FY2024, was selected for EU
funding as part of a consortium to develop new
AI-based algorithms for automatic detection of
narcotics in passenger baggage, and to develop a
maritime customs border control screening system for
portable screening technology for shipping containers.
It also partnered with the University of Exeter to explore
virtual and immersive technology for training people, to
enhance its training for X-ray screener personnel, a
crucial part of its customer offering.
Customers
Aviation:
cargo, baggage and checkpoint
screening systems for airports and governments
Ports & borders:
high-energy cargo inspection
systems
Urban security:
integrated screening systems for
a broad range of urban situations including public
transport, events and municipal settings
Defence:
advanced chemicals and explosives
detectors for governments with whom we have
long-standing partnerships
Competitors
Competitors include Rapiscan, Leidos, Nuctech,
Flir, Analogic and Chemring
27
Smiths Group plc Annual Report FY2024
Business review
continued
Overview
Strategic report
Governance
Financial statements
Flex-Tek
Financial performance
FY2024
(£m)
FY2023
(£m)
FY Reported
growth
Organic growth
H1
H2
FY
Revenue
786
768
+2.3%
(4.1)%
+2.6%
(0.8)%
General Industrial
632
624
+1.2%
(7.6)%
+0.8%
(3.5)%
Aerospace
154
144
+7.0%
+12.1%
+9.9%
+10.9%
Headline operating profit
161
149
+8.1%
+2.6%
+5.8%
+4.2%
Headline operating profit margin
20.5%
19.4%
+110bps
+140bps
+60bps
+100bps
Statutory operating profit
135
131
+3.1%
Return on capital employed
26.6%
26.1%
+50bps
R&D cash costs as % of sales
0.4%
0.4%
0bps
Revenue
£m
FY2023
reported
Foreign
exchange
Acquisitions
Organic
movement
FY2024
reported
Revenue
768
(28)
52
(6)
786
Organic revenue declined (0.8)% in the year, with
growth in H2 of +2.6% showing some recovery following
a decline of (4.1)% in H1. Revenue on a reported basis
grew +2.3%, supported by +£52m from the acquisition
of HCP, which was acquired in August 2023, and despite
a negative foreign exchange translation.
In General Industrial, organic revenue was down (3.5)%
as a result of a tough comparator last year and US
construction market headwinds, which started in the
second half of last year and continued through FY2024,
impacting HVAC sales. The pace of HVAC revenue
recovery in FY2025 will be determined by the pace of
market recovery, as mortgage rates moderate and
given the meaningful housing inventory deficit in the US.
Flex-Tek’s energy efficient solutions for industrial
applications expand to the partnership with Midrex to
deliver heating solutions that enable the production of
commercial green steel. The business has grown and
is well placed for future energy-efficient industrial
heating projects.
In Aerospace, organic revenue grew +10.9% in the year
supported by a strong order book, with the slight
moderation in growth in the second half reflecting a
strong comparator last year. Demand was buoyant
across the year and is set to continue into FY2025.
28
Smiths Group plc Annual Report FY2024
Business review
continued
Overview
Strategic report
Governance
Financial statements
Operating profit and ROCE
£m
FY2023
reported
Foreign
exchange
Acquisitions
Organic
movement
FY2024
reported
Headline operating profit
149
(6)
12
6
161
Headline operating profit margin
19.4%
20.5%
Headline operating profit grew +4.2% on an organic
basis. The organic operating margin improved by
+100bps to 20.5% despite the decline in revenue
reflecting tight cost control, especially materials, in the
light of the lower volume in General Industrial and a
positive mix impact. On a reported basis, headline
operating profit and margin increased +8.1% and
+110bps, respectively.
The difference between statutory and headline
operating profit reflects the amortisation of acquired
intangible assets and the provision for Titeflex
Corporation subrogation claims.
ROCE increased +50bps to 26.6%, reflecting the
headline operating profit growth.
The integration of HCP is progressing ahead of plan,
with increased revenue in the year against the
challenging construction market background. The
acquisition expanded Flex-Tek’s presence in the North
American HVAC market by extending its customer
base, and broadened its product range, including HCP’s
patented axial and radial seal duct technology.
In September 2024, we announced two strategic and
disciplined acquisitions for Flex-Tek.
Building on the HCP acquisition, Flex-Tek is acquiring
Modular Metal, expanding its HVAC presence into the
western US market and broadening its product offering
to include Modular Metal’s sealed flexible duct solution.
The transaction is expected to complete in October
2024.
Flex-Tek acquired Wattco, expanding our heating
portfolio into a wider range of industrial electric heating
products, including medium temperature immersion
and circulation heating, which are highly
complementary to our existing open coil electrical
heating business.
R&D and new product development
Cash R&D expenditure grew in line with sales,
remaining at 0.4% of sales (FY2023: 0.4%). R&D is
focused on developing new products for the
construction and aerospace markets, and new
electrification opportunities within industrial markets.
Customers
Heating, ventilation and air-conditioning
(HVAC):
full range of heating elements, gas
piping, flexible and metal ducting for HVAC
systems
Aerospace:
full range of rigid and flexible,
high- and low-pressure tubing and ducting for
fluid conveyance in aerospace applications
Industrial:
specialist products including medical
and industrial hoses and a broad range of heating
elements for applications in industrial market
segments
Competitors
Competitors include Parker-Hannifin, Eaton,
OmegaFlex, Warren, Watlow and Southwark Metal
29
Smiths Group plc Annual Report FY2024
Business review
continued
Overview
Strategic report
Governance
Financial statements
Smiths Interconnect
Financial performance
Organic growth
FY2024
(£m)
FY2023
(£m)
FY Reported
growth
H1
H2
FY
Revenue
354
387
(8.4)%
(13.7)%
+0.4%
(6.5)%
Headline operating profit
49
62
(20.9)%
(33.3)%
(2.1)%
(17.8)%
Headline operating profit margin
13.9%
16.0%
(210)bps
(370)bps
(40)bps
(190)bps
Statutory operating profit
46
50
(8.0)%
Return on capital employed
10.4%
13.3%
(290)bps
R&D cash costs as % of sales
6.2%
6.3%
(10)bps
Revenue
£m
FY2023
reported
Foreign
exchange
Acquisitions
Organic
movement
FY2024
reported
Revenue
387
(14)
5
(24)
354
Smiths Interconnect’s organic revenue declined (6.5)%
in FY2024, reflecting weakness in the semiconductor
market and a slower market in connectors, resulting in
part from customer destocking. Performance improved
incrementally through the year, with a (13.7)% organic
decline overall in the first half, improving to marginal
growth in the second half.
Reported revenue decreased (8.4)% reflecting a
negative foreign exchange impact, partially offset by a
£5m contribution from Plastronics which has
broadened the semiconductor product portfolio and
provided greater exposure to the US and wider
industrial end markets.
The performance in connectors reflected a strong base
comparator, customer destocking and some weakness
with medical and industrial customers. In the
semiconductor market, the longer than expected
downturn is now reversing, with increased activity
levels and growth in orders. This growth, together with
good growth in aerospace and defence-related
programmes and a robust pipeline of new product
introductions underpins our expectation for an
improving performance as we progress through
FY2025.
30
Smiths Group plc Annual Report FY2024
Business review
continued
Overview
Strategic report
Governance
Financial statements
Operating profit and ROCE
£m
FY2023
reported
Foreign
exchange
Acquisitions
Organic
movement
FY2024
reported
Headline operating profit
62
(2)
(0)
(11)
49
Headline operating profit margin
16.0%
13.9%
Headline operating profit declined (17.8)% on an organic
basis, resulting in a (190)bps reduction in headline
operating profit margin to 13.9%. The decline was
primarily driven by the lower volume alongside mix
effects, with continued investment in R&D, which more
than offset pricing, SES benefits and the impact of cost
control initiatives. On a reported basis, headline
operating profit declined (20.9)% and statutory
operating profit declined (8.0)%.
The difference between statutory and headline
operating profit reflects the amortisation of acquired
intangibles and acquisition-related costs.
ROCE reduced (290)bps to 10.4%, driven by the lower
operating profit.
R&D and new product development
Cash R&D expenditure as a percentage of sales was
6.2% of sales (FY2023: 6.3%). R&D is focused on
developing new products that improve connectivity and
product integrity in demanding operating environments.
A recent success has been the DaVinci 112, the next
generation of its high-speed semiconductor test
sockets. It is designed for testing some of the most
complex functionality of integrated circuits at the
highest speeds and is used by leading AI and GPU
semiconductor manufacturers.
Product launches during the year included a high-
density electrical connector for the medical market and
a new series of fixed attenuators and Thermopad®
products for use in space, defence and aerospace
applications.
Smiths Interconnect also launched the Mini-Lock
Connector, the next generation radio-frequency
connector which delivers high-reliability performance
in mission-critical sectors such as satellite, aerospace
and defence.
To address the critical issue of power loss in electric
battery systems and solutions, Smiths Interconnect
launched its new Hypertac Green Connect™ technology
which has improved contact points, creating a more
efficient and higher-performing battery.
Space grade products are a key development focus
particularly in radio frequency and optical products.
During the year, Smiths Interconnect received funding
of around £2m from the UK Space Agency to help
enhance its Dundee-based Space Qualification
Laboratory, which simulates the extreme conditions of
space to assure the quality and durability of space
components.
Customers/business units
Connectors:
high-reliability electrical
interconnect solutions for specialised
applications across a broad range of healthcare,
industrial, transport, defence and aerospace
customers
Semiconductor test:
test socket and probe card
solutions for a broad range of chip manufacturers
who require higher-performing applications
(graphics processing, artificial intelligence and
data communication)
Fibre-optics and radio frequency (RF)
components:
broad range of devices, including
transceivers for demanding high-reliability
environments, especially with space and
aerospace customers
Electronic subsystems:
antenna systems and
multi-function RF systems for aerospace and
defence customers
Competitors
Competitors include Amphenol, TE Connectivity,
Molex, Samtec, Glenair, Anaren, Leeno and
Winway
31
Smiths Group plc Annual Report FY2024
Business review
continued
Overview
Strategic report
Governance
Financial statements
Delivering
Net Zero GHG
Developing and
attracting talent
Respecting natural
resources
Improving safety,
health and well-being
Promoting diversity,
equity and inclusion
Environment
Social
Governance
Commercialising
high-value green
technologies
Behaving ethically
and legally
Managing risk and
maintaining strong and
effective controls
Effective long-term
decision making and
transparency
Contributing to our
communities
Supply chain
Sustainability at
Smiths
We organise our ESG commitments, objectives and reporting in our ESG framework. In FY2023 we undertook a
double materiality assessment (DMA) to identify our most material ESG issues and test the framework. Read more
about the DMA on www.smiths.com
Improving safety, health and well-being
–
Most material topic for Smiths
–
15% reduction in total number of incidents
–
71 sites with ISO 45001 certification
–
Over 17,000 safety look out observations and
leadership tours
–
Launched new Health, Safety and Well-being Policy
Commercialising high-value green
technologies
–
Strong and growing portfolio of green technologies
–
John Crane now present in approximately
70 energy transition-related hydrogen and
CCUS projects
Delivering Net Zero GHG
–
Net Zero transition plan validated by the
Science-Based Targets initiative (SBTi)
–
Scope 1 & 2 emissions down (10.7)% in year
–
Renewable electricity 73% of total use
–
Accelerated roll out of electric vehicles
–
Linked to remuneration
Supply chain
–
Moving to standardised and disciplined approach
to supplier management across Smiths
–
Invested in EcoVadis supplier management
platform and launched ESG Supply Chain Due
Diligence Policy
–
Set targets for % of supplier spend evaluated by
EcoVadis and % of suppliers with SBTs
Behaving ethically and legally
–
No human rights issues identified
–
Ethics and compliance workshops held in India
and Latin America
–
283 Speak Out reports
Read more about the
Sustainability at Smiths
framework in our FY2024
Sustainability
at Smiths report
ESG framework
Our top five material ESG topics
Smiths Excellence System (SES)
32
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Improving safety, health and well-being
Looking after our colleagues in the
workplace and keeping them safe
and healthy is an essential pillar
and our number one focus. It is our
most material ESG topic. We target
continuous improvement in our
performance and a culture of care
that emphasises health and well-
being alongside physical safety. This
means systematic analysis of data,
proactively designing and investing for
safety and health, and strengthening
our global and local safety cultures.
Safety starts with leadership. Each Business President
has overall responsibility for safety and line leaders are
accountable for the health, safety and well-being of the
colleagues that they manage, with a duty to promote
and enforce our policies and training. Smiths
colleagues at all levels have a personal responsibility to
take due care of themselves and their colleagues and to
follow our rules and standards. The Board oversees
safety matters and receives regular reports.
We provide robust safety materials and task- or
site-appropriate personal protective equipment (PPE)
and training to ensure that they have the skills and
knowledge to fulfil their responsibilities. Safety and
compliance with our standards are managed locally
by our business Health, Safety & Environment (HSE)
specialists, with responsibility for safety culture and
performance held by our site and business leaders.
Performance against standards is overseen by our audit
processes. The VP Group HSE collaborates with the
HSE Operations Committee (made up of representatives
from across Smiths) to set our priorities and training
and HSE communications.
When someone gets hurt, we look closely to identify
root causes and prevent recurrence, but our primary
focus is on sustainable preventative action including
active promotion of a safety culture and engagement,
safety leadership, skills and designing out risk.
Safety measurement and performance
We had 71 recordable injuries in FY2024 vs 64 in
FY2023 and our RIR increased by 7%. This increase was
mainly due to the inclusion of Flex-Tek’s HCP business
(acquired in August 2023) in FY2024 data and an
increase in incidents in Smiths Detection’s US service
operations. Despite this increase, our RIR continues to
track below the industry average and in the top quartile
of industry performance
1
. Our total number of incidents
was down 15% and we recorded a 35% reduction in
potentially serious near misses, showing the impact of
Managing safety
We have a common framework for health, safety and
well-being management and evaluation across Smiths
which enables us to evaluate objectively performance
and management practices in our pursuit of zero-harm
environments.
We have health and safety policies and standards that
all Smiths operations are required to follow and each
business sets annual safety goals and targets. We
strive to be a zero harm organisation and set targets
that progressively step us down to this, our current
Group RIR target being <0.4. All operational sites with
over 100 colleagues are required to be certified (or
working towards certification) under ISO 45001
safety standards.
our risk reduction activities. We recorded zero work-
related colleague or contractor fatalities in FY2024 and
4 serious injuries. There were zero recordable incidents
with our non-supervised contractors
2
. We received
three fines of more than $10k relating to two incidents
at John Crane and Flex-Tek US sites.
We recognise that all incidents have a personal impact
and all sites work hard to continuously improve
performance. We expect an improved performance at
HCP as Smiths safety culture and practices bed into the
business. Smiths Detection has implemented a focused
safety strategy with three pillars (accountability,
competency and safety assurance) to address the
specific challenges seen at customer sites.
F
Y2024
F
Y2023
0.44
0.41
Recordable
incident rate (RIR)
Per 100 colleagues
F
Y2024
F
Y2023
0.21
0.14
Lost time incident
rate (LTIR)
Per 100 colleagues
84
Highest favourable score
for Smiths is committed to
safety in My Say survey
Material ESG topic
Key actions/activities in FY2024
–
Launched new Health, Safety and Well-
being Policy and refreshed Health, Safety
and Environmental Management Systems
Policy and Health, Safety and Environmental
Reporting Policy
–
Continued focus on hand safety (cause
of around one third of injuries) through
promotion campaign, machine guarding and
lockout, tagout (LOTO) programme resulting
in a 32% reduction in hand and finger-related
incidents vs FY2023
–
Grew site leader participation in safety look
out observations and tours
–
HSE Conferences (global, business and China)
–
Development of mental health and well-being
strategy focusing on process improvements
and a culture of care, to be completed in FY2025
–
Integrated mental health and well-being
resources into #WeAreSmiths development
week content
Footnotes
1 Based on US Bureau
of Labor Statistics/US
Department of Labor
Statistics for total
recordable incident cases.
2 Non-supervised
contractors conduct non
routine work at Smith sites
and are not supervised in
a day to day capacity by a
Smiths employee.
33
Smiths Group plc Annual Report FY2024
Sustainability at Smiths
continued
Overview
Strategic report
Governance
Financial statements
Commercialising high-value green technologies
Markets and
sustainability
megatrends
Read more on our markets
and sustainability
megatrends
Page 4
3.5%
R&D spend in FY2024
Material ESG topic
Our unique engineering capabilities
and pioneering spirit position us
strongly to support customers in
multiple industry sectors as they seek
to decarbonise and deliver next-
generation efficient and sustainable
infrastructure and processes.
Applying our capabilities to innovate
and develop practical, commercial
solutions that solve customers’
environmental needs is a key vector
for growth.
Sustainability solutions
Ambitious global commitments to Net Zero and other
environmental matters are driving profound transitions
and demand for innovative solutions across the
markets we serve. The need to cut global emissions is
driving greater energy efficiency in all sectors as well
as accelerating the adoption of electrification and
alternative/low-carbon fuels. Eliminating waste,
improving sustainability and ensuring natural
resources and environments are used and inhabited
sensitively is a growing requirement. Circular economy
and service solutions are gaining traction to reduce
environmental footprint, waste and cost.
Our portfolio of green technologies is strong and
growing and is enhanced by existing capability – such
as John Crane seals – leveraged in new and adjacent
market segments.
Each of our businesses has active development
projects that address customer needs for sustainability
performance. Top growth programmes are identified
as part of our strategic planning processes and are
accelerated for investment and launch.
Commercialisation of these programmes is overseen
by the Executive Committee and the Innovation,
Sustainability & Excellence (ISE) Committee of the
Board, which holds regular innovation deep-dives with
our business teams.
Read more about the distribution of Smiths green
technology on page 52.
Key actions/activities in FY2024
–
John Crane now present in approximately
70 energy transition-related hydrogen and
CCUS projects
–
John Crane contract to supply dry gas seals
for three supercritical compressors in a
large-scale blue hydrogen plant in Texas, USA
–
John Crane contract to supply wet seals
for almost 100 pumps at an electric battery
manufacturing facility in Tennessee, USA
–
John Crane partnership to provide dry gas
seals and filters for CO
2
compressors on
the world’s largest offshore CCUS facility,
Malaysia
–
Expansion of Smiths Detection CTiX scanner
fleet which uses up to 20% less electricity
than alternative systems
–
Continued innovation in Flex-Tek’s range
of building efficiency products including
refrigerant line sets and insulated ducts
–
Launch of Smiths Interconnect Hypertac
Green Connect™ technology to reduce power
loss in industrial batteries
34
Smiths Group plc Annual Report FY2024
Sustainability at Smiths
continued
Overview
Strategic report
Governance
Financial statements
Delivering Net Zero GHG
In FY2022 Smiths committed to
ambitious Net Zero targets that
align us with the UN’s critical global
climate objectives and the ambition
to limit global warming to 1.5°C. We
signed the 1.5°C Business Ambition
under the UN Race to Zero, covering
Scope 1, 2 and 3 GHG emissions in
FY2023 and our Net Zero/climate
transition plan was validated by the
SBTi in FY2024.
Our transition plan describes how,
through consistent focus and targets
across all aspects of our business,
we will deliver Net Zero emissions
from our operations (Scope 1 & 2)
by 2040 and our value chain (Scope 3)
by 2050.
Path to Net Zero
For Scope 1 & 2 our critical path is based on energy
efficiency, green electricity and alternative fuels. For
Scope 3 our critical path is based on supplier
engagement and reporting, supplier science-based
targets and external transition including grid
decarbonisation.
The principles driving our paths are:
–
Granular understanding of all contributing sources
and focus on data quality and integrity
–
Balanced portfolio of actions with energy saving
activities as the foundation
–
Bespoke emission reduction plans for each of our
businesses working within agreed Group priorities
and energy preference hierarchy
–
Action material decarbonisation opportunities to
frontload our trajectory
–
Supplier engagement and due diligence
implementation
–
Focus on emissions from Smiths Detection
products in use
–
Use SES tools to expedite projects
–
Embed decarbonisation plans into business
planning and budget cycles
–
Group action as appropriate, e.g. procurement
activity; resource and IT investment
–
Understand risks/challenges to maintain flexibility
–
Share best practice
–
Colleague engagement and culture change
Our Streamlined Energy and Carbon Reporting (SECR)
disclosure is provided on page 63.
(10.7)%
Absolute Scope 1 & 2
GHG reduction
73%
Renewable electricity
77
Favourable score for
commitment to
environment in My Say
survey
Material ESG topic
Key actions/activities in FY2024
–
Met annual energy efficiency and Scope 1 & 2
reduction targets
–
Set new three-year Scope 1 & 2 reduction
targets FY2025 to FY2027
–
Net Zero targets validated by SBTi
–
Expanded data disclosures significantly
–
Developed site energy inventories to enable
targeted action
–
Central and in-depth understanding of
renewable energy across the estate to enable
decision-making
–
Introduction of data dashboards
–
Implemented EcoVadis supplier assessment
and management system
–
Accelerated roll out of electric vehicles from
17 to 112 (10% of fleet)
–
Transition to global travel booking platform
that supports emissions reporting and user
ability to choose more environmentally
friendly travel options
Read our full Net Zero/climate transition plan on
www.smiths.com
Read more about our performance and targets on
page 62
35
Smiths Group plc Annual Report FY2024
Sustainability at Smiths
continued
Overview
Strategic report
Governance
Financial statements
Supply chain
We purchase materials, components
and some finished goods from many
suppliers across the world. Our
businesses, in turn, form part of
the supply chains of our customers.
Confidence, transparency and the
ability to effect change in these
networks is critical to manage risk
and make progress on all aspects of
ESG. We want and need to work with
suppliers and other partners who
are aligned with our Values and that
share and can support our and our
customers’ ESG commitments.
Responsible procurement
Our commitment to behaving ethically, legally and
positively in society requires a similar commitment
from our suppliers. Our Supplier Code of Conduct
makes our expectations of suppliers and sub-suppliers
clear when it comes to ethical behaviour and
compliance with the law, treatment of personnel,
and materials from socially and environmentally
responsible sources. Suppliers are required to adhere
to the Supplier Code and have access to our Speak Out
system should it be needed. New suppliers are subject
to due diligence checks in the form of an ethics and
compliance questionnaire, with responses reviewed by
our divisional procurement teams. We have a supplier
onboarding process to assess risk and ensure that
suppliers can meet our standards and we undertake
risk reviews and regular audits of them.
In FY2024 we invested in a new third-party supplier
management platform – EcoVadis – and launched an
ESG Supply Chain Due Diligence Policy which together,
will help us manage supplier relationships to explicitly
support our ESG commitments and reporting. See
page 62.
50%
Top 50% of suppliers by
spend invited to EcoVadis
platform
Material ESG topic
Key actions/activities in FY2024
–
Implemented EcoVadis supplier management
platform and invited suppliers to participate
–
Agreed FY2025 to FY2027 headline supply
chain targets (% of suppliers by spend
on EcoVadis and % of suppliers by spend
committed to SBTi)
–
Launched ESG Supply Chain Due Diligence
Policy
–
Updated Supplier Code of Conduct online
training module, to include additional
highlights for Smiths human rights and anti-
modern slavery requirements
–
Rolled out new online human rights training
–
Engaged independent third-party auditor to
conduct human rights assessments of top ten
suppliers in India by spend
–
Annual internal HR human rights risk
assessment targeting our sites in Colombia,
Puerto Rico and South Africa
–
Conducted internal risk assessment for
compliance with EU Deforestation regulations
–
Conducted internal human rights risk
assessment of HR practices and supply
chains, for select LATAM countries
36
Smiths Group plc Annual Report FY2024
Sustainability at Smiths
continued
Overview
Strategic report
Governance
Financial statements
Behaving ethically and legally
Behaving ethically and with integrity
is a fundamental part of our culture.
We also operate in some highly
regulated markets and sectors,
which require strict adherence to
local and international industry
regulations. We have expert
teams in place to manage these
matters and we use data and other
intelligence objectively to identify
relative performance gaps and
emerging risk, and continually target
improvements in our procedures.
Governance and implementation
The Smiths Code of Business Ethics (the Code) is the
foundational document that outlines the standards of
behaviour to which we all commit at Smiths. It is a
practical guide to what ‘doing the right thing’ looks like
when conducting business and relationships legally,
ethically and with integrity. The Code is supplemented
by a suite of policies, procedures and training relating
to specific ethics, compliance and people matters.
Speaking out
Engaging and communicating on ethical matters
is vitally important, as is colleague trust in our
procedures. Colleagues and business partners are
expected to be vigilant and report any activity or
behaviour – whether in our business or those of our
partners – that they consider may be in breach of
our Code and Policies or inconsistent with our Values.
–
Right to reasonable working hours and vacation
–
Freedom of association
–
Safe and healthy workplace
–
Safe and healthy accommodation if accommodation
is provided for employees
We have a supply chain human rights and modern
slavery working group, comprising procurement
leaders to continue to enhance awareness and drive
positive, preventative actions in our supply chain.
All staff across Smiths are trained on modern
slavery risks.
Anti-bribery and anti-corruption
Bribery and corruption matters are covered by the
Code of Business Ethics. We also have specific policies
and procedures relating to activities that create bribery
and corruption risks, and an umbrella Anti-corruption
Policy that provides a single view of our approach.
These policies cover a broad range of matters including
the giving and receiving of gifts, meals and hospitality;
invitations to government officials; our approach to
facilitation payments; and controls around the
appointment of distributors and agents, customs
brokers and freight forwarders. Our ethics dashboard
enables us to interrogate our register of gifts, meals
and entertainment in an effective and useful way.
This can be done through their line manager, HR
representative or the Legal team, or by using our
confidential Speak Out reporting hotline, which is
accessible 24 hours a day, seven days a week to
colleagues and third parties. Reports to the hotline
can be made anonymously.
Human rights
We consider violations of human rights to be appalling
crimes. Conduct that exploits workers or denies them
the rights and benefits to which they are legally entitled
is wholly inconsistent with our Values and policies
and is not tolerated. We recognise the important
responsibility we have, and we support the vision of a
world where everyone can access decent work and
enjoy their universal human rights. We have not
identified any serious human rights issues in our
operations or in those of our suppliers in FY2024.
Our Human Rights Policy is guided by the international
human rights principles encompassed in the Universal
Declaration of Human Rights, the International Labour
Organization’s Declaration on Fundamental Principles
and Rights at Work, and the United Nations Guiding
Principles on Business and Human Rights. We adhere
to national laws and regulations in our markets and,
should we encounter conflict between internationally
recognised human rights and national laws, we will
seek ways to honour the principles of international
human rights. All persons working for, or on behalf
of, Smiths are required to adhere to our Policy
and approach.
Our Human Rights Policy covers the following areas:
–
Elimination of forced/involuntary labour
–
Elimination of child labour
–
Humane treatment in the workplace
–
Workplace equality/elimination of bias
–
Right to a living wage
Read our Code of
Business Ethics
72
Favourable score for ethics
(lives the company Values)
in My Say survey
283
Number of Speak Out
reports
Material ESG topic
Key actions/activities in FY2024
–
Updated internal training modules for dawn
raids, anti-bribery and anti-corruption, Code
of Business Ethics, modern slavery, data
protection and trade diversion risks within
international trade compliance
–
Held ethics and compliance workshops
with colleagues in India and Latin America
(nine countries)
37
Smiths Group plc Annual Report FY2024
Sustainability at Smiths
continued
Overview
Strategic report
Governance
Financial statements
Our approach
Progress during FY2024
Respecting
natural resources
Natural resources are finite. We believe that all
businesses have a responsibility to use them
respectfully and safely – this includes responsible
sourcing and minimising consumption as well as
preventing environmental pollution and biodiversity
impact. Our longstanding commitment to non-GHG
resource targets, environmental standards and
stewardship are both the right thing to do and valued
by our customers as they seek to manage their own
environmental footprints.
–
Met all FY2022 to FY2024 environmental targets
–
Set new three-year targets FY2025 to FY2027 for water, waste, circularity and
biodiversity
–
Increased focus on data quality and integrity
–
Expanded significantly data disclosures on water and waste
–
Implemented EcoVadis supplier assessment and management system
–
Conducted internal risk assessment for compliance with EU Deforestation
regulations
–
Undertook top-down biodiversity risk assessment
–
Published Biodiversity statement
–
Launched new Environmental Sustainability Policy
–
Launched new Water and Waste Policies
–
Launched new ESG Supply Chain Due Diligence Policy
–
Refreshed Health, Safety and Environmental Management Systems Policy
–
Refreshed Health, Safety and Environmental Reporting Policy
Developing and
attracting talent
The passion and expertise of Smiths colleagues have
driven our business forward for more than 170 years.
Their talent and leadership are critical for our future.
We have a broad and diverse pool of talent to choose
from and our successful internal first approach
means giving all colleagues opportunities to develop
their knowledge and skills, reach their full potential,
and build a career at Smiths. Creating an environment
and infrastructure that achieves this is also the key to
attracting the right people to Smiths, whether young
people at the beginning of their working lives, or
experienced specialists should there be a gap to fill.
–
Launched bespoke ‘Leading Successful Change’ on-demand programme
–
Introduced Part-Time Working Policy
–
#WeAreSmiths learning and development weeks focused on culture and
behaviours were held in 8 locations
–
Joint John Crane and Smiths Detection learning and development week with over
40 hours of learning opportunities and 2,200 unique participants
–
Grew Veterans network and signed UK Armed Forces Covenant
–
Trained 25 Accelerate Fundamentals and 13 Accelerate Advanced cohorts – taking
total number of frontline and senior leaders trained to 850 in the last three years
–
Introduced leader-led learning workshops to share knowledge and build
relationships within our extended leadership team
–
Completed 12 cross-divisional Lean Management System workshops to embed
Lean and build localised SES best practice communities
–
Initiated ‘mentoring circles’ for talent pipeline
Promoting
diversity, equity
and inclusion
Smiths colleagues represent dozens of nations, speak
a multiplicity of languages, and have many different
perspectives. We embrace these differences and
advocate actions and behaviours that promote
inclusive and supportive work environments where all
colleagues can be the best version of themselves. We
value all aspects of diversity, and we know that when
colleagues feel included and appreciated, Smiths will
thrive, benefiting both our people and the company.
–
Equity pay audit activity transitioned to business as usual
–
Reviewed all job descriptions and job advertisements for inclusive language
–
Held global, regional and university events to promote Smiths to diverse talent
–
Conducted listening roundtables with senior women leaders and women engineers
(75% of targeted cohort participated) to shape diversity initiatives
–
Implemented #EmpowerYou workshops for senior engineering and early career
female colleagues (372 participants in 19 countries)
–
Restarted ‘Restart@Smiths’ programme for career returners in key countries
–
Introduced Part-Time Working Policy
Other ESG topics
38
Smiths Group plc Annual Report FY2024
Sustainability at Smiths
continued
Overview
Strategic report
Governance
Financial statements
Our approach
Progress during FY2024
Contributing to
our communities
We aim to contribute positively to our communities
and society in general. Smiths products and services
support critical global industries where we are
creating social and environmental value by making the
world safer and improving sustainability performance.
Our operations around the world play a beneficial role
in local economies through job creation and skills
development; procurement and generating tax
revenues; and operating safely, environmentally
responsibly and ethically. We also engage directly
through fundraising, charitable giving and education
initiatives. Healthy and prosperous communities and
supportive relationships with them inspire and
promote a sense of pride and ownership in our people.
–
Formally launched the Smiths Group Foundation and made first round of grants to
10+ organisations
–
Introduced global colleague volunteering principles which enable every colleague
to take one day of paid volunteering leave a year
–
Smiths Day focused on celebrating our culture and communities
–
Introduced formal budgeting opportunities for charitable giving in our divisions,
China and Group to enable continued support for local organisations that fall
outside of the scope of the Smiths Group Foundation
Effective long-
term decision
making and
transparency
Good quality, ethical and effective decision-making
builds sustainable businesses and enables them
to create long-term value for all stakeholders.
Our overall governance framework provides the
structures and systems through which our strategies
and objectives are set and achieved, how risk is
monitored and managed via controls, and how
our performance is managed and optimised with
appropriate oversight from the Board. The framework
ensures that we make effective long-term decisions
where the interests of all stakeholders are
appropriately balanced.
During the year the Board or Board Committees covered the following ESG-related
topics:
–
Strategic opportunities arising from the energy transition/decarbonisation
–
New product development (NPD) including green products
–
Net Zero/climate transition plan and Science-Based Targets
–
Environmental performance and targets
–
Upcoming regulatory frameworks including CSRD, EU Taxonomy and TNFD
–
People strategy
–
Safety performance
–
Talent processes
–
Alignment of remuneration with environment targets
–
Speak Out reports
Managing risk
and maintaining
strong and
effective controls
Continual assessment and management of risks, and
assurance through internal controls, is an integral
part of day-to-day operations at Smiths.
–
Refreshed Group Policies as appropriate including anti-trust, facilitation payments,
charitable donations, political activities, gifts, meals and hospitality between
co-workers, anti-corruption and Speak Out
–
Conducted an internal assessment of anti-trade diversion controls within
international trade compliance, with a focus on Russia diversion risks
39
Smiths Group plc Annual Report FY2024
Sustainability at Smiths
continued
Overview
Strategic report
Governance
Financial statements
Risk
management
We operate across a number of
markets and geographies, which
expose us to risks and uncertainties
that may be specific to our operations,
or beyond our control.
We understand the risks we face
and take a proactive approach to
risk management which maximises
opportunities, drives better commercial
decision-making, and protects our
people and our businesses.
Risk governance
Effective risk governance is essential to the
achievement of our strategic objectives, and the
Board has established the level of risk we are
willing to accept in pursuit of these ambitions. The
Board also ensures appropriate oversight and
monitoring through a number of mechanisms,
including strategy reviews, Committee meetings,
management reports and focused reviews of
selected risk areas. This top-down approach helps
to define the Group’s culture and attitude towards
risk at all levels of the business.
Enterprise risk management (ERM) roles and responsibilities
3rd
Line of defence
Board
–
Approves the strategy and sets the culture and risk appetite of
the Group
–
Monitors through Board processes and good governance
Audit & Risk
Committee
–
Reviews and assesses the effectiveness of the Group’s ERM
framework and financial and non-financial internal control
systems
Internal audit
–
Provides independent and objective assurance on internal
controls, programmes, systems and risk management
processes
–
Facilitates the ERM process and provides site-based controls
and assurance reviews of key programmes, processes and
systems
2nd
Line of defence
Executive Committee
and senior
management
–
Design and establish risk management and internal control
systems
–
Ensure that the risk appetite of the Board is understood by risk
owners and decision makers
–
Ensure risks are adequately managed
–
Conduct an annual assessment of strategic risk
Risk and compliance
functions
Monitoring and compliance
–
Develop and manage the ERM process
–
Monitor risks and controls
–
Develop and manage policies and control frameworks
–
Ensure financial, legal and ethical compliance
–
Ensure security, quality, and health and safety
1st
Line of defence
Business
management
Risk ownership and mitigation
–
Identify, manage and escalate risks
–
Set business strategic objectives
–
Establish and apply internal control systems
–
Escalate issues to the Executive Committee as required
Operational teams
Conducting business activities in accordance with Group
policies and standards
–
Understand roles and responsibilities
–
Comply with policies
–
Follow risk management processes
40
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
The Group’s ERM framework is the responsibility of the
Executive Committee who ensure that it is effectively
deployed throughout the Group. Our ERM process
supports open communication on risk between the
Board, the Audit & Risk and Executive Committees,
our businesses, functions and sites. It enables us to
manage and monitor the risks which could threaten the
successful execution of our strategy and ensures our
strategic, financial, compliance and operational risks
are appropriately considered by the Executive
Committee and by the Board.
Running a business involves the continual assessment
and management of risks – it is an integral part of
day-to-day operations within our business and
functional teams who both manage and report on risks.
They identify new and emerging risks, escalate where
appropriate, and take action to ensure risks are
managed as required. Our businesses also conduct
annual assessments of the risks they face. In FY2024
these were updated to ensure that the latest views were
presented and considered.
During FY2024 the Executive Committee agreed the
ERM timetable, and the risks selected for deep-dive
discussions at Executive, Audit & Risk Committee and
Board meetings. These were: major programme
execution; inventory; supply chain; cyber; and legal and
compliance. The Group’s list of principal risks was also
discussed and recalibrated by the Executive Committee
with Organic Growth being removed as a principal risk
as it is now embedded within our commercial and
technology risks.
The following items relating to our principal risks were
also discussed at Board, Nomination & Governance,
Remuneration & People and Innovation, Sustainability
& Excellence Committee meetings during FY2024:
organic growth and financial performance; tax,
treasury, liquidity, pensions and insurance; geopolitics;
cyber security, artificial intelligence and technology;
health and safety; acquisitions; litigation; our people
strategy; and ESG matters.
In addition, a further 16 risk workshops were facilitated
at operational sites during the year to support the
bottom-up view of risk that has fed into divisional and
functional risk assessments.
In line with requirements for risk owners to
demonstrate how they provide assurance that controls
are working effectively, examples have been provided
as part of our principal risk descriptions starting on
page 42. In response to recent amendments to the UK
Corporate Governance Code, we have initiated a
comprehensive review and assessment of all material
controls that mitigate our principal risks. This initiative
encompasses an evaluation of the levels of assurance
provided by our various lines of defence. As part of this
process, climate change risk was chosen as a pilot, and
the findings were presented to the Audit & Risk
Committee. We will extend this review process
throughout FY2025.
Emerging risks
Emerging risks and horizon scanning are integrated
into our ERM process with activities taking place across
our businesses and sites to identify risks specific to
their business lines. Functions in the business often
take the lead in identifying and promoting risk
awareness and mitigation activities, whilst raising
those of a material nature to the attention of the Audit &
Risk Committee.
At present, we are monitoring the regulatory landscape
for changes that could limit the use of certain restricted
substances, and the risks and opportunities associated
with the adoption of artificial intelligence.
The Directors consider the risk management process
to be effective.
41
Smiths Group plc Annual Report FY2024
Risk management
continued
Overview
Strategic report
Governance
Financial statements
Principal risks
and uncertainties
We maintain a register of principal risks and uncertainties faced by the Group
which could materially impact our financials, operations and achievement of our
strategic ambitions.
Risk process
On an annual basis 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; the
reputational impact of a risk; and 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
connectivity 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 a ‘risk
relationship’ chart indicating the linkage between each
principal risk and others on the list. This has been used
as an input to the Viability Statement assessment and
for risk scenario planning and mitigation work.
Changes to principal risks
Our principal risks continue to evolve in response to our
changing risk environment. This year, based on our
monitoring of emerging risks, none have been deemed
material enough to be promoted to being principal risks
and therefore no risks were promoted to principal risks
during FY2024. However, organic growth was removed
as a principal risk as it is now embedded within our
commercial and technology risks.
While we continue to monitor and manage a wide range
of risks, the tables that follow summarise those risks
considered to have the greatest potential impact if they
were to materialise.
Principal risk
Link to strategy
Gross risk
Residual risk
Likelihood
Velocity
Trend
1. Economy and geopolitics
Economy and geopolitical environment
High
Moderate
Likely
Days
2. Cyber security
Enterprise or product cyber event
High
Moderate
Likely
Days
3. Business continuity
Business disruption to supply chain or
operations
High
Moderate
Probable
Weeks
4. Technology
Disruption by existing or future
competitors
Very High
Moderate
Probable
Years
5. Product quality
Failure of product causes serious harm
to people/property
Moderate
Low
Probable
Weeks
6. Commercial
Loss of focus on customers, not
competing in the right markets
High
Low
Possible
Years
7. People
Ability to attract and retain people
Moderate
Low
Possible
Months
8. Legal and compliance
Significant ethical breach or failing to
meet contractual obligations
High
Low
Possible
Days
9. Climate change
Missed opportunities in energy
transition and change in climate
conditions causing business disruption
and economic loss for the Group
High
Low
Possible
Years
Principal risks and uncertainties
Key
Link to strategy
Growth
People
Execution
Likelihood
Almost certain
>80%
Likely
>60%
Probable
>40%
Possible
>20%
Unlikely
<20%
Trend year over year
New
Stable
Up
42
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Connectivity between principal risks
Principal risk
Economy and
geopolitics
Cyber security
Business
continuity
Technology
Product quality
Commercial
People
Legal and
compliance
Climate change
Economy and geopolitics
Cyber security
Business continuity
Technology
Product quality
Commercial
People
Legal and compliance
Climate change
1. Economy and geopolitics – Impact of economic and geopolitical environment
The challenging economic and geopolitical
environment in which we operate may have an adverse
effect on demand for our products, our cost structure,
pricing strategies, profitability and market share.
External adverse events could cause an unanticipated
and sudden disruption to our business.
How this could impact our strategy or business
model
–
Geopolitical tensions relating to Russia, China, India
and the Middle East could adversely impact our
operations
–
The introduction of new tariffs and/or taxes could
adversely impact our financial performance
–
A regional or global recession could reduce demand
for our products
–
If we are unable to pass additional inflation on
through pricing, our financial performance may
suffer
Examples of how we manage this risk
–
Our geographic footprint and diversified portfolio
of businesses mitigate the exposure we have to any
one country or sector
–
Our businesses monitor order flows and other
leading indicators to enable a quick response to
deteriorating market conditions and tariffs/trade
barriers
–
Our government relations team actively monitors
relevant developments and represents our interests
–
Our network of trade compliance officers across
the Group monitors current and future changes in
regulation and oversees import and export activities
–
The Board receives ad hoc updates from external
speakers on geopolitical events
Examples of how we know the controls are working
effectively
–
Business reporting on order trends at monthly
operating reviews
–
Active tracking of inflation and pricing at monthly
operating reviews
Developments in FY2024
–
We have continued to monitor increasing
international tensions and the rise of nationalism
and populism; ongoing wars and conflicts in
the Ukraine and Israel-Gaza; and other political
developments including the US presidential election
campaigns
Risk owner
Chief Financial Officer &
General Counsel
Trend
Up
43
Smiths Group plc Annual Report FY2024
Principal risks and uncertainties
continued
Overview
Strategic report
Governance
Financial statements
2. Cyber security – Impact of enterprise or product cyber event
Cyber attacks attempting 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 cyber criminals.
Digitalisation and increased interconnectivity of our
products intensifies the risk.
How this could impact our strategy or business
model
–
If a cyber attack compromised confidentiality, integrity
or availability of our assets, it could adversely affect
our ability to deliver to customers and, ultimately, our
financial performance and reputation
–
If we had a cyber security breach, we could
be exposed to significant losses, particularly
concerning our security products. These could
include not only customer losses but also those of a
potentially large class of third parties
Examples of how we manage this risk
–
Board oversight of the ‘defence in depth’ approach
to mitigating cyber risk
–
Proactive focus on information and cyber security
risks supported by a robust governance framework
–
Group-wide assessment of critical information
assets and protection to enhance security
–
Information Security Awareness programme
–
Security monitoring to provide early detection of
hostile activity on Smiths networks and an incident
management process
–
Partnership and monitoring arrangements in place
with critical third parties, including communication
service providers
–
Cyber risk analysis and mitigations embedded in the
product lifecycle process to increase resilience
Examples of how we know the controls are working
effectively
–
Formal reviews with the Executive Committee and
the Board
–
Vulnerability scanning/event reporting
–
External reviews of threats, processes, controls and
capabilities
–
Mandatory staff training
–
Compliance with recognised standards
Developments in FY2024
–
In the light of the constantly changing cyber threats
and publicised cyber attacks that have taken place
throughout the year, our Business Information
Services function has continued to improve our
preventative and remediation controls and has
provided updates to the Audit & Risk Committee on
our cyber risks and mitigating actions
3. Business continuity – Business disruption to supply chain or operations
Disruption to our supply chain, manufacturing or
service operations, or customers’ operations could
impact our financial performance.
How this could impact our strategy or business
model
–
If we are unable to deliver products and services to
our customers, it will adversely affect our financial
performance and reputation
–
Cost pressure and volatility in commodities, goods
and labour may affect our ability to serve customers
and erode our competitive advantage
Examples of how we manage this risk
–
SES has increased our focus on resilient and cost-
effective supply
–
We have business continuity and disaster recovery
plans in place for critical locations
–
We regularly evaluate key sites against a range of
risk factors using external benchmarks
–
Mitigation plans are in place for sole source
suppliers, sub-contractors and service providers,
including qualifying alternative sources of supply
where appropriate
–
Property damage and business interruption
insurance
Examples of how we know the controls are working
effectively
–
We test business continuity plans annually
–
Divisional risk mitigation plans reviewed by the
Audit & Risk Committee
–
Business interruption risk surveys which are
completed annually with an external provider at key
operational sites
–
Insurance is reviewed at least annually by the Audit
& Risk Committee
Risk owner
Chief Financial Officer
Trend
Stable
Risk owner
Business Presidents
Trend
Stable
44
Smiths Group plc Annual Report FY2024
Principal risks and uncertainties
continued
Overview
Strategic report
Governance
Financial statements
4. Technology – Technology disruption by existing or future competitors
If we fail to maintain our technological differentiation
and our innovation pipeline does not meet customers’
evolving requirements, we may lose market share to
a new or existing competitor. This could impact our
financial performance and our ability to attract and
retain talent.
How this could impact our strategy or business
model
–
If our technological differentiation were to erode,
it could have an adverse effect on our financial
performance and our ability to attract and retain
talent
–
We may fail to deliver anticipated organic growth,
which may lead to missing strategic growth targets
and shareholder value erosion
Examples of how we manage this risk
–
We proactively position our portfolio around the
most attractive markets where we can sustainably
hold a leadership position based on technology
differentiation
–
We diversify our portfolio to serve a range of sectors
and geographies, and mitigate exposure to any one
sector or area
–
Continued investment in R&D (FY2024: 3.5% of
Group revenue, FY2023: 3.7%) with an increasing
focus on shared digital development
–
We focus on nurturing a culture of innovation
–
We focus on processes that support new product
development and commercialisation
–
We track Gross vitality as a KPI
–
We maintain robust intellectual property (IP)
protection via patents and other protections, and
pursue litigation to protect our differentiation,
where appropriate
Examples of how we know the controls are working
effectively
–
Product commercialisation progress is assessed as
part of the monthly operating reviews
–
The consideration of technology priorities as part of
our long-term strategic planning
–
Regular reviews by the ISE Committee of both new
product development and commercialisation
5. Product quality – Failure of product causes serious harm to people/property
Failure of one of our products, including failure due to
non-compliance with product regulation, may result in
financial loss and reputational damage. In the ordinary
course of business, we could be subject to material
product liability claims and lawsuits, including
potential class actions from customers or third parties.
How this could impact our strategy or business
model
–
If we were to suffer reputational damage, it could
lead to a loss of customers/future business
–
If our products were to cause material harm to
people or property and/or business interruption for
customers due to quality issues, design defects,
manufacturing failures or component failures, we
could suffer reputational damage, loss of business
and higher costs beyond anticipated warranty
claims. These may include contractual claims
for penalties, indemnities and damages, and also
product liability claims arising from end-users
and other affected third parties (potentially large
classes)
Examples of how we manage this risk
–
Business quality risk assessments that address
product failures, product performance, product
safety, product compliance, regulatory compliance,
and market authorisation
–
Quality assurance processes embedded in
manufacturing locations for critical equipment,
supporting compliance with customer requirements
and industry regulations
–
Quality development and quality integration built
into new product development processes
–
Risk analysis and mitigation processes relating
to product cyber resilience embedded in the
product lifecycle process. Proactive steps taken to
ensure product cyber-related risks are continually
monitored and managed
–
Insurance cover for product liability and other
related risks such as aviation grounding.
Insurance and legal teams collaborate to ensure
that contracts (and supplier flow-downs) cover
insurance issues, and that claims are notified
–
Contracting and litigation managed under the
oversight of the Group General Counsel with regular
reporting to the Executive Committee and Board
Examples of how we know the controls are working
effectively
–
Regular quality reporting (e.g., cost of poor quality
(COPQ)) and actions to drive improvement in key
metrics
–
Group and business governance frameworks
(including Delegation of Authority) ensure a close
working relationship between legal and commercial
teams (including quality) to manage risks
Risk owner
Business Presidents
Trend
Stable
Risk owner
Business Presidents
Trend
Stable
45
Smiths Group plc Annual Report FY2024
Principal risks and uncertainties
continued
Overview
Strategic report
Governance
Financial statements
6. Commercial – Loss of focus on customers and not competing in the right markets
Failure to act in a timely manner and adapt our market
strategy in response to changes in the commercial
environment in which we operate may result in an
adverse effect on our financial performance and
market share.
How this could impact our strategy or business
model
–
If we fail to develop growth markets and
geographies, it could affect our strategic progress
and financial performance
–
Significant disruption to government budgets could
result in fewer contracts being awarded to Smiths,
adversely affecting our financial performance
–
If we do not innovate in line with our customers’
needs, we may lose market share, and this could
adversely impact our results
–
Lack of growth and/or erosion of our market
leadership positions could impact our ability to
attract and retain talent
Examples of how we manage this risk
–
A clear Group strategy to achieve organic growth
goals, underpinned by detailed business strategies
–
Detailed reviews of existing and potential new
markets to identify opportunities with significant
growth potential
–
An annual incentive programme to support
profitable growth
–
New product innovation feedback through market
research and direct feedback from existing and
potential customers
–
Our diversified portfolio of businesses mitigates
exposure to any one country, sector or customer
–
Our growth strategy places emphasis on expanding
operations in higher-growth customer markets
as well as geographic regions which are currently
underserved, including Asia
–
Our regular strategy reviews evaluate adjacent
market opportunities and the evolving competitive
environment including reviewing new/potential
market entrants
–
Our Government Relations function collaborates
with colleagues across the Group to advise on
developments
Examples of how we know the controls are working
effectively
–
Business monthly operating reviews
–
Strategic reviews, including commercial excellence
reviews, and business deep-dives, including
detailed monitoring of pricing
–
Customer input is gathered frequently to inform new
product development, marketing segmentation/
communication, and customer service improvement
–
Strong and long-term customer relationships
–
Managing Director councils in India and China
provide cross-business alignment to support our
growth strategy
7. People – Ability to attract and retain people
Failing to attract, develop and retain the right people
with the right skills may affect our ability to achieve our
commercial ambitions.
How this could impact our strategy or business
model
–
If we do not attract and retain key talent, our
business performance may suffer
–
If we do not retain key management when we make
acquisitions, we may not realise the value of those
acquisitions
Examples of how we manage this risk
–
Fair and competitive pay practices
–
Focus on people development and promotion from
within
–
Ongoing investment in leadership training
–
Investment in early career programmes
–
Diversity and inclusion initiatives
–
Establishing the talent attraction organisation
–
Increasing internal talent mobility
Examples of how we know the controls are working
effectively
–
Formal and informal measures of culture, for
example, our regular employee engagement
surveys
–
The Remuneration & People Committee’s regular
review of key people metrics
Risk owner
Business Presidents
Trend
Stable
Risk owner
Chief People Officer
Trend
Stable
46
Smiths Group plc Annual Report FY2024
Principal risks and uncertainties
continued
Overview
Strategic report
Governance
Financial statements
8. Legal and compliance – Significant ethical breach or failing to meet contractual obligations
We have c.15,750 colleagues in more than 50 countries.
Individuals may not all behave in accordance with the
Group’s Values and in accordance with ethical and legal
requirements. We operate within increasingly complex
legal regimes, often in highly regulated markets
and with governments, customers and suppliers
requiring strict adherence to laws. 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.
How this could impact our strategy or business
model
–
An ethics or compliance breach could cause harm
to our reputation, financial performance, customer
relationships and our ability to attract and retain
talent
–
Failure to comply with trade compliance
requirements (import and export) could lead to
significant fines and/or delays to procurement or
supplies
–
Failure to meet strict conditions within government
contracts, particularly in the US, could prevent us
from bidding for contracts or have other serious
financial and reputational consequences
–
Breach of contract resulting in significant expenses
due to disputes and claims, loss of customers,
damage to our reputation with other customers/
prospective customers, and loss of revenue and
profit due to higher costs, liquidated damages or
other penalties
–
Contracts, particularly those with governments,
may include terms that provide for unlimited
liabilities, including for loss of profits, IP
indemnities, perpetual warranties or allowing
the counterparty to cancel, modify or terminate
unilaterally and seek alternative sources of supply
at our expense
Examples of how we manage this risk
–
Our ethics and compliance team run a proactive
programmatic approach, areas of which are at
different stages of maturity including:
–
Managing an independent Speak Out reporting
line and investigations process with
communications encouraging the reporting of
ethics violations (includes ability to report
anonymously and a non-retaliation policy)
–
Anti-bribery and anti-corruption training is
mandated for all employees online; and in-person
training with a process for monitoring and
reporting compliance
–
Policies and processes to mitigate risks are in
place, including agent and distributor-related
risks through due diligence, contractual controls
and internal approvals
–
Anti-trust training programmes
–
Modern Slavery and Transparency Statement and
procedures to reduce the risk within the Group and
our supply chain
–
Network of trade compliance officers across the
Group who monitor current and future changes in
regulation and oversee import and export activities
–
Monitoring and acting on upcoming legislative
changes
–
Multi-functional programme for General Data
Protection Regulation (GDPR) compliance
Examples of how we know the controls are working
effectively
–
Multiple measures to assess culture including
My Say results, Speak Out reports, Ethics Pulse
surveys, internal audit findings, exit interviews and
ethics questions in performance reviews
–
Monitoring and reporting on compliance with ethics
policies, training statistics, investigations and Ethics
Pulse metrics (Executive Committee and Audit &
Risk Committee oversight)
–
Divisional legal teams embedded in the business
and working cross-functionally throughout the
contract lifecycle. Contract risk tool rolled out in
three divisions and used to assess mitigation of risk
through contract negotiations
Developments in FY2024
–
In response to changes made to Provision 29 of
the UK Corporate Governance Code (applicable to
periods beginning after 1 January 2026), exercises
have begun across the Group to identify all material
controls with a pilot of the process having been
completed for the climate change principal risk in
June 2024
Risk owner
Group General Counsel
Trend
Stable
47
Smiths Group plc Annual Report FY2024
Principal risks and uncertainties
continued
Overview
Strategic report
Governance
Financial statements
9. Climate change – Missed opportunities in energy transition and change in climate conditions causing business
disruption and economic loss for the Group
Failure to identify and act on the significant
opportunities arising from the world’s transition to
a low-carbon economy and/or failure to respond
appropriately to climate change risks and regulation.
How this could impact our strategy or business
model
–
If we do not position ourselves to serve our
customers and growing markets in decarbonisation
and green re-industrialisation, we will not reach our
full commercial potential
–
If we do not make progress towards and then
achieve our own Net Zero commitments our
company reputation and customer relationships
may be damaged
–
We may not be able to attract and retain key talent
if we are not viewed as a socially responsible and
sustainable organisation
–
If we do not communicate sufficiently our approach
to managing climate opportunities and risk, we
may limit the number of interested debt and equity
investors
–
Extreme weather caused by climate change may
have an impact on our markets and our operations if
not identified and addressed
Examples of how we manage this risk
–
The Group has reviewed and is pursuing strategic
market opportunities arising from the energy
transition/decarbonisation
–
Products with a sustainability impact have been
prioritised for commercialisation in our new product
pipelines
–
We have in place a comprehensive Net Zero/climate
transition plan for Scope 1, 2 and 3 GHG emissions
validated by the Science-Based Targets initiative
(SBTi)
–
GHG reduction and energy efficiency targets are
built into our performance scorecard and our
annual and long-term incentive plans
–
We have published our Sustainability at Smiths
report and communicate regularly internally and
externally on environmental matters
Examples of how we know the controls are working
effectively
–
All businesses are engaged in new product
development that contributes to sustainability
–
Our FY2024 Scope 1 & 2 GHG reduction of (10.7)% is
in line with the trajectory needed for our SBTs
–
The ISE Committee meets four times a year to
review sustainable products and progress on our
sustainability goals
–
We monitor and benchmark our ESG ratings
published by Sustainalytics, ISS, CDP and MSCI
–
The environmental commitment topic scored highly
in our My Say employee survey
Developments in FY2024
–
In response to changes to regulation regarding
climate change (including CSRD and IFRS Climate-
related disclosures), a cross-functional working
group has been set up to provide oversight and
leadership in response to reporting requirements
Risk owner
Head of Smiths
Excellence &
Sustainability
Trend
Stable
See more
TCFD disclosure
Page 49
48
Smiths Group plc Annual Report FY2024
Principal risks and uncertainties
continued
Overview
Strategic report
Governance
Financial statements
Governance
Board
The Board has overall responsibility for our approach to
sustainability matters, including climate change.
Oversight of this is delegated to Board sub-
Committees. Specifically, the Audit & Risk Committee
oversees climate risk management while the
Innovation, Sustainability & Excellence (ISE) Committee
oversees delivery of our commitments in relation to
climate change. The Board has oversight of our
Group-level and business strategies, receiving
performance updates from our four businesses twice a
year. This includes an annual strategy presentation and
operational updates. Our businesses report to the ISE
Committee on a rolling annual basis. Read more about
the work of the ISE Committee on page 94.
Our Board has a collective competency for
sustainability matters, including climate change.
Individual Directors have sustainability experience
gained from current and previous positions held at
other companies. When determining Board Committee
composition, the relevant skills and experience of the
individual Non-executive Directors are considered, to
ensure each Committee has the required
competencies. Further detail can be found in the Board
biographies on pages 73 and 74 and the Board
governance model is described on page 72.
Strategic decisions relating to climate risks and
opportunities
As the world transitions to a low-carbon economy, the
Group has identified a number of climate-related
opportunities relating to global investment in
decarbonisation and green re-industrialisation.
Commercialising these high-value green technologies
is a strategic priority and is built into our businesses’
strategic plans. The Board considers climate-related
issues when reviewing strategy and performance
Task Force on Climate-related
Financial Disclosures
FCA Listing Rules
In this report, we set out our climate-related financial disclosures consistent with all of the Task Force
on Climate-related Financial Disclosures (TCFD) recommendations and recommended disclosures
pursuant to Listing Rule 6.6.6(R)8(a)(b). This includes all four of the TCFD pillars and the 11
recommended disclosures set out in the report entitled ‘Implementing the Recommendations of the
Task Force on Climate-related Financial Disclosures’ published in October 2021 by the TCFD. In
completing this work, we made use of TCFD guidance material including the TCFD technical supplement
on the use of scenario analysis, TCFD Guidance on Metrics, Targets and Transition Plans, and the TCFD
Guidance for All Sectors. We are reporting against the TCFD framework in line with FCA Listing Rules.
The TCFD provides an internationally recognised framework to provide clear, comprehensive and
high-quality information on the impacts of climate change. Over several years, we have progressed our
alignment with the TCFD recommendations to embed the management of climate-related risks and
opportunities into our processes, and to ensure that our business strategy is adapting to the effects of
climate change.
This year we undertook an in-depth review of the findings of the climate scenario analysis work
conducted in 2022 in a series of risk and opportunities workshops which included quantitative
assessment. The outputs of these workshops are presented on pages 54 to 57. We have also introduced
additional metrics and targets related to climate change. See page 57.
Our diverse range of products and geographical spread of assets allows the business to be resilient to
climate risks, such as cost and availability of resources and weather impacts, in the short term. We are
also well prepared for market opportunities presenting themselves as a result of climate change and
the energy transition. However, we recognise the potential impacts of climate risks on our business in
the long term and, as detailed on pages 54 to 57, have continued to implement mitigation strategies to
ensure that we remain resilient.
In FY2025, as climate risk and opportunities assessment continues to be embedded into our ongoing
business processes and planning, we intend to conduct new climate scenario work in line with latest
developments and best practices using the most up to date and relevant climate scenarios.
Compliance statement
49
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
objectives. The ISE Committee reviews our net zero
operational transition plans and regularly reviews
climate metrics and targets such as energy efficiency,
GHG, water and waste. These metrics are also
discussed in management reviews.
Pages 87 to 93 and 94 to 95 detail the work of our Audit
& Risk Committee and ISE Committee in relation to
overseeing climate risks and the delivery of climate-
related opportunities respectively.
Executive Committee
Business Presidents form part of the Executive
Committee and are responsible for our businesses’
approach to sustainability, including climate change.
The Executive Committee reports to the CEO, who
reports directly to the Board six times a year.
Discussions at the Executive Committee relate to
commercial climate activities such as new product
development and new market opportunities, and
operational climate activity, such as energy and GHG
reductions. The Head of Smiths Excellence &
Sustainability and Group Head of Strategy and
Communications oversee the Group’s overall direction,
targets and reporting on operational and commercial
sustainability matters.
Climate-related risks are managed and reported in line
with wider risk management processes, with the
outcomes of business assessments integrated into
executive-level strategic planning and priorities.
Climate-related opportunities such as those relating to
the decarbonisation and the energy transition agenda
have been communicated to the Executive Committee
and Board, culminating in a Group-wide strategic
response for markets and opportunities.
A number of key climate-related issues were discussed
by the Executive Committee and the Board in FY2024
including:
1. Progress against the Group’s SBTs and transition
planning for Net Zero Scope 1, 2 and 3 emissions
2. Strategic opportunities arising from the energy
transition/decarbonisation
3. Alignment of remuneration with environmental
targets
Executive remuneration
Scope 1 & 2 reduction targets aligned to our SBTs
continue to make up part of our incentive plans.
From FY2023 onwards, we introduced climate-related
metrics (energy efficiency) into our Annual Incentive
Plan (AIP) and (absolute GHG reduction) into our
Long-Term Incentive Plan (LTIP) to more closely
align decision-making and ownership of climate
goals. Details can be found in the Remuneration &
People Committee Report on pages 96 to 97.
FY2025 remuneration continues to incorporate
these climate-related metrics.
Strategy
Climate risks and opportunities
We have identified a range of physical and transition
risks and opportunities that could impact our business.
Climate change gives rise to legal risks, such as stricter
GHG emission regulations, as well as market risks
such as from new and emerging competitors and
changes in the industries we serve. Extreme weather
events such as floods and extreme temperatures pose
physical risks, including damage to assets, both owned
by us and within our supply chain, as well as disruption
to transportation routes and the safety of our people.
More extreme temperatures may also lead to new
market opportunities, such as remote sensing and
cooling systems.
The time horizons considered for identified climate-
related risks and opportunities are found in the table
below. Our strategic planning horizon has three distinct
time periods: short term (5 years), medium term (5-10
years), and long term (beyond 10 years). The level of
uncertainty and number of unknown variables
increases as the timeframe extends.
While we recognise that climate-related risks will occur
over short-, medium- and long-term horizons, our
assessment determines that climate-related risks and
opportunities are likely to impact the business in the
medium and long term only and we believe that we
remain resilient to short-term climate risks with the
adaptation and mitigation strategies currently in place.
We have also determined that none of the climate risks
identified represent a material financial risk to the
business in the time periods considered, although
identified as a Group principal risk in aggregation.
Time horizons for materialisation:
climate risks and opportunities
Description
Short term
2024–2029
Medium term
2029–2033
Long term
2033 and beyond
See more
Delivering Net Zero GHG
Page 35
The ISE Committee is
responsible for
overseeing the delivery
of climate-related
commitments and
opportunities, such as
the commercialisation
of green products,
mitigating the impacts
of climate change, and
setting and reviewing
progress against
relevant climate-
related targets.
See more
Audit & Risk Committee
Report
Page 87
See more
Innovation, Sustainability &
Excellence Committee Report
Page 94
See more
Renumeration & People
Committee Report
Page 96
50
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Financial statements
ESG Governance and delivery
The diagram below shows how sustainability/ESG matters are managed at Smiths. As described on page 49, climate matters are integrated into this overall
management framework.
Oversee
Board of Directors
Executive Committee
Audit & Risk Committee
Nomination & Governance Committee
General Counsel
Chief People Officer
Head of Smiths Excellence
& Sustainability
Remuneration & People Committee
Business Presidents
Chief Financial
Officer
Innovation, Sustainability
& Excellence Committee
Prioritise
Senior Leadership Team
Co-ordinated business delivery
Accountable
Responsible
Financial
Controller
Internal
controls
excellence
Director of
Internal
Audit &
Risk
Company
Secretary
GC Ethics &
Compliance
Business
GCs
Technology, Operations
and Commercial
Leaders
Strategy
and product
commercialisation
VP Sustainability & ESG
People Leadership Team
Enterprise
risk
process
ESG
Regulation
Oversight
Group
Board
Committee
reporting
Business
Ethics
Council
Talent
Diversity
Equity
Inclusion
Foundation
Committee
HSE Operations
Committee
Sustainability
Group
Group Head of Strategy and Communications
Communications
Smiths Excellence System (SES)
51
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Distribution of Smiths green technology
The transition to a low-carbon world poses significant opportunities for Smiths as demand for green technology and energy efficient products increases.
Efficiency and circular economy solutions
Solutions that help our customers to use less, waste less and reduce emissions
–
Lower emission oil & gas value streams
–
Resource efficiency in industrial processes
–
Water reduction for process industries and energy transition minerals
–
Effective and lower energy safety and security infrastructure
–
Detection solutions for resource mining and recycling
–
More efficient buildings
–
Smaller, lighter and more efficient connectivity components
John Crane
Smiths Detection
Flex-Tek
Smiths Interconnect
Green electrification
Solutions that help our customers move away from fossil fuels to green electricity
–
Electrical heating for buildings and industrial processes
–
High-power connectors for electricity transmission
Flex-Tek
Smiths Interconnect
Low-/no-carbon fuels
Solutions that help our customers to produce, transport, store and use new fuels
–
Compression, transportation and storage of hydrogen
–
Pumping and filtration of biofuels, synthetic and other low-carbon fuels
John Crane
Flex-Tek
Carbon capture
Solutions that help our customers capture, transport and sequester carbon
–
Carbon capture technology
–
Carbon transport and storage
John Crane
See our website www.smiths.com for more information on decarbonisation megatrends and how we are commercialising high-value green technologies.
See more
Commercialising high-value
green technologies
Page 34
52
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Financial statements
Scenario analysis
We have carried out scenario analysis on our climate
risks and opportunities for several years, collaborating
with external consultants.
While scenario analysis is hypothetical and does not
provide a certain forecast, it helps to identify how our
most material climate-related risks and opportunities
will likely impact us and our operations in the future.
This subsequently informs our risk management
strategies, as well as the metrics and targets we use to
monitor such issues, enabling us to become more
resilient to risks and seize opportunities in the medium
to long term.
This year, we have reviewed the findings of the scenario
analysis conducted in FY2022 through a series of risk
and opportunities workshops and have assessed the
financial impact of the risks and opportunities
identified. We found no significant changes to the
modelled impact of climate risks and opportunities vs
our disclosure in FY2023, other than:
–
Potential health and safety risks to our people (at
our sites and in the field) from heatwaves and water
supply issues
–
R&D and capital costs for product design arising
from changes in our markets
–
Opportunities arising from the development of
electric aircraft
The Intergovernmental Panel on Climate Change’s
(IPCC) Representative Concentration Pathway RCP 4.5
and RCP 8.5 scenarios were used for the physical
assessment. These scenarios highlighted a change in
annual rainfall levels at our sites and seasonal
differences in temperature as well as more frequent
and severe extreme weather events such as flooding,
wildfires and drought. See pages 54 to 57 for more
information on how we are managing these impacts.
The International Energy Agency’s (IEA) World Energy
Outlook Sustainable Development Scenario (SDS) and
Stated Policies Scenario (STEPS) were used for
transition scenarios to assess the potential
achievements of energy and climate policy and
alignment with the Paris Agreement to hold the rise in
global average temperature to well below 2°C.
Impact on the business, strategy and financial
planning
Our Net Zero transition plan and GHG emissions
reduction targets for Scopes 1, 2 and 3 were approved
by the Science-Based Target initiative (SBTi) in
December 2023. These outline our operational Net Zero
GHG trajectory to meet a 1.5°C scenario by achieving
Net Zero Scope 1 & 2 emissions by 2040 and Net Zero
Scope 3 emissions by 2050. This aligns with the Net
Zero by 2050 targets set out by the UK and US
governments (which are our largest areas of operation).
Our transition plan was developed with consideration of
the updated TCFD guidance and lays out our 2028, 2032
and long-term Net Zero milestones. See Delivering Net
Zero GHG on page 35.
Business-level initiatives and actions to reduce Scope 1
& 2 emissions are based on energy efficiency, green
electricity (including implementation of solar
technologies and fleet electrification), and alternative
fuels. The majority of our Scope 3 emissions will be
addressed by in-country grid decarbonisation and via
targeting significant suppliers with education and
training to set and meet their own SBT targets.
The opportunities identified within the climate scenario
analysis form part of our strategic priority to
commercialise high-value green technologies to
increase green product revenues.
Risk management
We have a Group-wide approach to risk management
which is discussed in detail on pages 40 and 41. Details
of how we manage our Climate change risk can be
found on page 48.
Our climate risk assessment work considers a wide
range of risks relating to climate change identified with
the support of external technical specialists and then
evaluated through Group and business workshops. See
climate risks and opportunities on pages 54 to 57.
These include, for example, impacts relating to damage
to assets from weather events, cost and availability of
resources, regulation related to GHG emissions and
increased demand for green technologies. The
identification process includes assessment of the full
value chain, such as impacts relating to key supply
chain assets from extreme weather events.
In FY2025 we will supplement ongoing climate risk
management activity with new climate scenario work in
line with latest developments and best practices using
the most up to date and relevant climate scenarios and
will review climate metrics and targets accordingly.
53
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Financial statements
A summary of our risk and opportunities assessment across each scenario can be found below.
Risk/
opportunity
Risk
description
TCFD
category
Time
horizon for
materialisation
Which parts of
the business
will be most
impacted?
Potential impact
on the business
Response/actions we’re
taking and how they are
managed
RCP4.5 scenario RCP8.5 scenario
2040
medium
term
2080
long
term
2040
medium
term
2080
long
term
Financial
Impact
Physical risks
Damage to
Group assets
from extreme
weather events
Extreme weather
events: hurricanes;
tropical storms;
flooding; wildfires; and
sea-level rise.
Environment
(acute
physical)
Medium
All
businesses
Increased costs and
resulting revenue losses
due to repair and
increasing insurance
costs.
All sites are required by policy to complete
annual site-specific risk assessments through
the divisional Business Continuity Plans review,
which considers risks from a wide range of
issues, including from severe weather.
A number of John Crane sites have been
identified as vulnerable, so mitigation measures
are being put in place such as: relocations; alert
systems; guidance from insurance providers
when sites come up for insurance policy
renewal; and local, specific mitigation measures
such as independent generators.
Between
£25–50
million
effect on
revenue
Damage to key
supply chain
assets from
extreme
weather events
Medium
All
businesses
Loss of revenue due to
disruption/delay of
manufacturing
processes.
Development of a coordinated procurement
process for consideration of physical risks in
procuring new suppliers
Between
£25–50
million
effect on
revenue
Temperature
regulation
requirements
during
heatwaves and
cold snaps
Increasing average
temperatures across all
seasons, as well as
more extreme
heatwaves and cold
snaps requiring the
temperature in
buildings to be
regulated in order to
minimise health and
safety risks.
Environment
(chronic
physical)
Medium
All
businesses
Health and safety risks
from overheating or
freezing mean there are
higher operating costs
from increased air
conditioning and heating.
Capital costs associated
with retrofitting assets to
provide sufficient
temperature are also
high.
Consideration of extreme weather risk when
deciding where to expand existing operations
and annual business continuity reviews across
our sites.
Between
£25–50
million
effect on
revenue
Health and
safety risks
Health and safety risks
due to overheating from
heatwaves and water
supply issues due to
regional water scarcity.
Environment
(acute
physical)
Long or
Medium
All
businesses
Loss of revenue due to
operations having to be
temporarily shut.
Increased costs from
implementation of
cooling systems.
A number of our facilities have been identified as
vulnerable to the effects of climate change and
extreme weather. There are health and safety
risks associated with the increased frequency
and severity of heatwaves, droughts and higher
temperatures.
Between
£25–50
million
effect on
revenue
Disruption to
transportation
and
distribution
networks from
extreme
weather events
Weather events directly
impacting
transportation
networks.
Environment
(acute
physical)
Medium
All
businesses
Loss of revenue due to
delays in getting
products to market,
caused by supply chain
disruption.
We are reviewing and investigating ways to
minimise travel distances by ensuring products
are produced as close to customers as possible.
Between
£25–50
million
effect on
revenue
We aim to avoid the use of single-source
materials to increase resilience over regional
disruption. This includes looking at reducing
double handling of products by having suppliers
send directly to customers.
Key
Risk key
Definition
1. Very low
Marginal impact on
the Group
Financial impact:
Less than
£25 million effect
on revenue
2. Low
Relatively marginal
impact on the
Group
Financial impact:
Between
£25-50 million
effect on revenue
3. Moderate
Moderate impact
on the Group
Financial impact:
Between
£50-100 million
effect on revenue.
4. High
Significant impact
on the Group
Financial impact:
£100-250 million
effect on revenue.
5. Very high
Very significant
impact on the
Group
Financial impact:
More than
£250 million effect
on revenue.
54
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Financial statements
Risk/
opportunity
Risk
description
TCFD
category
Time
horizon for
materialisation
Which parts of
the business
will be most
impacted?
Potential impact
on the business
Response/actions we’re
taking and how they are
managed
RCP4.5 scenario RCP8.5 scenario
2040
medium
term
2080
long
term
2040
medium
term
2080
long
term
Physical opportunities
Growth in
remote
sensing
market
Smiths Interconnect:
Growth in satellite
demand and
requirements for
climate change/
weather/environmental
tracking and
monitoring.
Environment
(chronic
physical)
Medium
Smiths
Interconnect
Increased revenue from
growth in demand for
satellite technology for
environmental
monitoring and tracking.
Opportunities in remote sensing and cooling systems have
been incorporated into business planning and other
relevant sectors are also being monitored for changes in
demand (e.g., communication systems).
Increased
demand for
cooling
systems
Ongoing extreme
variation in global
temperatures will
increase demand for
heating, ventilation and
air conditioning (HVAC)
systems from Flex-Tek
globally.
Environment
(chronic
physical)
Medium
Flex-Tek and
John Crane
Increased revenue from
increased demand for
residential and domestic
cooling systems, driven
by ongoing variation in
global temperatures.
John Crane also has the
opportunity to develop
sealing and water
filtration technology for
transportation and
cleaning of water in
water-stressed
locations.
Key
Opportunity
key
Definition
1. Very low
Marginal impact on
the Group
Financial impact:
Less than
£25 million effect
on revenue
2. Low
Relatively marginal
impact on the
Group
Financial impact:
Between
£25-50 million
effect on revenue
3. Moderate
Moderate impact
on the Group
Financial impact:
Between
£50-100 million
effect on revenue.
4. High
Significant impact
on the Group
Financial impact:
£100-250 million
effect on revenue.
5. Very high
Very significant
impact on the
Group
Financial impact:
More than
£250 million effect
on revenue.
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Financial statements
Risk/
opportunity
Risk
description
TCFD
category
Time
horizon for
materialisation
Which parts of
the business
will be most
impacted?
Potential impact
on the business
Response/actions we’re
taking and how they are
managed
RCP4.5 scenario RCP8.5 scenario
2040
medium
term
2080
long
term
2040
medium
term
2080
long
term
Financial
Impact
Transition risks
Increased
regulations
and pricing on
GHG emissions
Regulations relating to
GHG emissions,
including the cost of
reporting and
complying with
regulations (e.g.,
carbon taxes, CBAM).
Political and
legal risk
Medium
All
businesses
Greater costs associated
with emissions
reduction, monitoring
and reporting
obligations. Risk of
reduced access to
investment opportunities
from failure to meet
these.
We have established the Sustainability Group and
other cross-functional working groups to drive
and track initiatives.
Between
£50-100
million
effect on
revenue.
Increased
transportation
costs
Greater fuel costs
related to freight and
internal transportation.
Market risk
Medium
All
businesses
Greater fuel costs due to
increased pricing on
GHG emissions.
Reduction in double handling of products,
optimising space in freight through reusable and
recyclable packaging solutions and exploring
localised business models.
Between
£50-100
million
effect on
revenue.
Cost and
availability of
resources
Increased price and
reduced availability of
critical raw materials.
For Smiths
Interconnect, there are
concerns around
lithium and beryllium
and for Smiths
Detection there is a risk
of limited supply of key
components.
Market risk
Medium
All
businesses
Limited supply of
materials and
components could lead
to price volatility and
production constraints.
The procurement team for Smiths Interconnect
tracks critical raw materials and reports
monthly. Actions are taken based on trends such
as pre-buys or vendor managed inventory. The
business also periodically looks at alternative
materials.
Smiths Detection continually monitors availability
of critical materials and parts for its products.
Between
£50-100
million
effect on
revenue.
R&D,
repurposing
product design
and services
R&D and capital costs
required to adapt
existing products and
processes to address
demand contraction
risks and competition
from new products.
Risk of unsuccessful
investment.
Market risk
Medium
Smiths
Detection
and
Flex-Tek
Potential need to shift
product offering to suit
evolving needs from
customers.
Smiths Detection has an investment programme
in place to improve product performance in
anticipation of client and policy demands.
Flex-Tek continually changes and adapts
products to meet market demand for sustainable
products.
Between
£50-100
million
effect on
revenue.
New and
emerging
competitors
Reduced accessible
market due to
increased competition
in Net Zero/energy
efficiency space such as
methane leakage. For
example, there is a risk
of overcrowding in the
methane leak detection
and remediation market
for John Crane in 2030.
Market risk
Medium
All
businesses
Reduced revenue due to
greater competition in
product market.
John Crane has implemented procedures to
track and respond to changes in demand from
traditional oil & gas customers to additionally
target its portfolio of products and services to
target new customers and markets, e.g.,
hydrogen and carbon capture.
Between
£25-50
million
effect on
revenue
Smiths Detection monitors power consumption
of its products relative to competitors and
product durability and strives to be best in class
to lower total cost of ownership.
Key
Risk key
Definition
1. Very low
Marginal impact on
the Group
Financial impact:
Less than
£25 million effect
on revenue
2. Low
Relatively marginal
impact on the
Group
Financial impact:
Between
£25-50 million
effect on revenue
3. Moderate
Moderate impact
on the Group
Financial impact:
Between
£50-100 million
effect on revenue.
4. High
Significant impact
on the Group
Financial impact:
£100-250 million
effect on revenue.
5. Very high
Very significant
impact on the
Group
Financial impact:
More than
£250 million effect
on revenue.
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Financial statements
Risk/
opportunity
Risk
description
TCFD
category
Time
horizon for
materialisation
Which parts of
the business
will be most
impacted?
Potential impact
on the business
Response/actions we’re
taking and how they are
managed
RCP4.5 scenario RCP8.5 scenario
2040
medium
term
2080
long
term
2040
medium
term
2080
long
term
Transition opportunities
Aviation/
energy
efficiency
requirements
Demand for energy-
efficient detection
products.
Products
and services
Medium
Smiths
Detection
Revenue from
development of more
energy efficient safety
and security
infrastructure.
Smiths Detection monitors power consumption of its
products relative to competitors and product durability and
strives to be best in class to lower total cost of ownership.
Growth in
energy
efficiency
products
market
Increased demand for
efficiency and emission
reduction products.
Products
and services
Medium
John Crane
Increased revenue from
sealing solutions that
reduce hydrocarbon
leakage from oil & gas
and other infrastructure.
Continuing development of next generation solutions for oil
& gas and other industrial customers that align with their
decarbonisation targets, such as via digitisation.
Demand for
new products
and services in
the aviation
sector
Future development of
electric planes. This is
relevant for Flex-Tek to
invest in R&D to ensure
technology evolves in
response to consumer
preference.
Products
and services
Medium
Flex-Tek
Revenue from the
development of products
to support electric flight
Monitoring progress of electric aviation technology and
testing. Developing relationships with existing and new
market players.
Metrics and targets
We have identified relevant metrics and targets to
monitor progress in achieving our sustainability goals,
as well as manage and mitigate identified climate-
related risks and opportunities as detailed on pages 54
to 57. Metrics and targets are monitored by the ISE
Committee and inform decision-making to execute our
strategic priorities.
Sustainability metrics form part of the Smiths annual
(AIP) and long-term incentive plans (LTIP). These
include metrics on energy efficiency and GHG
emissions reductions (Scope 1 & 2 emissions absolute
reduction target) respectively.
In December 2023, Smiths Group achieved a significant
milestone with the validation of our SBTi targets. More
information can be found on page 35. We also
implemented the EcoVadis supplier management
platform.
Our Scope 1 & 2 emissions have continued to decrease,
as we progress conversion of our energy mix to
renewable electricity, including the execution of on-site
solar projects. We are also undertaking transition
initiatives such as fleet electrification and site energy
audits. Our Scope 3 emissions have also decreased
year-on-year. Further details of Scope 1, 2 and 3
emissions can be found on pages 62 to 64 including
progress during FY2024. More detail, including our
methodology for calculation of emissions in line
with the GHG Protocol, can be found on our website
www.smiths.com
In FY2024 we set new targets for energy efficiency,
renewable electricity, water, waste and supplier SBTs.
Information on how metrics and targets are linked
to our incentive arrangements can be found in the
Remuneration & People Committee Report from
pages 96 and 97. Progress towards achieving other
sustainability targets is included in the Sustainability at
Smiths section from page 32. Our Scope 1, 2 and 3 GHG
emissions data for FY2022 onwards has undergone an
external limited assurance process.
Key
Opportunity
key
Definition
1. Very low
Marginal impact on
the Group
Financial impact:
Less than
£25 million effect
on revenue
2. Low
Relatively marginal
impact on the
Group
Financial impact:
Between
£25-50 million
effect on revenue
3. Moderate
Moderate impact
on the Group
Financial impact:
Between
£50-100 million
effect on revenue.
4. High
Significant impact
on the Group
Financial impact:
£100-250 million
effect on revenue.
5. Very high
Very significant
impact on the
Group
Financial impact:
More than
£250 million effect
on revenue.
See more
Delivering Net Zero GHG
Page 35
See more
Renumeration & People
Committee Report
Page 96
57
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Governance
Financial statements
Monitoring metrics and targets
The table below outlines the key metrics and targets used to monitor climate risks and opportunities. Performance against the majority of these metrics is monitored by the
ISE Committee. Further detail, including historical performance, can be found on pages 62 to 64. Our FY2024 Sustainability at Smiths report describes the basis of
preparation of our metrics and targets and includes all of our environmental data.
Topic
Metric
Unit of
measurement
Targets and metrics
reported externally
FY2024
performance
How is the metric used to monitor climate risks and opportunities?
Energy
efficiency/
reduction
Energy efficiency ratio
Energy reduction
% change
% change
4.5% improvement in FY2024
2% reduction in FY2025
5.5%
improvement
vs FY2023
including HCP
Pricing on GHG emissions – tracking our GHG
emissions helps us to remain aligned with upcoming
regulations and is of value to our customers seeking
to reduce emissions in their supply chains.
Renewable
electricity
Group percentage of electricity coming from
renewable sources
%
66% by FY2024
80% by FY2027
73%
Pricing on GHG emissions
GHG
emissions
Global Scope 1 GHG emissions
Global Scope 2 GHG emissions market-based
Combined Scope 1 & 2 emissions
tCO
2
e
Long-term target: net zero
by 2040
17.5% reduction by FY2027
(10.7)%
reduction vs
FY2023
Pricing on GHG emissions
GHG
emissions
Global Scope 3 GHG Emissions
Category 1: Purchased Goods and Services
Category 2: Capital Goods
Category 3: Fuel- and energy-related activities not
included in Scope 1 or Scope 2
Category 4: Upstream transportation and
distribution
Category 5: Waste generated in operations
Category 6: Business Travel
Category 7: Employee commuting
Category 9: Downstream transportation and
distribution
Category 11: Use of sold products
Category 12: End of life treatment of sold products
Category 15: Investments
tCO
2
e
Long-term target: net zero
by 2050
Interim target: 40% of
suppliers by spend
committed to SBTi targets by
FY2027
(15)%
reduction vs
FY2023
Pricing on GHG emissions
58
Smiths Group plc Annual Report FY2024
TCFD
continued
Overview
Strategic report
Governance
Financial statements
Topic
Metric
Unit of
measurement
Targets and metrics
reported externally
FY2024
performance
How is the metric used to monitor climate risks and opportunities?
Physical
risks
All site business continuity plans to be reviewed
annually
%
Yes, not reported externally
N/A
All identified physical risks – reviewing our site
business continuity plans enables us to plan and
mitigate against potential physical risks from
climate change.
Transition
risks
Revenue from green technologies
%
No – data required under
CSRD (EU taxonomy)
currently being evaluated
N/A
Monitoring revenue from products with
sustainability, including climate, benefits.
Transition
risks
% reduction in normalised waste
%
5% reduction in normalised
non-recycled waste FY2022
to FY2024
5% reduction FY2025 to
FY2027
24 packaging reduction
projects FY2022 to FY2024
30 packaging reduction
projects FY2025 to FY2027
(19)%
reduction in
normalised
waste vs
FY2021
28 packaging
reduction
projects
FY2022 to
FY2024
Cost and availability of resources – monitoring our
reduction in waste and setting targets helps to
reduce the resources used by our business.
Total hazardous waste
Total non-hazardous waste
Total recycled waste
Total incinerated waste
Total waste
Non-hazardous waste recycled
Non-hazardous waste incinerated
tonnes
Total volatile organic compound (VOC) emissions
kg
Transition
risks
Water reduction projects
Number of
projects
30 projects FY2022 to
FY2024
30 projects FY2025 to
FY2027
30 projects
FY2022 to
FY2024
Cost and availability of resources – supporting
overall reduction in water use.
% reduction in normalised water use in stressed
areas
%
5% reduction in normalised
water use in stressed areas
FY2022 to FY2024
5% reduction in normalised
water use in stressed areas
FY2025 to FY2027
(17)%
reduction vs
FY2021
Cost and availability of resources – monitoring our
water use and water intensity metrics to track use
and set reduction targets to reduce the resources
used by our business.
Ground water used
m
3
Public system water used
Reservoir water used
Water used – other supply
59
Smiths Group plc Annual Report FY2024
TCFD
continued
Overview
Strategic report
Governance
Financial statements
Non-financial and sustainability
information Statement
The following table aligns to the non-financial reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006. The information listed is included
by cross-reference. Further non-financial information is available in our Sustainability at Smiths report and on our website.
Reporting requirement
Relevant policy or document
More information and related principal risk
Environmental
matters
Environmental Sustainability Policy
– our commitment to minimising the
environmental impact of our business activities, products and services worldwide
Waste Policy –
the principles we have adopted to address our most significant
waste impacts and issues
Water Policy
– the principles we have adopted to address our most significant
water impacts and issues
Key performance indicators
Task Force on Climate-related Financial Disclosures
Risk management and Principal risks and uncertainties
Innovation, Sustainability & Excellence Committee Report
ESG metrics, targets and performance
Principal risk: Climate change
Page 14 to 16
Page 49 to 59
Page 40 to 48
Page 94 and 95
Page 62 to 67
Page 48
Climate-related
financial
disclosures
Environmental Sustainability Policy
– our commitment to minimising the
environmental impact of our business activities, products and services worldwide
Waste Policy –
the principles we have adopted to address our most significant
waste impacts and issues
Water Policy
– the principles we have adopted to address our most significant
water impacts and issues
Task Force on Climate-related Financial Disclosures
Principal risk: Climate change
Page 49 to 59
Page 48
Employees
Code of Business Ethics
– outlines the ethical standards we all commit to
Human Rights Policy
– recognises the important responsibility we have with
respect to human rights
Fair Employment Policy
– designed to make Smiths a fair, inclusive and
respectful place to work
Recruitment Policy
– designed to attract, engage, develop and retain talented
people who share our values and sense of purpose
Health, Safety and Well-being Policy –
describes our commitment to achieving
excellence in the health, safety and well-being of colleagues
Our people and culture
Key performance indicators
Risk management and Principal risks and uncertainties
Improving safety, health and well-being
ESG metrics, targets and performance
Stakeholder engagement and S172 Statement
Remuneration & People Committee Report
Principal risk: People
Page 9
Page 14 to 16
Page 40 to 48
Page 33
Page 62 to 67
Page 78 to 81
Page 96 to 117
Page 46
Social matters
Code of Business Ethics
– outlines the ethical standards we all commit to
Data Protection Code of Conduct
– sets out the standard for collecting and
handling personal data about individuals
Supplier Code of Conduct
– our commitment to doing business safely,
sustainably, lawfully and to the highest business and ethical standards
Modern Slavery Statement
– steps taken by Smiths to address the risk of
modern slavery and human trafficking in its business and supply chains
Our business model
Our people and culture
Key performance indicators
Business review
ESG metrics, targets and performance
Stakeholder engagement and S172
Principal risk: People
Page 6
Page 9
Page 14 to 16
Page 24 to 31
Page 62 to 67
Page 78 to 81
Page 46
60
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Reporting requirement
Relevant policy or document
More information and related principal risk
Respect for
human rights
Code of Business Ethics
– outlines the ethical standards we all commit to
Modern Slavery Statement
– steps taken by Smiths to address the risk of modern
slavery and human trafficking in its business and supply chains
Human Rights Policy
– recognises the important responsibility we have with
respect to human rights
Our people and culture
Behaving ethically and legally
Risk management and Principal risks and uncertainties
Principal risk: People
Page 9
Page 37
Page 40 to 48
Page 46
Anti-bribery and
anti-corruption
matters
C
ode of Business Ethics
– outlines the ethical standards we all commit to
Anti-Corruption Policy
– sets out Smiths approach and controls to manage
bribery and corruption risks
Behaving ethically and legally
Risk management and Principal risks and uncertainties
Audit & Risk Committee Report
Principal risk: Legal and compliance
Page 37
Page 40 to 48
Page 87 to 93
Page 47
Business model
Our business model
Key performance indicators
Business review
Principal risk: Commercial
Page 6
Page 14 to 16
Page 24 to 31
Page 46
United Nations
Sustainable
Development
Goals
Business has a vital role to play in delivering the UN SDGs. Our business activities,
the way we operate, and our ESG framework and priorities enable us to contribute
in a meaningful and practical way to seven of these critical global goals.
Policy due diligence and outcomes
Smiths operates a confidential Speak Out reporting
hotline to report behaviour and activities that breach
our Smiths Values, our policies, or the law. This is
critical to assessing the effectiveness of our policies.
The Internal Audit function play an important role in
assessing policy adherence and outcomes. In FY2024,
they audited each business’s compliance with our Data
Protection and Privacy Policy and our trade policies.
In addition, each year the ethics & compliance team
issue surveys to certain sites and functions, these
include questions around recruitment and employment,
and are used to assess compliance with our Human
Rights Policy.
Supporting information
More information about the Group’s principal risks and
how they are managed can be found on pages 42 to 48.
The Group’s key performance indicators, including both
financial and non-financial metrics, can be found on
pages 14 to 16. The Company’s S172 Statement is on
pages 80 and 81 in the Governance report.
61
Smiths Group plc Annual Report FY2024
Non-financial and sustainability information Statement
continued
Overview
Strategic report
Governance
Financial statements
ESG metrics, targets and performance
Environment
New product commercialisation/green technologies
We report R&D spend as a percentage of sales and gross vitality, which measures the revenue contribution of products launched in the last five years.
Medium-term target:
Target
FY2024
FY2023
Gross vitality
30%
28.5%
31%
R&D as a percentage of sales was 3.5% in FY2024 (FY2023: 3.7%).
Energy efficiency and GHG emissions
Long-term targets:
–
Net Zero emissions from our operations (Scope 1 & 2) by 2040
–
Net Zero emissions from our supply chain and products in use (Scope 3) by 2050
FY2024 performance
FY2024
FY2023
Change
Target
Target achieved
Linked to remuneration
Read more on page 96
Energy use MWh
215,027
Δ
218,094
(1)%
–
N/A
Energy efficiency
1
5.5%
7.9%
–
4.5% Group improvement vs FY2023
2
Annual Incentive Plan
Renewable electricity
73%
70%
–
66% by FY2024
Electric vehicles – % of fleet
10%
–
–
–
N/A
Scope 1 & 2 emissions tCO
2
e
3
40,759
Δ
45,649
(10.7)%
4
∆
SBTi trajectory
Long-Term Incentive Plan
Scope 3 emissions tCO
2
e
5
1,170,000
Δ
1,380,000
(15)%
SBTi trajectory
N/A
1 The energy efficiency ratio is expressed as the MWh energy consumed (excluding renewable electricity produced and consumed onsite), divided by the local-currency revenue at budget FX rates (excluding price
growth within the measurement year). Includes HCP acquisition; 5.9% excluding HCP acquisition.
2 Target excludes acquisitions.
3 Scope 1 & 2 GHG emissions calculated in accordance with the WRI/WBCSD Greenhouse Gas Protocol.
4 (14.3)% excluding HCP acquisition.
5 SBTi target has been verified in FY2024. We anticipate updating our Scope 3 target next year, incorporating advancements in methodology to ensure continued alignment with best practices.
Limited assurance
KPMG has provided limited assurance under ISAE (UK) 3000 and 3410 over selected FY2024 information marked with ∆. For the full assurance opinions for FY2023 and
FY2024 please see www.smiths.com
62
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
New targets
Smiths has set the following targets from FY2025.
Target
Commentary
Linked to remuneration
Read more on page 96
Energy reduction
1
2% reduction in MWh FY2025 vs
FY2024
Continues to incentivise energy reduction as foundation of Net Zero plan and
promotes culture change.
Annual Incentive Plan
Renewable electricity
80% by FY2027
Continues to frontload trajectory and support global grid decarbonisation.
Scope 1 & 2 emissions tCO
2
e
2
17.5% reduction by FY2027 vs
FY2024
3
Continues to incentivise resource investment in support of trajectory.
Long-Term Incentive Plan
Supplier engagement
40% of supplier spend evaluated
on EcoVadis by FY2027
Supports procurement and supplier behaviour towards a sustainable supply chain.
Supplier engagement
Scope 3
25% of supplier spend
committed
to SBTi targets by FY2027
Supports our 2050 SBTi commitment
Currently c.10%
1 Year-on-year reduction in absolute MWh consumed (target depending on revenue).
2 Scope 1 & 2 GHG emissions calculated in accordance with the WRI/WBCSD Greenhouse Gas Protocol.
SECR global energy use and emissions disclosure
FY2024
FY2023
FY2022
Change FY2024 vs
FY2023
Global energy use – absolute values
MWh
215,027 Δ
218,094
223,709
(1)%
UK energy use – absolute values
MWh
17,906
11,394
10,446
Global emissions – absolute values
Scope 1 (direct emissions)
t CO
2
e
19,687 Δ
19,694
19,591
Scope 2 (market-based emissions)
t CO
2
e
21,072 Δ
25,955
32,193
Scope 2 (location-based emissions)
t CO
2
e
48,989
47,111
–
Scope 3 (value chain emissions)
t CO
2
e
1,170,000 Δ
1,380,000
1,450,000
Total Scope 1 & 2 emissions (market-based)
t CO
2
e
40,759 Δ
45,649
51,784
(10.7)%
∆
Total Scope 1 & 2 emissions (location-based)
t CO
2
e
68,676
66,805
–
UK Scope 1 & 2 emissions (market-based)
t CO
2
e
1,290
1,779
1,755
Global emissions – normalised values
Scope 1 (direct emissions)
t CO
2
e/£m revenue
6.29
6.48
7.63
Scope 2 (indirect emissions)
t CO
2
e/£m revenue
6.73
8.55
12.55
Scope 3 (value chain emissions)
t CO
2
e/£m revenue
373.56
454.40
565.08
Total Scope 1 & 2 emissions
t CO
2
e/£m revenue
13.01
15.03
20.18
(13.4)%
KPMG has provided limited assurance under ISAE (UK) 3000 and 3410 over selected FY2024 information marked with ∆.
63
Smiths Group plc Annual Report FY2024
ESG metrics, targets and performance
continued
Overview
Strategic report
Governance
Financial statements
GHG inventory
Smiths assesses the GHG emissions associated with all its global operations for all
four of its operational divisions and all sites. We have developed a GHG Inventory
Management Plan (IMP) that outlines our methodology to provide systematic and
appropriate GHG inventory data collection, manipulation and management, to
produce a relevant, credible and transparent GHG inventory that will provide visibility
into our near- and long-term goals. The IMP includes methods to estimate direct
emissions from Smiths operations (Scope 1), indirect emissions from purchased
energy (Scope 2), and value chain emissions (Scope 3).
The methods prescribed in the IMP conform to the World Resources Institute (WRI)
and World Business Council for Sustainable Development (WBCSD) GHG Protocol
and the United States Environmental Protection Agency (USEPA) Center for
Corporate Climate Leadership Greenhouse Gas Inventory Guidance.
GHG boundaries
Per the GHG protocol, we have selected the operational control approach to set the
organisational boundary for our GHG inventory, meaning 100% of GHG emissions
from assets which the Company manages and over which it has authority to
implement operational policies will be included.
In selecting these organisational boundaries, Smiths evaluated equity share, financial
control and operational control approaches and primarily considered the
comprehensiveness of assets that would be included in the inventory under each of
the three approaches, as well as which boundary would best reflect Smiths level of
influence over emissions. This includes 98 locations globally.
As for our operational boundary, which determines the direct (Scope 1) and indirect
(Scope 2 and 3) emissions associated with operations within Smiths organisational
boundary, we defined this as operations where we have the full authority to introduce
and implement operating policies. Operations or activities that are outside of Smiths
operational control, and therefore excluded from our Scope 1 and Scope 2 inventories
may become relevant when accounting for Scope 3 emissions.
GHG emissions are reported in metric tons of CO
2
equivalents (MT CO
2
e). Because
individual GHGs have different impacts on climate change, or global warming
potentials (GWPs), CO
2
e is used to express the impact of emissions from each GHG
on a common scale. Smiths uses the IPCC Fifth Assessment Report (AR5) GWPs.
Inventory boundary
Smiths Group will report all GHG emissions within its organisational and inventory
boundary. Emissions are considered outside of the inventory boundary when they are
quantified as not material.
Water, waste, packaging and biodiversity
FY2024 performance
Target
Performance
Target achieved
Normalised water use in stressed
areas (10 locations)
5% reduction in water use in water-stressed areas
normalised to revenue FY2022 to FY2024
(17)%
Water
30 water saving projects FY2022 to FY2024
30 projects
Normalised waste disposal
5% reduction FY2022 to FY2024
(19)%
Packaging
24 packaging reduction projects FY2022 to FY2024
28 projects
New targets
Smiths has set the following targets from FY2025:
Target
Normalised water use in stressed
areas (c.15 locations
1
)
5% reduction in water use in water-stressed areas
normalised to revenue FY2025 to FY2027
Positive for our local environments and promotes climate resilience of our sites in water-stressed
areas.
Normalised waste disposal
5% reduction in waste disposal normalised to
revenue FY2025 to FY2027
Encourages reduction in overall waste and cost and continued increase in recycling.
Waste/circularity
30 waste/circularity projects FY2025 to FY2027
Supports continuing reduction in waste, packaging and raw materials.
Biodiversity
30 biodiversity projects FY2025 to FY2027
Positive for our local environments and colleague engagement.
Biodiversity – water
30 water saving projects FY2025 to FY2027
Positive for our local environments.
1 Updated annually based on the World Resource Institute (WRI) Aqueduct tool.
64
Smiths Group plc Annual Report FY2024
ESG metrics, targets and performance
continued
Overview
Strategic report
Governance
Financial statements
Social
Safety
Medium-term target:
continuous improvement towards a zero-harm workplace. Group RIR below 0.4.
Performance
Recordable injuries
Recordable incident rate
Per 100 employees
Lost time incident rate
Per 100 employees
FY2024
71
FY2024
0.44
FY2024
0.21
FY2023
64
FY2023
0.41
FY2023
0.14
FY2022
87
FY2022
0.56
FY2022
0.25
FY2021
0.47
FY2021
0.20
FY2020
0.35
FY2020
0.17
Zero work-related colleague or contractor fatalities in FY2024. Zero contractor recordable incidents in FY2024.
17,000+ safety look out observations and leadership tours in FY2024.
Employee engagement
Employee engagement is measured in our annual My Say survey. See page 13 for
more information on My Say.
Medium-term target: E-sat:
Upper quartile score (75+).
E-sat score
FY2024
75
FY2023
73
FY2022
72
FY2021
71
FY2020
73
The survey response rate was 85% in FY2024 (FY2023: 84%). 13,590 comments were
submitted in FY2024.
Developing talent
In FY2024 75% of open senior individual contributor and above roles were filled by
internal candidates (FY2023: 70%).
Reward and recognition
Recognising and rewarding colleagues in a fair, open and meaningful way is an
important foundation for developing and attracting talent. We are committed to
fair pay practices, ensuring colleagues are rewarded fairly and equally for the
work they do and their performance, and that they have opportunities to participate
in our success.
Colleague benefits, which include access to an Employee Assistance Programme
for colleagues and their families, rights to parental leave, the opportunity to request
part-time or job share working and a paid volunteering day, are aligned across all our
geographies, businesses and Group. Approximately 6,500 colleagues participate in
our Group Annual Incentive Plan (AIP) and we are working towards alignment of local
bonus plans in our businesses.
We have been an accredited Living Wage employer in the UK since 2018. In the UK,
we operate an all-colleague Sharesave Scheme, which enables colleagues to buy
Smiths shares at a discounted rate.
Equal opportunities
We provide equal employment opportunities. We recruit, support and promote our
people based on their qualifications, skills, aptitude and attitude. In employment-
related decisions, we comply with all applicable anti-discrimination requirements in
the relevant jurisdictions. We have zero tolerance for discrimination, harassment or
retaliation. Our procedures and training activities advocate and enforce fair treatment
for all.
To support our diversity goals, we recruit using balanced slates and interview panels
where possible and have gender-neutral job descriptions.
People with disabilities are given full consideration for employment and subsequent
training (including retraining, if needed, for people who have become disabled),
career development and promotion based on their aptitude and ability. We endeavour
to find roles for those who are unable to continue in their existing job because
of disability.
65
Smiths Group plc Annual Report FY2024
ESG metrics, targets and performance
continued
Overview
Strategic report
Governance
Financial statements
Gender and ethnic diversity
Medium-term target:
30% of senior leadership positions held by women by FY2025.
FY2024
27%
FY2023
25%
FY2022
24%
FY2021
23%
Other gender disclosures
Male #
of employees
Female #
of employees
Definition
Board of Directors
6
60%
4
40%
Executive Committee
7
64%
4
36%
Senior Leadership Team
482
73%
180
27%
Senior Leadership Team is the metric used to track gender diversity at Smiths. It is defined as all colleagues on permanent
and fixed-term contracts in senior leadership roles. These colleagues are able to influence and drive business results.
Total colleagues
1
11,190
71%
4,575
29%
Employees on permanent and fixed-term contracts.
Senior managers (Companies Act)
192
82%
43
18%
Executive Committee plus Directors of subsidiary undertakings as defined by the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
Senior managers (UK Code)
59
64%
33
36%
Executive Committee, including the Company Secretary, and their direct reports as defined by the UK Corporate
Governance Code 2018.
Women in Leadership
59
65%
32
35%
Executive Committee and their direct reports as defined by FTSE Women Leaders.
1 Does not include 15 colleagues whose gender is unknown
66
Smiths Group plc Annual Report FY2024
ESG metrics, targets and performance
continued
Overview
Strategic report
Governance
Financial statements
Board diversity disclosures
As at 31 July 2024, the Board met all of its own diversity targets, as well as the targets set out in the Financial Conduct Authority’s Listing Rule 6.6.6R(9)(a). Numerical diversity
data, in the format required by Listing Rule 6.6.6R(10), as at 31 July 2024 is set out below. The Board and executive management were asked to disclose which characteristic
they identified with.
Sex/gender representation
Number of
Board members
Percentage of
the Board
Number of senior positions
on the Board (CEO, CFO, SID
and Chair)
Number in executive
management
1
Percentage of executive
management
1
Men
6
60%
3
8
67%
Women
4
40%
1
4
33%
Not specified/prefer not to say
–
–
–
–
–
Ethnicity representation
Number of
Board members
Percentage of
the Board
Number of senior positions
on the Board (CEO, CFO, SID
and Chair)
Number in executive
management
1
Percentage of executive
management
1
White British or other White
(including minority white groups)
8
80%
4
10
83%
Mixed/Multiple Ethnic Groups
–
–
–
–
–
Asian/Asian British
2
20%
–
2
17%
Black/African/Caribbean/Black British
–
–
–
–
–
Other ethnic group including Arab
–
–
–
–
–
Not specified/prefer not to say
–
–
–
–
–
1 Defined as the Executive Committee and the Company Secretary in accordance with Listing Rule 6.6.6R(10).
Ethnicity disclosure
The Parker Review aims to enhance the ethnic diversity of UK boards. The review sets specific targets, such as having at least one director from an ethnic minority
background on every FTSE 100 board and disclosing the percentage of senior management who are from ethnic minorities as well as setting a target for what this percentage
should be at the end of 2027.
Smiths has accordingly sought this data from its senior management group as defined by the Parker Review and set an FY2027 target. 82% of the population responded.
Smiths definition of ethnically diverse covers groups with lower representation in the organisation including Asian, Black and mixed multiple ethnic backgrounds.
Senior management
1
ethnicity representation
FY2024
FY2027
target
Identifying as ethnically diverse
32%
35%
Identifying as white
68%
1 Defined as the Executive Committee and their direct reports.
Communities
In FY2024 the total value of annual grants made by the Smiths Foundation was c.£1m.
67
Smiths Group plc Annual Report FY2024
ESG metrics, targets and performance
continued
Overview
Strategic report
Governance
Financial statements
The Group’s business activities, together with the
factors likely to affect its future development,
performance and position are set out in the Strategic
Report on pages 2 to 70. The financial position of the
Company, its cash-flows, liquidity position and
borrowing facilities are described on pages 22 to 23. In
addition, the notes to the financial statements include
the Company’s objectives, policies and processes for
managing its capital; its financial risk management
objectives; details of its financial instruments and
hedging activities; and its exposures to credit risk and
liquidity risk.
The Group has undertaken a detailed going concern
review, as set out on page 69, with a severe but
plausible downside scenario taking into account
everything that has been learnt since the COVID-19
pandemic.
At 31 July 2024 the net debt of the Group was £213m, a
£174m decrease from 31 July 2023. At the end of July,
the Group had available cash and short-term deposits
of £459m. These liquid resources are immediately
available with 98% invested with the Group’s global
banking partners. The Group’s debt profile shows an
average maturity of 2.6 years (from 3.6 years at 31 July
2023). There are no scheduled repayments of debt due
until February 2027.
The Group maintains a core US$800m committed
Revolving Credit Facility (RCF) from these banks, which
matures in May 2029. The RCF was undrawn at 31 July
2024 and has no financial covenants attached.
The Directors, having made appropriate enquiries, have
a reasonable expectation that the Company and the
Group have adequate resources to continue in
operation for a period of at least 12 months from the
date of this Report. Thus, they continue to adopt the
going concern basis of accounting in preparing the
financial statements of the Company and the Group.
In accordance with the requirements of the 2018 UK
Corporate Governance Code, the Directors have
assessed the longer-term prospects of the Group,
taking into account its current position and a range of
internal and external factors, including the principal
risks detailed on pages 42 to 48 (the ‘viability
assessment’).
The Directors have determined that a three-year period
to 31 July 2027 is an appropriate timeframe for the
viability assessment. The selected period is considered
to be appropriate as, based on the historical
performance of the Group, a three-year outlook
represents an optimum balance of long-term
projection and acceptable forecasting accuracy. The
three-year viability assessment timeframe also takes
into account considerations such as the maturity of the
Group’s borrowing facilities and the cyclicality of the
performance of the Group’s underlying markets. In
making this viability assessment, the Directors have
considered the current financial position and prospects
of the Group, including the current year business
performance, the detailed operating plan for 2025 and
forecasts for 2026 and 2027. Against these financial
projections, the Directors took into account the
principal risks (as outlined on pages 42 to 48) to develop
a set of plausible scenarios (as set out overleaf) with
potentially high-impact outcomes.
In addition to the scenario-specific assumptions
(detailed overleaf) the principal assumptions for this
three-year viability assessment are as follows:
–
FX rates for £ at US$1.28 and €1.15 and are
modelled to remain at this level in the forecast
period;
–
Interest payments have been updated to reflect
latest forecast interest rate increases with no
further refinancing with overdrafts and the
Group’s RCF drawn to maintain our minimum cash
requirements;
–
Dividend payments projected to grow over the
viability assessment period. Even under the
downside scenarios it has been assumed that
dividend increases are maintained, representing a
potential mitigating action that could be taken;
–
The bond due to be repaid in FY2027 of £550m
is assumed to be refinanced in all scenarios at
prevailing higher interest rates; and
–
The previously announced £100m buyback is
modelled to complete in FY2025 in all scenarios.
The first £50m tranche completed on 6 September
2024. The timing for initiating the second £50m
tranche has not been determined
Consideration was then given to the magnitude of the
gross risks and their potential impact, directly or
indirectly, on the Group’s future performance and
liquidity. The assessment included stress testing of the
Group’s financial capacity to absorb the impact of such
adverse events, either individually or in combination,
and what mitigating actions the Group could take to
respond to them in order to protect its business.
Going concern and
Viability Statement
68
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Scenarios modelled
Scenarios
Link to principal risks
Scenario-specific assumptions
Scenario 1
A significant economic shock (political unrest or resurgence of a
pandemic) leads to significant supply chain disruption, low customer
demand and recessionary circumstances spanning several years and
well in excess of the impact felt in FY2020/21.
Business continuity and
Economy and geopolitics
–
20% fall in revenue across the Group in FY2025, a 10% fall in FY2026 and
a further 5% fall in FY2027 compared to the base case.
–
65% reduction in operating profit in FY2025 due to plant closures,
customer and supply chain disruption, a 35% fall in FY2026 and 20% in
FY2027.
–
Increased working capital due to stock builds and customer defaults.
–
No mitigating activities such as restructuring and headcount reductions
Scenario 2
One of John Crane’s mechanical seals is identified as faulty and the cause
of an explosion at a major refinery causing the deaths of two staff and
significant damage to the plant. John Crane is sued for the costs of repair
and restoration of the plant in addition to the consequential losses of
plant closure.
Product quality
–
Legal defence costs of £20m per annum plus a one-off payment of £100m
in FY2025 in settlement of deceased’s claims
–
Legal defence costs of £5m per annum over the review period in relation
to agreement of restoration costs
–
Restoration costs of £50m spread over the three-year review period
–
Legal defence costs of £25m per annum over the review period in relation
to mitigation of consequential loss claims
–
One-off payment of £250m payable in FY2025 in settlement of the losses
claim
–
Insurance claim rejected
Scenario 3
Following a product cyber attack, a terrorism-related incident occurs
at a US airport. As a consequence, the US Government revokes Smiths
Detection’s licence. Sales of Detection’s products to the US Military
and all other governmental contracts have been banned and due to
the reputational damage, the impact of the ban will spread to other
Group businesses.
Cyber security and
Product quality
–
Immediate loss of all US-based Government contracts within Smiths
Detection
–
25% fall in other Smiths Detection revenue over FY2025
–
Loss of 50% of Interconnect’s North America revenue
–
Legal defence costs of £10m per annum
–
£100m fine levied by US Government for security breach
–
£50m compensation paid to US Government in FY2025 in respect of
previous products purchased that may have security flaws
–
Insurance claim under product liability is not met or delayed outside of
the review period
The Directors also considered the Group’s ability to
raise additional liquidity. In performing this
assessment, the Directors have taken comfort from the
diversity of the Group’s businesses across different
markets, industries, geographies, products and
customers. In order to ensure consistency, the base
case used for the three-year viability assessment has
also been reconciled against divisional impairment
review models.
As at 31 July 2024 the Group held a tradeable
commodity through its investment in 1.92% of the equity
in ICU Medical, Inc. The base case assumed that the
Group could contemplate a further reduction in this
investment, the cash inflows from which would remove
any need to utilise the RCF over the period. The
downside scenarios do not include any cash inflows
from the sale of this investment.
The downside results below show the impact on
EBITDA, net debt and headroom under each scenario.
The headroom includes the currently unutilised RCF of
US$800m (£623m).
Based on the robust assessment, the Directors confirm
that given the current strong cash position, under all
scenarios they have a reasonable expectation the Group
will remain 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.
69
Smiths Group plc Annual Report FY2024
Going concern and Viability Statement
continued
Overview
Strategic report
Governance
Financial statements
Scenarios modelled
continued
Scenarios
Link to principal risks
Scenario-specific assumptions
Scenario 4
Smiths Detection are found guilty of bribing government officials in Asian
countries in order to land significant contracts. This damages the Group’s
reputation and leads to worldwide regulators imposing significant
sanctions on the Group.
Legal and compliance
–
Regulatory fines globally amounting to £100m
–
Loss of all future revenue in both China and India
–
10% sales erosion in Detection’s USA and EMEA markets due to
reputational damage
–
£50m of severance costs incurred
–
10% fall in revenue within other Smiths businesses due to the
reputational impact
Scenario 5
A major fire at the John Crane plant in Czechia renders the facility
unusable, causing severe disruption to production.
Business continuity
–
Loss of six months EMEA revenue and margin in FY2025.
–
20% reduction in future (FY2026 & FY2027) EMEA revenue due to loss in
market shares and competitiveness
–
Breach of supply contracts leading to legal defence costs of £20m per
annum plus a one-off settlement of £50m in FY2025
–
Refurbishment and repair costs of £50m in Czechia (net of insurance
claims)
–
Costs of increasing capacity at other John Crane sites additional £50m of
cost
–
Capital expenditure on replacement equipment in Czechia of £20m (net of
insurance claims)
Scenario 6
Combination of scenarios 2 and 3.
Product quality and
Cyber security
–
As above
The Strategic Report was approved by the Board
on 23 September 2024.
By order of the Board
Roland Carter
Chief Executive Officer
70
Smiths Group plc Annual Report FY2024
Going concern and Viability Statement
continued
Overview
Strategic report
Governance
Financial statements
Governance
report
Chairman’s introduction
I am pleased to introduce our
Governance report, in which
we describe our governance
arrangements and how the Board
discharged its responsibilities
during the year.
I joined Smiths as a Director in September last year
and was appointed Chairman of the Board at the
conclusion of the Annual General Meeting (AGM)
in November 2023. During the year we have
continued to focus on Board succession planning,
and were delighted to appoint Roland Carter as
Chief Executive Officer, and to welcome Alister
Cowan as a Non-executive Director. More
information about both appointments can be found
in the Nomination & Governance Committee report
on page 83. This Committee also considers
executive succession planning, and when Roland
joined the Board there were subsequent changes
to the Executive Committee. It is critical to the
long-term success of Smiths that the Board and
the senior leadership team possess the correct
combination of skills, experience and expertise.
Succession planning for both the Board and
the Executive Committee will remain a key focus
into FY2025.
We continue to meet our own and external diversity
targets for the Board. For a Group such as Smiths, with
a diverse workforce and a wide geographic spread,
diversity is crucial. However, it is equally important that
the Directors are capable and suitably experienced
individuals. You will read in the Nomination &
Governance Committee report about the changes
made to the Board’s governance framework this year.
These included reducing the number of Committee
appointments for all Non-executive Directors, to enable
Board members to focus on areas of the business in
line with their skills and experience. The biographies of
our Directors can be found on pages 73 and 74.
At our AGM this year we will be presenting the
Directors’ Remuneration Policy to shareholders for
approval, in line with the usual three-year cycle. Our
new Remuneration & People Committee Chair, Karin
Hoeing, explains the key elements of the Policy in the
Committee report which you can find on page 97. The
report also gives details of the Directors’ remuneration
in the last year, how that was calculated, and how it
relates to corporate performance. The Audit & Risk
Committee also has a new Chair, Richard Howes.
You can read about the work of that Committee in the
report on page 87. In the report from our renamed
Innovation, Sustainability & Excellence Committee you
can find out about the discussions the Committee has
had regarding the innovations and New Product
Development in our businesses.
Smiths is an exciting and iconic business, and over the
past year I have enjoyed working with Roland, Clare and
the rest of the Board to help deliver on our strategic
goals, enabling Smiths to reach our significant
potential. I would like to thank the Smiths workforce
and my fellow Directors for their work on shareholders’
behalf this year. I would also like to recognise the
considerable commitment of Sir George Buckley and
Bill Seeger who both retired from the Board during
the year.
Finally, I hope you find the following report interesting,
and I would be happy to discuss any of the content at our
upcoming AGM.
Steve Williams
Chairman
Further information
about our compliance
with the Code can be
found as follows:
Board leadership and
Company purpose
Page 72
Division of
responsibilities
Page 76
Composition,
succession and
evaluation
Page 82
Audit, risk and internal
control
Page 87
Remuneration
Page 96
UK Corporate Governance Code compliance
In FY2024, and at the date of this report, the Company
applied the Principles and complied with all Provisions
of the FRC’s UK Corporate Governance Code 2018 (the
Code) as explained throughout this report, with the
following exceptions:
Provision 21
– that FTSE350 companies should have
an externally facilitated board review every three years.
After careful consideration, the Board agreed to defer
the FY2024 external review until FY2025 due to the
appointment of a new Chairman and Chief Executive
Officer, and changes to the Board Committee structure
and memberships. An internal evaluation was completed
with assistance from Lintstock, an independent third
party. More information can be found on page 82.
Provision 24
– that the Audit Committee should have a
minimum membership of three. For most of FY2024 our
Audit & Risk Committee had three members. However,
in June 2024, we were non-compliant for one month
in the period between Bill Seeger retiring and Alister
Cowan joining the Board. This non-compliance had
minimal impact as there were no Committee meetings
held during the transitional period, and other Board
members had agreed to join the Audit & Risk Committee
temporarily if necessary.
A copy of the Code is available from the Financial
Reporting Council’s (FRC) website at frc.org.uk. Further
information about how we have applied the Principles of
the Code can be found in this report.
71
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Role of the Board
The Board provides leadership to the
Group, approving our strategy and
overseeing its implementation with the
aim of achieving long-term sustainable
success for our shareholders and other
stakeholders
The Board exercises oversight of Smiths, and in
doing so ensures that the strategy is consistent with
our purpose and is delivered in line with our culture
and Values. The internal controls, risk management,
viability and resilience of Smiths are constantly
monitored by the Board, in support of growing and
protecting stakeholder value.
The Board has approved a governance framework
of systems and controls to effectively discharge its
collective responsibility. This framework ensures
that the Board has the information it needs to
assess the risks and opportunities facing the
Group. It includes the delegation of specific
authorities to the Board’s four Committees, as set
out in this table. The governance framework, which
includes the Schedule of Matters Reserved for the
Board and the Terms of Reference for each of the
Board’s Committees, can be found on our website
at www.smiths.com. It was reviewed by the Board
and by each respective Committee during the year.
Subject to applicable legislation and regulation and
the Articles of Association, the Directors may
exercise all powers of the Company.
Governance model
Board
Board Committees
Nomination &
Governance
Committee
Audit & Risk
Committee
Remuneration &
People Committee
Innovation,
Sustainability &
Excellence Committee
Reviews and makes
recommendations to the
Board on the structure,
size and composition of
the Board and its
Committees. It also
leads the process for
Director appointments
and Director and senior
management
succession planning.
Oversees the ongoing
suitability of the Group’s
governance framework.
Ensures the integrity of
the Group’s financial
reporting and audit
processes, and the
maintenance of sound
internal control and risk
management systems,
including oversight of
the Internal Audit
function and the Group’s
ethics and compliance
activities.
Manages the
relationship with the
external auditor,
including making
recommendations to the
Board and shareholders
in relation to the
appointment and
reappointment of the
external auditor.
Responsible for the
Group’s Directors’
Remuneration Policy
and reviews and
oversees the Group’s
remuneration strategy
for the Executive
Directors and senior
management.
Oversees, on behalf of
the Board, the
implementation of the
People strategy for the
Group, including the
Group’s approach to
diversity, equity and
inclusion.
Oversees the Group’s
approach to innovation,
sustainability and
excellence (ISE). This
includes overseeing
strategy in relation to
innovation and
sustainability, the
Smiths Excellence
System (SES) and
reviewing and
determining ISE targets,
metrics and key
performance indicators
relating to
remuneration.
Executive Management Committees
Executive Committee
Investment Committee
Disclosure Committee
Assists the Chief Executive
Officer in discharging his
responsibilities and is collectively
responsible for implementing
strategy, ensuring consistent
execution and embedding the
culture and Values.
Assesses high-value and
high-risk proposals, capital
expenditure, asset disposal and
special revenue expenditure
projects which require Chief
Executive Officer or Board
approval.
Advises the Chief Executive
Officer and the Board on the
identification of inside
information, and the timing and
method of its disclosure.
Read more
Nomination & Governance
Committee report
Page 83
Read more
Audit & Risk Committee
report
Page 87
Read more
Innovation, Sustainability
& Excellence Committee
report
Page 94
Read more
Remuneration & People
Committee report
Page 96
72
Smiths Group plc Annual Report FY2024
Board Leadership and Company Purpose
Overview
Strategic report
Governance
Financial statements
Board
biographies
Steve Williams
Chairman
Appointed: 1 September 2023
Skills and experience:
Steve has over 40 years of global
experience, most recently as Chairman and CEO of
international businesses. Steve brings a clear focus on
ESG matters and has a strong track record of growth and
transformation and in creating value for customers,
shareholders, employees and communities as both an
executive and non-executive director. Steve has a BSc in
Engineering.
Career experience:
Steve was previously a non-executive
director at TC Energy Corporation. Steve served as an
advisory Board member of Canada’s Ecofiscal
Commission and a Board member of the business
council of Canada until 2019. He served as Chief Executive
Officer of Suncor Energy Inc., the US and Canadian listed
integrated energy company, from 2012 to 2019 and as
President from 2011 to 2018. Steve spent the first 18 years
of his career at ExxonMobil in the UK, in a variety of
commercial, operational, and technical roles.
Other significant appointments:
Chairman of Alcoa
Corporation and Non-executive Director of Enbridge Inc.
Roland Carter
Chief Executive Officer
Appointed: 26 March 2024
Skills and experience:
Roland has a strong track record of
innovation, sustainability and delivering results, with deep
operational and strategic experience developed over three
decades at Smiths. He has extensive international experience,
having worked in France, Germany, the US and China. Roland
is a Chartered Engineer, holding both a Bachelor’s degree in
mechanical engineering and a Master’s degree in electronics.
Career experience:
Prior to Roland’s appointment as Chief
Executive Officer, he had been with Smiths Group for more
than 30 years, holding numerous leadership roles within the
business. Before being appointed Chief Executive Officer,
Roland was President of Smiths Detection, President of Asia
Pacific for Smiths Group and President of Smiths
Interconnect.
Clare Scherrer
Chief Financial Officer
Appointed: 29 April 2022
Skills and experience:
Clare’s background working with and
advising a diverse range of global industrial companies
provides valuable insight to Board discussions. Her expertise
aligns with Smiths’ strong position in sectors such as energy,
safety & security, and aerospace. She holds a BA from
Harvard University and an MBA from the Harvard Business
School.
Career experience:
Prior to Smiths, Clare worked at Goldman
Sachs for over 25 years. During her tenure, she was Partner
for more than a decade and most recently served as Co-Head
of the Global Industrial business. Before joining Smiths, Clare
had been a close adviser to the Group for several years,
providing guidance on the sale of Smiths Medical. Prior to her
time at Goldman Sachs, Clare worked as a consultant at
McKinsey & Company.
Other significant appointments:
Independent Non-executive
Director and Member of the Audit Committee of Legrand SA.
Pam Cheng
Non-executive Director
Appointed: 1 March 2020
Skills and experience:
Pam’s experience in the areas of R&D,
manufacturing, sales and marketing, commercial operations,
supply chain management and technology strengthen the
Board’s discussions about embedding world-class
operations. Pam holds a Bachelor of Science and a Master’s
degree in chemical engineering from Stevens Institute of
Technology, New Jersey and an MBA in Marketing from Pace
University, New York.
Career experience:
Pam is Executive Vice President, Global
Operations, IT & Chief Sustainability Officer at AstraZeneca
plc, a multinational pharmaceutical and biopharmaceutical
company. Pam assumed additional responsibility for the
AstraZeneca sustainability strategy and function in January
2023. Prior to joining AstraZeneca in 2015, Pam was President
of MSD (Merck & Co., Inc.) in China. Pam previously held
various engineering and project management positions at
Universal Oil Products, Union Carbide Corporation and GAF
Chemicals.
Alister Cowan
Non-executive Director
Appointed: 1 July 2024
Skills and experience:
Alister has experience at complex
global public companies and brings deep and wide-ranging
experience in key end markets for Smiths, notably in the
energy and chemical sectors. Alister is a graduate of
Heriot-Watt University in the UK and a member of the Institute
of Chartered Accountants of Scotland, having qualified whilst
at KPMG.
Career experience:
Alister was Chief Financial Officer of
Suncor Energy Inc., the US and Canadian listed integrated
energy company, from 2014 to 2023. Prior to joining Suncor,
Alister served as Chief Financial Officer of Husky Energy Inc.
from 2008 to 2014. Before joining Husky Energy, he held
various positions with companies throughout Europe, New
Zealand and Canada.
Other significant appointments:
Independent non-executive
Director and member of the Audit and Environmental, Health,
and Safety & Operational Performance Committees at The
Chemours Co.
Key
Nomination &
Governance
Committee
Audit & Risk
Committee
Remuneration &
People Committee
Innovation,
Sustainability
& Excellence
Committee
Committee Chair
All Non-executive
Directors are independent
and, in the Chairman’s
case, independent on
appointment.
73
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Dame Ann Dowling
Non-executive Director
Appointed: 19 September 2018
Skills and experience:
Dame Ann is internationally recognised
for her contribution to engineering research. Her knowledge
and background in engineering, innovation and sustainability
offer a different perspective to Board discussions. Dame Ann
has a degree in Mathematics and a PhD in Engineering.
Career experience:
Dame Ann has had a distinguished
academic career and currently holds the position of Deputy
Vice Chancellor and Emeritus Professor of Mechanical
Engineering at the University of Cambridge. She served as
Head of Engineering for five years until 2014. Additionally,
Dame Ann was the President and Chairman of Trustees of
The Royal Academy of Engineering from 2014 to 2019. She
also served as Non-executive Director of BP plc from 2012
to 2021, where she was a member of the Safety and
Sustainability Committee.
Karin Hoeing
Non-executive Director
Appointed: 2 April 2020
Skills and experience:
As a current executive with experience
of oil & gas, defence, security, and aerospace, Karin brings
considerable guidance in ESG and sustainability matters, as
well as executive and non-executive succession planning.
As Chair of the Smiths Remuneration & People Committee,
Karin oversees workforce engagement by the Non-executive
Directors. Karin holds a Diploma in Geophysics (MSc
Geophysics) from the University of Hamburg, Germany.
Career experience:
Karin is Group ESG, Culture and Business
Transformation Director at BAE Systems plc. Prior to this she
was Group Human Resources Director. Before joining BAE
Karin led one of the major international business divisions at
Schlumberger, a multinational oil services company. Karin
spent 20 years at Schlumberger, where she held several
senior HR, marketing, technology and line management
leadership positions across Europe, the Middle East and Asia.
Other significant appointments:
Non-Executive Director
at 25x25.
Richard Howes
Non-executive Director
Appointed: 1 September 2022
Skills and experience:
Richard brings valuable insight to
Board discussions, drawing on his extensive experience in
senior financial roles across various sectors within large,
listed companies. He holds a BSc in Geography from
Loughborough University and is a Fellow of the Institute of
Chartered Accountants in England and Wales (ICAEW).
Career experience:
Richard currently serves as Chief
Financial Officer of Bunzl plc, the specialist international
distribution and services Group. Richard qualified as a
Charted Accountant with Ernst & Young before moving to
the investment bank Dresdner Kleinwort Benson. Prior
to joining Bunzl in 2019, Richard held CFO positions at
various multinational businesses including Inchcape plc,
Coats Group plc and Bakkavor plc.
Mark Seligman
Senior Independent Director
Appointed: 16 May 2016
Skills and experience:
Mark’s extensive non-executive
background, including as senior independent director
and audit committee chairman at several FTSE 100
companies, is valuable to our Board. During the year Mark
was appointed to the role of Senior Independent Director.
Mark has significant experience in corporate finance and
capital markets, which supports Board discussions on
portfolio management and strategy. Mark has an MA in
philosophy, politics and economics.
Career experience:
Mark is a former senior investment
banker. During his executive career he held various roles at
Credit Suisse, including Chairman of UK Investment Banking.
Other significant appointments:
Senior Independent Director
at NatWest Group plc; Alternate member at Panel on
Takeovers and Mergers for the Association for Financial
Markets in Europe; and Chairman of the Trustees, Brooklands
Museum.
Noel Tata
Non-executive Director
Appointed: 1 January 2017
Skills and experience:
Noel has had a long and successful
global business career, providing him with extensive
knowledge of the high-growth economies which are crucial
for our strategy. His contribution to developing key strategic
relationships in Asia has been invaluable since joining the
Board. Noel has a BA in Economics.
Career experience:
Noel was the Managing Director of Tata
International Limited (TIL), a global trading and distribution
company and a trading arm of the Tata Group, a privately
owned multinational holding company, until November 2021.
Since then, he has held the role of Director and Non-Executive
Chairman of TIL.
Other significant appointments:
Each of the following
companies forms part of the Tata Group: Non-independent
Non-executive Chairman at Tata Investment Corporation,
Trent Ltd and Voltas Ltd. Non-independent Non-executive Vice
Chairman at Tata Steel Limited and Titan Company Ltd.
Matthew Whyte
Company Secretary
Appointed: 1 August 2021
Skills and experience:
Matthew is a Chartered Company
Secretary and a Fellow of The Chartered Governance Institute
UK and Ireland. Matthew joined Smiths in 2017 having
previously gained governance and legal experience in senior
roles in large multinational listed groups in a variety of
sectors, most recently at Schroders plc and Rio Tinto plc.
Matthew is a member of the GC100 Executive Committee.
Other Directors who
served during FY2024
Sir George Buckley, Paul
Keel and Bill Seeger
stepped down from the
Board in FY2024. Their
biographies can be found
in our FY2023 Annual
Report.
Read more
The biographies of our
Executive Committee
members can be found on
our website.
74
Smiths Group plc Annual Report FY2024
Board biographies
continued
Overview
Strategic report
Governance
Financial statements
How the Board
operates
In support of the integrity of the Board’s
operations, there is a clear division of
responsibility between Executive and Non-
executive Directors. We have a schedule of
matters which are considered significant
to Smiths and have therefore been
reserved for decision by the Board.
The items included in the Schedule of Matters Reserved
for the Board is due to their strategic, financial or
reputational implications or consequences. The formal
schedule, which is integrated into our governance
framework, can be found on our website. The Chief
Executive Officer is responsible for preparing and
recommending the Group’s strategy to the Board and
for the day-to-day management of Smiths Group.
Executive management implement the strategy and
provide the Chief Executive Officer, and the Board as a
whole, with the information they need to make decisions
that will determine the long-term success of the Group.
To ensure the continued effectiveness of the Board, the
Chairman meets the Non-executive Directors without
the Executive Directors present after each Board
meeting. He also has separate meetings with the
Senior Independent Director and the Chairs of the
Board Committees on a regular basis, and with each of
the other Non-executive Directors at least annually.
The Senior Independent Director consults with the
other Non-executive Directors without the Chairman
present at least once a year, to assess the performance
of the Chairman.
The Company Secretary ensures the distribution of
clear, concise and balanced Board and Committee
materials, in a timely manner. At each Board meeting
the Chief Executive Officer and the Chief Financial
Officer present separate reports, detailing business
performance and progress against strategy. As part of
the Board and Committee annual cycle, invitations to
meetings are extended to business Presidents, heads
of functions and subject matter experts. This also
provides visibility of talent in support of executive
succession planning. External advisers are invited to
attend as necessary. Director attendance at Board and
Committee meetings in FY2024 is set out below.
Director attendance
1
Board
Nomination & Governance
Committee
Audit & Risk
Committee
Remuneration & People
Committee
Innovation, Sustainability & Excellence
Committee
Steve Williams
6/6
3/3
–
5/5
–
Roland Carter
2
2/2
–
–
–
–
Clare Scherrer
6/6
–
–
–
–
Pam Cheng
3
5/6
1/1
2/2
4/5
4/4
Alister Cowan
4
1/1
–
1/1
–
–
Dame Ann Dowling
6/6
1/1
2/2
5/5
4/4
Karin Hoeing
6/6
3/3
–
5/5
4/4
Richard Howes
6/6
3/3
4/4
2/2
–
Mark Seligman
6/6
3/3
4/4
2/2
–
Noel Tata
6/6
3/3
2/2
2/2
4/4
Sir George Buckley
5
2/2
–
–
2/2
2/2
Paul Keel
6
4/4
–
–
–
–
Bill Seeger
7
5/5
1/1
3/3
2/2
–
1 Membership of the Board Committees was reviewed and updated during the year.
More information can be found on page 84
2 Roland Carter was appointed as Chief Executive Officer in March 2024
3 Pam Cheng was unable to attend the November Board meeting and the July Remuneration & People
Committee meeting
4 Alister Cowan was appointed as Non-executive Director in July 2024
5 Sir George Buckley stepped down as Chairman in November 2023
6 Paul Keel resigned as Chief Executive Officer in March 2024
7 Bill Seeger retired from the Board in May 2024
75
Smiths Group plc Annual Report FY2024
Division of responsibilities
Overview
Strategic report
Governance
Financial statements
Time commitment
All Directors must allocate sufficient time to their work
in order to discharge their responsibilities effectively. An
expected time commitment of 25 days per annum is set
out in the Non-executive Director letter of appointment.
However, Committee Chairs, the Senior Independent
Director and the Chairman commit more time as
required. In the normal course of business, Directors
are expected to familiarise themselves with business
priorities and challenges, prepare for and attend Board
and Committee meetings, engage with stakeholders
and participate in the Board review process.
Executive Directors are not permitted to take on the
chairmanship or more than one non-executive
directorship in a FTSE 100 company, or any other
significant appointment. Any new external appointments
are reviewed in advance by the Board, to consider
potential conflicts and the proposed time commitment.
In FY2024 the Board concluded that the Chairman and
the Non-executive Directors devoted sufficient time to
fulfil their commitments to Smiths. This included
considering the Directors’ positions held at other
organisations.
Particular consideration was given to Noel Tata’s other
commitments as he holds a number of board-level
positions outside the Group. However, all of these are
at Tata Group companies, as shown in his biography
on page 74. The Board reaffirmed that Noel’s other
commitments do not prevent him from committing
sufficient time to his work as a Director. For FY2024,
this was evidenced by his attendance and effective
participation at all Board and Committee meetings (of
which he was a member). As a current executive with
contacts in higher-growth countries which are a
strategic focus for Smiths, he brings valuable and
distinct experience to our Board discussions. In FY2025
the Board is scheduled to visit our Indian operations.
Advice and insurance
Our Directors are able to seek independent
professional advice at the expense of Smiths to enable
them to fulfil their obligations as members of the
Board. In addition, the Directors and Officers of Smiths
and its subsidiaries have the benefit of a Directors’ and
Officers’ liability insurance policy. During FY2024, and
at the date of this report, qualifying third-party
indemnity provisions (as defined by section 234 of the
Companies Act 2006) have remained in force for the
Directors of the Company and certain other employees
in respect of their directorships of some subsidiary
companies in relation to certain losses and liabilities
which they may incur (or may have incurred) to third
parties in the course of their professional duties for the
Company, or a subsidiary.
Division of responsibilities
Chairman
–
Ensures the Board’s continued effectiveness
–
Shapes Boardroom culture and encourages individual Director engagement
–
Leads the Board and sets the Board agenda, determining the style and tone of
discussions at Board meetings
–
Leads the annual Board review
Chief Executive Officer
–
Develops and proposes strategy to the Board
–
Sets and communicates the culture, Values, and Leadership Behaviours for the Group
–
Leads the Executive Committee
–
Manages the day-to-day operations of the Company
–
Manages relationships with key stakeholders
Chief Financial Officer
–
Supports the Chief Executive Officer in ensuring the development and execution of
strategy
–
Ensures the accuracy and completeness of the Group’s financial statements to
ensure they reflect a true and accurate reflection of the Company’s performance
–
Ensures the Group operates robust risk management and internal control systems to
ensure accurate and timely financial and non-financial reporting and ultimately to
safeguard stakeholders’ interests
Senior Independent Director
–
Supports the Chairman in the delivery of the Board’s objectives
–
Serves as an intermediary for the other Directors, if necessary
–
Is available to shareholders if they wish to raise any concerns
–
Leads the Chairman succession process
Non-executive Directors
–
Provide constructive challenge and strategic guidance to Board and Committee
discussions
–
Oversee management and the business and offer specialist advice
–
Assess the effectiveness of systems of internal control and risk management
Company Secretary
–
Supports the Chairman in the efficient and effective functioning of the Board and its
Committees
–
Ensures the Board receives quality information in a timely manner
–
Advises the Board on governance matters
76
Smiths Group plc Annual Report FY2024
Division of responsibilities
continued
Overview
Strategic report
Governance
Financial statements
Board activity
and key decisions
Strategy
At the two-day strategy Board meeting in May
each business presented their refreshed strategy.
The Board reaffirmed the strategic priorities,
including organic and inorganic investment. The
Board also endorsed the Group’s People strategy
People, Customers, Suppliers, Communities,
Governments & Regulators, Investors
–
Received enhanced reporting from each of
the businesses to ensure that stakeholder
considerations were embedded in decision-making
–
Received regular sustainability updates, including
reports on progress against our sustainability
targets
–
Received updates from external speakers on
strategically significant topics including geopolitics
and Artificial Intelligence
People and Culture
–
Discussed Board succession planning and
approved the appointment of a new Chief
Executive Officer and Non-executive Director.
See pages 83 to 85 for more information.
–
Approved a revised Directors’ Remuneration
Policy following consultation with shareholders,
who will be asked to approve the Policy at the
2024 AGM. See page 97 for more information.
People, Investors
–
Discussed senior management succession
planning, including the talent pipeline across the
Group, and endorsed the appointment of two new
Executive Committee members
–
Received updates from the Non-executive Directors
on their workforce engagement activities. The entire
Board visited the John Crane facility in Slough,
where they met with local employees
–
Received regular health and safety reports and
statistics
–
Reviewed the implementation of the Group’s People
strategy and a deep-dive on culture
–
Monitored the Group’s culture through the results of
the My Say engagement survey
–
Received updates about the Group’s pension
arrangements
–
Reviewed the work of the Smiths Group Foundation
–
Approved the Board Diversity Policy and the Modern
Slavery Statement for publication on the website
Finance
–
Agreed the Company’s capital allocation
priorities in the context of its investment strategy
and growth agenda. This included approving the
share buyback programme, the final dividend
for FY2023 and the FY2024 interim dividend, the
sale of ICU Medical Inc. shares and M&A-related
expenditure, including the acquisition of HCP
–
Approved the FY2024 financial budget
–
Approved the Group’s financial results
announcements and the FY2023 Annual Report
Investors
–
Considered individual business performance
through deep-dives as part of the annual Board and
Committee meeting cycle
–
Approved the Tax Policy
Governance and Oversight
Approved the Group’s principal risks
People, Customers, Suppliers, Communities,
Governments & Regulators, Investors
–
Approved and confirmed the conflicts in the
Conflicts of Interests register and changes to the
Board’s governance framework. More information
can be found on pages 84 and 85
–
Received updates on the Group’s principal risks,
including deep-dives at the Audit & Risk Committee.
More information can be found on page 92
–
Continued oversight of the internal control framework
to ensure an effective control environment
–
Approved and provided oversight of the Ethics &
Compliance annual work programme, including
regular updates on the Group’s Speak Out
whistleblowing hotline
–
Undertook an internal Board review on the
effectiveness of the Board and its Committees.
See page 82 for more information
–
Considered investor feedback following the
Group’s financial results announcements, investor
roadshows and John Crane investor deep-dive
Key decisions
These decisions are
considered key to the
Group
A summary of the Board’s activity and key decisions taken in FY2024 is
set out below. The stakeholder groups considered as part of the decision-
making process are listed under each key decision.
77
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Stakeholder engagement
Understanding the needs and priorities
of our key stakeholders and building
strong and positive relationships is critical
to our success. Stakeholder engagement
takes place across the Group, by
management teams within our businesses
and by the Board.
In a business as diversified as Smiths, engagement with
most stakeholder groups is handled locally by
management, or by specialist Group teams. The Board
engages directly where it can add value, or if there are
issues which warrant its involvement. This is
particularly true of engagement with customers and
suppliers (the majority of which are unique to a specific
business), but it also applies to governments,
regulators and our local communities. The Board
maintains oversight of our engagement with
stakeholders to ensure positive relationships that
support the Group’s operations.
The outcomes of stakeholder engagement, including
concerns raised, are reported to the Board and its
Committees on a regular basis through our usual
processes that support informed decision-making. In
FY2024 we have matured our approach to considering
stakeholder views. Discussion and decision-making by
the Board takes the views of key stakeholders into
account in order to balance their needs and effectively
build the sustainable, long-term success of the Group.
Engaging with our stakeholders
Our people
Our people are vital to the success of Smiths. We aim to
attract and retain the very best by creating an
environment based on respect, personal growth,
recognition and development of talent, and a sense of
belonging and purpose. Our culture is a powerful
asset and empowers and enables our people to deliver
our purpose. It is supported by our Values and our
Leadership Behaviours which influence every decision,
guide how we behave, and help make Smiths a place
where people are happy and proud to work.
Our commitment to our people starts with keeping
everyone safe and healthy. Looking after our colleagues
in the workplace is an essential foundation and our
number one focus. The Board receives health and
safety reports at every Board meeting so they can
understand health, safety and well-being and physical
security management at Smiths.
As part of our Non-executive Director workforce
engagement programme, across the year the Directors
met with colleagues of varying seniority, allowing for
informal introductions to Board members. These
engagements included the entire Board visiting the
John Crane facility in Slough and a Non-executive
Director visiting our site in Bangalore, India. Non-
executive Directors joined Senior Leadership events for
discussions about innovation and reward, and attended
the Smiths Excellence Awards ceremony. They also
joined meetings with teams in the business and in
corporate functions. Talent Roundtables were held to
discuss top talent and identify potential Executive
Committee successors.
The Board and Remuneration & People Committee
receive regular updates and deep-dives from the Chief
People Officer on employee engagement, reward,
talent, and diversity and inclusion. They also monitor
KPI metrics relating to those areas. Engagement can
be measured by our annual My Say engagement survey,
which had a high response rate of 85% this year. It was
encouraging to see that all of our businesses tracked
improvement in engagement. Our My Say results can
be found on page 13. We value all aspects of diversity
and we are targeting improved gender balance,
particularly at senior management level. To support
this, Karin Hoeing hosted a company-wide webinar
about the importance of our Values alongside the Group
General Counsel. Initiatives such as these are
important as we continue to foster a more inclusive
environment.
Engaging and communicating on ethical matters is also
vitally important, as is colleagues having trust in our
procedures. The Audit & Risk Committee is provided
with updates on ‘Speak Out’, our confidential reporting
hotline, and other reports and statistics relating to the
Group’s ethical policies and performance. This ensures
integrity remains on the agenda as a key driver of
Smiths culture. Employees are encouraged to speak up
so intervention can be made as necessary.
Our customers
Meeting customer needs and exceeding their
expectations with products, quality and service, and
the way we conduct business and pay attention to the
things that matter to them, is a fundamental part of
our operating model and our Values. Strong and
enduring customer relationships will sustain Smiths
into the future. Management teams engage with
customers through formal feedback activities such as
surveys, quarterly business reviews, aftermarket
service team reviews, and senior team meetings with
key customers. They also integrate informal feedback
from conversations had with customers by our
operational and field-based teams. Customers and
market challenges are considered as part of monthly
business performance updates to the Executive
Committee with a deep-dive every quarter.
Board level deep-dives on the performance and
strategy of our four businesses are held on a rotational
basis. These updates include customer data and
commentary. In addition, the Board monitors
Read more
Sustainability at Smiths
Pages 32 to 39
78
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
performance indicators relating to customer
satisfaction such as On-Time-In-Full (OTIF) and
Cost of Poor Quality (COPQ) and any necessary
remedial action.
The ISE Committee reviews the progress of strategic
projects as well as new products introduced to market.
On a rotational basis our four businesses provide
deep-dives on innovation and new product
development. For more information see the ISE report
on pages 94 and 95. During the year the Board also
reviewed key market and sector-specific
macroeconomic indicators to understand the impact of
the macroeconomic environment on our customers.
During FY2025 we plan to provide enhanced customer
updates to the Board.
Our suppliers
Developing mutually beneficial relationships with our
suppliers and building resilience, quality, efficiency and
the ability to effect change across our supply chain is a
fundamental contributor to our customer offer and the
long-term sustainability of Smiths. We operate a total
value supply chain approach that considers all aspects
of a supplier’s contribution to generate and capture
value. This includes ethical and environmental matters,
including GHG reduction and Science-Based Targets,
treatment of personnel, and alignment with our Values,
continuous improvement and risk.
Management teams meet regularly with suppliers to
review performance, discuss new business
opportunities, set goals and work on improvement
areas. For our higher value and/or more complex
products, management engages with our suppliers at
the highest level to partner on R&D, new product
introduction, quality and continuous improvement
projects. Updates on suppliers and supply chain are
included in business performance updates to the
Executive Committee.
In line with our Supplier Code of Conduct, our suppliers
are expected to meet our anti-bribery and corruption
and labour rights standards and to comply with our
standards on quality, health and safety, and the
environment. In FY2024 we introduced the EcoVadis
supplier management platform which will help us
manage supplier relationships to explicitly support our
ESG commitments and reporting.
Our communities
We aim to contribute positively to our communities and
society in general. Smiths products and services
support critical global industries where we are creating
social and environmental value by making the world
safer and improving environmental performance. Our
operations around the world play a beneficial role in
local economies through job creation and skills
development; procurement and generating tax
revenues; and operating safely, environmentally
responsibly and ethically. Healthy and prosperous
communities and supportive relationships inspire and
promote a sense of pride and ownership in our people.
Our teams across the world engage directly with their
local communities through fundraising, charitable
giving and education initiatives. Science, technology,
engineering and maths (STEM) education initiatives are
particularly important to management and to our
colleagues as a way to share their passion for
engineering and encourage young people to consider
careers in the sector.
Engaging with our communities is overseen by the
ISE Committee which is provided with updates on the
Smiths Group Foundation, our charitable giving
foundation with a committed initial fund of £10m.
Grants are available to charitable organisations
nominated by our colleagues which are in line with
our purpose.
The Board is provided with updates on the elements of
the Group’s operations which impact the wider
community, including the Group’s Tax Strategy. This
describes our approach to the responsible
management of tax affairs to enhance long-term
shareholder value while contributing to public
expenditure and the welfare of our local communities.
Governments and regulators
Governments and regulators are vital to our business
as they are policy setters and influencers in the
markets where we operate. In the normal course of
business, we build relationships with governments,
policymakers and regulators across the world. We do
this at both Group and at business level so that we are
able to operate effectively and to ensure our interests,
and those of the industries we serve, are represented in
decision-making.
Our Government Relations team based in the UK, US,
Europe and Asia guides and supports our relationships
with key regulators, local policymakers, budget holders
and industry groups. It also leads our outreach and
relationship programme with government bodies and
regulators, with the aim of promoting a deeper
understanding of the Smiths culture and products. The
team enables greater access to funding both at regional
and national levels, through engagement with key
agencies ahead of and during funding programmes.
Updates on regulatory processes for approval of new
products are provided during business performance
reviews at the Executive Committee. The Board is
updated by the Chief Executive Officer or during
business deep-dives.
Our investors
We are committed to openness and transparency with
all capital providers and to the effective management of
risk. We report routinely to shareholders through our
formal results activities and undertake regular
meetings and one-off events such as capital markets
days and investor conferences. Third-party analyst and
broker briefings also form part of our communications
schedule. Shareholders are directly consulted by the
Board on matters such as our Directors’ Remuneration
Policy and views are sought on key corporate activity. In
addition, shareholders are invited to our AGM to submit
questions to the Board in person or in advance of the
meeting.
During the year, the Chairman met with key
shareholders following his appointment and the
appointment of Roland Carter as Chief Executive
Officer. The Chief Executive Officer and the Chief
Financial Officer host results presentations and Q&A
sessions for current and prospective investors. They
carry out regular and proactive shareholder
engagement, and attended investor conferences
throughout the year.
79
Smiths Group plc Annual Report FY2024
Stakeholder engagement
continued
Overview
Strategic report
Governance
Financial statements
Read more
Our people and culture
Page 9
Read more
Building our culture
Page 13
Read more
Sustainability at Smiths
Pages 32 to 39
Read more
ESG metrics, targets
and performance
Pages 62 to 67
Read more
Remuneration & People
Committee report
Pages 96 to 117
How our Directors address the matters set out in Section 172
Matters considered by Directors in FY2024
The likely consequences
of our decisions in the
long term
The Board recognises the need to take long-term, sustainable decisions for
the Company whilst understanding the impacts these decisions could have
on our stakeholder groups. At times, there will be conflicting interests
between stakeholder groups and the Board will consider the impacts on all
groups and make decisions as fairly as possible. To support this decision-
making, the Board is provided with detailed reports from the business to
ensure all relevant factors are taken into account.
The Board particularly seeks to support the Group in delivering its strategic
objectives whilst maximising value for shareholders and minimising any
negative impacts on its stakeholder groups.
–
Sustainable growth
–
Shareholder returns
–
Budget planning
–
Capital allocation decisions
–
Delivering against our strategy
–
M&A activity
–
Impact on our stakeholders and the environment
Considering the interests
of our people
Our people help us drive performance and achieve our strategy. Smiths
Group’s key priorities include to attract and retain the very best talent and to
provide a safe and positive working environment to get the best out of our
workforce.
–
Health, safety and well-being
–
Purpose and culture
–
Ethical behaviour
–
Reward and recognition
–
Employee retention and engagement
–
Talent pipeline and development
–
Diversity, equity and inclusion
–
Smiths Group Foundation
Fostering business
relationships with
suppliers, customers
and others
We aim to apply best practices, develop skills and capabilities, and deliver
continuous improvement in execution to enhance the overall experience of
our customers. Meeting customer needs and exceeding their expectations
with products, quality and service, and the way we conduct business, is a
fundamental part of our operating model and our Values.
Developing mutually beneficial relationships with our suppliers and building
resilience, quality and efficiency across our supply chain is a fundamental
contributor to our customer offer and the long-term sustainability of Smiths.
–
Product innovation, lead times, quality and aftermarket service
–
ESG performance of products to help customers meet their own ESG
goals
–
Long-term strategic relationships
–
Mutual confidence and respect
–
Ethical and safety standards of third parties
–
Economic growth and prosperity
Section 172 statement
During the year ended 31 July 2024, the Board has acted in accordance with Section 172(1) (a) to (f) of the Companies Act 2006 (the ‘Act’), with each Director acting in the way
they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole. In doing so, the Directors had regard to the
interests of other stakeholders, whilst maintaining and overseeing high standards of business conduct. Our approach to key stakeholders and the related matters considered
by Directors during the year are outlined in this section. Further related information can be found in the Board activity, Stakeholder engagement and Principal risks and
uncertainties sections on pages 77 to 79 and 42 to 48.
80
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Read more
Our people and culture
Page 9
Read more
Building our culture
Page 13
Read more
Sustainability at Smiths
Pages 32 to 39
Read more
ESG metrics, targets
and performance
Pages 62 to 67
Read more
Remuneration & People
Committee report
Pages 96 to 117
The impact of our
operations on the
community and the
environment
We aim to improve our world by contributing positively to our communities
and society in general.
Smiths products and services support critical global industries where we
are pioneering progress in safety, efficiency and environmental
performance.
–
Safe and effective operations
–
Green technology, environmental performance, respecting natural
resources
–
Fair employment, skills development and prosperity
–
Ethical behaviour
–
Charitable donations
–
Environmental, and health and safety risks
Maintaining our
reputation for high
standards of business
conduct
Smiths has a mature and proactive governance framework which the Board
follows when making decisions. Exacting standards, robust processes and
our commitment to transparency safeguard the Group’s market positions
and reputation and mean that stakeholders can have confidence and trust in
Smiths. We have global policies and processes which allow all operations
within Smiths to work in an appropriate manner.
–
Complying with laws and regulations
–
Producing safe and high-quality products
–
Robustness of internal controls
–
Emerging regulatory environments
Acting fairly between our
shareholders
Smiths seeks to act fairly between all shareholders. Smiths provides regular
updates on Company performance which allows shareholders to be kept
informed of performance against strategy and make informed investment
decisions. Our AGM is the annual forum for all shareholders to liaise with the
Board.
–
Impact of share buybacks on shareholders
–
Format of the AGM
–
Shareholder meeting opportunities for new Chairman and Chief
Executive Officer
–
Remuneration outcomes
81
Smiths Group plc Annual Report FY2024
Section 172 statement
continued
Overview
Strategic report
Governance
Financial statements
Board review findings and actions
FY2023 review findings
Progress in FY2024
FY2024 review findings
Strategic decision-making
–
Focus on developing a long-term growth
strategy, with specific attention to the
approach to inorganic growth and
establishing risk appetite
–
The Group’s Strategy was reviewed in May and again at the July Board
meeting
–
Updates on potential inorganic growth opportunities are provided at
each Board meeting
–
The Group’s strategy should continue to be an immediate
focus area, including inorganic growth plans
Succession
–
Align succession plans to the skills required
to deliver on the organisation’s strategic
objectives
–
Continued focus on the executive talent
pipeline
–
Succession, with a focus on composition, skills and experience was a
regular item on the Nomination & Governance Committee agenda
–
The Nomination & Governance Committee increased time spent
considering executive talent. In addition, certain senior leaders have
been allocated Board-level mentors
–
Strength of succession planning and talent development was
demonstrated through the internal Chief Executive Officer and other
Executive Committee appointments
–
Longer-term non-executive and executive succession
planning and executive talent development should
continue to be a focus in FY2025
Stakeholder engagement/external insight
–
Increase focus on external stakeholders,
including customers and suppliers
–
Business performance updates now include enhanced stakeholder
content
–
The Board undertook a deep-dive on culture in January and people
and culture were considered as part of the May Board strategy
sessions
–
The Board received updates from external speakers on strategically
significant topics including geopolitics and Artificial Intelligence
–
Opportunity to enhance external insight into stakeholders,
notably customers and suppliers and the competitive
landscape
–
Additional Board site visits and external speakers to be
considered
The performance of the Board, its
Committees and individual Directors
is reviewed annually. In line with the Code,
the review should be externally facilitated
every three years.
Last year the Board confirmed its intention that the
FY2024 review would be externally facilitated. As
Independent Audit had supported the Board review
process for six years, including the last externally
facilitated review in FY2021, the Chairman and the
Company Secretary, overseen by the Nomination &
Governance Committee, conducted a process to
identify a new provider. Further to this process
Lintstock Ltd were appointed in early 2024. Lintstock
are independent of Smiths and do not provide the Group
with any other services. They are a Corporate
Governance Institute accredited Board reviewer.
Deferral of the externally facilitated
review
Interviews with individual Directors for the externally
facilitated review were due to commence in May 2024.
However, in March 2024 the Board agreed that the
externally facilitated interviews should be deferred until
FY2025. This was due to the appointment of a new
Chairman and Chief Executive Officer, a new Board
Committee structure, revised Committee
memberships and the appointment of new Committee
Chairs. More information about this can be found in the
Nomination & Governance Committee’s report on page
84. This deferral would allow the leadership and
governance framework changes to be embedded
before an external review was conducted, thereby
providing more value and insight to the Board.
The FY2024 review process was conducted via a series
of questionnaires for Directors and, for the first time,
Executive Committee members and the Company
Secretary, supported by Lintstock. A summary of the
FY2023 review findings and actions taken during the
year, along with a summary of the actions agreed
following the FY2024 review, are set out below. Overall,
the Board agrees that significant progress was made
across all areas.
Board review
82
Smiths Group plc Annual Report FY2024
Composition, succession and evaluation
Overview
Strategic report
Governance
Financial statements
Nomination & Governance
Committee report
There were also a number of Committee Chair changes
with Richard Howes being appointed as Chair of the
Audit & Risk Committee and Karin Hoeing being
appointed as Chair of the Remuneration & People
Committee. In addition, I assumed the role of Chairman
of the Nomination & Governance Committee.
During the year we also oversaw the continued
development of senior management succession plans
and the talent pipeline. We endorsed the appointments
of Jerome de Chassey and Kini Pathmanathan to the
Executive Committee. Jerome de Chassey leads our
Detection business and Kini Pathmanathan holds the
new role of Head of Smiths Excellence and
Sustainability. Kini’s role leads our new combined
function of Excellence and Sustainability, bringing
together these two critical priority areas which are
increasingly aligned. Both appointments were internal
promotions, demonstrating Smiths focus on internal
talent and effective succession planning.
The Committee also undertook a thorough review of
the Board’s governance framework, recommending
several changes to the Board earlier this year including
retiring the Finance Committee and changes to the
membership of each of the Board Committees. These
were approved, and we are seeing the benefits of a
more efficient Board Committee structure.
More information about our activities can be found on
the following pages. I would like to thank members of
the Committee for their hard work during my first year
as Chairman.
Steve Williams
Chairman of the Nomination & Governance
Committee
Committee membership and meetings
The members of the Committee, their biographies and
attendance at meetings during the year can be found on
pages 73 to 75. The Chief Executive Officer is normally
invited to attend Committee meetings. The Company
Secretary acts as secretary to the Committee. Other
members of senior management, including the Chief
Financial Officer and the Chief People Officer, are
invited to attend as necessary.
Committee performance review
In FY2024, the performance of the Committee was
considered as part of the internal Board review process
(described on page 82). Overall, it was confirmed that
the Committee continues to operate effectively and
that the changes introduced during the year were
providing benefits.
Chairman’s statement
I am pleased to present the
Committee’s report for FY2024, my
first as Chairman of the Committee.
The Committee’s remit includes
reviewing the structure, size and
composition of the Board and its
Committees which has been a key
focus this year. We are committed
to maintaining a diverse Board, with
a variety of skills, experience and
expertise – diversity is key to our
effectiveness, and the long-term
success of Smiths.
Succession planning and developing an effective
and impactful Board was a key priority in
FY2024. During the year we were pleased to
welcome Roland Carter to the Board as Chief
Executive Officer and Alister Cowan as a
Non-executive Director. Further details of the
appointment processes can be found on pages
84 and 85. Sir George Buckley and Bill Seeger
retired from the Board in November 2023 and
May 2024 respectively, and Paul Keel stepped
down as Chief Executive Officer in March 2024.
I would like to thank each of them for their
significant contribution to Smiths over the years.
In addition to these changes, Mark Seligman
assumed the role of Senior Independent Director
following Bill Seeger’s departure.
Steve Williams
Chairman of the
Nomination & Governance
Committee
Committee
membership
Steve Williams
Karin Hoeing
Richard Howes
Mark Seligman
Noel Tata
Top Committee
activities this year
–
Appointment of a
new Chief Executive
Officer
–
Board succession
planning, including
the appointment of a
new Non-executive
Director
–
Review of the
Board’s governance
framework, including
Committee structure
and memberships
83
Smiths Group plc Annual Report FY2024
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Governance
Financial statements
Board Committees introduced operational and
administrative efficiencies into the Board calendar.
The Committee also recommended changes to Board
Committee membership, reducing the number of
Committee appointments for all Non-executive
Directors. This enables Board members to focus on
areas of the business in line with their skills and
experience, and the reduced Committee sizes provides
enhanced opportunities to add value to discussions for
Smiths and the Directors.
The final recommendation related to reporting. The
Committee reviewed the level and materiality of
business reporting at the Board and its Committees,
and recommended changes to better help Directors
focus on material matters and to allow management to
streamline their reporting and information flows,
focusing on the key matters at hand. The quality and
level of reporting is continually monitored to ensure
Directors discharge their responsibilities effectively.
The Committee’s recommendations were approved by
the Board in January 2024 and were effective from
February 2024. The Board review demonstrated the
positive effects of these changes. In addition, in July, as
part of the Committee’s ongoing assessment of the
Board’s governance framework, the Committee
recommended to the Board the change in name of the
Science, Sustainability & Excellence Committee to the
Innovation, Sustainability & Excellence Committee. This
change better reflects that Committee’s oversight of
innovation and was approved by the Board. The
Committee also reviewed the Board skills and
experience matrix and its own Terms of Reference
during the year. Looking ahead, the Nomination &
Governance Committee remains committed to
assessing the effectiveness of the Board and will also
continue to monitor emerging governance trends,
regulatory changes, and industry developments.
Governance
The Committee is responsible for keeping the Board’s
governance framework under review, and during the
year it led a comprehensive review of the Board’s
Committee structure and memberships. The review
considered best practice governance frameworks for
UK public companies, alongside the requirements of
the UK Corporate Governance Code (the ‘Code’). In
particular, the Code recommendation that committee
memberships are periodically refreshed and that
individual directors are not overburdened.
The Committee presented the Board with several
recommendations. The first was to retire the Finance
Committee, which was initially established to support
the sale of Smiths Medical. The review identified that
Committee’s responsibilities were largely considered
business as usual or could be overseen by the Board or
other Committees. The reduction in the number of
The Chairman, with significant involvement from the
Committee, oversaw the selection and appointment
of Roland Carter as successor to Paul Keel, who left
the Group in March shortly after accepting a role at
a US public listed company.
Identify
The Board has a robust executive succession
planning process in place. This takes diversity in all
its forms into account. The senior leadership team
had been strengthened through deliberate
development activities to ensure there were internal
candidates who could be successors to Executive
Committee members, including the Chief Executive
Officer. The Board followed a rigorous process to
identify the most suitable candidate for the Chief
Executive Officer role, including a benchmarking
exercise of external candidates undertaken by
Russell Reynolds, an independent executive search
consultant which has no connection to the Company,
other than in assisting and facilitating in the search
for senior management.
Select
The Committee considered Roland Carter’s
extensive experience over three decades at Smiths,
including his leadership of two of the Group’s
businesses and as President of Smiths Asia Pacific.
The appointment of Roland, a chartered engineer
with a deep knowledge of our end markets and
industry sectors, and a strong focus on innovation
and sustainability, ensured a smooth transition and
minimal disruption to the business. The Board
approved the appointment of Roland Carter as a
highly regarded leader, who could take the business
forward in its next stage of growth.
Considerations
The succession process in the Smiths Detection
business, where Roland Carter had been President,
enabled Jerome de Chassey, previously Vice
President, Commercial at Smiths Detection, to be
appointed as President of Smiths Detection. All
subsequent vacancies created by Roland Carter’s
appointment were filled by internal candidates,
thereby demonstrating the talent and succession
planning process with Smiths.
Appoint
Roland Carter’s appointment as the Group’s Chief
Executive Officer and as a Director took effect on
26 March 2024. Roland will be subject to election
by shareholders at the 2024 AGM.
Induction
A tailored induction programme started immediately
following Roland Carter’s appointment as Chief
Executive Officer, taking into account his extensive
experience at Smiths and his existing knowledge of
the Group’s end markets and industry sectors. The
programme focused on briefings on the role and
responsibilities of being a UK listed company
director, and meetings with corporate advisers,
investors and other stakeholders. Roland also had
individual meetings with all of the Non-executive
Directors and he visited several of the Group’s sites.
Selection and appointment of a new Chief Executive Officer
84
Nomination & Governance Committee report
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Governance
Financial statements
Selection and appointment of a new
Non-executive Director
As part of the Committee’s succession planning
activities, the Chairman led the search for a Non-
executive Director to replace Bill Seeger, who stood
down from the Board in May 2024. Bill Seeger’s role as
Chair of the Remuneration & People Committee had
been transitioned to Karin Hoeing earlier in the
financial year, and Mark Seligman took on the role of
Senior Independent Director in May. The search
process was supported by Russell Reynolds, an
independent executive search consultant which has no
connection to the Company, other than in assisting and
facilitating in the search for senior management.
Russell Reynolds is a signatory to the Enhanced Code
of Conduct for Executive Search Firms.
The Board keeps the skills and experience necessary to
help support management deliver and provide
oversight of our strategy under constant review.
Accordingly, the Committee developed a role profile
which included key attributes required for the role
when Bill Seeger retired. The details of the role profile
and requirements of the role were shared with Russell
Reynolds, who identified an extensive and diverse list of
potential candidates. The shortlisted candidates were
interviewed by members of the Committee and the
Executive Directors, who considered the merit of each
individual. The Committee was unanimous in its
selection and recommended to the Board that Alister
Cowan be appointed as Non-executive Director, given
his breadth of experience and fit to the attributes in the
role profile. Prior to his appointment, the Board
considered Alister Cowan’s external roles and agreed
that there was no conflict which might impact his role
at Smiths, and that he would have sufficient time to fulfil
his responsibilities to the Company.
A comprehensive induction programme developed
specifically for Alister Cowan, considering his previous
experience, knowledge, and skills, is underway. This
involves meeting with senior leaders in the business,
the Group’s external auditor, as well as visits to the
Group’s operations. Alister Cowan also had a briefing
on the role and responsibilities of being a UK listed
Company Director.
Induction
To ensure that they are able to effectively contribute to
discussions and decision-making, all of our Directors
participate in an induction programme on joining the
Board. Based on the personal experience and
background of each Director, their individual induction
programme is tailored to provide them with the
necessary knowledge and understanding of the Group,
its markets and its material stakeholders.
Tailored induction programmes for Steve Williams,
Roland Carter and Alister Cowan were undertaken
during the year, to assist the development of their
knowledge and understanding of the Group and their
role. The induction programmes include visiting Group
operations and meeting with senior leaders across the
business and key external advisers. Information on
Roland Carter’s induction can be found in the adjacent
box. Details of the selection and appointment of Steve
Williams, and his induction programme, can be found
on page 88 of the FY2023 Annual Report.
Information and training
In order to operate effectively our Directors must
receive accurate, timely and high-quality information.
The Company Secretary and his team assist the
Chairman and Chief Executive Officer in ensuring
effective information flows and that the Directors are
provided with all relevant information to enable them to
discharge their responsibilities. All employees who
write Board and Committee papers are invited to attend
bi-annual effective paper writing workshops, focused
on producing high-quality reports and presentations for
the Board and its Committees.
Smiths Directors are given the opportunity to update
their skills and experience on a regular basis. This year
external speakers attended the Board to present on
several strategically significant topics including
geopolitics and Artificial Intelligence. On a regular basis
the Directors are provided with formal reports and
updates from the businesses, functional leaders and
external advisers, to ensure they remain aware of
business priorities and external developments. Any
individual development needs are discussed with the
Directors at the annual performance evaluation.
Independence and objectivity
The Board keeps the independence of the Non-
executive Directors under continuous review. In July
2024, the Committee reviewed the guidance contained
in the Code and assessed the performance and
independence of each of the Non-executive Directors.
Having served on the Board for more than six years,
the continued objectivity and independence of Mark
Seligman and Noel Tata were subject to rigorous
review. Dame Ann Dowling reached her six-year
anniversary in September 2024, and so was also
subject to rigorous review. The Committee concluded
that each of the Non-executive Directors contributed
effectively to the operation of the Board and that they
should all be considered as independent and objective.
Director election and re-election
Each year the Directors are subject to election or
re-election by shareholders at the AGM. The Chairman,
on behalf of the Board, has confirmed that each
Non-executive Director standing for election or re-
election at this year’s AGM continues to be an effective
member of the Board and has demonstrated the
commitment required. For more information about the
expected time commitment of our Directors, see page
76. On behalf of the Board, the Senior Independent
Director has confirmed that the Chairman continues to
be effective and supports his re-election to the Board at
the AGM. The rules regarding the appointment and
replacement of Directors are determined by our Articles
of Association and the Act. The Articles of Association
can be found on our website and can only be amended
by a special resolution of shareholders.
Conflicts of interest
All Directors must avoid situations where they have a
direct or indirect interest that conflicts, or may possibly
conflict, with the best interests of Smiths. The Board
has the authority to authorise conflicts and potential
conflicts in accordance with our Articles of Association
and the Act, and Board approval must be granted
before a Director accepts a new external appointment,
whether it amounts to a conflict or not. The Company
Secretary maintains a Register of Conflicts which is
reviewed by the Directors at least twice a year, and the
Board retains the power to vary or terminate any
authorisation previously provided.
85
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Governance
Financial statements
Gender – Board
Policy target
At least 40% of the Board to be female
Female
40%
Male
60%
Policy target: 40%
Gender – Key Board Positions
Policy target
At least one of the Chairman, Senior
Independent Director, Chief Executive
Officer or Chief Financial Officer position will
be held by a female
Female
1
Male
3
Policy target: 1
Background
Policy target
At least 50% of the Board with a majority
of their professional background outside of
the UK
Outside the UK
50%
UK
50%
Policy target: 50%
Ethnicity
Policy target
At least one Director from a historically
under-represented ethnic group
Historically under-represented ethnic group
2
Non-Historically under-represented ethnic group
8
Policy target: 1
Diversity performance against
targets
Diversity
Diversity of thought and background is essential and
will remain one of the key criteria by which candidates
are selected for the Board, and for individual
Committee membership, and the pipeline for senior
leadership positions. Members of the Board, each
Board Committee and senior management will
collectively possess diversity of gender, age, sexual
orientation, disability, and ethnic, socio-economic and
professional backgrounds. This is in addition to
cognitive and personal strengths, and a combination of
skills, experience and knowledge.
The Committee is responsible for recommending
appointments to the Board following its regular
assessment of the Board and its Committees’
composition. The Committee makes recommendations
based on the merit of individual candidates, having due
regard for the benefits of diversity in the broadest
sense, and also the need to ensure the effective
functioning of the Board at all times, especially as
membership of the Board is refreshed. The Committee
also considers the Group’s strategic objectives.
Accordingly, the Committee only partners with firms
accredited under the Enhanced Code of Conduct for
Executive Search Firms. The use of Executive search
firms helps to ensure non-UK nationals, women and
candidates from historically under-represented ethnic
groups are represented on the shortlist for Board
positions.
As at 31 July 2024, the Board met all of its own diversity
targets, as well as the targets set out in the Financial
Conduct Authority’s Listing Rule 6.6.6R(9)(a). Numerical
diversity data, in the format required by Listing Rule
6.6.6R(10), as at 31 July 2024 is outlined on page 67.
Diversity information for
the Group, including the
disclosure required by the
UK Corporate Governance
Code, can be found on
pages 66 and 67.
The Board Diversity
Policy can be found on our
website.
Read more about
Diversity, Equity and
Inclusion at Smiths in our
Sustainability at Smiths
report.
Click here
86
Nomination & Governance Committee report
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Smiths Group plc Annual Report FY2024
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Financial statements
Audit & Risk
Committee report
Chair’s statement
I am pleased to present the
Committee’s report for FY2024,
marking my first report since being
appointed Chair of the Committee
in November. In July 2024, we
welcomed Alister Cowan to the
Committee. Alister’s extensive
experience as CFO at several global
public companies is a valuable
asset to the Committee. I would like
to express my gratitude to Mark
Seligman for six years of service
as Chair and to Bill Seeger for his
eight years of contribution to the
Committee.
As part of my induction as Chair of the
Committee, I engaged in in-depth discussions
with the finance team on several matters. These
included the Group’s management controls,
capitalisation of development costs, intangible
assets, business acquisition accounting, and the
policies and procedures for various accounting
provisions and judgements. I also met with
KPMG several times.
Richard Howes
Chair of the Audit
& Risk Committee
Committee
membership
Richard Howes
Alister Cowan
Mark Seligman
Top Committee
activities this year
–
Monitored the
integrity of the
Group’s financial
reporting and the
work of the auditor
–
Monitored the
Group’s control
environment
–
Assessed the Group’s
principal risks
These interactions have deepened my understanding of
Smiths’ approach to these significant judgements and
broadened my knowledge, allowing me to challenge
management more effectively on the associated risks
and enabling me to apply additional professional
scepticism.
A key focus this year has been the ongoing monitoring
of the Group’s control environment to ensure we can
report on the effectiveness of all material controls by
FY2027, in accordance with the UK Corporate
Governance Code 2024 amendments. We received
regular updates on the internal controls enhancement
(ICE) programme, which aims to further develop
Smiths’ critical financial and reporting controls.
Deep-dives from each business demonstrated how
these controls are being embedded throughout the
Group. We are pleased with the progress and the
broader benefits the programme is delivering, which
are aligned with our commercial objectives. In addition
to reviewing the ICE programme’s progress, we
conducted a detailed risk and assurance mapping
exercise, initially focusing on our climate change
principal risk. This provided the Committee with a
greater understanding of the related material controls
and existing levels of assurance. In FY2025, we will
undertake the same exercise for all principal and other
relevant risks.
During the year, the Committee assessed the Group’s
principal risks. Given our organic revenue performance,
we agreed with management that organic growth should
no longer be a standalone risk. We believe this risk is
effectively encompassed in our commercial and
technology principal risks. For more details on our
principal risks, please refer to page 42 to 48.
Behaving ethically, legally and with integrity is a
fundamental part of our culture and monitoring these
falls within the Committee’s remit. This year, we
conducted an in-depth review of our legal and
compliance principal risk at both the September and
March Committee meetings, focusing on anti-bribery
and anti-corruption risks as well as the role of agents
and distributors (‘intermediaries’), the risks they may
pose, and the controls in place to mitigate these risks.
Additionally, the Committee examined our fraud risks in
light of the UK Economic Crime and Corporate
Transparency Bill. As fraud risks are dynamic and
continually evolving, it was beneficial to understand how
our control framework adapts to address these risks.
As a Committee, we continue to ensure that the robust
controls we apply to our financial information are also
embedded in our non-financial information, particularly
regarding GHG emissions and energy efficiency data.
This focus continues to increase given upcoming
regulations such as the Corporate Sustainability
Reporting Directive (CSRD) that will apply to some of
Smiths subsidiaries from FY2026. We work closely with
the Innovation, Sustainability & Excellence (ISE)
Committee to maintain high standards in the quality of
the data we report externally. Once again, we engaged
KPMG to provide limited assurance on our FY2024
GHG emissions inventories and energy efficiency, in
accordance with the International Standard on
Assurance Engagement (ISAE).
Finally, an important Committee responsibility is
monitoring the integrity of the Group’s financial
reporting and details of all our work can be found on
pages 88 to 90. I would like to thank my colleagues on
the Committee for their contributions during the year
and I look forward to continuing our work in FY2025.
Richard Howes
Chair of the Audit & Risk Committee
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Financial statements
Committee membership and meetings
All members of the Committee are independent
Non-executive Directors and collectively have recent
and relevant financial, accounting and sector
experience. Committee member biographies and
attendance at meetings during the year can be found on
pages 73 to 75. The Board considers that all Committee
members have recent and relevant financial experience
as described by the Code.
At the invitation of the Chair of the Committee, and in
order to maintain effective communications, the Chief
Executive Officer, Chief Financial Officer and an audit
partner of KPMG attended all meetings. Other regular
attendees included the Group Financial Controller, the
Director of Internal Audit and Risk, Senior Vice
President and General Counsel, Ethics and Compliance
and Deputy Company Secretary, business Presidents,
the Vice President Finance Excellence and other
members of senior management were also invited to
attend as appropriate. At the conclusion of each
meeting, KPMG and the Director of Internal Audit and
Risk were each given the opportunity to discuss
matters with the Committee without executive
management being present.
The heads of Internal Audit and Ethics and Compliance,
together with KPMG, have direct access to the
Committee should they wish to raise any concerns
outside formal Committee meetings.
The Committee works to a structured programme of
activities and meetings to coincide with key events
around our financial calendar and, on behalf of the
Board, to provide oversight of the Group’s risk
management and internal control process. The Chair of
the Committee reports formally to the Board on the
Committee’s activities after each meeting.
Committee performance review
Through the annual Board review process described
on page 82, the Board has again confirmed the
effectiveness of this Committee in its role of supporting
the Board in compliance with its duties.
Committee activities
Financial and Narrative Reporting
The Committee reviewed the full and interim results
announcements, the Annual Report and the Viability
and Going Concern Statement before recommending
them to the Board for approval.
The Group has internal control and risk management
arrangements in place to support the financial
reporting process which provide reasonable assurance
that the financial statements are prepared in
accordance with applicable standards. These
arrangements included seeking confirmation from the
businesses that the reported information gives a true
and fair view of the results for the period and ensuring
that record keeping allows an accurate and fair
reflection of transactions and statements. More
information on risk management and internal controls
can be found on page 92 and 93.
An important responsibility of the Committee is to
review and agree the most significant management
accounting estimates and judgements which impact the
financial statements. The key areas of judgement in the
year are set out overleaf. After receiving reports on the
significant estimates and areas of judgement and after
discussion with KPMG, the Committee agreed that the
judgements made were appropriate and correctly
reflected and presented in the Annual Report.
Fair, balanced and understandable
The Committee applied the same due diligence
approach adopted in previous years in order to assess
whether the Annual Report is fair, balanced and
understandable, one of the key Code requirements.
This included being updated on the internal verification
process carried out to support the Committee’s
assessment of the disclosures made in the Annual
Report and Sustainability Report. The Committee also
reviewed various materials on risk management and
internal controls, going concern and the assessment
of the Group’s long-term viability. In doing so it
considered the:
–
Accuracy, integrity and consistency of the messages
conveyed in the Annual Report;
–
Appropriateness of the level of detail in the narrative
reporting;
–
Correlation between judgements, estimation
of uncertainties and issues, and the associated
disclosures; and
–
Explanations of the differences between statutory
and headline reported results.
Taking the above into account, together with the views
expressed by KPMG, the Committee recommended,
and in turn the Board confirmed, that the FY2024
Annual Report, taken as a whole, is fair, balanced and
understandable and provides the necessary
information for shareholders to assess the Company’s
position, performance, business model and strategy.
88
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Governance
Financial statements
Significant financial reporting matters
The key areas of judgement for FY2024 are as follows:
Areas of focus
Actions taken
Impairment – intangible assets (including goodwill)
The Group’s consolidated balance sheet includes
£1.5bn of intangible assets. The largest elements
of this balance relate to goodwill (£1.2bn),
acquired customer relationships (£0.1bn) and
capitalised development costs (£0.1bn).
Impairment testing of goodwill is the area that
involves the greatest level of management
judgement. Smiths Detection is the Group’s only
CGU where the impairment headroom is limited
and there is a risk that a downside change in the
key assumptions could potentially cause the
current carrying value of the CGU to exceed its
recoverable value.
Strong order books at Smiths Detection have driven historic levels of revenue growth in FY2023 and FY2024, following three challenging
years. The FY2024 base case impairment model shows headroom of £254m a moderate improvement from the FY2023 headroom of £225m.
The greater impairment headroom reflects an improved impairment model cash-flow forecast following strong organic revenue growth and
contract wins experienced in FY2024, partially offset by an increase in the CGU discount rate.
The Committee reviewed the Group’s impairment testing results and challenged the assumptions used within the CGU’s impairment testing
model, including the downside scenarios used to assess the business’s sensitivity to key assumption changes. The Committee noted the
sensitivity of Smiths Detection’s CGU impairment headroom to variations in the discount rate and reviewed the methodology for calculating
the discount rate used in the impairment testing. See note 11 of the financial statements for more details.
Provisions for liabilities and charges
The Group holds significant material provisions
for John Crane, Inc. asbestos litigation and the
Titeflex Corporation CSST product claims.
The Committee considered the appropriateness of the provisions for the John Crane, Inc. asbestos litigation and the Titeflex Corporation
CSST claims. They specifically considered the treatment of potential liabilities, the adjustments to assumptions used in calculating the
provisions, the sensitivity to changes in these assumptions and the advice from the Group’s specialist external advisers.
The Committee agreed with the judgement regarding the John Crane, Inc. asbestos litigation and agreed that the ten-year period for John
Crane, Inc. asbestos litigation remained appropriate. The Committee noted that despite the large numbers of claims filed against John Crane,
Inc. and other defendants every year, the evolving nature of the US legal system, and other factors effecting the asbestos legal environment,
make it difficult to reliably estimate costs beyond 10 years. In both cases, the assumptions were deemed to fairly reflect the position. See note
23 of the financial statements for more details.
Post-retirement benefits
The Group has material pension plan assets and
liabilities and there is a high degree of estimation
uncertainty.
The Committee reviewed and agreed the methods, assumptions and benchmarks used by the actuaries to calculate the position of the UK
and US schemes at 31 July 2024. The IAS 19 valuation of post-retirement benefit obligations at 31 July 2024 showed a net accounting surplus
of £29m, being a £60m reduction during FY2024.
The Committee noted that the movement in valuation during the year was mainly due to £66m of actuarial losses, principally arising from the
defined benefit obligation experience losses after calibration to the latest 2023 triennial valuation data. The Committee agreed with the
treatment and disclosures on these matters. See note 8 of the financial statements for more details.
89
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Overview
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Governance
Financial statements
Areas of focus
Actions taken
Taxation
The Group has extensive international
operations, and in the normal course of business
the Directors make judgements and estimates in
relation to potential tax exposures.
Management assessed the assets and liabilities recognised in income tax and deferred tax, along with the treatment of losses in the UK.
Particular focus was given to the recognition of UK deferred tax assets as well as deferred tax assets relating to the John Crane, Inc. asbestos
provision and the Titeflex Corporation CSST provision. The Committee received updates on the status of ongoing tax audits in the Group’s
larger markets and the uncertainties surrounding the outcome of these audits which are expected to conclude in the next 12 to 24 months.
The Committee challenged management on the amount of provisions set aside for tax liabilities and highlighted that the final outcome could
differ significantly from the current provisions for tax risks. See note 6 of the financial statements for more details.
VAT error on chain export transactions
During FY2023 a historic VAT classification error
was identified, which had resulted in certain
European intercompany chain export
transactions being treated as VAT exempt when
they should have been initially classified as
subject to VAT with subsequent refund at the time
of export.
Throughout FY2024, the Committee monitored the Group’s broader project to review the VAT classification of transactions and the progress
made in recovering VAT paid on the European intercompany chain export transactions.
The Committee noted that during FY2024, nearly all the outstanding VAT balances related to the historic error were recovered. The
Committee challenged management on the adequacy of provisioning and noted that management remained confident that the remaining
provisions are adequate to address the Group’s overall liability.
Presentation of headline profits and organic growth
The Group presents headline profits and organic
growth measures which require adjustment to
IFRS required data. This is a material judgement
and requires a consistent application of the
Group’s accounting policy on this topic.
The Committee considered the policy, presentation and judgements relating to the Group’s performance, particularly the separation between
headline and non-headline items. This included determining which items related to the Group’s ongoing trading activities and which should be
considered as non-headline.
The Committee challenged management on the value and nature of items being recognised as non-headline and reviewed the level of
disclosure on the non-headline items recognised in FY2024. In addition, the Committee considered the judgements in connection with items
that should be reflected or adjusted in organic performance. See note 3 of the financial statements for more details.
90
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Smiths Group plc Annual Report FY2024
Overview
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Governance
Financial statements
objective within the context of applicable professional
standards and considering the performance of the audit
engagement partner.
Non-audit services
Notwithstanding developing practice being adopted by
audit firms not to provide non-audit services to audit
clients, the Committee recognises that certain
permissible non-audit services can be completed more
efficiently by, and be purchased more cost-effectively
from, the incumbent auditor due to the audit firm’s
existing knowledge of the Group and its systems. Under
the policy approved by the Committee, it has delegated
its responsibility for authorising the purchase of
non-audit services from the external auditor to the
Chair of the Committee and/or the Chief Financial
Officer within specific limits.
Details of the fees paid to KPMG for the year ended 31
July 2024 can be found in note 2 of the financial
statements. Non-audit fees as a percentage of audit
fees totalled 8% (FY2023: 6%). Non-audit fees in FY2024
principally comprised audit-related assurance services
for the interim results and the limited assurance of the
Group’s Scope 1-3 GHG emissions and energy efficiency
metrics.
The Group would not expect in the ordinary course of
business for non-audit fees to exceed 20% of the
average of the previous three years’ total Group audit
fees unless exceptional circumstances existed. The
Committee confirms that the non-audit work
performed by KPMG during the year was properly
assessed and authorised in accordance with the
Group’s policy.
Effectiveness of the external audit
The Committee continually assesses the effectiveness
of the external auditor during the year, including its
independence, objectivity, appropriate mindset and
professional scepticism. The Committee considered:
–
Robustness of audit processes, including the
conclusion of the FY2023 audit process, the audit
review of FY2024 interim results, early-stage
delivery of the FY2024 audit, the review of audit
plans and scope deliverables;
External audit
The Committee places great importance on the quality,
effectiveness and independence of the external audit
process. KPMG was appointed as the Company’s
external auditor at the 2019 AGM. Michael Maloney was
Smiths first lead KPMG audit engagement partner until
he retired following the FY2022 audit. Mike Barradell
was appointed as lead engagement audit partner from
the FY2023 audit. Mike Barradell’s tenure will be
limited to five years in line with audit standards and due
to KPMG partner rotation policies. To comply with the
Statutory Audit Services Order, which requires us to put
our statutory audit services to tender at a minimum of
every ten years, the Committee has agreed to conduct a
tender for the external auditor to coincide with the
change in audit partner in 2027. The ten-year limit
would be to conduct a tender by 2029.
The Committee confirms that the Company has
complied with the provisions of the Statutory Audit
Services Order 2014 relating to the UK audit market for
large companies throughout the year under review and
as at the date of this report.
Scope of the external audit plan and fee proposal
The Committee reviewed and approved KPMG’s
proposed audit plan and fee for the FY2024 audit. The
Committee continued to monitor KPMG’s execution of
the audit plan during the year.
Independence and objectivity
The Committee is responsible for the implementation
and monitoring of the Group’s policies on external audit,
which are designed to maintain the objectivity and
safeguard the independence of the external auditor.
These policies are reviewed annually. They cover the
engagement of the external auditor for non-audit
services and the appointment by the Group of former
employees of the external auditor.
In addition to monitoring compliance with Group
policies, the Committee’s review of KPMG’s
independence included examining written confirmation
from KPMG that they remained independent and
–
Audit quality, including quality controls and the
robustness and perceptiveness of KPMG in handling
of key accounting and audit judgements;
–
Audit partners and team, including skills, character
and knowledge;
–
Independence and objectivity;
–
Formal and statutory reporting including the
content, insight and value of KPMG’s reports,
management’s responses to any audit findings and
discussions with management and with the external
auditor;
–
Feedback from previous effectiveness reviews, both
from the Committee and management, ensuring
these had been adequately addressed;
–
Whether KPMG devoted sufficient time and
resources to understand and assess the business,
its key risks, and controls.
In 2023, the FRC’s Audit Quality Review team (‘AQR’)
reviewed KPMG’s audit of Smiths Group plc for FY2022.
The FRC routinely monitors the quality of audit work at
certain UK audit firms by inspecting sample audits and
related procedures. The AQR identified areas for
improvement related to the challenge of the goodwill
impairment model forecast. The Committee and KPMG
discussed the review findings and agreed on actions,
which KPMG implemented during the FY2023 audit. At
the November 2023 Audit & Risk Committee meeting,
the Committee concluded that these findings had been
appropriately addressed.
After considering the factors above and its general
interaction with KPMG throughout the period, the
Committee was satisfied that the external audit was
effective. The Committee therefore agreed that it was
appropriate to recommend to the Board that the
reappointment of KPMG as the Company’s auditor for a
further year be proposed to shareholders at the 2024
AGM. A further review of the FY2024 audit will be
conducted ahead of the FY2025 interim results.
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Strategic report
Governance
Financial statements
cyber security risk deep-dives covered the Group’s
cyber security framework, employee communication
and training programmes to enhance cyber awareness,
and planned investments to improve resilience.
The Committee also relies on other inputs to evaluate
the effectiveness of the risk management and internal
controls system and details of what was covered can be
found on page 41.
Consideration of the business risk registers alongside
the principal risk deep-dives and other thematic risk
areas enables the Committee and full Board to
understand the culture, risks and opportunities, and
assurance processes throughout the business and the
potential impact on the Group. No significant failings or
weaknesses were identified.
The Committee received updates on the Internal
Controls Enhancement (ICE) programme which
focuses on projects aimed at improving and
standardising finance activities across the Group, as
well as ongoing efforts to enhance the financial control
framework. This year’s activities continue to position
Smiths strongly for the upcoming Code changes related
to internal controls over financial reporting.
Principal risks update
The Committee carried out a robust assessment of
the Group’s emerging and principal risks, including
those that would threaten its business model, future
performance, solvency and liquidity. We removed
organic growth as a standalone principal risk and this is
now embedded within our commercial and technology
risks. We also reordered our risks based on the
residual impact and likelihood of the risk occurring.
Cyber security and economy and geopolitics risks
remain elevated. The cyber threat landscape is
constantly changing as new threats emerge and
existing threats evolve and we continue to monitor
geopolitical risk due to increasing international tensions
and the rise of nationalism and populism. Other risks
remain relatively stable.
A description of the principal risks facing the Group and
how these were reviewed to assess the Group’s viability
can be found on pages 42 to 48.
Risk management and internal control
The Board is responsible for ensuring that sound risk
management and internal control systems are in place.
The Executive Committee is responsible for designing
the risk management and internal control systems and
ensuring they are effectively deployed throughout the
Group. The risk management and internal control
processes identify, assess, manage and monitor risks
that have the potential to effect the achievement of our
strategy. The Executive Committee and risk owners
review our principal risks throughout the year. They
assess the effectiveness of existing controls and the
resulting residual risks and identify any additional
necessary actions. We have sound risk management
and internal control systems in place. However, they
can provide only reasonable, not absolute, assurance
against material loss to the Group or material
misstatement in the financial statements. More detail
can be found on pages 40 to 41.
Effectiveness of the Group’s risk management and
internal controls
In FY2024, the Committee, on behalf of the Board and
with the assistance of the Internal Audit function,
monitored, reviewed and assessed the effectiveness of
the Group’s risk management and internal control
systems in the context of the Group’s strategy, business
model and risk appetite.
Throughout the year, the Committee receives risk
deep-dive reports from the businesses and principal
risk owners. These reports are presented on a
rotational basis, allowing the Committee to cover all
principal risks over time. The deep-dives help the
Committee assess the effectiveness of risk
management and internal control systems. This year,
the businesses reviewed risks relevant to their
operations, including major programme execution
(commercial), product quality, margin accretion and
inventory management, future market trends, and
single-source raw materials. Updates were also
provided on cyber security, legal and compliance risks
as well as on Middle East risks and scenarios. The
Internal Audit
Internal Audit is independent of the business and so has
no responsibility for operational business management.
This ensures the integrity and objectivity of its annual
Audit Plan, which is approved by the Committee. The
authority of the Internal Audit function is derived from
the Committee. The Director of Internal Audit and Risk
is accountable to the Board through the Committee
Chair, although administratively he reports to the Chief
Financial Officer.
In order to carry out the responsibilities, as set out in a
charter approved by the Committee, the Internal Audit
function has:
–
full and unrestricted access to all records, property
and personnel;
–
independent access to the Committee Chair and
members of the Committee;
–
the right to request meetings with the Committee;
and
–
the authority and obligation to report significant
findings or other concerns to the Committee.
During the period, the Committee received progress
reports on the execution of the FY2024 Internal Audit
Plan and discussed any high-priority control
enhancement opportunities and action plans to address
these. The Committee also approved the FY2025
Internal Audit Plan, including the proposed audit scope,
approach, coverage and budget including the allocation
of resources.
The Committee monitors the performance of the
Internal Audit function through the Director of Internal
Audit and Risk’s participation in Committee meetings,
reviewing work presented throughout the year, and
assessing agreed KPIs reported at each meeting.
This year, the Committee conducted an Internal Audit
effectiveness review led by the Deputy Company
Secretary. The review concluded that Internal
Audit’s performance remains strong. Identified
enhancement opportunities involve further alignment
with strategy and a greater focus on higher risk
areas, which will be addressed in the Internal Audit
FY2025 Plan.
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Financial statements
Assessment of internal control and risk
management arrangements
The Committee was satisfied that the Group’s
processes governing financial reporting and controls,
its culture, ethical standards and its relationships with
stakeholders continued to be effective.
The Committee was also satisfied with the
appropriateness and adequacy of the Group’s risk
management arrangements, internal control
framework and three lines of defence model.
Ethics and compliance
During the year, the Committee reviewed the Ethics and
Compliance annual work programme and provided
oversight of investigations into allegations of non-
compliance with the Code of Business Ethics. This
included matters raised through the Group’s ethics
reporting procedures including the Group’s Speak Out
hotline which allows for anonymous reporting. Smiths
Speak Out hotline comprises a number of different
channels (including call centres operated by an
independent third party across the Group’s global
operations) for employees and other stakeholders to
report concerns. The Committee was also updated on
our legal and compliance principal risk, focusing on the
role of agents and distributors (‘intermediaries’), the
risks they pose, and the controls in place to mitigate
these risks. It also examined fraud risks in light of the
UK Economic Crime and Corporate Transparency Bill
and reviewed Smiths Modern Slavery and Human
Trafficking Statement.
During the year there were no matters raised that
required the Committee’s direct intervention or
investigations which resulted in a material loss to the
Group or a detrimental impact on our customers or
suppliers. The Committee receives regular reports on
the total number and nature of cases by region, the
ratio of anonymous vs attributed ethics reports, and the
ratio of substantiated vs unsubstantiated cases. The
anonymous vs attributed metric is used to monitor trust
in the Group’s reporting system. Accordingly, the
Committee considered that the Group’s processes and
arrangements for employees to report concerns,
including anonymously and without retaliation, about
any improprieties and the arrangements for any
subsequent investigation as necessary, were both
appropriate and effective.
More information on the Group’s approach to behaving
ethically and legally can be found on page 37 and in the
Sustainability at Smiths report found on our website.
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Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Innovation, Sustainability &
Excellence Committee report
Chair’s statement
I am pleased to present the progress
we have made on Innovation,
Sustainability and Excellence (ISE)
over the past year. These are all
critical elements for the successful
execution of our strategy.
In December 2023, we were delighted that the
Science Based Targets initiative (SBTi) validated
our net zero GHG emission targets. We
submitted our proposed Science-Based Targets
(SBTs) and related plans for Scopes 1, 2 and 3
emissions to the SBTi in May 2023, and this
validation marked a key milestone for our net
zero transition plan. Our targets are aligned with
the UN’s critical global climate objectives and
the Paris Agreement’s ambition to limit global
warming to 1.5°C. More details of our net zero
transition plan can be found on page 35.
Dame Ann Dowling
Chair of the Innovation,
Sustainability & Excellence
Committee
Committee
membership
Dame Ann Dowling
Pam Cheng
Karin Hoeing
Noel Tata
Top committee
activities this year
–
Received updates
from each of the
businesses on new
product development
and innovation
–
Continued to monitor
the implementation
of the Smiths
Excellence System
(SES)
–
Recommended
environmental
performance targets
for FY2025 to the
Remuneration &
People Committee
To ensure the business continues to prioritise
sustainability and the cultural change required to
achieve our net zero transition plan, we recommended
further environmental performance targets for FY2025
to the Remuneration & People Committee.
In March we were updated on the work of the Smiths
Foundation, which awarded its first grants totalling £1m
to 12 charities across nine countries in its first
nomination window. These grants support various
community initiatives from providing STEM support to
students, to implementing smarter engineering
solutions for safe water sanitation. We were pleased to
learn that over 5,000 individuals will directly benefit
from the grants.
During the year, we reviewed the Committee’s remit,
and adopted new Terms of Reference. The new Terms
have bought greater clarity to the Committee’s
responsibilities and its interactions with the other
Board Committees. The Board also approved the
change of Committee name, replacing ‘Science’ with
‘Innovation’ to better reflect our remit and activities.
At each of our four Committee meetings, one of the
businesses shared updates on their innovation strategy.
What continues to excite me is how innovation is helping
us and our customers achieve our ESG commitments,
and advance our sustainability journey. This remains a
significant commercial opportunity for Smiths. Each
business also provided a deep-dive on how SES is being
embedded, highlighting culture change across the
Group, although there is still more work to do here.
Operational excellence is crucial for the long-term
success of Smiths, and these deep-dives provide
valuable insight into key initiatives happening across
the businesses.
I would like to thank colleagues across Smiths who
are driving innovation, sustainability and continuous
improvement. I would also like to thank my colleagues
on the Committee for their contributions during the
year and I look forward to continuing our work
in FY2025.
Dame Ann Dowling
Chair of the Innovation, Sustainability & Excellence
Committee
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Committee membership and meetings
The members of the Committee, their biographies and
attendance at meetings during the year can be found on
pages 73 to 75. The Chief Executive Officer and the
Head of Smiths Excellence & Sustainability, and prior to
her appointment the Chief Sustainability Officer and
Group SES Director, attended every meeting. Other
members of senior management are invited to attend
as necessary. The Deputy Company Secretary acts as
secretary to the Committee.
Committee performance review
Through the annual Board review process, described
on page 82, the Board confirmed the effectiveness of
the Committee in its role supporting the Board in
compliance with its remit.
Committee activities
The main topics considered at Committee meetings
were:
Innovation
Each of the businesses updated the Committee on their
innovation strategy. This included progress against
their FY2024 initiatives, new product development,
processes and pipelines, plans for FY2025,
opportunities for improvement, and sustainability
across the product lifecycle. We also learnt about
emerging megatrends, and the work being done to
understand the market opportunities they create.
This information supported Committee discussions
on how innovation, technology, sustainability and
understanding customer needs and aspirations,
are influencing our next generation of products.
Sustainability
The Committee continued to monitor progress against
Smiths sustainability metrics including GHG emissions
reduction, renewable electricity, energy efficiency,
water use and waste disposal as well as monitoring
how the business is driving environmental change in
their operations. We received updates on global
initiatives and regulations, including the Taskforce on
Nature-related Financial Disclosures (TNFD),
Corporate Sustainability Reporting Directive (CSRD),
Taskforce on Climate-related Financial Disclosures
(TCFD) and the EU Taxonomy. We were pleased to
endorse Smiths commitment to proactively understand
and address the biodiversity-related impact of our
products, our operations and our supply chains and we
look forward to an update in FY2025. More information
can be found in our Sustainability at Smiths Report on
our website.
Excellence
The Committee heard about the progress to broaden
and deepen SES and Lean deployment across the
business in FY2024, receiving regular updates about
the financial benefits of SES. Each business provided
updates on their own SES progress, key projects and
priorities for FY2025. Subject matter experts were
invited to present on successful SES projects
completed during the year. The Committee also
received updates on talent development, as the first
cohort of Master Black Belt trained employees
re-entered the business during the year.
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Smiths Group plc Annual Report FY2024
Innovation, Sustainability & Excellence Committee report
continued
Overview
Strategic report
Governance
Financial statements
Remuneration & People
Committee report
In addition, the Committee also considered the Group
initiatives supporting progress against diversity targets
and an extensive programme of work that sought to
align certain employee benefit arrangements across
the Group.
Business context and leadership
changes in FY2024
It is nearly three years since Smiths set out its growth
strategy in 2021, and the recent results demonstrate
that we continue to make solid progress, having
delivered three consecutive years of organic revenue
growth. With a record order book and continued
strength in end markets such as energy, security and
aerospace – and improving conditions in industrial
segments experiencing more recent challenges – we
are confident in our outlook for continued growth and
margin expansion.
In March 2024, we announced that Paul Keel had
resigned from his role as CEO to return to the US, to
take on a new role as chief executive of a US public
company. He was succeeded by Roland Carter who has
been with Smiths for more than three decades and
previously served as President of Smiths Detection.
The appointment demonstrates the robust succession
planning process that we have in place.
At this critical point in our strategy, the Board’s priority
is retaining and incentivising our diverse, global
executive team, as we continue the growth journey.
Our executive talent is sourced from a range of
industrial, scientific and technology backgrounds
across the world, reflecting our global footprint. Over
50% of Smiths Group’s revenue is sourced from the
Americas, with the remainder split across Asia Pacific,
Europe and the rest of the world.
Key decisions during FY2024
CEO – Roland Carter
As disclosed in March, Roland was appointed on a
salary of £940,000, slightly below that of his
predecessor Paul Keel. His other package elements
were set in line with the existing Remuneration Policy,
including a pension cash allowance of 12% in line with
the UK workforce; maximum Annual Incentive Plan
(AIP) opportunity of 200% of salary (with one third of
any earned bonus deferred into shares for three years);
and an LTIP award with an annual grant of a fixed
number of shares. An additional LTIP award of 40,900
shares was granted in April 2024, to reflect promotion
to the CEO role pro-rated for time in the year.
CFO – Clare Scherrer
Clare has proven to be an outstanding member of the
Board and therefore a priority of the Board is to retain
Clare, ensuring leadership continuity at this pivotal
time. To recognise the extensive range of her role
including an expansion of M&A activity, her exceptional
performance to date and industry experience we
determined to provide enhanced retention and incentive
arrangements at a time of executive change. Clare’s
base salary was increased by 12% with effect from
1 April 2024, from £581,438 to £651,110. Her maximum
AIP opportunity was also increased from 165% to 200%
of salary, and she was granted an additional LTIP award
of 10,961 shares in April 2024, reflecting the above
changes. All adjustments were made in line within the
parameters of the existing approved Directors‘
Remuneration Policy.
As part of the review, the Committee considered Clare’s
package against globally focused FTSE peers of a
similar market capitalisation (FTSE 40-90), to ensure it
was competitively positioned within the benchmark
range in the context of her role, skills and experience.
AIP and LTIP outturns for FY2024
The Committee considered outcomes under the
FY2024 AIP and the FY2022 LTIP awards in the context
of strong organic revenue growth, continued operating
profit margin expansion and improved headline
operating cash conversion. It was considered
appropriate to award a bonus of 60.5% of maximum
opportunity for FY2024, representing an achievement
between target and maximum against the financial and
non-financial metrics. One third of the bonus earned
will be deferred into shares for the Executive Directors.
Chair’s statement
I am delighted to present the
Remuneration Report for the year
to 31 July 2024, my first since
taking up the position of Chair of
the Remuneration and People
Committee in May 2024. I would like
to thank Bill Seeger for his leadership
as Chair of the Committee for the
previous five years.
In line with the normal three-year cadence,
we have reviewed our Remuneration Policy
during FY2024 and it is being put to a binding
shareholder vote at the AGM on 13 November
2024. I look forward to your support at
that meeting.
People strategy
A key role of the Committee is to provide
oversight of the implementation of the Group’s
People strategy. As such, at each meeting, the
Committee reviews elements of the strategy to
ensure it supports the Group’s strategic
objectives and the desired culture. This included
evolving Smiths’ culture with particular focus on
performance, talent and succession processes.
The ‘internal first’ appointment and development
strategy was successfully implemented creating
a strong talent pipeline while also supporting a
positive, rewarding, and engaging culture. The
Committee discussed the results of the My Say
annual employee engagement survey, which
showed employee satisfaction above the
industry benchmark. For more information see
page 13.
Karin Hoeing
Chair of the Remuneration
& People Committee
Committee
membership
Pam Cheng
Dame Ann Dowling
Steve Williams
Top Committee
activities this year
–
Reviewed the
Remuneration
Policy, including
engagement with
key shareholders,
and made
recommendations
for 2024 onwards
–
Approved FY2025
salary increases
for the Board &
Executive Committee
aligned to the wider
workforce
–
Approved the exit
terms for Paul Keel
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Financial statements
For FY2025, the CEO and CFO and will be eligible for a
maximum AIP opportunity of 230% and 200% of salary
respectively. In the event of using additional headroom
in the Policy, we would consult with shareholders.
Retention of LTIP ‘fixed shares’ approach
Our current approach is to grant LTIP awards based
on a fixed number of shares, which applies to all LTIP
participants across the Smiths Group. This has
delivered strong alignment with the shareholder
experience over the last six years, with the value of
awards increasing and decreasing in line with Smiths
Group’s share price. We proposed to continue to
operate this framework over the life of the Policy.
Under the current Policy, an overall cap of 400% of
salary applies. This was intended to restrict the value of
fixed shares if the share price increased by more than
33% over the relevant period. We intend to adjust this
cap to 500% of salary to allow additional headroom
thereby incentivising further share price growth and
value creation. For clarity, this new cap would only be
reached if Smiths Group’s share price increased to
£24.75 – a c.41% increase compared to the share price
at the start of the performance period.
The CEO will receive an annual grant of 190,000 shares,
reflecting a modest rounding from 189,900 under the
previous Remuneration Policy (current value of c.344%
of salary based on a three-month average share price).
The CFO will receive an annual grant of 110,000 shares.
This has been set to reflect Clare’s salary and expanded
role (current value of c.288% of salary based on a
three-month average share price).
The base salaries of the Executive Directors have
been increased by 3.0% effective from 1 October 2024.
This is aligned with the salary increase budget across
all employees in the wider UK workforce. Roland and
Clare’s new annual salaries will be £968,200 and
£670,650 respectively.
Implementation for FY2025
There are some minor changes to the short-term
incentive plan metrics, weightings and ranges for
FY2025 awards. The AIP weighting for revenue will be
reduced from 40% to 30% and replaced with a strategic
business objective linked to customer service. There
are no changes to the Long-Term Incentive Plan for
FY2025. The metrics in both the short-term and
long-term incentive plans are clearly aligned to the
delivery of our strategy.
Committee meetings and performance
evaluation
I had served on the Remuneration & People Committee
for at least 12 months prior to my appointment as Chair.
Steve Williams is absent when his own remuneration as
Chairman of the Board is discussed. The members of
the Committee, their biographies and attendance at
meetings during the year can be found on pages 73 to
75. The annual evaluation of the Committee was
conducted as part of the internally facilitated process of
the Board and its Committees and the findings were
discussed with me. The Committee is viewed as
effective and rigorous in discharging its responsibilities.
Looking forward
I hope you find this report a clear explanation of the
Committee’s considerations, decisions and
remuneration outcomes for FY2024. The proposed
changes to our Remuneration Policy are designed to
ensure our remuneration offering is competitive and
aligned to the market. I would like to thank the
numerous shareholders, institutional investors and
other stakeholders who have helped inform and
improve our Remuneration Policy proposals. I trust that
we will have your support when voting at the 2024 AGM.
Karin Hoeing
Chair of the Remuneration & People Committee
The FY2022 LTIP award vested at 76.7% of maximum,
reflecting performance over a three-year period
aligned to the sustainable growth of the business
during that time. The Committee did not exercise any
discretion in respect of the outcomes.
Remuneration Policy
Over the past year, the Committee has undertaken a
comprehensive review of the existing remuneration
framework to ensure it supports the retention and
incentivisation of our global executive team and
continues to drive an ambitious growth strategy.
Smiths takes a responsible approach to pay and
has demonstrated a robust pay for performance
framework.
While benchmarking was not a driver of our decision,
the Committee considered market positioning against
our primary comparator group of globally focused
FTSE peers with a similar market capitalisation
(FTSE 40-90), to ensure the package is competitive and
supports the attraction and retention of global talent.
After consultation with major shareholders, and careful
consideration, the Committee has concluded that the
existing AIP and LTIP framework remains fit for
purpose. The ‘fixed shares’ methodology that has
been in place for the previous two iterations of our
Remuneration Policy is working well for Smiths.
Granting a fixed number of shares creates strong
and direct alignment between executives and our
shareholders. As such, we are proposing a few
relatively modest adjustments to support talent
retention and attraction over the life of the Policy, briefly
set out below and provided in detail later in the main
Remuneration Report.
Increased AIP headroom
We are proposing to increase the headroom for the
maximum AIP opportunity from 200% of salary to 250%
of salary, to ensure the Policy has flexibility to support
the attraction and retention of current and future
Executive Directors over the life of the three-year Policy
and drives incentivised performance and growth
through the successful execution of our strategy.
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Governance
Financial statements
Roland Carter:
Clare Scherrer:
£0
£500
£1,000
£1,500
£2,000
£1,656m
£1,353m
Base salary
Implementation of Remuneration Policy in FY2024
Single figure (£000)
Roland Carter
Clare Scherrer
Salary
320
600
Pension and benefits
50
104
Annual bonus
400
649
Long term incentives
886
–
Roland Carter received:
£319,833
Clare Scherrer received:
£600,011
Pension and benefits
– Pension contributions of 12% of base salary for Roland Carter and
Clare Scherrer, in line with the rate available to the wider UK workforce.
–
Benefits included healthcare, insurances, car benefit and tax return
preparation.
Annual Incentive Plan (AIP)
Total bonus payout (% of maximum):
Roland Carter:
60.5%
Clare Scherrer:
60.5%
Performance measure
Threshold
(25%
payout)
Outturn
Maximum
(full
payout)
Achievement
(% of max)
Revenue (40%)
£2,922m
£
3,085m
£3,230m
53.0%
Operating Profit (30%)
£479m
£514m
£560m
47.5%
Headline operating cash conversion (20%)
H1 (10%)
75%
89%
95%
68.5%
FY (10%)
80%
97%
100%
83.0%
Energy efficiency (10%)
-3.7%
-5.9%
1
-5.2%
100%
1. Excludes HCP
Long-Term Incentive Plan (LTIP)
Total vesting (% of maximum):
Roland Carter:
76.7%
Clare Scherrer:
N/A
Performance measure
Threshold
(25%
payout)
Outturn
Maximum
(full
payout)
Achievement
(% of max)
Organic revenue growth
(30%)
2.0%
7.5%
6.0%
100%
EPS growth after tax (20%)
4.0%
15.9%
11.0%
100%
Free cash-flow (20%)
45%
41%
55%
0%
Average ROCE (15%)
13.0%
15.8%
17.0%
78%
Reduction in GHG
emissions (15%)
5.0%
16.4%
10.0%
100%
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Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Statement of implementation of Remuneration Policy in FY2025
Performance measures and link to strategy
Element
Outcome
AIP
LTIP
Growth
Secularly attractive end markets
Revenue/revenue growth
Leading businesses
Operating profit
Customer relationships
EPS growth
People
Purpose and Values
Scorecard of strategic measures key to
Group and Divisional performance
High performance culture
Execution
Invest behind growth
ROCE
Operational excellence
Headline operating cash conversion
Free cash-flow
Energy reduction
Reduction in GHG emissions
Base salary
Roland Carter:
£968,200
(3% increase)
Clare Scherrer:
£670,650
(3% increase)
UK wider workforce increase of 3%.
Long-term incentive (LTIP)
Annual bonus (maximum opportunity)
Roland Carter:
190,000
shares
Clare Scherrer:
110,000
shares
Performance measure
Weighting
Threshold
(25%
vesting)
Maximum
(full
vesting)
Revenue growth
30%
3.5%
6.5%
EPS growth after tax
20%
6.0%
11.0%
Average free
cash-flow
20%
45.0%
55.0%
Average ROCE
15%
14.0%
17.0%
Absolute reduction
in GHG
15%
15.0%
20.0%
–
Two-year post-vesting holding period applies
Roland Carter:
230%
of base salary
Clare Scherrer:
200%
of base salary
Performance measure
Weighting
Revenue
30%
Operating profit
30%
Headline operating cash conversion
20%
Energy reduction target
10%
Strategic business measure
10%
–
33% of annual bonus deferred into shares for
three years
–
Specific targets are considered to be
commercially sensitive and will be disclosed
retrospectively
Shareholding requirements
Pension
Benefits
Executive Directors should build a
minimum shareholding equivalent
to the annual fixed number of shares
awarded under the LTIP within five
years and are required to hold
shares equivalent to their full
in-employment shareholding
guideline, or actual holding if lower,
for two years post-employment.
Roland Carter:
12%
of base salary
Benefits package consisting of
healthcare, insurance and car
benefit.
Clare Scherrer:
12%
of base salary
Benefits package consisting
of healthcare, insurances,
car benefit and tax return
preparation.
99
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Alignment with the UK Corporate Governance Code
The table below details how the Committee addresses the factors set out within Provision 40 of the Code:
Clarity
–
The Committee welcomes transparency and regular engagement with shareholders with regard to executive remuneration. During
FY2024, the Committee Chair has consulted with key shareholders on changes to the Remuneration Policy. The updated Remuneration
Policy will be put to a shareholder vote at the 2024 AGM
Simplicity
–
Participants in incentive plans receive annual communications to confirm award levels and performance measures. Supporting guidance
documents and instructional videos are available online. The Remuneration Policy for Executive Directors underpins that of the wider
workforce
Risk
–
The Committee considers the effective management of risk throughout the delivery of incentive plans, applying reasonable discretion to
override formulaic outcomes if necessary
–
The Committee considers that the structure of incentive arrangements does not encourage unnecessary risk taking
–
For Executive Directors, one third of the annual bonus payment is deferred into shares with an additional three years until vesting
–
Robust malus and clawback provisions are in place for incentive plans and are clearly communicated
Predictability
–
Our Remuneration Policy clearly outlines the maximum award levels and vesting outcomes applicable to AIP and LTIP. As stated above
under ‘Risk’, the Committee has the ability to apply discretion to formulaic outcomes and clear malus and clawback provisions exist
Proportionality
–
There is a link between strategic business objectives and performance outcome, as outlined on page 99
–
Our Policy for our incentive plans outlines threshold, target and maximum opportunity levels, with actual outcomes dependent on
performance achieved against predetermined measures
–
Through the design of the Remuneration Policy and the discretion of the Committee, poor performance is not rewarded
Alignment to
culture
–
The Smiths Group Values of passion, integrity, respect, ownership and customer focus underpin the design and operation of the incentive
programmes. The business strategy is supported by these Values which are widely communicated across the Company. The addition
of the Smiths Leadership Behaviours, of which ‘Living Smiths Values’ is one, describe the behaviours needed for the organisation to be
dynamic, inclusive and focused on delivering results that create value
100
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Salary
Roland Carter was appointed to the Board as Chief Executive Officer on 26 March
2024 with an annual base salary of £940,000. The values in the single figure table
above in respect of FY2024 reflect the remuneration paid from 26 March 2024.
Benefits
Benefits for Executive Directors include life assurance, disability insurance, private
healthcare insurance, car related benefits, tax return preparation and relocation
benefits (Paul Keel only). In FY2023 a benefit value of £274,000 was reported for Paul
Keel. This included estimated UK and US taxes settled by the Company on a grossed
up basis totalling £116,197. The actual figure was UK tax of £108,652 and US tax of
$3,765 and the total amount for FY2023 has therefore been restated to £270,000.
This is in accordance with his service contract which provides housing, car and
relocation payments on a net of tax basis. The benefit figure for FY2024 includes an
estimated UK tax payment of £48,278 calculated on the same basis.
Pension
Executives may choose either to participate in the Company’s defined contribution
pension plan or to receive a pension allowance in lieu thereof. Roland Carter, Clare
Scherrer and Paul Keel received an allowance in lieu of pension contribution
equivalent to 12% of salary. This is aligned to the rate available to the wider UK
workforce.
FY2024 annual bonus outcome
The maximum annual bonus opportunity for FY2024 was 200% of salary for Roland
Carter and Paul Keel. Roland Carter also received an annual bonus payment in
respect of his Smiths Detection service, prior to becoming CEO, of £358,395. The
maximum annual bonus opportunity for Clare Scherrer was 165% of salary for the
period 1 August 2023 to 31 March 2024 and 200% for the period from 1 April 2024 to
31 July 2024. The rationale for this change is provided in the Chair’s opening
statement. For FY2024 financial metrics made up 90% of the annual bonus, with the
final 10% based on performance against energy efficiency objectives. The table below
summarises the financial targets and the Company’s actual performance (restated
at budget exchange rates) against those for the FY2024 annual bonus.
Performance targets, actual performance and outturn
Measure
Weighting
Threshold
25% payout
Target
50% payout
Maximum
100% payout
Actual
Outturn
Revenue
40%
£2922m
£3076m
£3230m £3080m
21.2%
Operating profit
30%
£479m
£519m
£560m
£514m
14.2%
Headline operating cash
conversion
H1
10%
75%
85%
95%
89%
6.8%
FY
10%
80%
90%
100%
97%
8.3%
Total financial
90%
50.5%
Energy efficiency
10%
-3.7%
-4.5%
-5.2%
-5.9%
10.0%
Total
100%
60.5%
Consideration of wider workforce
The Committee considers all stakeholder groups when setting executive pay, including our people. The Committee is briefed on pay arrangements across the business and
receives reports on people priorities within each of the divisions. In addition, a summary of remuneration-related issues raised by employees through the employee
engagement survey is presented to the Committee. As part of a comprehensive schedule of Non-executive Director engagement with the workforce, in 2024 members of the
Board, including the Committee Chair, attended events at each of our businesses to discuss and understand our culture, people priorities, employee remuneration and
benefit arrangements across the Group. An extensive programme of employee benefit alignment has been underway across the Group, enhancing benefits whilst at the
same time optimising costs. Details of the Non-executive Director engagement programme are summarised on page 78. The overall responsibility for workforce
engagement rests with the Chair of the Committee.
Single figure of annual remuneration (audited)
Executive Directors
Salary
Benefits
Payments in lieu of
pension contribution
Total fixed
Annual bonus
Long-term incentives
Total
performance related
Total
FY2024
£000
FY2023
£000
FY2024
£000
FY2023
£000
FY2024
£000
FY2023
£000
FY2024
£000
FY2023
£000
FY2024
£000
FY2023
£000
FY2024
£000
FY2023
£000
FY2024
£000
FY2023
£000
FY2024
£000
FY2023
£000
Roland Carter
320
–
13
–
37
–
370
–
400
–
886
–
1,286
–
1,656
–
Clare Scherrer
600
554
32
31
72
66
704
651
649
640
–
–
649
640
1,353
1,291
Paul Keel
620
893
119
270
75
107
814
1,270
–
1,251
–
1,760
–
3,011
814
4,281
101
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Overall FY2024 annual bonus outturn
The following table sets out the overall FY2024 bonus outturn for Executive
Directors:
Maximum opportunity
Outturn (percentage of maximum)
Roland Carter
200%
60.5%
Clare Scherrer
165%/200%
60.5%
Paul Keel
200%
0.0%
The Committee considered the amounts carefully in the context of the Group’s
performance, individual performance and the current macroeconomic environment,
and determined that the amounts were a fair reflection of performance in the past
financial year. One third of the annual bonus will be deferred into Smiths shares for
three years.
FY2022 long-term incentive plan outcome
Roland Carter received an award under the FY2022 LTIP, subject to the following
performance conditions:
Measure
Weighting
Performance
period
Threshold
25%
Maximum
100%
Actual
Outturn
(% of
vesting)
Average organic
revenue growth
30%
1 August 2021
to 31 July 2024
2%
6%
7.5%
30.0%
Average annual Group
EPS growth after tax
20%
1 August 2021
to 31 July 2024
4%
11%
15.9%
20.0%
Average ROCE
15%
1 August 2021
to 31 July 2024
13%
17%
15.8%
11.7%
Free cash-flow
20%
1 August 2021
to 31 July 2024
45%
55%
41.0%
0.0%
Reduction in GHG
emissions
15%
1 August 2021
to 31 July 2024
5%
10%
16.4%
15.0%
Total vesting
76.7%
The Group EPS growth after-tax performance has been calculated to exclude the
impact of the share buy-back scheme in order to ensure the targets were not
materially easier to achieve than when originally set.
No discretion was exercised by the Remuneration & People Committee in respect
of the formulaic outcomes under the LTIP. The value included in the single figure
table has been calculated using an estimated share price, based on the share price
over the last quarter of the financial year of £17.18. The share price appreciation
attributable to the FY2022 LTIP for Roland Carter was 24.29% (£173,055). An
additional holding period of two years will apply to the shares vesting.
No awards were due to vest to Clare Scherrer under this award. Paul Keel forfeited
all unvested LTIP awards when he resigned on 25 March 2024.
Scheme interests awarded in FY2024 (audited)
Scheme interests awarded are outlined below.
Scheme
Form of
award
Date of
grant
Number
of shares
awarded
Award
price
Face
value
(£000)
% vesting at
threshold
performance
Performance
period end
date
Roland
Carter
LTIP Conditional
shares
1 November
2023
67,200
1,582p
1,063
25%
31 July
2026
Roland
Carter
LTIP Conditional
shares
8 April
2024
40,900
1,626p
665
25%
31 July
2026
Clare
Scherrer
LTIP Conditional
shares
1 November
2023
91,342
1,582p
1,445
25%
31 July
2026
Clare
Scherrer
LTIP Conditional
shares
8 April
2024
10,961
1,626p
178
25%
31 July
2026
Clare
Scherrer
Deferred
bonus
Conditional
shares
3 October
2023
13,303 1,603p
213
N/A
N/A
Paul Keel
LTIP Conditional
shares
1 November
2023
189,900 1,582p
3,004
25%
Lapsed
Paul Keel
Deferred
bonus
Conditional
shares
3 October
2023
26,010 1,603p
417
N/A
N/A
The performance measures for the FY2024 LTIP award are as follows:
Measure
Weighting
Threshold
(25% vesting)
Maximum
Revenue growth (3-year CAGR)
30%
3.5%
6.5%
EPS growth after tax (3-year CAGR)
20%
6.0%
11.0%
ROCE (average annual)
15%
14.0%
17.0%
Free cash-flow (average annual)
20%
45.0%
55.0%
Absolute reduction in GHG emissions
15%
15.0%
20.0%
Total
100%
Payments to past Directors (audited)
John Shipsey’s share awards under the Company’s LTIP are preserved in accordance
with the good leaver provisions of the LTIP, subject to a time pro-rating adjustment
and normal vesting dates. Mr Shipsey’s FY2022 LTIP will vest in 2024, pro-rated for
service to 31 July 2022. A total of 33,383 shares will vest at 76.7%, which is equivalent
to 25,604 shares with an estimated value of £439,877.
Payments for loss of office
There were no payments for loss of office in FY2024.
102
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Key
LTIP
The Smiths Group
Long-Term Incentive
Plan 2015.
SAYE
The Smiths Group
Sharesave Scheme.
+
The vesting dates shown
above in respect of awards
made under the LTIP are
subject to the relevant
performance test(s) being
passed.
++
The expiry dates shown
above apply in normal
circumstances.
Performance tests
- LTIP awards have the
following performance
tests – 20% subject to EPS
growth; 15% subject to
ROCE; 20% subject to free
cash-flow; 30% subject
to revenue growth; 15%
subject to reduction in
greenhouse gas emissions.
– There are no performance
criteria for the Deferred
Bonus Share awards or
SAYE.
Directors’ share options and long-term share plans (audited)
Director and Plan
Options and
awards held
on 31 July
2024
Options and
awards held
on 31 July
2023
Exercise
price
Grant
date
Vesting date+
Expiry
date++
Date vested
Number
Exercise
price
Market price
at date
of grant
Market
price at
date of
vesting
Roland Carter
LTIP
67,200
67,200
N/A
05/11/21
01/10/24
67,200
67,200
N/A
02/11/22
15/10/25
67,200
0
N/A
01/11/23
15/10/26
40,900
0
N/A
08/04/24
15/10/26
SAYE
773
773
1,163p
17/05/22
01/08/25
01/02/26
725
0
1,278p
16/05/24
01/08/27
01/02/28
Clare Scherrer
LTIP
91,342
91,342
N/A
02/11/22
15/10/25
91,342
0
N/A
01/11/23
15/10/26
10,961
0
N/A
08/04/24
15/10/26
Deferred bonus award
2,009
2,009
N/A
03/10/22
03/10/25
13,303
0
N/A
03/10/23
03/10/26
SAYE
1,346
1,346
1,337p
16/05/23
01/08/26
01/02/27
Paul Keel
LTIP
0
189,900
N/A
05/11/21
Lapsed
0
189,900
N/A
02/11/22
Lapsed
Deferred bonus award
5,378
5,378
N/A
05/11/21
04/11/24
14,941
14,941
N/A
03/10/22
03/10/25
26,010
0
N/A
03/10/23
03/10/26
SAYE
0
1,547
1,163p
17/05/22
Lapsed
Notes
– The high and low market prices of the ordinary shares during the period 1 August 2023 to 31 July 2024 were 1,786p and 1,526p respectively. The mid-market closing price on 31 July 2023 was 1,699p and on
31 July 2024 was 1,786p.
– The five-day average closing price of a Smiths Group share on the dates of the LTIP awards made to Directors in the FY2024 financial year was 1,582p (1 November 2023) and 1,626.5p (8 April 2024).
– The SAYE options over 1,346 shares granted to and held by Clare Scherrer at 31 July 2024 were granted at an exercise price below the market price of a Smiths Group share on 16 May 2023 (1,337p). Shares are
granted in May but the savings period commences in August.
– None of the options or awards listed above was subject to any payment on grant.
– No options or awards have been granted to or exercised by Directors or have lapsed during the period 1 August to 12 September 2024.
– At 31 July 2024, the trustee of the Employee Benefit Trust held 1,388,730 shares. The market value of the shares held by the trustee on 31 July 2024 was £24,802,718 and all dividends were waived in the year in
respect of the shares held by the trustee.
– Special provisions permit early exercise of options and vesting of awards in the event of retirement, redundancy or death.
103
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Share ownership requirement for Executive Directors
Executive Directors are required to build a minimum shareholding equivalent to the
annual fixed number of shares awarded under the LTIP within five years. Executive
Directors are required to retain at least 50% of any net vested share awards (after
sales to meet tax liabilities) until those guidelines are achieved. Shares under
deferred bonus awards and LTIP awards which have vested but are subject to a
further holding period (net of assumed income tax) count towards the requirement.
Awards that are still subject to performance conditions do not count towards
the requirement.
Executive Directors will be required to hold shares equivalent to their full in-
employment shareholding guideline, or actual holding if lower, for two years
post-employment, in line with best practice guidance. To help enforce this
requirement, a hold is put on vested shares held in broker accounts with Smiths
Group’s share plan administrator. This policy applied to John Shipsey, who stepped
down from the Group during FY2022, and applies to Paul Keel who resigned from the
Group during FY2024. Mr Shipsey was required to hold 54,959 shares in the Company
until at least 31 July 2024. Mr Keel is required to hold 92,660 shares in the Company
until 31 March 2026.
Share scheme dilution limits
The Company complies with the guidelines laid down by the Investment Association.
These restrict the issue of new shares under all the Company’s share schemes in
any ten-year period to 10% of the issued ordinary share capital and under the
Company’s discretionary schemes to 5% in any ten-year period. As at 31 July 2024
the headroom available under these limits was 8.2% and 3.84% respectively.
Executive Directors’ shareholdings (audited)
The table below shows the shareholding for each Executive Director against their respective shareholding requirement as at 31 July 2024.
Director
Shareholding
requirement
Shares owned
outright
Shares
subject to
performance
Vested
shares in
holding period
Shares
arising from
bonus deferral
Save As
You Earn
(SAYE)
Current
shareholding
(% of requirement)
1
Shareholding
requirement
met
Roland Carter
190,000
120,041
242,500
28,173
0
1,498
78%
N
Clare Scherrer
110,000
25,000
193,645
0
15,312
1,346
30%
N
There have been no changes to the Executive Directors’ shareholdings between 1 August 2024 and 12 September 2024.
Footnotes
1 Shares owned outright
(including vested shares
in holding period), and
the net of income tax
value of shares arising
from bonus deferral, are
taken into account for the
shareholding requirement.
Executive Directors have
five years from the date
of appointment to meet
the required personal
shareholding; Roland
Carter has until 26 March
2029 and Clare Scherrer
has until 29 April 2027 to
meet the requirement.
104
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
TSR performance
The following graph shows the Company’s total shareholder return (TSR) performance over the past ten years compared to the FTSE 100 Index. The FTSE 100 Index, of which
the Company has been a member throughout the period, has been selected to reflect the TSR performance of other leading UK-listed companies. The values of hypothetical
£100 investments in the FTSE 100 Index and Smiths Group plc shares at 31 July 2024 were £178.02 and £185.37 respectively.
Total Shareholder Return
£90
£100
£110
£120
£130
£140
£150
£160
£170
£180
£190
£200
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
£100
£101.75
£93.33
£105.87
£102.99
£140.54
£122.40
£150.67
£131.90
£150.58
£136.00
£137.42
£115.38
£156.25
£136.29
£147.42
£145.00
£156.68
£170.35
£185.37
£178.02
£100
Smiths
FTSE 100
Chief Executive’s remuneration for the last ten years
FY2024
R Carter
FY2024
P Keel
FY2023
P Keel
FY2022
P Keel
FY2021
P Keel
FY2021
A Reynolds
Smith
FY2020
A Reynolds
Smith
FY2019
A Reynolds
Smith
FY2018
A Reynolds
Smith
FY2017
A Reynolds
Smith
FY2016
A Reynolds
Smith
FY2016
P Bowman
FY2015
P Bowman
Total remuneration £000
1,656
814
4,285
1,832
450
2,753
2,196
4,130
3,251
2,320
2,964
1,602
4,195
Annual bonus outcome (% max)
60.5%
0%
70%
39%
76%
70%
17%
41%
42%
96%
89%
88%
80%
Common Investment Plan outcome (% max)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
100%
100%
LTIP outcome (% max)
76.7%
0%
76%
n/a
n/a
19%
31%
75%
32%
n/a
n/a
18%
17%
105
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Chief Executive pay ratios
These ratios set out the comparison between the Chief Executive’s remuneration and
that for employees in the UK workforce.
Total remuneration
Year
Method
25th percentile
ratio
Median pay
ratio
75th percentile
ratio
FY2024
Option B
69:1
46:1
30:1
FY2023
Option B
128:1
92:1
62:1
FY2022
Option B
58:1
39:1
26:1
FY2021
Option B
105:1
75:1
47:1
FY2020
Option B
75:1
53:1
34:1
Salary
Year
Method
25th percentile
ratio
Median pay
ratio
75th percentile
ratio
FY2024
Option B
27:1
19:1
13:1
FY2023
Option B
27:1
19:1
13:1
FY2022
Option B
28:1
20:1
13:1
FY2021
Option B
35:1
25:1
17:1
FY2020
Option B
31:1
22:1
15:1
Salary
(£)
Total
Remuneration
(£)
Chief Executive
940,172
2,462,902
25th percentile employee
35,474
35,678
Median employee
50,474
53,150
75th percentile employee
73,500
81,555
The pay data for employees in the UK workforce has been calculated using Option B,
based on the data used for gender pay reporting, due to the availability of data at the
time the Annual Report was published. The gender pay reporting basis comprises
salary and benefits as at 15 April 2024 and incentive payments payable in respect of
FY2024. The Committee considers that this provides an outcome that is representative
of the employees at these pay levels. It is assumed that the value of employee
benefits is 7.0% of base salary as an average across the workforce.
The workforce remuneration figures are those paid to UK employees whose pay is at
the 25th, median and 75th percentile of pay for the Smiths Group’s UK employees.
Figures are shown on both the prescribed basis using total pay and also salary only,
which provides a useful ongoing comparison as it is a less volatile basis. The figure
for the Chief Executive is the total of the payments made to Roland Carter and Paul
Keel. The CEO pay ratio for salary is consistent with the prior year as the salary
increases are aligned for the CEO and the wider UK workforce. There is a significant
decrease in all ratios with regard to total remuneration as Paul Keel forfeited his
annual bonus and LTIP upon resignation.
Percentage change in Directors’ remuneration
FY2023 to FY2024
FY2022 to FY2023
FY2021 to FY2022
FY2020 to FY2021
Salary/
fees
Benefits
Bonus
Salary/
fees
Benefits
Bonus
Salary/
fees Benefits
Bonus
Salary/
fees Benefits
Bonus
CEO*
–
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Outgoing
CEO
-45.0% -48.5% -100%
2.1% -24.1% 185%
0% 239% 204%
n/a
n/a
n/a
CFO
8.3%
7.2%
2.2%
0.0% 10.7% 176%
n/a
n/a
n/a
n/a
n/a
n/a
NED
5.0%
-45%
n/a
2.5% 12.0%
n/a
2.5% 100% n/a% -4.0% -100%
n/a
All
employee
average
5.0%
5.0%
-14%
2.5%
2.5% 180%
2.5%
2.5% -34%
0.0%
0.0% 267%
* Roland Carter was appointed to the Board in March 2024 and year on year change can therefore not
be calculated.
All employees’ is defined as all UK Group employees. This was 196 employees at
all grades in FY2024. It was 190 employees and 200 employees for FY2023 and
FY2022 respectively.
Remuneration for the outgoing CEO Paul Keel was pro-rated for service from 25 May
2021 – 31 July 2021 for FY2021. Paul Keel forfeited his annual bonus for FY2024 upon
his resignation on 25 March 2024. Remuneration for Roland Carter was pro-rated for
service from 26 March 2024 for FY2024. Remuneration for the CFO Clare Scherrer
was pro-rated for service from 29 April 2022 – 31 July 2022 for FY2022.
Relative importance of spend on pay
The table below shows shareholder distributions (i.e., dividends and share
buybacks) and total employee pay expenditure for FY2024 and FY2023 and the
percentage change. The distributions are lower for FY2024 owing to a lower number
of share buybacks than in FY2023.
FY2024
£m
FY2023
£m
Change
Shareholder distributions
217
350
-38.0%
Employee costs
992
939
5.6%
Executive Directors’ service contracts
The Company’s policy is that Executive Directors are normally employed on
terms which include a one-year rolling period of notice from the Company and six
months’ notice from the individual. The contract includes provision for the payment
of a predetermined sum in the event of termination of employment in certain
circumstances (but excluding circumstances where the Company is entitled to
106
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
dismiss without compensation). In addition to payment of basic salary, pension
allowance and benefits in respect of the unexpired portion of the one-year notice
period and for good leavers only, the predetermined sum would include annual
bonus and share awards only in respect of the period they have served, payable
following the end of the relevant performance period and subject to the normal
performance conditions.
Roland Carter is employed under a service contract with the Company dated and
effective from 25 March 2024. He became an Executive Director with effect from
25 March 2024.
Clare Scherrer is employed under a service contract with the Company dated
13 April 2022 and effective 29 April 2022. She became an Executive Director with
effect from 29 April 2022.
Paul Keel was employed under a service contract with the Company dated and
effective from 25 May 2021. He became an Executive Director with effect from 25 May
2021 and stepped down as an Executive Director with effect from 25 March 2024.
The Company may elect to terminate the contract by making a payment in lieu of
notice equal to the Director’s base salary and benefits (including pension allowance)
in respect of any unserved period of notice. The service contracts contain specific
provisions enabling a reduction in any phased payments in lieu of notice, in the event
that the Director finds alternative employment during the notice period. The service
contracts are available for viewing at the Company’s Registered Office.
Change of control provisions
In the event of a change of control, LTIP awards will vest to the extent that each of the
performance conditions is met based on the Committee’s assessment of performance
over the performance period to the date of change of control. For internal
performance measures, the Committee may exercise its judgement in determining
the outcome based on its assessment of whether or not the performance conditions
would have been met to a greater or lesser extent at the end of the full performance
period. Awards will also normally be pro-rated to reflect the time that has elapsed
between the grant of the award and the date of change of control. The Committee
retains discretion to vary these provisions on a case by-case basis.
Non-executive Directors
Single figure of annual remuneration (audited)
Salary/fees
Benefits
1
Total
FY2024
£000
FY2023
£000
FY2024
£000
FY2023
£000
FY2024
£000
FY2023
£000
Steve Williams
2
354
–
–
–
354
–
Sir George Buckley
141
465
25
44
166
509
Pam Cheng
94
91
–
–
94
91
Alister Cowan
3
7
–
–
–
7
–
Dame Ann Dowling
4
98
99
3
2
101
101
Karin Hoeing
5
92
79
–
–
92
79
Richard Howes
6
92
68
–
–
92
68
Bill Seeger
7
114
151
–
4
114
155
Mark Seligman
8
95
99
1
–
96
99
Noel Tata
102
95
–
3
102
98
Non-executive Director fees
Non-executive Director fees paid during FY2024 and payable during FY2025 are
shown below. It was determined that the fee increase for the Chairman and the
Non-executive Directors’ base fee should mirror that awarded to the wider UK
workforce. For FY2025 a 3% increase was agreed by the Chairman and Executive
Directors. This will apply from 1 October 2024.
FY2025
FY2024
Fee payable to Chair of the Board for all responsibilities
£481,000
£467,000
Non-executive Director base fee
£80,956
£78,598
Additional fee payable to the Senior Independent Director
£20,000
£20,000
Additional fee for Committee Chairs
£20,000
£20,000
Attendance allowance for each meeting outside the Non-executive
Director’s home continent
£4,000
£4,000
Share ownership guidance for Non-executive Directors
Non-executive Directors are encouraged to acquire shares in the Company with a
value of one times the annual base fee, over a five-year period. The five-year period is
from the later of 1 August 2021 or the date of appointment to the Board. In addition,
the Non-executive Directors are encouraged to retain a shareholding of one times
the annual base fee for at least two years after the Director leaves the Board.
Footnotes
1 Benefits for the Chairman
and Non-executive
Directors relate to
reimbursed travel-related
and other expenses
(including flight costs
and tax support where
applicable), which are
grossed up for the UK
income tax and National
Insurance contributions
paid by the Company on
their behalf.
2 Steve Williams joined the
Board on 1 Sept 2023.
3 Alister Cowan joined the
Board on 1 July 2024.
4 Dame Ann Dowling’s fee
comprised her Non-
executive Director’s fee
and her additional fee for
chairing the Innovation,
Sustainability & Excellence
Committee.
5 Karin Hoeing’s fees
comprised her Non-
executive Director’s fee
and her additional fee for
chairing the Remuneration
& People Committee.
6 Richard Howes’ fees
comprised his Non-
executive Director’s fee
and his additional fee for
Chairing the Audit & Risk
Committee
7 Bill Seeger’s fees
comprised his Non-
executive Director’s fee, his
additional fees for chairing
the Remuneration & People
and Finance Committees
and his additional fee
as Senior Independent
Director. Bill retired from
the Board on 31 May 2024.
8 Mark Seligman’s fees
comprised his Non-
executive Director’s fee
and his additional fee
for chairing the Audit &
Risk Committee and his
additional fee as the Senior
Independent Director.
107
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Non-executive Directors’ shareholdings (audited)
The table below shows the shareholding for each Non-executive Director.
31 July 2024
Steve Williams
14,000
Pam Cheng
6,000
Alister Cowan
13,000
Dame Ann Dowling
5,813
Karin Hoeing
2,146
Richard Howes
3,739
Mark Seligman
6,000
Noel Tata
6,000
Following a quarterly acquisition of ordinary shares, under a share purchase
agreement using a fixed proportion of their after-tax fees received from the Company
(20%), Karin Hoeing acquired 317 shares and Richard Howes acquired 99 shares on
1 August 2024. There have been no further changes between 1 August 2024 and
23 September 2024.
Chairman’s and Non-executive Directors’ letters of appointment
The Chairman and the Non-executive Directors serve the Company under letters of
appointment and do not have contracts of service or contracts for services. Except
where appointed at a General Meeting, Directors stand for election by shareholders
at the first AGM following appointment. The Board has resolved that all Directors
who are willing to continue in office will stand for re-election by the shareholders
each year at the AGM. Either party can terminate the appointment on one month’s
written notice and no compensation is payable in the event of an appointment being
terminated early. The letters of appointment or other applicable agreements are
available for viewing at the Company’s Registered Office.
Date of appointment
Steve Williams
1 September 2023
Pam Cheng
1 March 2020
Alister Cowan
1 July 2024
Dame Ann Dowling
19 September 2018
Karin Hoeing
2 April 2020
Richard Howes
1 September 2022
Mark Seligman
16 May 2016
Noel Tata
1 January 2017
Statement of shareholder voting
The table below sets out the Company voting outcome of the advisory resolution for
approval of the Directors’ Remuneration Report at the 2023 AGM and the approval of
the Directors’ Remuneration Policy at the 2021 AGM:
Resolution
Votes for
% of votes
cast for
Votes
against
% of votes
cast
against
Total
votes cast
Votes
withheld
(abstentions)
Directors’
Remuneration Report
262,514,509
97.53
6,640,919
2.47
269,155,428
3,532,235
Directors’
Remuneration Policy
282,034,458
86.69 43,312,009
13.31 325,346,467
4,371,952
Advisers to the Committee
During the year, the Committee received material assistance and advice from
the Chief Executive Officer, the Chief People Officer, the Global Reward Director,
Deloitte LLP and Freshfields Bruckhaus Deringer LLP. The Committee’s appointed
independent remuneration adviser is Deloitte LLP. The Company Secretary is
secretary to the Committee.
The Company paid a total fee of £102,850 to Deloitte LLP in relation to remuneration
advice to the Committee during the year. Fees were determined on the basis of time
and expenses. During FY2024, Deloitte LLP provided the Committee with information
on market, compliance support for this year’s Directors’ Remuneration Report and
the provision of other advice relating to remuneration governance and market
practice. Deloitte LLP is a founding member of the Remuneration Consultants Group
and a signatory to its Code of Conduct. Deloitte LLP provided additional tax advisory
services including global corporation tax compliance and employee mobility advice,
as well as company secretarial, internal audit co-source, transaction and
consultancy services.
The Committee is satisfied that the advice provided by Deloitte LLP is objective and
independent and that it does not have connections with the Group that may impair
its independence.
Summary of Remuneration Policy
The Remuneration Policy which follows on pages 109 to 117 will be put to a
shareholder vote at the AGM on 13 November 2024 and, if approved, will be
subsequently set out on the Company’s website. The Directors’ Remuneration Report
has been approved by the Board and signed on its behalf by:
Karin Hoeing
Chair of the Remuneration & People Committee
108
Remuneration & People Committee report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
shares, reflecting a modest rounding to the existing
Policy approach, and the CFO will receive an annual
grant of 110,000 shares. Under the current policy, an
overall cap of 400% of salary applies. This was intended
to restrict the value of fixed shares in the event that the
share price increased by more than 33% over the
relevant period. It is proposed that this cap is adjusted
to 500% of salary to provide additional headroom in
incentivising share price growth and value creation.
Annual Incentive Plan (AIP)
– It is proposed that the
maximum AIP opportunity is increased from 200% to
250% of salary to ensure the Policy has flexibility to
support the attraction and retention of current and
future Executive Directors over the life of the three-year
Policy, and drive incentivised performance and growth
through the successful execution of our strategy. For
2024, it is intended that the CEO and CFO will be eligible
for a maximum AIP opportunity of 230% and 200% of
salary respectively. In the event of using additional
headroom in the Policy, we would consult with
shareholders. We will continue to operate the deferral
of one third of any earned bonus in Smiths shares for
three years. This operates alongside our shareholding
guideline, which requires Executive Directors to build
and hold shares equivalent to their annual LTIP grant as
a fixed number of shares, within five years.
The Remuneration & People Committee intends that
the new Policy will operate for three years. However, its
effectiveness will be monitored, and if further changes
are needed over the three-year lifecycle of the Policy
before its renewal at the 2027 AGM, a new Policy may
be put to vote at an earlier General Meeting.
Remuneration Policy review
Over the last 12 months, the Committee has
undertaken a comprehensive review of remuneration
arrangements, with a particular focus in ensuring it
supports the retention and incentivisation of our global
executive team and continues to drive an ambitious
growth strategy. Our executive talent is sourced from a
range of industrial, scientific and technology
backgrounds across the world, reflecting our global
footprint. As part of the Policy review process,
stakeholder consultation was carried out and input was
received from Remuneration & People Committee
members, Board Members and key management
personnel, whilst ensuring that conflicts of interest
were suitably mitigated. Input was provided by Deloitte,
the Committee’s appointed independent advisers
throughout the process. We also engaged more widely
with our largest shareholders and are pleased that they
were broadly supportive of the changes proposed to our
Remuneration Policy. The remuneration policies and
practices throughout the Group, market practice both
in the UK and against our global peers, and the UK
Corporate Governance Code were also taken into
account.
Summary of key changes
The Remuneration & People Committee concluded that
the current Policy and incentive framework remains
broadly fit for purpose and creates strong alignment
between executives and shareholders. As such, we are
proposing a number of relatively modest adjustments
to support talent retention and attraction over the life of
the Policy.
Long-Term Incentive Plan (LTIP) awards
– We will
maintain the fixed shares approach for our Executive
Directors, which applies to all LTIP participants across
the Smiths Group and is well understood. It is intended
that the CEO will receive an annual grant of 190,000
Remuneration
Policy Report
The Remuneration Policy for
Directors will be put to a vote at the
AGM held on 13 November 2024,
and if approved, will be effective for
a period of up to three years from
this date.
109
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Remuneration Policy for the Executive Directors
Base salary
Opportunity
Performance measures
To attract, motivate
and retain Executive
Directors with the
required skills and
expertise to deliver
the Group’s objectives
Salaries are normally reviewed (but not necessarily adjusted) annually.
On review, consideration is given by the Committee to a range of factors
including, but not limited to, individual performance and experience,
changes in role and responsibility, the relative performance of the
Company and the Remuneration Policy operated across the Group as
a whole.
The Remuneration & People Committee may also consider pay data for
comparable roles at companies of similar market capitalisation,
revenues and complexity.
The salary increase date (if applicable) is normally 1 October.
Base salaries are adjusted according to the outcome of the annual review
and will be disclosed in the Annual Report on Remuneration.
There is no maximum salary or maximum increase in salary under
the Policy.
Salary increases for the Executive Directors will normally be in line with
those awarded to Smiths Group’s wider employee population. Where
increases are awarded in excess of this, for example if there is a material
change in the responsibility, size or complexity of the role, or a significant
change in the market competitiveness of salary, the Committee will
provide the rationale in the relevant year’s Annual Report on
Remuneration.
Not applicable
Benefits
Opportunity
Performance measures
To provide market-
competitive benefits
to Executive Directors
Benefits comprise car benefit, driver for business purposes, life
assurance and private healthcare insurance, and other such benefits
as the Committee may from time to time determine are appropriate.
These include, but are not limited to, relocation allowances, as well
as any other future benefits made available either to all employees
globally or all employees in the region in which the Executive Director
is employed, or benefits that may be necessary in order to be
competitive locally.
Benefits vary by role and individual circumstances.
Benefits in respect of the year under review are disclosed in the Annual
Report on Remuneration.
Whilst there is no maximum level of benefits prescribed, they are
generally set at an appropriate market-competitive level determined by
the Committee.
The Committee retains discretion to approve a higher cost in exceptional
circumstances (e.g. to facilitate recruitment, relocation, expatriation, etc.)
or in circumstances where factors outside the Group’s control have
changed materially (e.g. market increases in insurance costs).
Not applicable
Pensions
Opportunity
Performance measures
Enables Executive
Directors to save for
their retirement in a
cost-efficient manner
Executives may choose either to participate in the Company’s defined
contribution pension plan or to receive a pension allowance in lieu
thereof (and thus arrange their own pension provision).
Pension allowances for the employee population are reviewed
periodically to ensure market competitiveness.
Base salary is the only element of remuneration that is taken into
account when determining pension contributions or allowances.
The maximum level of pension contribution (or allowance in lieu thereof)
for Executive Directors will be aligned to the rates available to the wider
workforce in the Executive Director’s local market.
Not applicable
110
Remuneration Policy report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Remuneration Policy for the Executive Directors
continued
Annual bonus
Opportunity
Performance measures
Incentivises short-
term priorities in
line with the Group’s
business strategy.
Annual bonus payments are determined based upon performance
against measures and targets normally set by the Committee at the
start of each financial year.
After the end of the financial year, to the extent that the performance
criteria have been met, up to 67% of the earned annual bonus is paid in
cash. The balance is normally deferred into shares and released after a
further period of three years, without further performance or other
conditions. Dividends accrue and are normally payable in shares at the
end of the deferral period.
The Committee may use its discretion to adjust payout of the annual
bonus, both upwards and downwards, to Executive Directors, within the
range of the minimum to maximum opportunity, including reducing it
down to zero. Such discretion will be used in circumstances such as,
but not limited to, where the Committee believes that performance
against the prescribed targets does not accurately reflect the
Company’s underlying performance.
In addition, cash and deferred share bonuses awarded will be subject to
malus and/or clawback for a period of three years from the end of the
relevant performance year in case of misconduct, serious reputational
damage, corporate failure or material misstatement in the published
results of the Group.
The maximum annual bonus opportunity for Executive Directors is up to
250% of salary.
The annual bonus opportunities for the year under review and the coming
year are disclosed in the Annual Report on Remuneration.
Under the financial element of the annual bonus, threshold performance
must be exceeded before any annual bonus becomes payable. The
percentage payout then increases according to the level of achievement
against targets. Payment of up to 25% of maximum opportunity occurs on
achievement of threshold performance and 50% of maximum opportunity
on achievement of on-target performance.
For non-financial measures, the amount of bonus earned will be
determined by the Committee between 0% and 100% by reference to its
assessment of the extent to which the relevant metric or objective has
been met.
Based on a
combination of
financial and non-
financial performance
measures linked to
short-term objectives.
Financial performance
will normally account
for no less than 70% of
the bonus opportunity
and may include, but is
not limited to, profit,
organic revenue
growth and cash
measures.
111
Remuneration Policy report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Remuneration Policy for the Executive Directors
continued
Long-Term Incentive Plan (LTIP)
Opportunity
Performance measures
Incentivises long-
term value creation
for shareholders,
sustainable growth
and effective
management of the
balance sheet
Awards of conditional shares are normally granted annually and vest
after a performance period of at least three years, subject to the
achievement of performance targets set by the Committee, normally at
the start of each cycle. Vested shares are subject to a two-year post
vesting holding period.
To the extent that the performance targets are not met over the
performance period, awards will normally lapse. No retesting of
awards under any performance condition is permitted.
Dividends accrue and are normally paid in shares at the end of the
vesting period, on shares that vest.
The Committee may use its discretion to adjust payout of the LTIP to
Executive Directors, within the limits of the Plan rules. Such discretion
will be used in circumstances such as, but not limited to, where the
Committee believes that performance against the prescribed targets
does not accurately reflect the Company’s underlying performance.
Awards will be subject to malus over the vesting period and clawback
from the vesting date for a period of five years from the date of grant in
the case of misconduct, serious reputational damage, corporate failure
or material misstatement in the published results of the Group.
The maximum LTIP award opportunity for Executive Directors is up to
500% of salary.
Normally, awards of a fixed number of shares will be made in respect of
the relevant financial year. For awards made in respect of FY2025, this
fixed number of shares is 190,000 shares for the CEO and 110,000
shares for the CFO. In future years for which this policy applies,
normally it is intended that the Executive Directors will each be awarded
the same fixed number of shares as in respect of FY2025. In the event
that the Company share price increases during the three-year policy
period, the fixed number of shares awarded will be restricted so that the
value of the award is no more than 500% of salary.
LTIP award sizes for the relevant year will be disclosed in the Annual
Report on Remuneration.
At threshold performance against each measure, up to 25% of the
award subject to that measure vests, increasing to 100% for achieving
stretch targets.
Based on measures of
performance that are
aligned with the
Group’s strategy.
To ensure continued
alignment with the
Company’s strategic
priorities, the
Committee may, at its
discretion, vary the
measures and their
weightings from time
to time (but will consult
shareholders before
making significant
changes to the
performance
measures).
Sharesave
Opportunity
Performance measures
Encourages
ownership of shares
in the Company
and alignment
with shareholder
interests.
All UK employees (including Executive Directors) may save up to a maximum monthly savings limit (as determined by UK legislation, or other such
lower limit as the Committee may determine at its discretion) for three years.
At the end of the savings period, participants may use their savings to exercise options to acquire shares, which may be granted at a discount of up
to 20% to the market price on grant.
None required
Shareholding
guidelines
Opportunity
Performance measures
Encourages
ownership of shares
in the Company
and alignment
with shareholder
interests.
Executive Directors should build a minimum shareholding equivalent to the fixed number of shares awarded in respect of FY2025 under the LTIP
within five years. In normal circumstances, 50% of any net vested share awards (after sales to meet tax liabilities) must be retained until the
minimum shareholding requirements are met.
Shareholding guidelines may also apply below Executive Director level.
Executive Directors are required to hold shares equivalent to their full in-employment shareholding guideline, or actual holding if lower, for two
years post-employment.
None applicable
112
Remuneration Policy report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Existing grants or entitlements
It is the Company’s intention to honour all pre-existing commitments at the date of
this Report and to honour all future obligations entered into, consistent with the
approved Remuneration Policy in force at that time. In the case of internal promotion
to the Board, the Committee intends to honour any pre-existing commitments made
prior to becoming a member of the Board, including where these differ from the
approved Remuneration Policy.
Performance measure selection and approach to target setting
Annual bonus measures are selected to reflect the Company’s short-term financial
and non-financial priorities. At its discretion, the Committee may vary these
measures at the start of each financial year to maintain close alignment between
executive incentives and the annual operating plan.
The measures used in the Long-Term Incentive Plan are selected to reflect Smiths
Group strategy and to reinforce the key drivers of value creation and growth
highlighted elsewhere in this Annual Report which may include, but are not limited to,
earnings per share, cash measures, organic revenue growth, delivering sustainable
return on capital and measures relating to Environmental, Social and Governance
matters. The Committee retains full discretion to change the performance metrics,
weightings and targets of the annual bonus and LTIP if there is a significant and
material event which causes the Committee to believe the original metrics,
weightings and targets are no longer appropriate. The rationale will be disclosed in
the Remuneration Report of the following year.
Annual bonus and LTIP targets are reviewed annually, and take into account the
Company’s strategic plan, analyst forecasts for Smiths and its sector comparators
and external expectations for Smiths key markets. The Committee sets targets that it
considers to be challenging but attainable and aligned to the Company’s business
objectives over the short term, as reflected in the annual operating plan, and longer
term, consistent with the strategic plan. On top of aligning incentives with strategy,
targets are designed to ensure that participants’ interests are aligned with the
interests of shareholders.
The linkage of the performance measures to business strategy is set out in the
‘Executive remuneration at a glance’ section of the Remuneration Report.
Alignment of policy between Executive Directors and
other employees
The reward policy for other senior employees is broadly consistent with that for
Executive Directors. The Company operates a deferred bonus plan which only applies
to Executive Directors, all other incentive plans have broader participation across the
Company. The Committee reviews each year the all-employee pay and incentive
trends and takes these into account in setting Executive Director remuneration
levels. The principles of remuneration packages being market-related, performance-
sensitive and driven by business needs are applied at all levels and geographies in
the Group and the performance measures used in incentive plans apply generally
across all levels of the business.
Pay scenarios
The graphs below provide estimates of the potential future reward opportunity for the
Chief Executive and the Chief Financial Officer, and the potential mix between the
different elements of remuneration under four different performance scenarios:
‘Minimum’, ‘On-Target’, ‘Maximum’ and ‘Maximum + Share Price growth’ (which
assumes a 50% increase in share price over the LTIP vesting period).
Fixed pay (salary, benefits and pension)
Cash bonus
Deferred bonus
LTIP
100%
30%
17%
13%
20%
23%
17%
10%
11%
13%
40%
49%
57%
100%
34%
20%
15%
19%
22%
17%
10%
11%
13%
37%
47%
55%
£1,106
£3,694
£6,608
£8,613
Minimum
On-Target
Maximum
Maximum +
share price growth
CEO (£000)
£787
£2,311
£4,024
£5,194
Minimum
On-Target
Maximum
Maximum +
share price growth
CFO (£000)
Potential opportunities illustrated above are based on the Policy, applied to the
annualised base salaries in force from 1 October 2024. It should be noted that any
awards granted under the LTIP in a year do not normally vest until the third anniversary
of the date of grant. This illustration is intended to provide further information to
shareholders on the relationship between executive pay and performance. Please note
that actual pay delivered will further be influenced by factors such as share price
appreciation or depreciation and the value of dividends paid. The following assumptions
have been made in compiling the above charts:
Minimum
On-Target
Maximum
Base salary
Annual base salary
Pension
Company pension allowance
Other
benefits
Value of annual
benefits provided
Cash bonus
0% of salary
77% (CEO), 67% (CFO)
of salary
153% (CEO), 133% (CFO)
of salary
Deferred
bonus
0% of salary
38% (CEO), 33% (CFO) of salary
77% (CEO), 67% (CFO)
of salary
LTIP
0% of salary
152% (CEO), 127% (CFO)
of salary
337% (CEO), 282%
(CFO) of salary
113
Remuneration Policy report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Remuneration Policy for the Chairman and Non-executive Directors
Annual fee
Opportunity
Performance measures
To attract, motivate
and retain Non-
executive Directors
with the required
skills and expertise.
Fees may be paid in cash or a combination of cash and shares and are reviewed annually (but not necessarily increased) to ensure they compare
appropriately to fees payable at companies of similar size and complexity to Smiths.
Additional fees are paid to the Committee Chairs and to the Senior Independent Director to reflect the additional time commitment of these roles.
Additional fees may be paid for other responsibilities or time commitments.
The fee paid to the Chairman of the Board is determined by the Committee, absent the Chairman, while the fees for all Non-executive Directors are
agreed by the Chairman and the Executive Directors.
Fees are adjusted according to the outcome of the annual reviews.
The basic fee for Non-executive Directors is subject to the maximum aggregate annual fee of £1,000,000, as approved by shareholders in 2017 and
as set out in the Company’s Articles of Association.
Not applicable
Other
The Chairman and Non-executive Directors do not currently receive any benefits and are not eligible for bonuses or participation in share schemes
or any pension provision. They may be paid an attendance allowance for each meeting attended outside their home continent in addition to the
annual fee. Travel and other reasonable expenses (including fees incurred in obtaining professional advice in the furtherance of their duties)
incurred in the course of performing their duties are reimbursed to Non-Executive Directors (including any associated tax liability). The Group may
provide advice and assistance with Board Directors’ tax returns where these are impacted by the duties they undertake on behalf of the Group.
Modest retirement gifts, with a value of up to a maximum of £2,500, may be provided for Non-executive Directors in appropriate circumstances.
Non-executive Directors are encouraged to build up a shareholding of at least 100% of their annual base fee over the later of five years from their
date of appointment or the adoption of this guideline.
114
Remuneration Policy report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Approach to remuneration on recruitment and leaving
Executive Directors
The Committee approves the remuneration of each Executive Director on their appointment. The package should be market competitive to facilitate the recruitment of an
individual of sufficient calibre to lead the business. At the same time, the Committee would intend to pay no more than it believes is necessary to secure the required talent.
In setting the remuneration during the recruitment of external appointments, the Committee will apply the following policy:
Pay element
Policy on recruitment
Base salary
Salary on recruitment is determined based on the same principles as the annual salary review, as outlined in the policy table.
Benefits
As described in the policy table.
Pensions
As described in the policy table.
Annual bonus
As described in the policy table and typically pro-rated for the proportion of year served.
Maximum annual award opportunity: 250% of salary.
LTIP
May be considered for an award under the LTIP on similar terms to other executives. Maximum annual award opportunity: 500% of salary.
Other
The structure of the ongoing remuneration package would normally include the components set out in the policy table for Executive Directors.
Circumstances in which other elements of remuneration may be awarded include:
–
an interim appointment being made to fill an Executive Director role on a short-term basis;
–
if exceptional circumstances require that the Chairman or a Non-executive Director takes on an executive function on a short-term basis;
–
if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or LTIP award for that year as there
would not be sufficient time to assess performance; subject to the limit on variable remuneration set out below, the quantum in respect of the
months employed during the year may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis.
The Committee may make an award to compensate the prospective employee for remuneration arrangements forfeited on leaving a previous
employer or engagement. Any such award will take account of relevant factors including the form of any forfeited awards (e.g. cash or shares)
including the value of awards forfeited, any performance conditions attached, the likelihood of those conditions being met and the proportion of the
vesting period remaining. For the purposes of making such awards, but for no other reason, the Committee may avail itself of Listing Rule 9.3.2R.
Such awards or payments are excluded from the maximum level of variable remuneration referred to below. However, the Committee’s intention is
that the value awarded or paid would be no higher than the expected value of the forfeited arrangements.
Recruitment awards will normally be liable to forfeiture or, “clawback”, on early departure (i.e. within the first 12 months of employment). The
maximum level of variable remuneration that may be granted to new Directors (excluding buy-out arrangements) is 750% of base salary. The
Committee may also make payments to cover reasonable expenses in recruitment and relocation, and any other miscellaneous expenses including
but not limited to housing, tax and immigration support.
In cases of appointing a new Executive Director by way of internal promotion, the Policy will be consistent with that for external appointees, as detailed above. Any
commitments made prior to an individual’s promotion will continue to be honoured even if they would not otherwise be consistent with the policy prevailing when the
commitment is fulfilled, although the Company may, where appropriate, seek to revise an individual’s existing service contract on promotion to ensure it aligns with other
Executive Directors and prevailing market best practice.
Disclosure on the remuneration structure of any new Executive Director (external or internal), including details of any exceptional payments, will be disclosed in the RNS
notification made at the time of appointment and in the Annual Report on Remuneration for the year in which the recruitment occurred. Respecting diversity is woven into
everything we do. We ensure that equal opportunities are inherent when interviewing, recruiting and promoting employees with decisions made based on skills and expertise
first and foremost.
115
Remuneration Policy report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Non-executive Directors
In recruiting a new Non-executive Director, the Committee will use the policy as set
out in the table on page 114.
Executive Directors’ service contracts
The Company’s policy is that Executive Directors are normally employed on terms
which include a one-year rolling period of notice from the Company and six months’
notice from the individual. The contract includes provision for the payment of a
predetermined sum in the event of termination of employment in certain
circumstances (but excluding circumstances where the Company is entitled to
dismiss without compensation). In addition to payment of basic salary, pension
allowance and benefits in respect of the unexpired portion of the one-year notice
period, the predetermined sum would include annual bonus and share awards only in
respect of the period they have served, payable following the end of the relevant
performance period and subject to the normal performance conditions.
The service contracts for both Executive Directors may be terminated by 12 months’
notice given by the Company or six months’ notice given by the Director. The Company
may elect to terminate the contract by making a payment in lieu of notice equal to the
Director’s base salary and benefits (including pension allowance) in respect of any
unserved period of notice. The service contracts contain specific provisions enabling
a reduction in any phased payments in lieu of notice, in the event that the Director
finds alternative employment during the notice period. The service contracts are
available for viewing at the Company’s Registered Office.
Chairman’s and Non-executive Directors’ letters of appointment
The Chairman and the Non-executive Directors serve the Company under letters of
appointment and do not have contracts of service or contracts for services. Except
where appointed at a general meeting, Directors stand for election by shareholders
at the first AGM following appointment. The Board has resolved that all Directors
who are willing to continue in office will stand for re-election by the shareholders
each year at the AGM. Either party can terminate the appointment on one month’s
written notice and no compensation is payable in the event of an appointment being
terminated early. The letters of appointment or other applicable agreements are
available for viewing at the Company’s Registered Office.
Leaving and change-of-control provisions
When determining leaving arrangements for an Executive Director, the Committee
takes into account any contractual agreements including the provisions of any
incentive arrangements, typical market practice and the performance and conduct of
the individual. For those individuals regarded as ‘bad leavers’ (e.g. voluntary
resignation or dismissal for cause), normally, annual bonus awards are forfeited, and
outstanding awards under the LTIP automatically lapse. Deferred bonus awards are
forfeited on dismissal for cause.
A ‘good leaver’ will typically remain eligible for a pro-rated annual bonus award,
normally to be paid after the end of the financial year. The Committee retains
discretion to pay the bonus early and not to apply deferral where it would otherwise
apply, but would do so only in compassionate circumstances. Deferred bonus awards
shall continue in full and vest on the originally anticipated vesting dates. Alternatively,
in compassionate circumstances, the Committee may determine that awards should
vest when the participant ceases employment. Awards in the form of options may be
exercised in accordance with the rules of the applicable scheme.
LTIP awards will typically vest at the normal vesting date to the extent that the
associated performance conditions are met, but will normally be pro-rated on the
basis of actual service within the performance period. Any holding period will
ordinarily continue to apply. The Committee retains discretion to vest the award
before the end of the originally anticipated performance period, and to assess
performance accordingly, and to waive the continuation of the holding period or to
shorten its application, but would do so only in compassionate circumstances.
Vested LTIP awards which are subject to a holding period will ordinarily continue to
be subject to the holding period, although the Committee retains discretion to waive
the continuation of the holding period or to shorten its application, but would
normally do so only in compassionate circumstances.
In cases of death or disability, individuals are automatically deemed to be good
leavers under the plan rules of the LTIP. All other good leavers will be defined at the
discretion of the Committee on a case-by-case basis.
In the event of a change of control, LTIP awards will vest to the extent that each of the
performance conditions is met based on the Committee’s assessment of
performance over the performance period to the date of change of control. For
internal performance measures, the Committee may exercise its judgement in
determining the outcome based on its assessment of whether or not the performance
conditions would have been met to a greater or lesser extent at the end of the full
performance period. Awards will also normally be pro-rated to reflect the time that
has elapsed between the grant of the award and the date of change of control.
The Committee retains discretion to vary these provisions on a case-by-case basis.
In connection with the termination of an Executive Director’s contract, the Company
may make a payment on account of accrued but untaken leave. The Company has the
power to enter into settlement agreements with Directors and to pay compensation to
settle potential legal claims. In addition, and consistent with market practice, in the
event of the termination of an Executive Director, the Company may make a
contribution towards that individual’s legal fees and fees for outplacement services as
part of a negotiated settlement. Any such fees will be disclosed as part of the detail of
termination arrangements.
116
Remuneration Policy report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
External appointments
Subject to the overriding requirements of the Company, the Committee allows
Executive Directors to accept one external appointment where it considers that such
appointment will contribute to the Director’s breadth of knowledge and experience.
Executive Directors are not permitted to take on the chairmanship of another
FTSE 100 company or equivalent organisation. Directors are permitted to retain fees
associated with such appointments. Non-executive Directors must obtain the
approval of the Board before accepting any additional appointments once they have
joined the Board.
Consideration of employment conditions
The Committee always takes into account pay and employment conditions elsewhere
in the Company. When setting remuneration for Executive Directors and the senior
management team, the Committee carefully considers wider remuneration across
the Group, including salary increases, bonus awards, share plan participation and pay
ratios between Executive Directors and other employees. This has been a particular
area of focus for the Committee in designing a new policy that is capable of cascade
down the organisation.
We are committed to sharing business success across the organisation, with c.6,500
employees currently participating in an annual bonus plan. There is strong alignment
of business metrics between the Executive Directors bonus plan and those in which
the majority of the workforce participate. In addition, the Group offers an all-employee
sharesave plan to eligible employees in the UK.
Application of the policy will be influenced by the remuneration arrangements for all
employees.
Consideration of shareholder views
The Committee considers best practice developments and publications from
institutional investors and shareholder bodies as well as any shareholder views
expressed during dialogue. The Committee is committed to maintaining an open and
consultative dialogue with Company shareholders and shareholder bodies. During the
year a formal shareholder consultation exercise was undertaken as part of the review
of the Policy, to provide the major shareholders with the opportunity to provide
feedback and engage on our proposals.
117
Remuneration Policy report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Directors’
report
The Strategic report is a requirement of the Companies
Act 2006 (the Act) and can be found on pages 2 to 70.
The Company has chosen, in accordance with section
414C(11) of the Act, to include certain matters in its
Strategic report that would otherwise be disclosed in
this Directors’ report. The Strategic report and the
Directors’ report together are the management report
for the purposes of Rules 4.1.8R to 4.1.12R of the
Disclosure Guidance and Transparency Rules.
Other information that is relevant to the Directors’ report, and which is also incorporated by reference, can be
found as follows:
Disclosure
Location
Likely future developments in the Company
Strategic report pages 2 to 31
Directors’ dividend recommendation
Strategic report page 22
Research and development activities
Strategic report pages 24 to 31
Employment of disabled persons
ESG metrics, targets and performance pages 65
Engagement with UK employees
Our people and culture page 9
Building our culture page 13
ESG metrics, targets and performance pages 65 to 67
Governance report pages 78 and 80
Engagement with suppliers, customers and others in a business
relationship with the Company
Sustainability at Smiths pages 32 to 39
Governance report pages 78 to 81
Political donations and expenditure
Directors' report page 119
GHG emissions, energy consumption and energy efficiency
ESG metrics, targets and performance pages 62 to 64
Corporate Governance Statement
Governance report pages 71 to 119
Directors during FY2024
Governance report pages 73 and 74
Director appointment
Governance report page 85
Amendment of Articles of Association
Governance report page 85
Indemnities
Governance report page 76
Change of control
Remuneration & People Committee report pages 107
and 116
Directors’ report page 118
Borrowings and net debt note 18
Directors’ responsibility statement
Statement of Directors’ responsibilities page 120
Disclosure of information to the auditor
Statement of Directors’ responsibilities page 120
Financial instruments
Financial risk management note 19
Share capital disclosures
Share capital note 24
Acquisition of own shares (share buyback programme)
Share capital note 24
Directors’ powers
Governance report page 72
Share capital note 24
Post balance sheet event
Post balance sheet event note pages 194 and 209
Overseas branches
Subsidiary undertakings page 216
Change of control
The Company and two of its businesses, Smiths Detection and Smiths Interconnect, have Special Security Agreements with the
US Department of Defense in order to comply with the US government’s national security requirements. In the event of a change
of control of the Company, the agreements may be terminated or altered by the US Department of Defense.
Smiths Group plc Annual Report FY2024
118
Overview
Strategic report
Governance
Financial statements
Listing Rules disclosure
Information required by the FCA’s Listing Rules can be found as set out below. There are no further disclosures required in accordance with Listing Rule 6.6.1R.
Listing Rule
Disclosure
Location
6.6.1R(1)
Capitalised interest
There was no interest capitalised during FY2024
6.6.1R(11)(12)
Dividend waiver
Dividend note 25
6.6.6R(1)
Directors’ interests
Remuneration & People Committee Report pages 108
6.6.6R(2)
Major shareholders’ interests
Directors' report page 119
6.6.6R(3)(a)(b)
Going Concern and Viability Statement
Strategic report pages 68 to 70
6.6.6R(4)(a)
Purchase of own shares
Share capital note 24
6.6.6R(5)(6)(a)(b)
UK Corporate Governance Code compliance
Governance report page 71
6.6.6R(7)
Unexpired term of service contract
Remuneration & People Committee report pages 106 to 107
6.6.6R(8)(a)(b)
TCFD disclosures
Task Force on Climate-related
Financial Disclosures page 49 to 59
6.6.6R(9)(10)(11)
Board and executive management diversity
ESG metrics, targets and performance pages 66 and 67
Governance report page 86
Political donations
The Group did not give any money for political purposes in the UK, the EU or outside of the EU, nor did it make any political donations to political parties or other political
organisations, or to any independent election candidates, or incur any political expenditure during the year. In accordance with the US Federal Election Campaign Act, Smiths
provides administrative support to a federal Political Action Committee (PAC) in the US funded by the voluntary political contributions of eligible employees. The PAC is not
controlled by the Company and all decisions regarding the amounts and recipients of contributions are directed by a steering committee comprising Government Relations
employees and reported to all eligible to contribute to the PAC. Contributions to political organisations reported by the PAC during FY2024 totalled US$28,000 (FY2023:
US$6,000).
Major shareholders’ interests
As at 31 July 2024, the Company had been notified under the FCA’s Disclosure Guidance & Transparency Rules of the following holdings of voting rights in its shares:
Number of voting rights
% of total voting rights
Date of notification
BlackRock, Inc.
23.3m
5.9
31 May 2018
Harris Associates L.P.
19.7m
5.0
22 July 2019
Dodge & Cox
19.2m
5.0
12 March 2022
Ameriprise Financial, Inc.
17.7m
5.0
5 December 2022
Artemis Investment Management LLP
17.6m
4.9
25 October 2022
No further notifications were received between 1 August and 12 September 2024.
By order of the Board
Matthew Whyte
Company Secretary
23 September 2024
119
Directors’ report
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Statement of Directors’ responsibilities in respect of the
Annual Report and the financial statements
The Directors are responsible for preparing the Annual
Report, including a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate
Governance Statement, 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 the Directors have elected
to prepare the Group financial statements in
accordance with UK-adopted international accounting
standards and applicable law and have elected to
prepare the parent Company financial statements in
accordance with UK accounting standards and
applicable law, 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
applicable UK-adopted international accounting
standards have been followed;
–
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 Act and, as regards the Group financial
statements, Article 4 of the IAS Regulation. The
Directors are also 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 a 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 the financial
statements may differ from legislation in other
jurisdictions.
In accordance with Disclosure Guidance and
Transparency Rule (‘DTR’) 4.1.16R, the financial
statements will form part of the annual financial report
prepared under DTR 4.1.17R and 4.1.18R. The auditor’s
report on these financial statements provides no
assurance over whether the annual financial report has
been prepared in accordance with those requirements.
Directors’ responsibility statement
Each of the Directors (who are listed on pages 73 and
74) confirms that to the best of his or her knowledge:
–
The financial statements, which have been 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 Strategic Report and Directors’ Report,
together the management report, includes a fair
review of the development and performance of the
business and the position of the Company 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 Annual Report and financial
statements, 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 financial
statements, 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:
Roland Carter
Chief Executive Officer
23 September 2024
Smiths Group plc Annual Report FY2024
120
Overview
Strategic report
Governance
Financial statements
KPMG LLP’s Independent
Auditor’s Report
To the members of Smiths Group plc
1. Our opinion is unmodified
In our opinion:
–
the financial statements of Smiths Group plc give a true and fair view of the state of the Group’s and
of the Parent Company’s affairs as at 31 July 2024, and of the Group’s profit for the year then ended;
–
the Group financial statements have been properly prepared in accordance with UK-adopted
international accounting standards;
–
the Parent Company financial statements have been properly prepared in accordance with UK
accounting standards, including FRS 101 Reduced Disclosure Framework; and
–
the Group and Parent Company financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
What our opinion covers
We have audited the Group and Parent Company financial statements of Smiths Group plc (“the Company”) for
the year ended 31 July 2024 (FY2024) included in the Annual Report and Accounts, which comprise:
Group (Smiths Group plc and its subsidiaries)
Parent Company (Smiths Group plc)
The consolidated income statement, consolidated
statement of comprehensive income, consolidated
balance sheet, consolidated statement of changes in
equity, consolidated cash-flow statement
Company balance sheet, Company statement of
changes in equity
Notes 1 to 31 to the Group financial statements,
including the accounting policies.
Notes 1 to 13 to the Parent Company financial
statements, including the accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and
applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion. Our audit opinion and matters included in this report are
consistent with those discussed and included in our reporting to the Audit and Risk Committee (“ARC”).
We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with,
UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities.
Financial statements
Independent auditor’s report
121
Consolidated primary statements
135
Consolidated income statement
135
Consolidated statement of comprehensive
income
136
Consolidated balance sheet
137
Consolidated statement of changes
in equity
138
Consolidated cash-flow statement
139
Accounting policies
140
Notes to the accounts
149
1
Segment information
149
2
Operating costs
153
3
Non-statutory profit measures
153
4
Net finance costs
155
5
Earnings per share
156
6
Taxation
156
7
Employees
159
8
Retirement benefits
159
9
Employee share schemes
166
10 Intangible assets
167
11 Impairment testing
168
12 Property, plant and equipment
170
13 Right of use assets
170
14 Financial assets – other investments
171
15 Inventories
171
16 Trade and other receivables
171
17 Trade and other payables
172
18 Borrowings and net debt
173
19 Financial risk management
174
20 Derivative financial instruments
181
21 Fair value of financial instruments
183
22 Commitments
184
23 Provisions and contingent liabilities
184
24 Share capital
188
25 Dividends
188
26 Reserves
189
27 Acquisitions
190
28 Cash-flow
190
29
Alternative performance measures
and key performance indicators
191
30 Post balance sheet events
194
31
Audit exemption taken for subsidiaries
194
Unaudited five-year Group financial record
195
Unaudited US dollar primary statements
196
Smiths Group plc Company accounts
202
Company balance sheet
202
Company statement of changes in equity
203
Company accounting policies
204
Notes to the Company accounts
206
Subsidiary undertakings
210
121
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
2. Overview of our audit
Factors driving our view
of risks
Following our FY2023 audit, and considering developments affecting the Group since then, we have updated
our risk assessment decisions.
The Group recognises a goodwill balance in Detection CGU of £625m (FY2023: £630m) which is subject to
impairment assessment annually. The impairment assessment relies on assumptions and estimates which
are subject to high degree of uncertainty. The recoverability of goodwill is sensitive to changes in these
assumptions. Consistent with FY2023, there is significant auditor judgement involved in evaluating the
assumptions and our assessment of the risk associated with this as a key audit matter remained consistent
with prior year.
The Group recognises a provision of £220m (FY2023: £204m) arising from ongoing asbestos litigation claims
in John Crane Inc (JCI). There are significant judgements and estimates involved in the assumptions
underlying this provision including the period over which potential claims are projected to be made, the
forecast number of future claims and associated claim defence costs and complex estimation methodology.
Consistent with FY2023, there is significant auditor judgement involved in evaluating the assumptions and our
assessment of the risk associated with this as a key audit matter remained consistent with prior year.
The Parent Company has material pension plan assets and liabilities, especially in the UK. Small changes in
the assumptions used to determine the liabilities, those relating to discount rates, inflation and mortality, can
have a significant impact on the valuation of the liabilities. The effect of these matters is that we determined
that the valuation of liabilities has a high degree of estimation uncertainty. Consistent with FY2023, there is
significant auditor judgement involved in evaluating the assumptions and our assessment of the risk
associated with this as a key audit matter remained consistent with prior year.
Key Audit Matters
Vs FY2023
Item
Recoverability of goodwill in respect of the Smiths
Detection CGU (a)
4.1
Estimation of litigation provisions for asbestos in
John Crane, Inc (a)
4.2
Defined benefit pension plan liabilities for SIPS (b)
4.3
(a) Key audit matter to the Group financial statements
(b) Key audit matter to the Parent Company financial statements
Audit Committee
interaction
During the year, the ARC met 4 times. KPMG are invited to attend all ARC meetings and are provided with an
opportunity to meet with the ARC in private sessions without the Executive Directors being present. For each
key audit matter, we have set out communications with the ARC in section 4, including matters that required
particular judgement for each.
The matters included in the Audit and Risk Committee Chair’s report on pages 87 to 93 are materially
consistent with our observations of those meetings.
Our independence
We have fulfilled our ethical responsibilities under, and remain independent of the Group in accordance with,
UK ethical requirements, including the FRC Ethical Standard as applied to listed public interest entities.
We have not performed any non-audit services during FY2024 or subsequently which are prohibited by the
FRC Ethical Standard.
We were first appointed as auditor by the shareholders for the year ended 31 July 2020. The period of total
uninterrupted engagement is for the 5 financial years ended 31 July 2024.
The Group engagement partner is required to rotate every 5 years. As these are the second set of the Group’s
financial statements signed by Mike Barradell, he will be required to rotate off after the FY2027 audit.
The average tenure of partners responsible for component audits as set out in section 7 below is 3 years,
with the shortest being 1 and the longest being 5.
Total audit fee
£6.4m
Audit related fees (including interim review)
£0.4m
Other services
£0.1m
Non-audit fee as a % of total audit and audit
related fee %
7.2%
Date first appointed
13 November 2019
Uninterrupted audit tenure
5 years
Next financial period which requires a tender
2030
Tenure of Group engagement partner
2 years
Average tenure of component signing partners
3 years
122
Smiths Group plc Annual Report FY2024
KPMG LLP’s Independent Auditor’s Report
continued
Overview
Strategic report
Governance
Financial statements
Materiality
(Item 6 below)
The scope of our work is influenced by our view of materiality and our assessed risk of material misstatement.
We have determined overall materiality for the Group financial statements as a whole at £21m (FY2023: £18m)
and for the Parent Company financial statements as a whole at £20.8m (FY2023: £17.8m).
Consistent with FY2023, we determined that Group Profit before tax normalised to exclude the effect of specific
items as explained in section 6 of this report remains the benchmark for the Group. As such, we based our
Group materiality on normalised PBTCO of £398m (FY2023: £392m), of which it represents 5.3% (FY2023: 4.6%).
Materiality for the Parent Company financial statements was determined with reference to a benchmark of
Parent Company total assets, limited to be less than Group materiality as a whole. It represents 0.7% (FY2023:
0.3%) of Parent Company total assets.
Materiality levels used in our audit
FY2024 £m
FY2023 £m
21
18
15.7
11.7
20.8
17.8
20.8
17.8
1.8
1.1
1
0.9
Group
GPM
HCM
PLC
LCM
AMPT
Group
Group Materiality
GPM
Group Performance Materiality
HCM
Highest Component Materiality
PLC
Parent Company Materiality
LCM
Lowest Component Materiality
AMPT
Audit Misstatement Posting Threshold
Group Scope
(Item 7 below)
We have performed risk assessment and planning procedures to determine which of the Group’s components
are likely to include risks of material misstatement to the Group financial statements, the type of procedures to
be performed at these components and the extent of involvement required from our component auditors around
the world.
Consistent with prior year, all components were identified based on the Group’s legal entities except for the
Flex-Tek business, which was identified as a single component, with the component auditor providing an opinion
on the sub-consolidation prepared at the business level.
We subjected 8 (FY2023: 7) to full scope audits for Group purposes and 10 (FY2023: 10) to specified risk-focused
audit procedures or audit of specific account balances. The components for which we performed specified
risk-focused audit procedures and audit of specific account balances were not individually financially significant
enough to require a full scope audit for Group purposes but were included in the scope of our Group reporting
work in order to provide further coverage over the Group’s results.
The scope of the audit work performed was predominately substantive as we placed limited reliance upon the
Group’s internal control over financial reporting.
The components within the scope of our work accounted for the percentages illustrated opposite.
In addition, we have performed Group level analysis on the remaining components to determine whether further
risks of material misstatement exist in those components.
We consider the scope of our audit, as communicated to the Audit and Risk Committee, to be an appropriate
basis for our audit opinion.
Coverage of Group financial statements
Profit
before tax
Full scope audits
54%
Audits of specific account balances
17%
Specified risk-focused audit
procedures
0%
Remaining components
29%
Total
assets
Full scope audits
80%
Audits of specific account balances
3%
Specified risk-focused audit
procedures
5%
Remaining components
12%
Revenue
Full scope audits
56%
Audits of specific account balances
13%
Specified risk-focused audit
procedures
0%
Remaining components
31%
123
Smiths Group plc Annual Report FY2024
KPMG LLP’s Independent Auditor’s Report
continued
Overview
Strategic report
Governance
Financial statements
The impact of climate
change on our audit
We have considered the potential impacts of climate change on the financial statements as
part of planning our audit. As the Group has set out on page 50, climate change has the
potential to give rise to a number of transition risks and opportunities and physical risks and
opportunities. The Group has stated their commitment to achieve Net Zero for Scope 1 & 2
emissions by 2040 and to achieve Net Zero for Scope 3 emissions by 2050. The area of the
financial statements that is most likely to be potentially affected by climate related changes
and initiatives is future loss of revenue due to supply chain challenges. The Group considered
the impact of climate change and the Group’s targets in the preparation of the financial
statements, as described on page 49 and concluded this did not have a material effect on the
consolidated financial statements. We performed a risk assessment, taking into account
climate change risks and the commitments made by the Group. We held inquiries of
management regarding their processes for assessing the potential impact of climate change
risk on the Group’s financial statements and held discussions with our own climate change
professionals to challenge our risk assessment.
Based on our risk assessment, we determined that there was no significant impact of
climate change on our key audit matters included in section 4 or other key areas of the audit.
We have read the Group’s disclosure of climate related information in the front half of the
Annual Report as set out on pages 49 to 59 and considered consistency with the financial
statements and our audit knowledge.
3. Going concern, viability and principal risks and uncertainties
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the Parent Company or to cease their operations, and as they have concluded that the Group’s and
the Parent Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at
least a year from the date of approval of the financial statements (“the going concern period”).
Going concern
We used our knowledge of the Group, its industry, and the general economic environment to identify the inherent risks to its business model
and analysed how those risks might affect the Group’s and Parent Company’s financial resources or ability to continue operations over the
going concern period. The risks that we considered most likely to adversely affect the Group’s and Parent Company’s available financial
resources over this period were:
–
Adverse trading conditions and impact on the Group’s operations or that of its suppliers and customers, such as delays and cancellations
of orders and deliveries, driven by geo-political and economic factors, resulting in a significant deterioration in the Group’s liquidity
position.
–
Product quality failure which would result in reputational damage amongst customers and therefore reduction in orders and customer
loss as well as potential significant liability claims raised against the Group.
We considered whether these risks could plausibly affect the liquidity in the going concern period by comparing severe but plausible downside
scenarios that could arise from these risks individually and collectively against the level of available financial resources and covenant
thresholds indicated by the Group’s financial forecasts. We also assessed the completeness of the going concern disclosure.
Accordingly, based on those procedures, we found the directors’ use of the going concern basis of accounting without any material uncertainty
for the Group and Parent Company to be acceptable. However, as we cannot predict all future events or conditions and as subsequent events
may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Group or the Parent Company will continue in operation.
Our conclusions
–
We consider that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
–
We have not identified, and concur with the directors’ assessment that
there is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s or
Parent Company’s ability to continue as a going concern for the going
concern period;
–
We have nothing material to add or draw attention to in relation to the
directors’ statement on page 140 to the financial statements on the use of
the going concern basis of accounting with no material uncertainties that
may cast significant doubt over the Group and Parent Company’s use of
that basis for the going concern period, and we found the going concern
disclosure on page 140 to be acceptable; and
–
The related statement under the Listing Rules set out on page 68 is
materially consistent with the financial statements and our audit
knowledge.
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continued
Overview
Strategic report
Governance
Financial statements
Disclosures of emerging and principal risks and longer-term viability
Our responsibility
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in respect of
emerging and principal risks and the viability statement, and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation to:
–
the directors’ confirmation within the going concern and viability statement on page 68 that they have carried out a robust assessment of
the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency
and liquidity;
–
risk management disclosures describing these risks and how emerging risks are identified and explaining how they are being managed
and mitigated; and
–
the directors’ explanation in the going concern and viability statement of how they have assessed the prospects of the Group, over what
period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.
We are also required to review the viability statement set out on page 68 under the Listing Rules.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we
cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s and Parent
Company’s longer-term viability.
Our reporting
We have nothing material to add or draw attention to in relation to these
disclosures.
We have concluded that these disclosures are materially consistent with the
financial statements and our audit knowledge.
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KPMG LLP’s Independent Auditor’s Report
continued
Overview
Strategic report
Governance
Financial statements
4. Key audit matters
What we mean
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit
of the financial statements and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by us, including those which had the greatest effect on:
–
the overall audit strategy;
–
the allocation of resources in the audit; and
–
directing the efforts of the engagement team.
We include below the key audit matters in decreasing order of audit significance together with our key audit procedures to address those matters and our results from those procedures. These matters were addressed, and our
results are based on procedures undertaken, for the purpose of our audit of the financial statements as a whole. We do not provide a separate opinion on these matters.
4.1 Recoverability of Goodwill for Detection business (Group)
Financial Statement Elements
FY2024
FY2023
Carrying Value of Goodwill for Detection
business
£625m
£630m
Our assessment of risk vs FY2023
We have not identified any significant changes to our assessment of
the level of risk relating to Recoverability of Goodwill for Detection
business compared to FY2023
Our results
FY2024: Acceptable
FY2023: Acceptable
Description of the Key Audit Matter
Forecast-based assessment
The Group holds a significant amount of goodwill, especially in relation to the Smiths Detection cash generating
unit (CGU). The value in use calculation for the CGU, which represents the estimated recoverable amount, is
subjective due to the inherent uncertainty involved in forecasting and discounting estimated future cash flows
(specifically the key assumptions –discount rate, earnings before interest and tax and 5 year revenue growth).
The effect of these matters is that, as part of our risk assessment, we determined that the value in use of the
Smiths Detection CGU has a high degree of estimation uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the financial statements as a whole, and possibly many times
that amount.
Our response to the risk
We performed the tests below rather than seeking to rely on any of the Group’s controls because the nature
of the balance is such that we would expect to obtain audit evidence primarily through the detailed
procedures described.
Our procedures to address the risk included:
Benchmarking assumptions and historical comparison:
Assessing and challenging the key assumptions
through retrospective review and comparison to external industry forecasts.
Our Valuation expertise:
Using our valuations specialists to challenge the appropriateness of discount rates by
deriving our own independent range and using external market data to challenge the Group’s assumption of
5-year revenue growth rates and EBIT margin.
Comparing valuations:
Using our valuation specialist, we developed an independent calculation of the CGU’s
value in use. In doing so, we considered relevance and reliability of expected enterprise valuations per analyst
reports and comparable companies’ earnings multiples.
Sensitivity analysis:
We performed sensitivity analysis on key assumptions of discount rate, revenue growth
rate and earnings before interest and tax.
Assessing transparency:
We assessed the Group’s disclosures in respect of the judgement and estimates
around goodwill recoverability for the Smiths Detection CGU, including disclosures of the sensitivity in the value
in use calculations to changes in key assumptions.
Communications with the Smiths Group plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
–
Details of our audit approach and planned audit procedures, including engaging our valuation specialist
team to test discount rate assumption and compare the revenue growth in the impairment model to
external market data.
–
Our conclusion on the overall assessment of the assumptions underlying the impairment model.
–
Assessment of the adequacy of the disclosures in the financial statements in respect of the sensitivity of
the recoverable amount of the goodwill to changes in key assumptions.
Areas of particular auditor judgement
We identified the following as the area of particular auditor judgement
–
Assessing whether the estimates used by management of the cumulative average revenue growth rate
and EBIT margin projections over the forecast period are acceptable
Our results
We found the Group’s conclusion that there is no impairment of goodwill to be acceptable (FY2023 result:
acceptable).
Further information in the Annual Report and Accounts: See the Audit and Risk Committee Report on page 89 for details on how the Audit Committee considered the recoverability of goodwill for Detection business as an area of
significant attention, page 145 for the accounting policy on Key Audit Matter Area, and page 168 note 11 for the financial disclosures.
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continued
Overview
Strategic report
Governance
Financial statements
4.2 Estimation of litigation provisions for asbestos in John Crane, Inc. (Group)
Financial Statement Elements
FY2024
FY2023
Estimation of litigation provisions for
John Crane, Inc. (‘JCI’) asbestos
£220m
£204m
Our assessment of risk vs FY2023
We have not identified any significant changes to our assessment of
the level of risk relating to Estimation of litigation provisions for
asbestos in John Crane, Inc. compared to FY2023
Our results
FY2024: Acceptable
FY2023: Acceptable
Description of the Key Audit Matter
Subjective estimate
There are significant judgements and estimates involved in the assumptions underlying the provision in respect
of JCI asbestos litigation, including the period over which potential claims are projected to be made, the
forecast number of future claims and associated claim defence costs and complex estimation methodology.
The effect of these matters is that, as part of our risk assessment, we determined that the asbestos litigation
provision has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a whole.
Our response to the risk
We performed the tests below rather than seeking to rely on any of the Group’s controls because the nature
of the balance is such that we would expect to obtain audit evidence primarily through the detailed
procedures described.
Our procedures to address the risk included:
Our actuarial expertise:
Assessing the appropriateness of the ten-year projection period used by management
in estimating the litigation provision using our own actuarial specialist and our sector knowledge and expertise.
Benchmarking assumptions:
Using our own actuarial specialists, we derived our own independent range of
the estimated provision and assessed whether the provision calculated by management falls within this range.
Enquiry of lawyers:
Obtaining external independent legal confirmations of historical and ongoing claims data
used by the Group’s management expert for estimating the future projected cost and claims.
Assessment of Group’s management expert:
Assessing the competency, knowledge and independence of the
expert using our own specialist.
Assessing methodology:
We evaluated the methodology applied by management to determine the provision to
assess whether it is in line with applicable accounting standards.
Historical comparison:
Assessing and challenging the projected indemnity and defence expenditure through
retrospective review of incurred cost.
Assessing transparency:
Assessing whether the disclosures of the effect of reasonably possible changes in
key judgements and assumptions reflects the risks inherent in the provisions’ estimation.
Communications with the Smiths Group plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
–
Details of our audit approach and planned audit procedures, including engaging our valuation specialist
team to assess the provision recognised in the year.
–
Our conclusion on the overall assessment of the assumptions supporting the litigation provision.
–
Assessment of the adequacy of the disclosures in the financial statements in respect of the sensitivity of
the provision to changes in key assumptions.
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
–
Appropriateness of the ten-year projection period used by management in estimating the litigation
provision; and
–
The range of possible outcomes for the litigation provision taking into account court judgements from
past claims.
Our results
We found the level of litigation provisioning in respect of John Crane Inc. asbestos litigation to be acceptable
(FY2023: acceptable).
Further information in the Annual Report and Accounts: See the Audit and Risk Committee Report on page 89 for details on how the Audit and Risk Committee considered the estimation of the litigation provision for John Crane,
Inc. (‘JCI’) asbestos as an area of significant attention, page 141 for the accounting policy on Key Audit Matter Area, and page 184 note 23 for the financial disclosures.
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Overview
Strategic report
Governance
Financial statements
4.3 Valuation of UK defined benefit SIPS pension scheme liabilities (Parent Company)
Financial Statement Elements
FY2024
FY2023
UK defined benefit SIPS pension
scheme liabilities
£1,307m
£1,251m
Our assessment of risk vs FY2023
We have not identified any significant changes to our assessment of
the level of risk relating to valuation of UK defined benefit SIPS
pension scheme liabilities compared to FY2023
Our results
FY2024: Acceptable
FY2023: Acceptable
Description of the Key Audit Matter
Subjective valuation
The Parent Company has material pension plan assets and liabilities, especially in the UK. Small changes in
the assumptions used to determine the liabilities, in particular those relating to discount rates, inflation and
mortality can have a significant impact on the valuation of the liabilities.
The effect of these matters is that we determined that the valuation of liabilities have a high degree of
estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the
financial statements as a whole, and possibly many times that amount.
Our response to the risk
We performed the tests below rather than seeking to rely on any of the Company’s controls because the
nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed
procedures described.
Our procedures to address the risk included:
Benchmarking assumptions:
Challenging the key assumptions applied in the calculation of the liability,
including the discount rates, inflation rates, mortality and pension increases with the support of our own
actuarial specialists by comparing against market data.
Assessing actuary’s credentials:
Assessing the competence, independence and integrity of management’s
actuarial expert involved in the valuation of defined benefit pension obligation.
Assessing transparency:
Assessing the adequacy of the disclosures in respect of the sensitivity of the
obligation to key assumptions.
Communications with the Smiths Group plc’s Audit and Risk Committee
Our discussions with and reporting to the Audit and Risk Committee included:
–
Our conclusion on the overall assessment of the assumptions and key judgements supporting the
estimation of the defined benefit obligation.
–
Assessment of the adequacy of the disclosures in respect of the pension scheme liabilities (including
risks, assumptions and sources of estimation uncertainty).
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
–
Assessment of the assumptions supporting the defined benefit obligation.
Our results
We found the valuation of the UK defined benefit SIPS pension scheme liabilities to be acceptable (FY2023:
acceptable).
Further information in the Annual Report and Accounts: See the Audit and Risk Committee Report on page 89 for details on how the Audit and Risk Committee considered the valuation of UK defined benefit SIPS pension scheme
liabilities as an area of significant attention, page 145 for the accounting policy on Key Audit Matter Area, and page 159 note 8 for the financial disclosures.
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Overview
Strategic report
Governance
Financial statements
5. Our ability to detect irregularities, and our response
Fraud – Identifying and responding to risks of material misstatement due to fraud
Fraud risk assessment
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an
opportunity to commit fraud. Our risk assessment procedures included:
–
Enquiring of Directors, the Audit & Risk Committee, internal audit and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent and detect
fraud, including the internal audit function, and the Group’s channel for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud.
–
Reading Board, Audit & Risk, Disclosure, Transactions, Nomination & Governance, Remuneration & People, Finance Committee minutes.
–
Considering remuneration incentive schemes and performance targets for management and Directors including the organic revenue growth targets and EPS target for the
Directors’ long term incentive plan.
–
Using analytical procedures to identify any unusual or unexpected relationships.
Risk communications
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the Group to full
scope, specified risk-focused audit procedures and audit of specific account balances scope component audit teams of relevant fraud risks identified at the Group level and requesting the
full scope, specified risk-focused audit procedures and audit account balance scope component audit teams to report to the Group audit team any instances of fraud that could give rise to
a material misstatement at Group level.
Fraud risks
As required by auditing standards and taking into account possible pressures to meet profit targets, and our overall knowledge of the control environment, we perform procedures to
address the risk of management override of controls and the risk of fraudulent revenue recognition, in particular in the Smiths Detection Inc, USA and Smiths Detection Germany GmbH
components. Within these components a significant portion of multi-year contracts revenue (programme revenue) is normally recognised in the last month of the year. Therefore, there is
a risk of revenue being overstated during the year end closing period through the manipulation of the timing of recording the revenue. We did not identify any additional fraud risks.
Procedures to address
fraud risks
We performed procedures including:
–
Identifying journal entries to test for all components within full scope and audit of specific account balances scope based on risk criteria and comparing the identified entries to
supporting documentation. These included unusual entries in revenue accounts, cash and cash equivalents or borrowings accounts and entries posted by senior finance
management.
–
Testing consolidation adjustment entries posted and comparing the identified entries to supporting documentation.
–
Specified procedures completed by relevant component teams over period end revenue recognition. These procedures included tests over pre-year end and post year end revenue
transactions.
Laws and regulations – identifying and responding to risks of material misstatement relating to compliance with laws and regulations
Laws and regulations
risk assessment
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience,
through discussion with the Directors and other management (as required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence and discussed
with the Directors and other management the policies and procedures regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements.
Risk communications
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from
the Group audit team to full-scope, specified risk-focused audit procedures and audit of account balances component audit teams of relevant laws and regulations identified at the Group
level, and a request for all in-scope component auditors to report to the Group team any instances of non-compliance with laws and regulations that could give rise to a material
misstatement at Group level.
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Overview
Strategic report
Governance
Financial statements
Direct laws context and
link to audit
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation),
distributable profits legislation, taxation legislation and pensions legislation, and we assessed the extent of compliance with these laws and regulations as part of our procedures on the
related financial statement items.
Most significant indirect
law/regulation areas
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial
statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery and
corruption, considering dealings with government officials, employment law, and certain aspects of company legislation.
Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors and other management and inspection of
regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
Context
Context of the ability of
the audit to detect fraud
or breaches of law or
regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there
remained a higher risk of non-detection of fraud, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit
procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws
and regulations.
6. Our determination of materiality
The scope of our audit was influenced by our application of materiality. We set quantitative thresholds and overlay qualitative considerations to help us determine the scope of our audit and the nature, timing and extent of our
procedures, and in evaluating the effect of misstatements, both individually and in the aggregate, on the financial statements as a whole.
£21m (FY2023: £18m)
Materiality for the Group
financial statements as
a whole
What we mean
A quantitative reference for the purpose of planning and performing our audit.
Basis for determining materiality and judgements applied
Materiality for the Group financial statements as a whole was set at £21m (FY2023: £18m).
This was determined with reference to a benchmark of Group normalised profit before tax
and continuing operations (PBTCO).
Consistent with FY2023, we determined that Group normalised PBTCO remains the main
benchmark for the Group.
We normalised PBTCO for the following items because they do not represent the normal,
continuing operations of the Group. In making the adjustments for the current year, we have
added back retirement benefit obligation for past service equalisation costs of £4m (note 8 of
the financial statements) and loss on disposal of financial asset and its related fair value loss
of contingent consideration of £22m (note 3 of the financial statements). (FY2023: PBTCO
was normalised to exclude the net credit of £4m due to the retirement benefit obligation past
service equalisation costs and added back restructuring costs of £36m). As such, we based
our Group materiality on Group normalised PBTCO (FY2023: PBTCO) of £398m (FY2023:
£392m).
Our Group materiality of £21m was determined by applying a percentage to the normalised
PBTCO. When using a benchmark of normalised PBTCO to determine overall materiality,
KPMG’s approach for listed entities considers a guideline range 3%-5% of the measure.
In setting overall Group materiality at planning, we determined materiality using the forecast
PBTCO. This represents 5.3%(FY2023: 4.6%) of the final Group normalised PBTCO value. We
considered the materiality amount for the financial statements as a whole and concluded
that it remained appropriate.
Materiality for the Parent Company financial statements as a whole was set at £20.8m
(FY2023: £17.8m), determined with reference to a benchmark of Parent Company total
assets, limited to be less than materiality for Group materiality as a whole of which it
represents 0.7% (FY2023: 0.3%).
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Governance
Financial statements
£15.7m (FY2023: £11.7m)
Performance
materiality
What we mean
Our procedures on individual account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an acceptable level the risk that
individually immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole.
Basis for determining performance materiality and judgements applied
We have considered performance materiality at a level of 75% (FY2023: 65%) of materiality
for Smiths Group plc Group financial statements as a whole to be appropriate.
The Parent Company performance materiality was set at £15.6m (FY2023: £11.5m), which
equates to 75% (FY2023: 65%) of materiality for the Parent Company financial statements as
a whole.
We applied this percentage in our determination of performance materiality because we did
not identify any factors indicating an elevated level of risk.
£1m (FY2023: £0.89m
audit misstatement
posting threshold
What we mean
This is the amount below which identified misstatements are considered to be clearly trivial
from a quantitative point of view. We may become aware of misstatements below this
threshold which could alter the nature, timing and scope of our audit procedures, for
example if we identify smaller misstatements which are indicators of fraud.
This is also the amount above which all misstatements identified are communicated to
Smiths Group plc’s Audit Committee.
Basis for determining the audit misstatement posting threshold and
judgements applied
We set our audit misstatement posting threshold at 5% (FY2023: 5%) of our materiality for
the Group financial statements. We also report to the Audit Committee any other identified
misstatements that warrant reporting on qualitative grounds.
The overall materiality for the Group financial statements of £21m (FY2023: £18m) compares as follows to the main financial statement caption amounts:
Total Group Revenue
Group PBTCO
Total Group Assets
FY2024
FY2023
FY2024
FY2023
FY2024
FY2023
(as previously
reported)
Financial statement Caption
£3,132m
£3,037m
£372m
£360m
£4,232m
£4,355m
Group Materiality as % of caption
0.7%
0.6%
5.6%
5.0%
0.5%
0.4%
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Overview
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Governance
Financial statements
7. The scope of our audit
Group scope
What we mean
How the Group audit team determined the procedures to be performed across the Group.
The Group operates in more than 50 countries across six continents with the largest
footprints being in the US, Europe and Asia. The Group is organised into four businesses:
John Crane, Smiths Detection, Flex-Tek and Smiths Interconnect, and is a consolidation of
over 200 reporting components. We scoped the audit by obtaining an understanding of the
Group and its environment and assessing the risk of material misstatement at the Group
level. We have considered components based on their contribution to Group revenue; Group
assets and Group profit before tax as well as whether we had sufficient coverage over each
business and the specific risks in the components.
Of the Group’s 222 (FY2023: 208) reporting components, we subjected 8 (FY2023: 7) to full
scope audits for Group purposes, 3 components (FY2023: 3) to specified risk focused audit
procedures and 7 components (FY2023: 7) to audit of account balances. The component
materiality for all components ranged from £1.2m to £20.8m (FY2023: £1.1m to £17.8m).
Please see table below for a summary:
Scope
Number of
components
Range of
materiality
applied
Group
revenue
Group Profit
Before Tax
Group Total
Assets
Full scope audit
8
£20.8m –
£1.8m
56%
(FY2023: 56%)
54%
(FY2023: 62%)
80%
(FY2023: 80%)
Audit of one or more
account balances
7
£3.5m –
£1.2m
13%
(FY2023: 13%)
17%
(FY2023: 12%)
3%
(FY2023: 4%)
Specified risk focused
audit procedures
3
£3.5m –
£1.8m
–
(FY2023: 1%)
–
5%
(FY2023: 3%)
Remaining
components
204
31%
(FY2023: 30%)
29%
(FY2023: 26%)
12%
(FY2023: 13%)
The Group team instructed component auditors as to the significant areas to be covered,
including the relevant risks detailed above and the information to be reported back. The
Group team approved the component materialities, as detailed in the table above, having
regard to the mix of size and risk profile of the Group across the components.
The components for which we performed audit of specific account balances were not
individually financially significant enough to require a full scope audit for Group purposes but
were included in the scope of our Group reporting work in order to provide further coverage
over the Group’s results. The audit of account balance has been completed for revenue, trade
receivables and cash and cash equivalents accounts.
The components for which we performed specified risk-focused audit procedures were not
individually financially significant enough to require an audit for Group reporting purposes
but did present specific individual risks that needed to be addressed. Specified risk-focused
audit procedures were performed over a number of areas, including litigation provisions and
defined benefit pension assets and liabilities.
The remaining 31% (FY2023: 30%) of total Group revenue, 29% (FY2023: 26%) of Group profit
before tax and 12% (FY2023: 13%) of total Group assets is represented by 204 (FY2023: 191)
reporting components, none of which individually represented more than 9% (FY2023: 10%)
of any of total Group revenue, Group profit before tax or total Group assets. For these
components, we performed analysis at an aggregated Group level to re-examine our
assessment that there were no significant risks of material misstatement within these.
The work on 15 of the 18 components (FY2023: 14 of the 17 components) was performed by
component auditors and the rest, including the audit of the Parent Company, was performed
by the Group team.
For those items excluded from normalised PBTCO, the component teams performed
procedures on items relating to their components. The Group team performed procedures
on the remaining excluded items.
The Group audit team has also performed audit procedures on the following areas on behalf
of the components:
–
Intercompany balances and transactions
–
Data and analytics
i. Revenue data and analytics routines
ii. Journal entry analysis
–
IT Audit involvement over:
i. Understanding of information technology environment
ii. Test of design and implementation over general IT controls
iii. Test of design and implementation over automated controls
–
Control environment, risk assessment, monitoring and information and communication
components of internal control over financial reporting
–
Review of transfer pricing arrangements across the Group
These items were audited by the Group team because of the centralised nature of the data
processing activities within the Group. The Group team communicated the results of these
procedures to the component teams.
The scope of the audit work performed was predominately substantive as we placed limited
reliance upon the Group’s internal control over financial reporting.
132
Smiths Group plc Annual Report FY2024
KPMG LLP’s Independent Auditor’s Report
continued
Overview
Strategic report
Governance
Financial statements
Group audit team
oversight
What we mean
The extent of the Group audit team’s involvement in component audits.
In working with component auditors, we:
–
Held planning calls with component audit teams to discuss the significant areas of the
audit relevant to the components.
–
Issued Group audit instructions to component auditors on the scope of their work.
–
Held risk assessment update discussions with all component audit teams before the
commencement of the final phases of the audit led by the Group engagement partner.
–
Visited 7 (FY2023: 6) components in-person as the audit progressed to understand and
challenge the audit approach and organised 4 video conferences with the partners and
directors of the Group and component audit teams. At these visits and/ meetings/ and
video conferences, the findings reported to the Group team were discussed in more
detail, and any further work required by the Group team was then performed by the
component audit teams. The Group team also attended the audit close meetings for all
component teams.
–
Inspected component audit teams’ key work papers in person or using remote
technology capabilities to evaluate the quality of execution of the audits of the components.
8. Other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do
not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
All other information
Our responsibility
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work,
the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge.
Our reporting
Based solely on that work we have not identified material misstatements or
inconsistencies in the other information.
Strategic report and directors’ report
Our responsibility and reporting
Based solely on our work on the other information described above we report to you as follows:
–
we have not identified material misstatements in the strategic report and the directors’ report;
–
in our opinion the information given in those reports for the financial year is
consistent with the financial statements; and
–
in our opinion those reports have been prepared in accordance with the Companies
Act 2006.
Directors’ Remuneration Report
Our responsibility
We are required to form an opinion as to whether the part of the Directors’ Remuneration Report to be audited has been properly
prepared in accordance with the Companies Act 2006.
Our reporting
In our opinion the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006.
Corporate governance disclosures
Our responsibility
We are required to perform procedures to identify whether there is a material inconsistency between the financial statements and
our audit knowledge, and:
–
the directors’ statement that they consider that the annual report and financial statements 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;
–
the section of the annual report describing the work of the Audit Committee, including the significant issues that the Audit
Committee considered in relation to the financial statements, and how these issues were addressed; and
–
the section of the annual report that describes the review of the effectiveness of the Group’s risk management and internal
control systems.
Our reporting
Based on those procedures, we have concluded that each of these disclosures is
materially consistent with the financial statements and our audit knowledge.
We are also required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the
provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
133
Smiths Group plc Annual Report FY2024
KPMG LLP’s Independent Auditor’s Report
continued
Overview
Strategic report
Governance
Financial statements
Other matters on which we are required to report by exception
Our responsibility
Under the Companies Act 2006, we are required to report to you if, in our opinion:
–
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
–
the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
–
certain disclosures of directors’ remuneration specified by law are not made; or
–
we have not received all the information and explanations we require for our audit.
Our reporting
We have nothing to report in these respects.
9. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 120, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; 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; assessing the Group and Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and using 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.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in an annual financial report prepared under Disclosure Guidance and Transparency Rule 4.1.17R and 4.1.18R. This auditor’s report provides no assurance over
whether the annual financial report has been prepared in accordance with those requirements.
10. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for the opinions we have formed.
Mike Barradell
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square, London E14 5GL
23 September 2024
134
Smiths Group plc Annual Report FY2024
KPMG LLP’s Independent Auditor’s Report
continued
Overview
Strategic report
Governance
Financial statements
Consolidated income statement
Year ended 31 July 2024
Year ended 31 July 2023
Notes
Headline
£m
Non-headline
(note 3)
£m
Total
£m
Headline
£m
Non-headline
(note 3)
£m
Total
£m
CONTINUING OPERATIONS
Revenue
1
3,132
–
3,132
3,037
–
3,037
Operating costs
2
(2,606)
(111)
(2,717)
(2,536)
(98)
(2,634)
Operating profit/(loss)
2
526
(111)
415
501
(98)
403
Interest income
4
26
–
26
36
–
36
Interest expense
4
(64)
–
(64)
(71)
(7)
(78)
Other financing (losses)/gains
4
–
(11)
(11)
–
(8)
(8)
Other finance income – retirement benefits
4
–
6
6
–
7
7
Finance (costs)/income
4
(38)
(5)
(43)
(35)
(8)
(43)
Profit/(loss) before taxation
488
(116)
372
466
(106)
360
Taxation
6
(122)
1
(121)
(121)
(13)
(134)
Profit/(loss) for the year
366
(115)
251
345
(119)
226
DISCONTINUED OPERATIONS
Profit from discontinued operations
3
–
–
–
–
6
6
PROFIT/(LOSS) FOR THE YEAR
366
(115)
251
345
(113)
232
Profit/(loss) for the year attributable to:
Smiths Group shareholders – continuing operations
365
(115)
250
344
(119)
225
Smiths Group shareholders – discontinued operations
–
–
–
–
6
6
Non-controlling interests
1
–
1
1
–
1
366
(115)
251
345
(113)
232
EARNINGS PER SHARE
5
Basic
72.3p
65.5p
Basic – continuing
72.3p
63.8p
Diluted
72.0p
65.1p
Diluted – continuing
72.0p
63.4p
References in the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity and consolidated
cash-flow statement relate to notes on pages 149 to 194, which form an integral part of the consolidated accounts.
135
Consolidated primary statements
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Consolidated statement of comprehensive income
Notes
Year ended
31 July 2024
£m
Year ended
31 July 2023
£m
PROFIT FOR THE YEAR
251
232
Other comprehensive income (OCI)
OCI which will not be reclassified to the income statement:
Re-measurement of retirement benefit assets and obligations
8
(66)
(114)
Taxation on post-retirement benefit movements
6
17
32
Fair value movements on financial assets at fair value through OCI
14
(105)
(18)
(154)
(100)
OCI which will be reclassified and reclassifications:
Fair value gains and reclassification adjustments:
– deferred in the period on cash-flow and net investment hedges
4
12
– reclassified to income statement on cash-flow and net investment hedges
–
2
4
14
Foreign exchange (FX) movements:
Exchange (losses)/gains on translation of foreign operations
(33)
(101)
Total other comprehensive income, net of taxation
(183)
(187)
TOTAL COMPREHENSIVE INCOME
68
45
Attributable to:
Smiths Group shareholders
68
46
Non-controlling interests
–
(1)
68
45
Total comprehensive income attributable to Smiths Group shareholders arising from:
Continuing operations
68
39
Discontinued operations
–
6
68
45
136
Consolidated primary statements
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Consolidated balance sheet
Notes
31 July 2024
£m
31 July 2023
(restated) *
£m
NON-CURRENT ASSETS
Intangible assets
10
1,521
1,521
Property, plant and equipment
12
270
247
Right of use assets
13
110
105
Financial assets – other investments
14
53
371
Retirement benefit assets
8
132
195
Deferred tax assets
6
94
121
Trade and other receivables
16
96
75
2,276
2,635
CURRENT ASSETS
Inventories
15
643
637
Current tax receivable
6
24
47
Trade and other receivables
16
826
772
Cash and cash equivalents
18
459
285
Financial derivatives
20
4
5
1,956
1,746
TOTAL ASSETS
4,232
4,381
CURRENT LIABILITIES
Financial liabilities:
– borrowings
18
(2)
(3)
– lease liabilities
18
(32)
(26)
– financial derivatives
20
(4)
(2)
Provisions
23
(75)
(70)
Trade and other payables
17
(764)
(723)
Current tax payable
6
(70)
(74)
(947)
(898)
NON-CURRENT LIABILITIES
Financial liabilities:
– borrowings
18
(534)
(534)
– lease liabilities
18
(91)
(91)
– financial derivatives
20
(13)
(18)
Provisions
23
(219)
(216)
Retirement benefit obligations
8
(103)
(106)
Corporation tax payable
6
–
(3)
Deferred tax liabilities
6
(32)
(69)
Trade and other payables
17
(41)
(40)
(1,033)
(1,077)
TOTAL LIABILITIES
(1,980)
(1,975)
NET ASSETS
2,252
2,406
Notes
31 July 2024
£m
31 July 2023
(restated) *
£m
SHAREHOLDERS’ EQUITY
Share capital
24
130
131
Share premium account
365
365
Capital redemption reserve
26
25
24
Merger reserve
26
235
235
Cumulative translation adjustments
353
386
Retained earnings
1,306
1,431
Hedge reserve
26
(184)
(188)
TOTAL SHAREHOLDER’S EQUITY
2,230
2,384
Non-controlling interest equity
26
22
22
TOTAL EQUITY
2,252
2,406
* The comparatives have been restated after adoption of the amendment to IAS12 ‘Income Taxes’,
please see page 148 and note 6 for further information.
The accounts on pages 135 to 194 were approved by the Board of Directors on 23 September 2024
and were signed on its behalf by:
Roland Carter
Clare Scherrer
Chief Executive Officer
Chief Financial Officer
137
Consolidated primary statements
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Consolidated statement of changes in equity
Notes
Share capital
and share
premium
£m
Other
reserves
£m
Cumulative
translation
adjustments
£m
Retained
earnings
£m
Hedge
reserve
£m
Equity
shareholders’
funds
£m
Non-controlling
interest
£m
Total
equity
£m
At 31 July 2023
496
259
386
1,431
(188)
2,384
22
2,406
Profit for the year
–
–
–
250
–
250
1
251
Other comprehensive income:
– re-measurement of retirement benefits after tax
–
–
–
(49)
–
(49)
–
(49)
– FX movements net of recycling
–
–
(33)
1
–
(32)
(1)
(33)
– fair value gains and related tax
–
–
–
(105)
4
(101)
–
(101)
Total comprehensive income for the year
–
–
(33)
97
4
68
–
68
Transactions relating to ownership interests:
Purchase of shares by Employee Benefit Trust
–
–
–
(20)
–
(20)
–
(20)
Proceeds received on exercise of employee share options
–
–
–
4
–
4
–
4
Share buybacks
24
(1)
1
–
(70)
–
(70)
–
(70)
Dividends:
– equity shareholders
25
–
–
–
(147)
–
(147)
–
(147)
Share-based payment
9
–
–
–
11
–
11
–
11
At 31 July 2024
495
260
353
1,306
(184)
2,230
22
2,252
Notes
Share capital
and share
premium
£m
Other
reserves
£m
Cumulative
translation
adjustments
£m
Retained
earnings
£m
Hedge
reserve
£m
Equity
shareholders’
funds
£m
Non-controlling
interest
£m
Total
equity
£m
At 31 July 2022
501
254
487
1,659
(202)
2,699
22
2,721
Profit for the year
–
–
–
231
–
231
1
232
Other comprehensive income:
– re-measurement of retirement benefits after tax
–
–
–
(82)
–
(82)
–
(82)
– FX movements net of recycling
–
–
(101)
2
–
(99)
(2)
(101)
– fair value gains and related tax
–
–
–
(18)
14
(4)
–
(4)
Total comprehensive income for the year
–
–
(101)
133
14
46
(1)
45
Transactions relating to ownership interests:
Purchase of shares by Employee Benefit Trust
–
–
–
(24)
–
(24)
–
(24)
Share buybacks
24
(5)
5
–
(207)
–
(207)
–
(207)
Receipt of capital from non-controlling interest
–
–
–
–
–
–
1
1
Dividends:
– equity shareholders
25
–
–
–
(143)
–
(143)
–
(143)
Share-based payment
9
–
–
–
13
–
13
–
13
At 31 July 2023
496
259
386
1,431
(188)
2,384
22
2,406
138
Consolidated primary statements
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Consolidated cash-flow statement
Notes
Year ended
31 July 2024
£m
Year ended
31 July 2023
£m
Net cash inflow from operating activities
28
418
293
CASH-FLOWS FROM INVESTING ACTIVITIES
Expenditure on capitalised development
(14)
(21)
Expenditure on other intangible assets
(4)
(7)
Purchases of property, plant and equipment
(68)
(53)
Disposals of property, plant and equipment
–
2
Income from / (Investment in) financial assets
190
–
Acquisition of businesses
(65)
(22)
(Payments)/proceeds on disposal of subsidiaries, net of cash disposed
–
(7)
Net cash-flow used in investing activities
39
(108)
CASH-FLOWS FROM FINANCING ACTIVITIES
Share buybacks
24
(70)
(207)
Purchase of shares by Employee Benefit Trust
26
(20)
(24)
Proceeds received on exercise of employee share options
4
–
Settlement of cash-settled options
(2)
–
Dividends paid to equity shareholders
25
(147)
(143)
Receipt of capital from non-controlling interest
–
1
Lease payments
(39)
(36)
Reduction and repayment of borrowings
–
(527)
Cash (outflow)/inflow from matured derivative financial instruments
5
(9)
Net cash-flow used in financing activities
(269)
(945)
Net (decrease)/increase in cash and cash equivalents
188
(760)
Cash and cash equivalents at beginning of year
285
1,055
Foreign exchange rate movements
(14)
(10)
Cash and cash equivalents at end of year
18
459
285
Cash and cash equivalents at end of year comprise:
– cash at bank and in hand
123
175
– short-term deposits
336
110
459
285
139
Consolidated primary statements
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Accounting policies
Overview
Strategic report
Governance
Financial statements
140
Smiths Group plc Annual Report FY2024
Basis of preparation
The accounts have been prepared in accordance with UK adopted International Accounting
Standards.
The consolidated financial statements have been prepared under the historical cost convention
modified to include revaluation of certain financial instruments, share options and pension assets
and liabilities, held at fair value as described below.
Going concern
The Directors have prepared a going concern assessment, covering a period of at least 12 months
from the date of approval of the financial statements, which takes into account the current
financial projections and the borrowing facilities available to the Group and then applies a severe
but plausible downside scenario.
This assessment is consistent with the conclusions of the Group’s ‘Going concern and viability
statement’ on pages 68 to 70, which has been based on the Group’s strategy, balance sheet and
financing position, including our undrawn US$800m committed Revolving Credit Facility which
matures in May 2029. Having assessed the principal and emerging risks, especially those most
relevant during the going concern assessment period, stress testing confirmed that the Group
will have adequate headroom over that period.
Consequently, the Directors are satisfied that the Group and Company has sufficient resources
for its operational needs and will be able to meet its liabilities as they fall due for a period of at
least 12 months from the date of approval of these financial statements.
The financial statements
therefore been prepared on a going concern basis.
These financial statements cover the financial year from 1 August 2023 to 31 July 2024 (FY2024)
with comparative figures from 1 August 2022 to 31 July 2023 (FY2023).
Key estimates and significant judgements
The preparation of the accounts in conformity with generally accepted accounting principles
requires management to make estimates and judgements that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the accounts
and the reported amounts of revenues and expenses during the reporting period. Actual results
may differ from these estimates.
The key sources of estimation uncertainty together with the significant judgements and
assumptions used for these consolidated financial statements are set out below.
Sources of estimation uncertainty
Impairment reviews of intangible assets
In carrying out impairment reviews of intangible assets, a number of significant assumptions have to
be made when preparing cash-flow projections to determine the value in use of the asset or cash
generating unit (CGU). These include the future rate of market growth, discount rates, the market
demand for the products acquired, the future profitability of acquired businesses or products,
levels of reimbursement, and success in obtaining regulatory approvals. If actual results differ or
changes in expectations arise, impairment charges may be required which would adversely impact
operating results.
Critical estimates, and the effect of variances in these estimates, are disclosed in note 11.
Retirement benefits
Determining the value of the future defined benefit obligation involves significant estimates in
respect of the assumptions used to calculate present values. These include future mortality,
discount rate and inflation. The Group uses previous experience and independent actuarial advice
to select the values for critical estimates. A portion of UK pension liabilities are insured via bulk
annuity policies that match all or part of the scheme obligation to identified groups of pensioners.
These assets are valued by an external qualified actuary at the actuarial valuation of the
corresponding liability, reflecting this matching relationship.
The Group’s principal defined benefit pension plans are in the UK and the US and these have been
closed so that no future benefits are accrued. Critical estimates for these plans, and the effect of
variances in these estimates, are disclosed in note 8.
Provisions for liabilities and charges
The Group has made provisions for claims and litigations where it has had to defend itself against
proceedings brought by other parties. These provisions have been made for the best estimate of
the expected expenditure required to settle each obligation, although there can be no guarantee
that such provisions (which may be subject to potentially material revision from time to time) will
accurately predict the actual costs and liabilities that may be incurred. The most significant of
these litigation provisions is described below.
Accounting policies
continued
Overview
Strategic report
Governance
Financial statements
141
141
Smiths Group plc Annual Report FY2024
John Crane, Inc. (JCI), a subsidiary of the Group, is one of many co-defendants in litigation relating
to products previously manufactured which contained asbestos. Provision of £220m (FY2023:
£204m) has been made for the future defence costs which the Group is expected to incur and the
expected costs of future adverse judgements against JCI. Whilst well-established incidence
curves can be used to estimate the likely future pattern of asbestos-related disease, JCI’s claims
experience is significantly impacted by other factors which influence the US litigation
environment. These can include: changing approaches on the part of the plaintiffs’ bar; changing
attitudes amongst the judiciary at both trial and appellate levels; and legislative and procedural
changes in both the state and federal court systems. Because of the significant uncertainty
associated with the future level of asbestos claims and of the costs arising out of the related
litigation, there can be no guarantee that the assumptions used to estimate the provision will
result in an accurate prediction of the actual costs that will be incurred.
In quantifying the expected costs JCI takes account of the advice of an expert in asbestos liability
estimation. The following estimates were made in preparing the provision calculation:
–
The period over which the expenditure can be reliably estimated is judged to be ten years,
based on past experience regarding significant changes in the litigation environment that
have occurred every few years and on the amount of time taken in the past for some of those
changes to impact the broader asbestos litigation environment. See note 23 for a sensitivity
analysis showing the impact on the provision of reducing or increasing this time horizon; and
–
The future trend of legal costs, the rate of future claims filed, the rate of successful resolution
of claims, and the average amount of judgements awarded have been projected based on the
past history of JCI claims and well-established tables of asbestos incidence projections, since
this is the best available evidence. Claims history from other defendants is not used to calculate
the provision because JCI’s defence strategy generates a significantly different pattern of legal
costs and settlement expenses. See note 23 for a sensitivity analysis showing the range of
expected future spend.
Taxation
Taxation liabilities included provisions of £44m (FY2023: £46m), the majority of which related to
the risk of challenge to the geographic allocation of profits by tax authorities.
In addition to the risks provided for, the Group faces a variety of other tax risks, which result from
operating in a complex global environment, including the ongoing reform of both international and
domestic tax rules, new and ongoing tax audits in the Group’s larger markets and the challenge to
fulfil ongoing tax compliance filing and transfer pricing obligations given the scale and diversity of
the Group’s global operations.
The Group anticipates that a number of tax audits are likely to conclude in the next 12 to 24
months. Due to the uncertainty associated with such tax items, it is possible that the conclusion
of open tax matters may result in a final outcome that varies significantly from the amounts
noted above.
Significant judgements made in applying accounting policies
Business combinations
On the acquisition of a business, the Group has to make judgements on the identification of specific
intangible assets which are recognised separately from goodwill and then amortised over their
estimated useful lives. These include items such as brand names and customer lists, to which
value is first attributed at the time of acquisition. The capitalisation of these assets and the related
amortisation charges are based on judgements about the value and economic life of such items.
Where acquisitions are significant, appropriate advice is sought from professional advisers before
making such allocations.
Retirement benefits
At 31 July 2024 the Group has recognised £132m of retirement benefit assets (FY2023: £195m)
and a net pension asset of £29m (FY2023: £89m), principally relating to the Smiths Industries
Pension Scheme (SIPS), which arises from the rights of the employers to recover the surplus at
the end of the life of the scheme.
The recognition of this surplus is a significant judgement.
There is a judgement required in
determining whether an unconditional right of refund exists based on the provision of the relevant
Trust deed and rules.
Having taken legal advice with regard to the rights of the Company under
the relevant Trust deed and rules, it has been determined that an unconditional right of refund
does exist and therefore the surplus is recoverable by the Company and can be recognised.
Capitalisation of development costs
Expenditure incurred in the development of major new products is capitalised as internally
generated intangible assets only when it has been judged that strict criteria are met, specifically
in relation to the products’ technical feasibility and commercial viability (the ability to generate
probable future economic benefits).
The assessment of technical feasibility and future commercial viability of development projects
requires significant judgement and the use of assumptions. Key judgements made in the
assessment of future commercial viability include:
–
Scope of work to achieve regulatory clearance (where required) – including the level of testing
evidence and documentation;
–
Competitor activity – including the impact of potential competitor product launches on the
marketplace and customer demand; and
–
Launch timeline – including time and resource required to establish and support the
commercial launch of a new product.
Taxation
As stated in the previous section ‘Sources of estimation uncertainty’, the Group has applied
judgement in the decisions made to recognise provisions against uncertain tax positions; please
see note 6 for further details.
Accounting policies
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Presentation of headline profits and organic growth
In order to provide users of the accounts with a clear and consistent presentation of the
performance of the Group’s ongoing trading activity, the income statement is presented in a
three-column format with ‘headline’ profits shown separately from non-headline items. In
addition, the Group reports organic growth rates for sales and profit measures.
See note 1 for disclosures of headline operating profit and note 29 for more information about the
alternative performance measures (‘APMs’) used by the Group.
Judgement is required in determining which items should be included as non-headline. The
amortisation/impairment of acquired intangibles, legacy liabilities, material one-off items and
certain re-measurements are included in a separate column of the income statement. See note 3
for a breakdown of the items excluded from headline profit.
Calculating organic growth also requires judgement. Organic growth adjusts the movement
in headline performance to exclude the impact of foreign exchange, restructuring costs
and acquisitions.
Other estimates and judgements
Revenue recognition
Revenue is recognised as the performance obligations to deliver products or services are satisfied
and revenue is recorded based on the amount of consideration expected to be received in exchange
for satisfying the performance obligations.
Smiths Detection, Smiths Interconnect and Flex-Tek have multi-year contractual arrangements for
the sale of goods and services. Where these contracts have separately identifiable components with
distinct patterns of delivery and customer acceptance, revenue is accounted for separately for each
identifiable component.
The Group enters into certain contracts for agreed fees that are performed across more than one
accounting period and revenue is recognised over time. Estimates are required at the balance sheet
date when determining the stage of completion of the contract activity. This assessment requires the
expected total costs of the contract and the remaining costs to complete the contract to be estimated.
At 31 July 2024, the Group held contracts with a total value of £195m (2023: £109m), of which
£131m (2023: £83m) had been delivered and £64m (2023: £26m) remains fully or partially
unsatisfied. £39m of the unsatisfied amount is expected to be recognised in the coming year, with
the remainder being recognised within two years. A 20% increase in the remaining cost to complete
the contracts would have reduced Group revenue and operating profit in the current year by less
than £9m (2023: £4m).
Significant accounting policies
Basis of consolidation
The Group’s consolidated accounts include the financial statements of Smiths Group plc (the
‘Company’) and all entities controlled by the Company (its subsidiaries). A list of the subsidiaries
of Smiths Group plc is provided on pages 210 to 216.
The Company controls an entity when it (i) has power over the entity; (ii) is exposed or has rights to
variable returns from its involvement with the entity; and (iii) has the ability to affect those returns
through its power over the entity. The Group reassesses whether or not it controls a subsidiary if
facts and circumstances indicate that there are changes to one or more of these three elements
of control. Subsidiaries are fully consolidated from the date on which control is obtained by the
Company to the date that control ceases.
Where the Group loses control of a subsidiary, the assets and liabilities are derecognised along
with any related non-controlling interest and other components of equity. Any resulting gain or
loss is recognised in the income statement. Any interest retained in the former subsidiary is
measured at fair value when control is lost.
The non-controlling interests in the Group balance sheet represent the share of net assets of
subsidiary undertakings held outside the Group. The movement in the year comprises the profit
attributable to such interests together with any dividends paid, movements in respect of corporate
transactions and related exchange differences.
Interests in associates are accounted for using the equity method. They are initially recognised at
cost, which includes transaction costs. Subsequent to initial recognition, the Group financial
statements include the Group’s share of the profit or loss and other comprehensive income of
equity-accounted investees, until the date on which significant influence ceases.
All intercompany transactions, balances, and gains and losses on transactions between Group
companies are eliminated on consolidation.
Foreign currencies
The Company’s presentational currency and functional currency is sterling. The financial position
of all subsidiaries and associates that have a functional currency different from sterling are
translated into sterling at the rate of exchange at the date of that balance sheet, and the income
and expenses are translated at average exchange rates for the period. All resulting foreign
exchange rate movements are recognised as a separate component of equity.
Foreign exchange rate movements arising on the translation of non-monetary assets and
liabilities held in hyperinflationary subsidiaries are recognised in OCI. The amounts taken to the
Cumulative Translation Adjustments reserve represent the combined effect of restatement and
translation and are expressed as a net change for the year.
On consolidation, foreign exchange rate movements arising from the translation of the net
investment in foreign entities, and of borrowings and other currency instruments designated as
hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold,
the cumulative amount of such foreign exchange rate movements is recognised in the income
statement as part of the gain or loss on sale.
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Foreign exchange rate movements arising on transactions are recognised in the income
statement. Those arising on trading are taken to operating profit; those arising on borrowings are
classified as finance income or cost.
Revenue
Revenue is measured at the fair value of the consideration received, net of trade discounts
(including distributor rebates) and sales taxes. Revenue is discounted only where the impact of
discounting is material.
When the Group enters into complex contracts with multiple, separately identifiable components,
the terms of the contract are reviewed to determine whether or not the elements of the contract
should be accounted for separately. If a contract is being split into multiple components, the
contract revenue is allocated to the different components at the start of the contract. The basis of
allocation depends on the substance of the contract. The Group considers relative stand-alone
selling prices, contractual prices and relative cost when allocating revenue.
The Group has identified the following different types of revenue:
(i) Sale of goods recognised at a point in time – generic products manufactured by Smiths
Generic products are defined as either:
–
Products that are not specific to any particular customer;
–
Products that may initially be specific to a customer but can be reconfigured at minimal cost,
i.e., retaining a margin, for sale to an alternative customer; or
–
Products that are specific to a customer but are manufactured at Smiths risk, i.e., we have no
right to payment of costs plus margin if the customer refuses to take control of the goods.
For established products with simple installation requirements, revenue is recognised when
control of the product is passed to the customer. The point in time that control passes is defined in
accordance with the agreed shipping terms and is determined on a case-by-case basis. The time
of dispatch or delivery of the goods to the customer is normally the point at which invoicing
occurs. However for some generic products, revenue is recognised when the overall
performance obligation has been completed, which is often after the customer has completed its
acceptance procedures and has assumed control.
Products that are sold under multiple element arrangements, i.e., contracts involving a
combination of products and services, are bundled into a single performance obligation
unless the customer can benefit from the goods or services either on their own, or together with
other resources that are readily available to the customer and are distinct within the context of
the contract.
For contracts that pass control of the product to the customer only on completion of installation
services, revenue is recognised upon completion of the installation.
An obligation to replace or repair faulty products under the standard warranty terms is
recognised as a provision. If the contract includes terms that either extend the warranty beyond
the standard term or imply that maintenance is provided to keep the product working, these are
service warranties and revenue is deferred to cover the performance obligation in an amount
equivalent to the relative stand-alone selling price of that service.
(ii) Sale of goods recognised over time – customer-specific products where the contractual
terms include rights to payment for work performed to date
Customer-specific products are defined as being:
–
Products that cannot be reconfigured economically such that it remains profitable to sell to
another customer;
–
Products that cannot be sold to another customer due to contractual restrictions; and
–
Products that allow Smiths to charge for the work performed to date in an amount that
represents the costs incurred to date plus a margin, should the customer refuse to take control
of the goods.
For contracts that meet the terms listed above, revenue is recognised over the period that the
Group is engaged in the manufacture of the product, calculated using the input method based on
the amount of costs incurred to date compared to the overall costs of the contract. This is
considered to be a faithful depiction of the transfer of the goods to the customer as the costs
incurred, total expected costs and total order value are known. The time of dispatch or delivery of
the goods to the customer is normally the point at which invoicing occurs.
An obligation to provide a refund for faulty products under the standard warranty terms is
recognised as a provision. If the contract includes terms that either extend the warranty beyond
the standard term or imply that maintenance is provided to keep the product working, these are
service warranties and revenue is deferred to cover the performance obligation in an amount
equivalent to the relative stand-alone selling price of that service.
(iii) Services recognised over time – services relating to the installation, repair and ongoing
maintenance of equipment
Services include installation, commissioning, testing, training, software hosting and
maintenance, product repairs and contracts undertaking extended warranty services.
For complex installations where the supply of services cannot be separated from the supply of
product, revenue is recognised upon acceptance of the combined performance obligation (see
Sale of goods (i) above).
For services that can be accounted for as a separate performance obligation, revenue is
recognised over time, assessed on the basis of the actual service provided as a proportion of the
total services to be provided.
Depending on the nature of the contract, revenue is recognised as follows:
–
Installation, commissioning and testing services (when neither linked to the supply of product
nor subject to acceptance) are recognised rateably as the services are provided;
–
Training services are recognised on completion of the training course;
–
Software hosting and maintenance services are recognised rateably over the life of
the contract;
–
Product repair services, where the product is returned to Smiths premises for remedial action,
are recognised when the product is returned to the customer and they regain control of
the asset;
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–
Onsite ad hoc product repair services are recognised rateably as the services are performed;
–
Long-term product repair and maintenance contracts are recognised rateably over the
contract term; and
–
Extended service warranties are recognised rateably over the contract term.
Invoicing for services depends on the nature of the service provided with some services charged
in advance and others in arrears.
Where contracts are accounted for under the revenue recognised over time basis, the proportion
of costs incurred is used to determine the percentage of contract completion.
Contracts for the construction of substantial assets, which normally last in excess of one year, are
accounted for under the revenue recognised over time basis, using an input method.
For fixed-price contracts, revenue is recognised based upon an assessment of the amount of cost
incurred under the contract, compared to the total expected costs that will be incurred under the
contract. This calculation is applied cumulatively with any over/under recognition being adjusted
in the current period.
For cost-plus contracts, revenue is recognised based upon costs incurred to date plus any
agreed margin.
For both fixed-price and cost-plus contracts, invoicing is normally based on a schedule with
milestone payments.
Customer funded R&D
Customer funded R&D relates to specific contracts whereby a third party, e.g. government or
commercial customer, has requested for the development of a new product and they will fund the
project.
The work carried out for the customer is expensed through cost of sales. Once the performance
obligations have been recognised as per IFRS 15, this is classified as revenue.
Contract costs
The Group has taken the practical expedient of not capitalising contract costs as they are
expected to be expensed within one year from the date of signing.
Leases
Lease liabilities are initially measured at the present value of the future lease payments at the
commencement date, discounted by using either the rate implicit in the lease, or if not observable,
the Group’s incremental borrowing rate. Lease payments comprise contractual lease payments;
variable lease payments that depend on an index or rate, initially measured using the index or rate
at the commencement date; and the amount expected to be payable under residual value
guarantees.
Right of use assets are measured at commencement date at the amount of the corresponding
lease liability and initial direct costs incurred. Right of use assets are depreciated over the shorter
of the lease term and the useful life of the right of use assets, unless there is a transfer of
ownership or purchase option which is reasonably certain to be exercised at the end of the lease
term, in which case depreciation is charged over the useful life of the underlying asset. Right of
use assets are subject to impairment.
When a lease contract is modified, either from a change to the duration of the lease or a change to
amounts payable, the Group remeasures the lease liability by discounting the revised future lease
payments at a revised discount rate. A corresponding adjustment is made to the carrying value of
the related right of use asset.
Leases of buildings typically have lease terms between one and seven years, while plant and
machinery generally have lease terms between one and three years. The Group also has certain
leases of machinery with lease terms of 12 months or less and leases of office equipment with
low value (typically below £5,000). The Group applies the ‘short-term lease’ and ‘lease of low-
value assets’ recognition exemptions for these leases and recognises the lease payments
associated with these leases as an expense on a straight-line basis over the lease term.
Interest on lease liabilities is presented as a financing activity in the Consolidated Cash-Flow
Statement, included under the heading lease payments.
Taxation
The charge for taxation is based on profits for the year and takes into account taxation deferred
because of temporary differences between the treatment of certain items for taxation and
accounting purposes.
Current income tax assets and liabilities are measured at the amount expected to be recovered
from or paid to taxation authorities. Tax benefits are not recognised unless it is likely that the tax
positions are sustainable. Tax positions taken are then reviewed to assess whether a provision
should be made based on prevailing circumstances. Tax provisions are included in current tax
liabilities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted, at the reporting date in the countries where the Group operates and
generates taxable income.
The Group operates and is subject to taxation in many countries. Tax legislation is different in each
country, is often complex and is subject to interpretation by management and government
authorities. These matters of judgement give rise to the need to create provisions for uncertain
tax positions which are recognised when it is considered more likely than not that there will be a
future outflow of funds to a taxing authority. Provisions are made against individual exposures
and take into account the specific circumstances of each case, including the strength of technical
arguments, recent case law decisions or rulings on similar issues and relevant external advice.
The amounts are measured using one of the following methods, depending on which of the
methods the Directors expect will better reflect the amount the Group will pay to the tax authority:
–
The single best estimate method is used where there is a single outcome that is more likely
than not to occur. This will happen, for example, where the tax outcome is binary or the range of
possible outcomes is very limited; or
–
Alternatively, a probability weighted expected value is used where, on the balance of
probabilities, there will be a payment to the tax authority but there are a number of possible
outcomes. In this case, a probability is assigned to each of the outcomes and the amount
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provided is the sum of these risk-weighted amounts. In assessing provisions against uncertain
tax positions, management uses in-house tax experts, professional firms and previous
experience of the taxing authority to evaluate the risk.
Deferred tax is provided in full using the balance sheet liability method. A deferred tax asset is
recognised where it is probable that future taxable income will be sufficient to utilise the available
relief. Deferred tax is provided on temporary differences arising on investments in subsidiaries
and associates, except where the timing of the reversal of the temporary differences is controlled
by the Company and it is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax liabilities and assets are not discounted.
Tax is charged or credited to the income statement except when it relates to items charged or
credited directly to equity, in which case the tax is also dealt with in equity.
IAS 12 International Tax Reform: Pillar Two Model Rules.
On 19 July 2023, the UK Endorsement Board adopted the Amendments to IAS 12 International Tax
Reform: Pillar Two Model Rules, issued by the IASB in May 2023. The Amendments introduce a
temporary mandatory exception from accounting for deferred taxes arising from the Pillar Two
model rules and the Group has applied this exception to recognising and disclosing information
about deferred tax assets and liabilities related to Pillar Two income taxes.
Employee benefits
Share-based compensation
The fair value of the shares or share options granted is recognised as an expense over the vesting
period to reflect the value of the employee services received. The fair value of options granted,
excluding the impact of any non-market vesting conditions, is calculated using established option
pricing models, principally binomial models. The probability of meeting non-market vesting
conditions, which include profitability targets, is used to estimate the number of share options
which are likely to vest.
For cash-settled share-based payment, a liability is recognised based on the fair value of the
payment earned by the balance sheet date. For equity-settled share-based payment, the
corresponding credit is recognised directly in reserves.
Pension obligations and post-retirement benefits
Pensions and similar benefits (principally healthcare) are accounted for under IAS 19. The
retirement benefit obligation in respect of the defined benefit plans is the liability (the present
value of all expected future obligations) less the fair value of the plan assets.
The income statement expense is allocated between current service costs, reflecting the
increase in liability due to any benefit accrued by employees in the current period, any past
service costs/credits and settlement losses or gains which are recognised immediately, and the
scheme administration costs.
Actuarial gains and losses are recognised in the statement of comprehensive income in the year
in which they arise. These comprise the impact on the liabilities of changes in demographic and
financial assumptions compared with the start of the year, actual experience being different to
assumptions and the return on plan assets being above or below the amount included in the net
pension interest cost.
Payments to defined contribution schemes are charged as an income statement expense as they
fall due.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s
share of the identifiable net assets of the acquired subsidiary at the date of acquisition.
The goodwill arising from acquisitions of subsidiaries after 1 August 1998 is included in intangible
assets, tested annually for impairment and carried at cost less accumulated impairment losses.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to
the entity sold. The goodwill arising from acquisitions of subsidiaries before 1 August 1998 was
set against reserves in the year of acquisition.
Goodwill is tested for impairment at least annually. Should the test indicate that the net realisable
value of the CGU is less than current carrying value, an impairment loss will be recognised
immediately in the income statement. Subsequent reversals of impairment losses for goodwill
are not recognised.
Research and development
Expenditure on research and development is charged to the income statement in the year in
which it is incurred with the exception of:
–
Amounts recoverable from third parties; and
–
Expenditure incurred in respect of the development of major new products where the outcome
of those projects is assessed as being reasonably certain as regards viability and technical
feasibility. Such expenditure is capitalised and amortised over the estimated period of sale
for each product, commencing in the year that the product is ready for sale. Amortisation is
charged straight line or based on the units produced, depending on the nature of the product
and the availability of reliable estimates of production volumes.
The cost of development projects which are expected to take a substantial period of time to
complete includes attributable borrowing costs.
Intangible assets acquired in business combinations
The identifiable net assets acquired as a result of a business combination may include intangible
assets other than goodwill. Any such intangible assets are amortised straight line over their
expected useful lives as follows:

Patents, licences and trademarks | up to 20 years
Technology | up to 13 years
Customer relationships | up to 15 years

The assets’ useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
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Software, patents and intellectual property
The estimated useful lives are as follows:

Software | up to seven years
| shorter of the economic life and the period the right is
Patents and intellectual property | legally enforceable

The assets’ useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and
any recognised impairment losses.
Land is not depreciated. Depreciation is provided on other assets estimated to write off the
depreciable amount of relevant assets by equal annual instalments over their estimated useful
lives. In general, the rates used are:

Freehold and long leasehold buildings | 2% per annum
Short leasehold property | over the period of the lease
Plant, machinery, etc. | 10% to 20% per annum
Fixtures, fittings, tools and other equipment | 10% to 33% per annum

The cost of any assets which are expected to take a substantial period of time to complete
includes attributable borrowing costs.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each
balance sheet date. An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the
first-in, first-out method. The cost of finished goods and work in progress comprises raw
materials, direct labour, other direct costs and related production overheads (based on normal
operating capacity). The cost of items of inventory which take a substantial period of time to
complete includes attributable borrowing costs.
The net realisable value of inventories is the estimated selling price in the ordinary course of
business, less applicable variable selling expenses. Provisions are made for any slow-moving,
obsolete or defective inventories.
Trade and other receivables
Trade receivables and contract assets are either classified as ‘held to collect’ and initially
recognised at fair value and subsequently measured at amortised cost, less any appropriate
provision for expected credit losses or as ‘held to collect and sell’ and measured at fair value
through other comprehensive income (FVOCI).
A provision for expected credit losses is established when there is objective evidence that it will
not be possible to collect all amounts due according to the original payment terms. Expected
credit losses are determined using historical write-offs as a basis, adjusted for factors that are
specific to the debtor, general economic conditions of the industry in which the debtor operates
and with a default risk multiplier applied to reflect country risk premium. The Group applies the
IFRS 9 simplified lifetime expected credit loss approach for trade receivables and contract assets
which do not contain a significant financing component.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation, and a reliable estimate can be made of the amount of the
obligation. Where the Group expects some or all of a provision to be reimbursed, for example
under an insurance contract, the reimbursement is recognised as a separate asset but only when
the reimbursement is virtually certain.
Provisions for warranties and product liability, disposal indemnities, restructuring costs, property
dilapidations and legal claims are recognised when: the Company has a legal or constructive
obligation as a result of a past event; it is probable that an outflow of resources will be required to
settle the obligation; and the amount has been reliably estimated. Provisions are not recognised
for future operating losses.
Provisions are discounted where the time value of money is material.
Where there is a number of similar obligations, for example where a warranty has been given, the
likelihood that an outflow will be required in settlement is determined by considering the class of
obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect
to any one item included in the same class of obligations may be small.
Discontinued operations
A discontinued operation is either:
–
A component of the Group’s business that represents a separate major line of business or
geographical area of operations that has been disposed of, has been abandoned or meets the
criteria to be classified as held for sale; or
–
A business acquired solely for the purpose of selling it.
Discontinued operations are presented on the income statement as a separate line and are
shown net of tax.
In accordance with IAS 21, gains and losses on intra-group monetary assets and liabilities are not
eliminated. Therefore foreign exchange rate movements on intercompany loans with discontinued
operations are presented on the income statement as non-headline finance cost items.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and highly liquid interest-bearing
securities with maturities of three months or less.
In the cash-flow statement, cash and cash equivalents are shown net of bank overdrafts, which
are included as current borrowings in liabilities on the balance sheet.
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Financial assets
The classification of financial assets depends on the purpose for which the assets were acquired.
Management determines the classification of an asset at initial recognition and re-evaluates the
designation at each reporting date. Financial assets are classified as: measured at amortised
cost, fair value through other comprehensive income or fair value through profit and loss.
Financial assets primarily include trade receivables, cash and cash equivalents (comprising cash
at bank, money-market funds, and short-term deposits), short-term investments, derivatives
(foreign exchange contracts and interest rate derivatives) and unlisted investments.
–
Trade receivables are classified either as ‘held to collect’ and measured at amortised cost or
as ‘held to collect and sell’ and measured at fair value through other comprehensive income
(FVOCI). The Group may sell trade receivables due from certain customers before the due date.
Any trade receivables from such customers that are not sold at the reporting date are classified
as ‘held to collect and sell’.
–
Cash and cash equivalents (consisting of balances with banks and other financial institutions,
money-market funds and short-term deposits) and short-term investments are subject to low
market risk. Cash balances, short-term deposits and short-term investments are measured at
amortised cost. Money market funds are measured at fair value through profit and loss (FVPL).
–
Derivatives are measured at FVPL.
–
Listed and unlisted investments are measured at FVOCI.
–
Deferred contingent consideration are measured at FVPL.
Financial assets are derecognised when the right to receive cash-flows from the assets has
expired, or has been transferred, and the Group has transferred substantially all of the risks and
rewards of ownership.
On initial recognition, the Group may make an irrevocable election to designate certain
investments as FVOCI, if they are not held for trading or relate to contingent consideration on a
business combination. When securities measured at FVOCI are sold or impaired, the
accumulated fair value adjustments remain in reserves.
Financial assets are classified as current if they are expected to be realised within 12 months of
the balance sheet date.
Financial liabilities
Borrowings are initially recognised at the fair value of the proceeds, net of related transaction
costs. These transaction costs, and any discount or premium on issue, are subsequently
amortised under the effective interest rate method through the income statement as interest over
the life of the loan and added to the liability disclosed in the balance sheet. Related accrued
interest is included in the borrowings figure.
Borrowings are classified as current liabilities unless the Group has an unconditional right to
defer settlement of the liability for at least one year after the balance sheet date.
Derivative financial instruments and hedging activities
The Group uses derivative financial instruments to hedge its exposures to foreign exchange and
interest rates arising from its operating and financing activities.
Derivative financial instruments are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured at their fair value. The method of
recognising any resulting gain or loss depends on whether the derivative financial instrument is
designated as a hedging instrument and, if so, the nature of the item being hedged.
Where derivative financial instruments are designated into hedging relationships, the Group
formally documents the following:
–
The risk management objective and strategy for entering the hedge;
–
The nature of the risks being hedged and the economic relationship between the hedged item
and the hedging instrument; and
–
Whether the change in cash-flows of the hedged item and hedging instrument are expected to
offset each other.
Changes in the fair value of any derivative financial instruments that do not qualify for hedge
accounting are recognised immediately in the income statement.
Fair value hedge
The Group uses derivative financial instruments to convert part of its fixed rate debt to floating
rate in order to hedge the risks arising from its external borrowings.
The Group designates these as fair value hedges of interest rate risk. Changes in the hedging
instrument are recorded in the income statement, together with any changes in the fair values of
the hedged assets or liabilities that are attributable to the hedged risk to the extent that the hedge
is effective. Gains or losses relating to any ineffectiveness are immediately recognised in the
income statement.
Cash-flow hedge
Cash-flow hedging is used by the Group to hedge certain exposures to variability in future cash-flows.
The effective portions of changes in the fair values of derivatives that are designated and qualify as
cash-flow hedges are recognised in equity. The gain or loss relating to any ineffective portion is
recognised immediately in the income statement. Amounts accumulated in the hedge reserve are
recycled in the income statement in the periods when the hedged items will affect profit or loss (for
example, when the forecast sale that is hedged takes place).
If a forecast transaction that is hedged results in the recognition of a non-financial asset (for
example, inventory) or a liability, the gains and losses previously deferred in the hedge reserve are
transferred from the reserve and included in the initial measurement of the cost of the asset or
liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in the hedge reserve at that time remains
in the reserve and is recognised when the forecast transaction is ultimately recognised in the
income statement.
Accounting policies
continued
Overview
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Financial statements
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Smiths Group plc Annual Report FY2024
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
reported in other comprehensive income is immediately transferred to the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash-flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is
recognised in other comprehensive income; the gain or loss relating to any ineffective portion is
recognised immediately in the income statement. When a foreign operation is disposed of, gains
and losses accumulated in equity related to that operation are included in the income statement
for that period.
Fair value of financial assets and liabilities
The fair values of financial assets and financial liabilities are the amounts at which the instrument
could be exchanged in a current transaction between willing parties, other than in a forced or
liquidation sale.
IFRS 13: ‘Fair value measurement’ requires fair value measurements to be classified according to
the following hierarchy:
–
Level 1 – quoted prices in active markets for identical assets or liabilities;
–
Level 2 – valuations in which all inputs are observable either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and
–
Level 3 – valuations in which one or more inputs that are significant to the resulting value are
not based on observable market data.
See note 21 for information on the methods which the Group uses to estimate the fair values of its
financial instruments.
Dividends
Dividends are recognised as a liability in the period in which they are authorised. The interim
dividend is recognised when it is paid and the final dividend is recognised when it has been
approved by shareholders at the Annual General Meeting.
New accounting standards effective 2024
The accounting policies adopted in the preparation of these consolidated financial statements are
consistent with those followed in the previous financial year, except for the adoption of the
following amendment to IAS 12 ‘Income Taxes’ that is applicable for the year ended 31 July 2024.
The International Accounting Standards Board (IASB) issued amendments to IAS 12, which
narrow the scope of the initial recognition exemption (IRE). These amendments clarify that the
IRE does not apply to transactions that give rise to equal and offsetting temporary differences,
such as leased buildings.
As a result of the amendments, we now recognise deferred tax assets and liabilities for
temporary differences arising on the initial recognition of all leased buildings.
The amendments are applied retrospectively and comparative figures for the previous period
have been restated to conform with the current period’s presentation. The adoption of the
amendments to IAS 12 have resulted in a £26m increase to both the deferred tax assets and the
deferred tax liabilities balances on the 31 July 2023 comparative balance sheet, with no impact on
profit or net assets.
New standards and interpretations not yet adopted
No other new standards, new interpretations or amendments to standards or interpretations have
been published which are expected to have a significant impact on the Group’s financial
statements.
Parent Company
The ultimate Parent Company of the Group is Smiths Group plc, a company incorporated in
England and Wales and listed on the London Stock Exchange.
The accounts of the Parent Company, Smiths Group plc, have been prepared in accordance with
the Companies Act 2006 and Financial Reporting Standard 101, ‘Reduced Disclosure Framework’.
The Company accounts are presented in separate financial statements on pages 202 to 209. The
principal subsidiaries of the Parent Company are listed in the above accounts.
Notes to the accounts
Overview
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Governance
Financial statements
149
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Smiths Group plc Annual Report FY2024
1. Segment information
Analysis by operating segment
The Group is organised into four major business segments: John Crane; Smiths Detection;
Flex-Tek; and Smiths Interconnect. These business segments design, manufacture and support
the following products:
–
John Crane
– mechanical seals, seal support systems, power transmission couplings and
specialised filtration systems;
–
Smiths Detection
– sensors and systems that detect and identify explosives, narcotics,
weapons, chemical agents, biohazards and contraband;
–
Flex-Tek
– engineered components, flexible hosing and rigid tubing that heat and move fluids
and gases; and
–
Smiths Interconnect
– specialised electronic and radio frequency board-level and waveguide
devices, connectors, cables, test sockets and sub-systems used in high-speed, high-reliability,
secure connectivity applications.
The position and performance of each business segment are reported at each Board meeting to
the Board of Directors. This information is prepared using the same accounting policies as the
consolidated financial information except that the Group uses headline operating profit to monitor
the segmental results and operating assets to monitor the segmental position. See note 3 and
note 29 for an explanation of which items are excluded from headline measures.
Intersegment sales and transfers are charged at arm’s length prices.
Segment trading performance

|  |  |  |  | Year ended 31 July 2024
|  | Smiths |  | Smiths | Corporate |
| John Crane | Detection | Flex-Tek | Interconnect | costs | Total
| £m | £m | £m | £m | £m | £m
Revenue | 1,133 | 859 | 786 | 354 | – | 3,132
Segmental headline operating |  |  |  |  |  |
profit | 263 | 102 | 161 | 49 | – | 575
Corporate headline operating |  |  |  |  |  |
costs | – | – | – | – | (49) | (49)
Headline operating profit/(loss) | 263 | 102 | 161 | 49 | (49) | 526
Items excluded from headline |  |  |  |  |  |
measures (note 3) | (34) | (19) | (26) | (3) | (29) | (111)
Operating profit/(loss) | 229 | 83 | 135 | 46 | (78) | 415
Headline operating margin | 23.2% | 11.9% | 20.5% | 13.9% |  | 16.8%

|  |  |  |  | Year ended 31 July 2023
|  | Smiths |  | Smiths | Corporate |
| John Crane | Detection | Flex-Tek | Interconnect | costs | Total
| £m | £m | £m | £m | £m | £m
Revenue | 1,079 | 803 | 768 | 387 | – | 3,037
Segmental headline operating |  |  |  |  |  |
profit | 244 | 90 | 149 | 62 | – | 545
Corporate headline operating |  |  |  |  |  |
costs | – | – | – | – | (44) | (44)
Headline operating profit/(loss) | 244 | 90 | 149 | 62 | (44) | 501
Items excluded from headline |  |  |  |  |  |
measures (note 3) | (27) | (35) | (18) | (12) | (6) | (98)
Operating profit/(loss) | 217 | 55 | 131 | 50 | (50) | 403
Headline operating margin | 22.6% | 11.2% | 19.4% | 16.0% |  | 16.5%

Operating profit is stated after charging (crediting) the following items:

|  |  |  |  | Year ended 31 July 2024
|  | Smiths |  | Smiths | Corporate and |
| John Crane | Detection | Flex-Tek | Interconnect | non-headline | Total
| £m | £m | £m | £m | £m | £m
Depreciation – property, plant |  |  |  |  |  |
and equipment | 17 | 11 | 8 | 9 | – | 45
Depreciation – right of use assets | 15 | 8 | 3 | 7 | 1 | 34
Amortisation of capitalised |  |  |  |  |  |
development costs | – | 2 | – | – | – | 2
Amortisation of software, patents |  |  |  |  |  |
and intellectual property | 1 | 1 | 2 | – | 1 | 5
Amortisation of acquired |  |  |  |  |  |
intangibles | – | – | – | – | 49 | 49
Share-based payment | 3 | 2 | 2 | 2 | 5 | 14

Notes to the accounts
continued
Overview
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Financial statements
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Smiths Group plc Annual Report FY2024

|  |  |  |  | Year ended 31 July 2023
|  | Smiths |  | Smiths | Corporate and |
| John Crane | Detection | Flex-Tek | Interconnect | non-headline | Total
| £m | £m | £m | £m | £m | £m
Depreciation – property, plant |  |  |  |  |  |
and equipment | 17 | 10 | 8 | 6 | 1 | 42
Depreciation – right of use assets | 15 | 7 | 6 | 3 | 1 | 32
Amortisation of capitalised |  |  |  |  |  |
development costs | – | 2 | – | – | – | 2
Amortisation of software, patents |  |  |  |  |  |
and intellectual property | 3 | 1 | – | 2 | 1 | 7
Amortisation of acquired |  |  |  |  |  |
intangibles | – | – | – | – | 52 | 52
Share-based payment | 3 | 1 | 2 | 2 | 6 | 14
Transition services cost |  |  |  |  |  |
reimbursement | – | – | – | – | (10) | (10)

The corporate and non-headline column comprises central information technology, human
resources and headquarters costs and non-headline expenses (see note 3).
Segment assets and liabilities
Segment assets

| 31 July 2024
|  | Smiths |  | Smiths | Corporate and |
| John Crane | Detection | Flex-Tek | Interconnect | non-headline | Total
| £m | £m | £m | £m | £m | £m
Property, plant, equipment, |  |  |  |  |  |
right of use assets, development |  |  |  |  |  |
projects, other intangibles and |  |  |  |  |  |
investments | 168 | 153 | 103 | 65 | 61 | 550
Inventory, trade and other |  |  |  |  |  |
receivables | 528 | 612 | 254 | 153 | 18 | 1,565
Segment assets | 696 | 765 | 357 | 218 | 79 | 2,115
| 31 July 2023
|  | Smiths |  | Smiths | Corporate and |
| John Crane | Detection | Flex-Tek | Interconnect | non-headline | Total
| £m | £m | £m | £m | £m | £m
Property, plant, equipment, |  |  |  |  |  |
right of use assets, development |  |  |  |  |  |
projects, other intangibles and |  |  |  |  |  |
investments | 162 | 142 | 84 | 66 | 375 | 829
Inventory, trade and other |  |  |  |  |  |
receivables | 489 | 599 | 226 | 160 | 10 | 1,484
Segment assets | 651 | 741 | 310 | 226 | 385 | 2,313

Non-headline assets comprise receivables relating to non-headline items, acquisitions
and disposals.
Segment liabilities

| 31 July 2024
|  | Smiths |  | Smiths | Corporate and |
| John Crane | Detection | Flex-Tek | Interconnect | non-headline | Total
| £m | £m | £m | £m | £m | £m
Segmental liabilities | 202 | 398 | 99 | 59 | – | 758
Corporate and non-headline |  |  |  |  |  |
liabilities | – | – | – | – | 341 | 341
Segment liabilities | 202 | 398 | 99 | 59 | 341 | 1,099
| 31 July 2023
|  | Smiths |  | Smiths | Corporate and |
| John Crane | Detection | Flex-Tek | Interconnect | non-headline | Total
| £m | £m | £m | £m | £m | £m
Segmental liabilities | 200 | 357 | 91 | 62 | – | 710
Corporate and non-headline |  |  |  |  |  |
liabilities | – | – | – | – | 339 | 339
Segment liabilities | 200 | 357 | 91 | 62 | 339 | 1,049

Non-headline liabilities comprise provisions and accruals relating to non-headline items,
acquisitions and disposals.
Reconciliation of segment assets and liabilities to statutory assets and liabilities

|  | Assets |  | Liabilities
|  | 31 July |  | 31 July
| 31 July | 2023 | 31 July | 2023
| 2024 | (restated) | 2024 | (restated)
| £m | £m | £m | £m
Segment assets and liabilities | 2,115 | 2,313 | (1,099) | (1,049)
Goodwill and acquired intangibles | 1,404 | 1,415 | – | –
Derivatives | 4 | 5 | (17) | (20)
Current and deferred tax | 118 | 168 | (102) | (146)
Retirement benefit assets and obligations | 132 | 195 | (103) | (106)
Cash and borrowings | 459 | 285 | (659) | (654)
Statutory assets and liabilities | 4,232 | 4,381 | (1,980) | (1,975)

Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
151
151
Smiths Group plc Annual Report FY2024
Segment capital expenditure
The capital expenditure on property, plant and equipment, capitalised development and other
intangible assets for each business segment is:

|  | Smiths |  | Smiths | Corporate and |
| John Crane | Detection | Flex-Tek | Interconnect | non-headline | Total
| £m | £m | £m | £m | £m | £m
Capital expenditure year ended |  |  |  |  |  |
31 July 2024 | 34 | 28 | 10 | 11 | 3 | 86
Capital expenditure year ended |  |  |  |  |  |
31 July 2023 | 19 | 36 | 10 | 16 | – | 81

Segment capital employed
Capital employed is a non-statutory measure of invested resources. It comprises statutory net
assets adjusted to add goodwill recognised directly in reserves in respect of subsidiaries acquired
before 1 August 1998 of £478m (FY2023: £478m) and eliminate retirement benefit assets and
obligations and litigation provisions relating to non-headline items, both net of related tax, and net
debt. See note 29 for a reconciliation of net assets to capital employed.
The 12-month rolling average capital employed by business segment, which Smiths uses to
calculate segmental return on capital employed, is:

| 31 July 2024
|  | Smiths |  | Smiths |
| John Crane | Detection | Flex-Tek | Interconnect | Total
| £m | £m | £m | £m | £m
Average segmental capital employed | 1,035 | 1,124 | 606 | 472 | 3,237
Average corporate capital employed |  |  |  |  | (31)
Average total capital employed – continuing |  |  |  |  |
operations |  |  |  |  | 3,206
| 31 July 2023
|  | Smiths |  | Smiths |
| John Crane | Detection | Flex-Tek | Interconnect | Total
| £m | £m | £m | £m | £m
Average segmental capital employed | 1,022 | 1,154 | 570 | 466 | 3,212
Average corporate capital employed |  |  |  |  | (16)
Average total capital employed – continuing |  |  |  |  |
operations |  |  |  |  | 3,196

Analysis of revenue
The revenue for the main product and service lines for each business segment is:

| Original |  |
| equipment | Aftermarket | Total
John Crane | £m | £m | £m
Revenue year ended 31 July 2024 | 321 | 812 | 1,133
Revenue year ended 31 July 2023 | 314 | 765 | 1,079
|  | Other security |
| Aviation | systems | Total
Smiths Detection | £m | £m | £m
Revenue year ended 31 July 2024 | 595 | 264 | 859
Revenue year ended 31 July 2023 | 535 | 268 | 803
| Aerospace | Industrials | Total
Flex-Tek | £m | £m | £m
Revenue year ended 31 July 2024 | 154 | 632 | 786
Revenue year ended 31 July 2023 | 144 | 624 | 768
|  |  | Components,
|  |  | connectors &
|  |  | subsystems
Smiths Interconnect |  |  | £m
Revenue year ended 31 July 2024 |  |  | 354
Revenue year ended 31 July 2023 |  |  | 387

Aftermarket sales contributed £1,587m (FY2023: £1,545m) of Group revenue: John Crane
aftermarket sales were £812m (FY2023: £765m); Smiths Detection aftermarket sales were £443m
(FY2023: £413m); Flex-Tek aftermarket sales were £332m (FY2023: £367m); and Smiths
Interconnect aftermarket sales were £nil (FY2023: £nil).
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
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Smiths Group plc Annual Report FY2024
Segmental revenue is analysed by the Smiths Group key global markets as follows:

| General | Safety & |  | Aerospace |
| Industrial | Security | Energy | & Defence | Total
| £m | £m | £m | £m | £m
John Crane revenue |  |  |  |  |
Revenue year ended 31 July 2024 | 407 | – | 726 | – | 1,133
Revenue year ended 31 July 2023 | 423 | – | 656 | – | 1,079
Smiths Detection revenue |  |  |  |  |
Revenue year ended 31 July 2024 | – | 859 | – | – | 859
Revenue year ended 31 July 2023 | – | 803 | – | – | 803
Flex-Tek revenue |  |  |  |  |
Revenue year ended 31 July 2024 | 632 | – | – | 154 | 786
Revenue year ended 31 July 2023 | 624 | – | – | 144 | 768
Smiths Interconnect revenue |  |  |  |  |
Revenue year ended 31 July 2024* | 166 | – | – | 188 | 354
Revenue year ended 31 July 2023 | 190 | 141 | – | 56 | 387
Total revenue |  |  |  |  |
Revenue year ended 31 July 2024* | 1,205 | 859 | 726 | 342 | 3,132
Revenue year ended 31 July 2023 | 1,237 | 944 | 656 | 200 | 3,037

*
Following a review of the Smiths Interconnect segmental revenue reporting, the Group has
reanalysed this segment’s revenue by key global market. The driver of this reanalysis is to
better align Smiths Interconnect’s reporting with how the business is run and the revenue
reporting of Smiths Interconnect’s peer group.
The updated revenue analysis has been applied prospectively for FY2024.
The Aerospace key
global market has been renamed Aerospace & Defence and £143m of revenue that would have
previously been reported as Safety & Security revenue is now reported as Aerospace & Defence
revenue.
The Group’s statutory revenue is analysed as follows:

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Sale of goods recognised at a point in time | 2,275 | 2,244
Sale of goods recognised over time | 45 | 36
Services recognised over time | 812 | 757
| 3,132 | 3,037

Analysis by geographical areas
The Group’s revenue by destination and non-current operating assets by location are shown below:

|  |  |  | Intangible assets, right of use
|  |  |  | assets and property, plant and
|  | Revenue |  | equipment
| Year ended | Year ended |  |
| 31 July 2024 | 31 July 2023 | 31 July 2024 | 31 July 2023
| £m | £m | £m | £m
Americas | 1,694 | 1,641 | 1,046 | 1,254
Europe | 622 | 563 | 461 | 519
Asia Pacific | 475 | 493 | 14 | 71
Rest of World | 341 | 340 | – | 29
| 3,132 | 3,037 | 1,521 | 1,873

Revenue by destination attributable to the United Kingdom was £128m (FY2023: £87m).
Other revenue found to be significant included, the United States of America, totalling £1,411m
(FY2023: £1,383m), China (excluding Hong Kong) £144m (FY2023: £150m) and Germany £130m
(FY2023: £143m). Revenue by destination has been selected as the basis for attributing revenue to
geographical areas as this was the geographic attribution of revenue used by management to
review business performance.
Non-current assets located in the United Kingdom total £113m (FY2023: £123m). Significant
non-current assets held in the United States of America £1.024m (FY2023: £1,181m) and Germany
£330m (FY2023: £345m).
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
153
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Smiths Group plc Annual Report FY2024
2. Operating costs
The Group’s operating costs for continuing operations are analysed as follows:

| Year ended 31 July 2024 | Year ended 31 July 2023
|  | Non-headline |  |  | Non-headline |
| Headline | (note 3) | Total | Headline | (note 3) | Total
| £m | £m | £m | £m | £m | £m
Cost of sales – direct materials, |  |  |  |  |  |
labour, production and |  |  |  |  |  |
distribution overheads | 1,964 | – | 1,964 | 1,919 | – | 1,919
Selling costs | 219 | – | 219 | 221 | – | 221
Administrative expenses | 425 | 111 | 536 | 406 | 98 | 504
Research and development tax |  |  |  |  |  |
credits | (2) | – | (2) | – | – | –
Transition services cost |  |  |  |  |  |
reimbursement | – | – | – | (10) | – | (10)
Total | 2,606 | 111 | 2,717 | 2,536 | 98 | 2,634

Operating profit is stated after charging (crediting):

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Research and development expense | 73 | 73
Depreciation of property, plant and equipment | 45 | 42
Depreciation of right of use assets | 34 | 32
Amortisation of intangible assets | 56 | 61
Transition services cost reimbursement | – | (10)

Research and development (R&D) cash costs were £109m (FY2023: £113m) comprising £73m
(FY2023: £73m) of R&D expensed to the income statement, £14m (FY2023: £21m) of capitalised
costs and £22m (FY2023: £19m) of customer-funded R&D.
Administrative expenses include £1m (FY2023: £2m) in respect of lease payments for short-term
and low-value leases which were not included within right of use assets and lease liabilities.
Auditors’ remuneration
The following fees were paid or are payable to the Company’s auditors, KPMG LLP and other
firms in the KPMG network, for the year ended 31 July 2024.

|  | Year ended
| Year ended | 31 July 2023
| 31 July 2024 | (represented)
| £m | £m
Audit services |  |
Fees payable to the Company’s auditors for the audit of the Company’s |  |
annual financial statements | 2.8 | 2.7
Fees payable to the Company’s auditors and its associates for other |  |
services: |  |
– the audit of the Company’s subsidiaries | 3.6 | 5.5
| 6.4 | 8.2
All other services | 0.5 | 0.5

Other services comprise audit-related assurance services of £0.5m (FY2023: £0.5m).
Audit-related assurance services include the review of the Interim Report and the limited
assurance of the Group’s Scope 1-3 Greenhouse Gas emissions metrics. Total fees for non-audit
services comprise 8% (FY2023: 6%) of audit fees.
In the current year, the Group has agreed £0.1m of additional fees with the Group auditors relating
to the audit of the prior year financial statements.
3. Non-statutory profit measures
Headline profit measures
The Group has identified and defined a ‘headline’ measure of performance which is not impacted
by material non-recurring items or items considered non-operational/trading in nature. This non-
GAAP measure of profit is not intended to be a substitute for any IFRS measures of performance,
but is a key measure used by management to understand and manage performance. See the
disclosures on presentation of results in accounting policies for an explanation of the
adjustments. The items excluded from ‘headline’ are referred to as ‘non-headline’ items.
Notes to the accounts
continued
Overview
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Governance
Financial statements
154
Smiths Group plc Annual Report FY2024
Non-headline operating profit items
i. Continuing operations
The non-headline items included in statutory operating profit for continuing operations were
as follows:

|  | Year ended | Year ended
|  | 31 July 2024 | 31 July 2023
| Notes | £m | £m
Acquisition and disposal related costs |  |  |
Post-acquisition integration costs and fair value adjustment unwind |  | (3) | –
Fair value loss on contingent consideration |  | (13) | (6)
Loss on disposal of financial asset |  | (9) | –
Business acquisition/disposal costs and related expenses |  | (5) | (1)
Legacy pension scheme arrangements |  |  |
Past service costs for benefit equalisation | 8 | (4) | 4
Scheme administration costs | 8 | (6) | (2)
Retirement benefit scheme settlement loss | 8 | – | (1)
Non-headline litigation provision movements |  |  |
Movement in provision held against Titeflex Corporation |  |  |
subrogation claims | 23 | 5 | 7
Provision for John Crane, Inc. asbestos litigation | 23 | (29) | (16)
Cost recovery for John Crane, Inc. asbestos litigation |  | 3 | 7
Other items |  |  |
Amortisation of acquired intangible assets | 10 | (49) | (52)
Funding of charitable foundation |  | (1) | –
Restructuring costs |  | – | (36)
Irrecoverable VAT on chain export transaction |  | – | (2)
Non-headline items in operating profit – continuing operations |  | (111) | (98)

Acquisition and disposal related costs
The £3m (FY2023: £nil) of post-acquisition integration costs and fair value adjustment unwind
principally relate to Flex-Tek’s acquisitions of HCP and Burns Machine. These include £2m of
defined project costs for the integration of these businesses into the existing Flex-Tek business
and a £1m expense for the unwinding the acquisition balance sheet fair value adjustments
required by IFRS 3 ‘Business combinations’. These have been recognised as non-headline as the
charge did not relate to trading activity.
The £13m fair value loss (FY2023: £6m loss) on contingent consideration represents the full write
down of the remaining fair value of the Group’s contingent consideration from the sale of Smiths
Medical to ICU Medical, Inc. (ICU). Since FY2022 the Group has held a financial asset for 10% of
the equity in ICU and a financial asset for the fair value of US$100m additional consideration
contingent on the future share performance of ICU. During FY2024 the Group has sold 2,030,000
shares in ICU reducing Smiths’ equity investment in ICU to approximately 1.9% of ICU’s issued
share capital. The Group’s reduced investment in ICU has resulted in the contingent consideration
no longer being payable. This is considered to be a non-headline item on the basis that these fair
value charges do not relate to trading activity.
The £9m loss (FY2023: £nil) on disposal of financial asset relates to the block sale discount on the
disposal of 2,030,000 ICU shares. This is considered a non-headline charge as it did not relate to
trading activity.
The £5m (FY2023: £1m) of business acquisition/disposal costs and related expenses represent
incremental costs related to the Group’s Mergers & Acquisitions (M&A) activity. These items do
not include the cost of employees working on transactions and are reported as non-headline
because they are dependent on the level of M&A activity being undertaken and do not relate to
trading activity.
Legacy pension scheme arrangements
The £4m charge (FY2023: £4m credit) for past service costs for benefit equalisation represents
the recognition of additional Smith Industries Pension Scheme (SIPS) liabilities following the
agreement of new methodologies to achieve Guaranteed Minimum Pension (GMP) equalisation
retirement benefits for men and women, see note 8 for further details. These past service
(costs)/credits are reported as non-headline as they are non-recurring and relate to legacy
pension liabilities.
Scheme administration costs of £6m (FY2023: £2m) relate to the TIGPS legacy pension scheme
and SIPS ‘path to buy-in’ costs. As the Group has no expectation of receiving a refund from the
scheme, an economic benefit value of zero has been placed on the TIGPS surplus. These are
non-headline charges as the Smiths Group effectively has no economic exposure to these costs
and they are paid from cash retained in the scheme.
Non-headline litigation provision movements
The following litigation costs and recoveries have been treated as non-headline items because
the provisions were treated as non-headline when originally recognised and the subrogation
claims and litigation relate to products that the Group no longer sells in these markets:
–
The £5m credit (FY2023: £7m credit) recognised by Titeflex Corporation was principally driven
by a reduction in the number of expected claims. See note 23 for further details; and
–
The £29m charge (FY2023: £16m) in respect of John Crane, Inc. asbestos litigation is driven
primarily by adverse judgements impacting the future expected indemnity costs. See note 23
for further details; and
–
In FY2024 £3m (FY2023: £7m) of asbestos litigation costs were recovered by John Crane, Inc.
via insurer settlements.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
155
155
Smiths Group plc Annual Report FY2024
Other items
Acquisition related intangible asset amortisation costs of £49m (FY2023: £52m) were recognised
in the current period. This is considered to be a non-headline item on the basis that these charges
result from acquisition accounting and do not relate to current trading activity.
The £1m funding of charitable foundation charge is the FY2024 funding of the Smiths Group
Foundation, charitable giving foundation with a committed initial £10m of funding linked to
engineering-related good causes. This is recognised as non-headline as the charge did not relate
to trading activity.
Non-headline finance costs items
The non-headline items included in finance costs for continuing operations were as follows:

|  | Year ended | Year ended
|  | 31 July 2024 | 31 July 2023
| Notes | £m | £m
Unwind of discount on provisions | 23 | (9) | (7)
Other finance income – retirement benefits | 8 | 6 | 7
Interest payable on overdue VAT |  | – | (7)
Other sundry financing losses |  | (2) | (1)
Non-headline items in finance costs – continuing |  |  |
operations |  | (5) | (8)
Continuing operations – non-headline loss before |  |  |
taxation |  | (116) | (106)

The financing elements of non-headline legacy liabilities, including the £9m (FY2023: £7m)
unwind of discount on provisions, were excluded from headline finance costs because these
provisions were originally recognised as non-headline and this treatment has been maintained
for ongoing costs and credits.
Other finance income comprises £6m (FY2023: £7m) of financing credits relating to retirement
benefits. These were excluded from headline finance costs because the ongoing costs and credits
are a legacy of previous employee pension arrangements.
The prior year £7m of interest payable on overdue VAT related to a historic classification error on
chain export transactions.
Non-headline taxation (charge)/credit
The non-headline items included in taxation for continuing operations were as follows:

|  | Year ended | Year ended
|  | 31 July 2024 | 31 July 2023
| Notes | £m | £m
Tax credit on non-headline loss | 6 | 20 | 18
Increase in unrecognised UK deferred tax asset | 6 | (19) | (31)
Non-headline taxation (charge)/credit – continuing |  |  |
operations |  | 1 | (13)
Continuing operations – non-headline loss for the year |  | (115) | (119)

Movement in unrecognised UK deferred tax asset
These movements are reported as non-headline because the original credit was reported as
non-headline.
ii. Discontinued operations
In the prior year the Group has recognised an additional £6m gain on transactions related to the
sale of Smiths Medical. These items are considered to be non-headline as they relate to
discontinued former business activities.
4. Net finance costs

|  | Year ended | Year ended
|  | 31 July 2024 | 31 July 2023
| Notes | £m | £m
Interest income |  | 26 | 36
Interest expense: |  |  |
– bank loans and overdrafts, including associated fees |  | (47) | (50)
– other loans |  | (12) | (17)
– interest on leases |  | (5) | (4)
Interest expense |  | (64) | (71)
Headline net finance costs |  | (38) | (35)
Other financing (losses)/gains: |  |  |
– valuation movements on fair value hedged debt |  | 5 | (9)
– valuation movements on fair value derivatives |  | (5) | 9
– foreign exchange and ineffectiveness on net |  |  |
investment hedges |  | (2) | (3)
– retranslation of foreign currency bank balances |  | – | 2
– unwind of discount on provisions | 3 | (9) | (7)
Other financing (losses)/gains |  | (11) | (8)
Other non-headline finance cost items: |  |  |
Interest expense - interest on overdue VAT |  | – | (7)
Other finance income - Interest on retirement benefits | 8 | 6 | 7
Other non-headline finance cost items |  | 6 | –
Net finance costs |  | (43) | (43)

Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
156
Smiths Group plc Annual Report FY2024
5. Earnings per share
Basic earnings per share are calculated by dividing the profit for the year attributable to equity
shareholders of the Company by the average number of ordinary shares in issue during the year.

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Profit attributable to equity shareholders for the year: |  |
– continuing | 250 | 225
– discontinued | – | 6
Total | 250 | 231
| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| Number of shares | Number of shares
Number of shares in issue, net of shares held in Employee Benefit Trust: |  |
Weighted average number for basic earnings per share | 345,901,957 | 352,891,120
Adjustment for potentially dilutive shares | 1,389,223 | 1,790,699
Weighted average number for diluted earnings per share | 347,291,180 | 354,681,819

No options (FY2023: nil) were excluded from this calculation because their effect was anti-dilutive.

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| pence | pence
Statutory earnings per share total – basic | 72.3p | 65.5p
Statutory earnings per share total – diluted | 72.0p | 65.1p
Statutory earnings per share continuing operations – basic | 72.3p | 63.8p
Statutory earnings per share continuing operations – diluted | 72.0p | 63.4p

A reconciliation of statutory and headline earnings per share is as follows:

| Year ended 31 July 2024 | Year ended 31 July 2023
|  | Basic EPS | Diluted EPS |  | Basic EPS | Diluted EPS
| £m | (p) | (p) | £m | (p) | (p)
Total profit attributable to |  |  |  |  |  |
equity shareholders of the |  |  |  |  |  |
Parent Company | 250 | 72.3p | 72.0p | 231 | 65.5 | 65.1
Exclude: Non-headline items |  |  |  |  |  |
(note 3) | 115 |  |  | 113 |  |
Headline earnings per share | 365 | 105.5p | 105.2p | 344 | 97.5 | 97.0
Profit from continuing |  |  |  |  |  |
operations attributable to |  |  |  |  |  |
equity shareholders of the |  |  |  |  |  |
Parent Company | 250 | 72.3p | 72.0p | 225 | 63.8 | 63.4
Exclude: Non-headline items |  |  |  |  |  |
(note 3) | 115 |  |  | 119 |  |
Headline earnings per share – |  |  |  |  |  |
continuing operations | 365 | 105.5p | 105.2p | 344 | 97.5 | 97.0

6. Taxation
This note only provides information about corporate income taxes under IFRS. Smiths companies
operate in over 50 countries across the world. They pay and collect many different taxes in
addition to corporate income taxes including: payroll taxes; value added and sales taxes; property
taxes; product-specific taxes; and environmental taxes. The costs associated with these other
taxes are included in profit before tax.

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
The taxation charge in the consolidated income statement for the year |  |
comprises: |  |
Continuing operations |  |
Current taxation: |  |
– current income tax charge | 114 | 112
– current tax adjustments in respect of prior periods | 1 | (7)
Current taxation | 115 | 105
Deferred taxation | 6 | 29
Total taxation expense – continuing operations | 121 | 134
Analysed as: |  |
Headline taxation expense | 122 | 121
Non-headline taxation charge/(credit) | (1) | 13
Total taxation expense in the consolidated income statement | 121 | 134
| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Tax on items charged/(credited) to equity |  |
Deferred tax: |  |
– retirement benefit schemes | (17) | (32)
Taxation on retirement benefit movements | (17) | (32)

The £17m credit (FY2023: £32m credit) to equity for retirement benefit schemes principally
related to UK retirement schemes.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
157
157
Smiths Group plc Annual Report FY2024
Current taxation liabilities

| Current tax
| £m
At 31 July 2022 | (17)
Charge to income statement | (105)
Tax paid | 92
At 31 July 2023 | (30)
Comprising: |
Current tax receivable | 47
Current tax payable within one year | (74)
Corporation tax payable after more than one year | (3)
At 31 July 2023 | (30)
Charge to income statement | (115)
Tax paid | 99
At 31 July 2024 | (46)
Comprising: |
Current tax receivable | 24
Current tax payable within one year | (70)
At 31 July 2024 | (46)

Provisions for tax liabilities amount to £44m (FY2023: £46m) the majority of which relates to the
risk of challenge from tax authorities to the geographic allocation of profits across the Group.
In addition to the risks provided for, the Group faces a variety of other tax risks, which result from
operating in a complex global environment, including the ongoing reform of both international and
domestic tax rules, new and ongoing tax audits in the Group’s larger markets and the challenge to
fulfil ongoing tax compliance filing and transfer pricing obligations given the scale and diversity of
the Group’s global operations.
The Group anticipates that a number of tax audits are likely to conclude in the next 12 to 24
months for which provisions are recognised based on best estimates and management’s
judgements concerning the ultimate outcome of the audit. Due to the uncertainty associated with
such items, it is possible at a future date, on conclusion of open tax matters, the final outcome
may vary significantly from the amounts noted above.
Reconciliation of the tax charge
The headline tax charge for the year of £122m (FY2023: £121m) represents an effective rate of
25.0% (FY2023: 26.0%).
The tax charge on the profit for the year for continuing operations is different from the standard
rate of corporation tax in the UK, with a rate for FY2024 of 25.0% (FY2023: 21.0%). The differences
are reconciled as follows:

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Profit before taxation | 372 | 366
Notional taxation expense at UK corporate rate of 25% (FY2023: 21%) | 93 | 77
Different tax rates on non-UK profits and losses | (4) | 13
Non-deductible expenses and other charges | 20 | 24
Tax credits and non-taxable income | (7) | (10)
Non-headline UK deferred tax asset recognition adjustment | 19 | 31
Other adjustments to unrecognised deferred tax | (3) | 2
Prior year true-up | 3 | (3)
Total taxation expense in the consolidated income statement | 121 | 134
Comprising: |  |
Taxation on headline profit | 122 | 121
Non-headline taxation items: |  |
– Tax credit on non-headline loss | (20) | (18)
– UK deferred tax asset recognition adjustment | 19 | 31
Taxation on non-headline items | (1) | 13
Total taxation expense in the consolidated income statement | 121 | 134

The table above reconciles the notional taxation charge calculated at the UK tax rate, to the actual
total tax charge. As a group operating in multiple countries, the actual tax rates applicable to
profits in those countries are different from the UK tax rate. The impact is shown above as
different tax rates on non-UK profits and losses. The Group’s worldwide business leads to the
consideration of a number of important factors which may affect future tax charges, such as: the
levels and mix of profitability in different jurisdictions, transfer pricing regulations, tax rates
imposed and tax regime reforms, acquisitions, disposals, restructuring activities, and
settlements or agreements with tax authorities.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
158
Smiths Group plc Annual Report FY2024
Deferred taxation assets/(liabilities)

| Property, plant, |  |  |  |  |
| equipment and |  | Losses |  |  |
| intangible | Employment | carried |  |  |
| assets | benefits | forward | Provisions | Other | Total
| £m | £m | £m | £m | £m | £m
At 31 July 2022 | (76) | (51) | 103 | 79 | (4) | 51
Reallocations | – | (2) | 6 | (4) | – | –
Charge to income statement – |  |  |  |  |  |
continuing operations | 13 | (3) | (32) | (5) | (2) | (29)
Credit to equity | – | 32 | – | – | – | 32
Foreign exchange rate |  |  |  |  |  |
movements | 3 | (1) | (2) | (4) | 2 | (2)
At 31 July 2023 | (60) | (25) | 75 | 66 | (4) | 52
IAS 12 amendment - Initial |  |  |  |  |  |
recognition exemption | (26) | – | – | – | 26 | –
At 31 July 2023 (restated) | (86) | (25) | 75 | 66 | 22 | 52
Comprising: |  |  |  |  |  |
Deferred tax assets | (2) | (27) | 50 | 60 | 40 | 121
Deferred tax liabilities | (84) | 2 | 25 | 6 | (18) | (69)
At 31 July 2023 | (86) | (25) | 75 | 66 | 22 | 52
Reallocations | (9) | (1) | 5 | – | 5 | –
Charge to income statement – |  |  |  |  |  |
continuing operations | 16 | (2) | (15) | 4 | (9) | (6)
Credit to equity | – | 17 | – | – | – | 17
Foreign exchange rate |  |  |  |  |  |
movements | – | (1) | – | 1 | (1) | (1)
At 31 July 2024 | (79) | (12) | 65 | 71 | 17 | 62
Comprising: |  |  |  |  |  |
Deferred tax assets | (9) | (15) | 31 | 63 | 24 | 94
Deferred tax liabilities | (70) | 3 | 34 | 8 | (7) | (32)
At 31 July 2024 | (79) | (12) | 65 | 71 | 17 | 62

Of the amounts included within ‘Other’, shown in the above table, as at 31 July 2024, amounts
relating to tax on unremitted earnings were £22 m (FY2023: £19m). The aggregate amount of
temporary differences associated with investments in subsidiaries for which deferred tax
liabilities have not been recognised is immaterial.
The deferred tax asset relating to losses has been recognised on the basis of strong evidence of
future taxable profits against which the unutilised tax losses can be relieved or it is probable that
they will be recovered against the reversal of deferred tax liabilities. The closing net deferred tax
asset balance attributable to UK activities and included in the balance at 31 July 2024 amounted to
£nil (FY2023: £nil). Deferred tax attributable to provisions includes £54m (FY2023: £51m) relating
to John Crane Inc litigation provision, and £9m (FY2023: £9m) relating to Titeflex Corporation. See
note 23 for additional information on provisions.
The International Accounting Standards Board issued amendments to IAS 12, which narrow the
scope of the initial recognition exemption (IRE). These amendments clarify that the IRE does not
apply to transactions that give rise to equal and offsetting temporary differences, such as leases.
As a result of the amendments, we now recognise deferred tax assets and liabilities for
temporary differences arising on the initial recognition of all leases. The amendments are applied
retrospectively, and comparative figures for previous periods have been restated to conform with
the current period’s presentation.
Losses with unrecognised deferred tax
The Group does not recognise deferred tax on losses of £603m (FY2023: £521m).
The expiry date of operating losses carried forward is dependent upon the law of the various
territories in which the losses arise. A summary of expiry dates in respect of which deferred tax
has not been recognised is set out below:

| 2024 | Expiry of | 2023 | Expiry of
| £m | losses | £m | losses
Unrestricted losses – operating losses | 603 | No expiry | 521 | No expiry

Losses with deferred tax unrecognised have increased by £82m (FY2023: £186m increase). This is
mainly due to an increase in unrecognised UK losses of £63m. This movement is explained by the
reduction in the related UK deferred tax asset as offset by the deferred tax liability on the UK
pension scheme surplus.
Developments in the Group tax position
Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions in which
the Group operates and the legislation will be effective for the Group’s financial year beginning
1 August 2024. On 11 July 2023, the UK enacted the BEPS Pillar Two global minimum taxes
legislation for accounting periods beginning on or after 1 January 2024 (Year Ended 31 July 2025
for Smiths).
We carried out a
Pillar Two impact assessment on 2023 financial data for the constituent entities
within Smiths Group. We consider that implementation of qualified domestic minimum top-up
taxes and the income inclusion rule in the UK will not have a material impact on the Group’s
FY2025 ETR.
The Group is continuing to assess the impact of the Pillar Two income taxes legislation on future
financial performance.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
159
159
Smiths Group plc Annual Report FY2024
7. Employees

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Staff costs during the period |  |
Wages and salaries | 844 | 802
Social security | 99 | 92
Share-based payment (note 9) | 14 | 14
Pension costs (including defined contribution schemes) (note 8) | 35 | 31
Total | 992 | 939

The average number of persons employed, including employees on permanent, fixed term and
temporary contracts, rounded to the nearest 50 employees, was:

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
John Crane | 6,200 | 6,050
Smiths Detection | 3,400 | 3,250
Flex-Tek | 4,050 | 3,750
Smiths Interconnect | 2,600 | 2,800
Corporate (including central/shared IT services) | 300 | 300
Total | 16,550 | 16,150

Key management
The key management of the Group comprises Smiths Group plc Board Directors and Executive
Committee members. Their aggregate compensation is shown below. Further information for the
Executive Directors is available in the single figure remuneration table on page 101.
Further
information for the Non-executive Directors is available in the single figure remuneration table on
page 107.

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Key management compensation |  |
Salaries and short-term employee benefits | 12.6 | 12.0
Cost of retirement benefits | 0.7 | 0.7
Cost of share-based incentive plans | 3.4 | 4.9

No member of key management had any material interest during the period in a contract of
significance (other than a service contract or a qualifying third-party indemnity provision) with the
Company or any of its subsidiaries.
Options and awards held at the end of the period by key management in respect of the Company’s
share-based incentive plans were:

| Year ended 31 July 2024 | Year ended 31 July 2023
|  | Weighted |  | Weighted
| Number of | average | Number of | average
| instruments | exercise | instruments | exercise
| ’000 | price | ’000 | price
LTIP | 1,389 |  | 1,580 |
SAYE | 11 | £13.06 | 16 | £11.45

Related party transactions
The only related party transactions in FY2024 were key management compensation
(FY2023: key management compensation).
8. Retirement benefits
The Group provides retirement benefits to employees in a number of countries. This includes
defined benefit and defined contribution plans and, mainly in the United Kingdom (UK) and United
States of America (US), post-retirement healthcare.
Defined contribution plans
The Group operates defined contribution plans across many countries. In the UK a defined
contribution plan has been offered since the closure of the UK defined benefit pension plans. In
the US a 401(k) defined contribution plan operates. The total expense recognised in the
consolidated income statement in respect of all these plans was £31m (FY2023: £31m).
Defined benefit and post-retirement healthcare plans
The principal defined benefit pension plans are in the UK and in the US and these have been
closed so that no future benefits are accrued.
For all schemes, pension costs are assessed in accordance with the advice of independent,
professionally qualified actuaries. These valuations have been updated by independent qualified
actuaries in order to assess the liabilities of the schemes as at 31 July 2024. Contributions to the
schemes are made on the advice of the actuaries, in accordance with local funding requirements.
The changes in the present value of the net pension asset in the period were:

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
At beginning of period | 89 | 194
Foreign exchange rate movements | 1 | 1
Current service cost | (4) | (2)
Headline scheme administration costs | (3) | (4)
Non-headline scheme administration costs | (6) | (2)
Past service cost, curtailments, settlements – continuing operations | (4) | 4
Finance income – retirement benefits | 6 | 7
Contributions by employer | 16 | 5
Actuarial (losses)/gains | (66) | (114)
Net retirement benefit asset | 29 | 89

Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
160
Smiths Group plc Annual Report FY2024
UK pension schemes
The Group’s funded UK pension schemes are subject to a statutory funding objective, as set out in
UK pension legislation. Scheme trustees need to obtain regular actuarial valuations to assess the
scheme against this funding objective. The trustees and sponsoring companies need to agree
funding plans to improve the position of a scheme when it is below the acceptable funding level.
The UK Pensions Regulator has extensive powers to protect the benefits of members, promote
good administration and reduce the risk of situations arising which may require compensation
to be paid from the Pension Protection Fund. These include imposing a schedule of contributions
or the calculation of the technical provisions, where a trustee and company fail to agree
appropriate calculations.
Smiths Industries Pension Scheme (SIPS)
This scheme was closed to future accrual effective 1 November 2009. SIPS provides index-linked
(to applicable caps) pension benefits based on final earnings at date of closure. SIPS is governed
by a corporate trustee (S.I. Pension Trustees Limited, a wholly owned subsidiary of Smiths Group
plc). The board of trustee directors currently comprises four Company-nominated trustees and
four member-nominated trustees, with an independent chairman selected by Smiths Group plc.
Trustee directors are responsible for the management, administration, funding and investment
strategy of the scheme.
The most recent actuarial valuation of this scheme has been performed using the Projected Unit
Method as at 31 March 2023. The valuation showed a surplus of £26m on the Technical Provisions
funding basis at the valuation date and the funding position has improved since then. As part of
the valuation agreement, no contributions are currently being paid to SIPS and the Group’s
current expectation is that contributions will not recommence. The next actuarial valuation is due
as at 31 March 2026.
The duration of SIPS liabilities is around 20 years (FY2023: 18 years) for active deferred members,
17 years (FY2023: 19 years) for deferred members and 10 years (FY2023: 10 years) for pensioners
and dependants.
Under the governing documentation of SIPS, any future surplus would be returnable to
Smiths Group plc by refund, assuming gradual settlement of the liabilities over the lifetime
of the scheme.
In SIPS, as part of ongoing data cleansing work being undertaken to prepare the scheme for a
potential full buy-out in the future, a wider review is being carried out to determine if the method
used in the early 1990s to equalise retirement ages between men and women was implemented
correctly. In FY2022, an additional liability of £19m was recognised as a past service cost to reflect
the expected impact of correcting this issue for certain sections of the scheme. In FY2023, a
further liability of £12m was recognised and £16m of liabilities recognised in previous years was
released following the identification of additional evidence of the obligation for equalisation,
resulting in a net credit to the income statement of £4m. In the current year, a further liability of
£3m has been recognised as a past service cost, to reflect the expected impact of correcting this
issue for the remaining sections of the scheme of £0.4m, as well as an updated cost estimate for
the impact of GMP equalisation of £2.6m.
Prior to the current year, additional costs of £29m in
FY2019 and £6m FY2021 were recognised in respect of GMP equalisation. Whilst the wider review
of scheme data remains on-going, no further liabilities are expected in respect of retirement age
equalisation or GMP equalisation.
SIPS uses a Liability Driven Investment (LDI) strategy to hedge against interest and inflation rate
changes. During the significant volatility that followed the UK Government’s mini budget in
September 2022, like most other pension schemes with LDI assets, this hedging policy meant
that SIPS asset values fell, as did the value of its obligations, although the funding position quickly
recovered. All of SIPS’s collateral requirements in respect of the LDI assets were met, with no
support required from the Group. The SIPS trustee, in consultation with the Group, has since
reduced the leverage in the LDI portfolio, strengthened its ongoing monitoring and shock tests
and moved significant non-LDI assets into more liquid alternatives. As a result, the scheme is in a
stronger position to withstand any further shocks to gilt yields.
TI Group Pension Scheme (TIGPS)
This scheme was closed to future accrual effective 1 November 2009. TIGPS provides index-
linked (to applicable caps) pension benefits based on final earnings at the date of closure. TIGPS
is governed by a corporate trustee (TI Pension Trustee Limited, an independent company). The
board of trustee directors comprises three Company-nominated trustees and four member-
nominated trustees, with an independent trustee director selected by the trustee. The trustee is
responsible for the management, administration, funding and investment strategy of the scheme.
In June 2022 the TIGPS trustee completed a deal to secure its remaining uninsured pension
liabilities, by way of a bulk annuity buy-in with Rothesay Life plc. This means all of the scheme’s
liabilities are insured via seven buy-in policies. The final buy-in has been secured with an intention
to fully buy-out the Scheme as soon as reasonably practical and within a period of four years. The
FY2022 income statement recognised a settlement loss of £171m in relation to the buy-in.
In terms agreed between the Group and the TIGPS trustee prior to the transaction, when TIGPS
converts all of its buy-in policies to buy-out policies and subsequently winds up, the trustee is
expected to use any surplus remaining, after the costs of buying-out and winding up the scheme
have been met, to improve member benefits. The FY 2022 income statement recognised a past
service cost of £24m in relation to the derecognition of the remaining surplus. The Group
currently has no expectation of receiving a refund from the scheme and has placed an economic
benefit value of zero on the TIGPS surplus from 10 June 2022.
As TIGPS currently retains the legal obligation to pay all scheme benefits, TIGPS liabilities remain
part of the retirement benefit obligations on the balance sheet alongside the corresponding
buy-in assets. These liabilities and assets will be derecognised at the point the buy-in policies are
converted to buy-outs and the legal obligation for payment of benefits is transferred to the
relevant insurers.
The most recent actuarial valuation of this scheme has been performed using the Projected Unit
Method as at 5 April 2023. The valuation showed a surplus of £44m on the Technical Provisions
funding basis at the valuation date and the funding position remains in surplus. Given TIGPS’s
circumstances, the Group’s current expectation is that no further contributions to TIGPS will be
required. The next actuarial valuation is due as at 5 April 2026.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
161
161
Smiths Group plc Annual Report FY2024
The duration of the TIGPS liabilities is around 18 years (FY2023: 20 years) for active deferred
members, 16 years (FY2023: 18 years) for deferred members and 9 years (FY2023: 10 years) for
pensioners and dependants.
US pension plans
The valuations of the principal US pension and post-retirement healthcare plans were performed
using census data at 1 January 2024.
The pension plans were closed with effect from 30 April 2009 and benefits were calculated as
at that date and are not revalued. Governance of the US pension plans is overseen by a Settlor
Committee appointed by Smiths Group Services Corp, a wholly owned subsidiary of the Group.
The duration of the liabilities for the largest US plan is around 15 years (FY2023: 15 years) for
active deferred members, 14 years (FY2023: 14 years) for deferred members and 9 years (FY2023:
10 years) for pensioners and dependants.
Risk management
In respect of uninsured liabilities, the pensions schemes are exposed to risks that:
–
Investment returns are below expectations, leaving the schemes with insufficient assets in
future to pay all their pension obligations;
–
Members and dependants live longer than expected, increasing the value of the pensions which
the schemes have to pay;
–
Inflation rates are higher than expected, causing amounts payable under index-linked pensions
to be higher than expected; and
–
Increased contributions are required to meet funding targets if lower interest rates increase
the current value of liabilities.
These risks are managed separately for each pension scheme. However, the Group has adopted a
common approach of closing defined benefit schemes to cap members’ entitlements and of
supporting trustees in adopting investment strategies which aim to hedge the value of assets
against changes in the value of liabilities caused by changes in interest and inflation rates.
Across SIPS and TIGPS, approximately 60% of all liabilities are now de-risked through 11
bulk annuities.
TIGPS
TIGPS has covered roughly 100% of liabilities with matching annuities, eliminating investment
return, longevity, inflation and funding risks in respect of those liabilities.
SIPS
SIPS has covered roughly 33% of liabilities with matching annuities, eliminating investment
return, longevity, inflation and funding risks in respect of those liabilities. It has also adopted a
LDI strategy to hedge interest and inflation risks of the scheme’s uninsured liabilities by
investment in gilts together with the use of gilt repurchase arrangements, total return swaps,
inflation swaps and interest rate swaps. The strategy also takes into account the scheme’s
corporate bond investments.
The critical estimates and principal assumptions used in updating the valuations are set
out below:

| 2024 | 2024 | 2024 | 2023 | 2023 | 2023
| UK | US | Other | UK | US | Other
Rate of increase in salaries | n/a | n/a | 2.8% | n/a | n/a | 2.5%
Rate of increase for active deferred |  |  |  |  |  |
members | 4.0% | n/a | n/a | 4.0% | n/a | n/a
Rate of increase in pensions in payment | 3.3% | n/a | 0.5% | 3.3% | n/a | 1.6%
Rate of increase in deferred pensions | 3.3% | n/a | n/a | 3.3% | n/a | n/a
Discount rate | 5.0% | 5.2% | 2.8% | 5.1% | 5.2% | 2.8%
Inflation rate | 3.3% | n/a | 2.1% | 3.3% | n/a | 0.4%

The assumptions used in calculating the costs and obligations of the Group’s defined benefit
pension plans are set by the Group after consultation with independent professionally qualified
actuaries. The assumptions used are estimates chosen from a range of possible actuarial
assumptions which, due to the timescale covered, may not necessarily occur in practice. For
countries outside the UK and the US, assumptions are disclosed as a weighted average.
Inflation rate assumptions
The RPI inflation assumption of 3.3% has been derived using the Aon UK Government Gilt Prices
Only Curve with an Inflation Risk Premium of 0.1% p.a. (FY2023: 0.2%). The impact of changing the
Inflation Risk Premium was to increase the UK liabilities by £16m.
The Government’s response to its consultation on RPI reform was published on 25 November
2020, and strongly implied that RPI will become aligned with CPI-H from 2030. No specific
allowance (beyond anything already priced into markets) has been factored into the RPI
assumptions for potential changes. The assumption for the long-term gap between RPI and CPI is
0.5% p.a. (FY2023: 0.5%) reflecting the Group’s view on the market pricing of this gap over the
lifetime of the UK schemes’ liabilities, i.e., 0.9% p.a. (FY2023: 0.9%) pre-2030 and 0.1% p.a.
post-2030 (FY2023: 0.1%).
Short-term inflation has reduced from its peak in FY2023 following the Bank of England’s
measures to combat high inflation. Consequently, the long-term inflation assumptions are similar
to the prior year. The full impact of high inflation is mitigated to an extent by the caps in place on
index-linked increases. The Board considered and declined a request from the Trustee of SIPS to
recommend an additional discretionary increase to pensions in payment. However, there is no
change in the Group’s constructive obligations and allowance for the possibility for certain
discretionary increases in future continues to be included in the defined benefit obligations shown
below, as well as being included in the Trustee’s ongoing approach to funding SIPS. Furthermore,
all of the annuity policies that currently back part of the SIPS obligations include allowance for the
possibility of these discretionary increases to be paid in future, where applicable.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
162
Smiths Group plc Annual Report FY2024
Discount rate assumptions
The UK schemes use a discount rate based on the annualised yield on the Aon GBP Single Agency
Select AA Curve, using the expected cash-flows from a notional scheme with obligations of the
same duration as that of the UK schemes. This is the same approach as was adopted for FY2023.
The US Plan uses a discount rate based on the annualised yield derived from Willis Towers
Watson’s RATE:Link (10th – 90th) model using the Plan’s expected cash-flows.
The discount rate assumptions are similar to the prior year.
Mortality assumptions
The mortality assumptions used in the principal UK schemes are based on the latest ‘SAPS S3’
birth year tables with relevant scaling factors based on the recent experience of the schemes.
The assumption allows for future improvements in life expectancy in line with the latest 2023 CMI
projections, with a smoothing factor of 7.0 and ‘A’ parameter of 0.5%/0.25% (SIPS/TIGPS) and
blended to a long-term rate of 1.5%. The latest CMI projections incorporate allowance for the
impact of COVID-19 by placing a weighting of 0% on 2020 and 2021 mortality data and a weighting
of 15% on 2022 and 2023 mortality data.
The mortality assumptions used in the principal US schemes are based on generational mortality
using the latest Pri-2012 sex-distinct, employee/non-disabled annuitant table, with a 2012 base
year, projected forward generationally with the latest MP-2021 mortality scale. No explicit
adjustment has been made to mortality assumptions in respect of COVID-19. The impact of
COVID-19 remains uncertain and further data studies are underway to better predict the impact
on future mortality.

| UK schemes
| Male | Female | Male | Female
Expected further years of life | 31 July 2024 | 31 July 2024 | 31 July 2023 | 31 July 2023
Member who retires next year at age 65 | 22 | 24 | 21 | 23
Member, currently 45, when they retire in 20 years’ time | 23 | 25 | 20 | 24
| US schemes
| Male | Female | Male | Female
Expected further years of life | 31 July 2024 | 31 July 2024 | 31 July 2023 | 31 July 2023
Member who retires next year at age 65 | 21 | 22 | 21 | 22
Member, currently 45, when they retire in 20 years’ time | 22 | 24 | 22 | 24

Sensitivity
Sensitivities in respect of the key assumptions used to measure the principal pension schemes as
at 31 July 2024 are set out below. These sensitivities show the hypothetical impact of a change in
each of the listed assumptions in isolation, with the exception of the sensitivity to inflation which
incorporates the impact of certain correlating assumptions. In practice, such assumptions rarely
change in isolation.

| Profit before | Increase/ | (Increase)/ | Profit before | Increase/ | (Increase)/
| tax | (decrease) in | decrease in | tax | (decrease) in | decrease in
| for year | scheme | scheme | for year | scheme | scheme
| ended | assets | liabilities | ended | assets | liabilities
| 31 July 2024 | 31 July 2024 | 31 July 2024 | 31 July 2023 | 31 July 2023 | 31 July 2023
| £m | £m | £m | £m | £m | £m
Rate of mortality – one year |  |  |  |  |  |
increase in life expectancy | (2) | 66 | (108) | (2) | 60 | (88)
Rate of mortality – one year |  |  |  |  |  |
decrease in life expectancy | 2 | (67) | 110 | 2 | (62) | 89
Rate of inflation – 0.25% increase | (1) | 21 | (39) | (1) | 23 | (43)
Discount rate – 0.25% increase | 2 | (33) | 65 | 2 | (36) | 60
Market value of scheme assets – |  |  |  |  |  |
2.5% increase | 2 | 30 | – | 2 | 30 | –

The effect on profit before tax reflects the impact of current service cost and net interest cost.
The value of the scheme assets is affected by changes in mortality rates, inflation and discounting
because they affect the carrying value of the insurance assets.
Asset valuation
The pension schemes hold assets in a variety of pooled funds, in which the underlying assets
typically are invested in credit and cash assets. These funds are valued. The price of the funds is
set by administrators/custodians employed by the investment managers and based on the value
of the underlying assets held in the funds. Prices are generally updated daily, weekly or quarterly
depending upon the frequency of the fund’s dealing.
Bonds are valued using observable broker quotes. Gilt repurchase obligations are valued by
the relevant manager, which derives the value using an industry recognised model with
observable inputs.
Total return, interest and inflation swaps and forward FX contracts are bilateral agreements
between counterparties and do not have observable market prices. These derivative contracts
are valued using observable inputs.
Insured liabilities comprise annuity policies that match all or part of the scheme obligation to
identified groups of members. These assets are valued by an external qualified actuary at the
actuarial valuation of the corresponding liability, reflecting this matching relationship.
The insurance policies are treated as qualifying insurance policies as none of the insurers are
related parties of the Group, and the proceeds of the policies can only be used to pay or fund
employee benefits for the respective schemes, are not available to the Group’s creditors and
cannot be paid to the Group.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
163
163
Smiths Group plc Annual Report FY2024
Retirement benefit plan assets

|  |  |  | 31 July 2024 – £m
| UK | US | Other |
| schemes | schemes | countries | Total
Cash and cash equivalents | 63 | 8 | 1 | 72
Pooled funds: |  |  |  |
– Pooled equity | – | – | 5 | 5
– Pooled Diversified Growth | – | – | 12 | 12
– Pooled credit | 337 | – | – | 337
Corporate bonds | 208 | 141 | – | 349
Government bonds/LDI | 427 | 41 | 3 | 471
Insured liabilities | 1,337 | – | – | 1,337
Total market value | 2,372 | 190 | 21 | 2,583
|  |  |  | 31 July 2023 – £m
| UK | US | Other |
| schemes | schemes | countries | Total
Cash and cash equivalents | 93 | 1 | 1 | 95
Pooled funds: |  |  |  |
– Pooled equity | – | – | 3 | 3
– Pooled Diversified Growth | – | – | 13 | 13
– Pooled credit | 320 | – | – | 320
Corporate bonds | 203 | 141 | – | 344
Government bonds/LDI | 421 | 44 | 3 | 468
Insured liabilities | 1,323 | – | – | 1,323
Property | 7 | – | – | 7
Total market value | 2,367 | 186 | 20 | 2,573

The UK Government bonds/LDI portfolios contain £691m (FY2023: £717m) of UK Government
bonds (gilts), £270m (FY2023: £276m) of gilt repurchase obligations and £5m of interest and
inflation swap obligations (FY2023: £18m assets) and forward FX contracts with a net obligation
of £nil (FY2023: £2m asset). These are held to hedge against foreign currency risk. The pooled
funds, insured liabilities and property assets are unquoted. The scheme assets do not include any
property occupied by, or other assets used by, the Group.
The asset valuations are effective as at the end of the period, consistent with the calculations
determining the obligations, except for a small legacy commercial property investment which was
sold in the current year. This investment was only valued at the end of each calendar quarter, so
no valuation was available as at FY2023. The Group considered taking the most recent available
valuation to be appropriate given the size of the commercial property investment relative to the
overall value of invested assets and wider commercial property market returns since the most
recent valuation.
The Group acknowledges that responsibility for the effective management of the schemes’
assets lies primarily with the trustees, but also accepts that any risks inherent in the investment
strategy, including ESG and climate risk, are ultimately underwritten by the Group. Consequently,
the Group ensures that the trustees’ investment strategy and statements of investment principles
are compatible with the Group’s wider sustainability strategy. For TIGPS, where all benefits are
now secured by way of annuity purchase, all investment risks including ESG and climate risk,
have effectively now been eliminated. For SIPS, a significant portion of investment risks have
already been eliminated through annuity purchase and the scheme’s time horizon to full buy-in,
hence exposure to investment risks including ESG and climate risk, continues to reduce.
Present value of funded scheme liabilities and assets for the main UK and US schemes

|  |  | 31 July 2024 – £m
|  |  | US
| SIPS | TIGPS | schemes
Present value of funded scheme liabilities: |  |  |
– Active deferred members | (13) | (9) | (28)
– Deferred members | (379) | (304) | (80)
– Pensioners | (915) | (609) | (93)
Present value of funded scheme liabilities | (1,307) | (922) | (201)
Market value of scheme assets | 1,439 | 933 | 190
Surplus restriction | – | (11) | –
Surplus/(deficit) | 132 | – | (11)
|  |  | 31 July 2023 – £m
|  |  | US
| SIPS | TIGPS | schemes
Present value of funded scheme liabilities: |  |  |
– Active deferred members | (25) | (18) | (31)
– Deferred members | (388) | (326) | (86)
– Pensioners | (838) | (561) | (85)
Present value of funded scheme liabilities | (1,251) | (905) | (202)
Market value of scheme assets | 1,446 | 921 | 186
Surplus restriction | – | (16) | –
Surplus/(deficit) | 195 | – | (16)

Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
164
Smiths Group plc Annual Report FY2024
Net retirement benefit obligations

| 31 July 2024 – £m
| UK | US | Other |
| schemes | schemes | countries | Total
Market value of scheme assets | 2,372 | 190 | 21 | 2,583
Present value of funded scheme liabilities | (2,229) | (201) | (26) | (2,456)
Surplus restriction | (11) | – | – | (11)
Surplus/(deficit) | 132 | (11) | (5) | 116
Unfunded pension plans | (37) | (6) | (38) | (81)
Post-retirement healthcare | (2) | (1) | (3) | (6)
Present value of unfunded obligations | (39) | (7) | (41) | (87)
Net pension asset/(liability) | 93 | (18) | (46) | 29
Comprising: |  |  |  |
Retirement benefit assets | 132 | – | – | 132
Retirement benefit liabilities | (39) | (18) | (46) | (103)
Net pension asset/(liability) | 93 | (18) | (46) | 29
| 31 July 2023 – £m
| UK | US | Other |
| schemes | schemes | countries | Total
Market value of scheme assets | 2,367 | 186 | 20 | 2,573
Present value of funded scheme liabilities | (2,156) | (202) | (25) | (2,383)
Surplus restriction | (16) | – | – | (16)
Surplus/(deficit) | 195 | (16) | (5) | 174
Unfunded pension plans | (37) | (6) | (36) | (79)
Post-retirement healthcare | (3) | (1) | (2) | (6)
Present value of unfunded obligations | (40) | (7) | (38) | (85)
Net pension asset/(liability) | 155 | (23) | (43) | 89
Comprising: |  |  |  |
Retirement benefit assets | 195 | – | – | 195
Retirement benefit liabilities | (40) | (23) | (43) | (106)
Net pension asset/(liability) | 155 | (23) | (43) | 89

Where any individual scheme shows a recoverable surplus under IAS 19, this is disclosed on the
balance sheet as a retirement benefit asset. The IAS 19 surplus of any one scheme is not available
to fund the IAS 19 deficit of another scheme. The retirement benefit asset disclosed arises from
the rights of the employers to recover the surplus at the end of the life of the scheme, i.e., when
the last beneficiary’s obligation has been met.
Amounts recognised in the consolidated income statement

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Amounts charged to operating profit |  |
Current service cost | 4 | 2
Past service costs – benefit equalisations | 4 | (5)
Settlement loss | – | 1
Headline scheme administration costs | 3 | 4
Non-headline scheme administration costs | 6 | 2
| 17 | 4
The operating cost is charged as follows: |  |
Headline administrative expenses | 7 | 6
Non-headline settlement loss | – | 1
Non-headline administrative expenses | 10 | (3)
| 17 | 4
Amounts credited to finance costs |  |
Non-headline other finance income – retirement benefits | (6) | (7)

Amounts recognised directly in the consolidated statement of comprehensive income

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Re-measurements of retirement defined benefit assets and liabilities |  |
Difference between interest credit and return on assets | 54 | (660)
Experience gains/(losses) on scheme liabilities | (103) | (54)
Actuarial gains arising from changes in demographic assumptions | 4 | 48
Actuarial gains/(losses) arising from changes in financial assumptions | (26) | 548
Movement in surplus restriction | 5 | 4
| (66) | (114)

Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
165
165
Smiths Group plc Annual Report FY2024
Changes in present value of funded scheme assets

| 31 July 2024 – £m
| UK | US | Other |
| schemes | schemes | countries | Total
At beginning of period | 2,367 | 186 | 20 | 2,573
Interest on assets | 117 | 9 | 1 | 127
Actuarial movement on scheme assets | 54 | (1) | 1 | 54
Employer contributions | – | 10 | – | 10
Scheme administration costs | (7) | (2) | – | (9)
Benefits paid | (159) | (12) | (1) | (172)
At end of period | 2,372 | 190 | 21 | 2,583
| 31 July 2023 – £m
| UK | US | Other |
| schemes | schemes | countries | Total
At beginning of period | 3,067 | 225 | 22 | 3,314
Interest on assets | 105 | 10 | 1 | 116
Actuarial movement on scheme assets | (638) | (21) | (1) | (660)
Scheme administration costs | (5) | (1) | – | (6)
Foreign exchange rate movements | – | (10) | – | (10)
Assets distributed on settlements | – | (4) | – | (4)
Benefits paid | (162) | (13) | (2) | (177)
At end of period | 2,367 | 186 | 20 | 2,573

Changes in present value of funded defined benefit obligations

| 31 July 2024 – £m
| UK | US | Other |
| schemes | schemes | countries | Total
At beginning of period | (2,156) | (202) | (25) | (2,383)
Past service costs | (3) | – | (1) | (4)
Interest on obligations | (106) | (11) | (1) | (118)
Actuarial movement on liabilities | (123) | – | (1) | (124)
Foreign exchange rate movements | – | – | 1 | 1
Benefits paid | 159 | 12 | 1 | 172
At end of period | (2,229) | (201) | (26) | (2,456)

|  |  |  | 31 July 2023 – £m
| UK | US | Other |
| schemes | schemes | countries | Total
At beginning of period | (2,738) | (238) | (27) | (3,003)
Past service costs | 4 | – | – | 4
Interest on obligations | (94) | (10) | (1) | (105)
Actuarial movement on liabilities | 510 | 19 | 1 | 530
Foreign exchange rate movements | – | 11 | – | 11
Liabilities extinguished on settlements | – | 3 | – | 3
Benefits paid | 162 | 13 | 2 | 177
At end of period | (2,156) | (202) | (25) | (2,383)

Changes in present value of unfunded defined benefit pensions and post-retirement
healthcare plans

|  | Assets |  | Obligations
| Year ended | Year ended | Year ended | Year ended
| 31 July 2024 | 31 July 2023 | 31 July 2024 | 31 July 2023
| £m | £m | £m | £m
At beginning of period | – | – | (85) | (98)
Current service cost | – | – | (4) | (1)
Interest on obligations | – | – | (3) | (3)
Actuarial movement | – | – | (1) | 12
Employer contributions | 6 | 5 | – | –
Benefits paid | (6) | (5) | 6 | 5
At end of period | – | – | (87) | (85)

Changes in the effect of the asset ceiling over the year

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Irrecoverable asset at beginning of period | (16) | (20)
Actuarial movement on scheme assets | 5 | 4
At end of period | (11) | (16)

Cash contributions
Company contributions to the defined benefit pension plans and post-retirement healthcare plans
totalled £16m (FY2023: £5m). This comprised a planned £5m contribution plus a one-off
additional £5m contribution to the US funded scheme (FY2023: £nil) and £6m (FY2023: £5m) on
providing benefits under unfunded defined benefit pension and post-retirement healthcare plans.
In FY2025, cash contributions to the Group’s schemes are expected to be up to £11m in total.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
166
Smiths Group plc Annual Report FY2024
Recent legal rulings
In July 2024, the UK Court of Appeal upheld the High Court’s ruling in the Virgin Media v NTL
Pension Trustees II court case relating to section 37 of the pension Schemes Act 1993 and
amendments to benefits for contracted-out defined benefit schemes, such as SIPS and TIGPS.
The ruling confirmed the need for an actuarial certificate where such schemes made changes to
benefits between 6 April 1997 and 5 April 2016, and any amendments that affected relevant
benefits were void without the appropriate certificate.
The Trustees of SIPS and TIGPS are currently seeking additional legal advice on what actions,
if any, should be taken, which is unlikely to be progressed until later in 2024. In the meantime,
SIPS and TIGPS will continue to be administered on the current basis until the legal position has
been clarified.
9. Employee share schemes
The Group operates share schemes and plans for the benefit of employees. The nature of the
principal schemes and plans, including general conditions, is set out below:
Long-Term Incentive Plan (LTIP)
The LTIP is a share plan under which an award over a capped number of shares will vest after the
end of a three-year performance period if performance conditions are met. LTIP awards are
made to selected senior executives, including the Executive Directors.
LTIP performance conditions
Each performance condition has a threshold below which no shares vest and a maximum
performance target at or above which the award vests in full. For performance between
‘threshold’ and ‘maximum’, awards vest on a straight-line sliding scale. The performance
conditions are assessed separately; so performance on one condition does not affect the
vesting of the other elements of the award. To the extent that the performance targets are not
met over the three-year performance period, awards lapse. There is no re-testing of the
performance conditions.
LTIP awards have performance conditions relating to organic revenue growth, growth in headline
EPS, ROCE, free cash-flow and meeting ESG targets.
Restricted stock
Restricted stock is used by the Remuneration & People Committee, as a part of recruitment
strategy, to make awards in recognition of incentive arrangements forfeited on leaving a previous
employer. If an award is considered appropriate, the award will take account of relevant factors
including the fair value of awards forfeited, any performance conditions attached, the likelihood of
those conditions being met and the proportion of the vesting period remaining.
Save as you earn (SAYE)
The SAYE scheme is an HM Revenue & Customs approved all-employee savings-related share
option scheme which is open to all UK employees. Participants enter into a contract to save a
fixed amount per month of up to £500 in aggregate for three years and are granted an option
over shares at a fixed option price, set at a discount to market price at the date of invitation to
participate. The number of shares is determined by the monthly amount saved and the bonus paid
on maturity of the savings contract. Options granted under the SAYE scheme are not subject to
any performance conditions.

Ordinary shares under option/ | Long-term | Restricted | Save as you earn |  | Weighted average
award (’000) | incentive plans | stock | scheme | Total | exercise price
31 July 2022 | 5,310 | 83 | 885 | 6,278 | £1.45
Granted | 2,023 | 24 | 253 | 2,300 | £1.47
Exercised | (309) | (20) | (109) | (438) | £2.88
Lapsed | (2,196) | – | (71) | (2,267) | £0.33
31 July 2023 | 4,828 | 87 | 958 | 5,873 | £1.78
Granted | 1,919 | 45 | 243 | 2,207 | £1.34
Exercised | (1,140) | (10) | (437) | (1,587) | £2.54
Lapsed | (1,218) | (8) | (79) | (1,305) | £0.73
31 July 2024 | 4,389 | 114 | 685 | 5,188 | £1.62

Options and awards were exercised on an irregular basis during the period. The average closing
share price over the financial year was 1,656.2p (FY2023: 1,629.8p). There has been no change to
the effective option price of any of the outstanding options during the period. The number of
exercisable share options at 31 July 2024 was nil (31 July 2023: nil).

|  | Weighted average |  | Weighted average
| Total shares under | remaining | Total shares under | remaining
| options/awards | contractual | options/awards | contractual
| at 31 July 2024 | life at 31 July 2024 | at 31 July 2023 | life at 31 July 2023
Range of exercise prices | (’000) | (months) | (’000) | (months)
£0.00 – £2.00 | 4,503 | 17 | 4,915 | 17
£6.01 – £10.00 | 2 | – | 444 | 6
£10.01 – £12.00 | 683 | 29 | 514 | 33

For the purposes of valuing options to arrive at the share-based payment charge, the binomial
option pricing model has been used. The key assumptions used in the model were volatility of
25% to 20% (FY2023: 25% to 20%) and dividend yield of 2.6% (FY2023: 2.4%), based on historical
data, for the period corresponding with the vesting period of the option. These generated a
weighted average fair value for LTIP of £15.73 (FY2023: £15.03), and restricted stock of £15.29
(FY2023: £14.60). Staff costs included £14m (FY2023: £14m) for share-based payments, of which
£11m (FY2023: £13m) related to equity-settled share-based payments.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
167
167
Smiths Group plc Annual Report FY2024
10. Intangible assets

|  |  | Acquired | Software, |
|  |  | intangibles | patents and |
|  | Development | (see table | intellectual |
| Goodwill | costs | below) | property | Total
| £m | £m | £m | £m | £m
Cost |  |  |  |  |
At 31 July 2022 | 1,311 | 174 | 630 | 193 | 2,308
Foreign exchange rate movements | (45) | (2) | (31) | (3) | (81)
Business combinations | 7 | – | 13 | – | 20
Additions | – | 21 | – | 7 | 28
Disposals | – | – | – | (38) | (38)
At 31 July 2023 | 1,273 | 193 | 612 | 159 | 2,237
Foreign exchange rate movements | (7) | (2) | (1) | – | (10)
Business combinations | 10 | – | 34 | – | 44
Additions | – | 14 | – | 4 | 18
Disposals | – | – | – | (1) | (1)
At 31 July 2024 | 1,276 | 205 | 645 | 162 | 2,288
Amortisation and impairments |  |  |  |  |
At 31 July 2022 | 67 | 123 | 373 | 157 | 720
Foreign exchange rate movements | (3) | (1) | (19) | (4) | (27)
Amortisation charge for the year | – | 2 | 52 | 7 | 61
Disposals | – | – | – | (38) | (38)
At 31 July 2023 | 64 | 124 | 406 | 122 | 716
Foreign exchange rate movements | – | (2) | (2) | – | (4)
Amortisation charge for the year | – | 2 | 49 | 5 | 56
Disposals | – | – | – | (1) | (1)
At 31 July 2024 | 64 | 124 | 453 | 126 | 767
Net book value at 31 July 2024 | 1,212 | 81 | 192 | 36 | 1,521
Net book value at 31 July 2023 | 1,209 | 69 | 206 | 37 | 1,521
Net book value at 31 July 2022 | 1,244 | 51 | 257 | 36 | 1,588

The charge associated with the amortisation of intangible assets is included in operating costs on
the consolidated income statement.
In addition to goodwill, acquired intangible assets comprise:

| Patents, |  |  |
| licences |  |  | Total
| and |  | Customer | acquired
| trademarks | Technology | relationships | intangibles
| £m | £m | £m | £m
Cost |  |  |  |
At 31 July 2022 | 19 | 152 | 459 | 630
Foreign exchange rate movements | – | (9) | (22) | (31)
Business combinations | 1 | 2 | 10 | 13
At 31 July 2023 | 20 | 145 | 447 | 612
Foreign exchange rate movements | – | – | (1) | (1)
Business combinations | 3 | – | 31 | 34
At 31 July 2024 | 23 | 145 | 477 | 645
Amortisation |  |  |  |
At 31 July 2022 | 8 | 87 | 278 | 373
Foreign exchange rate movements | – | (6) | (13) | (19)
Charge for the year | 1 | 11 | 40 | 52
At 31 July 2023 | 9 | 92 | 305 | 406
Foreign exchange rate movements | – | – | (2) | (2)
Charge for the year | 2 | 10 | 37 | 49
At July 2024 | 11 | 102 | 340 | 453
Net book value at 31 July 2024 | 12 | 43 | 137 | 192
Net book value at 31 July 2023 | 11 | 53 | 142 | 206
Net book value at 31 July 2022 | 11 | 65 | 181 | 257

Individually material intangible assets comprise:
–
£38m of customer-related intangibles attributable to United Flexible (remaining amortisation
period: 3 years);
–
£38m of customer-related intangibles attributable to Morpho Detection (remaining
amortisation period: 4 years);
–
£28m of customer-related intangibles attributable to Heating & Cooling Products (remaining
amortisation period: 9 years);
–
£21m of customer-related intangibles attributable to Royal Metal (remaining amortisation
period: 4 years);
–
£30m of development cost intangibles attributable to a computed tomography programme in
Detection that is currently under development; and
–
£24m of development cost intangibles attributable to an X-ray diffraction programme in
Detection that is currently under development.
Notes to the accounts
continued
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11. Impairment testing
Goodwill
Goodwill is tested for impairment at least annually or whenever there is an indication that the
carrying value may not be recoverable.
Further details of the impairment review process and judgements are included in the ‘Sources
of estimation uncertainty’ section of the ‘Basis of preparation’ for the consolidated financial
statements.
For the purpose of impairment testing, assets are grouped at the lowest levels for which there
are separately identifiable cash-flows, known as cash generating units (CGUs), taking into
consideration the commonality of reporting, policies, leadership and intra-segmental trading
relationships. Goodwill acquired through business combinations is allocated to groups of CGUs at
a segmental (or operating segment) level, being the lowest level at which management monitors
performance separately.
The carrying value of goodwill at 31 July is allocated by business segment as follows:

|  | 2024 |  | 2023
| 2024 | Number of | 2023 | Number of
| £m | CGUs | £m | CGUs
John Crane | 130 | 1 | 131 | 1
Smiths Detection | 625 | 1 | 630 | 1
Flex-Tek | 193 | 1 | 183 | 1
Smiths Interconnect | 264 | 1 | 265 | 1
| 1,212 | 4 | 1,209 | 4

Critical estimates used in impairment testing
The recoverable amount for impairment testing is determined from the higher of fair value
less costs of disposal and value in use of the CGU. In assessing value in use, the estimated
future cash-flows are discounted to their present value using a post-tax discount rate that
reflects current market assessments of the time value of money, from which pre-tax discount
rates are determined.
Fair value less costs of disposal is calculated using available information on past and expected
future profitability, valuation multiples for comparable quoted companies and similar
transactions (adjusted as required for significant differences) and information on costs of similar
transactions. Fair value less costs to sell models are used when trading projections in the
strategic plan cannot be adjusted to eliminate the impact of a major restructuring.
The value in use of CGUs is calculated as the net present value of the projected risk-adjusted
cash-flows of each CGU. These cash-flow forecasts are based on the FY2025 business plan and
the five-year detailed segmental strategic plan projections which have been prepared by
segmental management and approved by the Board.
The principal assumptions used in determining the value in use were:
–
Revenue: Projected sales were built up with reference to markets and product categories.
They incorporated past performance, historical growth rates and projections of developments
in key markets;
–
Average earnings before interest and tax margin: Projected margins reflect historical
performance, our expectations for future cost inflation and the impact of all completed projects
to improve operational efficiency and leverage scale. The projections did not include the impact
of future restructuring projects to which the Group was not yet committed;
–
Projected capital expenditure: The cash-flow forecasts for capital expenditure were based
on past experience and included committed ongoing capital expenditure consistent with the
FY2025 budget and the segmental strategic projections. The forecast did not include any
future capital expenditure that improved/enhanced the operation/asset in excess of its current
standard of performance;
–
Discount rate: The discount rates have been determined with reference to illustrative weighted
average cost of capital (WACC) for each CGU. In determining these discount rates, management
have considered systematic risks specific to each of the Group’s CGUs. These risk-adjusted
discount rates have then been validated against the Group’s WACC, the WACCs of the CGU’s
peer group and an average of discount rates used by other companies for the industries in
which Smiths business segments operate. Pre-tax rates of 11.9% to 12.8% (FY2023: 11.4% to
13.0%) have been used for the impairment testing; and
–
Long-term growth rates: For the purposes of the Group’s value in use calculations, a long-term
growth rate into perpetuity was applied immediately at the end of the five-year detailed forecast
period. CGU-specific long-term growth rates have been calculated by revenue weighting the
long-term GDP growth rates of the markets that each CGU operates in. The long-term growth
rates used in the testing ranged from 2.1% to 2.6% (FY2023: 2.2% to 2.7%). These rates do not
reflect the long-term assumptions used by the Group for investment planning.
Of the principal assumptions above, the key assumptions that the impairment models are most
sensitive to are: the revenue growth assumption; the average earnings before interest and tax
margin assumption; and the discount rate assumption.
Notes to the accounts
continued
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The assumptions used in the impairment testing of CGUs with significant goodwill balances were
as follows:

|  |  |  |  | As at 31 May 2024
|  |  | Smiths |  | Smiths
|  | John Crane | Detection | Flex-Tek | Interconnect
Net book value of goodwill (£m) |  | 135 | 649 | 191 | 279
Basis of valuation |  | Value in use | Value in use | Value in use | Value in use
Discount rate | – pre-tax | 11.9% | 12.8% | 12.6% | 12.5%
| – post-tax | 9.4% | 9.5% | 10.0% | 10.1%
Period covered by management projections |  | 5 years | 5 years | 5 years | 5 years
Capital expenditure – annual average over projection |  |  |  |  |
period (£m) |  | 31 | 19 | 10 | 12
Revenue – compound annual growth rate over |  |  |  |  |
projection period |  | 6.1% | 3.8% | 3.6% | 4.4%
Average earnings before interest and tax margin |  | 22.2% | 12.9% | 20.5% | 15.8%
Long-term growth rates |  | 2.6% | 2.3% | 2.1% | 2.5%
|  |  |  |  | As at 31 May 2023
|  |  | Smiths |  | Smiths
|  | John Crane | Detection | Flex-Tek | Interconnect
Net book value of goodwill (£m) |  | 135 | 649 | 191 | 279
Basis of valuation |  | Value in use | Value in use | Value in use | Value in use
Discount rate | – pre-tax | 13.0% | 12.2% | 11.8% | 11.5%
| – post-tax | 9.7% | 9.3% | 9.4% | 9.4%
Period covered by management projections |  | 5 years | 5 years | 5 years | 5 years
Capital expenditure – annual average over projection |  |  |  |  |
period (£m) |  | 27 | 27 | 10 | 20
Revenue – compound annual growth rate over |  |  |  |  |
projection period |  | 5.3% | 4.5% | 3.4% | 4.7%
Average earnings before interest and tax margin |  | 24.6% | 14.5% | 19.5% | 18.6%
Long-term growth rates |  | 2.7% | 2.4% | 2.2% | 2.5%

Forecast earnings before interest and tax have been projected using:
–
Expected future sales based on the strategic plan, which was constructed at a market level
with input from key account managers, product line managers, business development and
sales teams. An assessment of the market and existing contracts/programmes was made to
produce the sales forecast; and
–
Current cost structure and production capacity, which include our expectations for future cost
inflation. The projections did not include the impact of future restructuring projects to which
the Group was not yet committed.
Sensitivity analysis
Smiths Detection is the only CGU of the Group that has limited goodwill impairment testing
headroom. For all of the Group’s other CGUs the recoverable amount of the CGU exceeded the
carrying value, on the basis of the assumptions set out in the preceding tables and any reasonably
possible changes thereof.
The estimated recoverable amount of the Smiths Detection CGU exceeded its 31 July 2024
carrying value by £254m. Any decline in estimated value in use in excess of this amount would
result in the recognition of impairment charges.
Management recognise that the goodwill impairment testing headroom of the Smiths Detection
CGU is most sensitive to movements in the revenue growth rate, the EBIT margin and the
discount rate assumptions. Of these key assumptions, management consider that the EBIT
margin assumption is the most sensitive.
The Smiths Detection financial model assumes that EBIT margins grow from 11.9% in FY2024 to
an average of 13.6% over the five-year financial model period. This increase in EBIT margin is
principally driven by a change in revenue and profit mix, with proportion of higher margin
aftermarket revenue growing over the five-year projection period.
Management considers that it is plausible that this margin growth may not be fully captured by
the business. For the CGU to be impaired, the average EBIT margin over the five-year financial
model would have to be less than 11.5%; management does not believe this to be a reasonably
plausible scenario.
If the assumptions used in the impairment review were changed to a greater extent than as
presented in the following table, the changes would, in isolation, lead to impairment losses being
recognised for the year ended 31 July 2024:

Change required for carrying value to equal recoverable amount – FY2024 | Smiths Detection
Revenue – compound annual growth rate (CAGR) over five-year projection period | -470 bps decrease
Average earnings before interest and tax margin | -220 bps decrease
Post-tax discount rate | +150 bps increase
Change required for carrying value to equal recoverable amount – FY2023 | Smiths Detection
Revenue – compound annual growth rate (CAGR) over five-year projection period | -460 bps decrease
Average earnings before interest and tax margin | -220 bps decrease
Post-tax discount rate | +140 bps increase

Note: The information in the sensitivity table above has been provided voluntarily to aid the users
of the accounts. Projected capital expenditure and long-term growth rates are not included in the
table above as management consider that there is no reasonably possible change in the projected
capital expenditure or long-term growth rate that would result in an impairment.
The Smiths Interconnect CGU’s revenue and headline operating profit for FY2024 declined versus
the prior year, reflecting weaknesses in the semiconductor market and a slower market in
connectors. This underperformance has driven a reduction in the CGU’s impairment headroom,
Notes to the accounts
continued
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as its strategic plan growth is now projected off a new lower base. The detailed assumptions and
calculation basis of Interconnect’s strategic plan and impairment model have been stress tested
and management have concluded that there are no reasonably possible changes in the key
impairment testing assumptions that could result an impairment.
Property, plant and equipment, right of use assets and finite-life intangible assets
At each reporting period date, the Group reviews the carrying amounts of its property, plant,
equipment, right of use assets and finite-life intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss.
The Group has no indefinite life intangible assets other than goodwill. During the year, impairment
tests were carried out for capitalised development costs that have not yet started to be amortised
and acquired intangibles where there were indications of impairment. Value in use calculations
were used to determine the recoverable values of these assets.
12. Property, plant and equipment

|  |  | Fixtures, |
|  |  | fittings, |
| Land and | Plant and | tools and |
| buildings | machinery | equipment | Total
| £m | £m | £m | £m
Cost or valuation |  |  |  |
At 31 July 2022 | 176 | 457 | 129 | 762
Foreign exchange rate movements | (6) | (14) | (2) | (22)
Business combinations | – | 2 | – | 2
Additions | 10 | 33 | 10 | 53
Disposals | (2) | (15) | (17) | (34)
At 31 July 2023 | 178 | 463 | 120 | 761
Foreign exchange rate movements | (3) | (7) | (2) | (12)
Business combinations | – | 7 | – | 7
Additions | 10 | 50 | 8 | 68
Disposals | (4) | (17) | (12) | (33)
At 31 July 2024 | 181 | 496 | 114 | 791
Depreciation |  |  |  |
At 31 July 2022 | 108 | 299 | 112 | 519
Foreign exchange rate movements | (4) | (8) | (2) | (14)
Charge for the year | 8 | 25 | 9 | 42
Disposals | (2) | (14) | (17) | (33)
At 31 July 2023 | 110 | 302 | 102 | 514
Foreign exchange rate movements | (1) | (3) | (1) | (5)
Charge for the year | 8 | 32 | 5 | 45
Disposals | (4) | (17) | (12) | (33)
At July 2024 | 113 | 314 | 94 | 521
Net book value at 31 July 2024 | 68 | 182 | 20 | 270
Net book value at 31 July 2023 | 68 | 161 | 18 | 247
Net book value at 31 July 2022 | 68 | 158 | 17 | 243

13. Right of use assets

| Properties | Vehicles | Equipment | Total
| £m | £m | £m | £m
Cost or valuation |  |  |  |
At 31 July 2022 | 174 | 21 | 1 | 196
Foreign exchange rate movements | (6) | (1) | – | (7)
Recognition of right of use asset | 27 | 7 | 1 | 35
Derecognition of right of use asset | (5) | – | – | (5)
At 31 July 2023 | 190 | 27 | 2 | 219
Foreign exchange rate movements | (3) | (1) | – | (4)
Business combinations | 12 | – | – | 12
Recognition of right of use asset | 18 | 10 | – | 28
Derecognition of right of use asset | (5) | – | – | (5)
At 31 July 2024 | 212 | 36 | 2 | 250
Depreciation |  |  |  |
At 31 July 2022 | 75 | 15 | – | 90
Foreign exchange rate movements | (4) | – | – | (4)
Charge for the year | 27 | 4 | 1 | 32
Derecognition of right of use asset | (4) | – | – | (4)
At 31 July 2023 | 94 | 19 | 1 | 114
Foreign exchange rate movements | (2) | (1) | – | (3)
Charge for the year | 29 | 5 | – | 34
Derecognition of right of use asset | (5) | – | – | (5)
At 31 July 2024 | 116 | 23 | 1 | 140
Net book value at 31 July 2024 | 96 | 13 | 1 | 110
Net book value at 31 July 2023 | 96 | 8 | 1 | 105
Net book value at 31 July 2022 | 99 | 6 | 1 | 106

Notes to the accounts
continued
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Financial statements
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14. Financial assets – other investments

| Investment in | Deferred | Investments | Cash |
| ICU Medical, | contingent | in early stage | collateral |
| Inc equity | consideration | businesses | deposit | Total
| £m | £m | £m | £m | £m
Cost or valuation |  |  |  |  |
At 31 July 2022 | 364 | 19 | 8 | 4 | 395
Fair value change through profit and loss | – | (6) | – | – | (6)
Fair value change through other |  |  |  |  |
comprehensive income | (17) | – | (1) | – | (18)
At 31 July 2023 | 347 | 13 | 7 | 4 | 371
Fair value change through profit and loss | – | (13) | – | – | (13)
Fair value change through other |  |  |  |  |
comprehensive income | (103) | – | (2) | – | (105)
Disposals | (197) | – | – | (3) | (200)
At 31 July 2024 | 47 | – | 5 | 1 | 53

Following the sale of Smiths Medical the Group has held a financial asset for its investment in ICU
Medical, Inc (ICU) equity and a financial asset for the fair value of US$100m additional sales
consideration that is contingent on the future share price performance of ICU. During FY2024 the
Group has sold 2,030,000 shares in ICU reducing Smiths’ equity investment in ICU to
approximately 1.9% of ICU’s issued share capital. The Group’s reduced investment in ICU has
resulted in the contingent consideration no longer being payable.
Since the year end during August 2024 the Group disposed of 415,771 ICU shares, which further
reduced the Group’s equity stake in ICU to approximately 0.2% of ICU’s issued share capital.
The Group’s investments in early-stage businesses are in businesses that are developing or
commercialising related technology. Cash collateral deposits represent amounts held on deposit
with banks as security for liabilities or letters of credit.
15. Inventories

| 31 July 2024 | 31 July 2023
| £m | £m
Raw materials and consumables | 192 | 201
Work in progress | 148 | 130
Finished goods | 303 | 306
Total inventories | 643 | 637

In FY2024, operating costs included £1,629m (FY2023: £1,622m) of inventory consumed, £13m
(FY2023: £26m) was charged for the write-down of inventory and £11m (FY2023: £16m) was
released from provisions no longer required.
Inventory provisioning

| 31 July 2024 | 31 July 2023
| £m | £m
Gross inventory carried at full value | 560 | 545
Gross value of inventory partly or fully provided for | 146 | 158
| 706 | 703
Inventory provision | (63) | (66)
Inventory after provisions | 643 | 637

16. Trade and other receivables

| 31 July 2024 | 31 July 2023
| £m | £m
Non-current |  |
Trade receivables | – | 2
Prepayments | 1 | –
Contract assets | 86 | 65
Other receivables | 9 | 8
| 96 | 75
Current |  |
Trade receivables | 544 | 493
Prepayments | 58 | 40
Contract assets | 123 | 121
Other receivables | 101 | 118
| 826 | 772

Trade receivables do not carry interest. Management considers that the carrying value of trade
and other receivables approximates to the fair value. Trade and other receivables, including
accrued income and other receivables qualifying as financial instruments, are accounted for at
amortised cost. The maximum credit exposure arising from these financial assets was £788m
(FY2023: £744m).
Contract assets comprise unbilled balances not yet due on contracts, where revenue recognition
does not align with the agreed payment schedule. The main movements in the year arose from
increases in contract asset balances of £23m (FY2023: £19m) principally within John Crane and
Smiths Detection, offset by a £1m (FY2023: £7m) decrease due to foreign currency translation
losses.
A number of Flex-Tek’s and Interconnect’s customers provide supplier finance schemes which
allow their suppliers to sell trade receivables, without recourse, to banks. This is commonly
known as invoice discounting or factoring. During FY2024 the Group collected £146m of
receivables through these schemes (FY2023: £128m). The impact of invoice discounting on the
FY2024 balance sheet was that trade receivables were reduced by £23m (2023: £26m). Costs of
discounting were £2m (FY2023: £2m), charged to the income statement within financing costs.
Notes to the accounts
continued
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The cash received via these schemes was classified as an operating cash inflow as it had arisen
from operating activities.
Trade receivables are disclosed net of provisions for expected credit loss, with historical write-
offs used as a basis, adjusted for factors that are specific to the debtor, general economic
conditions of the industry in which the debtor operates and a default risk multiplier applied to
reflect country risk premium. Credit risk is managed separately for each customer and, where
appropriate, a credit limit is set for the customer based on previous experience of the customer
and third-party credit ratings. The Group has no significant concentration of credit risk, with
exposure spread over a large number of customers. The largest single customer was the US
Federal Government, representing 8% (FY2023: 7%) of Group revenue.
Ageing of trade receivables

| 31 July 2024 | 31 July 2023
| £m | £m
Trade receivables which are not yet due | 436 | 389
Trade receivables which are between 1-30 days overdue | 56 | 52
Trade receivables which are between 31-60 days overdue | 17 | 19
Trade receivables which are between 61-90 days overdue | 13 | 12
Trade receivables which are between 91-120 days overdue | 5 | 8
Trade receivables which are more than 120 days overdue | 46 | 45
| 573 | 525
Expected credit loss allowance provision | (29) | (30)
Trade receivables | 544 | 495
Movement in expected credit loss allowance |  |
| 31 July 2024 | 31 July 2023
| £m | £m
Brought forward loss allowance at the start of the period | 30 | 36
Exchange adjustments | 1 | (1)
Increase in allowance recognised in the income statement | 4 | 4
Amounts written off or recovered during the year | (6) | (9)
Carried forward loss allowance at the end of the year | 29 | 30

17. Trade and other payables

| 31 July 2024 | 31 July 2023
| £m | £m
Non-current |  |
Other payables | 15 | 13
Contract liabilities | 26 | 27
| 41 | 40
Current |  |
Trade payables | 274 | 247
Other payables | 35 | 51
Other taxation and social security costs | 60 | 66
Accruals | 204 | 200
Contract liabilities | 191 | 159
| 764 | 723

Trade and other payables, including accrued expenses and other payables qualifying as financial
instruments, are accounted for at amortised cost and are categorised as ‘Trade and other
financial payables’ in note 21.
Contract liabilities comprise deferred income balances of £217m (FY2023: £186m) in respect of
payments being made in advance of revenue recognition. The movement in the year arises
primarily from the long-term contracts of the Smiths Detection business segment where
invoicing under milestones precedes the delivery of the programme performance obligations.
Revenue recognised in the year includes £166m (FY2023: £97m) that was included in the opening
contract liabilities balance. This revenue primarily relates to the delivery of performance
obligations in the Smiths Detection business.
Notes to the accounts
continued
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18. Borrowings and net debt
This note sets out the calculation of net debt, an important measure in explaining our
financing position. Net debt includes accrued interest and fair value adjustments relating to
hedge accounting.

| 31 July 2024 | 31 July 2023
| £m | £m
Cash and cash equivalents |  |
Net cash and deposits | 459 | 285
Short-term borrowings |  |
Lease liabilities | (32) | (26)
Interest accrual | (2) | (3)
| (34) | (29)
Long-term borrowings |  |
€650m 2.00% Eurobond 2027 | (534) | (534)
Lease liabilities | (91) | (91)
| (625) | (625)
Borrowings/gross debt | (659) | (654)
Derivatives managing interest rate risk and currency profile of the debt | (13) | (18)
Net debt | (213) | (387)

Cash and cash equivalents

| 31 July 2024 | 31 July 2023
| £m | £m
Cash at bank and in hand | 123 | 175
Short-term deposits | 336 | 110
Cash and cash equivalents | 459 | 285

Cash and cash equivalents include highly liquid investments with maturities of three months or
less. Borrowings are accounted for at amortised cost and are categorised as other financial
liabilities. See note 18 for a maturity analysis of borrowings. Interest of £12m (FY2023: £17m) was
charged to the consolidated income statement in the period in respect of public bonds.
Analysis of financial derivatives on balance sheet

| Non-current | Current | Current | Non-current |
| assets | assets | liabilities | liabilities | Net balance
| £m | £m | £m | £m | £m
Derivatives managing interest rate risk and |  |  |  |  |
currency profile of the debt | – | – | – | (13) | (13)
Foreign exchange forward contracts | – | 4 | (4) | – | –
At 31 July 2024 | – | 4 | (4) | (13) | (13)
Derivatives managing interest rate risk and |  |  |  |  |
currency profile of the debt | – | – | – | (18) | (18)
Foreign exchange forward contracts | – | 5 | (2) | – | 3
At 31 July 2023 | – | 5 | (2) | (18) | (15)

Movements in assets/(liabilities) arising from financing activities

|  |  | Changes in net debt |  |  |  |
|  |  |  | Interest rate |  | Changes in | Total
| Cash | Other |  | and cross- |  | other financing | liabilities
| and cash | short-term | Long-term | currency |  | items: FX | from financing
| equivalents | borrowings | borrowings | swaps | Net debt | contracts | activities
| £m | £m | £m | £m | £m | £m | £m
At 31 July 2023 | 285 | (29) | (625) | (18) | (387) | 3 | (384)
Foreign exchange |  |  |  |  |  |  |
gains/(losses) | (14) | 1 | 10 | – | (3) | – | (3)
Net cash inflow |  |  |  |  |  |  |
from continuing |  |  |  |  |  |  |
operations | 188 | – | – | – | 188 | – | 188
Lease payments | – | 39 | – | – | 39 | – | 39
Interest paid | – | 57 | – | – | 57 | – | 57
Interest expense* | – | (63) | – | – | (63) | – | (63)
Cash inflow from |  |  |  |  |  |  |
matured derivative |  |  |  |  |  |  |
contracts | – | – | – | – | – | 5 | 5
Fair value |  |  |  |  |  |  |
movements | – | – | (9) | 5 | (4) | (8) | (12)
Lease liabilities |  |  |  |  |  |  |
acquired | – | – | (12) | – | (12) | – | (12)
Net movement |  |  |  |  |  |  |
from new leases |  |  |  |  |  |  |
and modifications | – | (28) | – | – | (28) | – | (28)
Reclassifications | – | (11) | 11 | – | – | – | –
At 31 July 2024 | 459 | (34) | (625) | (13) | (213) | – | (213)

*
Interest expense presented in note 4 also includes a £1m accrual movement that does not form part of net debt.
Notes to the accounts
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|  |  | Changes in net debt |  |  |  |
|  |  |  | Interest rate |  | Changes in | Total
| Cash | Other |  | and cross- |  | other financing | liabilities
| and cash | short-term | Long-term | currency |  | items: FX | from financing
| equivalents | borrowings | borrowings | swaps | Net debt | contracts | activities
| £m | £m | £m | £m | £m | £m | £m
At 31 July 2022 | 1,056 | (538) | (628) | (40) | (150) | (3) | (153)
Foreign exchange |  |  |  |  |  |  |
gains/(losses) | (10) | (21) | (10) | – | (41) | # (4,031) | (4,072)
Net cash inflow |  |  |  |  |  |  |
from continuing |  |  |  |  |  |  |
operations | (761) | 564 | – | 8 | (189) | # 4,031 | 3,842
Net movement |  |  |  |  |  |  |
from new leases |  |  |  |  |  |  |
and modifications | – | (34) | – | – | (34) | – | (34)
Interest rate |  |  |  |  |  |  |
hedge fair value |  |  |  |  |  |  |
movements | – | (2) | 16 | – | 14 | – | 14
Revaluation of |  |  |  |  |  |  |
derivative contracts | – | – | – | 14 | 14 | 6 | 20
Interest expense |  |  |  |  |  |  |
taken to income |  |  |  |  |  |  |
statement | – | 28 | – | – | 28 | – | 28
Interest paid | – | (29) | – | – | (29) | – | (29)
Reclassifications | – | 3 | (3) | – | – | – | –
At 31 July 2023 | 285 | (29) | (625) | (18) | (387) | 3 | (384)

#
These amounts relate to the cash settlement of foreign exchange contracts. As these are with the same financial
institution, in the current year they have not been shown gross.
Cash pooling
Cash and overdraft balances in interest compensation cash pooling systems are reported gross
on the balance sheet. The cash pooling agreements incorporate a legally enforceable right of
net settlement. However, as there is no intention to settle the balances net, these arrangements
do not qualify for net presentation. At 31 July 2024 the total value of overdrafts on accounts in
interest compensation cash pooling systems was £nil (FY2023: £nil). The balances held in zero
balancing cash pooling arrangements have daily settlement of balances. Therefore netting is
not relevant.
Change of control
The Company has in place credit facility agreements under which a change of control would
trigger prepayment clauses. The Company has one bond in issue, the terms of which would allow
bondholders to exercise put options and require the Company to buy back the bonds at their
principal amount plus interest if a rating downgrade occurs at the same time as a change of
control takes effect.
Lease liabilities
Lease liabilities have been measured at the present value of the remaining lease payments.
The weighted average incremental borrowing rate applied to lease liabilities in FY2024 was 4.42%
(FY2023: 4.01%).
19. Financial risk management
The Group’s international operations and debt financing expose it to financial risks which include
the effects of changes in foreign exchange rates, debt market prices, interest rates, credit risks
and liquidity risks. The management of operational credit risk is discussed in note 16.
Treasury Risk Management Policy
The Board maintains a Treasury Risk Management Policy, which governs the treasury operations
of the Group and its subsidiary companies and the consolidated financial risk profile to be
maintained. A report on treasury activities, financial metrics and compliance with the Policy is
circulated to the Chief Financial Officer each month and key elements to the Audit & Risk
Committee on a semi-annual basis.
The Policy maintains a treasury control framework within which counterparty risk, financing
and debt strategy, cash and liquidity, interest rate risk and currency translation management
are reserved for Group Treasury, while currency transaction management is devolved to
operating divisions.
Centrally directed cash management systems exist globally to manage overall liquid resources
efficiently across the divisions. The Group uses financial instruments to raise financing for its
global operations, to manage related interest rate and currency financial risk, and to hedge
transaction risk within subsidiary companies.
The Group does not speculate in financial instruments. All financial instruments hedge existing
business exposures and all are recognised on the balance sheet.
The Policy defines four treasury risk components and for each component a set of financial
metrics to be measured and reported monthly against pre-agreed objectives.
1) Credit quality
The Group’s strategy is to maintain a solid investment-grade rating to ensure access to the widest
possible sources of financing at the right time and to optimise the resulting cost of debt capital.
The credit ratings at the end of July 2024 were BBB+ / Baa2 (both stable) from Standard & Poor’s
and Moody’s respectively. An essential element of an investment-grade rating is consistent and
robust cash-flow metrics. The Group’s objective is to maintain a net debt/headline EBITDA ratio of
two times or lower over the medium term. Capital management is discussed in more detail in
note 26.
2) Debt and interest rate
The Group’s risk management objectives are to ensure that the majority of funding is drawn from
the public debt markets, the average maturity profile of gross debt is to be at or greater than three
years, and between 40-60% of gross debt (excluding leases) is at fixed rates. At 31 July 2024 these
measures were 100% (FY2023: 100%), 2.6 years (FY2023: 3.6 years) and 54% (FY2023: 54%).
The Group has no financial covenants in its external debt agreements. Interest rate risk
management is discussed in note 19(b).
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
175
175
Smiths Group plc Annual Report FY2024
3) Liquidity management
The Group’s objective is to ensure that at any time undrawn committed facilities, net of short-
term overdraft financing, are at least £300m and that committed facilities have at least 12 months
to run until maturity. At 31 July 2024, these measures were £623m (FY2023: £622m) and 57
months (FY2023: 57 months) until maturity. At 31 July 2024, net cash resources were £459m
(FY2023: £285m). Liquidity risk management is discussed in note 19(d).
4) Currency management
The Group is an international business with the majority of its net assets denominated in
foreign currency. It protects the balance sheet and reserves from adverse foreign exchange
movements by financing foreign currency assets where appropriate in the same currency.
The Group’s objective for managing transaction currency exposure is to reduce medium-term
volatility to cash-flow, margins and earnings. Foreign exchange risk management is discussed
in note 19(a) below.
(a) Foreign exchange risk
Transactional currency exposure
The Group is exposed to foreign currency risks arising from sales or purchases by businesses in
currencies other than their functional currency. It is Group policy that, when the net foreign
exchange exposure to known future sales and purchases is material, this exposure is hedged
using forward foreign exchange contracts. The net exposure is calculated by adjusting the
expected cash-flow for payments or receipts in the same currency linked to the sale or purchase.
This policy minimises the risk that the profits generated from the transaction will be affected by
foreign exchange movements which occur after the price has been determined. Hedge accounting
documentation and effectiveness testing are only undertaken if it is cost-effective.
The following table shows the currency of financial instruments. It excludes loans and derivatives
designated as net investment hedges.

|  |  |  |  | At 31 July 2024
| Sterling | US$ | Euro | Other | Total
| £m | £m | £m | £m | £m
Financial assets and liabilities |  |  |  |  |
Financial instruments included in trade and |  |  |  |  |
other receivables | 38 | 417 | 147 | 195 | 797
Financial instruments included in trade and |  |  |  |  |
other payables | (45) | (222) | (117) | (111) | (495)
Cash and cash equivalents | 139 | 222 | 19 | 79 | 459
Borrowings not designated as net investment |  |  |  |  |
hedges | (26) | (61) | (14) | (22) | (123)
| 106 | 356 | 35 | 141 | 638
Exclude balances held in operations with the |  |  |  |  |
same functional currency. | (108) | (305) | (38) | (153) | (604)
Exposure arising from intra-Group loans | – | 65 | 37 | (71) | 31
Future forward foreign exchange contract |  |  |  |  |
cash-flows | 13 | (93) | 6 | 74 | –
| 11 | 23 | 40 | (9) | 65

|  |  |  |  | At 31 July 2023
| Sterling | US$ | Euro | Other | Total
| £m | £m | £m | £m | £m
Financial assets and liabilities |  |  |  |  |
Financial instruments included in trade and |  |  |  |  |
other receivables | 43 | 372 | 127 | 184 | 726
Financial instruments included in trade and |  |  |  |  |
other payables | (64) | (216) | (93) | (103) | (476)
Cash and cash equivalents | 50 | 115 | 29 | 91 | 285
Borrowings not designated as net investment |  |  |  |  |
hedges | (27) | (54) | (12) | (24) | (117)
| 2 | 217 | 51 | 148 | 418
Exclude balances held in operations with the |  |  |  |  |
same functional currency. | (7) | (287) | (57) | (153) | (504)
Exposure arising from intra-Group loans | – | 127 | 28 | (73) | 82
Future forward foreign exchange contract |  |  |  |  |
cash-flows | (63) | (23) | (48) | 133 | (1)
| (68) | 34 | (26) | 55 | (5)

Financial instruments included in trade and other receivables comprise trade receivables,
accrued income and other receivables which qualify as financial instruments. Similarly, financial
instruments included in trade and other payables comprise trade payables, accrued expenses
and other payables that qualify as financial instruments.
Based on the assets and liabilities held at the year-end, if the specified currencies were to
strengthen 10% while all other market rates remained constant, the change in the fair value of
financial instruments not designated as net investment hedges would have the following effect:

| Impact on | Gain/(loss) | Impact on | Gain/(loss)
| profit | recognised in | profit | recognised in
| for the year | reserves | for the year | reserves
| FY2024 | FY2024 | FY2023 | FY2023
| £m | £m | £m | £m
US dollar | 1 | 2 | – | 1
Euro | (1) | (3) | 1 | –
Sterling | (2) | – | – | (1)

These sensitivities were calculated before adjusting for tax and exclude the effect of quasi-equity
intra-Group loans.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
176
Smiths Group plc Annual Report FY2024
Cash-flow hedging
The Group uses forward foreign exchange contracts to hedge future foreign currency sales and
purchases. At 31 July 2024, contracts with a nominal value of £178m (FY2023: £123m) were
designated as hedging instruments. In addition, the Group had outstanding foreign currency
contracts with a nominal value of £315m (FY2023: £252m) which were being used to manage
transactional foreign exchange exposures, but were not accounted for as cash-flow hedges. The
fair value of the contracts is disclosed in note 20.
The majority of hedged transactions will be recognised in the consolidated income statement in
the same period that the cash-flows are expected to occur, with the only differences arising
because of normal commercial credit terms on sales and purchases. It is the Group’s policy to
hedge 80% of certain exposures for the next two years and 50% of highly probable exposures for
the next 12 months.
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic
prospective effectiveness assessments to ensure that an economic relationship exists between
the hedged item and hedging instrument. The foreign exchange forward contracts have similar
critical terms to the hedged items, such as the notional amounts and maturities. Therefore, there
is an economic relationship and the hedge ratio is established as 1:1.
The main sources of hedge ineffectiveness in these hedging relationships are the effect of the
Group’s and the counterparty credit risks on the fair value of the foreign exchange forward
contracts, which is not reflected in the fair value of the hedged item and the risk of over-hedging
where the hedge relationship requires re-balancing. No other sources of ineffectiveness
emerged from these hedging relationships. Any hedge ineffectiveness is recognised immediately
in the income statement in the period that it occurs. Of the foreign exchange contracts designated
as hedging instruments, 100% are for periods of 12 months or less (FY2023: 98%).
The following table presents a reconciliation by risk category of the cash-flow hedge reserve and
analysis of other comprehensive income in relation to hedge accounting:

|  | Year ended | Year ended
|  | 31 July 2024 | 31 July 2023
|  | £m | £m
Brought forward cash-flow hedge reserve at start of year |  | – | (3)
Foreign exchange forward contracts: | Net fair value gains on effective hedges | – | 1
| Amount reclassified to income statement |  |
| – finance costs | – | 2
Carried forward cash-flow hedge reserve at end of year |  | – | –

The following tables set out information regarding the change in value of the hedged item used in
calculating hedge ineffectiveness as well as the impacts on the cash-flow hedge reserve:

|  |  |  |  | Changes in value |
|  |  |  | Changes in value | of the hedging |
|  |  |  | of the hedged item | instrument |
|  |  |  | for calculating | for calculating | Cash-flow hedge
|  |  | Financial | ineffectiveness | ineffectiveness | reserve
Hedged item | Hedged exposure | Hedging instrument | year | £m | £m | £m
Sales and | Foreign | Foreign exchange | FY2024 | – | – | –
purchases | currency risk | contracts | FY2023 | 1 | (1) | 1

Cash-flow hedges generated £nil of ineffectiveness in FY2024 (FY2023: £nil) which was
recognised in the income statement through finance costs.
Translational currency exposure
The Group has significant investments in overseas operations, particularly in the US and Europe. As
a result, the sterling value of the Group’s balance sheet can be significantly affected by movements
in exchange rates. The Group seeks to mitigate the effect of these translational currency exposures
by matching the net investment in overseas operations with borrowings denominated in their
functional currencies, except where significant adverse interest differentials or other factors would
render the cost of such hedging activity uneconomic. This is achieved by borrowing primarily in the
relevant currency or in some cases indirectly using cross-currency swaps.
Net investment hedges
The table below sets out the currency of loans and swap contracts designated as net
investment hedges:

| At 31 July 2024 | At 31 July 2023
| US$ | Euro | Total | US$ | Euro | Total
| £m | £m | £m | £m | £m | £m
Loans designated as net |  |  |  |  |  |
investment hedges | – | (288) | (288) | – | (293) | (293)
Cross-currency swap | (248) | – | (248) | (247) | – | (247)
| (248) | (288) | (536) | (247) | (293) | (540)

Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
177
177
Smiths Group plc Annual Report FY2024
At 31 July 2024, cross-currency swaps hedged the Group’s exposure to US dollars and euros
(FY2023: US dollars and euros). All the cross-currency swaps designated as net investment
hedges were non-current (FY2023: non-current). Swaps generating £248m of the US dollar
exposure (FY2023: £247m) will mature in February 2027.
In addition, non-swapped borrowings were also used to hedge the Group’s exposure to euros
(FY2023: euros). Borrowings generating £288m of the euro exposure (FY2023: £293m) will
mature in February 2027.
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic
prospective effectiveness assessments to ensure that an economic relationship exists between
the hedged item and hedging instrument. The swaps and borrowings have the same notional
amount as the hedged items and, therefore, there is an economic relationship with the hedge
ratio established as 1:1.
The main sources of hedge ineffectiveness in these hedging relationships are the effect of the
counterparty and the Group’s own credit risk on the fair value of the foreign exchange forward
contracts which is not reflected in the fair value of the hedged item and the risk of over-hedging
where the hedge relationship requires re-balancing. No other sources of ineffectiveness
emerged from these hedging relationships. Any hedge ineffectiveness is recognised immediately
in the income statement in the period that it occurs.
The following table presents a reconciliation by risk category of the net investment hedge reserve
and analysis of other comprehensive income in relation to hedge accounting:

|  | Year ended | Year ended
|  | 31 July 2024 | 31 July 2023
|  | £m | £m
Brought forward net investment hedge reserve at start of year |  | (196) | (207)
Cross-currency swaps | Net fair value gains on effective hedges | – | 40
Bonds | Net fair value gains on effective hedges | 5 | (29)
Carried forward net investment hedge reserve at end of year |  | (191) | (196)

The following table sets out information regarding the change in value of the hedged item used in
calculating hedge ineffectiveness as well as the impacts on the net investment hedge reserve as
at 31 July 2024 and 31 July 2023:

|  |  |  |  | Changes in value |
|  |  |  | Changes in value | of the hedging |
|  |  |  | of the hedged item | instrument |
|  |  |  | for calculating | for calculating | Net investment
|  |  |  | ineffectiveness | ineffectiveness | hedge reserve
Hedged item | Hedged exposure | Hedging instrument | Financial year | £m | £m | £m
Overseas | Foreign | Bonds | FY2024 | (5) | 5 | –
operation | currency risk |  |  |  |  |
Overseas | Foreign | Cross-currency | FY2023 | (40) | 40 | 40
operation | currency risk | swaps |  |  |  |
|  | Bonds | FY2023 | 29 | (29) | (29)
|  |  |  | (11) | 11 | 11

Net investment hedges generated £nil of ineffectiveness in FY2024 (FY2023: £1m) which was
recognised in the income statement through finance costs.
The fair values of these net investment hedges are subject to exchange rate movements.
Based on the hedging instruments in place at the year-end, if the specified currencies
were to strengthen 10% while all other market rates remained constant, it would have the
following effect:

| Loss | Loss
| recognised | recognised
| in hedge | in hedge
| reserve | reserve
| 31 July 2024 | 31 July 2023
| £m | £m
US dollar | 28 | 27
Euro | 32 | 33

These movements would be fully offset by an opposite movement on the retranslation of the net
assets of the overseas subsidiaries. These sensitivities were calculated before adjusting for tax.
(b) Interest rate risk
The Group operates an interest rate policy designed to optimise interest cost and reduce volatility
in reported earnings. The Group’s current policy is to require interest rates to be fixed within a band
of between 40% and 60 % of the level of gross debt (excluding leases). This is achieved through fixed
rate borrowings and interest rate swaps. At 31 July 2024 54% (FY2023: 54%) of the Group’s gross
borrowings (excluding leases) were at fixed interest rates, after adjusting for interest rate swaps
and the impact of short maturity derivatives designated as net investment hedges.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
178
Smiths Group plc Annual Report FY2024
The Group monitors its fixed rate risk profile against both gross and net debt. For medium-term
planning, it focuses on gross debt to eliminate the fluctuations of variable cash levels over the
cycle. The weighted average interest rate on borrowings and cross-currency swaps at 31 July
2024, after interest rate swaps, was 4.60% (FY2023: 4.53%).
Interest rate profile of financial assets and liabilities and the fair value of borrowings
The following table shows the interest rate risk exposure of investments, cash and borrowings,
with the borrowings adjusted for the impact of interest rate hedging. Other financial assets and
liabilities do not earn or bear interest, and for all financial instruments except borrowings, the
carrying value is not materially different from their fair value.

|  |  |  | As at 31 July 2024
| At fair value | Cash and |  |
| through | cash |  | Fair value of
| profit or loss | equivalents | Borrowings | borrowings
| £m | £m | £m | £m
Fixed interest |  |  |  |
Less than one year | – | – | (34) | (34)
Between one and five years | – | – | (351) | (343)
Greater than five years | – | – | (33) | (33)
Total fixed interest financial liabilities | – | – | (418) | (410)
Floating rate interest financial assets/(liabilities) | 1 | 393 | (241) | (244)
Total interest-bearing financial assets/(liabilities) | 1 | 393 | (659) | (654)
Non-interest-bearing assets in the same category | – | 66 | – | –
Total | 1 | 459 | (659) | (654)
|  |  |  | As at 31 July 2023
| At fair value | Cash and |  |
| through profit | cash |  | Fair value of
| or loss | equivalents | Borrowings | borrowings
| £m | £m | £m | £m
Fixed interest |  |  |  |
Less than one year | – | – | (29) | (29)
Between one and five years | – | – | (365) | (347)
Greater than five years | – | – | (24) | (24)
Total fixed interest financial liabilities | – | – | (418) | (400)
Floating rate interest financial assets/(liabilities) | 4 | 215 | (236) | (240)
Total interest-bearing financial assets/(liabilities) | 4 | 215 | (654) | (640)
Non-interest-bearing assets in the same category | – | 70 | – | –
Total | 4 | 285 | (654) | (640)

Interest rate hedging
The Group also has exposures to the fair values of non-derivative financial instruments such as
EUR fixed rate borrowings. To manage the risk of changes in these fair values, the Group has
entered into fixed-to-floating interest rate swaps and cross-currency interest rate swaps, which
for accounting purposes are designated as fair value hedges.
At 31 July 2024, the Group had designated the following hedge against variability on the fair value
of borrowings arising from fluctuations in base rates:
–
€300m of the fixed/floating and € exchange exposure of EUR/USD interest rate swaps
maturing on 23 February 2027 partially hedging the € 2027 Eurobond.
At 31 July 2023, the Group had designated the following hedges against variability on the fair value
of borrowings arising from fluctuations in base rates:
–
€300m of the fixed/floating and € exchange exposure of EUR/USD interest rate swaps
maturing on 23 February 2027 partially hedging the € 2027 Eurobond; and
–
€400m of the fixed/floating element of the EUR/USD interest rate swaps that partially hedged
the € 2023 Eurobond was repaid on 28 April 2023.
The fair values of the hedging instruments are disclosed in note 20. The effect of the swaps was to
convert £253m (FY2023: £257m) debt from fixed rate to floating rate. The swaps have similar
critical terms to the hedged items, such as the reference rate, reset dates, notional amounts,
payment dates and maturities. Therefore, there is an economic relationship and the hedge ratio is
established as 1:1. Hedge effectiveness is determined at the inception of the hedge relationship,
and through periodic prospective effectiveness assessments to ensure that an economic
relationship exists between the hedged item and hedging instrument.
The main source of hedge ineffectiveness in these hedging relationships is the effect of the
currency basis risk on cross-currency interest rate swaps which are not reflected in the fair value
of the hedged item. No other sources of ineffectiveness emerged from these hedging
relationships. Any hedge ineffectiveness was recognised immediately in the income statement in
the period in which it occurred.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
179
179
Smiths Group plc Annual Report FY2024
The following table sets out the details of the hedged exposures covered by the Group’s fair value hedges:

|  |  |  | Changes in value |  |  |  |
|  |  | Changes in value | of the hedging |  |  | Accumulated fair value
|  |  | of hedged item | instrument | Carrying amount | adjustments on hedged item
|  |  | for calculating | for calculating |  |  |  |
|  |  | ineffectiveness | ineffectiveness | Assets | Liabilities | Assets | Liabilities
Hedged item | Hedged exposure | Financial year | £m | £m | £m | £m | £m | £m
Fixed rate bonds (a) | Interest rate and currency rate risk | FY2024 | (9) | 9 | – | 253 | – | (12)
| Interest rate risk | FY2023 | (2) | 2 | – | – | – | –
Fixed rate bonds (a) | Interest rate and currency rate risk | FY2023 | 16 | (16) | – | 233 | – | (21)
|  |  | 14 | (14) | – | 233 | – | (21)

(a) Classified as borrowings.
Fair value hedges generated a £nil ineffectiveness in FY2024 (FY2023: £nil) which was recognised in the income statement through finance costs.
Sensitivity of interest charges to interest rate movements
The Group has exposure to sterling, US dollar and euro interest rates. However, the Group does
not have a significant exposure to interest rate movements for any individual currency. Based on
the composition of net debt and investments at 31 July 2024, and taking into consideration all fixed
rate borrowings and interest rate swaps in place, a one percentage point (100 basis points)
change in average floating interest rates for all three currencies would have a £2m impact
(FY2023: £2m impact) on the Group’s profit before tax.
(c) Financial credit risk
The Group is exposed to credit-related losses in the event of non-performance by counterparties
to financial instruments, but does not currently expect any counterparties to fail to meet their
obligations. Credit risk is mitigated by the Board-approved policy of only placing cash deposits
with highly rated relationship bank counterparties within counterparty limits established by
reference to their Standard & Poor’s long-term debt rating. In the normal course of business, the
Group operates cash pooling systems, where a legal right of set-off applies.
The maximum credit risk exposure in the event of other parties failing to perform their obligations
under financial assets, excluding trade and other receivables and derivatives, totals £465m at
31 July 2024 (FY2023: £296m).

| 31 July 2024 | 31 July 2023
| £m | £m
Cash in AAA liquidity funds | 196 | 78
Cash at banks with at least a AA- credit rating | 26 | 31
Cash at banks with all other A credit ratings | 185 | 170
Cash at other banks | 52 | 6
Investments in bank deposits | 1 | 4
Other investments | 5 | 7
| 465 | 296

At 31 July 2024, the maximum exposure with a single bank for deposits and cash was £128m
(FY2023: £65m). The bank has a credit rating of A+. The maximum mark to market exposure with
a single bank for derivatives was out of the money in both the current and prior year and does not
represent a credit risk.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
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Smiths Group plc Annual Report FY2024
(d) Liquidity risk
Borrowing facility
Board policy specifies the maintenance of an unused committed credit facility of at least £300m at
all times to ensure that the Group has sufficient available funds for operations and planned
development. The Group has a Revolving Credit Facility of US$800m maturing 5 May 2029. At the
balance sheet date, the Group had the following undrawn credit facility:

| 31 July 2024 | 31 July 2023
| £m | £m
Expiring after more than four years (FY2023: four years) | 623 | 622

Cash deposits
As at 31 July 2024, £336m (FY2023: £110m) of cash and cash equivalents was on deposit with
various banks of which £196m (FY2023: £78m) was in liquidity funds. £1m (FY2023: £4m) of
investments comprised bank deposits held to secure liabilities and letters of credit.
Gross contractual cash-flows for borrowings

|  |  |  | As at 31 July 2024
|  |  | Contractual | Total
|  | Fair value | interest | contractual
| Borrowings | adjustments | payments | cash-flows
| £m | £m | £m | £m
Less than one year | (34) | – | (11) | (45)
Between one and two years | (21) | – | (11) | (32)
Between two and three years | (18) | – | (11) | (29)
Between three and four years | (11) | – | – | (11)
Between four and five years | (554) | 12 | – | (542)
Greater than five years | (33) | – | – | (33)
Total | (671) | 12 | (33) | (692)
|  |  |  | As at 31 July 2023
|  |  | Contractual | Total
|  | Fair value | interest | contractual
| Borrowings | adjustments | payments | cash-flows
| £m | £m | £m | £m
Less than one year | (29) | – | (11) | (40)
Between one and two years | (27) | – | (11) | (38)
Between two and three years | (20) | – | (11) | (31)
Between three and four years | (13) | – | (11) | (24)
Between four and five years | (561) | 21 | – | (540)
Greater than five years | (24) | – | – | (24)
Total | (674) | 21 | (44) | (697)

The figures presented in the borrowings column include the non-cash adjustments which are
highlighted in the adjacent column. The contractual interest reported for borrowings is before the
effect of interest rate swaps.
Gross contractual cash-flows for derivative financial instruments

|  |  | As at 31 July 2024
|  |  | Net
| Receipts | Payments | cash-flow
| £m | £m | £m
Assets |  |  |
Less than one year | 260 | (256) | 4
Greater than one year | 4 | (4) | –
Liabilities |  |  |
Less than one year | 223 | (227) | (4)
Greater than one year | 254 | (267) | (13)
Total | 741 | (754) | (13)
|  |  | As at 31 July 2023
|  |  | Net
| Receipts | Payments | cash-flow
| £m | £m | £m
Assets |  |  |
Less than one year | 209 | (204) | 5
Greater than one year | 6 | (6) | –
Liabilities |  |  |
Less than one year | 159 | (161) | (2)
Greater than one year | 252 | (270) | (18)
Total | 626 | (641) | (15)

This table above presents the undiscounted future contractual cash-flows for all derivative
financial instruments. For this disclosure, cash-flows in foreign currencies are translated using
the spot rates at the balance sheet date. The fair values of these financial instruments are
presented in note 20.
Gross contractual cash-flows for other financial liabilities
The contractual cash-flows for financial liabilities included in trade and other payables were
£481m (FY2023: £463m) due in less than one year, £14m (FY2023: £13m) due between one and
five years.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
181
181
Smiths Group plc Annual Report FY2024
20. Derivative financial instruments
The tables below set out the nominal amount and fair value of derivative contracts held by the
Group, identifying the derivative contracts which qualify for hedge accounting treatment.

|  |  |  | At 31 July 2024
| Contract or |  |  | Fair value
| underlying |  |  |
| nominal |  |  |
| amount | Assets | Liabilities | Net
| £m | £m | £m | £m
Foreign exchange contracts (cash-flow hedges) | 178 | 2 | (2) | –
Foreign exchange contracts (not hedge accounted) | 315 | 2 | (2) | –
Total foreign exchange contracts | 493 | 4 | (4) | –
Cross-currency swaps (fair value and net investment |  |  |  |
hedges) | 248 | – | (13) | (13)
Total financial derivatives | 741 | 4 | (17) | (13)
Balance sheet entries: |  |  |  |
Non-current | 255 | – | (13) | (13)
Current | 486 | 4 | (4) | –
Total financial derivatives | 741 | 4 | (17) | (13)
|  |  |  | At 31 July 2023
| Contract or |  |  | Fair value
| underlying |  |  |
| nominal |  |  |
| amount | Assets | Liabilities | Net
| £m | £m | £m | £m
Foreign exchange contracts (cash-flow hedges) | 123 | 1 | (1) | –
Foreign exchange contracts (not hedge accounted) | 252 | 4 | (1) | 3
Total foreign exchange contracts | 375 | 5 | (2) | 3
Cross-currency swaps (fair value and net investment |  |  |  |
hedges) | 247 | – | (18) | (18)
Total financial derivatives | 622 | 5 | (20) | (15)
Balance sheet entries: |  |  |  |
Non-current | 256 | – | (18) | (18)
Current | 366 | 5 | (2) | 3
Total financial derivatives | 622 | 5 | (20) | (15)

Accounting for other derivative contracts
Any foreign exchange contracts which are not formally designated as hedges and tested are
classified as ‘held for trading’ and not hedge accounted.
Netting
International Swaps and Derivatives Association (ISDA) master netting agreements are in place
with derivative counterparties except for contracts traded on a dedicated international electronic
trading platform used for operational foreign exchange hedging. Under these agreements if a
credit event occurs, all outstanding transactions under the ISDA are terminated and only a single
net amount per counterparty is payable in settlement of all transactions. The ISDA agreements
do not meet the criteria for offsetting, since the offsetting is enforceable only if specific events
occur in the future, and there is no intention to settle the contracts on a net basis.

| Assets | Liabilities | Assets | Liabilities
| 31 July 2024 | 31 July 2024 | 31 July 2023 | 31 July 2023
| £m | £m | £m | £m
Gross value of assets and liabilities | 4 | (17) | 5 | (20)
Related assets and liabilities subject to master netting |  |  |  |
agreements | (4) | 4 | (5) | 5
Net exposure | – | (13) | – | (15)

Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
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Smiths Group plc Annual Report FY2024
The maturity profile, average interest and foreign currency exchange rates of the hedging instruments used in the Group’s hedging strategies are as follows:

|  |  | Maturity at 31 July 2024 | Maturity at 31 July 2023
|  |  | Up to |  | More than | Up to |  | More than
Hedged exposure | Hedging instrument |  | one year | One to five years | five years | one year | One to five years | five years
Fair value hedges |  |  |  |  |  |  |  |
Interest rate/ | Cross-currency swaps (EUR:GBP) | – Notional amount (£m) | – | 254 | – | – | 254 | –
foreign currency risk |  | – Average exchange rate | – | 0.845 | – | – | 0.845 | –
|  | – Average spread over three-month | – | 1.860% | – | – | 1.860% | –
|  | GBP SONIA |  |  |  |  |  |
Net investment hedges |  |  |  |  |  |  |  |
Foreign currency risk | Cross-currency swaps (GBP:USD) | – Notional amount (£m) | – | 248 | – | – | 247 | –
|  | – Average exchange rate | – | 1.2534 | – | – | 1.2534 | –
Cash-flow hedges |  |  |  |  |  |  |  |
Foreign currency risk | Foreign exchange contracts (EUR:GBP) | – Notional amount (£m) | 66 | – | – | 41 | 8 | –
|  | – Average exchange rate | 0.8588 | – | – | 0.7842 | 0.8893 | –
| Foreign exchange contracts (USD:GBP) | – Notional amount (£m) | 41 | – | – | 18 | – | –
|  | – Average exchange rate | 1.2593 | – | – | 1.2269 | – | –
| Foreign exchange contracts (EUR:USD) | – Notional amount (£m) | 24 | – | – | 30 | – | –
|  | – Average exchange rate | 0.9277 | – | – | 1.0939 | – | –
| Foreign exchange contracts (GBP:CZK) | – Notional amount (£m) | 25 | – | – | 10 | – | –
|  | – Average exchange rate | 28.6952 | – | – | 27.7919 | – | –
| Foreign exchange contracts (EUR:AUD) | – Notional amount (£m) | 9 | – | – | 7 | – | –
|  | – Average exchange rate | 1.6564 | – | – | 1.6603 | – | –

At 31 July 2024, the Group had forward foreign exchange contracts with a nominal value of £178m (FY2023: £123m) designated as cash-flow hedges. These forward foreign exchange contracts are in
relation to sale and purchase of multiple currencies with varying maturities up to 28 July 2025. The largest single currency pairs are disclosed above and make up 93% of the notional hedged
exposure. The notional and fair values of these foreign exchange forward derivatives are shown in the nominal amount and fair value of derivative contracts table on page 181.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
183
183
Smiths Group plc Annual Report FY2024
21. Fair value of financial instruments

|  |  |  | At fair value |  | Total |
|  | Basis for | At amortised | through profit | At fair value | carrying | Total
|  | determining | cost | or loss | through OCI | value | fair value
As at 31 July 2024 | Notes | fair value | £m | £m | £m | £m | £m
Financial assets |  |  |  |  |  |  |
Other investments | 14 | A | – | 1 | 47 | 48 | 48
Other investments | 14 | F | – | – | 5 | 5 | 5
Cash and cash |  |  |  |  |  |  |
equivalents | 18 | B | 459 | – | – | 459 | 459
Trade and other |  |  |  |  |  |  |
financial receivables |  | B/C | 797 | – | – | 797 | 797
Derivative financial |  |  |  |  |  |  |
instruments | 20 | C | – | 4 | – | 4 | 4
Total financial |  |  |  |  |  |  |
assets |  |  | 1,256 | 5 | 52 | 1,313 | 1,313
Financial liabilities |  |  |  |  |  |  |
Trade and other |  |  |  |  |  |  |
financial payables |  | B | (495) | – | – | (495) | (495)
Short-term |  |  |  |  |  |  |
borrowings | 18 | B/D | (2) | – | – | (2) | (2)
Long-term |  |  |  |  |  |  |
borrowings | 18 | D | (534) | – | – | (534) | (529)
Lease liabilities | 18 | E | (123) | – | – | (123) | (123)
Derivative financial |  |  |  |  |  |  |
instruments | 20 | C | – | (17) | – | (17) | (17)
Total financial |  |  |  |  |  |  |
liabilities |  |  | (1,154) | (17) | – | (1,171) | (1,166)

The fair value of a financial instrument is the price at which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arm’s-length transaction. Fair
values have been determined with reference to available market information at the balance sheet
date, using the methodologies described below:
A
Carrying value is assumed to be a reasonable approximation to fair value for all of these assets
and liabilities (Level 1 as defined by IFRS 13).
B
Carrying value is assumed to be a reasonable approximation to fair value for all of these assets
and liabilities (Level 2 as defined by IFRS 13).
C
Fair values of derivative financial assets and liabilities, and trade receivables held to collect or
sell, are estimated by discounting expected future contractual cash-flows using prevailing
interest rate curves. Amounts denominated in foreign currencies are valued at the exchange
rate prevailing at the balance sheet date. These financial instruments are included on the
balance sheet at fair value, derived from observable market prices (Level 2 as defined by
IFRS 13).

|  | Basis for | At amortised | At fair value |  | Total |
|  | determining | cost | through profit | At fair value | carrying | Total
|  |  | fair value | or loss | through OCI | value | fair value
As at 31 July 2023 | Notes |  | £m | £m | £m | £m | £m
Financial assets |  |  |  |  |  |  |
Other investments | 14 | A | – | 4 | 347 | 351 | 351
Other investments | 14 | F | – | 13 | 7 | 20 | 20
Cash and cash |  |  |  |  |  |  |
equivalents | 18 | A | 285 | – | – | 285 | 285
Trade and other |  |  |  |  |  |  |
financial receivables |  | B/C | 726 | – | – | 726 | 726
Derivative financial |  |  |  |  |  |  |
instruments | 20 | C | – | 5 | – | 5 | 5
Total financial |  |  |  |  |  |  |
assets |  |  | 1,011 | 22 | 354 | 1,387 | 1,387
Financial liabilities |  |  |  |  |  |  |
Trade and other |  |  |  |  |  |  |
financial payables |  | B | (476) | – | – | (476) | (476)
Short-term |  |  |  |  |  |  |
borrowings | 18 | D | (3) | – | – | (3) | (3)
Long-term |  |  |  |  |  |  |
borrowings | 18 | D | (534) | – | – | (534) | (520)
Lease liabilities | 18 | E | (117) | – | – | (117) | (117)
Derivative financial |  |  |  |  |  |  |
instruments | 20 | C | – | (20) | – | (20) | (20)
Total financial |  |  |  |  |  |  |
liabilities |  |  | (1,130) | (20) | – | (1,150) | (1,136)

D
Borrowings are carried at amortised cost. Amounts denominated in foreign currencies are
valued at the exchange rate prevailing at the balance sheet date. The fair value of borrowings is
estimated using quoted prices (Level 1 as defined by IFRS 13).
E
Leases are carried at amortised cost. Amounts denominated in foreign currencies are valued
at the exchange rate prevailing at the balance sheet date. The fair value of the lease contract is
estimated by discounting contractual future cash-flows (Level 2 as defined by IFRS 13).
F
The fair value of instruments is estimated by using unobservable inputs to the extent that
relevant observable inputs are not available. Unobservable inputs are developed using the
best information available in the circumstances, which may include the Group’s own data,
taking into account all information about market participation assumptions that is reliably
available (Level 3 as defined by IFRS 13).
IFRS 13 defines a three-level valuation hierarchy:
Level 1 – quoted prices for similar instruments
Level 2 – directly observable market inputs other than Level 1 inputs
Level 3 – inputs not based on observable market data
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
184
Smiths Group plc Annual Report FY2024
22. Commitments
At 31 July 2024, commitments, comprising bonds and guarantees arising in the normal course of
business, amounted to £187m (FY2023: £207m), including pension commitments of £44m
(FY2023: £56m) and charitable funding commitments for the Smiths Group Foundation of £9m
(FY2023: £10m). In addition, the Group has committed expenditure on capital projects amounting
to £14m (FY2023: £13m).
23. Provisions and contingent liabilities

| Trading | Non-headline and legacy | Total
|  | John Crane, | Titeflex |  |
|  | Inc. | Corporation |  |
|  | litigation | litigation | Other |
| £m | £m | £m | £m | £m
At 31 July 2022 | 11 | 229 | 52 | 43 | 335
Foreign exchange rate movements | – | (12) | (3) | – | (15)
Provision charged | 5 | 13 | – | 18 | 36
Provision released | (4) | – | (7) | (14) | (25)
Unwind of provision discount | – | 6 | 1 | – | 7
Utilisation | (4) | (32) | (2) | (14) | (52)
At 31 July 2023 | 8 | 204 | 41 | 33 | 286
Comprising: |  |  |  |  |
Current liabilities | 6 | 27 | 13 | 24 | 70
Non-current liabilities | 2 | 177 | 28 | 9 | 216
At 31 July 2023 | 8 | 204 | 41 | 33 | 286
Business combinations | 1 | – | – | – | 1
Provision charged | 12 | 29 | – | 5 | 46
Provision released | (2) | – | (5) | (5) | (12)
Unwind of provision discount | – | 8 | 1 | – | 9
Utilisation | (6) | (21) | (1) | (8) | (36)
At 31 July 2024 | 13 | 220 | 36 | 25 | 294
Comprising: |  |  |  |  |
Current liabilities | 10 | 32 | 13 | 20 | 75
Non-current liabilities | 3 | 188 | 23 | 5 | 219
At 31 July 2024 | 13 | 220 | 36 | 25 | 294

The John Crane, Inc. and Titeflex Corporation litigation provisions were the only provisions that
were discounted; other provisions have not been discounted as the impact would be immaterial.
Trading
The provisions included as trading represent amounts provided for in the ordinary course of
business. Trading provisions are charged and released through headline profit.
Warranty provision and product liability
At 31 July 2024, the Group had warranty and product liability provisions of £9m (FY2023: £6m).
Warranties over the Group’s products typically cover periods of between one and three years.
Provision is made for the likely cost of after-sales support based on the recent past experience of
individual businesses.
Commercial disputes and litigation in respect of ongoing business activities
The Group has on occasion been required to take legal action to protect its intellectual property and
other rights against infringement. It has also had to defend itself against proceedings brought by
other parties, including product liability and insurance subrogation claims. Provision is made for any
expected costs and liabilities in relation to these proceedings where appropriate, although there can
be no guarantee that such provisions (which may be subject to potentially material revision from
time to time) will accurately predict the actual costs and liabilities that may be incurred.
Contingent liabilities
In the ordinary course of its business, the Group is subject to commercial disputes and litigation
such as government price audits, product liability claims, employee disputes and other kinds of
lawsuits, and faces different types of legal issues in different jurisdictions. The high level of
activity in the US, for example, exposes the Group to the likelihood of various types of litigation
commonplace in that country, such as ‘mass tort’ and ‘class action’ litigation, legal challenges to
the scope and validity of patents, and product liability and insurance subrogation claims. These
types of proceedings (or the threat of them) are also used to create pressure to encourage
negotiated settlement of disputes. Any claim brought against the Group (with or without merit)
could be costly to defend. These matters are inherently difficult to quantify. In appropriate cases a
provision is recognised based on best estimates and management judgement but there can be no
guarantee that these provisions (which may be subject to potentially material revision from time
to time) will result in an accurate prediction of the actual costs and liabilities that may be incurred.
There are also contingent liabilities in respect of litigation for which no provisions are made.
The Group operates in some markets where the risk of unethical or corrupt behaviour is material
and has procedures, including an employee ethics alert line, to help it identify potential issues.
Such procedures will, from time to time, give rise to internal investigations, sometimes conducted
with external support, to ensure that the Group properly understands risks and concerns and
can take steps both to manage immediate issues and to improve its practices and procedures
for the future. The Group is not aware of any issues which are expected to generate material
financial exposures.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
185
185
Smiths Group plc Annual Report FY2024
Non-headline and legacy
John Crane, Inc.
John Crane, Inc. (JCI) is one of many co-defendants in numerous lawsuits pending in the United
States in which plaintiffs are claiming damages arising from alleged exposure to, or use of,
products previously manufactured which contained asbestos. Until 2006, the awards, the related
interest and all material defence costs were met directly by insurers. In 2007, JCI secured the
commutation of certain insurance policies in respect of product liability. Provision is made in
respect of the expected costs of defending known and predicted future claims and of adverse
judgements in relation thereto, to the extent that such costs can be reliably estimated.
The JCI products generally referred to in these cases consist of industrial sealing products,
primarily packing and gaskets. The asbestos was encapsulated within these products in such a
manner that causes JCI to understand, based on tests conducted on its behalf, that the products
were safe. JCI ceased manufacturing products containing asbestos in 1985.
JCI continues to actively monitor the conduct and effect of its current and expected asbestos
litigation, including the most efficacious presentation of its ‘safe product’ defence, and intends to
continue to resist these asbestos claims based upon this defence. The table below summarises
the JCI claims experience over the last 40 years since the start of this litigation:

| Year ended | Year ended | Year ended | Year ended | Year ended
| 31 July 2024 | 31 July 2023 | 31 July 2022 | 31 July 2021 | 31 July 2020
JCI claims experience |  |  |  |  |
Claims against JCI that have been dismissed | 312,000 | 310,000 | 306,000 | 305,000 | 297,000
Claims JCI is currently a defendant in | 20,000 | 20,000 | 22,000 | 22,000 | 25,000
Cumulative final judgements, after appeals, |  |  |  |  |
against JCI since 1979 | 156 | 154 | 149 | 149 | 149
Cumulative value of awards (US$m) |  |  |  |  |
since 1979 | 191 | 190 | 175 | 175 | 175

The number of claims outstanding at 31 July 2024 reflected the benefit of 2,000 (FY2023: 4,000)
claims being dismissed in the year.
JCI has also incurred significant additional defence costs. The litigation involves claims for a
number of allegedly asbestos-related diseases, with awards, when made, for mesothelioma
tending to be larger than those for the other diseases. JCI’s ability to defend mesothelioma cases
successfully is, therefore, likely to have a significant impact on its annual aggregate adverse
judgement and defence costs.
John Crane, Inc. litigation provision
The provision is based on past history of JCI claims and well-established tables of asbestos-
related disease incidence projections. The provision is determined using advice from asbestos
valuation experts, Bates White LLC. The assumptions made in assessing the appropriate level of
provision include: the period over which the expenditure can be reliably estimated; the future
trend of legal costs; the rate of future claims filed; the rate of successful resolution of claims; and
the average amount of judgements awarded. Trial delays arising from the COVID-19 pandemic
have largely abated and trial activity has returned to pre-pandemic levels.
Established incidence curves can be used to estimate the likely future pattern of asbestos-related
disease. However, JCI’s claims experience is also significantly impacted by other factors which
influence the US litigation environment. These can include: changing approaches on the part of
the plaintiffs’ bar; changing attitudes amongst the judiciary at both trial and appellate levels in
specific jurisdictions which move the balance of risk and opportunity for claimants; and legislative
and procedural changes in both the state and federal court systems.
The projections use a limited time horizon on the basis that Bates White LLC consider that there
is substantial uncertainty in the asbestos litigation environment. So probable expenditures are
not reasonably estimable beyond this time horizon. Asbestos is the longest-running mass tort
litigation in American history and is constantly evolving in ways that cannot be anticipated. JCI’s
defence strategy also generates a significantly different pattern of legal costs and settlement
expenses from other defendants. Thus JCI is in an extremely rare position, and evidence from
other litigation cannot be used to improve the reliability of the projections. A ten-year (FY2023:
ten-year) time horizon has been used based on past experience regarding significant changes in
the litigation environment that have occurred every few years and on the amount of time taken in
the past for some of those changes to impact the broader asbestos litigation environment.
The rate of future claims filed has been estimated using well-established tables of asbestos
incidence projections to determine the likely population of potential claimants, and JCI’s past
experience to determine what proportion of this population will make a claim against JCI. The JCI
products generally referred to in claims had industrial and marine applications. As a result, the
incidence curve used for JCI projections excludes construction workers, and is a composite of the
curves that predict asbestos exposure-related disease from shipyards and other occupations.
This is consistent with JCI’s litigation history.
The rate of successful resolution of claims and the average amount of any judgements awarded
are projected based on the past history of JCI claims, since this is the best available evidence,
given JCI’s strategy of defending all claims.
The future trend of legal costs is estimated based on JCI’s past experience, adjusted to reflect the
assumed levels of claims and trial activity, since the number of trials is a key driver of legal costs.
John Crane, Inc. litigation insurance recoveries
While JCI has certain excess liability insurance, JCI has met defence costs directly. The
calculation of the provision does not take account of any potential recoveries from insurers.
John Crane, Inc. litigation provision sensitivities
The provision may be subject to potentially material revision from time to time if new information
becomes available as a result of future events. There can be no guarantee that the assumptions
used to estimate the provision will result in an accurate prediction of the actual costs that will be
incurred because of the significant uncertainty associated with the future level of asbestos claims
and of the costs arising out of related litigation, including the unpredictability of jury verdicts.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
186
Smiths Group plc Annual Report FY2024
John Crane, Inc. statistical reliability of projections over the ten-year time horizon
In order to evaluate the statistical reliability of the projections, a population of outcomes is
modelled using randomised verdict outcomes. This generated a distribution of outcomes with
future spend at the 5th percentile of £200m and future spend at the 95th percentile of £258m
(FY2023: £180m and £245m, respectively). Statistical analysis of the distribution of these
outcomes indicates that there is a 50% probability that the total future spend will fall between
£245m and £271m (FY2023: between £228m and £257m), compared to the gross provision value
of £261m (FY2023: £246m).
John Crane, Inc. litigation provision history
The JCI asbestos litigation provision of £220m (FY2023: £204m) is a discounted pre-tax provision
using discount rates, being the risk-free rate on US debt instruments for the appropriate period.
The deferred tax asset related to this provision is shown within the deferred tax balance (note 6).
The JCI asbestos litigation provision has developed over the last five years as follows:

| Year ended | Year ended | Year ended | Year ended | Year ended
| 31 July 2024 | 31 July 2023 | 31 July 2022 | 31 July 2021 | 31 July 2020
| £m | £m | £m | £m | £m
John Crane, Inc. litigation provision |  |  |  |  |
Gross provision | 261 | 246 | 258 | 220 | 235
Discount | (41) | (42) | (29) | (8) | (4)
Discounted pre-tax provision | 220 | 204 | 229 | 212 | 231
Deferred tax | (54) | (51) | (57) | (54) | (59)
Discounted post-tax provision | 166 | 153 | 172 | 158 | 172
Operating profit charge/(credit) |  |  |  |  |
Increased provisions for adverse judgements |  |  |  |  |
and legal defence costs | 28 | 28 | 24 | 10 | 14
Change in US risk-free rates | 1 | (15) | (18) | (5) | 16
Subtotal – items charged to the provision | 29 | 13 | 6 | 5 | 30
Litigation management, legal fees in |  |  |  |  |
connection with litigation against insurers |  |  |  |  |
and defence strategy | – | 2 | 1 | 1 | 1
Recoveries from insurers | (3) | (7) | – | (9) | (3)
Total operating profit charge/(credit) | 26 | 8 | 7 | (3) | 28
Cash-flow |  |  |  |  |
Provision utilisation – legal defence costs and |  |  |  |  |
adverse judgements | (21) | (32) | (21) | (13) | (23)
Litigation management expense | – | (2) | (1) | – | (1)
Recoveries from insurers | 3 | 7 | – | 9 | 3
Net cash outflow | (18) | (27) | (22) | (4) | (21)

John Crane, Inc. sensitivity of the projections to changes in the time horizon used
If the asbestos litigation environment becomes more volatile and uncertain, the time horizon over
which the provision can be calculated may reduce. Conversely, if the environment became more
stable, or JCI changed approach and committed to long-term settlement arrangements, the time
period covered by the provision might be extended.
The projections use a ten-year time horizon. Reducing the time horizon by one year would reduce
the provision by £16m (FY2023: £16m) and reducing it by five years would reduce the provision by
£87m (FY2023: £87m).
We consider, after obtaining advice from Bates White LLC, that to forecast beyond ten years
requires that the litigation environment remains largely unchanged with respect to the historical
experience used for estimating future asbestos expenditures. Historically, the asbestos litigation
environment has undergone significant changes more often than every ten years. If one assumed
that the asbestos litigation environment would remain unchanged for longer and extended the
time horizon by one year, it would increase the pre-tax provision by £13m (FY2023: £13m) and
extending it by five years would increase the pre-tax provision by £47m (FY2023: £48m).
However, there are also reasonable scenarios that, given certain recent events in the US asbestos
litigation environment, would result in no additional asbestos litigation for JCI beyond ten years.
At this time, how the asbestos litigation environment will evolve beyond ten years is not
reasonably estimable.
John Crane, Inc. contingent liabilities
Provision has been made for future defence costs and the cost of adverse judgements expected to
occur. JCI’s claims experience is significantly impacted by other factors which influence the US
litigation environment. These can include: changing approaches on the part of the plaintiffs’ bar;
changing attitudes amongst the judiciary at both trial and appellate levels; and legislative and
procedural changes in both the state and federal court systems. As a result, whilst the Group
anticipates that asbestos litigation will continue beyond the period covered by the provision, the
uncertainty surrounding the US litigation environment beyond this point is such that the costs cannot
be reliably estimated.
Although the methodology used to calculate the JCI litigation provision can in theory be applied to
show claims and costs for longer periods, the Directors consider, based on advice from Bates
White LLC, that the level of uncertainty regarding the factors used in estimating future costs is
too great to provide for reasonable estimation of the numbers of future claims, the nature of such
claims or the cost to resolve them for years beyond the ten-year time horizon.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
187
187
Smiths Group plc Annual Report FY2024
Titeflex Corporation
Titeflex Corporation, a subsidiary of the Group in the Flex-Tek business segment, has received a
number of claims in the US from insurance companies seeking recompense on a subrogated
basis for the effects of damage allegedly caused by lightning strikes in relation to its flexible gas
piping product. It has also received product liability claims regarding this product in the US, some
in the form of purported class actions. Titeflex Corporation believes that its products are a safe
and effective means of delivering gas when installed in accordance with the manufacturer’s
instructions and local and national codes. However, some claims have been settled on an
individual basis without admission of liability. Equivalent third-party products in the US
marketplace face similar challenges.
Titeflex Corporation litigation provision
The continuing progress of claims and the pattern of settlement, together with recent
marketplace activity, provide sufficient evidence to recognise a liability in the accounts. Therefore
provision has been made for the costs which the Group is expected to incur in respect of future
claims to the extent that such costs can be reliably estimated. Titeflex Corporation sells flexible
gas piping with extensive installation and safety guidance designed to assure the safety of the
product and minimise the risk of damage associated with lightning strikes.
The assumptions made in assessing the appropriate level of provision, which are based on past
experience, include: the period over which expenditure can be reliably estimated; the number of
future settlements; the average amount of settlements; and the impact of statutes of repose and safe
installation initiatives on the expected number of future claims. The assumptions relating to the
number of future settlements exclude the use of recent claims history due to the uncertain impact
that the COVID-19 lockdown has had on the number of claims.
The provision of £36m (FY2023: £41m) is a discounted pre-tax provision using discount rates,
being the risk-free rate on US debt instruments for the appropriate period. The deferred tax asset
related to this provision is shown within the deferred tax balance (note 6).

| 31 July 2024 | 31 July 2023
| £m | £m
Gross provision | 69 | 78
Discount | (33) | (37)
Discounted pre-tax provision | 36 | 41
Deferred tax | (9) | (9)
Discounted post-tax provision | 27 | 32

Titeflex Corporation litigation provision history
A credit of £5m (FY2023: £8m credit) has been recognised by Titeflex Corporation in respect of
changes to the estimated cost of future claims from insurance companies seeking recompense
for damage allegedly caused by lightning strikes. The lower gross provision value has been
principally driven by a reduction in the number of claims.
Titeflex Corporation litigation provision sensitivities
The significant uncertainty associated with the future level of claims and of the costs arising out of
related litigation means that there can be no guarantee that the assumptions used to estimate the
provision will result in an accurate prediction of the actual costs that will be incurred. Therefore
the provision may be subject to potentially material revision from time to time, if new information
becomes available as a result of future events.
The projections incorporate a long-term assumption regarding the impact of safe installation
initiatives on the level of future claims. If the assumed annual benefit of bonding and grounding
initiatives were 0.5% higher, the provision would be £2m (FY2023: £2m) lower, and if the benefit
were 0.5% lower, the provision would be £2m (FY2023: £2m) higher.
The projections use assumptions of future claims that are based on both the number of future
settlements and the average amount of those settlements. If the assumed average number of
future settlements increased 10%, the provision would rise by £2m (FY2023: £3m), with an
equivalent fall for a reduction of 10%. If the assumed amount of those settlements increased 10%,
the provision would rise by £2m (FY2023: £2m), also with an equivalent fall for a reduction of 10%.
Other non-headline and legacy provisions
Non-headline provisions comprise all provisions that were disclosed as non-headline items when
they were charged to the consolidated income statement. Legacy provisions comprise non-material
provisions relating to former business activities and discontinued operations and properties no
longer used by Smiths.
These non-material provisions include non-headline reorganisation, disposal indemnities,
litigation and arbitration in respect of old products and discontinued business activities, which
includes claims received in connection with the disposal of Smiths Medical. Provision is made for
the best estimate of the expected expenditure related to the defence and/or resolution of such
matters. There is an inherent risk in legal proceedings that the outcome may be unfavourable to
the Group, and as such there can be no guarantee that such provisions (which may be subject to
potentially material revision from time to time) will be sufficient.
Reorganisation
At 31 July 2024, there were reorganisation provisions of £1m (FY2023: £7m) relating to the various
restructuring programmes that are expected to be utilised in the next 18 months.
Property
At 31 July 2024, there were provisions of £6m (FY2023: £10m) related to actual and potential
environmental issues for sites currently or previously occupied by Smiths operations.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
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Smiths Group plc Annual Report FY2024
24. Share capital

|  | Issued |
|  | capital | Consideration
| Number of shares | £m | £m
Ordinary shares of 37.5p each |  |  |
Total share capital at 31 July 2022 | 362,356,159 | 136 |
Share buybacks | (13,053,169) | (5) | (207)
Total share capital at 31 July 2023 | 349,302,990 | 131 |
Share buybacks | (4,205,196) | (1) | (70)
Total share capital at 31 July 2024 | 345,097,794 | 130 |

Share capital structure
As at 31 July 2024, the Company’s issued share capital was 345,097,794 ordinary shares with a
nominal value of 37.5p per share. All of the issued share capital was in free issue and all issued
shares are fully paid.
The Company’s ordinary shares are listed and admitted to trading on the Main Market of the
London Stock Exchange. The Company has an American Depositary Receipt (ADR) programme
and one ADR equates to one ordinary share. As at 31 July 2024, 3,020,289 ordinary shares were
held by the nominee of the programme in respect of the same number of ADRs in issue.
The holders of ordinary shares are entitled to receive the Company’s Reports and Accounts, to
attend and speak at General Meetings of the Company, to appoint proxies and to exercise voting
rights. None of the ordinary shares carry any special rights with regard to control of the Company
or distributions made by the Company.
There are no known agreements relating to, or restrictions on, voting rights attached to the
ordinary shares (other than the 48-hour cut-off for casting proxy votes prior to a General
Meeting). There are no restrictions on the transfer of shares, and there is no requirement to
obtain approval for a share transfer. There are no known arrangements under which financial
rights are held by a person other than the holder of the ordinary shares. There are no known
limitations on the holding of shares.
Powers of Directors
The Directors are authorised to issue and allot shares and to buy back shares subject to receiving
shareholder approval at the General Meeting. Such authorities were granted by shareholders at
the 2023 Annual General Meeting. At the 2024 AGM, it will be proposed that the Directors be
granted new authorities to allot and buy back shares.
Share buybacks
As at 12 September 2024 (the latest practicable date for inclusion in this report), the Company had
an unexpired authority to repurchase ordinary shares up to a maximum of 31.8 million ordinary
shares (FY2023: 10.7 million). As at 12 September 2024, the Company did not hold any shares in
treasury. Any ordinary shares purchased may be cancelled or held in treasury.
As previously reported, the Company undertook a share buyback programme in November 2021
that completed in September 2023, under which a total of 48,970,726 shares were purchased for a
consideration of £742m. During the current period, the Company purchased 1,764,660 shares for
a consideration of £29m under this scheme.
On 26 March 2024, the Company announced a £100m share buyback programme to purchase
ordinary shares in the capital of the Company. The first £50m tranche completed on 6 September
2024. The timing for initiating the second £50m tranche has not been determined. The ordinary
shares purchased under the programme will be cancelled. Under this new scheme, 2,478,536
ordinary shares of 37.5p each were repurchased during the period, for a total consideration of
£41,551,369, of which 38,000 shares with a value of £678,713 were yet to settle and be cancelled.
A further 496,006 ordinary shares have been repurchased during the period of 1 August 2024 to 6
September 2024. In total since the start of the Programme, 2,974,542 shares have been
repurchased, for a total consideration of £50m, representing 1% of the called-up ordinary share
capital outstanding at the start of the Programme.
Employment share schemes
Shares acquired through Company share schemes and plans rank pari passu with the shares in
issue and have no special rights. The Company operates an Employee Benefit Trust, with an
independent trustee, to hold shares pending employees becoming entitled to them under the
Company’s share schemes and plans. On 31 July 2024, the Trust held 1,388,730 (FY2023:
1,742,929) ordinary shares in the Company. The Trust waived its dividend entitlement on its
holding during the year, and the Trust abstains from voting any shares held at General Meetings.
25. Dividends
The following dividends were declared and paid in the period:

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Ordinary final dividend of 28.70p (FY2023: 27.3p) paid 24 November 2023 | 100 | 97
Ordinary interim dividend of 13.55p (FY2023: 12.9p) paid 13 May 2024 | 47 | 46
| 147 | 143

In the current year a final dividend of 28.7p was paid in respect of FY2023 and an interim dividend
of 13.55p was paid in respect of FY2024. In the prior year a total dividend of 40.2p was paid,
comprising a final dividend of 27.3p paid in respect of FY2022 and an interim dividend of 12.9p paid
in respect of FY2023.
Notes to the accounts
continued
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Governance
Financial statements
189
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Smiths Group plc Annual Report FY2024
The final dividend for the year ended 31 July 2024 of 30.2p per share was recommended by the
Board on 23 September 2024 and will be paid to shareholders on 22 November 2024, subject to
approval by the shareholders. This dividend is payable to all shareholders on the register of
members at 6.00pm on 18 October 2024 (the record date).
Waiver of dividends
Winterflood Client Nominees Limited (Buck Trustees Dividend Waived Ltd) waived all dividends
payable in the year, and all future dividends, on their shareholdings in the Company.
26. Reserves
Retained earnings include the value of Smiths Group plc shares held by the Smiths Industries
Employee Benefit Trust. In the year the Company issued nil (FY2023: nil) shares to the Trust, the
Trust purchased 1,251,530 shares (FY2023: 1,553,558 shares) in the market for a consideration
of £20m (FY2023: £25m) and redeemed 1,605,729 shares (FY2023: 429,291) to employees for a
cumulative option cost of £4m (FY2023: £1m). At 31 July 2024, the Trust held 1,388,730 (FY2023:
1,742,929) ordinary shares.
Other reserves comprise the capital redemption reserve, revaluation reserve and merger
reserve, which arose from share repurchases, revaluations of property, plant and equipment, and
merger accounting for business combinations before the adoption of IFRS, respectively.
Capital management
Capital employed comprises total equity adjusted for goodwill recognised directly in reserves, net
retirement benefit-related assets and liabilities, net litigation provisions relating to non-headline
items and net debt. The efficiency of the allocation of capital to the divisions is monitored through
the return on capital employed (ROCE). This ratio is calculated over a rolling 12-month period and
is the percentage that headline operating profit comprises of monthly average capital employed.
In FY2024 ROCE was 16.4% (FY2023: 15.7%); see note 29.
Capital structure is based on the Directors’ judgement of the balance required to maintain
flexibility, whilst achieving an efficient cost of capital.
The FY2024 ratio of net debt to headline EBITDA of 0.3 (FY2023: 0.7) is within the Group’s stated
policy of 2.0 or less over the medium term. The Group’s robust balance sheet and record of strong
cash generation are more than able to fund immediate investment needs and legacy obligations.
See note 29 for the definition of headline EBITDA and the calculation of this ratio.
As part of its capital management, the Group maintains a solid investment grade credit rating to
ensure access to the widest possible sources of financing and to optimise the resulting cost of
capital. At 31 July 2024, the Group had a credit rating of BBB+/Baa2 (FY2023: BBB+/Baa2) with
Standard & Poor’s and Moody’s respectively.
The Board has a progressive dividend policy for future payouts, with the aim of increasing
dividends in line with the long-term underlying growth in earnings. In setting the level of dividend
payments, the Board will take into account prevailing economic conditions and future investment
plans, along with the objective to maintain a minimum dividend cover of at least two times.
Hedge reserve
The hedge reserve on the balance sheet records the cumulative gain or loss on designated
hedging instruments, and comprises:

| 31 July 2024 | 31 July 2023
| £m | £m
Net investment hedge reserve (net of £7m of deferred tax (FY2023: £8m)) | (184) | (188)
Hedge reserve total | (184) | (188)

See transactional currency exposure risk management disclosures in note 19 for additional
details of cash-flow hedges, and translational currency exposure risk management disclosure
also in note 19 for additional details of net investment hedges.
Non-controlling interest
The Group has recorded non-controlling interests of £22m (FY2023: £22m), of which the most
significant balance is in John Crane Japan Inc., which represented £20m (FY2023: £19m) of the
total non-controlling interests.
The non-controlling interest in John Crane Japan Inc. represents a 30% interest. John Crane
Japan Inc. generated operating profits of £4m in the period (FY2023: £5m), and cash inflows from
operating activities of £4m (FY2023: £2m). It paid dividends of £1m (FY2023: £1m) and tax of £1m
(FY2023: £2m). At 31 July 2024, the company contributed £53m (FY2023: £53m) of net assets to
the Group.
Notes to the accounts
continued
Overview
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Governance
Financial statements
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Smiths Group plc Annual Report FY2024
27. Acquisitions
On 30 August 2023, the Group acquired 100% of the share capital of Heating & Cooling Products
(HCP), for consideration of £64m, financed using the Group’s own cash resources. HCP is a
US-based manufacturer of Heating, Ventilation & Air Conditioning (HVAC) solutions. This
acquisition will further expand the Flex-Tek business segment’s presence in the North American
HVAC market, enabling Smiths to serve customers with an even broader product range.
The intangible assets recognised on acquisition comprise customer relationships, intellectual
property and technology. Goodwill represents the expected synergies from the strategic fit of
the acquisition and the value of the expertise in the assembled workforce. From the date of
acquisition to 31 July 2024, HCP contributed £52m to revenue and £11m to profit before taxation
and amortisation. If the Group had acquired this business at the beginning of the financial year,
the acquisition would have contributed an additional £4m to revenue and £1m to profit
before taxation.
On 27 October 2023, the Group’s Flex-Tek business segment acquired 100% of the share capital of
Burns Machine (Burns) for consideration of approximately £1m, financed using the Group’s own
cash resources.
Provisional balances at the date of acquisition have been provided in the table below. The amounts
remain provisional due to the fair value of the acquisition balance sheets not being finalised.

|  | HCP | Burns | Total
|  | £m | £m | £m
Non-current assets | – acquired intangible assets | 34 | – | 34
| – plant and machinery | 6 | 1 | 7
| – right of use assets | 12 | – | 12
Current assets | – inventory | 10 | – | 10
| – trade and other receivables | 7 | – | 7
Current liabilities | – trade and other payables | (3) | – | (3)
Non-current liabilities | – lease liability | (12) | – | (12)
Net assets acquired |  | 54 | 1 | 55
Goodwill on current period acquisitions |  | 10 | – | 10
Total consideration |  | 64 | 1 | 65

Post balance sheet date acquisitions
During September 2024, the Group acquired 100% of the share capital of Wattco, Inc. (19 September
2024) and exchanged on the acquisition of 100% of the share capital of Modular Metal Fabricators,
Inc. (10 September 2024), with completion anticipated for Q1 FY2025.
Wattco is a manufacturer of industrial heating solutions and control panels which will expand
Flex-Tek’s industrial heat business, and Modular Metal Fabricators is a manufacturer of metal
and flexible duct which will expand Flex-Tek’s HVAC business.
Total cash consideration for these acquisitions was £95m, with deferred consideration being up to
circa £15m. Due to the short time between completion of the acquisition and the announcement
date, it has not been possible to determine the fair value of the deferred consideration. Payment of
the deferred consideration is contingent on future business performance.
In the last twelve months these businesses have delivered £38m of revenue and £7m of net
earnings (twelve months to 31 March 2024 for Modular Metal Fabricators and twelve months to
30 June 2024 for Wattco). These acquisitions have been financed using the Group’s own cash
resources. Due to the short time between the completion of the acquisition and the
announcement date, it has not been possible to complete the determination of the fair values of
the acquired balance sheet.
28. Cash-flow
Cash-flow from operating activities

| Year ended 31 July 2024 | Year ended 31 July 2023
| Headline | Non-headline | Total | Headline | Non-headline | Total
| £m | £m | £m | £m | £m | £m
Operating profit: |  |  |  |  |  |
– continuing operations | 526 | (111) | 415 | 501 | (98) | 403
– discontinued operations | – | – | – | – | 6 | 6
Amortisation of intangible assets | 7 | 49 | 56 | 9 | 52 | 61
Depreciation of property, plant |  |  |  |  |  |
and equipment | 44 | 1 | 45 | 42 | – | 42
Depreciation of right of use |  |  |  |  |  |
assets | 34 | – | 34 | 32 | – | 32
(Gain)/loss on disposal of |  |  |  |  |  |
property, plant and equipment | 1 | – | 1 | – | – | –
(Gain)/loss on fair value of |  |  |  |  |  |
contingent consideration | – | 13 | 13 | – | 6 | 6
Share-based payment expense | 13 | – | 13 | 13 | – | 13
Retirement benefits* | 7 | (8) | (1) | 5 | (7) | (2)
Loss on disposal of financial |  |  |  |  |  |
asset | – | 9 | 9 | – | – | –
Decrease/(increase) in |  |  |  |  |  |
inventories | (4) | – | (4) | (88) | (1) | (89)
Decrease/(increase) in trade |  |  |  |  |  |
and other receivables | (107) | 26 | (81) | (10) | (53) | (63)
Increase/(decrease) in trade |  |  |  |  |  |
and other payables | 71 | (21) | 50 | 10 | 39 | 49
Increase/(decrease) in |  |  |  |  |  |
provisions | 3 | (5) | (2) | (2) | (32) | (34)
Cash generated from operations | 595 | (47) | 548 | 512 | (88) | 424
Interest paid | (57) | – | (57) | (73) | (2) | (75)
Interest received | 26 | – | 26 | 36 | – | 36
Tax paid | (99) | – | (99) | (92) | – | (92)
Net cash inflow from operating |  |  |  |  |  |
activities | 465 | (47) | 418 | 383 | (90) | 293

*
The retirement benefits within non-headline operating activities principally relate to employer contributions to legacy
defined benefit and post-retirement healthcare plans.
Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
191
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Smiths Group plc Annual Report FY2024
Headline cash measures – continuing operations
The Group measure of headline operating cash excludes interest and tax, and includes capital
expenditure supporting organic growth. The Group uses operating cash-flow for the calculation
of cash conversion and free cash-flow for management of capital purposes. See note 29 for
additional details.
The table below reconciles the Group’s net cash-flow from operating activities to headline
operating cash-flow and free cash-flow:

| Year ended 31 July 2024 | Year ended 31 July 2023
| Headline | Non-headline | Total | Headline | Non-headline | Total
| £m | £m | £m | £m | £m | £m
Net cash inflow from |  |  |  |  |  |
operating activities | 465 | (47) | 418 | 383 | (90) | 293
Include: |  |  |  |  |  |
Expenditure on capitalised |  |  |  |  |  |
development, other intangible |  |  |  |  |  |
assets and property, plant and |  |  |  |  |  |
equipment | (86) | – | (86) | (81) | – | (81)
Repayment of lease liabilities | (39) | – | (39) | (36) | – | (36)
Disposals of property, plant and |  |  |  |  |  |
equipment | – | – | – | 2 | – | 2
Funding of charitable foundation | – | 1 | 1 |  |  |
Movement in cash collateral | 4 | – | 4 | – | – | –
Free cash-flow |  |  | 298 |  |  | 178
Exclude: |  |  |  |  |  |
Repayment of lease liabilities | 39 | – | 39 | 36 | – | 36
Interest paid | 57 | – | 57 | 73 | – | 73
Interest received | (26) | – | (26) | (36) | – | (36)
Tax paid | 99 | – | 99 | 92 | – | 92
Funding of charitable foundation | – | (1) | (1) | – | – | –
Movement in cash collateral | (4) | – | (4) | – | – | –
Operating cash-flow | 509 | (47) | 462 | 433 | (90) | 343

Headline cash conversion
Headline operating cash conversion for continuing operations is calculated as follows:

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Headline operating profit | 526 | 501
Headline operating cash-flow | 509 | 433
Headline operating cash conversion | 97% | 86%

Reconciliation of free cash-flow to net movement in cash and cash equivalents:

| Year ended | Year ended
| 31 July 2024 | 31 July 2023
| £m | £m
Free cash-flow | 298 | 178
Disposal of/(investment in) financial assets | 186 | (22)
Disposal of businesses and discontinued operations | – | (7)
Acquisition of businesses | (65) | –
Funding of charitable foundation | (1) | –
Other net cash-flows used in financing activities |  |
(note: repayment of lease liabilities is included in free cash-flow) | (230) | (909)
Net increase/(decrease) in cash and cash equivalents | 188 | (760)

29. Alternative performance measures and key performance indicators
The Group uses several alternative performance measures (APMs) in order to provide additional
useful information on underlying trends and the performance and position of the Group. APMs
are non-GAAP and not defined by IFRS; therefore, they may not be directly comparable with other
companies’ APMs and should not be considered a substitute for IFRS measures.
The Group uses these measures, which are common across the industry, for planning and
reporting purposes, to enhance the comparability of information between reporting periods and
business units. The measures are also used in discussions with the investment analyst
community and by credit rating agencies.
We have identified and defined the following key measures which are used within the business by
management to assess the performance of the Group’s businesses:

APM term | Definition and purpose
Capital employed | Capital employed is a non-statutory measure of invested resources. It
| comprises statutory net assets and is adjusted as follows:
| – To add goodwill recognised directly in reserves in respect of subsidiaries
| acquired before 1 August 1998;
| – To eliminate the Group's investment in ICU Medical, Inc. equity and
| deferred consideration contingent on the future share price performance
| of ICU Medical, Inc; and
| – To eliminate post-retirement benefit assets and liabilities and non-
| headline litigation provisions related to John Crane, Inc. and Titeflex
| Corporation, both net of deferred tax, and net debt.
| It is used to monitor capital allocation within the Group. See below for a
| reconciliation from net assets to capital employed.
Capital expenditure | Comprises additions to property, plant and equipment, capitalised
| development and other intangible assets, excluding assets acquired
| through business combinations: see note 1 for an analysis of capital
| expenditure. This measure quantifies the level of capital investment into
| ongoing operations.

Notes to the accounts
continued
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Financial statements
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Smiths Group plc Annual Report FY2024

APM term | Definition and purpose
Divisional headline | DHOP comprises divisional earnings before central costs, finance
operating profit (DHOP) | costs and taxation. DHOP is used to monitor divisional performance. A
| reconciliation of DHOP to operating profit is shown in note 1.
Free cash-flow | Free cash-flow is calculated by adjusting the net cash inflow from
| operating activities to include capital expenditure, the repayment of lease
| liabilities, the proceeds from the disposal of property, plant and equipment
| and the investment in financial assets relating to operating activities and
| pensions financing outstanding at the balance sheet date. The measure
| shows cash generated by the Group before discretionary expenditure on
| acquisitions and returns to shareholders. A reconciliation of free cash-flow
| is shown in note 28.
Gross debt | Gross debt is total borrowings (bank, bonds and lease liabilities). It is used
| to provide an indication of the Group's overall level of indebtedness. See
| note 18 for an analysis of gross debt.
Headline | The Group has defined a 'headline' measure of performance that excludes
| material non-recurring items or items considered non-operational/
| trading in nature. Items excluded from headline are referred to as non-
| headline items. This measure is used by the Group to measure and monitor
| performance excluding material non-recurring items or items considered
| non-operational. See note 3 for an analysis of non-headline items.
Headline EBITDA | EBITDA is a widely used profit measure, not defined by IFRS, being
| earnings before interest, taxation, depreciation and amortisation. A
| reconciliation of headline operating profit to headline EBITDA is shown in
| the note below.
Net debt | Net debt is total borrowings (bank, bonds and lease liabilities) less cash
| balances and derivatives used to manage the interest rate risk and currency
| profile of the debt. This measure is used to provide an indication of the Group's
| overall level of indebtedness and is widely used by investors and credit rating
| agencies. See note 18 for an analysis of net cash/(debt).
Non-headline | The Group has defined a 'headline' measure of performance that excludes
| material non-recurring items or items considered non-operational/trading
| in nature. Items excluded from headline are referred to as non-headline
| items. This is used by the Group to measure and monitor material non-
| recurring items or items considered non-operational. See note 3 for an
| analysis of non-headline items.

APM term | Definition and purpose
Operating cash-flow | Comprises free cash-flow and excludes cash-flows relating to the
| repayment of lease liabilities, interest and taxation. The measure shows
| how cash is generated from operations in the Group. A reconciliation of
| operating cash-flow is shown in note 28.
Operating profit | Operating profit is earnings before finance costs and tax. A reconciliation of
| operating profit to profit before tax is shown on the income statement on page
| 135. This common measure is used by the Group to measure and monitor
| performance.
Return on capital | Smiths ROCE is calculated over a rolling 12-month period and is the
employed (ROCE) | percentage that headline operating profit represents of the monthly
| average capital employed on a rolling 12-month basis. This measure of
| return on invested resources is used to monitor performance and capital
| allocation within the Group. See below for Group ROCE and note 1 for
| divisional headline operating profit and divisional capital employed.

The key performance indicators (KPIs) used by management to assess the performance of the
Group’s businesses are as follows:

KPI term | Definition and purpose |
Dividend cover – | Dividend cover is the ratio of headline earnings per share (see note 5) to |
headline | dividend per share (see note 25). This commonly used measure indicates |
| the number of times the dividend in a financial year is covered by headline |
| earnings. |
Earnings per share | EPS growth is the growth in headline basic EPS (see note 5), on a reported |
(EPS) growth | basis. EPS growth is used to measure and monitor performance. |
Free cash-flow (as a % | This measure is defined as free cash-flow divided by headline operating |
of operating profit) | profit averaged over a three-year performance period. This cash |
| generation measure is used by the Group as a performance measure for |
| remuneration purposes. |
Greenhouse gas (GHG) | GHG reduction is calculated as the percentage change in normalised |
emissions reduction | Scope 1 & 2 GHG emissions. Normalised is calculated as tCO 2 e per £m of |
| revenue. This measure is used to monitor environmental performance. |

Notes to the accounts
continued
Overview
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Governance
Financial statements
193
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Smiths Group plc Annual Report FY2024

KPI term | Definition and purpose
Gross vitality | Gross vitality is calculated as the percentage of revenue derived from new
| products and services launched in the last five years. This measure is used
| to monitor the effectiveness of the Group's new product development and
| commercialisation.
My Say engagement | The overall score in our My Say employee engagement survey. The
| biannual survey is undertaken Group-wide. This measure is used by the
score |
| Group to monitor employee engagement.
Operating cash | Comprises headline operating cash-flow, excluding restructuring costs,
| as a percentage of headline operating profit. This measure is used to show
conversion |
| the proportion of headline operating profit converted into cash-flow from
| operations before investment, finance costs, non-headline items and
| taxation. The calculation is shown in note 28.
Operating profit margin | Operating profit margin is calculated by dividing headline operating profit
| by revenue. This measure is used to monitor the Group’s ability to drive
| profitable growth and control costs.
Organic growth | Organic growth adjusts the movement in headline performance to exclude
| the impact of foreign exchange and acquisitions. Organic growth is used by
| the Group to aid comparability when monitoring performance.
Organic revenue | Organic revenue growth (remuneration) is compounded annualised growth
| in revenue after excluding the impact of foreign exchange and acquisitions.
growth (remuneration) |
| The measure used for remuneration differs from organic revenue growth
| in that it is calculated on a compounded annualised basis. This measure
| has historically been used by the Group for aligning remuneration with
| business performance.
Percentage of senior | Percentage of senior leadership positions taken by females is calculated
| as the percentage of senior leadership roles (G14+ group) held by females.
leadership positions |
| This measure is used by the Group to monitor diversity performance.
taken by females |
R&D cash costs as a % | This measure is defined as the cash cost of research and development
| activities (including capitalised R&D, R&D directly charged to the P&L and
of sales |
| customer-funded projects) as a percentage of revenue. Innovation is an
| important driver of sustainable growth for the Group and this measures
| our investment in research and development to drive innovation.
Recordable Incident | Recordable Incident Rate is calculated as the number of recordable
| incidents – where an incident requires medical attention beyond first aid
Rate (RIR) |
| – per 100 colleagues, per year across Smiths. This measure is used by the
| Group to monitor health and safety performance.

Capital employed
Capital employed is a non-statutory measure of invested resources. It comprises statutory net
assets adjusted to add goodwill recognised directly in reserves in respect of subsidiaries acquired
before 1 August 1998 of £478m (FY2023: £478m), to eliminate the Group’s investment in ICU
Medical, Inc. equity and deferred consideration contingent on the future share price performance
of ICU Medical, Inc. and to eliminate post-retirement benefit assets and liabilities and non-
headline litigation provisions related to John Crane, Inc. and Titeflex Corporation, both net of
related tax, and net debt.

|  | 31 July 2024 | 31 July 2023
| Notes | £m | £m
Net assets |  | 2,252 | 2,406
Adjust for: |  |  |
Goodwill recognised directly in reserves |  | 478 | 478
Retirement benefit assets and obligations | 8 | (29) | (89)
Tax related to retirement benefit assets and obligations |  | 17 | 31
John Crane, Inc. litigation provisions and related tax | 23 | 166 | 153
Titeflex Corporation litigation provisions and related tax | 23 | 27 | 32
Investment in ICU Medical, Inc. equity | 14 | (47) | (347)
Deferred contingent consideration | 14 | – | (13)
Net debt | 18 | 213 | 387
Capital employed |  | 3,077 | 3,038

Return on capital employed (ROCE)

|  | Year ended | Year ended
|  | 31 July 2024 | 31 July 2023
| Notes | £m | £m
Headline operating profit for previous 12 months – continuing |  |  |
operations |  | 526 | 501
Average capital employed – continuing operations (excluding |  |  |
investment in ICU Medical, Inc. equity) | 1 | 3,206 | 3,196
ROCE |  | 16.4% | 15.7%

Notes to the accounts
continued
Overview
Strategic report
Governance
Financial statements
194
Smiths Group plc Annual Report FY2024
Credit metrics
Smiths Group monitors the ratio of net debt to headline EBITDA as part of its management of
credit ratings; see note 26 for details. This ratio is calculated as follows:
Headline earnings before interest, tax, depreciation and amortisation (headline EBITDA)

|  | Year ended | Year ended
|  | 31 July 2024 | 31 July 2023
| Notes | £m | £m
Headline operating profit |  | 526 | 501
Exclude: |  |  |
– depreciation of property, plant and equipment | 12 | 44 | 42
– depreciation of right of use assets | 13 | 34 | 32
– amortisation and impairment of development costs | 10 | 2 | 2
– amortisation of software, patents and intellectual property | 10 | 5 | 7
Headline EBITDA |  | 611 | 584

Ratio of net debt to headline EBITDA

|  | Year ended | Year ended
|  | 31 July 2024 | 31 July 2023
| Notes | £m | £m
Headline EBITDA |  | 611 | 584
Net debt | 18 | 213 | 387
Ratio of net debt to headline EBITDA |  | 0.3 | 0.7

30. Post balance sheet events
Details of the proposed final dividend announced since the end of the reporting period are given in
note 25. Details of post balance sheet date acquisitions are given in note 27.
31. Audit exemption taken for subsidiaries
The following subsidiaries are exempt from the requirements of the Companies Act 2006 relating
to the audit of individual accounts by virtue of Section 479A of that Act for FY2024.

Company name | Company number
EIS Group Plc | 61407
Flexibox International Limited | 394688
Flex-Tek Group Limited | 11545405
Graseby Limited | 894638
SI Properties Limited | 160881
SITI 1 Limited | 4257042
Smiths Detection Group Limited | 5138140
Smiths Detection Investments Limited | 5146644
Smiths Finance Limited | 7888063
Smiths Group Innovation Limited | 10953689
Smiths Interconnect Group Limited | 6641403
Smiths Pensions Limited | 2197444

Unaudited Group financial record 2020–2024
Overview
Strategic report
Governance
Financial statements
195
195
Smiths Group plc Annual Report FY2024
Unaudited Group financial record 2020–2024
Year ended
31 July 2024
£m
Year ended
31 July 2023
£m
Year ended
31 July 2022
£m
Year ended
31 July 2021
£m
Year ended
31 July 2020
£m
Income statement metrics – headline*
Continuing operations
Revenue
3,132
3,037
2,566
2,406
2,548
Headline operating profit
526
501
417
372
327
Headline profit before tax
488
466
376
332
278
Discontinued operations
Revenue
–
–
356
849
918
Headline operating profit
–
–
66
177
184
Headline profit before tax
–
–
65
176
180
Income statement metrics – statutory**
Revenue
3,132
3,037
2,566
2,406
2,548
Operating profit
415
403
117
326
241
Profit before taxation
372
360
103
240
133
Profit for the year
251
232
1,035
285
267
Balance sheet metrics***
Net debt
(213)
(387)
(150)
(1,018)
(1,141)
Shareholders’ equity
2,230
2,384
2,699
2,402
2,373
Average capital employed
3,206
3,196
2,940
4,165
4,315
Ratios***
Headline operating profit: revenue (%)
16.8
16.5
16.5
16.9
14.7
Headline effective tax rate (%)
25.0
26.0
27.2
27.1
26.2
Return on capital employed (%)
16.4
15.7
14.2
13.2
11.8
Return on shareholders’ funds (%)
13.0
11.3
10.0
11.6
10.8
Cash-flow metrics***
Headline operating cash
509
433
318
630
575
Headline operating cash conversion (%)
97
86
76
125
123
Free cash-flow
298
178
130
383
273
Free cash-flow per share (p)
86.4
51.0
35.9
96.6
68.9
Earnings per share***
Headline earnings per share (p)
105.5
97.1
82.5
93.1
84.8
Dividends and dividend cover***
Pence per share
43.75
41.60
39.60
37.70
35.00
Headline dividend cover
2.4
2.3
2.1
2.5
2.4
*
The headline income statement metrics in the above five-year record have been presented to reflect the reclassification of the Smiths Medical business as a discontinued operation and the Group’s current accounting policy of including
restructuring and pension administration costs within headline profit.
**
The statutory income statement metrics are presented based on continuing operations for both the current and comparative years.
***
Balance sheet metrics, ratios, cash-flow metrics, earnings per share, dividend cover and number of employees are presented based on both continuing and discontinued operations for all years.
Unaudited US dollar primary statements
Overview
Strategic report
Governance
Financial statements
196
Smiths Group plc Annual Report FY2024
Unaudited supplementary consolidated income statement – US dollar translation
Year ended 31 July 2024
Year ended 31 July 2023
Headline
$m
Non-headline
(note 3)
$m
Total
$m
Headline
$m
Non-headline
(note 3)
$m
Total
$m
CONTINUING OPERATIONS
Revenue
3,944
–
3,944
3,680
–
3,680
Operating costs
(3,282)
(140)
(3,422)
(3,073)
(119)
(3,192)
Operating profit/(loss)
662
(140)
522
607
(119)
488
Interest income
33
–
33
44
–
44
Interest expense
(81)
–
(81)
(86)
(8)
(94)
Other financing gains/(losses)
–
(14)
(14)
–
(10)
(10)
Other finance charges – retirement benefits
–
8
8
–
8
8
Finance costs
(48)
(6)
(54)
(42)
(10)
(52)
Profit/(loss) before taxation
614
(146)
468
565
(129)
436
Taxation
(154)
1
(153)
(147)
(16)
(163)
Profit/(loss) for the year
460
(145)
315
418
(145)
273
DISCONTINUED OPERATIONS
Profit on discontinued operations
–
–
–
–
7
7
PROFIT/(LOSS) FOR THE YEAR
460
(145)
315
418
(138)
280
Profit/(loss) for the year attributable to:
Smiths Group shareholders – continuing operations
459
(145)
314
417
(145)
272
Smiths Group shareholders – discontinued operations
–
–
–
–
7
7
Non-controlling interests
1
–
1
1
–
1
460
(145)
315
418
(138)
280
EARNINGS PER SHARE
Basic
91.1c
79.4c
Basic – continuing
91.1c
77.3c
Diluted
90.7c
78.9c
Diluted – continuing
90.7c
76.8c
Assets and liabilities have been translated into US dollars at the exchange rate at the date of that balance sheet and income, expenses and cash-flows are translated at average exchange rates
for the period. This reflects the accounting approach that Smiths Group plc would use if the Group moved to reporting in US dollars without making any changes to its Group structure or
financing arrangements.
Unaudited US dollar primary statements
continued
Overview
Strategic report
Governance
Financial statements
197
197
Smiths Group plc Annual Report FY2024
Unaudited supplementary consolidated statement of comprehensive income – US dollar translation
Year ended
31 July 2024
$m
Year ended
31 July 2023
$m
PROFIT FOR THE YEAR
315
280
Other comprehensive income (OCI):
OCI which will not be reclassified to the income statement:
Re-measurement of post-retirement benefits assets and obligations
(83)
(138)
Taxation on post-retirement benefits movements
21
39
Fair value movements on financial assets at fair value through OCI
(132)
(22)
(194)
(121)
OCI which will be reclassified and reclassifications:
Fair value gains/(losses) and reclassification adjustments:
– deferred in the year on cash-flow and net investment hedges
5
15
– reclassified to income statement on cash-flow and net investment hedges
–
2
5
17
Foreign exchange (FX) movements net of recycling:
Exchange losses/(gains) on translation of foreign operations
(42)
(122)
Total other comprehensive income, net of taxation
(231)
(226)
TOTAL COMPREHENSIVE INCOME
84
54
Attributable to:
Smiths Group shareholders
84
55
Non-controlling interests
–
(1)
84
54
Unaudited supplementary consolidated balance sheet – US dollar translation
31 July 2024
$m
31 July 2023
(restated) *
$m
NON-CURRENT ASSETS
Intangible assets
1,953
1,956
Property, plant and equipment
347
318
Right of use assets
141
135
Financial assets – other investments
68
477
Retirement benefit assets
169
251
Deferred tax assets
121
155
Trade and other receivables
123
96
2,922
3,388
CURRENT ASSETS
INVENTORIES
825
819
Current tax receivable
31
60
Trade and other receivables
1,060
993
Cash and cash equivalents
589
366
Financial derivatives
5
6
2,510
2,244
TOTAL ASSETS
5,432
5,632
CURRENT LIABILITIES
Financial liabilities
– borrowings
(3)
(4)
– lease liabilities
(41)
(33)
– financial derivatives
(5)
(3)
Provisions for liabilities and charges
(96)
(90)
Trade and other payables
(980)
(930)
Current tax payable
(90)
(95)
(1,215)
(1,155)
NON-CURRENT LIABILITIES
Financial liabilities
– borrowings
(685)
(687)
– lease liabilities
(117)
(117)
– financial derivatives
(17)
(23)
Provisions for liabilities and charges
(281)
(278)
Retirement benefit obligations
(132)
(136)
Current tax payable
–
(4)
Deferred tax liabilities
(41)
(88)
Trade and other payables
(52)
(51)
(1,325)
(1,384)
TOTAL LIABILITIES
(2,540)
(2,539)
NET ASSETS
2,892
3,093
31 July 2024
$m
31 July 2023
(restated) *
$m
SHAREHOLDERS’ EQUITY
Share capital
167
168
Share premium account
469
469
Capital redemption reserve
32
31
Merger reserve
302
302
Retained earnings
2,130
2,337
Hedge reserve
(236)
(242)
TOTAL SHAREHOLDERS’ EQUITY
2,864
3,065
Non-controlling interest equity
28
28
TOTAL EQUITY
2,892
3,093
* The comparatives have been restated after adoption of an amendment to IAS12 ‘Income Taxes’,
please see page 148 and note 6 for further information
198
Unaudited US dollar primary statements
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Unaudited supplementary consolidated statement of changes in equity – US dollar translation
Share capital
and share
premium
$m
Other
reserves
$m
Retained
earnings
$m
Hedge
reserve
$m
Equity
shareholders’
funds
$m
Non-controlling
interest
$m
Total
equity
$m
At 31 July 2023
637
333
2,337
(242)
3,065
28
3,093
Profit for the year
–
–
314
–
314
1
315
Other comprehensive income:
– re-measurement of retirement benefits after tax
–
–
(62)
–
(62)
–
(62)
– FX movements net of recycling
–
–
(48)
1
(47)
(1)
(48)
– fair value gains/(losses) and related tax
–
–
(132)
5
(127)
–
(127)
Total comprehensive income for the year
–
–
72
6
78
–
78
Transactions relating to ownership interests:
Purchase of shares by Employee Benefit Trust
–
–
(25)
–
(25)
–
(25)
Proceeds received on exercise of employee share options
–
–
5
–
5
–
5
Share buybacks
(1)
1
(88)
–
(88)
–
(88)
Dividends:
– equity shareholders
–
–
(185)
–
(185)
–
(185)
Share-based payment
–
–
14
–
14
–
14
At 31 July 2024
636
334
2,130
(236)
2,864
28
2,892
Share capital
and share
premium
$m
Other
reserves
$m
Retained
earnings
$m
Hedge
reserve
$m
Equity
shareholders’
funds
$m
Non-controlling
interest
$m
Total
equity
$m
At 31 July 2022
610
309
1,617
(246)
3,285
27
3,312
Profit for the year
–
–
279
–
279
1
280
Other comprehensive income:
– re-measurement of retirement benefits after tax
–
–
(99)
–
(99)
–
(99)
– FX movements net of recycling
33
18
999
(13)
41
(1)
40
– fair value gains/(losses) and related tax
–
–
(22)
17
(4)
–
(4)
Total comprehensive income for the year
33
18
1,157
4
217
–
217
Transactions relating to ownership interests:
Purchase of shares by Employee Benefit Trust
–
–
(29)
(29)
(29)
Share buybacks
(6)
6
(251)
(251)
(251)
Dividends:
– equity shareholders
–
–
(173)
(173)
1
(172)
Share-based payment
–
–
16
16
16
At 31 July 2023
637
333
2,337
(242)
3,065
28
3,093
199
Unaudited US dollar primary statements
continued
Smiths Group plc Annual Report FY2024
199
Overview
Strategic report
Governance
Financial statements
Unaudited supplementary consolidated cash-flow statement – US dollar translation
Year ended
31 July 2024
$m
Year ended
31 July 2023
$m
Net cash inflow from operating activities
526
355
CASH-FLOWS FROM INVESTING ACTIVITIES
Expenditure on capitalised development
(18)
(25)
Expenditure on other intangible assets
(5)
(8)
Purchases of property, plant and equipment
(86)
(64)
Disposals of property, plant and equipment
–
2
Income from financial assets
239
–
Acquisition of businesses
(82)
(27)
Proceeds on disposal of subsidiaries, net of cash disposed
–
(8)
Net cash-flow used in investing activities
48
(130)
CASH-FLOWS FROM FINANCING ACTIVITIES
Share buybacks
(88)
(251)
Purchase of shares by Employee Benefit Trust
(25)
(29)
Proceeds received on exercise of employee share options
5
–
Settlement of cash-settled options
(3)
–
Dividends paid to equity shareholders
(185)
(173)
Receipt of capital from non-controlling interest
–
1
Lease payments
(49)
(44)
Reduction and repayment of borrowings
–
(639)
Cash inflow from matured derivative financial instruments
6
(11)
Net cash-flow used in financing activities
(339)
(1,146)
Net decrease in cash and cash equivalents
235
(921)
Cash and cash equivalents at beginning of year
366
1,285
Exchange differences
(12)
2
Cash and cash equivalents at end of year
589
366
Cash and cash equivalents at end of year comprise:
– cash at bank and in hand
158
225
– short-term deposits
431
141
589
366
200
Unaudited US dollar primary statements
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Unaudited Group US dollar financial record 2020–2024
Year ended
31 July 2024
$m
Year ended
31 July 2023
$m
Year ended
31 July 2022
$m
Year ended
31 July 2021
$m
Year ended
31 July 2020
$m
Income statement metrics – headline*
Continuing operations
Revenue
3,944
3,680
3,377
3,264
3,216
Headline operating profit
662
607
549
504
412
Headline profit before tax
614
565
495
450
351
Discontinued operations
Revenue
–
–
468
1,152
1,159
Headline operating profit
–
–
87
240
232
Headline profit before tax
–
–
86
239
227
Income statement metrics – statutory**
Revenue
3,944
3,680
3,377
3,264
3,216
Operating profit
522
488
154
442
304
Profit before taxation
468
436
135
325
169
Profit for the year
315
280
1,362
387
337
Balance sheet metrics***
Net debt
(273)
(497)
(183)
(1,415)
(1,495)
Shareholders’ equity
2,864
3,065
3,285
3,339
3,107
Average capital employed
4,038
4,109
3,578
5,790
5,652
Ratios***
Headline operating profit: revenue (%)
16.8
16.5
16.5
16.9
14.7
Headline effective tax rate (%)
25.0
26.0
27.2
27.1
26.2
Return on capital employed (%)
16.4
15.7
14.2
13.2
11.8
Return on shareholders’ funds (%)
13.0
10.9
9.9
12.2
10.6
Cash-flow metrics***
Headline operating cash
641
525
829
855
726
Headline operating cash conversion (%)
97
86
76
125
123
Free cash-flow
375
216
171
520
345
Free cash-flow per share (c)
108.8
61.8
47.2
131.1
68.9
Earnings per share***
Headline earnings per share (c)
132.9
117.7
108.6
126.3
107.0
Dividends and dividend cover***
Cents per share (c)
55.1
50.4
52.1
51.1
44.2
Headline dividend cover
2.4
2.3
2.1
2.5
2.4
*
The headline income statement metrics in the above five-year record have been presented to reflect the reclassification of the Smiths Medical business as a discontinued operation and the Group’s current accounting policy of including
restructuring and pension administration costs within headline profit.
**
The statutory income statement metrics are presented based on continuing operations for both the current and comparative year.
***
Balance sheet metrics, ratios, cash-flow metrics, earnings per share, dividend cover and number of employees are presented based on both continuing and discontinued operations for all years.
201
Unaudited US dollar primary statements
continued
Smiths Group plc Annual Report FY2024
201
Overview
Strategic report
Governance
Financial statements
Smiths Group plc Company accounts
Company balance sheet
Notes
31 July 2024
£m
31 July 2023
£m
NON-CURRENT ASSETS
Property, plant and equipment
2
3
–
Investments
3
2,439
2,431
Loans due from subsidiaries
3
–
2,447
Retirement benefit assets
10
132
195
2,574
5,073
CURRENT ASSETS
Trade and other receivables
5
155
67
Cash and cash equivalents
7
306
98
Financial derivatives
9
7
6
468
171
TOTAL ASSETS
3,042
5,244
CURRENT LIABILITIES
Trade and other payables
6
(159)
(2,180)
Financial derivatives
9
(7)
(6)
(166)
(2,186)
NON-CURRENT LIABILITIES
Borrowings
7
(549)
(557)
Loans due to subsidiaries
(103)
(5)
Provisions for liabilities and charges
8
–
(1)
Retirement benefit liabilities
10
(39)
(40)
Financial derivatives
9
(13)
(18)
(704)
(621)
TOTAL LIABILITIES
(870)
(2,807)
NET ASSETS
2,172
2,437
Notes
31 July 2024
£m
31 July 2023
£m
SHAREHOLDERS' EQUITY
Called up share capital
11
130
131
Share premium account
11
365
365
Capital redemption reserve
11
25
24
Other reserves
11
181
181
Profit and loss account
11
1,471
1,736
TOTAL EQUITY
2,172
2,437
The Company’s profit for the period was £5m (FY2023: £22m loss).
The accounts on pages 202 to 209 were approved by the Board of Directors on 23 September 2024
and were signed on its behalf by:
Roland Carter
Clare Scherrer
Chief Executive Officer
Chief Financial Officer
Smiths Group plc – registered number 137013
202
Smiths Group plc Company accounts
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Company statement of changes in equity
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Retained
profit
£m
Shareholders’
equity
£m
At 31 July 2023
131
365
24
181
1,736
2,437
Profit for the year
–
–
–
–
5
5
Other comprehensive income:
– re-measurement of retirement benefits
–
–
–
–
(64)
(64)
– taxation recognised on retirement benefits
–
–
–
–
16
16
Total comprehensive income for the year
–
–
–
–
(43)
(43)
Transactions with owners:
Purchase of shares by Employee Benefit Trust
–
–
–
–
(20)
(20)
Proceeds received on exercise of employee share options
–
–
–
–
4
4
Shares purchased under a buyback programme
(1)
–
1
–
(70)
(70)
Dividends paid to equity shareholders
–
–
–
–
(147)
(147)
Share-based payment
–
–
–
–
11
11
Total transactions with owners recognised in equity
(1)
–
1
–
(222)
(222)
At 31 July 2024
130
365
25
181
1,471
2,172
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Retained
profit
£m
Shareholders’
equity
£m
At 31 July 2022
136
365
19
181
2,205
2,906
Profit for the year
–
–
–
–
(22)
(22)
Other comprehensive income:
– re-measurement of retirement benefits
–
–
–
–
(117)
(117)
– taxation recognised on retirement benefits
–
–
–
–
30
30
Total comprehensive income for the year
–
–
–
–
(109)
(109)
Transactions with owners:
Purchase of shares by Employee Benefit Trust
–
–
–
–
(24)
(24)
Shares purchased under a buyback programme
(5)
–
5
–
(207)
(207)
Dividends paid to equity shareholders
–
–
–
–
(142)
(142)
Share-based payment
–
–
–
–
13
13
Total transactions with owners recognised in equity
(5)
–
5
–
(360)
(360)
At 31 July 2023
131
365
24
181
1,736
2,437
203
Smiths Group plc Company accounts
continued
Smiths Group plc Annual Report FY2024
203
Overview
Strategic report
Governance
Financial statements
Company accounting policies
Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (FRS 101). In preparing these financial statements, the Company
applies the recognition, measurement and disclosure requirements of UK-adopted international
accounting standards (Adopted IFRSs), but makes amendments where necessary in order to
comply with Companies Act 2006 and has set out below where advantage of the FRS 101
disclosure exemptions has been taken.
These accounts have been prepared on a going concern basis and under the historical cost
convention modified to include revaluation of certain financial instruments, share options and
pension assets and liabilities held at fair value.
As permitted by Section 408(3) of the Companies Act 2006, the Company’s income statement and
statement of comprehensive income have not been presented. As permitted by Section 408(2),
information about the Company’s employee numbers and costs is not presented.
Going concern
The Directors are satisfied that the Group, (of which the Company is the holding company) has
adequate resources to continue to operate for a period not less than 12 months from the date of
approval of the financial statements and that there are no material uncertainties around their
assessment. Accordingly, the Directors continue to adopt the going concern basis of accounting.
Details of the going concern assessment for the Group are provided in the accounting policies
note of the consolidated financial statements.
Exemptions from the requirements of IFRS applied in accordance with FRS 101
The following exemptions from the requirements of IFRS have been applied in the preparation of
these financial statements, in accordance with FRS 101:
–
Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and
weighted-average exercise prices of share options, and how the fair value of goods or services
received was determined);
–
IFRS 7, ‘Financial Instruments: Disclosures’;
–
Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques
and inputs used for fair value measurement of assets and liabilities);
–
Paragraph 38 of IAS 1, ‘Presentation of financial statements’ comparative information
requirements in respect of:
–
paragraph 79(a)(iv) of IAS 1; and
–
paragraph 73(e) of IAS 16 ‘Property, plant and equipment’;
–
The following paragraphs of IAS 1, ‘Presentation of financial statements’:
–
10(d) (statement of cash-flows);
–
16 (statement of compliance with all IFRS);
–
38A (requirement for minimum of two primary statements, including cash flow statements);
–
38B-D (additional comparative information);
–
111 (cash flow statement information); and
–
134-136 (capital management disclosures).
–
IAS 7, ‘Statement of cash-flows’;
–
Paragraph 30 and 31 of IAS 8 ‘Accounting policies, changes in accounting estimates and errors’
(requirement for the disclosure of information when an entity has not applied a new IFRS that
has been issued but is not yet effective);
–
Paragraph 17 of IAS 24, ‘Related party disclosures’ (key management compensation);
–
The requirements in IAS 24, ‘Related party disclosures’ to disclose related party transactions
entered into between two or more members of a group; and
–
The requirements of paragraphs 52 and 58 of IFRS 16 Leases.
Significant judgements, key assumptions and estimates
The preparation of the accounts in conformity with generally accepted accounting principles
requires management to make estimates and judgements that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the accounts
and the reported amounts of revenues and expenses during the reporting period. Actual results
may differ from these estimates.
The key sources of estimation uncertainty together with the significant judgements and
assumptions used in these Parent Company financial statements are set out below.
Sources of estimation uncertainty
Taxation
The Company has recognised deferred tax assets of £24m (FY2023: £40m) relating to revenue
losses brought forward. The recognition of these assets requires management to make
significant estimates as to the ability to recover them against the unwind of other tax positions
and forecast UK taxable profits of the tax group. Further detail on the Company’s deferred
taxation position is included in note 4.
Retirement benefits
Determining the value of the future defined benefit obligation involves significant estimates in
respect of the assumptions used to calculate present values. These include future mortality,
discount rate and inflation. The Company uses previous experience and independent actuarial
advice to select the values for critical estimates. A portion of the Company’s pension liabilities are
insured via bulk annuity policies that match all or part of the scheme obligation to identified
groups of pensioners. These assets are valued by an external qualified actuary at the actuarial
valuation of the corresponding liability, reflecting this matching relationship.
The Company’s principal defined benefit pension plans have been closed so that no future
benefits are accrued. Critical estimates for these plans, and the effect of variances in these
estimates, are disclosed in note 8 to the consolidated financial statements.
204
Smiths Group plc Company accounts
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Significant judgements made in applying accounting policies
Taxation
As stated in the previous section ‘Sources of estimation uncertainty’, the Company has
recognised deferred tax assets of £24m (FY2023: £40m) relating to revenue losses brought
forward. The decision to recognise deferred tax assets requires judgement in determining
whether the Company will be able to utilise historical tax losses in future periods. It has been
concluded that there are sufficient taxable profits in future periods to support recognition.
Retirement benefits
At 31 July 2024 the Company has recognised £132m of retirement benefit assets (FY2023: £195m),
which arises from the rights of the employers to recover the surplus at the end of the life of
the scheme.
The recognition of this surplus is a significant judgement.
There is a judgement required in
determining whether an unconditional right of refund exists based on the provision of the relevant
Trust deed and rules.
Having taken legal advice with regard to the rights of the Company under
the relevant Trust deed and rules, it has been determined that an unconditional right of refund
does exist and therefore the surplus is recoverable by the Company and can be recognised
Foreign currencies
Foreign currency transactions are recorded at the exchange rate ruling on the date of
transaction. Foreign exchange gains and losses resulting from the settlement of such
transactions, and from the retranslation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies, are recognised in the profit and loss account.
Investments in and loans to Group companies
The Company’s investments in shares in Group companies are stated at cost less provision for
impairment. Any impairment is charged to the profit and loss account as it arises.
The recoverability of intercompany loans is assessed applying the methodology of IFRS 9 by
looking at the credit quality of the subsidiary and any support available to the entity. These
calculations require the use of estimates including projected future cash-flows and other future
events. The application of the expected credit loss model has not had a material impact on the
Company’s loan receivables provisioning position.
Financial instruments
The policies disclosed in the Group accounting policies on pages 140 to 148 for recognition,
measurement and presentation of financial instruments are applied in the Company accounts.
Taxation
Deferred tax is provided using the balance sheet liability method. A deferred tax asset is recognised
where it is probable that future taxable income will be sufficient to utilise the available relief.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except
where the timing of the reversal of the temporary difference is controlled by the Company and it is
probable that the temporary difference will not reverse in the foreseeable future.
Provisions
Provisions for disposal indemnities, restructuring costs, property dilapidations and legal claims
are recognised when: the Company has a legal or constructive obligation as a result of a past
event; it is probable that an outflow of resources will be required to settle the obligation; and the
amount has been reliably estimated. Provisions are not recognised for future operating losses.
Provisions are discounted where the time value of money is material.
Retirement benefits
The Company has both defined benefit and defined contribution plans. The policies disclosed
in the Group accounting policies on pages 140 to 148 for recognition, measurement and
presentation of retirement benefits are applied in the Company accounts. Note 8 to the
consolidated accounts explains the valuation basis for the Company’s retirement benefit
schemes assets and liabilities.
Share-based payment
The Company operates a number of equity-settled and cash-settled share-based
compensation plans.
The fair value of the shares or share options granted is recognised over the vesting period to
reflect the value of the employee services received. The charge relating to grants to employees of
the Company is recognised as an expense in the profit and loss account and the charge for grants
to employees of other Group companies is recognised as an investment in the relevant subsidiary.
The fair value of options granted, excluding the impact of any non-market vesting conditions, is
calculated using established option pricing models, principally binomial models. The probability
of meeting non-market vesting conditions, which include profitability targets, is used to estimate
the number of share options that are likely to vest.
For cash-settled share-based payment schemes, a liability is recognised based on the fair value
of the payment earned by the balance sheet date. For equity-settled share-based payment
schemes, the corresponding credit is recognised directly in reserves.
Dividends
Dividends are recognised as a liability in the period in which they are authorised. The interim
dividend is recognised when it is paid and the final dividend is recognised when it has been
approved by shareholders at the Annual General Meeting.
Intra-group financial guarantee contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of
other companies within its group, the Company considers these to be in the scope of IFRS 9 and
accounts for them as such. Financial guarantee contracts issued are initially measured at fair
value. Subsequently, they are measured at the higher of the loss allowance determined in
accordance with IFRS 9 and the amount initially recognised less, when appropriate, the
cumulative amount of income recognised in accordance with the principles of IFRS 15.
205
Smiths Group plc Company accounts
continued
Smiths Group plc Annual Report FY2024
205
Overview
Strategic report
Governance
Financial statements
Notes to the Company accounts
1. Audit fee and Directors’ emoluments
The audit fee paid to KPMG LLP for the Parent Company was £0.1m (FY2023: £0.1m).
Directors’ emoluments in the year amounted to £5m (FY2023: £7m). Further information for the
Executive Directors is available in the single figure remuneration table on page 101.
Further
information for the Non-executive Directors is available in the single figure remuneration table on
page 107.
2. Property, plant and equipment
Fixtures and fittings
£m
Cost or valuation
At 31 July 2022
–
At 31 July 2023
–
Additions
3
At 31 July 2024
3
Depreciation
At 31 July 2022
–
Charge for the year
–
At 31 July 2023
–
Charge for the year
–
At 31 July 2024
–
Net book value at 31 July 2024
3
Net book value at 31 July 2023
–
Net book value at 31 July 2022
–
3. Investments and loans due from subsidiaries
Shares in
subsidiary
undertakings
£m
Loans
due from
subsidiaries
£m
Total
£m
Cost or valuation
At 31 July 2022
2,427
562
2,989
Foreign exchange rate movements
–
(16)
(16)
Contribution through share options
9
–
9
Increase in advances due from subsidiaries
–
1,902
1,902
At 31 July 2023
2,436
2,448
4,884
Foreign exchange rate movements
–
(2)
(2)
Contribution through share options
8
–
8
Decrease in advances due from subsidiaries
–
(2,445)
(2,445)
At 31 July 2024
2,444
1
2,445
Provision for impairment
At 31 July 2022, 31 July 2023 and 31 July 2024
(5)
(1)
(6)
Net book value at 31 July 2024
2,439
–
2,439
Net book value at 31 July 2023
2,431
2,447
4,878
Net book value at 31 July 2022
2,422
561
2,983
Loans due to subsidiaries are offset against loans due from subsidiaries only to the extent that
there is a legal right of set-off. At 31 July 2024 £2,303m of loans receivable are offset against
loans payable (FY2023: £nil). The Company has large offsetting loan balances because it uses
loans to reduce its foreign currency exposures and separately monitor net cash generated from
trading activities.
The Company’s subsidiaries are largely held according to business lines by the following holding
companies, which are incorporated in England:
Smiths Group International Holdings Limited
Smiths Detection Group Limited
John Crane Group Limited
Flex-Tek Group Limited
Smiths Interconnect Group Limited
206
Smiths Group plc Company accounts
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
The principal subsidiaries and their countries of incorporation are:
England
Smiths Detection – Watford Ltd
John Crane UK Limited
Smiths Group International Holdings Limited
Other
Smiths Detection Germany GmbH (Germany)
Smiths Detection (Asia-Pacific) Pte Ltd (Singapore)
John Crane Middle East FZE (UAE)
John Crane Technology (Tianjin) Co Limited (China)
John Crane Saudi Arabia Ltd (Saudi Arabia)
John Crane Canada Inc (Canada)
United States
Smiths Detection, Inc.
John Crane, Inc.
Titeflex Corporation
Flexible Technologies, LLC
Tutco, LLC
Royal Metal Products, LLC
Smiths Interconnect Americas, Inc.
Smiths Interconnect, Inc.
Kreisler Manufacturing Corp
Smiths Tubular Systems – Laconia Inc.
Of the companies above, Smiths Group International Holdings Limited is 100% owned directly
by the Company. The others are 100% owned through intermediate holding companies.
Shareholdings are of ordinary shares or common stock. All of the above subsidiaries operate
in their country of incorporation.
See pages 210 to 216 for a complete list of subsidiary undertakings.
4. Deferred tax assets and liabilities
The Company has recognised the following deferred tax assets and liabilities:
Share-
based
payment
£m
Retirement
benefit
obligations
£m
Losses
carried
forward
£m
Other
£m
Total
£m
At 31 July 2022
–
(66)
66
–
–
(Charge)/credit to income statement
–
(4)
(26)
–
(30)
Charge to equity
–
30
–
–
30
At 31 July 2023
–
(40)
40
–
–
(Charge)/credit to income statement
–
–
(16)
–
(16)
Charge to equity
–
16
–
–
16
At 31 July 2024
–
(24)
24
–
–
The Company is part of a UK tax group including all its UK-based subsidiaries. The Company has
recognised deferred tax assets of £24m (FY2023: £40m) relating to revenue losses carried
forward. The recognition of these assets is dependent on the ability to recover them against the
unwind of other tax positions and forecast of the UK tax group. The treatment of these assets is
reviewed regularly.
At 31 July 2024 the Company has unrecognised deferred tax assets of £75m (FY2023: £54m)
relating to losses £72m (FY2023: £51m), share-based payments £1m (FY2023: £1m) and other
£2m (FY2023: £2m).
Deferred tax has been calculated at a rate of 25% in both the current and prior years.
5. Trade and other receivables
31 July 2024
£m
31 July 2023
£m
Amounts owed by subsidiaries
147
66
Other receivables
8
1
155
67
6. Trade and other payables
31 July 2024
£m
31 July 2023
£m
Amounts owed to subsidiaries
136
2,162
Other creditors
6
5
Accruals and deferred income
17
13
159
2,180
7. Borrowings and net debt
31 July 2024
£m
31 July 2023
£m
Cash at bank
4
20
Short-term deposits
302
78
Cash and cash equivalents
306
98
Lease liabilities falling due within one year
–
–
Lease liabilities falling due after one year
–
–
Term loans falling due within one year
–
–
Term loans falling due after one year
(549)
(557)
Borrowings
(549)
(557)
Net debt
(243)
(459)
207
Smiths Group plc Company accounts
continued
Smiths Group plc Annual Report FY2024
207
Overview
Strategic report
Governance
Financial statements
Term loans and lease liabilities
The currency and coupons for the term loans are disclosed in note 18 of the Group accounts.
31 July 2024
£m
31 July 2023
£m
Less than one year
–
–
Between one and two years
–
–
Between two and five years
549
557
Greater than five years
–
–
Smiths Group plc term loans and lease liabilities
549
557
See the liquidity risk disclosures in note 19 in the Group accounts for information on the cash
and borrowing facilities available to the Group. Smiths has revolving credit facilities of US$800m
maturing on 5 May 2029.
8. Provisions for liabilities and charges
At
31 July 2023
£m
Charged
against profit
£m
Utilisation
£m
At
31 July 2024
£m
Disposals
1
(1)
–
–
The disposal provision related to warranties and other obligations in respect of a past disposal.
9. Derivatives
The tables below set out the nominal amount and fair value of derivative contracts held by
the Company:
At 31 July 2024
Contract or underlying
nominal amount
£m
Fair value
Assets
£m
Liabilities
£m
Net
£m
Foreign exchange contracts (not hedge
accounted)
843
7
(7)
–
Cross-currency swaps (fair value and net
investment hedges)
248
–
(13)
(13)
Total financial derivatives
1,091
7
(20)
(13)
Balance sheet entries
Comprising:
Non-current
–
(13)
(13)
Current
7
(7)
–
Total financial derivatives
7
(20)
(13)
At 31 July 2023
Contract or underlying
nominal amount
£m
Fair value
Assets
£m
Liabilities
£m
Net
£m
Foreign exchange contracts (not hedge
accounted)
647
6
(6)
–
Cross-currency swaps (fair value and net
investment hedges)
247
–
(18)
(18)
Total financial derivatives
894
6
(24)
(18)
Balance sheet entries
Comprising:
Non-current
–
(18)
(18)
Current
6
(6)
–
Total financial derivatives
6
(24)
(18)
Derivatives, including forward exchange contracts, currency swaps, interest rate instruments
and embedded derivatives are Level 2 fair value instruments and are valued at the net present
value of the future cash-flows calculated using market data at the balance sheet date (principally
exchange rates and yield curves).
The credit to the income statement arising from change in fair value in the year was £9m
(FY2023: £16m debit).
10. Post-retirement benefits
The Company is the principal employer for the two major defined benefit plans in the UK. The
Company is accounting for all the UK defined benefit schemes (funded and unfunded) and virtually
all of the post-retirement healthcare schemes.
The retirement benefit assets and liabilities comprise:
31 July 2024
£m
31 July 2023
£m
Market value of scheme assets
2,372
2,367
Present value of funded scheme liabilities
(2,229)
(2,156)
Surplus restriction
(11)
(16)
Surplus
132
195
Unfunded pension plans
(37)
(37)
Post-retirement healthcare
(2)
(3)
Present value of unfunded obligations
(39)
(40)
Net pension asset
93
155
Comprising:
Retirement benefit assets
132
195
Retirement benefit liabilities
(39)
(40)
Net pension asset
93
155
208
Smiths Group plc Company accounts
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
See the disclosures for UK schemes in note 8 to the consolidated accounts for the circumstances
of the major schemes, risk management, principal assumptions, assets and liabilities and the
funding position of the two major schemes.
11. Share capital and reserves
Share capital
Number of shares
Issued
capital
£m
Consideration
£m
Ordinary shares of 37.5p each
Total share capital at 31 July 2022
362,356,159
136
Shares purchased under a buyback programme
(13,053,169)
(5)
(207)
Total share capital at 31 July 2023
349,302,990
131
Shares purchased under a buyback programme
(4,205,196)
(1)
(70)
Total share capital at 31 July 2024
345,097,794
130
At 31 July 2024, all of the issued share capital was in free issue. All issued shares are fully paid.
See note 9 to the consolidated accounts for information about share schemes, including total
shares under options and options exercisable at the balance sheet date.
Smiths Employee Benefit Trust
The retained earnings include the purchase of Smiths Group plc shares by Smiths Employee
Benefit Trust (EBT). The EBT holds shares pending employees becoming entitled to them under
the Company’s share schemes and plans. The consideration paid was £20m (2023: £25m) and
£4m (2023: £1m) was received as a result of employees exercising share options under the SAYE
scheme. At 31 July 2024 the Trust held 1,388,730 (2023: 1,742,929) ordinary shares.
Distributable profits
Smiths Group plc, the Parent Company of the Group, holds investments in subsidiaries and
operates as a financing entity for the Group. Its profits are derived from dividend receipts,
royalties, corporate recharges, and loan interests from its subsidiary companies. Prior to the
declaration of interim and final dividends to shareholders, the Board conducts a review of the
level of distributable profits of the Parent Company. This ensures the profits provide sufficient
coverage for dividend payments; see note 26 in the Group accounts for a discussion of capital
management and the factors which the Board considers when proposing dividends.
In accordance with the UK Companies Act 2006 Section 831(1), a public company may only make
a distribution if, after fulfilling this distribution, the amount of its net assets is not less than the
aggregate of its called-up share capital and non-distributable reserves as it appears in the
relevant accounts. The Company establishes what is realised and unrealised in accordance
with the guidance provided by ICAEW TECH 02/17BL and the requirements of UK law.
Profits available for distribution at 31 July 2024 and 31 July 2023 were comprised as follows:
2024
£m
2023
£m
Net assets
2,172
2,437
Less:
Issued share capital
(130)
(131)
Share premium
(365)
(365)
Capital redemption reserve
(25)
(24)
Other non-distributable reserves
(1,069)
(1,054)
Distributable profits
583
863
Other reserves
Other reserves arose from the cancellation of the share premium arising from an equity-funded
acquisition in the year ended 30 July 1988.
Differential between consolidated and Parent Company net assets
The Group’s consolidated balance sheet shows net assets that are £80m greater (FY2023: £31m
lower) than the net assets shown on the Parent Company’s balance sheet. The previous deficit
principally arose in 2007 when the Group returned £2.1bn of capital to shareholders, creating a
net asset deficit of £1.9bn. Earnings retained within the Group have subsequently reduced
this deficit.
12. Contingent liabilities
The Company has arranged letter of credit facilities to support the Group’s pension plans. The
current amount outstanding under letters of credit is £44m (FY2023: £56m).
The Company has guaranteed the US$800m revolving credit facility available to a subsidiary.
13. Post balance sheet event
Details of the proposed final dividend announced since the end of the reporting period are given
in note 25 to the Group consolidated financial statements.
209
Smiths Group plc Company accounts
continued
Smiths Group plc Annual Report FY2024
209
Overview
Strategic report
Governance
Financial statements
Subsidiary undertakings
In accordance with Section 409 of the Companies Act 2006 a full list of the Smiths Group plc’s related undertakings, the address and effective percentage owned by Smiths Group, as at 31 July 2024
are disclosed below. The percentage held is 100% unless another holding is stated. Related undertakings include subsidiaries, associated undertakings, joint ventures and associates.
Wholly owned subsidiaries (direct ownership)
Name
Security
Address
CVE TRUSTEE LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
EIS GROUP PLC
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
FLIGHTSPARES LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
GRASEBY LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
ROOF UNITS (GROUP) LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
S.I. PENSION TRUSTEES LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SI PROPERTIES LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS AEROSPACE COMPONENTS TYSELEY LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS DETECTION LIMITED
Ordinary
c/o Smiths Detection-Watford Limited, Century House, Maylands Avenue, Hemel Hempstead, Hertfordshire, HP2 7DE, England
SMITHS GROUP INTERNATIONAL HOLDINGS LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS HEIMANN LIMITED
Ordinary
c/o Smiths Detection-Watford Limited, Century House, Maylands Avenue, Hemel Hempstead, Hertfordshire, HP2 7DE, England
SMITHS INDUSTRIES LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS NOMINEES LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS PENSIONS LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
TI CORPORATE SERVICES LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
TI GROUP LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
TI PENSION TRUSTEE LIMITED
Units
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
TIGRUP NO. 7 LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
XDG LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
210
Subsidiary undertakings
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Name
Security
Address
AIR LOG LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
AMNITEC B.V.
Ordinary
Abraham van Stolkweg 118, Rotterdam, 3041 JA, Netherlands
AMNITEC HOSE LIMITED
Ordinary
Abercanaid, Merthyr Tydfil, Mid Glamorgan, CF48 1UX
AMNITEC LIMITED
Ordinary
Abercanaid, Merthyr Tydfil, Mid Glamorgan, CF48 1UX
ANTARES ADVANCED TEST TECHNOLOGIES (SUZHOU) CO. LTD
Ordinary
No. 14 Unit, No. 78, XingLin Road, Suzhou Industrial Park, Suzhou, 215026, China
ASSET AND INTELLIGENCE MANAGEMENT SERVICES, LLC
Ordinary
THE CORPORATION TRUST COMPANY, 1209 ORANGE STREET, WILMINGTON, DE, 19801, United States
CHANGSHU FLEX-TEK THERMAL FLUID SYSTEMS MANUFACTURER CO. LTD
Ordinary
No. 7, Factory Building, Maqiao Industrial Square, Changshu Economic Development Zone, Changshu, Jiangsu,
215536, China
DETECTION TECHNOLOGIES EGYPT
Ordinary
Nile City Towers, North Tower, 22nd Floor, Ramlet Boulaq, Nile Cournich, Cairo, Egypt
FLEXIBLE DUCTING MALAYSIA SDN BHD
Redeemable
Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak, 50400, Kuala Lumpar, Malaysia
FLEXIBLE DUCTING, LIMITED
Ordinary
29 DUNSINANE AVENUE, DUNDEE, DD2 3QF, Scotland
FLEXIBLE TECHNOLOGIES (CANADA) LTD
Ordinary
4610, Eastgate Parkway, Unit 3, Mississauga, ON, L4W 3W6, Canada
FLEXIBLE TECHNOLOGIES, LLC
Ordinary
Corporation Trust Centre, 1209 Orange Street, Wilmington, DE, 19801, United States
FLEXIBOX INTERNATIONAL LIMITED
Ordinary
BUCKINGHAM HOUSE, 361-366 BUCKINGHAM AVENUE, SLOUGH, BERKSHIRE, SL1 4LU, England
FLEXIBOX PTY LIMITED
Ordinary
549-551, Somerville Rd, Sunshine, Victoria, 3020, Australia
FLEXSCHLAUCH PRODUKTIONS GMBH
Ordinary
Reepschlager Str., 10b, Lubeck, 23556, Germany
FLEX-TEK GROUP (US) LLC
Units
500, Gould Drive, Cookeville, TN 38506, United States
FLEX-TEK GROUP LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
FRANCIS SHAW AND COMPANY (MANCHESTER) LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
FRANCIS SHAW P L C
Ordinary,
Pref, Dif
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
FULTON BELLOWS LLC
Ordinary
2801 Red Dog Lane, Knoxville, TN, TN 37914, United States
GASTITE SYSTEMS DEUTSCHLAND GMBH
Ordinary
Gewerbestraße 12, Graben, 86836, Germany
GASTITE SYSTEMS LIMITED
Ordinary
Amnitec, Abercanaid, Merthyr Tydfil, CF48 1UX, England & Wales
HABIA TEKNOFLUOR AB
Ordinary
Habia Teknofluor AB, Knivsta, 74180, Sweden
HERKULES HOLDING GMBH
Ordinary
Neckarweg 3, Vellmar, 34246, Germany
HUAFENG SMITHS INTERCONNECT (SICHUAN) CO., LTD. HONG KONG BRANCH
Ordinary
4008-4009, 40/F, One Pacific Place, 88 Queensway, Hong Kong
HYPERTAC GMBH
Ordinary
ULRICHSBERGER STRASSE 17, DEGGENDORF, 94469, Germany
HYPERTAC LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
HYPERTAC S.A.
Ordinary
31 RUE ISIDORE MAILLE, SAINT-AUBIN-LES-ELBEUF, 76410, France
HYPERTAC SPA
Ordinary
VIA DA BISSONE 7A, GENOVA, 16153, Italy
INDUFIL BV
Ordinary
Rijnpoort, Groningensingel 1,6835 EA Arnhem, Netherlands, 6835
INDUSTRIAS JOHN CRANE MEXICO SA DE CV
Ordinary
679, PONIENTE 152, VALLEJO DELEGACION AZCAPOTZALCO, MEXICO CITY, MEXICO, 2300
JOHN CRANE (ANGOLA) PRESTACAO DE SERVICES LTD
Ordinary
Rue Kwamme Nkrumah, Torres Impor-Africa, 3 Andar, APT A, Luanda, Angola
JOHN CRANE (IRELAND) LIMITED
Ordinary
T53/54, Shannon Industrial Estate, Shannon, Co. Clare, Ireland
JOHN CRANE (SWITZERLAND) AG
Ordinary
Hohenrainstrasse 10, 4133 Pratteln, Switzerland
JOHN CRANE (THAILAND) LIMITED
Ordinary
9/311, 31st FLOOR, UM TOWER, RAMKHAMHAENG ROAD, SUANLUANG DISTRICT, BANGKOK, THAILAND
JOHN CRANE A.S.
Ordinary
JANA SIGMUNDA 78, LUTIN, 783 49, Czech Republic
JOHN CRANE ARGENTINA SA
Ordinary
AV. LEANDRO N. ALEM 1110, 13 FLOOR, Baker Mackenzie Office, BUENOS AIRES, Argentina
JOHN CRANE ASSET MANAGEMENT SOLUTIONS LIMITED
Ordinary
5th Floor, No 1 Exchange, Market Street, Aberdeen, Scotland
Wholly owned subsidiaries (indirect ownership)
211
Subsidiary undertakings
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Name
Security
Address
JOHN CRANE AUSTRALIA PTY LIMITED
Ordinary
549-551, Somerville Rd, Sunshine, Victoria, 3020, Australia
JOHN CRANE AUSTRALIA PTY LTD (NEW ZEALAND BRANCH)
Ordinary
1/180 Montgomerie Road, Airport Oaks, Auckland, 2022, New Zealand
JOHN CRANE BAKU LLC
Ordinary
32, Dostluq Street, Salyan Highway PO Box AZ1023, Baku, Azerbaijan
JOHN CRANE BELGIUM NV
Ordinary
Glasstraat 37, Antwerpen, 2170, Belgium
JOHN CRANE CANADA INC
Ordinary
423, GREEN NORTH ROAD, STONEY CREEK, ONTARIO, L8E 3A1, Canada
JOHN CRANE CARIBE LTD
Ordinary
654 Plaza, Suite #933, 654 Munoz Rivera Ave, San Juan, Puerto Rico, 00918
JOHN CRANE CHILE SA
Ordinary
AMERICO VESPUCIO 2542, COMPLEJO EMPRESARIAL EL CORTIJO, CONCHALI, SANTIAGO, Chile
JOHN CRANE CHINA CO LIMITED
Ordinary
Room 1668, No. 14F Floor 3 Datong Building, Huanghe Avenue, Nankai District, Tianjin, China
JOHN CRANE COLOMBIA SA
Ordinary
CALLE 46A NO 82-54 INT 14, PARQUE EMPRESARIAL SAN CAYETANO, BOGOTA, Colombia
JOHN CRANE DOMINICANA SA
Ordinary
CALLE EL RECODO, #2 BELLA VISTA, SANTA DOMINGO, Dominican Republic
JOHN CRANE EGYPT LLC
Ordinary
139, Mogamaa El Masanea Street, El Amireya, CAIRO, EGYPT
JOHN CRANE EGYPT SEALING SYSTEMS LLC
Ordinary
139, Mogamaa El Masanea Street, El Amireya, CAIRO, EGYPT
JOHN CRANE ENDÜSTRİYEL SIZDIRMAZLIK SİSTEMLERİ LİMİTED ŞİRKETİ İZMİR
ŞUBESİ (TURKEY BRANCH)
Ordinary
İstanbul Sarıyer, Huzur Mahallesi, Ahmet Bayman Caddessi, Dis, Reklamcılık Apt No:17-19/1
JOHN CRANE ENDUSTRIYEL SIZDIRMAZLIK SISTEMLERI LTD
Ordinary
Sok. No:41-43, Ferhat Paşa Mah. 25., Ataşehir/İST, 34888
JOHN CRANE FILTRATION TECHNOLOGIES GMBH
Ordinary
Am Zirkus 2, Berlin, 10117, Germany
JOHN CRANE FRANCE SAS
Ordinary
114, RUE JULES FERRY, B.P.35, DEVILLE-LES-ROUEN, 76250, France
JOHN CRANE GMBH
Ordinary
WERNER – VON – SIEMENS – STR.6, FULDA, 36041, Germany
JOHN CRANE GMBH (AUSTRIA BRANCH)
Ordinary
Poststrasse 12, Pasching, 4061, Austria
JOHN CRANE GROUP LIMITED
Ordinary
BUCKINGHAM HOUSE, 361-366 BUCKINGHAM AVENUE, SLOUGH, BERKSHIRE, SL1 4LU, England
JOHN CRANE HELLAS – ENGINEERED SEALING SYSTEMS MONOPROSOPI EPE
Ordinary
3 STRATIGOU TOBRE STREET, Municipality of Agia Paraskevi, ATHENS, 153 42, Greece
JOHN CRANE HOLLAND BV
Ordinary
BERGEN 9 – 17, BARENDRECHT, ZUID, 2993LR, Netherlands
JOHN CRANE HUNGARY KFT
Ordinary
2040, 2040 BUDAORS, GYAR U. 2, Hungary
JOHN CRANE IBERICA SA
Ordinary
CEMENTO 1, TORREJON DE ARDOZ, MADRID, Spain
JOHN CRANE IBERICA SA (PORTUGAL BRANCH)
Ordinary
7, LJ3, Rua Jose Martinho Santos 7 LJ3, Quinta da Omnia, Alverca do Ribatejo, 2615-385, Lisbon, 2615-385, Portugal
JOHN CRANE INC
Ordinary,
Preference
Corporation Trust Center, 1209 Orange Street, Wilmington, DE, 19801, United States
JOHN CRANE INVESTMENTS LIMITED
Ordinary
BUCKINGHAM HOUSE, 361-366 BUCKINGHAM AVENUE, SLOUGH, BERKSHIRE, SL1 4LU, England
JOHN CRANE ITALIA SPA
Ordinary
VIA GIOTTO 3, MUGGIO, 20835, Italy
JOHN CRANE KAZAKHSTAN
Units
Atyrau Region, Gatyrau, Station K Arabathan, House Production Site 14, 060000, Kazakhstan
JOHN CRANE KOREA CO LTD
Ordinary
Migeundong, WestgateTower 15F, 70 Chungjeong-ro, SEODAEMUN-GU, SEOUL, Korea (the Republic of)
JOHN CRANE KOREA CO. LTD. (YEOSU SERVICE CENTER BRANCH OFFICE)
Ordinary
70, Chungjeong-ro, Seodaemun-gu, Seoul, Republic of Korea
JOHN CRANE KOREA CO., LTD (DAESAN SERVICE CENTER BRANCH OFFICE)
Ordinary
15F Westgate Tower, 70 Chungjeongro, Seodaemun-gu, Seoul, Korea (the Republic of)
JOHN CRANE MALAYSIA SDN. BHD.
Ordinary
Level 11, Menara LGB, 1, Jalan Wan Kadir Taman Tun Dr Ismail, 60000 Kuala Lumpur, WPKL, Malaysia
JOHN CRANE MIDDLE EAST FZE
Ordinary
S20113, JEBEL ALI FREE ZONE, DUBAI, 61040
JOHN CRANE MIDDLE EAST FZE – IVORY COAST BRANCH
Ordinary
Société Ivoirienne de raffinage, Route de Vridi – Bd de Petit Bassam, ABIDJAN 01 Côte d’Ivoire, 01- B.P. 1269
JOHN CRANE MIDDLE EAST FZE – SOUTH AFRICA BRANCH
Ordinary
2, JANSEN ROAD, NETFIELD, SPRINGS, GUATENG, 1500, South Africa
JOHN CRANE PERU SAC
Ordinary
Av. Guillermo Dansey 2124, Urbanizacion Industrial Conde, Lima, Peru
JOHN CRANE POLAND SP Z O.O.
Ordinary
1327, ul. Bielska, Poland, 43-374 Buczkowi
JOHN CRANE SAFEMATIC OY
Ordinary
PO BOX 10, PUNASILLANTIE 15, MUURAME, 40950, Finland
JOHN CRANE SAUDI ARABIA LTD
Ordinary
DAMMAM INDUSTRIAL CITY, DAMMAM, SAUDI ARABIA, 3243
Wholly owned subsidiaries (indirect ownership)
continued
212
Subsidiary undertakings
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Name
Security
Address
JOHN CRANE SEALING SYSTEMS INDIA PRIVATE LIMITED
Ordinary
No. 11, 1ST PHASE, PEENYA, INDUSTRIAL AREA, BANGALORE, 560058, India
JOHN CRANE SINGAPORE PTE LIMITED
Ordinary
6 Shenton Way, OUE Downtown #26-00, Singapore (068809)
JOHN CRANE SLOVAKIA SRO
Ordinary
Dvorákovo nábrežie 10, Bratislava – mestská cast Staré Mesto, 811 02, Slovakia
JOHN CRANE SOCIEDAD DE RESPONSIBILIDAD LIMITADA DE CAPITAL VARIABLE
Ordinary
CARRETERA CIUDAD VICTORIA MATAMOROS, KM.173+600, SOLONIA SAN FERNANDO CENTRO, TAMAULIPAS, SAN
FERNANDO, CP 87600, Mexico
JOHN CRANE SVERIGE AB
Ordinary
FALTSPATSGATAN 4, SE-421 30 VASTRA FROLUNDA, Sweden
JOHN CRANE SVERIGE AB (DENMARK BRANCH)
Ordinary
Svalehojvej 3, Olstykke, DK-3650, Denmark
JOHN CRANE SVERIGE AB (NORWAY BRANCH)
Ordinary
Skvadronveien 27, Sola, N-4050, Norway
JOHN CRANE TAIWAN CO LTD.
Ordinary
324-4, FONG-JEN ROAD, Renwu District, KAOHSIUNG CITY 814, Taiwan (Province of China)
JOHN CRANE TECHNOLOGY (TIANJIN) CO LIMITED
Ordinary
No.9, No. 1, Haitai Huake Road, Huayuan Industrial District (Outside the ring(, Binhai Hi-Tech, Industrial Park,
Tianjin, China
JOHN CRANE TECHNOLOGY (TIANJIN) CO LIMITED (DALIAN BRANCH)
Ordinary
1F, No.39-13-9, Gangxing Street, Dalian Economic and Technological Development Zone
JOHN CRANE TECHNOLOGY (TIANJIN) CO LIMITED (DUSHANZI BRANCH)
Ordinary
No.13-6 & 13-14, Cuijing Commercial Street, Changling Road, Xinjiang, China
JOHN CRANE TECHNOLOGY (TIANJIN) CO LIMITED (LANZHOU BRANCH)
Ordinary
No. 38-1, 2nd floor, 1st Area, Minxing Building Material Market, Yizhilu Road, Xigu District, Lanzhou, Gansu, China
JOHN CRANE TECHNOLOGY (TIANJIN) CO. LTD (CHENGDU BRANCH)
Ordinary
No. 98-104, Tiaolusi East Road, Tianpengzhen, Pengzhou, Sichuan Province, China
JOHN CRANE TECHNOLOGY (TIANJIN) CO. LTD. (HUIZHOU BRANCH)
Ordinary
Building B, Weiji Industrial Park, Xiayong Nankeng, Dayawan, Huizhou, Guangdong Province, China
JOHN CRANE TECHNOLOGY (TIANJIN) CO. LTD. (JINZHOU BRANCH)
Ordinary
No. 23-125 & 126, Xingye Yangguang, Shiyinli, Guta District, Jinzhou, Liaoning Province, China
JOHN CRANE TECHNOLOGY (TIANJIN) CO. LTD. (NANJING BRANCH)
Ordinary
No.268 & 270& 272, Dachang Xinhua East Road, Liuhe District, Nanjing, Jiangsu Province, China
JOHN CRANE UK LIMITED
Ordinary
BUCKINGHAM HOUSE, 361-366 BUCKINGHAM AVENUE, SLOUGH, BERKSHIRE, SL1 4LU, England
JOHN CRANE VENEZUELA CA
Ordinary
Carretera Vía a Perijá, Km 8 ½, Avenida 50, Local N° 185-72, Zona Industrial El Silencio, MARACAIBO, 4001, Venezuela
KREISLER INDUSTRIAL CORP
Ordinary
180 Van Riper Avenue, Elmwood Park, NJ, NJ 07407, United States
KREISLER MANUFACTURING CORP
Ordinary
180 Van Riper Avenue, Elmwood Park, NJ, NJ 07407, United States
LAKES REGION TUBULAR PRODUCTS INC.
Ordinary
51 Growth Road, Laconia, NH, 03246, United States
LLC JOHN CRANE RUS
Ordinary
B.SAVVINSKY PER, D.11, MOSCOW, 119435, Russian Federation
MDII INVESTMENTS LLC
Ordinary
Corporation Trust Center, 1209 Orange Street, Wilmington, DE, 19801, United States
Plas2 LLC
Units
2601, Texas Drive, Irving, TX, 75062
Plastronics Asia Pte. Ltd.
Ordinary
450, ALEXANDRA ROAD #05-02, SINGAPORE, 119960
Plastronics H-Pin, Ltd
Units
2601, Texas Drive, Irving, TX, 75062
Plastronics Socket Partners, Ltd
Ordinary
2601, Texas Drive, Irving, TX, 75062
PLENTY INDIA LIMITED
Ordinary
D-196 Okhla Industrial Area, Phase-1, New Dehli, 110020, India
PROJECT SUGAR LIMITED
Ordinary
BUCKINGHAM HOUSE, 361-366 BUCKINGHAM AVENUE, SLOUGH, BERKSHIRE, SL1 4LU, England
ROYAL METAL PRODUCTS, LLC
Ordinary
100 ROYAL WAY, TEMPLE, GEORGIA, 30179, United States
SEEBACH FILTER SOLUTIONS INDIA PVT. LTD.
Ordinary
Shirwal, Maharashtra 412801, India
SEEBACH GMBH
Ordinary
Neckarweg 3, Vellmar, 34246, Germany
SITI 1 LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS (SHANGHAI) MANAGEMENT CO., LTD.
Ordinary
3rd and 4th Floor, No. 1, Lane 65, Huanlong Road, Pudong New District, Shanghai, China
SMITHS AEROSPACE GLOUCESTER LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS BRASIL LTDA
Ordinary
INDUSTRIAL DISTRICT OF THE CITY OF RIO CLARO, STATE OF SAO PAULO, AV. BRASIL NUMBER 4.700,
CEP 13505-600, Brazil
SMITHS BUSINESS INFORMATION SERVICES LIMITED
Ordinary
BUCKINGHAM HOUSE, 361-366 BUCKINGHAM AVENUE, SLOUGH, BERKSHIRE, SL1 4LU, England
Wholly owned subsidiaries (indirect ownership)
continued
213
Subsidiary undertakings
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Name
Security
Address
SMITHS BUSINESS INFORMATION SERVICES, INC.
Ordinary
Corporation Trust Center, 1209 Orange Street, Wilmington, DE, 19801, United States
SMITHS CONNECTORS ASIA PTE. LTD.
Ordinary
450, ALEXANDRA ROAD #05-02, SINGAPORE, 119960
Smiths Connectors Asia Pte. Ltd. Korea Branch
Units
707-ho, 42, Cheongnyong 1-gil, Gwanak-gu, Seoul
SMITHS CONNECTORS TUNISIA SARL
Ordinary
ZONE INDUSTRIELLE ROUTE DE KHNISS, MONASTIR, 5000, Tunisia
SMITHS DETECTION (ASIA PACIFIC) PTE LTD (INDIA BRANCH)
Ordinary
Vardhman Crown Mall, Unit No. 300 3rd Floor, Sector 19 Dwarka, New Delhi, India, 110075
SMITHS DETECTION (ASIA PACIFIC) PTE. LTD
Ordinary
450, Alexandra Road, #05-02 UE Bizhub, West Singapore, Singapore
SMITHS DETECTION (ASIA PACIFIC) PTE. LTD (KOREA BRANCH)
Ordinary
Rm #2183, Passenger Terminal 1, Incheon International Airport, Gonghangro 272, Jung-gu, Incheon, 22382, Korea (the
Republic of)
SMITHS DETECTION (AUSTRALIA) PTY LIMITED
Ordinary
BOTANY GROVE ESTATE' UNIT 5 , 14A BAKER STREET , BOTANY NSW 2019
SMITHS DETECTION (THAILAND) LIMITED
Ordinary,
Preference
99/3 Moo 5, Kingkaew Road, Tambol Rajatheva, Amphoe Bangplee, Samutprakarn Province, 10540, Thailand
SMITHS DETECTION BENELUX B.V.
Ordinary
BERGEN 9 – 17, BARENDRECHT, ZUID, 2993LR, Netherlands
SMITHS DETECTION FRANCE SAS
Ordinary
36 Rue Charles Heller, Vitry sur Seine, F-94400, France
SMITHS DETECTION GERMANY GMBH
Ordinary
Im Herzen 4, Wiesbaden, 65205, Germany
SMITHS DETECTION GERMANY GMBH (JAPAN BRANCH)
Ordinary
1-1-1 Uchisaiwaicho, Chiyoda-ku, Tokyo
SMITHS DETECTION GERMANY GMBH (QATAR BRANCH)
Ordinary
40 Ad Dawhah al Jadidah, Al Murshid, 230, Ad Dawhah al Jadidah Doha, Qatar
SMITHS DETECTION GMBH
Ordinary
Im Herzen 4, Wiesbaden, 65205, Germany
SMITHS DETECTION GROUP LIMITED
Ordinary
Century House, Maylands Avenue, Hemel Hempstead, Hertfordshire, HP2 7DE, England
SMITHS DETECTION HONG KONG LIMITED
Ordinary
4008-4009, 40/F, One Pacific Place, 88 Queensway, Hong Kong
SMITHS DETECTION INC.
Ordinary
THE CORPORATION TRUST COMPANY OF NEVADA, 701 S Carson Street, SUITE 200, Carson City, NV,
89701, United States
SMITHS DETECTION INTERNATIONAL LLC (ISRAEL BRANCH)
Ordinary
6, MEYTAV St, TEL-AVIV, 6789805, Israel
SMITHS DETECTION INTERNATIONAL, LLC
Equity
Interest
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE,
DE 19801, United States
SMITHS DETECTION INVESTMENTS LIMITED
Ordinary
c/o Smiths Detection-Watford Limited, Century House, Maylands Avenue, Hemel Hempstead, Hertfordshire,
HP2 7DE, England
SMITHS DETECTION IRELAND LIMITED
Ordinary
Deloitte Offices, 6 Lapps Quay, Cork, Ireland
SMITHS DETECTION ITALIA SRL
Ordinary
VIA GIOTTO 3, MUGGIO, 20835, Italy
Smiths Detection Kuwait Security Devices and Systems, their Installation and
Maintenance (LLC)
Ordinary
Century House, Maylands Avenue, Hemel Hempstead, Hertfordshire, HP2 7DE, England*
SMITHS DETECTION MALAYSIA SDN BHD
Redeemable
Level 11, Menara LGB, 1, Jalan Wan Kadir Taman Tun Dr Ismail, 60000 Kuala Lumpur, WPKL, Malaysia
SMITHS DETECTION MEXICO S. DE RL DE C.V.
Ordinary
Paseo de la Reforma 505, Col, Cuauhtemoc, 6500, Cudad de Mexico, Mexico
SMITHS DETECTION MIDDLE EAST FZE
Ordinary
Dubai Airport Free Zone, PO Box 48225, Building No. 8WA (West Side), 401, Dubai, United Arab Emirates
SMITHS DETECTION MONTREAL INC.
Ordinary
3700, Stock Exchange Tower, P.O Box 242, 800 Place Victoria, Montreal, PQ, H4Z 1E9, Canada
SMITHS DETECTION NEW ZEALAND LIMITED
Ordinary
Deloitte Centre, Level 20, 1 Queen Street,Auckland, 1010, New Zealand
SMITHS DETECTION RUS LLC
Ordinary
5-104, Room 501, floor 5, bld.1, Octyabrskaya Emb., St. Petersburg, 193079, Russian Federation
SMITHS DETECTION SAUDI ARABIA LTD
Ordinary
Level 1, Building 7, Zone A, Airport road, Business Gate, P.O Box Riyadh 11683, Kingdom of Saudi Arabia 93597
SMITHS DETECTION SYSTEMS PRIVATE LIMITED
Ordinary
601, Hemkunt Tower, 98 Nehru place, New Delhi, India, 110019
SMITHS DETECTION US HOLDINGS, LLC
Units
Corporation Trust Center, 1209 Orange Street, Wilmington, DE, 19801, United States
SMITHS DETECTION US, LLC
Ordinary
Corporation Trust Center, 1209 Orange Street, Wilmington, DE, 19801, United States
Wholly owned subsidiaries (indirect ownership)
continued
214
Subsidiary undertakings
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
* address of Parent Company
Name
Security
Address
SMITHS DETECTION-WATFORD LIMITED
Ordinary
Century House, Maylands Avenue, Hemel Hempstead, Hertfordshire, HP2 7DE, England
SMITHS DETECTION-WATFORD LIMITED (ISRAEL BRANCH)
Ordinary
4, DERECH HAHORESH ST, PO BOX 12820, YEHUD-MONOSON, 5647003, Israel
SMITHS FINANCE LIMITED
Ordinary,
Redeemable
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS GROUP HOLDINGS NETHERLANDS BV
Ordinary
BUCKINGHAM HOUSE, 361-366 BUCKINGHAM AVENUE, SLOUGH, BERKSHIRE, SL1 4LU, England
SMITHS GROUP HOLDINGS NETHERLANDS BV (UK BRANCH)
Ordinary
BUCKINGHAM HOUSE, 361-366 BUCKINGHAM AVENUE, SLOUGH, BERKSHIRE, SL1 4LU, England
SMITHS GROUP INNOVATION LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS GROUP INSURANCE LIMITED
Ordinary
LEVEL 5, MILL COURT, LA CHARROTERIE, ST PETER PORT, GY1 1EJ, Guernsey
SMITHS GROUP ITALIA SRL
Ordinary
VIA GIOTTO 3, MUGGIO, 20835, Italy
SMITHS GROUP SERVICE CORPORATION
Ordinary
Corporation Trust Center, 1209 Orange Street, Wilmington, DE, 19801, United States
SMITHS INDUSTRIES INDUSTRIAL GROUP LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS INTERCONNECT AMERICAS, INC.
Ordinary
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE, DE 19801,
United States
SMITHS INTERCONNECT CANADA INC.
Ordinary
16771, Sainte Marie Rd, Kirkland, Quebec, H9H 5H3
SMITHS INTERCONNECT GROUP (HK) CO LTD
Ordinary
4008-4009, 40/F, One Pacific Place, 88 Queensway, Hong Kong
SMITHS INTERCONNECT GROUP LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMITHS INTERCONNECT HONG KONG CO LIMITED
Ordinary
4008-4009, 40/F, One Pacific Place, 88 Queensway, Hong Kong
SMITHS INTERCONNECT INDIA PRIVATE LIMITED
Ordinary
Vaswani Centropolis, Ground Floor, Vaswani Centropolis, Langford Rd,Akkithmana Halli,Bheemanna Garden, Shanti
nagar, Near Jayanagar, Bangalore South, India, Shanthinagar, Bangalore South, 560027, India
SMITHS INTERCONNECT MEXICO, S.DE R.L. DE C.V.
Ordinary
Carretera Libre Antiguo Camino Tijuana 20221-B, Fideicomiso el Florido, Tijuana, Baja California, 22234, Mexico
SMITHS INTERCONNECT SOCIEDAD ANONIMA
Ordinary
33RD ST. NUMBER 777 BARRIO FRANCISCO PERALTA, CENTRAL AVENUE & 8TH, SAN JOSE, Costa Rica
SMITHS INTERCONNECT, INC.
Ordinary
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE, DE 19801,
United States
SMITHS TUBULAR SYSTEMS-LACONIA, INC
Ordinary
CT Corporation System, 9 Capitol Street, Concord, NH 03301, United States
SMITHS US INNOVATION LLC
Units
Corporation Trust Center, 1209 Orange Street, Wilmington, DE, 19801, United States
SMITHS WOLVERHAMPTON LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
SMO DETECTION EQUIPMENT (SHANGHAI) CO., LTD
Ordinary
Room 923B, No 55, Xili Road, Shanghai, (China) Pilot Free Trade Zone, China
STS TITEFLEX INDIA PVT LTD
Ordinary
No 38, KIADB Industrial Area, Bangalor, 561203, India
T I S A (FRANCE)
Ordinary
114, RUE JULES FERRY, B.P.35, DEVILLE-LES-ROUEN, 76250, France
TEKNOFLUOR HOLDING AB
Ordinary
Teknofluor Holding AB, Knivsta, 74180, Sweden
THERMAFLEX (FRENCH BRANCH)
Units
31 RUE ISIDORE MAILLE, SAINT-AUBIN-LES-ELBEUF, 76410, France
TI GROUP AUTOMOTIVE SYSTEMS (ARGENTINA) SA
Ordinary
AV. LEANDRO N. ALEM 1110, 13 FLOOR, Baker Mackenzie Office, BUENOS AIRES, Argentina
TIGRUP NO. 14 LIMITED
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
TITEFLEX COMMERCIAL, INC.
Ordinary
CT Corporation System, 155 Federal Street, Suite 700, Boston, MA 02110, United States
TITEFLEX CORPORATION
Ordinary
One Corporate Center, Hartford, CT 06103-3220, United States
TITEFLEX EUROPE SAS
Ordinary
22, Avenue Maurice Chevalier, 77833 Ozoir-la-Ferriere, Paris, France
TRAK MICROWAVE LIMITED
Ordinary
29 DUNSINANE AVENUE, DUNDEE, DD2 3QF, Scotland
TUTCO DE MEXICO SRL DE CV
Ordinary
Av. Primero de Mayo Lote 3 Edificio 1B, Prologis Park, Reynosa, 88780, Mexico
TUTCO, LLC
Ordinary
116, Pine Street, 3rd Floor, Suite 320, Harrisburg, PA 17101, United States
US HOSE CORP
Ordinary
815 Forestwood Drive, Romeoville, IL, IL 60446, United States
Wholly owned subsidiaries (indirect ownership)
continued
215
Subsidiary undertakings
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Non wholly-owned subsidiaries, including joint ventures, associates and investments
Name
% of Group ownership
Security
Address
HUAFENG SMITHS INTERCONNECT (SICHUAN) CO., LTD.
60
Ordinary
No. 120, Sanjiang Avenue, Economic Development Zone, Mianyang, Sichuan Province, China
JOHN CRANE JAPAN INC
70
Ordinary
2222, KAMITOYAMA RITTO CITY, RITTO-SHI, SHIGA-KEN, JAPAN
JOHN CRANE PTY LTD
75
Ordinary
2, JANSEN ROAD, NUFFIELD INDUSTRIAL SITES, SPRINGS GAUTENG, SOUTH AFRICA, 1559
LLC JOHN CRANE ISKRA
50
Ordinary
28, Academica Vedeneeva Street, Perm, Permskiy Region, 614038, Russian Federation
PT JOHN CRANE INDONESIA
99
Ordinary
CILANDAK COMMERCIAL ESTATE BLDG 401A, JI. KKO CILANDAK, JAKARTA, 12560, Indonesia
SMITHS DETECTION SECURITY SYSTEMS LLC
49
Ordinary
Building No B10, Industrial Mussaffah M44, Sector 15, Offices No (O1, O3), Abu Dhabi, United Arab Emirates
XDG SERVICES LIMITED
99
Ordinary
Level 10, 255 Blackfriars Road, London, SE1 9AX, England
ZAMOR KG
48
Ordinary
TOLZER STRASSE, 15 82031, GRUNWALD, Germany
Overseas Branches
The Company does not operate through any branches. Some Group subsidiary companies have established branch operations outside the UK.
216
Subsidiary undertakings
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Financial calendar
2024
2025 (provisional)
Announcement of FY2024 Results
24 September
Dividend ex-dividend date
17 October
Dividend record date
18 October
Last DRIP election date
1 November
Annual General Meeting
13 November
Q1 Trading Update
13 November
Dividend payment date
22 November
Announcement of FY2025 Interim Results
25 March
Interim dividend ex-dividend date
3 April
Interim dividend record date
4 April
Last DRIP election date
22 April
Interim dividend payment date
14 May
Q3 Trading Update
20 May
FY2025 financial year end
31 July
Announcement of FY2025 Results
23 September
Registered Office
Smiths Group plc
Level 10
255 Blackfriars Road
London, SE1 9AX
+44 (0)20 7004 1600
Incorporated in England & Wales
Company No. 137013
www.smiths.com
Registrars
Our share register is maintained by Equiniti. If you have any questions about your Smiths shares,
please contact Equiniti www.shareview.co.uk.
Telephone:
T: + 44 (0)371 384 2943 (in the UK)
Lines open 8.30am to 5.30pm (UK time), Monday to Friday (excluding public holidays in England
and Wales).
For deaf and speech impaired customers, Equiniti welcomes calls via Relay UK. Please
see www.relayuk.bt.com for more information.
Write to:
Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
Equiniti offers the Shareview portfolio service to investors; visit www.shareview.co.uk to register
for an account. Through Shareview you can access information about your investments, including
balance movements and indicative share prices, as well as practical help about transferring your
shares or updating your personal details.
Dividends
Since November 2019 Smiths no longer issues dividend cheques. In order to have your dividends
paid directly to your bank or building society account please contact Equiniti for a copy of the
Bank Mandate Form, or register your nominated bank or building society account by visiting
www shareview.co.uk.
By registering your account all future dividends will be paid securely by direct credit on the
dividend payment date.
Alternatively, Smiths offers a Dividend Reinvestment Plan. For more information please visit our
website or contact Equiniti.
Ordinary shares
The market value of an ordinary share of the Company on 31 March 1982 for the purposes of
capital gains tax was 136.875p (taking into account the sub-division of 50p shares into 25p shares
on 14 January 1985 and the sub-division and consolidation of 25p shares into 37.5p shares on
18 June 2007).
Annual General Meeting (AGM)
The 2024 Smiths Group plc AGM will be held at 10.00am on Wednesday 13 November 2024 at
Freshfields Bruckhaus Deringer, 100 Bishopsgate, London EC2P 2SR. The Notice of AGM is a
separate document which is sent out at least 20 working days before the AGM and made available
on our website. If you are in any doubt as to what action you should take in relation to the
resolutions being proposed at the AGM, you are recommended to consult your stockbroker, bank
manager, solicitor, accountant or other independent professional adviser authorised under the
Financial Services and Markets Act 2000. The meeting will be webcast and may be viewed online
by registering on our website www.smiths.com.
Shareholders, their appointed proxies and authorised corporate representatives have the right to
ask questions at the AGM relating to the business of the meeting. Such persons will also be able
to submit questions to the AGM in advance by emailing secretary@smiths.com by 6.00pm on
Wednesday 6 November 2024. Shareholders who submit questions in advance of the AGM should
include their full name and Shareholder Reference Number in their email. The responses to the
pre-submitted questions will be answered at the AGM. Please note that where a number of
similar questions have been asked, we will group these accordingly.
Shareholders who are unable to attend the AGM in person are encouraged to vote their shares by
appointing a proxy and issuing voting instructions. Electronic and paper proxy appointments and
voting instructions must be received by the Company’s Registrar not later than 48 hours before
the AGM is held in order to be valid. Shareholders who are not CREST members can appoint a
proxy and vote online by visiting www.shareview.co.uk. CREST members, CREST personal
members and other CREST-sponsored members should consult the CREST Manual or their
sponsor or voting service provider for instructions on electronic proxy appointment and voting.
217
Shareholder information
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
Forward-looking statements
This report contains certain 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. Forward-looking statements can be identified by the use of
forward-looking terminology, including terms such as “believes”, “estimates”, “anticipates”,
“expects”, “forecasts”, “intends”, “plans”, “projects”, “goal”, “target”, “aim”, “may”, “will”, “would”,
“could” or “should” or, in each case, their negative or other variations or comparable terminology.
By their nature, these statements involve uncertainty and are subject to known and unknown
risks, including, without limitation, those discussed under the section titled ‘Principal risks and
uncertainties’ in this report. Future events and circumstances can cause performance, results
and developments to differ materially from those expressed, implied or anticipated. The past
business and financial performance of the Group is not to be relied on as an indication of its future
performance. 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. Undue
reliance should not be placed on such forward-looking statements. Nothing in this document
should be construed as a profit forecast or be interpreted to mean that future earnings per share
of the Company will necessarily match or exceed its historical published earnings per share. 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.
Some of the products described in these materials are under development and are not available
for sale, and we make no definitive claims about the final features or benefits of these products.
218
Shareholder information
continued
Smiths Group plc Annual Report FY2024
Overview
Strategic report
Governance
Financial statements
This publication has been printed on Revive Offset which is
100% recycled and FSC
®
certified. Printed sustainably in
the UK by Pureprint, a CarbonNeutral
®
company with FSC
®
chain of custody and an ISO 14001 certified environmental
management system recycling 100% of all dry waste.
Front cover photography by Smiths Creative Media
Designed and produced by Conran Design Group
www.conrandesigngroup.com
Smiths Group plc
Level 10
255 Blackfriars Road
London SE1 9AX, UK
+44 (0)20 7004 1600
www.smiths.com
LSE: SMIN
ADR: SMGZY
view this report online at
www.smiths.com/investors