Smiths Group

SMITHS GROUP PLC 
Annual Report FY2020

MAKING A SAFER, MORE EFFICIENT  
AND BETTER CONNECTED WORLD

O V E R V I E W

Our purpose

MAKING A SAFER, MORE 
EFFICIENT AND BETTER 
CONNECTED WORLD

Smiths is a world leader in the practical application 
of advanced technologies, creating transformative 
products and services that make a safer, 
more efficient and better connected world. 

Our businesses share the same characteristics 
which shape how we create value. These  
characteristics are underpinned by the Smiths 
values, a culture driven by excellence and 
innovation, and our commitment to doing business 
responsibly and sustainably for the benefit of 
society at large and our stakeholders.

It’s the Smiths way.

S M I T H S   G R O U P   P L C     A N N U A L   R E P O R T   F Y 2 0 2 0

Strong now and for the future

A VIEW FROM 
OUR CHAIRMAN

+ Read more on pages 08-10

MARKET AND 
STRATEGIC 
OVERVIEW FROM 
OUR CEO

+ Read more on pages 11-13

Our performance

F IN A NCI A L RE V IE W 

+ Read more on pages 18-21

K P Is

+ Read more on pages 22-23

DI V I SION A L  RE V IE W 

J O HN C R A NE

+ Read more on pages 52-54

S MI T H S D E T EC T I O N

+ Read more on pages 55-57

F L E X-T E K

Understanding and nurturing  
our resources and relationships

+ Read more on pages 24-51

s   a n d   
r
o
n m e n t s

t

r

e

u l a
g
g o v e

R

Our people

+ Read more on pages 58-60

S MI T H S  IN T E R C O NNEC T

nities 

u
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u
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u

r

s

u

p

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h

ain 

O

u

r

c

u

s

t

o

m
e
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Technology
a nd innovation

Production
and environme n t

+ Read more on pages 61-63

S MI T H S ME D I C A L

+ Read more on pages 64-66

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1SMITHS GROUP PLC  ANNUAL REPORT FY2020 
 
 
 
 
www.smiths.com

C O N T E N T S

1 O V E R V IE W
Our purpose 

In this year’s report 

FY2020 financial summary 

Our business at a glance 

2 S T R AT EG I C R E P O R T
Our business model 

Chairman’s statement 

Chief Executive’s Q&A 

Our Executive Committee 

Our strategy 

Strong financial framework 

Key performance indicators 

Resources and relationships 

– Ethics and our values 

– Our people 

– Our customers 

– Technology and innovation 

– Production and environment 

– Our supply chain 

– Our communities 

– Regulators and governments 

Divisional review 

– John Crane 

– Smiths Detection 

– Flex-Tek 

– Smiths Interconnect 

– Smiths Medical 

Risk management 

Going Concern and Viability Statement 

Non-Financial Information Statement 

Section 172 Statement   

3 G O V E R N A N C E
Chairman’s introduction 

Directors’ biographies  

Board governance 

Engagement with stakeholders   

Board activity in FY2020 

IFC

01

02

04

06

08

11

14

15

18

22

24

26

27

34

37

40

46

48

51

52

52

55

58

61

64

67

77

79

80

82

84

88

90

92

Nomination & Governance Committee Report  96

Audit & Risk Committee Report 

Remuneration Committee Report 

Directors’ Report 

Statement of Directors’ responsibilities 

4 F IN A N C I A L S TAT E ME N T S
Independent auditors’ report 

Consolidated primary statements 

Accounting policies 

Notes to the accounts 

Unaudited five-year Group financial record 

Unaudited US dollar primary statements 

Smiths Group plc Company accounts 

Subsidiary undertakings 

Shareholder information 

102

108

130

132

135

144

149

158

205

206

212

220

229

Some of the photographs used in this Annual 
Report were taken before the COVID-19 pandemic

 
 
 
 
 
F Y 2 0 2 0   F I N A N C I A L   S U M M A R Y

FY2020 financial summary

The Group delivered a robust performance 
in uncertain markets, supported by its 
market-leading positions and flexible 
business model.

+  Read more in the Strong financial framework section 

on pages 18-21

Smiths Continuing Operations3

Revenue

2,548

2,498

+2%

(1)%

2,548

2,498

+2%

Headline1

Statutory

FY2020
£m

FY2019
£m

Reported
growth

Underlying2
growth

FY2020
£m

FY2019
£m

Reported
growth

Operating profit ex. restructuring  
and write-downs4

Operating profit

Smiths Medical – Discontinued Operations3

Revenue

Profit after tax

Total Group5

Profit for the year

Basic EPS

Free cash-flow6

Dividend

382

327

918

139

427

427

(11)%

(13)%

(23)%

(13)%

241

326

(26)%

874

112

+5%

+24%

+4%

(3)%

200

85

+135%

338

385

(12)%

267

227

+18%

84.8p

96.8p

(12)%

(12)%

66.9p

56.8p

+18%

273

234

+17%

35.0p

45.9p

(24)%

35.0p

45.9p

(24)%

The following definitions are applied throughout the document and are Alternative Performance Measures (APMs) as defined in note 30 to the 
financial statements:

1  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.

2  Underlying modifies headline performance to adjust prior year to reflect an equivalent period of ownership for divested businesses, exclude the 
effects of foreign exchange, acquisitions, restructuring costs and write-downs, and add back the depreciation and amortisation of discontinued 
operations for comparability purposes. Alternative performance measures are defined in note 30 to the financial statements.

3  Continuing Operations excludes Smiths Medical which is accounted for as ‘discontinued operations – businesses held for distribution  

to owners’. Discontinued Operations is defined in note 28 to the financial statements.

4  Restructuring and write-downs as defined in note 2 to the financial statements. Alternative performance measures are defined in note 30 to the 

financial statements.

5  Total Group comprises Continuing Operations and Discontinued Operations.

6  Defined in Note 30 to the Financial Statements.

0 2

OVERVIEWSMITHS GROUP PLC  ANNUAL REPORT FY2020UNDERLYING   
RE VENUE GROW TH* 

HE A DL INE 
UNDER LY IN G 
OP ER AT IN G M A R GIN*

FY2019: +3%

(1)%

A resilient performance 
driven by strong order books 
and a high proportion of 
aftermarket revenue.

FY2019: 17.1%

 15.0%

Margin decline driven by 
lower volumes combined with 
temporarily higher costs to 
ensure business continuity during 
the pandemic.

*   Continuing Operations. See page  

02 for definition of underlying

*   Continuing Operations. See page  

02 for definition of underlying

F R EE C A SH - F L O W 1 
( T O TA L GR O UP)

NE T DEB T 1/ EBI T D A1 
( T O TA L GR O UP)

FY2019: £234m

£273m

Strong cash generation is a 
key characteristic of the Group, 
with free cash-flow up 17% and 
cash conversion1 at 123%, an 
outstanding performance.

FY2019: 1.8x

 1.7x

Net debt/EBITDA at 1.7x, 1.9x 
including restructuring costs 
and write-downs, reflecting the 
Group’s robust balance sheet.

1  Defined in Note 30 to the Financial Statements

1  Defined in Note 30 to the Financial Statements

D I V IDEND P ER SH A R E 
( T O TA L GR O UP)

FY2019: 45.9p

35.0p

Total dividend of 35 pence per 
share reflecting delayed interim 
dividend of 11 pence per share 
and proposed final dividend of 
24 pence per share.

0 3

B A SI C   HE A D L INE  EP S 
( T O TA L  GR O UP) 

FY2019: 96.8p

84.8p

Basic headline EPS down 
(12)% to 84.8p driven by 
reduced profitability. 

1SMITHS GROUP PLC  ANNUAL REPORT FY2020O U R   B U S I N E S S   A T   A   G L A N C E

We have operations in 
more than 50 countries

R E V E N U E   B Y   D E S T I N A T I O N *

R E S T   O F   
T H E   W O R L D
9%

A S I A   P A C I F I C
18%

£2,548m

A M E R I C A S
50%

E U R O P E
23%

Serving our target 
global markets

Security and defence
Our threat detection equipment helps keep 
people and assets safe. Demand in the security 
market is mainly driven by persistent and 
evolving terror threats and changing security 
regulations. Aftermarket opportunities rise as 
the installed base grows. The defence market 
is served by Smiths Detection through imaging 
and sensing detection products and by Smiths 
Interconnect through secure connectivity 
solutions. Growth in this market is primarily 
driven by defence and security spending.

General industry
Customers put their trust in our products and 
services to support a wide range of general 
industrial applications in sectors including 
petrochemical, mining, pulp & paper, water 
treatment, semiconductor testing, heating 
elements, automotive and rail transportation. 
These sectors and others are served by John 
Crane, Smiths Interconnect and Flex-Tek, 
with growth generally tracking increases in 
GDP worldwide. 

G R O U P 
R E V E N U E
36.8%

G R O U P 
R E V E N U E
32.4%

Security 
and defence

General 
industry

Through our four 
core divisions

John Crane

Smiths  
Detection

Flex-Tek

Energy

Space and  
aerospace

G R O U P 
R E V E N U E
23.5%

Energy
John Crane’s mechanical seals and systems 
support energy operations worldwide including 
downstream and midstream oil & gas and 
power generation. Growth is driven by long-
term increases in global demand for energy, 
productivity, and enhanced environmental 
and safety requirements. There is a 
growing requirement for aftermarket and 
service contracts.

0 4

Smiths  
Interconnect

G R O U P 
R E V E N U E
7.3%

Space and aerospace
Satellite launches, deep space exploration and 
emerging activities such as asteroid mining are 
driving demand for high-reliability solutions 
in the space market. Growth in aerospace 
is coming from new fuel-efficient aircraft 
and increasing passenger numbers, freight 
traffic and military spend. Flex-Tek provides 
hydraulic hoses and fuel lines for airframes 
and engines and Smiths Interconnect supplies 
ultra high-quality connectors, microwave 
components and antenna systems for aircraft 
and satellite communications.

Smiths Medical
Discontinued Operations

OVERVIEWSMITHS GROUP PLC  ANNUAL REPORT FY2020E M P L O Y E E S   B Y   R E G I O N *

+  Read more about our divisions on pages 52-66

R E S T   O F   
T H E   W O R L D
3%

A S I A   P A C I F I C
18%

*  Continuing Operations

>14,000

A M E R I C A S
46%

E U R O P E
33%

Mission-critical solutions 
for global energy and 
process industries 

 – A global leader in mission-critical 
technology for rotating equipment
 – Strong proprietary technology and 
expertise in applied engineering
 – Broad installed base in energy 

and industrials

R E V E N U E

£955m

H E A D L I N E   U N D E R L Y I N G 
O P E R A T I N G   P R O F I T  M A R G I N 

 – Strong aftermarket service offering with 
more than 200 sales and service centres

 – Long-term customer relationships

21.5%

Detection and 
screening technologies for 
the identification of safety and 
security threats

 – A global market leader with differentiated 
technologies leveraged across a broad 
range of markets

 – Significant R&D capability
 – Operating in regulated markets that 

require product certification

 – Increasing digitisation and 

aftermarket revenue

 – Long-term customer relationships

Innovative components to heat 
and move fluids and gases 

 – High performance products
 – Leading capability in design 

and manufacture

 – A leader in residential gas tubing products
 – High performance flexible tubing 

for aerospace

 – Strong customer relationships

Solutions for high-speed, 
secure connectivity in 
demanding applications

 – Innovative and technically 
differentiated products

 – High-reliability solutions used 
in demanding applications

 – Strong research and 

engineering capabilities

 – Customer intimacy 

and product customisation

 – Global reach and support

Quality medical devices and 
consumables that are vital to 
patient care 

 – A category leader in served segments
 – Trusted brands with a reputation for safety
 – Strong, defensible intellectual property
 – C.80% of revenue from single-use devices 

and proprietary consumables

 – Strong customer relationships and extensive 

global sales network

R E V E N U E

£806m

H E A D L I N E   U N D E R L Y I N G 
O P E R A T I N G   P R O F I T  M A R G I N 

13.9%

R E V E N U E

£478m

H E A D L I N E   U N D E R L Y I N G 
O P E R A T I N G   P R O F I T  M A R G I N 

17.6%

R E V E N U E

£309m

H E A D L I N E   U N D E R L Y I N G 
O P E R A T I N G   P R O F I T  M A R G I N 

10.1%

R E V E N U E

£918m

H E A D L I N E   U N D E R L Y I N G 
O P E R A T I N G   P R O F I T  M A R G I N 

15.5%

0 5

1SMITHS GROUP PLC  ANNUAL REPORT FY2020O U R   B U S I N E S S   M O D E L

Our business model – 
the Smiths Way

Our businesses are defined 
by four characteristics

+

Our shared operating model 
and culture is centred on People, 
Innovation and Execution

Our operating model is supported and driven 
by the Smiths Excellence System (SES).

People
Our people are vital to the success 
of Smiths. We work to attract, retain, 
develop, engage and inspire the very best.

Innovation
Technology and innovation are driving 
the future of Smiths. Our Group-
wide innovation framework fosters 
a disciplined, future-focused culture 
aligned with our purpose and strategy. 
This helps us translate our expertise 
and insight into transformative new 
ways of working, products, services and 
business models.

Execution
We aim for consistent and flawless 
execution. Capability, collaboration across 
internal and external expert networks, 
and a relentless focus on continuous 
improvement enable us to move fast and 
deliver solutions, quality and value for 
our stakeholders. 

We actively manage our portfolio of businesses. 
They operate in growing markets where we can 
achieve a sustainable top three leadership position. 
Our businesses share the same characteristics 
which shape how we create value.

TECHNOLOGY 
DIFFERENTIATION

INCREASING 
DIGITISATION

SUSTAINABLY 
COMPETITIVE AND 
ASSET LIGHT

HIGH PROPORTION 
OF AFTERMARKET 
AND SERVICES

Underpinned by the Smiths values 
and our commitment to doing 
business responsibly and sustainably

Our Smiths values guide how we behave. 
Our values and our commitment to doing 
business responsibly are more than just words. 
They influence every decision and help to make 
Smiths a place where people want to work, an 
organisation that is valued, and one that people 
want to do business with.

0 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTMaximising value for 
our stakeholders

+  Read more on our stakeholders in the Resources 

and relationships section on pages 24-51

People
B E L O N G I N G   S C O R E

70

S A F E T Y   R I R

0.30

My Say engagement 
survey: I feel a sense of 
belonging at Smiths

Recordable incident rate 
per 100 colleagues

Customers and suppliers
O T I F

C O P Q

86%

On time in full

1.4%

Cost of poor quality 

Society and the environment
D I R E C T   E C O N O M I C 
C O N T R I B U T I O N

G H G   R E D U C T I O N 

 £2.8bn

Employee costs + 
supplier costs + tax paid

(46)%

Greenhouse gas 
reduction since FY2007

Shareholders
U N D E R L Y I N G   E P S   

84.8p

FY2019: 96.8p 

+  See underlying definition 

on page 02

D I V I D E N D

35.0p

FY2019: 45.90p

Measures above based on Total Group

0 7

Excellence
The Smiths Excellence System is  
embedded into our operations and 
functions. Supported by the SES 
Academy, it has created one language for 
excellence at Smiths that is advancing 
skills, best practice and continuous 
improvement across our SES pillars: 
Customer, People, Technology, 
Programme, Production and Supply.

SMITHS GROUP PLC  ANNUAL REPORT FY20202C H A I R M A N ’ S   S T A T E M E N T

Seeing round 
the corner

The COVID-19 pandemic has had the most significant economic 
and social impact on the world since the so-called ‘Lehman’ 
global financial crisis and economic downturn in 2008-2009. 
It may yet prove to be the most impactful since the great 
depression of the 1930s.

During that previous ‘08–’09 recession, 
I was the Chairman and Chief Executive 
Officer of 3M Co in Minnesota, USA. It’s 
helpful to contrast these two difficult 
periods and translate the lessons 
learned from the Lehman downturn to 
the impacts of the COVID-19 pandemic. 
Something which has probably been 
forgotten is that we were then suffering 
another epidemic caused by the Influenza 
A, subtype H1N1 ‘Swine Flu’ virus. 
That lasted from March 2009 until April 
2010 while we were all busily distracted 
by the economic downturn. In the United 
States alone, there were about 60 million 
people infected by the H1N1 virus, with 
around 275,000 hospitalisations but, 
luckily, there were only 12,000 deaths, all 
tragic of course. Six hundred million people 
were infected by H1N1 worldwide.

In crises like these, there are always two 
primary forecasting challenges. The first 
is to understand how long an economic 
contraction will last, and the second is 
to know how deep it will go. In ‘08-’09, 
the difficult problem was to calculate the 
length of the contraction, while the easier 
part was to figure out how deep it would 
become. The opposite is the case in the 
COVID-19 contraction. 

Because pandemics and epidemics 
are what engineers and physicists call 
‘diffusion phenomena’, the mathematics is 
well understood and relatively predictable 
for a single disease outbreak. The curve of 
disease penetration in the population has 
the classic elongated ‘ess’ shape over time, 
and the number of active infections closely 
approximates a ‘Normal’ distribution 
(often called a Bell curve), with time on the 
horizontal axis. A single contained outbreak 
lasts about four and one-half months. 

More difficult to predict is the compounding 
impact of secondary outbreaks – always 
likely – because they overlap and extend 
the duration of the pandemic. The rate of 
infection curve looks like multiple Normal 
distributions added together, not unlike the 
shape of the double humps on a Bactrian 
camel. We know the only way to prevent 
secondary outbreaks, pre-vaccination, is 
to restrict human contact in larger groups 
or to provide suitable PPE protection. 
Secondary, tertiary, or even further 
disease episodes will continue until an 
effective vaccine is found and a vaccination 
programme completed. Alternatively, we 
must wait until a state of ‘herd immunity’ 
is reached. That requires about 70% of 
the population to be infected with the 
disease. Hardly something for us to look 
forward to at the mortality rates we’ve 
been seeing. The safety of our employees 
and communities is paramount in these 
circumstances, and that has been an 
enormous focus for Smiths during the 
current pandemic crisis. 

0 8

Inventory control and cash 
collection in downturns
Health conditions apart, the big challenge 
over the next two to three years will be 
maintaining or improving a company’s 
cash position. In typical soft economic 
downturns, those driven by normal 
cyclicality, cash generation usually gets 
better as the economy contracts, and 
end market demand falls. Why? Cash 
isn’t needed to grow, inventory can 
be sold off, and receivables collected. 
Production line rates are cut to control 
inventory, so cost absorption decreases 
and operating income falls. Although EPS 
falls, cash generation is still strong in mild 
downturns. However, in severe downturns 
like the one in ‘08–‘09, it’s a very different 
proposition. Cash generation can be much 
weaker because demand falls sharply, so 
liquidating inventory is difficult, and debtors 
may be unable to pay. It’s why companies 
must take vigorous countermeasures to 
these problems early and why it dictates 
companies do nothing which can upset, 
temporarily or otherwise, their cash-flow.

Supply chain demand transients
But it can get much worse. These situations 
are highly dynamic. Depending on the 
length of the supply chain, demand falls 
much faster than the end markets as each 
step in the supply chain overcompensates 
for falling demand and amplifies its effect. 
This is sometimes called the Forrester 
Effect. Demand contraction is much worse 
than economic forecasts suggest. To give 
readers an idea of scale, this transient 
amplification factor is about 3.0–4.0 for 
typical industrial companies. So, if the end 
market falls by 10%, this exhibits itself as a 
30–40% fall at the OEM level. A staggering 
loss of demand to deal with. The same 
phenomenon occurs when markets 
recover, except demand then overshoots, 
as new inventory is being built. 

The next question is, how long will this 
amplified fall in demand last? The answer 
depends on the efficiency of the supply 
chain. A 100% efficient supply chain will 
clear excess inventory in one turn. But no 
supply chain is ever 100% efficient. If it 
were a more practical 50%, the excess 
would be removed in two turns etc. For an 
industrial company with three or four 
inventory turns annually, these effects 
might last for six months to one year.

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTThe most significant strategic decision 
we’ve taken in the last six months is to 
postpone the separation of our Medical 
business. The most urgent challenge 
was to deal with the COVID-19 pandemic 
and all that it implies, both in end market 
demand, employee safety, supply chain 
challenges and cash management, etc. 
You can imagine the enormous demands 
on management and Board time as we 
wrestled with the vicious COVID-19 tiger. 
The number of Board level meetings 
tripled, and management meetings 
quadrupled, all dealt with using the 
newly emerging video conferencing 
and collaboration tools. Outside of our 
factories, most of it done working from 
home in roughly 20 different time zones 
across the world. 

The challenge a company faces at times 
like these is to understand whether, 
figuratively, they are falling off a 4,000-foot 
cliff or just into a 4-foot ditch. And you don’t 
know which until you reach the bottom. 
Prudence, therefore, dictated we postpone 
the Medical business separation and focus 
our efforts on managing the impacts of 
COVID-19. In any event, capital markets 
were uncertain and cash was tight or 
unsure. We did this until the effects of the 
pandemic became more transparent and 
the economic environment more stable. 
Unfortunately, COVID-19 and its economic 
effects are not finished with us yet. 

When might stability return?
The ‘main event’ on the pandemic stage is 
developing an effective vaccine, ramping 
up manufacturing capacity to meet global 
demand, and completing a worldwide 
vaccination programme. Even then, 
confidence needs time to build before 
people act more positively at home or work, 
creating needed demand. Almost certainly, 
immunity will not be 100% and will need 
to be boosted periodically, just like winter 
flu and tetanus shots. Undoubtedly some 
people will even refuse vaccination on 
principle. The US Government has placed 
orders with us for around 80 million 
hypodermic syringes and has contracted 
for vast amounts of vaccine doses from 
pharmaceutical companies. When might 
all that be in place? 

0 9

In contrast, medical supply increased by 
4%, because people can’t choose when 
they get sick. For completeness, food 
staples fell by 0.5%. So, you can see the 
wide variability of end market demand 
contractions, even inside conglomerates. 

Smiths largest markets are in airport 
and airline security, oil & gas, aerospace 
and the medical segments. All these 
markets will contract, except medical, 
which is still doing well. The aerospace 
industry, including airlines, will be the 
worst affected, and by most estimates 
will take four or more years to recover 
fully. While holiday and incidental travel 
are likely to rebuild reasonably quickly, 
an anticipated fall in business travel is 
expected to cause a slow recovery for the 
airline and associated industries because 
this is where their profits are the largest. 
There is also worrying evidence that 
long haul flights are a source of infection 
clusters via aerosol transmission and this 
is bound to elicit caution. 

This isn’t the complete picture for Smiths 
by any means, because we service 
other smaller markets in defence, 
telecommunications, construction and 
medical capital equipment, significantly 
spreading the risk. Moreover, we have 
invested heavily in innovation and, though 
progress has been slower than we would 
like, in time it will enable us to take market 
share and provide above-market growth. 
On the other hand, we are not immune 
to demand perturbations in the markets 
we serve. 

Meanwhile, it feels like the company 
is selling into a market much worse 
than the GDP or IPI numbers suggest. 
Financial planners need to consider 
these dynamics, not just the GDP or IPI 
averages. And when cash generation 
is under pressure, the transients can 
be the difference between a company’s 
strength and a company’s struggle. In any 
real-life structure or system, it’s the 
point loading that causes failure, not the 
average. So it will be with a company’s 
cash management.

What will happen to Smiths 
individual reporting segments?
As I mentioned a couple of years ago, Niels 
Bohr once said that “forecasting is difficult, 
especially when it concerns the future”. 
Nevertheless, no matter how difficult it 
is, companies are obliged to give the best 
advice they can to investors about the 
future as they see it. 

Luckily, Smiths has a wide range of end 
markets and it is this diversity which helps 
limit volatility to some degree. Pure-
play companies often grow faster than 
conglomerates in expanding economies, 
but conglomerates are usually better 
performers in downturns because their 
risks are more widely spread. In 2009, the 
US automotive OEM component market fell 
by 50%, while the automotive aftermarket 
fell by only 4%. People still drove cars and 
had accidents that needed to be repaired, 
and vehicles experienced wear and tear. 
Discretionary consumer electronics fell by 
80%, but the industrial electronics market 
only lost 9%, very much in line with the 
shrinking GDP number. In 2009, in the 
healthcare field, discretionary orthodontics 
demand fell by 10%, while the dental 
market dropped by only 2%.

SMITHS GROUP PLC  ANNUAL REPORT FY20202C H A I R M A N ’ S   S T A T E M E N T   C O N T I N U E D

There are reputed to be hundreds of 
vaccine development programmes 
underway worldwide for COVID-19 with 
thirty at an advanced stage. At the time of 
writing, scores of thousands of people are 
involved in phase 2/3 clinical trials across 
the world. The UK Secretary of State 
for Health has said he does not expect a 
vaccine to be available until 2021, though 
other countries are more optimistic. 
We have already experienced the challenge 
of COVID-19 testing, so administering 
billions of vaccination shots will inevitably 
run into problems. Any delay there will 
produce delays in economic recovery. 
An educated guess is the vaccination 
programme will not be completed until 
late summer or possibly autumn of 2021. 
It’s only after this point that we can begin 
to think about a gradual, and perhaps still 
extended return to economic normality, 
whatever ‘normal’ means. GDP cycles 
are – please forgive the mathematics 
speak – sinusoidal, so are ‘soft bottomed’. 
And IMF forecasts are suggesting a much 
slower return to normal than had hitherto 
been thought.

Economics
The IMF forecast for the UK economy in 
2020 is a contraction of 10.2% and for the 
US a fall of 8.0%. These are equivalent 
year-over-year GDP swings of about 13% 
and 11% respectively. Recognising that 
the first calendar quarter of 2020 was 
unaffected by COVID-19, correcting for the 
full-year effects would make the year-
over-year swing around 16% and 14% 
respectively. Unemployment rates will lag 
GDP but will reach similar levels if income 
support is not renewed, and we should fear 
this more than anything. These numbers 
are almost 50% larger than the contraction 
we saw in 2009, so 2021 and possibly 2022 
and beyond are going to be very difficult 
economically. It’s like having the entire 
Chinese economy removed from the world 
economy. This recession is going to hurt – 
and for some time. 

There is a simple rule in economics 
which states that ‘if there are no 
buyers, then there will be no sellers’. 
In other words, it’s all about demand and, 
therefore, it’s about government stimulus 
packages, unemployment support and 
the consequent timing and strength of 
a recovery. If governments do not act 
decisively, there is the prospect of high 
unemployment and potential problems 
with poverty, hunger, social unrest, and 
falling prices. Not even rich governments 
can afford to support significant numbers 
of their population very long. So, getting 
the various economies back to work 
is essential.

In conclusion
2021 will be another challenging year 
economically, and it will probably take 
several years to recover to the same 
economic level as 2019. So, for now, 
prudence will be the order of the day in 
managing Smiths. However, we’ve seen 
that the winners in this COVID-19 downturn 
are the innovators. It’s been the innovators 
in health care (Astra Zeneca, Pfizer etc.), 
electronics (ARM) and communications 
(Teams, Zoom, Vidyo), in delivery systems 
(Amazon), in grocery supply (Ocado), and 
in consumer goods (Reckitt Benckiser) 
who have done well in this pandemic. 
So it will be in the future. Right now, 
innovation is the cheapest and fastest 
way to change the future. 

Rapid innovation is straightforward 
in electronics, software and service. 
However, in some areas of heavy 
manufacturing even great engineering 
companies like Rolls-Royce, through no 
fault of their own, have been hurt by a 
narrow focus on air transport and their 
long-term, high capital development 
needs. Similarly, so for Boeing and 
Airbus. Giant oil and gas companies are 
equally challenged, as are many mining 
companies. Economics does not treat 
companies with long development cycles 
very well. 

Finding new profitable growth will be much 
more challenging for the next few years 
than it has been previously. But as Smiths 
innovation programmes begin to bear more 
fruit – and it is still early days in that regard 
– we are better positioned than many 
industrial companies. Prudence remains 
the immediate order of the day, together 
with careful cash management and 
innovation. These are the recipes for 
survival and success. Innovation is where 
we need to execute better and faster.

Thank you for maintaining your support of 
Smiths in this challenging time for all. It is 
very much appreciated. 

George W Buckley
CHAIRMAN

PRUDENCE REMAINS 
THE IMMEDIATE ORDER 
OF THE DAY, TOGETHER 
WITH CAREFUL CASH 
MANAGEMENT AND 
INNOVATION. THESE 
ARE THE RECIPES FOR 
SURVIVAL AND SUCCESS.

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SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTC H I E F   E X E C U T I V E ’ S   Q & A

Strong now and 
for the future

The strength and flexibility we have built into our business, and the 
benefits of the Group’s strategic positioning, underpinned a robust 
performance in challenging market conditions. 

Our priorities remain the safety of our people and keeping the 
business running flawlessly to support customers. I’m incredibly 
grateful to our amazing people for their dedication in difficult times, 
which ensured we delivered in the year and continue to maximise 
opportunities for future growth. 

We have continued to enhance the Group’s strategic positioning, 
through execution of the restructuring programme, completion of 
three further bolt-on acquisitions and our unchanged commitment 
to separate Smiths Medical. 

We are seeing a stabilisation of recent trends; but we are not 
complacent and are continuing to strengthen the business to 
deliver sustainable outperformance in the future.

I’m incredibly proud of the way Smiths has 
performed this year, including how we 
are responding during the unprecedented 
period of the COVID-19 pandemic. 
Our priorities throughout the pandemic 
have been the safety of our people, keeping 
our business running, and supporting 
our customers. Thanks to the amazing 
dedication and professionalism of our 
people, we have responded with great 
agility and demonstrated the strength and 
resilience we have built into our company 
and our ability to move fast and decisively, 
taking advantage of the opportunities which 
presented themselves.

Smiths entered the COVID-19 pandemic 
from a position of strength operationally, 
financially and strategically. While we 
remain vigilant, and are not complacent 
about the ongoing uncertainty, we are 
confident that we’re managing today well 
and taking the right actions to continue 
enhancing the strength of the Group so that 
we’re better positioned to deliver consistent 
market outperformance in the long term.

I convey my sincere and heartfelt thanks 
to everyone at Smiths, a formidable 
team. I could not have asked for more 
from anyone. 

Q  How has Smiths fared during 
the COVID-19 pandemic?
A  Our business has proven itself to 
be resilient by design during a period 
of unprecedented global disruption. 
Our market-leading positions, flexible 
business model and focused strategy have 
provided the momentum to support our 
performance in the short term and the 
agility to maximise opportunities for future 
growth. This has not been by chance, but 
part of the planned and strategic changes 
we have made to the Group over the last 
five years.

We have focused Smiths on businesses 
with the same core characteristics: 
technologically differentiated with 
increasing digitisation; a high proportion of 
aftermarket and services; and sustainably 
competitive and asset light. All things we do 
very well and make great business sense. 
These characteristics have supported our 
resilience with products and services that 
are at the forefront of their markets, with 
recurrent aftermarket revenues and an 
inherently low fixed cost base to maximise 
our flexibility. 

Having defined the types of business we 
want to own and run, we have applied a 
consistent strategy to maximise value 
creation. The three pillars of our strategy 
are: outperforming our chosen markets; 
delivering world-class competitiveness; 
and maintaining our strong financial 
framework. We do this through a simple 
and clear approach to innovation, 
operational excellence and people.

We’ve actively managed our portfolio of 
businesses to be targeted in growing 
markets where we can sustainably achieve 
a position of top three leadership, with 
90% of the Group now well positioned; up 
from 60% in 2016. It is these leadership 
positions that provided momentum for the 
business at the outset of the pandemic 
and that have helped us continue to win 
new business. This has resulted in Smiths 
achieving reported growth of 3%, despite 
significant global disruption arising from 
the pandemic in some of our end markets.

1 1

SMITHS GROUP PLC  ANNUAL REPORT FY20202C H I E F   E X E C U T I V E ’ S   Q & A   C O N T I N U E D

Q  What actions has the business 
taken in response to COVID-19?
A  Led by our Smiths Group Crisis Core 
team, our response has been focused 
on keeping our people safe, keeping the 
business running, and supporting our 
customers. Infection control measures 
are in place right across our operations 
and I’ve seen some amazing examples of 
collaboration and innovation to support 
this; for example, colleagues at John Crane 
3D printing elbow-operated door handle 
attachments and the in-house production 
of face coverings. 

Supporting our team practically, 
nurturing wellbeing, and communicating 
comprehensively have been another 
important focus. With alternating shift 
patterns, no travel, and many people 
working from home, our strong enterprise 
IT response and bespoke COVID 
communication resources have kept our 
teams connected with universal access to 
guidance and support materials.

Since the start of the pandemic, we’ve 
managed our operational response 
through our Operations and Supply 
Nerve Centre (OSNC), helping over 90% 
of our manufacturing sites to remain 
in production through the pandemic. 
Our frontline workers have worked safely 
around the clock to create and distribute 
products and support our customers. 
We have continued to drive these new ways 
of working as the operational disruption 
has stabilised to ensure the great 
collaboration and best practice sharing 
continues globally.

We’re especially proud of the collaborative 
efforts to produce products to help the 
fight against COVID-19. These include the 
significant ramp up in production of Smiths 
Medical paraPAC plus™ ventilators and 
other devices, and Smiths Interconnect and 
Flex-Tek’s production of critical connectors 
and hoses for ventilators. 

Maintaining continuity of service in our 
aftermarket activities, while keeping our 
people safe, has also been a vital part of 
our response. This has included finding 
new ways to deliver services, for example 
the introduction of remote inspection of 
seals at customer sites by John Crane 
using Augmented Reality.

Q  Why was the separation of 
Smiths Medical postponed and 
when will it restart?
A  The previously announced separation 
of Smiths Medical, that was on track to 
be delivered in the first half of calendar 
year 2020, had to be postponed. It was 
simply not practicable to complete the 
separation during such an uncertain time. 
We needed to focus on navigating the 
external challenges presented by COVID-19 
– including the delivery of ventilators and 
other critical care devices. 

Maintaining this operational focus has been 
validated by Smiths Medical’s performance 
this year, with underlying revenue growth of 
4%. The intention and rationale to separate 
remains unchanged and the process will 
be restarted later this year. 

Q  Have there been any 
changes to your strategy 
for future Smiths?

A  Our strategy and ambition are 
unchanged. We continue to execute against 
our plan, taking the necessary actions and 
making the required investments to shape 
the future of Smiths and deliver long-term 
growth and outperformance. 

We are, however, very focused on ensuring 
we take advantage of the organic and 
inorganic opportunities which the crisis 
presents, including new business models 
and ideas for the new ways of working 
which are emerging around the world.

Targeted investment in innovation will 
remain a key driver of the business as we 
address new trends and meet the needs 
of a changing world, making it safer, more 
efficient and better connected. There have 
been some great examples of innovation 
across the Group this year including 
Smiths Interconnect’s new laboratory 
with the unique capability to replicate the 
environmental pressures of deep space for 
product testing, as well as continued work 
from our Digital Forge centre of excellence 
on accelerating the digital transformation 
of the Group. 

This organic capability will continue to 
be complemented by a parallel path 
of disciplined M&A to accelerate our 
progress. A recent example of this was 
Smiths Detection’s bolt-on technology 
acquisition of PathSensors Inc.. 

We are focused on consistent and flawless 
execution through our shared operating 
model (the Smiths Excellence System), and 
on driving sustainable competitiveness 
through targeted investment in innovation 
and disciplined M&A. This focus has 
enabled us to rapidly adapt our processes 
and working practices and to maintain 
exceptional customer service despite 
difficulties across the world in our supply 
chains. These adapted processes have 
come with higher consequential costs, 
which have temporarily impacted our 
operating margins, but we are laser-
focused on mitigating these and improving 
operational efficiency as we move forward. 

We’ve remained committed to delivering 
innovative solutions for our customers, 
driven by our technological differentiation 
and this, in turn, has led to new business 
wins, such as Smiths Detection’s automatic 
baggage tray disinfection system using 
UVC light which has already been installed 
at two leading airports in the UK and is 
being trialled at multiple airports globally. 

Underpinning our performance this year, 
and every year, is our strong financial 
framework. The cash generative nature 
of our businesses and the highly focused 
efforts of the team, day in day out, to 
manage cash during the pandemic drove 
strong cash conversion of 123% this year. 
We continue to have a strong balance sheet 
with more than £1bn of liquidity headroom 
and net debt to EBITDA of 1.7x at the end of 
the year. 

OUR STRATEGY 
AND AMBITION ARE 
UNCHANGED. WE 
CONTINUE TO EXECUTE 
AGAINST OUR PLAN, 
TAKING THE NECESSARY 
ACTIONS AND MAKING THE 
REQUIRED INVESTMENTS 
TO SHAPE THE FUTURE 
OF SMITHS AND DELIVER 
LONG-TERM GROWTH 
AND OUTPERFORMANCE.

1 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTThis acquisition strengthens our biological 
detection capability, building on our existing 
expertise. The technology can detect the 
presence of a virus in an individual and 
the viral load in the air in confined spaces. 
It is a great example of externalising R&D 
investment, where it would have simply 
taken us too long internally.

We have a strong track record on 
environmental performance. Through an 
ambitious goal setting process in place 
since 2007, Smiths is proud to have 
achieved significant emission reductions 
from 2007 to present. We also support 
more transparency on environmental 
matters as a catalyst for driving change.

In June, we announced an important 
strategic restructuring programme 
which brought together initiatives already 
under development across the Group 
aimed at increasing our flexibility and 
speed and helping accelerate progress 
towards our target margin range of 18-
20%. While the programme was not a 
response to the COVID-19 situation, the 
resulting improvements will help us to 
emerge stronger and better positioned for 
consistent market outperformance in the 
long term.

The programme spans all of our divisions 
and includes a number of actions to 
improve the efficiency of our Group support 
functions, as well as optimising our global 
footprint and supply chains. It has led to 
some very tough decisions and, regrettably, 
some job losses across the organisation, 
although this has affected only a small 
percentage of our workforce overall. 

These were difficult but necessary steps 
to build further resilience and ensure that 
Smiths is able to continue to deliver long-
term growth and outperformance, while 
providing secure and stable employment to 
as many colleagues as possible.

Q  How important is the Group’s 
environmental and social impact 
to your overall strategy?

A  We believe that doing business 
responsibly is the right thing to do 
for our stakeholders. Through our 
innovative technology and services and 
our people, bringing solutions which 
serve sustainability and efficiency, 
higher safety and security, and the 
connectivity of the world in all its forms, 
is our driving purpose. It underpins our 
business performance and the long-term 
sustainability and resilience of Smiths and, 
rightly, is governed at the highest levels of 
our organisation. 

Innovation is at the heart of everything we 
do at Smiths and this is also true of our 
approach to our environmental and social 
impact. We have many examples in our 
portfolio of technologies and new product 
development that will enable a smarter, 
greener future, such as John Crane’s dry 
gas seals that help to reduce methane 
emissions. We continue to look for ways 
to reduce our own emissions and use of 
precious resources such as energy and 
water, supported by ambitious targets. 
We are currently discussing our FY2022-
FY2024 goals.

We also want to be positive contributors 
to our local communities, playing a 
beneficial role by supporting job creation, 
operating safely and ethically, and engaging 
directly through fundraising, charitable 
giving and educational initiatives. After a 
successful pilot by Smiths Interconnect in 
2019, our planned Group-wide adoption of 
the Beyond Boundaries initiative, where 
colleagues are empowered to spend a 
working day supporting good causes in 
their communities, was unfortunately 
put on hold due to the pandemic. Strong  
relationships with our communities are 
both positive for business and promote a 
sense of pride in our people as they live our 
Smiths values. 

The safety and security of our people and 
operations has always been our number 
one priority and has remained our key 
focus throughout COVID-19. We have 
a very robust safety culture and strive 
for a zero-harm workplace, with safety 
considerations fully integrated into all our 
activities. I’m extremely pleased to report 
that we recorded our best-ever safety 
performance this year. 

I’d like to pay tribute to the amazing 
dedication, commitment and contribution 
our colleagues have made to keeping 
themselves and others safe while helping 
us to continue to operate and serve our 
customers. Much effort has gone into 
understanding, respecting and supporting 
individual circumstances and balancing 
these with the needs of the business. 
Through our actions and words, I believe 
we’ve truly demonstrated that we’re one 
Smiths family living the Smiths Way culture 
and values every day.

Q  How is the Group positioned 
for FY2021?
A  Guidance remains withdrawn, given 
the uncertain depth and duration of the 
COVID-19 pandemic.  

We are seeing a stabilisation of recent 
trends, with Total Group underlying 
revenue of (5)% for May-August 2020 
(continuing operations (8)%).  

The first half of FY2021 will continue to 
cycle against pre-COVID comparators. 
The Group’s seasonality normally results in 
a second-half weighted revenue profile. 

It is anticipated that the restructuring 
programme will incur £(30)m of costs 
spread evenly through the year, whilst the 
matching savings will be 70% weighted to 
the second half. 

This is all underpinned by the Group’s 
strong financial framework and 
robust balance sheet, and supports 
confidence that we will deliver long-term 
sustainable outperformance.

Andy Reynolds Smith
CHIEF EXECUTIVE

I’D LIKE TO PAY TRIBUTE 
TO THE AMAZING 
DEDICATION, COMMITMENT 
AND CONTRIBUTION OUR 
COLLEAGUES HAVE MADE 
TO KEEPING THEMSELVES 
AND OTHERS SAFE WHILE 
HELPING US TO CONTINUE 
TO OPERATE AND SERVE 
OUR CUSTOMERS.

1 3

SMITHS GROUP PLC  ANNUAL REPORT FY20202O U R   E X E C U T I V E   C O M M I T T E E

Our Executive Committee

9

8

7

3

5

2

1

6

4

Our Executive Committee is responsible for 
implementing our strategy, ensuring consistent 
execution, and embedding our culture and values.

+  More information is available on our website

1. ANDY REYNOLDS SMITH
Chief Executive
Joined Smiths in 2015. Background: Chief 
Executive, Automotive, GKN plc; Ingersoll 
Rand; Siebe plc and Delphi Automotive 
Systems. For full biography see page 84.

2. JOHN SHIPSEY 
Chief Financial Officer
Joined Smiths in 2017. Background: CFO 
at Dyson for 12 years; 13 years in senior 
finance and strategy roles at Diageo plc. 
For full biography see page 84.

3. KAREN BOMBA
President, Smiths Interconnect 
Joined Smiths in 2017. Background: 
President and CEO of Morpho Detection; 
CEO of Labinal; COO of Zoltek; CEO of 
Messier-Bugatti, USA.

4. ROLAND CARTER
President, Smiths Detection 
President, Asia Pacific 
Joined Smiths in 1991. Appointed President 
of Asia Pacific in 2017 and President of 
Smiths Detection in 2018; previously 
President of Smiths Interconnect and 
Managing Director for Smiths Connectors.

5. JULIAN FAGGE
Group Strategy and M&A Director
President, Flex-Tek
Joined Smiths in 2013 as Group 
Financial Controller. Appointed Group 
Strategy and M&A Director in 2017. 
Appointed President of Flex-Tek in 2019. 
Background: Royal Caribbean Cruises; 
Procter & Gamble; PwC.

6. SHEENA MACKAY
Group HR Director
Joined Smiths in 2016. Background: Group 
HR Director at Aggreko plc, BBA Aviation 
plc and SSL International plc, and HR roles 
at GEC plc.

7. JEHANZEB NOOR
Chief Executive Officer,  
Smiths Medical
Joined Smiths in 2019. Background: 
Vice President and General Manager  
of Healthcare for Amcor Flexibles 
Americas; Partner at McKinsey & 
Company.

8. MEL ROWLANDS
Group General Counsel 
Joined Smiths in 2013. 
Appointed Group General Counsel in 
2018. Previously Company Secretary 
and Deputy Group General Counsel. 
Background: BG Group plc; Linde AG; 
Edwards Group; Centrica plc.

9. JEAN VERNET
President, John Crane
Joined Smiths in 2017. Background: 
CFO of Expro; Grid Net and Formfactor; 
Director of Risk at Rio Tinto Alcan; 
Schlumberger.

1 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTO U R   S T R A T E G Y

We are seeing comprehensive 
benefits from implementing our 
three key strategic objectives.

+  Read more about our KPIs on pages 22-23

Outperform our 
chosen markets

+  Read more on page 16

FIN E

E
D

I

N
N

O

V

A

T

E

Deliver world-class  
competitiveness

+  Read more on page 17

1

F OCUS

3

Strong financial  
framework

+   Read more on pages 

18-21

ENGAG E

2

M

A

X

I

M

I

S
E

E
T

E XECU

Outperform our  
chosen markets

1
We actively manage our portfolio of 
businesses. They operate in growing 
markets where we can achieve a 
sustainable top three leadership position. 

DEFINE OUR BUSINESSES

Our businesses share the same 
characteristics: technology differentiation; 
increasing digitisation; sustainably 
competitive and asset light; and high 
proportion of aftermarket and services.

FOCUS ON ATTRACTIVE MARKETS

We focus the portfolio on attractive markets 
with strong long-term growth drivers.

MAXIMISE GROWTH

We maximise growth through organic 
investment and a highly disciplined approach 
to acquisitions, disposals and integration

2

Deliver world-class 
competitiveness

We drive discernible, sustained competitive 
advantage through focused deployment 
of innovation and investment; attracting 
and retaining the best talent; and 
relentless execution through our shared 
operating model and the Smiths Excellence 
System (SES).

INNOVATE TO EXCEED CUSTOMER 
EXPECTATIONS

Our Group innovation framework drives 
change and helps our businesses to 
nurture key projects, which deliver 
meaningful benefits for customers.

ENGAGE OUR PEOPLE TO DRIVE THE 
BEST PERFORMANCE

Our People Plan is focused on building 
a learning organisation which attracts 
and retains talent; engages, develops 
and inspires our people; and embeds 
our values.

EXECUTE CONSISTENTLY

SES ensures that we focus on 
continuous improvement, speed 
and efficiency. Our operating model 
optimises global business services for 
maximum effectiveness.

3

Strong financial  
framework

We maintain a strong financial 
framework by:

 – Focusing the portfolio on sustainably 
competitive and asset light businesses

 – Delivering profitable growth with 

sustainable margins

 – Maintaining balance sheet strength and 
investing with strong financial discipline.

1 5

SMITHS GROUP PLC  ANNUAL REPORT FY20202O U R   S T R A T E G Y   C O N T I N U E D

Outperform our 
chosen markets

DEFINE OUR BUSINESSES
FOCUS ON 
ATTRACTIVE MARKETS
MAXIMISE GROWTH

What we said we would 
do in FY2020
 – Continue to invest effectively in R&D to 

drive market share 

 – Maintain percentage of the Group that is 
well positioned in attractive markets via 
continued focus on the portfolio

 – Maintain a disciplined approach to 
acquisitions that will enhance our 
capabilities and leadership

 – Continue to integrate previous 

acquisitions successfully

 – Further embed new operating model  
and execute strategy in Asia Pacific

 – Seek further growth opportunities in 

China and India

THE ACQUISITION OF 
PATHSENSORS IN AUGUST 
2020 ACCELERATES SMITHS 
DETECTION’S BIOLOGICAL 
DETECTION CAPABILITIES 
THROUGH THE ADDITION 
OF HIGH-SPEED, HIGHLY 
SENSITIVE BIOTHREAT 
SOLUTIONS FOR PATHOGEN 
DETECTION

1 6

How we did in FY2020
 – Organic investment continued to increase 

FY2021 priorities
 – Strategic intent to separate Smiths 

with R&D up 20bps to 4.7% of sales. 
Key new product launches are outlined in 
the divisional sections

 – Completed the operational integration of 

United Flexible in Flex-Tek

 – Completed Smiths Interconnect’s 

acquisition of Reflex Photonics in October 
2019 and Smiths Detection’s acquisition 
of PathSensors in August 2020

 – Signed multiple new contracts in the 

Group’s higher-growth regions

Medical unchanged.

 – Reassess the attraction of each of our 

end use markets and the position of our 
businesses within them

 – Continue to invest in R&D and 

targeted capital expenditure1 to drive 
organic growth

 – Use acquisitions and disposals to 

continue to shape the portfolio and 
enhance the position of our businesses 
in attractive markets

 – Seek further growth opportunities in 

China and India

1  Defined in Note 30 to the Financial Statements

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTDeliver world-class 
competitiveness

INNOVATE TO EXCEED 
CUSTOMER EXPECTATIONS

What we said we would 
do in FY2020
 – Drive further improvement in our Vitality 
Index through expanded capabilities, new 
revenue streams and product lines

 – Execute learnings from future scenario 

planning to deliver new products 
and services

 – Drive the culture of innovation deeper 

into the organisation 

 – Accelerate innovation and 

commercialisation via expansion of 
strategic partner network

How we did in FY2020
 – Vitality at 20%, a 700bps increase driven 
by new products in Smiths Detection 
(CTiX), Flex-Tek (Flashshield+TM) and 
Smiths Interconnect

 – The Forge focus for FY2021 includes 
physical cybersecurity; embedded 
technology for wireless sensor networks; 
and augmented analytics capabilities in 
the cloud

 – Seek sustained improvement in the Vitality 
Index through expanded capabilities, new 
revenue streams and product lines

ENGAGE OUR PEOPLE  
TO DRIVE THE BEST 
PERFORMANCE

What we said we would 
do in FY2020
 – Progress our People Plan and 

continue to execute our diversity and 
inclusion strategy 

 – Build on Leadership@Smiths with the 

ongoing global roll out of the Accelerate 
programme and additional modules of 
e-learning

 – In FY2020, the Forge has delivered 

 – Implement finance graduate programme 

technology and minimum viable products 
for condition-based-monitoring; signal, 
image and video analytics for security 
applications; and IoT capabilities for 
distributed sensors to monitor moisture, 
methane and other environmental factors 

 – The acquisition of PathSensors in Smiths 

Detection broadens its capabilities 
to detect pathogens for broad end 
market applications

FY2021 priorities
 – Develop new future scenarios for 

customer demand and refine product and 
technology roadmaps

 – Accelerate innovation and 

commercialisation via expansion of 
strategic partner network

 – Continue to drive and build the culture of 
innovation throughout the organisation

in the UK, US and Asia Pacific

How we did in FY2020
 – Implemented comprehensive 
employee safety, support and 
communications programme during the 
COVID-19 pandemic

 – Launched Learning@Smiths, our 

internal learning portal

 – Started global review of benefits

 – Broadened the lean six sigma programme 

to support functional excellence

 – Continued to build Accelerate leadership 
learning programme to a cohort of more 
than 620 colleagues

FY2021 priorities
 – Our fundamental priority remains the 
health, safety and wellbeing of our 
colleagues and their families 

 – Complete and implement findings from 

global benefits review

 – Cross-divisional review of leader talent 

pipeline for succession planning

 – Continue to develop SES Academy 
programme, targeting 1,000 belted 
colleagues by the end of FY2022

 – Continue to focus on colleague 

communication activities

EXECUTE CONSISTENTLY

What we said we would 
do in FY2020
 – Safety and zero-harm remain our 

top priority

 – Continue to focus on expanding Group-
wide capability and driving continuous 
improvement at all levels

 – Execute IT roadmaps

 – Accelerate business performance 
using further SES projects to drive 
best practice 

How we did in FY2020
 – FY2020 was a record year for safety with 
a recordable incident rate (RIR) of 0.30 
and a stable lost time incident rate (LTIR) 
of 0.14

 – Delivered £34m of procurement savings

 – Creation of supply chain nerve centres to 
manage the COVID-19 crisis to maximise 
business continuity and reduce the risk of 
supply chain disruption 

FY2021 priorities
 – Safety and zero-harm remain our 

top priority

 – Stress test our supply chains and 

manufacturing footprint to ensure long-
term resilience

 – Refine our operating model to optimise 
the delivery of global business services 
for maximum effectiveness

 – Accelerate business performance using 
the SES framework across three pillars: 
customer and commercial; supply chain; 
and production and aftermarket

 › Specific business projects/

problem solving

 – Established cross-divisional Respect, 

 › Company-wide improvement projects

Diversity and Inclusion Council

 – Rolled out our finance graduate 

programme globally and Graduate 
Development Week

1 7

SMITHS GROUP PLC  ANNUAL REPORT FY20202S T R O N G   F I N A N C I A L   F R A M E W O R K

Strong financial 
framework

It has been a challenging year and the pandemic continues to 
disrupt many of our end markets. But we have weathered those 
challenges well; Smiths is resilient by design and these results 
demonstrate that.

R E V E N U E

£2,498m

£15m

£61m

£(26)m

£2,548m

FY2019

FX

Acquisitions
& disposals*

Underlying

FY2020

O P E R A T I N G   P R O F I T

£427m

£2m

£9m

£(55)m

£(56)m

£327m

£(86)m

£241m

FY2019
Headline

FX

Acquisitions
& disposals*

Restructuring
and write-downs

Underlying

FY2020
Headline

Non-headline1

FY2020
Statutory

* 

Includes disposals and FY2020 performance from acquisitions that do 
not have comparators for the prior year

1  Defined in Note 30 to the Financial Statements

1 8

Continuing Operations –  
excluding Smiths Medical 

Revenue 

The Group delivered a robust 
overall performance for the year. 
Underlying revenue for continuing 
operations was down (1)%, comprising 
+3% in the first half and (4)% in the 
second half. In a period of unprecedented 
global disruption, the Group’s overall 
performance reflects its resilience founded 
on its market-leading positions and a high 
proportion of aftermarket revenues. 

Reported revenue increased +2% to 
£2,548m (FY2019: £2,498m). This included 
+£15m of favourable foreign exchange 
translation and +£61m from the acquisition 
of United Flexible.

Operating profit and margin

Underlying headline operating profit 
was down (13)% driven by lower volumes 
in the second half as well as additional 
costs to support business continuity and 
uninterrupted customer service during the 
pandemic. Central costs were flat year-on-
year at £(51)m. 

Reported headline operating 
profit decreased (23)% to £327m 
(FY2019: £427m). This included +£2m of 
favourable foreign exchange translation, 
+£9m contribution from the United Flexible 
acquisition, £(31)m of restructuring costs 
and £(24)m of write-downs relating to trade 
receivables and impairment of capitalised 
development projects.

Headline operating margin decreased  
(210)bps to 15.0% on an underlying 
basis and (430)bps on a reported basis 
including the impact of restructuring 
and write-downs. 

The £(86)m difference between headline 
and statutory operating profit is  
non-headline1 items as defined in note 3 
to the financial statements. The largest 
constituents relate to amortisation of 
acquisition related intangible assets and 
provision for asbestos litigation in John 
Crane, Inc. On a statutory basis, after 
taking into account all items excluded 
from headline performance, operating 
profit of £241m was £(85)m lower than last 
year (FY2019: £326m), reflecting the lower 
headline profit.

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTFinance costs 

Headline finance costs of £(49)m 
(FY2019: £(51)m) were £2m lower than 
last year. This reflects the impact of early 
repayment of higher coupon debt in the 
prior year, which more than offset the 
inclusion of lease interest of £(4)m following 
the adoption of IFRS 16. Statutory finance 
costs were £(108)m (FY2019: £(22)m) 
mainly due to a £(62)m foreign exchange 
loss on an intercompany loan with 
Smiths Medical; the matching credit in 
discontinued operations nets out to zero 
in total Group earnings.

Taxation 

The principles of the Group’s approach 
to taxation remain unchanged. 
The Group manages the cost of taxation 
in a responsible manner to protect its 
competitive position. The fundamental 
principle of our approach to managing 
our tax affairs is to engage with tax 
authorities around the world transparently, 
cooperatively and on the basis of legal 
compliance. Through this responsible 
management of our tax affairs we aim to 
enhance long-term shareholder value 
while contributing to public expenditure 
and the overall welfare of the communities 
in which we operate. 

The headline tax charge for the year of 
£(79)m (FY2019: £(103)m) represents 
an effective rate of 28% (FY2019: 27%). 
The Total Group headline effective tax rate 
was 26% (FY2019: 26%).

Non-headline taxation items of £13m 
(FY2019: £(59)m) related to tax on the 
non-headline loss. The statutory effective 
tax rate was 50% (FY2019: 53%) due to the 
non-headline items. Please refer to notes 
3 and 6 of the financial statements for 
further details. 

R&D and capex 

The income statement cost of R&D 
(excluding restructuring and write-downs) 
of £(89)m was broadly in line with last year 
(FY2019: £(93)m), excluding R&D write-
downs. The cash cost increased to  
£(119)m or 4.7% of sales (FY2019: £(111)m 
or 4.5%), as the Group continues to invest 
for future growth.

Our Vitality Index measures the 
effectiveness of organic investment, 
tracking revenue from new products 
launched in the last three years. 
Our Total Group Vitality Index was 20% 
(FY2019: 13%), driven by new products in 
Smiths Detection (CTiX) and in Flex-Tek 
(Flashshield+TM). 

Capex of £(67)m (FY2019: £(68)m) 
represented 1.2x depreciation and 
amortisation (FY2019: 1.3x), excluding the 
impact of additional depreciation following 
the adoption of IFRS 16. 

Portfolio 

The Group continues to invest in 
disciplined, complementary acquisitions. 

In October 2019, Smiths Interconnect 
completed the acquisition of Reflex 
Photonics (‘Reflex’) for an enterprise 

value of CAD$40m. Reflex’s technological 
leadership in ruggedised fibre optics 
significantly strengthens Smiths 
Interconnect’s product offering in defence, 
space, aerospace and industrial market 
segments. For more information, please 
see note 27 of the financial statements. 

In August 2020, Smiths Detection 
completed the acquisition of PathSensors 
Inc, which complements and accelerates 
its biological capability to detect pathogens 
for broad end market applications.

Strategic restructuring programme and write-downs
The Group announced on 30 June that it 
is undertaking a strategic restructuring 
programme which brings together 
a number of pre-COVID initiatives 
to ensure that it is better positioned 
for long-term growth and consistent 
outperformance. The programme will 
support the achievement of our goal to 
deliver operating margins of 18-20%. 

Flex-Tek recorded £(2)m of restructuring 
for its commercial aerospace business 
which has been accounted for in the non-
headline integration costs of the United 
Flexible acquisition.

The total cost of the programme is 
anticipated to be c.£(65)m spread 
across FY2020 and FY2021. Savings are 
expected to offset costs in FY2021; 
£(30)m of remaining costs will be 
spread evenly through the year, 
whilst the matching savings will be 
70% weighted to the second half. 
We expect to deliver full annualised 
benefits of approximately £70m from 
FY2022 onwards. 

It impacts all divisions and is now well 
underway, with costs of £(35)m and 
a cash outflow of £(12)m in FY2020. 
Of the £(35)m charged, £(30)m related 
to headcount reduction and £(5)m 
related to footprint optimisation. 

FY2020

Continuing 
operations

Smiths 
Medical

Total  
Group

FY2021

Total

Restructuring costs

Cash outflow
Annualised savings

(31)

(8)
–

(4)

(4)
–

(35)

(12)
–

(30)

30

(65)

(65)
(70)

The Group recorded £(24)m of 
write-downs, which are unrelated to 
restructuring. £(12)m relates to the 
cancellation of capitalised development 
projects in Smith Detection that are no 
longer deemed commercially viable. 

The balance of £(12)m of write-downs 
comprises trade receivables that 
were written off in John Crane, Smiths 
Detection and Smiths Interconnect.

Capitalised development projects
Receivables

Write-downs

FY2020

(12)
(12)

(24)

1 9

SMITHS GROUP PLC  ANNUAL REPORT FY20202S T R O N G   F I N A N C I A L   F R A M E W O R K   C O N T I N U E D

Total Group debt
Net debt at 31 July 2020 was 
£1,141m, a decrease of £(56)m in the 
period, despite the £148m impact of 
capitalised operating leases under 
IFRS16. EBITDA from continuing 
and discontinued operations was 
£610m. Net debt to EBITDA was 
1.7x after inclusion of leases (1.9x 
including restructuring costs and 
write-downs). 

Gross debt1 was £1,609m 
(FY2019: £1,512m), including 
the impact of leases. There are 
no covenants associated with 
this debt. The weighted average 
maturity was 4.2 years and there 
are no maturities before October 
2022. Cash balances were £386m 
(FY2019: £315m). 

An $800m (c.£610m at the period-
end exchange rate) revolving credit 
facility (‘RCF’) remains undrawn. 
$110m of the RCF extends until 
November 2023 and $690m until 
November 2024. The only covenant 
relates to interest cover which 
must be greater than or equal to 
3 times, compared with 11 times 
at the year end. Taking cash and 
the RCF together, total liquidity was 
approximately £1bn at the year end.

Strong cash conversion and a 
conservative balance sheet enable 
us to face the challenges of the 
present crisis with our eyes firmly 
fixed on creating sustainable, long-
term shareholder value. 

2 0

Discontinued Operations – 
Smiths Medical 
As disclosed on 31 March 2020, the Board 
decided to delay the previously announced 
separation of Smiths Medical due to the 
uncertain market conditions. The strategic 
intent and rationale remain unchanged.

Accounting standards require the 
Group to stop charging depreciation and 
amortisation within Smiths Medical, since 
it has been reclassified as discontinued 
operations. For comparability purposes, 
depreciation and amortisation of £(45)m 
have been included in the calculation of 
underlying measures.

Smiths Medical continued its return to 
growth with underlying revenue up +4%.  
This growth accelerated in the second half 
to +7%, including +5% from participation 
in Ventilator Challenge UK. During the 
year, Smiths Medical signed a c.$20m 
investment agreement from the U.S 
Government to expand syringe and needle 
device production to support COVID-19 
vaccine efforts. Reported revenue was 
up +5% with +£12m of favourable foreign 
exchange translation and a £(3)m revenue 
impact from prior year disposals. 

Headline operating profit of £184m was 
down (3)% on an underlying basis, with 
increased volumes offset by margin 
dilution from Ventilator Challenge UK, 
a one-off legal settlement and COVID-19 
costs (including expedited freight, labour 
incentives and protective equipment). 
Reported headline operating profit was 
up +25% thanks to the exclusion of  
£(45)m of depreciation and amortisation, 
and +£2m of favourable foreign exchange, 
partially offset by £(1)m from prior year 
disposals and £(4)m of restructuring costs. 
Restructuring costs include delayering and 
decentralisation to increase efficiency and 
effectiveness. Reported headline operating 
margin was up +330bps to 20.1%, mainly 
driven by the exclusion of depreciation and 
amortisation, but was down (120)bps on an 
underlying basis. 

The difference between statutory and 
headline operating profit comprised 
separation costs.

In May 2020, Smiths Medical acquired 
the business of Access Scientific LLC. 
The acquisition extends Smiths Medical’s 
vascular access portfolio and enhances its 
infection prevention capabilities.

Total Group 

Total profit and EPS 

Total headline profit after tax decreased by 
(12)% on a reported basis. Headline basic 
EPS was down (12)% on an underlying 
basis and reported basis. Total statutory 
profit after tax increased by +18% to £267m 
(FY2019: £227m), driven by lower non-
headline items. Statutory basic EPS was 
also up +18% to 66.9p (FY2019: 56.8p). 

Cash-flow

Strong cash generation is a key 
characteristic of our business. 
Headline operating cash-flow1 was £575m 
(FY2019: £474m). This strong performance 
was achieved despite the disruption 
associated with the COVID-19 pandemic. 
Operating headline cash conversion 
was 123% (FY2019: 83%), including a 
benefit from IFRS 16, restructuring 
and write-downs. 

Free cash-flow of £273m (FY2019: £234m) 
increased by £39m, underpinned by the 
strong operating cash-flow. Tax payments 
have increased to £113m in the year due 
to timing differences and the repatriation 
of foreign dividends. 

Statutory net cash inflow from operating 
activities was £429m (FY2019: £346m). 
See note 29 to the financial statements for 
a reconciliation of headline operating cash-
flow to statutory cash-flow. 

Dividend 

The Group maintains a progressive 
dividend policy, aiming to increase 
dividends in line with long-term underlying 
growth in earnings and cash-flow. 
The policy enables us to retain sufficient 
cash-flow to finance investment in the 
drivers of growth and meet our financial 
obligations. In setting the level of dividend 
payments, the Board considers prevailing 
economic conditions and future investment 
plans, along with the objective to maintain 
minimum dividend cover1 of around 
2 times.

In March the Board considered it prudent 
not to declare an interim dividend for 
HY2020 until such time as trading 
conditions became clearer and there was 
less uncertainty. Reflecting the Group’s 
strong performance and financial position, 
the Board is now recommending a total 
dividend of 35.0p per share for the year. 
This reflects a delayed interim dividend 
of 11.0p and a proposed final dividend 
of 24.0p.

1  Defined in Note 30 to the Financial Statements

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORT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 accounts. 

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 297,000 claims against JCI 
have been dismissed before trial over the 
last 40 years. JCI is currently a defendant 
in cases involving approximately 25,000 
claims. Despite these large numbers of 
claims, since the inception of asbestos 
litigation against JCI it has had final 
judgments against it in 149 cases, and 
has had to pay awards amounting to 
approximately $175m. 

At 31 July 2020, the aggregate provision 
for JCI asbestos litigation, including for 
adverse judgments and defence costs, 
amounted to £231m (FY2019: £237m) 
expressed at the then current exchange 
rate. In deciding upon the amount of the 
provision, JCI has relied on independent 
expert advice from a specialist. 

Titeflex Corporation litigation 

Titeflex Corporation, a subsidiary of 
the Group in the Flex-Tek division, has 
received a number of claims in recent 
years from insurance companies seeking 
recompense on a subrogated basis for 

the effects of damage 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. 

At 31 July 2020, a provision of £66m 
(FY2019: £74m) 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. 

Return on capital employed (ROCE)1

ROCE was 11.8% (FY2019: 14.4%). 
The decrease reflects lower profitability, 
including restructuring costs and write-
downs, recent investments (such as the 
acquisition of United Flexible, which are 
expected to generate superior returns 
over the longer-term) and the adoption 
of IFRS 16, partially offset by the absence 
of depreciation and amortisation in 
discontinued operations. For further detail 
of its calculation, please refer to note 30 to 
the financial statements.

IFRS 16 – Leases 

The Group has adopted IFRS 16 from 
1 August 2019 and elected to apply 
the modified retrospective transition 
approach, requiring no restatement of the 
comparative period. The main changes 
include recognition of right of use assets 
and lease liabilities with a value of £144m 
(of which £48m relates to discontinued 
operations), and a marginal increase in 
operating profit due to reclassification of 
the financing charges inherent in operating 
lease costs to finance costs. 

Foreign exchange

The results of overseas operations 
are translated into sterling at average 
exchange rates. The net assets are 
translated at period-end rates. The Group 
is exposed to foreign exchange movements, 
mainly the US Dollar and the Euro. 

Brexit

With over 95% of revenue originating 
outside the UK, the Group expects limited 
impact from Brexit but monitors the 
ongoing negotiations between the UK and 
the EU as part of its risk management 
process. Preparations have been made and 
mitigation measures have been put in place 
to meet potential scenarios.

John Shipsey 
CHIEF FINANCIAL OFFICER 

1  Defined in Note 30 to the Financial Statements

Pension 
The net accounting pension surplus 
increased to £372m (FY2019: £311m), 
principally driven by higher returns on 
assets and life expectancy decreases, 
partially offset by a lower discount rate. 
Taken together, the two UK schemes 
were fully funded on a technical 
provisions basis as at their last 
formal updates. 

Pension contributions for the year were 
£(33)m (FY2019: £(36)m). For FY2021, 
we expect total cash contributions of up 
to £(38)m across all schemes. 

The two main UK pension schemes 
are well positioned to withstand a 
volatile market environment. They are 
well hedged, so that a movement 
in liabilities is largely offset by the 
movement in assets. As at 31 July 
2020, approximately 35% of the 
liabilities had been de-risked through 
the purchase of annuities from third 
party insurers. Approximately 90% 
of assets are invested in third-party 
annuities, government bonds and 

investment grade credit. Only around 
2% of assets is invested in equities.

On 10 September 2020, the TIGPS 
Trustee secured a further bulk annuity, 
which has insured the benefits of a 
further 1,200 pensioners. Across the 
two UK schemes, approximately 65% 
of pensioner liability (37% of total 
liabilities) is now de-risked through 
bulk annuities.

2 1

SMITHS GROUP PLC  ANNUAL REPORT FY20202K E Y   P E R F O R M A N C E   I N D I C A T O R S

Key performance indicators

Performance against our key 
performance indicators (KPIs) reflects 
the Group’s strength and resilience in 
very challenging market conditions.

L I N K   T O   S T R A T E G I C 
O B J E C T I V E S

+  Read more about our 

strategy on pages 15-21

Operational and financial KPIs above the dotted 
lines are shown on a Continuing Operations basis. 
Operational and financial KPIs below the dotted 
lines are shown on a Total Group basis as they 
are the key measures of the Group’s cash and 
returns performance.

OP ER AT ION A L P ERFORM A NCE

Why we measure

Performance

Ambition

Strategic  
objective

Portfolio strength
as measured by % revenue from top three positions

We continuously review 
our portfolio of businesses 
to target top three 
leadership positions 
in attractive markets.

In FY2020, 90% of our business 
continued to be well positioned.

Aftermarket and services
as measured by Aftermarket % of sales

Aftermarket is a core 
characteristic of a Smiths 
business; part of our DNA. 

In FY2020, aftermarket revenues 
represented 49% of total revenue,  
stable year-on-year. 

Effective innovation
as measured by Vitality Index

Following a period of 
accelerated reinvestment 
into the business, we are 
focusing on measuring 
the effectiveness of 
our investment.

In FY2020, Vitality Index increased to 
20%. The year-on-year improvement 
was driven by revenues from Smiths 
Detection’s CTiX and Flex-Tek’s 
Flashield+TM.

Operational excellence
as measured by stock turns1

Stock turns measure speed 
and efficiency in the business. 

In FY2020, stock turns reduced to 3.0x 
due to the operational disruptions 
associated with the COVID-19 pandemic.

1  Defined in Note 30 to the Financial Statements

Employee engagement
as measured by employee engagement score

In FY2020, 87% of colleagues 
responded and we retained our healthy 
engagement score of 73.

In FY2020, RIR reached a record low at 
0.30 emphasising our continued work on 
health and safety.

One focus of our People 
Plan is colleague 
engagement, which we 
measure twice annually in a 
confidential survey. 

Safety
as measured by RIR

Health and safety remains our 
top priority. Our key metric is 
recordable incident rate (RIR) 
per 100 colleagues.

2 2

FY2020

FY2019

FY2018

FY2020

FY2019

FY2018

FY2020

FY2019

FY2018

FY2020

FY2019

FY2018

FY2020

FY2019

FY2018

FY2020

FY2019

FY2018

90%

>90%

~80%

R E V E N U E F R O M T O P 
T H R E E P O S I T I O N S 
I N AT T R A C T I V E 
M A R K E T S

90%+

49%

49%

48%

A F T E R M A R K E T 
R E V E N U E

50%+

as a percentage 
of total revenue

20%

13%

13%

R E V E N U E   F R O M 
P R O D U C T S 
L A U N C H E D   I N  T H E 
L A S T   T H R E E   Y E A R S

~20%

as a percentage of 
total revenue

3.0x

3.4x

3.7x

S T O C K   T U R N S 

6.0x

73

73

73

C R E A T E   A 
N U R T U R I N G 
A N D   I N C L U S I V E 
W O R K I N G 
E N V I R O N M E N T

C R E A T E   T H E 
S A F E S T   W O R K I N G 
E N V I R O N M E N T

0.30

0.41

0.39

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTF IN A NCI A L P ERFORM A NCE

Why we measure

Performance

Growth
as measured by underlying1 revenue growth

Growth is a top priority for 
the Group and a key part of 
management incentives.

The Group delivered a 
resilient performance in very 
challenging conditions.

Performance
as measured by headline operating margin

Growth needs to be delivered 
with a strong margin. 

In FY2020, headline underlying 
operating margin was 15.0%, down 
(210)bps, driven by volume and costs of 
business continuity.

Returns
as measured by ROCE

Measuring ROCE ensures we 
are focused on the efficient 
use of assets and capital, 
but can be distorted by 
M&A activity.

In FY2020, ROCE of 11.8% was impacted 
by lower profitability including the 
impact of restructuring and write-
downs, recent acquisitions such as 
United Flexible and the impact of 
IFRS16 partially offset by impact of 
no depreciation and amortisation in 
Smiths Medical. 

Asset light
as measured by working capital % sales2

Working capital measures 
speed and efficiency in the 
business from manufacturing 
to debt collection. 
Working capital translates 
into cash. 

In FY2020, working capital represented 
28% of revenue, a 200bps increase year-
on-year due to operational disruptions 
associated with the COVID-19 pandemic 
notably in inventory which was partially 
offset by strong receivables collection.

Strong cash generation
as measured by headline operating cash conversion

Our focus on cash 
demonstrates our focus on 
efficiency as well as enabling 
us to fund future growth.

In FY2020, headline operating cash 
conversion was very strong at 
123%, including tailwinds from the 
impact of IFRS16 and the strategic 
restructuring programme.

1  See underlying definition on page 02

FY2020

FY2019

FY2018

FY2020

FY2019

FY2018

FY2020

FY2019

FY2018

FY2020

FY2019

FY2018

FY2020

FY2019

FY2018

Strategic  
objective

Ambition

O U T P E R F O R M   O U R 
C H O S E N   M A R K E T S

H E A D L I N E 
O P E R A T I N G 
P R O F I T  M A R G I N 1 

18-20%

(1)%

3%

3%

15.0%

17.1%

16.7%

11.8%

14.4%

14.6%

R O C E   T H R O U G H 
T H E  C Y C L E 

16-18%

28%

26%

26%

W O R K I N G   C A P I T A L 
A S  A  P E R C E N T A G E 
O F T O T A L   R E V E N U E 

~20%

123%

83%

99%

H E A D L I N E 
O P E R A T I N G   C A S H 
C O N V E R S I O N 

100%+

2  Calculated as the 12-month rolling average of inventory, trade receivables contract assets, trade payables and contract liabilities as a percentage of total annual sales. Working capital 

is defined in Note 30 to the Financial Statements

L I N K   T O   R E M U N E R A T I O N
Our KPIs are aligned with our strategic 
objectives. Progress against them 
is monitored by our management 
processes and they drive our executive 
Remuneration Policy.

See page 110 where we show the impact 
of the headline operating cash conversion, 
organic revenue growth and ROCE KPIs 
from total operations on the FY2020 annual 
bonus and the LTIP for the three years ending 
31 July 2020.

2 3

SMITHS GROUP PLC  ANNUAL REPORT FY20202R E S O U R C E S   A N D   R E L A T I O N S H I P S

Understanding and nurturing our 
resources and relationships

We believe in doing business responsibly, 
to the benefit of society at large and 
our stakeholders.

Nurturing the resources on which we depend and building 
strong and positive relationships is in line with our purpose and 
values. This underpins business performance and the long-term 
sustainability and resilience of Smiths.

It’s the Smiths Way and it connects, guides and inspires 
everyone at Smiths.

Our critical resources and relationships

s   a n d   
r
t o
n m e n t s
r

e

u l a
g
g o v e

R

Our people

nities 

u
m
m
o
c
r
u
O

O

u

r

s

u

p

p

l
y c

h

ain 

O

u

r

c

u

s

t

o

m
e
r
s

Technology
a nd innovation

Production
and environme n t

Figures in this section are for Total Group unless otherwise stated

2 4

External alignment 
and recognition on 
sustainability matters
We understand the importance of reporting 
on sustainability matters in a transparent 
way and meeting external guidance when 
doing so. We are generally aligned with the 
Global Reporting Initiative (GRI) reporting 
principles for environmental matters and 
with the Task Force on Climate-related 
Financial Disclosures (TCFD), for which a 
recent formal assessment by an external 
party has indicated that we meet all 
11 recommendations. We also continue 
to receive favourable external ratings for 
our Environment, Social and Governance 
(ESG) performance.

External recognition

June  
2020

August 
2020

Score

Constituent

Governance 1 
Environment 2 
Social 2
(Scale 1-9; 1 = leader)

2018
data

B 
Management – taking 
co-ordinated action

November 
2019

AA 
Leader in  
the sector

September 
2019

34 points
67th percentile

Governance and collaboration
The majority of our resource and 
relationship strands are managed through 
strategic oversight and collaboration 
models that bring together the skills and 
knowledge of our central teams and our 
divisional experts to champion critical 
issues and drive innovation, quality 
and best practice right across Smiths. 
Some areas are further supported by 
senior groups such as the Executive 
Environmental Roundtable which was 
set up to advise the Board and Executive 
Committee on environmental matters.

The Smiths Excellence 
System (SES)
Our efforts in this area are underpinned 
by SES which is building capabilities 
and driving excellence and continuous 
improvement across each of our SES 
pillars: Customer, People, Technology, 
Programme, Production and Supply. 
Excellence is in our DNA and is a 
fundamental part of how we do business 
at Smiths.

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORT 
 
 
 
 
 
Sustainability focus areas and the United Nations 
(UN) Sustainable Development Goals (SDGs)
We believe that business has a vital role to play in delivering the 
UN SDGs. For some years our environmental targets have been 
proactively aligned with goals 6, 12, 13 and 14 covering responsible 
production and consumption, greenhouse gas (GHG) emissions 
and water conservation. 

The further aspects of sustainability that are most relevant and/or 
material to us and to our stakeholders are described here and we 
are pleased to report progress on each during FY2020.

The symbols shown in the square boxes are the UN’s adopted 
icons for its 17 SDGs.

Our people
Focus areas

 – Safety and security
 – Employee wellbeing 
and engagement

 – Learning organisation
 – Diversity and inclusion

UN SDGs

Key highlights in FY2020

 – Record low safety incidents
 – Comprehensive colleague 
support through COVID-19
 – Launch of Learning@Smiths
 – Respect, Diversity and 

Inclusion Council

+  Read more about our people 
and how we support them on 
pages 27-33

Our customers
Focus areas

 – Voice of the customer
 – Quality and service

Key highlights in FY2020

 – Continuity of production 

and service to customers 
through COVID-19

 – On time in full measure – 

86%

Technology and innovation
Focus areas

Key highlights in FY2020

 – Culture, capabilities 
and collaboration

 – Enterprise IT

UN SDGs

UN SDGs

+  Read more about our customers 
and how we work with them on 
pages 34-36

Production and environment
Focus areas

Key highlights in FY2020

Our supply chain
Focus areas

 – Quality and efficiency
 – Environmental governance
 – Environmental performance

 – Smiths lean toolbox and 

upgrade to SESAME CI tool
 – Progress towards FY2021 

 – Total value
 – Relationships and resilience

environmental goals

 – Climate risk assessments

UN SDGs

UN SDGs

+  Read more about how we approach 

production and environmental 
governance and performance 
on pages 40-45

 – Vitality Index 20%
 – University partnerships on 
future-focused technology
 – Enterprise IT response to 
business needs through 
COVID-19

+  Read more about our technology 

capabilities and innovation culture 
on pages 37-39

Key highlights in FY2020

 – Real-time management 
of supply chain through 
COVID-19

 – Record level of 

procurement savings

+  Read more about our suppliers 
and how we work with them on 
pages 46-47

Our communities
Focus areas

Key highlights in FY2020

Regulators and governments
Focus areas

Key highlights in FY2020

 – Impact on communities

 – Community donations during 

UN SDGs

the COVID-19 pandemic

 – Internal and external 

promotion of International 
Women in Engineering Day

 – Participation in UK 
Ventilator Challenge

+  Read more about our communities 

and how we support them on 
pages 48-50

 – Ethical behaviour, 
governance and  
compliance

UN SDGs

 – Continuing development and 
implementation of ethics and 
compliance policies 
 – Ongoing relationship 
building to support 
business objectives

+  Read more about how we meet the 
requirements of regulators and 
governments on page 51

2 5

SMITHS GROUP PLC  ANNUAL REPORT FY20202Engagement and training
Engaging and communicating on 
ethical matters is vitally important, 
as is trust in our procedures. 
Colleagues are encouraged to report 
behaviour inconsistent with our Code of 
Business Ethics, or our values, through 
their line manager, HR or the Legal team, 
or through our confidential ‘Speak Out’ 
reporting line. This is emphasised in 
regular communications.

Our Ethics Ambassadors network 
comprises grassroots colleagues from 
across Smiths. We look to our Ethics 
Ambassadors to come up with ideas and 
communications, for example how to 
promote ethics on our annual Smiths Day, 
to bring ethics to life and help us reach the 
widest possible audience. We are looking 
forward to the role of the Ambassadors 
evolving over time.

Our ethics training operates in two tiers 
– online modules developed with our 
Business Information Services team that 
are available to colleagues, and face-
to-face training activities (now, due to 
COVID-19, likely to be delivered online) 
covering specific subjects. Our online 
ethics training modules are available in all 
of our core languages and approximately 
37,000 courses were taken by colleagues 
during FY2020.

Additionally, we run ethics workshops 
which are an opportunity for leaders 
from across Smiths to discuss ethics 
and compliance challenges specific to 
their markets and geographies and how 
to navigate them. During FY2020 we ran 
workshops in the Middle East, South Africa, 
Brazil, Mexico and France.

We achieved a strong score of 72 for 
ethics/integrity in our most recent My Say 
engagement survey and the values related 
questions in the survey have been rising 
over time.

R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Ethics and our values

Our values guide how we behave. 

Our values influence every decision and help to make Smiths a place 
where people want to work, an organisation that is valued, and one 
that people want to do business with. Our values are embedded 
across the Group and are promoted at every opportunity. 

Behaving ethically and with integrity is a fundamental part of our 
values. It is the right thing to do and it enhances our reputation with 
our stakeholders. Our people, suppliers and other partners are 
required to understand and uphold our high ethical standards.

Ethics governance
Our Code of Business Ethics provides 
guidance for colleagues to recognise and 
deal appropriately with legal and ethical 
issues they encounter in the course of 
their work. This is supplemented by a 
suite of policies and procedures relating 
to specific ethics and compliance issues, 
and associated training, some of which 
is mandatory for all colleagues. 

Our central ethics and compliance function 
oversees our ethics and compliance 
programmes, determines a common 
language for ethics across Smiths and 
focuses work on new and/or higher 
risk areas. Internal Audit verifies that 
procedures and responsibilities are 
understood and functioning correctly. 
Other compliance matters and day-to-day 
responsibility for ethics and compliance are 
held by our divisional operational and Legal 
teams. The Smiths Board and Executive 
Committee are engaged through our risk 
management processes and encourage 
direct and open discussion should a 
matter require attention.

The Smiths Business Ethics Council (BEC) 
has been in place for more than ten years. 
It comprises senior, cross-functional 
leaders from across Smiths and acts as 
an advisory panel for new policies and 
how best to implement them. The BEC 
sets annual objectives to aid continuous 
improvement. For example, in FY2020 
the BEC proposed improvements to the 
process for identifying and reporting 
potential conflicts of interest, which have 
been rolled out across Smiths. 

The central ethics team also works closely 
with our HR functions on investigations 
into such matters as labour standards 
and allegations of employee harassment 
and discrimination.

+  Read more about human rights and tackling 

modern slavery on page 50

+  Read more about other compliance matters 

on page 51

2 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTKeeping our colleagues as safe and well 
as we practically can has been a key 
concern during the COVID-19 pandemic. 
This work has been led by our Smiths 
Group Crisis Core team and our Global 
Head of HSE co-ordinating directly the 
efforts of our local HSE teams and through 
dedicated workstreams helping to steer 
the response of our entire business. 
A number of employees have become ill 
during the pandemic and it is a matter 
of great sadness for the whole of the 
Smiths team that a very small number of 
colleagues have died. Support was given to 
the families of these colleagues and to their 
grieving colleagues.

SMITHS SAFETY CARDINAL 
BEHAVIOURS
 – Stay fit and focused at work
 – Identify and manage safety hazards
 – Always use machinery safely
 – Stop work if it isn’t safe
 – Take care when using electrical equipment
 – Follow safety protocol in vehicles
 – Take care when working at heights
 – Always wear protective gear
 – Report all safety incidents and near misses
 – Minimise our environmental impact

Our people

Our people are vital to the success of Smiths.

Our global family of diverse and talented colleagues creates, 
delivers and supports our products with passion and an innovative 
and collaborative spirit, underpinned by our relentless focus on 
continuous improvement and excellence. 

We aim to attract, retain, develop, engage and inspire the very best by 
delivering a people experience based on respect, personal growth, 
empowerment and a sense of belonging and purpose. Engaging our 
people in this way is the right thing to do and the most effective way 
of delivering our business objectives.

The health, safety and security of our 
people and our operations have always 
been our number one priority and have 
been a key focus during the COVID-19 
pandemic. We have a strong and robust 
safety culture and strive for a zero-harm 
workplace, with safety considerations fully 
integrated into all of our activities.

Health, safety, security 
Keeping our people safe at work is in the 
Smiths DNA and is something we are 
passionate about. 

Governance and strategy on safety 
matters flow from the Smiths Board and 
Executive Committee to every Smiths site 
via our collaborative HSE (Health, Safety, 
Environment) Technical Committee which 
includes representatives from across 
Smiths. Safety and compliance with 
our policies are then supported locally 
by our divisional HSE specialists with 
responsibility held by our site and divisional 
leaders. Our safety policies also extend to 
our suppliers and business partners.

Smiths colleagues, at all levels, also have 
personal responsibility to take due care of 
their own safety and to follow our safety 
rules. They also have a responsibility 
to warn others of potential hazards 
and unsafe behaviours. Fulfilling these 
obligations is a condition of employment.

Smiths has an extensive set of Health 
and Safety policies and procedures that 
all operations are required to follow. 
Performance against these policies is 
overseen by an audit process that also 
covers all Smiths production facilities 
including ISO 18001 management systems. 
Smiths did not receive any significant1 
safety or health fines or penalties in FY2020 
from any regulatory agencies.

We are extremely pleased to report 
that Smiths has not recorded a serious 
safety incident, including work-related 
employee fatalities, or a serious physical 
security event during FY2020 and that this 
year Smiths has recorded its best ever 
safety performance. 

1  Over £10,000

2 7

SMITHS GROUP PLC  ANNUAL REPORT FY20202R E C O R D A B L E   I N C I D E N T   R A T E
per 100 colleagues

 0.30

FY2020 

FY2019  

FY2018 

FY2017 

FY2016 

L O S T   T I M E   I N C I D E N T   R A T E
per 100 colleagues

 0.14

FY2020 

FY2019* 

FY2018* 

FY2017 

FY2016 

0.30

0.41

0.39

0.38

0.47

0.14

0.19

0.18

0.19

0.16

*  FY2018 and FY2019 data restated due to reclassification 

of incidents

R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Our people 
continued

Safety programmes

Advancing safety and security is an ongoing 
investment for Smiths as we implement 
new programmes and training activities 
to continuously improve performance and 
reduce risk. Our HSE teams also work 
regularly with HR colleagues to support 
health and wellbeing initiatives.

During FY2020 we relaunched our 
safety lookout peer to peer observation 
programme with full roll out being delayed 
by the COVID-19 pandemic. We also 
launched a global hand safety campaign 
focusing on five checks to keep your 
hands safe. Our new Alert driver safety 
awareness training for drivers of company 
vehicles is underway in all divisions 
apart from Smiths Medical. Over 2,500 
Smiths colleagues are registered for 
the programme. 

5

CHECKS  
To 
KEEp 
yoUR 
HANDS 
SAfE

1

USE 
BLADES  
wITH 
CAUTIoN

wEAR THE  
CoRRECT ppE

3

2

BE AwARE  
of CoNvEyoRS

USE MACHINE 
GUARDS

4

5

USE 
powER 
TooLS 
wITH CARE

safety is in 

hands

Safety measurement 
and performance

We monitor our recordable incident rate 
(RIR) – where incidents require medical 
attention beyond first aid – and lost time 
incident rate (LTIR) – where a colleague is 
unable to work following an incident – per 
100 colleagues, per year across Smiths. 
In FY2020 we achieved an RIR of 0.30 and 
an LTIR of 0.14. According to company 
policy, Smiths reports all injuries globally 
in accordance with US OSHA guidance.

Each of our divisions is also required to set 
completion targets for the Safety Leading 
Indicator (SLI) proactive and preventative 
safety measures most relevant to their 
operations, with an expectation of achieving 
95% of target annually. SLIs include 
activities such as safety inspections, 
training and the safety look out peer to peer 
observation programme.

Security

With locations all over the world, and 
colleagues regularly travelling and/
or working remotely, the security of our 
sites and teams is an important issue. 
We have physical security plans in place 
at all locations and risk assessments are 
undertaken regularly, as are reviews of our 
business continuity plans. 

We closely monitor colleague trips to 
high and extreme risk locations, with 
all travel pre-approved per policy, albeit 
travel has been significantly curtailed 
during the COVID-19 pandemic. The ISOS 
(International SOS) app, introduced this year, 
allows colleague locations to be tracked 
when travelling or working remotely, with 
‘take cover’ and ‘check in’ alerts issued 
in the event of local danger, for example 
storms, earthquakes, political issues and 
violence. Colleagues can also use the app to 
reach Smiths in an emergency.

PROMOTING COLLEAGUE WELLBEING WITH THRIVE

This year we launched our new global 
wellness initiative THRIVE. Developed 
originally by Smiths Detection and 
Smiths Interconnect, the programme has 
now been rolled out across the whole 
of Smiths to help educate colleagues on 
how to practice self-care both at home 
and at work.

We have focused on seven pillars 
of wellness:

 – Physical: Taking care of your body and 

mind through physical activity, a healthy 
diet and sleep

 – Social: Having a supportive and 

interactive social network breeds success 
at home and at work

 – Environmental: Respecting your 
surroundings and taking care of 
our planet

 – Emotional: Looking after yourself to help 

you live your best life

 – Financial: Having the tools to manage 
your money now and for the future
 – Occupational: Enriching your job 

experience for personal fulfilment 
 – Intellectual: Exploring new ideas 

and challenging yourself 

We provide hints and tips, interesting  
facts and links to helpful information, 
as well as fun activities planned by 
our site Ambassadors.

Our mission is to do what we can to 
help empower our colleagues to look 
after themselves, give them access to 
information they may not have known about, 
and create an environment where people 
feel safe to talk about the things that are 
important to them. 

By taking care of our wellbeing, we can 
THRIVE both inside and outside of work.

2 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTTHE POSITIVE NATURE OF THE  
SMITHS PEOPLE APPROACH HAS  
BEEN EXEMPLIFIED IN OUR RESPONSE  
TO THE COVID-19 PANDEMIC.

Practical examples of the measures put in 
place include:

 – An absolute focus on providing the safest 
possible working environments for those 
needing to be on our premises and those 
visiting customers and partners including:

 > Group-wide HSE committee ensuring 

compliance with local requirements and 
sharing best practices across the Group

 > 24-hour monitored safety at 

Smiths email

 – Enabling and supporting those able 

to work from home to do so

 – Producing face coverings in-house and 
distributing employee PPE proactively

 – Pursuing a consistent approach, in 

relation to COVID-19, for health benefits, 
life insurance, sick pay and absence; 
aligning our divisions and regions as much 
as possible

 – Partnering with ISOS (International SOS) 
medical staff on safety guidance and 
promoting use of the ISOS app for local 
safety information

 – Implementing a new colleague emergency 

contact details tool

 – The creation of bespoke COVID-19 

resource sites on our intranet and our 
Smiths Now colleague app for universal 
access to COVID-19 related guidance and 
support materials, including a regularly 
updated FAQ, translated into all our 
core languages 

 – Extending our Smiths Now app for desktop 
use for easy access to news and information

 – Regular and two-way 

communication including:
 > Weekly all-colleague update containing 

the latest guidance and information from 
the Crisis Core team. This received an 
89% approval rating from colleagues

 > Board, Chief Executive and 

Executive Committee email and 
video communications

 > #thankyoufrontline social campaign 

on Smiths Now

 – Resilience webinars and hints and tips 

for leaders

 – Wellness materials delivered through the 
new cross-Group THRIVE programme

Through our actions and our words, we 
believe that we have truly demonstrated 
that we are one Smiths family and 
that every member of our global team 
is valued.

Supporting our people and our leaders 
through this extraordinary period has 
been a key responsibility of the Smiths 
leadership team. We pay tribute to the 
amazing dedication, commitment and 
contribution our colleagues have made to 
keeping themselves and others safe and 
well while helping us continue to operate 
and serve our customers.

The response to COVID-19 has been led 
by a dedicated Crisis Core team, leading a 
number of sub-groups made up of functional 
and divisional experts (sites also have local 
response teams). Our main aim throughout 
has been to keep our colleagues as safe and 
well as possible. 

Much effort has gone into understanding 
and respecting individual personal 
circumstances and balancing these with the 
needs of the business. This has been coupled 
with the provision of practical support on 
the ground to ensure colleague wellbeing 
and safety. 

A regular cadence of internal 
communications using a variety of mediums 
has ensured our colleagues have remained 
well informed and in regular dialogue with 
our leadership teams, further reinforcing 
a sense of belonging to Smiths, integral to 
our culture. 

A values-led approach was adopted from 
the beginning of the crisis ensuring trust, 
integrity and serving the needs of our 
customers were at the core of the approach. 

The response from our workforce has been 
outstanding and it is thanks to them that 
the business remains strong and able to 
continue to serve the needs of our customers 
with passion and excellence. 

2 9

SMITHS GROUP PLC  ANNUAL REPORT FY20202R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Our people 
continued

People leadership and planning
Our divisional people leaders work 
collaboratively with our people Centre of 
Excellence teams to create and deliver 
HR programmes that support our People 
Plan and meet common business needs. 
Many programmes – for example the SES 
Academy – are rolled out globally, while 
other needs are met locally with assistance 
from our central specialists.

Engagement and communication
Strong engagement and a clear 
understanding of what it means to be 
Smiths is a powerful combination and 
drives pride, energy and ownership of our 
purpose and strategy.

Our annual Smiths Excellence Awards 
recognise achievement across our six SES 
pillars; outstanding contributions to HSE, 
to our communities, and to innovation; 
and include our highest honour, the 
Smiths Cup. Making the 2020 Awards was 
postponed due to the COVID-19 pandemic 
but a new record total of 604 entries was 
reached this year. 

Our annual Smiths Day global celebration 
of Smiths culture also did not take 
place due to the pandemic, along with 
planned meetings with our Smiths 
European Forum, a collection of employee 
representatives we meet with twice yearly 
in normal circumstances.

My Say Survey

Using our My Say survey we have 
been tracking engagement since 2017. 
Results from the biannual survey 
drive central programme planning 
and are provided to managers who 
are empowered to create action plans 
for local improvements. For example, 
John Crane Korea organised company 
team building workshops and provided 
colleague suggestion boxes to promote 
ongoing feedback.

Our latest survey conducted in October 
2019 (the May 2020 survey did not take 
place due to the COVID-19 pandemic) 
delivered a high response rate, with 87% of 
colleagues taking part and around 36,000 
comments submitted. 

Our overall engagement measure was 
stable at 73 (May 2019: 73), one point away 
from the benchmark of 74 for businesses 
of our type and scale, as indicated by Glint, 
the external third party which manages 
the survey process for us. Other measures 
where we continue to score highly are 
safety, customer focus, authenticity, 
respect and integrity.

We intend to undertake our next survey 
before the end of the 2020 calendar year.

Communication

Our global communications activities 
support our strategy and engagement 
plans and aim to promote open,  
two-way communication between 
our colleagues and our leadership teams. 
Key communication materials, including 
those during the COVID-19 pandemic 
period, and many of our Group-wide 
training materials, are translated into our 
11 core languages.

O C T O B E R   2 0 1 9   S U R V E Y

36,000

colleague comments (2020 survey 
cancelled due to the COVID-19 pandemic)  

E N G A G E M E N T   M E A S U R E

73

May 2019: 73

Our Smiths Signal fortnightly newsletter 
shares company news and the Smiths 
Now app and web portal is an innovative 
platform for colleagues to read news from 
the business and share their own stories 
and photos via the Smiths Social Wall. 
We use Smiths Now and the Social Wall to 
engage our teams in internal campaigns, 
for example around International 
Women’s Day and International Women in 
Engineering Day.

To bring our key messages even closer to 
the front line we are currently working up a 
pilot for the use of digital signage for offices 
and production sites.

+  Read more about International Women in 

Engineering Day on page 49

CONTINUOUS IMPROVEMENT IN SMITHS FUNCTIONS

Tereza Njingo’s SES Academy green 
belt project in our EMEA region 
demonstrates how continuous 
improvement techniques are being used 
to support our functions. 

Our Group HR People Operations function 
provides vital support to our business 
process infrastructure, by empowering 
our people managers worldwide with 
the process and diligence necessary for 
leading their teams every day.

To optimise our processes across 
EMEA  we chartered a project to develop 
a new HR policy handbook for the 
region which consolidated all local HR 
policies into a single, readily accessible 
reference document. 

The new policy handbook enabled our 
EMEA HR teams to work more efficiently 
and garnered recognition across Smiths.

3 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORT 
Learning and development

We are building a learning organisation 
by making learning and development 
opportunities available to everyone 
at Smiths so that all colleagues are 
empowered to build their skills and take 
ownership of their future. Through this we 
are sustaining and growing the capabilities 
of the Group – and driving excellence 
across our operational disciplines and 
our functions.

Our new Learning@Smiths portal was 
launched during the year. It holds all of our 
online training modules, including both 
SES Academy and Leadership@Smiths 
materials, and provides a consistent look 
and feel to the Smiths learning journey. 

The portal has supported us as we adopt a 
change in our learning philosophy to deliver 
a broader range of shorter and bitesize 
learning activities that grow capability 
through practical application rather than 
large training events.

We have concentrated much of this year’s 
formal development activities on our 
middle managers, including continuing to 
build our Accelerate leadership capability 
learning programme which has now 
engaged more than 620 participants 
since launch. Further extension has been 
delayed by the COVID-19 pandemic, but 
we have successfully continued to work 
with the existing cohort online. We also 
launched an Inclusive Leadership online 
module to complement our existing suite 
of e-learning modules and a People 
Leader Pulse monthly newsletter with 
development hints for leaders. 

We plan to grow the Accelerate 
programme in FY2021 as well as launch 
a new orientation module for new and 
joining leaders. 

Our people have visibility of career 
opportunities across Smiths through our 
Careers@Smiths portal and an ongoing 
project to calibrate and enhance job 
architecture for functional and technical 
roles across the Group will further support 
career path planning and learning needs.

During FY2020 we continued to roll out 
our finance and engineering graduate 
programmes, hiring into Asia Pacific, 
Europe and the US. Supporting our global 
graduate hires, we ran our Graduate 
Development Week in May, delivering this 
virtually due to the COVID-19 pandemic.

SES Academy

The SES Academy and our lean six sigma 
belted programme were born from the 
vision of our Chairman and Chief Executive 
to drive excellence at Smiths by actively 
building the capabilities of the organisation 
through our people. Academy materials 
are widely available to colleagues and 
range from bitesize modules to focused 
and practical courses supporting skills 
development priorities in our SES pillars 
and areas such as project management 
and change management.

Our lean awareness e-learning module, 
created in-house and available in multiple 
languages, has been promoted widely 
at Smiths and forms part of our new 
joiner training. The module has now been 
completed by more than 19,400 colleagues.

SES ACADEMY LEAN SIX SIGMA BELTED PROGRAMME

Yellow belt: One-day interactive lecture 
style presentation covering lean six sigma 
fundamentals. Colleagues are encouraged 
to self-nominate for the course which is 
then approved by the SES pillar lead.

Green belt: One-week course to become 
a lean six sigma practitioner/change 
agent. Structured around a hands-on 
improvement project with participants 
working collaboratively to fix a business 
process. Colleagues are nominated for the 
course by a senior manager.

Black belt: Two-week course split around 
the implementation of a three-month 
project. Designed to create change leaders 
who can inspire, coach and mentor as 
well as being custodians of excellence. 
Learning integrates four key disciplines – 
lean thinking, design thinking, agile thinking 
and systems thinking. Nominations made 
by divisional presidents based on business 
needs, with project quality reviewed at 
the centre.

Lean six sigma is a highly regarded and 
proven approach to process improvement 
in operations and core business functions. 
Working with the University of Oxford, 
we have created a tailored lean six 
sigma belted programme which offers 
recognition and is delivering accelerated 
and tangible change in our business. 
The unique programme combines the best 
of traditional lean six sigma skills with 
additional content, for example machine 
learning, that will drive specific value 
for Smiths.

The courses also enable colleagues with 
shared specialisms to meet, collaborate 
and make everlasting connections.

During FY2020 lean six sigma has been 
extended to drive functional process 
excellence. We held our first ever green 
belt training for Group functions in 
February 2020, with 20 colleagues from 
HR, communications, insurance and 
company secretariat taking part.

We currently have more than 500 
colleagues with yellow, green or black 
belt qualifications and are targeting 1,000 
qualifications by the end of FY2022. We are 
also reviewing how we might deliver some 
of the programme virtually.

For the wider Academy we have identified 
opportunities to develop courses/
qualifications in project management 
and design thinking.

As at the end of July, we had a total of 
317 continuous improvement projects 
on record, of which 174 projects are 
currently active and 143 projects have 
been delivered. 

A financial validation process to quantify 
the total savings from the projects was 
launched during the year. The benefit of 
delivered and ongoing projects is estimated 
to be in the region of £7.5 million to 
£10 million per annum.

+  Read more about design thinking  

on page 38

3 1

SMITHS GROUP PLC  ANNUAL REPORT FY20202 
R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Our people 
continued

Reward and recognition
Recognising and rewarding colleagues 
in a fair, open and meaningful way drives 
engagement and helps us to attract and 
retain the talent we need. Our reward 
structure must also work effectively 
to deliver Group strategy.

We are currently conducting a major 
global benefits review. This has involved 
reviewing the benefits we have available, 
understanding the areas that are 
working effectively, maximising cost 
efficiency, and benchmarking in sectors 
and markets. Our aim is to offer a core 
set of benefits, including Employee 
Assistance Programmes, consistently 
across divisions and territories. 

Our long-term objective will be to build in 
greater flexibility so that colleagues have 
the opportunity to choose what works best 
for them.

In the UK we operate an all-employee 
Sharesave Scheme and the annual 
invitation to eligible employees to 
participate encourages colleague 
involvement in our performance.

We have been an accredited living wage 
employer in the UK since 2018.

We will undertake a full Remuneration 
Policy review in FY2021, with the Directors’ 
Remuneration Policy being submitted for 
shareholder approval at the 2021 AGM.

Restructuring programme
In June we announced a strategic 
restructuring programme. Information on 
the programme can be found in the Chief 
Executive Q&A on pages 11-13 and in the 
Strong financial framework section on 
pages 18-21

Diversity and inclusion
Diversity of thought and perspective, 
coming from a team with a wide variety 
of backgrounds, is an important driver 
of our success. Embracing difference 
supports our understanding of our 
stakeholders, our markets and our 
territories, accelerates new thinking and 
ideas, and promotes a sense of belonging 
in our colleagues. It is also in line with 
our values to promote diversity matters, 
work to eliminate bias and support 
equal opportunities.

We have made a great deal of progress, 
but it is recognised that we can do more.

It is our policy to provide equal employment 
opportunities. We recruit, support and 
promote our people on the basis of 
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 and harassment.

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 on the basis of their aptitude and 
ability. We endeavour to find roles for those 
who are unable to continue in their existing 
job because of disability. 

During FY2020 our Respect, Diversity 
and Inclusion Council was established to 
provide strategic direction and tactical 
plans on diversity and inclusion matters, 
meeting four times a year. The Council 
is chaired by Karen Bomba, President, 
Smiths Interconnect and the Executive 
Sponsor for Diversity and Inclusion at 
Smiths. It’s important for us to have 
different perspectives guiding this work 
and so Council members have been 
carefully selected to give us a diverse 
mix of functions, regions, backgrounds 
and experience. 

We also refreshed our internal support 
materials which are available on a 
dedicated intranet site and engaged with 
Stonewall, a leading international charity 
which advises institutions on building 
a fully inclusive workplace for LGBT+ 
colleagues.

We provide PwC’s respected ‘blind spots’ 
unconscious bias training to all colleagues 
with a Smiths or a divisional email address 
worldwide. The course has now been 
completed by more than 95% of invitees.

We marked World Mental Health 
Day, International Women’s Day and 
International Women in Engineering 
Day across Smiths through internal 
communication campaigns and activities, 
posts on our social media channels and 
content on our website.

RECOGNISING AND APPRECIATING COLLEAGUE CONTRIBUTIONS

We want our people to feel their 
contributions are recognised and 
appreciated. We celebrate colleagues 
for their work and for embodying 
our values. 

Recognition can and should happen every 
day, which is why appreciation is embedded 
in our leadership behavioural commitments. 
We have a wide range of formal recognition 
activities, including peer to peer thank you 
e-cards, long service and on-the-spot 

recognition, as well as certificates and 
badges with our Smiths Excellence System 
programmes and accreditations. 

Each year we host our annual Smiths 
Excellence Awards, showcasing and 
celebrating the very best colleague 
achievements and projects across Smiths. 
This culminates in the award of the Smiths 
Cup to the project or team which best 
demonstrates our values in action. 

We understand that when our colleagues 
feel valued, their satisfaction and productivity 
increases, they are motivated to maintain 
or improve their good work, and they are 
more engaged. 

In the last two years of our My Say employee 
feedback survey, recognition has improved 
by 5 points, demonstrating the success of 
our programmes. 

3 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTGender diversity in the Group

B O A R D   O F   D I R E C T O R S 1

E X E C U T I V E   C O M M I T T E E 1

  Male

  Female

8

4

  Male

  Female

6

3

S E N I O R   M A N A G E R S 2

C O L L E A G U E S   ( T O T A L ) 3

In recognition of the Black Lives Matter 
movement our Chief Executive issued a 
communication to all colleagues reminding 
them that across Smiths we stand for 
harmonious relations between all people, 
and for respect, equality and justice for 
all without violence. We stand against all 
actions which threaten or undermine these 
principles which are inherent in the values 
we live by.

In FY2021 we intend to launch a Group-
wide initiative ‘Inspire to Succeed’ to 
promote awareness of diversity and 
inclusion matters and oversee delivery of 
activities which focus on support for affinity 
communities in Smiths.

As required by the UK Government, we 
report every year on our UK gender pay 
gap. Our most recent report is on the 
Smiths website.

Information on our Board diversity policy 
can be found on page 97.

+  Read more about ethical matters  

on page 26

  Male

  Female

330

72

  Male

  Female

14,014

8,548

1  Andy Reynolds Smith and John Shipsey are included in both Board of Directors and the Executive Committee.

2  Senior managers as defined by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. 

At Smiths, senior managers are defined as colleagues who are grade 15 and above. The Board of Directors and Executive 
Committee are not included in these numbers.

3  The Executive Committee are included in these numbers.

3 3

SMITHS GROUP PLC  ANNUAL REPORT FY20202R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Our customers

The voice of the customer is 
an innate part of everything 
we do at Smiths. 

Meeting customer needs and exceeding their expectations, not just 
on products, quality and service, but in the way we conduct business 
and pay attention to the things that matter to them – for example, 
ethics and environmental performance – is a fundamental part of our 
operating model and our values. 

We marshall all of our resources and relationships in support 
of building strong and enduring customer relationships that will 
sustain Smiths into the future.

We have many different types of 
relationships with our customers – from 
fully integrated partnerships where we 
co-develop new products and services, 
and long-term sales and aftermarket 
contracts, to transactional and built 
to order arrangements. Our drive for 
innovation and flawless execution is applied 
to all so that we build our reputation as a 
supplier of choice.

Many of our customers are in critical 
industries and customers have been at 
the centre of our considerations during 
the COVID-19 pandemic. Our aim has 
been to prove that we stand by them no 

matter what, making every effort possible 
to fulfil our obligations and, through 
excellent people and processes, meet the 
high standards they have come to expect 
from Smiths.

Response to COVID-19
Managing our operations and our supply 
chain to enable continuity of supply to our 
customers has been a key principle during 
the COVID-19 pandemic. This has meant 
bringing together expert workstream 
groups from across Smiths, led by 
the Crisis Core team, and involving all 
members of our Executive Committee. 

Standing with our customers, and with 
our people, has been the right thing to do, 
whilst enhancing the reputation of Smiths 
in the long term. 

Since the start of the pandemic we have 
managed our operational response 
through our Operations and Supply 
Nerve Centre (OSNC). Over 90% of 
our manufacturing sites remained in 
production throughout the pandemic. 

Maintaining continuity of service in our 
aftermarket activities, while keeping our 
people as safe as possible, has also been 
a vital part of our response. This has 
included finding new ways to deliver 
services, for example remote inspection 
activities at John Crane customer sites.  

Creating customer value
Our aim is to create innovative and 
transformative products and services that 
add value to our customers’ operations 
and contribute to their goals, supported by 
consistently high product quality, excellent 
service, and appropriate pricing.

Our Smiths Excellence System 
customer pillar brings together our 
customer excellence processes, tools 
and materials which our divisions 
leverage to continuously improve our 
offer, our performance, and the overall 
customer experience.

Customer relationships are typically held 
in our divisions at an appropriate level. 
We aim to form strong bonds and work in 
close partnership with many customers so 
that we better understand their goals and 
needs, and are able to move fast to respond 
to opportunities and/or to improve the way 
we work. 

INNOVATING TO SUPPORT CUSTOMERS DURING THE COVID-19 PANDEMIC

Restrictions resulting from the 
COVID-19 pandemic required John 
Crane to quickly adapt and develop new 
ways to support customer needs.

Innovative ways of undertaking critical 
inspection work have eliminated the need 
for travel, allowing parties to save on time 
and cost, while staying safe. 

When the need arises for John Crane’s 
customers to inspect and approve highly-
engineered mechanical seals and system 
components, both parties would typically 
meet at a John Crane site to monitor 
and analyse the equipment while it is 
put through various performance tests. 

COVID-19 restrictions made it impossible 
for these in-person tests to happen. 

The team at John Crane Bangalore, India 
devised a strategy to conduct seal gas 
panel tests remotely using a live video feed 
(complete with various camera angles), as 
well as the display of digital gauges and 
the ability for customers to ask real-time 
questions and make requests.

The John Crane Slough, UK team 
implemented a system where the gas seal 
static and dynamic test is streamed to the 
customer with key test information and the 
opportunity for direct communication with 
the test technician during the test.

In March 2020, John Crane France had 
many witness test inspections planned for 
high-performance couplings to be installed 
on ships in oil & gas and marine applications. 
Inspection tests are normally witnessed by 
the customer and a third-party inspector. 

In just one week, the team developed an 
alternative remote solution, sourcing 
high-quality cameras to capture the fine 
details surrounding performance tests, 
a reliable connection source and a viable 
software solution. 

Inspections were successfully completed 
remotely, on time and with approval from 
all sides.

3 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTInnovation and product lifecycle
Our innovation culture is directed to 
creating new products and services that 
respond to customer need, or that will 
meet a future predicted need. We design 
new products and services by thinking 
holistically from customer/societal need 
and problem definition, through product 
conception and product introduction, to 
support in service, to end of life. We engage 
and partner with many customers early 
in the product lifecycle to identify and 
leverage opportunities for collaboration 
and bespoke development to meet specific 
requirements. This has recently included 
Smiths Interconnect working with Boeing 
on bespoke connectors for NASA’s Orion 
spacecraft and Lunar Gateway.

We aim for flawless product launches. 
Cross-functional project teams are 
formed at the beginning of each new 
product introduction (NPI) project so that 
all operational workstreams and the 
supply chain are aligned in support from 
project initiation.

+  Read more about technology and innovation  

on pages 37-39

+  Read more about Smiths Interconnect and the 
Orion spacecraft and Lunar Gateway on page 62

Aftermarket services are a characteristic 
of Smiths businesses and represent 
almost half of Smiths revenue. As well as 
being a driver of revenue, our aftermarket 
relationships enable us to engage 
more deeply with our customers, build 
relationships over longer periods of time, 
and better understand customer needs and 
respond to them. 

In FY2021 we will establish new customer 
pillar objectives and deliver these through 
our Customer Pillar Steering Group, 
which will formally bring together senior 
customer leaders from across Smiths 
to share their experience and identify 
common opportunities to advance 
our practices.

Voice of the customer
We bring the voice of the customer into 
our business in many different ways, with 
the aim of using every touchpoint as an 
opportunity to deepen knowledge. 

We use formal feedback activities such as 
surveys, quarterly business reviews and 
senior team meetings with key customers, 
and defined processes for managing and 
responding to information collected from 
customer scorecards. We also integrate 
informal feedback from the conversations 
our operational and our field service teams 
are having with our customers every day. 
And, in addition to research that takes 
place for new products, we work with focus 
groups such as the Smiths Medical nursing 
panel to better understand how end users 
are using our products and experiencing 
our service.

BRINGING THE 
VOICE OF THE 
CUSTOMER INTO 
THE PRODUCT 
DEVELOPMENT 
PIPELINE

A ‘Voice of Customer’ programme was 
developed at Smiths Medical to instil 
rigour and consistency across the 
division in customer feedback, product 
value definition, strategic pricing, 
and go-to-market plan execution for 
new products.

The new Voice of Customer research 
workstream outlines best-in-class 
principles and customer touchpoints 
to be gathered and reviewed before a 
project starts. 

Tools including a Voice of Customer 
framework, research archetypes, and 
template documents were created to guide 
research and feedback that are inputs into 
Smiths Medical’s technical requirements 
for R&D. 

Standard financial models were created 
to align with product development phases, 
as well as a new pricing review process 
to help incorporate customer input into 
pricing strategies. 

Standard templates were also created 
to define product value and outline an 
appropriate go-to-market strategy to 
ensure that project financial milestones 
are met after launch.

CLOSE WORKING SECURES ADDITIONAL VOLUMES 
FOR FLEX-TEK AND A DISTRIBUTOR CUSTOMER

When a Texas-based wholesale 
distributor of residential and 
commercial construction and 
industrial supplies and materials was 
seeking a new supplier of flexible 
ducting Flex-Tek sought to build a 
strong relationship. This resulted 
in the initial securing of distribution 
contracts in Houston, Dallas, San 
Antonio and Austin.

Through continued close working 
with the distributor, the team was 
able to secure additional contractor 
base volume for both partners, adding 
Fort Worth to the list of locations, and 
increasing sales to over $15 million. 

Flex-Tek is now building the relationship 
nationally, as the team work to open 
more locations across the US.  

3 5

SMITHS GROUP PLC  ANNUAL REPORT FY20202R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

DIGITAL 
TRANSFORMATION 
OF SMITHS 
DETECTION’S 
SERVICE 

During the year Smiths Detection 
launched a Service Management 
System (SMS) project to improve 
the quality of customer care by 
revolutionising the way the service 
team operates.

Part of this project is the digitalisation 
of field service management through 
a mobile application that provides the 
service team with a single interface for 
completing several service administration 
tasks – including scheduling and dispatch, 
risk assessment, and reporting – which 
are then automatically updated onto 
central systems. 

Over the next 12 months Smiths Detection 
will roll out SMS by region, enabling a 
smooth transition to go-live. The project, 
which is one of the division’s largest digital 
transformation initiatives to date, will not 
only drive efficiencies around service and 
maintenance processes globally, but is 
intended to increase first time fix rates 
and ensure service delivery matches its 
industry-leading product lines. 

Service and quality
We aim to deliver a timely and high-quality 
response to customers interacting with 
Smiths – from account queries to urgent 
repair requests – and deliver customer 
orders as agreed.

We use Key Account Management (KAM)  
structures across our business. These  
bring together our operational and 
functional teams on key accounts to drive 
ownership of the customer relationship 
deeper into the business and manage 
accounts holistically.

We are continuing to leverage our 
Customer Relationship Management 
(CRM) capabilities through leading CRM 
tools and associated training. Over time, 
we have been introducing new technology 
to support our go-to-market strategies – 
for example, webinars to introduce new 
products and online training for customer 
technicians. This process has accelerated 
as a result of the COVID-19 pandemic.

Our divisions use robust quality processes 
to minimise product safety and quality 
issues during production. We use advanced 
supply chain management techniques 
to optimise flow across the value chain, 
including outbound logistics, so that we 
are able to supply customers according to 
demand and respond quickly to any change.

+  Read more about production  

on pages 40-41

+  Read more about our supply chain  

on pages 46-47

O N   T I M E   I N   F U L L   ( O T I F )   F Y 2 0 2 0

86%

FY2019: 84% 

A responsible business
Our customers expect Smiths to operate 
responsibly. They have a growing 
expectation of supplier transparency on 
ethical and environmental matters, as well 
as ongoing and strict compliance with local 
and international law and an appropriate 
approach to cyber security and the 
protection of information. This is likely to be 
reflected in contractual arrangements.

We encourage customers to contact us 
should they have any concerns at all on 
these matters. Customers may also use 
our confidential ‘Speak Out’ reporting line.

+  Read more about ethics and compliance  

on page 26

+  Read more about environmental matters  

on pages 40-45

3 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTTechnology and innovation

Technology and innovation are driving 
the future of Smiths. 

We are a world leader in the practical application of advanced 
technologies. Our organic capability to identify new trends and create 
products that meet emerging societal and customer needs delivers 
value both immediately and for the long term. 

In pursuit of excellence we embrace technology and innovation across 
the organisation – from applications that drive continuous improvement 
in the way we work to resourcing research into ambitious new projects.

Innovation framework
Our Group-wide innovation framework 
assists us in delivering a disciplined 
approach to innovation and a culture that 
supports our ambition and our strategy 
from horizon scanning, understanding 
megatrends and ideas generation through 
to new product introduction (NPI).  
The framework helps us aim for a 
balanced investment profile between core, 
next generation and transformational 
product development.

Our Vitality Index is a Group KPI and 
measures the percentage of total revenue 
derived from products launched in the last 
three years.

Each of our divisions establishes a Vitality 
Index target and our stage-gate NPI 
process is tailored for each market and 
product. This helps to ensure that all 
parts of the value chain are considered 
so that we are commercially effective and 
deliver value for customers. We are also 
increasingly focused on environmental 
matters in the NPI process – in relation 
to both the footprint of products and the 
production processes used to make them.

+  Read more about production and environmental 

matters on pages 40-45

SMITHS 
INTERCONNECT 
LABORATORY 
REPLICATES 
DEEP SPACE

In December 2019, Smiths Interconnect 
celebrated the opening of its new 
Qualification and Test laboratory in 
Dundee, Scotland. The new laboratory 
offers a one-stop shop for critical 
qualification and testing of Smiths 
Interconnect’s products in Europe. 

The facility has a unique capability to 
replicate the environmental pressures of 
deep space with high power amplifiers and 
vacuum systems and to assess products 
against the same extreme vacuum 
and heat pressures they would have to 
withstand in space. 

The facility offers testing which analyses 
high power radio frequency devices and 
breakdown phenomena in vacuum or near-
vacuum conditions, and utilises radioactive 
sources to simulate the cosmic radiation 
that can often trigger the onset of these 
phenomena. This is an important factor in 
the reliability or operation of a satellite or 
other space-based equipment. 

The new laboratory facility is also able to 
replicate the G-force for a rocket launch to 
assess the effects on products at launch. 
At maximum shock testing, shock testing 
equipment generates up to 105dB+ of noise 
and requires a special soundproof room. 

Being able to offer these complex 
tests is a major benefit and a real 
point of competitive differentiation for 
Smiths Interconnect.

I N V E S T M E N T   I N   R & D   F Y 2 0 2 0 *

4.7%

FY2019*: 4.5%

*  Continuing Operations 

V I T A L I T Y   I N D E X   F Y 2 0 2 0

20%

FY2019: 13%

+  Dame Ann Dowling, Board sponsor of the Smiths 
Innovation Strategy Board, attends the December 
2019 meeting hosted by the Digital Forge.

3 7

SMITHS GROUP PLC  ANNUAL REPORT FY20202DIGITAL 
FORGE DRIVES 
ENTHUSIASM 
FOR MACHINE 
LEARNING

The Digital Forge is helping drive 
innovation and digital transformation at 
Smiths. One of its aims is to build core 
capabilities in artificial intelligence (AI) 
and machine learning, data analytics, 
connectivity and data security across 
the Group. 

During FY2020, the Forge ran a competition 
to help colleagues improve their machine 
learning skills and encourage those not 
from science or engineering backgrounds 
to learn more about it. The challenge was 
to build a self-driving algorithm and teach 
a remote-controlled model car how to 
navigate a racecourse by itself, as fast 
as possible. 

The competition was embraced by 
35 teams from all over the world. 
Seven winners from different divisions 
competed at the Digital Forge, in San 
Francisco, to race against each other to 
decide the ultimate Smiths Self-Driving 
Car Champion. 

Some of the model cars achieved speeds 
of up to 10mph. Our Chief Executive, Chief 
Financial Officer and JehanZeb Noor, Chief 
Executive, Smiths Medical all attended 
the final and awarded the trophy to the 
winning team. 

The competition was a great success, 
driving enthusiasm for machine learning 
and highlighting internal collaboration 
opportunities within the business. 
It also opened new career paths for 
some participants as a result of them 
demonstrating their exceptional software 
engineering skills.

R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Technology and 
innovation continued

Driving capabilities 
and collaboration
Driving our innovation capability and 
collaborating across Smiths is vitally 
important, helping ensure we make the 
most of current and future trends. 

Smiths Innovation Strategy 
Board (SISB)

The Smiths Innovation Strategy Board 
(SISB) connects colleagues from across 
Smiths in an ecosystem for innovative 
thinking, research and action in support 
of new opportunities. The SISB has 
undertaken work on megatrends and 
long-range targeting and forecasting, and 
collaboration plans with key universities 
– including Imperial College, London – 
for co-development and investment in 
future-focused technology and talent 
acquisition are underway. The SISB has 
also been working on an ‘adjacencies’ 
project to identify opportunities in line 
with the Smiths purpose and values that 
may not naturally fit into one of the Smiths 
divisions, or that is creating a new sector. 
When a project is identified it is resourced 
as relevant and taken forward under the 
guidance of the SISB.

Digital Forge

Our Digital Forge centre of excellence 
opened in 2018 and is accelerating the 
growth of digital products in our portfolio 
and driving efficiency and speed through 
common development and common 
platforms and tools that can be repurposed 
across Smiths product lines. The Digital 
Forge is sponsored by our Chief Executive 
and the Smiths Digital Advisory Committee 
(comprising members of the Smiths 
Executive Committee) determines strategy 
and governs our digital activities. 

The Forge is predominantly focused on 
developing bespoke interface solutions 
that digitise products by connecting them 
to the internet/cloud and enabling the 
flow of data with a high degree of cyber 
security. This has included smart products 
at Smiths Medical and John Crane 
SenseTM condition-based seal monitoring 
technology, for which capability has 
been significantly extended in FY2020 to 
support large scale, high volume and high-
pressure dry gas seals. 

Future development includes smart heater 
interfaces for Flex-Tek and methane 
monitoring products.

Design Thinking

We are also supporting our innovation 
culture through the SES Academy and are 
moving forward with a Design Thinking 
programme to support cognitive skills and 
creative thinking to bring new products 
and services to life. A pilot Design Thinking 
awareness course (delivered online during 
the COVID-19 pandemic) has been taken 
by around 160 colleagues and a formal 
programme is planned for FY2021.

+  Read more about the SES Academy on page 31

EXPANDING THE DIGITAL TEAM TO ACCELERATE 
DIGITAL TRANSFORMATION

In recent years, Smiths Detection has 
been pursuing digital transformation, 
developing solutions such as iCMORE 
and Checkpoint.Evoplus to bring 
greater screening capabilities 
and operational advantage to 
security operations. 

To accelerate the development of digital 
solutions and reduce dependence on 
external developers, Smiths Detection 
established a global technology centre of 
excellence in Singapore and a technology 
development centre in Bangalore, India. 

The Bangalore team works 
collaboratively with experts and product 
development teams at other centres 

of excellence in order to develop and 
improve Smiths Detection’s digital 
technology capabilities. 

Smiths Detection also continues to 
establish partnerships with universities 
around the globe to research 
security projects. 

In 2020, the division established a 
research relationship with Imperial 
College London to collaborate on a joint 
PhD project to develop deep learning 
techniques to improve automated 
threat detection in airport baggage 
scanners. The project is funded by the UK 
Government’s Department for Transport 
and the Home Office.

3 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTSESAME tool
The SESAME (Smiths Excellence System 
Assessment Module) diagnostic tool was 
developed by our BIS applications team to 
support continuous improvement across 
our SES pillars. SESAME analyses the 
performance of every Smiths site on the 
SES fundamentals using data from 150 
questions completed by the site leader and 
provides management information from 
site up to division level.

An upgrade to the tool with new questions, 
a more granular assessment method, and 
the inclusion of guidance on improvement 
resolution actions, was launched in 
February 2020.

Enterprise and product 
cyber security
Cyber security is a principal risk area for 
Smiths. It is vital – from both a regulatory 
and business continuity perspective – that 
we do everything possible to maintain the 
confidentiality, integrity and availability 
of our IT systems and the data held on 
them. We apply a proactive and globally 
unified approach to the security of our 
IT environment, managed by BIS and 
overseen by the Board, and supported by 
global partnerships with external providers 
such as AT&T. This ensures that every 
part of the organisation is aligned on best 
practice as it evolves.

Cyber security efforts during FY2020 
focused on delivering improved processes 
and controls, with additional work to deliver 
enhanced systems for the protection 
of Smiths data. The introduction of new 
capabilities, monitoring, and security 
awareness campaigns during the COVID-19 
pandemic has also been an important 
focus for the team. In addition, we have 
implemented an enhanced requirement for 
compliance to industry security standards 
where we gained or renewed ISO/IEC 
27001 information security management 
and Cyber Essentials certification for 
select operations. Preparation also began 
for the US Cyber security Maturity Model 
Certification (CMMC), which will replace 
NIST 800-171 in FY2021.

Smiths products are used in many mission-
critical applications in highly regulated 
industries, thus requiring continued 
focus on ensuring that our products meet 
the highest standards of cyber security. 
Meeting product cyber security regulations 
is the responsibility of our divisions, with 
governance and risk management residing 
with the Smiths central team, which hosts 
systems and performs an advisory role on 
critical matters such as data privacy. 

+  Read more about how we protect our business 

from cyber attacks on page 74

Enterprise IT
Smiths has a mature and optimised 
IT infrastructure environment with 
an advanced internal capability which 
leverages core external partners 
to develop and deliver services and 
applications that support business 
priorities and needs. Expertise is held 
at the centre in the Smiths Business 
Information Services (BIS) team which 
collaborates with the Smiths functions and 
our divisional operational and IT specialists 
to drive innovation and efficiency and 
leverage scale.

This structure and capability means that 
Smiths is able to manage in-house the 
IT delivery of significant programmes 
such as the Smiths Excellence System. 
For SES, our internal team developed and 
built everything from the SES knowledge 
portal to supporting applications such as 
the SESAME tool and, working with HR, 
our suite of creative training materials for 
the SES Academy. 

Our IT capability supported an accelerated 
response to the challenges presented by 
the COVID-19 pandemic. This included 
the global roll out of secure technology in 
support of home working, the development 
of dashboards providing data analysis 
for the Smiths Group Crisis Core team 
and the Operations and Supply Nerve 
Centre (OSNC), and the rapid delivery of 
a self-service emergency contact details 
recording system.

FY2021 projects include working with our 
HR operations team to create a digital 
HR experience to help us better manage 
data and produce relevant analysis to aid 
delivery of our People Plan. 

SMITHS MEDICAL R&D PILOTS COLLABORATION WORKSHOPS

Continuous improvement (CI) is 
an important part of the culture at 
Smiths Medical. A key element of CI is 
seeking ideas and feedback to improve 
processes and procedures and taking 
action based on the feedback received. 

During the year Smith Medical’s R&D 
department created three teams to 
lead workshops focused on developing 
collaboration, retention and communication 
skills in support of CI activities. 

Their goals were to create an open, 
ongoing discussion about collaboration; 
help all colleagues to learn and apply 
specific strategies and behaviours that 
contribute to effective collaboration; 
and build a supportive and professional 
culture that acknowledges the patience, 
courage and practice required to 
collaborate effectively.

The teams ran a series of two-hour, in-
person workshops involving more than 200 
R&D colleagues at four Smiths Medical 
sites between October 2019 and January 
2020. The interactive workshops were 
delivered to groups of 15 to 25 colleagues, 
with a variety of small and large group 
activities, discussions and collaboration 
scenario strategy sessions.

3 9

SMITHS GROUP PLC  ANNUAL REPORT FY20202is a principal risk and, during FY2020, 
the Audit & Risk Committee reviewed 
a product quality deep dive for John 
Crane. Product quality deep dives for the 
other divisions are scheduled to be held 
during FY2021.

We use robust quality procedures across 
Smiths to minimise product safety and 
quality issues, and we monitor performance 
through quality control processes and 
systems. During FY2021 we will pilot an 
electronic Quality Management System 
(eQMS) in John Crane to help manage 
our activities in meeting customer and 
regulatory requirements and improve 
quality effectiveness and efficiency on a 
continuous basis. 

Our efforts are supported by the Smiths 
Quality Council, a cross-divisional 
leadership group that guides our approach 
to quality and helps embed it in our 
operations through sharing knowledge and 
ideas. We use two key high-level metrics to 
monitor quality performance: defects per 
million parts shipped (DPPM) and cost of 
poor quality (COPQ).

C O S T   O F   P O O R   
Q U A L I T Y   F Y 2 0 2 0

1.4%

FY2019: 1.4%

COPQ includes the cost of waste, 
corrective work, warranty claims, 
returns and penalties, measured 
as a percentage of revenue.

D E F E C T S   P E R   M I L L I O N 
P A R T S  S H I P P E D   F Y 2 0 2 0 *

1,142

FY2019: 235

*  FY2020 DPPM for Smiths Group was adversely impacted 
by three independent, non recurring quality events on 
Smiths Medical high volume consumable parts

R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Production and environment

The effectiveness of our production 
processes is a key contributor to the 
ongoing success and sustainability 
of Smiths. As a responsible 
business, it is our obligation and 
duty to help protect the planet.

Supported by the Smiths Excellence System, we are leveraging our 
manufacturing capability and technology to create an agile, reliable 
and responsive system, and a competitive cost base, that enables 
us to consistently serve customer needs while providing a safe 
environment for our people. 

We are contributing to the protection of the planet both through 
products which help our customers fulfil their own environmental 
responsibilities and through proactive management of the 
environmental impact of our operations. 

This includes the prevention of pollution, 
driving down our use of energy and natural 
resources, reducing carbon emissions 
and minimising waste. A number of Smiths 
products also have the potential to help end 
users reduce their climate impacts. 

We support transparency in environmental 
matters so that our stakeholders, including 
our colleagues and potential colleagues, 
understand our priorities and our progress. 
We also recognise the importance of 
environmental governance at the highest 
level of the organisation.

Production approach
We aim to have best-in-class 
manufacturing processes across Smiths 
that optimise product and service flow, 
quality and safety, and improve lead times, 

cost and working capital requirements. 
This includes focusing on optimising our 
production footprint and assets, working 
closely with our supply chains, and using 
technology to drive speed and flexibility. 
Our continuous improvement programmes 
help us to drive capabilities, including the 
skills of our people, so that we maintain 
leadership and competitiveness, and deliver 
the Smiths strategy. We use two key high-
level metrics to measure the success of 
our production approach – working capital 
as a percentage of sales and stock turns. 
Both are Group KPIs.

Product quality and safety
Product quality and safety are vital 
requirements of our customers and we are 
committed to only shipping products that 
meet our high standards. Product quality 

MODEL VALUE STREAMS SUPPORT  
EFFICIENCY AND QUALITY 

Using the Smiths Excellence System 
Model Value Stream principles, a team 
at Smiths Interconnect developed an 
operational improvement project at 
its facility in Suzhou, China. The team 
included two green belt colleagues and 
one black belt colleague who worked 
to implement lean methods and six 
sigma tools.

The project delivered an integrated micro-
automation solution for semiconductor 
probe assembly that significantly increased 
capacity and delivered improvements in 
production lead times, efficiency, quality 
and environmental impact. With the help of 
automation and mechanisation, output per 
hour increased by ten times and 20% more 
capacity was added to the site. Lead times 
to customers were also improved by 30%.

4 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTJOHN CRANE 
PARTNERS 
ON METHANE 
EMISSIONS 
MONITORING

John Crane, along with two other 
investors – OGCI Climate Investments 
and Energy Innovation Capital- led 
a Series C funding round for Kairos 
Aerospace, Inc., a leading provider 
of large-scale aerial monitoring 
of methane emissions, to expand 
Kairos’ operations and grow its 
geographic footprint.

Kairos provides actionable data on 
major sources of methane emissions, 
supporting global industry need for more 
visibility on emissions in response to 
evolving standards. 

The company’s environmental technology 
enables the capture of critical, reliable 
and archivable data that will facilitate 
the efficient reduction of global methane 
emissions across industries. 

This partnership further adds to 
John Crane’s portfolio of solutions to 
monitor and mitigate greenhouse gases 
and is a testament to the division’s 
commitment to be a proactive agent of 
greenhouse gas emissions reduction and 
environmental sustainability.

Continuous improvement (CI)
Our SES production pillar supports 
innovation and CI in our manufacturing 
processes. It provides standards, content, 
training and tools based on acknowledged 
best practice focused on lean methodology.

Our Production Steering Group, which 
comprises director level production 
representatives from our divisions and 
the Smiths production pillar lead, meets 
regularly to agree priorities and ensure that 
efforts are aligned with business needs. 
Work is focused on developing production 
excellence in three key areas – leveraging 
best practices, developing capabilities and 
embedding CI everywhere and includes 
production/lean excellence learning. We will 
develop a tailored production excellence 
learning package for plant leaders 
in FY2021.

We are also continuing to transform 
our manufacturing sites through the 
development of Model Value Streams, 
which aim to push the boundaries of 
what can be achieved through the use of 
new technologies, lean manufacturing 
techniques and other best practices. 
We have implemented 21 Model Value 
Streams, empowering our people and 
enabling us to test the effectiveness of 
technologies and lean manufacturing 
techniques in a live environment.

Our CI culture also works to support 
delivery of our environmental goals.

+  Read more about the SES Academy on page 31

+  Members of the Smiths Interconnect Tijuana 

team complete a CI training course on 
practical problem solving 

The lean toolbox and SESAME

The Smiths lean toolbox comprises 26 
lean tools and, along with the SESAME 
diagnostic tool, is helping us embed a CI 
mindset at every level of Smiths in support 
of all SES pillars. Key tools from the toolbox 
are being deployed through our living 
lean initiative, which features guidelines, 
training modules and templates, all in 
one online portal, supported by an active 
communications programme.

+  Read more about the SESAME tool on page 39

W O R K I N G   C A P I T A L   
%   O F S A L E S F Y 2 0 2 0

28%

FY2019: 26%

Working capital measures speed 
and efficiency in the business from 
manufacturing to debt collection. 
Working capital translates into cash. 

S T O C K   T U R N S   F Y 2 0 2 0

3.0x

FY2019: 3.4x

Stock turns measure speed and efficiency in 
the business.

Environmental governance
Environmental governance flows from 
the Smiths Board to every Smiths site. 
The Board and Executive Committee 
oversee planning and target setting, and 
monitor environmental performance and 
environmental matters via a report that is 
prepared for every Board and Executive 
Committee meeting. The Smiths Global 
Head of HSE (Health, Safety, Environment) 
is invited to present to the Board twice 
a year and a presentation is made at 
every Executive Committee meeting. 
The Board also monitors environmental 
and climate risk through the Smiths risk 
management process.

4 1

SMITHS GROUP PLC  ANNUAL REPORT FY20202R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

EXECUTIVE 
ENVIRONMENTAL 
ROUNDTABLE

The Smiths Executive Environmental 
Roundtable (EER) was established by 
our Chief Executive in FY2019 with the 
aim of accelerating our environmental 
efforts and agenda. The EER is chaired 
by the Smiths Global Head of HSE and 
reports to the Executive Committee. It 
has the responsibility for developing 
environmental strategy, target setting, 
reporting and risk management and 
reporting performance, including:

 – The governance framework for 

environmental risk and performance

 – Considering if environmental controls 

are operating effectively

 – Oversight of programmes and 

any emerging critical issues of an 
environmental nature

 – Reviewing the effectiveness of 

performance reporting procedures

 – Reviewing external reporting on 

environmental matters

 – Seeking the views of stakeholders on 

environmental practices

 – Ensuring appropriate training is provided

 – Reviewing policies in relation to 
environmental performance

 – Making recommendations to the 
Executive Committee for action

The work of the EER is supported by our 
external sustainability partner which 
collaborates with us on environmental 
disclosures, benchmarking and alignment 
with external reporting frameworks.

The EER oversaw the completion of near- 
and long-term climate sensitivity risk 
assessments during FY2020 and is currently 
working on refreshing the Group’s existing 
environmental policy. 

The new Environmental Sustainability 
Policy will be implemented in FY2021. 
The EER is also leading a study into onsite 
electricity generation looking into options 
for generating renewable power at some 
Smiths locations. More than 20 high usage 
sites have been identified for evaluation.

OUR COLLEAGUES

Many Smiths colleagues are passionate 
about the environment and how our 
business can contribute to global goals. 
Overseen by the EER, the launch of our 
refreshed Environmental Sustainability 
Policy and our next environmental 
goals will be used as an opportunity to 
promote further engagement through a 
communications programme and closer 
alignment with the SES Academy and other 
SES materials. We will also launch an 
environmental awareness training module 
in FY2021 and increase colleague focus on 
our FY2021 recycling target.

4 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTAlignment with external 
reporting frameworks
It is recognised that corporate disclosure 
and transparency are key catalysts for 
driving change.

Smiths is generally aligned with the 
Global Reporting Initiative (GRI) reporting 
principles for environmental matters, and 
we have in place a comprehensive portfolio 
of policies which include biodiversity 
protection, emission reductions and 
product compliance. Performance against 
these policies is overseen by audit 
processes, including all our ISO 14001 
production sites with over 50 colleagues.

We are committed to continued alignment 
with the Task Force on Climate-related 
Financial Disclosures (TCFD) for our 
governance, risk management, strategic 
planning and execution around climate 
risk/GHG reduction. During FY2020 our 
external partner conducted a formal 
review of our position against all 11 
recommendations of the TCFD and 
confirmed our alignment with all.

Aligning with the TCFD

Governance

Strategy

Risk 
Management

Metrics 
and Targets

Climate risk assessment

During FY2020 each of our divisions 
completed a systematic climate-related 
risk assessment with a five-year time 
horizon. This was supplemented by a risk 
assessment workshop held centrally to 
review Group climate-related risk on a 20-
year time horizon. The results of these risk 
assessments were presented to the Board 
and Executive Committee. 

The assessment did not identify any near-
term significant climate-related risks from 
internal operations. However, the EER 
intends to further develop this area of work.

We also submit information to external 
parties for benchmarking of our processes 
and performance against others. 
In FY2020 we again participated in the 
Carbon Disclosure Project (CDP) global 
environmental reporting initiative in which 
we received a score of A- in 2017 and B in 
2018, putting us in the CDP management 
category indicating that we are taking co-
ordinated action on climate issues. We are 
currently preparing our latest (2019) CDP 
submission for both GHG and water. 

We have also received favourable ratings 
from other external parties for our 
Environment, Social and Governance (ESG) 
performance including FTSE4Good, ISS, 
MSCI and Dow Jones. 

+  See our external ratings on page 24

FY2020 progress

FY2021 priorities

Governance
Smiths governance around 
climate-related risk 
and opportunities.

 – Continuing work of EER
 – Enhanced reporting 
to the Board and 
Executive Committee

 – Assess opportunities for 
onsite renewable energy 
generation at key locations

 – 5 and 20-year climate 
risk assessments

 – Updating Environmental 

Sustainability Policy (from 
Environmental Emissions 
Reduction Policy)

 – Engaging colleagues to 
increase recycling  
programmes

 – Investigate product 

stewardship opportunities 
including life-cycle analysis 
pilot projects

 – Update and expand climate 

risk assessments
 – Investigate reporting 

challenges on Scope 3 
GHG reporting

 – Achieved FY2019-FY2021 

 – Meet or exceed all four 

renewable electricity target

FY2021 targets

 – Prepare FY2022-
FY2024 goals

 – Launch FY2022-FY2024 goals

Strategy
The processes used by 
Smiths to identify, assess 
and manage  
climate-related risks.

Risk management
The actual and potential 
impacts of climate-related 
risks and opportunities on 
Smiths businesses, strategy, 
and financial planning,

Metrics and targets
The metrics and targets 
used to assess and manage 
relevant climate-related 
risks and opportunities.

THE MAIN ACCOMPLISHMENT IS THAT SMITHS WENT 
THROUGH THE PROCESS OF SYSTEMATICALLY SCREENING 
THE PHYSICAL AND TRANSITION RISKS OF CLIMATE 
CHANGE TO THEIR DIVISIONS. 

FOCUSING ON RISKS ACROSS DIFFERENT CATEGORIES, TIME 
PERIODS AND CLIMATE PARAMETERS IS AN IMPORTANT 
EXERCISE SO THAT NOTHING IS OVERLOOKED. 

Ramboll
Smiths external environmental partner

4 3

SMITHS GROUP PLC  ANNUAL REPORT FY20202R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Production and 
environment 
continued

Environmental management
The leaders of our divisions, on behalf 
of the Chief Executive, have overall 
responsibility for environmental 
performance in their businesses. They are 
supported by divisional HSE experts 
and the HSE Technical Committee 
which include representatives from 
across Smiths. 

We closely monitor energy and water use, 
waste generation, recycling and GHG 
emissions to identify tailored plans for 
improvement and collaborate on action 
plans and best practice.

Our production processes and the way we 
manage our sites aim to decrease waste 
and energy consumption and reduce 
emissions. We are also investing in low-
carbon and energy efficient technologies 
to drive improvement in our performance. 
We have improved energy efficiency by over 
17% and reduced GHG emissions by over 
46% since FY2007. In the same period we 
have also reduced total water use by 44% 
and non-recyclable waste by 49%.

All divisions also participate in a 
regular forum to share best practices 
and ensure compliance with global 
restricted substance regulations 
including WEEE, RoHS, Prop65, TSCA 
and Responsible Minerals.

Our Supplier Code of Conduct sets out the 
environmental conditions we require of 
suppliers, and environmental performance 
(with a focus on GHG emissions) is 
reviewed as part of the due diligence 
process relating to acquisitions.

Performance against FY2019-
FY2021 environmental goals

Two years into the current goal period, we 
have exceeded both our greenhouse gas 
and renewable electricity goals. We are 
undertaking energy efficiency projects, 
including lighting and/or air conditioning 
upgrades at multiple locations and, 
during the year, our Smiths Detection 
Wiesbaden site completed an upgrade to 
its boiler system. 

We are close to our water target with one 
year remaining to make our 5% reduction 
goal. Our recycling target will be a key 
focus over the next year. There are current 
challenges as global geopolitical matters 
affect recycling rates.

Environmental goals 
and performance
Smiths aims for continuous improvement 
in environmental performance and we have 
had reduction targets for environmental 
metrics since FY2007. 

Our current FY2019 to FY2021 Group 
environmental improvement targets are to 
reduce greenhouse gas (GHG) emissions 
and water consumption in stressed areas 
by 5% over the period and increase our 
use of renewable electricity by 5% and 
our recycling rate by 5%. We also have a 
long-range target to use more than 75% 
renewable electricity by 2040.

Reduction targets are compared to 
the FY2018 baseline year and GHG and 
water are normalised to FY2018 revenue. 
Renewable electricity and recycling 
are rate-based and therefore are not 
normalised. Water consumption targets 
are focused on our 13 locations in stressed 
areas as defined by UNESCO, as well as 
certain locations in China, India and Mexico 
where water is constrained. 

FY2019– 
FY2021 
target

FY2020  
outcome 
vs FY2019

FY2020  
outcome  
vs FY2018

Use of renewable 
electricity1

5% increase  
to 48%

12%

12%

Greenhouse 
gas emissions

Recycling rate

Water consumption 
in stressed areas 
(13 locations)

5% reduction

5% increase  
to 71%

5% reduction

2%

1%

6%

-6%

-2%

-4%

1  Non GHG producing electric sources including hydroelectric and nuclear

Progress

 Reached  
in FY2020

 Reached  
in FY2019

Striving to meet 
goal in FY2021

Striving to meet 
goal in FY2021

DRIVING SUSTAINABILITY THROUGH  
PACKAGING CHOICES AT FLEX-TEK

To build sustainability in its supply chain, 
Flex-Tek’s Thermaflex business has  
proactively sought environmentally 
friendly options for packaging. 

This has resulted in the use of packaging 
from supplier Pratt Industries made from 
100% recycled paper. 

As a result of the partnership Thermaflex 
was awarded a 2019 Environmental Impact 
Award by Pratt Industries and made the 
following environmental savings in 2019:
 – 3,983,600 gallons of water 
 – 16,930 trees 
 – 293.79 tons of CO2 prevented 
 – 2,987,700 kWh of power 
 – 2,490 yd3 diverted from landfill 

4 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTOur GHG emissions calculations and 
reporting follows the Greenhouse Gas 
protocol (operational approach) and covers 
emissions from all sources under our 
control, grouped under: Scope 1 – direct 
GHG emissions from owned assets; and 
Scope 2 – GHG emissions from supplied 
electricity. Our Scope 1 emissions are 
primarily driven by fossil fuel powered 
facility heating systems where there 
are very few reliable and available 
green alternatives.

FY2022-FY2024 goals

The EER has begun discussing short and 
long-term goals for the next goal period 
from FY2022 and alignment between 
them. This has included benchmarking our 
targets against comparable businesses.

It is probable that the next goal period 
will include some focus on suppliers, and 
packaging and product stewardship, as 
well as continued focus on emissions.

Energy use and GHG emissions

Energy use and greenhouse gas emissions 
are up in FY2020 due to the inclusion of 
the acquired facilities of United Flexible. 
Normalised GHG emissions are down 6% 
from FY2018.

Smiths includes its Streamlined Energy 
and Carbon Reporting (SECR) below for 
FY2020 including our emissions and global 
energy use (multiple years) and intensity 
metric. For the SECR the GHG Protocol 
Corporate Standard has been used.

In FY2020, the UK was responsible for 
22% (59,043,990 KWh) of Group energy 
usage, 6.1% (1,010 tonnes) of Scope 1 
emissions and 0.7% (355 tonnes) of 
Scope 2 emissions.

Global energy use KWh

262,843,580 247,258,350 255,467,620

256,112,390

FY2020

FY2019

FY2018

FY2017

Emissions

Absolute values

Scope 1  
(direct emissions)

Scope 2  
(indirect emissions)

t CO2e

16,640

14,929

15,670

15,169

t CO2e

52,647

47,312

54,489

62,072

Total

t CO2e

69,287

62,241

70,158

77,241

Normalised values

Scope 1  
(direct emissions)

t CO2e/£m  
revenue

Scope 2  
(indirect emissions)

t CO2e/£m  
revenue

Total

t CO2e/£m  
revenue

4.71

4.57

4.67

5.09

14.92

14.47

16.23

20.83

19.63

19.04

20.90

25.92

Previous year emissions data has been restated in accordance with up-to-date 
emissions factors.

4 5

SMITHS GROUP PLC  ANNUAL REPORT FY20202R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Our supply chain

We build mutually beneficial 
relationships and resilience, 
quality and efficiency across 
our supply chain.

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 competitiveness and sustainability of Smiths. 

Smiths has nearly 8,000 suppliers 
worldwide including strategic partner 
suppliers with whom we work on R&D 
and new product development, logistics 
suppliers, professional service suppliers 
and equipment, IT and machine suppliers. 

We operate a total value supply chain 
approach that considers all aspects of a 
supplier’s contribution to generate and 
capture value for Smiths. This includes 
ethical matters and alignment with our 
values, continuous improvement and risk.

Our supply chain networks are mainly 
local and regional rather than global and 
this, along with our real-time, data-driven 
approach to managing our operations 
through the COVID-19 pandemic, and 
strong supplier relationships, has 
underpinned our ability to continue to meet 
customer needs.

P R O C U R E M E N T   S A V I N G S 
( G R O S S )   F Y 2 0 2 0 *

£34m

FY2019*: £20m

*  Continuing Operations.

Response to COVID-19
Working closely with our suppliers and 
managing in detail all aspects of our supply 
chain has been a vital part of maintaining 
continuity of supply to our customers and 
enabling Smiths to operate successfully 
during the COVID-19 pandemic. 

Our Smiths Group Crisis Core team 
initiated a specific supply chain workstream 
called the Operations and Supply Nerve 
Centre (OSNC) to oversee and manage in 
real-time our network as our territories 
became affected. 

On the supply side this included:

 – Visibility of supply status

 – Managing global freight capacity

 – Optimising air vs sea freight logistics

 – Support for suppliers needing assistance 

to open as essential businesses

 – Switching suppliers where necessary 

to ensure continuity of supply for 
key operations

 – Reactivating sources where supply was 

likely to be interrupted

 – Coordinating the supply of hygiene 

products across Smiths

As a result of our actions we have seen very 
limited disruption to our operations arising 
from issues in our supply chain during 
the pandemic. 

4 6

Procurement and supply 
chain management
Our Smiths Excellence System (SES) 
supply pillar supports innovation and 
continuous improvement in both our 
procurement and supply chain activities. 
Both disciplines are developed centrally 
with strategy and best practice ways of 
working aligned across the divisions to 
leverage Smiths size, build capability, and 
efficiently manage the resources we need, 
as well as the cost to Smiths.

Our sales and operational planning 
(S&OP) processes enable us to plan the 
material, services and capacity we need 
to meet customer demand forecasts. 
Our procurement function manages 
sourcing and contracting to maintain 
supply of these material requirements to 
stringent quality, flow and cost criteria.

We aim to source right first time by 
identifying the best supply solution for each 
operation in terms of technical capability, 
process, cost and risk, and ensuring that 
our ethical requirements are met. We also 
want to work with suppliers that can 
support us flexibly and help us generate 
ongoing improvement in productivity.

We are reducing our total number of 
suppliers over time as we look to deepen 
relationships, pursue more efficient solutions 
and align procurement activities globally.

Inventory levels have seen an overall 
increase as a result of the COVID-19 
pandemic. Targeted activity to reduce 
inventory is ongoing, supported by the 
OSNC and well established inventory 
optimisation processes.

Supplier relationships

We aim to build supplier relationships based 
on mutual confidence and respect, balanced 
and appropriate risk apportionment, and a 
return for all partners.

All Smiths suppliers are approved prior 
to any business award. Key suppliers are 
allocated a strategic status (strategic, 
preferred, competitive, transactional) to 
specify supplier management activities 
and this status is reviewed periodically. 
We meet suppliers to review performance, 
discuss new business opportunities, set 
goals and work on improvement areas. 

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORT 
For our higher value and/or more complex 
products we engage with our suppliers 
at the highest level to partner on R&D, 
new product introduction, quality and 
continuous improvement projects, and 
we aim to be the customer of choice for 
supplier innovations.

An example CI process is Smiths Detection 
Hemel Hempstead’s collaborative work 
with key vendors supplying components for 
the IONSCAN 600 portable trace detector 
for narcotics and explosives. Utilising Value 
Analysis and Value Engineering (VA/VE) 
principles - including design simplification 
and design for service - incoming supply 
chains have been shortened, total cost of 
components has been lowered, and COPQ 
has been reduced.

Supplier contract models and payment 
terms vary depending on the size and type 
of relationship. Our Smiths terms and 
conditions describe our general approach 
to working with suppliers. We are currently 
exploring options for a supplier finance 
initiative which will bring benefit to our 
suppliers at the same time as reducing 
working capital.

Our planned FY2020 supplier conference  
did not take place due to the COVID-19  
pandemic.

Logistics

Logistics has been a key area of focus in 
recent years as we look to optimise our 
inbound, internal and outbound network 
model. Moving goods efficiently and 
responsively is as critical to Smiths and to 
our customers as managing the inbound 
supply of materials. We are currently 
working on logistics optimisation projects 
to consolidate flows/providers where 
practical to enhance responsiveness and 
maximise use of capacity, with the added 
benefit of the positive environmental 
impact of fewer vehicle movements. 

During FY2020 we initiated a process to 
put in place a logistics agreement with one 
third party logistics provider to manage 
inland logistics flows and forward orders 
across all divisions in the US.

Managing risk

Our integrated supply chain is identified 
as a principal risk and is managed 
accordingly through the Smiths risk 
management process.

We have accelerated the deployment 
of a supplier risk management system 
following the COVID-19 pandemic. 
This will assess suppliers on the basis of 
criticality of contribution and likelihood of 
interruption/collapse and is an extension 
of the work already undertaken for sole 
source suppliers.

The requirement to comply with our 
Supplier Code of Conduct (see right) aims 
to limit the risk of damage to our reputation 
or customer service from an ethical breach 
on the part of a supplier.

Continuous improvement
We aim for continuous improvement in our 
procurement and supply chain practices 
by building the capabilities of our people, 
advancing our data and our systems, and 
working with our suppliers to improve 
quality and performance.

We offer APICS and CIPS accredited 
procurement and supply chain professional 
development programmes, as well as 
discipline-specific learning through the 
SES Academy and SES materials in our 
supply knowledge portal.

We have continued with the development 
of our S&OP process and its deployment 
to our divisions to improve visibility on the 
upstream supply chain. 

We have standardised KPIs across the 
organisation and our relaunched SESAME 
diagnostic tool is assisting us to generate 
CI plans to improve our key KPIs. We have 
also developed a new 9 Box tool which 
provides a structured method to deploy 
inventory optimisation techniques at site 
and divisional levels. A 9 Box diagnostic 
and heatmap tool is under development.

+  Read more about the SESAME diagnostic tool 

on page 39

For supplier delivery and quality 
performance we are currently 
focused on lead time and involving our 
suppliers further in the management of 
upstream inventory.

In FY2020 we broke our annual record 
for procurement savings during the year. 
This has been driven by consolidating our 
supply base and working with suppliers 
to improve processes, often sharing the 
benefits of reduced costs.

Ethics and compliance
Responsible procurement and supply chain 
transparency is part of the Smiths ethical 
framework. Our Supplier Code of Conduct 
makes clear our expectations of suppliers 
and sub-suppliers when it comes to ethical 
behaviour and compliance with the law, 
treatment of personnel, and materials 
from socially and environmentally 
responsible sources.

For the last three years we have been 
auditing tier 1 suppliers across the world 
for modern slavery.

+  Read more about human rights and tackling 

modern slavery on page 50

APAC LOGISTICS SUPPLIER CONSOLIDATION

Danli Shen’s lean six sigma black 
belt project in our Asia-Pacific 
(APAC) region is a testament to how 
change leaders are transforming 
our operations. 

Danli, in partnership with our APAC 
China Council, led a data-driven 
initiative that consolidated multiple 
freight suppliers covering various 

divisional operations in the region into 
an aligned and complementary group of 
supply entities. 

This business process innovation 
resulted in substantial cost savings, 
contractual leverage, and synergies 
across our APAC business.

4 7

SMITHS GROUP PLC  ANNUAL REPORT FY20202TENNESSEE 
TORNADO 
RESPONSE

On 3 March 2020, a powerful tornado 
moved across Cookeville, Tennessee, 
home to Flex-Tek’s TUTCO facility. 

The tornado destroyed hundreds of 
homes and took the lives of 18 people, 
including five children, in the Putnam 
County community. 

This was the strongest tornado recorded 
in the US over the past three years. 
Several TUTCO employees and their 
families were personally affected, with 
their homes completely destroyed 
or damaged.  

The TUTCO team rallied together to 
support affected team members as 
well as the wider community. Their first 
task was to locate and ensure all team 
members were safe and accounted for. 
Those affected were contacted to assess 
their individual needs such as food, shelter 
or clothing. The team prepared meals and 
collected donations for the families, whilst 
others searched the area for personal 
items, cut trees and moved debris.  
Temporary accommodation and storage 
were arranged for colleagues in need. 

A fundraising account was also 
established, with all proceeds going to 
colleagues affected by the tornado. 

R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

Our communities

We aim to contribute positively 
to local communities in every 
area that we operate.

This involves playing a beneficial role in local economies through 
job creation and procurement, operating safely, environmentally 
responsibly and ethically, and engaging directly through fundraising, 
charitable giving and education initiatives. 

Healthy and prosperous communities and strong relationships are 
aligned with our Smiths values, are positive for business, and inspire 
and promote a sense of pride and ownership in our people.

Recognising the efforts of colleagues and 
sharing new ideas is an important part of 
being a member of the Smiths family. 

During the COVID-19 pandemic many of 
our efforts have been directed towards 
supporting local communities through 
the disease, including contributing aid and 
equipment to local services. The pandemic 
led to the postponement of the planned 
adoption of the Beyond Boundaries globally 
aligned community outreach programme 
across Smiths, which we now hope to run 
next year.

Promoting engineering 
as a career

Smiths is committed to encouraging the 
engineers of tomorrow and to promoting 
engineering as an exciting and fulfilling 
career that is open to all. We have a 
number of specialist programmes, 
including our graduate engineering 
programme, to attract young people and 
women to the sector and position Smiths 
as an employer of choice. We support 
members of our team that wish to 
engage with external programmes and 
organisations with similar aims. We also 
highlight and contribute to events such as 
International Women in Engineering Day.

Direct economic contribution
Smiths direct economic contribution 
to communities around the world 
through taxes paid, employee costs and 
supplier costs was £2.8 billion in FY2020 
(FY2019: £2.6 billion). 

£2.8bn

E M P L O Y E E   C O S T S

£1,112m

S U P P L I E R   C O S T S

£1,544m

T A X   P A I D

£186m

Getting involved in 
our communities
Community engagement is managed locally, 
with each division focusing on markets and 
communities that are important to them. 
We celebrate the best of these initiatives 
through the Smiths Excellence Awards and 
communicate inspiring ideas and stories in 
the Smiths Signal e-newsletter and on our 
Smiths Now colleague smartphone app. 

4 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTSMITHS BOARD MEMBERS  
SUPPORT INTERNATIONAL  
WOMEN IN ENGINEERING DAY

To mark this year’s International Women 
in Engineering Day and celebrate the 
achievements of leading women in the field, 
we asked our four female Non-executive 
Directors to share their views on what it 
means to be a woman in engineering.

Board members Karin Hoeing, Tanya Fratto, 
Pam Cheng and Dame Ann Dowling recorded 
a video message, which was shared with 
colleagues worldwide, and externally, in 
which they reflected on their own careers 
and the reasons why more women should 
pursue engineering. 

Engineering is at the very core of what we do 
at Smiths and we hope videos like this will help 
inspire the next generation of women engineers 
who can help #ShapeTheWorld.

I’M VERY PROUD TO BE 
MAKING A DIFFERENCE IN 
AN INDUSTRY THAT SAVES 
LIVES AND IMPROVES HUMAN 
HEALTH WHILE BEING ABLE 
TO RAISE A FAMILY. MY 
MESSAGE TO ALL YOUNG 
GIRLS AND TEENAGERS OUT 
THERE – YOU’VE GOT THIS, 
YOU CAN DO IT, SO PLEASE 
GO FOR IT!

Pam Cheng,
Smiths Non-executive Director.

+  Dr Selina Kolokytha, Physicist Engineer, 

Smiths Detection – winner of our 
International Women in Engineering Day 
#ShapeTheWorld competition

4 9

SMITHS GROUP PLC  ANNUAL REPORT FY20202R E S O U R C E S   A N D   R E L A T I O N S H I P S   C O N T I N U E D

SUPPORTING OUR  
COMMUNITIES DURING 
THE COVID-19 PANDEMIC

Smiths Medical also donated paraPAC plus™ 
ventilators, ventilator kits, PIVC products and 
masks to hospitals in Mexico, in the regions 
where it operates.

In the UK, John Crane colleagues undertook 
3D printing of face visor components and 
parts for CPAP devices for local assemblers 
supplying the NHS. John Crane also provided 
operational assistance to a company making 
soap and other hygiene products, to switch 
their usual production to hand sanitisers to 
meet growing demand from the NHS.

In the UK, Smiths also played a central role 
in the VentilatorChallengeUK consortium 
which called on teams from across the 
Group and other manufacturers and 
suppliers to help with the production of 
Smiths Medical paraPAC plusTM ventilators 
to support the UK Government and the 
NHS to help save lives during the pandemic 
and beyond.

During the COVID-19 pandemic our aim 
has been to do what we can to serve and 
provide support that has a direct impact 
on our communities. 

A selection of activities is described here:

Smiths Group India made a collective grant 
of more than £100,000 to Give India for two 
charities – Goonj and Oxfam – to provide 
essential welfare kits to families of 5-6 
people for a month, including dry rations 
and hygiene supplies, and supply hand-wash 
stations and safety kits at hospitals and 
health centres. 

This donation had a direct impact on the 
regions of India most impacted by the virus, 
where our business operates, including 
Delhi, Maharashtra, Karnataka and Kerala. 
A donation page was also set up to allow 
Smiths colleagues to contribute to the fund. 

In China, Smiths Medical donated 
approximately £700,000 of medical 
equipment and supplies to more than 29 
hospitals in the Hubei Province, including 610 
syringe pumps, 24,000 needles and 24,000 
Arterial Blood Sampling syringes and 80,300 
PIVC (Peripheral Intravenous Cannula) 
products. The first donation – to Tongji 
hospital, part of the Huazhong University 
of Science and Technology – included 400 
syringe pumps.

Our communities 
continued

Human rights and tackling 
modern slavery
Guided by the Smiths Code of Business 
Ethics, we are committed to upholding 
high ethical standards wherever 
we operate around the world and 
we require our suppliers and other 
business partners to do the same. 

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. 

We are committed to upholding all 
internationally recognised human rights 
standards, such as the United Nations 
Guiding Principles on Business and Human 
Rights, and ensuring our operations and 
supply chains are free of human trafficking 
and slavery. 

This applies whether we are acting through 
our colleagues or third parties and we 
require any individual or entity acting on 
behalf of Smiths to know, understand 
and abide by the laws and regulations 
applicable to their conduct. This includes 
colleagues, suppliers, recruitment 
agencies, trade agents, distributors, and 
any other third-party representatives. 
We will take immediate proactive action 
should we need to.

During FY2020 we continued to focus 
on auditing and due diligence for Tier 1 
suppliers through a self-assessed  
standardised questionnaire with 
some work being delayed by the 
COVID-19 pandemic. 

The Smiths Modern Slavery and Human 
Trafficking Statement FY2020 and our 
Human Rights Policy can be found on the 
Smiths website.

5 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTRegulators and governments

We operate in highly regulated 
markets and sectors requiring 
strict adherence to local and 
international laws and regulations, 
and strong ethical practices.

We have in place expert teams to manage these matters and we operate 
robust due diligence and compliance processes to reduce the likelihood 
of an ethical, legal or regulatory breach impacting our business. 

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 divisional level so that we are able to operate 
effectively, our interests and those of the industries in which we operate 
are represented in decision making, and in order to contribute our 
expertise when appropriate. In some cases, governments are our 
customer and we engage with them as we would any other customer.

+  Read more our Code of Business Ethics on page 26

Product certification and ongoing 
regulatory compliance
Many of our products require certification/ 
approval prior to launch and ongoing 
monitoring to ensure continued compliance 
with regulations. Certifications are handled 
by our divisional teams who have direct 
relationships with the relevant regulatory 
bodies and, with our legal teams, track new 
legislation and standards to ensure that 
we comply.

Trade compliance
We operate a global trade compliance 
policy that covers export controls, import 
law, financial and trade sanctions, and 
anti-boycott law compliance. The policy 
sets out a specific prior-review process for 
authorised transactions that involve certain 
sanctioned countries, which provides 
corporate oversight of such transactions. 

We have a network of trade compliance 
officers (TCOs) across Smiths who are 
responsible for overseeing and ensuring 
the compliance of Smiths activities with 
applicable trade regulations, laws, and 
Smiths policy. The TCOs also monitor 
upcoming changes in regulation. 

We provide in-person and online training 
to our TCOs and other relevant colleagues, 
and our TCOs meet or otherwise 
communicate regularly with each other 
to share best practices and discuss 
emerging issues. We also regularly 
assess trade activities at site level to 
identify risks and review controls.

Anti-bribery and anti-corruption
Bribery and corruption matters are 
covered by our Code of Business Ethics and 
we also have specific policies/procedures 
relating to a number of activities that 
create bribery and corruption risks. 
These are included in a new umbrella 
anti-bribery and corruption policy that has 
recently been implemented to provide a 
single view of our approach to bribery and 
corruption. These policies cover, among 
many other things, the giving and receiving 
of gifts, meals and hospitality, invitations 
to government officials, our approach 
to facilitation payments, and matters in 
relation to the appointment of distributors 
and agents. We have a gift register to 
monitor compliance. During FY2020 our 
teams in China developed a country specific 
anti-bribery and anti-corruption policy 
to align with local cultural expectations, 
particularly around gifts.

Anti-trust
We are committed to competing fairly 
in the markets we operate and have an 
Anti-trust Policy and training modules for 
colleagues whose roles may expose them 
to competition law risk. Our divisions also 
use a Trade and Industry Event Register 
to ensure that colleagues attending 
events with competitors are made fully 
aware of what they may and may not 
discuss. During FY2020 we worked with 
our external advisers to develop bespoke 
anti-trust training which will be rolled out 
during FY2021.

GDPR and privacy
Our approach to complying with GDPR and 
privacy regulations has been to establish 
a common set of principles, policies and 
processes to ensure that our teams are 
aware of their responsibilities relating to 
them. This will continue as new regulations 
emerge. We have a network of Data Privacy 
Champions whose role is to cascade into 
their respective division any new process 
requirements. Training around GDPR and 
privacy is provided through our online 
training platform as well as face to face 
(for specific functions). 

Building relationships
Our Group Corporate Affairs team leads 
our outreach and relationship programme 
with the aim of promoting a deeper 
understanding of the Smiths business 
and culture; our capabilities and critical 
products; and developing long-term 
relationships with decision-making groups 
to support our business objectives and 
facilitate specific opportunities. 

The team comprises corporate affairs 
specialists based in the UK, US, Europe 
and Asia who guide and support our 
relationships with key regulators, local 
policymakers, budget holders and industry 
groups. As a FTSE 100 Company we 
have a strong relationship with the UK 
Government’s Department for International 
Trade which promotes the interests of UK 
businesses around the world. 

These relationships and the profile of 
the Group have played an important 
role in supporting the business during 
the COVID-19 pandemic, for example by 
helping our sites to gain essential status 
and stay open. They also helped Smiths 
Medical to secure its biggest ever order 
for needles and syringes to aid vaccination 
plans in the US.

5 1

SMITHS GROUP PLC  ANNUAL REPORT FY20202D I V I S I O N A L   R E V I E W 

John Crane

Mission-critical solutions for global 
energy and process industries 

1

3

2

John Crane is a global leader in rotating equipment solutions, 
supplying engineered technologies and services to process 
industries including oil & gas, pharmaceutical, chemical, 
petrochemical, power generation, mining, water treatment, 
pulp & paper, and turbomachinery. 

John Crane designs and manufactures a variety of products including mechanical 
seals and systems, couplings, filtration systems and predictive digital monitoring 
technologies. John Crane sales and service is accessed through a global network of 
more than 200 sales and service facilities in over 50 countries.

Competitive strengths 
 – A global leader in mission-critical 
technology for rotating equipment
 – Strong proprietary technology and 
expertise in applied engineering
 – Broad installed base in energy 

and industrials

 – Strong aftermarket service offering with 
more than 200 sales and service centres

 – Long-term customer relationships

Growth drivers 
 – Long-term underlying energy demand, 

especially in emerging markets
 – Pent-up demand for maintenance 

and upgrades, including 
environmental safeguarding,  
in oil & gas and petrochemical

 – Expansion in higher-growth markets
 – Need for operational improvements in 

industrial process industries
 – Disruptive innovations, including 

materials science advancements and 
digital transformation 

 – Unique footprint which allows John Crane 
to support and service customers as well 
as meet local content requirements and 
align with customer strategies

Competitors 
Competitors range from large 
multinationals to small, more focused 
companies across the product 
portfolio. Examples include Flowserve, 
EagleBurgmann, AES, Danaher, 
Hydac, Rexnord.

Divisional strategy 
Our strategy is to reinforce our global 
leadership in technologies and services for 
rotating equipment, with a competitively 
differentiated offering that will deliver 
above-market, long-term growth in the 
most attractive process industries.

We will maintain differentiation by 
investing in product development, 
continuing to diversify into industrial 
segments and higher-growth regions, 
furthering deployment of digital solutions, 
and broadening our aftermarket value 
proposition. We will also evaluate strategic 
bolt-on acquisitions to accelerate growth.

We will further drive competitiveness 
through operational improvements based 
on safety, quality and improved lead times.

Link to Group strategy

1 Outperform our chosen markets

 – Industrial market penetration such as 
chemical, mining, pulp & paper, etc.

 – Product development to support end-
market diversification, digitisation and 
environmental considerations

 – Continued focus on higher-growth 

regions with contract wins in Asia Pacific 
and the Middle East

 – Strong new product pipeline and constant 

portfolio review

2 Deliver world-class 
competitiveness 

 – Continue to implement the SES 

framework to drive performance 
improvements across the whole business

 – Focus on business process 

standardisation using 
automated systems

 – Continue to optimise and position our 
manufacturing and service footprint 
close to our customers and to continually 
improve service levels

F Y 2 0 2 0   P E R F O R M A N C E

R E V E N U E   B Y   S E C T O R

R E V E N U E   M I X

R E V E N U E
+2%*

£955m

E N E R G Y

63%

I N D U S T R I A L S
37%

O R I G I N A L   
E Q U I P M E N T

33%

A F T E R M A R K E T
67%

H E A D L I N E   O P E R A T I N G   P R O F I T
(6)%*

H E A D L I N E   O P E R A T I N G   M A R G I N *
(180)bps

£187m

5 2

21.5%

*  Underlying modifies headline performance to: adjust 
prior year to reflect an equivalent period of ownership 
for divested businesses; exclude the effects of foreign 
exchange, acquisitions, restructuring costs and write-
downs; and add back depreciation and amortisation of 
discontinued operations for comparability purposes

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTCOVID-19 
Demand shock and prolonged oil price 
declines have caused many of our 
customers to delay new projects. However, 
we expect our aftermarket business to 
remain strong.

From the onset of the COVID-19 pandemic, 
John Crane has executed a comprehensive 
response plan that maximises the safety 
of our people and minimises disruption 
of our supply chain to maintain business 
continuity and serve our customers. 

Products 
Our comprehensive product portfolio 
includes mechanical seals, seal support 
systems, power transmission couplings, 
specialised filtration systems and digital 
monitoring. These engineered solutions 
drive improvements in reliability and 
reduced environmental impact in our 
customers’ operations.

Our large installed base – built over the 
last century across a number of vertical 
markets – drives significant aftermarket 
demand. We have one of the largest 
networks of global sales and service 
centres, ensuring proximity and rapid 
service to customers. These centres 
provide a range of services, including 
repair and refurbishment, upgrades and 
retrofits, root cause analysis of incidents, 
and alignment and condition monitoring 
to improve equipment performance and 
reduce operational downtime.

Original equipment (OE) is cyclical and is 
linked to new capacity coming onstream, 
as well as improved efficiency in existing 
locations where higher-performance seals 
are installed. 

Aftermarket: We continue to expand our 
footprint through new service centres 
in selected higher-growth markets, as 
well as best-in-class field service teams. 
We continue to support and partner 
with our customers, delivering long-
term solutions and reliability contracts, 
focusing on operational efficiencies and 
environmental stewardship.

Markets where we operate
Energy: Following the oil price decline and 
the COVID-19 crisis, we expect the energy 
market to enter a period of downturn. 
Typically, given the critical nature of our 
products and services, aftermarket is 
more resilient than original equipment 
(OE) which tends to have a lagged impact 
given the large downstream nature 
of our portfolio. Increased focus on 
environmental considerations, efficiency, 
and the need to address energy needs for 
a growing population will drive the demand 
in the medium to long term. 

Industrials: We also have a significant 
presence in other process industries, 
including pharmaceutical, chemical, power 
generation, mining, water treatment, and 
pulp & paper. We expect these verticals 
will continue to grow in the medium term, 
helped by increasing demand in higher-
growth regions. 

Trends shaping innovation 
Our Group purpose guides our approach to innovation, and we believe that 
megatrends, such as the global demand for energy and efficiencies and increased 
digitalisation and connectivity, will continue to generate demand for our products 
over the longer term. 

Megatrend

Innovation in FY2020

Energy demand 
and efficiencies

Environmental Sustainability: Our partnership with Kairos 
Aerospace, Inc. further adds to our portfolio of solutions to 
monitor and mitigate greenhouse gases

Increased digitisation 
and connectivity

Continued development of John Crane’s Sense™ predictive 
diagnostics systems

INNOVATING TO SPEED THE SEAL TEST PROCESS

John Crane’s spin test rig in Slough, UK 
utilises gas flows to spin seal components 
up to high speeds to validate that they can 
cope with the significant forces they are 
likely to experience during service.

To complete a comprehensive test, certain 
seal components are required to be spun 
at higher speeds, and these could not be 
achieved with the existing rig capability. 
This resulted in components having to be 
shipped to external sub-contractors for 
spin testing, adding cost and increasing 
product lead times.

To enable spin testing to move in-house, 
the John Crane team designed and 
manufactured a new 3D-printed casing 

which improves the air flow around the 
impeller driving the spinning process, 
enabling higher speeds to be achieved on 
the rig. Two design iterations were created, 
manufactured and tested over just a one-
week period.

The internal shape and flow distribution 
are difficult and expensive to achieve 
with conventional machining and the 
single 3D-printed piece replaces an 
assembly of 22 components and is cheaper 
to manufacture. 

The upgraded rig can now be used for 
testing all seal components, reducing test 
costs and lead time for customers compared 
to contractor spin testing. 

5 3

SMITHS GROUP PLC  ANNUAL REPORT FY20202ROCE
ROCE was down (440)bps at 19.0%, due 
to the lower profitability and the adverse 
impact of IFRS 16 adoption.  

R&D
Cash R&D expenditure during the year 
represented 1.9% of sales, +20bps higher 
than last year. John Crane’s innovation is 
primarily focused on enhancing efficiency, 
performance and sustainability by using 
materials science advancements, coatings 
and additive manufacturing. John Crane 
is also leveraging the Group’s digital 
expertise to support the development of 
predictive diagnostic platforms and other 
innovative digital technologies. 

During the year, John Crane introduced 
several new technologies, including a 
booster and filter to support dry gas 
seals on turbo compressors and further 
product developments to reduce the 
effects of friction and extreme pressure on 
pipeline applications.

D I V I S I O N A L   R E V I E W   C O N T I N U E D

FY2020 Financial performance

FY2020  
£m

FY2019  
£m

Reported  
growth

H1  
underlying  
growth

H2  
underlying  
growth

FY  
underlying  
growth

Revenue

Original Equipment
Aftermarket

Headline operating profit
Statutory operating profit
Return on capital employed
R&D cash costs % sales

955
314
641
187
154
19.0%
1.9%

1%

+6%
+8%
+5%
+4%

(2)%
(6)%
–
(15)%

+2%
–
+2%
(6)%

945
313
632
220
191

(15)%
(19)%
23.4% (440)bps
1.7% +20bps

Revenue

(£m)

Revenue 

FY2019  
reported 

Foreign  
exchange

Acquisitions &
disposals

Underlying 

FY2020  
reported

945

(6)

–

16

955

John Crane’s market-leading positions and 
the strength of its global service network 
supported its robust performance, despite 
the challenges in the energy market and 
COVID-19 disruptions. Revenue was up +2% 
on an underlying basis. Reported revenue 
was up +1% as foreign exchange had a    
£(6)m adverse impact. 

Underlying revenue from John 
Crane’s Energy segment was up c.4%. 
After a strong first half with growth of 
c.11%, underlying revenue from Energy 
declined c.(2)% in the second half, impacted 
by the downturn in the energy sector and 
COVID-19 disruptions. Underlying revenue 
from Industrial activities was down 
c.(2)%, throughout the year due to strong 
comparators and COVID-19 disruptions. 

Underlying revenue from Original 
Equipment (‘OE’) was flat year-on-year 
as the very strong start to the year 
(+8%) reversed in the second half ((6)%). 
Despite a slower rate of tenders, John 
Crane secured multiple new contracts, 
many of which were in the higher-growth 
regions of Asia-Pacific and the Middle East. 
These contract wins reflect John Crane’s 
exemplary customer service and focus 
on business continuity despite the difficult 
operating conditions. John Crane’s large 
installed base and leading service offering 
position it well to support the demand for 
aftermarket repairs, maintenance and 
upgrades. Underlying aftermarket revenue 
was resilient and grew +2% during the year, 
representing 67% of John Crane’s revenue 
(FY2019: 66%).

Operating profit

(£m)

FY2019  
reported

Foreign  
exchange

Acquisitions & 
disposals

Restructuring 

costs Underlying

Headline operating profit 
Headline operating margin 

220
23.3%

(1)

–

(18)

(14)
21.5%

FY2020  
reported 

187
19.6%

Headline operating profit of £187m 
decreased by (6)% on an underlying 
basis, with higher volumes being more 
than offset by the increased costs 
associated with COVID-19 disruptions. 
Reported headline operating profit declined 
(15)% due to £(14)m of restructuring costs 
and £(4)m of receivables write-downs. 
The restructuring actions in John Crane 
are focused on enhancing its flexibility to 
withstand the cyclicality of its end markets 
and improve its efficiency.

Reported headline operating margin was 
19.6%, down (370)bps on a reported basis 
but down only (180)bps to 21.5% on an 
underlying basis, excluding the impact of 
the restructuring costs and write-downs. 
The difference between statutory and 
headline operating profit includes the net 
cost in relation to the provision for John 
Crane, Inc. asbestos litigation. 

5 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTSmiths Detection

Detection and screening 
technologies for the identification 
of safety and security threats 

1

3

2

Smiths Detection is a global leader in detection and screening 
technologies that protect people and assets, thereby supporting 
safety, security and freedom of movement in today’s world. 

We work with customers in a broad range of markets including aviation, ports & 
borders, defence and urban security, providing solutions that address existing 
and emerging threats. Smiths Detection’s reputation is underpinned by extensive 
experience, differentiated technology, and a strong track record of success.

Divisional strategy 
Our strategy is to maintain our position 
as a leading technology provider by 
building high-integrity detection solutions 
that outperform our chosen markets, 
that are technologically advanced 
and – most importantly – that deliver 
customer intimacy.

We will accelerate growth by working 
closely with our partners, suppliers and 
regulatory bodies to deliver a highly 
agile approach to constantly changing 
safety and security threats. To achieve 
this, we will invest selectively in adjacent 
markets, develop cost-effective solutions 
and services that will be built on systems 
and processes that will make it easier for 
customers to do business with us. 

Link to Group strategy

1 Outperform our chosen markets

 – At least maintaining our share 
of the installed base during 
recapitalisation periods

 – Continued product development and 
certifications to support growth, 
including innovations to address specific 
customer needs in response to COVID-19

Competitive strengths 
 – A global market leader with 

differentiated technologies leveraged 
across a broad range of markets 

 – Evolving threats to public safety and 

critical infrastructure 

 – Global growth in e-commerce 

 – Equipment replacement cycle, typically 

 – Significant R&D capability 

8–10 years 

 – Continued focus on higher-growth 
regions supported by contract wins

 – Invest selectively in technology and 
innovation to expand portfolio in 
attractive markets close to the core

 – Operating in regulated markets that 

require product certification 

 – Increasing aftermarket services

 – Enhanced digital capabilities 

 – Long-term customer relationships 

Growth drivers 
 – Persistent and evolving terror threats 

 – Changing security regulations in the 

aviation market 

 – Growth of transportation 

infrastructure in Asia, Latin America 
and Africa 

Competitors 
Across the product portfolio, our 
competitors range from large 
multinationals to smaller, single-product 
companies. Examples include: Rapiscan, 
Leidos, Nuctech.

2 Deliver world-class 
competitiveness 

 – Globalise, standardise and streamline 

our internal processes, utilising 
continuous improvement initiatives and 
leveraging global best practices using 
the Smiths Excellence System (SES) 

 – Focus on supplier development and the 

reduction of costs through improvements 
to systems, processes and products

F Y 2 0 2 0   P E R F O R M A N C E

R E V E N U E   B Y   S E C T O R

R E V E N U E   M I X

R E V E N U E
0%*

£806m

A V I A T I O N

72%

O T H E R   S E C U R I T Y 
S Y S T E M S
28%

O R I G I N A L   
E Q U I P M E N T

55%

A F T E R M A R K E T
45%

H E A D L I N E   O P E R A T I N G   P R O F I T
(12)%*

H E A D L I N E   O P E R A T I N G   M A R G I N *
(210)bps

£82m

13.9%

*  Underlying modifies headline performance to: adjust 
prior year to reflect an equivalent period of ownership 
for divested businesses; exclude the effects of foreign 
exchange, acquisitions, restructuring costs and write-
downs; and add back depreciation and amortisation of 
discontinued operations for comparability purposes

5 5

SMITHS GROUP PLC  ANNUAL REPORT FY20202D I V I S I O N A L   R E V I E W   C O N T I N U E D

COVID-19 
Smiths Detection continues to shape its 
response to the pandemic, ensuring that 
the company reacts quickly to the evolving 
situation, prioritising the safety and 
wellbeing of our colleagues, customers 
and suppliers while managing demand. 
The pace and shape of recovery is likely 
to be gradual because of the impact that 
COVID-19 has had on our key markets, 
notably aviation. We respond to the 
pandemic by driving digital products 
and by investing selectively in chemical 
and biological detection technologies 
to support our customers with their 
changing requirements and operational 
priorities. To illustrate, we are already 
supporting our aviation customers to build 
resilience in their checkpoints by utilising 
Smiths Detection technologies to improve 
efficiencies, enable social distancing and 
reduce contact between passengers and 
between passengers and staff. We also 
rapidly introduced a UV-C solution for 
passenger checkpoints, which uses 
ultraviolet-C light to disinfect trays in  
tray-handling systems (see below).

Products 
Our comprehensive product portfolio 
comprises x-ray and computed 
tomography (CT) scanners for hold 
baggage and checkpoint, people-screening 
scanners, tray-handling solutions and 
trace-detection devices for secondary 
screening at checkpoints. We produce 
portable devices for chemical, explosive 
and narcotic detection and identification. 
Our product portfolio also includes 
stationary and mobile inspection systems 
for heavy-cargo vehicles. Our growing 
range of digital solutions includes an 
integration and analytics platform that 
hosts a range of purpose-built digital 
applications to connect assets, analyse 
systems, detect threats and manage 
incidents through to resolution. 

Markets where we operate
Demand for trace and detection equipment 
and service is forecast to continue to 
grow over the long term. In the context of 
continuing geopolitical unrest and evolving 
terrorist and criminal threats – and with 
the growing advancement of biological, 
chemical and cyber threats – our security 
measures continue to evolve to keep 
ahead of these threats. But there is a 
geographical variation within our markets. 

Aviation, our largest market, has been heavily 
impacted by the COVID-19 pandemic and 
seen an almost complete halt in passenger 
travel so far in 2020. As airports and the 
aviation industry seek to restore passenger 
confidence, they will be driven to improve 
hygiene standards and create a contactless 
passenger experience at checkpoints and 
to adopt technologies that help to create 
operational efficiencies and reduce operational 
costs without compromising security. 

In Other Security Systems we have three 
sub-segments: 

In ports & borders, the growth of worldwide 
trade volumes is expected to increase demand 
for security screening equipment and digital 
solutions that drive inspection processing 
speeds. Powerful digital technologies and next 
generation connected hardware are needed to 
enhance inspection effectiveness and detect 
more in less time in order to minimise threats, 
without affecting global trade. 

In defence, emerging threats are generating 
global demand for mobile and adaptable 
detection equipment for chemical warfare 
agents and other threat specific sensors in 
key NATO-orientated markets. This market 
is affected by the nature of its associated 
procurement cycles. 

Urban security is a large but fragmented 
and mainly unregulated sector. 
Critical infrastructure, mass transit and 
crowded spaces have specific customer 
needs and challenges. Demand is growing 
– driven by an increase in criminal activity 
towards traditionally more vulnerable 
targets and by the response of both the 
public and the private sectors to an ever-
growing range of threats – for solutions 
that allow the public to go about their lives 
as normal, with the peace of mind that their 
security and welfare are being protected.

Almost half of our customers are 
government-funded and, consequently, 
budget constraints affect revenues. 
Original equipment (OE) drives the 
programmatic nature of our business. 
The lifecycle of OE is typically 8 to 10 years. 
Aftermarket as a percentage of revenue is 
increasingly driven by our growing installed 
base, advances in our digital capability, and 
our focus on providing a complete solution to 
our customers.

Trends shaping innovation 
Our Group purpose drives our approach to innovation, and we believe that megatrends – such 
as increasing digitisation and connectivity, artificial intelligence, cyber security and mobility and 
globalisation – are likely to continue to generate demand for our products over the longer term. 

Megatrend

Innovation in FY2020

Increasing digitisation 
and connectivity 
Artificial intelligence

Data-integration and cognitive-analytics platform, 
delivering shared threat and anomaly detection capabilities.
iCMORE portfolio, delivering automatic detection of an ever-
expanding list of dangerous, prohibited and contraband goods.
Mobility and globalisation  Advances in threat-detection capability with expansion into 

chemical, biological, radiological and nuclear (‘CBRNE’) 
and adjacent markets.

IMPROVING SAFETY AT AVIATION SECURITY WITH ULTRAVIOLET LIGHT

A study showed that baggage trays at 
security checkpoints have the highest 
levels of pathogens of any other surface 
in an airport. 

In response to the COVID-19 pandemic and 
to support hygiene improvements at airport 
security screening, Smiths Detection 
developed a proprietary ultraviolet (UV-C) 
light tray disinfection kit capable of killing 
up to 99.9% of bacteria and virus-carrying 
micro-organisms, including coronavirus. 
The kits can be installed into any tray return 
system, regardless of vendor. 

Trials are underway in Asia Pacific 
and Europe and results have proven 
the solution’s ability to destroy micro-
organisms. A specially designed casing 
and other safety measures mean the 
UV-C lights pose no exposure risk to 
staff or passengers and can be installed 
quickly and easily into existing systems. 
Demonstrating greater hygiene standards 
will be important as airports seek to 
restore the confidence of travellers and 
staff during and in the aftermath of the 
COVID-19 pandemic.

5 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTFY2020 Financial performance

FY2020  
£m

FY2019  
£m

Reported  
growth

H1  
underlying  
growth

H2  
underlying  
growth

FY  
underlying  
growth

Revenue
Aviation
Other Security Systems
Headline operating profit
Statutory operating profit
Return on capital employed
R&D cash costs % sales

806
577
229
82
57
7.2%
9.2%

+1%

798
522
276
127
91

(36)%
(37)%
11.5% (430)bps
8.4% +80bps

+4%
+5%
+3%
+4%

(3)%
+8%
(26)%
(24)%

–
+6%
(13)%
(12)%

Revenue

(£m)

Revenue 

FY2019  
reported 

Foreign  
exchange

Acquisitions & 
disposals

Underlying 

FY2020  
reported

798

8

–

–

806

The strength of Smiths Detection’s 
market position and its leading technology 
supported its resilient performance with 
underlying revenue flat year-on-year. 

The delivery of previously announced 
contract wins drove Original Equipment 
(‘OE’) up +2% on an underlying basis, 
with strong first half growth of +8% 
moderating to (2)% in the second half. 
Aftermarket revenue declined (2)% 
on an underlying basis, with first half 
growth of +1% being offset by (5)% in the 
second half as service and maintenance 
levels reduced during the COVID-19 
pandemic. Reported revenue was up +1%, 
including +£8m of favourable foreign 
exchange translation.

Revenue from Aviation activities 
increased +6% on an underlying basis. 
Aviation is Smiths Detection’s largest 
segment, representing 72% of total 
revenue. We continued to see demand 
for hold baggage systems (‘HBS’) across 
Europe, as a result of the ECAC standard-3 
regulation, and globally, as airports 
upgrade their fleets. Demand is also driven 
by Computed Tomography (‘CT’) based 
screening systems for cabin baggage, 
which allow laptops and liquids to remain 

in bags. Deliveries included part of the 
previously announced contracts with Aena 
in Spain, Airports Authority India (AAI) and 
with the TSA in the US. Despite a slower 
rate of new tenders, Smiths Detection 
continues to secure contract wins, 
including for Kuwait International Airport 
and Singapore Changi Airport. 

Underlying revenue from Other 
Security Systems declined by (13)%. 
This performance reflects both the strong 
comparator and the impact of COVID-19. 
Smiths Detection continues to respond to 
the pandemic by driving its digital portfolio 
and investing selectively in chemical and 
biological detection capabilities that will 
support a safer post COVID-19 world. 
New contract wins include an order from 
U.S Customs and Border Protection for 
high-energy X-ray inspection scanners 
used to screen moving rail carriages for 
dangerous or illegal cargo, and with the US 
Department of Defence (US DoD) for Solid 
Liquid Adaptors which add new capabilities 
to Joint Chemical Agent Detectors (JCADs), 
securing Smiths Detection as a global 
supplier of JCADs to the US DoD for 
several more years to come.

Operating profit

(£m)

FY2019  
reported

Foreign  
exchange

Acquisitions & 
disposals

Restructuring 

costs Underlying

Headline operating profit 
Headline operating margin

127
16.0%

1

–

(30)

(15)
13.9%

FY2020  
reported 

82
10.2%

Headline operating profit decreased 
(12)% on an underlying basis, reflecting a 
higher proportion of OE - at competitive 
pricing and COVID-19 related costs 
including reduced aftermarket services. 
Reported headline operating profit of £82m 
was down (36)% year-on-year, including 
£(14)m of restructuring and £(17)m of 
R&D and receivables write-down costs. 
Restructuring costs consist of headcount

reduction combined with footprint 
optimisation. Reported headline operating 
margin was 10.2%, down (580)bps on a 
reported basis but only down (210)bps to 
13.9% on an underlying basis, excluding 
the impact of the restructuring costs and 
write-downs. The difference between 
statutory and headline operating profit 
primarily reflects amortisation of 
acquired intangibles. 

Portfolio 
In August 2020, Smiths Detection 
completed the bolt-on acquisition of 
PathSensors Inc, which enhances its 
biological capability to detect pathogens for 
broad end market applications.

ROCE
ROCE decreased by (430)bps to 7.2%, 
impacted by reduced profitability.

R&D
Cash R&D expenditure during the year 
was 9.2% of sales, +80bps higher than last 
year. R&D excluding customer funding was 
6.9% for FY2020 (FY2019: 6.6%). Our new 
checkpoint scanner (CTiX) contributed 
positively to the Group’s Vitality Index. 

We continue to invest in the development 
of the next generation of detection devices 
for the defence market, new algorithms to 
improve the detection of dangerous goods 
for cargo applications and operational 
efficiency, and digital solutions to 
strengthen our aftermarket proposition to 
make people and infrastructure safer. 

Certain programmes are co-funded 
by strategic customers seeking next-
generation solutions to security challenges. 
In the year, Smiths Detection launched its 
new ultraviolet (UV-C) light kits, capable of 
destroying up to 99.9% of microorganisms 
present on baggage trays at the security 
checkpoint. Demonstrating heightened 
hygiene standards will be important, as 
airports seek to restore the confidence of 
travellers and staff during and after the 
COVID-19 pandemic. 

5 7

SMITHS GROUP PLC  ANNUAL REPORT FY20202D I V I S I O N A L   R E V I E W   C O N T I N U E D

Flex-Tek

Innovative components to heat 
and move fluids and gases

1

3

2

Flex-Tek is a global provider of engineered components that heat 
and move fluids and gases for the aerospace, medical, industrial, 
construction and domestic appliance markets. 

Our flexible hosing and rigid tubing provide safe fluid management for fuel and 
hydraulic applications on commercial and military aircraft, deliver gas and 
conditioned air in residential and commercial buildings, and enable respiratory care 
in medical applications. Flex-Tek heating elements and thermal systems improve the 
performance and efficiency of medical and diagnostic equipment as well as that of 
domestic appliances such as clothing tumble dryers and HVAC equipment.

Competitive strengths 
 – High performance products

 – Leading capability in design 

and manufacture

 – A leader in residential gas 

tubing products

 – High performance flexible tubing 

for aerospace

 – Strong customer relationships

Growth drivers 
 – Through-cycle growth of the US 

housing construction market segment

 – Expanding international market for 
corrugated stainless steel tubing 
for housing

 – Long-term increase in commercial and 

defence aircraft production

 – Growth of medical devices, especially 
for the treatment of sleep apnoea and 
respiratory conditions

 – Expansion in higher-growth markets 

 – Expanding innovation in heat 

industrial solutions

Competitors 
Competitors range from large 
multinationals through to small, more 
focused companies across the product 
portfolio. Examples include: Parker-
Hannifin, Eaton, Omega Flex, Nibe.

Divisional strategy 
Our strategy is to outperform our 
chosen markets through technological 
differentiation, with the need for safer, 
more energy-efficient and smart/digital 
solutions providing opportunities for us 
to establish leadership positions across 
our segments. 

We aim to do this by developing our 
product portfolio through strong customer 
intimacy, expanding in our target regions, 
growing existing market share and 
driving operational excellence to increase 
competitiveness. We also consider 
aligned strategic bolt-on acquisitions to 
support growth. 

Specific focus areas include growing our 
share in the US housing market segment, 
expanding our international markets for 
gas tubing and securing positions on next 
generation aircraft.

We drive competitiveness through 
operational improvements.

Link to Group strategy

1 Outperform our chosen markets

 – Continue to launch new 

innovative products

 – Progress in international expansion 

2 Deliver world-class 
competitiveness 

 – Continue the lean transformation 
of all sites, including the newly 
acquired United Flexible sites using 
the Smiths Excellence System site 
development guide

 – Focus on quality by adopting a formal 
supplier quality methodology and 
optimise supply base

F Y 2 0 2 0   P E R F O R M A N C E

R E V E N U E   B Y   S E C T O R

R E V E N U E   M I X

R E V E N U E
(6)%*

£478m

A E R O S P A C E

28%

I N D U S T R I A L S
72%

O R I G I N A L   
E Q U I P M E N T

49%

A F T E R M A R K E T
51%

H E A D L I N E   O P E R A T I N G   P R O F I T
(14)%*

H E A D L I N E   O P E R A T I N G   M A R G I N *
(160)bps

£83m

5 8

17.6%

*  Underlying modifies headline performance to: adjust 
prior year to reflect an equivalent period of ownership 
for divested businesses; exclude the effects of foreign 
exchange, acquisitions, restructuring costs and write-
downs; and add back depreciation and amortisation of 
discontinued operations for comparability purposes

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTCOVID-19 
Our utmost priority has been to keep 
our employees safe whilst maximising 
business continuity with our suppliers and 
servicing our customers. The pandemic 
has slowed most of our end markets, with 
the exception of medical where we supply 
hoses for ventilators. In order to respond 
to the high demand, we have converted 
lines. Whilst most of our end markets 
are expected to recover relatively swiftly, 
commercial aerospace is expected to 
take two to three years to return to pre-
COVID-19 level. 

Products 
In Aerospace, we are a leading provider of 
specialty tubing assemblies that provide 
reliable, efficient delivery of hydraulic fluids 
and jet fuel for commercial and military 
aircraft globally.

In Industrials, we are one of the world’s 
largest manufacturers of open coil heating 
elements, supplying electric resistance 
heating and controls for a broad range 
of applications, including compressors, 
clothes dryers, duct heaters, heat pumps, 
window air conditioners, and vending 
machines. We also provide flexible 
ducting for commercial and residential 
HVAC applications, hoses for medical 
applications including ventilators, hoses for 
the automotive market to deliver fuel and 
brake fluid, as well as corrugated stainless 
steel tubing that supplies natural gas or 
low-pressure gas to appliances.

Markets where we operate
Key market segments include US 
residential and commercial construction, 
global aerospace tubing and hoses, and 
electrical heating elements. 

Our business performance generally 
follows macroeconomic indicators 
such as US GDP, US housing growth, 
healthcare spending and capital goods 
expenditure. Population growth drives 
residential construction and domestic 
appliance demand in the US. In the long 
term, increasing air passenger and freight 
volumes and investment in next-generation 
aircraft are expected to drive the growth in 
commercial aerospace. The diverse nature 
of our markets reduces our reliance on 
any specific technology, although we are 
primarily exposed to the US economy.

In Aerospace, the market for commercial 
aircraft following the COVID-19 pandemic is 
expected to be challenging for the next two 
to three years. 

In Industrials, growth is driven by the US 
housing market segment, along with an 
increasing number of specialty heating 
applications and flexible gas piping and 
HVAC ducting in North America and 
Asia. Our products are also used in the 
manufacture of medical devices such 
as sleep apnoea devices and devices 
for respiratory conditions (including 
ventilators), where increasing global 
healthcare spend is driving growth.

Trends shaping innovation 
Our Group purpose guides our approach to innovation and we believe that 
megatrends, such as energy demand and efficiencies, and mobility and globalisation, 
will continue to generate demand for our products over the longer term. 

Megatrend

Innovation in FY2020

Energy demand and 
efficiencies

Energy efficient heating, lower weight aerospace products 
and more sustainable building practices

Mobility and globalisation

Expanding in Europe with Gastite and leveraging the 
United Flexible European footprint 
Expanding product breadth in China to support 
industrial applications

BUILDING THE MARKET FOR SAFER GAS TUBING

The further development of Flashshield+, 
including investments in new machinery 
and technology, and a full range of 
sizes, has led to successful contracts 
with new distributors, contractors and 
large-scale construction projects. 
Transition to Flashshield+ has been high 
due to the range of features incorporated 
into the product.

The FlashShield+ system for supplying 
natural gas and propane in residential 
and commercial structures was designed 
after extensive voice of customer and 
engineering research, utilising innovation 
from the food industry. 

The corrugated stainless steel tubing 
(CSST) has four layers of protection that 
are bonded together using specially 
engineered adhesives. Each layer has a 
specific function to address multiple safety 
points and protect the CSST. The product 
has a simplified installation process 
through further innovation around earthing 
connections, a key output from the voice 
of customer research, as well as being 
better performing.

FlashShield+ is also the only product of 
its kind to have industry-leading lightning 
protection as well as household fault 
current protection. 

5 9

SMITHS GROUP PLC  ANNUAL REPORT FY20202ROCE
ROCE decreased (580)bps to 17.5%, mainly 
driven by the impact of lower volumes on 
profit and the acquisition of United Flexible 
in the prior year. 

R&D

Cash R&D expenditure remained broadly 
consistent at 0.5% of sales. R&D is focused 
on new products for HVAC line sets, duct 
innovation in Thermaflex, and an expanded 
product offering in aerospace.

D I V I S I O N A L   R E V I E W   C O N T I N U E D

FY2020 Financial performance

FY2020  
£m

FY2019  
£m

Reported  
growth

H1  
underlying  
growth

H2  
underlying  
growth

FY  
underlying  
growth

Revenue

Industrials
Aerospace

Headline operating profit
Statutory operating profit
Return on capital employed
R&D cash costs % sales

478
345
133
83
52
17.5 %
0.5%

+10%

436
315
121
84
68

(1)%
(24)%
23.3% (580)bps
0.6% (10)bps

+3%
+2%
+5%
+9%

(13)%
(5)%
(31)%
(29)%

(6)%
(2)%
(18)%
(14)%

Revenue

(£m)

Revenue

FY2019  
reported 

Foreign  
exchange

Acquisitions & 
disposals*

Underlying 

436

8

61

(27)

FY2020  
reported

478

Flex-Tek’s underlying revenue decreased 
(6)%. After a good first half, underlying 
revenue declined (13)% in the second half, 
reflecting the downturn in commercial 
aerospace as well as a temporary 
disruption to US construction - which has 
since recovered. On a reported basis, 
revenue increased +10%, including +£61m 
incremental revenue associated with the 
acquisition of United Flexible, and +£8m 
favourable foreign exchange translation. 

Industrials revenue was down (2)% 
despite increased sales of medical hoses 
and strong customer conversions to 
Flashshield+TM, an innovative new flexible 
gas tubing product, which contributed 
positively to the Group’s Vitality Index. 
Aerospace revenue was down (18)% on an 
underlying basis for the year, driven by the 
downturn in commercial aerospace in the 
second half. However defence aerospace 
was more resilient. 

Operating profit

(£m)

FY2019  
reported

Foreign  
exchange

Acquisitions & 
disposals*

Restructuring 

costs Underlying

Headline operating profit 
Headline operating margin

84
19.2%

2

9

–

(12)
17.6%

FY2020  
reported 

83
17.3%

Headline operating profit decreased 
(14)% on an underlying basis, impacted 
by lower volumes partially offset by 
strong cost controls. Reported headline 
operating profit was down (1)% at £83m, 
benefiting from +£2m favourable foreign 
exchange and +£9m from the United 
Flexible acquisition. 

Reported headline operating margin was 
17.3%, down (190)bps. The difference 
between statutory and headline operating 
profit is due to amortisation of acquired 
intangible assets, provision for Titeflex 
Corporation subrogation claims, 
and integration costs for the United 
Flexible acquisition. 

*  Includes disposals and FY2020 performance from acquisitions that do not have comparators for the prior year

6 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTDivisional strategy 
Our strategy is to outperform our chosen 
market segments through customer focus, 
new technology, operational excellence and 
targeted geographical investment. We aim 
to be a partner of choice to customers 
that value our broad portfolio of innovative 
and technically differentiated connectivity 
solutions by having strong key account 
partnerships and efficient channels 
to market.

We will continue to focus on specific 
market segments including defence and 
space, communications and industrial 
applications. We will drive competitiveness 
through research and development (R&D), 
and we will fund our investments through 
improved efficiency. 

Link to Group strategy

1 Outperform our chosen markets

 – Continued emphasis on key account 

management to develop customer focus 
and intimacy

 – Increased focused R&D investment of 

over 7.7% of sales to drive growth in our 
Vitality Index

 – Build presence in India, focusing 

on defence, satcom, space and rail 
market segments

 – Continued focus on higher-growth 

regions and market segments

2 Deliver world-class 
competitiveness 

 – Continuous improvement and lean 
manufacturing through six sigma 
process improvement, deployment of 
mechanised/automated processes, and 
use of disruptive technologies to enable 
new manufacturing methods

 – Simplified global operational structure 
through unified enterprise resource 
planning (ERP) implementation, legal 
entity simplification and network 
optimisation (regional end-to-end 
supply chain)

Smiths Interconnect

Solutions for high-speed, secure 
connectivity in demanding 
applications

1

3

2

Smiths Interconnect is a leading provider of technically 
differentiated electronic components, subsystems, 
microwave and radio frequency products that provide secure 
connectivity of critical applications in the defence, aerospace, 
communications and industrial markets. 

Our advanced, high-quality solutions ensure high-speed connectivity, reliability 
and safety for demanding applications operating in harsh environments. 

Competitive strengths 
 – Innovative and technically 
differentiated products

 – High-reliability solutions used in 

demanding applications 

 – Strong research and 

engineering capabilities

 – Customer intimacy and 
product customisation

 – Global reach and support

Growth drivers 
 – Increased connectivity in space 

 – Growing urbanised population 

requiring transport and infrastructure

 – Increasing geopolitical uncertainty

 – Extension of internet connectivity to 

improve efficiency and data accuracy 
(Internet of Things, Industry 4.0)

 – Increased focus on healthcare and 

ageing populations

Competitors 
Competitors range from large 
multinationals through to small, more 
focused companies across the product 
portfolio. Examples include: Amphenol, 
TE Connectivity, Molex, WinWay, 
Cobham, Honeywell, Leeno.

F Y 2 0 2 0   P E R F O R M A N C E

R E V E N U E   M I X

R E V E N U E
(5)%*

£309m

O R I G I N A L   
E Q U I P M E N T

98%

A F T E R M A R K E T
2%

H E A D L I N E   O P E R A T I N G   P R O F I T
(35)%*

H E A D L I N E   O P E R A T I N G   M A R G I N *
(460)bps

£26m

10.1%

*  Underlying modifies headline performance to: adjust 
prior year to reflect an equivalent period of ownership 
for divested businesses; exclude the effects of foreign 
exchange, acquisitions, restructuring costs and write-
downs; and add back depreciation and amortisation of 
discontinued operations for comparability purposes

6 1

SMITHS GROUP PLC  ANNUAL REPORT FY20202D I V I S I O N A L   R E V I E W   C O N T I N U E D

COVID-19 
Our primary concern being always the 
safety of our people and of all those we 
work with, each of our sites supported 
employees in taking appropriate 
precautions to protect their health. As our 
products and services are instrumental 
to the continued operation of essential 
industries such as medical/healthcare, 
aerospace, defence, rail, communications 
and digital infrastructure, our sites have 
remained open during the COVID-19 
pandemic, whilst taking appropriate 
precautions to protect the health of 
site workers.

We have closely monitored the potential 
impact that this unprecedented situation 
could have on our supply chain and taken 
the appropriate measures to minimise 
any effect on product manufacture and 
delivery to customers. This has resulted in 
minimal disruption of our operations and 
consequently very limited impact on our 
customer base.

Products 
We provide technologically differentiated 
electronic components, subsystems, 
microwave and radio frequency products 
that connect, protect and control critical 
applications in harsh environments in our 
focus market segments. 

Our products are used in radar, 
communication and surveillance 
systems that are mission-critical and 
operate in extreme environments in 
aerospace and defence. Our solutions in 
engine systems, power distribution and 
avionics ensure reliability in flight-critical 
systems. Our microwave components and 
connectors ensure optimal performance, 
durability and safety in space, including 
LEO, MEO and GEO (Low, Medium and 
Geostationary Earth Orbit) satellites. 

Our semi-conductor test products are 
used to test highly sophisticated semi-
conductors and electronic circuits in 
use in communication systems, gaming 
products and computing devices. Our in-
flight antenna systems give passengers 
internet connectivity gate-to-gate on 
planes around the world. Our connectivity 
solutions are used in surgical and 
monitoring systems, imaging systems and 
disposables applications. Our products 
control the reliable operation of train 
rolling stock (driver cabin braking systems) 
and ensure the integrity and speed of data 
transmission in signalling (train monitoring 
by satellites).

Markets where we operate
Increasing geopolitical uncertainty and 
operations in extreme environments 
create a platform for growth for defence 
applications. Increased demand for 
communication and data transmission 
requires additional satellites, especially 
LEO and MEO. Air transportation is 
impacted by COVID-19, which will result in 
delays to the upgrade of fleets.

The growth in big data, which requires 
more bandwidth and increased computing 
power, combined with a high rate of 
technology refresh with increased 
functionality and connectivity, creates 
further opportunities for our products.

Technology and Artificial Intelligence are 
transforming healthcare and will drive the 
demand for home-based, more connected 
medical devices.

Sustainable development in industrial 
applications will be a big driver of 
Internet of Things (“IoT”) and micro-
electronics, driven by the need for 
productivity improvements

Increasing focus on sustainable energy 
will result in increased needs for electricity 
storage and battery back-up power.

Trends shaping innovation 
Our Group purpose guides our approach to innovation and we believe that 
megatrends, such as increased digitisation and connectivity and mobility and 
globalisation, are likely to continue to generate demand for our products over the 
longer term.

Megatrend

Innovation in FY2020

Increased digitisation and 
connectivity

High-speed data, smaller packaging, increased power 
needs, smart devices, intelligent systems

Mobility and globalisation

Space constellations, telemedicine, increased bandwidth, 
big data and 5G

CONNECTORS SUPPORTING THE EXPLORATION OF SPACE

Smiths Interconnect was recently 
awarded a contract by Boeing to design, 
manufacture and supply bespoke 
connectors to transfer power, signal and 
communications to different modules 
aboard NASA’s Orion spacecraft and 
Lunar Gateway for the Artemis crewed 
spaceflight programme.

The Orion spacecraft will take up to 
four astronauts to the Lunar Gateway 
where they will board a human landing 
system for exploration missions to the 
surface of the Moon. The Lunar Gateway 
is an in-development spaceship which is 
intended to orbit around the Moon. It will 
be a solar-powered communication hub, 
with living quarters for astronauts, a lab 

for science and research, ports for visiting 
spacecraft, and a holding area for rovers 
and other robots.

The spaceship will be a temporary home 
and office for astronauts, a five-day, 
250,000-mile commute from Earth. It will 
provide NASA and its partners access 
to more of the lunar surface than ever 
before, supporting both human and robotic 
missions on the Moon and, eventually, 
to Mars.

With many phases of the Artemis programme 
still to come, it is hoped that Interconnect’s 
partnership with Boeing will extend to many 
decades as humans explore Mars and the 
wonders that the planet has to offer.

6 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTPortfolio
In October 2019, Smiths Interconnect 
completed the acquisition of Reflex 
Photonics (“Reflex”) for an enterprise 
value of CAD$40m. Reflex’s technological 
leadership in shock-resistant fibre 
optics significantly strengthens Smiths 
Interconnect’s product offering in the 
defence, space, aerospace and industrial 
market segments.

ROCE
ROCE decreased (640)bps to 6.4%, driven 
by lower profitability. 

R&D
Cash R&D expenditure increased to 
7.7% of sales (7.0% excluding customer 
funded R&D, FY2019: 6.4%), as we 
continued to invest in technology-led 
growth. R&D is focused on bringing 
to market new products that improve 
connectivity in difficult operating 
environments. Product launches included 
connectors for power transmission in 
harsh environments and efficient probe 
heads for the semiconductor packaging 
industry. Smiths Interconnect opened 
a new Qualification and Test laboratory 
in Dundee, offering a one-stop shop 
for critical qualification and testing for 
space applications.

FY2020 Financial performance

Revenue
Headline operating profit
Statutory operating profit
Return on capital employed
R&D cash costs % sales

FY2020  
£m

FY2019  
£m

Reported  
growth

309
26
23
6.4%
7.7%

319
47
45

(3)%
(45)%
(49)%
12.8% (640)bps
7.2% +50bps

H1  
underlying  
growth

H2  
underlying  
growth

FY  
underlying  
growth

(7)%
(50)%

(3)%
(25)%

(5)%
(35)%

Revenue

(£m)

Revenue 

FY2019  
reported 

Foreign  
exchange

Acquisitions & 
disposals

Underlying 

319

5

–

(15)

FY2020  
reported

309

Smiths Interconnect revenue declined 
(5)% on an underlying basis, primarily 
reflecting the pre-COVID slowdown in 
its end markets. After a challenging first 
half with underlying revenue down (7)%, 
the trajectory improved in the second half 
with underlying revenue of (3)% and an 
increase in orders supporting the division’s 
return to growth in the fourth quarter. 
On a reported basis, revenue decreased 
by (3)%, including +£5m favourable foreign 
exchange translation. 

The commercial aerospace and general 
industrial market segments were 
particularly badly impacted by the 
COVID-19 pandemic. Sales in the defence 
and space market segments also declined 
due to programme delays. Partly offsetting 
these declines was cyclical growth 
in semiconductor test as customers 
increased production of graphics 
cards for games consoles, and one-off 
orders for ventilator components in the 
medical segment.

The volume decline reflects a general 
slowdown in Interconnect’s markets, which 
were impacted by the China-US trade 
dispute from the start of the financial year. 

During the year, Smiths Interconnect 
received significant orders for its space 
applications including for NASA projects 
and commercial satellite constellations. 

Operating profit

(£m)

FY2019  
reported

Foreign  
exchange

Acquisitions & 
disposals

Restructuring 

costs Underlying

Headline operating profit 
Headline operating margin

47
14.7%

1

–

(5)

(17)
10.1%

FY2020  
reported 

26
8.4%

Headline operating profit decreased 
(35)% on an underlying basis, reflecting 
lower volumes and the cost of relocating 
and rationalising production capacity. 
Reported headline operating profit was 
down (45)% in the year to £26m, including 
+£1m favourable foreign exchange and 
£(2)m of restructuring costs to optimise 
the operational footprint, and £(3)m of 
receivables write-downs. 

Reported headline operating margin 
was 8.4%, down (630)bps on a reported 
basis and (460)bps to 10.1% on an 
underlying basis, excluding the impact of 
the restructuring costs. The difference 
between statutory and headline 
operating profit reflects adjustments for 
amortisation of acquired intangibles and 
acquisition costs. 

6 3

SMITHS GROUP PLC  ANNUAL REPORT FY20202D I V I S I O N A L   R E V I E W   C O N T I N U E D

Discontinued operations

Smiths Medical 

Quality medical devices and 
consumables that are vital 
to patient care

Competitive strengths 
 – A category leader in served segments

 – Trusted brands with a reputation 

for safety

 – Strong, defensible intellectual property

 – C.80% of revenue from single-use 

devices and proprietary consumables 

 – Strong customer relationships and 

extensive global sales network

Growth drivers 
 – Ageing populations with increasing 
personalised healthcare and patient 
expectation/quality of life

 – Increasing incidence of 

chronic diseases

 – Increasing need for connected systems 

and data analytics

 – Growth of alternate site and home-

based healthcare

 – Growing healthcare spend in 

developing markets

Competitors 
Competitors range from large 
multinationals through to small, more 
focused companies across the product 
portfolio. Examples include: Becton 
Dickinson, Baxter, B-Braun, Medtronic.

Divisional strategy 
Smiths Medical’s strategy is to become 
a leading medication management 
solutions company with a complementary 
vital care offering. We believe we will 
achieve this with commercially focused 
innovation, differentiation in our customer 
support model, and delivery of complete 
solutions that optimise patient outcomes. 
We will continue to enhance both our 
own R&D and our external partnerships 
to execute our strategy in line with 
healthcare megatrends.

In order to invest in our future, we will 
continue to improve efficiency and 
operational excellence. Part of this 
investment, besides customer solutions, 
will include further developing our people.

We will drive growth in developed markets 
through investments in premium product 
segments. We will also continue to improve 
our capabilities in emerging markets 
outside of North America and Western 
Europe, enhancing our current global 
footprint and sales reach. In addition, 
we will continue to pursue channel 
optimisation in hospitals and alternate 
sites of care. 

*  Underlying modifies headline performance to: adjust 
prior year to reflect an equivalent period of ownership 
for divested businesses; exclude the effects of foreign 
exchange, acquisitions, restructuring costs and write-
downs; and add back depreciation and amortisation of 
discontinued operations for comparability purposes

F Y 2 0 2 0   P E R F O R M A N C E

R E V E N U E   M I X

R E V E N U E   B Y   S E C T O R

R E V E N U E
+4%*

£918m

O R I G I N A L   
E Q U I P M E N T

20%

C O N S U M A B L E S
80%

I N F U S I O N 
S Y S T E M S

35%

V A S C U L A R 
A C C E S S
30%

H E A D L I N E   O P E R A T I N G   P R O F I T
(3)%*

H E A D L I N E   O P E R A T I N G   M A R G I N *
(130)bps

£184m

6 4

15.5%

V I T A L   C A R E   A N D 
S P E C I A L T Y  P R O D U C T S
35%

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTCOVID-19 
The global COVID-19 pandemic has and 
is driving unprecedented impacts on the 
Smiths Medical business. Demand for 
items such as ventilators and supporting 
accessories, other airway management 
products and infusion pumps and 
accessories, which are used to treat and 
care for impacted patients, saw substantial 
demand increases. At the same time, 
elective procedures have been restricted, 
if not altogether cancelled, resulting 
in worldwide decreasing demand on 
other segments of the business, also 
impacting inventory. We believe we are 
well positioned to support our customers 
and their patients for subsequent waves of 
the pandemic.

Products 
In Infusion Systems, Smiths Medical 
products deliver medication treatment 
for conditions including acute and chronic 
pain, cancer, pulmonary hypertension and 
Parkinson’s disease. Products are used in 
acute settings, surgery centres, oncology 
centres, and home settings and we have 
strong positions in ambulatory infusion and 
in the syringe pump segment. 

In Vascular Access, products cover a range 
of venous access methods including blood 
draw, as well as catheters, ports, and 
needles for the infusion of fluids and blood. 
In May 2020, Smiths Medical acquired 
the business of Access Scientific LLC in 
order to further strengthen its vascular 
access portfolio.

Vital Care and Specialty Products cover 
a wide range of critical-care and chronic 
disease management products including 
tracheostomy, temperature management, 
general anaesthesia, respiratory and 
bronchial hygiene.

Markets where we operate
The medical device industry remains 
attractive, with strong growth drivers. 
The global market served by Smiths 
Medical is estimated to be c.£7.3bn and 
growing around 3% annually, with growth 
drivers such as expansion of developing 
markets, ageing populations, increasing 
need for connected systems and data 
analytics, and growth of alternate site and 
home-based healthcare and innovation. 

In Infusion Systems, an increasing rate 
of chronic conditions and outpatient 
treatment favour ambulatory infusion 
solutions. Healthcare providers are 
advancing digital integration between 
infusion devices and their respective 
hospital information systems.

In Vascular Access, continued growth is 
expected due to safety regulations driving 
to prevent needlestick injuries, blood 
exposure, and hospital-acquired infections. 

In Vital Care and Specialty Products, 
key growth drivers include the expansion 
of enhanced recovery after surgery and 
the prevalence of chronic obstructive 
pulmonary disease (COPD). 

Trends shaping innovation 
Megatrends, such as ageing populations and healthcare demand and increased 
digitisation and connectivity are expected to continue to generate demand for 
Smiths Medical products over the longer term.

Megatrend

Innovation in FY2020

Ageing populations and 
healthcare demand

–  Focus on alternate site and home-based healthcare in 

developed markets

Increased digitisation 
and connectivity

–  Developing focused technologies targeting chronic 

conditions through patient-friendly design

–  Smart pump programming with electronic medical record 

system integration

–  Evolving data access and connectivity models

RESPONDING EFFECTIVELY TO THE DEMANDS OF THE COVID-19 PANDEMIC

The Smiths Medical COVID-19 SWAT 
team was formed at the beginning of the 
COVID-19 pandemic to facilitate and drive 
an accelerated response to customer 
needs and demand for medical products 
and devices including ventilators across 
the world. The five-strong team met daily 
with Smiths Medical CEO, JehanZeb Noor, 
to share information and discuss priorities, 
and were empowered to execute decisions 
on all aspects of the response, including 
strategy, resourcing and investment, supply 
and building external partnerships. 

Weekly leadership meetings were held with 
the SWAT team to monitor the spread of 
the pandemic and align the global team on 
strategy and messaging. Cross-functional 

teams were supported to respond 
operationally to changes in demand 
and prepare forward plans. The SWAT 
team co-ordinated efforts to enlist new 
suppliers and facilitated capital investment 
at locations across the Smiths Medical 
network to support increased output. 
They also set up a workstream to deliver 
online and interactive customer training 
materials for ventilator use.

The SWAT team played a role in securing an 
order for 78.6 million syringes to support 
the US Government’s vaccination plans and 
in the UK Ventilator Challenge consortium.

6 5

SMITHS GROUP PLC  ANNUAL REPORT FY20202Update on separation 
As disclosed on 31 March 2020, the Board 
decided to delay the previously announced 
separation of Smiths Medical due to the 
uncertain market conditions. The strategic 
rationale remains unchanged.

Portfolio
In May 2020, Smiths Medical acquired 
the business of Access Scientific LLC. 
The acquisition extends Smiths Medical’s 
vascular access portfolio and enhances its 
infection prevention capabilities.

ROCE
ROCE increased by +210bps to 13.8% 
due to the absence of depreciation and 
amortisation, partially offset by the 
adoption of IFRS 16.

R&D
Cash R&D expenditure was 5.9% of sales, 
down (10)bps year on year. Smiths Medical 
continues to invest in the development of 
innovative, commercially focused products 
across the portfolio to support long-term, 
sustainable growth. Product launches 
in the year included: a pain management 
connection system designed to promote 
patient safety; anaesthesia breathing 
masks designed to better fit senior 
patients; a needle and catheter system that 
allows full visualisation under ultrasound 
to provide certainty of placement, and a 
non-invasive ventilation product for the 
Indian market.

D I V I S I O N A L   R E V I E W   C O N T I N U E D

FY2020 Financial performance

FY2020  
£m

FY2019  

£m

Reported  
growth

H1  
underlying  

H2  
underlying  

FY  
underlying  

growth

growth

growth

Revenue
Headline operating profit
Statutory operating profit
Return on capital employed
R&D cash costs % sales

918
184
161
13.8%
5.9%

874
147
151

+5%
+25%
+7%
11.7% +210bps
6.0% (10)bps

+1%
+1%

+7%
(7)%

+4%
(3)%

Accounting standards require the 
Group to stop charging depreciation and 
amortisation within Smiths Medical, 
since it has been reclassified as 
discontinued operations. 

For comparability purposes, 
depreciation and amortisation of £(45)m 
have been included in the calculation of 
underlying measures.

Revenue

(£m)

Revenue 

FY2019  
reported 

Foreign  
exchange

Acquisitions & 
disposals*

Underlying 

FY2020  
reported

874

12

(3)

35

918

Smiths Medical continued its return to 
growth with underlying revenue up +4%. 
This growth accelerated in the second half 
to +7%, including +5% from participation in 
Ventilator Challenge UK. Reported revenue 
was up +5% with +£12m favourable foreign 
exchange translation and a £(3)m revenue 
impact from prior year disposals.

Revenue from Infusion Systems 
was up +4% on an underlying basis 
driven by COVID-19 related demand. 
Vascular Access underlying revenue 
decreased by (5)% driven by the reduction 

of elective procedures as a result of 
COVID-19. During the year, Smiths Medical 
signed a c.$20m investment agreement 
from the U.S Government to expand 
syringe and needle device production 
to support COVID-19 vaccine efforts. 
Underlying revenue from Vital Care and 
Specialty Products grew +13%, with 
exceptional growth in ventilators and 
tracheostomy tubes due to the pandemic, 
and good growth in the COPD product 
line, which is now being sold directly 
to customers.

Operating profit

(£m)

FY2019  
reported

Foreign  
exchange

Acquisitions & 
disposals*

Restructuring 
costs

Depreciation & 
amortisation Underlying 

FY2020  
reported 

Operating profit 
Operating margin

147
16.8%

2

(1)

(4)

45

(5)

184
15.5% 20.1%

Headline operating profit of £184m was 
down (3)% on an underlying basis, with 
increased volumes offset by margin 
dilution from Ventilator Challenge UK, a 
one-off legal settlement and COVID-19 
costs, including expedited freight, labour 
incentives and protective equipment. 
Reported headline operating profit was up 
+25% thanks to the exclusion of £(45)m of 
depreciation and amortisation and +£2m 
of favourable foreign exchange, partially 
offset by £(1)m from prior year disposals 
and £(4)m of restructuring costs. 

Restructuring costs include delayering and 
decentralisation to increase efficiency and 
effectiveness. Reported headline operating 
margin was up +330bps to 20.1%, mainly 
driven by the exclusion of depreciation and 
amortisation, but was down (120)bps on an 
underlying basis.

The difference between statutory and 
headline operating profit mainly comprised 
separation costs.

*  Includes disposals and FY2020 performance from acquisitions that do not have comparators for the prior year

6 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTR I S K   M A N A G E M E N T

A proactive approach to risk

We operate across a number of 
markets and geographies. We are 
prepared to accept certain levels of 
risk to realise our ambitions, and our 
purpose to make a safer, more efficient 
and better connected world.

We understand the risks we face 
and take a proactive approach 
to risk management in order to 
maximise opportunities, drive 
better commercial decision-
making, and protect our people 
and our businesses.

Risk governance
The Board and its Committees set the 
culture and approve the strategy of the 
Group. The Board ensures appropriate 
oversight and monitoring through a 
number of mechanisms, including 
strategy reviews, Committee meetings, 
management reports and focused reviews 
of selected risk areas.

On behalf of the Board, the Audit & Risk 
Committee is responsible for reviewing and 
assessing the effectiveness of the Group’s 
risk management and internal control 
systems. The review process covers the 
Group’s principal risks, as well as financial, 
operational and compliance controls.

The Executive Committee is responsible for 
designing the Enterprise Risk Management 
(ERM) framework and ensuring that it is 
effectively deployed throughout the Group. 
The Executive Committee also ensures 
that the Board’s risk appetite is understood 
by risk owners and decision-makers, 
ensures risks are adequately managed, 
and conducts an annual assessment of 
strategic risk. Principal risks are owned by 
members of the Executive Committee.

The Enterprise Risk Management (ERM) process

B O A R D A N D A U D I T &  R I S K C O M M I T T E E

 – Approving the strategy and setting the culture and risk appetite of the Group

 – Reviewing and assessing the effectiveness of risk management and internal 

control systems

 – Monitoring through Board processes and good governance

4 T H L I N E O F D E F E N C E

E X E C U T I V E C O M M I T T E E A N D S E N I O R M A N A G E M E N T

 – Designing and establishing risk management and internal control systems

 – Ensuring that the risk appetite of the Board is understood by risk owners 

and decision-makers

 – Ensuring risks are adequately managed

3 R D L I N E  O F 
D E F E N C E

Independent assurance

Internal audit function
 – Providing assurance 
on internal controls, 
programmes, 
systems and risk 
management processes

1S T L I N E O F 
D E F E N C E

Risk ownership 
and mitigation 

Operational teams
 – Understanding roles 
and responsibilities

 – Establishing and  
applying internal 
control systems

 – Complying with policies
 – Following 

risk management  
processes

2 N D L I N E O F 
D E F E N C E

Monitoring 
and compliance 

Risk and compliance  
functions
 – Developing and 
managing the 
ERM process
 – Monitoring risks
 – Developing and 

managing policies and 
control frameworks
 – Monitoring controls
 – Ensuring financial, legal 
and ethical compliance 

 – Ensuring security, 
quality and health 
and safety

Figures in this section are for total Group 
unless otherwise stated

R
e
g
u
l
a
t
o
r
s
a
n
d
e
x
t
e
r
n
a
l
a
u
d
i
t

6 7

SMITHS GROUP PLC  ANNUAL REPORT FY20202 
 
 
R I S K   M A N A G E M E N T   C O N T I N U E D

Running a business involves continual 
assessment and management of risks – it 
is an integral part of day-to-day operations. 
Our ERM process supports open 
communication on risk between the Board 
and Audit & Risk Committee, the Executive 
Committee, our divisions, functions 
and sites. It enables us to manage 
and monitor the risks which threaten 
successful execution of our Group strategy 
and ensures our strategic, financial, 
compliance and operational risks are 
appropriately considered by the Executive 
Committee and by the Board.

Within the ERM framework, we operate 
a ‘four lines of defence approach’. 
This ensures that the four lines – risk 
ownership and mitigation, monitoring 
and compliance, independent assurance, 
and oversight – are clearly defined and 
work effectively.

Our divisional and functional teams are 
responsible for day-to-day management 
and reporting of risks. They identify new 
and emerging risks, escalate where 
appropriate, and take action to ensure risks 
are managed as required. Our divisions 
also conduct annual assessments of 
the strategic, financial, compliance and 
operational risks they face. In FY2020 these 
were updated to ensure that the latest 
views of COVID-19 risks were presented 
and considered.

Internal audit provides independent and 
objective assurance to both the Audit 
& Risk and Executive Committees on 
the adequacy and effectiveness of our 
risk management and internal control 
processes. It facilitates the ERM process 
and provides site-based controls and 
assurance reviews of key programmes, 
processes and systems.

The Audit & Risk Committee, on behalf 
of the Board, reviews the effectiveness 
of the risk management process: 
considering emerging risks; the principal 
risks and uncertainties; actions taken by 
management to manage those risks; and 
the Board’s risk appetite in respect of 
each risk. 

During FY2020 the Executive Committee 
agreed the ERM timetable and the risks 
selected for ‘deep-dive’ discussions at 
Executive and Audit & Risk Committee 
meetings. These were: product quality; 
cyber security; customers; and integrated 
supply chain. The Group’s list of principal 
risks was also discussed and recalibrated 
by the Executive Committee. 

The requirement for risk owners to 
demonstrate how they get assurance 
that controls are working effectively was 
maintained following its introduction 
last year. Examples are provided in the 
following tables of principal risks.

In addition, a further 42 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.

The Directors consider the risk 
management process to be effective. 
The Audit & Risk Committee recognises 
that this is an ongoing process and work 
will continue in FY2021.

Emerging risks 
Emerging risks and horizon scanning 
are integrated into the ERM process. 
Functions in the business often take the 
lead in identifying and promoting risk 
awareness and mitigation activities.

An example is climate change and the 
potential impact this may have on the 
business strategy. This is championed by 
the HSE function and now forms part of 
risk reporting and risk management in the 
business. See page 43 for more details.

The UK is expected to withdraw from 
the European Union (EU) at the end of 
2020. The Group continues to monitor the 
ongoing negotiations between the UK and 
the EU. Preparations have been made and 
mitigation measures have been put in place 
to meet potential scenarios. However, due 
to the nature and structure of the Group’s 
business model, operations, supply chain 
and the location of our customers, Brexit 
on a ‘hard’ or ‘soft’ basis is not anticipated 
to have a material impact on the Group’s 
operations or its financial performance. 
As such Brexit is not in itself deemed to 
represent a principal risk and the impact 
of Brexit has not been included in the 
scenarios developed to assess the Group’s 
going concern or viability (see pages 77-78).

COVID-19 IMPACT

The COVID-19 pandemic is having, and 
will continue to have, an impact across the 
business. This is inherently reflected in 
each risk and mitigating actions. 

Separately, its emergence resulted in 
process changes, with the Audit & Risk 
Committee’s Customer risk ‘deep dive’ 
being incorporated into the Board’s 
strategic business reviews, and the 
divisional Product Quality ‘deep-dives’ 
being limited to a focus on John Crane. 

The Audit & Risk Committee will consider 
Product Quality deep-dives for the other 
divisions during FY2021.

and oversee the Group’s response to the 
impact of COVID-19. Regular updates were 
provided to the Board. 

Time was spent at all Executive Committee, 
Audit & Risk Committee and Board 
meetings from January 2020 onward 
considering the impact of COVID-19 on 
our business and our people. In addition, 
the Executive Committee met on a weekly 
basis to review reports from: the business, 
and the Smiths Group Crisis Core team 
and its sub-groups established to direct 

As part of the ERM process it was agreed 
that disease pandemic would move 
from being an element of the integrated 
supply chain risk where it had formerly 
been included, to being a stand-alone 
COVID-19 principal risk, giving an overview 
of the direct uncertainties, potential 
impacts on the Group, and our responses. 
This continues to be closely monitored.

6 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTPrincipal risks and uncertainties

We maintain a register of principal risks 
and uncertainties covering the strategic, 
financial, operational and compliance 
risks faced by the Group.

P R I N C I PA L  R I S K S

1 .  C O V I D - 1 9   ( N e w )

7 .   C U S T O M E R S

2 .   T E C H N O L O G Y

3 .  

 E C O N O M Y   A N D 
G E O P O L I T I C S

4 .   G R O U P   P O R T F O L I O

5 .  L I Q U I D I T Y   ( N e w )

6 .   P R O D U C T   Q U A L I T Y

8 .   P E O P L E

9 .  C Y B E R   S E C U R I T Y

1 0 .  I N T E G R A T E D   S U P P L Y   C H A I N

1 1 .  M A R K E T S

1 2 . E T H I C A L   B R E A C H

1 3 .  C O N T R A C T U A L   O B L I G A T I O N S

S T R ATEGIC

11

 4

 2

 3

1 
New

 7

 9

10

 5 

 New

L 
A
N

 6

E R ATIO

13

P

  O

12

P

E

O

P

 8

L

E

We review each risk and rate a number 
of factors: gross impact, applying the 
hypothetical assumption there are no 
mitigating controls in place; residual impact 
and likelihood, taking into account existing 
mitigating controls; target impact; the 
reputational impact of a risk; and its velocity, 
which reflects the expected time we would 
have to react should a risk materialise. 
These, in turn, drive mitigation priorities. 
A trend metric shows the net position of 
the risk year-on-year. 

In FY2020 we formalised consideration 
of the relationship between risks to help 
understand the potential for one risk to have 
an impact on another. This is presented 
against each risk in the form of ‘risk 
relationship’ charts indicating the strength 
of linkage between each principal risk and 
others on the list. This has been used as an 
input to the viability statement assessment 
and will be used more widely in future risk 
scenario planning and mitigation work.

We updated our register of principal risks 
and uncertainties following review by the 
Executive Committee and approval by the 
Board. As stated earlier, COVID-19 was 
added as a new principal risk, disease 
pandemic having previously been reported 
as part of the integrated supply chain risk. 
Additionally, in the light of the impact of 
COVID-19, liquidity has been promoted to the 
list in recognition of the large gross impact 
this might have. Mitigating actions result in 
this risk being considered low likelihood. 

Due to the long-term nature of climate 
change this is not considered a principal 
risk. However, the Board recognises the 
importance of considering climate change 
in its decision-making, notably on longer-
term strategic topics. See page 43 for 
more details.

While we continue to monitor and manage a 
wider range of risks, the risk map above and 
the tables that follow summarise those risks 
considered to have the greatest potential 
impact if they were to materialise. 

R E S I D U A L   I M P A C T

L I K E L I H O O D

High

Medium

Low

High

Low

T R E N D   ( N E T   P O S I T I O N   
O F   R I S K  v s   F Y 2 0 1 9 )

V E L O C I T Y

Increase 
from FY2019

No change

Decrease 
from FY2019

High

Medium

Low

6 9

SMITHS GROUP PLC  ANNUAL REPORT FY20202 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
        
 
 
 
 
R I S K   M A N A G E M E N T   C O N T I N U E D

L I N K   T O   S T R A T E G I C 
O B J E C T I V E S

+  Read more about our 

strategy on pages 15-21

1

3

2

L I N K   T O   R E S O U R C E S 
A N D   R E L A T I O N S H I P S

+  Read more about our Resources 
and relationships on pages 24-51

1.  C O V ID -19 (Ne w)

1

2

3

R I S K O W N E R
Mel Rowlands

T R E N D
New

R E L AT I O N S H I P T O O T H E R 
P R I N C I PA L R I S K S 

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:

Strong

Moderate

11

10

9

3

4

5

8

7

6

COVID-19 is impacting our colleagues, 
customers, suppliers and operations to varying 
degrees across different territories and 
different parts of our business. This includes, 
but is not limited to: risks to the wellbeing of 
our people, their families and communities; our 
customers, who have in many cases revised 
their demand forecasts; our suppliers, whose 
businesses have had challenges maintaining 
continuity of supply; and our own operations 
which have had to deal with all the combined 
challenges of the pandemic. 

How this could impact our strategy 
or business model
 – Exceptional external circumstances arising, 
including significant adverse consequences 
arising from the evolving pandemic and 
associated economic dislocation may impact 
the separation of Smith Medical

 – Significant reduction in global demand for 

our products

 – Disruption to our ability to deliver products 
and services to customers in the event 
of interruptions to our supply chain and 
manufacturing operations

 – Smiths support network including partnerships 
with third parties providing pandemic related 
advice and support e.g. engaged an expert medic

Examples of how we know the controls 
are working effectively
 – OSNC continues to provide real-time updates 

Examples of how we manage this risk
 – Smiths Group Crisis Core team was mobilised 

on status of operations, supply chain and 
logistics through dashboards

during the first six months of the crisis 
overseeing various workstream sub-groups 
and reporting to the Executive Committee
 – Workstreams comprise: Divisions, HSE, HR, 
Communications, Operations and Supply 
Chain (OSNC), Legal, Finance, Systems/
Infrastructure and Government Relations
 – Divisional Crisis Teams and Site Emergency 

Response Teams operationalised

 – Fast track issue spotting, escalation and 
resolution through Group and cross-
divisional resources

 – Over 90% of manufacturing facilities 

operational throughout early stages of crisis 
(January through to June)

 – Group HSE monitoring employee health 

across sites and within countries/regions. 
Proactive case management of employee 
health in relation to COVID-19 regularly 
reported and acted upon

2 .  T ECHNOLOGY

1

2

3

R I S K O W N E R
Andy Reynolds Smith

T R E N D
No change

R E L AT I O N S H I P T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:
N/A

Strong

Moderate

11

10

9

3

4

5

8

7

6

Differentiated new products and services 
are critical to our success. We may be unable 
to maintain technological differentiation 
or to meet customers’ needs and may face 
disruptive innovation by a competitor.

How this could impact our strategy 
or business model
 – Material adverse effect on margin 

and profitable growth

 – Erosion of our reputation as a leader in 
our markets and of our ability to attract 
and retain talent

Examples of how we manage this risk
 – Proactive repositioning of the portfolio around 
the most attractive markets where we can 
sustainably hold a top three position based 
on technology leadership

7 0

 – Diversified technology portfolio serving a 

 – Robust IP protection via patents and other 

range of sectors and geographies, mitigating 
exposure to any one sector or area
 – Continuing and smarter investment in 

R&D (FY2020: 5.0% of Total Group revenue, 
FY2019: 4.8%)

 – Focus on building a culture of innovation 
with a long-range technology roadmap 
for each division

 – Focus on next generation and 
transformational initiatives

 – New Product Introduction (NPI) 

process operating across divisions 
to accelerate projects

 – Digital Forge works to accelerate digital 

transformation across the Group

 – Vitality Index as a KPI

protections, and litigation where appropriate

Examples of how we know the controls 
are working effectively
 – Vitality data is reviewed by the Smiths 

Innovation Strategy Board (SISB) and is part 
of the SES dashboard

 – Adherence to NPI process is audited and 

embedded in systems with monthly ‘pipeline’ 
overview provided by divisions

 – Technology roadmap is part of the Group 

strategic cycle

 – Digital Advisory Committee as a governance 
mechanism to ensure the Digital Forge is 
working on the most value-creating projects 
for the Group

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORT3.  EC ONOM Y  A ND   GEOP OL I T IC S

1

2

3

R I S K  O W N E R
John Shipsey

T R E N D
No change

R E L AT I O N S H I P  T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:

Strong

Moderate

11

10

9

3

4

5

8

7

6

COVID-19 has triggered a highly significant 
global economic downturn. In many 
sectors, demand has reduced. There is a 
likelihood that the impact on demand will 
be prolonged, especially in commercial 
aerospace. The collapse in both the oil price 
and oil consumption may trigger a downturn 
in demand (particularly OE) for John Crane. 
A global recession may also lead to an increase 
in bankruptcies of both customers and 
suppliers. Conversely, the crisis is opening up 
new opportunities, most obviously in Smiths 
Medical and Smiths Detection; and inorganic 
opportunities are likely to arise more frequently 
and at better values. Geopolitical tensions 
continue to rise, most notably between 
China and the US, but also affecting other 
Governments, which pose threats to the free 
movement of goods, capital and people.

How this could impact our strategy 
or business model
 – Significant and prolonged reduction in global 

demand for our products

 – Geopolitical tensions, most notably relating 

to China, the US, India, the Middle East, South 
Korea and North Korea, adversely impact trade 
 – Adverse impact on business performance due 

to the imposition of tariffs

 – The consequences of Brexit are uncertain. 

Potential effects, applicable to many 
businesses, include economic and operational 
uncertainty, volatility of currency exchange, 
regulatory changes and the imposition of tariffs 
on trade between the UK and the Eurozone

 – Governments continue to look for ways 
to improve tax revenues to ease fiscal 
budget pressures 

Examples of how we manage this risk
 – Identification and application of learnings 
from past downturns through the cycle
 – Diversified portfolio of businesses which 

mitigates exposure to any one country or sector

 – Geographic spread which mitigates the 

impact of trade barriers between regions
 – Divisions monitor order flows and other 

leading indicators so that they may respond 

quickly to deteriorating trading conditions and 
tariffs/barriers to free trade

 – Representation of our interests by the 

Corporate Affairs team

 – Network of trade compliance officers across 
the Group who monitor upcoming changes 
in regulation and oversee import and 
export activities

 – Monitoring of the ongoing negotiations 

between the UK and the EU in order to assess 
the potential impact of Brexit 

 – Sustainable tax strategy to optimise the 

Group’s position

Examples of how we know the controls 
are working effectively
 – Impact of US tariffs to date has been absorbed
 – Order tracking reported and monitored
 – Business indicators reported weekly
 – Brexit coordination group working effectively, 
Group has relatively little exposure to Brexit

4 .  GROUP P OR T FOL IO

1

3

R I S K  O W N E R
John Shipsey

T R E N D
No change

R E L AT I O N S H I P  T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:
N/A

Strong

Moderate

11

10

9

3

4

5

8

7

6

Our strategy is predicated primarily on organic 
growth. However, acquisitions/divestments 
can also play a role in building and/or 
strengthening competitive positions.

Acquisitions bring risk as well as opportunity. 
We may invest substantial funds and resources 
in acquisitions which fail to deliver on 
expectations – due to incorrect appraisal of 
the target and/or poor execution. The opposite 
risk is that (perhaps through an excess of 
caution) we miss out on opportunities to build 
market-leading positions and growth.

Divestments also carry risk. We may divest 
an asset at the wrong time, or may not 
realise appropriate value for the asset. 
Separation may be complex and, if poorly 
executed, may impact the wider business.

How this could impact our strategy 
or business model
 – Poor acquisitions/divestments, or poorly 
managed integrations/separations, lead 
directly to financial damage and indirectly 
to loss of shareholder confidence 

 – Newly-acquired products and solutions 
deliver less value, fewer synergies, or 
require more investment than anticipated

 – Fall in our return on capital employed measure
 – Financial performance suffers from 
goodwill  or other acquisition-related 
impairment charges or inheritance of 
material unknown liabilities

Examples of how we manage this risk
 – Investment in greater internal capability for 
the evaluation and execution of transactions 

 – Regular reviews of the acquisition pipeline 

and a stage-gated M&A process

 – Detailed due diligence and integration work 
in accordance with our acquisitions and 
disposals policy

 – Detailed separation planning, in accordance 
with our acquisitions and disposals policy
 – Governance ensures multi-disciplinary sign off
 – Larger transactions approved by the full Board
 – Post-transaction reviews with lessons 

learned incorporated into future projects

 – Use of external advisers

Examples of how we know the controls 
are working effectively
 – Technology acquisitions have established 

a strong track record
 – Strong internal team
 – Proper governance and oversight
 – Learnings from previous acquisitions 

considered and applied

 – Ongoing evaluation measured against 

original business case

7 1

SMITHS GROUP PLC  ANNUAL REPORT FY20202R I S K   M A N A G E M E N T   C O N T I N U E D

Principal risks and uncertainties continued

5.  L IQUIDI T Y  (New )

1

2

3

R I S K O W N E R
John Shipsey

T R E N D
New

R E L AT I O N S H I P T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:

Strong

Moderate

11

10

9

3

4

5

8

7

6

COVID-19 has triggered a highly significant 
global economic downturn. In many sectors, 
demand has reduced, in some cases close 
to zero. We, along with our customers and 
suppliers, have also faced disruption to 
operations and higher costs. If disruption were 
to be deep and sustained over many months, 
our financial position could be eroded by lower 
revenues, higher costs and cash write-offs 
(e.g. non-payment by customers). We might 
not be able to rely on access to committed 
facilities, either through breach of our financial 
covenant or because lenders were unable to 
meet their obligations. 

How this could impact our strategy 
or business model
 – Inability to fund our operations
 – Inability to invest in medium to longer-term 

drivers of growth

 – Reduced competitiveness of our businesses

Examples of how we manage this risk
 – Diversified portfolio of businesses that 
mitigates exposure to any one country 
or sector

 – Strongly cash generative businesses 
 – Capital expenditure and working capital are 
embedded in performance management 
and reward

 – Conservative financing policy with a self-

imposed limit of 2x net debt to EBITDA and 
significant liquidity headroom

 – Strong and diversified lending group – strong 
loan documentation with only one interest 
cover covenant on the revolving credit facility 
 – Ability to flex cost base in the face of reduced 
revenues with 60% of Cost Of Goods Sold 
being variable

Examples of how we know the controls 
are working effectively
 – Resilient performance of the business
 – Strong free cash-flow
 – Liquidity headroom of £1bn
 – Average debt maturity of 4.2 years
 – Net EBITDA of 1.9x
 – Cash of £386m and undrawn $800m RCF

6.  P RODUC T QUA L I T Y

2

R I S K O W N E R
Divisional Presidents

T R E N D
Decrease

R E L AT I O N S H I P T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:

Strong

Moderate

11

10

9

3

4

5

8

7

6

In the ordinary course of business we are 
potentially subject to product liability claims 
and lawsuits, including potential class actions. 
The mission-critical nature of many of our 
solutions makes the potential consequences 
of failure more serious than may otherwise 
be the case.

How this could impact our strategy 
or business model
 – Damage to our reputation amongst customers 
and reduction in market acceptance of, and 
demand for, our products from an adverse 
event involving one of our products

 – Recall of products due to manufacturing 
flaws, component failures, damage to 
persons/property, and/or design defects 
 – Exposure to losses in the event of a cyber 
security breach relating to our products
 – Customers’ losses but also losses arising 

from a potentially large class of third parties

Examples of how we manage this risk
 – Divisional quality risk assessments that 

address product failures, product compliance, 
regulatory compliance, product performance, 
product safety and market authorisation risks

 – Quality assurance processes embedded 
in manufacturing locations for critical 
equipment, supporting compliance with 
industry regulations

 – Quality development and quality integration 

built into NPI 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
 – Material litigation managed under the 

oversight of the Group General Counsel

Examples of how we know the controls 
are working effectively
 – Quality measures (e.g. DPPM, COPQ) are 
measured and action plans put in place 
to drive their improvement – these are 
regularly reported

 – Group and divisional governance frameworks 
(including Delegation of Authority) ensure 
a close working relationship between legal 
and commercial teams (includes quality) 
to manage risks

 – Fewer quality issues at launch 

of new products

7 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORT7.  CUS T OMER S

1

R I S K  O W N E R
Julian Fagge

T R E N D
No change

R E L AT I O N S H I P  T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:
N/A

Strong

Moderate

11

10

9

3

4

5

8

7

6

Our markets are evolving at a fast pace, 
creating potential for customers to change 
their business models as they look to deliver 
products and services at higher quality, with 
better service and at lower cost.

Failure of the Group to keep pace with 
customer changes/requirements 
(innovation, go-to-market strategies) 
could have a materially adverse impact on 
Group performance.

How this could impact our strategy 
or business model
 – Loss of market share and adverse impact on 

 – New product innovation feedback through 
market research and direct feedback from 
existing and potential customers

Group results

 – Material adverse effect on profitable growth
 – Erosion of our reputation as a leader in 

our markets

Examples of how we manage this risk
 – As part of the Group innovation framework 
and our approach to potential technology 
disruption, we include customer disruption as 
well as competitor and product disruption

 – Developing business models is a core 

component of the Group-wide training agenda

Examples of how we know the controls 
are working effectively
 – Megatrend workshops and disruption risks 

reviewed annually

 – Customer input gathered on a frequent basis
 – Pilot programmes to test products, business 

models and partnerships

 – Strategic review process; divisional deep dives

8.   P EOP L E

2

R I S K  O W N E R
Sheena Mackay

T R E N D
No change

R E L AT I O N S H I P  T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:
N/A

Strong

Moderate

11

10

9

3

4

5

8

7

6

People are our only truly sustainable source 
of competitive advantage and competition for 
key skills is intense, especially around science, 
technology, engineering and mathematics 
(STEM) disciplines. We may not be successful 
in attracting, retaining, developing, engaging 
and inspiring the right people with the right 
skills to achieve our growth ambitions.

How this could impact our strategy 
or business model
 – Inability to attract key talent leading to a loss 

Examples of how we manage this risk
 – Investment to build a learning organisation 

with a focus on culture, reward 
and recognition

 – Implementation of the right HR infrastructure
 – Delivery of a range of learning and 

development opportunities at all levels of 
the organisation

 – Talent and succession plan reviews
 – Remuneration packages evaluated regularly 

against market trends

of competitive advantage

 – Chief Executive assessment of the 

 – Difficulty in retaining personnel, at all levels 

leadership team

of the organisation, leading to a loss of 
competitive advantage

 – In acquisitions, losing key personnel from 
the newly-acquired business which may 
significantly impact performance and value

 – Annual performance management reviews 
for the majority of employees using best-
practice processes such as 360-degree 
feedback surveys

 – Formal career counselling for senior people 

in the business

 – A clearly defined people integration plan 

for acquisitions

 – People Plan oversight by the Board
 – Diversity and Inclusion plan and initiatives

Examples of how we know the controls 
are working effectively
 – Participation rates in the Smiths learning 

and development programmes measured. 
Capability and performance of alumni 
are tracked

 – Benchmarking ratio of hires into senior roles 

from internal and external sources

 – Formal and informal measures of culture, for 
example regular engagement surveys with 
follow-up action planning

 – Measurement of the effectiveness of the 
Executive education programme through 
post-completion evaluation tests

 – Post-acquisition and lessons learned reviews

7 3

SMITHS GROUP PLC  ANNUAL REPORT FY20202R I S K   M A N A G E M E N T   C O N T I N U E D

Principal risks and uncertainties continued

9.  CY BER SECURI T Y

2

R I S K O W N E R
John Shipsey

T R E N D
No change

R E L AT I O N S H I P T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:

Strong

Moderate

11

10

9

3

4

5

8

7

6

Cyber attacks seeking to compromise the 
confidentiality, integrity and availability of 
IT systems and the data held on them are 
a continuing risk. We operate in markets 
and product areas which are known to be 
of interest to criminals.

How this could impact our strategy 
or business model
 – Compromised confidentiality, integrity and 
availability of our assets resulting from a 
cyber attack, impacting our ability to deliver 
to customers and, ultimately, financial 
performance and reputation

 – Exposure to significant losses in the event 
of a cyber security breach relating to our 
security or medical products. These 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 approach to mitigating 

cyber risk

Examples of how we know the controls 
are working effectively
 – Formal reviews with the Executive Committee 

 – Proactive focus on information and cyber 

and the Board

 – Vulnerability scanning/event reporting
 – External reviews of vulnerability controls
 – Mandatory staff training
 – Compliance with recognised standards
 – Cyber leads at divisions

security risks supported by a strong 
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 
communications service providers

 – Cyber risk analysis and mitigation processes 
embedded in the product lifecycle process to 
increase resilience

10.  IN T EGR AT ED  SUP P LY  CH A IN

2

R I S K O W N E R
Sheena Mackay

T R E N D
No change

R E L AT I O N S H I P T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:

Strong

Moderate

11

10

9

3

4

5

8

7

6

Timely, efficient supply of raw materials and 
purchased components is critical to our ability 
to deliver to our customers. Manufacturing and 
supply chain continuity are exposed to 
external events that could have significant 
adverse consequences, including natural 
catastrophes, civil or political unrest, changes 
in regulatory conditions, terrorist attacks 
and disease pandemics – this applies to our 
own manufacturing sites and those of our key 
component suppliers. 

Disease pandemics were highlighted as a key 
component of this risk in FY2019 and in prior 
reports. Following the COVID-19 pandemic, 
a new principal risk was added capturing 
not only the supply chain impacts of the risk, 
but other consequences and our responses. 
See risk 1.

How this could impact our strategy 
or business model
 – Inability to deliver products/solutions to 

customers, impacting financial performance 
and reputation 

Examples of how we manage this risk
 – Supply excellence pillar of our SES operating 
model delivers increased focus on efficient, 
resilient and cost-effective supply

 – Business continuity and disaster recovery 

plans in place and tested for critical locations

 – Regular evaluation of key sites for a 

range of risk factors using externally 
benchmarked assessments – risk reduction 
measures for critical products and dual 
manufacturing capabilities

 – Mitigation plans for sole source suppliers, 
sub-contractors and service providers 
developed and deployed by divisions to 
include qualification of alternative sources 
of suppliers where appropriate 
 – Property damage and business 

interruption insurance

Examples of how we know the controls 
are working effectively
 – Business continuity planning (BCP) testing 

and results

 – Mitigation plans reviewed and reported 

by divisions 

 – Externally provided business interruption 

risk surveys of operational sites

 – Insurance requirements driven by the risk 

appetite of the Group and divisions is validated 
at least annually

7 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORT11.   M A RK E T S

1

R I S K  O W N E R
Roland Carter

T R E N D
No change

R E L AT I O N S H I P  T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:
N/A

Strong

Moderate

11

10

9

3

4

5

8

7

6

A significant proportion of our revenue comes 
from the US and European markets, with a 
notable proportion coming from governments. 
In addition to geographical markets, there 
is a risk we do not focus on attractive 
sectors where we have, or could have, a 
sustainable position. 

How this could impact our strategy 
or business model
 – Failure to develop other markets and 

geographies impacts strategic progress 
and financial performance

 – Significant disruption to government budgets 
results in fewer contracts being awarded to 
Smiths, impacting financial performance

Examples of how we manage this risk
 – A diversified portfolio of businesses 

mitigates exposure to any one country, 
sector or customer

Examples of how we know the controls 
are working effectively
 – Strong and long-term customer relationships 

provide assurance

 – Growth strategy which places emphasis 

 – Managing Director councils established 

on expanding operations in higher-growth 
markets and regions which are currently 
underserved, including Asia

in India and China

 – Carefully crafted  JV and Partnership 

arrangements in China

 – Strategic process to capture continuing 

opportunities in current and adjacent markets

 – Government relations function which 

collaborates with colleagues across the 
Group to advise on developments

 – More resilient services and consumable 

components built into some of our 
government-related business

12 .  E T HIC A L  BRE ACH

2

R I S K  O W N E R
Mel Rowlands

T R E N D
No change

R E L AT I O N S H I P  T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:

Strong

Moderate

11

10

9

3

4

5

8

7

6

We have more than 22,000 employees in more 
than 50 countries. Individuals may not all 
behave in accordance with the Group’s values 
and ethical standards. We operate in highly 
regulated markets requiring strict adherence 
to laws with risk areas including:

 – Bribery and corruption;
 – Anti-trust matters;
 – International trade laws and sanctions;
 – Human rights, modern slavery and 
international labour standards;

 – General Data Protection Regulation (GDPR); 

and

 – Government contracting regulations.

How this could impact our strategy 
or business model
 – Failure to comply with export regulations 
leads to significant fines and a loss of 
export privileges

 – Failure to meet strict conditions within 
government contracts, particularly in 
the US, could have serious financial and 
reputational consequences

 – Increased risk of illegal anti-competitive 

activity such as collusion with competitors

 – US fines and penalties imposed for price 
fixing, bid rigging and other cartel-type 
activities can exceed $100m per violation
 – Ethics or compliance breach causes harm 
to our reputation, financial performance, 
customer relationships and our ability to 
attract and retain talent

Examples of how we manage this risk
 – Group-wide ethics framework which includes 
our values, the Code of Business Ethics and 
the Supplier Code of Conduct

 – Policies and procedures to mitigate distributor 
and agent related risks including due diligence, 
contractual controls and internal approvals
 – Anti-bribery and corruption training for all 

employees supported by the ‘Speak Out’ line 
encouraging the reporting of ethics violations 
(includes ability to report anonymously and a 
non-retaliation policy)

 – Network of trade compliance officers across 
the Group who monitor upcoming changes 
in regulation and oversee import and 
export activities

 – Monitoring and acting on upcoming 

legislative changes

 – Modern Slavery and Transparency Statement 
and procedures to reduce the risk of modern 
slavery within the Group and our supply chain

 – Multi-functional programme for 

GDPR compliance

Examples of how we know the controls 
are working effectively
 – Multiple sources to assess culture including 
My Say results, ‘Speak Out’ reports, internal 
audit findings, exit interviews and ethics 
questions in performance reviews

 – Monitoring and reporting on compliance with 

ethics and compliance policies

 – Tracking of online ethics training and 

compliance modules

 – Reporting and investigation mechanisms
 – Anti-trust training programmes and guidance

 – Reporting non-compliance cases to business, 

Executive and Audit & Risk Committees

7 5

SMITHS GROUP PLC  ANNUAL REPORT FY20202R I S K   M A N A G E M E N T   C O N T I N U E D

Principal risks and uncertainties continued

13.  C ON T R AC T UA L  OBL IGAT ION S

2

R I S K O W N E R
Mel Rowlands

T R E N D
No change

R E L AT I O N S H I P T O O T H E R 
P R I N C I PA L R I S K S

13

1

12

2

I N C L U D E D I N V I A B I L I T Y 
A S S E S S M E N T:
N/A

Strong

Moderate

11

10

9

3

4

5

8

7

6

 – Contracts, particularly those with 

 – Programmes in place across the Group which 

harmonise the contract review process
 – Cross-divisional US Government working 

group determines and shares best practice 
on government contracting

Examples of how we know the controls 
are working effectively
 – Divisional legal teams embedded in the 
business, working cross-functionally 
throughout the contract lifecycle

 – Review and approval process for contracts 
determined by adherence to the Delegation 
of Authority matrix 

 – Insurance programme tailored to reflect the 

risk appetite of the Group

 – Uniform diligence and contracting process 

in place for agents and distributors 

We may fail to deliver the 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
 – Production delays, unexpected increases 
in costs of materials, freight, quality and 
warranty issues resulting from differences 
between estimated and actual costs in our 
medium and long-term contracts

 – Breach of contract resulting in significant 

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
 – Contracts managed and delivered 

by programme management teams 
that regularly review risks and take 
appropriate action

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

 – Review and approval process for significant 
and higher-risk contracts in place at Group 
and divisional levels

 – Diversified nature of the Group mitigates 

exposure to any single contract

7 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTG O I N G   C O N C E R N   A N D   V I A B I L I T Y   S T A T E M E N T

Going Concern and 
Viability Statement

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 06-80. The financial position of 
the Company, its cash-flows, liquidity 
position and borrowing facilities are 
described on pages 18-21. 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 with a severe but plausible 
downside scenario taking into account 
everything that has been learnt since 
March 2020. 

At 31 July 2020 the net debt of the Group was 
£1,141m, a £56m decrease from 31 July 2019. 
At the end of July the Group had available 
cash and short-term deposits of £386m. 
These liquid resources are immediately 
available with 91% invested with the Group’s 
global banking partners. The Group’s 
debt profile shows an average maturity of 
4.2 years (from 5.2 years at 31 July 2019). 
There are no scheduled repayments of debt 
due until October 2022.

The Group maintains a core US$800m 
committed revolving credit facility from 
these banks which was undrawn at 
31 July 2020 and which has not been 
drawn since its last renewal in November 
2017.  US$110m of this committed facility 
matures in November 2023 and US$690m 
in November 2024. This facility has an 
interest cover financial covenant, however 
this is not forecast to prevent utilisation at 
the Group’s discretion if required.

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 twelve 
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 69 to 76 
(the ‘viability assessment’).

The Directors have determined that a 
three-year period to 31 July 2023 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 2021 and 
forecasts for 2022 and 2023. Against these 
financial projections, the Directors took 
into account the principal risks (as outlined 
on pages 69 to 76) to develop a set of 
plausible scenarios (as set out overleaf) 
with potentially high-impact outcomes, 
and where relevant included the loss of 
revenue arising from the separation of 
Smiths Medical.

In addition to the scenario specific 
assumptions (detailed overleaf) the 
principal assumptions for this three-year 
viability assessment are as follows:
 – FY2021 forecasts are based on the 

detailed operating plan reflecting the 
actual FY2020 performance, including 
the impact of COVID-19;

 – FY2022 & FY2023 are based on forecast 

percentage growth rates from the 
FY2021 forecast;

 – Smiths Medical has not been included in 

the assumptions after January 2021;

 – The severe but plausible downside 

scenario for the recurrence of COVID-19 
disruption has been modelled assuming 
a significant decline in demand and 
supply chain disruption (as outlined in the 
going concern section on page 149); and
 – No mitigating activities such as further 

restructuring or the access to additional 
financing have been reflected in the 
forecast estimates.

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. 

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 and its performance in the 
recent six-month period when COVID-19 
was impacting Group operations. In order 
to ensure consistency, the base case used 
for the three-year viability assessment 
has also been reconciled against divisional 
impairment review models.

With over 95% of revenue originating outside 
the UK, Brexit is not anticipated to have a 
significant impact on the Group’s operations 
or its financial position, therefore its impact 
on the going concern or viability assessments 
has been immaterial. See page 68 for 
more information.

Based on the robust assessment, the 
Directors confirm that 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.

7 7

SMITHS GROUP PLC  ANNUAL REPORT FY20202G O I N G   C O N C E R N   A N D   V I A B I L I T Y   S T A T E M E N T   C O N T I N U E D

Scenarios modelled

Scenarios

Scenario 1
A global event, such as COVID-19 
disruption, leads to the enforced closure of 
key production sites for a two month period 
with ongoing supply chain disruption, 
low customer demand and recessionary 
circumstances extending into the 
following year.

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.

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 Smiths Detection’s 
products to the US military and all other 
governmental contracts are banned and 
due to the reputational damage, the impact 
of the ban spreads to all other divisions. 

Scenario 4
Smiths Detection is 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.

Scenario 5
An earthquake in Tijuana, Mexico renders 
Smiths Medical’s manufacturing facility 
unusable, causing severe disruption 
to production. Production temporarily 
relocated to US.

Link to principal risks

Scenario-specific assumptions

COVID-19, Economy 
and geopolitics

 – 25% fall in revenue across all divisions in FY2021 – 

against FY2020 performance

 – Marginal FY2022 revenue increase over FY2021 but 

still amounting to 10% reduction from FY2020

 – FY2023 revenue equal to FY2022 revenue at 

budgeted growth rates

 – Days of Sales Outstanding (DSO) extended by 30 

days over historical rolling average

 – No mitigating activities such as restructuring and 

headcount reductions

Product quality

 – Significant costs plus material one-off settlement 

payments in F20Y22

 – Restoration costs spread over the three-year 

assessment period

 – Insurance claim rejected

Cyber security

 – Immediate loss of all US based Government 

Ethical breach

contracts within Smiths Detection

 – 25% fall in other Smiths Detection revenue over the 

three-year assessment period

 – Loss of 50% of Smiths Interconnect’s North 

American revenue

 – Material legal and settlement costs
 – Insurance claim under product liability is not met or 

delayed outside of the review period

 – Material global regulatory fines
 – Loss of all future revenue in both China and Japan
 – 10% sales erosion in Smiths Detection’s US and 

EMEA markets due to reputational damage

 – Severance and recruitment costs amounting to 20% 

of annual labour costs

 – 10% fall in revenue within other Smiths businesses 

due to the reputational impact

Integrated supply chain

 – Loss of six months’ US revenue and margin 

in FY2021

 – Material refurbishment and repair costs in Mexico 

(net of insurance claims)

 – Costs of relocating production to US
 – Capital expenditure on replacement equipment in 

Mexico (net of insurance claims)

 – Labour costs increase due to US labour market 

being more expensive

Scenario 6
Combination of scenarios 2 and 3.

Product quality and 
Cyber security

As above

7 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTN O N - F I N A N C I A L   I N F O R M A T I O N   S T A T E M E N T

Non-Financial Information Statement
The table below sets out where information relevant to the Non-Financial Reporting Directive can be found in our FY2020 Annual Report. 

Our Code of Business Ethics (the Code) underpins everything we do at Smiths. It applies our shared values and ensures we comply with 
all applicable international and local rules and regulations. It provides guidance, including through real-life scenarios, to help colleagues 
address challenging and ethical issues they may encounter at work. The Code is available on our website, and our Group policies support 
and enhance our behaviour in line with the principles set out in the Code. 

Additional information about the areas covered in this Non-Financial Information Statement can be found in the Resources and 
relationships section on pages 24-51.

Reporting requirement

Policies and standards which govern our approach

Conflict Minerals Policy
Environmental Emissions Reduction Policy
Health, Safety and Environmental Policy
HSE Audits Policy
HSE Management Systems Policy
HSE Reporting Policy
HSE Roles and Responsibilities Policy
HSE Technical Minimum Standards Policy

Fair Employment Policy
Global Mobility Assignment Policy
Recruitment Policy

Human Rights Policy
Modern Slavery and Human Trafficking Statement
Transparency in the Supply Chain Statement

Data Protection and Privacy Policy
Data Protection Code of Conduct

Agreements with Agents and Distributors Policy
Anti-Corruption Policy
Anti-Facilitation of Tax Evasion Policy
China Anti-Bribery and Corruption Policy
Facilitation Payments Policy
Gifts, Meals and Hospitality Policy
Invitations to Government Officials Policy
Supplier Code of Conduct

Environmental matters

Employees

Human rights

Social matters

Anti-corruption and anti-bribery

Business model

Principal risks and impact of 
business activity

Non-financial key performance 
indicators

Relevant information

Production and 
environment

Page 

40-45

Our people

27-33

Our communities
Ethics and our values

48-50
26

Government and 
regulators

Government and 
regulators

51

51

Our business model

Risk Management

Key performance 
indicators

6-7

67-78

22-23

Smiths operates an effective ‘Speak Out’ line and encourages its employees and other stakeholders to use it (anonymously if required) 
to report any ethics issues or concerns. This is critical to assessing the effectiveness of its policies. All reports to the ‘Speak Out’ line are 
investigated, and metrics associated with reporting monitored. 

In FY2020 we reviewed the effectiveness of certain of our policies, including:

 – Regularly auditing expenses to check that, where appropriate, they were registered in the Gifts, Meals and Hospitality Register

 – Providing PwC’s ‘blind spots’ unconscious bias training to all colleagues with a Smiths or a divisional email address worldwide, in 

support of our Diversity & Inclusion commitment

 – Launching an information resource accessible to all colleagues to raise awareness of the requirement to conduct due diligence on new 

recruitment suppliers

 – Launching a cross-divisional Career Returners Programme in the UK, focused on enhancing colleague diversity in specific functions 

 – Initiating a formal review of our global policies and processes in the area of international global mobility assignment management

 – Conducting our first climate risk sensitivity assessment across the divisions and the global business as a whole for both five and 20 

year horizons, in support of our Environmental Emissions Reduction Policy

7 9

SMITHS GROUP PLC  ANNUAL REPORT FY20202S E C T I O N   1 7 2   S T A T E M E N T

Section 172 Statement 
The Board, in line with their duties under section 172 of the Companies Act 2006, must act in the way they consider, in good faith, would 
most likely promote the success of the Company for the benefit of the shareholders. Our Directors must also have regard to the likely 
long-term consequences of their decisions, and the impact that these may have on the Company’s key stakeholders. Further information 
about how these duties have been applied can be found throughout the FY2020 Annual Report:

Section 172 duties

Key examples

Consequences of decisions 
in the long term

Our Strategy
Case study: Decision-making: Delay to the separation of Smiths Medical
Case study: Stakeholder engagement: Response to COVID-19
Board activity in FY2020
Strong Financial Framework
Going Concern and Viability Statement
Principal Risks

Interests of employees 

Fostering business relationships 
with suppliers, customers 
and others

Impact of operations 
on the community 
and the environment

Chief Executive Q&A
Our people

Our customers
Our supply chain
Divisional reviews

Technology and innovation
Production and environment
Our communities
Governments and regulators

Maintaining high standard 
of business conduct

Ethics and our values
Non-Financial Information Statement

Acting fairly between members

Shareholder engagement

Page 

15-21
93
95
92-95
18-21
77-78
69-76

11-13
27-33

34-36
46-47
52-66

37-39
40-45
48-50
51

26
79

94

The table on pages 90-91 sets out our key stakeholder groups and how they were engaged with directly and indirectly by the Board 
throughout the year. The Board activity report on pages 92-95 details how the Board considered the views of our key stakeholders in their 
decision-making.  

The Strategic Report was approved by the Board on 23 September 2020.

By order of the Board

Andy Reynolds Smith
CHIEF EXECUTIVE

8 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020STRATEGIC REPORTGOVERNANCE

C H A IR M A N ’ S IN T R O D U C T I O N
+ Page 82

NOMIN AT ION & GO V ERN A NCE 
C O MMI T T E E R E P O R T

D IR EC T O R S ’ BI O G R A P HIE S
+ Page 84

B O A R D G O V E R N A N C E
+ Page 88

E N G A G E ME N T W I T H 
S TA K E H O L D E R S
+ Page 90

B O A R D A C T I V I T Y  IN F Y 2 0 2 0
+ Page 92

+ Page 96

A U D I T & R I S K 
C O MMI T T E E R E P O R T
+ Page 102

R E M U NE R AT I O N 
C O MMI T T E E R E P O R T
+ Page 108

D IR EC T O R S ’ R E P O R T
+ Page 130

S TAT E ME N T O F D IR EC T O R S’ 
R E S P O N S IBIL I T IE S
+ Page 132

S M I T H S   G R O U P   P L C     A N N U A L   R E P O R T   F Y 2 0 2 0

8 1

3C H A I R M A N ’ S   I N T R O D U C T I O N

Chairman’s 
introduction

Adapting to rapidly changing circumstances 
and new challenges and demands.

However, it continues to be essential to 
give management the time and space to 
manage the business, while being there 
to offer advice and support when needed. 
How we did that is explained in the next 
few pages of this Report. I am grateful to 
my fellow Directors, Smiths employees 
and all our stakeholders for their support 
as we continue to navigate our way 
through this crisis.

The restrictions on travel and 
meeting sizes imposed around the 
world adversely affected plans for 
increasing our face-to-face stakeholder 
engagement in the year. But they also 
accelerated a transition to new ways 
of working and interactions within 
the Company and with stakeholders 
more broadly. The Directors engaged 
in numerous electronic meetings with 
investors, employees, customers and 
stakeholders more generally. 

This section of the Annual Report 
covers our governance arrangements, 
the operation of the Board and its 
Committees, and describes how 
the Board discharged its collective 
responsibilities over the past year. 
Corporate governance is defined as “the 
system by which companies are directed 
and controlled. Boards of directors 
are responsible for the governance of 
their companies. The shareholders’ 
role in governance is to appoint the 
directors and the auditors and to 
satisfy themselves that an appropriate 
governance structure is in place”. 

Corporate systems and structures 
across the world were understandably 
put under strain by the largely 
unexpected events of the last year. 
Your Board and its Committees have 
adapted, as we all did, to rapidly changing 
circumstances and new challenges and 
demands. Swiftly changing business 
outlooks, forecasts, supply chain issues 
and ensuring employee safety caused 
the Board to meet much more regularly 
than usual in the past few months. 

8 2

Naturally, there is greater use of 
videoconferencing, but we feel there is 
still no better way of engaging with people 
than by meeting them face-to-face. 
Inevitably, some changes in the way we 
work will be temporary, while others are 
likely to become more permanent. We use 
a variety of electronic communications 
channels now widely available for 
business meetings and collaboration. 
However, we still feel these electronic 
meetings should be used to complement, 
not entirely replace, visits to sites and 
stakeholders as these increase the 
Directors’ knowledge and understanding 
of the business and its culture, but also 
importantly their visibility. These visits are 
especially helpful to Directors who are 
new to the Group. The Board is regularly 
refreshed with new members, and this 
is appropriately balanced by keeping the 
experience and knowledge of others, and 
you can see on page 98 that we now have 
the right balance of recent recruits and 
seasoned professionals. 

Diversity of thought, background, national 
origin, gender and ethnicity is as vital for an 
effective Board as it is in other aspects of 
life, and I am pleased to report that we have 
made good progress in this area. We have 
met or exceeded all internal and external 
guidelines on diversity, and excitingly, 
some Directors are filling their first such 
role in a UK public company. This widens 
the available talent pool for Non-executive 
Directors and helps development at their 
parent companies and beyond. 

In September we announced that Bruno 
Angelici and Olivier Bohuon would be 
retiring from the Board at the conclusion 
of the 2020 AGM. During his ten years 
service Bruno has provided an invaluable 
contribution to the Company and I would 
like to thank him for his wise counsel and 
unstinting hard work. While with us for 
a shorter period of time, Olivier’s deep 
knowledge of the healthcare field has 
been very impactful and we are grateful 
to him for everything he has done for 
us. On behalf of all the Directors and 
management I wish them every success in 
the future. More details on our succession 
planning are set out in the Nomination & 
Governance Committee Report.

I hope the following pages provide you 
with an insight into our work on your 
behalf. We are always interested to hear 
your thoughts on all our activities and 
governance is a key one of those.

Sir George Buckley
CHAIRMAN

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEUK Corporate Governance Code Compliance
In FY2020 the Company applied the Principles, and at the date of this report, complied with all Provisions of the UK Corporate 
Governance Code 2018 (the 2018 Code) in full. During the period the Company confirmed its post-employment shareholding policy in 
accordance with Provision 36. You can read more about this on page 111. Our Board considers that appropriate governance standards 
were in place throughout the year, as explained throughout this Report and set out below. A copy of the 2018 Code is available from the 
Financial Reporting Council’s website at frc.org.uk.

Board Leadership and Company Purpose

Find out more about the members of our Board on pages 84-87

Division of responsibilities

Composition, Succession and Evaluation

Audit, risk and internal control

Remuneration 

Read about our governance framework, stakeholder engagement and Board 
activity in FY2020 on pages 88-95

Our report from the Nomination & Governance Committee and information 
about the FY2020 Board evaluation process can be found on pages 96-101

The Audit & Risk Committee report begins on page 102 and the Risk 
Management section is on pages 67-76

The Directors’ Remuneration Report begins on page 108

A MESSAGE FROM  
BILL SEEGER ON  
WORKFORCE ENGAGEMENT

The Board recognises the value and 
importance of workforce engagement in 
support of delivering the Group’s long-term 
strategic objectives and is committed to 
understanding and learning from the views 
of all our stakeholders. As reported to you 
last year, the Board agreed that I, as your 
Senior Independent Director, would be 
responsible for ensuring that the Board 
engages effectively with our workforce. 

Due to the operational and geographic 
diversity of the Group, the Board agreed that 
each Non-executive Director would engage 
with the workforce on a functional basis, to 
better leverage their individual expertise 
and skills. Each Non-executive Director was 
also allocated a geographic region where 
they would take the co-lead on workforce 
engagement. To supplement this it was 
agreed that each Non-executive Director 
would also independently visit at least one 
site in the year. 

COVID-19 has had a significant impact on 
our planned engagement activities including 
the cancellation of Smiths Day which was 
earmarked as a key Group-wide opportunity 
for Directors to meet with the workforce to 
discuss and understand how our culture 
and values are embedded. 

Prior to travel restrictions being introduced, 
in FY2020 our Non-executive Directors 
visited a number of sites and met with 
employees at Flex-Tek in France, John 
Crane in the UK and the Digital Forge in the 
US. The intention was that the majority of 
site visits would take place in the second 
half of the year, from March onwards, 
and although this was not possible the 
Chairman and Directors have instead used 
other methods of engagement. These have 
included webcasts, videoconference 
meetings with employees from across 
the Group and two-way Q&A town halls. 
The videoconference meetings have varied 
in size from whole functions to three or four 
employees and sometimes one-on-one 

meetings. We will continue to use these 
methods in FY2021 and will resume site 
visits when travel restrictions are lifted, 
always bearing in mind that the safety and 
wellbeing of our workforce is a key priority. 

Engagement during these uncertain times 
has been crucial for ensuring the Board’s 
decision-making is as well informed as it 
can be and for ensuring that the workforce 
knows that we are aware of and appreciate 
their efforts to keep the business operating 
effectively. More information on our specific 
engagement activities with the workforce 
and other stakeholder groups is set out on 
pages 90-91.

All of the Board welcome and value 
feedback and so I thank those members of 
the workforce who have taken the time to 
engage with us and would encourage others 
to do so. We look forward to continuing our 
activities to further understand the culture 
in the business. 

8 3

SMITHS GROUP PLC  ANNUAL REPORT FY20203D I R E C T O R S ’   B I O G R A P H I E S

Our Board

The Board is collectively responsible 
for the long-term success of Smiths 
and the delivery of sustainable 
stakeholder value.

Sir George Buckley

Andy Reynolds Smith

John Shipsey

Chairman

Chief Executive

Appointed: 1 August 2013

Appointed: 25 September 2015

Chief Financial Officer

Appointed: 1 January 2018

Andy brings in-depth industry knowledge 
to the Board and spent over a decade at 
GKN plc, a complex global engineering 
group, prior to joining Smiths. At GKN plc 
he was Chief Executive of the Automotive 
division and a member of the Board from 
2007. Earlier in his career, Andy held 
senior management roles at Ingersoll 
Rand, Siebe plc (now Schneider Electric) 
and Delphi Automotive Systems. 
His previous experience also includes 
a non-executive directorship at Morgan 
Advanced Materials, Chairman of the CBI 
Manufacturing Council and membership of 
the Government Ministerial Advisory Group 
for Manufacturing and green economy.

John has valuable experience leading 
innovative companies, and prior to joining 
Smiths was Chief Financial Officer for 
Dyson, a diversified global technology 
company. At Dyson he was part of the team 
that lead their global growth, particularly 
in Asia. His previous experience includes 
13 years at Diageo plc, a multinational 
alcoholic beverages company, in a number 
of senior finance and strategy roles. 
This included Finance Director for its 
Iberia region and Chief Financial Officer of 
Schieffelin & Somerset, a US joint venture 
between Diageo and LVMH. John is a 
Chartered Accountant.

N

R

I

on appointment as Chairman

Sir George has extensive experience 
of large, multi-industry businesses 
operating in global markets, and has 
had a long career in engineering and 
innovation. As Chairman, Sir George 
ensures effective communication with 
stakeholders, and that the Board provides 
leadership and guidance for executive 
management, especially with regard to 
the Group’s response to the COVID-19 
pandemic. Sir George’s previous roles, 
including as Chairman and CEO of 3M, 
a US-based global technology company 
and Dow Jones 30 component, support 
his effective chairmanship of the Board. 
His other previous experience includes 
Chairman and CEO of Brunswick 
Corporation. Sir George currently serves 
as Non-executive Chairman of Stanley 
Black & Decker, Inc. and Non-executive 
Director of Hitachi Ltd. He has a PhD in 
Electrical Engineering.

8 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEBill Seeger

Bruno Angelici

Olivier Bohuon

Senior Independent Director

Non-executive Director

Non-executive Director

Appointed: 12 May 2014

Appointed: 1 July 2010

Appointed: 1 July 2018

A

N

R

I

A

N

R

I

A

N

R

I

Bill had a successful career in finance in 
the engineering sector and was Group 
Finance Director at GKN plc, a global 
engineering group, until 2014. As Senior 
Independent Director Bill has been 
responsible for ensuring the Board 
engages effectively with the workforce over 
the year and as chair of the Remuneration 
Committee for leading the Committee’s 
discussions on ensuring that developments 
in remuneration practices are considered 
and where appropriate acted upon. 
At GKN he also held the roles of CEO of 
the Propulsion Systems Division, and CFO 
of the Aerospace Division. Earlier in his 
career Bill spent 30 years at TRW, a US-
based automotive and aerospace group, 
where he held various senior finance 
positions. This extensive experience in 
global engineering businesses supports 
his participation in robust decision-making 
by the Board. Bill has a BA in Economics 
and an MBA. 

Other significant appointments

 – Senior Independent Director, Spectris plc 

 – Lecturer, UCLA Anderson School 

of Management

Bruno will step down from the Board at the 
conclusion of the 2020 AGM and will not be 
standing for re-election.

Olivier will step down from the Board at the 
conclusion of the 2020 AGM and will not be 
standing for re-election.

During his career Bruno has held 
senior management roles in global 
pharmaceutical and medical device 
companies, bringing a deeper 
understanding of the healthcare 
environment and industry to the Board. 
This experience has enabled him to 
provide invaluable advice to the Group 
especially in relation to Smiths Medical. 
Until his retirement in 2010, Bruno was 
Executive Vice President, International, at 
AstraZeneca, where he was responsible 
for Europe, Asia Pacific, Latin America 
and MEA. Bruno has a degree in Law 
from Reims University and an MBA from 
Kellogg School of Management, Chicago.

Other significant appointments

 – Non-executive Chairman, Vectura 

Group plc

Olivier has significant executive experience 
at global pharmaceutical and MedTech 
companies, enabling different perspectives 
to be considered during Board discussions.  
His knowledge of the MedTech industry 
has been especially useful regarding the 
Group’s plans for the separation of Smiths 
Medical. Prior to joining Smiths, Olivier 
was Chief Executive at Smith & Nephew 
plc, a multinational medical equipment 
manufacturing company. His previous 
roles include CEO at Pierre Fabre Group 
and President of Abbott Pharmaceuticals. 
Olivier is a member of the French Academy 
of Pharmacy and the French Academy 
of Technologies. He has an MBA and a 
doctorate in Pharmacy.

Other significant appointments

 – Non-executive Chairman, LEO Pharma

 – Non-executive Director, Takeda 

Pharmaceutical Company Limited

 – Non-executive Director, Virbac SA

Key

A Audit & Risk  

Committee member

N

R

I

Nomination & Governance  
Committee member

Remuneration  
Committee member

Independent  
Director

Committee  
Chair

8 5

SMITHS GROUP PLC  ANNUAL REPORT FY20203D I R E C T O R S ’   B I O G R A P H I E S   C O N T I N U E D

Our Board continued

Pam Cheng

Dame Ann Dowling

Tanya Fratto

Non-executive Director

Appointed: 1 March 2020

Non-executive Director

Non-executive Director

Appointed: 19 September 2018

Appointed: 1 July 2012

A

N

R

I

A

N

R

I

A

N

R

I

Pam will stand for election by shareholders 
at the AGM .

Pam is Executive Vice-President, 
Operations and Information Technology 
at AstraZeneca plc, a multinational 
pharmaceutical and biopharmaceutical 
company. Pam’s experience in 
manufacturing, supply chain and 
technology in large global businesses 
further strengthens the Board’s 
discussions on embedding world-class 
operations. In 2020 she provided valuable 
assistance and advice on supply chain 
logistics during COVID-19 and supported 
our celebration of International Women 
in Engineering Day. Pam’s previous roles 
include President of MSD (Merck & Co., 
Inc.) in China and Senior Vice President 
of Global Supply Chain Management & 
Logistics for Merck globally. Pam also 
held various engineering and project 
management positions at Universal Oil 
Products, Union Carbide Corporation and 
GAF Chemicals. Pam holds Bachelor’s and 
Master’s degrees in chemical engineering 
and has an MBA.

Dame Ann is a Deputy Vice Chancellor 
and an emeritus professor of Mechanical 
Engineering at the University of 
Cambridge. She has had a distinguished 
academic career, and her contribution to 
engineering research and the practical 
application of new technology in industry 
is internationally recognised. Dame Ann 
has used her wide experience to inspire 
Smiths employees, including through 
her attendance at the John Crane’s 
Professional Women’s Network and her 
involvement in our support for International 
Women in Engineering Day.  Dame Ann’s 
knowledge and background offer a 
different perspective to Board discussions, 
and her previous roles include five years 
as Head of Engineering at the University of 
Cambridge, and President and Chairman 
of Trustees of the Royal Academy of 
Engineering. Dame Ann has a degree in 
mathematics and a PhD in engineering. 

Other significant appointments

 – Non-executive Director, BP plc 

Tanya has had a successful career 
running businesses over a 20+ year career 
with General Electric Corporation, a 
multinational conglomerate. Prior to joining 
the Smiths Board, she was the CEO of 
Diamond Innovations Inc, a manufacturer 
of industrial diamonds. In addition to 
her experience in manufacturing and 
operations, she brings insight into product 
innovation, sales and marketing across 
a range of sectors and an extensive 
knowledge of operating in the US, to Board 
discussions. As one of the longest serving 
members of the Board she has a deep 
knowledge of the Group and supported 
our celebration of International Women 
in Engineering Day. She is a qualified 
electrical engineer and has a BSc in 
Electrical Engineering. 

Other significant appointments

 – Non-executive Director, Advanced 

Drainage Systems, Inc.

 – Non-executive Director, Ashtead 

Group plc

 – Non-executive Director, Mondi plc

JOHN MILLS
Company Secretary 
Appointed: 1 June 2018

John has gained corporate governance 
and legal experience in a wide range of 
international businesses. He previously 
held senior roles in a variety of sectors, 
most recently at Anglo American plc, 
RSA Insurance Group plc and Cadbury plc. 
He has an LLB and is a Fellow of the ICSA: 
Governance Institute and a qualified solicitor.

8 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEKarin Hoeing

Mark Seligman

Noel Tata

Non-executive Director

Non-executive Director

Appointed: 2 April 2020

Appointed: 16 May 2016

Non-executive Director

Appointed: 1 January 2017

R

I

A

N

R

I

A

N

R

I

Karin will stand for election by 
shareholders at the AGM .

Karin Hoeing is Group Human Resources 
Director at BAE Systems plc, bringing 
current executive experience of defence, 
security, and aerospace to the Board. 
Since joining the Board she has provided 
valuable assistance and advice on people 
issues during the COVID-19 crisis and 
joined us in celebrating International 
Women in Engineering Day. Prior to joining 
BAE she led one of the major international 
business divisions at Schlumberger, 
a multinational oil services company. 
Karin spent 20 years at Schlumberger, 
where she held a number of senior 
HR, marketing, technology and line 
management leadership positions 
across Europe, the Middle East and Asia. 
Karin has a Diploma Geophysics degree. 

Mark’s extensive experience in corporate 
finance and capital markets supports 
Board discussion of the Group’s portfolio 
management. In 2020 he has engaged 
with a cross-divisional range of employees 
working in Finance and as Chair of the 
Audit & Risk Committee he led their 
oversight of the financial impacts of 
COVID-19 and the Group’s response to it. 
He is a former senior investment banker 
and during his executive career he held 
various roles at Credit Suisse, including 
Chairman of UK Investment Banking. 
Mark also brings his non-executive 
experience to the Board, having served 
as senior independent director and audit 
committee chairman at various FTSE 
100 companies. Mark is a Chartered 
Accountant, and has an MA in Philosophy, 
Politics and Economics.

Noel has had a successful career in global 
business. He has extensive experience 
of the high-growth economies which are 
key markets for our growth strategy and 
has been invaluable in developing key 
strategic relationships in Asia since joining 
the Board. He is the Managing Director of 
Tata International Limited, a global trading 
and distribution company and a trading 
arm of the Tata Group, a privately-owned 
multinational holding company. Noel has 
a BA in Economics.

Other significant appointments

With the exception of Kansai Nerolac 
Paints Ltd, each of the following companies 
forms part of the Tata Group. 

 – Non-independent, Non-executive 

Chairman, Tata Investment Corporation

 – Non-independent, Vice Chairman, 

Other significant appointments

Titan Company Ltd

 – Senior Independent Director, Kingfisher plc

 – Non-independent, Non-executive 

 – Senior Independent Director, NatWest 
Group plc (formerly The Royal Bank of 
Scotland Group plc)

 – Alternate member, Panel on Takeovers 
and Mergers for the Association for 
Financial Markets in Europe

Chairman, Trent Ltd

 – Non-independent, Non-executive 

Chairman, Voltas Ltd 

 – Non-executive director, 

Kansai Nerolac Paints Ltd

Key

A Audit & Risk  

Committee member

N

R

I

Nomination & Governance  
Committee member

Remuneration  
Committee member

Independent  
Director

Committee  
Chair

NO OTHER 
DIRECTORS SERVED 
DURING FY2020.

8 7

SMITHS GROUP PLC  ANNUAL REPORT FY20203B O A R D   G O V E R N A N C E

Board governance

The Board is ultimately accountable to our shareholders, and the Directors are responsible for ensuring that management actions are 
aligned with their and other stakeholders’ interests.  The Board has approved a governance framework of systems and controls in order 
to effectively discharge its collective responsibility. This framework supports our Directors’ compliance with their duty to promote the 
success of the Company under section 172 of the Companies Act 2006 (the Act). The framework, including the delegation of specific 
authorities to the Board’s three principal Committees, the Nomination & Governance, Audit & Risk and Remuneration Committees, is 
subject to ongoing review to ensure that it remains fit for purpose. 

G O V ER N A N CE M ODEL

B O A R D

C H A I R M A N

Responsible for:
 – Ensuring the Board’s 

continued effectiveness

 – Shaping boardroom 

culture and 
encouraging individual 
Director engagement

 – Leading the Board 
and setting the 
Board agenda

 – Leading the annual 
Board evaluation

C H I E F   
E X E C U T I V E

S E N I O R   
I N D E P E N D E N T   
D I R E C T O R

N O N - 
E X E C U T I V E   
D I R E C T O R S

Responsible for:
 – Developing and 

proposing strategy 
to the Board
 – Setting and 

communicating the 
culture, values and 
behaviours for the Group

 – Leading the 

Executive Committee

 – Managing 

relationships with our 
key stakeholders

Responsible for:
 – Supporting the 

Chairman in the delivery 
of the Board’s objectives

 – Being available 

to shareholders if 
they wish to raise 
any concerns
 – Acting as an 

intermediary between 
the other Directors 
if necessary
 – Overseeing 

workforce engagement 

Responsible for:
 – Providing constructive 

challenge and 
strategic guidance to 
Board discussions

 – Oversight of 

management 
and the business, 
including culture

 – Offering 

specialist advice 

 – Assessing the 

effectiveness of systems 
of internal control and 
risk management 

C O M PA N Y   
S E C R E TA R Y 

Responsible for:
 – Advising the Board on 
governance matters

 – Supporting the 
Chairman in 
the efficient and 
effective functioning 
of the Board and 
its Committees

 – Ensuring the Board 
receives quality 
information in a 
timely manner

BOARD COMMITTEES
B O A R D C OMMI T T EE S

N O M I N AT I O N &   
G O V E R N A N C E  C O M M I T T E E

A U D I T &  R I S K   
C O M M I T T E E

R E M U N E R AT I O N   
C O M M I T T E E 

Reviews and makes recommendations to the 
Board on the structure, size and composition 
of the Board and its Committees, and leads 
the process for Director appointments 
and Director and senior management 
succession planning.

Oversees the ongoing suitability of the 
Group’s governance framework and diversity 
& inclusion performance.

Ensures the integrity of the Group’s financial 
reporting and audit processes, and the 
maintenance of sound internal control and 
risk management systems. 

Responsible for the Group’s remuneration 
strategy and reviews and oversees the 
Group’s Remuneration Policy for the Directors 
and senior management.

Manages the relationship with the external 
auditor, including making recommendations 
to the Board and shareholders in relation to 
the appointment and re-appointment of the 
external auditor.

Reviews any major changes in Group 
employee remuneration structures, including 
incentive arrangements that apply across the 
wider employee population.

+ Read more on pages 96-101

+ Read more on page 102-107

+ Read more on pages 108-129

E X EC U T I V E  M A N A GEMEN T C OMMI T T EE S 

E X E C U T I V E   
C O M M I T T E E

I N V E S T M E N T   
C O M M I T T E E

D I S C L O S U R E   
C O M M I T T E E

A C Q U I S I T I O N S & 
D I V E S T M E N T S C O M M I T T E E 

Assists the Chief Executive in 
discharging his responsibilities 
and 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 or Board approval. 

Advises the Chief Executive and 
the Board on the identification of 
inside information, and the timing 
and method of its disclosure. 

Approves mergers, acquisitions, 
disposals and joint ventures within 
defined authority limits agreed by 
the Board.

8 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCE 
 
 
 
The Board is responsible for approving 
Group strategy consistent with our purpose 
and for overseeing its implementation, 
and, subject to applicable legislation and 
regulation and the Articles of Association, 
they may exercise all powers of the 
Company. The Board ensure that the 
strategy is in line with our values, while 
monitoring the internal controls, risk 
management and viability of the Company 
and considering the views of stakeholders, 
including but not limited to shareholders, 
the workforce, customers, our supply 
chain and the community. The Chief 
Executive is responsible for preparing 
and recommending the strategy and 
for the day-to-day management of the 
Company, including leading the Executive 
Committee. Biographies for our Executive 
Committee can be found on page 14. 
Executive management implement the 
Group’s strategy and provide the Chief 
Executive, and the Board as a whole, 
with the information they need to make 
decisions that will determine the long-term 
success of the Group. 

There is a schedule of matters which are 
considered significant to Smiths and have 
therefore been reserved for the decision 
of the Board. This is due to their strategic, 
financial or reputational implications or 
consequences. The formal schedule can be 
found on our website and includes approval 
of Group purpose, strategy, values, 
business plans and budgets and oversight 
of Group culture.

During COVID-19 the Board reviewed its 
ways of working and rapidly adapted to the 
changing circumstances, challenges and 
demands. As a result there are a number 
of enhancements to the ways in which the 
Board and its Committees operate which 
will continue or will be implemented over 
the coming months.

The Terms of Reference for the three Board 
Committees, which were reviewed during 
the year, can be found on our website. 
The Transaction Committee, which was 
established in FY2019 in order to provide 
support and oversight of the separation 
of Smiths Medical, continued to meet 
throughout the year. and reported to the 
Board on its activities. The Committee 
is an ad hoc committee of the Board and 
currently consists of three Non-executive 
Directors, Bill Seeger (Chair), Bruno Angelici 
and Mark Seligman. Its role is to provide 
strategic input to the Executive Team in 

relation to the separation of Smiths Medical 
and to act as a conduit for communication 
with the rest of the Board to ensure that they 
are apprised of the progress made to date. 
Other attendees at Committee meetings 
are the Chairman, Executive Directors and 
members of the Executive Team and the 
Group’s financial advisers when appropriate. 
The Committee met on fourteen occasions 
during the year.

Board and Committee meetings
The Chairman sets the agenda and 
determines the style and tone of 
discussions at Board meetings. At each 
scheduled Board meeting the Chief 
Executive and the Chief Financial Officer 
present separate reports, detailing 
business performance and progress 
against strategy. These are supplemented 
by regular performance updates from the 
Chief Executive to the Directors between 
meetings. Invitations to Board meetings are 
extended to divisional presidents, business 
managers and heads of functions  when 
appropriate, to ensure that the Board is 
kept up to date with management priorities 
and challenges. The attendance of senior 
executives also supports executive 
succession planning. External advisers are 
invited to attend as necessary. 

Director attendance at Board and 
Committee meetings in FY2020 is set 
out below. All Board meetings during 
the year took place in London or via 
videoconference. In line with usual 
practice, the Directors had been due to 
meet in other locations where Smiths has 
a presence, but these were cancelled due 
to restrictions arising from COVID-19. 

Additional Board meetings were held 
to consider the Group’s response to 
COVID-19. Throughout the crisis the use 
of videoconferencing supported efficient 
and effective ongoing communication 
between the Chairman and the Chief 
Executive, the Executive Directors and 
executive management, and the entire 
Board. The Board will continue to use 
videoconferencing going forward as 
a cost effective and efficient means of 
discharging its duties.

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 Audit & Risk and Remuneration 
Committee Chairs 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 annually.

Director attendance

Chairman
Sir George Buckley

Executive Directors
Andy Reynolds Smith
John Shipsey

Non-executive Directors
Bruno Angelici
Olivier Bohuon
Pam Cheng2
Dame Ann Dowling
Tanya Fratto
Karin Hoeing3
Bill Seeger
Mark Seligman
Noel Tata

Nomination & 
Governance 
Committee

Board1

Audit & Risk 
Committee

Remuneration 
Committee

9/9

9/9
9/9

9/9
9/9
5/5
9/9
9/9
4/4
9/9
9/9
9/9

4/4

–
–

4/4
4/4
3/3
4/4
4/4
–
4/4
4/4
4/4

–

–
–

4/4
4/4
2/2
4/4
4/4
–
4/4
4/4
4/4

5/5

–
–

5/5
5/5
3/3
5/5
5/5
2/2
5/5
5/5
5/5

1  During the year there were six scheduled Board meetings and three ad hoc meetings. All meetings were attended in full.

2  Pam Cheng joined the Board on 1 March 2020. Pam attended the Board and Audit & Risk Committee meetings in 

September and the Remuneration Committee meeting in November as part of her induction before she joined the Board. 

3  Karin Hoeing joined the Board on 2 April 2020. Karin is not a member of the Nomination & Governance Committee or the 

Audit & Risk Committee.

8 9

SMITHS GROUP PLC  ANNUAL REPORT FY20203E N G A G E M E N T   W I T H   S T A K E H O L D E R S

Stakeholder engagement 
by the Board

Our key stakeholders at Smiths 
are our people, our customers, 
our supply chain, the communities 
in which we operate, regulators 
and governments, and our 
shareholders. 

Stakeholder engagement takes place across the 
Group, both operationally within Smiths and by 
the Directors themselves. 

This engagement is critical to the success of any business, 
and where the engagement is indirect the Board rely on 
management reports for assurance that the relationship is 
being managed effectively. Where a Non-executive Director 
has had direct stakeholder engagement they will provide feedback 
to the other Directors at the next Board meeting. 

The outcomes of stakeholder discussions, including their 
needs and any concerns, are reported to the Board and Board 
Committees on a regular basis as part of their annual calendar 
of work. This enables the Directors to better understand how the 
Group’s culture and values are embedded across all aspects of the 
Group’s activities and supports informed decision-making.

Read Bill Seeger’s report on page 83 for more information about 
how the Board has engaged with the workforce during the year.

Our stakeholders

Direct Board engagement in FY2020

Indirect Board engagement in FY2020

OUR P EOP L E 

OUR C US T OMER S 

OUR SUP P LY   CH A IN 

OUR C OMMUNI T IE S 

R EG UL AT OR S   
A ND G OV ER NMEN T S 

The Chief Executive had extensive engagement with the 

UK Government regarding Smiths involvement in the 

VentilatorChallengeUK Consortium

The Board had intended to meet in the United Arab Emirates in 

early 2020. The Board’s itinerary included visits to Smiths Detection 

and John Crane operations and meetings with the employees and 

customers of these divisions. Unfortunately, due to events in the 

region earlier in the year, the trip was cancelled

The Chief Executive engaged with the UK Government regarding the 

Formal reports to the Board included:

Group’s involvement in the VentilatorChallengeUK Consortium

 – Reports from the Chief Executive on the Group’s response to 

As referred to above, a planned visit to the United Arab Emirates 

COVID-19

in early 2020 was cancelled. The Board were scheduled to meet 

with local government representatives and locally based UK 

Government officials

 – Reports from the Chief Financial Officer on the potential 

implications of Brexit on the individual divisions and the impact of 

international tariffs on the Group

 – Updates on the regulatory process for the approval of new products

9 0

OUR SH A R EHOL DER S 

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEOur stakeholders

Direct Board engagement in FY2020

Indirect Board engagement in FY2020

OUR P EOP L E 

OUR C US T OMER S 

OUR  SUP P LY  CH A IN 

OUR C OMMUNI T IE S 

R EG UL AT OR S   

A ND  G OV ER NMEN T S 

OUR SH A R EHOL DER S 

Participation at the European Employee Forum which included a 
presentation on the role of a Non-executive Director

Formal reports to the Board included:

 – An in-depth review of people strategy, talent management, people 

Attendance at a Smiths Innovation Strategy Board (SISB) meeting

risk and workforce engagement

Attendance at Human Resources team meetings and Q&A sessions 

 – The Diversity & Inclusion Plan, including MySay survey results and 

Participation at a Financial Controllers Club session, a cross-
divisional Finance forum

The Chief Executive had extensive engagement with the 
UK Government regarding Smiths involvement in the 
VentilatorChallengeUK Consortium

The Board had intended to meet in the United Arab Emirates in 
early 2020. The Board’s itinerary included visits to Smiths Detection 
and John Crane operations and meetings with the employees and 
customers of these divisions. Unfortunately, due to events in the 
region earlier in the year, the trip was cancelled

inclusion dashboards

 – ‘Speak Out’ updates and other reports and statistics related to the 

Group’s ethical policies and performance

The Chief Executive’s updates to the Board covered people matters

Formal reports to the Board included:

 – Reports from the Chief Executive on the Group’s response to 

COVID-19

 – Divisional reports submitted to each scheduled Board meeting 

included updates on customers, competitors and market challenges. 
Divisional COVID-19 update reports included information on how 
customer relationships were being managed

The Audit & Risk Committee undertook a deep-dive on 
product quality

The Chief Executive had extensive engagement with other companies 
and key suppliers to the Group to form the consortium which 
supported the VentilatorChallengeUK

 – The Audit & Risk Committee received reports on Ethics & 

Compliance, including modern slavery and human rights updates 
and compliance with our Supplier Code of Conduct

A Non-executive Director provided support and guidance to the 
Operations and Supply Nerve Centre (OSNC) in respect of our 
response to COVID-19

 – The Audit & Risk Committee undertook a deep dive on the 

Integrated supply chain principal risk, including how we monitor 
suppliers’ financial strength, and how we ensured our own actions 
have not threatened the viability of key suppliers 

 – Divisional reports to each scheduled Board meeting included 

updates on supplier matters

The Board determined that it was important for the Smiths Medical 
division to be fully focused on responding to the COVID-19 crisis and 
supporting the communities in which we operate. This was a key 
part of the decision-making process which culminated in deciding to 
postpone the separation of Smiths Medical. See our case study on 
page 93 for more information

The Chief Financial Officer engaged regularly with the Group’s 
Pension Trustees 

Formal reports to the Board included:

 – Health, safety and environment and security updates, including 
activities in connection with the Task Force on Climate-related 
Financial Disclosures (TCFD)

 – Executive Environmental Roundtable discussions

 – Updates from the business on elements of the Group’s operations 

which impact the wider community, including the Group’s 
tax strategy

The Chief Executive engaged with the UK Government regarding the 
Group’s involvement in the VentilatorChallengeUK Consortium

As referred to above, a planned visit to the United Arab Emirates 
in early 2020 was cancelled. The Board were scheduled to meet 
with local government representatives and locally based UK 
Government officials

Formal reports to the Board included:

 – Reports from the Chief Executive on the Group’s response to 

COVID-19

 – Reports from the Chief Financial Officer on the potential 

implications of Brexit on the individual divisions and the impact of 
international tariffs on the Group

 – Updates on the regulatory process for the approval of new products

Director attendance and interaction with shareholders at the 
2019 AGM

Board approval of the FY2019 final dividend and the decision not to 
declare the FY2020 interim dividend at the half year 

The Chief Executive and the Chief Financial Officer hosted Results 
presentations and Q&A sessions and met with a broad spread of the 
Group’s capital providers 

The Chairman met with certain individual shareholders in FY2020

Formal reports to the Board, included:

 – Share register analysis, including the Group’s ADR Programme

 – Financial metric reporting included the views of debt investors and 

the rating agencies

Feedback from investor roadshows was discussed by the Board 

Analyst and broker briefings, and reports of meetings with major or 
prospective shareholders, were circulated to Directors outside the 
formal Board meeting schedule

9 1

SMITHS GROUP PLC  ANNUAL REPORT FY20203B O A R D   A C T I V I T Y   I N   F Y 2 0 2 0

Board activity in FY2020

Discussion and decision making by 
the Board takes the views of key 
stakeholders into account while 
continuing to promote the Group’s 
long-term sustainable success.

1

3

2

+  Read more about our Resources 
and relationships on pages 24-51

+  Read more about our 

strategy on pages 15-21

Key stakeholders

  Our people

Link to strategy

2   Deliver world-class competitiveness 

People and culture

Matters considered
 – Updates on workforce matters 
throughout the COVID-19 crisis

 – The strategic restructuring programme

 – The continued embedding of the Smiths 
Way values through the Chief Executive’s 
updates to the Board. Unfortunately, 
due to COVID-19, the annual Smiths Day 
celebration of the Group’s values was 
cancelled. All Directors had been invited 
to visit local sites on the day

 – The Group HR Director presented the 

People Plan to the Board, covering talent 
and succession planning

 – Employee engagement through the 
employee MySay survey results

 – Diversity & Inclusion Plan and gender pay 

gap reporting in the UK

Outcome
 – In response to COVID-19 both the 
Chairman and the Non-executive 
Directors and the Executive Committee 
produced “thank you” videos issued to 
all employees recognising their efforts 
during the year. The Chief Executive also 
led global town hall sessions with each of 
the divisions

 – Approved the strategic 

restructuring programme

 – A video was issued to all employees 

introducing the Directors and explaining 
their role and responsibilities, followed 
by a Non-executive Director video on 
International Women in Engineering Day

 – Arranged one-on-one discussions 

with high-potential individuals in the 
business to assess our talent and senior 
management succession planning

Outcome
 – Approval of the FY2019 Results and the 

FY2020 Interim Results

 – Approval of the FY2021 financial plan

 – Declaration of the FY2019 final dividend 

and the decision not to declare the 
FY2020 interim dividend at the half-year

 – Enhanced viability and going concern 
processes adopted in response to 
COVID-19

 – Establishment of a £1bn Euro-

commercial paper programme in 
response to COVID-19

Key stakeholders

  Our shareholders

  Our people

  Our communities

Link to strategy

1   Outperform our chosen markets

3   Strong financial framework 

Financial performance

Matters considered
 – Regular updates to the Board on the 

Group’s financial performance including 
its liquidity, cash management and 
conversion, profits and costs

 – Stress-testing of the Group’s resilience 

and the allocation of capital and access to 
external capital were considered in light 
of COVID-19

 – An update on the Group’s Tax strategy 

from the Chief Financial Officer and the 
Group Tax Director

 – An update on the Group’s Treasury 
Strategy, liquidity and funding from 
the Chief Financial Officer and the 
Group Treasurer 

 – An update on the Group’s defined benefit 
pension arrangements from the Chief 
Financial Officer

9 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEOutcome
 – Agreed to delay the separation of Smiths 
Medical. Please see the case study below 
for more information

 – Discussions regarding the Smiths 

Medical separation commenced with 
the Pension Trustees, however, this 
was put on hold due to the separation 
being delayed

 – Oversight of M&A activity, including 

the acquisition of Reflex Photonics by 
Smiths Interconnect, Access Scientific 
by Smiths Medical and PathSensors by 
Smiths Detection 

 – Approved the strategic 

restructuring programme

Key stakeholders

  Our people

  Our customers

  Our supply chain

  Our shareholders

Link to strategy

1   Outperform our chosen markets

Strategic progress

Matters considered
 – The usual Board meeting dedicated to 
strategy scheduled for May 2020 was 
postponed until FY2021 while the Group 
focused on its response to COVID-19. 
The Board continued to receive reports 
on the Group’s strategic progress over 
the year, in the light of external economic 
and geopolitical events

 – Detailed information on the proposed 
structure and framework of the Group 
after the separation of Smiths Medical. 
The Directors considered potential 
markets, customers and future 
investment opportunities and received 
regular updates from the business, the 
Transaction Committee and advisers on 
the Smiths Medical separation process

 – Oversight of M&A activity, including 

updates on acquisition and divestiture 
activities at each scheduled 
Board meeting

DECISION-MAKING: DELAY TO THE SEPARATION OF SMITHS MEDICAL

the proposed separation. However, the 
Board collectively agreed the proposed 
timetable would no longer be viable in 
the circumstances. In addition, there was 
an increased opportunity to support the 
wider community in the production of 
ventilators and other critical care devices. 
Direct engagement with stakeholders 
was limited due to the sensitivity of 
information, and the rapidly evolving 
external environment.

An additional Board meeting was 
scheduled for April 2020 in order 
to discuss, among other things, 
the stakeholder response to the 

announcement. The Directors considered 
the long-term consequences of their 
decision to delay and it continues to be 
the Board’s intention to separate Smiths 
Medical. In the short term it was necessary 
for Smiths Medical to focus on providing 
medical equipment, fulfilling this obligation 
in line with the Smiths culture and values. 
The Group’s purpose and long-term aim 
to become the world’s leading technology 
company was balanced with this, while the 
Directors considered their duty to promote 
the success of Smiths for the benefit of 
our shareholders. 

On 31 March we announced that there 
would be a delay to the separation of 
Smiths Medical. The separation was on 
track to complete by the end of the first 
half of 2020, but COVID-19 was creating 
increased economic uncertainty and after 
careful consideration the Board agreed 
that it would no longer be practicable 
to deliver value for all stakeholders in 
that timeframe. The Directors agreed 
that Smiths and Smiths Medical needed 
to focus on responding to the external 
challenges facing both the Group and the 
communities in which it operates. 

During the first half of FY2020, the 
Board received regular updates on the 
work to prepare for the separation. 
The Transaction Committee, established 
in FY2019 and comprised of Non-executive 
Directors, met regularly between Board 
meetings to provide support and oversight 
of the separation process.

The decision to delay the separation 
impacted various stakeholders, including 
people working for Smiths Medical and 
the remaining Smiths Group, Smiths 
Group plc shareholders and the wider 
community. Financial markets and our 
customers had reacted positively to 

9 3

SMITHS GROUP PLC  ANNUAL REPORT FY20203B O A R D   A C T I V I T Y   I N   F Y 2 0 2 0   C O N T I N U E D

Board activity in FY2020 continued

Operational 
performance

Matters considered
 – An update on the Smiths Excellence 
System (SES), including strategic 
priorities and future developments, 
statistics on colleague completion 
of the Smiths lean six sigma belted 
programme, and current focus 
on site deployment to embed the 
associated tools

 – Cyber Security Risk updates, including 
threats from the external environment. 
The reports covered enterprise and any 
product cyber incidents

 – Reports from the Operations and Supply 

Nerve Centre

 – Deep dives into divisional activities

Shareholder 
engagement
Our Directors engaged with different 
groups of shareholders directly and 
indirectly over the year. All Directors 
attended the 2019 AGM where 
shareholders were invited to ask questions 
during the meeting and to meet the 
Directors after the formal proceedings 
were concluded. The 2019 AGM was 
webcast for the first time, allowing more 
shareholders to participate. All resolutions 
were voted on separately and passed with 
at least 90% of votes in favour. 

Outcome
 – Endorsement of the Group’s response to 

COVID-19

 – Approval of targeted initiatives at 

improving the Group’s working capital 
including inventory management

Key stakeholders

  Our customers

  Our suppliers

  Our communities

Link to strategy

2   Deliver world-class competitiveness

The Directors were kept up to date with 
the interests of institutional shareholders 
and other providers of capital and the 
Chief Financial Officer met and proactively 
communicated with committed lending 
banks and the rating agencies. After the 
FY2020 Interim Results the Chief Executive 
updated the Board on investor feedback 
following the decision to delay the 
separation of Smiths Medical and to not 
declare the FY2020 interim dividend.

The 2020 AGM will be held as a closed 
physical meeting on 16 November. 
The Notice of AGM can be found in a 
separate document which is sent out at least 
20 working days before the AGM and made 
available on our website. More information 
about the AGM and Equiniti, the Company’s 
Share Registrar, can be found on page 229.

Key stakeholders

  Our shareholders

I N V E S T O R   A N D   A N A L Y S T 
M E E T I N G S   I N  F Y 2 0 2 0

  United Kingdom

  US and Canada

  Rest of Europe

  Rest of World

39%

32%

17%

12%

BOARD PRIORITIES FOR  FY2021

In addition to the Board’s usual calendar of work, specific focus will be applied to the following areas:

 – Continue to monitor COVID-19, 
its impact on global markets 
and their recovery

 – Continue to review Group and 
divisional strategy in order to 
enhance their leadership positions

 – Continued oversight of the separation 
of Smiths Medical, ensuring the right 
outcome for stakeholders

 – Address the agreed actions from 

the Board evaluation process, with 
a particular focus on talent and 
succession planning 

 – Support the business in improving 

performance against KPIs

 – Oversight of the strategic 
restructuring programme

 – Continue to enhance the Board’s 
governance framework including 
stakeholder engagement activities

9 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCESTAKEHOLDER ENGAGEMENT: RESPONSE TO COVID-19

on the strategic restructuring 
programme. Sadly a number of 
employees have become ill during the 
pandemic and a very small number 
have died. The Board ensured it 
received information about this and 
that support was given to their families 
and grieving colleagues.

Our customers, supply chain, 
communities, regulators 
and governments
The Chief Executive advised the March 
Board meeting that Smiths had been 
selected to lead one of the consortium 
groups supplying ventilators, as part of 
the VentilatorChallengeUK. An update 
on this significant government 
contract requiring a substantial 
increase in production was provided to 
the April Board meeting. 

The regular divisional reports included 
updates on the impact COVID-19 
was having on customers and their 
supply chains. 

A special report on three COVID-19 
initiatives was presented to the April 
Board meeting: the OSNC; in-house 
surgical mask production; and cost 
containment measures.

The Directors were updated on the 
impact of COVID-19 on the Group’s 
cyber capabilities in May, including 
threats to capacity and access issues 
due to increased homeworking.

Our shareholders
At shareholder meetings in the second 
half of the year the Chief Executive and 
Chief Financial Officer covered the 
impact of COVID-19 on the Group and 
the Group’s response to the crisis.

As part of the review of the Group’s 
half yearly results in March the 
Directors were presented with a 
review of the impact of COVID-19 
on Group viability. This included the 
results of liquidity stress testing using 
negative assumptions based on severe 
disruption to customer demand, 
supply chain and operational capacity. 
This information was used by the Board 
when considering the payment of the 
FY2020 interim dividend and has been 
updated and included in our Viability 
Assessment (see pages 77-78). 

In April the Directors considered 
access to external capital and 
subsequently approved the 
establishment of a £1bn Euro-
commercial paper programme.

Consequences of decisions 
in the long-term
COVID-19 has required the Board to 
balance the long-term consequences 
of decisions and the short-term 
requirements for operational 
resilience. In March the Directors 
considered the potential impact of 
COVID-19 on Smiths and broader 
markets, and it was considered in the 
best interests of key stakeholders 
to not declare the FY2020 interim 
dividend and to delay the separation of 
the Smiths Medical division.

The Chief Executive advised the Board 
that the Executive Committee had 
held a risk management session to 
consider the risks of COVID-19 related 
market disruption, and the long-term 
implications of a post COVID-19 world. 
The Board continues to receive regular 
reports on the impact of COVID-19 and 
the likelihood, timescale and speed 
with which the Group’s markets are 
likely to recover.

The Board received externally 
facilitated crisis management 
training in September 2019 and so 
were familiar with the Group’s crisis 
management framework when 
COVID-19 began to spread and impact 
the Group’s operations. It was agreed 
that the Board’s role was to retain 
a clear focus on the longer-term 
consequences of decisions, and the 
maintenance of the Group’s purpose 
and core values, while the executive 
management team managed the 
short-term priorities. In times of 
crisis Directors need to take on an 
active oversight role, and effective 
management reporting is critical to 
support this. They received regular 
written updates during the crisis.

Our people
Effective communication channels to 
and from the workforce are critical. 
During the crisis the Board balanced 
keeping the workforce safe, supporting 
our customers and supply chain, 
business continuity and ensuring the 
positioning of the business remained 
strong for the long term. Updates on 
workforce communications were 
provided to the Board, who also had 
access to the weekly all-employee 
email updates and Smiths Now 
articles, the COVID-19 resources 
available online, including FAQs 
and site guidance, and the internal 
#Thankyoufrontline campaign.

At the March Board meeting the 
Chief Executive advised the other 
Directors that crisis management 
procedures had been activated, with 
the Smiths Group Crisis Core team 
meeting at least twice weekly with 
weekly Executive Committee meetings 
and a number of other meetings 
being held daily to manage the crisis 
within the crisis process framework. 
Regular management reports updated 
the Board on the detailed position at 
Smiths, including confirmed cases of 
COVID-19 amongst our employees and 
information about closed sites. 

The HR Director presented a special 
report on the divisional critical role 
cover exercise to the April Board 
meeting. The Board enquired into 
government support for employees 
and the potential impact of COVID-19 

9 5

SMITHS GROUP PLC  ANNUAL REPORT FY20203Committee activities in FY2020

Succession planning

 – Reviewed the Board skills and experience 

matrix and after consideration of this 
recommended the appointment of Karin 
Hoeing as a Non-executive Director to 
the Board

 – Discussed succession planning for 
Board positions, which included a 
written Executive Director succession 
plan, and reviewed the Group’s senior 
management succession arrangements 
and talent pipeline with the Human 
Resources Director

 – Discussed Board composition for 

Smiths and Smiths Medical following the 
planned separation

 – To support their insight into culture 

and senior management succession 
planning, the Non-executive Directors 
met with members of local senior 
management prior to physical Board 
meetings and site visits

 – The Chairman and other Non-executive 
Directors had one-on-one discussions 
with high-potential individuals in 
the business

Governance

 – Considered Director engagement with 
stakeholders, including the workforce

 – Considered the external appointments 

of Directors and recommended to 
the Board that approval continues to 
be provided

 – Recommended updated Terms of 

Reference to the Board for approval

 – Considered the Board Committees’ 
membership and in doing so the 
independence and performance of the 
individual Non-executive Directors

 – Reflected on suggestions raised through 

the ongoing review of the Group’s 
governance framework

N O M I N A T I O N   &   G O V E R N A N C E   C O M M I T T E E   R E P O R T

Nomination & Governance  
Committee

Diversity of thought, background, national origin, 
gender and ethnicity is as vital for an effective 
Board as it is in other aspects of life.

In order to fulfil its role the 
Committee:
 – Takes account of the Group’s strategy, 
business performance, current and 
future leadership needs, challenges 
and opportunities, and makes 
recommendations to the Board on its 
composition and that of its Committees

 – Holds at least one meeting a year to 

review senior management succession 
plans and the quality of the talent 
pipeline across the Group

 – Conducts on a periodic basis a review 
of the Board’s governance framework 
and recommends any changes to 
the Board

Performance evaluation
In FY2020, the performance of the 
Committee was considered as part 
of the internal Board evaluation 
process. Overall it was confirmed 
that the Committee continues to 
operate effectively.

Role of the Committee
The Nomination & Governance 
Committee reviews and makes 
recommendations to the Board on the 
structure, size and composition of the 
Board and its Committees. In fulfilling 
this role, the Committee considers 
the balance of skills, knowledge, 
experience and the diversity of gender, 
social and ethnic backgrounds, while 
having regard to the Group’s strategic 
objectives. The Committee has a formal, 
rigorous and transparent appointment 
process involving all Board members, 
and makes recommendations based on 
the merit of the individual candidates, 
having due regard for the need to 
ensure the effective functioning of the 
Board at all times. The Committee 
also considers Director and senior 
management succession planning 
and maintains oversight of the Group’s 
governance framework. 

The members of the Committee and 
their meeting attendance during the year 
is set out on page 89. The Chief Executive 
is normally invited to attend Committee 
meetings and has attended each of the 
meetings in FY2020. Other members of 
senior management are invited to attend 
as necessary.

9 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEB I R T H P L A C E   O R   B A C K G R O U N D *

Target
50%

  Outside UK

  UK

8 (67%)

4 (33%)

G E N D E R   A N D   E T H N I C I T Y *

Target
40%

  Current

5/12 (42%)

G E N D E R   B A L A N C E *

  Female

  Male

4 (33%)

8 (67%)

Board Diversity Policy
Smiths supports the principles of the 
Hampton-Alexander and Parker reports 
on gender and ethnic diversity and 
maintains a diverse Board and, just 
as importantly, diverse management 
teams. Members of the Board and senior 
management will collectively possess 
a diverse range of skills, expertise, 
national birthplace, domain knowledge 
and ethnic and societal backgrounds. 
These are important ingredients for 
the effective operation of the Board and 
oversight of the Group. As a multinational 
Group with operations in more than 50 
countries and over 95% of revenues 
originating outside the UK, diversity of 
thought and background is essential 
and will remain one of the key criteria 
by which candidates are selected for 
the Board and the pipeline for senior 
leadership positions. 

In recognition of the value of diversity, 
the Board seeks to ensure that at least 
50% of its members have a birthplace 
or background outside the UK and that 

at least 40% of the Board is comprised 
of female plus historically under-
represented ethnic groups. The Board 
will always seek to appoint the best 
qualified candidate, but between two 
candidates of equal merit the Board 
will, where there is a disproportionate 
under-representation of gender diversity 
on the Board, give preference to a female 
candidate when making an appointment.

In order to help achieve these aspirations 
the Nomination & Governance 
Committee endeavours to only use 
the services of executive search firms 
who have signed up to the Voluntary 
Code of Conduct on Gender Diversity. 
Executive search firms will also be 
required to ensure non-UK nationals, 
women and candidates from historically 
under-represented ethnic groups are 
represented on the shortlist for all 
Board positions. 

The Board Diversity Policy was 
reapproved by the Board in March 2020. 

Board diversity performance
At the date of this report 67% of our 
Directors have a birthplace or background 
outside the UK, and 42% of our Directors 
meet the combined measure of gender and 
ethnic diversity. 33% of our Directors are 
female. The Board therefore meets both 
of its diversity targets, and the Hampton-
Alexander target of 33% representation 
of women on FTSE 350 Boards. 
Diversity information for the Board, 
Executive Committee, senior managers 
and the Group as a whole can be found 
on page 33. The Board will look to extend 
its work on diversity to senior leadership 
positions in the business and across the 
Group through oversight of the Diversity 
& Inclusion Plan which is available on 
our website.

In FY2020 external search firm Buchanan 
Harvey & Co. was used to support 
Director appointments and other senior 
level recruitment; the firm has no other 
connection to Smiths. Buchanan Harvey & 
Co. is a signatory to the Voluntary Code of 
Conduct for executive search firms.

Independence

The Board keeps the independence 
of the Non-executive Directors under 
continuous review. In July 2020, the 
Committee assessed the performance and 
independence of each of the Non-executive 
Directors and concluded that each of them 
contributed effectively to the operation of 
the Board. In considering the Directors’ 
independence the Committee reviewed the 
guidance contained in the 2018 Code.

Bruno Angelici was appointed as a 
Director on 1 July 2010 and as he had 
served on the Board for more than nine 
years a particularly rigorous review 
of his performance was undertaken. 
The Board concluded that he continued 
to demonstrate the qualities of objectivity 
and independence and contributed to 
constructive challenge and debate at 
meetings. It was therefore agreed that 
that he should continue as an independent 
Non-executive Director until his retirement 
at the 2020 AGM. Olivier Bohuon will 
also step-down from the Board at the 
conclusion of the 2020 AGM.

*  as at 21 September 2020. Bruno Angelici and Olivier 

Bohuon will step-down from the Board at the conclusion 
of the 2020 AGM.

9 7

SMITHS GROUP PLC  ANNUAL REPORT FY20203Information and training

The Board recognises the importance 
of ongoing training and our Directors 
are given the opportunity to update their 
skills and experience on a regular basis. 
Any individual development needs are 
discussed with the Directors at the annual 
performance evaluation. In order for the 
Directors to remain aware of business 
priorities and external developments, the 
Board is provided with formal reports and 
updates from the divisions and external 
advisers on a regular basis. During the 
year the Board received various externally 
facilitated training sessions, including on 
crisis management where the Directors 
were updated on the Group’s preparation 
for a crisis and received a presentation 
on good crisis discipline. They were also 
given an overview of the specific statutory 
and regulatory duties and responsibilities 
applicable to directors of a listed company. 

The Company Secretary prepares a 
Governance Report for each scheduled 
Board meeting; over the year these covered 
changes to the regulatory environment 
and opportunities for our Non-executive 
Directors to attend externally facilitated 
seminars and roundtable events. 
The Directors are also obliged to complete 
annual online training on the Group’s Code 
of Conduct, information security and anti-
bribery and corruption. 

In order to operate effectively our Directors 
must receive accurate, timely and high-
quality information. This supports their 
ability to make sound decisions and 
provide appropriate advice and challenge. 
The Company Secretary and his team 
assist the Chairman and Chief Executive in 
ensuring effective information flows and 
that the Board is provided with all relevant 
information. There are procedures in 
place to ensure that information the Board 
receives is presented in an appropriate 
format and contains the level of detail 
required for Directors to fulfil their 
responsibilities effectively.

N O M I N A T I O N   &   G O V E R N A N C E   C O M M I T T E E   R E P O R T   C O N T I N U E D

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Directors’ tenure*

Sir George Buckley

Andy Reynolds Smith

John Shipsey

Bruno Angelici

Olivier Bohuon

Pam Cheng

Dame Ann Dowling

Tanya Fratto

Karin Hoeing

Bill Seeger

Mark Seligman

Noel Tata

*  as at 21 September 2020. Bruno Angelici and Olivier Bohuon will step-down from the Board at the conclusion of the 

2020 AGM.

Tanya Fratto has served on the Board 
for eight years, Sir George Buckley for 
seven years and Bill Seeger for six years. 
As such, their continued objectivity 
and independence were also subject 
to rigorous review. It was agreed that 
Tanya, Sir George and Bill continue to be 
independent and objective.

Time commitment
All Directors must allocate sufficient 
time to their work in order to discharge 
their responsibilities effectively. This has 
been particularly important in FY2020 as 
the Board prepared for the separation 
of Smiths Medical and then oversaw the 
Group’s global response to COVID-19. 
When Non-executive Directors join the 
Board the expected time commitment 
of 25 days per annum is set out in their 
letter of appointment. This includes 
making time to familiarise themselves 
with business priorities and challenges 
and to prepare for and attend Board and 
Committee meetings. In the normal course 
of business they are also expected to 
attend the AGM, engage with stakeholders 
and participate in the Board evaluation 
process. During a Director’s induction 
phase an additional time commitment 
is required. 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. 

The Directors’ other significant 
commitments are detailed in their 
biographies on pages 84-87 and the 
Board considers these at least once a 
year. In FY2020 the Board concluded that 
the Chairman and the Non-executive 
Directors devoted sufficient time to 
fulfil their commitments to Smiths. 
Particular consideration was given to 
Sir George Buckley and Noel Tata’s 
other commitments.

Sir George is always available for 
consultation with management when 
required and was in frequent contact with 
management throughout the COVID-19 
crisis. Following due consideration, 
the other Directors confirmed that he 
continues to demonstrate commitment to 
his role as Chairman. Noel is Managing 
Director of Tata International Limited, 
a trading arm of the Tata Group (a 
privately-owned multinational group 
of companies). He brings valuable and 
distinct experience to Board discussions, 
as a current executive with contacts in 
higher-growth countries which are a 
strategic focus for Smiths. In order to 
fulfil his executive responsibilities at Tata 
Group he is a director of various Tata 
companies. The Board believes that Sir 
George and Noel’s other commitments 
do not prevent them from committing 
sufficient time to their work as Directors, 
as evidenced by their full attendance and 
effective participation at all Board and 
Committee meetings held in the year. 
There was unanimous support from the 
Board to recommend to shareholders 
the re-election of Sir George Buckley and 
Noel Tata.

9 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEAdvice and insurance
Our Directors have access to the advice 
and services of the Company Secretary and 
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 FY2020, and at the date of this 
report, qualifying third-party indemnity 
provisions (as defined by section 234 of 
the Act) 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.

Director re-election
Each year our Directors are subject to 
election or re-election by shareholders 
at our AGM. Non-executive Directors are 
appointed for a specified term of three 
years, subject to annual re-election at 
the AGM. Re-appointment for a second 
three-year term is not automatic, and 
any term for a Non-executive Director 
beyond six years is subject to a particularly 
rigorous review. 

Our Chairman, on behalf of the Board, 
has confirmed that each Non-executive 
Director standing for re-election at 
this year’s AGM continues to be an 
effective member of the Board, and has 
demonstrated the commitment required. 
In addition, 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.

Director induction
To ensure that they are able to effectively 
contribute to discussion and decision-
making, all of our Directors participate 
in an induction programme on joining 
the Board. Each induction programme 
is tailored to provide the individual 
Director with the necessary knowledge 
and understanding of the Group, based 
on their personal experience and 
background. Where possible, meetings 
with our key stakeholders will be built 
into Director induction schedules in 
future. Information about the Director 
inductions completed during the year can 
be found below.

Conflicts of interest
All of our 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 forms the 
record of actual and potential conflicts 
and the Board authorisation granted. 
The Register is reviewed by the Directors 
at least twice a year and the Board 
retains the power to vary or terminate any 
authorisation previously provided.

DIRECTOR INDUCTIONS DURING COVID-19

Pam Cheng and Karin Hoeing joined the 
Board in March and April 2020 respectively. 
Normal practice is for a new Director to 
meet with the Chairman, the Company 
Secretary, Non-executive Directors and 
Executive Committee members, including 
the divisional presidents, and other senior 
executives. They may also meet with the 
external auditors and the Group’s key 
external advisers. 

Ordinarily, a majority of these 
meetings would be in person, but due 
to restrictions arising from COVID-19 
this was not always possible for Pam 
and Karin, so most meetings have 
been held via videoconference instead. 
Briefing documents are circulated 
in advance of induction meetings. 
Induction programmes would normally 
include visits to Smiths sites, which have 
also not been possible due to COVID-19.  

To provide an insight into the Group’s 
strategy, culture and values, extensive 
information about the Group is made 
available to new Directors. Before formally 
joining the Board, in order to familiarise 
herself with its workings, Pam joined 
the Board and Audit & Risk Committee 
meetings in September and the 
Remuneration Committee meeting in 
November as an attendee.

9 9

SMITHS GROUP PLC  ANNUAL REPORT FY20203Each Director and member of senior 
management was independently 
interviewed by members of the Human 
Resources function, with the findings 
and performance of the Remuneration 
Committee considered by the Board as 
part of the overall evaluation process. 

FY2020 evaluation assessment 
The results from the FY2020 evaluation 
showed encouraging improvements from 
those of the previous year, with nearly all 
questions achieving better scores than 
the already high ones in FY2019. There is a 
good cross-set of skills on the Board with 
a balance of expertise and experiences and 
diversity of background. The Board have 
open and engaged but robust discussions. 
The areas which the Board felt were most 
in need of attention were again in relation 
to strategic decision-making, executive 
succession planning and communication 
where although these areas had improved 
overall, there is still more which could 
be done. Progress against actions from 
FY2019 and those planned for FY2021 are 
set out on the opposite page.

The Audit & Risk and Nomination & 
Governance Committees both improved 
their scores from FY2019. As the evaluation 
of the Remuneration Committee was 
carried out separately using a different 
process there were no comparators for 
this Committee. It was agreed that the 
feedback from Committee members 
regarding the current Remuneration 
Policy would be used to identify priorities 
and inform work on the next Policy 
review for submission to shareholders. 
To assist in progressing matters between 
Remuneration Committee meetings, a 
working group consisting of three or more 
Directors assisted by management was 
established and in operation from May 
2020, chaired by Bill Seeger and submitting 
matters to the Committee as a whole 
for approval. 

FY2021 evaluation
It is the present intention that the Board 
evaluation will be independently facilitated 
in FY2021 as part of the three-year cycle. 

N O M I N A T I O N   &   G O V E R N A N C E   C O M M I T T E E   R E P O R T   C O N T I N U E D

Board evaluation

An effective Board is essential to deliver the 
Group’s objectives and long-term sustainable 
value for stakeholders.

Principles
Each year an evaluation of the Board and 
its Committees is conducted to monitor 
their effectiveness and to help identify any 
improvement opportunities. The annual 
evaluation of the performance of the Non-
executive Directors and the Chief Executive 
is led by the Chairman. Feedback is given 
to the Chief Executive by the Chairman 
after each Board meeting and on an ad hoc 
basis throughout the year. The evaluation 
of the Non-executive Directors includes 
face-to-face meetings with the Chairman 
for each of them individually. The Senior 
Independent Director and the Chief 
Executive lead the evaluations for the 
Chairman and the Chief Financial Officer 
respectively. Additionally, the Board 
evaluation is independently facilitated every 
three years. Independent Audit Limited 
facilitated the FY2018 Board evaluation 
and assisted with the interpretation of 
the results from the questionnaires 
used to support the FY2019 and FY2020  
internal evaluations. Independent Audit 
Limited have no other connection with 
the Company. 

Building on the FY2019 evaluation

As reported in last year’s Annual Report, 
the Directors believed that the Board and 
its Committees continued to function very 
effectively, but there were areas where 
they agreed processes could still be 
enhanced. These centred on i) continuing to 
embed and develop executive succession 
planning processes, ii) the factors taken 
into consideration when making strategic 
decisions, and iii) better communication 
with Non-executive Directors by the 
Executive Directors.

Strategic decisions involve the 
consideration of many different factors 
and the Board wanted to ensure that these 
factors were all raised in a timely manner 
and in sufficient detail. Ways to ensure 

1 0 0

this happens on a consistent basis, and 
that the general flow of information and 
exchange of ideas between management 
and the Board improves, were considered. 
The Nomination & Governance Committee 
had enhanced its effectiveness in the year 
but succession planning was a recurring 
theme from the FY2018 evaluation. 
Shortlists for Board appointments were 
deemed to be of good quality, but the Board 
wanted greater insight into the quality of 
the management talent pipeline within 
the Group.

The objective this year was to build on 
the findings of the FY2019 evaluation and 
assess through the answers to a series of 
questions (FY2019: 46; FY2020: 43 ) how 
well the Board discharged the fundamental 
role it plays, its dynamics, its coverage 
of strategy and risks, and how each 
of the Committees performed the 
roles delegated to them by the Board. 
Using similar questionnaires year on year 
allowed comparison with the results from 
the FY2019 evaluation for many areas, 
with additional questions on some of 
the key topics considered by the Board 
during the year. For example, in FY2020, 
the questionnaire contained a specific 
section on the operation of the Transaction 
Committee which had been formed to 
monitor and advise on the separation 
process for Smiths Medical. The answers 
to the questionnaire are compiled on a non-
attributable basis and reviewed in detail by 
the Nomination & Governance Committee. 

The process did not include a section on 
the Remuneration Committee as that 
had separately been internally evaluated 
earlier in the year. This was ahead of 
the appointment of new advisers to the 
Remuneration Committee to obtain 
feedback from Directors and senior 
management on the current remuneration 
consultancy arrangements, performance 
measures and Committee governance. 

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEStrategic  
decision-making

Actions from FY2019 evaluation
 – A particular focus in the evaluation had been 
on reviewing how the Board had handled 
key issues such as the decision to separate 
the Smiths Medical division. In FY2020 
the Board used the newly-established 
Transaction Committee to provide a 
regular interface between management 
and the Board and give oversight of the 
separation process. The separation 
process was delayed in early 2020 to allow 
employees to focus on responding to the 
COVID-19 pandemic but also because of 
the challenging circumstances in some 
segments of the economy. The use of the 
Committee is felt to have significantly 
improved strategic decision-making, the 
flow of information and exchange of ideas 
between management and the Board and 
communication in general. The Committee 
has broadened its role to oversight of other 
acquisitions and disposals at least for the 
duration of the COVID-19 pandemic. 

 – Ensuring that the Board has access to 
all relevant information for its strategic 
discussions is an area for constant 
improvement. Not all the improvements 
planned for FY2020 were implemented due 
to the COVID-19 pandemic but these remain 
in place for implementation in FY2021. 
These include greater interactions with 
customers, suppliers and subject matter 
experts as part of the increase in direct 
stakeholder engagement and to understand 
how big trends and technology influence the 
markets in which we do or can operate.

FY2020 evaluation findings
 – More factors to be taken into consideration 
when making strategic decisions, including 
identifying the skills, characteristics and 
diversity the Group needs to underpin our 
strategy; and increasing the understanding 
of the strategic opportunities and risks from 
current and emerging technology, climate 
change and big shifts in behaviours and 
markets such as those experienced in the 
last year.

FY2020 evaluation findings

 – Greater involvement with divisional 

management would improve their visibility 
to the Board for executive succession 
planning purposes and  allow the Directors 
to assess the ‘bench strength’ of the senior 
management team. We have already 
implemented this action.

Actions planned for FY2021
 – The annual strategy discussion was 

postponed in FY2020 and will now take place 
later this year by videoconference. We had 
hoped that an easing of the pandemic would 
allow the normal face-to-face meeting of 
the Board for this session, albeit delayed, 
but that turned out not to be possible. 
The interactions between the Board and 
divisional management have been extended 
and improved ahead of that meeting to 
give the Board more time to address the 
areas identified. As noted above, a few of 
the improvements identified in FY2019 
which could not be implemented in FY2020, 
due to the restrictions and additional time 
constraints resulting from the COVID-19 
pandemic, will now be introduced in FY2021.
 – To allow more time for strategic discussions 

at the Board meetings themselves, and 
so that the Board can consider a broader 
range of topics which affect the strategy, 
agendas will be re-balanced and items 
which are not ‘time critical’ will be re-
scheduled. Director training now takes place 
in scheduled ‘stand-alone’ sessions rather 
than during a regularly scheduled Board 
meeting with a number of excellent sessions 
having already taken place. 

Actions planned for FY2021
 – Increasing the frequency and depth 
of Board updates in this area started 
in 2020. Access for the Board to more 
divisional management employees is being 
significantly increased, including through 
greater use of videoconferencing facilities 
to minimise the need for travel. More face-
to-face Board exposure for high-potential 
talent within the Group is being arranged 
once travel restrictions are lifted. This will 
also improve the Board’s knowledge and 
oversight of the corporate culture.

Executive  
succession planning
Actions from FY2019 evaluation

 – To provide the Board with the desired insight 

into the talent pipeline within the Group 
for succession planning, more frequent 
updates from the Human Resources 
Director are now provided to the Nomination 
& Governance Committee with the most 
recent of these provided in July 2020. 
As noted below, this remains an area of 
focus for FY2021. 

Board communication

Actions from FY2019 evaluation
 – Communication between management and 
the Non-executive Directors outside of the 
formal Board meetings has improved with 
the embedding into our reporting processes 
of a regular, formal written report from 
the Chief Executive to them each month. 
Any matters needing more immediate 
communication continue to be dealt with by 
the most appropriate methods of interface 
on an ad hoc basis. There were more Board 
and Transaction Committee meetings in the 
second half of the year to keep the Board 
apprised of the response to the COVID-19 
pandemic and to seek their counsel on the 
economy, forecasting, government relations 
and employee safety. 

 – As part of the evaluation feedback 

provided in July 2019, the Board asked for 
more information regarding the Group’s 
preparedness and processes in the event 
of a crisis. This was provided to them in 
September 2019 and the Group’s processes 
and ability to respond to a crisis were then 
utilised during the pandemic.

FY2020 evaluation findings
 – Well-structured and more timely delivery 
of Board papers will improve discussions 
during meetings.

 – Continued development of communications 
from management between Board meetings 
to further improve Board oversight. 

Actions planned for FY2021
 – Process and procedure improvements 
around the creation, dissemination and 
consideration of Board papers are being 
addressed through a ‘lean six sigma green 
belt’ programme run internally. This will 
report to the Board later this year and 
the improvements will be implemented 
shortly thereafter.

 – In addition to the now embedded Chief 

Executive monthly report, other formal and 
informal ways of improving information 
flows to and from the Board outside 
of the usual routine of meetings are 
being considered.

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SMITHS GROUP PLC  ANNUAL REPORT FY20203A U D I T   &   R I S K   C O M M I T T E E   R E P O R T

Audit & Risk  
Committee

The Committee oversaw a rapid review of how the business 
operated and reported in the light of COVID-19.

In order to fulfil its role the 
Committee:
 – Holds meetings scheduled to coincide 

with key dates within the financial 
reporting, audit and Enterprise 
Risk Management (ERM) cycles. 
The external auditor attends and 
reports to all meetings 

 – Receives presentations from divisional 

and functional heads to gain an 
understanding of the culture and risks 
present throughout the organisation 

 – Meets privately with internal 
and external audit after each 
Committee meeting 

 – Conducts an annual review of its 
performance and its Terms of 
Reference, and recommends any 
changes to the Board 

Role of the Committee
The principal role of the Committee 
is to assist the Board in fulfilling its 
oversight responsibilities in relation to 
financial reporting, financial controls 
and audit, risk and internal controls. 
The Committee also manages the 
relationship with the external auditor, 
including making recommendations 
to the Board and our shareholders 
in relation to the reappointment of 
the external auditor. In addition, the 
Committee oversees the Group’s 
Ethics and Compliance annual work 
programme and investigates any 
material ethics and compliance issues 
that may arise. 

Performance evaluation
The annual evaluation of the 
performance of the Committee 
was conducted as part of the Board 
evaluation process with the findings 
relating to the Committee being 
discussed with the Committee Chair. 
Overall, the Committee is considered 
to be performing well, and is 
rigorous and effective in discharging 
its responsibilities. 

1 0 2

I am pleased to present the Committee’s 
report for FY2020. The Committee fulfils 
an important oversight role, monitoring 
the integrity of the Group’s financial 
reporting and the effectiveness of its 
system of internal control and risk 
management framework. The delivery of 
the Committee’s responsibilities during 
a period of considerable uncertainty 
has been critical in helping the Group 
demonstrate to our stakeholders and 
society at large the long-term sustainability 
and effectiveness of the Board’s strategy.

As mentioned elsewhere in this Annual 
Report, the undoubted challenge for 
Smiths and the Committee this year has 
been the impact of, and response to, the 
COVID-19 pandemic. This necessitated 
new ways of working, reporting and 
assurance activities in respect of the 
Group’s financial reporting, financial and 
non-financial control environment and the 
associated risk management framework. 
Culture can be critical to galvanising an 
organisation during difficult times and it is 
the view of the Committee that the Group’s 
culture helped the business to respond to 
COVID-19 in a timely and agile way, in line 
with our values.

As outlined in my report last year, KPMG 
was selected as the Group’s external 
auditor for FY2020 following a formal 
tender exercise. The external auditor plays 
a key role in supporting the Committee’s 
oversight of controls and the level of 
engagement and appropriately sceptical 
challenge displayed by KPMG since 
their appointment, during a transition 
period complicated by COVID-19, has 
been well received by the Committee 
and management alike. This report 
contains information on the activities 
undertaken by the Committee during the 
year which has enabled it to monitor and 
assess the effectiveness of the Group’s 
control environment. 

I would like to thank the Smiths employees 
and my colleagues on the Committee 
for their contribution. I look forward to 
continuing our work in FY2021. 

Mark Seligman 
CHAIR OF THE AUDIT & RISK COMMITTEE 

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCECommittee membership 
and meetings 
The Committee met formally four times 
during FY2020, (two of which were virtual 
meetings) with three meetings timed 
to align with the financial reporting and 
audit cycles of the Group, namely: the 
approval of the FY2019 Annual Report and 
Accounts in September 2019; the approval 
of the half yearly results in March 2020; 
and the presentation of the pre-year-end 
report from the external auditor, KPMG, 
in July 2020. A meeting was also held in 
November 2019 at which the Committee 
undertook, amongst other things, its 
annual review of the Group’s insurance 
strategy. The Committee met again in 
September 2020, to consider the FY2020 
Annual Report and Accounts and other 
matters.  In addition, during FY2020 the 
Committee Chair devoted extra time to 
discuss the FRC’s support for the Financial 
Conduct Authority’s moratorium on 
corporate reporting issued in March 2020 
and the Group’s reaction to COVID-19 with 
executive management and the external 
auditor. The Committee Chair is also a 
member of the Transaction Committee – 
see page 89 for more information.

All members of the Committee who 
served during the year are, in the view of 
the Board, 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 
84-87 and 89. In particular, the Board 
considers that Mark Seligman, who has 
a long history in corporate finance and 
knowledge of other listed company audit 
committees, as well as being a qualified 
accountant, has the recent and relevant 
financial experience required to chair the 
Committee. At the invitation of the Chair of 
the Committee, and in order to maintain 
effective communications, the Chairman, 
Chief Executive and Chief Financial Officer 
and the audit partners of KPMG attended 
all meetings. Other regular attendees 
included the Group Financial Controller, 
the Director of Internal Audit and the 
head of the Ethics & Compliance function. 
Divisional senior management were also 
invited to attend as appropriate. At the 
conclusion of meetings, KPMG and the 
Director of Internal Audit were each given 
the opportunity to discuss matters with the 
Committee without executive management 
being present. 

The heads of Internal Audit and Ethics & 
Compliance, together with KPMG, have 
direct access to the Committee should 
they wish to raise any concerns outside 
formal Committee meetings. The Chair 
of the Committee reports formally to the 
Board on the Committee’s activities after 
each meeting. 

Financial and narrative reporting 
The Committee is responsible for reviewing 
the half yearly results announcements 
and the Annual Report and Accounts 
before recommending them to the 
Board for approval. During the year, the 
Group has had internal control and risk 
management arrangements in place to 
support the financial reporting process 
and provide reasonable assurance that 
the financial statements are prepared in 
accordance with applicable standards. 
These arrangements include seeking 
divisional confirmation that their 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. 

For the period under review, the 
Committee has considered information 
presented on significant matters of 
judgement, accounting estimates, and the 
interpretation of reporting standards in 
the adoption of policies. It has discussed 
with KPMG its audit reports and noted the 
key accounting matters and significant 
judgements and issues highlighted in 
respect of the financial statements and 
as detailed below. The Committee has 
examined key points of disclosure and 
presentation to ensure the adequacy, 
clarity and completeness of the Annual 
Report and Accounts and the half yearly 
results announcement and enhanced 
going concern and viability assessments 
in the light of COVID-19. The Committee 
also considered the delay to the release 
of the half yearly results in line with 
guidance issued by the FRC and the 
release of a trading statement in March 
to ensure investors were kept informed of 
developments within the business.

As part of the FRC’s regular oversight role 
on company reporting, in July 2020 the 
Company received a letter from the FRC 
whereby the FRC raised a limited number 
of queries in connection with disclosures 
contained in the FY2019 Annual Report.  
These queries were in relation to foreign 
exchange rate movements recognised 
in ‘other comprehensive income’ and 
‘accumulated in equity’; the presentation 
of discontinued operations and the 
foreign exchange gains and losses on 

intercompany loans between continuing 
and discontinued operations; and revenue 
recognition and the revenue recognised 
in respect of variable consideration.  The 
Group’s response was overseen by the 
Committee Chair and discussed with 
PwC as the Group’s auditor for FY2019 
and KPMG as the Group’s incumbent 
auditor.  The FRC subsequently closed 
their enquiry in August 2020. We have 
taken the FRC’s constructive feedback 
into consideration by enhancing the 
FY2020 disclosures. The FRC notes that its 
review was based on the Group’s FY2019 
Annual Report only and does not benefit 
from detailed knowledge of the Group’s 
business or an understanding of the 
underlying transaction.

The Committee also reviewed various 
materials to support the statements in 
the Annual Report on risk management 
and internal control, going concern, and 
the assessment of the Group’s long-term 
viability – see pages 77-78 for more details. 
In addition, the Committee assessed the 
fairness, balance and understandability 
of the Annual Report, and in doing 
so considered: 

 – the accuracy, integrity and consistency 

of the messages conveyed in the 
Annual Report; 

 – the appropriateness of the level of detail 

in the narrative reporting; 

 – the correlation between judgements, 
estimation of uncertainties and issues 
and the associated disclosures; and 

 – the explanations of the differences 
between statutory and headline 
reported results. 

Following its review, the Committee agreed 
that the Annual Report is representative 
of the year and presents a fair, balanced 
and understandable overview, providing the 
necessary information for shareholders to 
assess the Group’s position, performance, 
business model and strategy. 

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SMITHS GROUP PLC  ANNUAL REPORT FY20203A U D I T   &   R I S K   C O M M I T T E E   R E P O R T   C O N T I N U E D

Significant accounting estimates and judgements 
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 below. 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. More detailed information on the Group’s 
Accounting Policies and significant judgements can be found on pages 149-157.

Presentation of headline profits 
and underlying growth

Discontinued operation 
held for distribution

The Committee considered the policy, 
presentation and judgements in relation 
to the Group’s performance, in particular 
the separation of headline and non-
headline items including the treatment of 
the strategic restructuring programme 
costs and consideration of which items 
related to the Group’s ongoing trading 
activity or those which should be 
recorded as non-headline. 

In terms of the strategic restructuring 
programme, the Committee concurred 
with management’s conclusion that 
costs did not meet the criteria under 
the Group’s non-headline items policy 
which requires that non-headline 
items should only relate to either M&A 
activity or provisions for legacy issues. 
Restructuring costs are therefore 
reported in the headline performance. 
The Committee also agreed that 
it was appropriate to disclose an 
additional alternative performance 
measure to show operating profit 
excluding restructuring costs and 
asset write downs. See note 30 of the 
financial statements.

Other items included the amortisation 
of intangible assets and the impact 
of integration activity on acquired 
entities and material one-off items 
relating to pensions and other legacy 
provisions. In addition, the Committee 
also considered those judgements in 
connection with items to be reflected 
or adjusted in underlying performance. 
See note 3 of the financial statements.

Acquisitions and divestments

The Committee reviewed the treatment 
and presentation of the acquisition of 
Reflex Photonics. The Committee also 
considered the appropriateness of the 
recognition of business acquisition and 
disposal costs and post-acquisition 
integration programme costs between 
headline and non-headline profits.

The continued treatment of Smiths 
Medical as a discontinued operation and 
a business held for distribution to owners 
was also considered and agreed. 

The Committee recognised that a key 
IFRS 5 requirement for classifying a 
business as held for distribution to 
owners is that the distribution must be 
highly probable, with the expectation that 
it will be completed within one year from 
the date of classification. 

It is recognised that unforeseen 
circumstances during FY2020 did not 
allow the distribution to occur; therefore 
further judgement was required to 
determine whether the Smiths Medical 
business continues to meet the criteria 
for classification as a discontinued 
operation given the delay in the demerger. 

The Committee agreed that the 
separation was not completed in 
FY2020 due to exceptional external 
circumstances as stated in our trading 
update on 31 March 2020, that the Group 
remains committed to completing 
the separation within FY2021 and the 
recognition criteria of IFRS 5 continue 
to be fully met.

However, the Committee and the Board 
will give consideration to any exceptional 
external circumstances arising, including 
significant adverse consequences 
arising from the evolving pandemic 
and associated economic dislocation 
which may impact the separation of 
Smiths Medical.

Revenue recognition

The Committee reviewed management’s 
revenue recognition judgements. The  
Committee noted that the timing of 
revenue recognition involves judgements 
as to when control of an asset passes to 
the customer or, particularly in Smiths 
Detection and Smiths Interconnect, 
as to the stage of completion of 
contract activity and whether the 
separate performance obligations 
have been fulfilled.

The Committee reviewed and concurred 
with management’s conclusions on 
the significant judgements for complex 
programmes and contract accounting. 
See note 1 of the financial statements.

Taxation

The assets and liabilities recognised 
in income and deferred tax, as well as 
the treatment of losses in the UK, were 
assessed. Particular focus was given to 
the recognition of UK deferred tax assets; 
deferred tax assets relating to the John 
Crane, Inc. asbestos provision; and the 
Titeflex Corporation CSST provision. 
The Committee noted the ongoing tax 
audits that are likely to conclude in the 
next 12 to 24 months, and the uncertainty 
associated with their outcome. 
The Committee noted that the final 
outcome may vary significantly from the 
amounts currently provided for tax risks. 
See note 6 of the financial statements.

Impairment

The intangible assets and the 
assumptions used to justify their carrying 
values, including ‘value in use’ and ‘fair 
value less costs to sell’ were reviewed. 
The applicable discount rate used for 
impairment testing purposes was also 
considered particularly where headroom 
had reduced in the year.

Smiths Detection and Smiths 
Interconnect were the only CGUs where 
the impairment headroom was limited for 
FY2020 and where a plausible downside 
scenario or a reasonable change in the 
key assumptions could have caused the 
carrying value to exceed its recoverable 
value. The limited impairment headroom 
for Smiths Detection was driven by lower 
forecast cash-flows due to the expected 
COVID-19 downturn in the aviation 
sector. The net impact is that long-
term earnings growth projections have 
reduced from the FY2019 model but that 
the CGU recoverable amount exceeded 
its carrying value and therefore no 
impairment was necessary. The limited 
impairment headroom for Smiths 
Interconnect was driven by FY2020 
performance and inherently uncertain 
future performance. 

1 0 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCESignificant accounting estimates and judgements continued

The Committee concurred with 
management’s conclusion that additional 
sensitivity disclosures on the impairment 
risk of the Smiths Detection CGU and the 
Smiths Interconnect CGU were required 
and reviewed the appropriateness of the 
disclosures proposed. 

The carrying value of capitalised 
development expenditure, notably in 
respect of Smiths Detection and Smiths 
Medical, was reviewed and the treatment 
was considered reasonable. 

The Committee provided significant 
focus and challenge to management 
on the progress achieved on Smiths 
Medical’s IntellifuseTM infusion pump(s) 
(Intellifuse) programme, which has been 
in development for a number of years. 
The Committee recognised that during 
FY2020 Smiths Medical experienced 
delays in achieving regulatory clearance 
for Intellifuse from the US Food and Drug 
Administration (FDA).  The Committee 
agreed with management’s view that 
the delay in FDA approval, together 
with impact of expected competitor 
product launches, were indicators of 
potential impairment. 

The Committee challenged 
management’s impairment review of 
Intellifuse before agreeing that the fair 
value less costs to sell of Intellifuse is 
in excess of the carrying value so no 
impairment remains appropriate. 

The Committee reviewed and agreed the 
additional disclosures on Intellifuse within 
‘Discontinued operations and businesses 
held for distribution to owners’. See note 
11 of the financial statements.

New accounting standards – 
IFRS 16

The Committee received updates 
on the adoption of IFRS 16 ‘Leases’ 
in the current year and in particular 
considered the impact of IFRS 16 on the 
Group’s cash conversion Alternative 
Performance Metric. The Committee 
approved the Group’s accounting policy 
and the proposed disclosures under the 
new standard.  

Provisions for liabilities and 
charges

The Committee considered the 
appropriateness of the level of the 
provisions held against John Crane, 
Inc. asbestos litigation and the Titeflex 
Corporation CSST claims. In particular, 
the Committee considered the treatment 
of potential liabilities, the changes to the 
assumptions made in calculating the 
provisions, sensitivities to changes in 
assumptions and met with the Group’s 
specialist external advisers and agreed 
the continued appropriateness of the 
ten-year time period for John Crane, Inc. 
asbestos litigation.

External audit 
The Committee places great importance on 
the quality, effectiveness and independence 
of the external audit process. Further to 
a tender process described in last year’s 
Annual Report, KPMG was appointed as 
the Company’s external auditor at the 2019 
Annual General Meeting, replacing PwC 
which had been the Company’s auditor 
since 1997. Michael Maloney, KPMG’s audit 
partner, has led the engagement during the 
year and since their first appointment at the 
2019 AGM. In line with ethical standards 
it is expected he will rotate off the Smiths 
audit within five years and no later than the 
conclusion of the FY2024 audit. In respect 
of the period, the Committee approved 
and monitored KPMG’s execution of the 
audit plan. 

The Committee also considered KPMG’s 
report on its review of the FY2020 half 
yearly results announcement and its report 
on the FY2020 audit. It also discussed all 
significant matters identified in KPMG’s 
final report on the FY2020 audit including 
the key accounting judgements taken 
by management and management’s 
responses to any audit findings. 

Due to PwC’s understanding of Smiths 
Medical’s financial reporting and internal 
control environment and the work 
necessary to support the separation of that 
business, the Committee agreed it was 
more efficient for PwC to continue to act 
as the auditor for those companies which 
comprise the Smiths Medical division and 
to report to KPMG.

In the case of the John Crane, Inc. 
asbestos litigation, the Committee also 
agreed with the judgement that, whilst 
large numbers of claims are made 
against John Crane, Inc. and other 
defendants every year, due to both known 
and as yet unknown developments in the 
US legal system and other events that will 
impact the asbestos legal environment, 
a sufficiently reliable estimate cannot 
be made to cover the full period over 
which it is expected that costs will be 
incurred. In both these cases, it was 
determined that the assumptions fairly 
reflect the position. See note 22 of the 
financial statements.

Post-retirement benefits

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 2020, which have continued to 
show a net accounting surplus position.

The Committee agreed the treatment 
and the corresponding disclosures 
on these matters. See note 8 of the 
financial statements.

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. 

Independence and effectiveness 

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. 
The policies correspond with the European 
Commission’s recommendations on 
the auditor’s independence and with the 
Revised Ethical Standard issued by the 
FRC in the UK. 

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SMITHS GROUP PLC  ANNUAL REPORT FY20203A U D I T   &   R I S K   C O M M I T T E E   R E P O R T   C O N T I N U E D

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 2020 can be found 
in note 2 of the financial statements on 
page 162. Non-audit fees as a percentage 
of audit fees totalled 9% (FY2019: 4% – this 
was in respect of fees paid to the Group’s 
previous external auditor PwC). 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, which included some 
supplementary audit work and work in 
preparation for the separation of Smiths 
Medical during the year, was properly 
assessed and authorised in accordance 
with the Group’s policy. 

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 objective within the context of 
applicable professional standards, and 
considering the performance of the audit 
engagement partner. 

In FY2020, 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. The Committee also 
carried out a robust assessment of the 
principal risks facing the Group, including 
those that would threaten its business 
model, future performance, solvency and 
liquidity, notably in the light of COVID-19. 
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 69-76 and 77-78.

In fulfilling its responsibilities, the 
Committee received reports to enable an 
evaluation of the control environment and 
risk assurance framework and processes. 
No significant failings or weaknesses were 
identified. The Committee also received 
reports from the divisions on their risk 
management processes and a presentation 
on the risk registers and associated 
controls. The Committee undertakes 
deep-dive reviews on a rolling basis of the 
Group’s principal risks. During FY2020, 
deep-dives were carried out on: Integrated 
supply chain with a focus on the potential 
impact of COVID-19 and Product quality 
within John Crane. Product quality deep 
dives for the other divisions are scheduled 
to be held during FY2021. Separately, the 
full Board considered the People and 
Cyber security principal risks and due to 
COVID-19 a report on financial controls in 
respect of those risks deemed heightened 
during the pandemic. Consideration of the 
risk registers alongside the principal risk 
deep dives 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. 

Audit effectiveness is assessed continually 
using a number of measures including: 
reviewing the quality and scope of the 
proposed audit plan and progress against 
the plan; responsiveness to changes in our 
businesses; appropriate scepticism and 
challenge of management; and monitoring 
the independence, professionalism and 
transparency of the audit. In addition, the 
Committee discussed the findings in the 
FRC’s 2020 Audit Quality Inspection Report 
with KPMG to understand those activities 
being undertaken to address the findings; 
and KPMG’s position regarding the various 
areas of audit reform which is currently 
under review. The processes whereby 
KPMG sought assurance on the audit work 
completed by PwC in respect of those 
companies forming the Smiths Medical 
division was also reviewed. The Committee 
concluded that KPMG and its audit process 
were effective, and that audit teams had 
provided effective and objective challenge. 
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 2020 
AGM. As this was KPMG’s first year as 
auditor a further in-depth review of their 
performance will be conducted ahead of 
their review of the FY2021 half year results. 

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 internal control system is a framework 
to manage risks and monitor compliance 
with procedures. It is designed to meet the 
Group’s particular needs and the risks to 
which it is exposed. However, it 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 67-76.

1 0 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCE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.

During the year, the Committee provided 
oversight of a number of areas targeted 
by the Ethics and Compliance work 
programme. More information on the 
Group’s approach to Ethics & Compliance 
can be found on page 26.

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 four lines 
of defence model.

Internal Audit 
Internal Audit is independent of the 
business, and as such 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 is 
accountable to the Board through the 
Committee Chair, although administratively 
the Director of Internal Audit 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 
FY2020 Internal Audit Plan, notably how 
the plan would be completed due to site 
and system access and travel restrictions 
imposed as a result of COVID-19. This was 
largely addressed by the increased 
use of technology and reviews being 
completed remotely. 

Review findings and recommendations 
made by the Internal Audit function were 
discussed as well as the pace at which 
control enhancements were addressed 
by the business. The Committee also 
considered the remit of Internal Audit, 
its budget and resources and the nature 
and extent of any outsourcing to specialist 
co-source providers. It also approved the 
FY2021 Internal Audit Plan, including the 
proposed audit scope, approach, coverage 
and allocation of resources. 

The Committee oversees the performance 
of the Internal Audit function through the 
Director of Internal Audit’s attendance 
at Committee meetings and a review of 
agreed KPIs which are reported to the 
Committee. In addition, an anonymous 
survey completed by the Board, 
management and the external auditor was 
conducted into the function’s effectiveness. 
Overall, Internal Audit is deemed to be 
effective and is seen as a valued assurance 
function throughout the Group. It is 
appropriately resourced and conforms with 
industry standards in its approach. 

Ethics and compliance 
During the year, the Committee reviewed 
the Ethics and Compliance annual work 
programme, and provided oversight of 
performance in line with, and 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’ line which allows for 
anonymous reporting. Smiths ‘Speak Out’ 
system 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 also provides 
oversight for any significant investigations. 
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 to unsubstantiated cases. 
The anonymous vs attributed metric is 
used to monitor trust in the Group’s non-
retaliation policy. 

1 0 7

SMITHS GROUP PLC  ANNUAL REPORT FY20203R E M U N E R A T I O N   C O M M I T T E E   R E P O R T

Remuneration 
Committee

Our objectives are to create clear alignment between remuneration 
and sustainable, long-term stakeholder interests. We take account 
of shareholder views and ensure that performance supports 
the delivery of business strategy through targeting our key 
performance indicators (KPIs).

Role of the Committee
The Committee is responsible for the 
Group’s overall remuneration strategy 
and oversees the Group’s Remuneration 
Policy for Directors and senior 
management. The Committee seeks to 
achieve a strategy that attracts, motivates 
and retains executive management of 
the quality required to run the Group 
successfully.  The strategy promotes 
the long-term success of Smiths, while 
reflecting the views of all stakeholders.

The Committee also approves the service 
contracts of the Executive Directors and 
reviews any major changes in Group 
employee remuneration structures, 
including the incentive arrangements that 
apply across the wider workforce.

In order to fulfil its role 
the Committee
 – Annually reviews the ongoing 

appropriateness and relevance of the 
Remuneration Policy

 – Reviews business plans and 

performance to assess their potential 
impact on existing and future 
incentive arrangements

 – Reviews remuneration of the wider 
workforce and related policies to 
ensure internal alignment of reward

 – Considers environmental, social 
and governance (ESG) risks when 
determining remuneration policy

 – Utilises external advisers to understand 
remuneration trends in the market.  
Deloitte LLP were appointed in 
January 2020 through a competitive 
tender process

 – Conducts an annual review of the 

Committee’s performance and Terms 
of Reference

 – Prepares a Remuneration Report 

annually for inclusion in the 
Annual Report

 – Meets at least three times a year

OUR PEOPLE HAVE 
SHOWN RESILIENCE, 
CONTINUING TO 
SUPPORT CUSTOMERS 
AND VITAL INDUSTRIES.

1 0 8

K E Y C O N T E N T S
Executive remuneration at a glance 

Remuneration Policy Report 

Annual Report on Remuneration 
(Policy implementation) 

Single figure table 

Statement of implementation  
of Policy in FY2021 

109

112

119

120

126

I am pleased to present the Remuneration 
Report for the year to 31 July 2020. 

We find ourselves living through 
extraordinary times. Our reward 
framework and related workforce policies 
have helped to keep our people safe 
and supported through the COVID-19 
crisis. Our people and our business have 
demonstrated resilience in continuing to 
deliver for our customers and support 
vital industries, whilst carefully planning 
resources in the right way to ensure 
that the business is well placed for 
sustainable improvement. 

Taking into consideration the evolving 
global market conditions, the strategic 
restructuring programme announced in 
the June trading statement and the impact 
on employees, a general salary freeze will 
apply for FY2021. This is a prudent step 
and will apply across all of Smiths Group, 
including Executive Directors and other 
Executive Committee members.

The Committee considered outcomes 
under the FY2020 annual bonus and 
FY2018 LTIP awards in the context of 
the wider external environment and 
stakeholder experience. In the light of 
the decision to pay a dividend this year, 
the positive share price reaction over 
the last few months and the Company’s 
early decision not to apply for UK furlough 
payments, the Committee considered it 
appropriate to award a bonus of 17.2% 
of maximum for FY2020 to the Executive 
Directors reflecting achievements against 
the performance targets set at the 
beginning of the financial year. One third 
of the bonus earned will be deferred into 
shares. The FY2018 LTIP award vested at 
31.3% of maximum, reflecting performance 
over a three-year period. No discretion was 
exercised in respect of Executive Director 
incentive outcomes for the year.

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCE 
The steps we have previously taken to grant 
long-term incentive plan awards based on 
a fixed number of shares continue to deliver 
alignment with shareholder interests. 

We have made a commitment to further 
reduce incumbent Executive Director 
pension provisions. As announced in 2019, 
both Executive Directors agreed to freeze 
the monetary value of their pensions at the 
FY2019 level. Executive Director pension 
levels will be further reduced on a phased 
basis to be aligned with rates available to 
the wider workforce by the end of 2022, in 
line with investor guidelines. 

During the  year we reconfirmed our policy 
relating to post-employment shareholding 
requirements, further details of which 
are set out on page 111.  As part of the 
2021 Remuneration Policy review, we 
are also committed to further developing 
our approach to post-employment 
shareholding requirements.

During FY2020 we initiated a detailed 
review of our global benefits to ensure that 
by the end of FY2021 we have a coherent 
and fully aligned employee benefit offering 
protecting and supporting colleagues 
across Smiths. 

Looking forward, we will undertake a 
thorough review of the Remuneration 
Policy and intend to consult with 
shareholders on any proposed changes, 
prior to presenting the revised Policy for 
approval at the 2021 AGM. 

Bill Seeger
CHAIR OF THE 
REMUNERATION COMMITTEE

Executive remuneration at a glance

The key principles of our Policy

–   Competitive reward package to attract, motivate and retain the 

best talent

–   Performance measures aligned to business strategy and  
balanced between long-term and short-term performance

–   Ability to apply appropriate discretion, withhold payments 

 and recover sums already paid

Elements of Executive Directors’ pay

T A R G E T   P E R F O R M A N C E

41%

31%

63%

10%

Fixed

Performance related

Short term 

Long term

Base salary

Benefits and pension

Annual bonus – Cash

Annual bonus – Shares

LTIP

59%

37%

22%

11%

26%

M A X I M U M   P E R F O R M A N C E

Fixed

20%

Performance related

Short term 

Long term

Base salary

39%

15%

Benefits and pension

5%

Annual bonus – Cash

Annual bonus – Shares

LTIP

19%

9%

80%

61%

52%

Note: Figures are based on Chief Executive’s remuneration package for FY2020

Activities of the Committee in FY2020

Policy review
 – Implemented a number of amendments to the application of the Remuneration Policy 

including review of performance measures to remove duplication 

 – Considered changes to institutional shareholder guidelines and the impact of these on 
our approach to implementation of the Policy including retirement benefit provision

Fixed pay
 – Approved FY2021 salary freeze for the Executive Directors and other Executive 

Committee members and no increase in fees for the Chairman

 – Reviewed and agreed a new retirement benefit policy for incumbent Executive Directors

Performance related pay
 – Considered and approved annual incentive plan payouts and set targets for the new 

financial year

 – Determined vesting levels for LTIP awards and agreed basis for FY2021 long-term 

incentive awards

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SMITHS GROUP PLC  ANNUAL REPORT FY20203 
 
 
 
R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Performance outcome and linkage to strategy

T H E   T H R E E   K E Y   S T R A T E G I C   O B J E C T I V E S 
F O R   T H E   B U S I N E S S   A R E :

Outperform our 
chosen markets

1

1

2

3

Outperform our 
chosen markets 

+  Read more on page 16

Deliver world-class 
competitiveness

+  Read more on page 17

Strong financial  
framework

+  Read more on pages 18-21

FIN E

E
D

I

N
N

O

V

A

T

E

F OCUS

3

M

A

X

I

M

I

S
E

E
T

E XECU

Strong financial  
framework

ENGAG E

Deliver world-class 
competitiveness

2

Performance measures driving remuneration

Annual bonus – FY2020

LTIP – 3 years ending 31 July 2020

EPS after tax

40% weighting

Organic 
sales growth 

Headline operating 
cash conversion 

Personal  
objectives 

EPS growth 
before tax 

Return on 
Capital Employed

Headline operating 
cash conversion 

30% weighting

20% weighting

10% weighting

35% weighting

35% weighting

30% weighting

1

2

3

1

3

2

3

1

2

3

1

2

3

2

3

2

3

0%

0%

9.2%

8%

0%

11.9%

19.4%

  Above target 

  Between threshold and target   

  Below threshold

Single total figure of remuneration for Executive Directors

C H I E F   E X E C U T I V E
FY2020 

£000

Fixed pay

Annual bonus

Long-term incentives 

Total

C H I E F   F I N A N C I A L   O F F I C E R
FY2020

£000

£1,106

Fixed pay

£260

Annual bonus

£830

Long-term incentives 

£2,196

Total

£681

£139

£373

£1,193

1 1 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCE 
 
 
   
 
 
 
 
Implementation of Remuneration Policy in FY2020

The table below summarises how the Remuneration Policy has been implemented in FY2020 and highlights any changes from 
previous reports.

Base salary

Annual bonus

Long-term 
incentive plan

Fixed remuneration which reflects 
required skills and expertise to deliver 
the Group’s objectives. 

Increases to Executive Director salaries 
in FY2020 were below or in line with the 
average increase for UK employees of 2.9%.

Benefits

Market competitive benefits package 
consisting of healthcare, life and disability 
insurance and car benefit. No change 
in provision.

Retirement allowance

Policy is for new Executive Directors to 
receive same percentage allowance as 
wider workforce. 

Executive Director pension levels were 
frozen at FY2019 monetary value.  Pension 
levels will be further reduced to be aligned 
with rates available to the wider workforce 
on an phased basis by the end of 2022, in 
line with investor guidelines. 

 – Maximum bonus opportunity remains 
unchanged at 180% of base salary for  
Chief Executive

 – Maximum bonus opportunity remains 
unchanged at 150% of base salary for  
Chief Financial Officer

 – FY2020 outcome of 17.2% of maximum
 – 33% of annual bonus deferred into shares  

for three years

 – Maximum award opportunity remains 
unchanged at 400% of base salary

 – FY2020 award of 179,627 shares for Chief 

Executive (same number of shares as FY2019)

 – FY2020 award of 95,837 shares for Chief 

Financial Officer (same number of shares 
as FY2019)

 – 31.3% vesting level for three year 

performance period ending 31 July 2020

Withholding and recovery provisions apply.

 – Two year post-vesting holding period applies 

for all awards from FY2019

Withholding and recovery provisions apply.

Shareholding guidelines

Personal shareholdings (including deferred 
bonus shares and vested but unreleased 
shares, net of tax) for Chief Executive remain 
above the 250% of salary minimum guideline. 
Chief Financial Officer is expected to reach 
the minimum guideline of 200% of base salary 
within five years of appointment to the Board  
(1 January 2023).

During the year the Committee clarified its 
policy on post-employment shareholding 
requirements (Provision 36 in the UK Corporate 
Governance Code). The application of good 
leaver provisions for Executives will be 
conditional on retaining a number of shares 
equal to the in-employment shareholding 
guideline, or actual holding, if lower for a 
minimum holding period of two years from the 
date of leaving. No Executives to whom this 
policy would apply left the Group during the 
year.  We will further develop our approach to 
post-employment shareholding requirements 
as part of our wider 2021 policy review.

Base salary
Benefits
Retirement allowance
Annual bonus – cash
Annual bonus – deferred shares
Long-term incentives
Performance share award

Total

Summary of Executive Directors’ remuneration FY2020

Chief Executive (£000)

Chief Financial Officer (£000)

FY2020

FY2019

FY2020

FY2019

840
61
205
173
87
702
128

2,196

820
54
205
405
203
2,100 
346

4,133

538
12
131
93
46
373
–

1,193

525
12
131
216 
108
–
–

992

1 1 1

SMITHS GROUP PLC  ANNUAL REPORT FY20203R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Remuneration Policy Report

This section of the report sets out our Remuneration Policy for 
Directors, which shareholders approved at the AGM held on 
14 November 2018 and which is effective for a period of up to three 
years from this date. The Policy Report below sets out where the 
Policy has been updated to take account of investor guidelines. 
The Remuneration Policy can be viewed in the corporate governance 
section of the Company’s website.

Remuneration Policy for the Executive Directors

Operation

Opportunity

Performance measures

Policy guideline updates

Not applicable

None required

Not applicable

None required

Base salary

To attract, motivate and retain Executive Directors with the required  
skills and expertise to deliver the Group’s objectives.

Salaries are reviewed (but not necessarily 
adjusted) annually and benchmarked  
against comparable roles at companies  
of similar market capitalisation, revenues 
and complexity.

The review also takes into account 
individual performance and experience, 
the relative performance of the Company 
and the Remuneration Policy operated 
across the Group as a whole.

The salary increase date (if applicable) is  
1 October.

Base salaries are adjusted according to 
the outcome of the annual review and 
will be disclosed in the Annual Report 
on Remuneration.

Salary increases for the Executive 
Directors will normally be in line with 
those awarded to Smiths 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.

Benefits

To provide market-competitive benefits to Executive Directors.

Benefits comprise car benefit, 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.

Benefits vary by role and 
individual circumstances.

Benefits in respect of the year under 
review are disclosed in the Annual Report 
on Remuneration.

It is not anticipated that the costs 
of benefits provided will increase 
significantly in the financial years over 
which this Policy will apply, although 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).

1 1 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEOperation

Opportunity

Performance measures

Policy guideline updates

The employment contracts of 
the two Executive Directors 
currently provide for a cash 
allowance of 25% of base 
salary in lieu of pension 
provision. Both Executive 
Directors have agreed to 
freeze the monetary value of 
the allowance at the FY2019 
level, reducing the level 
of benefit to 24.4% of base 
salary for FY2020 and FY2021. 
The allowance will reduce 
to the contribution level for 
the wider workforce no later 
than 31 December 2022, on a 
phased basis.

A review of how dividends 
accrued on deferred bonus 
awards are payable (shares 
or cash) will be undertaken as 
part of the next Policy review. 

For awards in FY2021 a minor 
change has been made to 
the performance measures 
to avoid duplication of short 
and long-term metrics (see 
page 126).

Pensions

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).

The maximum level of pension 
contribution (or allowance in lieu thereof) 
for new Executive Directors will be in line 
with the contribution level for the wider 
workforce in the relevant country.

Not applicable

Pension allowances for the all 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.

Commitment to freeze monetary value 
or retirement allowance of incumbent 
Executive Directors and reduce to the 
same allowance as wider workforce 
no later than 31 December 2022, on 
a phased basis.

Annual bonus

Incentivises short-term priorities in line with the Group’s business strategy.

The maximum annual bonus opportunity 
for Executive Directors is up to 180% 
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 
25% of maximum opportunity occurs on 
achievement of threshold performance 
and 60% of maximum opportunity on 
achievement of on-target performance.

Based on a 
combination of 
financial and 
non-financial 
performance 
measures linked 
to short-term 
objectives. Financial 
performance will 
account for no less 
than 70% of the 
bonus opportunity 
and may include, 
but is not limited 
to, profit, organic 
sales growth and 
cash measures.

Annual bonus payments are 
determined based upon performance 
against measures and targets 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 
deferred into shares and released after 
a further period of three years, without 
further performance or other conditions. 
Dividends accrue and are payable in cash 
at the end of the deferral period.

The Committee may use its discretion 
to adjust payout of the annual bonus to 
Executive Directors, within the range of 
the minimum to maximum opportunity, 
including reducing it down to zero. Such 
discretion will only be used where the 
Committee believes that performance 
against the prescribed targets does 
not accurately reflect the Company’s 
underlying performance.

Cash payments will be subject to clawback 
and deferred share bonuses awarded 
will be subject to malus for a period of 
three years from the end of the relevant 
performance year, in case of misconduct 
or material misstatement in the published 
results of the Group.

1 1 3

SMITHS GROUP PLC  ANNUAL REPORT FY20203R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Remuneration Policy Report continued

Remuneration policy for the Executive Directors continued

Operation

Opportunity

Performance measures

Policy guideline updates

Long-Term Incentive Plan (LTIP)

Incentivises long-term value creation for shareholders, sustainable growth and effective management of the 
balance sheet.

A review of how dividends 
accrued on LTIP awards are 
payable (shares or cash) will 
be undertaken as part of the 
next Policy review. 

For awards in FY2021 a minor 
change has been made to 
the performance measures 
to avoid duplication of short 
and long-term metrics (see 
page 126).  

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).

The maximum LTIP award opportunity for 
Executive Directors is up to 400% of salary.

For awards made from FY2019 onwards, 
the award will be a fixed number of 
shares. In FY2019 this fixed number of 
shares was equivalent to 300% of salary 
for the Chief Executive and 250% of 
salary for the Chief Financial Officer. In 
subsequent years the Executive Directors 
will each be awarded the same fixed 
number of shares as in FY2019. In the 
event that the Company share price 
increases by more than 33% 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 33% greater than the value of the 
FY2019 award at the date of grant. This 
will ensure that the maximum LTIP award 
opportunity is not exceeded.

LTIP award sizes for the year under 
review and the coming year are 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 on a 
straight-line basis to 100% for achieving 
stretch targets.

Awards of conditional shares are granted 
annually and vest after a performance 
period of at least three years, subject to 
the achievement of performance targets 
set by the Committee at the start of each 
cycle. For awards made in FY2019 onwards, 
vested shares will be subject to a two year 
post vesting holding period. Details of such 
holding period will be disclosed in the Annual 
Report on Remuneration for the year in which 
the relevant award is made.

To the extent that the performance targets are 
not met over the performance period, awards 
will lapse. No retesting of awards under any 
performance condition is permitted.

Dividends accrue and are paid in cash 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 only be used 
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 case of misconduct or 
material misstatement in the published 
results of the Group.

Sharesave

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.

Shareholding guidelines

Not applicable

None required

Encourages ownership of shares in the Company and alignment with shareholder interests.

Executive Directors must build a minimum shareholding of 250% (for the Chief 
Executive) or 200% (for other Executive Directors) of base salary within five years of 
appointment to the Board. 50% of any net vested share awards (after sales to meet tax 
liabilities) must be retained until the minimum shareholding requirements are met.

Not applicable

Position on post-employment 
shareholding guidelines to be 
reconsidered as part of 2021 
Policy review. 

Shareholding guidelines also exist below Executive Director level.

Existing good leaver provisions in our share plan rules underpin a post-employment 
shareholding requirement in line with the above. 

1 1 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCE 
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: earnings per share, cash measures, organic sales growth and 
delivering sustainable return on capital.

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 Group 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 on page 110.

Alignment of policy between Executive Directors and other employees
The reward policy for other senior employees is broadly consistent with that for Executive Directors, and the Company does not currently 
operate any incentive plans in which only Executive Directors participate. 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.

Alignment with the UK Corporate Governance Code
The table below details how the Committee addresses the factors set out within Provision 40 of the UK Corporate Governance Code

Clarity

 – The Committee welcomes transparency and regular engagement with shareholders with regard to executive 
remuneration.  During the upcoming review of Remuneration Policy in 2021, the Committee Chairman will 
consult with shareholders to fully understand their views on proposed changes  

 – The Committee Chairman has engaged with the workforce across multiple levels of the organisation via live 
video conferencing and joined the wider Smiths Board on pre-recorded video communications cascaded to 
all colleagues

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 and during the 2021 Policy review 
consideration will be given to further simplification of arrangements

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

 – Malus and clawback provisions are in place for incentive plans and are clearly communicated

Predictability

 – Our Policy clearly outlines the maximum award levels and vesting outcomes applicable to annual bonus 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 robust link between strategic business objectives and performance outcome, as outlined on 

page 110.  

 – Our Policy for annual bonus and LTIP outlines threshold, target and maximum opportunity levels, with actual 

outcomes dependent on performance achieved against robust, pre-determined measures.  

 – Through the design of the policy and the discretion of the Committee, poor performance is not rewarded.

Alignment to culture

 – Smiths Group values of passion, integrity, respect, ownership and customer focus underpin the design and 

operation of the incentive programmes. The clear business strategy that is shown in the diagram on page 110 
is supported by these values which are widely communicated across the Company.  

1 1 5

SMITHS GROUP PLC  ANNUAL REPORT FY20203R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Remuneration Policy Report continued

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 and bonus 
deferral period).

Andy Reynolds Smith (£000)

Minimum

On-Target

Maximum

Maximum + share price growth

100%

42%

22%

17%

£1,110

23% 12%

23%

£2,624

20%

16%

10%

12%

Fixed Pay (salary, benefits and pension)

Cash bonus

Deferred bonus

LTIP

John Shipsey (£000)

Minimum

On-Target

Maximum

Maximum + share price growth

100%

46%

25%

19%

£683

22%

11%

22%

£1,490

19%

15%

10%

11%

Fixed Pay (salary, benefits and pension)

Cash bonus

Deferred bonus

LTIP

48%

£5,039

56%

£6,497

46%

£2,779

54%

£3,557

Potential opportunities illustrated above are based on the Policy, applied to the annualised base salaries in force from 1 October 2020. 
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, however, 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

Annual base salary
Company pension allowance
Value of 
annual benefits provided
72% (CEO), 60% (CFO) of salary

120% (CEO), 100% (CFO) of salary

36% (CEO), 30% (CFO) of salary

60% (CEO), 50% (CFO) of salary

71% (CEO), 60% (CFO) of salary

286% (CEO), 238% (CFO) of salary

0% of salary

0% of salary

0% of salary

Remuneration policy for the Chairman and Non-executive Directors

Opportunity

Performance 
measures

Base salary
Pension

Other benefits
Cash bonus

Deferred bonus

LTIP

Operation 

Annual fee

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 Chairs of the Nomination & Governance, Audit & 
Risk, and Remuneration Committees and to the Senior Independent Director 
to reflect the additional time commitment of these roles. Additional fees may 
also be paid to members of the Nomination & Governance, Audit & Risk, and 
Remuneration Committees but not members of other committees such as the 
Transaction Committee.

The additional 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 Executive Directors.

Other   

Fees are adjusted according to the outcome of 
the annual reviews.

Not applicable

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 in the Company’s Articles of Association.

The Chairman and Non-executive Directors are not eligible for benefits or any pension provision, nor are they eligible for bonuses or 
participation in share schemes. To reflect the greater time commitments expected of the Non-executive Directors when attending overseas 
Board meetings, an additional fee is paid to them for each such meeting, and they are reimbursed for actual expenses incurred (transportation, 
hotels etc.). Modest retirement gifts may be provided for Non-executive Directors in appropriate circumstances.

1 1 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCE 
Approach to remuneration on recruitment and leaving

Executive Directors
The Committee approves the remuneration of each Executive Director on their appointment. In setting the remuneration during the 
recruitment of external appointments, the Committee will apply the following policy:

Pay element

Salary

Pension

Benefits

Policy on recruitment

Salary on recruitment is determined based on the same principles as the annual salary review, as outlined in the 
policy table.

As described in the policy table.

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: 180% of salary with mandatory deferral of 33% into shares.

LTIP

Other

May be considered for an award under the LTIP on similar terms to other executives.

Maximum annual award opportunity: 400% of salary.

The Committee may make an award in recognition of incentive arrangements forfeited on leaving a previous employer. 
Any such 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. 
For the purposes of making such awards, but for no other reason, the Committee may avail itself of Listing Rule 
9.4.2R. 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.

Non-executive Directors
In recruiting a new Non-executive Director, the Committee will use the policy as set out in the table on page 116.

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. 

Andy Reynolds Smith is employed under a service contract with the Company dated 6 July 2015 and effective from 25 September 2015. 
John Shipsey is employed under a service contract with the Company dated and effective from 18 October 2017. He became an Executive 
Director on 1 January 2018.

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.

1 1 7

SMITHS GROUP PLC  ANNUAL REPORT FY20203R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Remuneration Policy Report continued

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.

Non-executive Director

Sir George Buckley
Bruno Angelici
Olivier Bohuon
Pam Cheng
Dame Ann Dowling
Tanya Fratto
Karin Hoeing
Bill Seeger
Mark Seligman
Noel Tata

Date of appointment

1 August 2013
1 July 2010
1 July 2018
1 March 2020
19 September 2018
1 July 2012
2 April 2020
12 May 2014
16 May 2016
1 January 2017

Leaving and change-of-control provisions

For those individuals regarded as ’bad leavers’ (e.g. voluntary resignation or dismissal for cause), 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 to be paid after the end of the financial year and deferred 
bonus awards will be paid out at the normal vesting date. 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. 
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 and may pay outplacement and legal fees for support provided to the individual.

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. We do not consult directly with 
employees regarding Executive Director pay. However, the Committee is regularly, and at least annually, provided with information on 
pay trends and ratios of the wider employee population across the Group.

Consideration of shareholder views
The Committee has taken account of the views expressed by shareholders, both from feedback from the 2018 Policy review and from 
regular meetings with major shareholders. A number of changes have been implemented in FY2020 and the Committee will keep the 
Policy and its approach to implementation under review in the context of evolving market practice and investor expectations.

1 1 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCE 
Annual Report on Remuneration

This section of the Remuneration Report details 
how our Policy was implemented in the year 
ended 31 July 2020.

Committee members and meeting attendance in FY2020
The membership of the Committee and their meeting attendance during the year is set out on page 89 of this Report. Bill Seeger had 
served on a remuneration committee for at least 12 months prior to his appointment as Remuneration Committee Chair.

Sir George Buckley is absent when his own remuneration as Chairman of the Board is under consideration. The Chief Executive 
attends meetings of the Committee by invitation but he is not involved in the determination of his own remuneration, or present during 
consideration of any changes to it.

Advisers to the Committee
During the year, the Committee received material assistance and advice from the Chief Executive, the Group HR Director, the Global 
Reward Director, Mercer | Kepler, Deloitte LLP and Freshfields Bruckhaus Deringer LLP. The Committee’s appointed independent 
remuneration adviser changed from Mercer | Kepler to Deloitte LLP, following a competitive tender in 2019, with effect from 1 January 
2020. The Company Secretary is secretary to the Committee. 

The Company paid a total fee of £4,823 to Mercer | Kepler and £78,050 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 FY2020, Deloitte LLP provided the Committee with information on market trends including the impact of COVID-19, 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, transaction advisory and internal audit co-source services. The Committee is satisfied that the advice provided 
by Deloitte LLP is objective and independent and that they do not have connections with the Group that may impair their independence. 

Summary of shareholder binding vote on Directors’ Remuneration Policy (FY2019)
The voting outcome in November 2018 for the Directors’ Remuneration Policy was as follows:

Votes for

230,167,925

% of votes  
cast for

Votes  
against

% of votes  
cast against

Total  
votes cast

Votes withheld 
(abstentions)

81.61%

51,868,709

18.39%

282,036,634

24,949,627

Summary of shareholder advisory vote on Directors’ Remuneration Report (FY2020)
The voting outcome in November 2019 for the Directors’ Remuneration Report was as follows:

Votes for

294,243,250

% of votes  
cast for

Votes  
against

% of votes  
cast against

Total  
votes cast

Votes withheld 
(abstentions)

98.11%

5,671,458

1.89%

299,914,708

13,080,429

1 1 9

SMITHS GROUP PLC  ANNUAL REPORT FY20203R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Annual Report on Remuneration continued

Directors’ single figure of annual remuneration (audited)

Executive Directors

Salary/fees

Benefits2

Payments in 
lieu of pension 
contribution

Total fixed

Annual bonus3

Long-term 
incentives4

Performance
share award5

Total 
performance 
related

Total

FY2020 
£000

FY2019 
£000

FY2020 
£000

FY2019 
£000

FY2020 
£000

FY2019 
£000

FY2020 
£000

FY2019 
£000

FY2020 
£000

FY2019 
£000

FY2020 
£000

FY2019 
£000

FY2020 
£000

FY2019 
£000

FY2020 
£000

FY2019 
£000

FY2020 
£000

FY2019 
£000

Andy Reynolds Smith1

John Shipsey1

840

538

820

525

61

12

54

12

205

131

205 1,106 1,079

131

681

668

260

139

608

324

702 2,100

128

346 1,090 3,054 2,196 4,133

373

–

–

–

512

324 1,193

992

Chairman and Non-executive Directors

Salary/fees

Benefits11

FY2020 
£000

FY2019 
£000

FY2020 
£000

FY2019 
£000

454
75
75
30
75
83
24
123
95
87
–

443
74
74
–
60
90
–
124
94
94
33

92
4
3
–
–
6
–
4
1
–
–

138
13
2
–
2
12
–
18
1
-
5

Sir George Buckley6
Bruno Angelici
Olivier Bohuon
Pam Cheng7
Dame Ann Dowling
Tanya Fratto
Karin Hoeing7
Bill Seeger8
Mark Seligman9
Noel Tata
Sir Kevin Tebbit10

Total

FY2020 
£000

FY2019 
£000

546
79
78
30
75
89
24
127
96
87
–

581
87
76
–
62
102
–
142
95
94
38

1  There was no share price appreciation attributable to the FY2020 Long Term Incentives for Andy Reynolds Smith and John Shipsey (FY2019 9.2% for Andy Reynolds Smith, no award vested 

for John Shipsey). No discretion has been applied to the amounts attributable to share price appreciation.

2  Benefits for Executive Directors include car/chauffeur benefits, life assurance, disability insurance and private healthcare insurance. 

3  Andy Reynolds Smith has deferred 33% of his bonuses earned since FY2016 into Smiths shares. John Shipsey has deferred 33% of his bonuses earned since FY2018 into Smiths shares. 
The total bonus paid during the year, including deferral, is captured under ‘annual bonus’ above. The deferral is for a three-year period and is not subject to any further performance or 
other conditions.

4  The Long Term Incentive value for FY2019 for Andy Reynolds Smith has been restated to show the actual amount (rather than the estimated amount in last year’s Report) and to include a 

dividend accrual payment of £164,364 which was paid on vesting. The total remuneration is also restated accordingly. The estimated Long Term Incentive values for FY2020 are calculated 
using the vesting percentage of 31.3% and the average share price over the 3 months to 31 July 2020 of 1,341.68p; they also include dividend accrual payments of £57,671 for Andy Reynolds 
Smith and  £30,637 for John Shipsey, payable on vesting.

5  Andy Reynolds Smith was awarded 26,602 Performance shares in 2015 which vested in 2019 (the performance criteria for these shares was the same as the FY2017 LTIP Outcome of 75.0%). 
He was also awarded 26,602 Performance shares which vest in October 2020. The estimated value shown for FY2020 is calculated using the vesting percentage of 31.3% and the average 
share price over the 3 months to 31 July 2020 of 1,341.68p. The FY2020 figure also includes an amount of £16,355  in respect of the estimated value of 1,219 dividend equivalent shares.

6  Sir George Buckley’s fee comprised his Non-executive Director’s fee; an additional fee for being Chairman and his additional fee for chairing the Nomination & Governance Committee.

7  Pam Cheng and Karin Hoeing’s fees for FY2020 comprised Non-executive Director’s fees from the date of their respective appointments.

8  Bill Seeger’s fees for FY2020 comprised his Non-executive Director’s fee, his additional fee for chairing the Remuneration Committee and his additional fee as Senior Independent Director.

9  Mark Seligman’s fees comprised his Non-executive Director’s fee and his additional fee for chairing the Audit & Risk Committee.

10  Sir Kevin Tebbit’s fees for FY2019 comprised his Non-executive Director’s fee and his additional fee as Senior Independent Director until 14 November 2018 and benefits include a 

retirement gift to recognise his contribution to the Board.

11  Benefits for the Chairman and Non-executive Directors relate to reimbursed travel-related and other expenses (including flight costs where applicable), which are grossed-up for the UK 

income tax and National Insurance contributions paid by the Company on their behalf. Figures for FY2019 have been restated to be on a consistent basis.

1 2 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEIncentive outcomes for FY2020 
FY2020 annual bonus outcome for Andy Reynolds Smith and John Shipsey:

The table below summarises the structure of the FY2020 annual bonus, our performance and the resulting annual bonus payout for each 
of the Executive Directors.

Director

Andy Reynolds Smith

Total

John Shipsey

Total

Measure

Weighting

Maximum 
Opportunity 
(% of salary)

(% of max. 
bonus)

(% salary)

EPS after tax
Headline Operating Cash Conversion
Organic Sales Growth

Personal Objectives

40%
20%
30%

10%

72%
36%
54%

18%

0%
9.2%
0%

8.0%

100%

180%

17.2%

EPS after tax
Headline Operating Cash Conversion
Organic Sales growth

Personal Objectives

40%
20%
30%

10%

60%
30%
45%

15%

0%
9.2%
0%

8.0%

100%

150%

17.2%

0%
16.6%
0%

14.4%

31.0%

0%
13.8%
0%

12.0%

25.8%

Earned bonus

£000

0
139
0

121

260

0
74
0

65

139

The table below summarises the financial targets and the Company’s actual performance (restated at budget exchange rates) against 
these for the FY2020 annual bonus.

Measure

EPS after tax1
Headline Operating Cash Conversion2

Organic Sales3

Performance targets and actual performance

Threshold 
25% payout

Target  
60% payout

Maximum 
100% payout

103.7p

90%
90%

106.1p

100%
100%

108.7p

105%
105%

H1
FY

Actual

77.9p

90%
101%

£3,571m £3,610m

£3,692

£3,523m

1  The EPS result includes restructuring charges and balance sheet write downs (reported figure 84.8p)

2  50% of the maximum headline operating cash conversion opportunity is available for each of H1 and FY.  Figures exclude accrued restructuring costs to avoid overstatement and are 

adjusted for the impact of IFRS16 which was not included in the original targets (reported figures H1 98%, FY 123%)

3  Organic sales is based on revenue (including Smiths Medical) restated at budget exchange rates (reported figure £3,466m)

Personal objectives
Challenging personal objectives are set each year for the Executive Directors, to reinforce the Company’s operating and strategic 
priorities. The personal objectives for the Executive Directors for FY2020 comprised a number of strategic long-term enablers, 
some of which remain commercially sensitive, together with short term projects aligned to innovation, operational excellence and 
capability planning.

Achievements against objectives in the year were as follows:

Achievements

Bonus out-turn (10% weighting)

Chief Executive

 – Development of Smiths Group Vision based on achieving 
sustainable growth with strong returns through purpose, 
attractive market positions and the foundation elements of 
execution – People, Excellence and Innovation

 – Continued implementation of the Group operating model 

and corporate structure

 – Progression of Smiths Innovation and Strategy Board 

framework plan and actions for FY2020

 – Continued development of the Group wide people capability 

plan with a focus on progression and succession 

Chief Financial Officer

 – Advancement of internal operating model improvements 

and upgraded Group consolidation system

 – Development of Group roadmap for improved efficiency in 

key identified areas

 – Progress in addressing underlying risks to financial control 

in key identified areas

 – Support development of new internal Information Systems 

& Technology model

The extraordinary events of the past few months 
have affected progress on some objectives, 
especially in the area of growth and the delayed 
separation of the Medical business. However 
the Committee has taken account of the strong 
leadership of the Group through this period of 
crisis by the Executive Directors, helping to 
support the future sustainability of the business 
and developing strong cash generation. This 
leadership enabled continuity of service to our 
customers, particularly in the supply of vitally 
needed medical equipment, and also focused 
on ensuring the provision of safe working 
conditions for our employees. As a result the 
Committee determined that an overall out-
turn of 80% of maximum was appropriate for 
personal performance during the year for both 
Andy Reynolds Smith and John Shipsey (8.0% of 
maximum overall bonus).

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SMITHS GROUP PLC  ANNUAL REPORT FY20203R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Annual Report on Remuneration continued

FY2018 LTIP outcome (audited)
Awards granted under the LTIP in October 2017 were subject to the following performance conditions:

Measure

Group EPS growth before tax

Weighting

Performance period

Performance

% vesting

Outturn (p.a)

% vesting

35%

1 August 2017  
to 31 July 2020

< 3% p.a.

0%

-5.4% 

0%

3% p.a.
≥ 12% p.a.
Straight-line vesting between these points

8.75%
35.0%

Actual performance

Average ROCE

35%

1 August 2017  
to 31 July 2020

< 15% p.a.
15% p.a.
≥ 18% p.a.
Straight-line vesting between these points

0%
8.75%
35.0%

15.4%

11.9%

Average headline operating cash conversion

Total

30%

1 August 2017  
to 31 July 2020

< 85%
85%
≥ 100%

0%
7.5%
30.0%

98.0%

19.4%

Straight-line vesting between these points

31.3%

FY2018 LTIP outcome for Executive Directors (audited)

Andy Reynolds Smith

153,354

31.3%

47,999

Oct 2020

1,341.68p

702

Interests held

Vesting %

Interests vesting

Date of vesting

Market price1

Value £0002

John Shipsey

81,469

31.3%

25,499

Oct 2020

1,341.68p

373

Interests held

Vesting %

Interests vesting

Date of vesting

Market price1

Value £0002

1  Based on the average share price over the three months to 31 July 2020 of 1,341.68p.

2 

In addition an accrued dividend of £57,671 is payable to Andy Reynolds Smith and an accrued dividend of £30,637 is payable to John Shipsey at vesting date.

1 2 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEScheme interests awarded in FY2020 (audited)

FY2020 LTIP

During the year ended 31 July 2020, the Executive Directors were awarded a fixed number of conditional share awards under the LTIP 
details of which are summarised in the table below. 

Executive

Form of award

Date of grant

Andy Reynolds Smith

Conditional shares

John Shipsey

Conditional shares

3 Oct 2019

3 Oct 2019

Number  
of shares 
awarded

179,627

95,837

Award price1

1,524.5p

1,524.5p

Face value 

£000

2,738

1,461

% of  
salary

326%

272%

Date of  
vesting

Oct 2022

Oct 2022

1  The closing price on 3 October 2019.

The performance conditions attached to these FY2020 LTIP awards are as follows:

Measure

Group EPS growth after tax

Average ROCE

Average headline operating cash conversion

Organic sales growth

Total

FY2020 Deferred bonus award

Weighting

Performance period

Performance

% vesting

Vesting schedule

25%

1 August 2019  
to 31 July 2022

20%

1 August 2019  
to 31 July 2022

25%

1 August 2019 
to 31 July 2022

30%

1 August 2019  
to 31 July 2022

< 4% p.a.
4% p.a.
≥ 11% p.a.

0%
6.25%
25.0%

Straight-line vesting 
between these points

0%
5.0%
20.0%

< 15% p.a.
15% p.a.
≥ 18% p.a.
Straight-line vesting 
between these points

< 90%
90%
≥ 105%

0%
6.25%
25.0%

Straight-line vesting 
between these points

< 3%
3%
≥ 6%

0%
7.5%
30.0%

Straight-line vesting 
between these points

During the year ended 31 July 2020, Andy Reynolds Smith and John Shipsey were awarded conditional shares as deferred bonus 
awards in relation to the FY2019 annual bonus outcome, details of which are summarised in the table below. There are no performance 
conditions for these awards.

Andy Reynolds Smith

John Shipsey

Form of award

Date of grant

Conditional shares

Conditional shares

3 Oct 2019

3 Oct 2019

1  The five day average of the share price to 2 October 2019.

Number  
of shares 
awarded

12,997

6,933

Award price1

1,559.8p

1,559.8p

Face value 

£000

203

108

Date of  
vesting

Oct 2022

Oct 2022

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SMITHS GROUP PLC  ANNUAL REPORT FY20203R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Annual Report on Remuneration continued

SAYE
Both Executive Directors participate in the Smiths Group Sharesave scheme.  For Andy Reynolds Smith, 2,078 share options under 
this scheme vested on 1 August 2019 at the option price of 866p. A further 1,515 share options were granted in May 2019, effective 
from August 2019, at the option price of 1,188p (a discount of 20% to the market price) with a face value of £18,000 and a vesting date of 
August 2022.

John Shipsey has 1,969 share options under the scheme granted in May 2020, effective from August 2020, at the option price of 914p (a 
discount of 20% to the market price) with a face value of £18,000 and a vesting date of August 2023, after cancelling the previous award 
granted in May 2019.

Buyout awards

Andy Reynolds Smith was made certain buyout awards to replicate the structure and fair value of incentives forfeited as a consequence 
of joining Smiths.

He received an award of 86,893 restricted shares, the grant value of which was captured in the 2016 single figure. 30,412 shares vested 
on 30 June 2016 and the remaining 56,481 restricted shares vested on 30 June 2017 (at a share price of 1,597p). Andy Reynolds Smith also 
received awards of 79,806 and 26,602 which vested in October 2018 and 2019 respectively. He also received 26,602 conditional shares 
which vest, subject to performance conditions, in October 2020. The estimated value of the award vesting in October 2020 is included in 
this year’s single figure of remuneration table for Andy Reynolds Smith (see note 5 on page 120) 

Percentage change in remuneration from FY2019 to FY2020

Chief Executive remuneration
Chief Financial Officer remuneration
Non-executive Director remuneration

Average of all employees

Salary/Fees

2.4%
2.5%
2.5%

2.9%

Benefits

13.0%
0%
-43%

2.9%

Bonus

-57%
-57%
0%

-43%

‘All employees’ is defined as all UK Group employees, 206 employees at all grades.

Chief Executive pay ratios
These ratios set out the comparison between the Chief Executive’s remuneration and that for employees in the UK workforce.

Year

Total remuneration

Salary

Method

B

B

FY2020

FY2019

25th  
percentile ratio

Median pay  
ratio

75th 
percentile ratio

25th  
percentile ratio

Median pay  
ratio

75th 
percentile ratio

75:1

31:1

53:1

22:1

34:1

15:1

133:1

36:1

97:1

26:1

65:1

18:1

Chief Executive
25th percentile employee
Median employee
75th percentile employee

Salary (£)

839,817
27,365
38,631
57,027

Total 
Remuneration (£)

2,195,846
29,391
41.335
64,101

Pay data for the Chief Executive is taken from the single figure of annual remuneration table on page 120. The pay data for employees 
in the UK workforce is based on the data used for gender pay reporting. The gender pay reporting basis comprises salary and benefits 
as at 15 April 2020 and incentive payments payable in respect of FY2020.  It is assumed that the value of employee benefits is 7.0% of 
base salary. 

The workforce remuneration figures are those paid to UK employees whose pay is at the 25th, median and 75th percentile of pay for 
the 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 decrease in the ratios on a total pay basis is as a result of the reduction in the Chief 
Executive’s long-term incentive payments in FY2020 compared to FY2019. The Committee will monitor the ratios on an annual basis.

1 2 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEPayments to past Directors (audited)

There are no payments to past Directors attributable to FY2020.

Payments for loss of office (audited)
There were no payments made for loss of office during the year.

Relative importance of spend on pay
The table below shows shareholder distributions (i.e. dividends and share buybacks) and total employee pay expenditure for FY2019 and 
FY2020, and the percentage change.

Shareholder distributions

Employee costs

FY2020  
£m

126

1,112

FY2019  
£m

178

1,050

Change

-29.2%

5.9%

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 2020 were £174.69 and £181.92 respectively.

Total Shareholder Return

Value of £100 invested on 31 July 2010

£220

£200

£180

£160

£140

£120

£100

£118.35

£109.36

2011

2010

Smiths Group

FTSE100

£199.71

£199.46

£186.05

£185.32

£205.91

£199.33

£181.92

£174.69

£151.41

£154.06

£160.29

£132.38

£123.54

£136.34

£140.94

£137.19

£117.24

£101.94

2012

2013

2014

2015

2016

2017

2018

2019

2020

Chief Executive’s remuneration for the last ten years
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

FY2014  
P Bowman

FY2013  
P Bowman

FY2012  
P Bowman

FY2011  
P Bowman

Total remuneration £000
Annual bonus outcome 
(% max)
Common Investment Plan 
outcome (% max)
2007 Performance Share 
Plan outcome (% max)

LTIP outcome (% max)

2,196

4,130

3,251

2,320

2,964

1,602

4,195

3,912

3,864

5,026

4,776

17%

41%

42%

96%

89%

88%

80%

43%

39%

79%

64%

n/a

n/a

n/a

n/a

31%

n/a

75%

n/a

32%

n/a

n/a

n/a

n/a

100%

100%

100%

100%

100%

100%

n/a

n/a

n/a

18%

n/a

17%

n/a

18%

n/a

n/a

n/a

n/a

33%

n/a

1 2 5

SMITHS GROUP PLC  ANNUAL REPORT FY20203 
R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Statement of implementation of Remuneration Policy in F Y2021

Base salary

Salaries are reviewed annually in October (but not necessarily increased) and benchmarked against comparable roles at other FTSE 100 
companies of similar market capitalisation, revenues and complexity. 

Having considered a number of important factors including evolving global market conditions and the Remuneration Policy, the 
Committee has determined to freeze the salaries of the Chief Executive at £843,780 and of the Chief Financial Officer at £540,225 which 
have been in effect since 1 October 2019.  A similar general salary freeze has been applied at all levels across Smiths Group.

Andy Reynolds Smith

John Shipsey

Pension and benefits

FY2020

FY2021

£839,817

£537,688

£843,780

£540,225

The employment contracts of the two Executive Directors provide for a cash allowance of 25% of base salary in lieu of pension provision. 
Both Executive Directors have agreed to freeze the monetary value of the allowance at the FY2019 level maintaining the level of benefit 
at 24.4% of base salary for FY2021.   The level of benefit will reduce to be in line with that of the wider UK workforce no later than 
31 December 2022, on a phased basis.  

Annual bonus

For FY2021, Andy Reynolds Smith will continue to have a maximum bonus opportunity of 180% of salary and John Shipsey 150%. 33% 
of any bonus earned will be deferred into shares for three years. Specific targets are not disclosed at this time due to the commercially 
sensitive nature of these objectives, but they will be disclosed at such time as the Committee deems them to no longer affect the 
commerciality of the Company.  

Performance measures for the FY2021 annual bonus are as follows

Performance measure

Operating Profit1
Revenue
Headline Operating Cash Conversion

Personal Objectives 

1  The operating profit measure replaces the EPS measure used in FY2020

Long-Term Incentive Plan (LTIP)

Weighting

40%
25%
25%

10%

The LTIP is a conventional performance share plan under which an award over a capped number of shares will vest if demanding 
performance conditions are met. LTIP awards of conditional shares are granted to selected senior executives (including the Executive 
Directors) with face values of up to 400% of salary. Under the LTIP, for the FY2021 award, a fixed number of shares will be granted at 
the same level as in FY2019 and FY2020. This would be equivalent to 286% (327% for FY2019) of salary for the Chief Executive and 238% 
(272% for FY2019) of salary for the Chief Financial Officer, based on the average share price for the three months to 31 July 2020 of 
1,341.68p. 

The LTIP awards granted to Andy Reynolds Smith and John Shipsey in FY2021 will have the following performance measures. In the light 
of current market uncertainties, targets for threshold and maximum performance will be agreed before the end of 2020. These targets 
will be disclosed on the Company website.
Performance measure

Weighting

Three-year EPS growth after tax
Three-year average return on capital employed
Three-year average free cash flow

Three-year average organic revenue sales growth

25%
25%
25%

25%

1  The free cash flow measure replaces the headline operating cash conversion measure used in the FY2020 LTIP award as it provides a better measure of long term cash performance 

1 2 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEThese performance measures apply to Group performance.  In recognition of the delay in the planned separation of the Smiths Medical 
business, the Committee has also determined to include  Smiths Medical performance within the FY2020 LTIP performance measures.  

The Committee believes that the proposed structure provides an appropriate balance between earnings growth, returns, cash and sales 
growth. The Committee recognises that this balance of Group performance measures remains very important for many of our largest 
shareholders. The performance measures will be reviewed at the start of each future LTIP cycle to ensure they continue to reflect the 
Group’s strategic priorities.

Non-executive Director fees
Non-executive Director fees paid during FY2020 are shown below and there will be no change in fees for FY2021:

Non-executive Director base fee
Additional fee payable to the Chairman of the Board
Additional fee payable to the Senior Independent Director

Additional fees for Audit & Risk, Nomination & Governance and Remuneration Committee Chairs

FY2020

£71,250
£362,500
£20,000

£20,000

Attendance allowance for meetings outside the Non-executive Director’s home continent

£4,000 per meeting

Share ownership requirement 
Executive Directors are required, over time, to build up a shareholding with a value equal to at least 250% of base salary for the Chief 
Executive and 200% for the Chief Financial Officer. 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. 

During the year the Committee clarified its policy on post-employment shareholding requirements (Provision 36 in the UK Corporate 
Governance Code). The application of good leaver provisions for Executives will be conditional on retaining a number of shares equal to 
the in-employment shareholding guideline, or actual holding, if lower for a minimum holding period of two years from the date of leaving.  
No Executives to whom this policy would apply left the Group during the year.  We will further develop our approach to post-employment 
shareholding requirements as part of our wider 2021 policy review.

There is no shareholding policy for Non-executive Directors.

Directors’ shareholdings (audited)
The table below shows the shareholding of each Director and for Executive Directors the shareholding against their respective 
shareholding requirement as at 31 July 2020.

Save As You  
Earn (SAYE)

1,515
1,969

Current 
shareholding 
(% FY2020
salary)1

521%
81%

Shareholding 
requirement met

Yes
No

Shareholding 
requirement  
(% FY2020 salary)

Shares 
owned 
outright

Shares 
subject to 
performance

Vested  
shares in  
holding period

Shares 
 arising from  
bonus deferral

539,210
273,143

0
0

56,361
13,326

Andy Reynolds Smith
John Shipsey
Sir George Buckley
Bruno Angelici
Olivier Bohuon
Pam Cheng
Dame Ann Dowling
Tanya Fratto
Karin Hoeing
Bill Seeger
Mark Seligman
Noel Tata

250%
200%

295,402
25,048
19,760
2,000
2,972
0
5,813
1,500
0
10,000
5,000
2,000

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; John Shipsey therefore has until 31 December 2022 to meet 
the requirement.

In accordance with a binding commitment entered into on 19 July 2017, pursuant to which the Chairman purchases ordinary shares on 
a quarterly basis using a fixed proportion (20%) of the after-tax fees he receives from the Company, Sir George Buckley acquired 919 
ordinary shares on 1 August 2020. Noel Tata acquired 2,000 ordinary shares on 4 August 2020. There have been no further changes to 
the Directors’ shareholdings between 1 August and 21 September 2020.

1 2 7

SMITHS GROUP PLC  ANNUAL REPORT FY20203R E M U N E R A T I O N   C O M M I T T E E   R E P O R T   C O N T I N U E D

Directors’ share options and long-term share plans (audited)

Options 
and awards 
held on 31 
July 2020 
Number

Options 
and awards 
held on 31 
July 2019 
Number

0

26,602

26,602

26,602

0
153,354
179,627
179,627

167,741
153,354
179,627
0

0
28,618
14,746
12,997

0

1,515

81,469
95,837
95,837

6,393
6,933

0

1,969

24,546
28,618
14,746
0

2,078

1,515

81,469
95,837
0

6,393
0

1,515

0

Director and Plan

Andy Reynolds Smith

Performance  
Share Award

LTIP 

Deferred bonus award

SAYE

John Shipsey

LTIP

Deferred bonus award

SAYE

Key

Performance Share Award  

Performance 
test

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

Option and award data

Awards vested 
FY2020

A

A

A
A
B
B

–
–
–
–

–

–

A
B
B

–
–

–

–

n/a 26/11/15 Oct 2019

8/10/19

n/a

1,033p 1,531p

22,492  
(inc. 2,541  
dividend 
equivalent)

8/10/19

125,805

n/a

1,395p 1,531p

8/11/19

24,546

n/a

1,395p 1,658p

n/a 26/11/15 Oct 2020

n/a
8/11/16 Oct 2019
n/a 27/10/17 Oct 2020
n/a 31/10/18 Oct 2021
n/a  03/10/19 Oct 2022

8/11/16

n/a
8/11/19
n/a 27/10/17 27/10/20
n/a 31/10/18 31/10/21
n/a 03/10/19 03/10/22

866p 11/05/16 01/08/19 01/02/20

1,188p 10/05/19 01/08/22 01/02/23

n/a 27/10/17 Oct 2020
n/a 31/10/18 Oct 2021
n/a 03/10/19 Oct 2022

n/a 31/10/18 31/10/21
n/a 03/10/19 03/10/22

1,188p 10/05/19 01/08/22 01/02/23

914p 20/05/20 01/08/23 01/02/24

Under the terms of his contract of employment on joining the Company, Andy Reynolds Smith was granted a buy-out conditional award over 133,010 shares of which the first tranche of up 
to 60% (subject to the performance tests applicable to awards granted under LTIP 2015 in 2015) vested in October 2018; a further 20% vested in October 2019 (subject to performance tests 
applicable to awards granted under long-term incentive plans in 2016); and up to 20% are expected to vest in October 2020 (subject to the performance tests applicable to awards granted 
under long-term incentive plans in 2017). The terms of the award provide that additional shares are awarded on vesting to a value equivalent to the notional dividends that would have been 
earned on the number of shares that vest.

LTIP  

SAYE 

+ 

++     

The Smiths Group Long-Term Incentive Plan 2015.

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

A  LTIP awards in 2016 and 2017 – 35% subject to EPS element; 35% subject to ROCE; 30% subject to cash conversion.

B  LTIP awards in 2018 and 2019 – 25% subject to EPS element; 20% subject to ROCE; 25% subject to cash conversion; 30% subject to organic sales growth.

–  There are no performance criteria for the Deferred Bonus Shares awards or SAYE.

Notes

–  The high and low market prices of the ordinary shares during the period 1 August 2019 to 31 July 2020 were 1,778.5p and 790p respectively. The mid-market closing price on 31 July 2019 

was 1,642p and on 31 July 2020 was 1,355p.

–  The mid-market closing price of a Smiths Group share on the date of the awards made to Directors in the FY2020 financial year was 1,613.5p (3 October 2019).

–  The SAYE options over the 1,515 shares granted to and held by the Chief Executive at 31 July 2020 were granted at an exercise price below the market price of a Smiths Group share on 

9 April 2019 (1,485p). The options over 1,515 shares granted to and held by the Chief Financial Officer at 31 July 2019 were cancelled at his request.  The options over 1,969 shares granted to 
and held by the Chief Financial Officer at 31 July 2020 were granted at an exercise price below the market price of a Smiths Group share on 20 May 2020 (1,268p). 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 other Directors held any options over the Company’s shares during the period 1 August 2019 to 31 July 2020.

–  No options or awards have been granted to or exercised by Directors or have lapsed during the period 1 August to 24 September 2020. 

–  At 31 July 2020, the trustee of the Employee Share Trust held nil shares. The market value of the shares held by the trustee on 31 July 2020 was £0 and dividends of approximately £13,160 

were waived in the year in respect of the shares held by the trustee during the year.

–  Special provisions permit early exercise of options and vesting of awards in the event of retirement, redundancy, and death.

1 2 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCE   
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 2020 the headroom available under these limits was 8.53% and 4.09% respectively.

Performance evaluation
The annual evaluation of the Committee was conducted as part of the overall evaluation process of the Board and its Committees.  
However, the process by which the Committee’s performance was assessed was conducted separately to the main Board process ahead 
of the appointment of Deloitte LLP as the Committee’s adviser.  More information can be found on page 100.  The findings relating to the 
Committee were discussed with the Committee Chair.  Overall, the Committee is viewed as effective and performing well and is rigorous 
in discharging its responsibilities. 

The Directors’ Remuneration Report has been approved by the Board and signed on its behalf by:

Bill Seeger
CHAIR OF THE REMUNERATION COMMITTEE

23 September 2020

1 2 9

SMITHS GROUP PLC  ANNUAL REPORT FY20203D I R E C T O R S ’   R E P O R T

Directors’ Report

The Strategic Report is a requirement of the Companies Act 2006 (the ‘Act’) and can be found on pages 6-80. The Company has chosen, 
in accordance with section 414 C(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 Rule 4.1.8R 
of the Disclosure Guidance and Transparency Rules. Other information that is relevant to the Directors’ Report, and is incorporated by 
reference, can be found as follows:

Disclosure

Likely future developments

Directors’ dividend recommendation

Research and development activities

Employment of disabled persons 

Employee engagement

Engagement with suppliers, customers and  
others in a business relationship with the company

Political donations and expenditure

Greenhouse gas emissions, energy consumption  
and energy efficiency

Corporate governance statement

Directors during FY2020

Director appointment 

Amendment of Articles of Association

Indemnities

Change of control

Directors’ responsibility statement

Disclosure of information to auditor

Financial instruments

Share capital disclosures

Powers of the Directors

Post-balance sheet events

Overseas branches

Location

Strategic Report pages 6-23 and 52-66

Strategic Report page 20

Strategic Report pages 52-66

Resources and relationships page 32

Resources and relationships pages 27-33

Governance Report pages 83 and 91

Resources and relationships pages 34-36 and 46-51

Governance Report page 91

Table on page 131

 Resources and relationships pages 40-45

Governance Report pages 82-132

Governance Report pages 84-87

Governance Report page 99

Governance Report page 99

Governance Report page 99

Remuneration Report page 118 
Borrowings and net debt note page 182

Statement of Directors’ responsibilities page 132

Statement of Directors’ responsibilities page 132

Financial risk management note pages 181-188

Share capital note page 195

Governance Report page 89

Share capital note page 195

Post-balance sheet event note page 219

Subsidiary undertakings note page 228

1 3 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCEListing Rules disclosure
Information required by the Financial Conduct Authority’s Listing Rules can be found as set out below. There are no further disclosures 
required in accordance with Listing Rule 9.8.

Listing Rule

9.8.4(1)

9.8.4(12)(13)

9.8.6(1)

9.8.6(2)

Disclosure

Capitalised interest

Dividend waivers

Directors’ interests

Major shareholders’ interests

9.8.6(3)(a)(b)

Going Concern and Viability Statements

9.8.6(4)(a)

9.8.6(5)(6)

9.8.6(7)

Purchase of own shares

UK Corporate Governance Code compliance

Location

Discontinued operations note page 197

Dividend note page 196

Remuneration Report page 127

Table on page 131

Strategic Report pages 77-78

Share capital note page 195

Governance Report page 83

Unexpired term of service contract

Remuneration Report page 117

Political donations
The Group did not give any money for political purposes in the UK, the rest of 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 FY2020 totalled $41,000 (FY2019: $50,534).

Major shareholders’ interests
At 31 July 2020, the Company had been notified under the Financial Conduct Authority’s Disclosure Guidance & Transparency Rules, 
or had received disclosures pursuant to the Companies Act 2006, of the following holdings of voting rights in its shares:

Number of voting rights

BlackRock, Inc.

Ameriprise Financial, Inc.

Artemis Investment Management LLP

Harris Associates L.P.

Dodge & Cox

Jupiter Asset Management

Number of voting rights

% of total voting rights

23.3m

20.8m

19.8m

19.7m

19.6m

14.8m

5.9

5.3

5.0

5.0

4.9

3.8

Date of notification

31 May 2018

3 October 2018

14 April 2020

22 July 2019

27 February 2019

22 September 2016

No further notifications were received between 1 August and 21 September 2020.

By order of the Board

John Mills
COMPANY SECRETARY

23 September 2020

1 3 1

SMITHS GROUP PLC  ANNUAL REPORT FY20203S T A T E M E N T   O F   D I R E C T O R S ’   R E S P O N S I B I L I T I E S

Statement of Directors’ responsibilities in respect 
of the Annual Report and the financial statements

The Directors are responsible for 
preparing the Annual Report and the 
Group and Parent Company financial 
statements in accordance with applicable 
law and regulations.

Company law requires the Directors to 
prepare Group and Parent Company 
financial statements for each financial 
year. Under that law they are required to 
prepare the Group financial statements in 
accordance with International Financial 
Reporting Standards as adopted by the 
European Union (IFRSs as adopted by 
the EU) and applicable law and have 
elected to prepare the Parent Company 
financial statements in accordance with UK 
accounting standards, including IFRS 101 
Reduced Disclosure Framework.

Under company law the Directors must not 
approve the financial statements unless 
they are satisfied that they give a true and 
fair view of the state of affairs of the Group 
and the Parent Company and of their profit 
or loss for that period. In preparing each of 
the Group and Parent Company financial 
statements, the Directors are required to:

 – Select suitable accounting policies and 

then apply them consistently;

 – Make judgements and estimates that 
are reasonable, relevant, reliable 
and prudent;

 – For the Group financial statements, 

state whether they have been prepared 
in accordance with IFRSs as adopted by 
the EU

Directors’ responsibility 
statement
Each of the Directors (who are listed on 
pages 84-87) confirms that to the best 
of his or her knowledge: 

 – The financial statements prepared in 
accordance with the applicable set of 
accounting standards, give a true and 
fair view of the assets, liabilities, financial 
position and profit or loss of the Company 
and the undertakings included in the 
consolidation taken as a whole; 

 – The Group Directors’ Report and 

Strategic Report include a fair review of 
the development and performance of the 
business and the position of the issuer 
and the undertakings included in the 
consolidation taken as a whole, together 
with a description of the principal risks 
and uncertainties that they face; and

 – As at the date of this report there is 

no relevant audit information of which 
the Company’s auditor is unaware. 
Each Director has taken all the steps he 
or she should have taken as a Director in 
order to make himself or herself aware 
of any relevant audit information and to 
establish that the Company’s auditor are 
aware of that information

We consider the annual report and 
accounts, taken as a whole, is fair, 
balanced and understandable and 
provides the information necessary 
for shareholders to assess the group’s 
position and performance, business model 
and strategy.

 – For the Parent Company financial 

statements, state whether applicable 
United Kingdom Accounting Standards 
have been followed subject to any 
material departures disclosed and 
explained in the Parent Company 
financial statements; 

 – Assess the Group and parent Company’s 
ability to continue as a going concern, 
disclosing, as applicable, matters related 
to going concern; and

 – Use the going concern basis of 

accounting unless they either intend 
to liquidate the Group or the Parent 
Company or to cease operations, or have 
no realistic alternative but to do so.

The Directors are responsible for keeping 
adequate accounting records that are 
sufficient to show and explain the Parent 
Company’s transactions and disclose 
with reasonable accuracy at any time the 
financial position of the Parent Company 
and enable them to ensure that its financial 
statements comply with the Companies 
Act 2006. They are responsible for such 
internal control as they determine is 
necessary to enable the preparation 
of financial statements that are free 
from material misstatement, whether 
due to fraud or error, and have general 
responsibility for taking such steps as are 
reasonably open to them to safeguard the 
assets of the Group and to prevent and 
detect fraud and other irregularities.

The Directors are responsible for 
the maintenance and integrity of the 
corporate governance and financial 
information included on the Company’s 
website. Legislation in the United 
Kingdom governing the preparation and 
dissemination of financial statements may 
differ from legislation in other jurisdictions.

Signed on behalf of the Board of Directors: 

Andy Reynolds Smith 
CHIEF EXECUTIVE  

23 September 2020 

John Shipsey
CHIEF FINANCIAL OFFICER

1 3 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020GOVERNANCE 
 
 
 
FINANCIAL STATEMENTS

IND E P E ND E N T   
A U D I T O R S ’ R E P O R T
+ Pages 135-143

C O N S O L ID AT E D   
P R IM A R Y  S TAT E ME N T S

+ Pages 144-148

A C C O U N T IN G P O L I C IE S

+ Pages 149-157

S MI T H S G R O U P P L C 
C O MPA N Y A C C O U N T S
+ Pages 212-219

S M I T H S   G R O U P   P L C     A N N U A L   R E P O R T   F Y 2 0 2 0

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4Financial statements contents

Independent auditors’ report

Consolidated primary statements

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated cash-flow statement

Accounting policies

Notes to the accounts

1  Segment information

2  Operating profit is stated after charging

3  Non-statutory profit measures

4  Net finance costs

5  Earnings per share

6  Taxation

7  Employees

8  Post-retirement benefits

9  Employee share schemes

10  Intangible assets

11  Impairment testing

12  Property, plant and equipment

13  Right of use assets

14  Inventories

15  Trade and other receivables

16  Trade and other payables

17  Financial assets

18  Borrowings and net debt

19  Financial risk management

20  Derivative financial instruments

21  Fair value of financial instruments

22  Commitments

23  Provisions and contingent liabilities

24  Share capital

25  Dividends

26  Reserves

27  Acquisitions

28  Discontinued operations and businesses held for distribution to owners

29  Cash-flow

30  Alternative performance measures
31  Post Balance Sheet Events

Unaudited five-year Group financial record

Unaudited US dollar primary statements

Unaudited five-year Group US dollar financial record

Smiths Group plc Company accounts

Company balance sheet

Company statement of changes in equity

Company accounting policies

Notes to the Company accounts

Subsidiary undertakings

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144

145

146

147

148

149

158

161

162

165

165

166

168

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SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTSI N D E P E N D E N T   A U D I T O R S ’   R E P O R T

Independent auditors’ report to 
the members of Smiths Group plc

1 Our opinion is unmodified 
We have audited the financial statements of Smiths Group plc 
(“the Company”) for the year ended 31 July 2020 which comprise 
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, and the related notes, including the accounting policies 
on pages 149-157 and 214-215.

In our opinion: 

 – the financial statements give a true and fair view of the state of 
the Group’s and of the parent Company’s affairs as at 31 July 
2020 and of the Group’s profit for the year then ended; 

 – the Group financial statements have been properly prepared in 
accordance with International Financial Reporting Standards as 
adopted by the European Union; 

 – the parent Company financial statements have been properly 

prepared in accordance with UK accounting standards, including 
FRS 101 Reduced Disclosure Framework; and 

 – the financial statements have been prepared in accordance with 
the requirements of the Companies Act 2006 and, as regards the 
Group financial statements, Article 4 of the IAS Regulation. 

Basis for opinion 

We conducted our audit in accordance with International 
Standards on Auditing (UK) (“ISA (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 is consistent with our report to the 
Audit & Risk Committee. 

We were first appointed as auditor by the shareholders on 
13 November 2019. The financial year ended 31 July 2020 is our 
first year as auditor. We have fulfilled our ethical responsibilities 
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. No non-audit services 
prohibited by that standard were provided. 

Overview
Materiality: group financial statements 
as a whole

Coverage:

£12.2million

4.5% of Group profit before taxation from continuing 
operations normalised to exclude the effect of specific items 
and by averaging over the last three years as explained in 
section 3 of this report.

72% of Group profit before taxation from 
continuing operations

Key audit matters
Presentation of Smiths Medical as discontinued operations and as assets held for distribution  
to owners (Group)

Recoverability of capitalised development costs in regard to the Intellifuse programme (Group)

Goodwill valuation in respect of the Smiths Detection and Smiths Interconnect cash generating units  
(CGUs) (Group)

Valuation of litigation provisions for asbestos in John Crane, Inc. and flexible gas piping product  
in Titeflex Corporation (Group)

Revenue recognition in relation to multi-year contractual arrangements in the Smiths Detection  
and Smiths Interconnect divisions (Group)

Recoverability of deferred tax assets (Group)

Valuation of pension scheme liabilities (Parent Company)

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SMITHS GROUP PLC  ANNUAL REPORT FY20204I N D E P E N D E N T   A U D I T O R S ’   R E P O R T   C O N T I N U E D

2 Key audit matters: our assessment of risks 
of material misstatement
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 summarise 
below the key audit matters, in decreasing order of audit 
significance, in arriving at our audit opinion above, together 
with our key audit procedures to address those matters and, 
as required for public interest entities, our results from those 
procedures. These matters were addressed, and our results are 
based on procedures undertaken, in the context of, and solely 
for the purpose of, our audit of the financial statements as a 
whole, and in forming our opinion thereon, and consequently are 
incidental to that opinion, and we do not provide a separate opinion 
on these matters. 

Presentation of Smiths Medical as discontinued 
operations and as assets held for distribution to owners 
(Group) (£1,279 million (2019: £1,216 million)) 
Refer to page 104 (Audit & Risk Committee report), page 154 
(accounting policies) and page 197 (financial disclosures)

The risk – Subjective judgement 

The presentation of the Smiths Medical division as discontinued 
operations and as assets held for distribution to owners has 
a significant impact on the financial statements, including the 
requirement to present the results in the current and prior 
period separate from the continuing business and as profit from 
discontinued operations and associated additional disclosures.

The initial classification was made in the 31 July 2019 Group 
financial statements. However, the division was not distributed to 
shareholders within the first 12 months from initial classification 
as the Board of Directors had previously expected. As such, 
judgement is required in determining whether the Smiths 
Medical division continues to meet the criteria for classification 
as a discontinued operation. Specifically, judgement is required 
in assessing the likely timescale of the proposed distribution to 
owners and, therefore, whether management can be confident 
that the separation is highly probable and is expected to be 
completed by 31 July 2021.

Our response – Our procedures included:

 – Accounting analysis: Assessing the appropriateness of the 

classification as discontinued operations in line with criteria of 
the applicable financial reporting standard, including: 

 > whether the division is available for immediate distribution in 

its present condition; 

 > whether the distribution is highly probable; 
 > whether the distribution is expected to be completed by 

31 July 2021; and, 

 > whether the extension to the initial classification period of 

12 months is appropriate in the circumstances. 

In performing this assessment, we examined minutes of the Board 
and the Transactions Committee meetings, demerger plans, 
and the Company’s communications with the Group’s investors 
and shareholders. 

1 3 6

 – Evaluating Directors’ intent: Enquiring of the Board to 

determine whether the intention for separation of the Smiths 
Medical division as required by the applicable financial reporting 
standard remains in place, is highly probable and is expected to 
be completed by 31 July 2021.

 – Assessing transparency: Considering the adequacy of the 
Group’s disclosures in relation to the judgement exercised.

Our results

We found the presentation of the Smiths Medical division as 
discontinued operations and as assets held for distribution to 
owners as at 31 July 2020 to be acceptable.

Recoverability of capitalised development costs in 
regard to the Intellifuse programme (Group) (£80 
million (2019: £64 million)) 
Refer to page 104 (Audit & Risk Committee report), page 150 
(accounting policies) and page 199 (financial disclosures)

The risk – Subjective estimate

The Group holds a material amount of capitalised development 
costs in relation to the Intellifuse programme within assets held 
for distribution to owners, the Smiths Medical division.

There is judgement whether the carrying amount of the intangible 
asset is recoverable based on an assessment of whether the 
programme remains technically feasible, in particular whether 
regulatory approval can be obtained from the US Food and Drug 
Administration (FDA), and whether the intangible asset will 
generate sufficient future economic benefits. 

Management prepares an impairment model annually for the 
in-development intangible asset to assess the recoverability of 
the amount capitalised. Estimation is required to develop cash-
flow forecasts, costs to complete the development, probability 
of achieving FDA approval, the size of the future market and the 
appropriate discount rate.

The effect of these matters is that, as part of our risk assessment, 
we determined that the recoverable amount of capitalised 
development costs in regards to the Intellifuse programme 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. The financial statements (note 28) disclose the sensitivity 
estimated by the Group.

Our response – Our procedures included:

 – Accounting policies: Assessing the appropriateness of the 

Group’s accounting policy for capitalisation of development costs 
by comparing with applicable accounting standards.

 – Assessing methodology: Evaluating the methodology applied 

by the Directors in the impairment model supporting the 
recoverable amount of capitalised development expenditure to 
assess whether it is in line with applicable accounting standards 
and industry practice.

 – Challenging technical and commercial feasibility: Evaluating 

and challenging the underlying cash-flow forecast by comparing 
growth and size of future market assumptions with potential 
target market penetration data prepared by the Group’s expert, 
and the probability of FDA approval by enquiring with the 
Directors and the Group’s expert to understand the stage of 
completion of the programme.

 – Our sector experience: Using our own specialists to challenge 

the appropriateness of the discount rate used. 

SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTS – Sensitivity analysis: Performing sensitivity analysis on 

underlying key assumptions in respect of commercial feasibility.

 – Assessing disclosures: Assessing whether the disclosures of 
the effect of reasonably possible changes in key assumptions 
on the outcome of the impairment assessment reflect the risks 
inherent in the valuation of the capitalised development costs in 
regard to the Intellifuse programme.

Our results

We found the resulting estimate of the carrying amount of 
capitalised development costs in respect of the Intellifuse 
programme to be acceptable. 

Goodwill valuation in respect of the Smiths Detection 
and Smiths Interconnect cash generating units (CGUs) 
(Group) (£895 million (2019: £934 million)) 
Refer to page 104 (Audit & Risk Committee report), page 153 
(accounting policies) and pages 175–178 (financial disclosures)

The risk – Subjective estimate and forecast-based 
valuation

The Group holds a significant amount of goodwill, especially in 
relation to the Smiths Detection and Smiths Interconnect cash 
generating units (CGUs). The value in use calculation for the 
CGUs, 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 such as discount rate).

Estimation uncertainty has increased as a result of the impact of 
COVID-19 on the related markets. 

The effect of these matters is that, as part of our risk assessment, 
we determined that the value in use of the two CGUs 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. 
The financial statements (note 11) disclose the sensitivity estimated 
by the Group. These disclosures give relevant information about 
the estimation uncertainty including the risk of a reduction in the 
headroom or need for an impairment as a result of a reasonably 
possible change in one or more of the key assumptions used in the 
value in use calculation for these CGUs.

Our response – Our procedures included:

and Smiths Interconnect CGUs, including disclosures of the 
sensitivity in the value of use calculations to changes in the 
key assumptions.

Our results

We found the carrying amount of goodwill related to the Smiths 
Detection and Smiths Interconnect cash generating units and the 
disclosures, including the indication that other reasonably possible 
assumptions may reduce headroom, to be acceptable.

Valuation of litigation provisions for asbestos in John 
Crane, Inc. and flexible gas piping product in Titeflex 
Corporation (Group) (£297million (2019: £311million)) 

Refer to page 105 (Audit & Risk Committee report), page 154 
(accounting policies) and pages 191-195 (financial disclosures)

The risk – Subjective valuation

There are significant judgements and estimates involved in the 
assumptions underlying the provisions in respect of John Crane, 
Inc. asbestos litigation and Titeflex Corporation CSST (corrugated 
stainless steel tubing) claims, including the projection period, 
the forecast number of future claims and associated claim and 
defence costs and the discount rate applied to the forecast. 

The effect of these matters is that, as part of our risk assessment, 
we determined that the two litigation provisions 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. The financial statements (note 23) disclose the 
sensitivity estimated by the Group.

Our response – Our procedures included:

 – Our actuarial expertise: In the case of the John Crane, Inc. 

asbestos provision, challenging the key judgement of the ten-
year projection period using our own actuarial specialist and our 
sector knowledge and expertise. 

 – Benchmarking assumptions: In the case of the John Crane, 

Inc. asbestos provision, using our own actuarial specialists, we 
derived our own independent range of the estimated provision. 
In the case of the Titeflex Corporation CSST provision, we 
compared assumption input data to historic settlement data. 
We compared other assumptions, such as statute of repose to 
external sources.

 – Enquiry of lawyers: In the case of both provisions, we obtained 

 – Assessing methodology: Testing the mathematical integrity of 

external legal confirmations of ongoing claims.

the models used in the Group’s impairment analysis.

 – Benchmarking assumptions and historical comparison: 

Assessing and challenging the growth rate and EBIT percentage 
assumptions through retrospective review; comparison to 
external industry forecasts; and analysis of competitors’ 
analyst reports. 

 – Assessed management’s expert: In the case of John Crane, Inc., 
we assessed the competency, knowledge and independence of 
the expert using our own specialist.

 – Assessing methodology: Evaluating the methodology applied by 
management to the valuation of both provisions to assess that 
the methodology utilised is in line with industry practice.

 – Our sector experience: Using our valuations specialists to 

 – Historical comparison: Obtaining historical claim settlements to 

challenge the appropriateness of discount rates by deriving our 
own independent range and comparing perpetuity growth rates 
to external market data.

 – Sensitivity analysis: Estimating the value in use utilising 

independent and more conservative forecasts and discount rates 
and assessed whether this resulted in impairment.

 – Comparing valuations: Comparing the valuation per the value in 
use impairment model against expected enterprise valuations 
per analyst reports. 

 – Assessing transparency: Considering the adequacy of the 

Group’s disclosures in respect of the judgement and estimates 
around goodwill recoverability for the Smiths Detection 

assess the accuracy of the provision.

 – Assessing transparency: Assessing whether the disclosures 
of the effect of reasonably possible changes in key judgements 
and assumptions reflect the risks inherent in the provisions’ 
estimation.

Our results

We found the level of litigation provisioning and related disclosures 
in the financial statements in respect of John Crane Inc. 
asbestos and Titeflex Corporation CCST claims to be acceptable.

1 3 7

SMITHS GROUP PLC  ANNUAL REPORT FY20204I N D E P E N D E N T   A U D I T O R S ’   R E P O R T   C O N T I N U E D

Revenue recognition in relation to multi-year 
contractual arrangements in the Smiths Detection 
and Smiths Interconnect divisions (Group)

Refer to page 104 (Audit & Risk Committee report), page 150 
(accounting policies) and page 158 (financial disclosures)

The risk – Subjective estimate

The incentive and pressure on management to achieve bonus 
targets and/or market consensus increases the risk of fraudulent 
revenue recognition. 

In particular, the Smiths Detection and Smiths Interconnect 
divisions conduct a significant portion of their business through 
long-term revenue contracts (programme revenue) and a 
significant portion of revenue is normally recognised in the last 
quarter of the year. Further, as a result of COVID-19 there is a risk 
of long-term contract revenue being understated in the year in 
order to achieve bonus targets and favourable market results in 
subsequent years, given that the in-year performance has already 
traded behind budgets for the year.

Our results

We found the amount of the revenue recognised in relation to 
multi-year contractual arrangements in the Smiths Detection and 
Smiths Interconnect divisions to be acceptable.

Recoverability of deferred tax assets (Group) (£102 
million (2019: £115 million))

Refer to page 104 (Audit & Risk Committee report), page 153 
(accounting policies) and pages 166-168 (financial disclosures)

The risk – Forecast based valuation

The Group recognises significant deferred tax assets on the 
balance sheet relating to trading losses. The recoverability of the 
Group’s deferred tax assets is dependent on future taxable profits 
and the ability of the Group to utilise those losses in the future. 

The Group is forecasting future taxable profits in a number of tax 
jurisdictions in determining the amount of the deferred tax assets 
recognised. The achievement of such forecasts is inherently 
uncertain due to the level of estimation in developing forecasts.

The estimation of the appropriate level of revenue to recognise 
in any single accounting period requires special consideration 
amongst others: 

Further, uncertainty over forecasted future taxable 
profits has increased as a result of COVID-19, increasing 
estimation uncertainty.

 – the interpretation of contract terms concerning 

performance obligations;

 – the allocation of transaction price to those performance 

obligations; and

 – measuring progress towards complete satisfaction of 

performance obligations, primarily where the input method of 
accounting has been used.

The estimates involved are complex and could lead to a material 
error within the financial statements. 

Our response – Our procedures included:

 – Accounting policies: Assessing the appropriateness of the 

Group’s revenue recognition accounting policies by comparing 
with applicable accounting standards.

 – Test of details: 

 > Inspecting a sample of contracts to understand the terms and 
conditions that underpin the revenue recognition assumptions 
and challenging management’s judgements on the application 
of standards. 

 > In the case of the Smiths Interconnect division, for samples 

tested assessing and challenging the Group’s process 
of estimating the expected profitability of the contacts. 
Recalculating the revenue recognised based on measurement 
of progress towards complete satisfaction of a performance 
obligation using the input method and comparing the amount 
to revenue recognised.

 – Journal entries: Testing journal entries posted to revenue 

accounts to identify any unusual or irregular items, especially 
during the year end closing period.

 – Test of details: Performing procedures to assess inclusion of 

revenue transactions in the correct accounting year. 

 – Assessing transparency: Assessing the Group’s 

disclosures of the revenue recognition policies and of the key 
judgements applied.

The effect of these matters is that, as part of our risk assessment, 
we determined that the recoverability and appropriateness of 
recognition of deferred tax assets 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. 

Our response – Our procedures included:

 – Our tax expertise: Use of our own tax specialists to assist us in:

 > Assessing the recoverability of the tax losses against the 
forecast future taxable profits, taking into account the 
Group’s tax position and our knowledge and experience of the 
application of relevant tax legislation. 

 > Assessing the robustness of evidence of available future 

taxable profits to support the deferred tax asset recognition 
for carried forward tax losses. 

Our results

We found the level of deferred tax assets recognised to 
be acceptable.

Valuation of pension scheme liabilities (Parent 
Company) (£3,724 million (2019: £3,637 million))
Refer to page 105 (Audit & Risk Committee report), page 215 
(accounting policies) and page 219 (financial disclosures)

The risk – Subjective valuation 

Significant estimates are made in valuing the Company’s 
post retirement defined benefit plan obligations in particular 
the discount rates, the inflation rates, mortality and pension 
increase assumptions. 

Small changes in the assumptions used to value the Company’s 
pension obligations would have a significant effect on the 
Company’s defined benefit obligation. 

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SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTSThe effect of these matters is that, as part of our risk assessment, 
we determined that the valuation of the Company’s pension 
scheme liabilities includes 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. The financial statements (note 11 of the 
Company accounts) disclose the sensitivity of the liabilities to key 
assumptions estimated by the Company.

Our response – Our procedures 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, including assessing the impact of COVID-19 on 
these key assumptions. 

 – Assessing actuary’s credentials: Assessing the competence, 

independence and integrity of the scheme’s actuary.

Our results

We found the valuation of the pension scheme liabilities to 
be acceptable.

3 Our application of materiality and an overview of 
the scope of our audit 

Materiality

Materiality for the Group financial statements as a whole was set at 
£12.2 million, determined with reference to a benchmark of Group 
profit before tax from continuing operations, normalised to exclude 
the specific items listed below and by averaging over the last three 
years due to the impact of the COVID-19 pandemic, of £272m:

 – Restructuring costs

 – Foreign exchange gain/loss on intercompany loan with 

discontinued operations

 – Guaranteed Minimum Pension Equalisation

For this year’s restructuring costs and foreign exchange 
gain excluded from normalised group profit before tax, the 
component teams performed procedures on items relating to 
their components. The Group team performed procedures on the 
remaining excluded items.

Materiality for the Parent Company financial statements as a 
whole was set at £12 million, determined with reference to a 
benchmark of Parent Company total assets. It represents 0.3% of 
total assets.

We agreed to report to the Audit & Risk Committee any corrected 
or uncorrected identified misstatements exceeding £0.6 million, 
in addition to other identified misstatements that warranted 
reporting on qualitative grounds.

G R O U P   P R O F I T   B E F O R E   T A X 
F R O M   C O N T I N U I N G   O P E R A T I O N S , 
N O R M A L I S E D   T O   E X C L U D E 
S P E C I F I C   I T E M S   A N D   B Y 
A V E R A G I N G   O V E R   T H E   L A S T 
T H R E E   Y E A R S

£272m

G R O U P   M A T E R I A L I T Y

£12.2m

£12.2m
Whole financial statements materiality
£12m
Range of materiality at 34 components (£0.2m – £12m)

£0.6m
Misstatements reported to the Audit & Risk Committee

   Group profit before tax from continuing 

operations, normalised to exclude 
specific items and by averaging over 
the last three years

  Group materiality

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SMITHS GROUP PLC  ANNUAL REPORT FY20204I N D E P E N D E N T   A U D I T O R S ’   R E P O R T   C O N T I N U E D

Scope

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 five divisions: John Crane, 
Smiths Detection, Smiths Interconnect, Flex-Tek and Smiths 
Medical (discontinued operations) and is a consolidation of over 
230 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 on the basis of their contribution to Group 
revenue and Group profit before tax for continuing operations 
(therefore excluding Smiths Medical which was included 
separately as a full scope component) including whether we had 
sufficient coverage over each division and the specific risks in 
the components.

Of the Group’s 232 reporting components, we subjected 21 to 
full scope audits for Group purposes and 13 to audit of account 
balance revenue or specified risk-focused audit procedures. 
The components for which we performed audit of account balance 
revenue 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 components for which we 
performed specified risk-focused 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.

We subjected 6 components to specified risk-focused audit 
procedures over a number of areas, including litigation provisions 
and defined benefit pension assets and liabilities.

We also subjected the Smiths Medical division (not included in the 
21 full scope audits above), which is presented as discontinued 
operations and business held for distribution to owners as at 
31 July 2020, to a full scope audit in order to obtain coverage of 
profit from discontinued operations and assets held for distribution 
to owners, including the information presented in note 28.

The components within the scope of our work accounted 
for the following percentages of the Group’s results for 
continuing operations:

G R O U P   R E V E N U E   F R O M 
C O N T I N U I N G   O P E R A T I O N S

G R O U P   P R O F I T   B E F O R E   T A X 
F R O M   C O N T I N U I N G   O P E R A T I O N S

26%

10

74%

15%

59%

80

10%

10

28%

72% 51%

80

11%

   Full scope audit for Group 

reporting purposes

  Specific risk focused audit procedures

  Audit of account balances

  Residual components

G R O U P   T O T A L 
A S S E T S   ( C O N T I N U I N G 
O P E R A T I O N S  O N L Y )

1%

24%

10

77%

5%

70%

80

1 4 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTSThe remaining 26% of total Group revenue, 28% of Group profit 
before tax from continuing operations and 23% of total Group 
assets is represented by reporting components which individually 
did not represent more than 3% of any of total Group revenue 
for continuing operations, Group profit before tax for continuing 
operations or total Group assets. For these residual components, 
we performed an analysis at an aggregated Group level to re-
examine our assessment that there were no significant risks of 
material misstatement within these components.

The Group audit 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 
audit team set the component materialities, which ranged from 
£0.2 million to £12 million, having regard to the mix of size and 
risk profile of the Group across the components. The work on 
33 of the 34 components was performed by component auditors 
and the audit of the Parent Company was performed by the 
Group team. The work on Smiths Medical was also performed by 
component auditors.

A senior member of the Group audit team visited three countries, 
covering six of the components in scope. Following the outbreak 
of COVID-19 and the related travel restrictions, we were unable 
to continue physical site visits to further components. To replace 
these, senior members of the Group audit team held regular 
video conference meetings with all in scope components. 
These meetings involved explanation of Group audit instructions, 
involvement in planning audit procedures, discussing progress 
updates and emerging findings, reviewing outcomes of testing 
performed and involvement in discussing audit findings with 
component management. The Group audit team routinely 
reviewed the audit documentation of all component audits 
through various stages of their audits. Due to travel restrictions 
imposed as a result of COVID-19, we were unable to visit one 
China component (not financially significant) and remote access to 
audit documentation is prohibited by local law. As a result of this 
restriction we extended our oversight of this component’s audit 
through extended discussion and expanded reporting.

4 We have nothing to report on going concern 
The Directors have prepared the Financial Statements on the 
going concern basis as they do not intend to liquidate the Company 
or the Group or to cease their operations, and as they have 
concluded that the Company’s and the Group’s financial positions 
mean that this is realistic. They have also concluded that there 
are no material uncertainties that could 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”). 

Our responsibility is to conclude on the appropriateness of the 
Directors’ conclusions and, had there been a material uncertainty 
related to going concern, to make reference to that in this audit 
report. 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 absence of reference to a material uncertainty 
in this auditor’s report is not a guarantee that the Group and the 
Company will continue in operation. 

In our evaluation of the Directors’ conclusions, we considered the 
inherent risks to the Group’s and Company’s business model and 
analysed how those risks might affect the Group’s and 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 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, as a result of the current 
COVID-19 pandemic, 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.

As these were risks that could potentially cast significant doubt 
on the Group’s and the Company’s ability to continue as a going 
concern, we considered sensitivities over the level of available 
financial resources indicated by the Group’s financial forecasts 
taking account of reasonably possible (but not unrealistic) 
adverse effects that could arise from these risks individually 
and collectively and evaluated the achievability of the actions the 
Directors consider they would take to improve the position should 
the risks materialise. We also considered less predictable but 
realistic second order impacts, such as the impact of Brexit and 
the erosion of customer or supplier confidence, which could result 
in a rapid reduction of available financial resources.

Based on this work, we are required to report to you if:

 – we have anything material to add or draw attention to in relation 
to the Directors’ statement in the Accounting Policies, on page 
149, on the use of the going concern basis of accounting with 
no material uncertainties that may cast significant doubt over 
the Group and Company’s use of that basis for a period of at 
least twelve months from the date of approval of the financial 
statements; or

 – the related statement under the Listing Rules set out on page 

131 is materially inconsistent with our audit knowledge.

We have nothing to report in these respects, and we did not identify 
going concern as a key audit matter.

5 We have nothing to report on the 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. 

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. Based solely on 
that work we have not identified material misstatements in the 
other information. 

Strategic Report and Directors’ Report 

Based solely on our work on the other information: 

 – 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. 

1 4 1

SMITHS GROUP PLC  ANNUAL REPORT FY20204I N D E P E N D E N T   A U D I T O R S ’   R E P O R T   C O N T I N U E D

Directors’ Remuneration Report 

In our opinion the part of the Directors’ Remuneration Report to 
be audited has been properly prepared in accordance with the 
Companies Act 2006. 

Disclosures of emerging and principal risks  
and longer-term viability 

Based on the knowledge we acquired during our financial 
statements audit, we have nothing material to add or draw 
attention to in relation to: 

 – the Directors’ confirmation within the Viability Statement page 77 
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; 

 – the Principal Risks disclosures describing these risks and 
explaining how they are being managed and mitigated; and 

 – the Directors’ explanation in the 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. 

Under the Listing Rules we are required to review the Viability 
Statement. We have nothing to report in this respect. 

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 Company’s longer-term viability.

Corporate governance disclosures 

We are required to report to you if: 

 – we have identified material inconsistencies between the 

knowledge we acquired during our financial statements audit 
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; or

 – the section of the Annual Report describing the work of the 

Audit & Risk Committee does not appropriately address matters 
communicated by us to the Audit & Risk Committee.

We are required to report to you if the corporate governance 
statement does not properly disclose a departure from the 
provisions of the UK Corporate Governance Code specified by the 
Listing Rules for our review. 

We have nothing to report in these respects. 

6 We have nothing to report on the other matters 
on which we are required to report by exception 
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 components 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. 

We have nothing to report in these respects. 

7 Respective responsibilities 

Directors’ responsibilities 

As explained more fully in their statement set out on page 132 
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 other irregularities (see 
below), 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, other irregularities 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. 

Irregularities – ability to detect

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 and through 
discussion with the Directors and other management (as required 
by auditing standards), and discussed with the Directors and other 
management the policies and procedures regarding compliance 
with laws and regulations. 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 component audit 
teams of relevant laws and regulations identified at Group level.

1 4 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTS8 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. 

Michael Maloney (Senior Statutory Auditor) 
for and on behalf of KPMG LLP, Statutory Auditor  
Chartered Accountants  
15 Canada Square 
London E14 5GL

23 September 2020

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, pension regulation and taxation legislation 
and we assessed the extent of compliance with these laws and 
regulations as part of our procedures on the related financial 
statement items. 

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, employment law, 
environmental law, recognising the nature of the Group’s activities. 
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. Through these procedures, 
we became aware of actual or suspected non-compliance and 
considered the effect as part of our procedures on the related 
financial statement items. 

Further detail in respect of litigations is set out in the key audit 
matter disclosures in section 2 of this report.

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 (irregularities) 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 irregularities, 
as these may involve collusion, forgery, intentional omissions, 
misrepresentations, or the override of internal controls. We are 
not responsible for preventing non-compliance and cannot be 
expected to detect non-compliance with all laws and regulations.

1 4 3

SMITHS GROUP PLC  ANNUAL REPORT FY20204Consolidated income statement

CONTINUING OPERATIONS
Revenue
Cost of sales

Gross profit
Sales and distribution costs
Administrative expenses

OPERATING PROFIT

Interest receivable
Interest payable
Other financing gains/(losses)
Other finance income – retirement benefits

Finance costs

Continuing operations – profit before taxation

Taxation

Continuing operations – profit for the year

Discontinued operations
Profit from discontinued operations

PROFIT FOR THE YEAR

Profit for the year attributable to: 
Smiths Group shareholders – continuing operations
Smiths Group shareholders – discontinued operations
Non-controlling interests

EARNINGS PER SHARE
Basic
Basic – continuing
Diluted
Diluted – continuing

Year ended 31 July 2020

Year ended 31 July 2019

Headline 
£m

Non-headline 
(note 3) 
£m

Notes

2,548
(1,559)

989
(270)
(392)

327

6
(55)
–
–

(49)

278

(79)

199

139

338

197
139
2

338

1

2

8

4

6

28

5

–
–

–
–
(86)

(86)

–
–
(66)
7

(59)

(145)

13

(132)

61

(71)

(132)
61
–

(71)

Total 
£m

2,548
(1,559)

989
(270)
(478)

241

6
(55)
(66)
7

(108)

133

(66)

67

200

267

65
200
2

267

66.9p
16.4p
66.4p

16.3p

Headline 
£m

Non-headline 
(note 3) 
£m

2,498
(1,429)

1,069
(267)
(375)

427

11
(62)
–
–

(51)

376

(103)

273

112

385

271
112
2

385

–
–

–
–
(101)

(101)

–
–
18
11

29

(72)

(59)

(131)

(27)

(158)

(131)
(27)
–

(158)

Total 
£m

2,498
(1,429)

1,069
(267)
(476)

326

11
(62)
18
11

(22)

304

(162)

142

85

227

140
85
2

227

56.8p
35.4p
56.5p

35.1p

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 158 to 204, which form an integral part of the 
consolidated accounts.

1 4 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020CONSOLIDATED PRIMARY STATEMENTSFINANCIAL STATEMENTSConsolidated statement  
of comprehensive income

PROFIT FOR THE YEAR 

  Other comprehensive income: 
  Re-measurement of post-retirement benefits assets and obligations
  Taxation thereon

   Other comprehensive income and expenditure which will not be reclassified  
to the consolidated income statement

  Other comprehensive income which will be reclassified and reclassifications:
  Exchange (losses)/gains
  Fair value gains/(losses) and reclassification adjustments:
  – on financial asset at fair value through other comprehensive income
  – deferred in the period on cash-flow and net investment hedges
  – reclassified to income statement on cash-flow and net investment hedges
Total other comprehensive income
Total comprehensive income 

Attributable to: 
Smiths Group shareholders
Non-controlling interests

Total comprehensive income attributable to Smiths Group shareholders arising from:

Continuing operations 

Discontinued operations

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

Notes

267

227

8

6

19
(2)

17

(76)
13

(63)

(205)

191

2
73
(2)
(115)
152

151
1

152

59

92

151

2
(77)
(4)
49
276

272
4

276

148

124

272

1 4 5

SMITHS GROUP PLC  ANNUAL REPORT FY20204 
 
Consolidated balance sheet

NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Right of use assets
Financial assets – other investments
Retirement benefit assets
Deferred tax assets
Trade and other receivables
Financial derivatives

CURRENT ASSETS
Inventories
Current tax receivable
Trade and other receivables
Cash and cash equivalents
Financial derivatives
Assets held for distribution to owners

TOTAL ASSETS

CURRENT LIABILITIES
Financial liabilities
– borrowings
– lease liabilities
– financial derivatives
Provisions
Trade and other payables
Current tax payable
Liabilities held for distribution to owners

NON-CURRENT LIABILITIES
Financial liabilities
– borrowings
– lease liabilities
– financial derivatives
Provisions
Retirement benefit obligations
Corporation tax payable
Deferred tax liabilities
Trade and other payables

TOTAL LIABILITIES

NET ASSETS

SHAREHOLDERS’ EQUITY
Share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Merger reserve
Cumulative translation adjustments 
Retained earnings
Hedge reserve

Total shareholders’ equity
Non-controlling interest equity

TOTAL EQUITY

Notes

31 July 2020 
£m

31 July 2019 
£m

10

12

13

19

8

6

15

20

14

6

15

18

20

28

18

18

20

23

16

6

28

18

18

20

23

8

6

6

16

24

26

26

26

26

1,564
218
94
19
516
102
52
82

2,647

446
46
627
366
2
1,279

2,766

5,413

(10)
(31)
(4)
(55)
(527)
(79)
(295)

(1,001)

(1,455)
(65)
–
(276)
(139)
(5)
(27)
(51)

(2,018)
(3,019)

2,394

149
361
6
1
235
674
1,259
(312)

2,373

21

2,394

1,684
232
–
19
469
115
52
47

2,618

417
11
764
289
3
1,216

2,700

5,318

(9)
–
(5)
(66)
(569)
(56)
(213)

(918)

(1,500)
–
(1)
(285)
(152)
(6)
(45)
(30)

(2,019)
(2,937)

2,381

148
360
6
1
235
878
1,115
(383)

2,360
21

2,381

The accounts on pages 144 to 204 were approved by the Board of Directors on 23 September 2020 and were signed on its behalf by:

Andy Reynolds Smith 
CHIEF EXECUTIVE OFFICER 

John Shipsey
CHIEF FINANCIAL OFFICER

1 4 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020CONSOLIDATED PRIMARY STATEMENTSFINANCIAL STATEMENTS 
 
Consolidated statement of changes in equity

Share capital 
 and share 
premium 
£m

Other 
 reserves 
£m

Cumulative 
translation 
adjustments 
£m

Notes

Retained  
earnings 
£m

Hedge 
reserve 
£m

Equity
shareholders’
funds
£m

Non-
controlling 
Interest 
£m

Total 
equity 
£m

508

242

878

1,115

(383)

2,360

21

2,381

At 31 July 2019

Impact of adopting IFRS 16

Impact of adopting IFRIC 23

  Profit for the year
  Other comprehensive income: 
   – re-measurement of post-retirement 
     benefits after tax
  – exchange losses net of recycling
  – fair value gains and related tax

Total comprehensive income for the year

Transactions relating to ownership 
interests: 
Exercises of share options
Purchase of own shares
Dividends:
– equity shareholders
– non-controlling interest
Share-based payment

24

26

25

9

–

–

–

–
–
–

–

2
–

–
–
–

–

–

–

–
–
–

–

–
–

–
–
–

–

–

–

–
(204)
–

(204)

–
–

–
–
–

(1)

(4)

265

17

2

284

–
(18)

(126)
–
9

–

–

–

–

71

71

–
–

–
–
–

(1)

(4)

265

17
(204)
73

151

2
(18)

(126)
–
9

At 31 July 2020

510

242

674

1,259

(312)

2,373

Share capital 
 and share 
premium 
£m

Notes

Cumulative 
translation 
adjustments 
(represented) 
£m

Retained  
earnings 
(represented) 
£m

Other 
 reserves 
£m

Equity 
shareholders’ 
funds 
£m

Non-
controlling 
Interest 
£m

At 31 July 2018

506

242

  Profit for the year
  Other comprehensive income: 
   – re-measurement of post-retirement 
     benefits after tax
  – exchange losses net of recycling
  – fair value gains/(losses) and  
     related tax

Total comprehensive income for the year

Transactions relating to ownership 
interests: 
Exercises of share options
Purchase of own shares
Dividends:
– equity shareholders
– non-controlling interest
Receipt of capital from non-controlling 
interest

Share-based payment

At 31 July 2019

24

26

25

9

–

–
–

–

–

2
–

–
–

–

–

–

–
–

–

–

–
–

–
–

–

–

Hedge 
reserve 
£m

(302)

–

–
–

(81)

(81)

–
–

–
–

–

–

689

–

–
189

–

189

–
–

–
–

–

–

1,137

225

(63)
–

2

164

–
(19)

(178)
–

–

11

2,272

225

(63)
189

(79)

272

2
(19)

(178)
–

–

11

508

242

878

1,115

(383)

2,360

Retained earnings in the comparatives for the year to 31 July 2019 have been represented to show the cumulative foreign exchange translation 
differences as a separate component of equity.

1 4 7

–

–

2

–
(1)
–

1

–
–

–
(1)
–

21

16

2

–
2

–

4

–
–

–
(1)

2

–

21

(1)

(4)

267

17
(205)
73

152

2
(18)

(126)
(1)
9

2,394

Total 
equity 
£m

2,288

227

(63)
191

(79)

276

2
(19)

(178)
(1)

2

11

2,381

SMITHS GROUP PLC  ANNUAL REPORT FY20204C O N S O L I D A T E D   P R I M A R Y   S T A T E M E N T S

Consolidated cash-flow statement

Net cash inflow from operating activities
Cash-flows from investing activities
Expenditure on capitalised development
Expenditure on other intangible assets
Purchases of property, plant and equipment
Disposals of property, plant and equipment
Capital returned by/(investment in) financial assets
Acquisition of businesses
Acquisition of businesses – discontinued operations
Disposal of businesses – discontinued operations
Tax paid on disposal of businesses – discontinued operations

Net cash-flow used in investing activities

Cash-flows from financing activities
Proceeds from exercise of share options
Purchase of own shares
Settlement of cash settled share awards
Dividends paid to equity shareholders
Payment of lease liabilities
Cash inflow/(outflow) from matured derivative financial instruments

Reduction and repayment of borrowings

Net cash-flow used in financing activities

Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Movement in net cash held in disposal group
Foreign exchange rate movements

Cash and cash equivalents at end of year

Cash and cash equivalents at end of year comprise:
– cash at bank and in hand
– short-term deposits

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

Notes

29

10

10

12

27

28

24

26

25

18

18

429

346

(35)
(14)
(61)
1
–
(24)
(12)
1
–

(144)

2
(18)
–
(126)
(47)
1

–

(188)

97

289
6
(26)

366

173
193
366

(27)
(12)
(79)
4
2
(277)
–
30
(8)

(367)

2
(19)
(2)
(178)
–
–

(194)

(391)

(412)
717
(26)
10

289

153
136
289

1 4 8

SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTSA C C O U N T I N G   P O L I C I E S

Accounting policies

Basis of preparation
The accounts have been prepared in accordance with the Companies 
Act 2006 applicable to companies reporting under International 
Financial Reporting Standards (IFRS) and International Financial 
Reporting Interpretations Committee (IFRIC) interpretations, as 
adopted by the European Union.

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 are satisfied that the Group 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.

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 06 to 80. The Group’s financial 
position, cash flows, liquidity and borrowing facilities are described in 
the Strong financial framework section on pages 18 to 21.

Given the significant impact of COVID-19 on the macroeconomic 
conditions in which the Group is operating, the Directors have placed 
a particular focus on the appropriateness of adopting the going 
concern basis in preparing the financial statements for the year 
ended 31 July 2020. 

In concluding that the going concern basis is appropriate, the 
Directors have modelled the impact of a severe but plausible 
downside scenario for COVID-19 whereby the Group experiences:

(i) Demand decline:

 – a significant revenue decline in the first half of FY2021, resulting 
in a 25% year-on-year fall in revenue for FY2021. The decline 
being driven by a drop in demand in John Crane and Detection 
due to customer circumstances, weak demand in Flex-Tek and a 
reduction in Interconnect revenues due to a market slowdown and 
supply disruptions; and

 – a further period of continued dampened demand for 12 months with 
a slow recovery beginning towards the end of FY2021 and into the 
first half of FY2022.

(ii) Supply chain disruption:

 – supply chain disruptions assuming a closure of all manufacturing 
sites in November and December (with the exception of Medical); 

 – split shifts and inefficiency due to staff shortage thereafter; and

 – ongoing supply chain disruption due to both ability of suppliers 
to continue to service and availability of freight forwarding to 
ship supplies.

This scenario assumes no additional mitigation than currently 
being enacted in terms of staff reductions, restructuring or 
government subsidies.

Throughout this severe but plausible downside scenario, the Group 
continues to have significant liquidity headroom on existing facilities 
and against the RCF financial covenant.  

Other factors considered by the Board as part of their going concern 
assessment included the potential impact of Brexit trade talks, 
alongside inherent uncertainties in cash flow forecasts. Based on the 
above, the Directors have concluded that the Group is well placed to 
manage its financing and other business risks satisfactorily, and

they have a reasonable expectation that the Group will have adequate 
resources to continue in operation for at least 12 months from the 
signing date of these financial statements. They therefore consider 
it appropriate to adopt the going concern basis of accounting in 
preparing the financial statements.

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 and note 28.

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. 

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
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 £231m (FY2019: £237m) 
has been made for the future defence costs which the Group is 
expected to incur and the expected costs of future adverse judgments 
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. 

1 4 9

SMITHS GROUP PLC  ANNUAL REPORT FY20204A C C O U N T I N G   P O L I C I E S

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: 

Significant judgements made in applying 
accounting policies 

 – 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 showing the impact on the 
provision of reducing or increasing this time horizon; 

 – the future trend of legal costs, the rate of future claims filed, the 
rate of successful resolution of claims, and the average amount 
of judgments 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 showing the range of expected  
future spend. 

Titeflex Corporation, a subsidiary of the Group in the Flex-Tek 
division, has received a number of claims 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 a number of product liability 
claims regarding 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. Provision of £66m (FY2019: £74m) has been 
made for the costs which the Group is expected to incur in respect of 
these claims. In preparing the provision calculation, key estimates 
have been made about the impact of safe installation initiatives on 
the level of future claims. See note 23 for a sensitivity showing the 
impact on the provision of reducing or increasing the expected impact. 
However, because of the significant uncertainty associated with the 
future level of claims, there can be no guarantee that the assumptions 
used to estimate the provision will result in an accurate prediction of 
the actual costs that may be incurred. 

All provisions may be subject to potentially material revisions 
from time to time if new information becomes available as a result 
of future events.

Taxation
The Group has recognised deferred tax assets of £128m 
(FY2019: £106m) relating to losses and £75m (FY2019: £68m) 
relating to the John Crane, Inc. and Titeflex Corporation litigation 
provisions. The recognition of assets pertaining to these items 
requires management to make significant estimates as to the 
likelihood of realisation of these deferred tax assets and the phasing 
and attribution of future taxable profits. This is based on a number 
of factors, which management use to assess the expectation that 
the benefit of these assets will be realised, including expected 
future levels of operating profit, expenditure on litigation, pension 
contributions and the timing of the unwind of other tax positions.

1 5 0

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 judgments 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 2020 the Group has recognised a retirement benefit asset 
of £516m (FY2019: £469m), principally relating to UK schemes, 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 
judgement required in determining whether an unconditional right 
of refund exists based on the provisions of the relevant trust deed 
and rules. Having taken legal advice with regards to the rights of 
the Group under the relevant Trust deed and rules, it has been 
determined that the surplus is recoverable by the Group and 
therefore can be recognised. If the pension schemes were wound 
up while they still had members, the schemes would need to buy out 
the benefits of all members. The buyouts would cost significantly 
more than the carrying value of the scheme liabilities within these 
financial statements which are calculated in accordance with IAS 19: 
Employee benefits. 

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 the 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 testing evidence and documentation; 

 – Competitor activity – including the impact of potential competitor 
product launches on the market place and customer demand; and

 – Launch timeline – including time and resource required to establish 

and support the commercial launch of a new product.

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 and Smiths Interconnect 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. Judgement is applied 
in the identification of the performance obligations of the contract and 
the allocation of contract revenue to each performance obligation.

The Group enters into certain contracts for agreed fees that are 
performed across more than one accounting period and revenue 
is recognised over time. Judgement is required to assess the stage 
of completion of the contract activity at the balance sheet date. 

SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTSThis assessment requires the expected total costs of the contract and 
the costs to complete to be determined.

Significant accounting policies

Taxation
As stated in the previous section 'Sources of estimation uncertainty'. 
The Group has recognised deferred tax assets of £128m 
(FY2019: £106m) relating to losses and £75m (FY2019: £68m) relating 
to the John Crane, Inc. and Titeflex Corporation litigation provisions. 
The decision to recognise deferred tax assets requires judgement 
and it has been concluded that there are sufficient taxable profits in 
future periods to support recognition.

Presentation of the Smiths Medical demerger
Following the Group's decision to pursue a demerger of the Smiths 
Medical business, judgement is required to determine the most 
appropriate financial reporting presentation of the division and 
its performance.  

The key judgement for this classification is that the following 
conditions were met at the balance sheet date:

 – The Group is committed to distribute the assets;

 – The assets are available for immediate sale in their 

present condition;

 – Actions to complete the distribution have been initiated and 

shareholder approval is highly probable;

 – The distribution must be expected to be completed within one year 

from the date of classification; and

 – It should be unlikely that any significant changes will be made to the 

plan or that it will be withdrawn.

The IFRS 5 requirement above for the expected completion of the 
transaction within 12 months of the date of classification was not 
achieved in FY2020, as the demerger project was paused in March 
2020 due to unprecedented circumstances of the second half 
of FY2020. 

However management has determined that, as the Group remains 
demonstrably committed to the demerger project for Smiths Medical, 
the criteria for classification as discontinued and held for distribution 
to owners continue to be met. 

As a result of this classification, the results of Smiths Medical are 
presented as profit from discontinued operations and the Smiths 
Medical assets and liabilities are reported in assets and liabilities 
held for distribution to owners in FY2020 and FY2019.  

Presentation of headline profits and underlying 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 underlying growth rates for sales and 
profit measures.

See note 1 for disclosures of headline operating profit and note 30 
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 underlying growth also requires judgement. 
Underlying growth excludes the effects of foreign exchange, 
acquisitions and disposals, restructuring charges, impairment 
of capitalised development and COVID related balance sheet  
write-downs.

Basis of consolidation
The consolidated accounts incorporate the financial statements of 
Smiths Group plc (the ‘Company’) and its subsidiary undertakings, 
together with the Group’s share of the results of its associates. A list 
of the subsidiaries of Smiths Group plc is provided on pages 220 
to 228. 

Subsidiaries are all entities controlled by the Company. 
Subsidiaries are fully consolidated from the date on which control  
is obtained by the Company to the date that control ceases.

Associates are entities over which the Group has significant influence 
but which it does not control, generally accompanied by a share of 
between 20% and 50% of the voting rights. Investments in associates 
are accounted for using the equity method.

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.

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.

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:

Sale of goods (i) – 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.

1 5 1

SMITHS GROUP PLC  ANNUAL REPORT FY20204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) is 
recognised rateably as the service is provided;

 – Training services are recognised on completion of the 

training course; 

 – Software hosting & 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;

 – On-site 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.

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
The Group has adopted IFRS 16: Leases in the current year. 
The impact of adopting this new accounting standard on the Group's 
results, accounting policies and key judgements ais set out on pages 
156 to 157.

A C C O U N T I N G   P O L I C I E S

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 despatch 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 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 
stand-alone selling price of that service.

Sale of goods (ii) – 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. 
The time of despatch 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 
stand-alone selling price of that service.

Services relating to the installation, repair and ongoing 
maintenance of equipment
Services include installation, commissioning, testing, training, 
software hosting & 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). 

1 5 2

SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTS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. Once considered to be likely, tax benefits are 
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;

 – 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 
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. 
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.

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.

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
The Group has defined benefit plans, defined contribution plans and 
post-retirement healthcare schemes.

For defined benefit plans and post-retirement healthcare schemes 
the liability for each scheme recognised in the balance sheet is the 
present value of the obligation at the balance sheet date less the 
fair value of any plan assets. The obligation is calculated annually 
by independent actuaries using the projected unit credit method. 
The present value is determined by discounting the estimated future 
cash outflows using interest rates of AA-rated corporate bonds that 
are denominated in the currency in which the benefits will be paid, 
and that have terms to maturity approximating to the terms of the 
related liability. Actuarial gains and losses arising from experience 
adjustments and changes in actuarial assumptions are recognised 
in full in the period in which they occur, outside of the income 
statement, and are presented in the statement of comprehensive 
income. Past service costs are recognised immediately in the 
income statement. Where relevant, the assets are valued on a 
fair value basis. The insured liabilities are valued by an external 
qualified actuary equal to the accounting valuation of corresponding 
liabilities insured.

For defined contribution plans, the Group pays contributions to 
publicly or privately administered pension insurance plans on 
a mandatory, contractual or voluntary basis. Contributions are 
expensed as incurred. 

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. Any impairment 
is 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:

Deferred tax liabilities and assets are not discounted. 

 – Amounts recoverable from third parties; and

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. 

 – 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.

1 5 3

SMITHS GROUP PLC  ANNUAL REPORT FY20204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 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, vacant leasehold property 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.

Businesses held for distribution to owners
Businesses classified as held for distribution to owners are measured 
at the lower of carrying amount and fair value less costs to distribute. 
Impairment losses on initial classification as held for distribution 
and gains or losses on subsequent remeasurements are included 
in the income statement. No depreciation is charged on assets and 
businesses classified as held for distribution. 

Businesses are classified as held for distribution to owners if their 
carrying amount will be settled principally through a demerger 
transaction rather than through continuing use and the following 
criteria are met:

 – The business must be a separate major line of business,  

available for immediate distribution in its present condition;

 – Management is committed to the plan, shareholder approval is  

highly probable and the plan is unlikely to be significantly changed  
or withdrawn; and

 – Distribution is expected to be completed within 12 months of the 

balance sheet date.

The assets and liabilities of businesses held for distribution to owners 
are presented as separate lines on the balance sheet.

A C C O U N T I N G   P O L I C I E S

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
Technology
Customer relationships

up to 20 years
up to 13 years
up to 11 years

The assets’ useful lives are reviewed, and adjusted if appropriate,  
at each balance sheet date.

Software, patents and intellectual property
The estimated useful lives are as follows:

Software

up to 7 years

Patents and intellectual  
property

shorter of the economic life 
and the period the right is 
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
Short leasehold property
Plant, machinery, etc.
Fixtures, fittings, tools and 
other equipment

2% per annum
over the period of the lease
10% to 20% per annum

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 (FIFO) 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 initially recognised at 
fair value and subsequently measured at amortised cost, less any 
appropriate provision for expected credit losses. 

1 5 4

SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTS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 distribution to owners; 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 intragroup 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. 

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 though 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, short-term 
deposits) and short-term investments are subject to low market 
risk. Cash balances and short-term investments are measured at 
amortised cost. Money market funds and short-term deposits are 
measured at fair value through profit and loss (FVPL).

 – Derivatives are measured at FVPL. 

 – Unlisted investments are measured at FVOCI.

Financial assets are derecognised when the right to receive cash-
flows from the assets has expired, or has been transferred, and the 
Company has transferred substantially all of the risks and rewards of 
ownership. When securities classified as available for sale are sold or 
impaired, the accumulated fair value adjustments previously taken to 
reserves are included in the income statement. 

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.

1 5 5

SMITHS GROUP PLC  ANNUAL REPORT FY20204A C C O U N T I N G   P O L I C I E S

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 2020
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 new 
standards and policies applicable for the year ended 31 July 2020. 
The significant accounting policies adopted are set out below.

IFRS 16: Leases
The Group adopted IFRS 16 – Leases with effect from 1 August 2019. 
The standard fundamentally changed the accounting treatment 
of leased assets, requiring that all material lease liabilities and 
corresponding ‘right of use’ assets are recognised on the balance 
sheet. The operating lease rental expense previously charged 
to operating profit in the income statement has been replaced 
by a depreciation charge for the ‘right of use’ assets recognised 
in operating profit and an interest charge on the lease liabilities 
recognised in finance costs.

The Group has adopted IFRS 16 using the modified retrospective 
transition approach, which allows the matching of the opening right 
of use assets with the opening lease liabilities on 1 August 2019. 
Under this approach, no restatement of comparative figures is 
required. On adoption of IFRS 16, the Group recognised lease liabilities 
in relation to leases which had previously been classified as ‘operating 
leases’ under the principles of IAS 17, ‘Leases’. These liabilities have 
been measured at the present value of the remaining lease payments, 
discounted using a weighted average incremental borrowing rate (IBR) 
on initial recognition at 1 August 2019 of 4.0%. 

On transition the Group applied the following available practical 
expedients permitted by the standard:

 – the exclusion of leases relating to low-value assets (less than £5,000 

when new);

 – the exclusion of short-term leases, being those with a lease term of 

12 months or less; and

 – applying the new definition of a lease only to contracts entered into 

after the transition date.

The impact of adoption of IFRS 16 on the Group’s financial results is 
set out below:

Year ended 31 July 2020 
Consolidated income statement (extract)

Headline operating profit
Headline finance costs

Continuing operations – headline profit 
before tax

Non-headline items (pre-tax)
Taxation
Profit from discontinued operations

Profit for the financial year

Proforma 
IAS 17 
£m

IFRS 16  
adjustment 
£m

As 
reported 
£m

326
(45)

281

(145)
(66)
189

259

1
(4)

(3)

-
-
11

8

327
(49)

278

(145)
(66)
200

267

1 5 6

SMITHS GROUP PLC  ANNUAL REPORT FY2020FINANCIAL STATEMENTSProforma 
IAS 17 
£m

IFRS 16  
adjustment
£m

As  
reported
£m

-

106

106

1,216

41

1,257

IFRIC 23: Uncertainty over income tax treatments
The Group adopted IFRIC 23 – Uncertainty over Income Tax 
Treatments on 1 August 2019. This interpretation is to be applied to 
the determination of taxable profit, tax bases, unused tax losses, 
unused tax credits and tax rates, when there is uncertainty over 
income tax treatments under IAS 12. 

The interpretation specifically addresses the following:

(3)
(210)

(26)
(43)

(29)
(253)

 – Whether an entity considers uncertain tax treatments separately;

 – The assumptions an entity makes about the examination of tax 

As at 1 August 2019 
Consolidated balance sheet (extract)

Non-current assets
Right of use assets
Current assets
Assets held for distribution to owners
Current liabilities
Lease liabilities
Liabilities held for distribution to owners
Non-current liabilities
Lease liabilities
Other

Net assets

Total equity

-
(1,378)

2,381

2,381

(79)
-

(79)
(1,378)

(1) 2,380

(1) 2,380

Within continuing operations during the year, lease interest of £4m 
has been recognised within finance costs and £33m of depreciation 
has been charged to the income statement. In total, payments of 
£34m were made under leasing contracts, of which £30m was made 
to repay the principal portion of the lease. Additionally, administrative 
expenses include £1m in respect of lease payments for short term 
and low value leases which are not included in the lease liabilities and 
payments disclosed above.

The impact of adopting IFRS 16 on discontinued operations is to 
increase profit by £11m. IFRS 16 has a greater impact on profits from 
discontinued operations than continuing operations, as in accordance 
with the requirements of IFRS 5, no depreciation is charged on assets 
classified as held for distribution.

Discounting the operating lease commitments at 31 July 2019 at the 
IBR reduced the lease liabilities by £21m, £20m of which was offset 
by increases in the lease liability arising from revised lease extension 
and termination assumptions.

IFRS 16: Accounting policy and key judgements
Having adopted IFRS 16, the Group applies the following approach. 
At the commencement date of the lease, the Group recognises lease 
liabilities measured at the present value of lease payments to be 
made over the lease term, which includes periods covered by renewal 
options the Group is reasonably certain to exercise. In calculating the 
present value of lease payments, the Group uses the incremental 
borrowing rate at the lease commencement date.

The Group recognises right of use assets at the commencement date 
of the lease. Right of use assets are measured at cost including the 
amount of lease liabilities recognised and initial direct costs incurred, 
less any incentives granted by the lessor. Right of use assets are 
subject to impairment. 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 over the useful life of the underlying asset.

Leases of buildings typically have lease terms between 1 and 6 years, 
while plant and machinery generally have lease terms between 1 
and 3 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.

treatments by taxation authorities;

 – How an entity determines taxable profit (tax loss), tax bases, 

unused tax losses, unused tax credits and tax rates; and

 – How an entity considers changes in facts and circumstances.

The Group already provides for tax uncertainties and following a 
detailed assessment the Group has determined that the adoption 
of this interpretation has not had a material impact on the Group’s 
financial statements.

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 UK GAAP, applying Financial Reporting 
Standard 101, “Reduced Disclosure Framework”. The Company 
accounts are presented in separate financial statements on pages 
212 to 219. The principal subsidiaries of the Parent Company are 
listed in the above accounts.

1 5 7

SMITHS GROUP PLC  ANNUAL REPORT FY20204N O T E S   T O   T H E   A C C O U N T S

Notes to the accounts

1 Segment information

Analysis by operating segment
The Group is organised into five divisions: John Crane, Smiths Detection, Flex-Tek, Smiths Interconnect and Smiths Medical. These divisions 
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; 

 – 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; and

 – Smiths Medical – infusion systems, vascular access products, patient airway and temperature management equipment and specialised 

devices in areas of diagnostic and emergency patient transport.

The position and performance of each division 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 divisional results and operating assets to monitor the divisional position. See note 3 for an explanation of which items are excluded from 
headline measures. 

The Smiths Medical business is classified as a discontinued operation and the segmental information of the Smiths Medical division is disclosed 
in note 28. 

Intersegment sales and transfers are charged at arm’s length prices.

Segment trading performance

Year ended 31 July 2020

John  
Crane 
£m

Smiths 
 Detection 
£m

Flex-Tek 
£m

Smiths  
Interconnect 
£m

Corporate 
costs 
£m

955

187
–

187

(33)

154

806

82
–

82

(25)

57

John  
Crane 
£m

Smiths 
 Detection 
£m

945

220
–

220
(29)

191

798

127
–

127
(36)

91

478

83
–

83

(31)

52

Flex-Tek 
£m

436

84
–

84
(16)

68

309

26
–

26

(3)

23

–

–
(51)

(51)
6

(45)

Total 
£m

2,548

378
(51)

327

(86)

241

Year ended 31 July 2019

Smiths  
Interconnect 
£m

Corporate  
costs 
£m

319

47
–

47
(2)

45

–

–
(51)

(51)
(18)

(69)

Total 
£m

2,498

478
(51)

427
(101)

326

John Crane 
£m

Smiths 
 Detection 
£m

Flex-Tek 
£m

Smiths  
Interconnect 
£m

Corporate and 
non-headline 
£m

Total 
£m

Year ended 31 July 2020

15
15
–

4
–
3
14

–

4

12
7
6

–
–
2
14

12

5

7
4
–

–
–
1
–

–

–

6
5
–

2
–
1
2

–

3

1
2
–

1
57
3
1

–

–

41
33
6

7
57
10
31

12

12

Revenue

Divisional headline operating profit 
Corporate headline operating costs

Headline operating profit/(loss) 
Items excluded from headline measures (note 3)

Operating profit/(loss) 

Revenue 

Divisional headline operating profit 
Corporate headline operating costs 

Headline operating profit/(loss) 
Items excluded from headline measures (note 3)

Operating profit/(loss) 

Headline operating profit is stated after charging the following items:

Depreciation – property, plant and equipment
Depreciation – right of use assets
Amortisation of capitalised development costs

Amortisation of software, patents and intellectual property
Amortisation of acquired intangibles
Share-based payment
Strategic restructuring costs

Impairment of capitalised development costs

Balance sheet write-downs – trade receivables

1 5 8

FINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Depreciation – property, plant and equipment
Amortisation of capitalised development costs
Amortisation of software, patents and intellectual property
Amortisation of acquired intangibles
Share-based payment

Year ended 31 July 2019

John Crane 
£m

Smiths 
 Detection 
£m

Flex-Tek 
£m

Smiths  
Interconnect 
£m

Corporate and 
non-headline 
£m

14
–
3
–
4

10
9
2
–
3

5
–
–
–
1

6
–
2
–
1

2
–
2
42
5

Total 
£m

37
9
9
42
14

The corporate and non-headline column comprise central information technology, human resources and head quarters costs and non-headline 
expenses (see note 3).

Segment assets and liabilities

Segment assets

Property, plant, equipment, right of use assets, development projects,  
other intangibles and investments
Inventory, trade and other receivables 

Segment assets 

143
395

538

125
438

563

64
144

208

49
136

185

26
11

37

John Crane 
£m

Smiths 
 Detection 
£m

Flex-Tek 
£m

Smiths  
Interconnect 
£m

Corporate and 
non-headline 
£m

Property, plant, equipment, development projects,  
other intangibles and investments
Inventory, trade and other receivables 

Segment assets 

John Crane 
£m

Smiths  
Detection 
£m

Flex-Tek 
£m

Smiths 
 Interconnect 
£m

Corporate and 
non-headline 
£m

113
428

541

106
485

591

52
171

223

38
132

170

20
17

37

31 July 2020

Total 
£m

407
1,124

1,531

31 July 2019

Total 
£m

329
1,233

1,562

Non-headline assets comprise receivables relating to non-headline items, acquisitions and disposals. Further details of the assets held for 
distribution to owners are disclosed in note 28.

Segment liabilities

Divisional liabilities
Corporate and non-headline liabilities

Segment liabilities

Divisional liabilities
Corporate and non-headline liabilities

Segment liabilities

John Crane 
£m

Smiths 
 Detection 
£m

Flex-Tek 
£m

Smiths  
Interconnect 
£m

Corporate and 
non-headline  
£m

(142)
–

(142)

(288)
–

(288)

(60)
–

(60)

(55)
–

(55)

–
(364)

(364)

John Crane 
£m

Smiths  
Detection 
£m

Flex-Tek 
£m

Smiths 
 Interconnect 
£m

Corporate and 
non-headline  
£m

(158)
–

(158)

(287)
–

(287)

(63)
–

(63)

(56)
–

(56)

–
(386)

(386)

31 July 2020

Total 
£m

(545)
(364)

(909)

31 July 2019

Total 
£m

(564)
(386)

(950)

Non-headline liabilities comprise provisions and accruals relating to non-headline items, acquisitions and disposals. Further details of the 
liabilities held for distribution to owners are disclosed in note 28.

Reconciliation of segment assets and liabilities to statutory assets and liabilities

Segment assets and liabilities
Goodwill and acquired intangibles
Derivatives 
Current and deferred tax
Retirement benefit assets and obligations
Cash and borrowings

Assets and liabilities held for distribution to owners

Statutory assets and liabilities

31 July 
2020 
£m

1,531

1,489
84
148
516

366
1,279

5,413

Assets

31 July 
2019 
£m

1,562
1,606
50
126
469

289
1,216

5,318

31 July 
2020 
£m

(909)
–
(4)
(111)
(139)
(1,561)

(295)

Liabilities

31 July 
2019 
£m

(950)
–
(6)
(107)
(152)
(1,509)

(213)

(3,019)

(2,937)

1 5 9

4SMITHS GROUP PLC  ANNUAL REPORT FY20201 Segment information continued

Analysis by operating segment continued

Segment capital expenditure

The capital expenditure on property, plant and equipment, capitalised development and other intangible assets for each division is:

Capital expenditure year ended 31 July 2020
Capital expenditure year ended 31 July 2019*

John Crane 
£m

Smiths  
Detection 
£m

Flex-Tek 
£m

Smiths 
 Interconnect 
£m

Corporate and 
non-headline 
£m

18
29

29
23

8
6

8
10

3
1

Total 
£m

66
69

*  represented to exclude amounts of capital expenditure relating to businesses held for distribution, which are disclosed in note 28.

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 £787m (FY2019: £787m) and eliminate post-retirement benefit 
assets and liabilities and litigation provisions relating to non-headline items, both net of related tax, and net debt. See note 30 for a reconciliation 
of net assets to capital employed. 

The 12-month rolling average capital employed by division, which Smiths use to calculate divisional return on capital employed, is: 

Average divisional capital employed
Average capital employed – business held for distribution to owners

Average corporate capital employed

Average total capital employed

Average divisional capital employed 
Average capital employed – business held for distribution to owners

Average corporate capital employed

Average total capital employed 

John Crane 
£m

Smiths 
 Detection 
£m

Flex-Tek 
£m

Smiths  
Interconnect 
£m

989

1,144

474

405

John Crane 
£m

Smiths 
 Detection 
£m

938

1,113

Flex-Tek 
£m

359

Smiths 
 Interconnect 
£m

368

31 July 2020

Total 
£m

3,012
1,335

(32)

4,315

31 July 2019

Total 
£m

2,778
1,253

(59)

3,972

The Smiths Medical division has been accounted for as a business held for distribution to owners. Further details of the segmental assets and 
liabilities of the Smiths Medical division are disclosed in note 28.

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

John Crane

Revenue year ended 31 July 2020
Revenue year ended 31 July 2019

Smiths Detection

Revenue year ended 31 July 2020
Revenue year ended 31 July 2019

Flex-Tek

Revenue year ended 31 July 2020
Revenue year ended 31 July 2019

Smiths Interconnect

Revenue year ended 31 July 2020
Revenue year ended 31 July 2019

1 6 0

Original 
equipment 
£m

Aftermarket 
£m

314
313

641
632

Aviation  
security 
£m

Other security  
systems 
£m

577
522

229
276

Aerospace
£m

Industrials 
£m

133
121

345
315

Total 
£m

955
945

Total 
£m

806
798

Total 
£m

478
436

Components, 
Connectors & 
Subsystems 
£m

309
319

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020The Group’s statutory revenue is analysed as follows:

Sale of goods recognised at a point in time
Sale of goods recognised over time
Services recognised over time

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

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019
£m

2,027
52
469
2,548

1,984
41
473
2,498

Americas

Europe

Asia-Pacific

Rest of the World

Revenue

Intangible assets, right of 
use assets and property, 
plant and equipment

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019
£m

1,263

1,243

580

460

245

558

409

288

31 July 2020 
£m

31 July 2019 
£m

1,231

553

72

20

1,299

533

69

15

2,548

2,498

1,876

1,916

Revenue by destination attributable to the United Kingdom was £85m (FY2019: £100m). Revenue earned in the United States of America is 
noteworthy totalling £1,068m (FY2019: £1,030m). Revenue by destination has been selected as the basis for attributing revenue to geographical 
areas as this is the geographic attribution of revenue used by management to review business performance.

Non-current assets located in the United Kingdom total £88m (FY2019: £67m). Significant non-current assets are held in the United States of 
America £1,177m (FY2019:£1,271m) and Germany £383m (FY2019: £397m).

2 Operating profit is stated after charging

Research and development expense
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets
Strategic restructuring programme and write-downs

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019
£m

83
41
33
70
55

84
37
–
60
–

Research and development (R&D) cash costs were £119m (FY2019: £111m) comprising £83m (FY2019: £84m) of R&D expensed to the income 
statement, £16m (FY2019: £9m) of capitalised costs and £20m (FY2019: £18m) of customer funded R&D.

Administrative expenses include £1m in respect of lease payments for short term and low value leases which are not included within right of use 
assets and lease liabilities.

Strategic restructuring programme and write-downs

In June 2020 the Group announced a strategic restructuring programme that will ensure it emerges stronger from the COVID-19 crisis and 
better able to deliver consistent outperformance. The programme is Group-wide and has an operating cash cost of c.£65m which will be 
spread across FY2020 and FY2021. Programme costs of £31m were recognised in continuing operations and £4m in discontinued operations 
during FY2020. 

The table below shows the analysis of the costs recognised for the restructuring programme and asset write-downs and the calculation basis 
for headline operating profit excluding restructuring and write-downs:

Restructuring costs – severance costs and footprint rationalisation
Impairment of capitalised development costs
Balance sheet write-downs – trade receivables

Total strategic restructuring costs and write-downs

Operating profit – see note 30 for definition

Non-headline operating profit items – see note 3

Strategic restructuring costs and write-downs – see above 

Headline operating profit excluding restructuring and write-downs

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019
£m

31
12
12

55

241

86

55

382

–
–
–

–

326

101

–

427

1 6 1

4SMITHS GROUP PLC  ANNUAL REPORT FY20202 Operating profit is stated after charging continued

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 2020. Figures in the table and notes below for the year ended 31 July 2019 are in respect of fees paid to the company’s previous auditor, 
PricewaterhouseCoopers LLP ('PwC').

Audit services
Fees payable to the Company’s auditors for the audit of the Company’s annual financial statements
Fees payable to the Company’s auditors and its associates for other services:
– the audit of the Company’s subsidiaries 

All other services

Payable to 
KPMG
Year ended 
31 July 2020 
£m

Payable to 
PwC
Year ended 
31 July 2019
£m

2.3

3.6

5.9

0.5

4.0

1.5

5.5
0.2

Other services comprise audit-related assurance services £0.3m (FY2019: £0.2m) and fees for reporting accountant services in connection 
with a class 1 disposal £0.2m (FY2019: £nil). Total fees for non audit services comprise 9% (FY2019: 4%) of audit fees. Audit-related assurance 
services include the review of the Interim Report.

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.

Non-headline operating profit items

The non-headline items included in statutory operating profit for continuing operations are as follows:

Post-acquisition integration costs and fair value adjustment unwind
Integration programme costs
Unwind of acquisition balance sheet fair value uplift
Acquisition and disposal related transaction costs and provision releases
Business acquisition/disposal costs
Release of acquisition related provisions
Legacy pension scheme arrangements
Settlement gain/(loss) on post-retirement benefit schemes
Guaranteed Minimum Pension (GMP) equalisation
Non-headline litigation provision movements
Movement in provision held against Titeflex Corporation subrogation claims
Provision for John Crane, Inc. asbestos litigation
Cost recovery for John Crane, Inc. asbestos litigation
Other items
Amortisation of acquisition related intangible assets 

Non-headline items in operating profit – continuing operations

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019
£m

Notes

(4)
–

(3)
–

7
–

(1)
(31)
3

(57)

(86)

(17)
(6)

(10)
4

(1)
(29)

6
(17)
11

(42)

(101)

8

8 

23

23

10

Post-acquisition integration costs and fair value adjustment unwind
The £4m (FY2019: £17m) of integration programme costs relate to defined projects for the integration of United Flexible into the existing 
Flex-Tek business and Morpho Detection into the existing Smiths Detection business. Integration programme costs include the direct costs of 
organisational change, site rationalisation and entity closure costs. The United Flexible integration programme is due to conclude in 2021 whilst 
the Morpho Detection integration programme concluded in the current year. Integration costs are recognised as non-headline items because 
they are considered material and bear no relation to the ongoing performance of the acquired businesses.

The impact of unwinding the acquisition balance sheet fair value adjustments required by IFRS 3 'Business combinations' is recognised as 
non-headline as the charge does not relate to trading activity. The FY2019 charge of £6m was due to the unwind of fair value uplifts on the United 
Flexible and Morpho Detection acquisitions.

Acquisition and disposal transaction costs and provision releases
The £3m of business acquisition/disposal costs (FY2019: £10m) represents incremental transaction costs on the acquisition of Reflex Photonics 
and additional payments now due on the acquisition of United Flexible following COVID-19 related changes to the US tax code. These costs do not 
include the cost of employees working on transactions and are reported as non-headline because they are dependent on the level of acquisition 
and disposal activity in the year. 

1 6 2

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020The release of acquisition related provisions in FY2019 of £4m represented the release of excess accruals for deferred consideration on 
business acquisitions. These were reported as non-headline as the initial provision accrual was not recognised as a headline expense.

Legacy pension scheme arrangements
The £7m settlement gain (FY2019: £1m settlement loss) is principally due to changes to the Group's US post-retirement healthcare plans as 
a result of the US Patient Protection and Affordable Care Act. In FY2019 £29m of past service costs were recognised following the UK High 
Court ruling that GMP equalisation is required. These items are included in non-headline as they are non-recurring and relate to legacy 
pension liabilities. 

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 £1m net charge (FY2019: £6m credit) recognised by Titeflex Corporation in respect of changes to the estimated cost of future claims is 

principally due to discount rate movements following a reduction in US treasury bond yields . See note 22 for further details; and

 – The £31m (FY2019: £17m) increase in John Crane, Inc. asbestos litigation provision is principally due to discount rate movements following a 
reduction in US treasury bond yields. The costs recovered via insurer settlements in the current year were £3m (FY2019: £11m). See note 22 
for further details.

Other items
Acquisition related intangible asset amortisation costs of £57m (FY2019: £42m) were recognised in the current year. This is considered to be a 
non-headline item on the basis that these charges result from acquisition accounting and are non-operational in nature. 

Non-headline finance costs items

The non-headline items included in finance costs for continuing operations are as follows:

Unwind of discount on provisions
Other finance income – retirement benefits
Foreign exchange (loss)/gain on intercompany loan with discontinued operations
Other financing gains/(losses) 

Non-headline items in finance costs – continuing operations

Continuing operations – non-headline loss before taxation

Notes

23

8

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

(5)
7
(62)
1

(59)

(145)

(8)
11
39
(13)

29

(72)

The financing elements of non-headline legacy liabilities, including the £5m (FY2019: £8m) unwind of discount on provisions, are 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 £7m (FY2019: £11m) of financing credits relating to retirement benefits. These are excluded from headline 
finance costs because the ongoing costs and credits are a legacy of previous employee pension arrangements. 

Foreign exchange gains or losses on intercompany financing between Smiths Medical and the continuing group are recognised on the face of 
the income statement as a non-headline item due to the classification of Smiths Medical division as a discontinued operation. The £62m foreign 
exchange loss in continuing operations (FY2019: £39m gain) matches the foreign exchange gain in discontinued operations. This is excluded from 
headline net finance costs as these fair value movements are non-operational in nature and are purely a consequence of the presentational 
requirements for discontinued operations.

Other financing gains represent the fair value movements on financial instruments, foreign exchange movements on borrowings and other 
financing activities which the Group excludes from headline net finance costs. The current year gain of £1m (FY2019: £13m) is due to the partial 
reversal of the prior year fair value and net investment hedge ineffectiveness, partially offset by foreign exchange revaluation losses on surplus 
currency cash balances and intercompany financing – see note 4 for a further breakdown of this balance. These fair value movements are 
excluded from headline net finance costs when the following requirements are met:

 – Fair value gains and losses on the interest element of derivative financial instruments hedging the Group’s net debt exposures are excluded 

from headline as they will either reverse over time or be matched in future periods by interest charges. 

 – Fair value gains and losses on the currency element of derivative financial instruments hedging the Group’s net debt and exposures, and 

exchange gains and losses on borrowings are excluded as the relevant foreign exchange gains and losses on the commercially hedged items 
are recognised as a separate component of other comprehensive income in accordance with the Group’s foreign currencies accounting policy.

1 6 3

4SMITHS GROUP PLC  ANNUAL REPORT FY20203 Non-statutory profit measures continued 

Non-headline taxation items

The non-headline items included in taxation for continuing operations are as follows:

Tax on non-headline loss
Tax on the repatriation of treasury legacy cash pools
US deferred tax asset derecognition
UK deferred tax asset re-recognition/(derecognition)

Non-headline items in taxation – continuing operations

Continuing operations – non-headline loss for the year

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

Notes

6

6

6

6

15
–
(5)
3

13

12
(17)
(18)
(36)

(59)

(132)

(131)

Tax on the repatriation of treasury legacy cash pools
A £17m tax charge was recognised in FY2019 on prior year undistributed overseas earnings following the adoption of a new Treasury cash 
repatriation policy. This cost was reported as non-headline because the impact of the policy change was material and non-recurring.

US deferred tax asset derecognition 
In FY2019 £18m of tax losses were derecognised following changes in US tax legislation which affected the Group's ability to utilise the losses. 
The losses equated to non-headline amortisation of intangibles and their derecognition was therefore treated as non-headline. Further net 
derecognition adjustments were made this year resulting in a charge of £5m following reassessment of future profitability.

UK deferred tax asset derecognition 
In FY2020 £3m of deferred tax was re-recognised due to movements in UK pension schemes and deferred tax thereon and is matched by a 
£3m deferred tax charge in equity. In FY2019 £36m of deferred tax was derecognised following the decision to separate Smiths Medical, which 
reduces the Group's profitability in the UK. These movements are reported as non-headline because recognition arises to match a non-headline 
deferred tax liability related to the UK legacy pension scheme surplus.

Non-headline items for discontinued operations

The non-headline items for discontinued operations are as follows:

Acquisition and disposal related transaction costs and provision releases
Business acquisition/disposal costs
Medical separation costs
Other items
Amortisation of acquisition related intangible assets 
Profit on disposal of businesses

Non-headline finance costs items

Foreign exchange gain/(loss) on intercompany loan with parent

Other financing gains

Non-headline taxation items

Tax on non-headline loss

Tax on the repatriation of treasury legacy cash pools

Non-headline items in profit from discontinued operations

Profit for the year – non-headline items for continuing and discontinued operations

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

Notes

–
(23)

–

–

62

–

22
–

61

(71)

(2)
(8)

(3)

17

(39)

1

8
(1)

(27)

(158)

28

The £2m of business acquisition/disposal costs recognised in FY2019 comprised incremental deal costs and were reported as non-headline 
because they are dependent on the level of activity in the year.

The incremental costs incurred by the Group on the transaction to demerge the Smiths Medical business amounted to £23m (FY2019: £8m). 
This cost has been reported as non-headline as the full year effect of the transaction on the Group's financial statements is both material and 
non-recurring. 

The £62m foreign exchange gain on intercompany loan with parent (FY2019: £39m loss) matches the foreign exchange loss in continuing 
operations. This is excluded from headline net finance costs as these fair value movements are non-operational in nature and are purely a 
consequence of the presentational requirements for discontinued operations.

The FY2019 profit on disposal of businesses of £17m related to the sale of Smiths Medical's sterile water bottling and EMEA kitting businesses. 
These are considered to be non-headline items since the profit and cash impacts are material and non-recurring arising from the sale of 
a business.

1 6 4

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY20204 Net finance costs

Interest receivable

Interest payable:
– bank loans and overdrafts, including associated fees 
– other loans 
– interest on leases 

Interest payable

Headline net finance costs

Other financing gains/(losses):
– valuation movements on fair value hedged debt
– valuation movements on fair value derivatives
– foreign exchange and ineffectiveness on net investment hedges
– retranslation of foreign currency bank balances 
– other items including counterparty credit risk adjustments and non-hedge accounted derivatives

Other financing gains/(losses)
Foreign exchange gain on intercompany loan with discontinued operations
Unwind of discount on provisions
Net interest income on retirement benefit obligations

Non-headline finance cost items

Net finance costs

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019
£m

Notes

6

(8)
(43)
(4)

(55)

(49)

10
(4)
(1)
(3)
(1)

1
(62)
(5)
7

(59)

(108)

11

(7)
(55)
–

(62)

(51)

(52)
42
(1)
–
(2)

(13)
39
(8)
11

29

(22)

3

3

3

8

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.

Profit attributable to equity shareholders for the year:
– continuing
– discontinued

Total

Average number of shares in issue during the year

Statutory earnings per share total – basic

Statutory earnings per share total – diluted

Statutory earnings per share continuing operations – basic

Statutory earnings per share continuing operations – diluted

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

65
200

265

140
85

225

396,193,310

395,936,520

66.9p

66.4p

16.4p

16.3p

56.8p

56.5p

35.4p

35.1p

Diluted earnings per share are calculated by dividing the profit attributable to ordinary shareholders by 398,814,030 (FY2019: 398,375,376) 
ordinary shares, being the average number of ordinary shares in issue during the year adjusted by the dilutive effect of employee share 
schemes. For the year ended 31 July 2020, zero options (FY2019: zero) were excluded from this calculation because their effect was anti-dilutive 
for continuing operations. 

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

Total profit attributable to equity shareholders of the Parent 
Company
Exclude: Non-headline items (note 3)

Headline earnings per share

Profit from continuing operations attributable to equity shareholders 
of the Parent Company
Exclude: Non-headline items (note 3)

Headline earnings per share – continuing operations

Year ended 31 July 2020

Basic EPS  
(p)

Diluted EPS 
(p)

66.9

66.4

84.8

84.2

16.4

16.3

49.7

49.4

£m

265
71

336

65
132

197

Year ended 31 July 2019

Basic EPS  
(p)

Diluted EPS 
(p)

56.8

56.5

96.8

35.4

96.1

35.1

68.4

68.0

£m

225
158

383

140
131

271

1 6 5

4SMITHS GROUP PLC  ANNUAL REPORT FY2020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. 

The taxation charge in the consolidated income statement for the year comprises:

Continuing operations
– current income tax charge
– current tax adjustments in respect of prior periods

Current taxation
Deferred taxation

Total taxation expense – continuing operations

Discontinued operations
– current income tax charge
– deferred taxation

Total taxation expense – discontinued operations

Total taxation expense in the consolidated income statement

Tax on items charged/(credited) to equity
Deferred tax:
– retirement benefit schemes
– foreign exchange
– share-based payments

Of the net £2m charge to equity for retirement benefits, a £3m charge relates to UK retirement schemes. 

Current taxation liabilities

At 31 July 2018

Foreign exchange losses
Charge to income statement
Reclassified to businesses held for distribution to owners (note 28)
Tax paid

At 31 July 2019

Current tax receivable
Current tax payable within one year

Corporation tax payable after more than one year

At 31 July 2019

Charge to income statement
Business acquired (note 27)
Tax paid

At 31 July 2020

Current tax receivable
Current tax payable within one year

Corporation tax payable after more than one year

At 31 July 2020

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

77
2

79

(13)

66

11
8

19

85

93
5

98
64

162

36
(11)

25

187

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

2
(3)
1

–

(13)
–
3

(10)

Current tax 
£m

(34)

(1)
(132)
9
107

(51)

11
(56)

(6)

(51)

(79)
(3)
95

(38)

46
(79)

(5)

(38)

Taxation liabilities include provisions of £29m (FY2019: £26m), the majority of which relates 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, the final outcome may vary significantly from the amounts noted above.

1 6 6

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Reconciliation of the tax charge 
The tax charge on the profit for the year for continuing operations is different from the standard rate of corporation tax in the UK of 19% 
(FY2019: 19.0%). The difference is reconciled as follows:

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019
£m

Profit before taxation 

Notional taxation expense at UK corporate rate of 19.0% (FY2019: 19.0%)
Different tax rates on non-UK profits and losses
Non-deductible expenses 
Tax credits and non-taxable income
Non-headline (re-recognition)/derecognition of UK deferred tax asset
Other adjustments to unrecognised deferred tax
Non-headline derecognition of US deferred tax asset
Provision for prior year deferred tax on unremitted overseas earnings
Tax on Medical consolidation adjustments
Prior Year true-up
Tax on continuing operations
Tax on discontinued operations

Total taxation expense in the consolidated income statement

Comprising:
Taxation on headline profit 
 Non-headline taxation items:
 – Tax on non-headline loss 
 – (Recognition)/derecognition of UK deferred tax asset
 – Derecognition of US deferred tax asset
 – Provision for prior year deferred tax on unremitted overseas earnings
Taxation on non-headline items
Taxation on discontinued operations

Total taxation expense in the consolidated income statement

133

25
10
16
7
(3)
(6)
5
–
11
1
66
19

85

79

(15)
(3)
5
–
(13)
19

85

The head office of Smiths Group is domiciled in the UK; so the tax charge has been reconciled to UK tax rates.

Deferred taxation assets/(liabilities)

At 31 July 2018
Reallocation
Charge to income statement – continuing operations
Credit to equity
Business combinations
Reclassified to businesses held for distribution to owners (note 28)
Foreign exchange rate movements

At 31 July 2019

Deferred tax assets
Deferred tax liabilities

At 31 July 2019

Charge to income statement – continuing operations
Credit to equity
Foreign exchange rate movements

At 31 July 2020

Deferred tax assets
Deferred tax liabilities

At 31 July 2020

Property, plant,  
equipment and 
intangible  
assets 
£m

Employment 
benefits 
£m

Losses  
carried  
forward 
£m

Provisions 
£m

Other 
£m

(84)

–
(19)
–
(31)
61
(11)

(84)

(20)
(64)

(84)

6
–
4

(74)

(5)
(69)

(74)

(50)

121

–
(9)
10
–
–
1

(48)

(57)
9

(48)

(12)
(3)
(3)

(66)

(75)
9

(66)

1
(21)
–
2
(1)
4

106

103
3

106

21
3
(2)

128

106
22

128

84

3
(2)
–
1
(2)
7

91

66
25

91

–
–
(5)

86

63
23

86

32

(4)
(2)
–
(1)
(23)
3

5

23
(18)

5

(2)
–
(2)

1

13
(12)

1

304

58
22
18
(14)
36
3
18
17
7
(3)
162
25

187

103

(12)
36
18
17
59
25

187

Total 
£m

103

–
(53)
10
(29)
35
4

70

115
(45)

70

13
–
(8)

75

102
(27)

75

Businesses held for distribution to owners had net deferred tax liabilities of £39m at 31 July 2020 (FY2019: £35m).

Of the amounts included within "Other" in the table above as at 31 July 2020, liabilities relating to tax on unremitted earnings were £11m  
(FY2019: £18m). The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities 
have not been recognised is immaterial. 

1 6 7

4SMITHS GROUP PLC  ANNUAL REPORT FY20206 Taxation continued
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. Deferred tax 
relating to provisions includes £59m (FY2019: £50m) relating to John Crane Inc. litigation provision, and £16m (FY2019: £18m) relating to Titeflex 
Corporation litigation provision. See note 22 for additional information on provisions.

Included in other deferred tax balances above is a deferred tax asset related to inventory of £5m (FY2019: £6m) and deferred revenue of £1m 
(FY2019: £9m). 

Unrecognised Deferred Tax
The Group, including Smiths Medical, has unrecognised deferred tax relating to losses amounting to £94m (FY2019: £243m). 

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 for the unrecognised deferred tax on losses is set out below:

Restricted losses – Asia

Restricted losses – Americas

Unrestricted losses – operating losses

Total unrecognised deferred tax on losses

2020 
£m

Expiry of  
losses

2021–2026

2021–2022

No expiry

27

1

66

94

Expiry of  
losses

2020–2026

2020–2032

No expiry

2019 
£m

29

53

161

243

Franked Investment Income Group Litigation Order (FII GLO)
Smiths Group plc is one of the companies enrolled in the FII GLO litigation against HMRC. The court actions first filed in 2003 are nearing an end 
and some claimants with different fact patterns have received payments. Smiths' recoveries are estimated at circa £25m (computed on a simple 
interest basis and after deducting 45% withholding tax). However there are further relevant legal actions that may impact this estimate.

The Group has not recognised any of this potential tax credit to the financial statements in the current period or the prior year.

EU Commission Investigation re Claims for Partial (75%) Exemption for Profits from qualifying loan relationships
In April 2019, the European Commission issued its decision in respect of a state aid investigation into the Group Financing Exemption in the UK 
controlled foreign company ("CFC") rules. The European Commission’s decision found that part of the Group Financing Exemption constitutes 
state aid. The Group Financing Exemption was introduced in legislation by the UK Government in 2013. In common with other UK-based 
international companies whose arrangements were in line with the then UK CFC legislation, Smiths Group may be affected by the ultimate 
outcome of this decision.

In December 2019, HMRC issued general guidance on reliefs which can be taken into account in computing the amount of State Aid. If the 
European Commission’s decision is ultimately upheld, Smiths should be able to use other tax attributes, including tax losses, such that it 
is expected that there will be no material cash outlay for Smiths. Nevertheless, the use of these attributes is not certain and the estimated 
maximum potential liability (which includes both tax and interest) remains at £15m. Based on our current assessment, no provision is being 
made in respect of this issue.

7 Employees

Staff costs during the period

Wages and salaries
Social security
Share-based payments (note 9)
Pension costs (including defined contribution schemes) (note 8)

Year ended 31 July 2020

Year ended 31 July 2019

Continuing 
operations 
£m

Discontinued 
operations 
£m

Total 
£m

Continuing 
operations 
£m

Discontinued 
operations 
£m

695
84
10
28

817

257
25
1
12

295

952
109
11
40

1,112

645
80
14
27

766

245
25
1
13

284

Total 
£m

890
105
15
40

1,050

The average number of persons employed, rounded to the nearest 50 employees, was:

John Crane
Smiths Detection
Flex-Tek
Smiths Interconnect
Corporate (including central/shared IT services)

Continuing operations

Discontinued operations – Smiths Medical
Total

1 6 8

Year ended 
 31 July 2020

Year ended 
 31 July 2019

6,450
3,000
2,850
2,450
300

15,050

8,050
23,100

6,200
2,850
2,550
2,350
300

14,250

7,750
22,000

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Key management
The key management of the Group comprises Smiths Group plc Board Directors and Executive Committee members. Their aggregate 
compensation is shown below. Details of Directors’ remuneration are contained in the report of the Remuneration Committee on  
pages 108 to 129.

Key management compensation
Salaries and short-term employee benefits
Cost of post-retirement benefits
Cost of share-based incentive plans

Year ended 
31 July 2019 
£m

Year ended 
31 July 2018 
£m

10.3
0.8
3.0

10.2
0.3
5.0

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:

SEP
LTIP
Restricted stock
SAYE

Year ended 31 July 2020

Year ended 31 July 2019

Number of 
instruments 
’000

Weighted 
average  
exercise 
 price

Number of 
instruments 
’000

Weighted 
average 
 exercise 
 price

270
1,494
96
13

£10.58

231
1,463
178
12

£10.63

Related party transactions
The only related party transactions in FY2020 were key management compensation (FY2019: key management compensation). 

8 Post-retirement benefits
Smiths provides post-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 £38m (FY2019: £37m).

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 2019. 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: 

At beginning of period
Foreign exchange rate movements
Current service cost
Scheme administration costs
Past service cost, curtailments, settlements
Finance income – retirement benefits
Contributions by employer
Actuarial gain/(loss)

Net retirement benefit asset

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

311  
2  
(3)  
(5)  
8  
7  
33  
19  

372

381
(4)
(3)
(4)
(30)
11
36
(76)

311

The £372m net retirement benefit asset includes £5m (FY2019: £6m) of pension obligations disclosed as liabilities held for distribution to owners.

UK pension schemes

Smiths 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. 

1 6 9

4SMITHS GROUP PLC  ANNUAL REPORT FY20208 Post-retirement benefits continued 

Smiths Industries Pension Scheme ('SIPS')
This scheme was closed to future accrual effective 1 November 2009. SIPS provides index-linked 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 formal actuarial valuation of this Scheme has been performed using the Projected Unit Method as at 31 March 2017. As part of 
the 2017 valuation process, a long-term funding objective to reach full funding on a 'gilts + 0%' basis by 31 December 2028 was agreed with the 
Scheme’s Trustee. Under the funding plan for SIPS agreed in June 2018, Smiths will pay cash contributions of £1m a month until the long-term 
funding objective is achieved.

Work on the valuation of the scheme as at 31 March 2020 has commenced and experience gains and losses identified during the work on the 
2020 valuation have been incorporated into the IAS 19 valuation. Any changes to the funding plan agreed after the 2020 valuation has been 
completed will be reported in next year’s annual report. 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.

The duration of SIPS liabilities is around 23 years (FY2019: 23 years) for active deferred members, 22 years (FY2019: 23 years) for deferred 
members and 12 years (FY2019: 12 years) for pensioners and dependants.  In FY2019 SIPS purchased a buy-in annuity policy with Canada Life for 
a premium of £176m. An actuarial loss of £14m was recognised in FY2019 as a result of this buy-in agreement.

TI Group Pension Scheme ('TIGPS')
This scheme was closed to future accrual effective 1 November 2009. TIGPS provides index-linked 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 four 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.

The most recent actuarial valuation of this scheme has been performed using the Projected Unit Method as at 5 April 2017. As part of the 2017 
valuation process, a long-term funding objective to reach full funding on a solvency (or “buy-out”) basis by 31 December 2028 was agreed with 
the Scheme’s Trustee. Under the funding plan for TIGPS agreed in June 2018, Smiths will pay cash contributions of £1m a month until the long-
term funding objective is achieved. 

Work on the valuation of the scheme as at 5 April 2020 has commenced and experience gains and losses identified during the work on the 2020 
valuation have been incorporated into the IAS 19 valuation. Any changes to the funding plan agreed after the 2020 valuation has been completed 
will be reported in next year’s annual report. Under the governing documentation of TIGPS, any future surplus would be returnable to Smiths 
Group plc by refund, assuming gradual settlement of the liabilities over the lifetime of the scheme.

The duration of the TIGPS liabilities is around 25 years (FY2019: 25 years) for active deferred members, 22 years (FY2019: 22 years) for deferred 
members and 11 years (FY2019: 11 years) for pensioners and dependants. After the financial year-end, in September 2020, the TIGPS Trustee 
secured a further bulk annuity policy which has insured the benefits of a further 1,200 pensioners. The premium paid was £142m.

US pension plans

The valuations of the principal US pension and post-retirement healthcare plans were performed using census data at 1 January 2018. 

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 managed by a Settlor Committee appointed by Smiths Group Services Corp, a wholly-owned subsidiary. 

The duration of the liabilities for the largest US plan is around 19 years (FY2019: 18 years) for active deferred members, 19 years  
(FY2019: 18 years) for deferred members and 12 years (FY2019: 11 years) for pensioners and dependants.

Risk management

The pensions schemes are exposed to risks that: 

 – investment returns are below expectations, leaving the scheme with insufficient assets in future to pay all their pension obligations; 

 – members and dependants live longer than expected, increasing the value of the pensions 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 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. 

TIGPS
TIGPS has covered roughly 50% of liabilities with matching annuities, eliminating investment return, longevity, inflation and funding risks 
in respect of those liabilities. It has also adopted a Liability Driven Investment 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. The strategy also takes into account the 
scheme’s corporate bond investments.

SIPS
SIPS has covered roughly 30% of liabilities with matching annuities, eliminating investment return, longevity, inflation and funding risks in 
respect of those liabilities. It has also adopted a Liability Driven Investment 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.

1 7 0

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020The principal assumptions used in updating the valuations are set out below:

Rate of increase in salaries
Rate of increase for active deferred members
Rate of increase in pensions in payment
Rate of increase in deferred pensions
Discount rate
Inflation rate
Healthcare cost increases

2020 
UK

n/a
3.8%
2.9%
2.9%
1.4%
2.9%
4.4%

2020 
US

n/a
n/a
n/a
n/a
2.4%
n/a
n/a

2020 
Other

3.7%
n/a
3.2%
n/a
3.0%
2.9%
n/a

2019 
UK

n/a
4.2%
3.3%
3.3%
2.1%
3.3%
4.7%

2019 
US

n/a
n/a
n/a
n/a
3.5%
n/a
n/a

2019 
Other

3.3%
n/a
3.1%
n/a
2.8%
2.6%
n/a

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 USA, assumptions 
are disclosed as a weighted average. 

Inflation rate assumptions
The UK PRI assumption is based on an underlying 'break even' RPI assumption of 3.1% pa, derived consistently with the discount rate using the 
Aon UK Government RPI Curve with an Inflation Risk Premium of 0.2% pa. In September 2019, the UK Chancellor set out proposals to replace 
RPI with CPIH (Consumer Pricing Index, including housing costs), at some time from 2025-2030, and a consultation process was run until 
21 August 2020. The Government and UKSA are expected to respond to the consultation during the Autumn. No specific allowance (beyond 
anything already priced into markets) has been factored into the RPI assumptions for potential changes. This approach will be kept under review, 
taking into account future market developments and further announcements from the Government and UKSA. The assumption for the long 
term gap between RPI and CPI has been reduced by 0.3% p.a. (from 1.0% p.a. last year to 0.7% p.a.) to reflect the Group’s view on the market 
pricing of this gap over the lifetime of the UK schemes’ liabilities. This has increased SIPS liabilities by £10m and TIGPS liabilities by £8m at the 
balance sheet date.

Discount rate assumptions
The UK schemes use a discount rate based on the annualised yield on the Aon GBP Select AA Curve, using the expected cash-flows from a 
notional scheme with obligations of the same duration as that of the UK schemes. 

Mortality assumptions
The mortality assumptions used in the principal UK schemes are based on the “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 2019 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 1.25%. The mortality 
assumptions used in the principal US schemes are based on the RP-2014 table for healthy employees and healthy annuitants, removing  
MP-2014 improvement projections from 2006-2014 and applying scale MP-2018 mortality improvements from 2006 on a generational basis. 

Expected further years of life

Member who retires next year at age 65 
Member, currently 45, when they retire  
in 20 years’ time

Male 
31 July 2020

Female 
31 July 2020

Male 
31 July 2019

Female 
31 July 2019

Male 
31 July 2020

Female 
31 July 2020

Male 
31 July 2019

Female 
31 July 2019

22

23

23

24

22

23

24

25

21

22

22

24

21

22

23

24

UK schemes

US schemes

Sensitivity 
Sensitivities in respect of the key assumptions used to measure the principal pension schemes as at 31 July 2020 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.

Rate of mortality – 1 year increase in life expectancy
Rate of mortality – 1 year decrease in life expectancy
Rate of inflation – 0.25% increase
Discount rate – 0.25% increase
Market value of scheme assets – 2.5% increase

Profit before 
tax 
 for year 
ended 
 31 July 2020 
£m

Increase/ 
(decrease) in 
scheme  
assets 
 31 July 2020 
£m 

(Increase)/ 
decrease in 
scheme  
liabilities 
 31 July 2020 
£m

Profit before 
tax 
 for year 
ended 
 31 July 2019 
£m

Increase/ 
(decrease) in 
scheme  
assets 
 31 July 2019 
£m 

(Increase)/ 
decrease in 
scheme  
liabilities 
 31 July 2019 
£m

(2) 
2 
(1) 
4 
1 

85 
(84) 
26 
(33) 
81 

(216) 
212 
(107) 
156 
–

(2)
2
(2)
4
2

86
(85)
26
(33)
76

(195)
193
(109)
152
–

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 are invested in equities, diversified growth, 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. Details of pricing methodology is set out within internal control reports provided 
for each fund. Prices are updated daily, weekly or monthly 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.

1 7 1

4SMITHS GROUP PLC  ANNUAL REPORT FY20208 Post-retirement benefits continued
Property is valued by specialists applying recognised property valuation methods incorporating current market data on rental yields and 
transaction prices. In light of the negative impact of the COVID-19 pandemic on financial markets, the valuer included material uncertainty 
clauses in respect of the UK property asset valuations. These valuations are still considered to be the best estimate of the valuation of the 
Property investments, but there is a higher degree of uncertainty compared to previous years.

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 broadly matching 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 insurance 
policies are treated as qualifying insurance policies as none of the insurers are related parties of Smiths 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 Smiths Group’s creditors and cannot be paid 
to Smiths Group.

Retirement benefit plan assets

Cash and cash equivalents
Pooled funds:
– Pooled equity
– Pooled Diversified Growth
– Pooled credit
Corporate bonds
Government bonds/LDI
Insured liabilities
Property
Other

Total market value

31 July 2020 – £m

31 July 2019 – £m

UK  
schemes

US  
schemes

Other  
countries

106

38
48
607
797
1,257
1,300
78
9

4,240

1

–
–
–
212
98
–
–
–

311

1

2
–
–
–
3
1
–
24

31

Total

108

40
48
607
1,009
1,358
1,301
78
33

4,582

UK  
schemes

US  
schemes

Other  
countries

45

60
91
668
704
1,074
1,343
103
18

4,106

1

–
–
–
196
85
–
–
–

282

1

1
–
–
3
3
1
1
26

36

Total

47

61
91
668
903
1,162
1,344
104
44

4,424

The assets are unquoted. Government bonds/LDI portfolios contain £2,343m (FY2019:£2,229m) of UK Government bonds (Gilts), £1,063m 
(FY2019:£1,159m) of Gilt Repurchase obligations and £23m (FY2019:£4m) of interest and inflation swaps held by SIPS. 

The UK bond portfolios include forward FX contracts with a net value of £11m (FY2019: £9m). These are held to hedge against foreign currency 
risk in respect of overseas bonds.

The scheme assets do not include any property occupied by, or other assets used by, the Group. Pooled equity funds include investments in 
broad-based equity indices, some of which may hold ordinary equity shares in Smiths Group plc as part of the underlying assets.

Present value of funded scheme liabilities and assets for the main UK and US schemes

Present value of funded scheme liabilities:
– Active deferred members
– Deferred members
– Pensioners

Present value of funded scheme liabilities
Market value of scheme assets

Surplus/(deficit)

Net retirement benefit obligations

31 July 2020 – £m

31 July 2019 – £m

SIPS

TIGPS

US  
schemes

SIPS

TIGPS

US  
schemes

(44) 
(961) 
(1,178) 

(2,183) 
2,466 

283 

(61) 
(593) 
(866) 

(1,520) 
1,754 

234 

(95) 
(138) 
(81) 

(314) 
311 

(3) 

(42)
(930)
(1,142)

(2,114)
2,377

263

(60)
(587)
(857)

(1,504)
1,710

206

(95)
(123)
(72)

(290)
282

(8)

31 July 2020 – £m

31 July 2019 – £m

UK  
schemes

US  
schemes

Other  
countries

Market value of scheme assets
Present value of funded scheme liabilities

4,240  
(3,724)  

311  
(314)  

Surplus/(deficit)

Unfunded pension plans
Post-retirement healthcare

Present value of unfunded obligations

Net pension asset/(liability)

Post-retirement assets
Post-retirement liabilities

Liabilities held for distribution to owners

Net pension asset/(liability)

516  

(55)  
(5)  

(60)  

456  

516  
(60)  

–

456  

(3)  

(8)  
(1)  

(9)  

(12)  

–
(12)  

–

(12)  

31  
(40)  

(9)  

(60)  
(3)  

(63)  

(72)  

–
(67)  

(5)

(72)  

Total

4,582  
(4,078)  

504  

(123)  
(9)  

(132)  

372  

516  
(139)  

(5)

372  

UK  
schemes

US  
schemes

Other  
countries

4,106 
(3,637)

469 

(56)
(5)

(61)

408 

469 
(61)

–

408 

282 
(291)

(9)

(8)
(10)

(18)

(27)

–
(27)

–

(27)

36 
(45)

(9)

(59)
(2)

(61)

(70)

–
(64)

(6)

(70)

Total

4,424 
(3,973)

451 

(123)
(17)

(140)

311

469 
(152)

(6)

311 

1 7 2

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Liabilities held for distribution to owners comprises £4m of unfunded pension plans and £1m deficit on defined benefit schemes within the 
Smiths Medical division.

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. 

Amounts recognised in the consolidated income statement 

Amounts charged to operating profit
Current service cost
Past service costs – Guaranteed Minimum Pension (GMP) equalisation
Settlement (gain)/loss
Scheme administration costs

The operating cost is charged as follows:
Cost of sales
Sales and distribution costs
Headline administrative expenses
Non-headline settlement (gain)/loss

Non-headline administrative expenses

Amounts credited to finance costs
Non-headline other finance income – retirement benefits

Amounts recognised directly in the consolidated statement of comprehensive income 

Re-measurements of the net defined benefit liability
Difference between interest credit and return on assets
Experience gains/(losses) on scheme liabilities
Actuarial gains arising from changes in demographic assumptions
Actuarial losses arising from changes in financial assumptions

Changes in present value of funded scheme assets 

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

3 
– 
(8)
5 

–

1 
– 
6
(7)

– 

– 

3
29
1
4

37

1
1
5
1

29

37

(7)

(11)

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

274 
28 
22 
(305)
19

355
(4)
25
(452)
(76)

At beginning of period
Interest on assets
Actuarial movement on scheme assets
Employer contributions
Scheme administration costs
Foreign exchange rate movements
Benefits paid

At end of period

31 July 2020 – £m

31 July 2019 – £m

UK  
schemes

US  
schemes

Other  
countries

4,106 
86 
222 
24 
(4)
– 
(194)

4,240 

282 
9 
54 
– 
(1)
(21)
(12)

311 

36 
1 
(2)
2 
– 
(3)
(3)

31 

Total

4,424 
96 
274 
26 
(5)
(24)
(209)

4,582 

UK  
schemes

US  
schemes

Other  
countries

3,867 
105 
332 
24 
(3)
 –
(219)

4,106 

239 
10 
24 
5 
(1)
18 
(13)

282 

33 
1 
(1)
1 
– 
3 
(1)

36 

Total

4,139 
116 
355 
30 
(4)
21 
(233)

4,424 

Changes in present value of funded defined benefit obligations

31 July 2020 – £m

31 July 2019 – £m

At beginning of period
Current service cost
Past service costs
Interest on obligations
Actuarial movement on liabilities
Foreign exchange rate movements
Benefits paid

At end of period

UK  
schemes

US  
schemes

Other  
countries

(3,637)
– 
–
(75)
(206)
– 
194 

(3,724)

(291)
– 
–
(10)
(47)
22 
12 

(314)

(45)
(1)
–
(1)
2 
2 
3 

(40)

Total

(3,973)
(1)
–
(86)
(251)
24 
209 

(3,342)
–
(29)
(91)
(394)
–
219 

(4,078)

(3,637)

(250)
–
–
(9)
(24)
(21)
13 

(291)

UK  
schemes

US  
schemes

Other  
countries

Total

(3,633)
(1)
(29)
(102)
(418)
(23)
233 

(41)
(1)
–
(2)
– 
(2)
1 

(45)

(3,973)

1 7 3

4SMITHS GROUP PLC  ANNUAL REPORT FY20208 Post-retirement benefits continued

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

At beginning of period
Current service cost
Interest on obligations
Actuarial movement
Employer contributions
Foreign exchange rate movements
Liabilities extinguished on settlements
Benefits paid

At end of period

Cash contributions

Assets

Obligations

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

–
–
–
–
7
–
–
(7)

–

–
–
–
–
6
–
–
(6)

–

(140)
(2)
(3)
(4)
–
2
8
7

(132)

(125)
(2)
(3)
(13)
–
(3)
–
6

(140)

Company contributions to the defined benefit pension plans and post-retirement healthcare plans totalled £33m (FY2019: £36m). This comprised 
regular contributions to funded schemes of £12m (FY2019: £12m) to SIPS, £12m (FY2019: £12m) to TIGPS, no contributions (FY2019: £5m) to 
funded US schemes and contributions to other schemes of £2m (FY2019: £1m). In addition, £7m (FY2019: £6m) was spent on providing benefits 
under unfunded defined benefit pension and post-retirement healthcare plans. 

In 2021, the cash contributions to the Group’s schemes are expected to total about £38m, including £12m to SIPS and £12m to TIGPS, with the 
balance relating to the US scheme, unfunded schemes and post-retirement healthcare. 

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 underlying revenue growth, growth in headline EPS, ROCE and cash conversion.

Smiths Share Matching Plan (SMP)
Under the scheme, participants were required to invest between 25% and 50% of their post-tax bonus to purchase the Company’s shares at the 
prevailing market price. Matching shares granted in October 2015 vested during the year at a rate correlating to the performance of the Group 
LTIP issued for the same performance period. There were no SMP awards outstanding at 31 July 2020 or 31 July 2019 and no future awards will 
be made under the SMP.

Smiths Excellence Plan (SEP)
In September 2016, the Smiths Excellence plan (SEP) was introduced. The SEP is designed to reinforce value creation over the medium term 
by focusing on specific objectives in key areas of operational performance. Awards vest after two years, depending on performance on the 
operational objectives during the first year and continued employment with the Group. There is no re-testing of performance. However, the 
Remuneration Committee has discretion to adjust vesting rates if material misstatements in reported performance are subsequently identified 
and awards are subject to clawback provisions in the event of misconduct.

Directors are not eligible to participate in the SEP.

Restricted stock 
Restricted stock is used by the Remuneration Committee, as a part of the 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 or five 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.

1 7 4

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Ordinary shares under option/award (’000)
31 July 2018
Granted
Exercised
Lapsed

31 July 2019
Granted
Exercised
Lapsed

31 July 2020

Long-term 
 incentive 
 plans

SMP

SEP

Restricted 
stock

Save as you 
earn 
scheme

3,911
1,602
(406)
(1,215)

3,892

1,379
(785)
(549)

3,937

413
–
(331)
(82)

–

–
–
–

–

1,359
928
(379)
(621)

1,287

924
(406)
(510)

1,295

304
24
(79)
(57)

192

48
(95)
(14)

131

962
315
(193)
(72)

1,012

695
(254)
(246)

1,207

Weighted 
average 
exercise 
price  
£

£1.46
£1.30
£1.27
£0.41

£1.77

£2.08
£1.48
£2.22

£1.89

Total

6,949
2,869
(1,388)
(2,047)

6,383

3,046
(1,540)
(1,319)

6,570

Options and awards were exercised on an irregular basis during the period. The average closing share price over the financial year was 
1,490.92p (FY2019: 1,479.21p). There has been no change to the effective option price of any of the outstanding options during the period.

Range of exercise prices

£0.00 – £2.00
£6.01 – £10.00
£10.01 – £12.00

Total shares under  
options/awards  
at 31 July 2020 
(’000)

Weighted average 
remaining contractual  
life at 31 July 2020 
(months)

Total shares under  
options/awards  
at 31 July 2019 
(’000)

Weighted average 
remaining contractual  
life at 31 July 2019 
(months)

5,363
744
463

14
40
22

5,370
312
700

15
10
36

For the purposes of valuing options to arrive at the share-based payment charge, the Black-Scholes option-pricing model has been used. 
The key assumptions used in the models for 2020 and 2019 are volatility of 25% to 20% (FY2019: 25% to 20%) and dividend yield of 2.8% 
(FY2019: 3.0%), based on historical data, for the period corresponding with the vesting period of the option. These generated a weighted average 
fair value for SEP of £14.39 (FY2019: £14.48), LTIP of £14.60 (FY2019: £14.52), and restricted stock of £14.04 (FY2019: £13.43). Staff costs include 
£11m (FY2019: £15m) for share-based payments, of which £10m (FY2019: £14m) relates to equity-settled share-based payment.

10 Intangible assets

Cost
At 31 July 2018 
Foreign exchange rate movements
Business combinations 
Additions
Disposals
Business disposals 
Reclassified to assets held for distribution to owners (note 28)

At 31 July 2019
Foreign exchange rate movements
Business combinations (note 27)
Additions
Disposals
At 31 July 2020

Amortisation and impairments
At 31 July 2018
Foreign exchange rate movements
Charge for the year
Disposals

Reclassified to assets held for distribution to owners (note 28)

At 31 July 2019
Foreign exchange rate movements
Amortisation charge for the year
Impairment charge for the year
Disposals
At 31 July 2020

Net book value at 31 July 2020
Net book value at 31 July 2019
Net book value at 31 July 2018

Goodwill 
£m

Development 
costs 
£m

Acquired 
intangibles 
(see table 
 below) 
£m

Software, 
 patents and  
intellectual  
property 
£m

1,704
110
127
–
–
(7)
(622)

1,312

(69)
11
–
–
1,254

88
5
–

–
(27)

66

(4)
–
–
–
62

1,192

1,246
1,616

360
24
–
30
–
–
(270)

144

(5)
–
16
–
155

205
14
23

–
(143)

99

(5)
6
12
–
112

43

45
155

582
47
148
–
–
–
(212)

565

(34)
15
–
–
546

331
24
45

–
(195)

205

(13)
57
–
–
249

297

360
251

207
9
–
12
(7)
–
(50)

171

(6)
–
10
(1)
174

168
6
13

(6)
(43)

138

(2)
7
–
(1)
142

32

33
39

Total 
£m

2,853
190
275
42
(7)
(7)
(1,154)

2,192

(114)
26
26
(1)
2,129

792
49
81

(6)
(408)

508

(24)
70
12
(1)
565

1,564

1,684
2,061

1 7 5

4SMITHS GROUP PLC  ANNUAL REPORT FY202010 Intangible assets continued
In addition to goodwill, the acquired intangible assets comprise:

Cost
At 31 July 2018
Foreign exchange rate movements
Business combinations 
Reclassified to assets held for distribution to owners (note 28)

At 31 July 2019
Foreign exchange rate movements
Business combinations (note 27)
At 31 July 2020

Amortisation

At 31 July 2018
Foreign exchange rate movements
Charge for the year
Reclassified to assets held for distribution to owners (note 28)

At 31 July 2019
Foreign exchange rate movements
Charge for the year
At 31 July 2020

Net book value at 31 July 2020
Net book value at 31 July 2019
Net book value at 31 July 2018

Patents,  
licences 
and  
trademarks 
£m

Technology 
£m

Customer 
relationships 
£m

Total  
acquired  
intangibles 
£m

57
4
13
(59)

15
(1)
1
15

39

3
3
(42)

3

–
1
4

11

12

18

214
16
–
(90)

140
(9)
8
139

121

10
12
(90)

53

(4)
11
60

79

87

93

311
27
135
(63)

410
(24)
6
392

171

11
30
(63)

149

(9)
45
185

207

261

140

582
47
148
(212)

565
(34)
15
546

331

24
45
(195)

205

(13)
57
249

297

360

251

Individually material intangible assets comprise £131m of customer related intangibles attributable to United Flexible (remaining amortisation 
period: 6 years) and £105m of customer relationship intangibles attributable to Morpho Detection (remaining amortisation period: 12 years).

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 “Significant judgements made in applying accounting 
policies” 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-divisional trading 
relationships. Goodwill acquired through business combinations is allocated to groups of CGUs at a divisional (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 division as follows:

John Crane
Smiths Detection
Flex-Tek
Smiths Interconnect
Smiths Medical – classified as an asset held for distribution in 2020 and 2019

2020 
£m

136
642
161
253
–

1,192

2020 
Number of 
CGUs

1
1
1
1
1

5

2019 
£m

140
673
171
261
–

1,245

2019 
Number of 
CGUs

1
1
1
1
1

5

Smiths Interconnect acquired Reflex Photonics in October 2019 and a single management team has been established covering the Smiths 
Interconnect and Reflex Photonics businesses. The integration of the businesses since acquisition has progressed well and is such that they are 
considered to be a single CGU for impairment testing.

Key assumptions 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.

1 7 6

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020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 2020-21 business plan (as approved by the Board) and the five year detailed divisional strategic projections which 
have been prepared by divisional management and approved by the Chief Financial Officer.

The key assumptions used in determining the value in use are:

 – Sales: Projected sales are built up with reference to markets and product categories. They incorporate past performance, historical growth 

rates and projections of developments in key markets;

 – Margins: Projected margins reflect historical performance and the impact of all completed projects to improve operational efficiency and 

leverage scale. The projections do not include the impact of future restructuring projects to which the Group is not yet committed;

 – Projected capital expenditure: The cash-flow forecasts for capital expenditure are based on past experience and include committed ongoing 
capital expenditure consistent with the FY21 budget and the divisional strategic projections. The forecast does not include any future capital 
expenditure that improves/enhances the operation/asset in excess of its current standard of performance;

 – Discount rate: The discount rates have been calculated based on the Group’s weighted average cost of capital and risks specific to the CGU 
being tested. In determining the risk adjusted discount rate, management has considered the systematic risk to each of the Group’s CGUs 
determined using an average of discount rates used by other companies for the industries that Smiths divisions operate. Pre-tax rates of 9.4% 
to 12.3% (FY2019: 9.9% to 13.9%) have been used for the impairment testing;

 – Long-term growth rates: For the purposes of the Group’s value in use calculations, a long-term growth rate into perpetuity is applied 

immediately at the end of the five year forecast period. Growth rates for the period after the detailed forecasts are based on the long-term 
GDP projections of the primary market for each CGU. The average growth rate used in the testing was 1.9% (FY2019: 2.0%). These rates do not 
reflect the long-term assumptions used by the Group for investment planning; and

 – COVID-19: The COVID-19 pandemic developed rapidly during 2020, with many countries requiring businesses to limit or suspend operations 
whilst implementing travel restrictions and quarantine measures. These virus containment measures have had a significant adverse impact 
on global economic activity. It remains extremely challenging to predict the full extent and duration of its impact on the Smiths businesses and 
the countries where Smiths operates. Based on information available as at 31 July 2020, management has made adjustments to the five year 
forecasts used in the Group’s impairment testing in order to reflect the estimated impact. 

The assumptions used in the impairment testing of CGUs with significant goodwill balances are as follows: 

Net book value of goodwill (£m)

Basis of valuation

Discount rate

- pre-tax
- post-tax

Period covered by management projections
Revenue – average annual growth rate over projection period
Average earnings before interest and tax margin
Long-term growth rates

Net book value of goodwill (£m)

Basis of valuation

Discount rate

- pre-tax
- post-tax

Period covered by management projections
Long-term growth rates

John Crane

136

Smiths  
Detection

642

Flex-Tek

161

Smiths  
Interconnect

253

Smiths  
Medical

563

Year ended 31 July 2020

Value in use

Value in use

Value in use

Value in use

Value in use

12.3%
9.3%
5 years
4.3%
24.1%
2.0%

10.8%
8.0%
5 years
2.1%
13.5%
1.7%

11.3%
8.7%
5 years
3.2%
17.5%
1.8%

10.7%
8.5%
5 years
4.2%
17.0%
2.1%

9.4%
7.5%
5 years
2.0%
18.1%
2.0%

John Crane

140

Smiths  
Detection

673

Flex-Tek

171

Smiths  
Interconnect

261

Smiths  
Medical

595

Year ended 31 July 2019

Value in use

Value in use

Value in use

Value in use

Value in use

13.9%
10.4%
5 years
2.1%

11.2%
8.2%
5 years
2.1%

11.3%
9.0%
5 years
1.8%

12.6%
9.9%
5 years
1.8%

9.9%
7.8%
5 years
1.8%

Sensitivity analysis
With the exception of the Smiths Detection and Smiths Interconnect CGUs, the recoverable amount of all CGUs exceeded their carrying value, on 
the basis of the assumptions set out in the table above and any reasonably possible changes thereof.

The estimated recoverable amount of the Smiths Detection CGU exceeded the carrying value by £183m and the estimated recoverable amount 
the Smiths Interconnect CGU exceeded the carrying value by £285m. Any decline in estimated value-in-use in excess of those amounts would 
result in the recognition of impairment charges. If the assumptions used in the impairment reviews 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 2020: 

Change required for carrying value to equal recoverable amount

Smiths Detection

Smiths Interconnect

Forecast earnings before interest and tax 
Post-tax discount rate
Long-term growth rate

–1,500 bps decrease
+110 bps increase
–180 bps decrease

–3,800 bps decrease
+400 bps increase
–740 bps decrease

1 7 7

4SMITHS GROUP PLC  ANNUAL REPORT FY202011 Impairment testing continued

Sensitivity analysis continued
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. The projections do not include the impact of future restructuring projects to which the Group 

is not yet committed.

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. In FY2020 Smiths Medical conducted a detailed impairment 
assessment on the Intellifuse programme, a summary of the basis for and conclusion of this assessment is included in note 28 'Discontinued 
operations and businesses held for distribution to owners'.

£12m of impairment charges have been incurred against capitalised development costs in Smiths Detection (FY2019: £nil), see note 2 for 
further details.

12 Property, plant and equipment

Land and 
buildings 
£m

Plant and 
machinery 
£m

Fixtures, 
fittings, 
tools and 
equipment 
£m

207
14
3
7
(2)
(43)

186

(10)
–
5
(6)

175

107
6
10
–
(19)

104

(6)
10
(6)

102

73

82
100

637
41
8
57
(38)
(309)

396

(25)
2
27
(17)

383

459
31
33
(36)
(216)

271

(17)
23
(16)

261

122

125
178

194
4
–
15
(17)
(58)

138

(5)
–
8
(8)

133

152
2
13
(14)
(40)

113

(4)
8
(7)

110

23

25
42

Total 
£m

1,038
59
11
79
(57)
(410)

720

(40)
2
40
(31)

691

718
39
56
(50)
(275)

488

(27)
41
(29)

473

218

232
320

Cost or valuation
At 31 July 2018
Foreign exchange rate movements
Business combinations 
Additions
Disposals
Reclassified to assets held for distribution to owners (note 28)

At 31 July 2019
Foreign exchange rate movements
Business combinations (note 27)
Additions
Disposals

At 31 July 2020

Depreciation
At 31 July 2018
Foreign exchange rate movements
Charge for the year
Disposals
Reclassified to assets held for distribution to owners (note 28)

At 31 July 2019
Foreign exchange rate movements
Charge for the year
Disposals

At 31 July 2020

Net book value at 31 July 2020
Net book value at 31 July 2019
Net book value at 31 July 2018

1 7 8

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY202013 Right of use assets

Cost or valuation
Right of use assets on transition

Foreign exchange rate movements
Business combinations (note 27)
Recognition of right of use asset
Derecognition of right of use asset
At 31 July 2020

Depreciation
Foreign exchange rate movements
Charge for the year
At 31 July 2020

Net book value at 31 July 2020

14 Inventories

Inventories comprise
Raw materials and consumables
Work in progress
Finished goods

Properties 
£m

Vehicles 
£m

Equipment 
£m

95

(6)
1
21
(1)
110

(2)
28
26

84

10

(1)
–
5
–
14

–
5
5

9

1

–
–
–
–
1

–
–
–

1

Total 
£m

106

(7)
1
26
(1)
125

(2)
33
31

94

31 July 2020 
£m

31 July 2019 
£m

122
119
205

446

146
111
160

417

In FY2020 continuing operations consumed £1,244m (FY2019: £1,174m) of inventory, £20m (FY2019: £16m) was charged for the write-down of 
inventory and £9m (FY2019: £7m) was released from provisions no longer required. 

Discontinued operations consumed £299m (FY2019: £266m) of inventory, £4m (FY2019: £5m) was charged for the write-down of inventory and 
£nil (FY2019: £1m) was released from provisions no longer required. Further details of discontinued operations are disclosed in note 28.

Inventory provisioning

Gross inventory carried at full value
Gross value of inventory partly or fully provided for

Inventory provision

Inventory after provisions

15 Trade and other receivables

Non-current
Trade receivables
Contract assets
Other receivables

Current
Trade receivables
Prepayments
Contract assets
Other receivables

31 July 2020 
£m

31 July 2019 
£m

368
132

500
(54)

446

357
111

468
(51)

417

31 July 2020
£m

31 July 2019
£m

–
46
6

52

448
23
123
33

627

1
45
6

52

574
25
125
40

764

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 prepayments, accrued income and other receivables qualifying as financial instruments are 
accounted for at amortised cost. The maximum credit exposure arising from these financial assets is £580m (FY2019: £713m).

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 arise from increases in contract asset balances of £6m (FY2019: £14m) principally within Smiths 
Interconnect, offset by £7m of foreign currency translation losses (FY2019: £8m gain). 

A number of Flex-Tek’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 FY2020 Flex-Tek collected £68m of receivables through these 
schemes (FY2019: £8m), the cash received via these schemes is classified as an operating cash inflow as it has arisen from operating activities. 

1 7 9

4SMITHS GROUP PLC  ANNUAL REPORT FY202015 Trade and other receivables continued
Trade receivables are disclosed net of provisions for expected credit loss, with historical write-offs used as a basis 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 is the US Federal Government, representing 7% 
(FY2019: 6%) of Group revenue.

Ageing of trade receivables

Trade receivables which are not yet due
Trade receivables which are between 1-30 days overdue
Trade receivables which are between 31-60 days overdue
Trade receivables which are between 61-90 days overdue
Trade receivables which are between 91-120 days overdue
Trade receivables which are more than 120 days overdue

Expected credit loss allowance provision

Trade receivables

Movement in expected credit loss allowance

Brought forward loss allowance at the start of the period
Exchange adjustments
Increase in allowance recognised in the income statement
Amounts written off or recovered during the year

Carried forward loss allowance at the end of the year

16 Trade and other payables

Non-current
Other payables

Contract liabilities

Current
Trade payables
Other payables
Other taxation and social security costs
Accruals
Contract liabilities 

31 July 2020 
£m

31 July 2019 
£m

342
51
18
9
12
51

483

(35)

448

432
69
18
12
9
58

598
(24)

574

31 July 2020 
£m

31 July 2019 
£m

24
(2)
18
(5)

35

24
1
6
(7)

24

31 July 2020 
£m

31 July 2019
£m

15

36

51

178
12
25
194
118

527

15

15

30

221
12
19
201
116

569

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 £154m (FY2019: £131m) 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 division where invoicing under 
milestones precedes the delivery of the program performance obligations. Revenue recognised in the year includes £126m (FY2019: £85m) that 
was included in the opening contract liabilities balance. This revenue primarily relates to the delivery of performance obligations in the Smiths 
Detection business.

17 Financial assets
At 31 July 2020, £11m (FY2019: £13m) was held on deposit with banks as security for liabilities or letters of credit. 

The remaining balance of financial assets relates to the Group's investments in early stage businesses that are developing or commercialising 
related technology. 

1 8 0

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY202018 Borrowings and net debt
This note sets out the calculation of net debt, an important measure in explaining our financing position. The net debt figure includes accrued 
interest and fair value adjustments relating to hedge accounting. 

Cash and cash equivalents
Net cash and deposits 

Short-term borrowings
Lease liabilities
Interest accrual

Long-term borrowings
$400m 3.625% US$ Guaranteed notes 2022
€600m 1.25% Eurobond 2023
€650m 2.00% Eurobond 2027
Lease liabilities

Borrowings

Derivatives managing interest rate risk and currency profile of the debt

31 July 2020 
£m

31 July 2019 
represented* 
£m

366

289

(31)
(10)

(41)

(308)
(546)
(601)
(65)
(1,520)

(1,561)

82

–
(9)

(9)

(329)
(564)
(607)
–
(1,500)

(1,509)

45

Net debt (excludes net debt of £28m in discontinued operations (FY2019: net cash of £23m) )

(1,113)

(1,175)

*  The FY2019 comparatives have been represented to include the fair value of derivatives used for the management of net debt interest rate and currency risks as part of the net debt balance.

Movements in assets/(liabilities) arising from financing activities

At 31 July 2018
Foreign exchange gains/(losses)
Net cash (outflow)
Repayment of borrowings
Capitalisation, interest accruals and unwind of 
capitalised fees
Fair value movement from interest rate hedging
Revaluation of derivative contracts
Reclassified to asset/liability held for distribution to 
owners (note 28)

At 31 July 2019

Adoption of IFRS 16
Sub-total
Foreign exchange gains/(losses)
Net cash inflow from continuing operations **
Lease liabilities acquired
Net movement from lease modifications
Fair value movement from interest rate hedging
Revaluation of derivative contracts
Interest expense taken to income statement***
Interest paid
Payment of lease liabilities
Reclassification to short-term
At 31 July 2020

Changes in net debt

Cash  
and cash  
equivalents 
£m

Other  
short-term  
borrowings 
£m

Long-term  
borrowings 
£m

Interest rate 
& cross-
currency  
swaps 
£m

Net debt* 
£m

717

10
(218)
(194)

–
–
–

(26)

289

–
289
(26)
103
–
–
–
–
–
–
–
–
366

(203)

(1,407)

(4)
–
194

2
–
–

2

(9)

(26)
(35)
1
–
–
(6)
–
–
(4)
–
34
(31)
(41)

(47)
–
–

(1)
(46)
–

1

(1,500)

(79)
(1,579)
40
–
(1)
(20)
10
–
(30)
29
–
31
(1,520)

43

–
(30)
–

30
–
2

–

45

–
45
–
–
–
–
–
37
(13)
13
–
–
82

(850)

(41)
(248)
–

31
(46)
2

(23)

(1,175)

(105)
(1,280)
15
103
(1)
(26)
10
37
(47)
42
34
–
(1,113)

Changes 
in other 
financing 
items: FX 
contracts 
£m

4

5,733
(5,733)
–

–
–
(1)

(4)

(1)

–
(1)
(3,780)
3,780
–
–
–
(1)
–
–
–
–
(2)

Total 
liabilities 
from 
financing 
activities 
£m

(846)

5,692
(5,981)
–

31
(46)
1

(27)

(1,176)

(105)
(1,281)
(3,765)
3,883
(1)
(26)
10
36
(47)
42
34
–
(1,115)

*  The FY2019 comparatives have been represented to include the fair value of derivatives used for the management of net debt interest rate and currency risks as part of the net 

debt balance.

**  The £103m of net cash inflow from continuing operations excludes £6m of net cash outflow from discontinued operations. Net cash inflow for the total Group including discontinued 

operations was £97m.

*** The Group has also incurred £8m of bank charges that are expensed when paid and are not included in net debt.

1 8 1

4SMITHS GROUP PLC  ANNUAL REPORT FY2020 
18 Borrowings and net debt continued 

Cash and cash equivalents

Cash at bank and in hand 
Short-term deposits

Cash and cash equivalents

31 July 2020 
£m

31 July 2019 
£m

173
193

366

153
136

289

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 £31m (FY2019: £36m) was 
charged to the consolidated income statement in the period in respect of public bonds. 

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 2020 the total value of overdrafts on accounts in interest compensation cash 
pooling systems was £nil (FY2019: £nil). The balances held in zero balancing cash pooling arrangements have daily settlement of balances. 
Therefore netting is not relevant. 

Secured loans
Loans amounting to £nil (FY2019: £nil) were secured on plant and equipment with a book value of £nil (FY2019: nil). 

Change of control
The Company has in place credit facility agreements under which a change in control would trigger prepayment clauses. The Company also 
has bonds 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.

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 15.

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 prepared monthly. This is circulated to the Chief Financial Officer each month and key elements to the Audit and 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 
compared against pre-agreed objectives.

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 minimise the resulting cost of debt capital. The credit ratings at the end of July 2020 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 at two times or lower over the medium term. Capital management is discussed in more 
detail in note 26.

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 at or greater than three years, and between 40-60% of gross debt is at fixed rates. At 31 July 2020 these measures were 
100% (FY2019: 100%), 4.2 years (FY2019: 5.2 years) and 53% (FY2019: 48%).

The Group remains in full compliance with all covenants within its external debt agreements. Interest rate risk management is discussed  
in note 19(b).

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 2020, these measures were £611m (FY2019: £655m)  
and 51 months (FY2019: 51 months). At 31 July 2020, net cash resources were £366m (FY2019: £289m). Liquidity risk management is discussed 
in note 19(d).

1 8 2

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Currency management

The Group is an international business with the majority of its net assets denominated in foreign currency. We protect our balance sheet 
and reserves from adverse foreign exchange movements by financing our 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 18(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 2020

Financial assets and liabilities
Financial instruments included in trade and other receivables
Financial instruments included in trade and other payables
Cash and cash equivalents
Borrowings not designated as net investment hedges

Exclude balances held in operations with the same functional currency
Exposure arising from intra-group loans
Future forward foreign exchange contract cash flows

Financial assets and liabilities
Financial instruments included in trade and other receivables
Financial instruments included in trade and other payables
Cash and cash equivalents

Exclude balances held in operations with the same functional currency
Exposure arising from intra-group loans
Forward foreign exchange contracts

Sterling 
£m

26
(37)
50
(21)
18
(16)
–
32

34

Sterling 
£m

35
(47)
27
15
(15)
–
(17)

(17)

US$ 
£m

293
(176)
194
(41)
270
(84)
(87)
(161)

(62)

US$ 
£m

380
(204)
150
326
(155)
(11)
(149)

11

Euro 
£m

Other 
£m

Total 
£m

580
(340)
366
(107)
499
(306)
(164)
–

29

145
(65)
84
(14)
150
(146)
(100)
103

7

At 31 July 2019

Other 
£m

168
(73)
89
184
(177)
(41)
185

151

Total 
£m

713
(394)
289
608
(422)
3
–

189

116
(62)
38
(31)
61
(60)
23
26

50

Euro 
£m

130
(70)
23
83
(75)
55
(19)

44

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: 

US dollar
Euro
Sterling

Impact on 
profit 
 for the year 
31 July 2020 
£m

Gain/(loss) 
 recognised in 
reserves 
31 July 2020 
£m

Impact on 
profit 
 for the year 
31 July 2019 
£m

Gain/(loss) 
 recognised in 
reserves  
31 July 2019 
£m

(8)
(3)
3

(2)
2
(2)

(10)
(3)
10

3
(1)
(2)

These sensitivities were calculated before adjusting for tax and exclude the effect of quasi-equity intra-group loans. 

1 8 3

4SMITHS GROUP PLC  ANNUAL REPORT FY202019 Financial risk management continued

(a) Foreign exchange risk continued

Cash-flow hedging

The Group uses forward foreign exchange contracts to hedge future foreign currency sales and purchases. At 31 July 2020, contracts with 
a nominal value of £110m (FY2019: £54m) were designated as hedging instruments. In addition, the Group had outstanding foreign currency 
contracts with a nominal value of £203m (FY2019: £431m) 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 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 attributable to changes in 
foreign exchange rates 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, 98% are for periods of 12 months or less (FY2019: 100%).

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:

Brought forward cash-flow hedge reserve at start of year
Foreign exchange forward contracts:

Net fair value gains on effective hedges
Amount reclassified to income statement – revenue
Amount reclassified to income statement – cost of sales

Carried forward cash-flow hedge reserve at end of year

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

–
1
(2)

1
–

2
2
(2)

(2)
–

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:

Hedged item

Hedged exposure

Hedging instrument

Financial year

Sales and 
purchases

Foreign currency 
risk

Foreign exchange 
contracts

FY2020

FY2019

Changes in value of the 
hedged item for calculating 
ineffectiveness 
£m

Changes in value of the 
hedging instrument for 
calculating ineffectiveness 
£m

Continued 
hedges 
£m

Discontinued 
hedges 
£m

Cash-flow hedge reserve

1

2

(1)

(2)

1

–

–

–

Cash-flow hedges generated £nil of ineffectiveness in FY2020 (FY2019: £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 United States 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:

Loans designated as net investment hedges
Cross-currency swap

At 31 July 2020

At 31 July 2019*

US$ 
£m

(303)
(572)
(875)

Euro 
£m

(484)
–
(484)

Total 
£m

(787)
(572)
(1,359)

US$ 
£m

(325)
(613)
(938)

Euro 
£m

(490)
–
(490)

Total 
£m

(815)
(613)
(1,428)

*  The comparatives for the year to 31 July 2019 have been represented to show Euro hedging instruments at a summary net level in currency.

At 31 July 2020, cross-currency swaps hedged the Group’s exposure to US dollars and Euros (31 July 2019: US dollars and Euros). All the cross-
currency swaps designated as net investment hedges are non-current (FY2019: non-current).

Swaps generating £329m of the US dollar exposure (FY2019: £353m) will mature in April 2023 and swaps generating £243m of the US dollar 
exposure (FY2019: £260m) will mature in February 2027.

1 8 4

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020In addition, non-swapped borrowings were also used to hedge the Group’s exposure to US dollars and euros (31 July 2019 US dollars and euros). 
Borrowings generating £303m of the US dollar exposure (FY2019: £325m) will mature in October 2022. Borrowings generating £536m of the 
euro exposure (FY2019: £543m) will mature in April 2023 and borrowings generating £308m of the euro exposure (FY2019: £312m) 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 is 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:

Brought forward net investment hedge reserve at start of year

Cross-currency swaps
Bonds
Carried forward net investment hedge reserve at end of year

Net fair value gains on effective hedges
Net fair value gains on effective hedges

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

(383)

37
32
(314)

(304)

(35)
(44)
(383)

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 2020 and 31 July 2019:

Hedged item

Hedged exposure

Hedging instrument

Financial year

Overseas  
operation 

Foreign currency 
risk 

FY2020
Forward contracts
Cross-currency swaps FY2020
FY2020
Bonds

Overseas  
operation 

Foreign currency 
risk 

FY2019
Forward contracts
Cross-currency swaps FY2019
FY2019
Bonds

Changes in value of the 
hedged item for calculating 
ineffectiveness 
£m

Changes in value of the 
hedging instrument for 
calculating ineffectiveness 
£m

Continued 
hedges 
£m

Discontinued 
hedges 
£m

Net investment hedge 
reserve

–
(37)
(32)

(69)

–
35
44

79

-
40
32

72

(1)
(37)
(44)

(82)

-
37
32

69

–
(35)
(44)

(79)

-
-
-

-

–
–
–

–

Net investment hedges generated £3m of ineffectiveness in FY2020 (FY2019:£nil) 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: 

US dollar
Euro

 Loss 
 recognised  
in hedge  
reserve 
31 July 2020 
£m

Loss 
 recognised  
in hedge  
reserve  
31 July 2019 
£m

97
54

104
54

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. This is achieved through fixed 
rate borrowings and interest rate swaps. At 31 July 2020, 53% (FY2019: 48%) of the Group’s gross borrowings were at fixed interest rates, after 
adjusting for interest rate swaps and the impact of short maturity derivatives designated as net investment hedges.

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 
2020, after interest rate swaps, is 2.20% (FY2019: 3.22%).

1 8 5

4SMITHS GROUP PLC  ANNUAL REPORT FY202019 Financial risk management continued

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. The other financial assets and liabilities do not earn or bear interest and for all financial instruments except for borrowings 
the carrying value is not materially different from their fair value.

Fixed interest 
Less than one year

Between one and five years
Greater than five years

Total fixed interest financial liabilities 
Floating rate interest financial assets/
(liabilities)*

Total interest-bearing financial  
assets/(liabilities)
Non-interest-bearing assets in the same 
category

Total

As at 31 July 2020

As at 31 July 2019

At fair value 
through  
profit or loss 
£m

Cash and 
cash 
 equivalents 
£m

Borrowings 
£m

Fair value of 
borrowings 
£m

At fair value 
through 
profit or loss 
£m

Cash and 
cash  
equivalents 
£m

Borrowings 
£m

Fair value of 
 borrowings 
£m

–

–
–

–

8

8

11

19

–

–
–

–

(41)

(423)

(322)
(786)

(41)

(429)

(334)
(804)

305

(775)

(775)

305

(1,561)

(1,579)

61

366

–

–

(1,561)

(1,579)

–

–
–

–

6

6

13

19

–

–

–
–

–

(384)

(314)
(698)

–

(391)
(342)

(733)

238

(811)

(811)

238

(1,509)

(1,544)

51

289

–

–

(1,509)

(1,544)

*  Fair value gains and losses in this category of assets are recognised in other comprehensive income.

Interest rate hedging

The Group also has exposures to the fair values of non-derivative financial instruments such as EUR and USD fixed rate borrowings. To manage 
the risk of changes in these fair values, the Group has entered into fixed-to-floating interest rate swap and cross-currency interest rate swaps 
which for accounting purposes are designated as fair value hedges.

At 31 July 2020 and 31 July 2019, the Group had designated the following hedges against variability in the fair value of borrowings arising from 
fluctuations in base rates:

 – $150m interest rate swap which matures on 12 October 2022 partially hedging the USD 2022 Guaranteed notes; and

 – €400m of the fixed/floating element of EUR/USD interest rate swaps maturing on 28 April 2023 partially hedging the € 2023 Eurobond.

Additionally at 31 July 2020 the Group designated the following hedge against variability in 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.

The fair values of the hedging instruments are disclosed in note 20. The effect of the swaps is to convert £745m (FY2019: £761m) 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 sources of hedge ineffectiveness in these hedging relationships is the effect of the counterparty and the Group’s own credit risk on the 
fair value of the cross-currency and interest rate swaps and 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 is 
recognised immediately in the income statement in the period that it occurs.

The following table sets out the details of the hedged exposures covered by the Group's fair value hedges:

Hedged item

Hedged exposure

Changes in value 
of hedged item 
for calculating 
ineffectiveness 
£m

Changes in value of the 
hedging instrument 
for calculating 
ineffectiveness 
£m

Financial 
year

Carrying amount

Accumulated fair value 
adjustments on hedged item

Assets 
£m

Liabilities 
£m

Assets 
£m

Liabilities 
£m

Fixed rate 
bonds (a) 

Interest rate risk
FY2020
Interest rate & currency rate risk FY2020

Fixed rate 
bonds (a) 

Interest rate risk
FY2019
Interest rate & currency rate risk FY2019

(a) Classified as borrowings

10
–

10

8
44

52

1
(5)

(4)

(5)
(37)

(42)

–
–

–

–
–

–

475
270

745

123
638

761

–
–

–

–
–

–

11
20

31

2
39

41

Fair value hedges generated a £6m ineffectiveness gain in FY2020 (FY2019: £10m loss) which was recognised in the income statement through 
finance costs.

1 8 6

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020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 2020, 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 less than £5m impact (FY2019: £5m 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 £385m at 31 July 2020 (FY2019: £308m).

Cash in AAA liquidity funds
Cash at banks with at least a AA- credit rating
Cash at banks with all other A credit ratings
Cash at other banks
Investments in bank deposits
Other investments

31 July 2020 
£m

31 July 2019 
£m

160
28
164
14
11
8

385

85
97
97
10
13
6

308

At 31 July 2020, the maximum exposure with a single bank for deposits and cash is £124m (FY2019: £179m), whilst the maximum mark  
to market exposure with a single bank for derivatives is £29m (FY2019: £17m). These banks have AAA and AA- credit ratings respectively  
(FY2019: Both A+ & AA-).

(d) Liquidity risk

Borrowing facilities

The Board policy specifies the maintenance of unused committed credit facilities of at least £300m at all times to ensure it has sufficient 
available funds for operations and planned development. The Group has Revolving Credit Facilities of $110m maturing on 1 November 2023 and 
$690m maturing 1 November 2024. At the balance sheet date, the Group had the following undrawn credit facilities: 

Expiring after more than two years

31 July 2020 
£m

31 July 2019 
£m

611

655

The Bank of England confirmed Smiths' eligibility to access the Covid Corporate Financing Facility ('CCFF') in principle from 30 April 2020 with 
an indicative aggregate group limit of £600m. Utilisation of the CCFF, which closes to new issuance on 23 March 2021, is not anticipated.

Cash deposits

As at 31 July 2020, £192m (FY2019: £136m) of cash and cash equivalents was on deposit with various banks of which £12m (FY2019: £32m) was 
on deposit with UK banks, £160m (FY2019: £85m) was in liquidity funds and £11m (FY2019: £13m) of investments comprised bank deposits held 
to secure liabilities and letters of credit. 

Gross contractual cash-flows for borrowings

Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Greater than five years

Total

Borrowings 
(note 18) 
£m

Fair value 
 adjustments 
£m

As at 31 July 2020

Contractual 
 interest 
 payments 
£m

Total 
 contractual 
cash-flows 
£m

Borrowings 
(note 18) 
£m

Fair value 
 adjustments 
£m

As at 31 July 2019

Contractual 
 interest  
payments 
£m

Total 
 contractual 
cash-flows 
£m

(41)
(20)
(870)
(10)
(8)
(612)

(1,561)

–
–
22
–
–
9

31

(30)
(30)
(24)
(12)
(12)
(24)

(71)
(50)
(872)
(22)
(20)
(627)

(9)
–
–
(893)
–
(607)

(132)

(1,662)

(1,509)

–
–
–
20
–
20

40

(31)
(31)
(31)
(25)
(12)
(36)

(40)
(31)
(31)
(898)
(12)
(623)

(166)

(1,635)

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.

1 8 7

4SMITHS GROUP PLC  ANNUAL REPORT FY202019 Financial risk management continued 

Gross contractual cash-flows for derivative financial instruments 

Assets
Less than one year
Greater than one year
Liabilities
Less than one year
Greater than one year

Total

As at 31 July 2020

As at 31 July 2019

Receipts 
£m

Payments 
£m

Net  
cash-flow 
£m

Receipts 
£m

Payments 
£m

Net  
cash-flow 
£m

174
674

144
–

992

(175)
(595)

(144)
3

(911)

(1)
79

–
3

81

217
712

241
19

(236)
(652)

(238)
(18)

1,189

(1,144)

(19)
60

3
1

45

This table 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 are £331m (FY2019: £384m) due in less than one year, 
£6m (FY2019: £6m) due between one and five years, and £3m (FY2019: £3m) due after more than five years.

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: 

Contract or  
underlying 
nominal  
amount  
£m

110
203

313

572
114

999

690
309

999

Contract or  
underlying 
nominal  
amount  
£m

54
431

485

613
123

1,221

777
444

1,221

At 31 July 2020

Fair value

Assets 
£m

Liabilities 
£m

1
1

2

78
4

84

82
2

84

(1)
(3)

(4)

–
–

(4)

–
(4)

(4)

Net 
£m

–
(2)

(2)

78
4

80

82
(2)

80

At 31 July 2019

Fair value

Assets 
£m

Liabilities 
£m

4

4

46

50

47
3

50

(2)
(3)

(5)

(1)

(6)

(1)
(5)

(6)

Net 
£m

(2)
1

(1)

46
(1)

44

46
(2)

44

Foreign exchange contracts (cash-flow hedges)
Foreign exchange contracts (not hedge accounted)

Total foreign exchange contracts

Cross-currency swaps (fair value and net investment hedges)
Interest rate swaps (fair value hedges)

Total financial derivatives

Balance sheet entries:

Non-current
Current

Total financial derivatives

Foreign exchange contracts (cash-flow hedges)
Foreign exchange contracts (not hedge accounted)

Total foreign exchange contracts

Cross-currency swaps (fair value and net investment hedges)
Interest rate swaps (fair value hedges)

Total financial derivatives

Balance sheet entries:
Non-current
Current

Total financial derivatives

1 8 8

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020The maturity profile, average interest and foreign currency exchange rates of the hedging instruments used in the Group's hedging strategies is 
as follows:

Maturity at 31 July 2020

Maturity at 31 July 2019

Up to  
one year

One to five 
years

More than 
five years

Up to  
one year

One to five 
years

More than  
five years

Hedged exposure

Hedging instrument

Fair value hedges
Interest rate risk

Interest rate swaps 
– USD

Interest rate swaps 
– EUR

Interest rate risk/
Foreign currency risk

Cross-currency 
swaps (EUR:GBP)

- Notional amount (£m)
-  Average spread over 
6 month USD LIBOR
- Notional amount (£m)
-  Average spread over 
3 month EUR LIBOR
- Notional amount (£m)
- Average exchange rate
-  Average spread over 
3 month USD LIBOR

Net investment hedges

Foreign currency risk Cross-currency 

- Notional amount (£m)

swaps (EUR:USD)

Cross-currency 
swaps (GBP:USD)

- Average exchange rate

- Notional amount (£m)

- Average exchange rate

Cash-flow hedges

Foreign currency risk Foreign exchange 

- Notional amount (£m)

59

–
– 

–
– 

–
–
– 

–

–

–

–

114
1.797% 

360
1.015% 

–
– 

–
– 

–
–
– 

254
0.845
1.750% 

–

–

243

1.2534

329

1.0773

–

–

3

contracts (EUR:USD)

Foreign exchange 
contracts (EUR:GBP)

Foreign exchange 
contracts (EUR:AUD)

Foreign exchange 
contracts (USD:GBP)

Foreign exchange 
contracts (GBP:CZK)

Foreign exchange 
contracts (USD:JPY)

- Average exchange rate

1.0744

1.1731

- Notional amount (£m)

19

- Average exchange rate

0.9483

- Notional amount (£m)

8

- Average exchange rate

1.6544

- Notional amount (£m)

10

- Average exchange rate

1.2589

- Notional amount (£m)

6

- Average exchange rate

29.7191

- Notional amount (£m)

4

–

–

–

–

–

–

–

–

1

- Average exchange rate

103.0538

100.6200

–

–

–

–

–

–

–

–

–

–

–

–

24

1.1885

12

0.9021

–

–

12

1.3523

6

28.8236

–

–

–
– 

–
– 

–
–
– 

–

–

–

–

123
1.797% 

364
1.015% 

–
– 

–
– 

–
–
– 

254
0.8450
1.750% 

353

1.0773

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

260

1.2534

–

–

–

–

–

–

–

–

–

–

–

–

At 31 July 2020, the Group had forward foreign exchange contracts with a nominal value of £110m (FY2019: £54m) 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 
20 August 2021. The largest single currency pairs are disclosed above and make up 100% 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 188.

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. 

Gross value of assets and liabilities
Related assets and liabilities subject to master netting agreements

Net exposure

Assets 
31 July 2020 
£m

Liabilities 
31 July 2020 
£m

Assets 
31 July 2019 
£m

Liabilities 
31 July 2019 
£m

84
(2)

82

(4)
2

(2)

50
(2)

48

(6)
2

(4)

1 8 9

4SMITHS GROUP PLC  ANNUAL REPORT FY202021 Fair value of financial instruments

As at 31 July 2020

Financial assets
Other investments
Other investments
Cash and cash equivalents
Trade and other financial receivables
Derivative financial instruments
Total financial assets
Financial liabilities
Trade and other financial payables
Short-term borrowings
Long-term borrowings
Leases liabilities
Derivative financial instruments
Total financial liabilities

As at 31 July 2019

Financial assets
Other investments
Other investments
Cash and cash equivalents
Trade and other financial receivables
Derivative financial instruments
Total financial assets
Financial liabilities
Trade and other financial payables
Short-term borrowings
Long-term borrowings
Finance leases
Derivative financial instruments
Total financial liabilities

Basis for 
determining 
fair value

At amortised  
cost 
£m

Notes

At fair value 
through profit 
or loss 
£m

At fair value 
through OCI 
£m

Total  
carrying  
value 
£m

Total  
fair value 
£m

17

17

18

15

20

16

18

18

18

20

A

E

A

A/B

B

A

C

C

D

B

–
–
206
679
–
885

(578)
(10)
(1,455)
(96)
-
(2,139)

11
–
160
–
84
255

–
–
–
–
(4)
(4)

–
8
–
–
–
8

–
–
–
–
–
–

11
8
366
679
84
1,148

(578)
(10)
(1,455)
(96)
(4)
(2,143)

11
8
366
679
84
1,148

(578)
(10)
(1,473)
(96)
(4)
(2,161)

Basis for 
determining 
fair value

At amortised  
cost 
£m

Notes

At fair value 
through profit 
or loss 
£m

Total  
carrying  
value 
£m

Total  
fair value 
£m

17

17

18

15

20

16

18

18

20

A

E

A

A/B

B

A

C

C

D

B

–
–
153
816
–
969

(599)
(9)
(1,500)
(3)
–
(2,111)

13
6
136
–
50
205

–
–
–
–
(6)
(6)

13
6
289
816
50
1,174

(599)
(9)
(1,500)
(3)
(6)
(2,117)

13
6
289
816
50
1,174

(599)
(9)
(1,535)
(3)
(6)
(2,152)

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 2 as defined by  

IFRS 13 Fair Value Measurement).

B  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 Fair Value Measurement).

C  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).

D  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).

E  The fair value of investments is estimated as 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

1 9 0

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020 
 
 
22 Commitments

Operating lease commitments – minimum lease payments
The minimum uncancellable lease payments which the Group is committed to make are:

Payments due:
– not later than one year
– later than one year and not later than five years
– later than five years

31 July 2019

Land and 
buildings 
£m

Other 
£m

36
84
17

137

8
9
–

17

From 1 August 2019, the Group has recognised lease liabilities in accordance with IFRS 16 Leases in respect of leased properties, vehicles and  
equipment. See accounting policies and note 18 for further information.

Other commitments
At 31 July 2020, commitments, comprising bonds and guarantees arising in the normal course of business, amounted to £240m  
(FY2019: £209m), including pension commitments of £54m (FY2019: £54m). In addition, the Group has committed expenditure on capital 
projects amounting to £6m (2019: £14m).

23 Provisions and contingent liabilities

Trading

Non-headline and legacy

Total

At 31 July 2018
Foreign exchange rate movements
Business combinations

Provision charged
Provision released
Unwind of provision discount
Utilisation
Reclassified to liability held for distribution to owners (note 28)

At 31 July 2019

Current liabilities
Non-current liabilities

At 31 July 2019
Foreign exchange rate movements
Provision charged
Provision released
Unwind of provision discount
Utilisation

At 31 July 2020

Current liabilities
Non-current liabilities

At 31 July 2020

John Crane, 
Inc. 
litigation 
£m

Titeflex 
Corporation 
litigation 
£m

Other  
£m

223
17
–

15
–
6
(24)
–

237

29
208

237

(17)
30
–
4

(23)
231

26
205

231

78
5
–

–
(6)
2
(5)
–

74

16
58

74

(5)
1
–
1

(5)
66

13
53

66

14
1
12

–
–
–
(3)
(2)

22

4
18

22

(1)
3
(1)
–

(3)
20

4
16

20

£m

23
1
–

15
(6)
–
(12)
(3)

18

17
1

18

(1)
9
(4)
–

(8)
14

12
2

14

£m

338
24
12

30
(12)
8
(44)
(5)

351

66
285

351

(24)
43
(5)
5

(39)
331

55
276

331

The John Crane, Inc. and Titeflex Corporation litigation provisions are the only provisions that are discounted.

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 2020, the Group has warranty and product liability provisions of £13m (FY2019: £17m). 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, though 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.

1 9 1

4SMITHS GROUP PLC  ANNUAL REPORT FY202023 Provisions and contingent liabilities continued

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 Alertline’, 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 Smiths 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. 

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 
judgments 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 product, primarily packing and gaskets. The asbestos was 
encapsulated within these products in such a manner that causes JCI to believe, 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: 

JCI claims experience
Claims against JCI that have been dismissed 
Claims JCI is currently a defendant in
Cumulative final judgments, after appeals, against JCI since 1979
Cumulative value of awards ($’m) since 1979

Year ended 
31 July 2020

Year ended 
31 July 2019

Year ended 
31 July 2018

Year ended 
31 July 2017

Year ended 
31 July 2016

297,000
25,000
149
175

285,000
38,000
144
168

277,000
43,000
140
164

273,000
50,000
138
160

247,000
74,000
137
158

The number of claims outstanding at 31 July 2020 reflects the benefit of 13,000 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 judgment 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 judgments awarded.

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 (FY2019: 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.

1 9 2

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020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 judgments awarded are projected based on the past history of JCI 
claims, since this is the best available evidence, given JCI’s unusual 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 history

The JCI asbestos litigation provision has developed over the last five years as follows: 

John Crane, Inc. litigation provision
Gross provision
Discount

Discounted pre-tax provision

Deferred tax
Discounted post-tax provision
Operating profit charge/(credit)
Increased provisions for adverse judgments and legal defence costs
Change in US risk-free rates 
Subtotal – items charged to the provision
Litigation management, legal fees in connection with litigation against insurers 
and defence strategy
Recoveries from insurers

Total operating profit charge

Cash-flow
Provision utilisation – legal defence costs and adverse judgements
Litigation management expense
Recoveries from insurers

Net cash outflow

John Crane, Inc. litigation provision sensitivities 

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

Year ended 
31 July 2018 
£m

Year ended 
31 July 2017 
£m

Year ended 
31 July 2016 
£m

235
(4)

231

(59)
172

14
16
30
1

(3)

28

(23)
(1)
3

(21)

257
(20)

237

(50)
187

7
8
15
2

(11)

6

(24)
(2)
11

(15)

251
(28)

223

(48)
175

13
(6)
7
3

–

10

(27)
(3)
–

(30)

260
(23)

237

(79)
158

17
(13)
4
11

(6)

9

(24)
(11)
6

(29)

267
(15)

252

(84)
168

8
7
15
8

(16)

7

(22)
(8)
16

(14)

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. 

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 £214m and future spend at the 95th percentile of £271m 
(FY2019: £234m and £297m, respectively). Statistical analysis of the distribution of these outcomes indicates that there is a 50% probability 
that the total future spend will fall between £222m and £244m (FY2019: between £242m and £267m), compared to the gross provision value of 
£235m (FY2019: £257m).

1 9 3

4SMITHS GROUP PLC  ANNUAL REPORT FY202023 Provisions and contingent liabilities continued

Non-headline and legacy continued
John Crane, Inc. continued

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 £20m (FY2019: £17m) and 
reducing it by five years would reduce the provision by £106m (FY2019: £100m).

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 provision by £17m (FY2019: £14m) and extending 
it by five years would increase the provision by £69m (FY2019: £59m). 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 judgments 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.

Titeflex Corporation

Titeflex Corporation, a subsidiary of the Group in the Flex-Tek division, has received a number of claims in the United States of America 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 United States of America, 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 market-place face similar challenges. 

Titeflex Corporation litigation provision

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. 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 provision of £66m (FY2019: £74m) 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).

Gross provision
Discount

Discounted pre-tax provision
Deferred tax

Discounted post-tax provision

31 July 2020 
£m

31 July 2019 
£m

86
(20)

66

(16)

50

118
(44)

74
(18)

56

Titeflex Corporation litigation provision history

A charge of £1m (FY2019: £6m 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 driven by foreign exchange rate movements and a reduction in the average number of claims per year, offset by decreasing US dollar 
discount rates.

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.

1 9 4

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020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 £6m (FY2019: £5m) lower, and if the 
benefit were 0.5% lower, the provision would increase by £7m (FY2019: £6m). 

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 £5m (FY2019: £6m), 
with an equivalent fall for a reduction of 10%. If the assumed amount of those settlements increased 10%, the provision would rise by £3m 
(FY2019: £3m), also with an equivalent fall for a reduction of 10%.

Other non-headline and legacy

Legacy provisions comprise provisions relating to former business activities and properties no longer used by Smiths. Non-headline 
provisions comprise all provisions that were disclosed as non-headline items when they were charged to the consolidated income statement. 
These provisions include non-headline reorganisation, disposal indemnities and litigation in respect of old products and discontinued 
business activities. 

Reorganisation

At 31 July 2020, there were reorganisation provisions of £3m relating to the various restructuring programmes that are expected to be utilised in 
the next 18 months.

Property

At 31 July 2020, there were provisions of £12m (FY2019: £14m) related to actual and potential environmental issues for sites currently or 
previously occupied by Smiths operations and £3m (FY2019: £1m) of dilapidations provisions.

24 Share capital

Ordinary shares of 37.5p each
Total share capital at 31 July 2018
Exercise of share options

Total share capital at 31 July 2019
Exercise of share options

Total share capital at 31 July 2020

Number of shares

Issued  
capital 
£m

Consideration 
£m

395,761,227
195,554

395,956,781

254,399

396,211,180

148
–

148

1

149

2

2

Share capital structure
As at 31 July 2020, the Company’s issued share capital was 396,211,180 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 2020, 7,120,155 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 regards 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 annual shareholder approval at the AGM. 
Such authorities were granted by shareholders at the 2019 AGM, and at the 2020 AGM it will be proposed that the Directors be granted  
new authorities to allot and buy back shares.

Repurchase of shares
The Company did not purchase any of its own shares in its own name during the financial year ended 31 July 2020, all share purchases have 
been made by an Employee Benefit Trust with the shares acquired used to satisfy Company share plan commitments. As at 21 September 2020 
(the latest practicable date for inclusion in this report), the Company had an unexpired authority to repurchase ordinary shares up to a maximum 
of 40m ordinary shares. As at 21 September 2020, the Company did not hold any shares in treasury. Any ordinary shares purchased may be 
cancelled or held in treasury.

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 2020, the trust held no 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.

1 9 5

4SMITHS GROUP PLC  ANNUAL REPORT FY202025 Dividends
The following dividends were declared and paid in the period:

FY2019 ordinary final dividend of 31.80p (FY2018: 30.75p) paid 15 November 2019
FY2020 ordinary interim dividend of nil (FY2019: 14.10p)

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

126
–

126

122
56

178

In March 2020, the Board considered it prudent not to declare an interim dividend for HY2020 until such time as trading conditions became 
clearer and there was less uncertainty. Reflecting the Group’s strong performance and financial position, the Board has recommended a total 
dividend of 35.0p per share for the year. This is comprised of a delayed interim dividend of 11.0p and a proposed final dividend of 24.0p. 

Shareholders will be asked to approve the final dividend component of the total dividend at the 2020 AGM. If the final dividend is approved, it will 
be payable, along with the interim dividend, on 20 November 2020 to shareholders on the register of members at 6.00pm on 23 October 2020 
(the record date). The interim dividend does not require the approval of shareholders and is therefore not included in the resolutions put to the 
AGM. As payment of these dividends will occur outside the period, they have not been included as a liability in these accounts. 

Waiver of dividends
The following waived all dividends payable in the year, and all future dividends, on their shareholdings in the Company:

 – Wealth Nominees Limited (Smiths Industries Employee Share Trust)

 – Reuter File Limited

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 1,234,907 (FY2019: 1,170,315) shares to the Trust, and the Trust purchased 1,181,849 shares (FY2019: 1,222,607 shares) in the market for a 
consideration of £18m (FY2019: £19m). At 31 July 2020, the Trust held nil (FY2019: 53,058) ordinary shares.

The capital redemption reserve, revaluation reserve and merger reserve 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 post-retirement benefit related assets and 
liabilities, net litigation provisions relating to non-headline items and net debt. The efficiency of the allocation of the 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. The ROCE was11.8% (FY2019: 14.4%), see note 30.

The capital structure is based on the Directors’ judgement of the balance required to maintain flexibility while achieving an efficient cost 
of capital. 

The ratio of net debt to headline EBITDA of 1.9 (FY2019: 1.8) 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 is more than able to fund the immediate investment needs and other legacy 
obligations. See note 30 for the definition of headline EBITDA and the calculation of this ratio. 

As part of its capital management the Group strategy is to maintain a solid investment grade credit rating to ensure access to the 
widest possible sources of financing and to minimise the resulting cost of capital. At 31 July 2020, the Group had a credit rating of BBB+/Baa2 
(FY2019: BBB+/Baa2) with Standard & Poor’s and Moody’s respectively. 

The Board has a progressive dividend policy for future pay-outs, 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 minimum dividend cover of around 2 times. 

Hedge reserve

The hedge reserve on the balance sheet comprises:
– net investment hedge reserve from continuing operations net of £3m deferred tax (FY2019: £nil)
– net investment hedge reserve from discontinued operations

31 July 2020 
£m

31 July 2019 
£m

(311)
(1)

(312)

(383)
–

(383)

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 a non-controlling interest of £21m in John Crane Japan Inc., representing a 30% interest. John Crane Japan Inc. 
generated operating profits of £9m in the period, cash inflows from operating activities of £11m and paid dividends of £2m and tax of £3m. 
At 31 July 2020, the company contributed £60m of net assets to the Group. 

1 9 6

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY202027 Acquisitions
On 31 October 2019, Smiths Interconnect completed the acquisition of 100% of the share capital of Reflex Photonics Inc. for an enterprise value 
of CAD$40m. Reflex Photonics is a business that manufactures ruggedised high-speed optical products for space, aerospace, defence, avionics, 
and industrial applications. The acquisition strengthens Smiths Interconnect’s position in these markets. 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 31July 2020, Reflex Photonics contributed £5m to revenue and less than £1m to profit before taxation. If the Group 
had acquired this business from the beginning of the financial year, the acquisition would have contributed £8m to revenue and less than £1m to 
profit before taxation. The provisional fair values at the date of acquisition are: 

Non-current assets

Current assets

Current liabilities

– acquired intangible assets
– plant and machinery
– right-of-use assets
– inventory
– trade and other receivables

– trade and other payables
- current tax

Non-current liabilities

– lease liabilities

Net assets acquired

Goodwill on current year acquisitions

Cash paid during the year

Total consideration

Acquisitions in previous years

Total 
£m

15
2
1
2
1
(3)

(3)

(1)

14

10

24
24

The Group acquired United Flexible in the prior year. Since the acquisition the Group has undertaken a thorough review of the business and has 
adjusted the fair value of assets and liabilities on the acquisition balance sheet, resulting in a £1m increase in the goodwill associated with this 
acquisition in the current year

28 Discontinued operations and businesses held for distribution to owners
The Group formally committed to pursue a demerger of the Smiths Medical business and separately list it on the UK Stock Exchange in 
FY2019 and at 31 July 2019 it was determined that the project had progressed sufficiently for Smiths Medical business to be accounted for as a 
discontinued operation and as a business held for distribution to owners. 

The demerger project was paused in March 2020 due to the unprecedented circumstances of the second half of FY2020. Management has 
determined that, as the Group remains demonstrably committed to the demerger of Smiths Medical, the criteria for classification as 
discontinued and held for distribution to owners continue to be met.

Discontinued operations

The financial performance of the Smiths Medical business in the current and prior years is presented below:

Revenue
Cost of sales

Gross profit
Sales and distribution costs 
Administrative expenses
Profit on business disposal

Operating profit
Finance costs

Taxation

Profit from discontinued operations 

Year ended 31 July 2020

Year ended 31 July 2019

Headline 
£m

Non-headline 
(note 3) 
£m

918
(418)

500
(187)
(129)
–

184

(4)

(41)

139

–
–

–
–
(23)
–

(23)
62

22

61

Total 
£m

918
(418)

(187)
(152)
–

161

58

(19)

200

Headline 
£m

Non-headline 
(note 3) 
£m

874
(412)

462
(183)
(132)
–

147
(3)

(32)

112

–
–

–
–
(13)
17

4
(38)

7

(27)

Total 
£m

874
(412)

462
(183)
(145)
17

151
(41)

(25)

85

£3m (FY2019: £3m) of interest was capitalised as part of the costs of Smiths Medical development projects. £1m (FY2019: £1m) of tax relief has 
been recognised as current tax relief in the period. The demerger of the Medical division is not anticipated to give rise to material tax charges. 
However, it is noted that the relevant regulatory filings and clearances are still in progress.

1 9 7

4SMITHS GROUP PLC  ANNUAL REPORT FY2020 
28 Discontinued operations and businesses held for distribution to owners continued

Businesses held for distribution to owners
The carrying value of the assets and liabilities of the Smiths Medical business as at 31 July 2020 and 31 July 2019 is as follows:

Assets classified as held for distribution to owners:
Intangible assets
Property, plant and equipment
Right of use assets
Inventories
Deferred tax assets
Current tax receivable
Trade and other receivables
Cash and cash equivalents
Financial derivatives

Assets classified as held for distribution to owners

Liabilities classified as held for distribution to owners:

Financial liabilities

– borrowings

- lease liabilities

– financial derivatives

Trade and other payables

Current tax payable

Deferred tax liabilities

Retirement benefit obligations

Provisions for liabilities and charges

31 July 2020 
£m

31 July 2019 
£m

734
141
54
164
14
3
148
20
1

746
135
–
151
13
2
138
26
5

1,279

1,216

–

(48)

(4)

(167)

(10)

(53)

(5)

(8)

(3)

–

(2)

(137)

(11)

(48)

(6)

(6)

Liabilities classified as held for distribution to owners

(295)

(213)

Acquisition of Access Scientific, LLC
On 12 May 2020, Smiths Medical completed the acquisition of 100% of the share capital of Access Scientific, LLC a broad-spectrum vascular 
access and infection prevention company. The acquisition of Access Scientific, LLC extends Smiths Medical’s vascular access product portfolio. 
The provisional fair values at the date of acquisition are:

Intangible assets- technology and customer relationships
Inventories
Net assets acquired

Goodwill on acquisition

Cash paid during the year

Total consideration

Total 
£m

4
1
5

7

12
12

Contract liabilities from variable consideration agreements
Smiths Medical has a number of agreements with Group Purchasing Organisations and Individual Development Networks offering variable 
pricing arrangements on sales creating the need for rebates to be paid. 

Included within trade and other payables are £41m of contract liabilities relating to variable consideration agreements (FY2019: £51m). 
These contract liabilities are estimated based on current sales and an applicable erosion rate. The erosion rate is based on historical rebate 
trends and adjusted for inventory maintained at distributor sites. There has been no recent history of material revisions to this contract liability.

1 9 8

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Intangible assets
The Smiths Medical intangible assets comprise:

Goodwill
Development costs
Acquired intangibles
Software, patents and intellectual property
Intangible assets

31 July 2020 
£m

31 July 2019 
£m

564
140
20
10
734

594
127
17
8
746

During the year impairment tests were carried out for capitalised development costs for products that were still under development and 
acquired intangibles where there were indications of impairment. Value in use calculations were used to determine the recoverability of 
these assets.

Intellifuse programme intangible asset
The Smiths Medical development costs above include £80m (FY2019: £64m) for the Intellifuse programme, which is considered to be an 
individually material intangible asset. Intellifuse is designed to be a multi-generational development programme to deliver a, rackable, 
stackable, interoperable, and extendable platform for both Large Volume Pumps and Syringe Pumps.

The US Food and Drug Administration (FDA) regulatory clearance path for infusion devices has become more challenging as the FDA has 
increased general scrutiny on all infusion technologies. During FY2020 Smiths Medical has experienced delays in achieving regulatory 
clearance for Intellifuse from the US FDA; competitors have also experienced such delays. 

Although CE Mark regulatory approval for the sale of Intellifuse in the European Union was achieved in FY2020, the delay in US FDA regulatory 
clearance together with the assumed timetable of competitor launches has impacted the commercial viability and timelines for the launch of 
Intellifuse. Management remain confident on the technical feasibility of Intellifuse and the scope of work required to achieve FDA approval. 
However this delay is considered to be a potential indicator of impairment and therefore a detailed impairment review of the Intellifuse 
programme has been undertaken.

IAS 36 ‘Impairment of Assets’ states that the recoverable amount of an asset is the greater of its ‘fair value less costs to sell’ and its ‘value 
in use’. Therefore the impairment review for Intellifuse was completed using a fair value less cost to sell (Fair Value) valuation model. 
Since valuations of identical assets in active markets are not available, nor are market observables, the valuation is based on assumptions which 
a third party would use in estimating a fair value in an arm’s length sale process. 

The result of this impairment testing is that the estimated Fair Value of Intellifuse exceeded the carrying value by £38m. Therefore no 
impairment charge has been recognised on the Intellifuse programme. This conclusion is supported by a separate impairment review 
undertaken on a value in use basis.

The Fair Value model utilised for impairment testing used the following key assumptions:

 – 9% post-tax discount rate;

 – 15.5% tax amortisation benefit;

 – 1% cost to sell; 

 – an additional period of development to gain FDA clearance and prepare for commercial launch;

 – 8 year sales forecast focused on North America only, being the expected primary market, excluding for modelling purposes the opportunities 

from other regions where CE Mark regulatory approval has already been obtained; 

 – 7 year annuity for related Disposables and Software Licenses in North America; and

 – manufacturing and operating expenses priced as if they were outsourced to a third party, based on the third quartile of data points in third 

party benchmarking studies.

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 an impairment loss being recognised for the year ended 31 July 2020:

Delay in commercial launch of product
Post-tax discount rate
Volume of sales achieved per annum

Change required for carrying value 
to equal recoverable amount

20 month further delay
+370 bps increase
–2,650 bps decrease

1 9 9

4SMITHS GROUP PLC  ANNUAL REPORT FY202028 Discontinued operations and businesses held for distribution to owners continued 

Cash-flow from discontinued operations
Cash-flows from discontinued operations included in the consolidated cash-flow statement is as follows:

Net cash inflow from operating activities
Net cash-flow used in investing activities
Net cash-flow used in financing activities

31 July 2020 
£m

31 July 2019 
£m

141
(55)
(83)

3

149
(28)
(60)

61

Movement in net cash held in the disposal group includes £9m of foreign exchange losses, generating a total outflow of £6m.

Pro-forma balance sheet of the Group excluding Smiths Medical

31 July 2020 
£m

1,564
218
94
19
516
102
52
82
2,647

446
46
627
366
2
1,487
4,134

(45)
(55)
(527)
(79)
(706)

(1,520)
(276)
(139)
(5)
(27)
(51)

(2,018)

(2,724)

1,410

Non-current assets
Intangible assets
Property, plant and equipment
Right of use assets
Financial assets – other investments
Retirement benefit assets
Deferred tax assets
Trade and other receivables
Financial derivatives

Current assets
Inventories
Current tax receivable
Trade and other receivables
Cash and cash equivalents
Financial derivatives

Total assets
Current liabilities
Financial liabilities
Provisions for liabilities and charges
Trade and other payables
Current tax payable

Non-current liabilities
Financial liabilities
Provisions for liabilities and charges
Retirement benefit obligations
Corporation tax payable
Deferred tax liabilities
Trade and other payables

Total liabilities

Net assets

2 0 0

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Additional segmental information for discontinued operations
Headline operating profit for discontinued operations is stated after charging depreciation £nil (FY2019: £19m), amortisation £nil  
(FY2019: £21m) and share based payments £1m (FY2019: £nil). The capital expenditure on property, plant and equipment, capitalised 
development and other intangible assets for discontinued operations is £46m (FY2019: £45m).

Revenue for the Smiths Medical discontinued operation is analysed by the following product lines: Infusion Systems £323m (FY2019: £307m), 
Vascular Access £275m (FY2019: £286m) and Vital Care/Other £320m (FY2019: £281m). Revenue by destination and non-current operating 
assets by location for discontinued operations is shown below:

Revenue
Intangible assets, right of use assets and 
property, plant and equipment

Year ended 31 July 2020

Year ended 31 July 2019

Europe, 
Middle East  
& Africa 
£m

Asia-Pacific 
£m

282

96

148

53

Americas 
£m

488

780

Total 
£m

918

929

Americas 
£m

493

772

Europe,  
Middle East  
& Africa 
£m

Asia-Pacific 
£m

233

64

148

45

Total 
£m

874

881

Revenue by destination attributable to the United Kingdom was £69m (FY2019: £28m). Revenue earned in the United States of America is 
significant totalling £438m (FY2019: £447m). Revenue by destination has been selected as the basis for attributing revenue to geographical areas 
as this is the attribution used by management to review the performance of the business.

Non-current assets located in the United Kingdom total £33m (FY2019: £16m). Significant non-current assets are held in the United States of 
America totalling £732m (FY2019: £762m).

29 Cash-flow
Cash-flow from operating activities

Operating profit 

– continuing operations
– discontinued operations

Amortisation of intangible assets
Impairment of intangible assets
Depreciation of property, plant and equipment
Depreciation of right of use assets
Loss on disposal of property, plant and equipment
Profit on disposal of businesses
Share-based payment expense
Retirement benefits*
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Increase/(decrease) in provisions
Cash generated from operations
Interest paid
Interest received
Tax paid
Net cash inflow from operating activities

 – continuing operations
 – discontinued operations

Year ended 31 July 2020

Year ended 31 July 2019

Headline 
£m
327
184
13
12
41
33
3
–
10
8
(73)
76
49
1
684
(57)
7
(113)
521
356
165

Non-headline 
£m
(86)
(23)
57
–
–
–
–
(1)
–
(41)
–
4
(2)
–
(92)
–
–
–
(92)
(68)
(24)

Total 
£m
241
161
70
12
41
33
3
(1)
10
(33)
(73)
80
47
1
592
(57)
7
(113)
429
288
141

Headline 
£m
427
147
36
–
56
–
4
–
15
7
(52)
(105)
60
(7)
588
(64)
6
(99)
431
277
154

Non-headline 
£m
(101)
4
45
–
–
–
–
(18)
–
(6)
4
–
6
(19)
(85)
–
–
–
(85)
(80)
(5)

Total 
£m
326
151
81
–
56
–
4
(18)
15
1
(48)
(105)
66
(26)
503
(64)
6
(99)
346
197
149

* The retirement benefits non-headline operating cash-flows principally relate to employer contributions to legacy defined benefit and post-
retirement healthcare plans.

2 0 1

4SMITHS GROUP PLC  ANNUAL REPORT FY202029 Cash-flow continued

Headline cash measures
The Group measure of headline operating cash includes capital expenditure supporting organic growth and excludes interest and tax.

Net cash inflow from operating activities
Include:
Expenditure on capitalised development, other intangible assets  
and property, plant and equipment
Repayment of lease liabilities
Disposals of property, plant and equipment 
Investment in financial assets relating to operating activities and 
pensions financing outstanding at the balance sheet date
Free cash-flow

Exclude:
Investment in financial assets relating to operating activities and 
pensions financing outstanding at the balance sheet date
Repayment of lease liabilities
Interest paid
Interest received
Tax paid

Operating cash-flow

Year ended 31 July 2020

Year ended 31 July 2019

Headline 
£m
521

Non-headline 
£m
(92)

(110)
(47)
1

–

–
47
57
(7)
113

575

–
–
–

–

–

–
–
–

(92)

Total 
£m
429

(110)
(47)
1

–
273

–
47
57
(7)
113

483

Headline 
£m
431

Non-headline 
£m
(85)

(118)
–
4

2

(2)

64
(6)
99

–
–
–

–

–

–
–
–

Total 
£m
346

(118)
–
4

2
234

(2)

64
(6)
99

474

(85)

389

Headline cash conversion
Headline operating cash conversion for the total Group is calculated as follows:

Headline operating profit – including discontinued operations
Depreciation and amortisation of held for distribution assets

Pro-forma profit including depreciation and amortisation on held for distribution assets 

Headline operating cash-flow

Headline operating cash conversion

Reconciliation of free cash-flow to total movement in cash and cash-equivalents

Free cash-flow
Acquisition of businesses
Disposal of businesses and discontinued operations
Other net cash-flows used in financing activities (note: repayment of lease liabilities is included in free cash-flow)
Net increase/(decrease) in cash and cash equivalents

Year ended  
31 July 2020 
£m

Year ended  
31 July 2019 
£m

511
(45)

466

575

123%

574
–

574

474

83%

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

273
(36)
1
(141)
97

234
(277)
22
(391)
(412)

30 Alternative performance measures
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. 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:

Term

Definition and purpose

Capital employed

Capital employed is a non-statutory measure of invested resources. It comprises statutory net assets and is 
adjusted to add goodwill recognised directly in reserves in respect of subsidiaries acquired before 1 August 1998 
and 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. 

2 0 2

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Term

Definition and purpose

Headline cash conversion 
ratio

Comprises cash flow from operations before non-headline items as a percentage of headline operating profit.
This measure is used to show 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 29.

Dividend cover – headline Dividend cover is the ratio of headline earnings per share, see note 5, to dividend per share, see note 25.

Divisional headline 
operating profit ('DHOP')

DHOP comprises divisional earnings before central costs, finance 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

Gross debt

Gross vitality

Headline

Headline EBITDA

Net debt

Non-headline

Free cash-flow is calculated by adjusting the net cash inflow from operating activities to include capital 
expenditure, the repayment of lease liabilities and proceeds from the disposal of property, plant and equipment.
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 29.

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.

Gross vitality is calculated as the percentage of revenue over the last 12 months derived from new products and 
services launched in the last three years.

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.

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 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 debt. 

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.

Operating cash-flow

Comprises free cash-flow and excludes cash-flows relating to 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 29.

Operating profit

Headline operating profit 
excluding restructuring 
and write-downs

Ratio of capital 
expenditure to 
depreciation and 
amortisation

Return on capital 
employed ('ROCE')

Total Group  
stock turns

Underlying

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 144. This common measure is used by the Group to measure and monitor 
performance.

Headline operating profit is adjusted for strategic restructuring programme costs and write-downs. See note 2 
for a reconciliation. 

Represents the amount of capital expenditure as a proportion of the depreciation and amortisation charge for the 
period. This measure shows the level of reinvestment into operations.

Smiths ROCE is calculated over a rolling 12-month period and is the 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. 

Total Group stock turns during the year is calculated as the last 12 month cost of sales divided by the 12 month 
average inventory. This measure is included as a key performance indicator of the Group to measure the efficiency 
of the Group 

Underlying measures are calculated by excluding the effects of foreign exchange, disposals and acquisitions, 
strategic restructuring programme costs and write-downs (see note 2), and to include depreciation and 
amortisation charges for Smiths Medical. Underlying measures are used by the Group to monitor performance.

Working capital

Working capital is calculated as the sum of the 12-month rolling average of inventory, trade receivables, contract 
assets, trade payables and contract liabilities.

2 0 3

4SMITHS GROUP PLC  ANNUAL REPORT FY202030 Alternative performance measures continued

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 £787m (FY2019: £787m) and 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. 

Net assets
Adjust for: 
Goodwill recognised directly in reserves
Post-retirement benefit assets and liabilities
Tax related to post-retirement benefit assets and liabilities
John Crane, Inc. litigation provisions and related tax
Titeflex Corporation litigation provisions and related tax
Net debt (including £28m of net debt in discontinued operations (FY2019: £23m cash))
Derivatives managing interest rate and currency profile of the debt in the prior year*

Capital employed

Notes

31 July 2020 
£m

31 July 2019 
£m

2,394

2,381

8

23

23

18

787
(372)
70
172
50
1,141
–

787
(311)
55
187
56
1,152
45

4,242

4,352

*  The Group's definition of net debt has been updated in FY2020 to include the fair value of derivatives used for the management of interest rate and currency profile. The calculation basis for 

capital employed in FY2019 has not been represented for this change.

Return on capital employed

Headline operating profit for previous 12 months – including discontinued operations
Average capital employed

ROCE

Notes

1

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

511
4,315

11.8%

574
3,972

14.4%

Credit metrics – total Group including discontinued operations
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 
presented for the whole Group, including discontinued operations, and is calculated as follows:

Headline earnings before interest, tax, depreciation and amortisation (headline EBITDA) 
- total Group including discontinued operations

Headline operating profit
Include: 
– headline operating profit of discontinued operations
Exclude: 
– depreciation of property, plant and equipment
- depreciation of right of use assets
– amortisation and impairment of development costs
– amortisation of software, patents and intellectual property

Headline EBITDA

£1m of software amortisation was charged to restructuring projects and treated as a non-headline cost. 

Ratio of net debt to headline EBITDA – total Group including discontinued operations

Headline EBITDA
Net debt – incl. £20m of net cash and £48m lease liabilities in discontinued operations (FY2019: £23m cash)

Ratio of net debt to headline EBITDA

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

Notes

327

184

41
33
18
7

610

427

147

56
–
23
13

666

28

12

13

10

10

Notes

18

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019 
£m

610
1,141

1.9

666
1,197

1.8

31 Post Balance Sheet Events
Details of the delayed interim dividend and proposed final dividend announced since the end of the reporting period are given in note 25.

In August 2020, Smiths Detection completed the acquisition of PathSensors Inc, which complements and accelerates its biological capability to 
detect pathogens for broad end-market applications.

2 0 4

NOTES TO THE ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020U N A U D I T E D   F I V E - Y E A R   G R O U P   F I N A N C I A L   R E C O R D

Unaudited Group financial record 2016-2020

The headline income statement metrics shown below for the years ended 31 July 2018, 2017 and 2016 have been represented to show the 
results of Smiths Medical as a discontinued operation. 

Year ended 
31 July 2020 
£m

Year ended 
31 July 2019
£m

Year ended 
31 July 2018 
£m

Year ended 
31 July 2017 
£m

Year ended 
31 July 2016 
£m

Income statement metrics – headline*
Continuing operations

Revenue
Headline operating profit
Headline profit before tax

Discontinued operations

Revenue
Headline operating profit
Headline profit before tax

Income statement metrics – statutory**
Revenue
Operating profit 
Profit before taxation 
Profit for the year

Balance sheet metrics***
Net debt
Shareholders’ equity
Average capital employed

Ratios***
Headline operating profit: revenue (%) 
Headline effective tax rate (%)
Return on capital employed (%)
Return on shareholders’ funds (%)

Cash-flow metrics***
Headline operating cash 
Headline operating cash conversion (%)

Free cash-flow 
Free cash-flow per share (p)

Earnings per share***
Headline earnings per share (p) 

Dividends and dividend cover***
Pence per share
Headline dividend cover 

Number of employees (000s)***
United Kingdom
Overseas

2,548
327
278

918
184
180

2,548
241
133
267

2,498
427
376

874
147
144

2,498
326
304
227

(1,141)
2,373
4,315

(1,197)
2,360
3,972

14.7
26.2
11.8
10.8

575
123

273
68.9

17.0
25.9
14.4
12.3

474
83

234
 59.1 

2,328
388
333

869
156
154

2,328
342
287
279

(893)
2,272
3,735

17.0
 25.8 
14.6
12.1

538
99

302
76.3

2,329
355
296

951
194
192

3,280
674
601
572

(967)
2,089
3,639

18.0
 26.5 
16.2
14.5

695
 118 

370
93.6

2,075
292
234

874
174
173

2,949
387
346
261

(978)
1,646
3,324

17.3
 25.0 
15.3
14.3

520
 102 

243
61.1

84.8

96.8

90.7

97.6

85.2

35.00
2.4

1.6
21.5

23.1

45.90
2.1

1.6
20.5

22.0

44.55
2.0

43.25
2.3

42.00
2.0

1.5
20.2

21.7

1.5
20.4

21.9

1.5
20.5

22.0

* 

** 

 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 discontinued operations comparatives for the year ended 31 July 2018 have also been 
restated for the adoption of IFRS 15.
 The statutory income statement metrics are presented based on continuing operations for both the current and comparative year.  
The years ended 31 July 2017 and 31 July 2016 are presented as originally published. 

***   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.

2 0 5

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Unaudited supplementary consolidated income statement – 
US dollar translation

Year ended 31 July 2020

Year ended 31 July 2019

CONTINUING OPERATIONS
Revenue
Cost of sales

Gross profit
Sales and distribution costs
Administrative expenses
OPERATING PROFIT/(LOSS)

Interest receivable
Interest payable
Other financing gains/(losses)
Other finance charges – retirement benefits

Finance costs

Continuing operations – profit before taxation

Taxation

Continuing operations – profit for the year

Discontinued operations
Profit on discontinued operations

PROFIT FOR THE YEAR

Attributable to 
Smiths Group shareholders – continuing operations
Smiths Group shareholders – discontinued operations
Non-controlling interests

EARNINGS PER SHARE
Basic
Basic – continuing
Diluted
Diluted – continuing

Headline 
$m

Non-headline 
(note 3) 
$m

3,216
(1,968)

1,248
(341)
(495)
412

8
(69)
–
–

(61)

351

(100)

251

175
426

248
175
3

426

–
–

–
–
(108)
(108)

–
–
(83)
9

(74)

(182)

16

(166)

77
(89)

(166)
77
–

(89)

Total 
$m

3,216
(1,968)

1,248
(341)
(603)
304

8
(69)
(83)
9

(135)

169

(84)

85

252
337

82
252
3

337

84.4c
20.7c
83.9c
20.6c

Headline 
$m

Non-headline 
(note 3) 
$m

3,218
(1,841)

1,377
(344)
(483)
550

14
(80)
–
–

(66)

484

(133)

351

144
495

348
144
3

495

–
–

–
–
(130)
(130)

–
–
23
14

37

(93)

(76)

(169)

(35)
(204)

(169)
(35)
–

(204)

Total 
$m

3,218
(1,841)

1,377
(344)
(613)
420

14
(80)
23
14

(29)

391

(209)

182

109
291

179
109
3

291

73.2c
45.5c
72.8c
45.3c

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. 

2 0 6

UNAUDITED US DOLLAR PRIMARY STATEMENTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Unaudited supplementary consolidated statement 
of comprehensive income – US dollar translation

PROFIT FOR THE YEAR

  Other comprehensive income:
  Re-measurement of post-retirement benefits assets and obligations
  Taxation

   Other comprehensive income and expenditure which will not be reclassified  
to the consolidated income statement

  Other comprehensive income which will be reclassified and reclassifications:
  Exchange losses/(gains)
  Fair value gains/(losses) and reclassification adjustments:
  – on financial asset at fair value through other comprehensive income
  – deferred in the year on cash-flow and net investment hedges
  – reclassified to income statement on cash-flow and net investment hedges
Total other comprehensive income
Total comprehensive income 

Attributable to: 
Smiths Group shareholders
Non-controlling interests

Year ended 
31 July 2020 
$m

Year ended 
31 July 2019 
$m

337

291

24
(3)

21

(98)
17

(81)

(48)

30

2
92
(2)
65
402

398
4

402

2
(99)
(5)
(153)
138

135
3

138

2 0 7

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Unaudited supplementary consolidated balance sheet –  
US dollar translation

NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Right of use assets
Financial assets – other investments
Retirement benefit assets
Deferred tax assets
Trade and other receivables
Financial derivatives

CURRENT ASSETS
Inventories
Current tax receivable
Trade and other receivables
Cash and cash equivalents
Financial derivatives

Assets held for distribution to owners

TOTAL ASSETS

CURRENT LIABILITIES
Financial liabilities
– borrowings
– lease liabilities
– financial derivatives
Provisions for liabilities and charges
Trade and other payables
Current tax payable

Liabilities held for distribution to owners

NON-CURRENT LIABILITIES
Financial liabilities
– borrowings
– lease liabilities
– financial derivatives
Provisions for liabilities and charges
Retirement benefit obligations
Current tax payable
Deferred tax liabilities
Trade and other payables

TOTAL LIABILITIES

NET ASSETS

SHAREHOLDERS’ EQUITY
Share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Merger reserve
Retained earnings
Hedge reserve

Total shareholders’ equity
Non-controlling interest equity

TOTAL EQUITY

2 0 8

31 July 2020 
$m

31 July 2019 
$m

2,049
285
123
25
676
134
68
107

3,467

584
60
820
480
4

1,675

3,623

7,090

(13)
(40)
(4)
(72)
(698)
(95)

(388)

2,057
283
–
23
573
140
64
57

3,197

510
14
933
353
4

1,484

3,298

6,495

(11)
–
(7)
(80)
(695)
(69)

(259)

(1,310)

(1,121)

(1,906)
(85)
(1)
(361)
(182)
(7)
(35)
(67)

(2,644)
(3,954)

3,136

195
472
8
3
308
2,534
(413)

3,107

29

3,136

(1,831)
–
(1)
(349)
(186)
(9)
(55)
(36)

(2,467)
(3,588)

2,907

181
440
7
1
287
2,434
(468)

2,882
25

2,907

UNAUDITED US DOLLAR PRIMARY STATEMENTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Unaudited supplementary consolidated statement of changes 
in equity – US dollar translation

At 31 July 2019

 621 

 295 

2,434

 (468)

 2,882 

 25 

 2,907 

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

Impact of adopting IFRS 16
Impact of adopting IFRIC 23
  Profit for the year
  Other comprehensive income: 
  – re-measurement of post-retirement benefits 
     assets/obligations and tax
  – exchange (losses)/gains net of recycling
  – fair value gains/(losses) and related tax

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

Transactions relating to ownership interests: 
Exercises of share options
Purchase of own shares
Dividends:
– equity shareholders
– non-controlling interests
Share-based payment

–
–
–

-
43
–

43

3
–

–
–
–

–
–
–

-
24
–

24

–
–

–
–
–

(1)
(5)
334

21
(83)
3

275

–
(23)

(159)
–
13

–
–
–

–
(34)
89

55

–
–

–
–
–

(1)
(5)
334

21
(50)
92

397

3
(23)

(159)
–
13

–
–
3

–
2
–

5

–
–

–
(1)
–

(1)
(5)
337

21
(48)
92

402

3
(23)

(159)
(1)
13

At 31 July 2020

667

319

2,534

(413)

3,107

29

3,136

At 31 July 2018

  Profit for the year
  Other comprehensive income: 
  – re-measurement of post-retirement benefits 
     assets/obligations and tax
  – exchange (losses)/gains
  – fair value gains/(losses) and related tax

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

Transactions relating to ownership interests: 
Exercises of share options
Purchase of own shares
Dividends:
– equity shareholders
– non-controlling interests
Receipt of capital from non-controlling interest
Share-based payment

Share capital 
 and share 
premium 
$m

 663 

–

–
 (44)
–

 (44)

 2 
–

–
–
–
–

Other 
 reserves 
$m

 318 

–

Retained  
earnings 
$m

2,398

289

Hedge  
reserve 
$m

 (397)

–

Equity  
shareholders’ 
funds 
$m

Non-
controlling 
interest 
$m

 2,982 

 289 

 21 

 2 

Total 
equity 
$m

 3,003 

 291 

–
 (23)
–

 (23)

–
–

–
–
–
–

(81)
63
2

273

–
(24)

(230)
–
–
17

–
 33 
 (104)

 (71)

–
–

–
–
–
–

(81)
 29 
 (102)

 135 

 2 
 (24)

 (230)
-
–
 17 

(81)
 30 
 (102)

 138 

 2 
 (24)

 (230)
 (1)
 2 
 17 

 1 
–

 3 

–
–

–
 (1)
 2 
–

At 31 July 2019

 621 

 295 

2,434

 (468)

 2,882 

 25 

 2,907 

2 0 9

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Unaudited supplementary consolidated cash-flow statement – 
US dollar translation

Year ended 
31 July 2020 
$m

Year ended 
31 July 2019 
$m

541

445

(44)
(18)
(77)
1
–
(45)
1

–

(182)

3
(23)
–
(159)
1
–

(59)

(237)

122

353
8
(3)

480

227
253

480

(35)
(15)
(102)
5
3
(357)
39

(10)

(472)

3
(24)
(3)
(230)
–
(250)

–

(504)

(531)
941
(33)
(24)

353

187
166

353

Net cash inflow from operating activities
Cash-flows from investing activities
Expenditure on capitalised development
Expenditure on other intangible assets
Purchases of property, plant and equipment
Disposals of property, plant and equipment
Capital returned by/(investment in) financial assets
Acquisition of businesses
Disposals of businesses – discontinued operations

Tax paid on disposal of business – discontinued operations

Net cash-flow used in investing activities

Cash-flows from financing activities
Proceeds from exercise of share options
Purchase of own shares
Settlement of cash settled options
Dividends paid to equity shareholders
Cash inflow from matured derivative financial instruments
Reduction and repayment of borrowings

Reduction and repayment of lease liabilities

Net cash-flow used in financing activities

Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash held in disposal group
Exchange differences

Cash and cash equivalents at end of year

Cash and cash equivalents at end of year comprise:
– cash at bank and in hand
– short-term deposits

2 1 0

UNAUDITED US DOLLAR PRIMARY STATEMENTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Unaudited Group US dollar financial record 2016-2020

The headline income statement metrics shown below for the years ended 31 July 2018, 2017 and 2016 have been represented to show the 
results of Smiths Medical as a discontinued operation.

Year ended 
31 July 2020 
$m

Year ended 
31 July 2019 
$m

Year ended 
31 July 2018 
$m

Year ended 
31 July 2017 
$m

Year ended 
31 July 2016 
$m

Income statement metrics – headline*

Continuing operations

Revenue

3,216

3,218

3,139

2,952

3,036

Headline operating profit

Headline profit before tax

Discontinued operations

Revenue

Headline operating profit

Headline profit before tax

Income statement metrics – statutory**
Revenue
Operating profit 
Profit before taxation 
Profit for the year

Balance sheet metrics***
Net debt
Shareholders’ equity
Average capital employed

Ratios***
Headline operating profit: revenue (%) 
Headline effective tax rate (%)
Return on capital employed (%)
Return on shareholders’ funds (%)

Cash-flow metrics***
Headline operating cash 
Headline operating cash conversion (%)

Free cash-flow 
Free cash-flow per share (c)

Earnings per share***
Headline earnings per share (c) 

Dividends and dividend cover***
Cents per share (c)
Headline dividend cover 

Number of employees (000s)***
United States of America
Rest of World

412

351

1,159

232

227

3,216
304
169
337

550

484

523

449

450

375

428

343

1,126

1,172

1,206

1,279

189

185

210

208

246

243

255

254

3,218
420
391
291

3,139
461
386
375

4,158
855
762
715

4,315
567
506
382

(1,495)
3,107
5,652

 (1,462)
2,882
4,852

 (1,172)
2,982
4,903

 (1,275)
2,756
4,800

 (1,294)
2,178
4,864

14.7
26.2
11.8
10.6

726
123

345
68.9

17.0
25.9
14.4
12.1

611
83

301
76.1

17.0
25.8
14.6
12.5

725
 99 

407
102.9

18.0
26.5
16.2
14.2

881
118

469
118.6

17.3
25.0
15.3
14.6

760
102

356
89.4

107.0

124.7

122.3

123.6

124.6

44.2
2.4

7.3
15.8

23.1

59.1
2.1

7.2
14.8

22.0

60.1
2.0

7.1
14.6

21.7

54.8
2.3

7.7
14.2

21.9

61.5
2.0

7.9
14.1

22.0

* 

** 

 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 discontinued operations comparatives for the year ended 31 July 2018 have also been 
restated for the adoption of IFRS 15.
 The statutory income statement metrics are presented based on continuing operations for both the current and comparative year.  
The year ended 31 July 2017 and prior years are presented as originally published. 

***   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.

2 1 1

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Company balance sheet

Non-current assets
Right of use assets
Investments and advances
Financial assets
Retirement benefit assets
Debtors
Financial derivatives

Total non-current assets

Current assets
Debtors
Cash at bank and on deposit
Financial derivatives

Total current assets

Current liabilities
Creditors
Lease liabilities
Financial derivatives

Net current assets

Total assets less current liabilities

Non-current liabilities
Borrowings
Lease liabilities
Provisions for liabilities and charges
Retirement benefit liabilities
Deferred tax liabilities
Financial derivatives

Total non-current liabilities

Net assets

Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Profit and loss account

Shareholders’ equity

Notes

31 July 2020 
£m

31 July 2019 
£m

2

3

4

11

6

9

6

8

9

7

8

9

8

8

10

11

5

9

12

12

12

12

12

7
3,273
6
516
–
80

3,882

70
176
–

246

(110)
(1)
–

135

–
3,519
6
469
1
45

4,040

67
90
4

161

(76)
–
(2)

83

4,017

4,123

(1,429)
(6)
(2)
(60)
(11)
–

(1,508)

2,509

149
361
6
181
1,812

2,509

(1,461)
–
(2)
(61)
–
(2)

(1,526)

2,597

148
360
6
181
1,902

2,597

The Company's profit for the period was £32m (FY2019:£403m).

The accounts on pages 212 to 219 were approved by the Board of Directors on 23 September 2020 and were signed on its behalf by:

Andy Reynolds Smith 
CHIEF EXECUTIVE OFFICER 

John Shipsey
CHIEF FINANCIAL OFFICER

Smiths Group plc – registered number 137013

2 1 2

SMITHS GROUP PLC COMPANY ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020 
 
Company statement of changes in equity

At 31 July 2019
  Profit for the year

  Other comprehensive income:
  – actuarial loss on retirement benefits
  – taxation recognised on retirement benefits

Total comprehensive income for the year

  Transactions with owners:
  Exercise of share options
  Purchase of own shares
  Dividends paid to equity shareholders
  Share-based payment

Total transactions with owners recognised in equity

At 31 July 2020

At 31 July 2018
  Profit for the year

  Other comprehensive income:
  – actuarial loss on retirement benefits
  – taxation recognised on retirement benefits

Total comprehensive income for the year

  Transactions with owners:
  Exercise of share options
  Purchase of own shares
  Dividends paid to equity shareholders
  Share-based payment

Total transactions with owners recognised in equity

Share 
capital 
£m

148

Share  
premium 
£m

360

–

–
–

–

1
–
–
–

1

–

–
–

–

1
–
–
–

1

149

361

Share 
capital 
£m

148

Share  
premium 
£m

358

–

–
–

–

–
–
–
–

–

–

–
–

–

2
–
–
–

2

At 31 July 2019

148

360

Capital  
redemption 
reserve 
£m

6

–

–
–

–

–
–
–
–

–

6

Capital  
redemption 
reserve 
£m

6

–

–
–

–

–
–
–
–

–

6

Other  
reserves 
£m

181

–

–
–

–

–
–
–
–

–

Retained  
profit  
£m

Shareholders’ 
equity 
£m

1,902

32

2,597

32

15
(4)

43

–
(18)
(126)
11

(133)

15
(4)

43

2
(18)
(126)
11

(131)

181

1,812

2,509

Other  
reserves 
£m

181

–

–
–

–

–
–
–
–

–

Retained  
profit  
£m

Shareholders’ 
equity  
£m

1,738

403

2,431

403

(66)
11

348

–
(19)
(178)
13

(184)

(66)
11

348

2
(19)
(178)
13

(182)

181

1,902

2,597

2 1 3

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Company accounting policies

Basis of preparation
The accounts have been prepared in accordance with the Companies Act 2006 and Financial Reporting Standard 101, “Reduced Disclosure 
Framework” (FRS 101). 

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. 

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;
 › 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.

 – 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 
assumptions 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 estimates and assumptions used in these parent company financial statements are set out below.

Taxation

The Company has recognised deferred tax assets of £72m (FY2019: £68m) relating to revenue losses brought forward. The recognition of these 
assets is dependent on the ability to recover them against the unwind of other tax positions and forecast UK taxable profits of the tax group. 
The treatment of these assets is reviewed regularly. Further detail on the Company’s deferred taxation position is included in note 5.

Retirement benefits

The financial statements include costs in relation to, and provision for, retirement benefit obligations. The costs and the present value of any 
related pension assets and liabilities depend on such factors as life expectancy of the members, the returns that plan assets generate and 
the discount rate used to calculate the present value of the liabilities. The Company uses previous experience and independent actuarial 
advice to select the values of critical estimates. The estimates, and the effect of variances in key estimates, are disclosed in note 8 to the 
consolidated accounts.

At 31 July 2020 there is a retirement benefit asset of £516m (FY2019: £469m) which arises from the rights of the employers to recover the 
surplus at the end of the life of the scheme. If the pension schemes were wound up while they still had members, the schemes would need to 
buy out the benefits of all members. The buyouts would cost significantly more than the present value of the scheme liabilities calculated in 
accordance with IAS 19: Employee benefits. 

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.

2 1 4

SMITHS GROUP PLC COMPANY ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Property, plant and equipment
Depreciation is provided at rates estimated to write off the relevant assets by equal annual amounts over their expected useful lives. In general, 
the rates used are: Freehold and long leasehold property – 2%; Short leasehold property – over the period of the lease; Plant, machinery, etc. – 
10% to 20%; Fixtures, fittings, tools and other equipment – 10% to 33%. 

Leases
The Company adopted IFRS 16 – Leases with effect from 1 August 2019.

At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made 
over the lease term, which includes periods covered by renewal options the Company is reasonably certain to exercise. In calculating the present 
value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date.

The Company recognises right of use assets at the commencement date of the lease. Right of use assets are measured at cost including the 
amount of lease liabilities recognised and initial direct costs incurred, less any incentives granted by the lessor. Right of use assets are subject to 
impairment and are depreciated over the shorter of the lease term and the useful life of the right of use asset.

The Company has a buildings lease with a term of 8 years. Other leases with lease terms of 12 months or less and leases of office equipment 
with low value (typically below £5,000) are recognised as an expense on a straight-line basis over the lease term with the Company having 
applied ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions.

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 151 to 157 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, vacant leasehold property 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.

Post-retirement benefits
The Company has both defined benefit and defined contribution plans. The policies disclosed in the Group accounting policies on pages 151 to 
157 for recognition, measurement and presentation of post-retirement benefits are applied in the Company accounts. Note 8 to the consolidated 
accounts explains the valuation basis for the Company's post-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.

2 1 5

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Notes to the Company accounts

1 Audit fee
The audit fee paid to KPMG LLP for the Parent Company was £0.1m (FY2019: £0.1m paid to PricewaterhouseCoopers LLP).

2 Right of use assets

Cost or valuation
Right of use assets on transition

As at 31 July 2020
Depreciation
Charge for the year

At 31 July 2020

Net book value at 31 July 2020

3 Investments and loans due from subsidiaries

Cost or valuation
At 31 July 2018
Foreign exchange rate movements
Contribution through share options
Disposals
Increase in advances due from subsidiaries

At 31 July 2019
Foreign exchange rate movements
Contribution through share options
Disposals
Decrease in advances due from subsidiaries

At 31 July 2020

Provision for impairment

At 31 July 2018, 31 July 2019 and 31 July 2020

Net book value at 31 July 2020
Net book value at 31 July 2019

Properties 
£m

8

8

1

1

7

Total 
£m

3,258
76
8
(8)
191

3,525

(61)
7
(11)
(181)

3,279

6

3,273

3,519

Shares in 
subsidiary 
undertakings 
£m

Loans 
due from 
 subsidiaries 
£m

2,414
–
8
(8)
–

2,414

–
7
(11)
–

2,410

5

2,405

2,409

844
76
–
–
191

1,111

(61)
–
–
(181)

869

1

868

1,110

Loans due to subsidiaries are offset against loans due from subsidiaries to the extent that there is a legal right of set off and an intention to 
settle the balances net. At 31 July 2020 £2,790m of loans payable are offset against loans receivable (FY2019: £2,540m). 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 
Smiths Medical Group Limited 

2 1 6

SMITHS GROUP PLC COMPANY ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020The principal subsidiaries and their countries of incorporation are:
England
Smiths Detection – Watford Ltd
Smiths Medical International Limited
John Crane UK Limited

Other
Smiths Heimann GmbH (Germany)
Smiths Detection (Asia-Pacific) Pte Ltd (Singapore)
Smiths Medical Japan Limited (Japan)
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.
Smiths Medical ASD, Inc. 
John Crane, Inc. 
Titeflex Corporation
Flexible Technologies, Inc. 
Tutco, 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 220 to 228 for a complete list of subsidiary undertakings. 

4 Financial assets
At 31 July 2020 £6m (FY2019: £6m) was held on deposit with banks as security for liabilities or letters of credit.

5 Deferred tax assets and liabilities
The Company has recognised the following deferred tax assets and liabilities:

At 31 July 2019
(Charge)/credit to income statement
Charge to equity
At 31 July 2020

Share- 
based  
payment 
£m

Retirement  
benefit  
obligations 
£m

Losses  
carried  
forward 
£m

–
2
1
3

(70)
(14)
(4)
(88)

68
4
–
72

Other 
£m

2
–
–
2

Total 
£m

–
(8)
(3)
(11)

The Company is part of a UK tax group including all its UK-based subsidiaries. The Company has recognised deferred tax assets of £72m 
(FY2019: £68m) relating to revenue losses brought forward. The recognition of these assets is dependent on the ability to recover them 
against the unwind of other tax positions and forecast UK taxable profits of the tax group. The treatment of these assets is reviewed at each 
reporting date.

As at 31 July 2020 the Company has unrecognised deferred tax assets relating to share based payments of £nil (FY2019: £3m).

In March 2020, the previously enacted reduction in the rate of UK corporation tax to 17% was repealed and the rate remained at 19%. 
The deferred tax as at 31 July 2020 has been calculated at the 19% rate.

6 Debtors

Amounts falling due after one year
Other receivables
Amounts falling due within one year
Amounts owed by subsidiaries – repayable on demand
Other receivables
Debtors falling due within one year

7 Creditors

Amounts falling due within one year
Lease liabilities (note 8)
Amounts owed to subsidiaries
Other creditors
Accruals and deferred income

31 July 2020 
£m

31 July 2019 
£m

–

64
6
70

1

57
10
67

31 July 2020 
£m

31 July 2019 
£m

1
81
16
12
110

–
42
20
14
76

2 1 7

4SMITHS GROUP PLC  ANNUAL REPORT FY20208 Borrowings and net debt

Cash at bank 
Short-term deposits
Cash and cash equivalents
Lease liabilities falling due within one year (note 7)
Lease liabilities falling due after one year
Term loans due after more than one year
Borrowings
Net debt

Term loans and lease liabilities
The currency and coupons for the term loans are disclosed in note 18 of the Group accounts. 

Less than one year
Between one and two years
Between two and five years
Greater than five years
Smiths Group plc term loans and lease liabilities

31 July 2020 
£m
16
160
176
(1)
(6)
(1,429)
(1,436)
(1,260)

31 July 2019 
£m
6
84
90
–
–
(1,461)
(1,461)
(1,371)

31 July 2020 
£m
1
–
847
588
1,436

31 July 2019 
£m
–
868
–
593
1,461

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 $110m maturing on 1 November 2023 and $690m maturing on 1 November 2024. The Bank of England 
confirmed Smiths' eligibility to access the Covid Corporate Financing Facility ('CCFF') in principle from 30 April 2020 with an indicative aggregate 
group limit of £600m. Utilisation of the CCFF, which closes to new issuance on 23 March 2021, is not anticipated.

9 Derivatives
The tables below set out the nominal amount and fair value of derivative contracts held by the Company: 

Foreign exchange contracts (not hedge accounted)
Cross currency swaps (fair value and net investment hedges)
Interest rate swaps (fair value hedges)

Total financial derivatives

Balance sheet entries
Non-current
Current

Total financial derivatives

Foreign exchange contracts (not hedge accounted)
Currency swaps (fair value and net investment hedges)
Interest rate swaps (fair value hedges)

Total financial derivatives

Balance sheet entries
Non-current
Current

Total financial derivatives

Contract or underlying 
nominal amount 
£m

 55
572
114

741

At 31 July 2020

Fair value

Assets 
£m

Liabilities 
£m

–
76
4

80

80
–

80

–
–
–

–

–
–

–

Net 
£m

–
76
4

80

80
–

80

Contract or underlying 
nominal amount 
£m

Assets 
£m

Liabilities 
£m

At 31 July 2019

Fair value

347
613
123

1,083

4
45
–

49

45
4

49

(3)
–
(1)

(4)

(2)
(2)

(4)

Net 
£m

1
45
(1)

45

43
2

45

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 £37m (FY2019: £1m charge).

10 Provisions for liabilities and charges

Disposals

At 
31 July 2019 
£m

Charged 
against profit 
£m

Utilisation 
£m

At 
31 July 2020 
£m

2

–

–

2

The closing disposal provision relates to warranties and other obligations in respect of a past disposal and is expected to be utilised within the 
next five years.

2 1 8

SMITHS GROUP PLC COMPANY ACCOUNTSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY202011 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: 

Market value of scheme assets
Present value of funded scheme liabilities

Surplus

Unfunded pension plans
Post-retirement healthcare

Present value of unfunded obligations

Net pension asset

Retirement benefit assets
Retirement benefit liabilities

Net pension asset

31 July 2020 
£m

31 July 2019 
£m

4,240
(3,724)

4,106
(3,637)

516

(55)
(5)

(60)

456

516
(60)

456

469

(56)
(5)

(61)

408

469
(61)

408

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. 

12 Share capital and reserves

Share capital

Ordinary shares of 37.5p each
At 31 July 2018
Exercise of share options

At 31 July 2019
Exercise of share options

Total share capital at 31 July 2020

Number of shares

Issued 
capital 
£m

Consideration 
£m

395,761,227
195,554

395,956,781
254,399

396,211,180

148
–

148
–

148

2

2

At 31 July 2020, 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. During the year, the 
Company received £2m (FY2019: £2m) on the issue of shares in respect of the exercise of options awarded under various share option schemes. 

Smiths Industries Employee Benefit Trust

The retained earnings include the purchase of Smiths Group plc shares by the Smiths Industries Employee Benefit Trust, and the issue of these 
shares upon the exercise of share options. The consideration paid was £18m (FY2019: £19m) and £2m (FY2019: £2m) was received as a result 
of the issue of shares. At 31 July 2020 the Trust held nil (FY2019: 53,058) ordinary shares.

Distributable profits

The Company’s profit and loss reserve of £1,812m (FY2019: £1,902m) includes £822m (FY2019: £960m) of distributable profits. See note 26 in the 
Group accounts for a discussion of capital management and the factors which the Board considers when proposing dividends. 

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 £115m (FY2019: £215m) lower than the net assets shown on the parent 
Company's balance sheet. This 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.

13 Contingent liabilities
The Company has provided guarantees and arranged letter of credit facilities to support the Group’s pension plans. The current amount 
outstanding under letters of credit is £54m (FY2019: £54m). The Company has guaranteed the US$800m revolving credit facility available to 
a subsidiary.

14 Post balance sheet event
In March 2020, the Board considered it prudent not to declare an interim dividend for HY2020 until such time as trading conditions became 
clearer and there was less uncertainty. Reflecting the Group’s strong performance and financial position, the Board has recommended a total 
dividend of 35.0p per share for the year. This is comprised of a delayed interim dividend of 11.0p and a proposed final dividend of 24.0p.

Shareholders will be asked to approve the final dividend component of the total dividend at the 2020 AGM. If the final dividend is approved, it will 
be payable, along with the interim dividend, on 20 November 2020 to shareholders on the register of members at 6.00pm on 23 October 2020 (the 
record date). The interim dividend does not require the approval of shareholders and is therefore not included in the resolutions put to the AGM.

2 1 9

4SMITHS GROUP PLC  ANNUAL REPORT FY2020S U B S I D I A R Y   U N D E R T A K I N G S

Subsidiary undertakings

A full list of the Group's related undertakings as at 31 July 2020 is provided below. The entities are grouped by the country in which they are 
incorporated and details of their registered office address, classes(es) of shares and ownership is disclosed. Related undertakings includes 
subsidiaries, associated undertakings, joint ventures and associates.

Name

Security 

Direct (%)

Total (%)

UNITED KINGDOM
3 Melville Street, Edinburgh, EH3 7PE
George Maclellan Holdings Limited
11-12 St James’s Square, London, SW1Y 4LB
Air Log Limited
EIS Group Plc
Flex-Tek Group Limited
Flightspares Limited
Francis Shaw And Company (Manchester) Limited
Francis Shaw P L C

Graseby Limited
Roof Units (Group) Limited
S.I. Pension Trustees Limited
SI Properties Limited
SITI 1 Limited
Smiths Aerospace Components Tyseley Limited
Smiths Aerospace Gloucester Limited
Smiths Finance Limited
Smiths Group Finance EU Limited
Smiths Group Finance US Limited
Smiths Group Innovation Limited
Smiths Group International Holdings Limited
Smiths Industries Limited
Smiths Nominees Limited
Smiths Technologies Limited
Smiths Wolverhampton Limited
TI Corporate Services Limited
TI Group Limited
TI Guarantee Company Limited
TI Interest Limited
Tigrup No. 7 Limited
Tigrup No. 14 Limited
XDG Limited
XDG Services Limited
29 Dunsinane Avenue, Dundee, DD2 3QF
Flexible Ducting, Limited
Trak Microwave Limited
52 Grayshill Road, Westfield Industrial Area, Cumbernauld, G68 9HG
Ashfield Medical Systems Limited
54 Hagley Road, Edgbaston, Birmingham, B16 8PE
CVE Trustee Limited
Smiths Pensions Limited
TI Pension Trustee Limited
1500 Eureka Park, Lower Pemberton, Ashford, Kent, TN25 4BF
Graseby Medical Limited
Medex Medical Limited
Pneupac Limited
SI Overseas Holdings Limited
Smiths Medical 2020 Limited
Smiths Medical Group Limited
Smiths Medical International Limited
Abercanaid, Merthyr Tydfil, Mid Glamorgan, CF48 1UX
Amnitec Hose Limited
Amnitec Limited

2 2 0

Ordinary 5p

100

100

100

100

100
100
100
100

100

100
100
100

100
100

100
100

100

100
99

Ordinary 1p
Ordinary 25p
Ordinary £1
Ordinary 10p
Ordinary £1
37% 2nd Pref Ordinary 10p; 5.25% Cum 
Pref £1; Dif 20p; Ordinary 10p
Ordinary 25p
Ordinary 10p
Ordinary £1
Ordinary 25p
Common US$1 
Ordinary £1
Ordinary 25p; Ordinary A 25p
Ordinary £1; Red US$1
Ordinary €1
Ordinary US$1
Ordinary £1
Ordinary £1
7% Non Cum Pref; Ordinary £1
Ordinary £1
Ordinary £0.0000033
Ordinary 25p
Ordinary £1
Ordinary 25p
Limited By Guarantee
Ordinary A £1
Ordinary £1
Ordinary 20p
Ordinary 50p
Ordinary £1

Ordinary £1
Ordinary £1

Ordinary £1

Ordinary £1
Ordinary £1
Limited By Guarantee

Ordinary £1
Ordinary £1
Ordinary 50p
Ordinary £1
Ordinary £1
Ordinary A £1; Ordinary B £1; Ordinary C £1
Ordinary £1

Ordinary 1p
Ordinary £1

100
100
100
100
100
100

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99

100
100

100

100
100
100

100
100
100
100
100
100
100

100
100

FINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Name

Security 

Direct (%)

Total (%)

Buckingham House, 361-366 Buckingham Avenue, Slough, 
Berkshire, SL1 4LU
Flexibox International Limited
Flexibox Limited
John Crane Group Limited
John Crane Investments Limited
John Crane UK Limited
Project Sugar Limited
Building 7, Croxley Business Park, Hatters Lane, 
Watford, WD18 8PA
Smiths Business Information Services Limited
Century House, Maylands Avenue, Hemel Hempstead, 
Hertfordshire, HP2 7DE
Smiths Detection Group Limited
Smiths Detection Investments Limited
Smiths Detection Limited
Smiths Detection-Watford Limited
Smiths Heimann Limited
Grant Thornton, 30, Finsbury Square, London, EC2A 1AG
Smiths Detection United Kingdom Limited (in liquidation)
No 1 Exchange, Market Street, Aberdeen, Scotland
John Crane Asset Management Solutions Limited
Unit 130 Centennial Park, Elstree, Hertfordshire, WD6 3TJ
Hypertac Limited
Smiths Industries Industrial Group Limited
Smiths Interconnect Group Limited
Unit 3 & 4, Illuma House, Gelders Hall Road, Shepshed, 
Leicestershire, LE12 9NH
Gastite Systems Limited

ANGOLA
Rue Kwamme Nkrumah, Torres Impor-Africa, 3 Andar, Apt A, Luanda
John Crane (Angola) Prestacao De Services Ltd

ARGENTINA
Av. Leandro N. Alem 1110, 13 Floor, Baker Mackenzie Office, Buenos Aires
John Crane Argentina SA
TI Group Automotive Systems (Argentina) SA

AUSTRALIA
549 – 551, Somerville Road, Sunshine, Melbourne, VIC 3020
Flexibox Pty Limited
John Crane Australia Pty Limited
Botany Grove Estate Unit 5, 14A Baker Street, Botany, NSW 2019
Smiths Detection (Australia) Pty Ltd
Suite 2.03, 97 Waterloo Road, Macquarie Park, NSW 2113
Smiths Medical Australasia Pty Ltd

AUSTRIA
Campus 21, Europaring, A 03 5 02, Brunn Am Gebirge, A-2345
Smiths Medical Osterreich GmbH

AZERBAIJAN REPUBLIC
32, Dostluq Street, Salyan Highway PO Box AZ1023, Baku
John Crane Baku LLC

BELGIUM
Pegasuslaan 5, Diegem, 1831
Smiths Medical Belgium NV
Glasstraat 37, Antwerpen, 2170
John Crane Belgium NV

Ordinary £1
Ordinary £1
Ordinary £1
Ordinary £1
Ordinary £1
Ordinary £1

Ordinary £10

Ordinary £1
Ordinary £1
Ordinary £1
Ordinary £1
Ordinary £1

Ordinary £0.05

Ordinary £1

Ordinary £1
Ordinary £1
Ordinary £1

Ordinary £1

Ordinary AOA 1

Common $1 ARS
Ordinary $1 ARS

Ordinary AUS$ 
Ordinary AUS$1

Ordinary AUD$1

Ordinary

Ordinary €1

Ordinary US$10

Registered Shares

Ordinary

BRAZIL
Rua George OHM, 205-5 Andar-Conj. 51 E 52 Torre B, Cidade Moncoes – CEP 
04576-020, São Paulo
Smiths Medical Do Brasil Produtos Hospitalares LTDA

Ordinary R$1

100

100

100
100
100
100
100
100

100

100
100
100
100
100

100

100

100
100
100

100

100

100
100

100
100

100

100

100

100

100

100

100

2 2 1

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Name

Security 

Direct (%)

Total (%)

Rua Tabapoã, 422, 10th floor, conj. 101, Itaim Bibi, 04533-001
Smiths Detection Brasil Comérico De Equipamentos LTDA
Industrial District of The City of Rio Claro, State of São Paulo, AV. Brasil 
Number 4.700, CEP 13505-600
Smiths Brasil LTDA

Common R$1

Ordinary R$1

CANADA
301, Gough Road, Markham, Ontario, L3R 4Y8
Smiths Medical Canada Ltd
423, Green North Road, Stoney Creek, Ontario, L8E 3A1
John Crane Canada Inc
3700, Stock Exchange Tower, P.O. Box 242, 800 Place Victoria, 
Montreal, PQ, H4Z 1E9
Smiths Detection Montreal Inc.
4000-1 Place Ville-Marie, Montréal, PQ, H3B 4H4
Smiths Interconnect Canada Inc
4610, Eastgate Parkway, Unit 3, Mississauga, Ontario, L4W 3W6
Flexible Technologies (Canada) Ltd.
16771, Sainte Marie Rd, Kirkland, Quebec, H9H 5H3
Reflex Photonics Inc

Common

Common CAD$1

Class A Shares; Class B Shares

Common

Ordinary $1

Class A Preferred Shares; Class B 
Preferred Shares; Class C Preferred 
Shares; Class D Preferred Shares; Class E 
Preferred Shares; Series 1 Common 
Shares; Series 2 Common Shares; Series 
3 Common Shares; Series 4 Common 
Shares; Series 5 Common Shares; Series 6 
Common Shares;

CHILE
Americo Vespucio 2542, Complejo Empresarial El Cortijo, Conchali, Santiago
John Crane Chile SA

Ordinary 1 Peso

CHINA
No. 1, Lane 65, Huanlong Road, Pudong New District, Shanghai
Smiths (Shanghai) Management Co., Ltd
No. 7, Factory Building, Maqiao Industrial Square, Changshu Economic 
Development Zone, Changshu, Jiangsu
Changshu Flex-Tek Thermal Fluid Systems Manufacturer Co. Ltd
No.9, No. 1, Haitai Huake Road, Huayuan Industrial District  
(Outside The Ring), Binhai Hi-Tech, Industrial Park, Tianjin
John Crane Technology (Tianjin) Co Limited
No. 14 Unit, No. 78, XingLin Road, Suzhou Industrial Park, Suzhou 215026
Antares Advanced Test Technologies (Suzhou) Co. Ltd
No. 26, The 3rd Avenue, Economic & Technological Development Area, 
Hangzhou
Smiths Medical Instrument (Zhejiang) Co. Ltd
No. 120, Sanjiang Avenue, Economic Development Zone, Mianyang, 
Sichuan Province
Huafeng Smiths Interconnect (Sichuan) Co., Ltd
Room 923B, No 55, Xili Road, Shanghai, (China) Pilot Free Trade Zone
SMO Detection Equipment (Shanghai) Co., Ltd
Room 1668, No. 14F Floor 3 Datong Building, Huanghe Avenue,  
Nankai District, Tianjin
John Crane China Co Limited
Unit 2805, Tower 3, Jing An Kerry Centre, 1228 Middle Yan An Road, 
Shanghai, 200040
Smiths Medical (Shanghai) Co., Ltd.
Unit 3018, South Tower, Beijing Kerry Centre, 1, Guanghua Road,  
Chaoyang District, Beijing
Smiths Medical (Beijing) Co. Ltd

Ordinary US$1

Ordinary US$1

Ordinary US$1

Ordinary US$1

Ordinary CNY1

Ordinary RMB1

Ordinary US$1

Ordinary CNY1

Ordinary US$

Ordinary US$1

2 2 2

100

100

100

100

100

100

100

100

100

100

100

100

100

100

60

100

100

100

100

SUBSIDIARY UNDERTAKINGSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Name

Security 

Direct (%)

Total (%)

COLOMBIA
Calle 46A No 82-54 Int 14, Parque Empresarial San Cayetano, Bogota
John Crane Colombia SA

COSTA RICA
33rd St. Number 777 Barrio Francisco Peralta, Central Avenue & 8th, 
San Jose
Smiths Interconnect Sociedad Anonima

CZECH REPUBLIC
Jana Sigmunda 78, Lutin, 78349
John Crane A.S.
Olomoucka 306, Hranice I-Mesto, Hranice, 75301
Smiths Medical Czech Republic A.S

DENMARK
Orestads Boulevard 73, 2300 Kobenhavn S
Smiths Medical Danmark ApS

DOMINICAN REPUBLIC
Calle El Recodo, #2 Bella Vista, Santa Domingo
John Crane Dominicana SA

EGYPT
139, Mogamaa El Masanea Street, El Amireya, Cairo
John Crane Egypt LLC
John Crane Egypt Sealing Systems LLC
Nile City Towers, North Tower, 22nd Floor, Ramlet Boulaq, 
Nile Cournich, Cairo
Detection Technologies Egypt

FINLAND
PO Box 10, Punasillantie 15, Muurame, 40950
John Crane Safematic Oy

FRANCE
3/5 Rue Du Pont Des Halles, Batiment A, Rungis, 94150
Smiths Medical France S.A.S.
22, Avenue Maurice Chevalier, 77833 Ozoir-La-Ferriere, Paris
Titeflex Europe S.A.S.
31 Rue Isidore Maille, Saint-Aubin-Les-Elbeuf, 76410
Hypertac S.A.
36 Rue Charles Heller, Vitry Sur Seine, F-94400
Smiths Heimann S.A.S.
114, Rue Jules Ferry, B.p.35, Deville-Les-Rouen, 76250
John Crane France S.A.S.
T I S A (France)

GERMANY
Am Zirkus 2, Berlin, 10117
John Crane Filtration Technologies GmbH
Bretonischer Ring 3, Grasbrunn, 85630
Smiths Group Deutschland GmbH

Smiths Medical Deutschland GmbH

Gewerbestraße 15 a, Graben, 86836
Gastite Systems Deutschland GmbH
Im Herzen 4, Wiesbaden, 65205
Smiths Detection GmbH

Smiths Heimann GmbH
Neckarweg 3, Vellmar, 34246
Herkules Holding GmbH
Seebach GmbH
Reepschlager Str., 10B, Lubeck, 23556
Flexschlauch Produktions GmbH

Ordinary COP$1

Ordinary US$1

Ordinary CZK 1M

Ordinary CZK 100,000

DKK 100 Shares

Ordinary DP$1

Ordinary EGP 1
Ordinary EGP 100

Quotas

Ordinary €16.82

€7.7 Shares

Ordinary $39

Ordinary €76

€1 Shares

Ordinary €286
Ordinary €4.9

Ordinary €1

€1,491,400 Shares; €3,478,400 Shares;  
€995,500 Shares
€1,000 Shares; €27,000 Shares;  
€5,000 Shares; €500 Shares

Ordinary €1

€25,000 Share; €183,100 Share;  
€791,900 Share
Ordinary

Ordinary €1
Ordinary €1

DM 11,000; DM 380,000; DM 9,000

100

100

100

100

100

100

100
99

100

100

100

100

100

100

100
100

100

100

100

100

100

100

100
100

100

2 2 3

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Name

Security 

Direct (%)

Total (%)

Tolzer Strasse, 15 82031, Grunwald
Zamor KG
Ulrichsberger Strasse 17, Deggendorf, 94469
Hypertac GmbH
Werner–Von–Siemens – Str.6, Fulda, 36041
John Crane GmbH

GREECE
3 Stratigou Tobre Street, Municipality Of Agia Paraskevi, Athens, 153 42
John Crane Hellas – Engineered Sealing Systems Monoprosopi EPE

GUERNSEY
Level 5, Mill Court, La Charroterie, St Peter Port, GY1 1EJ
Smiths Group Insurance Limited

HONG KONG
806-807, 8/F, One Pacific Place, 88 Queensway
Smiths Interconnect Group (HK) Limited
Smiths Interconnect Hong Kong Co Limited
Suite 1106-8, 11/F Tai Yau Building, No 181 Johnston Road, Wanchai
Smiths Detection Hong Kong Limited
Smiths Medical (Hong Kong) Limited

HUNGARY
2040 Budaors, Gyar U. 2
John Crane Hungary Kft

INDIA
508/509, 5th Floor, Western Edge Ii, Western Express Highway,  
Borivali East, Mumbai, 400066
Smiths Medical India Private Limited 
D-196 Okhla Industrial Area, Phase-1, New Dehli, 110020
Plenty India Limited
No 11, 1st Phase, Peenya, Industrial Area, Bangalore, 560058
John Crane Sealing Systems India Private Limited
Smiths Interconnect India Private Limited
No 38, Kiadb Industrial Area, Bangalor, 561203
STS Titeflex India Pvt Ltd
Shirwal, Maharashtra 412801
Seebach Filter Solutions India Pvt Ltd
Vardhman Crown Mall, Unit No. 300 3rd Floor, Sector 19 Dwarka,  
New Delhi 110075
Smiths Detection Systems Private Limited

Ordinary shares €1

Ordinary €1

Ordinary €1

Ordinary €1

Ordinary £1

Ordinary US$1
Ordinary US$1

Ordinary 1 HKD 
Ordinary 1 HKD

Ordinary €1

Ordinary INR 1

Ordinary Shares

Ordinary INR 10
Ordinary INR 10

Ordinary INR 100

Ordinary INR 10

Class A Equity Shares INR 10;  
Class B Equity Shares INR 10

INDONESIA
Cilandak Commercial Estate Bldg 401A, Ji. Kko Cilandak, Jakarta, 12560
PT John Crane Indonesia

Ordinary IDR 1,000

IRELAND
Suite 3, One Earlsfort Centre, Earlsfort Terrace, Dublin 2
Graseby Medical Ireland Limited
Smiths Detection Ireland Limited

T53/54, Shannon Industrial Estate, Shannon, Co. Clare
John Crane (Ireland) Limited

ITALY
Via Da Bissone 7A, Genova, 16153
Hypertac SpA
Via Della Stazione, 2, 04013 Latina Scalo, Latina
Smiths Medical Italia srl
Via Giotto 3, Muggio, 20835
John Crane Italia SpA
Smiths Detection Italia srl
Smiths Group Italia Srl

2 2 4

Ordinary €1.269738
Ordinary €1.25; Ordinary B €1.269738; 
Ordinary D €1.25; Series C €1.25

Ordinary €1

Ordinary €5

Ordinary €1

Ordinary €5.16
Quota Value of Shares
Ordinary €1

48

100

100

100

100

100
100

100
100

100

100

100

100
100

100

90

100

99

100
100

100

100

100

100
100
100

SUBSIDIARY UNDERTAKINGSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Name

Security 

Direct (%)

Total (%)

JAPAN
1-1-1 Uchisaiwaicho, Chiyoda-ku, Tokyo
Smiths Medical Japan Ltd
Smiths Detection Japan Gk
2222, Kamitoyama Ritto City, Ritto-Shi, Shiga-Ken
John Crane Japan Inc

KAZAKHSTAN
Atyrau Region, Gatyrau, Station K Arabathan, 
House Production Site 14, 060000
John Crane Kazakhstan

KOREA, REPUBLIC OF
Migeundong, Westgate Tower 15F, 70 Chungjeong-Ro, Seodaemun-Gu, Seoul
John Crane Korea Co Ltd

MALAYSIA
207, Jalan Tun Razak, Suite 13.03, 13th Floor, Menara Tan & Tan, Kuala 
Lumpur, 50400
John Crane Malaysia Sdn Bhd
Flexible Ducting Malaysia Sdn Bhd (in liquidation)
Menara LGB, 1, Jalan Wan Kadir Taman Tun Dr Ismail, 60000 Kuala Lumpur, 
WPKL
Smiths Detection Malaysia Sdn Bhd

MEXICO
679, Poniente 152, Vallejo Delegacion Azcapotzalco, Mexico City, 2300
Industrias John Crane Mexico S.A. de C.V.
Av. Primero De Mayo Lote 3 Edificio 1B, Prologis Park, Reynosa, 88780
Tutco De Mexico S de RL de CV
Ave Calidad No. 4, Parque Industrial, Internacional Tijuana, 
Tijuana, B.C., 22425
Smiths Healthcare Manufacturing, S.A. de C.V.
Carretera Ciudad Victoria Matamoros, Km.173+600, Solonia San Fernando 
Centro, Tamaulipas, San Fernando, CP 87600
John Crane Sociedad De Responsibilidad Limitada De Capital Variable
Carretera Libre Antiguo Camino Tijuana 20221-B, Fideicomiso el Florido, 
Tijuana, Baja California, 22234
Smiths Interconnect Mexico S. de Rl de C.v.
Paseo De La Reforma 505, Col, Cuauhtemoc, 6500, Ciudad De Mexico
Smiths Detection Mexico S. de Rl de C.v.

NETHERLANDS
Abraham van Stolkweg 118, Rotterdam, 3041 JA
Amnitec BV
Bergen 9 – 17, Barendrecht, Zuid, 2993LR
John Crane Holland BV
Smiths Detection Benelux BV
Buckingham House, 361-366 Buckingham Avenue, Slough, Berkshire,  
SL1 4LU, England
Smiths Group Holdings Netherlands BV 
Hydrograaf 25, PO Box 442, 6900 Ak Zevenaar, Duiven, 6921 RS
Indufil BV
Jagersbosstraat 28, 5241JT Rosmalen
Smiths Medical Nederland B.V.

NEW ZEALAND
Deloitte, Level 18, 80 Queen Street, Auckland 1010
Smiths Detection New Zealand Limited

PERU
Av. Guillermo Dansey 2124, Urbanizacion Industrial Conde, Lima
John Crane Peru SAC

POLAND
1327, ul. Bielska, Poland, 43-374 Buczkowi
John Crane Poland Sp Z O.O.

Common Stock
Cash Contribution

Ordinary JYP 1,000

Ordinary KZT

Ordinary Kwon 5,000

Ordinary RM1
Ordinary RM1

Ordinary RM1

Series A MXN 1; Series B MXN 1

Ordinary $1.00

Series B 10 Pesos; Series B-1 Pesos 10

Ordinary MXN $1

Equity Quotas MEX $2,500

PS US$1; PS US$2,999

Ordinary €1

Ordinary €1
Ordinary €1

Ordinary €1

Ordinary €1

NLG100 shares

Ordinary

Common Shares PEN 1

Ordinary 50 PLN

100
100

70

100

100

100
100

100

100

100

100

100

100

100

100

100
100

100

100

100

100

100

100

2 2 5

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Name

Security 

Direct (%)

Total (%)

PORTUGAL
Avenida Engenheiro Duarte Pacheco, Amoreiras, Torre 2, 15º A,  
Campo De Ourique, Lisboa, 1070-102
Smiths Medical (Portugal), Unipessoal Lda

PUERTO RICO
654 Plaza, Suite #933, 654 Munoz Rivera Ave, San Juan, 00918
John Crane Caribe Ltd

RUSSIAN FEDERATION
104 Oktyabrskayanab., Building 25, Litera AJ, Premises 4-H, 
Saint-Petersburg, 193079
Smiths Heimann Rus LLC
B.savvinsky Per, D.11, Moscow, 119435
LLC John Crane Rus

SAUDI ARABIA
Dammam Industrial City, Dammam, 3243
John Crane Saudi Arabia Ltd
Building 7, Zone A, Airport road, Business Gate, P.O Box Riyadh 11683, 93597
Smiths Detection Saudi Arabia Ltd

SINGAPORE
6 Shenton Way, OUE Downtown #26-00, 068809
John Crane Singapore Pte Limited
6 Shenton Way, Oue Downtown #33-00, 068809
Smiths Medical Singapore Pte. Limited
20, Pasir Panjang Road, #13-26 Mapletree Business City, 117439
Smiths Connectors Asia Pte. Ltd.
Smiths Detection (Asia Pacific) Pte. Ltd

SLOVAKIA
Dvorakovo nabrezie 10, Bratislava-mestska cast Stare Mesto, 811 02
John Crane Slovakia SRO

SOUTH AFRICA
2, Jansen Road, Nuffield Industrial Sites, Springs Gauteng, 1559
Flexibox (Pty) Limited
John Crane Pty Ltd

SPAIN
Av Diagonal, Num.635 P.1, Barcelona, 08028
Smiths Medical Espana S.L.
Cemento 1, Torrejon De Ardoz, Madrid
John Crane Iberica SA

SWEDEN
Knivsta, 74180
Habia Teknofluor AB
Teknofluor Holding AB
Box 1143, 164 22 Kista
Smiths Medical Sverige AB
Faltspatsgatan 4, Se-421 30 Vastra Frolunda
John Crane Sverige AB

SWITZERLAND
Hohenrainstrasse 10, 4133 Pratteln
John Crane (Switzerland) AG
Zurichstrasse 33, Adliswil, 8134
Smiths Medical Schweiz AG

TAIWAN
324-4, Fong-Jen Road, Renwu District, Kaohsiung City 814
John Crane Taiwan Co Ltd.

THAILAND
9/311, 31st Floor, Um Tower, Ramkhamhaeng Road, Suanluang District, 
Bangkok
John Crane (Thailand) Limited
99/3 Moo 5, Kingkaew Road, Tambol Rajatheva, Amphoe Bangplee, 
Samutprakarn Province, 10540
Smiths Detection (Thailand) Limited

2 2 6

€505,000 Share

Common Shares US$1

Ordinary RUB 1

Ordinary RUR 1 

Ordinary ZAR 1

1,000 Saudi Riyals Shares

Ordinary S$1

Ordinary US$1

Ordinary S$1
Ordinary S$1

Ordinary €1

Ordinary SAR 1
Ordinary ZAR 1

Shares €1

Ordinary €6.010121

SEK100 Shares
SEK100 Shares

SEK100 Shares

Ordinary SEK 100

Ordinary 1 CHF

Shares of CHF 10

Ordinary T$1

Ordinary THB 1; Pref THB 25

Pref THB 100; Ordinary THB 100

100

100

100

100

100

100

100

100

100
100

100

100
100

100

100

100
100

100

100

100

100

100

100

100

SUBSIDIARY UNDERTAKINGSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020Name

Security 

Direct (%)

Total (%)

TUNISIA
Zone Industrielle Route De Khniss, Monastir, 5000
Smiths Connectors Tunisia SARL

TURKEY
Istanbul Sariyer, Huzur Mahallesi, Ahmet Bayman Caddessi, Dis,  
Reklamcilik Apt No:17-19/1
John Crane Endustriyel Sizdirmazlik Sistemleri Ltd

UNITED ARAB EMIRATES
Building B10, Industrial Mussaffah, M44, Sector 15, Abu Dhabi
Smiths Detection Security Systems LLC
Dubai Airport Free Zone, PO Box 48225, Building No. 8WA (West Side), 
401, Dubai
Smiths Detection Middle East FZE
S20113, Jebel Ali Free Zone, 61040
John Crane Middle East FZE

UNITED STATES OF AMERICA
51 Growth Road, Laconia, NH, 03246
Lakes Region Tubular Products Inc.
Scotia Acquisition Co
Scotia Real Estate LLC
116, Pine Street, 3rd Floor, Suite 320, Harrisburg, PA 17101
Tutco, LLC
180 Van Riper Avenue, Elmwood Park, NJ 07407
Kreisler Industrial Corp
Kreisler Manufacturing Corp
208 S. Lasalle Street, Suite 814, Chicago, IL, 60604
John Crane International Inc.
5200, Upper Metro Place, Dublin, OH, 43017
Medex Cardio-Pulmonary, Inc
815 Forestwood Drive, Romeoville, IL 60446
United Flexible, Inc.
US Hose Corp
1219 Stewart Plaza, Dunbar, WV, 25064
Seebach Filtration USA, Inc.
2801 Red Dog Lane, Knoxville, TN 37914
Fulton Bellows LLC
Corporation Service Company, 2711 Centerville Rd, Suite 400, Wilmington, 
DE, 19808
United Flexible Technologies, Inc.
The Corporation Trust Company, 1209 Orange Street, Wilmington, DE, 19801
Flexible Technologies, Inc
Flex-Tek Group (US) LLC
John Crane Group, LLC
John Crane Inc
John Crane USA, Inc
MDII Investments LLC
Powercam-Houdaille, Inc.
Smiths Business Information Services, Inc.
Smiths Detection International, LLC
Smiths Detection US Holdings 2 Inc. 
Smiths Detection US Holdings, LLC
Smiths Detection US, LLC
Smiths Group Services Corp.
Smiths Interconnect Americas, Inc.
Smiths Interconnect, Inc.
Smiths US Innovation LLC
CT Corporation System, 9 Capitol Street, Concord, NH 03301
Smiths Tubular Systems-Laconia, Inc
CT Corporation System, 155 Federal Street, Suite 700, Boston, MA 02110
Titeflex Commercial, Inc.

Ordinary 100 DT

Ordinary TRY 25

AED 1,500

AED 1,000,000 Share

Ordinary AED 1

Common Stock
Common Stock of US$0.01
Limited Liability Company Interests 

Ordinary US$1

Common Stock
Common Stock of US$0.001

Common Shares

Common Stock of US$0.01

Common Stock of US$0.01
Common Stock

Ordinary US$25

Limited Liability Company Interests 

Common Stock of US$0.001

Ordinary Shares US$0.01
Ordinary
Ordinary US$0.01
Common US$0.01; Preferred US$0.10
Ordinary US$0.01
Ordinary
Common Shares US$1
Common Stock of US$0.01
Equity Interests
Common Stock US$1
Limited Liability Company Interests
Ordinary US$1
Common Stock US$0.01
Common Stock US$0.01
Common Stock US$10
Ordinary

Ordinary Shares US$1

Ordinary US$0.01

100

100

49

100

100

100
100
100

100

100
100

100

100

100
100

100

100

100

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

100

100

2 2 7

4SMITHS GROUP PLC  ANNUAL REPORT FY2020Name

Security 

Direct (%)

Total (%)

One Corporate Center, Hartford, CT 06103-3220
Titeflex Corporation
Registered Agent Solutions, Inc., 1679 Dupont Highway, Suite 100, 
Dover DE, 19901
Smiths Medical ASD Inc. 
The Corporation Trust Company of Nevada, 701 S Carson Street, Suite 200, 
Carson City, NV, 89701
Smiths Detection Inc

VENEZUELA
Carretera Vía A Perijá, Km 8 ½, Avenida 50, Local N° 185-72,  
Zona Industrial El Silencio, Maracaibo, 4001
John Crane Venezuela CA

Ordinary US$1

Common Stock $1

Common Stock of $0.0001

Class A BSF1; Class B BSF1; 
Common BSF1

ASSOCIATES
GERMANY

Steinmühlenweg 5, 65439 Florsheim am Main / Wicker

STI Security Training International GmbH

Ordinary Shares

RUSSIAN FEDERATION

28, Academica Vedeneeva Street, Perm, Permskiy Region, 614038

LLC John Crane Iskra

Ordinary RUR 1

Between 1 August and 21 September 2020:

100

100

100

100

34

50

 – Smiths Interconnect Canada Inc. merged with and into Reflex Photonics Inc on 1 August 2020. Reflex Photonics Inc is the surviving entity

 – PathSensors, Inc. was acquired by Smiths Detection on 3 August 2020 by way of a merger between Smiths Detection US Holdings 2 Inc. 

and PathSensors, Inc. PathSensors, Inc. is the surviving entity.

Overseas branches
The Company does not operate through any branches. Some Group subsidiary companies have established branch operations outside  
the UK.

2 2 8

SUBSIDIARY UNDERTAKINGSFINANCIAL STATEMENTSSMITHS GROUP PLC  ANNUAL REPORT FY2020S H A R E H O L D E R   I N F O R M A T I O N

Shareholder Information

Financial calendar

Announcement of FY2020 Results

Dividend ex-dividend date

Dividend record date

Last DRIP election date

Annual General Meeting

Dividend payment date

Announcement of FY2021 Interim Results

Interim dividend ex-dividend date

Interim dividend record date

Last DRIP election date  

Interim dividend payment date

FY2021 financial year end

Announcement of FY2021 Results

Registered Office
Smiths Group plc 
4th Floor 
11-12 St James’s Square 
London SW1Y 4LB, UK

020 7004 1600

Incorporated in England 
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 by:

Visiting: www.shareview.co.uk. 

Telephoning: 
T: 0371 384 2943 (in the UK) 
T: +44 (0)121 415 7047 (outside the UK) 
Textel: 0870 384 2255 
Lines open 9:00am to 5:00pm (UK time), 
Monday to Friday (excluding public holidays 
in England and Wales)

2020
24 September
22 October
23 October

6 November

16 November
20 November

2021 
(provisional)

26 March 
8 April 
9 April 
23 April 
7 May 
31 July
September

Writing to: Equiniti Limited, Aspect House  
Spencer Road, Lancing, West Sussex, 
BN99 6DA

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).

Equiniti offer 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. 

Annual General Meeting (AGM)
Further to COVID-19 the 2020 Smiths Group plc AGM will be held as 
a closed physical meeting, meaning that shareholders will not be 
permitted to attend the meeting in person in line with government 
guidance. However, shareholders will be able to watch a webcast 
alongside the AGM presentation slides which will be made available 
electronically at 2.30pm on 16 November 2020. There will also 
be a facility available for shareholders to ask questions remotely. 
Instructions are detailed in the Notice of AGM which can be found 
in 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. A recording of the webcast will be available on our 
website shortly after the meeting concludes.

Voting at the AGM
Shareholders will be able to submit their voting instructions 
electronically through the webcast platform during the meeting. 
The Company provides electronic proxy voting for the AGM. 
Shareholders unable to vote at the meeting electronically on the day 
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.sharevote.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. Further instructions on how to 
vote your shares are set out in the Notice of AGM.

2 2 9

4SMITHS GROUP PLC  ANNUAL REPORT FY20202 3 0

SMITHS GROUP PLC  ANNUAL REPORT FY2020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 at Smiths Medical and are not available for sale. The products described 
are subject to FDA 510(k) Premarket Notification clearance and receipt of CE Mark prior 
to commercial distribution, and we make no definitive claims about the final features or 
benefits of these products.  

Designed and produced by Radley Yeldar.

SMITHS GROUP PLC   
4th Floor
11-12 St James’s Square
London SW1Y 4LB, UK
+44 (0)20 7004 1600
www.smiths.com

LSE: SMIN
ADR: SMGZY

To view this report online 
go to www.smiths.com/investors

@smithsgroupplc