Smiths Group PLC

IMPROVING

OUR WORLD

THROUGH

SMARTER

ENGINEERING

ANNUAL REPORT & ACCOUNTS

FY2023

SMITHS GROUP PLC ANNUAL REPORT FY2023

WELCOME

We are pioneers of progress –

improving our world through smarter

engineering.

Smarter engineering enables us to

solve the toughest problems for our

customers and address critical global

needs such as decarbonisation and

green re-industrialisation, safety

and security, and demand for data.

At the same time building the

long-term sustainability of Smiths

and its global operations.

We are united by our purpose. It is

what we do, how we think, and how

we will continue to use our passion for

technology and engineering.

OVERVIEW

Our purpose

IFC

FY2023 highlights

Our priorities and targets

Markets and megatrends

Our divisions

STRATEGIC REPORT

Chairman’s statement

Chief Executive Officer’s review

– Our business model

– Our strategy

– Our people and culture

– CEO message

– Review of the year

CFO review

Key Performance Indicators

Sustainability at Smiths

– ESG double materiality assessment

– Task Force on Climate-related Financial Disclosures

Stakeholders and Section 172 Statement

Non-Financial Information Statement

Risk management

Principal risks and uncertainties

Going Concern and Viability Statement

GOVERNANCE

Chairman’s introduction

Board biographies

Nomination & Governance Committee Report

Audit & Risk Committee Report

Remuneration & People Committee Report

Science, Sustainability & Excellence

Committee Report

111

Directors’ Report

113

Statement of Directors’ responsibilities

115

FINANCIAL STATEMENTS

Independent auditor’s report

116

Consolidated primary statements

130

Accounting policies

135

Notes to the accounts

144

Unaudited Group financial record FY2019–FY2023

190

Unaudited US dollar primary statements

191

Smiths Group plc Company accounts

197

Subsidiary undertakings

205

Shareholder information

211

ABOUT THIS REPORT

This is the FY2023 Annual Report of

Smiths Group plc. Data presented in this report

is for the 12 months to 31 July 2023 unless

otherwise stated.

HOW TO NAVIGATE THIS REPORT

Throughout this report you will find extra

information, performance data and pointers

to additional data in the right-hand column.

Supporting data, statistics or insights

Pointers to additional content within the report

Pointers to additional external content

Quotes from our team and highlights

ACCESS MORE INFORMATION

Read more about

sustainability in our

Sustainability at

Smiths report on

www.smiths.com

Read more about our

strategic progress.

PG 12

OUR DIVISIONS

Read more about our

divisions.

PG 4

CAPITAL ALLOCATION

PRIORITIES

Read more about the

Board’s key activities.

PG 82

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

FY2023 HIGHLIGHTS

A YEAR OF RECORD ORGANIC REVENUE

AND HEADLINE EPS GROWTH

GROSS VITALITY

Percentage of revenue

from new products

FY2023

31%

FY2022

31%

SAFETY

Recordable Incident Rate

FY2023

0.41

FY2022

0.56

(26)%

GREENHOUSE

GAS REDUCTION

Scope 1 & 2

GHG reduction

FY2023

(11.8)

FY2022

(0.9)%

(11.8)%

RECORD ANNUAL GROWTH

ORGANIC

REVENUE GROWTH OF +11.6%; HEADLINE EPS

GROWTH OF +39.6%

–

Full year growth delivered ahead of guidance, balanced between price

and volume

–

+310bps of growth from new products, demonstrating the impact of innovation

–

Well positioned for FY2024 growth within our medium-term targets, with orders3

up +6.7%

EMPOWERING OUR PEOPLE

INCREASING ENGAGEMENT WITH OUR COLLEAGUES AND

COMMUNITIES

–

Continued improvement in our safety record, with a 26% reduction in our

Recordable Incident Rate

–

Successful rollout of Smiths Leadership Behaviours, driving a high-performance

workforce

–

High employee engagement reflected in 310bps reduction in voluntary turnover

–

Launched Smiths Foundation, committing an initial £10m towards charitable

STEM-related causes

FINANCIAL PERFORMANCE

Headline

FY2023

FY2022

Reported

Organic

Revenue

£3,037m

£2,566m

+18.3%

+11.6%

Operating profit

£501m

£417m

+20.0%

+12.7%

Operating profit margin

16.5%

16.3%

+20bps

+10bps

Basic EPS

97.5p

69.8p

+39.6%

ROCE

15.7%

14.2%

+150bps

Operating cash conversion

86%

80%

+600bps

Statutory

FY2023

FY2022

Reported

Revenue

£3,037m

£2,566m

+18.3%

Operating profit

£403m

£117m

+244.4%

Profit for the year (after tax)5

£232m

£1,035m

(77.6)%

Basic EPS5

65.5p

267.1p

(75.5)%

Dividend per share

41.6p

39.6p

+5.1%

The following definitions are applied throughout the financial report:

1 Organic is headline adjusted to exclude the effects of foreign exchange and acquisitions.

2 Headline: In addition to statutory reporting, the Group reports on a headline basis. Definitions of

headline metrics, and information about the adjustments to statutory measures, are provided in note 3

to the financial statements. Headline performance is on a Smiths Group basis, excluding the results of

Smiths Medical.

3 Order intake growth excludes the effects of foreign exchange.

4 Alternative Performance Measures (APMs) and Key Performance Indicators (KPIs) are defined in

note 29 to the financial statements.

5 FY2022 statutory profit and EPS includes the proceeds from the sale of Smiths Medical.

CONTINUED IMPROVEMENT IN EXECUTION

SMITHS EXCELLENCE SYSTEM (“SES”) DELIVERING BENEFITS

–

Headline2 operating profit growth of +

20.0%; with margin expansion of +20bps

to 16.5%

–

Return on capital employed (ROCE) up +150bps to 15.7%, benefiting from strong

profit growth

–

Cash conversion2 up 6 percentage points to 86%; with improvement in working capital

–

Advancing our Sustainability strategy with significant progress across our

environmental metrics

STRONG BALANCE SHEET

PROVIDING FLEXIBILITY ON CAPITAL ALLOCATION

–

Successful acquisition of Plastronics in January 2023 and Heating & Cooling

Products in August 2023

–

Net debt to EBITDA of 0.7x; £387m net debt

–

£350m returned to shareholders through dividends and share buyback which is

now complete

–

Proposed final dividend of 28.7p, up 5%, bringing the full year to 41.6p

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

OUR PRIORITIES AND TARGETS

MEDIUM-TERM FINANCIAL TARGETS

Organic revenue growth

4-6% (+M&A)

Headline EPS growth

7-10% (+M&A)

ROCE

15-17%

Operating profit margin

18-20%

Operating cash conversion

100%+

Smiths is intrinsically strong with

world-class engineering, leading positions

in critical markets, and distinctive global

capabilities, all underpinned by a strong

financial framework. In November

2021, we set out how Smiths will deliver

performance in line with our significant

potential by focusing on three top priorities

of accelerating growth, strengthening

execution and doing even more to inspire

and empower our people.

Our focused plan, the Smiths Value Engine, is the

means through which we will deliver the medium-term

targets that we have set. In FY2023, we have continued

to make meaningful progress towards these targets,

outperforming on several metrics.

These targets are underpinned by Smiths operational

KPIs and environmental targets, including a

commitment to Net Zero for Scope 1 and 2 emissions

by 2040 and Net Zero for Scope 3 emissions by 2050.

OUR PURPOSE

GROWTH

EXECUTION

PEOPLE

BUSINESS MODEL

See our business model.

PG 11

MARKETS AND

MEGATRENDS

Read more about our

markets and megatrends.

PG 3

KEY PERFORMANCE

INDICATORS

See our KPIs over five

years.

PG 29

SUSTAINABILITY AT

SMITHS

Read more about our ESG

framework and

sustainability.

PG 32

WORLD CLASS

ENGINEERING

LEADING POSITIONS

IN CRITICAL MARKETS

GLOBAL

CAPABILITIES

ROBUST FINANCIAL

FRAMEWORK

OUR STRENGTHS

OUR PRIORITIES

PIONEERS OF

PROGRESS

Improving our world through

smarter engineering

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

MARKETS AND MEGATRENDS

MARKETS AND

MEGATRENDS

We track the evolution of key secular themes and trends and their impact on our

markets and our business.

OUR MARKETS

We operate in four global markets:

MEGATRENDS

Powerful megatrends that are aligned with our purpose propel long-term growth in these markets. Smiths is

uniquely positioned to access this growth.

GENERAL INDUSTRIAL

Customers put their trust in our products and

services to support a wide range of general

industrial applications in sectors including

petrochemicals, mining, pulp & paper, water

treatment, semiconductor testing, heating

elements, automotive and rail transportation.

SAFETY & SECURITY

Our threat detection equipment helps keep people

and assets safe. Demand in the security market is

driven by persistent and evolving terror threats,

changing security regulations, and increased global

air travel and trade.

ENERGY

John Crane’s mechanical seals and systems

support energy operations worldwide including

downstream and midstream oil & gas, power

generation and low-/no-carbon energy solutions.

Growth is driven by increased global demand for

energy, decarbonisation, productivity, and enhanced

environmental and safety requirements.

AEROSPACE

Aerospace growth is driven by increasing

passenger and freight traffic and the development

of new fuel-efficient aircraft. Satellite launches and

emerging activities like deep space exploration are

driving demand for high-reliability solutions in the

space market.

DECARBONISATION AND GREEN

RE-INDUSTRIALISATION

The need to mitigate climate change and

deliver secure and affordable power is driving

a fundamental revolution in energy use,

energy sources and energy delivery to cut

emissions across all sectors.

Macroeconomic policies and private-sector

commitments are accelerating the pace of

change to disrupt established energy markets

and lock in the triple benefits of green

re-industrialisation (affordability, security

and sustainability).

Investment to deliver the Paris commitment

on global warming is projected to exceed

US$100 trillion by 2050; 3-4 times the rate

of annual historical investment.

Efficiency and circular economy solutions

–

Energy savings through efficiency and reducing waste is the

most cost-effective solution to cut GHG emissions

Widespread green electrification

–

Green electricity is the most efficient and best vector for

decarbonisation and can now be produced at lower cost

than fossil fuels

–

Electrification is a significant and growing feature across

multiple industrial and domestic markets

Low-/no-carbon fuels in hard-to-electrify sectors

–

Activities that are not amenable to electrification will need

to be fuelled by zero-carbon fuels

Carbon capture

–

Carbon capture activities will accelerate as a means to

further abate carbon emissions from heavy industrial

sectors and enable the production of zero-carbon fuels

EVER-RISING SECURITY NEEDS

Persistent and evolving threats are driving security needs in a range of sectors to keep people and assets safe.

–

Passenger air travel growing 6.1% per annum, freight growing 4.1%

–

Consumer, business and government demands for safety are continually increasing

–

Regulatory requirements amplify demand

INSATIABLE DEMAND FOR DATA

–

Demand for data is continuously increasing as the world becomes more connected and computing expands.

Faster data transmission, greater bandwidth and faster processing power are required across many sectors

–

Global data consumption continues to double every 4 years

–

Transmission data rates continue to double every 3.5 years

–

More than 2,100 satellite launches in 2022, vs 134 ten years ago

REVENUE BY

GLOBAL MARKET

General industrial

40%

Safety & Security

31%

Energy

22%

Aerospace

REVENUE BY

DESTINATION

Americas

54%

Europe

19%

Asia Pacific

16%

Rest of the World 11%

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

OUR DIVISIONS

Our four divisions operate in more than 50 countries. Together, the divisions and Group

employ more than 15,000 people.

36%

of Group revenue

71% of John Crane

revenue is from

aftermarket sales

c.6,100

Colleagues

£1,079m

FY2023 revenue

+15.2%

Organic growth

£244m

FY2023 headline operating

profit

+25.2%

Organic growth

JOHN CRANE

Mission-critical technologies and services

for energy and process industries that

enable efficient and sustainable operations

John Crane is a global leader in the

design, manufacture, installation and

support of rotating equipment solutions

that drive efficiency, safety, and

environmental sustainability in

large-scale industrial processes.

CUSTOMERS

–

Energy: down- and mid-stream activities

(e.g., refineries and pipelines) of energy

multinationals and power generation, including

growing applications in hydrogen and carbon

capture

–

Other process industries: a significant presence in

chemical, life sciences, mining, and pulp & paper

–

Aftermarket: increasing demand for full lifecycle

asset management

–

Ideally positioned to help customers meet their

decarbonisation and energy transition objectives

COMPETITIVE STRENGTHS

–

Strong and differentiated proprietary technologies

and expertise across industries

–

Largest installed base in the energy and industrials

markets

–

Innovation focused, growing service capabilities

through digitisation and field engineering

–

Customer intimacy and strategic alignment with end

users through a network of ~200 service and

support centres with unique field service

capabilities

GROWTH DRIVERS

–

Global demand for stable, secure and

affordable energy supply

–

Secular growth in energy and primary

resource demand, especially in emerging

markets

–

Increasing demand for enhanced efficiency

–

Energy transition – environmental

safeguarding and cleaner processes.

Requirement to reduce emissions, with

particular emphasis on methane. Growth of a

more diversified and cleaner low-carbon

energy ecosystem, including hydrogen and

carbon capture, which drive more demanding

needs in compression, pumping and filtration

–

Long-term customer partnerships and

outsourcing

COMPETITORS

Competitors include Flowserve,

EagleBurgmann, AES, FSD, A.W. Chesterton,

Pall and TM filters

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

OUR DIVISIONS

CONTINUED

26%

% of Group revenue

51% of Smiths Detection

revenue is from

aftermarket sales

c.3,100

Colleagues

£803m

FY2023 revenue

+16.4%

Organic growth

£90m

FY2023 headline operating

profit

+15.4%

Organic growth

SMITHS DETECTION

Detection and screening technologies

for safety, security, and freedom

of movement.

Smiths Detection is a global leader in

the design, manufacture, installation

and support of threat detection and

screening technologies that protect

people and assets.

CUSTOMERS

–

Aviation: airports and governments, including

regulators who are also highly involved and help

shape market development

–

Other security systems: high-energy cargo

inspection systems for ports and borders;

integrated screening systems for a broad range of

urban situations (court houses, prisons, offices,

shopping malls, rail stations, etc.); and advanced

chemicals and explosives detectors for

governments with whom we have long-standing

partnerships

COMPETITIVE STRENGTHS

–

Global reach and market-leading brand

–

Differentiated proprietary technologies leveraged

across a broad range of markets

–

Significant research and development and digital

capabilities

–

Operating in regulated market segments that

require product certification

–

Increasing product sustainability – energy

efficiency, supply chain and refurbishment

–

Customer intimacy and loyalty through equipment

cycle and aftermarket offer

–

Coverage for 191 countries

GROWTH DRIVERS

–

Persistent and evolving threats to national

security, public safety and critical

infrastructure

–

Changing aviation security regulations and

customer requirements across our industries

–

Growing populations and urbanisation

–

Growth of global transportation infrastructure

–

Global growth of international trade and

e-commerce

–

Need for integrated digital solutions and cyber

security

–

Increasing interest in solutions that enable the

circular economy

–

Staffing constraints are driving demand for

digital image analysis software such as

automated threat recognition

–

Equipment replacement cycle, typically ~ten

years

COMPETITORS

Competitors include Rapiscan, Leidos, Nuctech,

Flir, Analogic and Chemring

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

OUR DIVISIONS

CONTINUED

Flex-Tek is a global provider of

high-performance engineered

solutions that support the safe and

efficient movement and temperature

management of liquids and gases in

a range of industry sectors.

CUSTOMERS

–

Construction: heating, ventilation and air-

conditioning (HVAC) distributors and builders (full

range of heating elements, gas piping, flexible and

metal ducting)

–

Aerospace: aircraft manufacturers and their

tier-one suppliers (full range of rigid and flexible,

high- and low-pressure tubing and ducting for fluid

conveyance)

–

Industrial: specialist end uses including medical

and industrial hoses and a broad range of heating

elements for applications in industrial market

segments

COMPETITIVE STRENGTHS

–

Leading capability in design, manufacture and cost

engineering

–

High-performance, differentiated products

–

Innovation focused

–

Strong customer relationships and brand reputation

GROWTH DRIVERS

–

Through-cycle growth of the US housing

construction market

–

Expanding international market for

construction products

–

The electrification of everything, leading to

broad adoption of electrical heating solutions

across industrial and domestic settings

–

Long-term increase in commercial and

military aircraft production

–

Customer focus on efficient performance and

environmental safeguarding

–

Growth in use of medical devices

COMPETITORS

Competitors include Parker-Hannifin, Eaton,

OmegaFlex, Warren, Watlow and Southwark

Metal

25%

% of Group revenue

c.3,300

Colleagues

£768m

FY2023 revenue

+10.1%

Organic growth

£149m

FY2023 headline operating

profit

+3.4%

Organic growth

FLEX-TEK

Safe and efficient movement and

temperature management of fluids

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

OUR DIVISIONS

CONTINUED

Smiths Interconnect is a preferred

supplier of advanced electronic

components, sub-systems, optical and

radio frequency products for customers

requiring reliable, high-speed and

secure connectivity, often in harsh

environments.

CUSTOMERS/BUSINESS UNITS

–

Connectors: high-reliability electrical interconnect

solutions for specialised applications across a

broad range of healthcare, industrial, transport,

defence and aerospace customers

–

Semiconductor test: test socket and probe card

solutions for higher-performing applications

(graphics processing, artificial intelligence and data

communication) for a broad range of chip

manufacturers

–

Fibre-optics and radio frequency (RF) components:

broad range of devices, including transceivers for

demanding high-reliability environments, especially

with space and aerospace customers

–

Smiths Interconnect Inc.: antenna systems,

multi-function RF systems, as well as time and

frequency solutions for aerospace and defence

customers

COMPETITIVE STRENGTHS

–

Broad portfolio of cutting-edge technologies and

products

–

Strong research and engineering capabilities

–

Customer intimacy and product customisation

–

Global reach and support

GROWTH DRIVERS

–

Increased demand for faster data

transmission, greater bandwidth and faster

processing power in aerospace, defence and

communications

–

Growth of connectivity, as the world becomes

more connected, driven by trends including

the Internet of Things, Big Data, Internet of

Space, and Industry 4.0

–

Development of healthcare technology

COMPETITORS

Competitors include Amphenol, TE Connectivity,

Molex, Cobham, Samtec, Glenair, Anaren, Leeno

and Winway

13%

% of Group revenue

c.2,050

Colleagues

£387m

FY2023 revenue

(2.8)%

Organic growth

£62m

FY2023 headline operating

profit

(11.9)%

Organic growth

SMITHS INTERCONNECT

Smarter interconnect solutions

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHAIRMAN’S STATEMENT

SIR GEORGE

W. BUCKLEY

Chairman

Dear shareholders,

This is the final Chairman’s shareholder

letter I’ll write to you since I retire at the

upcoming shareholders’ meeting. You’ll

have a new Chair, Steve Williams, at the

close of voting.

You will likely know I write these letters

myself, not our corporate staff. I’ve

always thought a personal letter from the

Chairman is important, and I generally use

these letters as teaching pieces. This letter

will reflect on past achievements and

postulate a few things for the future.

Over the last 20 years, Smiths Group plc experienced

only very moderate organic growth. My mission as

Board leader was to try to change that pattern. But, as

the Chairman, you are constrained by good governance

because directors are generally required to be ‘nose

in, finger out’. While the Board constantly monitors

performance, intervention only comes when the

Board senses a significant deviation from performance

and investor expectations. Until then, we are mostly

advisers, guides, and inspirers, but sometimes

cajolers and even pleaders. I’ve seen the Chair as

a position where we can help develop the senior

management team to learn new skills and approaches

to persistent historical problems. All great leaders are

great teachers.

During my tenure with Smiths, we have seen the

disposal of the medical business, the COVID-19

pandemic, tremendous supply chain shortages,

rampant inflation, the Russia-Ukraine war, tensions in

both the Middle and Far East, and a growing trade war

between the United States and China.

There are always challenges and worries in any period

of history, but this one has had several spectacular

problems. We haven’t seen a global pandemic since the

so-called ‘Spanish flu’ (Influenza type A, subtype H1N1)

between 1918 and 1919. But we got one in COVID-19.

I have written much previous commentary on supply

chain dynamics, forecasting the end of COVID-19 and

anticipating President Xi’s change of heart regarding

COVID-19. I recently spoke to the UK Parliament about

rebuilding Britain’s manufacturing and technological

capabilities. We cannot solve poverty and social

deprivation in Middlesbrough or South Wales simply

by having more bankers in London.

Two primary causative agents were at work in

producing this larger set of challenges. During the

pandemic, it created temporary peaks in demand for

certain types of services, local logistics and delivery

services, plus huge demand for electronics and things

related to safe environments where, except for factory

workers, we all largely worked from home. Other

things suffered: airline travel, transportation,

restaurants and conventional retail shopping.

After the end of the pandemic, supply chain shortages

were generated by a simultaneous start-up of all the

world’s economies. The illusory overshoot in

companies’ sales demand curves also led to panic

buying, component shortages and huge price inflation.

The outcome of panic buying was excess and

sometimes high-priced inventory, high-priced shipping

containers, and energy and food shortages because of

the Russia-Ukraine war. The illusory overshoot in

demand was the thing that could’ve been avoided most

easily, including its contribution to inflation.

Regarding inflation, I have often used the phrase that

the solution to high prices is high prices. Manufacturers

re-engineer their products, substitute new materials,

find ways to reduce waste, and find new suppliers.

A significant piece of the inflation in the UK was due to

energy. To illustrate this point, I pay nine cents per

kilowatt hour in my home in Florida for my electrical

energy. I pay 59 pence per kilowatt hour of energy in the

UK, about eight times as much as in the United States.

Therefore, any energy-intensive process manufacturing

was crushed and cannot compete long term in the UK.

We understand the obvious smelting and steelmaking

processes, but a surprising component of this problem

is manufacturing cars, where the paint process is

hugely energy intensive. One way around this might be

using body films instead of paint.

CHAIRMAN’S

STATEMENT

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHAIRMAN’S STATEMENT

CONTINUED

PERFORMANCE HIGHLIGHTS

Adaptability and proactive measures the Company

took ensured minimal disruptions to our global

operations during COVID-19. Over the last two years,

the Company has also returned to encouraging

levels of organic growth. Some comparisons benefit

from easier year-over-year comparisons, but the

results reported in the last two years still significantly

bettered expectations.

Smiths businesses cover many industries, but among

the largest are energy, construction and transportation

– primarily aviation and airport-related businesses.

But we also have a business in defence and vast

opportunities to move into other areas of urban safety

and food safety, for example. We have technologies

currently applied to detecting military chemical warfare

contaminants that can be applied in commercial

property applications and the home. And sealing

technologies developed by John Crane will have a

significant role to play in the decarbonisation of existing

industries, including oil & gas, and the growth of new

low- and zero-carbon energy infrastructure like

hydrogen, supported by carbon capture.

One of the most exciting developments is in Smiths

Detection, where X-ray diffraction can help identify

specific materials based on their molecular spacing,

not just material density, which is what traditional X-ray

methods use. This will make Smiths the world’s most

advanced hold baggage and carry-on baggage

screening company.

Investors naturally worry about our end markets

under pressure. Two of our end markets experienced

significant contractions during the year. The first is

electronics, particularly those related to semiconductor

testing. The second is construction.

Contraction in our Smiths Interconnect business

partially relates to silicon wafer volume and certain

types of chipsets passing through semiconductor

manufacturing. During the pandemic, those industries

saw huge increases in demand for electronic products.

Those electronic end markets contracted a few

percentage points as the pandemic eased. However,

demand in the upstream supply chain saw temporary

contractions year-over-year of around 40% in many

cases. That, in turn, reflects in the demand seen

by businesses like Smiths Interconnect. These

contractions are perfectly normal in electronics

and tend to be relatively short-lived.

In any environment experiencing demand contraction,

management has two primary responsibilities. The

first estimates how deep the contraction will go, and

the second is to estimate how long it will last. In any

make-to-stock business, demand in the channel, both

in expansion and contraction, is always many multiples

of what happens in the end market. Typically, the higher

the demand overshoot/undershoot, the shorter it lasts,

as companies in the supply chain work to clear the

excess inventory quickly. Regular readers will

remember my forecasts of high energy costs and the

consequence of panic buying during the illusory

demand increase as the global economy restarted

post-COVID-19. This is exactly what we’re seeing.

Part of our Flex-Tek business participates in the

important US construction industry. It’s a make-to-

stock business and supplies products through large

retailers and distributors in the United States. A similar

phenomenon of channel demand contractions to those

in the electronics industry happens in construction.

End market conditions change, and the channel adjusts

quickly to new circumstances. It does this in both

directions: increasing or decreasing demand. So,

there’s reason to expect that, as the calendar year 2024

unfolds, we will see improving demand conditions in

the construction segment of Flex-Tek. The aviation

segment of Flex-Tek remains robust as the demand for

new airplanes increases rapidly.

At the end of the Smiths financial year, the US inflation

rate was 3.2% compared to 6.8% in the UK. July’s

inflation rate was down to 0.2%, so it is clearly headed

in the right direction. The demand for goods and

services is up 0.3% and 0.5%, respectively. This data

can all be found at www.bls.gov. The US Federal

Reserve Bank has an inflation target of 2% and is still

cautious, but perhaps unnecessarily. US housing

starts have begun to increase again. It’s reasonable

to expect that the upward trend in housing starts will

continue and will accelerate once the Federal Reserve

either pauses or ultimately reduces interest rates. In

conclusion, the pressure on our construction-oriented

business will ease.

One of the most important data sets investors can

examine is the US Bureau of Economic Analysis on its

site, www.bea.gov. The Bureau publishes overall GDP

numbers in a sequence of three estimates, but one of

the most important Table 2 entries is the heading

“Change in private inventories”. In the first quarter of

calendar year 2023, the change in private inventories

was a full negative 214 basis points of GDP, indicating

that the economy was, as expected, reducing

inventories on a large-scale basis. The contribution to

US GDP of change in private inventories in the second

quarter is a positive 14 basis points, suggesting an

easing in the inventory bleed-off. The US economy

overall is running a little over 2% growth. While that

may not be spectacular, it’s stable in the economic

context we find ourselves in.

The only real negative I see is that, in my view, the

Federal Funds Rate is still too high and likely to produce

an overshoot in cooling demand unless the Federal

Reserve Bank eases monetary policy soon.

Adaptability and

proactive measures the

Company took ensured

minimal disruptions to

our global operations

during COVID-19.

Over the last two

years, the Company

has also returned to

encouraging levels of

organic growth.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHAIRMAN’S STATEMENT

CONTINUED

We remain committed to the belief that

the best tool for new value creation is

higher than market organic growth.

The best unlock code to achieve this

objective is innovation.

INNOVATION AND R&D

We remain committed to the belief that the best tool

for new value creation is higher than market organic

growth. The best unlock code to achieve this objective

is innovation. As I have said in previous letters, the

core of every company is dying, so the contribution

to growth for innovation has to exceed the core

attrition rate caused by cannibalisation, end-of-life

technology, competitive attack, and changing

customer preferences.

As we embark on a new year, we focus on innovation,

growth, and increasing value to our shareholders.

We identified key strategic priorities guiding our

efforts in 2022 and beyond. We will continue to invest

in research and development, driving innovation across

our product lines and positioning Smiths as a leader in

cutting-edge technologies.

In an early Chairman’s letter, I said I believed the

great crystal ball of the future for engineering

companies is mathematics, electronics and materials

science. The mathematics here covers every piece of

engineering calculation and forecasting, including

artificial intelligence, deep cognitive learning, and

mathematical taxonomy. Electronics here include

sensors, controllers, software, and the like. Materials

science includes aspects of physics and chemistry,

including X-ray diffraction, special surface coatings,

nanomaterials, 3D printing, and graphene.

CONCLUSION

I sincerely thank our dedicated employees, esteemed

shareholders, and valued customers. Smiths journey

has been marked by resilience, innovation and a shared

vision of a better future. As we navigate the path ahead,

I am confident that our collective efforts will continue to

drive success and create lasting value.

It has been both an honour and a privilege to serve as

Chairman of this great business and, on behalf of the

Board, I would like to thank you for your continued trust

and partnership.

Sincerely,

SIR GEORGE W. BUCKLEY

Chairman of the Board, Smiths Group plc

REVIEW OF THE YEAR

Read more about our

performance.

PG 18

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

OUR BUSINESS

MODEL

Our business model leverages our strengths to perform to our potential, deliver our

purpose, and generate value for all stakeholders.

OUR STRENGTHS

OUR STRATEGIC PRIORITIES

OUR CULTURE

OUR STAKEHOLDERS

OUR STRENGTHS

WORLD-CLASS ENGINEERING

We have a long track record of innovating

across our multiple markets. R&D

investment consistently ahead of

competitors ensures a strong pipeline

of new products.

LEADING POSITIONS IN CRITICAL

MARKETS

Our markets (General Industrial, Safety

& Security, Energy and Aerospace) are

secularly attractive and growing. We

have leading positions in many key

segments based on technology and/or

service differentiation.

GLOBAL CAPABILITIES

We are present in more than 50

countries and our geographical spread

and end market diversification provides

stability and growth.

ROBUST FINANCIAL FRAMEWORK

Our robust financial framework derives

from accelerating revenue growth;

recurring, higher margin aftermarket

revenues; good margins and return on

capital; and low asset intensity and

strong cash generation.

OUR STRATEGIC PRIORITIES

GROWING FASTER TO UNLOCK VALUE

We will grow faster by using our

existing market positions to invest in

focused new product development and

commercialisation; by building out

priority adjacencies; and disciplined M&A

to augment strategy implementation.

STRONGER EXECUTION

We are focused on executing with agility,

speed and greater consistency to deliver

improved results.

INSPIRE AND EMPOWER OUR PEOPLE

Our people are critical to our success.

Building an inclusive, high-performing

and engaged team, and our commitment

to development and talent progression

will facilitate our ambitions.

OUR CUSTOMERS

Differentiated technology, engineering

and service solutions that make the

businesses of our sophisticated global

customers work and grow.

OUR SUPPLIERS

Collaborative supplier partnerships with

enduring mutually beneficial outcomes.

COMMUNITIES AND SOCIETY

Environmental/social value though our

products and direct contributions via

taxes, wages and giving.

REGULATORS AND GOVERNMENTS

Openness, transparency and support for

global policies that deliver a safe, secure

and sustainable world.

OUR INVESTORS

Long-term financial value and returns

for investors.

OUR CULTURE

Our culture inspires and empowers our

people to deliver. It has enabled Smiths

to prosper for more than 170 years.

OUR VALUES

are the things that are important to us.

OUR LEADERSHIP BEHAVIOURS

make us dynamic, inclusive and focused

on delivering results.

OUR CODE OF BUSINESS ETHICS

outlines the ethical standards we all

commit to.

THE SMITHS EXCELLENCE SYSTEM

(SES)

drives stronger execution and continuous

improvement across all of our priorities.

OUR STAKEHOLDERS

OUR PEOPLE

Decent, inclusive, safe work, and

environments where colleagues can

build careers and flourish.

We create value for

our stakeholders

by focusing on what

matters most to them

MARKETS AND

MEGATRENDS

Read more about our

markets and megatrends.

PG 3

DIVISIONS

Read about our divisions.

PG 4

STRATEGIC

PRIORITIES

Read more about our

strategy.

PG 12

CULTURE

Read more about our

culture.

PG 13

STAKEHOLDERS

Read more about our

stakeholders.

PG 58

PRINCIPAL RISKS

AND UNCERTAINTIES

Read more about our

principal risks and

uncertainties.

PG 68

Takes accountability

& ownership

Delivers results

at pace

Develops self

& others

Leads inclusively

& empowers

Sets vision

to inspire

Smiths

Value

Engine

Innovates

for Impact

Lives Smiths

Values

WORLD-CLASS

ENGINEERING

LEADING POSITIONS

IN CRITICAL MARKETS

GLOBAL

CAPABILITIES

ROBUST FINANCIAL

FRAMEWORK

GROWTH

EXECUTION

PEOPLE

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

OUR STRATEGY

OUR STRATEGIC PRIORITIES

FY2023 PROGRESS

ACCELERATING

GROWTH

–

Taking full advantage of strong demand in

most of our markets

–

Improving new product development and

commercialisation

–

Extending our reach by building out priority

adjacencies driven by megatrends of energy

transition and sustainability, increasing

security needs, and enhanced connectivity

–

Supplementing organic growth with

disciplined M&A

–

Record organic revenue growth; now nine consecutive quarters of growth

–

Double digit organic revenue growth in three of four Smiths divisions

–

+310bps of growth coming from new products. Gross vitality of 31%

–

£113m invested in R&D; capex +14.1%

–

Growing John Crane’s presence in hydrogen and carbon capture. Now over 70

active projects

–

Growing Smiths Detection’s penetration in other security systems segment,

+34.9% revenue

–

Flex-Tek supporting development of the world’s first Green Steel production

facility

–

Smiths Interconnect acquisition of Plastronics

–

Continued active acquisition pipeline

STRENGTHENING

EXECUTION

–

Embedding the Smiths Excellence System

across the Group

–

Accelerating pace and establishing a more

consistent operating rhythm

–

Continuously improving to deliver value for

customers

–

Executing against our environmental

commitments

–

+20bps headline operating profit margin to 16.5%

–

Strong profit growth in John Crane and Smiths Detection. Solid profit growth

in Flex-Tek

–

6 Master Black Belts and 31 Black Belts across the Group; 71 SES Black Belt

projects underway or completed

–

+£14m incremental profit from SES projects

–

Reduction in working capital through second half supported by focused

SES projects

–

Submitted Net Zero trajectory and targets for Scopes 1, 2 and 3 emissions to

the Science-Based Target initiative

–

(11.8)% reduction in Scope 1 & 2 GHG emissions

DOING EVEN

MORE TO INSPIRE

AND EMPOWER

OUR PEOPLE

–

Building upon our world-class safety record

–

Accelerating talent development through the

Smiths Leadership Behaviours

–

Creating an ever-more diverse and inclusive

environment

–

Living Smiths Values each and every day

–

Safety Recordable Incident Rate (RIR) down (26)% and record low lost time

incident rate (LTIR)

–

Continued to embed Smiths Leadership Behaviours and integrated them into

our Accelerate leadership development programme (300 trained in FY2023)

–

Expansion of diversity, equity and inclusion initiatives, including significant

growth in activities to inspire and develop female leaders. 25% of senior

leadership positions now held by women

–

My Say survey global e-Sat engagement score increased to 73. See page 14

–

Launched Smiths Group Foundation and global volunteering policy

FY2023 was another strong year of progress in advancing

our strategic priorities.

FY2023 PROGRESS

AGAINST TARGETS

Organic revenue growth

4–6

11.6%

FY2022: 3.8%

EPS growth

7–10

39.6%

FY2022: 17.8%

ROCE

15–17

15.7%

FY2022: 14.2%

Operating profit margin

18–20

16.5%

FY2022: 16.3%

Operating cash conversion

100

86%

FY2022: 80%

Target still to achieve

FY2023 progress vs

target

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

Our culture inspires and empowers our

people to deliver our strategy. The four

key elements of our cultural framework

support the Smiths business model

and drive positive outcomes for all

our stakeholders. The framework is

underpinned by governance processes set

and monitored by the Smiths Board, which

has ultimate responsibility for ensuring

that our culture remains healthy and

drives the long-term success of the Group.

OUR VALUES

Our Values are the things that are important to us as an

organisation. They make us reliable, trustworthy and

valued partners for each other, our customers and

suppliers, and they make Smiths a place where we are

happy and proud to work. We live them every day, in

each action and decision that we take.

SMITHS LEADERSHIP BEHAVIOURS

The Smiths Leadership Behaviours take our Values

to the next level. Grouped under growth, execution

and people, they describe the behaviours needed

to be displayed by all colleagues for the organisation

to be dynamic, inclusive and focused on delivering

results that create value and enable our growth

strategy. Leadership is a mindset at Smiths.

Everyone can be a leader.

SETS VISION TO INSPIRE

Collaborates to uncover future growth opportunities for

Smiths. Shares this in a way that inspires and energises

colleagues to take action.

INNOVATES FOR IMPACT

Committed to continuous improvement, takes

opportunities to the market that differentiate Smiths

and deliver sustainable value for all stakeholders.

TAKES ACCOUNTABILITY AND OWNERSHIP

Actively takes accountability, follows through

on commitments and empowers others to own

their outcomes.

DELIVERS RESULTS AT PACE

Takes an agile, focused and resilient approach that

delivers excellent outcomes to meet customer/

stakeholder expectations.

LEADS INCLUSIVELY AND EMPOWERS

Champions inclusion at every opportunity. Creates the

environment where others can contribute and thrive,

building trust and nurturing empowerment.

DEVELOPS SELF AND OTHERS

Visibly commits to their personal development and

encourages the development of others to reach their

full potential.

LIVES SMITHS VALUES

Embodies and promotes Smiths Values: integrity,

respect, ownership, customer focus and passion, using

these to guide all actions.

SMITHS CODE OF BUSINESS ETHICS

The Smiths Code is the foundational document that

outlines the standards of behaviour to which we all

commit at Smiths. It is a practical guide to what ‘doing

the right thing’ looks like when conducting business

and forging relationships legally, ethically and with

integrity. The Code is supplemented by a suite of

policies and procedures relating to specific ethics,

compliance and people matters.

SMITHS EXCELLENCE SYSTEM

SES is central to how we solve problems and deliver

improved results at Smiths. The SES structure,

leadership, committed resources, tools and training

ensure that we explicitly prioritise and resource

projects according to impact and importance, and

execute with greater pace, urgency and consistency

in support of our Smiths Value Engine priorities.

OUR PURPOSE

We are united by our

purpose to improve our

world through smarter

engineering. It is what we

do, how we think, and how

we will continue to use our

passion for technology and

engineering.

BOARD OVERSIGHT

Read more about this and

how the Board influences

our culture.

PG 82

OUR PEOPLE AND

CULTURE

SMITHS VALUES

INTEGRITY

We do the right

thing

RESPECT

We respect each

other

OWNERSHIP

We take

responsibility

CUSTOMER FOCUS

We earn our

customers’ trust

PASSION

We are united in

purpose

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

MONITORING AND MEASURING THE

HEALTH OF OUR CULTURE

ENGAGING WITH OUR COLLEAGUES

Our global communications activities are designed to

engage colleagues around the world with our purpose,

culture and strategy. Key communications materials

are translated into our ten core languages.

Our Smiths Now app is a platform for colleagues to

receive news from around the business and share their

views and stories and is always active with grassroots

content. There is also a global fortnightly e-newsletter,

Signal, which amplifies key company news to the global

business and our global virtual Town Halls have an

online translation feature. Our intranet web portal acts

as an online hub holding links to support, training and

resources for many areas including SES, safety, ethics

and compliance, and diversity and inclusion.

We undertook a large range of engagement activities in

FY2023 including:

–

My Say employee engagement survey (see right)

–

Site visits by members of the Executive Committee

and the Smiths Board

–

Global Town Halls in September and March

–

Global leadership summits for our extended and

senior leadership teams (c.400 colleagues) in

November, June and February

–

Live broadcasts of ‘fireside chats’ featuring female

members of the Executive Committee and the

Smiths Board

–

One-to-one meetings of the Chairman and senior

leaders

–

Live broadcasts and communications around our

results announcements, our Capital Markets event

in November 2022, and other key CEO and CFO

external activities

MY SAY EMPLOYEE ENGAGEMENT SURVEY

We have been tracking engagement on a range of

important cultural measures since 2017. We use the

results of the survey in a transparent and meticulous

way to surface issues and more precisely understand

what we are doing well and where we need to do

better, both at a high level and at grassroots level in

individual teams.

We undertook our latest survey in May 2023,

with updated questions to align the survey more

closely with our cultural focus areas, testing the

following categories:

–

Overall happiness working at Smiths (our employee

engagement eSat KPI) and excitement about our

future

–

Awareness and understanding of the Smiths

Leadership Behaviours and people living our Values

–

Commitment to safety and the environment

–

Empowerment, continuous improvement,

leadership, collaboration and understanding of

individual priorities

–

Career, recognition, feedback and opportunities to

learn and grow

–

Work/life balance, feeling cared about at work,

equal opportunities

–

Diverse perspectives valued, and ability to express

thoughts and ideas/speak out

Strengths:

–

Smiths is committed to providing a safe workplace

–

I understand how my work contributes to company

success

–

Smiths is committed to having a positive impact on

the environment

–

We continually improve the way the work gets done

–

People frequently express their thoughts and ideas

–

I am able to find the balance I desire between my

work life and personal life

Opportunities:

–

Everyone has an equal opportunity to succeed

–

I feel satisfied with the recognition I receive for

my work

–

I have good career opportunities at Smiths

Results from the survey and recommendations are

reported to, and discussed by, the Executive Committee

and the Smiths Board before being incorporated into

strategic planning to prioritise action in lower scoring

categories. Actions include continuing our efforts to

strengthen and upskill our leaders; using the

Leadership Behaviours as a driver for people to share

their opinions and ideas; building stronger diversity and

inclusion programmes; and continuing to improve our

talent development processes to make career plans

and prospects more visible. Each division and function

have also identified improvement opportunities to work

on in the coming year.

SPEAKING OUT

Engaging and communicating on ethical matters is

vitally important, as is colleague trust in our

procedures. Colleagues and business partners are

expected to be vigilant and report any activity or

behaviour – whether in our business or those of our

partners – that they consider may be in breach of our

ethics codes and policies or inconsistent with our

Values. This can be done through their line manager,

HR representative or the Legal team, or by using our

confidential Speak Out reporting hotline, which is

accessible 24 hours a day, seven days a week to

colleagues and third parties. Reports to the hotline can

be made anonymously. This is communicated regularly

to ensure that awareness remains high.

We also use colleague feedback to build understanding

of how we are doing on ethical matters, and to target

our activities effectively. Our grassroots Ethics

Ambassador network reviews plans and helps us to

bring ethics to life, and to the widest possible audience,

and our global Ethics Pulse survey delivers rich data on

colleague perceptions across Smiths. This data is

reported to the Audit & Risk Committee along with

Speak Out data.

84%

of Smiths colleagues

participated in the My

Say survey (May 2022:

82%; industry

benchmark 75%).

+2%

12,158

Comments made in the

My Say survey.

Overall eSat score for

the My Say survey was 73

(May 2022: 72; industry

benchmark 74).

+1 point

OUR PEOPLE

Read more about our

people.

PG 59

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

BUILDING SMITHS CULTURE IN FY2023

We recognise that a healthy culture requires continuous care and attention to support our ambitions. Some of the ways we nurtured our culture in FY2023 are given below.

SMITHS DAY

Our annual Smiths Day global celebration of Smiths culture took place in June 2023. Smiths Day celebrates our Values and the rich

connections and relationships we have as colleagues. This year’s theme ‘contributing to our communities’ encouraged every Smiths site to

look outwards and to undertake a locally based activity as a way of giving back to their immediate communities.

EMBEDDING THE

SMITHS LEADERSHIP

BEHAVIOURS

After their launch at the end of FY2022, embedding the Smiths Leadership Behaviours has been an important focus in FY2023. The

Behaviours are intended to become foundational to the colleague experience and are central to development, talent assessment, and

progression and reward. Our Accelerate people leadership programme, launched in FY2023, is based around the Leadership Behaviours.

LAUNCH OF

SUSTAINABILITY AT

SMITHS FRAMEWORK

The Sustainability at Smiths ESG framework was formally launched to colleagues at the beginning of FY2023 with messages from our

senior ESG leaders. Sustainability is at the heart of our purpose and the framework helps us to translate our purpose into practical action

to create sustainability value.

ESG DOUBLE

MATERIALITY

ASSESSMENT

Our ESG double materiality assessment undertaken in FY2023 provided a robust analysis of the importance of culture and other ESG topics

at Smiths. Safety, ethical behaviour and diversity were all highlighted as either highest-impact topics or critical enablers in the findings.

Read more on page 33.

LAUNCH OF SMITHS

GROUP FOUNDATION

The Smiths Group Foundation, a charitable giving foundation with a committed initial fund of £10m, was launched on Smiths Day to provide

grants to charitable organisations that align with our purpose. At the same time, we launched global colleague volunteering principles

which will enable every Smiths colleague to take one day paid volunteering leave each year from FY2024, and formal budgeting

opportunities for charitable giving in our divisions, China and Group to support organisations falling outside of the scope of the Foundation.

CELEBRATION AND

RECOGNITION EVENTS

Group and team events and communications recognised and celebrated: World Day for Health and Safety at Work; Earth Day; Global

Recycling Day; International Women in Engineering Day; International Women’s Day; Black History Month; and Pride month.

NEW CODE OF

BUSINESS ETHICS

Our new Code of Business Ethics was launched by CEO Paul Keel in July 2023. The new Code is organised under our Values, is shorter

and easier to read, and more practical to apply with links to all our policies. The new Code will be embedded through a programme of

activity in FY2024.

SPEAK OUT

AWARENESS

Speak Out awareness activities have been ongoing throughout FY2023.

SMITHS EXCELLENCE

AWARDS

Our annual Smiths Excellence Awards recognise achievement across a range of disciplines and are enthusiastically supported by Smiths

colleagues. The Smiths Leadership Behaviours were reflected in this year’s award categories to emphasise their importance and impact.

This year we had more than 500 submissions to the Awards.

This year’s Smiths Day

theme ‘contributing

to our communities’

encouraged every

Smiths site to look

outwards and to

undertake a locally-

based activity as

way of giving back

to their immediate

communities.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

Most of the macro commentary at present leans

towards the cautious, and there is fair reason for this.

Inflation, while climbing less steeply, remains at historic

highs. Committed to tamping this down, central banks

have raised rates at the briskest pace since the 1980s.

The expected result is softening demand, as has been

visible in most forecasts of late. Similarly concerning,

economics and geopolitics are often inversely related,

so just as forecasts cool, tensions around the world

continue to warm. Speaking of warm, environmental

concerns, percolating for years, are reaching a boiling

point. Further still, more than a few would argue that

things may still get worse before they get better. The

macro, in short, is pretty cloudy.

The micro, however, provides grounds for optimism,

especially in our industrial technology corner of the

world. FY2023 was a record year for Smiths – record

topline and EPS growth. We commit to five medium-

term financial targets (growth, EPS, ROCE, margins,

cash conversion) and all five improved year-over-year.

Promisingly, we are not alone in this regard. Over

half of our 15 closest peers have delivered double-

digit growth across the same period. Still more

encouraging, this was not driven by a one-time bounce

from COVID lows (although we do benefit from still-

unmet demand in several end markets) or inflationary

tailwinds that will eventually weaken (roughly half our

FY2023 growth came from volume). The trends we

see in our business are longer-lived, with growth now

extending over nine consecutive quarters. The micro, in

short, looks pretty good.

So, how do we reconcile the apparent disconnect of

economic forecasts trending down but performance

trending up? A few important factors help connect

the dots.

INNOVATION

First, innovation is economically insensitive. In the

period between the ‘Panics’ of 1873 and 1893, Bell

invented the telephone and Edison patented the

lightbulb. During the Great Depression, Carlson

introduced the photocopier and Edwin brought us FM

radio. Stagflation and a raft of skyjackings in the 1970s

led to the introduction of X-ray scanning in airports.

Wikipedia, Skype, YouTube and Facebook were all

formed shortly after the Nasdaq crash of 2001, and

Uber and Airbnb were both launched during the global

financial crisis of 2008–09. Necessity helps, but

capabilities and capital are the true mothers of

invention. Knowing that innovative companies extend

their lead when storm clouds form, we increased our

R&D investment by 14% in FY2022 and another 6% this

year. Returns on our investments are good. Fully three

points of our FY2023 growth came from new products

introduced just this year alone.

MARKET SELECTION

A second factor bridging the gap is market selection. All

markets have cycles, but the most attractive ones cycle

upward, in a northeast direction. Energy and aerospace

are good examples. Energy demand has a 5- to 10-year

cycle, with global growth peaking in 1984, 1988, 1996,

2004, 2010 and 2021. Growth in energy demand may

soften in any given year, but it rarely turns negative. In

fact, global energy demand has only contracted three

times in the past 50 years (the early ‘80s recession, the

global financial crisis and COVID) leading to a near-

quadrupling of underlying demand across this time.

Over 20% of Smiths revenue comes from energy

markets, where we grew 20% in FY2023. Consistent

with other upward-cycling markets, continued energy

growth will be driven by secular long-term forces such

as decarbonisation. Our world will invest around

PAUL KEEL

Chief Executive Officer

£113m

R&D investment.

+6%

+20%

Growth in energy revenue.

CEO

MESSAGE

Fellow shareholders,

Smiths had another strong year of

progress in fiscal 2023 as we further

accelerated our growth, sharpened

our execution, and developed and

empowered our talented people. Since

our financials and strategic progress

are covered in good detail in the following

report, I will devote the lion’s share of this

year’s message to longer-term trends

underway in the markets we serve. In

particular, I will comment on a curious

disconnect I observe between the macro

and the micro.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

US$100 trillion over the next 30 years to evolve from

mostly fossil-based to low- and no-carbon energy

sources. Global investment in energy will be about

US$2.8 trillion in 2023, and investment in clean

technologies such as low-emission fuels, carbon

capture and heat pumps will represent more than 60%

of the total. Clean energy investment is up 24% in just

two years and participants in this market are seeing

surging demand. Our pipeline of hydrogen and carbon

capture opportunities, for example, more than doubled

over the past 12 months.

Aviation markets behave similarly. While the cycle is a

bit shorter, closer to five years, the trajectory is also

steadily positive over time. Airline passenger volume

has only dipped twice in the past three decades (9/11

and COVID), with volume up threefold across the period.

As with energy markets, we are in the early days of an

upcycle following airport closures around the globe in

2020–21. Powerful long-term forces are also at work

here, such as the world’s ever-rising need for better

security and faster screening times. You would have

experienced an example of this if you weren’t required

to remove your laptop the last time you went through

an airport checkpoint. This safer and more efficient

experience is made possible by technologies like

computed tomography, automated tray returns and

machine learning. Smiths is at the forefront of each,

and propelled by this, our aviation detection business

grew 9% in FY2023.

Not all of our end markets grew last year. As our

Chairman notes in his letter, semiconductors are

an example. Smiths has some exposure here – less

than 3% of Group sales. On the one hand, the

semiconductor market shares several similarities with

energy and aviation. It’s large (>US$500bn). It’s global.

It consistently grows over time (+10 times in 40 years).

And it is cyclical. However, unlike energy and aviation,

which are both cycling up, the global semiconductor

market is coming off a record peak in 2022. Smiths

makes test equipment used to measure chip

performance and durability. As expected, this business

contracted for us in FY2023, particularly during the

second half. We expect these challenges to continue

through the first part of FY2024, but we remain

confident in the coming upcycle that we have seen

so many times before. So much so, in fact, that we

acquired a synergistic testing business in Q2,

positioning us to extend our leadership position

once recovery begins.

Further to our Chairman’s letter, North American

construction is another example of a market that

contracted last year. Smiths also has exposure here –

around 15% of Group sales. In this case, despite a

market downturn, our business grew 9% in FY2023,

marking our 14th straight year of expansion. The two

effects mentioned earlier – innovation and market

selection – have helped our business consistently grow

even as the market naturally cycles. With respect to

innovation, we have a technology platform that

addresses specific customer needs by applying

different resin layers to metallic tubing systems. We

introduced a new product in this family at the start of

the fiscal year and it is beginning to scale. In terms of

market selection, our penetration is highest in parts

of the US where population growth is strongest, such

as the southeast, south central and the midwest. In

support of this, we opened a new manufacturing facility

in Texas in FY2023 and completed a synergistic

acquisition in Ohio at the start of FY2024. Consistent

with macro forecasts, we expect the US construction

downcycle to continue for a few more quarters.

Consistent with past performance, however, we expect

our business to post another year of growth in FY2024.

PORTFOLIO BALANCE

The many benefits of portfolio balance are a third factor

enabling industrial technology companies to shine,

even against a cloudy macro. Balance takes many

forms. The highest-performing industrials typically

serve multiple end markets (we serve four major ones).

They often balance one-time equipment sales with

recurring aftermarket service revenues (our business

is roughly half and half). They earn more price than

they absorb, especially important in high inflation

environments (our delta was +£40m in FY2023). And

they are well balanced geographically. Worldwide reach

is a prerequisite for serving global customers, and

upswings in one part of the world offset downturns in

others. Smiths has people and resources in more

than 50 countries and, aside from the US, no country

accounts for more than 5% of revenues. Our business

outpaced GDP growth in all major regions of the world

in FY2023.

LOOKING FORWARD

Looking forward to FY2024, the macro and micro

should converge. After a period of serial downgrades,

macro forecasts have recently started to improve.

The most recent data published by the OECD, IMF, and

World Bank all expect global GDP growth in 2024 to be

modestly above 2023. Specific to Smiths, we’ve guided

to 4-6% organic revenue growth, in line with the

medium-term financial commitments we made at our

November 2021 Capital Markets Day.

FY2024 will mark Smiths Group’s 110th consecutive

year of being listed on the London Stock Exchange,

and our 173rd of continuous operation. While a lot has

changed across this time, our purpose of improving our

world through smarter engineering has remained a

steadfast guide. I applaud my 15,000 colleagues around

the world who live this purpose each and every day.

I thank Sir George Buckley for his many contributions

to Smiths over the last ten years and welcome Steve

Williams, who takes over as Chair at our Annual

General Meeting in November.

In closing, we’re encouraged by our progress and proud

of our accomplishments in FY2023. Energised by this

momentum, we are even more excited by all we see

ahead for Smiths.

Thank you for your trust and support,

PAUL KEEL

Chief Executive Officer

+24%

Market investment in clean

energy over two years.

+9%

Growth in aviation detection

revenue.

FY2024 will mark

Smiths Group’s 110th

consecutive year

of being listed on

the London Stock

Exchange, and our

173rd of continuous

operation. While a lot

has changed across

this time, our purpose

of improving our world

through smarter

engineering has

remained a steadfast

guide.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

Smiths delivered record organic revenue

growth of +11.6%, ahead of guidance. We

generated £501m of operating profit, up

+20.0% on FY2022 as we continue to make

progress on our strategy.

GROWTH

Accelerating growth

is the primary driver of unlocking

enhanced value creation for the Group. We grew in

every quarter of FY2023 and raised our guidance three

times during the year, delivering record organic

revenue growth of +11.6%. We have now delivered nine

consecutive quarters of organic revenue growth.

Strong growth continued in the second half for our two

largest businesses; with both John Crane and Smiths

Detection delivering double digit growth throughout the

year. Flex-Tek continued to grow into the second half,

with growth moderating to +3.6% reflecting the

anticipated softness in the US construction market.

Smiths Interconnect declined (8.4)% in the second half,

as anticipated, impacted by a weakening semiconductor

test market as well as delays in some large defence

and aerospace programmes.

Revenue grew +18.3% on a reported basis, to £3,037m

(FY2022: £2,566m). This included +£146m of favourable

foreign exchange translation, and +£8m from the

acquisition of Plastronics in January 2023.

Strong execution to access end market opportunity

is the first of the four actionable levers for accelerating

growth.

Our business operates across four major global end

markets: General Industrial, Safety & Security, Energy,

and Aerospace. Our strong market positions, coupled

with the balanced market exposure we have across

our businesses, are distinctive long-term advantages

for Smiths.

Smiths organic revenue in our largest end market,

General Industrial, grew +7.8% in FY2023, supported

by strong demand for John Crane’s industrial products

in chemical processing, water treatment and life

sciences. Slower H2 growth of +1.0% reflects a strong

prior year performance, and a softening in demand

for Flex-Tek’s heating, ventilation and air conditioning

(“HVAC”) products and Smiths Interconnect

semiconductor test solutions. Organic revenue growth

in Safety & Security was +11.9%, accelerating in the

second half due to Smiths Detection’s strong delivery

against its orderbook, partially offset by a decline in

Smiths Interconnect from the timing of defence

programmes. The +19.5% growth in Energy reflected

strong demand in John Crane. Growth in Aerospace of

+10.5% continued throughout the year driven by aircraft

build demand benefiting Flex-Tek; and helping to offset

the impact of delays in aerospace programmes in

Smiths Interconnect.

Our second lever for faster growth is

improved new

product development and commercialisation

. During

FY2023, +310bps of growth was delivered from high

impact new products including John Crane’s next-

generation diamond coating product offering for

high-speed and high-heat applications, Smiths

Detection’s next-generation CTiX scanners installed

with threat recognition software, and Flex-Tek’s ducting

in the energy efficient Rheia air management systems.

Gross vitality, which measures the proportion of

ORGANIC REVENUE GROWTH (BY BUSINESS)

H1 2023

H2 2023

FY2023

John Crane

+14.6%

+15.8%

+15.2%

Smiths Detection

+14.0%

+18.8%

+16.4%

Flex-Tek

+17.0%

+3.6%

+10.1%

Smiths Interconnect

+3.3%

(8.4)%

(2.8)%

Smiths Group

+13.5%

+9.9%

+11.6%

SMITHS ORGANIC REVENUE GROWTH IN OUR

END MARKETS

% of Smiths

revenue

H1 2023

H2 2023

FY2023

General Industrial

40%

+15.4%

+1.0%

+7.8%

Safety & Security

31%

+9.4%

+14.4%

+11.9%

Energy

22%

+17.1%

+21.8%

+19.5%

Aerospace

+10.1%

+10.8%

+10.5%

Smiths Group

100%

+13.5%

+9.9%

+11.6%

£3,037m

Revenue

+11.6%

Organic growth.

REVIEW OF

THE YEAR

£m

FY2022

Foreign

exchange

Acquisitions

Organic

movement

FY2023

Revenue

2,566

146

317

3,037

Headline

operating

profit

417

501

Headline

operating

profit margin

16.3%

16.5%

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

revenues coming from products launched in the last

five years, was 31% (FY2022: 31%), supported by our

successful new product commercialisation.

As an industrial technology leader, continuing to invest

in R&D ensures we capitalise on the wealth of

opportunities in our pipeline, with increasing demand

for our sustainability-related products. During FY2023,

we invested £113m in R&D (FY2022: £107m), of which

£73m (FY2022: £80m) was an income statement

charge, £21m was capitalised (FY2022: £12m) and £19m

(FY2022: £15m) was funded by customers.

To support new product launches, and the strong

demand for our existing solutions, we increased capex

+14.1% in FY2023 to £81m (FY2022: £71m). This

represents 1.6x depreciation and amortisation

(FY2022: 1.5x).

Our third growth lever is

building out priority

adjacencies.

Each of our four businesses are

executing strategies to expand beyond their existing

core markets and ensure we capitalise on the long-

term megatrends of energy transition and sustainability,

increasing security needs and enhanced connectivity.

Examples in FY2023 include Flex-Tek’s high

temperature heating solution for the world’s first

green steel production facility; and Smiths Detection’s

+34.9% revenue growth in the other security systems

segment, supported by key wins in ports and borders

and parcel delivery markets.

Our fourth growth lever is using

disciplined M&A

augment our organic growth focus. In January 2023,

Smiths Interconnect acquired Plastronics, a leading

supplier of burn-in test sockets and patented spring

probe contacts, extending our reach into an attractive

market adjacency. We will benefit from Plastronics’

attractive position in artificial intelligence, data centres

and automotive end markets, and expanding

Plastronics’ sales globally by leveraging Smiths

Interconnect’s strong presence in Asia.

Following the year end, in August 2023 we acquired

Heating & Cooling Products (“HCP”) in our Flex-Tek

business. This further expands the Group’s presence in

the North American HVAC market, enabling Smiths to

serve more customers with an even broader product

range. Acquired for $82m (approximately £65m), at less

than 7x estimated 2023 EBITDA, this acquisition further

demonstrates our disciplined and targeted approach

to M&A.

EXECUTION

Stronger execution

is our second key priority.

In FY2023, headline operating profit grew +12.7%

(+£57m) on an organic basis, and +20.0% (+£84m) on

a reported basis to £501m (FY2022: £417m). Headline

operating profit benefited from strong profit growth

in John Crane and Smiths Detection, and a solid

contribution in Flex-Tek, partially offset by a decline

in Smiths Interconnect.

Headline operating profit margin was 16.5%, up +20bps

on a reported basis supported by volume growth,

pricing more than offsetting inflation and the benefits of

SES and savings actions, all of which offset the impact

of product mix and investment in growth. By division,

strong operating leverage in John Crane reflected

improved execution and supply chain conditions. Smiths

Detection also improved its margin despite higher

Original Equipment (“OE”) sales mix. Flex-Tek and

Smiths Interconnect contracted from their record prior

year highs, with Flex-Tek continuing to invest in new

product development and commercialisation, and

Smiths Interconnect seeing lower volumes.

Headline EPS grew +39.6%, driven by headline

operating profit growth which contributed over a third

of the growth, the share buyback programme which

contributed a third, with the remainder of the growth

coming from FX and a reduction in both the effective

headline tax rate and interest expense. The headline tax

charge for FY2023 of £121m (FY2022: £104m)

represents an effective rate of 26.0% (FY2022: 27.6%).

ROCE increased +150bps to 15.7% (FY2022: 14.2%)

reflecting the higher profitability of the Group.

For further detail, please refer to note 29 of the

financial statements.

Headline operating cash conversion for FY2023 was

86% (FY2022: 80%), with stronger conversion in the

second half supported by improvement in working

capital. This was delivered through targeted and

disciplined working capital management helped by

focused SES projects. Headline operating cash-flow4

was £433m (FY2022: £332m). In FY2023, free cash-

flow4 generation was £178m (FY2022: £130m) or 35%

of headline operating profit (FY2022: 31%).

During FY2023 we continued to make good progress

on SES. There are currently 71 Black Belt projects

completed or underway, being driven by our 6 Master

Black Belt and 31 Black Belt employees across the

Group. Projects completed in the year contributed

£14m of profit, ahead of our plan of £12m. For FY2024,

we expect a contribution of £20m from SES as our

hopper of new projects continues to scale.

We implemented some targeted savings projects

across the Group through FY2023. These projects were

focused on simplification and improving efficiency.

Costs amounting to £36m in respect of these projects

have been charged to non-headline in the year, with no

further charges anticipated. In line with our previous

communications, £11m of benefit was realised in

FY2023 from these projects, with the annualised

benefits expected to be £25m.

Our divisions.

PG 24

£m

FY2022

Foreign

exchange

Acquisitions

Organic

movement

FY2023

Headline operating profit

417

501

Headline operating profit margin

16.3%

+10bps

16.5%

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

PEOPLE

Inspiring and empowering our people

is our third key

priority and our people plan is focused around four key

areas of safety, leadership development, diversity,

equity and inclusion, and engagement.

The first area, safety, is at the forefront of everything we

do. Our Recordable Incident Rate (“RIR”) for FY2023

improved to 0.41 (FY2022:0.56), and we delivered a

record low lost time injury rate of 0.14. This

improvement in safety has been achieved through

continuous reinforcement of our safety culture with

over 13,000 Safety Leadership Tours and Safety

Observations undertaken in the year. Of particular

focus was our Royal Metal site, acquired in 2021, which

delivered an 80% reduction in the number of incidents

through changes to manufacturing, new risk

management processes and leveraging technology to

make safety easier.

Our biggest people initiative this year was the continued

rollout of our Smiths Leadership Behaviours to define

our expectations for an inclusive and high-performance

culture. We continued the rollout of these seven

behaviours to fully embed them throughout the

organisation. We completed 94 workshops, attended by

over 1,600 leaders and the behaviours are now used in

our annual performance assessment process.

Alongside Smiths Leadership Behaviours, talent

development is a key priority within our People plan.

We are focused on growing and promoting talent from

within and in FY2023, 70% of open roles for manager

level and above were filled internally, versus 39% in the

past. To support our talent development, we have

relaunched the Accelerate Leadership Development

programme having trained our first 300 leaders in

FY2023, introduced mentoring programmes with the

Executive Committee for our high potential leaders and

continued to develop our Early Careers Programme,

which includes several engineering apprenticeship

programmes.

Promoting diversity, equity and inclusion is another key

part of our people strategy. We are specifically focused

on increasing gender diversity at all levels of the

organisation and we have ramped up our initiatives this

year, including introducing women’s support networks

and flexible working arrangements. As at 31 July 2023,

25% of our senior leaders, 25% of our Executive

Committee and 40% of our Board of directors are

women. With the help of the multiple initiatives

throughout the organisation, we expect to continue to

drive improvement in these metrics.

Overall, through our focus on inspiring and

empowering our people we have seen a year-on-year

improvement in our voluntary attrition, down 310bps to

12% for our global employees and down 410bps for our

engineering employees

OUR ESG APPROACH

Environment, Social and Governance (ESG)

performance is at the very centre of our purpose, and

fundamental to each of our three key priorities.

Growth

ESG at Smiths is approached with a growth mindset.

Our R&D is focused on commercialising high-value

green technology. Our progress is evident through John

Crane’s growing presence in hydrogen and carbon

capture markets with over 70 active projects and in

Flex-Tek supporting the development of the world’s first

green steel production facility. Our proven ability to

serve these customers positions us well today and in

the future as the world increasingly relies upon smart

engineering to achieve Net Zero.

We are executing well against our ESG strategy, with

significant progress against our sustainability metrics,

which are now fully incorporated into both our annual

and long-term incentives. In the year, we launched our

first Sustainability report, submitted our Science Based

Targets for review and validated our framework

through completion of our first-ever ESG double

materiality assessment in accordance with applicable

guidance under the Corporate Sustainability Reporting

Directive (“CSRD”). We also extended the scope of the

limited assurance work carried out by KPMG to follow

the more rigorous ISAE3000/3410 standard for FY2022

and FY2023 data.

People

Engagement with our communities has long been a

strength of Smiths. This year we have gone one step

further with the launch of our new charitable

foundation, “The Smiths Group Foundation”. The

foundation committed an initial £10m of funding linked

to engineering-related good causes. The mission of the

foundation is central to Smiths purpose of “Improving

our world through smarter engineering.” We also

launched our global volunteering policy, amplifying the

multitude of grass-roots efforts already in place across

the organisation.

OUTLOOK

In FY2024, we expect organic revenue growth within

our medium-term target range of 4-6%, with growth

weighted towards the second half of the year. Our

strong orderbooks in John Crane and Smiths Detection,

along with our new product pipeline, give us confidence

in delivering this growth despite a record comparator,

moderating pricing environment, and the challenging

market conditions facing parts of Flex-Tek and Smiths

Interconnect. We also expect continued margin

expansion in FY2024, as we continue to scale the

Smiths Excellence System and reinvest to support

future sustainable growth.

ESG performance

is at the very centre

of our purpose, and

fundamental to each

of our three key

priorities.

Read more about

sustainability in our

Sustainability at

Smiths report

www.smiths.com

SMITHS LEADERSHIP

BEHAVIOURS

Read more about our

Leadership Behaviours.

PG 13

Execution

Environmental metrics

FY2022

FY2023

Absolute Scope 1 & 2 GHG

emissions reductions

0.9%

reduction

11.8%

reduction

Energy efficiency6

n/a

7.9%

improvement

Proportion of electricity

from renewable sources

63%

70%

Non-recyclable waste7

11.5%

reduction

9.8%

reduction

Water use in stressed

areas7

4.5%

reduction

13.3%

reduction

6 Normalised to local currency revenue, excluding growth from price.

7 Normalised to reported revenue.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF FINANCIAL OFFICER’S REVIEW

CAPITAL ALLOCATION

With our strong technology, market positions, and

financial frameworks, our highest capital priority

continues to be organic growth. Accretive M&A, either

to strengthen core positions or to accelerate

penetration of priority adjacencies comes second.

Third, we have a strong track record of returning capital

to shareholders, as evidenced by the £350m returned in

FY2023, on top of the £661m returned in FY2022.

ORGANIC INVESTMENT

In FY2023 we invested £81m in capex projects,

including £21m in capitalised R&D on programmes

such as next-generation hold and cabin baggage

screening and further advancements in our

defence portfolio. A further £73m in R&D was

charged to the income statement, supporting new

product development.

M&A

In January 2023, Smiths Interconnect acquired

Plastronics, a leading supplier of burn-in test sockets

and patented spring probe contacts. In August 2023,

following the year end close, Flex-Tek acquired HCP,

a manufacturer of HVAC solutions in North America.

These acquisitions support our strategy to make

complementary inorganic investments to accelerate

our presence in adjacent markets or expand our

product offering. We have an active acquisition pipeline

and disciplined M&A approach across the Group.

SHAREHOLDER RETURNS

During the year we continued to repurchase shares

under the £742m share buyback programme initiated in

November 2021, in connection with our commitment to

return the majority of cash proceeds from the disposal

of Smiths Medical to shareholders. We have now

completed the share buyback programme.

In line with our progressive dividend policy and plan to

rebuild dividend cover after the sale of Smiths Medical,

the Board is recommending a final dividend of 28.7p,

bringing the total dividend for the year to 41.6p, a

year-on-year increase of +5.1% (FY2022: 39.6p).

CLARE SCHERRER

Chief Financial Officer

£350m

Returned to shareholders

in FY2023.

+5%

Increase in dividend.

CFO

REVIEW

STRONG AND FLEXIBLE BALANCE SHEET TO SUPPORT GROWTH STRATEGY

CAPITAL ALLOCATION FRAMEWORK

–

Target R&D at 4% of sales, focused on high return investments

–

Capex to support growth

–

Compensation linked to growth and new products

–

Focus on core and adjacencies through bolt-on acquisitions

–

Enhance technology roadmap

–

Accelerate growth and create scale

–

70+ years of uninterrupted dividend

–

Target dividend growth in-line with long-term earnings growth

–

Maintain dividend cover of >2x

M&A

ORGANIC

INVESTMENT

RETURNS TO

SHAREHOLDERS

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF FINANCIAL OFFICER’S REVIEW

CONTINUED

The final dividend will be paid on 24 November 2023 to

shareholders on the register at close of business on 20

October 2023. Our dividend policy aims to increase

dividends in line with growth in earnings and cash-flow,

with the objective of maintaining minimum dividend

cover of around 2 times. The policy enables us to retain

sufficient cash-flow to finance investment in growth

and meet our financial obligations. In setting the level of

dividend payments, the Board considers prevailing

economic conditions and future investment plans

The Company offers a Dividend Reinvestment Plan

(“DRIP”) enabling shareholders to use their cash

dividend to buy further shares in the Company – see

our website for details. To participate in the DRIP,

shareholders must submit their election notice to be

received by 3 November 2023 (“the Election Date”).

Elections received after the Election Date will apply to

dividends paid after 24 November 2023. Purchases

under the DRIP are made on, or as soon as practicable

after, the dividend payment date and at prevailing

market prices.

NET DEBT

Net debt4 at 31 July 2023 was £387m (FY2022: £150m),

an increase of £237m as we paid £143m in dividends

and returned £207m to shareholders via our share

buyback during the year. Net debt to headline EBITDA4

was 0.7x (FY2022: 0.3x).

As at 31 July 2023, borrowings were £654m (FY2022:

£1,166m) comprising a €650m bond which matures in

February 2027 and £117m of lease liabilities. The £512m

reduction in borrowings is due to repayment of a

€600m bond in April 2023. There are no financial

covenants associated with these borrowings. Cash

and cash equivalents as at 31 July 2023 were £285m

(FY2022: £1,056m).

In May 2023, we refinanced our $800m (c.£620m at

the period-end exchange rate) revolving credit facility

(“RCF”) which was due to mature in November 2024.

The new RCF is for the same amount, with the same

lenders, on substantially the same terms and matures

in May 2028. There are no financial covenants attached

to the new facility and it remains undrawn. Taking cash

and the RCF together, total liquidity was over £0.9bn at

the end of the period.

ICU MEDICAL STAKE

Since the sale of Smiths Medical in January 2022 the

Group holds a financial asset reflecting our investment

in 10% of the equity in ICU Medical, Inc (“ICU”). See note

14 of the financial statements for further detail.

STATUTORY RESULTS

INCOME STATEMENT

The £98m difference between headline operating

profit of £501m and statutory operating profit of

£403m is non-headline items as defined in note 3 of

the financial statements. The largest constituents

relate to the amortisation of acquired intangible assets

of £52m, costs from savings projects of £36m,

acquisition related costs of £7m, £9m in costs for

asbestos litigation in John Crane, Inc and a provision

reduction of £7m for subrogation claims in Titeflex

Corporation. Statutory operating profit of £403m was

£286m higher than last year (FY2022: £117m), reflecting

higher headline operating profit and lower non-

headline charges.

Statutory finance costs were £43m (FY2022: £14m),

mainly due to a prior year non-headline £22m foreign

exchange gain on an intercompany loan with

Smiths Medical.

Non-headline taxation items of £13m relate to

amortisation of acquisition-related intangible assets,

legacy pension scheme arrangements, litigation

provisions and non-headline finance items. The

statutory effective tax rate was 37% (FY2022: 87%).

Please refer to notes 3 and 6 of the financial statements

for further details.

TOTAL GROUP PROFIT AFTER TAX AND EPS

Statutory profit after tax for the total Group decreased

by 77.6% to £232m (FY2022: £1,035m) as the prior year

included the profit on sale and results of Smiths

Medical of £1,022m. Statutory basic EPS was 65.5p

(FY2022: 267.1p).

STATUTORY CASH-FLOW

Statutory net cash inflow from operating activities for

the total Group was £293m (FY2022: £279m). See note

28 of the financial statements for a reconciliation of

headline operating cash-flow to statutory cash-flow.

PENSIONS

Included within free cash-flow was £5m of pension

contributions (FY2022: £9m). These contributions relate

to unfunded, overseas schemes and healthcare

arrangements.

It is not anticipated that any further contributions will be

made to the TI Group Pension Scheme (“TIGPS”), the

liabilities of which have now been insured via a series of

buy-in annuities. Smiths and the TIGPS Trustee are

working toward final buy-out of the scheme in order to

deliver certainty for the Scheme’s 21,000 members and

remove future risk for Smiths.

The other major pension scheme, Smiths Industries

Pension Scheme (“SIPS”) is estimated to be in surplus

on the Technical Provisions funding basis, and no

cash contributions are currently being made. The

Group and the SIPS Trustee continue to work together

to progress towards the long-term funding target of full

buy-out funding.

The two main UK pension schemes and the US pension

plan are well hedged against changes in interest and

inflation rates. Over 90% of their assets are invested in

third-party annuities, government bonds, investment

grade credit or cash, with no remaining equity

investments. As at 31 July 2023, over 60% of the UK

liabilities had been de-risked through the purchase of

annuities from third party insurers.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF FINANCIAL OFFICER’S REVIEW

CONTINUED

LITIGATION

Smiths Group faces different types of litigation in

different jurisdictions. Please see below an update

on the two significant litigation provisions. For more

information, refer to note 23 of the Financial Statements.

John Crane, Inc. litigation

John Crane, Inc. (JCI) a subsidiary of the Group,

continues to actively monitor the conduct and effect of

its current and expected asbestos litigation, including

the effective presentation of its ‘safe product’ defence,

and intends to resist asbestos cases based on this

defence. Approximately 310,000 claims against JCI have

been dismissed before trial over the last 40 years. JCI is

currently a defendant in cases involving approximately

20,000 claims. Despite these large numbers of claims,

since the inception of asbestos litigation against JCI it

has had 154 cases and has had to pay awards

amounting to approximately $190m.

At 31 July 2023, the aggregate provision for JCI

asbestos litigation, including for adverse judgements

and defence costs, amounted to £204m (FY2022:

£229m) 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

damages allegedly caused by its flexible gas piping

products being energised by lightning strikes. It has

also received a number of product liability claims

relating to this product, some in the form of purported

class actions. Titeflex Corporation believes that its

products are a safe and effective means of delivering

gas when installed in accordance with the

manufacturer’s instructions and local and national

codes. However, some claims have been settled on an

individual basis without admission of liability. The

continuing progress of claims and the pattern of

settlement, together with recent market-place activity,

provide sufficient evidence to recognise a liability in

the accounts.

At 31 July 2023, a provision of £41m (FY2022: £52m) has

been made for the costs which the Group expects to

incur in respect of these claims. For the Group’s

litigation provisions, because of the significant

uncertainty associated with the future level of claims

and of the costs arising out of the related litigation,

there is no guarantee that the assumptions used to

estimate the provision will result in an accurate

prediction of the actual costs that may be incurred.

FOREIGN EXCHANGE

The results of overseas operations are translated into

sterling at average exchange rates. Net assets are

translated at period-end rates. The Group is exposed to

foreign exchange movements, mainly the US Dollar and

the Euro. The principal exchange rates, expressed in

terms of the value of Sterling, are shown in the

following table.

Average rates

Period-end rates

31 Jul 2023

(12 months)

31 Jul 2022

(12 months)

31 Jul 2023

31 Jul 2022

USD

1.21

1.32

1.29

1.22

EUR

1.15

1.18

1.17

1.19

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF FINANCIAL OFFICER’S REVIEW

CONTINUED

JOHN CRANE

DIVISIONAL REVIEW

FY2023 FINANCIAL PERFORMANCE

FY2023

(£m)

FY2022

(£m)

FY Reported

growth

H1 organic

growth

H2 organic

growth

FY organic

growth

Revenue

1,079

901

+19.8%

+14.6%

+15.8%

+15.2%

Original Equipment

169

148

+14.3%

+13.3%

+6.8%

+9.9%

Aftermarket

487

382

+27.5%

+18.5%

+27.8%

+23.2%

Energy

656

530

+23.8%

+17.1%

+21.8%

+19.5%

Original Equipment

145

131

+10.5%

+14.1%

(0.9)%

+6.0%

Aftermarket

278

240

+16.0%

+9.2%

+12.3%

+10.9%

General Industrial

423

371

+14.0%

+10.9%

+7.6%

+9.2%

Headline operating profit

244

188

+29.7%

+24.6%

+25.7%

+25.2%

Headline operating profit margin

22.6%

20.9%

+170bps

+190bps

+180bps

Statutory operating profit

217

167

+29.9%

Return on capital employed

23.8%

19.4%

+440bps

R&D cash costs as % of sales

1.7%

2.5%

(80)bps

REVENUE

£m

FY2022

reported

Foreign

exchange

Organic

movement

FY2023

reported

Revenue

901

142

1,079

OPERATING PROFIT

£m

FY2022

reported

Foreign

exchange

Organic

movement

FY2023

reported

Headline operating profit

188

244

Headline operating profit margin

20.9%

22.6%

Read more about

our divisions at

www.smiths.com

Reported revenue grew

to record levels at over

£1bn for the first time.

John Crane delivered record organic revenue growth of

+15.2% for the year, accelerating to +15.8% in H2

executing well against strong demand, with orders up

+15%. Organic revenue grew across all segments and

geographies. Aftermarket organic revenue grew

+18.4% to make up 71% of sales (FY2022: 69%) and OE

grew +8.1%.

Reported revenue grew to record levels at over

£1bn for the first time, which was up +19.8% reflecting

the organic growth and a favourable foreign

exchange impact.

In Energy, organic revenue grew +19.5% benefiting from

an increased focus on energy security and higher

demand for energy efficiency and emissions reduction

solutions. John Crane is well positioned to support

customers with their decarbonisation goals as they

look to become more efficient and reduce leakage

within existing facilities or invest in new infrastructure

for low carbon alternatives. Notable contract wins in

the year included one of the world’s largest offshore

Carbon Capture and Storage (“CCS”) facilities in

Malaysia and compressor seals for use in an innovative

energy storage solution for a customer in Europe. John

Crane’s leadership in this area was recognised by the

UK government through a £925k grant awarded for its

innovative high temperature sealing solution, which is

designed to improve customer efficiency through

reduced emissions.

The Industrial segment grew +9.2% organically, driven

by strong demand across chemical processing, water

treatment and life sciences. Efficiency in industrial

processes is as important as it is to John Crane’s

Energy customers, evidenced by multiple wins across

all markets.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF FINANCIAL OFFICER’S REVIEW

CONTINUED

Headline operating profit of £244m grew a record

+25.2% on an organic basis, resulting in +170bps of

margin expansion. This was driven by the increased

volumes and improving plant efficiency, pricing

offsetting inflation and benefits from SES and savings

projects, while continuing to invest in growth to service

the strong demand.

On a reported basis, headline operating profit was up

+29.7%, including a favourable foreign exchange

impact. The difference between statutory and headline

operating profit includes the net cost in relation to the

provision for John Crane, Inc. asbestos litigation and

charges from savings projects.

ROCE was 23.8%, up 440bps, reflecting the record

headline operating profit growth.

R&D

Cash R&D expenditure was 1.7% of sales (FY2022:

2.5%). John Crane’s continued investment in R&D is

primarily focused on reducing product lead times

and enhancing the efficiency, performance and

sustainability of high duty seals and hydrogen

compressors.

John Crane plays a significant role in its customers’

sustainability journeys through reducing leaks,

including for demanding hydrocarbon pipelines. John

Crane’s recently launched Safematic Upstream

Pumping System product nearly eliminates cooling

water requirements, delivering significant energy and

emissions reductions in liquid sealing.

FY2023 FINANCIAL PERFORMANCE

FY2023

(£m)

FY2022

(£m)

FY Reported

growth

H1 organic

growth

H2 organic

growth

FY organic

growth

Revenue

803

655

+22.6%

+14.0%

+18.8%

+16.4%

Original Equipment

226

198

+14.2%

+10.3%

+8.6%

+9.4%

Aftermarket

309

269

+14.6%

+10.3%

+7.0%

+8.6%

Aviation

535

467

+14.5%

+10.3%

+7.7%

+8.9%

Original Equipment

164

102

+60.2%

+39.2%

+64.4%

+51.3%

Aftermarket

104

+21.5%

+2.9%

+28.3%

+15.2%

Other Security Systems

268

188

+42.7%

+22.9%

+47.9%

+34.9%

Headline operating profit

+23.1%

+4.5%

+26.8%

+15.4%

Headline operating profit margin

11.2%

11.1%

+10bps

(110)bps

+70bps

0bps

Statutory operating profit

+52.8%

Return on capital employed

7.7%

7.1%

+60bps

R&D cash costs as % of sales

8.4%

9.3%

(90)bps

REVENUE

£m

FY2022

reported

Foreign

exchange

Organic

movement

FY2023

reported

Revenue

655

114

803

OPERATING PROFIT

£m

FY2022

reported

Foreign

exchange

Organic

movement

FY2023

reported

Headline operating profit

Headline operating profit margin

11.1%

11.2%

Read more about

our divisions at

www.smiths.com

SMITHS DETECTION

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF FINANCIAL OFFICER’S REVIEW

CONTINUED

Smiths Detection returned firmly to growth in FY2023

with organic revenue growth of +16.4% executing well

against the multi-year orderbook. Growth was

delivered across all segments with particularly strong

growth in lower margin OE, up +23.9% organically.

Aftermarket revenue grew +10.2% organically, making

up 51% of sales (FY2022: 54%). Orders grew +6% in the

year, supporting revenue growth in FY2024, which due

to the expected timing of order delivery will be weighted

towards the second half. Reported revenue was up

+22.6% reflecting the organic growth and a favourable

foreign exchange impact.

In Aviation, organic revenue grew +8.9% with continued

strong demand for Smith Detection’s latest range of 3D

CT machines for cabin baggage, CTIX, with over 1,000

now sold, supported by regulatory requirements in

many countries mandating upgrades. Smiths Detection

continues to achieve a good win rate in Aviation with key

contract wins in all regions of the world across the year

including provision of CTIX machines to Birmingham

and Edinburgh airports in the UK and JAL Airline in

Japan, and full-sized lane configurations to the US

Transportation Security Administration.

Other Security Systems (“OSS”) grew +34.9% driven by

high growth in all three sub-segments of urban

security, ports and borders and defence, demonstrating

good progress in these attractive market adjacencies.

Order intake in defence was very strong for both

current and future chemical and biological detection

requirements, including for the US DoD on their next

generation programme. Smiths Detection has also

been contracted to provide security screening at COP28

in November this year.

Headline operating profit was up +15.4% on an

organic basis for the year, supported by the strong

organic revenue growth, SES benefits and targeted

actions on cost. On a reported basis, headline operating

profit was up +23.1% including favourable foreign

exchange translation.

Headline operating profit margin of 11.2% was up 10bps

on a reported basis as the benefits of SES and cost

actions offset the mix impact of lower margin OE.

These OE deliveries will secure longer-term, high

margin aftermarket revenue, which together with a

building SES impact, will support future

margin expansion.

The difference between statutory and headline

operating profit primarily reflects amortisation

of acquired intangibles and charges from

savings projects.

ROCE increased by +60bps to 7.7%, driven by the

headline operating profit growth.

R&D

Cash R&D increased +9.8% representing 8.4% of sales

(FY2022: 9.3%). This includes an increase in customer

funded projects to £18m (FY2022: £14m).

Smiths Detection continued to invest in next-generation

detection devices, new algorithms to improve the

detection of dangerous goods, and digital solutions to

strengthen the aftermarket proposition. During the

year Smiths Detection launched a new high volume air

cargo screening technology, and an extension of their

automated detection algorithm.

Read more about

our divisions at

www.smiths.com

Smiths Detection

continues to achieve

a good win rate in

Aviation with key

contract wins in all

regions of the world

across the year

including provision

of CTIX machines

to Birmingham and

Edinburgh airports

in the UK and JAL

Airline in Japan,

and full-sized lane

configurations to the US

Transportation Security

Administration.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

CHIEF FINANCIAL OFFICER’S REVIEW

CONTINUED

FY2023 FINANCIAL PERFORMANCE

FY2023

(£m)

FY2022

(£m)

FY Reported

growth

H1 organic

growth

H2 organic

growth

FY organic

growth

Revenue

768

647

+18.6%

+17.0%

+3.6%

+10.1%

General Industrial

624

531

+17.5%

+0.9%

+9.0%

Aerospace

144

116

+24.4%

+14.8%

+16.4%

+15.6%

Headline operating profit

149

133

+11.9%

+9.0%

(2.0)%

+3.4%

Headline operating profit margin

19.4%

20.6%

(120)bps

(150)bps

(110)bps

(130)bps

Statutory operating profit

131

106

+23.6%

Return on capital employed

26.1%

25.6%

+50bps

R&D cash costs as % of sales

0.4%

0bps

REVENUE

£m

FY2022

reported

Foreign

exchange

Organic

movement

FY2023

reported

Revenue

647

768

OPERATING PROFIT

£m

FY2022

reported

Foreign

exchange

Organic

movement

FY2023

reported

Headline operating profit

133

149

Headline operating profit margin

20.6%

19.4%

FLEX-TEK

ROCE increased +50bps to 26.1% reflecting the

continued profit growth in FY2023.

In August 2023, Flex-Tek acquired HCP expanding its

presence in the North American HVAC market,

broadening its product range and customer base.

R&D

Cash R&D expenditure grew in-line with sales

remaining at 0.4% of sales (FY2022: 0.4%). R&D is

focused on developing new products for the

construction market, and an expanded product offering

in aerospace.

Organic revenue grew +10.1% in the year, with growth in

H2 of +3.6%. Revenue on a reported basis grew +18.6%,

supported by a favourable foreign exchange translation.

In Industrial, organic revenue was up +9.0% in the year

reflecting strong demand for Flex-Tek’s products,

primarily in HVAC applications. These products include

energy efficiency solutions such as the Rheia air

distribution system and the partnership with Midrex to

deliver heating solutions that enable the production of

commercial “green steel”. As expected, demand slowed

in the second half reflecting a softer US HVAC market.

In Aerospace, organic revenue grew +15.6% in the year,

with growth in the second half accelerating to +16.4%

supported by an increasing number of aircraft builds.

Headline operating profit grew +3.4% on an organic

basis, driven by the revenue growth which was partly

offset by higher costs including starting up a new

facility in Houston to expand capacity. This increase in

costs, together with continued investments in new

product development and a product mix impact,

contributed to a 19.4% headline operating margin, (120)

bps lower than the record prior year comparator.

The difference between statutory and headline

operating profit is due to amortisation of acquired

intangible assets and the provision for Titeflex

Corporation subrogation claims.

Read more about

our divisions at

www.smiths.com

In Industrial, organic

revenue was up +9.0%

in the year reflecting

strong demand for our

products, primarily in

HVAC applications.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHIEF FINANCIAL OFFICER’S REVIEW

CONTINUED

ROCE reduced (300)bps to 13.3% driven by the lower

operating profit.

R&D

Cash R&D expenditure increased to 6.3% of sales

(FY2022: 5.6%). R&D is focused on bringing to market

new products that improve connectivity and product

integrity in demanding operating environments.

Product launches include the next-generation of radio

frequency components and transceivers.

SMITHS INTERCONNECT

FY2023 FINANCIAL PERFORMANCE

FY2023

(£m)

FY2022

(£m)

FY Reported

growth

H1 organic

growth

H2 organic

growth

FY organic

growth

Revenue

387

363

+6.5%

+3.3%

(8.4)%

(2.8)%

Headline operating profit

(4.6)%

(1.7)%

(20.7)%

(11.9)%

Headline operating profit margin

16.0%

18.0%

(200)bps

(80)bps

(250)bps

(170)bps

Statutory operating profit

(21.9)%

Return on capital employed

13.3%

16.3%

(300)bps

R&D cash costs as % of sales

6.3%

5.6%

+70bps

REVENUE

£m

FY2022

reported

Foreign

exchange

Acquisitions

Organic

movement

FY2023

reported

Revenue

363

(10)

387

OPERATING PROFIT

£m

FY2022

reported

Foreign

exchange

Acquisitions

Organic

movement

FY2023

reported

Headline operating profit

(8)

Headline operating profit margin

18.0%

16.0%

Smith Interconnect’s organic revenue declined

(2.8)% for the year following the strong +13.9% growth

last year, with +3.3% growth in H1 more than offset

by the (8.4)% decline in H2. Reported revenue grew

+6.5% in the year including a favourable foreign

exchange impact and an £8m contribution from the

acquisition of Plastronics.

The performance in the year reflected a weakening in

the semiconductor market and delayed timing on large

aerospace and defence related programmes, partly

offset by strong demand for industrial connector

products such as a new medical cable assembly

product. Contraction into FY2024 is expected with

FY2023 orders down 17%, continued weakness in the

semiconductor market and a slowing in connectors.

During the first half, Smiths Interconnect acquired

Plastronics to strengthen the product portfolio and

leverage Plastronics’ attractive positions in artificial

intelligence, data centres and automotive end markets.

Headline operating profit declined (11.9)% on an organic

basis, resulting in a (200)bps reduction in operating

profit margin to 16.0%. This decline was driven by the

lower volumes and continued investment in R&D.

Headline operating profit was down (4.6)% on a

reported basis, reflecting the organic decline, partly

offset by a favourable foreign exchange impact.

The difference between statutory and headline

operating profit reflects the amortisation of acquired

intangibles, acquisition costs and charges from

savings projects.

Read more about

our divisions at

www.smiths.com

During the first half,

Smiths Interconnect

acquired Plastronics to

strengthen our product

portfolio and leverage

Plastronics’ attractive

positions in Artificial

Intelligence, data

centres and automotive

end markets.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

KEY PERFORMANCE INDICATORS

KEY

PERFORMANCE

INDICATORS

FINANCIAL TARGETS

Our financial targets were set out at our Capital

Markets Day in November 2021.

Alternative Performance Measures (APMs) and KPIs

are defined in note 29 of the financial statements.

All measures exclude Smiths Medical which was sold

in January 2022.

LINK TO STRATEGY

Growth

Execution

People

ORGANIC REVENUE GROWTH

Growing faster is the

primary driver of unlocking

value creation for the

Group.

FY2023 PROGRESS

In FY2023 we delivered

organic revenue growth in

all four quarters of the year

and full year growth of

+11.6%.

MEDIUM-TERM TARGET

+4-6%

PERFORMANCE

FY2023

11.6

FY2022

FY2021

Y2020

FY2019

3.8%

(2.2)

(1.0)%

3.0%

STRATEGY

OPERATING PROFIT MARGIN

Stronger execution is the

second key priority for the

Group and will drive higher

margins.

FY2023 PROGRESS

In FY2023 we delivered

+20bps of margin

progression to 16.5%, while

continuing to invest in

growth.

MEDIUM-TERM TARGET

18-20%

PERFORMANCE

FY2023

16.5%

FY2022

FY2021

FY2020

FY2019

16.3%

15.5

12.8%

17.1%

STRATEGY

EARNINGS PER SHARE GROWTH

Strong margins will

convert revenue growth

into earnings growth.

FY2023 PROGRESS

In FY2023 we delivered

record EPS growth of

+39.6%, driven by organic

operating profit growth and

the benefit of our share

buyback programme.

MEDIUM-TERM TARGET

+7-10%

PERFORMANCE

FY2023

39.6

FY2022

FY2021

FY2020

FY2019

17.8%

19.3

(27.4)%

11.0%

STRATEGY

LINKED TO

REMUNERATION

Read more in CEO review of

the year.

PG 18

LINKED TO

REMUNERATION

Read more in CEO review of

the year.

PG 18

LINKED TO

REMUNERATION

Read more in CEO review of

the year.

PG 18

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

KEY PERFORMANCE INDICATORS

CONTINUED

GROSS VITALITY

Gross Vitality measures the revenue contribution of

products launched in the last five years. Improved new

product development and commercialisation is a key

component of our growth strategy.

FY2023 PROGRESS

In FY2023 Gross Vitality was 31% reflecting continued

investment in R&D and new product development.

MEDIUM-TERM TARGET

30%+

STRATEGY

PERFORMANCE

FY2023

FY2022

FY2021

31%

GREENHOUSE GAS (GHG) REDUCTION

Meeting our commitment to deliver Net Zero Scope 1 & 2

GHG emissions by 2040 is a fundamental part of our

sustainability strategy.

FY2023 PROGRESS

In FY2023 our Scope 1 & 2 emissions reduced (11.8)% in

absolute terms due to actions on energy efficiency and a

further increase in renewable electricity.

MEDIUM-TERM TARGET

Net Zero Scope

1 & 2 emissions

by 2040

STRATEGY

PERFORMANCE

FY2023

(11.8)

FY2022

(0.9)%

See page 45 for our statement on limited assurance.

RETURN ON CAPITAL EMPLOYED (ROCE)

Monitoring our return on capital acts as a discipline on

both organic and inorganic investment to drive maximum

value from our growth.

FY2023 PROGRESS

In FY2023 ROCE increased +150bps into our target range

driven by the strong operating profit performance.

MEDIUM-TERM TARGET

15-17%

STRATEGY

PERFORMANCE

FY2023

15.7

FY2022

FY2021

FY2020

FY2019

14.2%

13.9

12.8%

15.7%

OPERATING CASH CONVERSION

Maintaining our strong track record of cash conversion

is a key component of our robust financial framework.

FY2023 PROGRESS

In FY2023 we improved our operating cash conversion

by +6 percentage points to 86%, supported by an

improvement in working capital in the second half of

the year.

MEDIUM-TERM TARGET

100%

STRATEGY

PERFORMANCE

FY2023

FY2022

FY2021

FY2020

FY2019

80%

129

112%

74%

OPERATIONAL AND NON-FINANCIAL TARGETS

LINKED TO

REMUNERATION

Read more in CEO review of

the year.

PG 18

LINKED TO

REMUNERATION

Read more in CEO review of

the year.

PG 18

Read more in CEO review of

the year.

PG 18

LINKED TO

REMUNERATION

Read more in Sustainability

at Smiths.

PG 32

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

KEY PERFORMANCE INDICATORS

CONTINUED

RECORDABLE INCIDENT RATE (RIR)

Our commitment to our people starts with keeping us

all safe and healthy. This is our essential foundation and

number one focus. Our key safety metric is RIR per

100 colleagues.

FY2023 PROGRESS

In FY2023 RIR fell by (26)% with improvement in every

division. We continue to track below the industry average

and in the top quartile of industry performance.

MEDIUM-TERM TARGET

A zero-harm

workplace

STRATEGY

PERFORMANCE

FY2023

0.41

FY2022

FY2021

FY2020

FY2019

0.56

0.47

0.35

0.50

MY SAY SURVEY ENGAGEMENT SCORE

Engaging our people is key to the success of our strategy.

We have been tracking employee engagement on a range

of important cultural measures since 2017.

FY2023 PROGRESS

In FY2023 we updated the questions in the My Say survey

to align it more closely with our cultural focus areas.

The overall e-Sat survey score went up by 1 point.

MEDIUM-TERM TARGET

Upper

quartile

STRATEGY

PERFORMANCE

FY2023

FY2022

FY2021

FY2020

FY2019

DIVERSITY

We are focused on proactively increasing the number of

women in leadership roles at Smiths, with our measure

being percentage of senior leadership positions held

by women.

FY2023 PROGRESS

In FY2023 we increased the number of senior leadership

positions held by women to 25%. We also undertook a

wide range of activities to support female colleagues and

increase female talent in our pipelines.

MEDIUM-TERM TARGET

30% by

the end of

FY2024

STRATEGY

PERFORMANCE

FY2023

25%

FY2022

FY2021

24%

23%

Read more in Sustainability

at Smiths.

PG 32

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

SUSTAINABILITY

AT SMITHS

Strong ESG performance is essential to deliver on our

purpose and create value for each of our stakeholders.

We organise our ESG commitments and objectives

using our Sustainability at Smiths framework that we

first introduced in FY2022.

In FY2023, we tested and further refined the framework

by completing an ESG double materiality assessment

(DMA) in accordance with requirements and best

practices developed under the EU’s Corporate

Sustainability Reporting Directive (CSRD). As

summarised from page 33 the ESG DMA validated the

framework and helped to identify our best opportunities

for value creation through our ESG performance.

During the year we submitted our Net Zero trajectory

and targets to the Science-Based Targets initiative

(SBTi). Our Net Zero/climate transition plan is published

in this report. See page 40.

Read more about sustainability in our Sustainability at

Smiths report.

GOVERNANCE AND OVERSIGHT

The Smiths Board of Directors and Executive

Committee have ultimate responsibility for Smiths ESG

performance and associated governance and oversight.

Our collaboration model enables us to bring together

the skills and knowledge of our Board, our Executive

team and our business leaders to harness the

knowledge and skills of the whole Group to drive and

deliver innovation, effective execution and best practice.

See our ESG governance and delivery model on

page 49.

METRICS AND REPORTING

ESG metrics and targets are incorporated into Smiths

overall business performance dashboard and are

reviewed annually to ensure they remain aligned with

business priorities. The metrics cascade down through

business and functional operating units as relevant and

realistic building block targets that aggregate to deliver

performance at the overall Group level. Metrics are

reported to, and discussed by, the Executive Committee

and the Board and its Committees. We report

externally metrics relating to our material ESG areas

and those required by reporting regulations.

See ESG metrics, targets and performance on page 44.

REWARD INCENTIVES

For FY2022, we began incorporating ESG performance

alongside traditional financial metrics to determine the

long-term incentive plan (LTIP) pay of our senior

executives. For FY2023, we again assigned 15% of the

LTIP award to reducing GHG emissions, now aligned to

the pace of reductions required to deliver our Science-

Based Targets (SBTs). In addition, we added an energy

efficiency metric as a component of our Annual

Incentive Plan (AIP) that potentially benefits

approximately 6,000 colleagues.

In FY2024, we are continuing the same approach,

setting:

–

LTIP targets for absolute GHG reductions aligned to

the pace required to deliver SBTs; and

–

AIP targets for energy efficiency tailored to reward

operational improvements that support sustainable

and high-value delivery of our SBTs.

New product revenue targets (including named

sustainability-focused products) were also included in

the AIP in FY2023.

EXTERNAL FRAMEWORKS

We also look outside the Company to benchmark and

evaluate progress and make sure that we are learning

from our peers, sector leaders and subject-matter

specialists. The measures used by third-party ratings

agencies and framework developers help us to identify

opportunities for improvement and additional

disclosure that helps our external stakeholders

understand and accurately assess our priorities and

progress. While these external frameworks do not

dictate our path, they are very helpful to inform our

reporting, planning and prioritisation.

We are fully supportive of emerging sustainability

reporting obligations and will take an approach guided

by value creation and what matters to our stakeholders.

We are preparing the business and internal

workstreams for this enhanced reporting.

We currently report climate disclosures aligned with

the Task Force on Climate-related Financial

Disclosures (TCFD). See page 47.

We participate annually in the CDP global

environmental reporting initiative and during the year

completed our latest carbon and water submissions to

CDP for FY2022.

Read more about

sustainability and our

ESG priorities in our

FY2023 Sustainability

at Smiths report at

www.smiths.com

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

VALIDATING OUR SUSTAINABILITY AT SMITHS FRAMEWORK

AND APPROACH

In FY2023 we completed an ESG double materiality

assessment (DMA) which validated our existing

prioritisation of ESG-related topics. It also provided a

robust analysis of critical enablers and emerging

matters of interest and importance to our multiple

stakeholders and emerging regulatory requirements.

DMA APPROACH

We conducted the DMA over five months with support

from a specialist team from PwC. The findings and

proposed next steps were discussed by the Smiths

Executive Committee and presented to the Science,

Sustainability & Excellence (SSE) Committee of the

Board in July 2023. We agreed next steps and these are

being integrated into short- and medium-term strategic

planning and resourcing decisions. They are also being

integrated into our ESG reporting and internal

communication and education on ESG matters to

increase impact and realise more value from our

performance.

Selection of 23 ESG

topics based on:

–

Smiths existing ESG

framework elements

–

Latest market

practices/peer

benchmarking

–

Existing and future

regulatory standards

and frameworks

Internal stakeholder engagement

including workshops, one-to-one

interviews and a Group-wide

colleague survey.

External stakeholder research on

expectations and priorities covering

customers, key shareholders,

potential investors, key suppliers,

peers and seven upcoming ESG

regulations

1 Corporate Sustainability Reporting

Directive (CSRD), including European

Sustainability Reporting Standards (ESRS)

and EU Taxonomy; UK Green Taxonomy;

Task Force on Climate-Related Financial

Disclosures (TCFD); Taskforce on Nature-

related Financial Disclosures (TNFD);

Corporate Sustainability Due Diligence

Directive (CSDDD); UK and EU REACH;

Carbon Border Adjustment Mechanism

(CBAM).

Customers, investors and Smiths internal views were prioritised through

weighting to synthesise results.

– Presentation/

discussion with

Executive Committee

– Presentation/

discussion with SSE

Committee

– Presentation/

discussion with

functional and divisional

leadership teams

–

Integration into FY2023

reporting

–

Integration into

strategic planning

FY2024 and beyond

–

Preparation for future

reporting requirements

1. DEFINE LIST

OF TOPICS

2. ASSESS TOPIC MATERIALITY

ON TWO DIMENSIONS (DOUBLE

MATERIALITY)

Impact materiality

Financial materiality

3. SYNTHESISE RESULTS

4. INTEGRATE

OUTCOMES

AND COMMUNICATE

RESULTS

Stakeholder

IMPACT

MATERIALITY

WEIGHTING

FINANCIAL

MATERIALITY

WEIGHTING

INTERNAL

Workshops

Employee

survey

EXTERNAL

Customers

Investors

Regulators

–

Peers

Suppliers

See Group materiality picture on

PG 35

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

23 ESG TOPICS

CHOSEN FOR

ASSESSMENT

We chose 23 ESG topics for assessment based on the

diamonds of Smiths existing ESG framework, latest

market practices as taken from a peer benchmarking

exercise, and an analysis of existing and future

regulatory standards and frameworks.

We assessed each topic on two dimensions:

–

Impact materiality – an ESG topic is material when

it pertains to Smiths material (actual or potential,

positive or negative) impacts on people or the

environment over the short, medium, or long term.

–

Financial materiality – an ESG topic is material if it

triggers, or may trigger, material financial effects on

Smiths by generating risks or opportunities that

have or are likely to have a material influence on

cash-flows, development, performance, position,

cost of capital or access to finance in the short,

medium, or long term.

GROUP MATERIALITY PICTURE

The Group ESG double materiality picture is shown on

page 35. It distributes the 23 topics into three distinct

categories:

Highest-impact topics:

Five key strategic and

disclosure focus ESG topics where Smiths must place

the most focus (four of which formed part of our

existing ESG framework)

Critical enablers and foundational elements:

Eight

topics which we characterise as the key success

factors for enabling progress on our ESG priorities

Base expectations and emerging issues:

ESG topics to

maintain and monitor performance

As expected, we observed some differences in the

divisional materiality pictures driven by market sector,

nature of operations, customers, geographies and

regulatory environments. For example, the John Crane

and Flex-Tek value propositions are highly aligned with

the commercialising high-value green technology topic;

Smiths Detection is further on its path to delivering Net

Zero, and managing risk and maintaining strong and

effective controls is an important focus due to operating

in highly regulated markets; Smiths Interconnect is

positioned in markets such as medical technology and

space exploration so products can be ascribed a social

value; and the evolving Government policy agenda in

China makes reinforcing data privacy and cyber

security an important topic for Smiths China.

Our stakeholders also place different emphasis

on topics:

Customers:

many share our Net Zero goals and we can

meet their needs both with our technologies and by

decarbonising our operations (their Scope 3 emissions).

Investors:

are attracted to high-value green

technologies that deliver long-term growth. Investors

also have high expectations of Net Zero delivery.

Regulators:

new regulations are coming down the

track across the spectrum of ESG topics.

Peers:

like Smiths, peers are moving ahead with

SBTi-aligned Net Zero goals and green product

offerings.

Suppliers:

maintain their traditional focus on

compliance and controls; now expanding to Net Zero

GHG (our Scope 3 emissions).

VALIDATION

The DMA confirmed that all topics within the

Sustainability at Smiths framework are important to

our performance and valued by our stakeholders.

Of the 23 assessed topics, 21 mapped to the diamonds

in the framework.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

LOWER

ENVIRONMENT

SOCIAL

GOVERNANCE

LOWER

HIGHER

FINANCIAL MATERIALITY

IMPACT MATERIALITY

HIGHER

Safety, health and well-being

Delivering Net Zero

Product safety

Human rights

Developing talent

Product design

Data privacy

Behaving ethically

and legally

Waste

Water

Supply chain

Managing risk

Diversity

Chemicals

Climate change

Decision making

Resources

Social value

Pollution

Biodiversity

Communities

Talent attraction

Commercialising green

technology

HIGHEST IMPACT TOPICS

CRITICAL ENABLERS AND

FOUNDATIONAL ELEMENTS

BASE EXPECTATIONS AND

EMERGING ISSUES

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

HIGHEST IMPACT

TOPICS

IMPROVING SAFETY,

HEALTH AND

WELL‑BEING

The most material ESG

topic, aligned with the

findings of our My Say

survey.

COMMERCIALISING

HIGH‑VALUE GREEN

TECHNOLOGY

Material opportunity

as viewed by external

stakeholders.

DELIVERING NET

ZERO GHG

Highly material to most

stakeholders including

customers who have set

similar objectives and to

our colleagues.

PG 40

Continued overleaf

GROUP MATERIALITY PICTURE

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

DELIVERING NET ZERO GHG

–

Delivering Net Zero GHG

–

Climate change adaptation and resilience

IMPROVING SAFETY, HEALTH AND WELL‑BEING

–

Improving safety, health and well-being

BEHAVING ETHICALLY AND LEGALLY

–

Behaving ethically and legally

–

Protection of human rights and affected

communities

COMMERCIALISING HIGH‑VALUE GREEN

TECHNOLOGIES

–

Commercialising high-value green

technologies

PROMOTING DIVERSITY, EQUITY AND

INCLUSION

–

Promoting diversity, equity and inclusion

MANAGING RISK AND MAINTAINING STRONG

AND EFFECTIVE CONTROLS

–

Managing risk and maintaining strong and

effective controls

–

Product safety and quality assurance

–

Management of chemicals and hazardous

substances

–

Reinforcing data privacy and cyber security

RESPECTING NATURAL RESOURCES

–

Respecting natural resources

–

Preventing pollution

–

Waste management

–

Water conservation and stewardship

–

Sustainable product design and lifecycle

management

CONTRIBUTING TO OUR COMMUNITIES

–

Contributing to our communities

–

Delivering social value through our products

EFFECTIVE LONG‑TERM DECISION MAKING

AND TRANSPARENCY

–

Effective long-term decision making and

transparency

DEVELOPING TALENT

–

Developing talent

–

Talent attraction and retention

TOPICS NOT INCLUDED IN EXISTING

FRAMEWORK

–

Biodiversity and ecological restoration

TOPICS NOT INCLUDED IN EXISTING

FRAMEWORK

– N/A

TOPICS NOT INCLUDED IN EXISTING

FRAMEWORK

–

Supply chain management and responsible

procurement

TOPIC MAPPING

Of the 23 assessed topics, 21 mapped to topics in our Sustainability at Smiths framework.

HIGHEST IMPACT

TOPICS

CONTINUED

SUPPLY CHAIN

MANAGEMENT AND

RESPONSIBLE

PROCUREMENT

Customers and regulators

particularly expect

visibility across the

supply chain which will

be essential to deliver

our Net Zero Scope 3

and human rights

commitments, and new

reporting requirements

e.g., CBAM.

BEHAVING ETHICALLY

AND LEGALLY

Consistently high priority

across all stakeholder

groups – vital for employee

engagement and

managing reputational

risk.

ENVIRONMENTAL

SOCIAL

GOVERNANCE

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Delivering

Net Zero GHG

Developing and

attracting talent

Respecting natural

resources

Improving safety,

health and well-being

Promoting diversity,

equity and inclusion

ENVIRONMENT

SOCIAL

GOVERNANCE

Commercialising

high-value green

technologies

Behaving ethically

and legally

Managing risk and

maintaining strong and

effective controls

Effective long-term

decision making and

transparency

Contributing to our

communities

SUPPLY CHAIN

Sustainability at Smiths

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

SUSTAINABILITY AT

SMITHS FRAMEWORK

Our Sustainability at Smiths ESG framework articulates the structure through which we manage ESG topics.

Defining these topics clearly tightens the connection with operational execution and assists us to report in a

transparent way to our stakeholders. We made minor changes to the framework to reflect the outcome of the

FY2023 DMA.

COMMERCIALISING HIGH‑VALUE

GREEN TECHNOLOGIES

–

High impact topic

–

Executive Committee and Board approved

strategic focus on decarbonisation and

green re-industrialisation

–

Green product data to be published

in FY2024

DELIVERING NET ZERO GHG

–

High impact topic

–

Climate/Net Zero transition plan completed

–

Targets submitted to SBTi

–

Scope 1 & 2 emissions down (11.8)% in year

–

Renewable electricity 70% of total use

–

Linked to remuneration

PG 40

DEVELOPING AND ATTRACTING TALENT

–

300 leaders participated in the Accelerate

leadership development programme

–

70% of open grade 11 and above roles were

filled by internal candidates

CONTRIBUTING TO OUR COMMUNITIES

–

Smiths Foundation and global volunteering

policy launched

–

£2.8bn direct economic contribution

BEHAVING ETHICALLY AND LEGALLY

–

High impact topic

–

Incorporates human rights ESG topic

–

Launched new Code of Business Ethics

–

299 Speak Out reports

MANAGING RISK AND MAINTAINING

STRONG AND EFFECTIVE CONTROLS

–

Incorporates product safety, product design

and data privacy topics assessed in the DMA

RESPECTING NATURAL RESOURCES

–

(17.1)% reduction in water use in water-

stressed locations vs FY2021 baseline

–

22 water reduction projects

–

(20.2)% reduction in non-recyclable waste

disposal vs FY2021 baseline

–

11 packaging reduction projects

SUPPLY CHAIN

–

High impact topic

–

Added to Sustainability at Smiths

framework following DMA as cross-cutting

ESG topic

–

Incorporates human rights ESG topic

–

Accelerated plans to implement supplier

management system

IMPROVING SAFETY, HEALTH AND

WELL‑BEING

–

Most material topic for Smiths

–

RIR fell by (26)% during the year

–

Over 13,000 safety look out observations and

leadership tours

PROMOTING DIVERSITY, EQUITY

AND INCLUSION

–

25% of senior leadership roles held by

women

–

Range of events celebrated across the

Group

EFFECTIVE LONG‑TERM DECISION

MAKING AND TRANSPARENCY

–

Managed under our overall governance

framework

PG 79

Read more about the

Sustainability at Smiths

framework in our

FY2023 Sustainability

at Smiths report

www.smiths.com

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

Read more about each of the diamonds in the framework in our Sustainability at Smiths report.

COMMERCIALISING

HIGH‑VALUE GREEN

TECHNOLOGIES

Our unique engineering capabilities and pioneering spirit position Smiths strongly to support customers on their

journeys to decarbonise and deliver next generation efficient and sustainable infrastructure and processes.

Commercialising differentiated products and services with sustainability impact has and will continue to enable

Smiths to make a significant and positive contribution to global environmental goals.

DELIVERING NET ZERO GHG

In FY2022 Smiths committed to ambitious Net Zero targets that align us with the UN’s critical global climate

objectives and the ambition to limit global warming to 1.5°C. With the support of the Smiths Board and Executive

Committee, we are planning for success with a Net Zero/climate transition plan which describes how, through

consistent and prioritised focus across all aspects of our business over the next 25 years, we will deliver Net Zero

emissions from our operations (Scope 1 & 2) by 2040 and our value chain (Scope 3) by 2050.

RESPECTING NATURAL

RESOURCES

Natural resources are finite, and we believe that all businesses have a responsibility to use them respectfully and

safely – responsibly sourcing, minimising consumption and preventing pollution. Our longstanding commitment to

both non-GHG resource targets and product efficiency and stewardship are valued by our employees as the right

thing to do, and by our customers as they seek to manage their own environmental footprints.

SUPPLY CHAIN

A deeper understanding and ability to effect change in our multiple supply chains is becoming increasingly critical as

we seek to manage risk and make progress on all aspects of ESG.

IMPROVING SAFETY,

HEALTH AND WELL‑BEING

Our commitment to our people starts with keeping us all safe and healthy. Looking after our people in the workplace

is an essential foundation and our number one focus.

Driving to zero injuries and improved health is a shared commitment to one another, and it requires sharp focus and

practical action. We strive to continuously improve by reducing risk across Smiths operations. This means

systematic analysis of data, proactively designing and investing for safety, and strengthening our global and local

safety cultures to deliver in our varied operating environments.

DEVELOPING AND

ATTRACTING TALENT

Our colleagues can do remarkable things. Their passion and expertise have driven our business forward for more

than 170 years. It is critical that we have the talent we need to meet the demands of the future. Our organisational

commitment is to ensure that all our colleagues have opportunities to develop their knowledge and skills, reach their

full potential, and build a career at Smiths. Creating an environment and infrastructure that achieves this is also the

key to attracting the right talent to Smiths, whether young people at the beginning of their working lives, or

experienced specialists should there be a gap to fill.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

PROMOTING DIVERSITY,

EQUITY AND INCLUSION

Our team of colleagues represents dozens of nations, speaking a multiplicity of languages, and embodying many

different perspectives. We embrace these differences and promote actions and behaviours that will deliver an

inclusive and supportive work environment where every member of the Smiths team feels that they belong and can

be the best version of themselves. We know that when colleagues feel included, valued and encouraged to make a

meaningful contribution, Smiths will thrive as we continue to attract and retain the diverse talent that we need.

CONTRIBUTING TO OUR

COMMUNITIES

We aim to improve our world by contributing positively to our communities and society in general. Smiths products

and services support critical global industries where we are creating social and environmental value by making the

world safer and improving environmental performance. Our operations around the world play a beneficial role in

local economies through job creation and skills development; procurement and generating tax revenues; and

operating safely, environmentally responsibly and ethically. We also engage directly through fundraising, charitable

giving and education initiatives. Healthy and prosperous communities and supportive relationships with them inspire

and promote a sense of pride and ownership in our people.

BEHAVING ETHICALLY AND

LEGALLY

Behaving ethically and with integrity is a fundamental part of our culture. We also operate in some highly regulated

markets and sectors which require strict adherence to local and international industry regulations. We have expert

teams in place to manage these matters and we use data and other intelligence objectively to identify relative

performance gaps and emerging risk, and continually target improvements in our procedures.

EFFECTIVE LONG‑TERM

DECISION MAKING AND

TRANSPARENCY

Good quality, ethical and effective decision making builds sustainable businesses and enables them to create long-

term value for all stakeholders.

MANAGING RISK AND

MAINTAINING STRONG AND

EFFECTIVE CONTROLS

Continual assessment and management of risks, and assurance through internal controls, is an integral part of

day-to-day operations at Smiths.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

Work on the Smiths Net Zero/climate transition plan was completed in FY2023. Our Net Zero trajectory was submitted to the Science-Based Targets initiative (SBTi) in May.

TRANSITION PLAN

OBJECTIVE

Establish a robust and credible, bottom-up, decarbonisation pathway and delivery plan, incorporating interim emission reduction targets, to

meet our long-term Net Zero commitments:

–

Net Zero Scope 1 & 2 emissions by 2040

–

Net Zero Scope 3 emissions by 2050

Medium term: FY2032

Long term: FY2040 and FY2050

PRIORITIES

Update and enhance bespoke emission reduction plans for every division working within agreed Group principles

Surface and action material decarbonisation opportunities to frontload trajectory

Embed plans into business planning and budget cycles

Understand risks/challenges to maintain flexibility

KEY PHASES OF

WORK

continued overleaf

Set emissions baseline (FY2021) for each Scope

Deeper dive to analyse base year Scope 3 emissions categories by division

Establish hierarchy of preference for Scope 1 & 2 delivery mechanisms to enable consistent and efficient decisions across the Group

Determine parameters/assumptions for external developments eg., decarbonisation of electricity grids, electrification and decarbonisation of

transportation and distribution, progress of green heating options, and other industry/governmental commitments

Maintain and monitor divisional Scope 1 & 2 operational transition plans to 2032 to enable approximately 50% reduction vs baseline by 2032

grouped by:

–

Emissions increases associated with strategic plan growth

–

Energy efficiency measures

–

Onsite renewables

–

Purchase of renewable electricity

–

Electrification of vehicle fleets

–

Green heating

–

Footprint and portfolio optimisation

NET ZERO/CLIMATE TRANSITION PLAN

COMMERCIALISING

HIGH‑VALUE GREEN

TECHNOLOGIES

Read more about how

we are addressing

customer and societal

Net Zero/climate

transition needs through

our products and

services in our FY2023

Sustainability at Smiths

report www.smiths.com

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

KEY PHASES OF

WORK

continued

Divisional analysis of supply chain and supplier progress towards SBTs

For Smiths Detection an additional analysis of the decarbonisation trajectory for products in use (Smiths Detection being the only division with

a significant emissions inventory identified in this category)

Creation of five-year divisional roadmaps of projects by Scope to embed into business planning and budget cycles

Group planning for supplier prioritisation, engagement and implementation of Group-wide supplier management platform in FY2024

Creation of overall Scope 3 roadmap to 2028 and 2032 and strategy beyond 2032

Analysis of risks/challenges

Review and sign off by Executive Committee (owned by Divisional Presidents and Chief Sustainability Officer)

Review and sign off by SSE Committee of the Board

ENVIRONMENTAL

PERFORMANCE

See our environmental

performance data on

page 44.

ELECTRICITY PREFERENCE

HIERARCHY

We require electricity to run our business and, as part

of the transition planning work, determined an

electricity preference hierarchy to ensure we are

making appropriate and consistent decisions across

the Group as we move to 100% renewable electricity.

This hierarchy has informed preparation of our

divisional Scope 1 & 2 transition plans.

PREFERENCE HIERARCHY:

Energy efficiency measures

Renewable electricity self-supply for high-demand

sites with adequate space, access to renewable

resources, cost-effective delivery, and where

regulation allows

Power Purchase Agreements (PPAs) – contracts to

buy electricity for a set period of time from a specific

energy system installed, owned and operated by a

third party

Green electricity tariffs offered by local utilities

sourcing/generating renewable electricity

Energy Attribution Certificates (EACs) – unbundled

renewable certificates purchased separately from

electricity. Reserved as a solution for challenging

situations where no other option is available or viable

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

SCOPE 1 & 2 OPERATIONAL TRANSITION TO NET ZERO BY 2040

EFFICIENCY

GREEN ELECTRICITY

ALTERNATIVE

FUELS

CARBON

CAPTURE

10,000

20,000

30,000

40,000

50,000

60,000

FY2021

baseline

Projected growth

in period

Energy

efficiency

Onsite

renewables

Purchased

renewable

electricity

Green fleet

Green heat

Carbon

removal

solutions

tCO

KEY ASSUMPTIONS IN MODEL:

–

Delivery of our commitments in accordance with

those submitted to the SBTi with a c.50% reduction

by 2032

–

Carbon intensity of revenue growth will decrease

over time

–

Energy efficiency benefit is approximately 1% per

year after business growth

–

Onsite renewable options/technology/incentives

improve so that they become increasingly cost-

effective over time

–

Renewable electricity and EACs will be available in

necessary quantities

–

Electric vehicles and associated infrastructure

suiting our fleet needs will be available

–

Zero-carbon fuels will be available to power the

remaining portion of our operations not amenable

to electrification

–

Carbon removal solutions will be available to

eliminate remaining emissions, if any

CROSS‑

DIVISION/

GROUP

–

Energy efficiency (Turn it Off) campaign (FY2023)

–

Site energy assessments using third-party partner

JOHN CRANE

–

Slough heating (FY2023)

–

Lutin renewable electricity contract (FY2023)

–

Site solar reviews

–

Fleet electrification

–

Hnevotin renewable electricity contract

SMITHS

DETECTION

–

Solar Hemel and Vitry

–

Solar and heat pump installation Wiesbaden

–

Heat pump installation Hemel, Vitry, Edgewood

–

Fleet electrification

–

Renewable electricity Newark and Singapore

FLEX‑TEK

–

Solar evaluation (FY2024)

–

Green heat evaluation Springfield, Tutco, Scotia

–

New ovens and oven insulation

–

LED and motion sensors installation and air compressor

upgrades

–

Renewable energy Amnitec

SMITHS

INTERCONNECT

–

Solar review for Costa Rica, Tampa and Mexico

–

Tunisia solar implementation

–

Fleet electrification

–

Review green heat Dundee and St. Aubin

–

LED projects and HVAC and air compressor replacements

–

Irving renewable electricity contract

EXAMPLE DELIVERY PROJECTS IN FIVE‑YEAR ROADMAPS:

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

SCOPE 3 VALUE CHAIN TRANSITION TO NET ZERO BY 2050

200,000

400,000

600,000

800,000

100,0000

1,200,000

1,400,000

1,600,000

FY2021 baseline

Projected growth

in period

Supplier reporting

Supplier green heat

Supplier grid

decarbonisation

Fuel

Shipping industry

Sustainable

aviation fuels

On-road

electric trucks

Employee

commuting

Use of sold products

energy efficiency

Use of sold products

grid decarbonisation

Use of sold products

green heat

Carbon removal

tCO

KEY ASSUMPTIONS IN MODEL:

–

Emissions growth tracks as expected to business

growth plans

–

Scope 3 plan focused on purchased goods and

services, capital goods, fuel and energy-related

activities, and Smiths Detection energy

consumption of products in use, is delivered with

c.50% reduction by 2032

–

External factors progress as expected:

–

Supplier action on emissions and emissions

reporting

–

Energy efficiency across all sectors

–

Decarbonisation of electricity grids

–

Electrification and decarbonisation of

transportation and distribution

–

Adoption of low-carbon heating options

–

Continued governmental commitments and

actions to support cost-effective energy transition

–

Successful introduction of supplier management

platform and implementation of supplier

engagement campaigns

–

Continued supply chain engagement and diligence

post-2032

–

Carbon removal solutions will be available to

eliminate remaining emissions, if any

EXAMPLE DELIVERY PROJECTS IN FIVE‑YEAR ROADMAPS:

–

Near-term cross-Group supplier engagement and diligence implementation

–

Supplier platform and standardised procurement, diligence and reporting processes

–

50% of suppliers by spend to have targets aligned with the SBTi by FY2028

–

Medium- and long-term cross-Group supplier engagement and diligence implementation beyond top 50%

to disclose emissions and set SBTs

–

Smiths Detection customer engagement programme on efficient use of products

–

Smiths Detection circular economy expansion

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

ESG METRICS, TARGETS AND PERFORMANCE

ENVIRONMENT

NEW PRODUCT COMMERCIALISATION/GREEN TECHNOLOGIES

We report R&D spend as a percentage of sales and Gross Vitality which measures

the revenue contribution of products launched in the last five years.

Medium-term target:

Target

FY2023

FY2022

Gross Vitality

30%+

31%

R&D as a percentage of sales was 3.7% in FY2023 (FY2022: 4.2%).

We are preparing for reporting under CSRD and will publish a green technology

metric in FY2024.

ENERGY, RENEWABLE ELECTRICITY, WATER AND WASTE

Medium-term targets:

FY2022

–

2024 target

Status

Use of renewable electricity

5% increase to 66%

70%

Normalised non-recyclable waste

5% reduction

(20.2)%

Normalised water use in stressed areas (11 locations)

5% reduction

(17.1)%

Water reduction projects

Packaging reduction projects

1 Non-GHG producing electric sources including hydroelectric and nuclear.

2 Normalised to revenue.

ENERGY EFFICIENCY AND GHG EMISSIONS

Long-term targets:

–

Net Zero emissions from our operations (Scope 1 & 2) by 2040

–

Net Zero emissions from our supply chain and products in use (Scope 3) by 2050

Medium-term targets:

FY2022

–

2024 target

Status

Normalised greenhouse gas emissions

5% reduction

(30.8)%

1 Normalised to revenue.

In FY2022, to align decision making and ownership of our Net Zero targets and

accelerate progress, new energy efficiency and emissions targets were added to

Smiths annual and long-term incentive plans for FY2023.

Plan

Performance

period

Measure

Target

Weighting

Performance

Annual Incentive

Plan (AIP) –

approximately

6,000 colleagues

1 year

Energy

efficiency

improvement

in efficiency

10%

7.9%

improvement

in efficiency

Long-Term

Incentive Plan

(LTIP)

3 years

Scope

1 & 2 GHG

emissions

reduction

15-20%

reduction in

emissions

15%

N/A

A further decision was made in FY2023 for FY2024 remuneration.

Plan

Performance

period

Measure

Target

Weighting

AIP

1 year

Energy

efficiency

4.5%

improvement in

efficiency

10%

LTIP

3 years

Scope

1 & 2 GHG

emissions

reduction

15-20%

reduction in

emissions

15%

1 The energy efficiency ratio is expressed as the MWh energy consumed (excluding renewable electricity

produced and consumed onsite), divided by the local-currency revenue at budget rates (excluding price

growth within the measurement year).

2 Scope 1 & 2 GHG emissions reduction (absolute): calculated in accordance with the WRI/WBCSD

Greenhouse Gas Protocol. Reductions must be achieved with a balanced portfolio of actions that

prioritise energy savings, onsite renewable electricity generation and purchase of renewable

electricity.

70%

renewable electricity.

(11.8)%

reduction in Scope 1 & 2

emissions.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

SECR GLOBAL ENERGY USE AND EMISSIONS DISCLOSURE

FY2023

FY2022

Change

Global energy use – absolute values

∆

MWh

218,094

223,709

(2.5)%

UK energy use – absolute values

MWh

11,394

10,446

Global emissions – absolute values

Scope 1 (direct emissions)

∆

t CO

19,694

19,591

Scope 2 (market-based emissions)

∆

t CO

25,955

32,193

Scope 3 (value chain emissions)

∆

t CO

1,380,000

1,450,000

Total Scope 1 & 2 emissions

t CO

45,649

51,784

(11.8)%

UK Scope 1 & 2 emissions

t CO

1,779

1,755

Global emissions – normalised values

Scope 1 (direct emissions)

t CO

e/£m revenue

6.48

7.63

Scope 2 (indirect emissions)

t CO

e/£m revenue

8.55

12.55

Scope 3 (value chain emissions)

t CO

e/£m revenue

454.40

565.08

Total Scope 1 & 2 emissions

t CO

e/£m revenue

15.03

20.18

(25.5)%

1 Previously published data has been restated following the FY2022 review and limited assurance

process conducted by KPMG.

LIMITED ASSURANCE

KPMG has provided limited assurance under ISAE (UK) 3000 and 3410 over selected

FY2022 and FY2023 information marked with ∆. For the full assurance opinions for

FY2022 and FY2023 please see our corporate website www.smiths.com. This

information was prepared in line with our reporting criteria which can also be found

on our website.

GHG INVENTORY

Smiths assesses the GHG emissions associated with all its global operations for all

four of its operational divisions and all sites. We have developed a GHG Inventory

Management Plan (IMP) that outlines our methodology to provide systematic and

appropriate GHG inventory data collection, manipulation and management, to

produce a relevant, credible and transparent GHG inventory that will provide visibility

into our near- and long-term goals. The IMP includes methods to estimate direct

emissions from Smiths operations (Scope 1), indirect emissions from purchased

energy (Scope 2), and value chain emissions (Scope 3).

The methods prescribed in the IMP conform to the World Resources Institute (WRI)

and World Business Council for Sustainable Development (WBCSD) GHG Protocol

and the United States Environmental Protection Agency (USEPA) Center for

Corporate Climate Leadership Greenhouse Gas Inventory Guidance.

GHG BOUNDARIES

Per the GHG protocol, we have selected the operational control approach to set the

organisational boundary for our GHG inventory, meaning 100% of GHG emissions

from assets which the Company manages and over which it has authority to

implement operational policies will be included. In selecting these organisational

boundaries, Smiths evaluated equity share, financial control and operational control

approaches and primarily considered the comprehensiveness of assets that would

be included in the inventory under each of the three approaches, as well as which

boundary would best reflect Smiths level of influence over emissions. This includes

98 locations globally.

As for our operational boundary, which determines the direct (Scope 1) and indirect

(Scope 2 and 3) emissions associated with operations within Smiths organisational

boundary, we defined this as operations where we have the full authority to introduce

and implement operating policies. Operations or activities that are outside of Smiths

operational control, and therefore excluded from our Scope 1 and Scope 2 inventories

may become relevant when accounting for Scope 3 emissions.

GHG emissions are reported in metric tons of CO

equivalents (MT CO

e). Because

individual GHGs have different impacts on climate change, or global warming

potentials (GWPs), CO

e is used to express the impact of emissions from each GHG

on a common scale. Smiths uses the IPCC Fifth Assessment Report (AR5) GWPs.

SOCIAL

SAFETY

Medium-term target:

continuous improvement towards a zero-harm workplace

PERFORMANCE

Recordable injuries

Recordable incident rate

Per 100 employees

Lost time incident rate

Per 100 employees

FY2023

0.41

FY2023

0.14

FY2022

0.56

FY2022

0.25

FY2021

0.47

FY2021

0.20

FY2020

0.35

FY2020

0.17

FY2019

0.50

FY2019

0.24

1 FY2022 data restated due to reclassification of incidents.

Zero work-related colleague or contractor fatalities in FY2023.

Zero contractor recordable incidents in FY2023.

Over 13,000 safety look out observations and leadership tours in FY2023.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

SUSTAINABILITY AT SMITHS

CONTINUED

EMPLOYEE ENGAGEMENT

Employee engagement is measured in our annual My Say survey. See page 14 for

more information on My Say.

Medium-term target:

E-sat: Upper quartile score.

E-sat score

FY2023

FY2022

FY2021

FY2020

FY2019

The survey response rate was 84% in FY2023 (FY2022: 82%). 12,158 comments were

submitted in FY2023.

DEVELOPING TALENT

An internal talent mobility metric, as measured by the percentage of available

roles filled by internal candidates is monitored by management and will be

published from FY2024. In FY2023 70% of open grade 11 and above roles were

filled by internal candidates.

REWARD AND RECOGNITION

Recognising and rewarding colleagues in a fair, open and meaningful way is an

important underpin to developing and attracting talent. We are committed to fair pay

practices, ensuring colleagues are rewarded fairly and equally for the work they do,

and that they have opportunities to participate in our success.

We have been an accredited Living Wage employer in the UK since 2018. In the UK,

we operate an all-colleague Sharesave Scheme, which enables colleagues to buy

Smiths shares at a discounted rate. In FY2023 we have continued with our process to

align colleague benefits across markets, so they are the same for colleagues in any

of our four divisions or Group. We completed this work in China, India and Mexico

during the year.

GENDER DIVERSITY

Medium-term target:

30% of senior leadership positions

held by women by end

of FY2024.

FY2023

25%

FY2022

24%

FY2021

23%

Other gender disclosures

Male

Female

Board of Directors

60%

40%

Executive Committee

75%

25%

Senior Leadership Team

493

75%

163

25%

Total colleagues

10,796

71%

4,360

29%

1 The Executive Committee does not include the Company Secretary.

2 Senior Leadership Team is the KPI used to track gender diversity at Smiths. It is defined as

all colleagues that are Grade 14 or above. These colleagues are able to influence and drive

business results.

2 Employees on permanent and fixed term contracts.

Data for senior managers (Executive Committee plus Directors of subsidiary

undertakings) as defined by the Companies Act 2006 (Strategic Report and Directors’

Report) Regulations 2013 is Female: 34 (17%) and Male: 164 (83%).

Data for the senior management (Executive Committee, including the Company

Secretary, and their direct Reports) as defined by the UK Corporate Governance

Code 2018 is Female: 47 (36%) and Male: 82 (64%).

Data for the Women in Leadership (Executive Committee and their direct

reports) as defined by the FTSE Women Leaders definition is Female: 46 (36%)

and Male: 81 (64%).

COMMUNITIES

We report externally our direct contribution to communities and society using

a composite number of employee costs + supplier costs + tax paid.

From FY2024 we will report the total value of annual grants made by the

Smiths Foundation.

FY2023

£m

FY2022

£m

FY2021

£m

Employee costs

939

823

751

Supplier costs

1,732

1,364

1,063

Tax paid

146

140

133

Total

£2.82bn

£2.33bn

£1.95bn

(26)%

reduction in RIR.

25%

of senior leadership

positions held by women.

GENDER DIVERSITY

Senior leadership team

Male

75%

Female

25%

Total colleagues

Male

71%

Female

29%

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

GOVERNANCE

BOARD

The Board has overall responsibility for our approach

to sustainability matters, including climate change.

Oversight of this is delegated to sub-committees.

Climate risk management has been delegated to

the Audit & Risk Committee and delivery on our

commitments in relation to climate change to the

Science, Sustainability & Excellence (SSE) Committee.

The Board has oversight of our Group-level and

divisional strategies, receiving performance updates

from our divisions three times a year. This includes an

annual strategy presentation, an operations update and

a half-year progress discussion. Our divisions report to

the SSE Committee on a rolling annual basis. Read

more about the work of the SSE Committee on page

111. Related Board member competencies for climate

change can be found in the Board biographies on page

80. Our governance structure is outlined on page 79.

STRATEGIC DECISIONS RELATING TO CLIMATE

RISKS AND OPPORTUNITIES

As the world transitions to a low-carbon economy,

the Group has identified a number of climate-related

opportunities relating to global investment in

decarbonisation and green re-industrialisation.

Commercialising these high-value green technologies

is a strategic priority and is built into our divisional

strategic plans. The Board also considers climate-

related issues when reviewing strategy and

performance objectives. Energy and GHG metrics are

presented and discussed in management reviews. In

FY2023, the Board approved the setting of operational

Net Zero transition targets aligned with the SBTi and

holds responsibility for overseeing performance

against these. The Board has visibility of implementation

of our climate transition plan and is regularly updated

on progress against climate metrics and targets.

TASK FORCE ON CLIMATE-RELATED

FINANCIAL DISCLOSURES

COMPLIANCE STATEMENT

FCA LISTING RULES

In this report, we set out our climate-related financial disclosures consistent with all of the Task Force on

Climate-related Financial Disclosures (TCFD) recommendations and recommended disclosures pursuant

to Listing Rule 9.8.6R (8). This includes all four of the TCFD pillars and the 11 recommended disclosures

set out in the report entitled 'Implementing the Recommendations of the Task Force on Climate-related

Financial Disclosures' published in October 2021 by the TCFD. In completing this work, we made use of TCFD

guidance material including the TCFD technical supplement on the use of scenario analysis, TCFD Guidance

on Metrics, Targets and Transition Plans, and the TCFD Guidance for All Sectors. We are reporting against

the TCFD framework in line with FCA Listing Rules.

In FY2024, we plan to continue our progress in reporting against all four pillars of the recommendations

and align with the recommendations of the Transition Plan Taskforce (TPT) which is due to be released later

this year. This will include conducting a quantitative scenario analysis. More detailed information on

FY2024 priorities in reporting against TCFD is outlined in the TCFD summary in our FY2023 Sustainability

at Smiths report.

The TCFD provides an internationally recognised framework to provide clear, comprehensive and high-

quality information on the impacts of climate change. Over several years, we have progressed our alignment

with the TCFD recommendations to embed the management of climate-related risks and opportunities into

our processes, and to ensure that our business strategy is adapting to the effects of climate change.

Our diverse range of products and geographical spread of assets allows the business to be resilient to

climate risks, such as cost and availability of resources, in the short term. We are also well prepared for

market opportunities presenting themselves due to climate change. However, we recognise the potential

impacts of climate risks on our business in the long term and have continued to implement mitigation

strategies to ensure that we remain resilient.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

AUDIT & RISK COMMITTEE

The Audit & Risk Committee is responsible for

reviewing the effectiveness of risk management across

the business (see page 91), including climate risks

which are integrated into our enterprise risk

management framework. On a rolling basis, divisions

attend the Audit & Risk Committee and present the

outcome of divisional assessments which include

climate risks and opportunities. Twice a year, the

Committee reviews the Group's principal risks. Climate

change has been identified as a Group principal risk

and is managed and owned by the Audit & Risk

Committee.

SCIENCE, SUSTAINABILITY AND EXCELLENCE

COMMITTEE

The SSE Committee is responsible for overseeing the

delivery of climate-related commitments and

opportunities, such as the commercialisation of green

products, mitigating the impacts of climate change, and

setting and reviewing progress against relevant

climate-related targets. The Committee met four times

during the year to assess progress against targets

including GHG emissions, renewable energy use,

energy efficiency, water use and waste disposal. On a

rolling basis, divisions provide a deep-dive on progress

against their SBT plans, new product development and

innovation. For more information on the work of the

SSE Committee see page 111.

EXECUTIVE COMMITTEE

Divisional Presidents form part of the Executive

Committee and are responsible for our divisions’

approach to sustainability, including climate change.

The Executive Committee reports to the CEO, who

reports directly to the Board six times a year.

Discussions at the Executive Committee relate to

commercial climate activities such as new product

development and operational climate activity, such as

energy and GHG reductions. The Chief Sustainability

Officer works closely with the Group Head of Strategy

and Communications and Divisional Presidents to

ensure sustainability is embedded in strategic,

commercial and operational decision making.

Climate-related risks are managed and reported in line

with wider risk management processes, with the

outcomes of divisional assessments integrated into

executive-level strategic planning and priorities.

Climate-related opportunities such as those relating to

the decarbonisation/energy transition agenda have

been communicated to the Executive Committee and

Board, culminating in a Group-wide strategic response

for markets and opportunities.

A number of key climate-related issues were discussed

by the Executive Committee and the Board in FY2023

including:

1. Science-based targets and transition planning for

Net Zero Scope 1, 2 and 3 emissions

2. Strategic opportunities arising from the energy

transition/decarbonisation and green revenue

tracking dashboards

3. Alignment of remuneration with environmental

targets

EXECUTIVE REMUNERATION

Scope 1 & 2 reduction targets continue to make up part

of our LTIP. From FY2023 onwards, we introduced

climate-related metrics (energy efficiency) into our AIP

and (absolute GHG reduction) into our LTIP to more

closely align decision making and ownership of climate

goals. Details can be found in the Remuneration &

People Committee Report on page 98. FY2024

remuneration metrics continue to incorporate these

climate-related targets.

The SSE Committee is responsible for

overseeing the delivery of climate-related

commitments and opportunities, such as

the commercialisation of green products,

mitigating the impacts of climate change,

and setting and reviewing progress

against relevant climate-related targets.

Our Net Zero/climate

transition plan.

PG 40

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

ESG GOVERNANCE AND DELIVERY

The diagram below shows how sustainability/ESG matters are managed at Smiths. As described on page 48, climate matters are integrated into this overall

management framework.

OVERSEE

BOARD OF DIRECTORS

EXECUTIVE COMMITTEE

SENIOR LEADERSHIP TEAM

COORDINATED BUSINESS DELIVERY

AUDIT & RISK

NOMINATION & GOVERNANCE

GENERAL COUNSEL

CHIEF PEOPLE OFFICER

CHIEF SUSTAINABILITY

OFFICER

REMUNERATION & PEOPLE

Group Head of Strategy and Communications

PRESIDENTS

CHIEF FINANCIAL

OFFICER

SES Director

Communications

SES

SES Master Black Belts & Black Belts

SCIENCE, SUSTAINABILITY

& EXCELLENCE

PRIORITISE

ACCOUNTABLE

RESPONSIBLE

Financial

Controller

Internal

controls

excellence

Head of

Internal

Audit &

Risk

Company

Secretary

GC Ethics &

Compliance

Division

GCs

VP Safety

& Health

Technology, Operations

and Commercial Leaders

Strategy and

product

commercialisation

VP Sustainability & ESG

People Leadership Team

Enterprise

risk process

Board

Committee

reporting

Business

Ethics

Council

Talent

DE&I

Foundation

Committee

HSE Operations

Committee

Net Zero Delivery

Committee

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

STRATEGY

The transition to a low-carbon world poses significant opportunities for Smiths as demand for green technology and energy efficient products increases.

DISTRIBUTION OF SMITHS GREEN TECHNOLOGY

EFFICIENCY AND CIRCULAR ECONOMY SOLUTIONS

Solutions that help our customers to use less, waste less and reduce emissions

–

Efficient, reliable and lower emission oil and gas value streams

–

Resource efficiency in industrial processes

–

Water reduction for process industries and energy transition minerals

–

Effective and lower energy safety and security infrastructure

–

Detection solutions for resource mining and recycling

–

Building efficiency – residential and commercial

–

Smaller, lighter and more efficient connectivity components

John Crane

Smiths Detection

Flex-Tek

Smiths Interconnect

WIDESPREAD GREEN ELECTRIFICATION

Solutions that help our customers move from carbon-intense fuels to green electricity

–

Electrical heating for:

–

Building heating, ventilation and air-conditioning (HVAC)

–

Industrial processes

–

High-power electrical connectors to enable efficient and reliable transmission of electricity

Flex-Tek

Smiths Interconnect

LOW‑/NO‑CARBON FUELS IN HARD‑TO‑ELECTRIFY SECTORS

Solutions that help our customers to make, store, move and use new fuels

–

Efficient compression, transportation and storage of hydrogen

–

Reliable pumping and compression of biofuels and synthetic fuels

–

Filtration of hydrogen and low-carbon marine fuels

John Crane

Flex-Tek

CARBON CAPTURE

Solutions that help our customers efficiently capture, transport, sequester and/or use carbon

–

Proven and reliable CO

capture technologies

–

Efficient and reliable transportation, storage and injection of CO

John Crane

See our Sustainability at Smiths report for more information on decarbonisation megatrends and how we are commercialising high-value green technologies.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

CLIMATE RISKS AND OPPORTUNITIES

We have identified a range of physical and transition

risks and opportunities that could impact our business.

The climate transition also gives rise to legal risks,

such as stricter GHG emission regulations, as well

as market risks such as from new and emerging

competitors. Extreme weather events such as floods

and extreme temperatures pose physical risks,

including damage to assets, both owned by us and

within our supply chain, as well as disruption to

transportation routes. More extreme temperatures

may also lead to new opportunities in our markets,

such as remote sensing and cooling systems.

The time horizons considered for identified climate-

related risks and opportunities, found in the table

below, align to our targets which have been submitted

to the SBTi. While we recognise that climate-related

risks will occur over short-, medium- and long-term

horizons, our assessment determines that climate-

related risks and opportunities are likely to impact the

business in the medium and long term. We believe that

we remain resilient to climate risks with the adaptation

and mitigation strategies that are in place. It was

determined that the climate risks identified do not have

a significant impact on the business, although are

considered as a Group principal risk in aggregation. We

will continue to assess the materiality of any financial

impact arising.

Time horizons for materialisation:

climate risks and opportunities

Description

Short term

2023

–

2028

Medium term

2028

–

2032

Long term

2032

–

2040

Each of our identified risks and opportunities has been

assessed by scenario analysis, which is described

alongside an explanation of their potential impact on the

business, subsequent actions we are taking to respond,

and the associated time horizon.

SCENARIO ANALYSIS

We have carried out scenario analysis on our climate

risks and opportunities for several years and, in

FY2022, we collaborated with external consultants

to extend our qualitative scenario analysis to two

scenarios for both physical and transition risks and

opportunities. Next year, we plan to develop our

assessment of financial impacts, integrating

quantitative analysis where possible. This year, we have

reviewed the findings of the scenario analysis, finding

no significant changes to the modelled impact of

climate risks and opportunities since last year.

While scenario analysis is hypothetical and does

not provide a certain forecast, it helps to identify

how our most material climate-related risks and

opportunities will likely impact us and our operations

in the future. This subsequently informs our risk

management strategies, as well as the metrics and

targets we use to monitor such issues, enabling us to

become more resilient to risks and seize opportunities

in the long term.

PHYSICAL SCENARIOS

For the physical scenarios, the Intergovernmental

Panel on Climate Change’s (IPCC) Representative

Concentration Pathway RCP 4.5 and RCP 8.5 scenarios

were used. The impacts highlighted a change in annual

rainfall levels at our sites and seasonal differences in

temperature. Extreme weather events such as flooding,

wildfires and drought will become more severe and

frequent. See page 52 for more information on how we

are managing these impacts.

For the transition scenarios, the International Energy

Agency’s (IEA) World Energy Outlook Sustainable

Development Scenario (SDS) and Stated Policies

Scenario (STEPS) were used. The STEPS scenario

provides a benchmark to assess the potential

achievements of recent developments in energy and

climate policy and the SDS scenario assumes full

alignment with the Paris Agreement to hold the rise in

global average temperature to well below 2°C.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

A summary of our risk and opportunities assessment across each scenario can be found below.

Risk/

opportunity

Risk

description

TCFD

category

Time

horizon for

materialisation

Which parts of

the business

will be most

impacted?

Potential impact

on the business

Response/actions we’re

taking and how they are

managed

RCP4.5 scenario

RCP8.5 scenario

2040

medium

term

2080

long

term

2040

medium

term

2080

long

term

PHYSICAL RISKS

Damage to Group

assets from

extreme weather

events

Extreme weather events:

hurricanes; tropical

storms; flooding;

wildfires; and sea-level

rise. A number of Smiths

divisions have already

experienced site-specific

disruption due to

wildfires and flood

events.

Environment

(acute

physical)

Medium

All divisions

Increased costs and

resulting revenue losses

due to repair and

increasing insurance

costs.

All sites are required by policy to

complete annual site-specific risk

assessments through the divisional

Business Continuity Plans review, which

considers risks from a wide range of

issues, including from severe weather.

A number of John Crane sites have been

identified as vulnerable, so mitigation

measures are being put in place such as:

relocations; alert systems; guidance

from insurance providers when sites

come up for insurance policy renewal;

and local, specific mitigation measures

such as independent generators.

Damage to key

supply chain

assets from

extreme weather

events

Medium

All divisions

Loss of revenue due to

disruption/delay of

manufacturing

processes.

Development of a coordinated

procurement process for consideration

of physical risks in procuring new

suppliers.

Temperature

regulation

requirements

during

heatwaves and

cold snaps

Increasing average

temperatures across all

seasons, as well as more

extreme heatwaves and

cold snaps requiring the

temperature in buildings

to be regulated in order

to minimise health and

safety risks.

Environment

(chronic

physical)

Medium

All divisions

Health and safety risks

from overheating or

freezing mean there are

higher operating costs

from increased air

conditioning and heating.

Capital costs associated

with retrofitting assets to

provide sufficient

temperature are also

high.

Consideration of extreme weather risk

when deciding where to expand existing

operations and annual business

continuity reviews across our sites.

Disruption to

transportation

and distribution

networks from

extreme weather

events

Weather events directly

impacting transportation

networks.

Environment

(acute

physical)

Medium

All divisions

Loss of revenue due to

delays in getting

products to market,

caused by supply chain

disruption.

We are reviewing and investigating ways

to minimise travel distances by ensuring

products are produced as close to

customers as possible.

We aim to avoid the use of single-source

materials to increase resilience over

regional disruption. This includes looking

at reducing double handling of products

by having suppliers send directly to

customers.

KEY

Black text in table =

Current activity

Blue text = Future activity

Risk key

Definition

Very high risk

Very significant

impact on the

Company

High risk

Significant

impact on the

Company

Moderate risk

Moderate

impact on the

Company

Low risk

Relatively

marginal impact

on the Company

Very low risk

Marginal impact

on the Company

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

Risk/

opportunity

Risk

description

TCFD

category

Time

horizon for

materialisation

Which parts of

the business

will be most

impacted?

Potential impact

on the business

Response/actions we’re

taking and how they are

managed

RCP4.5 scenario

RCP8.5 scenario

2040

medium

term

2080

long

term

2040

medium

term

2080

long

term

PHYSICAL OPPORTUNITIES

Growth in remote

sensing market

Smiths Interconnect:

Growth in satellite

demand and

requirements for climate

change/weather/

environmental tracking

and monitoring.

Environment

(chronic

physical)

Medium

Smiths

Interconnect

Increased revenue from

growth in demand for

satellite technology for

environmental

monitoring and tracking.

Opportunities in remote sensing and

cooling systems have been incorporated

into business planning and other relevant

sectors are also being monitored for

changes in demand (e.g., communication

systems).

Increased

demand for

cooling systems

Ongoing extreme

variation in global

temperatures will

increase demand for

heating, ventilation and

air conditioning (HVAC)

systems from Flex-Tek

globally.

Environment

(chronic

physical)

Medium

Flex-Tek and

John Crane

Increased revenue from

increased demand for

residential and domestic

cooling systems, driven

by ongoing variation in

global temperatures.

John Crane also has the

opportunity to develop

sealing and water

filtration technology for

transportation and

cleaning of water in

water-stressed locations.

KEY

Black text in table =

Current activity

Blue text = Future activity

Opportunity key

Definition

Very high

opportunity

Very significant

impact on the

Company

High

opportunity

Significant

impact on the

Company

Moderate

opportunity

Moderate

impact on the

Company

Low

opportunity

Relatively

marginal impact

on the Company

Very low

opportunity

Marginal impact

on the Company

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

Risk/

opportunity

Risk

description

TCFD

category

Time

horizon for

materialisation

Which parts of

the business

will be most

impacted?

Potential impact

on the business

Response/actions we’re

taking and how they are

managed

RCP4.5 scenario

RCP8.5 scenario

2040

medium

term

2080

long

term

2040

medium

term

2080

long

term

TRANSITION RISKS

Increased

regulations and

pricing on GHG

emissions

Regulations relating to

GHG emissions, including

the cost of reporting and

complying with

regulations (e.g., carbon

taxes, CBAM).

Political and

legal risk

Medium

All divisions

Greater costs associated

with emissions reduction,

monitoring and reporting

obligations. Risk of

reduced access to

investment opportunities

from failure to meet

these.

We have established the Energy

Governance Committee (now known as

the Net Zero Delivery Committee) and

other cross-functional working groups to

drive and track initiatives.

Increased

transportation

costs

Greater fuel costs related

to freight and internal

transportation.

Market risk

Medium

All divisions

Greater fuel costs due to

increased pricing on GHG

emissions.

Reduction in double handling of products,

optimising space in freight through

reusable and recyclable packaging

solutions and exploring localised

business models.

Cost and

availability of

resources

Increased price and

reduced availability of

critical raw materials.

For Smiths Interconnect,

there are concerns

around lithium and

beryllium and for Smiths

Detection there is a risk

of limited supply of key

components.

Market risk

Medium

All divisions

Limited supply of

materials and

components could lead

to price volatility and

production constraints.

The procurement team for Smiths

Interconnect tracks critical raw materials

and reports monthly. Actions are taken

based on trends such as pre-buys or

vendor managed inventory. The division

also periodically looks at alternative

materials.

Smiths Detection continually monitors

availability of critical materials and parts

for its products.

New and

emerging

competitors

Reduced accessible

market due to increased

competition in Net Zero/

energy efficiency space

such as methane

leakage. For example,

there is a risk of

overcrowding in the

methane leak detection

and remediation market

for John Crane in 2030.

Market risk

Medium

All divisions

Reduced revenue due to

greater competition in

product market.

John Crane has implemented procedures

to track and respond to changes in

demand from traditional oil & gas

customers to additionally target its

portfolio of products and services to

target new customers and markets e.g.,

hydrogen and carbon capture.

Smiths Detection monitors power

consumption of its products relative to

competitors and product durability and

strives to be best in class to lower total

cost of ownership.

KEY

Black text in table =

Current activity

Blue text = Future activity

Risk key

Definition

Very high risk

Very significant

impact on the

Company

High risk

Significant

impact on the

Company

Moderate risk

Moderate

impact on the

Company

Low risk

Relatively

marginal impact

on the Company

Very low risk

Marginal impact

on the Company

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

Risk/

opportunity

Risk

description

TCFD

category

Time

horizon for

materialisation

Which parts of

the business

will be most

impacted?

Potential impact

on the business

Response/actions we’re

taking and how they are

managed

RCP4.5 scenario

RCP8.5 scenario

2040

medium

term

2080

long

term

2040

medium

term

2080

long

term

TRANSITION OPPORTUNITIES

Aviation/

aerospace

energy efficiency

requirements

Demand for energy

efficient detection

products.

Products

and services

Medium

Smiths

Detection

Revenue from

development of more

energy efficient safety

and security

infrastructure.

Smiths Detection monitors power

consumption of its products relative to

competitors and product durability and

strives to be best in class to lower total

cost of ownership.

Growth in energy

efficiency

products market

Increased demand for

efficiency and emission

reduction products.

Products

and services

Medium

John Crane

Increased revenue from

sealing solutions that

reduce hydrocarbon

leakage from oil & gas

and other infrastructure.

Continuing development of next

generation solutions for oil & gas and

other industrial customers that align with

their decarbonisation targets, such as via

digitisation.

IMPACT ON THE BUSINESSES, STRATEGY AND

FINANCIAL PLANNING

We submitted our Net Zero transition plan and GHG

emissions reduction targets to the SBTi in May 2023.

These outline our operational Net Zero GHG trajectory

to meet a 1.5°C scenario by achieving Net Zero Scope 1

& 2 emissions by 2040 and Net Zero Scope 3 emissions

by 2050. This aligns with the Net Zero by 2050 targets

set out by the UK and US governments (which are our

largest areas of operation). We are preparing to comply

with Transition Plan Taskforce (TPT) guidance next year.

Our transition plan was developed with consideration of

the updated TCFD guidance and lays out our 2028, 2032

and long-term Net Zero milestones and emission

reduction targets. See Net Zero/climate transition plan

on page 40.

Divisional-level initiatives and actions to reduce Scope 1

& 2 emissions are based on energy efficiency, green

electricity (including implementation of solar

technologies and fleet electrification), and alternative

fuels. The majority of our Scope 3 emissions will be

addressed by in-country grid decarbonisation and via

targeting significant suppliers with education and

training to set and meet their own SBT targets.

The impacts of our transition plan on our customers,

suppliers and other stakeholders, and on our

business are integrated into the roadmap. In

developing our transition plan, we have considered,

and align with, the Net Zero economy commitments in

the countries in which we operate, in particular where

we are headquartered.

The opportunities identified within the climate

scenario analysis form part of our strategic priority to

commercialise high-value green technologies to

increase green product revenues.

RISK MANAGEMENT

We adopt a Group-wide approach to risk management

which is discussed in detail on pages 66 to 74. The

Board has overall responsibility for ensuring that a

robust risk management process is in place and

delegates responsibility to the Audit & Risk Committee

to ensure that it is adhered to. Climate risk

management is considered in line with the existing

risk management framework. This year, for the first

time, climate risk was identified as a Group principal

risk. See page 68 for more information on our Group

principal risks.

Updates to climate regulation, including the emergence

of new climate-related regulation is picked up in line

with our Group-wide regulation monitoring processes.

In previous years, we have considered a wide range of

risks and opportunities relating to climate change that

were identified with the support of external technical

specialists and then evaluated through a series of

Group and divisional workshops. These include, for

example, impacts relating to damage to assets from

weather events, cost and availability of resources,

regulation related to GHG emissions and increased

demand for green technologies. The identification

process includes assessment of the full value chain,

such as impacts relating to key supply chain assets

from extreme weather events.

At the Group, divisional and site levels, risks and

mitigating controls are allocated to relevant owners.

This year, each of our divisions conducted their annual

review of climate-related risks in divisional risk

registers to ensure accuracy of impact assessment and

adequacy of mitigation actions. The results of these

reviews are consolidated and managed in our risk

KEY

Black text in table =

Current activity

Blue text = Future activity

Opportunity key

Definition

Very high

opportunity

Very significant

impact on the

Company

High

opportunity

Significant

impact on the

Company

Moderate

opportunity

Moderate

impact on the

Company

Low

opportunity

Relatively

marginal impact

on the Company

Very low

opportunity

Marginal impact

on the Company

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

Twice a year, a top-down review of our principal risks

and opportunities, including climate risks, is conducted

as part of the wider risk management process. In

FY2023, we conducted an ESG double materiality

assessment to understand the ESG topics of most

importance to our business as outlined on page 33.

We continued our detailed procedures to assess and

manage climate risks and opportunities via scenario

analysis. This incorporates analysis of base case

revenue streams, climate scenario analysis conducted

over two physical and two transition climate scenarios

against medium- and long-term time horizons. Risks

and opportunities have been considered alongside

established mitigation measures and strategic actions

during validation workshops held at Group and

divisional level to determine materiality of impacts

over time.

The Executive Committee has responsibility for

designing the enterprise risk management framework

and ensuring that it is effectively deployed. The Audit &

Risk Committee is responsible for overseeing the

effectiveness of our management and implementation

of internal controls, including those related to climate

risks. Divisional and functional teams are responsible

for day-to-day management and reporting of risks,

including climate risk. They identify new and emerging

risks, escalate where appropriate, and take action

to ensure risks are managed appropriately.

Prioritisation of risks is supported by matrices to

improve, monitor (controls/ability to respond), monitor

(risks) and accept/optimise.

METRICS AND TARGETS

We have identified relevant metrics and targets to

monitor progress in achieving our sustainability goals,

as well as manage and mitigate identified climate-

related risks and opportunities as detailed on page

57. Metrics and targets are monitored by the SSE

Committee and inform decision making to execute

our strategic priorities.

Sustainability metrics form part of the Smiths annual

and long-term incentive plans. These include metrics

on GHG emissions reductions (Scope 1 & 2 emissions

absolute reduction target) and energy efficiency.

We have committed to Net Zero Scope 1 & 2 emissions

across our operations by 2040, with Net Zero Scope 3

emissions reached by 2050 in line with the 1.5°C

Business Ambition under the UN Race to Zero. As per

our submission to the SBTi, we have committed to

interim targets of 50% reduction in Scope 1 & 2

emissions by 2032 and 50% of suppliers by spend with

SBTs by 2028. As required by the SBTi, our proposed

interim reduction target covers more than two-thirds

of our total Scope 3 GHG inventory.

Our Scope 1 & 2 emissions have decreased significantly

this year as we progress conversion of our energy mix

to renewable electricity, as well as undertake transition

initiatives such as fleet electrification. Our Scope 3

emissions have also decreased year-on-year. Further

details of Scope 1, 2 and 3 emissions can be found on

page 45 including progress during FY2023. More detail,

including our methodology for calculation of emissions

in line with the GHG Protocol, can be found in our

FY2023 Sustainability at Smiths report.

We continue to monitor completion of annual business

continuity plan reviews and have surpassed our

three-year targets on waste and water reduction. We

will assess whether water targets are renewed at the

end of the three-year goal period, given the relatively

low consumption required in our operations.

Information on how metrics and targets are linked

to our remuneration policy can be found in the

Remuneration & People Committee Report from page

98. Progress towards achieving other sustainability

targets is included in the Sustainability at Smiths

section from page 32. Our Scope 1, 2 and 3 emissions

for both FY2022 and FY2023 have undergone an

external limited assurance process. We anticipate that

further metrics and targets will be established during

FY2024 as we move into our next three-year goal

period. In the coming year we will review our disclosure

of other cross-industry climate-related metrics.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

TCFD

CONTINUED

MONITORING METRICS AND TARGETS

The table below outlines the key metrics and targets used to monitor climate risks and opportunities. Performance against the majority of these metrics is monitored by the

SSE Committee. Further detail, including historical performance, can be found on pages 44 and 45. Our FY2023 Sustainability at Smiths report describes the basis of

preparation of our metrics and targets.

Unit of

measure

Metric

Metric target

set and reported?

Metric performance

for FY2023

Linked to identified climate

risks and opportunities

GHG

EMISSIONS

tCO

Absolute Scope 1 & 2 emissions

Yes – zero by 2040 with 50%

reduction by 2032

(11.8)% reduction

year-on-year

Pricing on GHG emissions – tracking our GHG emissions

helps us to remain aligned with upcoming regulations and

is of value to our customers seeking to reduce emissions

in their supply chains.

GHG

EMISSIONS

tCO

Absolute Scope 3 emissions

Yes – zero by 2050

(4.8)% reduction

year-on-year

Pricing on GHG emissions – tracking our GHG emissions

helps us to remain aligned with upcoming regulations and

is of value to our customers seeking to reduce emissions

in their supply chains.

PHYSICAL

RISKS

All site business continuity

plans to be reviewed annually

Yes, not reported externally

N/A

All identified physical risks – reviewing our site business

continuity plans enables us to plan and mitigate against

potential physical risks from climate change.

TRANSITION

RISKS

Revenue from green

technologies

No – data to be reported in

FY2024

N/A

Monitoring revenue from products with sustainability,

including climate, benefits.

TRANSITION

RISKS

% reduction in normalised non-

recyclable waste

Yes – 5% reduction between

FY2022 and FY2024

(20.2)% reduction vs

FY2021 baseline

Cost and availability of resources – monitoring our

reduction in waste and setting targets helps to reduce the

resources used by our business.

TRANSITION

RISKS

% reduction in normalised

water use in water-stressed

areas

Yes – 5% reduction between

FY2022 and FY2024

(17.1)% reduction vs

FY2021 baseline

Cost and availability of resources – monitoring our water

use and setting reduction targets helps to reduce the

resources used by our business.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

STAKEHOLDERS AND SECTION 172 STATEMENT

STAKEHOLDERS AND

SECTION 172 STATEMENT

Understanding the needs and priorities of

our key stakeholders and building strong

and positive relationships is critical to our

success. Stakeholder engagement takes

place across the Group, operationally by

our divisional teams and management,

at a Group-level, and by the Board.

In a business as diversified as Smiths, engagement

with most stakeholder groups is handled locally by

management, or by specialist Group teams. The Board

maintains oversight and only engages directly if there

are issues which truly warrant its involvement or

where it can add value. This is particularly true of

engagement with customers and suppliers (the

majority of whom are unique to a specific division) but

is also usually the case for governments, regulators

and our local communities.

The outcomes of stakeholder engagement, including

concerns raised, are reported to the Board and Board

Committees on a regular basis through our usual

processes that support informed decision-making.

The reporting was enhanced during the period to

include greater focus on macro conditions and

stakeholders. This was partly in response to feedback

received as part of the FY2022 Board Evaluation

process (see page 85). Discussion and decision-making

by the Board takes the views of key stakeholders into

account, in order to balance their needs, and effectively

build the sustainable, long-term success of the Group.

Throughout FY2023 we have matured our approach

with a focus on critical business priorities that are

regularly reported, underpinned by relevant data, in a

global performance dashboard that allows tracking

against the targets that have been set. Where needed,

corrective actions were presented and discussed.

During the year ended 31 July 2023, the Board

has acted in accordance with Section 172(1) of the

Companies Act 2006, with each Director acting in the

way they consider, in good faith, would be most likely to

promote the success of the Company for the benefit of

its members as a whole. In doing so, the Directors had

regard to the interests of other stakeholders, whilst

maintaining and overseeing high standards of business

conduct. Our approach to key stakeholders and

stakeholder considerations that influenced Board

discussions, the outcomes of these discussions and the

Board's principal decisions are outlined in this section,

along with illustrative examples.

During the year

ended 31 July 2023,

the Board has acted

in accordance with

Section 172(1) of the

Companies Act 2006,

with each Director

acting in the way

they consider, in

good faith, would

be most likely to

promote the success

of the Company for

the benefit of its

members as a whole.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

STAKEHOLDERS AND SECTION 172 STATEMENT

CONTINUED

KEY PEOPLE PRIORITIES

–

Health, safety and well-being

–

Purpose and culture

–

Ethical behaviour

–

Reward and recognition

–

Employee retention and engagement

–

Talent development

–

Diversity, equity and inclusion

– Sustainability

–

Community contribution

BOARD AND MANAGEMENT ENGAGEMENT ACTIVITIES

–

Management engages with colleagues through regular Town Hall

meetings, Company news updates, and through our online tools where

colleagues can share their views. See page 14 for more information

–

Non-executive Directors undertake workforce engagement activities,

including in-person site visits and attendance at colleague meetings,

forums and events. Regular updates are provided to the Remuneration &

People Committee. Such activities included:

–

Richard Howes met members of the senior leadership team over a

period of 12 months as part of his induction programme. He also

visited John Crane’s Morton Grove site, met key team members and

learnt about operational aspects of the business

–

Noel Tata attended the Indian Managing Directors' Council and met

members of the India leadership team. He also toured Mumbai airport

to see Smiths Detection machinery in operation

–

Sir George Buckley and Pam Cheng met SES Master Black Belts. Sir

George shared his perspective on excellence, his experience in other

companies, and what SES means for Smiths. Pam offered her

experience and expertise in the area of change management

–

Bill Seeger attended the China Ethics Committee and Global HSE team

meeting

–

Mark Seligman met with senior leaders from across the Finance

function including Finance and Finance Excellence, Tax, Investor

Relations, Internal Audit and Divisional CFOs

–

Across the year, the Board met with colleagues of varying seniority. This

included divisional teams and those in corporate functions, allowing for

informal introductions to Board members

–

Talent Roundtables were held to discuss top talent and identify potential

Executive Committee successors. Following this process Sir George

Buckley met c.30 extended leadership team members across Smiths

–

The Company established a Group mentoring scheme to give senior

leaders an Executive Committee formal mentor to foster the ‘developing

self and others’ Smiths Leadership Behaviour

–

Management identified a need to increase female senior leaders’

visibility in order to amplify role modelling across the Group and

demonstrate female representation in senior positions

–

The Board and Remuneration & People Committee receive regular

updates and deep-dives from the Chief People Officer on employee

engagement, reward, talent, and diversity and inclusion. It also monitors

KPI metrics relating to those areas

–

The Audit & Risk Committee is provided with updates on ‘Speak Out’, our

confidential reporting hotline, and other reports and statistics relating to

the Group’s ethical policies and performance

–

The Board receives health and safety reports at every Board meeting

and regular updates on the Group’s pension arrangements

–

DE&I continued to be an area of focus to help create a more diverse and

inclusive Smiths and we are targeting improved gender balance

OUTCOMES OF ENGAGEMENT IN FY2023

–

The Board approved the refined people strategy with a focus on the

Leadership Behaviours and developing and retaining talent. This

included: a focus on early years careers including apprenticeships and

graduate opportunities; and a global leadership training programme

aligned with the Leadership Behaviours and the talent process

–

Implementation of a quarterly colleague webinar featuring a female

Executive Committee member and a female Non-executive Director,

which has included Dame Ann Dowling and Pam Cheng in FY2023, with

Karin Hoeing to lead in FY2024. Initiatives such as these are important as

we continue to foster a more diverse and inclusive environment

–

Mentees of the mentoring scheme have taken on expanded roles and

responsibilities, resulting in cross-functional and cross-divisional

internal career changes. All of the mentees of the Executive Committee

have now become mentors for the next leadership tier. This is cascading

the mentoring culture at Smiths

–

Engagement measured by our annual My Say engagement survey, which

had a very high response rate of 84% of our employees, improved by one

point since last year and is now just one point below the industry

benchmark. It was encouraging to see that four out of our five businesses

(including the corporate centre) tracked improvement in engagement,

while one remained flat year-on-year. My Say results can be found on

page 14

–

The Board considered and declined the request from the Trustee of the

Smiths Industries Pension Scheme (SIPS) to recommend paying the

2023 stated aim discretionary increase. This decision was taken with the

security of all SIPS members benefits in mind. The Company continues

to work with the SIPS Trustee to progress towards the long-term target

of full buyout funding

OUR APPROACH

Our people are vital to

the success of Smiths.

We aim to attract

and retain the very

best by creating an

environment for

colleagues based on

respect, personal

growth, recognition and

development of talent,

and a sense of belonging

and purpose.

Our culture is a powerful

asset and empowers and

enables our people to

deliver our purpose. It is

supported by our Values

and our Leadership

Behaviours which

influence every decision,

guide how we behave,

and help make Smiths a

place where people are

happy and proud to work.

PEOPLE

Governance.

PG 78

Read more about

sustainability in

our Sustainability

at Smiths report at

www.smiths.com

84%

colleague participation in

My Say engagement

survey.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

STAKEHOLDERS AND SECTION 172 STATEMENT

CONTINUED

KEY CUSTOMER PRIORITIES

–

Product innovation, lead times, quality and aftermarket service

–

ESG performance of products to help customers meet their own ESG

goals

–

Long-term strategic relationships

–

Mutual confidence and respect

–

Ethical behaviour

–

Data protection

BOARD AND MANAGEMENT ENGAGEMENT ACTIVITIES

–

Management teams engage with customers through formal feedback

activities such as surveys, quarterly business reviews, aftermarket

service team reviews, and senior team meetings with key customers.

They also integrate informal feedback from conversations had with

customers by our operational and field-based teams

–

Management teams use Key Account Management structures and

Customer Relationship Management tools across our business to

deliver timely and high-quality responses to our customers. We aim to

apply best practices, develop skills and capabilities, and deliver

continuous improvement in execution to enhance the overall customer

experience

–

Customers and market challenges are considered as part of the monthly

divisional performance updates to the Executive Committee with a

deep-dive every quarter

–

Divisional performance reports including customer data and

commentary are sent to the Board on a quarterly basis and deep-dives

on divisional performance and strategy are held on a rotational basis

–

The Board monitors performance indicators relating to customer

satisfaction such as On-Time-In-Full (OTIF) and Cost of Poor Quality

(COPQ)

–

The SSE Committee reviews the progress of strategic projects as well

as new products introduced to the market. On a rotational basis divisions

provide deep-dives on innovation and new product development. For

more information see the SSE Report on page 111

–

The Board reviewed key market and sector specific macroeconomic

indicators to understand the impact of the macroeconomic environment

on our customers

–

The Board met with material customers of John Crane and Smiths

Detection during the year to understand what it is like to do business

with Smiths

OUTCOMES OF ENGAGEMENT IN FY2023

–

The Board heard the challenges of key customers in the security and

energy sectors. This led to a deeper understanding of the solutions

required by our customers and highlighted the importance of our

continued focus on commercialising high-value green technologies to

align with our customers' decarbonisation journeys

–

The Board continued to focus on reducing lead times for customers,

where it was necessary, at the expense of investment in working capital

and notably higher inventory levels, to mitigate the effects of disrupted

supply chains

–

Customer input was gathered frequently to inform new product

development and customer service improvements. Management

initiated SES projects with suppliers to help them reduce lead times and

improve forecasting on key component shipments. These activities all

help maintain quality customer relationships

–

The Board discussed and was satisfied that the culture of the Group is

appropriately focused on customer needs and that customer risks are

being managed appropriately. However, the Board agreed it would

dedicate more time in FY2024 to understanding customer priorities

OUR APPROACH

Meeting customer needs

and exceeding their

expectations with

products, quality and

service, and the way we

conduct business and pay

attention to the things

that matter to them, is a

fundamental part of our

operating model and our

Values.

Strong and enduring

customer relationships

will sustain Smiths into

the future.

CUSTOMERS

CEO review of the year.

PG 18

3.7%

R&D spend as a % of

revenue.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

STAKEHOLDERS AND SECTION 172 STATEMENT

CONTINUED

KEY SUPPLIER PRIORITIES

–

Long-term relationships with Smiths

–

Mutual confidence and respect

–

Ethical behaviour, meeting ESG standards

–

Innovation partnerships

BOARD AND MANAGEMENT ENGAGEMENT ACTIVITIES

–

Management teams meet regularly with suppliers to review

performance, discuss new business opportunities, set goals and work

on improvement areas. For our higher value and/or more complex

products, management engages with our suppliers at the highest level

to partner on R&D, new product introduction, quality and continuous

improvement projects

–

Updates on suppliers and supply chain are included in divisional

performance updates to the Executive Committee

–

Divisional performance reports are sent to the Board ahead of each

Board meeting and deep-dives on divisional performance and strategy

are discussed by the Board on a rotational basis. The reports include

updates on suppliers and supply chain

–

At each Board meeting the Board selects a critical priority for a

deep-dive, many of which have a link with our suppliers

–

The Audit & Risk Committee was updated on cyber risks including

potential cyber security breaches in the supply chain

OUTCOMES OF ENGAGEMENT IN FY2023

–

In order to meet our Net Zero targets, management engaged with

suppliers to determine our Scope 3 baseline for submission to the SBTi

–

Supply chain was identified as a material issue in the FY2023 ESG DMA.

As a result, supply chain has been added to the ESG framework.

Management is reviewing actions for FY2024; these will include

introducing a global supplier management system to gather

standardised supplier data (including ESG data) and help manage

relationships with suppliers

–

Management worked with suppliers to ensure continuity of supply for

our key customers. This included working in partnership with suppliers

on SES projects in the areas of supply and customer satisfaction

–

Smiths continued to strengthen its cyber resilience. In addition,

management continue to enhance relationships with suppliers so that

cyber breaches in our supply chain are reported to us in a timely manner.

This design helps to protect Smiths, our employees, products and

customers

OUR APPROACH

Developing mutually

beneficial relationships

with our suppliers and

building resilience,

quality and efficiency

across our supply chain

is a fundamental

contributor to our

customer offer and

the long-term

sustainability of Smiths.

We operate a total value

supply chain approach

that considers all aspects

of a supplier’s

contribution to generate

and capture value. This

includes ethical and

environmental matters,

including GHG reduction,

and alignment with our

Values, continuous

improvement and risk.

SUPPLIERS

Read more about

sustainability in our

Sustainability at Smiths

report www.smiths.com

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

STAKEHOLDERS AND SECTION 172 STATEMENT

CONTINUED

KEY COMMUNITY PRIORITIES

–

Safe and effective operations

–

Green technology, environmental performance, respecting natural

resources

–

Fair employment, skills development and prosperity

–

Ethical behaviour

–

Direct engagement – education and community support

BOARD AND MANAGEMENT ENGAGEMENT ACTIVITIES

–

Our teams across the world engage directly with their local communities

through fundraising, charitable giving and education initiatives

–

Science, technology, engineering and maths (STEM) education initiatives

are particularly important to management and to our colleagues as a

way to share their passion for engineering and encourage young people

to consider careers in the sector. Many of our sites run STEM

programmes

–

The Board is provided with updates on the elements of the Group’s

operations which impact the wider community, including the Group’s

Global Tax Strategy. This describes our approach to the responsible

management of tax affairs to enhance long-term shareholder value

while contributing to public expenditure and the welfare of our local

communities

–

The Audit & Risk Committee receives regular reports on issues raised

through the Group’s Speak Out reporting hotline which enables

reporting of matters affecting communities such as safety, ethical

behaviour, human rights and modern slavery

–

Colleagues are regularly involved in and support local community events

–

The SSE Committee heard how the divisions have been driving

environmental change in their businesses. It also provided challenge

and guidance on the divisions' roadmaps to achieve Net Zero

OUTCOMES OF ENGAGEMENT IN FY2023

–

The Board approved the launch of the Smiths Group Foundation, a

charitable giving foundation with a committed initial fund of £10m.

Grants will be available to charitable organisations with a primary focus

on expanding access to STEM skills

–

The Board approved the implementation of global colleague volunteering

principles which will enable every Smiths colleague to take one day of

paid volunteering leave each year from FY2024

–

The Group introduced formal budgeting opportunities for charitable

giving in our divisions, China and Group of at least £250,000 per year in

aggregate from FY2024 to enable continued support for local

organisations that fall outside of the scope of the Foundation

–

Our annual Smiths Day global celebration of Smiths culture took place

in June 2023. This year’s theme ‘contributing to our communities’

encouraged every Smiths site to look outwards into their community

and find opportunities to give back

–

The SSE Committee was supportive of the submission of SBTs and

related plans for Scopes 1, 2 and 3 to the SBTi in May 2023,

demonstrating Smiths commitment to achieving our Net Zero goals

–

The Company continued to contribute to society with a direct economic

contribution value of £2.8bn in FY2023

OUR APPROACH

We aim to improve our

world by contributing

positively to our

communities and society

in general.

Smiths products and

services support critical

global industries where

we are pioneering

progress in safety,

efficiency and

environmental

performance. Our

operations around the

world play a beneficial

role in local economies

through job creation and

skills development;

procurement and

generating tax revenues;

operating safely,

environmentally

responsibly and ethically;

and direct engagement.

Healthy and prosperous

communities and strong

relationships are aligned

with our Values and

inspire and promote a

sense of pride and

ownership in our people.

COMMUNITIES AND SOCIETY

Read more about

sustainability in our

Sustainability at

Smiths report

www.smiths.com

£10m

The Smiths Group

Foundation committed

initial fund.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

STAKEHOLDERS AND SECTION 172 STATEMENT

CONTINUED

KEY INVESTOR PRIORITIES

–

Sustainable growth

–

Shareholder returns

–

Delivering against our strategy

–

Openness and transparency

–

Maintaining effective controls and managing risk

–

Environmental performance and social impact

–

Appropriate remuneration and incentive arrangements

BOARD AND MANAGEMENT ENGAGEMENT ACTIVITIES

–

The Board attends the AGM and General Meetings where shareholders

are invited to submit questions to the Board in person or in advance of

the meeting

–

The Chief Executive Officer and the Chief Financial Officer host results

presentations and Q&A sessions for current and prospective investors.

They attended investor conferences and met with a broad spread of the

Group’s capital providers throughout the year

–

Members of the Board engaged with investors at the Capital Markets Day

in November 2022. In addition, Bill Seeger met with an investor at their

request to discuss financial performance, progress against the Company’s

strategy and capital allocation

–

Analyst and broker briefings, and feedback following meetings with major

or prospective shareholders, are circulated to Directors

–

The Board considered investors and the UK Pensions Act 2021 prior

to approving the Group's capital allocation policy

–

The Board considered succession planning for the Chairman,

Sir George Buckley, taking into account feedback from investors

OUTCOMES OF ENGAGEMENT IN FY2023

–

The Board continued to focus on the Group’s strategy including the Smiths

Value Engine and our three priorities of growth, execution and people

–

The Board discussed feedback from the Capital Markets Day with

management which reaffirmed that our strategic priorities aligned with the

wider investor community

–

Meetings are being arranged with 12 investors for FY2024, representing

approximately 38% of the issued share capital of the Company, to meet the

new Chair, Steve Williams

–

The Board agreed to repay the Company's €600m Eurobond at maturity from

existing cash resources, and approved the renewal of the US$800m revolving

credit facility for a further 5-year term, to provide the Company with an

efficient and flexible balance sheet which benefits all investors

–

The Board continued with the share buyback programme and approved the

payment of the final dividend for FY2022 and the FY2023 interim dividend

OUR APPROACH

We are committed to

openness and transparency

with all capital providers and

to the effective management

of risk. We report routinely to

shareholders through our

formal results activities and

undertake regular meetings

and one-off events such as

Capital Markets Days and

investor conferences.

Third-party analyst and

broker briefings also

form part of our

communications schedule.

Shareholders are directly

consulted by the Board

on such matters as

Remuneration Policy and

views are sought on key

corporate activity.

INVESTORS

KEY GOVERNMENT AND REGULATOR PRIORITIES

–

Product and operational safety

–

Net Zero and environmental policies

–

Protection of natural resources

–

Defence and security

–

Safe and fair working conditions

–

Economic growth and prosperity

–

Trade compliance

–

Ethical behaviour

–

Privacy and data protection

BOARD AND MANAGEMENT ENGAGEMENT ACTIVITIES

–

Our Government Relations team based in the UK, US, Europe and Asia

guides and supports our relationships with key regulators, local

policymakers, budget holders and industry groups. It also leads our

outreach and relationship programme with government bodies and

regulators, with the aim of promoting a deeper understanding of the

Smiths culture and products. The team further enables greater access

to funding both at regional and national levels, through engagement with

key agencies ahead of and during funding programmes

–

Government policy and regulators are considered during formulation of

divisional strategies

–

Updates on regulatory processes for approval of new products are

provided during divisional performance reviews at the Executive Committee

OUTCOMES OF ENGAGEMENT IN FY2023

–

Management approved policy guidelines and an operational framework

within which government relations are conducted. The business sustains

harmonious relations with governments and the relevant regulatory

authorities in the countries where we manufacture and operate

–

We completed the alignment of responsibilities for ESG and Government

Relations under the Chief Sustainability Officer

–

John Crane received, together with its two university partners, circa

£925,000 in research funding from the UK Department for Energy Security

and Net Zero (DESNZ) for its high temperature sealing solution for the

supercritical CO

power cycle in carbon capture. By engaging with the

UK Government during the application process the Government

Relations team contributed to a stronger project, clearly aligned with

DESNZ’s objectives

OUR APPROACH

Governments and regulators

are vital to our business as

they are policy setters and

influencers in the markets

where we operate.

In the normal course of

business, we build

relationships with

governments, policymakers

and regulators across the

world. We do this at both

Group and at divisional levels

so that we are able to operate

effectively and to ensure our

interests and those of the

industries in which we

operate are represented in

decision-making.

GOVERNMENTS AND REGULATORS

£925k

funding from DESNZ for

carbon capture research.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

NON-FINANCIAL INFORMATION STATEMENT

NON-FINANCIAL

INFORMATION STATEMENT

The following disclosure aligns to the

non-financial reporting requirements

contained in sections 414CA and 414CB

of the Companies Act 2006 and reflects

our commitment to and management

of the environment, employees, social

matters, human rights and anti-bribery

and anti-corruption. Our Smiths cultural

framework supports our efforts in these

areas and is described on page 13.

ENVIRONMENT

We have committed to ambitious Net Zero targets:

Net Zero emissions from our operations (Scope 1 & 2)

by 2040, and Net Zero emissions from our supply chain

and products in use (Scope 3) by 2050, and present our

Net Zero/climate transition plan in this report. We also

have longstanding commitments to use natural

resources efficiently and minimise waste. The policies

that support our approach are:

–

Environmental Sustainability Policy

–

Health, Safety and Environment (HSE) Policy

–

Responsible Minerals Sourcing Policy

You can find more information on the environment on

the following pages:

–

Review of the year, page 20

–

KPIs, page 30

–

Sustainability at Smiths, pages 35 to 45

–

Task Force on Climate-related Financial

Disclosures (TCFD), pages 47 to 57

–

Principal risks and uncertainties, pages 68 to 70

–

Remuneration & People Committee Report, page 101

–

Science, Sustainability & Excellence Committee

Report, pages 111 and 112

EMPLOYEES

Our people are vital to the success of Smiths.

We aim to attract and retain the very best by creating

an environment for employees based on respect,

personal growth, recognition and development of

talent, and a sense of belonging and purpose.

We provide equal employment opportunities.

We recruit, support and promote our people based

on their qualifications, skills, aptitude and attitude.

In employment-related decisions, we comply with all

applicable anti-discrimination requirements in the

relevant jurisdictions. We have zero tolerance for

discrimination, harassment or retaliation.

People with disabilities are given full consideration

for employment and subsequent training (including

retraining, if needed, for people who have become

disabled), career development and promotion based on

their aptitude and ability. We endeavour to find roles for

those who are unable to continue in their existing job

because of disability. We recruit using balanced slates

and interview panels where possible and have gender-

neutral job descriptions. Our procedures and training

activities advocate and enforce fair treatment for all.

Policies that support our approach are:

–

Fair Employment Policy

–

Recruitment Policy; helping us to attract and retain

our staff transparently

–

Global Mobility Assignment Policy

You can find information on our employees on the

following pages:

–

Our People and culture, pages 13 to 15

–

Review of the year, page 20

–

KPIs, page 31

–

Sustainability at Smiths, pages 35 to 39 and 45 to 46.

–

Stakeholders and Section 172 Statement, page 59

–

Principal risks and uncertainties, pages 68 to 69

and 71

–

Remuneration & People Committee Report, page 99

SOCIAL MATTERS

We aim to improve our world by contributing positively

to our communities and society. Smiths products and

services support critical global industries and our

operations around the world play a role in local

economies through job creation; procurement and

generating tax revenues; operating responsibly and

ethically; and engaging directly. The policies that

support our approach are:

–

Code of Business Ethics

–

Data Protection and Privacy Policy

–

Data Protection Code of Conduct

–

Supplier Code of Conduct

You can find information on social matters on the

following pages:

–

Review of the year, page 20

–

Sustainability at Smiths, pages 35 to 39 and 46

–

Stakeholders and Section 172 Statement, page 62

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

NON-FINANCIAL INFORMATION STATEMENT

CONTINUED

HUMAN RIGHTS AND ANTI‑BRIBERY

AND ANTI‑CORRUPTION

We consider violations of human rights to be appalling

crimes. Conduct that exploits workers or denies them

the rights and benefits to which they are legally entitled

is wholly inconsistent with our Values and policies

and is not tolerated. We recognise the important

responsibility we have, and we support the vision of a

world where everyone can access decent work and

enjoy their universal human rights. We have not

identified any serious human rights issues in our

operations or in those of our suppliers in FY2023.

Our Human Rights Policy is guided by the international

human rights principles encompassed in the Universal

Declaration of Human Rights, the International

Labour Organization’s Declaration on Fundamental

Principles and Rights at Work, and the United Nations

Guiding Principles on Business and Human Rights.

We adhere to national laws and regulations in each

market in which we operate and, should we encounter

conflict between internationally recognised human

rights and national laws, we will seek ways to honour

the principles of international human rights. All persons

working for, or on behalf of, Smiths are required to

adhere to our Policy and approach.

Bribery and corruption matters are covered by our

Code of Business Ethics. We also have specific policies

and procedures relating to activities that create bribery

and corruption risks, and an umbrella Anti-bribery

and corruption policy that provides a single view of

our approach. These policies cover a broad range of

matters including the giving and receiving of gifts,

meals and hospitality; invitations to government

officials; our approach to facilitation payments; and

controls around the appointment of distributors and

agents, customs brokers and freight forwarders. Our

ethics dashboard enables us to interrogate our register

of gifts, meals and entertainment in an effective and

useful way. We also have a specific China Anti-bribery

and corruption policy.

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. The policies that support our approach are:

–

Code of Business Ethics

–

Anti-bribery and anti-corruption policy

–

The Smiths Modern Slavery and Human Trafficking

Statement (found on our website www.smiths.com)

–

Human Rights Policy (found on our website

www.smiths.com)

You can read more about the Group's whistleblowing

hotline Speak Out in the Audit & Risk Committee Report

on page 97

POLICY DUE DILIGENCE AND

OUTCOMES

Smiths operates a confidential Speak Out reporting

hotline to report behaviour and activities that breach

our Values, our policies, or the law. This is critical to

assessing the effectiveness of our policies. All reports

to the Speak Out hotline are investigated, and metrics

associated with reporting monitored. Reports can be

made anonymously. Our ethics training operates in

two tiers – online modules delivered in all our core

languages, and group training activities covering

specific subjects. Additionally, we run regional ethics

workshops for leaders across Smiths to embed a

deeper understanding of our ethics and compliance

critical drivers.

During FY2023 we continued to review the effectiveness

of our policies, including:

–

Revising and relaunching our Code of Business Ethics

–

Reviewing our ethics dashboard which enables

us to view key information, track progress and

analyse data

–

Ethics Pulse surveys to check organisational

engagement on ethical matters and Speak Out

–

Undertaking targeted risk assessments to ensure

that our Human Rights Policy was being followed

–

Continuing to monitor and review procurement-

related modern slavery and human rights risks

and controls

OTHER INFORMATION

Other information to support this statement can be

found as follows:

–

Business model on page 11

–

Non-financial KPIs on pages 30 and 31

–

Sustainability at Smiths on pages 33 to 46 and our

Sustainability at Smiths report which can be found

on our website www.smiths.com

–

Task Force on Climate-related Financial

Disclosures on pages 47 to 57

–

Stakeholders and Section 172 Statement on pages

58 to 63

–

Principal risks and uncertainties on pages 68 to 74

–

Viability Statement on pages 75 to 77

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

RISK MANAGEMENT

RISK

MANAGEMENT

ENTERPRISE RISK MANAGEMENT ROLES AND RESPONSIBILITIES

3rd

LINE OF DEFENCE

BOARD AND

AUDIT & RISK

COMMITTEE

–

Approves the strategy and set the culture and risk appetite of the

Group

–

Reviews and assesses the effectiveness of risk management and

internal control systems

–

Monitors through Board processes and good governance

INTERNAL AUDIT

Independent assurance

–

Provides assurance on internal controls, programmes, systems and

risk management processes

2nd

LINE OF DEFENCE

EXECUTIVE

COMMITTEE

AND SENIOR

MANAGEMENT

–

Design and establish risk management and internal control systems

–

Ensure that the risk appetite of the Board is understood by risk

owners and decision makers

–

Ensure risks are adequately managed

RISK AND

COMPLIANCE

FUNCTIONS

Monitoring and compliance

–

Develop and manage the ERM process

–

Monitor risks and controls

–

Develop and manage policies and control frameworks

–

Ensure financial, legal and ethical compliance

–

Ensure security, quality, and health and safety

1st

LINE OF DEFENCE

DIVISIONAL

MANAGEMENT

Risk ownership and mitigation

–

Identify, manage and escalate risks

–

Set division strategic objectives

–

Establish and apply internal control systems

–

Escalate issues to the Executive Committee as required

OPERATIONAL

TEAMS

Conducting business activities in accordance with Group policies and

standards

–

Understand roles and responsibilities

–

Comply with policies

–

Follow risk management processes

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 improve our

world through smarter engineering.

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 risk owners and decision makers understand the

Board’s risk appetite, and ensures that risks, including

climate risk, are adequately managed, and conducts

an annual assessment of strategic risk. Each principal

risk is owned by a member or members of the

Executive Committee.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

RISK MANAGEMENT

CONTINUED

Running a business involves the 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 could threaten successful

execution of our strategy and ensures our strategic,

financial, compliance and operational risks are

appropriately considered by the Executive Committee

and by the Board.

Our divisional and functional teams are responsible for

the day-to-day management and reporting of risks,

including climate risk. 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 risks they

face. In FY2023 these were updated to ensure that the

latest views 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 principal risks and uncertainties

and actions taken by management to manage

those risks.

During FY2023 the Executive Committee agreed the

ERM timetable and the risks selected for deep-dive

discussions at Executive and Audit & Risk Committee

meetings. These were: supply chain; cyber; and

Flex-Tek commercial risks. The Group’s list of principal

risks was also discussed and recalibrated by the

Executive Committee.

The following items relating to our principal risks

were also discussed at Board, Finance Committee,

and SSE Committee meetings during FY2023: organic

growth and financial performance; tax, treasury,

liquidity, pensions and insurance; technology; health

and safety; acquisitions; litigation; our people strategy;

and ESG matters.

There is a requirement for risk owners to demonstrate

how they provide assurance that controls are working

effectively. Examples are provided in the tables of

principal risks from page 69.

In addition, a further 31 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.

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.

Climate change has moved from an emerging risk to

a Group principal risk. During FY2022 we undertook

a scenario analysis, including climate risk and

opportunities workshops for Group and the divisions.

Outcomes from this work are described in the Task

Force on Climate-related Financial Disclosures (TCFD)

section on page 47.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

PRINCIPAL RISKS AND UNCERTAINTIES

PRINCIPAL RISKS

AND UNCERTAINTIES

RISK PROCESS

We review each risk and rate a number of factors:

gross impact, applying the hypothetical assumption

there are no mitigating controls in place; residual

impact and likelihood, taking into account existing

mitigating controls; the reputational impact of a risk;

and velocity, which reflects the expected time we would

have to react should a risk materialise. These, in turn,

drive mitigation priorities. A trend metric shows the net

position of the risk year-on-year. We report on the

connectivity between risks to help understand the

potential for one risk to have an impact on another.

This is presented against each risk in the form of a ‘risk

relationship’ chart indicating the linkage between each

principal risk and others on the list. This has been used

as an input to the Viability Statement assessment and

will be used more widely in future risk scenario

planning and mitigation work.

CHANGES TO PRINCIPAL RISKS

Our principal risks continue to evolve in response

to our changing risk environment. This year, based on

our current assessment of their materiality, we have

replaced our environment, social and governance (ESG)

risk with a broader climate-related risk, capturing both

the opportunity and risk of energy transition and

climate-related regulatory risks. We have also

increased the likelihood and residual impact of our

cyber risk.

While we continue to monitor and manage a wide range

of risks, the tables that follow summarise those risks

considered to have the greatest potential impact if they

were to materialise.

PRINCIPAL RISKS AND UNCERTAINTIES

Principal risk

Link to strategy

Gross risk

Residual risk

Likelihood

Velocity

Trend

1. ORGANIC GROWTH

Ability to achieve organic growth

in line with market opportunity

Very high

Moderate

Possible

Years

2. CLIMATE CHANGE

Missed opportunities in energy

transition and change in climate

conditions causing business disruption

and economic loss for the Group

High

Low

Possible

Years

3. TECHNOLOGY

Technology disruption by existing

or future competitor

Very high

Moderate

Probable

Years

4. PEOPLE

Ability to attract and retain people

Moderate

Low

Possible

Months

5. BUSINESS CONTINUITY

Business disruption to supply chain or

operations

High

Moderate

Probable

Weeks

6. ECONOMY AND GEOPOLITICS

Impact of economic and geopolitical

environment

High

Moderate

Likely

Weeks

7. COMMERCIAL

Loss of focus on customers and not

competing in the right markets

High

Low

Possible

Years

8. PRODUCT QUALITY

Failure of product causes serious harm

to people/property

Moderate

Low

Probable

Weeks

9. CYBER SECURITY

Impact of enterprise or product cyber

event

High

Moderate

Likely

Days

10. LEGAL AND COMPLIANCE

Significant ethical breach or failing

to meet contractual obligations

High

Low

Possible

Days

We maintain a register of principal risks and uncertainties

covering the strategic, financial, operational and compliance

risks faced by the Group.

KEY

LINK TO STRATEGY

Growth

Execution

People

LIKELIHOOD

Almost certain

>80%

Likely

>60%

Probable

>40%

Possible

>20%

Unlikely

<20%

TREND

New

Stable

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

PRINCIPAL RISKS AND UNCERTAINTIES

CONTINUED

RISK OWNER

Divisional Presidents

TREND

Stable

CONNECTIVITY BETWEEN PRINCIPAL RISKS

Principal risk

ORGANIC

GROWTH

CLIMATE

CHANGE

TECHNOLOGY

PEOPLE

BUSINESS

CONTINUITY

ECONOMY AND

GEOPOLITICS

COMMERCIAL

PRODUCT

QUALITY

CYBER

SECURITY

LEGAL AND

COMPLIANCE

ORGANIC GROWTH

CLIMATE CHANGE

TECHNOLOGY

PEOPLE

BUSINESS CONTINUITY

ECONOMY AND GEOPOLITICS

COMMERCIAL

PRODUCT QUALITY

CYBER SECURITY

LEGAL AND COMPLIANCE

1. ORGANIC

GROWTH –

Ability to achieve organic growth in line with market opportunity

Failure to deliver anticipated organic growth, which

may lead to missing strategic growth targets and

shareholder value erosion.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

Not growing could have an adverse effect on our

valuation

–

Lack of growth and/or erosion of our market

leadership positions could impact our ability to

attract and retain talent

EXAMPLES OF HOW WE MANAGE THIS RISK

–

A clear Group strategy to achieve organic growth

goals, underpinned by detailed divisional

strategies

–

Detailed reviews of existing and potential new

markets to identify opportunities with significant

growth potential

–

A people plan focused on securing and retaining

the best talent to execute our strategy and deliver

organic growth

–

An annual incentive programme to support

profitable growth

–

Monthly forecasting, annual budgeting, and an

annual review of our multi-year strategic plan

–

Ongoing investment in research and development

to drive innovation and growth

–

The Smiths Excellence System (SES), which

contributes to effective execution

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

Divisional monthly operating reviews

–

The Board’s regular review of our performance

and KPIs

–

Functional reviews of SES and our people strategy

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

PRINCIPAL RISKS AND UNCERTAINTIES

CONTINUED

3. TECHNOLOGY –

Technology disruption by existing or future competitor

If we fail to maintain our technological differentiation

and our innovation pipeline does not meet

customers’ evolving requirements, we may lose

market share to a new or existing competitor. This

could impact our financial performance and our

ability to attract and retain talent.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

If our technological differentiation were to erode,

it could have an adverse effect on our financial

performance and our ability to attract and retain

talent

EXAMPLES OF HOW WE MANAGE THIS RISK

–

We proactively position our portfolio around the

most attractive markets where we can

sustainably hold a leadership position based on

technology differentiation

–

Our diversified portfolio serves a range of sectors

and geographies, and mitigates our exposure to

any one sector or area

–

Our continuing investment in R&D (FY2023: 3.7%

of Group revenue, FY2022: 4.2%) with an

increasing focus on shared digital development

–

Our focus on nurturing a culture of innovation

–

Our focus on processes that support new product

development and commercialisation

–

We track Gross Vitality as a KPI

–

We maintain robust intellectual property (IP)

protection via patents and other protections, and

pursue litigation to protect our differentiation,

where appropriate

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

Reviews of our product commercialisation

progress at our monthly operating reviews

–

The consideration of technology priorities as part

of our long-term strategic planning

–

Our SSE Committee’s regular reviews of both new

product development and commercialisation

RISK OWNER

Chief Sustainability Officer

TREND

New risk

RISK OWNER

Divisional Presidents

TREND

Stable

2. CLIMATE CHANGE –

Missed opportunities in energy transition and change in climate conditions causing business disruption and economic loss for the Group

Failure to identify and act on the significant

opportunities arising from the world’s transition to

a low-carbon economy and/or failure to respond

appropriately to climate change risks

and regulation.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

If we do not position ourselves to serve our

customers and growing markets in

decarbonisation and green re-industrialisation,

we will not reach our full commercial potential

–

If we do not make progress towards and then

achieve our own Net Zero commitments our

Company reputation and customer relationships

may be damaged

–

We may not be able to attract and retain key talent

if we are not viewed as a socially responsible and

sustainable organisation

–

If we do not communicate sufficiently our

approach to managing climate opportunities and

risk, we may limit the number of interested debt

and equity investors

–

Extreme weather caused by climate change may

have an impact on our markets and our

operations if not identified and addressed

EXAMPLES OF HOW WE MANAGE THIS RISK

–

The Group has reviewed and is pursuing strategic

market opportunities arising from the energy

transition/decarbonisation

–

Products with a sustainability impact have been

prioritised for commercialisation in our new

product pipelines

–

A comprehensive Net Zero/climate transition plan

has been prepared for Scope 1, 2 and 3 GHG

emissions and submitted to the Science-Based

Targets initiative (SBTi)

–

GHG reduction and energy efficiency targets are

built into our performance scorecard and our

annual and long-term incentive plans

–

We have published our second Sustainability at

Smiths report and communicate regularly

internally and externally on environmental

matters

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

All divisions are engaged in new product

development that contributes to sustainability

–

Our FY2023 Scope 1 & 2 GHG reduction of (11.8)%

is in line with the trajectory needed for our SBTs

–

The Science, Sustainability & Excellence (SSE)

Committee meets four times a year to review

sustainable products and progress on our

sustainability goals

–

The environmental commitment topic scored

highly in our My Say employee survey

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

PRINCIPAL RISKS AND UNCERTAINTIES

CONTINUED

RISK OWNER

Chief People Officer

TREND

Stable

RISK OWNER

Divisional Presidents

TREND

Stable

4. PEOPLE –

Ability to attract and retain people

Failing to attract, develop and retain the right people

with the right skills may affect our ability to achieve

our commercial ambitions.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

If we do not attract and retain key talent, our

business performance may suffer

–

If we do not retain key management when we

make acquisitions, we may not realise the value of

those acquisitions

EXAMPLES OF HOW WE MANAGE THIS RISK

–

Fair and competitive pay practices benchmarked

against the external market

–

Our focus on embedding and evaluating

performance against Smiths Leadership

Behaviours

–

Investment in early career programmes

–

Planning for the introduction of technical

engineering communities, technical career

ladders

–

Our targeted talent and succession planning

–

Increasing internal talent mobility

–

Our onboarding for new hires

–

Our structured assessment, development and

reward programme

–

Enhanced diversity and inclusion initiatives

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

Formal and informal measures of culture, for

example, our regular employee engagement

surveys

–

The Remuneration & People Committee’s regular

review of key people metrics

5. BUSINESS CONTINUITY –

Business disruption to supply chain or operations

Disruption to our supply chain, manufacturing or

service operations, or customers’ operations could

impact our financial performance.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

If we are unable to deliver products and services

to our customers, it will adversely affect our

financial performance and reputation

–

Cost pressure and volatility in commodities,

goods and labour may affect our ability to serve

customers and erode our competitive advantage

EXAMPLES OF HOW WE MANAGE THIS RISK

–

SES has increased our focus on resilient and

cost-effective supply

–

We have tested business continuity and disaster

recovery plans in place for critical locations

–

We regularly evaluate key sites against a range of

risk factors using external benchmarks

–

Mitigation plans for sole source suppliers,

sub-contractors and service providers, including

qualifying alternative sources of supply where

appropriate

–

Property damage and business interruption

insurance

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

We test business continuity plans annually

–

Divisional risk mitigation plans reviewed by the

Audit & Risk Committee

–

Business interruption risk surveys which are

completed annually with an external provider at

key operational sites

–

Insurance is reviewed at least annually by the

Audit & Risk Committee

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

PRINCIPAL RISKS AND UNCERTAINTIES

CONTINUED

7. COMMERCIAL –

Loss of focus on customers and not competing in the right markets

Failure to act in a timely manner and adapt our

market strategy in response to changes in the

commercial environment in which we operate may

result in an adverse effect on our financial

performance and market share.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

If we fail to develop growth markets and

geographies, it could affect our strategic progress

and financial performance

–

Significant disruption to government budgets

could result in fewer contracts being awarded to

Smiths, adversely affecting our financial

performance

–

If we do not innovate in line with our customers’

needs, we may lose market share, and this could

adversely impact our results

EXAMPLES OF HOW WE MANAGE THIS RISK

–

New product innovation feedback through market

research and direct feedback from existing and

potential customers

–

Our diversified portfolio of businesses mitigates

exposure to any one country, sector or customer

–

Our growth strategy places emphasis on

expanding operations in higher-growth customer

markets as well as geographic regions which are

currently underserved, including Asia

–

Our regular strategy reviews evaluate adjacent

market opportunities and the evolving competitive

environment including reviewing new/potential

market entrants

–

Our Government Relations function collaborates

with colleagues across the Group to advise on

developments

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

Strategic reviews, including commercial

excellence reviews, and divisional deep-dives,

including detailed monitoring of pricing

–

Customer input is gathered frequently to inform

new product development, marketing

segmentation/communication, and customer

service improvement

–

Strong and long-term customer relationships

–

Managing Director councils in India and China

provide cross-divisional alignment to support our

growth strategy

RISK OWNER

Chief Financial Officer

TREND

Stable

RISK OWNER

Divisional Presidents

TREND

Stable

6. ECONOMY AND GEOPOLITICS –

Impact of economic and geopolitical environment

The challenging economic and geopolitical

environment in which we operate may have an

adverse effect on demand for our products, our cost

structure, pricing strategies, profitability and market

share. External adverse events could cause an

unanticipated and sudden disruption to our business.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

A regional or global recession could reduce

demand for our products

–

If we are unable to pass additional inflation on

through pricing, our financial performance may

suffer

–

Geopolitical tensions relating to Russia, China,

India and the Middle East could adversely impact

our operations

–

The introduction of new tariffs and/or taxes could

adversely impact our financial performance

EXAMPLES OF HOW WE MANAGE THIS RISK

–

Our geographic footprint and diversified portfolio

of businesses mitigate the exposure we have to

any one country or sector

–

Our divisions monitor order flows and other

leading indicators in order to respond quickly to

deteriorating market conditions and tariffs/trade

barriers

–

Our government relations team actively monitors

relevant developments and represents our

interests

–

Our network of trade compliance officers across

the Group monitors upcoming changes in

regulation and oversees import and export

activities

–

In FY2023 the Board received an update from an

external speaker on geopolitical events

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

Divisional reporting on order trends at monthly

operating reviews

–

Active tracking of inflation and pricing at monthly

operating reviews

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

PRINCIPAL RISKS AND UNCERTAINTIES

CONTINUED

RISK OWNER

Divisional Presidents

TREND

Stable

RISK OWNER

Chief Financial Officer

TREND

8. PRODUCT QUALITY –

Failure of product causes serious harm to people/property

Failure of one of our products, including failure due

to non-compliance with product regulation, may

result in financial loss and reputational damage. In

the ordinary course of business, we could be subject

to material product liability claims and lawsuits,

including potential class actions from customers or

third parties.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

If we were to suffer reputational damage, it could

lead to a loss of customers/future business

–

If our products were to cause material harm to

people or property and/or business interruption

for customers due to quality issues, design

defects, manufacturing failures or component

failures, we could suffer reputational damage,

loss of business and higher costs beyond

anticipated warranty claims. These may include

contractual claims for penalties, indemnities and

damages, and also product liability claims arising

from end-users and other affected third parties

(potentially large classes)

EXAMPLES OF HOW WE MANAGE THIS RISK

–

Divisional quality risk assessments that address

product failures, product performance, product

safety, product compliance, regulatory

compliance, and market authorisation

–

Quality assurance processes embedded in

manufacturing locations for critical equipment,

supporting compliance with customer

requirements and industry regulations

–

Quality development and quality integration built

into new product development processes

–

Risk analysis and mitigation processes relating to

product cyber resilience embedded in the product

lifecycle process. Proactive steps taken to ensure

product cyber-related risks are continually

monitored and managed

–

Insurance cover for product liability and other

related risks such as aviation grounding.

Insurance and legal teams collaborate to ensure

that contracts (and supplier flow-downs) cover

insurance issues, and that claims are notified

–

Contracting and litigation managed under the

oversight of the Group General Counsel with

regular reporting to the Executive Committee and

Board

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

Regular quality reporting (e.g., defective parts per

million (DPPM) and cost of poor quality (COPQ))

and actions to drive improvement in key metrics

–

Group and divisional governance frameworks

(including Delegation of Authority) ensure a close

working relationship between legal and

commercial teams (including quality) to manage

risks

9. CYBER SECURITY –

Impact of enterprise or product cyber event

Cyber attacks attempting to compromise the

confidentiality, integrity and availability of IT systems

and the data held on them are a continuing risk. We

operate in markets and product areas which are

known to be of interest to cyber criminals.

Digitalisation and increased interconnectivity of our

products intensifies the risk.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

If a cyber attack compromised confidentiality,

integrity or availability of our assets, it could

adversely affect our ability to deliver to customers

and, ultimately, our financial performance and

reputation

–

If we had a cyber security breach, we could be

exposed to significant losses, particularly

concerning our security products. These could

include not only customer losses but also those of

a potentially large class of third parties

EXAMPLES OF HOW WE MANAGE THIS RISK

–

Board oversight of the defence in depth approach

to mitigating cyber risk

–

Proactive focus on information and cyber security

risks supported by a robust governance

framework

–

Group-wide assessment of critical information

assets and protection to enhance security

–

Information Security Awareness programme

–

Security monitoring to provide early detection of

hostile activity on Smiths networks and an

incident management process

–

Partnership and monitoring arrangements in

place with critical third parties, including

communications service providers

–

Cyber risk analysis and mitigation processes

embedded in the product lifecycle process to

increase resilience

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

Formal reviews with the Executive Committee and

the Board

–

Vulnerability scanning/event reporting

–

External reviews of threats, processes, controls

and capabilities

–

Mandatory staff training

–

Compliance with recognised standards

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

PRINCIPAL RISKS AND UNCERTAINTIES

CONTINUED

RISK OWNER

Group General Counsel

TREND

Stable

10. LEGAL AND COMPLIANCE –

Significant ethical breach or failing to meet contractual obligations

We have more than 15,000 colleagues in more than

50 countries. Individuals may not all behave in

accordance with the Group’s Values and in

accordance with ethical and legal requirements. We

operate within increasingly complex legal regimes,

often in highly regulated markets and with

governments, customers and suppliers requiring

strict adherence to laws. We may fail to deliver

contracted products and services or fail in our

contractual execution due to delays or breaches by

our suppliers or other counterparties.

HOW THIS COULD IMPACT OUR STRATEGY OR

BUSINESS MODEL

–

An ethics or compliance breach could cause harm

to our reputation, financial performance,

customer relationships and our ability to attract

and retain talent

–

Failure to comply with trade compliance

requirements (import and export) could lead to

significant fines and/or delays to procurement or

supplies

–

Failure to meet strict conditions within

government contracts, particularly in the US,

could prevent us from bidding for contracts or

have other serious financial and reputational

consequences

–

Breach of contract resulting in significant

expenses due to disputes and claims, loss of

customers, damage to our reputation with other

customers/prospective customers, and loss of

revenue and profit due to higher costs, liquidated

damages or other penalties

–

Contracts, particularly those with governments,

may include terms that provide for unlimited

liabilities, including for loss of profits, IP

indemnities, perpetual warranties or allowing the

counterparty to cancel, modify or terminate

unilaterally and seek alternative sources of supply

at our expense

EXAMPLES OF HOW WE MANAGE THIS RISK

–

Our ethics and compliance team run a proactive

programmatic approach, areas of which are at

different stages of maturity including:

–

Managing an independent Speak Out reporting

line and investigations process with

communications encouraging the reporting of

ethics violations (includes ability to report

anonymously and a non-retaliation policy)

–

Anti-bribery and anti-corruption training is

mandated for all employees online; and

in-person training with a process for monitoring

and reporting compliance

–

Policies and processes to mitigate risks are in

place, including policies and procedures to

mitigate distributor and agent-related risks,

including due diligence, contractual controls

and internal approvals

–

Anti-trust training programmes

–

Modern Slavery and Transparency Statement

and procedures to reduce the risk of modern

slavery within the Group and our supply chain

–

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

–

Multi-functional programme for General Data

Protection Regulation (GDPR) compliance

EXAMPLES OF HOW WE KNOW THE CONTROLS

ARE WORKING EFFECTIVELY

–

Multiple measures to assess culture including My

Say results, Speak Out reports, Ethics Pulse

surveys, internal audit findings, exit interviews

and ethics questions in performance reviews

–

Monitoring and reporting on compliance with

ethics and compliance policies, on training

statistics, on investigations, on Ethics Pulse

metrics (Executive Committee and Audit & Risk

Committee oversight)

–

Divisional legal teams embedded in the business,

working cross-functionally throughout the

contract lifecycle, contract risk tool rolled out in

three divisions and used to assess mitigation of

risk through contract negotiations

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

GOING CONCERN AND VIABILITY STATEMENT

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 8 to 77. The financial position of the

Company, its cash-flows, liquidity position and

borrowing facilities are described on pages 21 to 23. In

addition, the notes to the financial statements include

the Company’s objectives, policies and processes for

managing its capital; its financial risk management

objectives; details of its financial instruments and

hedging activities; and its exposures to credit risk and

liquidity risk.

The Group has undertaken a detailed going concern

review with a severe but plausible downside scenario

taking into account everything that has been learnt

since March 2020.

At 31 July 2023 the net debt of the Group was £387m, a

£237m increase from 31 July 2022. At the end of July,

the Group had available cash and short-term deposits

of £285m. These liquid resources are immediately

available with 96% invested with the Group’s global

banking partners. The Group’s debt profile shows an

average maturity of 3.6 years (from 2.5 years at 31 July

2022). There are no scheduled repayments of debt due

until February 2027.

The Group maintains a core US$800m committed

Revolving Credit Facility (RCF) from these banks which

was renewed in May 2023 and matures in May 2028.

The RCF remained undrawn at 31 July 2023 and has no

financial covenants attached.

The Directors, having made appropriate enquiries, have

a reasonable expectation that the Company and the

Group have adequate resources to continue in

operation for a period of at least 12 months from the

date of this Report. Thus, they continue to adopt the

going concern basis of accounting in preparing the

financial statements of the Company and the Group.

In accordance with the requirements of the 2018 UK

Corporate Governance Code, the Directors have

assessed the longer-term prospects of the Group,

taking into account its current position and a range of

internal and external factors, including the principal

risks detailed on pages 68 to 74 (the ‘viability

assessment’).

The Directors have determined that a three-year period

to 31 July 2026 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 2024 and

forecasts for 2025 and 2026. Against these financial

projections, the Directors took into account the

principal risks (as outlined on pages 68 to 74) to develop

a set of plausible scenarios (as set out overleaf) with

potentially high-impact outcomes.

In addition to the scenario-specific assumptions

(detailed overleaf) the principal assumptions for this

three-year viability assessment are as follows:

–

FX rates for £ at US$1.22 and €1.18 and are

modelled to remain at this level in the forecast

period;

–

Interest payments have been updated to reflect

latest forecast interest rate increases with no

further refinancing with overdrafts and the Group’s

RCF drawn to maintain our minimum cash

requirements;

–

Dividend payments are made in line with a 7%

increase in dividend per share. Even under the

downside scenarios it has been assumed that

dividend increases are maintained, representing a

potential mitigating action that could be taken;

–

The share buyback of £742m is completed in Q1 of

FY2024 in all scenarios; and

–

The RCF was renewed in May FY2023 and will be

accessible throughout the period as there are no

financial covenants attached.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

GOING CONCERN AND VIABILITY STATEMENT

CONTINUED

SCENARIOS MODELLED

Scenarios

Link to principal risks

Scenario-specific assumptions

SCENARIO 1

An economic shock (political unrest or resurgence of

a pandemic) leads to significant supply chain

disruption, low customer demand and recessionary

circumstances extending into the following year.

Business continuity and

Economy and geopolitics

–

20% fall in revenue across the Group in FY2024 and a 10% fall in FY2025 and a

further 5% fall in FY2026 compared to the base case

–

65% reduction in operating profit in FY2024 due to plant closures, customer

and supply chain disruption, and a 35% fall in FY2025 and 20% in FY2026

–

Increased working capital due to stock builds and customer defaults

–

No mitigating activities such as restructuring and headcount reductions

SCENARIO 2

One of John Crane’s mechanical seals is identified as

faulty and the cause of an explosion at a major

refinery causing the deaths of two staff and significant

damage to the plant. John Crane is sued for the costs

of repair and restoration of the plant in addition to the

consequential losses of plant closure.

Product quality

–

Legal defence costs of £20m per annum plus a one-off payment of £100m in

FY2024 in settlement of deceaseds’ claims

–

Legal defence costs of £5m per annum over the review period in relation to

agreement of restoration costs

–

Restoration costs of £50m spread over the three-year review period

–

Legal defence costs of £25m per annum over the review period in relation to

mitigation of consequential loss claims

–

One-off payment of £250m payable in FY2024 in settlement of the losses claim

–

Insurance claim rejected

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. In order to ensure consistency, the base

case used for the three-year viability assessment has

also been reconciled against divisional impairment

review models.

The Group holds a tradeable commodity through its

investment in 10% of the equity in ICU Medical, Inc. The

base case assumes that the Group could contemplate a

possible reduction in this investment, the cash inflows

from which would remove any need to utilise the RCF

over the period. The downside scenarios do not include

any cash inflows from the sale of this investment.

The downside results below show the impact on

EBITDA, net debt and headroom under each scenario.

The headroom includes the currently unutilised RCF of

US$800m (£656m). This renewal removed the only

interest covenant to which the Group was subject.

Based on the robust assessment, the Directors confirm

that given the current strong cash position, under all

scenarios they have a reasonable expectation the Group

will remain viable for the period being assessed and

will continue to operate and meet its liabilities as they

fall due. The Directors have no reason to doubt that the

Group will continue in business beyond the period

under assessment.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

GOING CONCERN AND VIABILITY STATEMENT

CONTINUED

The Strategic Report was approved by the

Board on 25 September 2023.

By order of the Board

PAUL KEEL

Chief Executive Officer

SCENARIOS MODELLED

CONTINUED

Scenarios

Link to principal risks

Scenario-specific assumptions

SCENARIO 3

Following a product cyber attack, a terrorism-related

incident occurs at a US airport. As a consequence, the

US Government revokes Smiths Detection’s licence.

Sales of Detection’s products to the US military and all

other governmental contracts have been banned and

due to the reputational damage, the impact of the ban

will spread to other Group divisions.

Cyber security

–

Immediate loss of all US-based Government contracts within Smiths Detection.

–

25% fall in other Smiths Detection revenue over FY2024

–

Loss of 50% of Smiths Interconnect’s North America revenue

–

Legal defence costs of £10m per annum

–

£100m fine levied by the US Government for security breach

–

£50m compensation paid to the US Government in FY2024 in respect of

previous products purchased that may have security flaws

–

Insurance claim under product liability is not met or delayed outside of the

review period

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.

Legal and compliance

–

Regulatory fines globally amounting to £100m

–

Loss of all future revenue in both China and Japan

–

10% sales erosion in Smiths Detection’s USA and EMEA markets due to

reputational damage

–

£50m of severance costs incurred

–

10% fall in revenue within other Smiths businesses due to the reputational

impact

SCENARIO 5

A major fire at the John Crane plant in Czech Republic

renders the facility unusable, causing severe

disruption to production.

Business continuity

–

Loss of six months’ EMEA revenue and margin in FY2024

–

20% reduction in future (FY2025 and FY2026) EMEA revenue due to loss in

market shares and competitiveness

–

Breach of supply contracts leading to legal defence costs of £20m per annum

plus a one-off settlement of £50m in FY2024

–

Refurbishment and repair costs of £50m in Czech Republic (net of insurance

claims)

–

Costs of increasing capacity and other John Crane sites incurs an additional

£50m of cost

–

Capital expenditure on replacement equipment in Czech Republic of £10m (net

of insurance claims)

SCENARIO 6

Combination of scenarios 2 and 3.

Product quality and cyber

security

–

As above

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

CHAIRMAN’S INTRODUCTION

CHAIRMAN’S

INTRODUCTION

CHAIRMAN’S GOVERNANCE

STATEMENT

I am pleased to introduce our Corporate

Governance Report, in which we

describe our governance arrangements,

the operation of the Board and its

Committees, and how the Board

discharged its responsibilities during

the year.

Board succession planning continued to be a key focus

this year with my retirement as Chairman of the Board

at the conclusion of this year’s Annual General Meeting

(AGM). I would like to thank everyone for their

significant contribution and commitment to Smiths

since I joined the Board in 2013. I joined the Board with

a resolve to help grow Smiths which was spurred not

only by an enduring affection for a great company, but

also from the desire to give something back to Britain

after a long career. From reflecting over my time as

Chairman, I am proud to see we have reached many

significant milestones, and have continued to focus on

greater innovation, sustainability, people and financial

agility to help better support the Smiths Value Engine

that connects our purpose, our strengths and our

priorities of Growth, Execution and People.

Further changes to the Board this year included the

appointment of Steve Williams as my successor as

Chair of the Board, subject to his election as Director at

this years’ AGM. Steve has over 40 years of global

business experience and brings with him a clear focus

on environment, social and governance (ESG) matters.

Richard Howes also joined us in September 2022 and

will take over as Chair of the Audit & Risk Committee

later in the year. I would like to welcome Steve and I

wish him, the Company, and our people every future

success after my retirement. The Board will continue to

comprise of six males and four females, two Directors

from historically under-represented ethnic groups and

seven with a birthplace or background outside the UK.

For a Group such as Smiths, with a diverse workforce

and a wide geographic spread, that diversity is crucial,

but it is equally important that the Directors are

capable and suitably experienced individuals. The

biographies of our Directors can be found on pages 80

and 81.

We continue to monitor the ongoing regulatory reforms

in relation to audit and governance, and welcome the

FCA’s proposed changes to transform and streamline

the Listing Rules. The Listing Rules changes represent

a continuation of the efforts to reduce barriers to listed

companies in the UK, helping businesses to remain

competitive in today’s market. Smiths continues to

prioritise governance at the core of its business. I would

like to acknowledge the work undertaken by Smiths to

maintain an effective governance framework, including

oversight by the Audit & Risk Committee on the internal

controls enhancement programme.

It is evident that the expectations on governance have

increased in recent years and ensuring a strong

governance framework that supports the Group’s

long-term strategic goals is critical if we are to support

the business and enhance the interests of all our

stakeholders for the future. The Board continually

keeps its governance arrangements under review and I

would like to thank the Committee Chairs for ensuring

governance has been constructive and effective.

Finally, I would like to thank the Smiths workforce and

my fellow Directors for their work on shareholders’

behalf this year. It has been a privilege to serve as

Chairman, and I look forward to watching this special

company continue to flourish in the future.

I hope you find the following report interesting,

and, along with my fellow Committee Chairs, I would

be happy to discuss any of the content at our

upcoming AGM.

SIR GEORGE W. BUCKLEY

Chairman

UK CORPORATE

GOVERNANCE CODE

COMPLIANCE

In FY2023, and at the date

of this report, the

Company applied the

Principles and complied

with all Provisions of the

UK Corporate Governance

Code (the Code) as

explained throughout this

report. A copy of the Code

is available from the

Financial Reporting

Council’s (FRC) website at

frc.org.uk. Further

information on

compliance with the Code

can be found as follows:

BOARD LEADERSHIP

AND COMPANY

PURPOSE

PG 79

DIVISION OF

RESPONSIBILITIES

PG 83

EVALUATION,

COMPOSITION AND

SUCCESSION

PG 85

AUDIT, RISK AND

INTERNAL CONTROL

PG 91

REMUNERATION

PG 98

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

BOARD LEADERSHIP AND COMPANY PURPOSE

ROLE OF

THE BOARD

The primary role of the Board is to lead

Smiths in a way that ensures its long-

term sustainable success. The Board is

responsible for approving Group strategy

and for overseeing its implementation.

Subject to applicable legislation and

regulation and the Articles of Association,

the Directors may exercise all powers of

the Company.

The Board exercises oversight of the Company and in

doing so ensures that the strategy is consistent with our

purpose and is delivered in line with our Values. In

support of protecting and growing stakeholder value

the Board continually monitors the internal controls,

risk management and viability of the Company, as well

as considering the views of stakeholders.

The Board has approved a governance framework of

systems and controls to effectively discharge its

collective responsibility. The framework includes the

delegation of specific authorities to the Board’s five

Committees, as set out in the table. The governance

framework, which includes the Matters Reserved for

the Board and the Terms of Reference for each of the

Board’s Committees, can be found on our website at

www.smiths.com. The governance framework was

reviewed by the Board and by each respective

Committee as applicable during the year.

GOVERNANCE MODEL

BOARD

Nomination & Governance

Committee

PG 87

Audit & Risk Committee

PG 91

Remuneration & People

Committee

PG 98

Science, Sustainability &

Excellence Committee

PG 111

Finance Committee

www.smiths.com

BOARD COMMITTEES

Nomination &

Governance

Committee

Audit & Risk

Committee

Remuneration &

People Committee

Science, Sustainability

& Excellence

Committee

Finance Committee

Reviews and makes

recommendations to

the Board on the

structure, size and

composition of the

Board and its

Committees. It also

leads the process

for Director

appointments and

Director and senior

management

succession planning.

Oversees the ongoing

suitability of the

Group’s governance

framework.

Ensures the integrity

of the Group’s

financial reporting

and audit processes,

and the maintenance

of sound internal

control and risk

management

systems, including

oversight of the

Internal Audit

function and the

Group’s ethics and

compliance activities.

Manages the

relationship with the

external auditor,

including making

recommendations to

the Board and

shareholders in

relation to the

appointment and

reappointment of the

external auditor.

Responsible for the

Group’s Directors’

Remuneration Policy

and reviews and

oversees the Group’s

remuneration

strategy for the

Executive Directors

and senior

management.

Oversees, on behalf

of the Board, the

implementation of the

People strategy for

the Group, including

the Group’s approach

to diversity, equity and

inclusion.

Oversees the Group’s

culture and approach

to science,

sustainability and

excellence (SSE). This

includes overseeing:

the Company’s

strategy (as it relates

to science and

technology); the

Group’s sustainability

strategy; the Smiths

Excellence System

(SES); and reviewing

and determining SSE

targets, metrics and

key performance

indicators (KPIs)

relating to

remuneration.

Oversees and

provides agility to the

Group’s approach to

capital management

including sources and

uses of cash, portfolio

activity, changes to

capital structure and

budgetary planning.

EXECUTIVE MANAGEMENT COMMITTEES

Executive Committee

Investment Committee

Disclosure Committee

Assists the Chief Executive Officer in

discharging his responsibilities and is

collectively responsible for

implementing strategy, ensuring

consistent execution and embedding

the culture and Values.

Assesses high-value and high-risk

proposals, capital expenditure, asset

disposal and special revenue

expenditure projects which require

Chief Executive Officer or Board

approval.

Advises the Chief Executive Officer

and the Board on the identification of

inside information, and the timing and

method of its disclosure.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

BOARD BIOGRAPHIES

BOARD

BIOGRAPHIES

KEY

Audit & Risk

Committee

Remuneration &

People Committee

Nomination &

Governance

Committee

Science, Sustainability

& Excellence

Committee

Finance

Committee

Committee Chair

All Non-executive Directors

are independent and, in the

Chairman's case,

independent on

appointment.

SIR GEORGE BUCKLEY

Chairman

Appointed: 1 August 2013. Sir George will retire from the

Board at the conclusion of the 2023 AGM

Skills and experience:

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 key stakeholders and that the Board

provides strong leadership and guidance for the executive

management team. He holds a PhD in Electrical Engineering.

Career experience:

Sir George has held previous roles of

Chairman and CEO at 3M Company, a US-based global

technology company and Dow Jones 30 component,

Chairman and CEO of Brunswick Corporation and Chief

Technology Officer for appliances, motors and controls

at Emerson Electric Company. Sir George also brings

non-executive experience to the Board, having served as

Non-executive Director at PepsiCo Inc. and Hitachi Limited,

and as Chairman of Stanley Black & Decker, Inc.

PAUL KEEL

Chief Executive Officer

Appointed: 25 May 2021

Skills and experience:

Paul has a strong track record of

energising stakeholders and delivering results in diversified,

innovation-led businesses. His strategic leadership and

international experience position him well to accelerate

Smiths Group’s growth and deliver on its significant

potential. He is a graduate of Carleton College and Harvard

Business School.

Career experience:

Prior to joining Smiths in 2021, Paul

worked at 3M Company where he led a number of global

businesses ranging in size from US$400 million to US$5

billion. He was also SVP of several enterprise-wide functions

including Manufacturing & Supply Chain, Marketing & Sales,

and Strategy & Business Development. Paul’s other

experience includes roles of increasing responsibility at

General Mills, McKinsey & Company and General Electric.

CLARE SCHERRER

Chief Financial Officer

Appointed: 29 April 2022

Skills and experience:

Clare has extensive experience

working with and advising a broad range of industrial

companies around the globe. She has particularly relevant

experience in the sectors in which Smiths has strong

positions, including energy, safety & security and aerospace.

She holds a BA from Harvard University and an MBA from

the Harvard Business School.

Career experience:

Clare joined Smiths from Goldman Sachs

where she spent more than 25 years, and was a Partner for

more than a decade, and most recently Co-Head of the Global

Industrials business. Prior to joining Smiths, Clare had been

a close adviser to the Group for a number of years, including

having advised on the sale of Smiths Medical as well as

having contributed to the development of the strategy

announced at the November 2021 Capital Markets event.

Prior to Goldman Sachs, Clare was a consultant at McKinsey

& Company.

Other significant appointments:

Independent Non-executive

Director and Member of the Audit Committee of Legrand SA.

PAM CHENG

Non-executive Director

Appointed: 1 March 2020

Skills and experience:

Pam’s experience in the areas of

R&D, manufacturing, sales and marketing, commercial

operations, supply chain management and technology gained

within large global businesses in strategically important

regions for Smiths, further strengthens the Board’s

discussions on embedding world-class operations. Pam

holds a BSc and a Master’s degree in chemical engineering

from Stevens Institute of Technology, New Jersey and an

MBA in Marketing from Pace University, New York, USA.

Career experience:

Pam is Executive Vice President, Global

Operations, IT & Chief Sustainability Officer at AstraZeneca

plc, a multinational pharmaceutical and biopharmaceutical

company. Pam assumed additional responsibly for the

AstraZeneca sustainability strategy and function in January

2023. Prior to joining AstraZeneca in 2015, Pam was

President of MSD (Merck & Co., Inc.) in China. Pam has also

held various engineering and project management positions

at Universal Oil Products, Union Carbide Corporation and

GAF Chemicals.

DAME ANN DOWLING

Non-executive Director

Appointed: 19 September 2018

Skills and experience:

Dame Ann’s contribution to

engineering research is internationally recognised, and her

knowledge and background offer a different perspective to

Board discussions, particularly as they relate to engineering,

innovation and sustainability. Dame Ann has a degree in

Mathematics and a PhD in Engineering.

Career experience:

Dame Ann has had a distinguished

academic career and is currently a Deputy Vice Chancellor

and an Emeritus Professor of Mechanical Engineering at the

University of Cambridge, where she served as Head of

Engineering for five years until 2014. She served as the

President and Chairman of Trustees of the Royal Academy of

Engineering from 2014 to 2019 and as a Non-executive

Director of BP plc from 2012 until May 2021, where she was a

member of the Safety and Sustainability Committee.

KARIN HOEING

Non-executive Director

Appointed: 2 April 2020

Skills and experience:

Karin brings current executive

experience of oil & gas, defence, security, and aerospace to

the Board gained from a range of roles at large multinational

groups. Karin provides valuable assistance and advice in

executive and non-executive succession planning as well as

ESG and sustainability matters. Karin holds a Diploma

Geophysics (MSc Geophysics) from the University of

Hamburg, Germany.

Career experience:

Karin is Group ESG, Culture and

Business Transformation Director at BAE Systems plc. Prior

to 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.

Other significant appointments:

Non-Executive Director at

25x25

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

BOARD BIOGRAPHIES

CONTINUED

OTHER DIRECTORS

WHO SERVED DURING

FY2023

Tanya Fratto stepped

down from the Board in

November 2022 at the

conclusion of the AGM. Her

biography can be found in

our FY2022 Annual Report.

The biographies of

Executive Committee

members can be found on

our website.

RICHARD HOWES

Non-executive Director

Appointed: 1 September 2022

Skills and experience:

Richard’s background in senior

financial positions at large listed companies in a variety of

sectors brings valuable insight to the Board’s discussions.

Richard holds a BSc in Geography from Loughborough

University and is a Fellow of the ICAEW.

Career experience:

Richard is Chief Financial Officer of Bunzl

plc, the specialist international distribution and services

Group. Richard qualified as a Charted Accountant with Ernst

& Young before moving to the investment bank Dresdner

Kleinwort Benson. Prior to joining Bunzl in 2019, Richard held

CFO positions at various multinational businesses including

Inchcape plc, Coats Group plc and Bakkavor plc.

BILL SEEGER

Senior Independent Director

Appointed: 12 May 2014

Skills and experience:

Bill has had a long and successful

career in finance in the engineering sector, gaining an

in-depth knowledge of global markets. Bill’s extensive

experience in global engineering businesses supports the

Board’s robust decision-making. Bill has a BA in economics

and an MBA.

Career experience:

Bill was appointed Chairman of the

Remuneration & People Committee on 1 July 2018, and as

Senior Independent Director at the 2018 AGM. Bill has been

Chairman of the Finance Committee since it was formalised

in November 2021. With effect from 1 February 2022 Bill was

appointed to the Board of ICU Medical, Inc. in accordance

with the terms of the shareholder agreement entered into

with the sale of Smiths Medical. He is also a member of ICU’s

Audit and Compliance Committee. Bill was Group Finance

Director at GKN plc, a global engineering group, until his

retirement in 2014. At GKN he also held the roles of CEO of

the Propulsion Systems Division and CFO of the Aerospace

Division. Prior to that, Bill spent 30 years at TRW, a US-based

automotive and aerospace group, where he held various

senior finance positions.

Other significant appointments:

Non-Executive Director and

Chair of the Audit & Risk Committee at Spectris plc and

Lecturer at UCLA Anderson School of Management.

MARK SELIGMAN

Non-executive Director

Appointed: 16 May 2016

Skills and experience:

Mark’s extensive experience in

corporate finance and capital markets supports Board

discussion of the Group’s portfolio management and

strategy. Mark brings non-executive experience to the

Board, having served as senior independent director and

audit committee chairman at several FTSE 100 companies.

Mark has an MA in philosophy, politics and economics.

Career experience:

Mark is a former senior investment

banker and during his executive career he held various

roles at Credit Suisse, including Chairman of UK Investment

Banking.

Other significant appointments:

Senior Independent Director

at NatWest Group plc and Alternate member at Panel on

Takeovers and Mergers for the Association for Financial

Markets in Europe.

NOEL TATA

Non-executive Director

Appointed: 1 January 2017

Skills and experience:

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. Noel

has a BA in Economics.

Career experience:

Noel was the Managing Director of Tata

International Limited (TIL), a global trading and distribution

company and a trading arm of the Tata Group, a privately

owned multinational holding company. Under the terms of

the Tata Group governance guidelines, he retired from the

position of Managing Director on 12 November 2021. He was

thereafter reappointed as a Director and Non-Executive

Chairman of TIL with effect from 15 November 2021.

Other significant appointments:

Each of the following

companies forms part of the Tata Group: Non-independent

Non-executive Chairman at Tata Investment Corporation,

Trent Ltd and Voltas Ltd. Non-independent Non-executive

Vice Chairman at Tata Steel Limited and Titan Company Ltd.

STEVE WILLIAMS

Chair Designate and Non-executive Director

Appointed: 1 September 2023. Steve will stand for election at

the 2023 AGM. Subject to his election at the AGM, Steve will

be appointed as Chair of the Board on 16 November 2023

Skills and experience:

Steve is an experienced CEO with a

track record of growth and transformation. He has more than

40 years of international global business experience. Steve

brings a clear focus on environment, social and governance

(ESG) matters and throughout his career has demonstrated

creating value for customers, shareholders, employees, and

communities as both an executive and a non-executive

director. Steve has a BSc in Engineering.

Career experience:

Steve was previously a non-executive

director at TC Energy Corporation. Steve served as an

advisory board member of Canada’s Ecofiscal Commission

and a board member of the Business Council of Canada until

2019. He served as Chief Executive Officer of Suncor Energy

from 2012 to 2019 and as President from 2011 to 2018. Prior

to that, he held various senior leadership roles at Suncor and

ExxonMobil in the UK, where he spent 18 years.

Other significant appointments:

Chair of Alcoa Corporation

and Non-executive Director of Enbridge Inc.

MATTHEW WHYTE

Company Secretary

Appointed: 1 August 2021

Skills and experience:

Matthew is a Chartered Company

Secretary and a Fellow of The Chartered Governance

Institute UK and Ireland. Matthew joined Smiths in 2017

having previously gained governance and legal experience in

senior roles in large multinational listed groups in a variety of

sectors, most recently at Schroders plc and Rio Tinto plc.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

BOARD ACTIVITY

BOARD

ACTIVITY

During FY2023, the Directors continued to

provide oversight, challenge and guidance

on a broad range of topics. This included

the development and implementation of

the Group’s strategic objectives, culture

and operational performance. The key

areas of focus and activity for the Board

during the year are set out below.

STRATEGY AND PURPOSE

–

Ensured that our focus on strategy and business

decisions aligned with our purpose along with the

Smiths Value Engine's three priorities of Growth,

Execution and People

–

Completed strategic deep-dives, and endorsed the

implementation of each division’s strategy, including

M&A. Each deep-dive included the Group’s

response to climate change and opportunities

connected with energy transition

–

Received updates on the launch of the in-market

operating model for Smiths China

–

Ensured stakeholder considerations were

embedded in discussions and decision-making

through enhanced reporting from each of the

divisions

–

Received reports on progress against our

sustainability targets and agreed to the external

assurance of our greenhouse gas (GHG) and energy

efficiency data

–

Received reports on the successes, challenges and

financial benefits of SES

–

Approved the acquisition of Plastronics, a leader in

the semiconductor test socket market, and received

updates on its integration with the business. Further

information can be found in the Strategic Report on

page 19

–

Received updates from external speakers on the

macroeconomic environment including the impact

of high inflation, financial crisis, geopolitical events

and energy transition

–

Considered the feedback from stakeholders on the

Capital Markets event held in November 2022

PEOPLE, VALUES AND CULTURE

–

Received updates from the Non-executive Directors

on their workforce engagement activities, including

Richard Howes’ induction programme. Further

information is included on page 88

–

Received regular updates on the Group’s pension

arrangements and health and safety performance

–

Ensured that incentive plans were better aligned to

business priorities

–

Received updates on the Group’s People strategy

–

Monitored Group-wide cultural change via the

implementation of the Smiths Leadership

Behaviours. Furthermore, the results of the My Say

colleague survey helped the Board to understand

the perception and strength of the use of the

Behaviours across the Group

–

Approved the establishment of the Smiths Group

Foundation. More information on page 20

SUCCESSION AND LEADERSHIP

–

Approved the appointment of a new Chair, as

detailed on page 88

–

Focused on Board succession planning and key

roles within the business including senior

management succession plans and the talent

pipeline across the Group

FINANCE

–

Considered business performance through a series

of divisional operating reviews at Board meetings

–

Reviewed and approved the Group’s results

announcements and the FY2022 Annual Report

–

Approved the renewal of the Group’s US$800m

revolving credit facility

–

Approved the final dividend for FY2022 and the

FY2023 interim dividend

GOVERNANCE AND RISK

–

Received updates on our principal risks including

deep-dives at the Audit & Risk Committee from the

divisions on supply chain and other key risks as

detailed on page 96

–

Continued oversight of our internal controls in order

to ensure an effective control environment

–

Approved and provided oversight of the Ethics &

Compliance annual work programme

–

Undertook an External Quality Assessment of the

Internal Audit function

–

Ongoing consideration of the Group’s compliance

with the Code and related activities

–

Undertook an internal Board evaluation to review

the effectiveness of the Board and its Committees,

which included discussing the progress made from

the previous year’s evaluation and agreeing actions

for the next financial year. See pages 85 and 86

–

Established a forward agenda focused on strategy

and business oversight to ensure regular reviews of

key areas of focus

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

The Board completed

strategic deep-dives,

and endorsed the

implementation

of each division’s

strategy, including

M&A. Each deep-

dive included the

Group’s response

to climate change

and opportunities

connected with

energy transition.

SMITHS GROUP PLC ANNUAL REPORT FY2023

DIVISION OF RESPONSIBILITIES

HOW THE BOARD

OPERATES

The following role specifications set

out the clear division of responsibility

between executive and non-executive

Directors, which supports the integrity

of the Board’s operations.

There is a schedule of matters which are considered

significant to Smiths and have therefore been reserved

for decisions by the Board. This is due to their strategic,

financial, or reputational implications or consequences.

The formal schedule, which is integrated into our

governance framework, can be found on our website.

The Chief Executive Officer is responsible for preparing

and recommending the strategy and for the day-to-day

management of the Company. Executive management

implement the Group’s strategy and provide the Chief

Executive Officer, and the Board as a whole, with the

information they need to make decisions that will

determine the long-term success of the Group.

At each scheduled Board meeting the Chief Executive

Officer 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 Officer

to the Directors between meetings. When appropriate,

invitations to Board meetings are extended to Divisional

Presidents, heads of functions and subject matter

experts, supporting visibility of talent and executive

succession planning. External advisers are invited to

attend as necessary. Director attendance at Board and

Committee meetings in FY2023 is set out on page 84.

To ensure the continued effectiveness of the Board, the

Chairman meets the Non-executive Directors without

the Executive Directors present after each Board

meeting. He also has separate meetings with the

Senior Independent Director and the Chairs of the

Board Committees on a regular basis and with each

of the other Non-executive Directors at least annually.

The Senior Independent Director typically will consult

with the other Non-executive Directors without the

Chairman present at least annually, to assess the

performance of the Chairman.

DIVISION OF RESPONSIBILITIES

CHAIRMAN

SENIOR INDEPENDENT DIRECTOR

–

Ensures the Board’s continued effectiveness

–

Shapes boardroom culture and encourages individual

Director engagement

–

Leads the Board and sets the Board agenda,

determining the style and tone of discussions at Board

meetings

–

Leads the annual Board evaluation

–

Supports the Chairman in the delivery of the Board’s

objectives

–

Is available to shareholders if they wish to raise any

concerns

–

Oversees workforce engagement by the Non-

executive Directors

–

Leads the Chair succession process

CHIEF EXECUTIVE OFFICER

NON-EXECUTIVE DIRECTORS

–

Develops and proposes strategy to the Board

–

Sets and communicates the culture, Values, and

Behaviours for the Group

–

Leads the Executive Committee

–

Manages the day-to-day operations of the Company

–

Manages relationships with key stakeholders

–

Provide constructive challenge and strategic

guidance to Board and Committee discussions

–

Oversee management and the business and offer

specialist advice

–

Assess the effectiveness of systems of internal

control and risk management

CHIEF FINANCIAL OFFICER

COMPANY SECRETARY

–

Supports the Chief Executive Officer in ensuring the

development and execution of strategy

–

Ensures the accuracy and completeness of the

Group’s financial statements to ensure they reflect a

true and accurate rendition of the Company’s

performance

–

Ensures the Group operates robust risk management

and internal control systems to ensure accurate and

timely financial and non-financial reporting and

ultimately to safeguard stakeholders’ interests

–

Advises the Board on governance matters

–

Supports the Chairman in the efficient and effective

functioning of the Board and its Committees

–

Ensures the Board receives quality information in a

timely manner

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

DIVISION OF RESPONSIBILITIES

CONTINUED

TIME COMMITMENT

All Directors must allocate sufficient time to their work

in order to discharge their responsibilities effectively.

An expected time commitment of 25 days per annum is

set out in the Non-executive Director letter of

appointment. However, Committee Chairs, the Senior

Independent Director and the Chairman commit more

time as required. In the normal course of business,

Directors are expected to familiarise themselves with

business priorities and challenges, prepare for and

attend Board and Committee meetings, attend the

AGM, engage with stakeholders and participate in the

Board evaluation process. Executive Directors are not

permitted to take on the chairmanship or more than

one non-executive directorship in a FTSE 100 company,

or any other significant appointment. Any appointment

to other directorships is reviewed in advance by the

Board for conflicts and time commitment

considerations.

DIRECTOR ATTENDANCE

Board

Nomination &

Governance

Committee

Audit & Risk

Committee

Remuneration

& People

Committee

Science,

Sustainability

& Excellence

Committee

Finance

Committee

Sir George Buckley

6/7

2/3

–

4/5

4/4

6/6

Paul Keel

7/7

–

Clare Scherrer

7/7

–

Pam Cheng

7/7

3/3

4/4

5/5

4/4

–

Dame Ann Dowling

7/7

3/3

4/4

5/5

4/4

–

Tanya Fratto

1/2

–

1/2

2/2

–

Karin Hoeing

7/7

3/3

–

5/5

2/4

–

Richard Howes

7/7

3/3

4/4

–

Bill Seeger

7/7

3/3

4/4

5/5

–

5/6

Mark Seligman

7/7

3/3

4/4

5/5

–

6/6

Noel Tata

7/7

3/3

4/4

5/5

–

1 In accordance with the Code, Sir George Buckley did not attend the Nomination & Governance Committee, Remuneration & People Committee or an ad hoc Board meeting relating to the succession of the Chairman.

2 Tanya Fratto stepped down from the Board at the conclusion of the AGM on 16 November 2022. She was unable to attend the November Board and Committee meetings due to personal circumstances.

3 Karin Hoeing was unable to attend the November 2022 Science, Sustainability & Excellence Committee due to a pre-existing commitment. Karin was unable to attend the July 2023 Science, Sustainability &

Excellence Committee due to an unforeseen flight rescheduling on the day of the meeting. Karin provided her comments and input on the matters under consideration to the Chair of the Committee prior to the

meetings being held.

4 Richard Howes was appointed on 1 September 2022 and so was not eligible to attend the Remuneration & People Committee held in August 2022.

5 Bill Seeger was unable to attend the 17 January 2023 Finance Committee due to the short notice of the meeting. Immediately subsequent to the meeting the subject matter was discussed with Mr Seeger who

endorsed the proposed course of action.

6 Includes six scheduled and one ad hoc Board meeting.

In FY2023 the Board concluded that the Chairman and

the Non-executive Directors devoted sufficient time to

fulfil their commitments to Smiths. This included

considering the Directors' positions held at other

organisations. Particular consideration was given to

Noel Tata’s other commitments as he holds a number

of Board-level positions outside the Group all of which

are at Tata Group companies, as shown in his biography

on page 81. The Board reaffirmed that Noel’s other

commitments do not prevent him from committing

sufficient time to his work as a Director, as evidenced by

his attendance and effective participation at all Board

and Committee meetings and ad hoc Board update

calls. As a current executive with contacts in higher-

growth countries which are a strategic focus for

Smiths, he brings valuable and distinct experience to

our Board discussions.

ADVICE AND INSURANCE

Our Directors are able to seek independent

professional advice at the expense of Smiths to enable

them to fulfil their obligations as members of the

Board. In addition, the Directors and Officers of Smiths

and its subsidiaries have the benefit of a Directors’ and

Officers’ liability insurance policy. During FY2023, 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.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

BOARD EVALUATION FINDINGS AND ACTIONS

STRATEGIC DECISION MAKING

FY2022 EVALUATION FINDINGS

ACTION TAKEN IN FY2023

FY2023 EVALUATION FINDINGS AND ACTIONS FOR FY2024

–

Seek to increase time spent on strategic

deep-dives to underscore the Board's focus on

organic growth when formulating agendas

–

Seek to increase the visibility of macro conditions

and external markets and the impact of

opportunities arising from technology

–

Enhanced reporting from the divisions and senior leaders

with a specific focus on macro conditions, external

markets, technology and innovation. This included

presentations from customers and the Group's external

advisers

–

When formulating its agendas, the Board has dedicated

additional time for strategic deep dives on organic and

non-organic growth particularly in the areas of climate

change and the opportunities connected to customers'

decarbonisation commitments

–

Increase time spent in Board discussions for in-depth debate of

scenarios, key assumptions and alternatives as well as risks on

major projects

–

Continue to focus on developing a long-term growth strategy with

specific attention given to discuss the approach to be taken to

inorganic growth, particularly establishing risk appetite

SMITHS GROUP PLC ANNUAL REPORT FY2023

EVALUATION, COMPOSITION AND SUCCESSION

BOARD

EVALUATION

Each year an evaluation of the Board and

its Committees is conducted to monitor

their effectiveness and to help identify any

improvement opportunities. It is externally

facilitated every three years. This year the

evaluation was carried out internally.

The annual evaluation of the performance of the

Non-executive Directors and the Chief Executive Officer

is led by the Chairman. The Senior Independent

Director and the Chief Executive Officer lead the

evaluations for the Chairman and the Chief Financial

Officer respectively.

The evaluation of the Non-executive Directors includes

individual meetings with the Chairman. Feedback is

given to the Chief Executive Officer by the Chairman

after each Board meeting and on an ad hoc basis

throughout the year. All Directors are invited to

complete an effectiveness questionnaire, which for

FY2023 included a comprehensive review of various

aspects including strategy, risk and committee

effectiveness amongst other topics.

Independent Audit Ltd, who has supported the

evaluation process since FY2019, but has no other

connection to the Company, assisted with the

interpretation of the results of the questionnaires

issued to the Board.

The findings of the evaluation are used to inform future

Board agenda planning and develop specific actions for

improvement. The actions to be taken following the

FY2023 evaluation have been grouped in four themes:

strategic decision-making; succession planning; Board

communication; and stakeholder engagement.

A summary is set out below. Overall, the Board agreed

that significant progress had been made since the

internal evaluation last year. The Board seeks to

continuously improve the effectiveness of the Board

and its Committees and the actions identified in the

FY2023 effectiveness review support this. It is the

present intention that the FY2024 evaluation will be

externally facilitated. The last externally facilitated

Board evaluation was in FY2021.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

EVALUATION, COMPOSITION AND SUCCESSION

CONTINUED

SUCCESSION PLANNING

FY2022 EVALUATION FINDINGS

ACTION TAKEN IN FY2023

FY2023 EVALUATION FINDINGS AND ACTIONS FOR FY2024

–

Board succession planning for non-executive

positions was identified to be a key focus for

consideration including Chair, Senior Independent

Director and Committee Chair positions

–

Focus on Executive Committee development and

succession planning, including providing

opportunities for the Non-executive Directors to

meet individually and in small groups with a

cross-section of employees

–

The successful search for a new Chair was a key focus

during the year. As part of an orderly succession plan, in

anticipation of the retirement of the Senior Independent

Director, a number of Committee Chair succession

changes were agreed and will take effect at the

conclusion of the AGM

–

A continued focus on Executive Committee development

and succession planning. Non-executive Directors met

individually and in small groups with a cross-section of

employees, increasing Board oversight of talent within the

business. A number of senior appointments were made

from the Company’s internal talent pool

–

Select Executive Committee and senior leadership talent

were allocated Board and Executive Committee level

mentors respectively

–

Ensure a successful handover and induction for the new Chair of

the Board

–

Ensure a successful handover of the Senior Independent Director

and Committee Chair roles

–

Continued focus on the executive and non-executive talent pool and

pipeline

–

Align succession plans to the skills required to deliver on the

organisation’s strategic objectives

BOARD COMMUNICATION

–

Remote or hybrid meetings should continue and

the organisation of Board and Committee

meetings works well

–

Remote and hybrid meetings continue to be used when

practical

–

Board papers continued to be well structured and provide

a strong basis for effective discussions and decision-

making

–

Continuous review of the Board and Committee agendas, materials

and operation to support effective decision-making and discharge

of duties

STAKEHOLDER ENGAGEMENT

–

Continue the focus on ESG, people, talent, culture

and suppliers

–

Focus on the establishment of the role of the

Science, Sustainability & Excellence Committee

–

Continue to pursue opportunities for Non-

executive Directors to meet with employees to get

a deeper understanding of the culture within

Smiths

–

The Science, Sustainability & Excellence Committee

continued to have oversight for many activities important

to the Group’s stakeholders including approving our

Science Based Targets initiative (SBTi) submission, Net

Zero targets and ESG-related incentive targets

–

New opportunities for the Board to meet with employees

were implemented including informal lunches and site

visits to gain a better understanding of culture

–

Deep-dives on supplier challenges were provided to the

Board

–

A Board workforce engagement strategy was endorsed

and implemented. Activity is reported to the

Remuneration & People Committee at each meeting

–

The Board met with two customers from the security and

energy sectors

–

Enhance focus on how Company culture is embedded through

increased time on the Board agenda with specific deep-dives

scheduled for FY2024

–

Dedicate additional time to communicating with, and meeting,

external stakeholders with increased focus on customers,

suppliers and site visits

–

Ensure the remuneration strategy and new Remuneration Policy

continue to support delivery of our strategy and contribute to an

engaged workforce

–

Continue to refine the scope of the Science, Sustainability &

Excellence Committee

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

NOMINATION & GOVERNANCE COMMITTEE REPORT

NOMINATION & GOVERNANCE

COMMITTEE REPORT

CHAIRMAN’S STATEMENT

I am pleased to present the Committee’s

report for FY2023. The Committee has

delegated responsibility from the Board to

review the structure, size and composition

of the Board and its Committees, in

addition to assessing its effectiveness,

performance, and independence. The

Committee is dedicated to maintaining

a diverse and inclusive range of

appointments, with a wide variety of

skills, expertise and experience. This

ensures that the Board as a whole, and its

Committees, can effectively navigate the

complexities of our industry and contribute

to the long-term success of our company.

This is my final report as Chairman of the Committee,

having joined the Board in August 2013. In last year’s

report I highlighted that a key focus in 2023 would be

Board succession. As such, following a comprehensive

selection process, without my involvement and led by

Bill Seeger as Senior Independent Director, Steve

Williams will be appointed as Chair of the Board from

November 2023. This is subject to his election at the

2023 AGM. His role as Chair Designate commenced at

the start of September 2023. Board succession will

continue to be a focus during FY2024 as Bill Seeger

retires from the Board in May 2024.

We were also pleased to welcome Richard Howes to

the Board as a Non-executive Director in September

2022. In the FY2022 Annual Report we disclosed the

details of the rigorous search process that was

undertaken when recommending his appointment.

During the year we oversaw the development of senior

management succession plans and the talent pipeline.

We endorsed the appointments of Ted Wan and James

Down to the Executive Committee. Ted leads our China

business and the opportunities that presents. James is

the General Counsel of the Group. Pleasingly, both were

internal promotions.

More information about our activities can be found on

the following pages.

I would like to thank both past and present members of

the Committee for their hard work and contributions

throughout my tenure.

SIR GEORGE W. BUCKLEY

Chairman of the Nomination &

Governance Committee

COMMITTEE MEMBERSHIP AND

MEETINGS

The members of the Committee, their biographies and

attendance at meetings during the year can be found on

pages 80, 81 and 84.

The Chief Executive Officer is normally invited to attend

Committee meetings. Other members of senior

management are invited to attend as necessary.

GOVERNANCE

The Committee is responsible for keeping the Board’s

governance framework under review. During the year

enhancements to the framework were approved. The

Committee also reviewed the Board skills and

experience matrix and its own Terms of Reference.

Looking ahead, the Nomination & Governance

Committee remains committed to assessing the

effectiveness of the Board and taking necessary steps

to ensure that the Company maintains an appropriate

balance of skills, experience, knowledge and diversity.

The Committee will also continue to monitor emerging

governance trends, regulatory changes, and industry

developments, allowing it to adapt and respond

effectively in a way that is appropriate for Smiths

strategic objectives and governance framework.

COMMITTEE

PERFORMANCE

EVALUATION

In FY2023, 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.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

NOMINATION & GOVERNANCE COMMITTEE REPORT

CONTINUED

SELECTION AND APPOINTMENT OF A NEW CHAIR

As part of the Committee's succession planning,

Bill Seeger, as the Senior Independent Director,

oversaw the search process and appointment of

Steve Williams as successor to Sir George

Buckley. The search process was facilitated by

Russell Reynolds, an independent executive

search consultant which has no connection to the

Company, other than in assisting and facilitating in

the search for senior management. Russell

Reynolds was selected after a comprehensive

review of search firms. Russell Reynolds is a

signatory to the Enhanced Code of Conduct for

Executive Search Firms. The Committee held

several unscheduled meetings to focus on the

appointment to ensure a comprehensive selection

process.

IDENTIFY

Initially, the Committee developed a candidate

profile and then a small working group comprising

Karin Hoeing, Mark Seligman and Paul Keel was

established to support Bill Seeger. The agreed

profile included key attributes required for the

role such as previous experience, cultural fit,

management of complex stakeholder

relationships, and driving growth. The details of

the role profile and requirements of the role were

shared with Russell Reynolds. Russell Reynolds

then identified an extensive and diverse list of

potential candidates who were appraised by the

working group against the agreed brief. This

created a longlist which was reviewed by the

Committee to produce a shortlist which complied

with the Board's Diversity Policy.

INTERVIEW

The shortlisted candidates were interviewed

by the working group, who together determined

the preferred list of candidates for consideration

by the Committee. As well as meeting the

candidates, the working group discussed timings

of the appointment and handover of the role.

The preferred candidates then met with all

Non-executive Directors, after which the Board

met to discuss feedback.

SELECT

Prior to the final selection and appointment, the

Senior Independent Director obtained references

from key stakeholders. The Committee was

unanimous in its selection and recommended to

the Board that Steve Williams be appointed as

Chair, given his breadth of experience and fit to

the attributes in the agreed brief.

CONSIDERATIONS

Steve Williams' external roles were considered

prior to his appointment and the Board agreed

that there was no conflict which might impact his

role at Smiths. The Board also considered his

other commitments from a time perspective. The

Board considered that he would have sufficient

time to fulfil his responsibilities to the Company.

APPOINT

Steve Williams' appointment as a Non-executive

Director and Chair Designate took effect on

1 September 2023. Subject to his election by

shareholders, he will be appointed as Chair of the

Board at the conclusion of the 2023 AGM when

Sir George Buckley steps down.

INDUCTION

A comprehensive induction programme developed

specifically for Steve Williams, taking into account

his previous experience, knowledge, and skills is

underway. This involves briefings on the role and

responsibilities of being a UK listed Company

Director, meeting with senior leaders in the

business, corporate advisers, investors and other

stakeholders, as well as visits to the Group's

operations.

INDUCTION

To ensure that they are able to effectively contribute to

discussions and decision-making, all of our Directors

participate in an induction programme on joining the

Board. Each induction programme is tailored to provide

the individual Director with the necessary knowledge

and understanding of the Group, its markets and its

material stakeholders based on their personal

experience and background.

On joining the Board, Richard Howes was given a

tailored induction programme to develop the necessary

knowledge and understanding of the Group and his

role. It included visiting Group operations in the US and

Europe and meeting with key senior leaders across the

business. Information on Steve Williams' induction can

be found in the adjacent box.

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, functional leaders and external advisers on a

regular basis. This year the Board was given an update

from external speakers on the macroeconomic

environment including the impact of high inflation,

financial crises, geopolitical events and energy

transition.

In order to operate effectively our Directors must

receive accurate, timely and high-quality information.

The Company Secretary and his team assist the

Chairman and Chief Executive Officer in ensuring

effective information flows and that the Board is

provided with all relevant information to enable the

Directors to discharge their responsibilities.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

NOMINATION & GOVERNANCE COMMITTEE REPORT

CONTINUED

SEX/GENDER REPRESENTATION

Number of

Board members

Percentage of

the Board

Number of senior

positions on the Board

(CEO, CFO, SID and Chair)

Number in

executive

management

Percentage of

executive

management

Men

60%

77%

Women

40%

23%

Not specified/prefer not to say

ETHNICITY REPRESENTATION

Number of

Board members

Percentage of

the Board

Number of senior

positions on the Board

(CEO, CFO, SID and Chair)

Number in

executive

management

Percentage of

executive

management

White British or other White

(including minority white groups)

80%

92%

Mixed/Multiple Ethnic Groups

Asian/Asian British

20%

Black/African/Caribbean/Black British

Other ethnic group including Arab

Not specified/prefer not to say

1 Defined as the Executive Committee and the Company Secretary in accordance with Listing Rule 9.8.6R(10).

DIVERSITY

The Board supports the principles of gender and ethnic diversity and pays close attention to the international

nature of its makeup. Members of the Board and senior management will collectively possess diversity of gender,

national birthplace, social and ethnic backgrounds, cognitive and personal strengths, along with a combination

of skills, experience and knowledge. This is important for the effective operation of the Board and oversight of

the Group.

The Committee is responsible for recommending appointments to the Board following its regular assessment

of the Board and its Committees’ composition, whilst also considering the Group’s strategic objectives. The

Committee makes recommendations based on the merit of individual candidates, having due regard for the

benefits of diversity in the broadest sense, including gender and ethnicity and also the need to ensure the effective

functioning of the Board at all times, especially as membership of the Board is refreshed.

In order to help achieve these aspirations, the Committee only partners with firms accredited under the Enhanced

Code of Conduct for Executive Search Firms. The use of Executive search firms helps to ensure non-UK nationals,

women and candidates from historically under-represented ethnic groups are represented on the shortlist for all

Board positions.

As at 31 July 2023, the Board met all of its own diversity targets, as well as the targets set out in the Financial

Conduct Authority’s Listing Rule 9.8.6R(9)(a). Steve Williams was appointed to the Board on 1 September 2023.

As Sir George Buckley will step down from the Board at the conclusion of the AGM in November 2023, the Board is

satisfied that its gender and ethnicity targets will not be impacted on a long-term basis. Numerical diversity data,

in the format required by Listing Rule 9.8.6R(10), is outlined below as at 31 July 2023. The Board and executive

management were asked to disclose which characteristic they identified with.

DIVERSITY PERFORMANCE AGAINST

SMITHS TARGETS

BIRTHPLACE OR BACKGROUND

Policy target

At least 50% of the Board with a birthplace or

background outside of the UK

Outside the UK

60%

40%

Policy target: 50%

GENDER – BOARD

Policy target

At least 40% of the Board to be female

Policy target: 40%

Female

40%

Male

60%

GENDER – KEY BOARD POSITIONS

Policy target

At least one of the Chairman, Senior Independent

Director, Chief Executive Officer or Chief

Financial Officer position will be held by a female

Policy target: 1

Female

Male

ETHNICITY

Policy target

At least one Director from a historically under-

represented ethnic group

Historically under-represented ethnic group

Non-historically under-represented ethnic group

Policy target: 1

Diversity information for

the Group, including the

disclosure required by the

UK Corporate Governance

Code, can be found on

page 46.

The Board Diversity

Policy can be found on

our website.

Read more about Diversity,

Equity and Inclusion at

Smiths in our Sustainability

at Smiths report found on

our website.

www.smiths.com

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

NOMINATION & GOVERNANCE COMMITTEE REPORT

CONTINUED

INDEPENDENCE AND OBJECTIVITY

The Board keeps the independence of the Non-

executive Directors under continuous review. In July

2023, the Committee reviewed the guidance contained

in the Code and assessed the performance and

independence of each of the Non-executive Directors.

Bill Seeger was appointed as a Director in May 2014

and as such he has served on the Board for more

than nine years. A particularly rigorous review of Bill’s

performance and independence was undertaken.

The Board concluded that he contributed to

constructive challenge and debate at meetings and

that he continues to demonstrate the qualities of

objectivity and independence.

Having served on the Board for more than six years,

Mark Seligman’s continued objectivity and

independence was also subject to rigorous review.

The Committee concluded that each of the Non-

executive Directors that were assessed contributed

effectively to the operation of the Board and that they

should all be considered as independent and objective.

CONFLICTS OF INTEREST

All Directors must avoid situations where they have a

direct or indirect interest that conflicts, or may possibly

conflict, with the best interests of Smiths. The Board

has the authority to authorise conflicts and potential

conflicts in accordance with our Articles of Association

and the Companies Act 2006 (Act), and Board approval

must be granted before a Director accepts a new

external appointment, whether it amounts to a conflict

or not. The Company Secretary maintains a Register

of Conflicts which is reviewed by the Directors at least

twice a year, and the Board retains the power to vary

or terminate any authorisation previously provided.

DIRECTOR ELECTION AND

RE-ELECTION

Each year Smiths Directors are subject to election or

re-election by shareholders at the AGM. The Chairman,

on behalf of the Board, has confirmed that each

Non-executive Director standing for re-election at this

year’s AGM continues to be an effective member of the

Board and has demonstrated the commitment

required. 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.

Sir George Buckley reached the nine-year

anniversary since his appointment on 1 August 2022.

Notwithstanding his tenure, following the appointment

of Paul Keel, the Committee agreed and the Board

supported that Sir George Buckley should be invited at

the 2022 AGM to seek re-election and to remain as

Chairman to oversee a period of significant strategic

change for the Group. Following the appointment of

Steve Williams on 1 September 2023 and after a short

handover period, Sir George Buckley will retire from the

Company at the conclusion of the 2023 AGM and as

such will not be standing for re-election.

On behalf of the Board, the Senior Independent Director

has confirmed that he supports Steve Williams’ election

to the Board at the 2023 AGM.

The Board determined that notwithstanding that

Bill Seeger reached his nine-year anniversary since

appointment on 12 May 2023, he should nonetheless be

invited to seek re-election by shareholders at the 2023

AGM. As the serving Senior Independent Director, his

re-election will facilitate continuity and support the

Chair transition process for a period of approximately

six months. Bill Seeger will retire from the Board in

May 2024.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

AUDIT, RISK AND INTERNAL CONTROL

AUDIT & RISK COMMITTEE

REPORT

CHAIRMAN’S STATEMENT

I am pleased to present the Committee’s

report for FY2023 which is my last one

as Chairman of the Committee. The

Committee continues to fulfil 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.

Details of our work can be found on pages

92 to 97.

A key focus for the Committee this year has been

the development and maturity of the Group’s control

environments. At each meeting we were provided

with updates from the Finance Excellence function,

particularly in relation to our internal controls

enhancement programme. We were pleased to hear

positive feedback from EY, who are supporting us on

the programme. The work we have undertaken this

year puts us in a strong position for readiness for the

FRC proposed changes to the UK Corporate

Governance Code.

This year we challenged the business to embed the

level of controls we have in our financial information,

into our non-financial information, specifically in

respect of GHG emissions and energy data. Additional

assurance layers were therefore established for the

Group’s GHG and energy efficiency metrics. The Smiths

finance teams have implemented control procedures to

provide a second line of defence in the review and

validation of our site and divisional Scope 1 & 2 energy

use data, with KPMG engaged to provide a third line of

defence in the limited assurance of our Scope 1, 2, & 3

GHG emissions inventories. The completion of

International Standard on Assurance Engagement

(ISAE) Limited Assurance on our FY2022 and FY2023

emissions inventories and energy efficiency metric has

been an important achievement.

In accordance with the International Standards for the

Professional Practice of Internal Auditing, this year the

Committee undertook an External Quality Assessment

(EQA) of the Internal Audit function by an independent

third party, PwC. We were pleased with the results of

the EQA. Our Internal Audit function's performance

against the Standards is strong, which is a testament to

their focus on quality and continuous improvement.

Looking ahead to FY2024, the Committee will remain

focused on the Group’s internal controls programme

and we will continue to oversee the development of

plans to meet the Government’s audit and governance

reform proposals. As I hand over the Chairmanship to

Richard Howes, I would like to thank my colleagues on

the Committee for their contribution during the year.

I look forward to continuing our work in FY2024.

MARK SELIGMAN

Chairman of the Audit & Risk Committee

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

AUDIT, RISK AND INTERNAL CONTROL

CONTINUED

COMMITTEE MEMBERSHIP

AND MEETINGS

All members of the Committee are independent

Non-executive Directors and collectively have recent

and relevant financial, accounting and sector

experience. Committee member biographies and

attendance at meetings during the year can be found

on pages 80, 81 and 84. The Board considers that

Mark Seligman and Richard Howes have the recent

and relevant financial experience required to chair

the Committee.

At the invitation of the Chairman of the Committee,

and in order to maintain effective communications,

the Board Chairman, Chief Executive Officer, Chief

Financial Officer and an audit partner of KPMG

attended all meetings. Other regular attendees

included the Group Financial Controller, the Director

of Internal Audit, Senior Vice President and General

Counsel, Ethics and Compliance and Deputy Secretary.

Divisional Presidents, the Vice President Finance

Excellence and senior management were also invited

to attend as appropriate. At the conclusion of each

meeting, 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 and Compliance,

together with KPMG, have direct access to the

Committee should they wish to raise any concerns

outside formal Committee meetings.

The Committee works to a structured programme of

activities and meetings to coincide with key events

around our financial calendar and, on behalf of the

Board, to provide oversight of the Group’s risk

management and internal control process. The

Chairman of the Committee reports formally to the

Board on the Committee’s activities after each meeting.

COMMITTEE PERFORMANCE

EVALUATION

Through the annual Board evaluation process, see

pages 85 and 86, the Board has again confirmed the

effectiveness of this Committee in its role of supporting

the Board in compliance with its duties.

COMMITTEE ACTIVITIES

FINANCIAL AND NARRATIVE REPORTING

The Committee reviewed the full and half yearly results

announcements, the Annual Report and the Viability

and Going Concern Statement before recommending

them to the Board for approval.

The Group has internal control and risk management

arrangements in place to support the financial

reporting process which provide reasonable assurance

that the financial statements are prepared in

accordance with applicable standards. These

arrangements included seeking divisional confirmation

that the reported information gives a true and fair view

of the results for the period and ensuring that record

keeping allows an accurate and fair reflection of

transactions. More information on risk management

and internal controls can be found on page 96.

An important responsibility of the Committee is to

review and agree the most significant management

accounting estimates and judgements which impact the

financial statements. The key areas of judgement in the

year are set out overleaf. After receiving reports on the

significant estimates and areas of judgement and after

discussion with KPMG, the Committee agreed that the

judgements made were appropriate and correctly

reflected and presented in the Annual Report.

Fair, balanced and understandable

The Committee applied the same due diligence

approach adopted in previous years in order to assess

whether the Annual Report is fair, balanced and

understandable, one of the key Code requirements.

This included being updated on the internal verification

process carried out to support the Committee’s

assessment of the disclosures made in the Annual

Report. The Committee also reviewed various

materials on risk management and internal controls,

going concern and the assessment of the Group’s

long-term viability. In doing so it considered the:

–

Accuracy, integrity and consistency of the messages

conveyed in the Annual Report;

–

Appropriateness of the level of detail in the narrative

reporting;

–

Correlation between judgements, estimation of

uncertainties and issues, and the associated

disclosures; and

–

Explanations of the differences between statutory

and headline reported results.

Taking the above into account, together with the views

expressed by KPMG, the Committee recommended,

and in turn the Board confirmed, that the 2023 Annual

Report, taken as a whole, is fair, balanced and

understandable and provides the necessary

information for shareholders to assess the Company’s

position, performance, business model and strategy.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

AUDIT, RISK AND INTERNAL CONTROL

CONTINUED

SIGNIFICANT FINANCIAL REPORTING MATTERS

The key areas of judgement for FY2023 are as follows:

AREAS OF FOCUS

ACTIONS TAKEN

IMPAIRMENT – INTANGIBLE ASSETS (INCLUDING GOODWILL)

The Group holds a significant amount of

goodwill, especially in relation to the Smiths

Detection cash generating unit (CGU).

Smiths Detection was the Group’s only CGU where the impairment headroom was limited for FY2023 and where a plausible downside

scenario or a reasonable change in key assumptions could cause the carrying value of the CGU to be close to its recoverable value. During

FY2023, strong demand drove historical levels of growth in revenue and increased profits. In FY2023 Smiths Detection continued to navigate

issues with the supply of key components. As orders and revenues have grown, it has been necessary for Smith Detection to build inventory

to compensate for the supply chain variability. This has reduced cash conversion but increased the carrying value of the CGU.

The Committee challenged the level of intangible assets and the assumptions used to justify their carrying values, including the applicable

discount rate used for impairment testing purposes. It also reviewed and agreed additional disclosures in the sensitivity of the impairment

model and movements in the key judgements. See note 11 of the financial statements.

REVENUE RECOGNITION

Smiths Detection and Smiths Interconnect have

multi-year contractual arrangements for the

sale of goods and services. Estimates are

required at the balance sheet date when

determining the stage of completion of

contracts for revenue recognition.

The Committee reviewed management’s revenue recognition judgements. The timing of revenue recognition involves judgements as to when

control of an asset passes to the customer or, particularly with 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 timing of revenue recognition, significant judgements for complex programmes and contract accounting.

See note 1 of the financial statements.

TAXATION

The Group has extensive international

operations, and in the normal course of

business the Directors make judgements and

estimates in relation to potential tax exposures.

Management assesses the assets and liabilities recognised in income and deferred tax, as well as the treatment of losses in the UK.

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 was updated on the ongoing tax audits and the uncertainty associated

with the outcome of tax audits that are likely to conclude in the next 12 to 24 months. 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.

VAT ERROR ON CHAIN EXPORT TRANSACTIONS

During FY2023 a historic VAT classification

error was identified, which has resulted in

certain European intercompany chain export

transactions being treated as VAT exempt when

they should have been initially classified as

subject to VAT with subsequent refund at the

time of export.

In correcting this error the Group has

recognised £2m of irrecoverable VAT and £7m

of interest on the late payment of VAT.

The Committee was updated on the status of the investigation into this VAT classification error and the wider Group review of VAT

classification. The Group-wide investigation identified similar classification issues in other European entities, against which provisions have

been made.

The Committee challenged management on the treatment and agreed that the classification errors had been appropriately treated as

non-headline. The errors uncovered relate to up to six years of past VAT practice and involve the payment and recovery of European VAT,

spanning FY2023 and FY2024. This would have materially impacted the Group’s headline cash conversion metric during those years.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

AUDIT, RISK AND INTERNAL CONTROL

CONTINUED

AREAS OF FOCUS

ACTIONS TAKEN

PROVISIONS FOR LIABILITIES AND CHARGES

The Group holds significant material provisions

for John Crane, Inc. asbestos litigation and the

Titeflex Corporation CSST product claims.

The Committee considered the appropriateness of the 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 advice received from the Group’s specialist external advisers.

The Committee agreed the ten-year time period for John Crane, Inc. asbestos litigation remained appropriate. In the case of the John Crane,

Inc. asbestos litigation, the Committee also agreed with the judgement. However,

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 23 of the

financial statements.

POST-RETIREMENT BENEFITS

The Group has material pension plan assets

and liabilities and there is a high degree of

estimation uncertainty.

The Committee considered the impact of the extreme spike in gilt yields following the 23 September 2022 'mini-budget' on Smiths Industries

Pension Scheme’s (SIPS) Liability Driven Investments (LDIs). The gilt yield spike resulted in a sudden increase in the collateral required to be

posted to LDI funds. SIPS maintained sufficient collateral during the spike in gilt yields, and its hedging remained intact. However, the SIPS

Trustee acted in accordance with advice and took steps to disinvest a proportion of assets from the corporate bond/credit fund to bolster the

LDI collateral readily available.

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 2023. These continue to show a net accounting surplus position which was reduced by £114m in FY2023.

The Committee agreed with the treatment and corresponding disclosures on these matters. See note 8 of the financial statements.

PRESENTATION OF HEADLINE PROFITS AND ORGANIC GROWTH

The Group presents headline profits and

organic growth measures which require

adjustment to IFRS required data. This is a

material judgement and requires a consistent

application of the Group’s accounting policy on

this topic.

The Committee considered the policy, presentation and judgements in relation to the Group’s performance, in particular the separation of

headline and non-headline items. This included the consideration of which items related to the Group’s ongoing trading activity or those

which should be recorded as non-headline.

The Committee recognised that, as announced in the FY2022 Annual Report, the Group’s restructuring project to better serve our

customers, maximise growth opportunities and improve efficiency has been treated as non-headline due to the project being material and

part of a pre-approved programme. The Committee also reviewed the appropriate level of disclosure for the restructuring charge

recognised in FY2023.

In addition, the Committee also considered those judgements in connection with items to be reflected or adjusted in organic performance.

See note 3 of the financial statements.

INVENTORY MANAGEMENT AND PROVISIONING

The Group’s inventory position has increased

over the past reporting periods due in part to

investment to mitigate post-COVID-19 supply

chain inefficiencies.

The increasing level of working capital held by

the business increases the risk that the controls

and processes may no longer be appropriate to

adequately address inherent risks.

The Committee considered the results and conclusions from inventory management and provisioning review with each division. The reviews

challenged the divisions' inventory management and provisioning policies, procedures and practices.

The Committee noted that Detection contributed significantly to the Group’s increased inventory and had the largest inventory balance in

the Group. However, it recognised that 80% of Detection’s inventory was either a finished good directly related to a sales order or an

aftermarket spare.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

AUDIT, RISK AND INTERNAL CONTROL

CONTINUED

EXTERNAL AUDIT

The Committee places great importance on the quality,

effectiveness and independence of the external audit

process. Following a tender process KPMG was

appointed as the Company’s external auditor at the

2019 AGM. Michael Maloney, the KPMG audit partner

responsible for the Company’s audit since 2019 retired

following the completion of the FY2022 audit. Mike

Barradell was appointed as the lead engagement

partner for FY2023. His tenure will be limited to five

years in line with audit standards and due to KPMG

partner rotation policies.

The Committee confirms that the Company has

complied with the provisions of the Statutory Audit

Services Order 2014 relating to the UK audit market for

large companies throughout the year under review and

as at the date of this report.

SCOPE OF THE EXTERNAL AUDIT PLAN

AND FEE PROPOSAL

The Committee reviewed and approved KPMG’s

proposed audit plan and fee for the FY2023 audit.

The Committee continued to monitor KPMG’s execution

of the audit plan during the year.

INDEPENDENCE AND OBJECTIVITY

The Committee is responsible for the implementation

and monitoring of the Group’s policies on external audit,

which are designed to maintain the objectivity and

safeguard the independence of the external auditor.

These policies are reviewed annually. They cover the

engagement of the external auditor for non-audit

services and the appointment by the Group of former

employees of the external auditor.

In addition to monitoring compliance with Group

policies, the Committee’s review of KPMG’s

independence included examining written confirmation

from KPMG that they remained independent and

objective within the context of applicable professional

standards and considering the performance of the audit

engagement partner.

NON-AUDIT SERVICES

Notwithstanding developing practice being adopted by

audit firms not to provide non-audit services to audit

clients, the Committee recognises that certain

permissible non-audit services can be completed more

efficiently by, and be purchased more cost-effectively

from, the incumbent auditor due to the audit firm’s

existing knowledge of the Group and its systems. Under

the policy approved by the Committee, it has delegated

its responsibility for authorising the purchase of

non-audit services from the external auditor to the

Chairman 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 2023 can be found in note 2 of the financial

statements. Non-audit fees as a percentage of audit

fees totalled 6% (FY2022: 10%). Non-audit fees in

FY2023 principally comprised audit-related assurance

services for the interim report and the limited

assurance of the Group’s Scope 1-3 Greenhouse Gas

emissions metrics.

The Group would not expect in the ordinary course of

business for non-audit fees to exceed 20% of the

average of the previous three years’ total Group audit

fees unless exceptional circumstances existed. The

Committee confirms that the non-audit work

performed by KPMG during the year, was properly

assessed and authorised in accordance with the

Group’s policy.

In early 2023, KPMG identified that KPMG network

firms in Argentina, China, Egypt, Hong Kong and Qatar

had provided financial statement preparation

assistance services and/or foreign language translation

services over the period 2020 to 2023 to Smiths entities

in those regions. The services, which have since been

terminated, were administrative in nature and did not

involve any management decision-making or

bookkeeping. None of the impacted entities are

material or significant components of the Group audit.

In addition, there was no self-review threat in relation to

the work performed by KPMG’s group audit team, and

no direct or indirect effect on Smiths Group plc

consolidated financial statements. KPMG sent a letter

to the Audit & Risk Committee explaining the cause,

analysis of implications and actions taken. The Audit &

Risk Committee reviewed the letter and following

discussions, have concurred with KPMG’s professional

judgement, that based on the assessment of the

breach, KPMG’s integrity, objectivity, impartiality of

judgement, and professional scepticism were not

impaired with respect to the impacted periods. Apart

from this matter, KPMG has not performed any

non-audit services during the year ended 31 July 2023

or subsequently which are prohibited by the FRC

Ethical Standard.

EFFECTIVENESS OF THE EXTERNAL AUDIT

The Committee continually assessed the effectiveness

of the external auditor during the year, including its

independence, objectivity, appropriate mindset and

professional scepticism. The Committee considered:

–

The conclusion of the FY2022 audit process;

–

The audit review of FY2023 interim results;

–

Early-stage delivery of the FY2023 audit;

–

The review of audit plans;

–

Content, insight and value of KPMG’s reports;

–

Robustness and perceptiveness of KPMG in

handling of key accounting and audit judgements;

–

Management’s responses to any audit findings;

–

Discussions with management (both with and

without the external auditor present) and with the

external auditor (both with and without

management present); and

–

The findings of the various FRC’s Audit Quality

Inspection Reports with regard to KPMG and the

implications and learnings for the Smiths audit.

The Committee ensured that it was satisfied that the

Committee’s and management’s feedback from

previous effectiveness reviews had been adequately

addressed. It also considered other statutory reporting,

audit planning and scope deliverables, and that KPMG

had continued to devote sufficient time and resources

to understand and assess the business, its key risks

and controls.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

AUDIT, RISK AND INTERNAL CONTROL

CONTINUED

After taking into account the factors above and its

general interaction with KPMG throughout the period,

the Committee was satisfied that the audit was

effective. The Committee therefore agreed that it was

appropriate to recommend to the Board that the

reappointment of KPMG as the Company’s auditor for

a further year be proposed to shareholders at the 2023

AGM. A further review of the FY2023 audit will be

conducted ahead of the FY2024 interim 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 risk management and internal control

processes identify, assess, manage and monitor risks

that have the potential to affect the achievement of our

strategy. The Executive Committee and risk owners

review our principal risks throughout the year. They

assess the effectiveness of existing controls and the

resulting residual risks and identify any additional

necessary actions. We have a sound risk management

and internal control systems in place. However, they

can provide only reasonable, not absolute, assurance

against material loss to the Group or material

misstatement in the financial statements. More detail

can be found on pages 66 to 74.

EFFECTIVENESS OF THE GROUP’S RISK

MANAGEMENT AND INTERNAL CONTROLS

In FY2023, 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 receives risk deep-dive reports from

the divisions and principal risk owners throughout the

year. The divisional reports take place on a rotational

basis to enable the Committee to cover all principal

risks over time. The deep-dives are intended to inform

the Committee’s assessment of the effectiveness of

risk management and internal control systems. This

year the divisions also provided reviews on business

continuity, in particular supply chain, and other key

risks as applicable to their business, for example,

procurement, market trajectory and disruption, quality

and ESG. It also received updates on cyber, and ethics

and compliance risks. The deep-dives on cyber covered

Smiths cyber security framework, employee

communication and training programmes to increase

cyber awareness, and planned investment to improve

resilience. The Committee relies on other inputs to

assess if the risk management and internal controls

system is effective. For example, the following items

relating to our principal risks were discussed at the

Board, Finance Committee, and SSE Committee

meetings during FY2023: organic growth and financial

performance; tax, treasury, liquidity, pensions and

insurance; technology; health and safety; acquisitions;

litigation; our people strategy; and ESG.

Consideration of the divisional risk registers alongside

the principal risk deep-dives and other thematic risk

areas enables the Committee and full Board to

understand the culture, risks and opportunities, and

assurance processes throughout the business and the

potential impact on the Group. No significant failings or

weaknesses were identified.

The Committee was also provided with updates in

relation to the Finance Excellence Programme

particularly in relation to projects to improve and

standardise finance activity across the Group and

ongoing activity to improve the financial control

framework. The current year activity puts Smiths

in a strong position for readiness for the FRC

proposed changes regarding internal controls over

financial reporting.

PRINCIPAL RISKS UPDATE

The Committee 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. We replaced our ESG principal

risk with climate risk on our risk register. Climate risk

covers the energy transition opportunity and risks as

well as climate-related regulatory risks. Due to the

increasing proliferation of cyber attacks, the Committee

approved increasing the probability of Smiths cyber

security risk from probable to likely and the residual

impact from low to moderate. Other risks remain

relatively stable. Economic and geopolitical risks remain

elevated, although the risk of regional or global

recession is subsiding. Actions we have taken to mitigate

supply chain challenges remain evident in our inventory

levels and the divisions are working to reduce inventory

to appropriate levels while also supporting growth.

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 68, 75 and 76.

INTERNAL AUDIT

Internal Audit is independent of the business and so has

no responsibility for operational business management.

This ensures the integrity and objectivity of its annual

Audit Plan, which is approved by the Committee. The

authority of the Internal Audit function is derived from

the Committee. The Director of Internal Audit is

accountable to the Board through the Committee

Chairman, 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 Chairman

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.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

AUDIT, RISK AND INTERNAL CONTROL

CONTINUED

During the period, the Committee received progress

reports on the execution of the FY2023 Internal Audit

Plan and discussed any high-priority control

enhancement opportunities and action plans to address

these. The Committee also approved the FY2024

Internal Audit Plan, including the proposed audit scope,

approach, coverage and budget including the allocation

of resources.

The Committee oversees the performance of the

Internal Audit function through the Director of Internal

Audit’s attendance at Committee meetings, review of

work presented throughout the course of the year, and

a review of agreed KPIs which are reported to the

Committee at each Committee meeting. This year, in

accordance with the International Standards for the

Professional Practice of Internal Auditing, the

Committee undertook an EQA of the Internal Audit

function by an independent third party. The results of

the EQA conducted by PwC recognise that Internal

Audit’s performance against standards is strong, with

minor improvements suggested. This is a testament to

the function's focus on quality and continuous

improvement. The improvement opportunity identified

related to redefining the function’s future, considering

the increasing emphasis on internal controls and the

changing risk environment. These will be addressed

through the Internal Audit FY2024 Plan.

ETHICS AND COMPLIANCE

During the year, the Committee reviewed the Ethics

and Compliance annual work programme and provided

oversight of investigations into allegations of non-

compliance with the Code of Business Ethics. This

included matters raised through the Group’s ethics

reporting procedures including the Group’s Speak Out

hotline which allows for anonymous reporting. Smiths

Speak Out hotline comprises a number of different

channels (including call centres operated by an

independent third party across the Group’s global

operations) for employees and other stakeholders to

report concerns.

During the year there were no matters raised that

required the Committee’s direct intervention or

investigations which resulted in a material loss to the

Group or a detrimental impact on our customers or

suppliers. The Committee receives regular reports

on the total number and nature of cases by region, the

ratio of anonymous vs attributed ethics reports, and the

ratio of substantiated vs unsubstantiated cases. The

anonymous vs attributed metric is used to monitor

trust in the Group’s reporting system. Accordingly, the

Committee considered that the Group’s processes and

arrangements for employees to report concerns,

including anonymously and without retaliation, about

any improprieties and the arrangements for any

subsequent investigation as necessary, were both

appropriate and effective.

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 behaving ethically and legally can be found

on page 39 and in the Sustainability at Smiths report

found on our website.

ASSESSMENT OF INTERNAL

CONTROL AND RISK MANAGEMENT

ARRANGEMENTS

The Committee was satisfied that the Group’s

processes governing financial reporting and controls,

its culture, ethical standards and its relationships with

stakeholders continued to be effective.

The Committee was also satisfied with the

appropriateness and adequacy of the Group’s risk

management arrangements, internal control

framework and three lines of defence model.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION & PEOPLE COMMITTEE REPORT

REMUNERATION & PEOPLE

COMMITTEE REPORT

CHAIRMAN’S STATEMENT

I am pleased to present the Remuneration Report for

the year to 31 July 2023.

The Directors’ Remuneration Policy was approved

at the AGM on 17 November 2021. The Directors’

Remuneration Report for FY2023 will be put to an

advisory shareholder vote at the AGM on 16 November

2023. I look forward to your continued support at the

upcoming annual meeting.

BROADER CONTEXT FOR FY2023

We have continued to show resilience in the face of

wider economic challenges and maintain our

commitment to growth, execution and empowering our

people. In terms of our people priorities, we have

further improved our world class safety record,

developed our internal talent pool with a significant

increase in internal hires and launched a charitable

foundation. The Smiths Foundation has an initial £10m

commitment which will be used towards STEM-related

non-profit organisations.

FY2023 has seen the successful introduction of

leadership behaviours at Smiths. The Smiths

Leadership Behaviours serve as a foundation to unlock

the full potential of our company. They describe the

behaviours needed for the organisation to be dynamic,

inclusive and focused on delivering results that create

value. They apply to everyone at Smiths and are

relevant to every role. The Smiths Leadership

Behaviours provide a basis for which our people can be

assessed not only on what they do, but how they do it.

We introduced a GHG emissions reduction metric into

our LTIP two years ago and more recently reinforced

our commitment to our focused sustainability goals

with the introduction of an energy efficiency metric for

all divisions in the annual bonus. Setting the right

metrics is undertaken in collaboration with the Science,

Sustainability and Excellence (SSE) Committee. Further

detail on our commitment to having relevant and robust

sustainability metrics in our incentive plans is available

on page 12 of the Sustainability at Smiths Report.

INCENTIVE OUTTURNS FOR THE YEAR

The Committee considered outcomes under the

FY2023 annual bonus and the FY2021 LTIP awards in

the context of the performance of the business and

wider stakeholder experience. FY2023 was a year of

record organic revenue and EPS growth. We have

posted nine consecutive quarters of growth and

year-on-year improvement on all five of our medium-

term financial targets. We are well positioned for

growth within our medium-term targets next year,

supported by a healthy order intake.

As a result, it was considered appropriate to award

an AIP bonus of 70.0% of maximum opportunity for

FY2023, representing an achievement between target

and maximum against the financial and non-financial

metrics. One-third of the bonus earned will be deferred

into shares for the Executive Directors.

The FY2021 LTIP award vested at 75.6% of maximum,

reflecting performance over a three-year period

aligned to the sustainable growth of the business over

that period of time.

The Committee did not exercise any discretion in

respect of the incentive outcomes.

IMPLEMENTATION FOR FY2024

The base salaries of the Executive Directors have been

increased by 5.0% effective from 1 October 2023. In

2022, management elected to focus a greater

proportion of the salary increase budget on employees

who were more significantly affected by inflationary

pressures. This resulted in a below-market salary

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 KPIs.

BILL SEEGER

Chairman of the

Remuneration & People

Committee

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION & PEOPLE COMMITTEE REPORT

CONTINUED

REMUNERATION POLICY REVIEW

As part of the three-yearly cycle, the Remuneration

Policy will be formally reviewed during FY2024

to ensure that it remains clearly aligned to sustainable,

long-term stakeholder interests and market

best practice.

During this review we will consult with key

shareholders to explain any proposed changes and

take their views into account. The new Policy will be

presented to shareholders for approval at the

2024 AGM.

COMMITTEE MEMBERSHIP AND MEETINGS

The membership of the Committee and their meeting

attendance during the year is set out on pages 80, 81

and 84 of this report. I had served on a remuneration

committee for at least 12 months prior to my

appointment as Chairman of the Committee.

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.

COMMITTEE PERFORMANCE EVALUATION

The annual evaluation of the Committee was conducted

as part of the internally facilitated evaluation process of

the Board and its Committees. The findings relating to

the Committee were discussed with me. More

information can be found on page 85. Overall, the

Committee is viewed as effective and performing well

and is rigorous in discharging its responsibilities.

There were four scheduled Committee meetings held

during the year and one special meeting.

OTHER ACTIVITIES OF THE COMMITTEE IN FY2023

In addition to those highlighted elsewhere in this

statement, the Committee has also undertaken the

following activities in FY2023:

–

Reviewed business plans and performance to

assess their potential impact on existing and future

incentive arrangements;

–

Reviewed remuneration of the wider workforce and

related policies to ensure internal alignment of

reward;

–

Approved FY2024 salary increases for the Executive

Committee considering available budget, individual

performance rating, position in salary range and the

increases provided across the wider workforce;

–

Reviewed the Committee’s performance and Terms

of Reference; and

–

Approved the Remuneration Report for inclusion in

the Annual Report.

LOOKING FORWARD

It has been my pleasure to serve Smiths and its

stakeholders as a Non-executive Director since May

2014. This is my fifth and final year as Chairman of the

Remuneration & People Committee and I am confident

the Committee is in safe hands as I pass responsibility

to Karin Hoeing. Karin is an experienced Non-executive

Director and has been a member of the Remuneration

& People Committee since April 2020. I wish Karin

every success in this role.

BILL SEEGER

Chairman of the Remuneration & People Committee

increase of 2.5% for Paul Keel. Clare Scherrer did not

receive a salary increase in October 2022. For 2023, the

salary increase budget is aligned across all employees

in the wider UK workforce and the increases of 5% for

both Paul Keel and Clare Scherrer reflect this.

There are minimal changes to either the Annual

Incentive Plan (AIP) or Long-Term Incentive Plan (LTIP)

for the FY2024 awards. New Product

Commercialisation (NPC) remains an important

strategic driver of growth. For the FY2024 AIP, the

weighting on the NPC metric has been incorporated

into the broader Revenue metric. Payment of the

Revenue outcome will be subject to meeting minimum

NPC criteria. There are no changes to the LTIP metrics,

weightings or ranges for the FY2024 awards which will

be made in October 2023. The metrics in both the short-

term and long-term incentive plans are aligned to the

delivery of our strategy.

CONSIDERATION OF THE WIDER WORKFORCE

Our colleagues are our greatest asset. The

Remuneration & People Committee is responsible for

the Group’s overall remuneration strategy and

monitors pay and employment conditions across our

workforce. During the year, the Committee received an

update from HR leaders in a number of business areas,

to understand how pay policies are implemented

across the Group and highlighting a range of new

initiatives. This included an extensive review of the

benefits offered to our colleagues, and the introduction

of a global parental leave policy.

The Board as a whole continues to pursue opportunities

for Non-executive Directors to meet with employees

under an organised programme of in-person site visits

to get a deeper understanding of the culture within

Smiths. Non-executive Directors attend employee

forums and events engaging directly with our People.

Updates are provided to the Remuneration & People

Committee and further details on these activities are

provided on page 59.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

100

SMITHS GROUP PLC ANNUAL REPORT FY2023

EXECUTIVE REMUNERATION AT A GLANCE

BASE SALARY

Paul Keel received:

£893,229

Clare Scherrer received:

£553,750

PENSION AND BENEFITS

–

Pension contributions of 12% of base salary for Paul Keel and Clare

Scherrer, in line with the rate available to the wider UK workforce.

–

Benefits included healthcare, insurance, car benefit, tax return preparation

and relocation benefits for the CEO.

ANNUAL BONUS (AIP)

Total bonus payout (% of maximum):

Paul Keel:

70.0%

Clare Scherrer:

70.0%

Performance measure

Threshold

(25%

payout)

Outturn

Maximum

(full

payout)

Achievement

(% of max)

Revenue (30%)

£2,700m

£3,013m

£2,977m

100%

Operating Profit (30%)

£441m

£497m

£512m

79.5%

Headline operating cash conversion (20%)

H1 (10%)

90%

63%

110%

FY (10%)

95%

87%

115%

New product

commercialisation (10%)

£62.4m

£76.1m

£93.6m

61.5%

Energy efficiency (10%)

-1.5%

-7.9%

-4.5%

100%

LONG-TERM INCENTIVE (LTIP)

Total vesting (% of maximum):

Paul Keel:

75.6%

Clare Scherrer:

N/A

Performance measure

Threshold

(25%

payout)

Outturn

Maximum

(full

payout)

Achievement

(% of max)

Organic revenue growth (25%)

2.0%

4.4%

6.0%

70%

EPS growth after tax (25%)

5.0%

17.3%

14.0%

100%

Free cash-flow (25%)

40%

47.6%

55%

63%

Average ROCE (25%)

13%

14.8%

16%

70%

IMPLEMENTATION OF REMUNERATION POLICY IN FY2023

SINGLE FIGURE (£000)

Paul Keel

Clare Scherrer

Salary

893

554

Pension and benefits

381

Annual bonus

1,251

640

Long term incentives

1,760

–

Paul Keel:

Clare Scherrer:

£0

£1,500

£3,000

£4,500

£4,285

£1,291

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

101

SMITHS GROUP PLC ANNUAL REPORT FY2023

EXECUTIVE REMUNERATION AT A GLANCE

CONTINUED

STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY IN FY2024

BASE SALARY

Paul Keel:

£941,719

(5% increase)

Clare Scherrer:

£581,438

(5% increase)

UK wider workforce increases of 5%.

LONG-TERM INCENTIVE (LTIP)

Paul Keel:

189,900

Clare Scherrer:

91,342

Performance measure

Weighting

Threshold

(25%

vesting)

Maximum

(full

vesting)

Revenue growth

30%

3.5%

6.5%

EPS growth after tax

20%

11%

Average free cash-flow

20%

45%

55%

Average ROCE

15%

14%

17%

Absolute reduction in

GHG

15%

20%

–

Two-year post-vesting holding period applies

–

The same fixed number of shares as in 2022 will

be granted to Paul Keel and Clare Scherrer in

October 2023, per the Policy

PENSION

BENEFITS

Paul Keel:

12%

of base salary

Benefits package consisting of

healthcare, insurance, car

benefit, tax return preparation

and relocation benefits

Clare Scherrer:

12%

of base salary

Benefits package consisting

of healthcare, insurances,

car benefit and tax return

preparation.

ANNUAL BONUS (MAXIMUM OPPORTUNITY)

Paul Keel:

200%

of base salary

Clare Scherrer:

165%

of base salary

Performance measure

Weighting

Revenue

40%

Operating profit

30%

Headline operating cash conversion

20%

Energy efficiency

10%

–

33% of annual bonus deferred into shares for

three years

–

Specific targets are considered to be commercially

sensitive and will be disclosed retrospectively

1 Subject to a new product commercialisation underpin

SHAREHOLDING REQUIREMENTS

Executive Directors should build a

minimum shareholding equivalent to

the annual fixed number of shares

awarded under the LTIP within five

years and are required to hold shares

equivalent to their full in-employment

shareholding guideline, or actual

holding if lower, for two years

post-employment.

PERFORMANCE MEASURES AND LINK TO STRATEGY

GROWTH

EXECUTION

PEOPLE

Annual bonus (AIP)

Operating profit

Revenue growth

Operating cash conversion

New product commercialisation

Energy efficiency

Long-Term Incentive Plan (LTIP)

EPS growth after tax

Revenue rogwth

Free cash-flow

Average ROCE

Reduction in GHG emissions

1 Acts as an underpin to the revenue performance measure in AIP.

GROWTH

1. Strong execution to

maximise underlying

market expansion

2. Improved product

development and

commercialisation

3. Building out priority

adjacencies

4. Disciplined M&A

5. Sustainability at

Smiths

EXECUTION

1. Operational

2. Financial

3. Functional

4. Sustainability at

Smiths

PEOPLE

1. Safety and wellbeing

2. Inspire and

empower talent

3. Diversity, equity and

inclusion

4. Communities

5. Sustainability at

Smiths

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

102

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION

CONTINUED

ALIGNMENT WITH THE UK CORPORATE GOVERNANCE CODE

The table below details how the Committee addresses the factors set out within Provision 40 of the Code:

CLARITY

–

The Committee welcomes transparency and regular engagement with shareholders with regard to executive remuneration. During 2023,

as there have been no changes to Remuneration Policy, the Committee Chairman has not been required to consult with shareholders on

remuneration matters. The Committee intends to consult with shareholders as part of the upcoming Remuneration Policy review in 2024.

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 the 2021 Policy review further simplified the 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

–

Robust malus and claw back 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 claw back provisions exist

PROPORTIONALITY

–

There is a link between strategic business objectives and performance outcome, as outlined on page 101

–

Our Policy for our incentive plans outlines threshold, target and maximum opportunity levels, with actual outcomes dependent on

performance achieved against predetermined measures

–

Through the design of the 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 business strategy is supported by these Values which are widely communicated across the Company. The addition of the

Smiths Leadership Behaviours, of which ‘Living Smiths Values’ is one, describe the behaviours needed for the organisation to be dynamic,

inclusive and focused on delivering results that create value

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

103

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION

CONTINUED

SALARY

Clare Scherrer was appointed to the Board as Chief Financial Officer on 29 April 2022

with an annual base salary of £553,750. The values in the single figure table above in

respect of FY2022 reflect the remuneration paid from 29 April 2022.

BENEFITS

Benefits for Executive Directors include life assurance, disability insurance, private

healthcare insurance, car related benefits, tax return preparation and relocation

benefits (CEO only). The benefit value for Paul Keel has been restated for FY2022 to

include UK tax of £177,597 settled by the company in October 2022 on a grossed up

basis for housing, car and relocation payments. This is in accordance with the CEO

service contract. The benefit figure for FY2023 includes an estimated UK tax payment

of £116,197, calculated on the same basis.

PENSION

Executives may choose either to participate in the Company’s defined contribution

pension plan or to receive a pension allowance in lieu thereof. Paul Keel and Clare

Scherrer received an allowance in lieu of pension contribution equivalent to 12% of

salary during the year. This is aligned to the rate available to the wider UK workforce.

FY2023 ANNUAL BONUS OUTCOME

The maximum annual bonus opportunities for FY2023 were 200% of salary for

Paul Keel and 165% of salary for Clare Scherrer.

For FY2023, financial metrics made up 90% of the annual bonus, with the final

10% based on performance against energy efficiency objectives. The table below

summarises the financial targets and the Company’s actual performance (restated

at budget exchange rates) against these for the FY2023 annual bonus.

Performance targets, actual performance and outturn

Measure

Weighting

Threshold

25% payout

Target

50% payout

Maximum

100% payout

Actual

Outturn

Revenue

30% £2,700m

£2,835m

£2,977m

£3,013m

30.0%

Operating profit

30%

£441m

£474m

£512m

£497m

23.9%

Headline operating cash

conversion

10%

90%

100%

110%

63%

0.0%

10%

95%

105%

115%

87%

0.0%

New product commercialisation

10%

£62.4m

£70.9m

£93.6m

£76.1m

6.1%

Total financial

90%

60.0%

Energy efficiency

10%

-1.5%

-3.0%

-4.5%

-7.9%

10%

Total

100%

70.0%

CONSIDERATION OF WIDER WORKFORCE

The Committee considers all stakeholder groups when setting executive pay, including our people. The Committee is briefed on pay arrangements across the business

and receives reports on people priorities within each of the divisions. In addition, a summary of remuneration related issues raised by employees through the employee

engagement survey is presented to the Committee. As part of a comprehensive schedule of Non-executive Director engagement with the workforce, in 2023 all Board

members, including the Committee Chairman attended events across our regional markets to discuss culture, people priorities, employee remuneration and benefit

arrangements across the Group. Details of the engagement programme and in-person site visits are summarised on page 59. The overall responsibility for workforce

engagement rests with the Senior Independent Director while each Non-executive Director has responsibility for workforce engagement in a specific geographical region

and business area.

SINGLE FIGURE OF ANNUAL REMUNERATION (AUDITED)

EXECUTIVE DIRECTORS

Salary

Benefits

Payments in lieu of

pension contribution

Total fixed

Annual

bonus

Long-term

incentives

Total

performance related

Total

FY2023

£000

FY2022

£000

FY2023

£000

FY2022

£000

FY2023

£000

FY2022

£000

FY2023

£000

FY2022

£000

FY2023

£000

FY2022

£000

FY2023

£000

FY2022

£000

FY2023

£000

FY2022

£000

FY2023

£000

FY2022

£000

Paul Keel

893

875

274

361

107

1,274

1,332

1,251

678

1,760

–

3,011

678

4,285

2,010

Clare Scherrer

554

141

651

165

640

–

640

1,291

256

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

104

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION

CONTINUED

OVERALL FY2023 ANNUAL BONUS OUTTURN

The following table sets out the overall FY2023 bonus outturn for Executive

Directors:

Maximum opportunity

Outturn (percentage of maximum)

Paul Keel

200%

70.0%

Clare Scherrer

165%

70.0%

The Committee considered the amounts carefully in the context of the Group’s

performance, individual performance and the current macroeconomic environment,

and determined that the amounts were a fair reflection of performance in the past

financial year. One-third of the annual bonus will be deferred into Smiths shares for

three years.

FY2021 LONG-TERM INCENTIVE PLAN OUTCOME

Paul Keel received an award under the FY2021 LTIP, subject to the following

performance conditions:

Measure

Weighting

Performance

period

Threshold

25%

Maximum

100%

Actual

Outturn

(% of vesting)

Average organic

revenue growth

25%

1 August 2020

to 31 July 2023

4.4%

17.5%

Average annual Group

EPS growth after tax

25%

1 August 2020

to 31 July 2023

14%

17.3%

25.0%

Average ROCE

25%

1 August 2020

to 31 July 2023

13%

16%

14.8%

17.4%

Free cash-flow

25%

1 August 2020

to 31 July 2023

40%

55%

47.6%

15.7%

Total vesting

75.6%

The Group EPS growth after tax performance has been calculated to exclude the

impact of the share buy-back scheme in order to ensure the targets were not

materially easier to achieve than when originally set.

No discretion was exercised by the Remuneration & People Committee in respect

of the formulaic outcomes under the LTIP. No awards were due to vest to Clare

Scherrer under this award. The value included in the single figure table has been

calculated using an estimated share price, based on the share price over the last

quarter of the financial year of £16.51. The share price appreciation attributable to the

FY2021 LTIP for Paul Keel was 19.29% (£284,729).

An additional holding period of two years will apply to the shares vesting.

SCHEME INTERESTS AWARDED IN RESPECT OF FY2023 (AUDITED)

Scheme interests awarded are outlined below.

Scheme

Form of

award

Date of

grant

Number

of shares

awarded

Award

price

Face

value

(£000)

% vesting at

threshold

performance

Performance

period end

date

Paul Keel

LTIP Conditional

2 November

2022

189,900

1,554p

2,951

25%

31 July

2025

Paul Keel

Deferred

bonus

Conditional

3 October

2022

14,941 1,513p

226

N/A

Clare

Scherrer

LTIP Conditional

2 November

2022

91,342

1,554p

1,419

25%

31 July

2025

Clare

Scherrer

Deferred

bonus

Conditional

3 October

2022

2,009 1,513p

N/A

The performance measures for the FY2023 LTIP award are as follows:

Measure

Weighting

Threshold

(25% vesting)

Maximum

EPS growth after tax

20%

6.0% p.a.

11.0% p.a.

Revenue growth

30%

3.5% p.a.

6.5% p.a.

Average free cash-flow (as a percentage of

operating profit)

20%

45%

55%

Average ROCE

15%

14%

17%

Reduction in GHG emissions (normalised)

15%

20%

Total

100%

PAYMENTS TO PAST DIRECTORS (AUDITED)

Andy Reynolds Smith’s FY2021 LTIP will vest in 2023, pro-rated for service to 31 July

2021. 59,875 shares will vest at 75.6%. This is equivalent to 45,265 shares a with an

estimated value of £747,325.

John Shipsey was paid an amount of £498,129 in lieu of notice for the unserved part

of his 12-month notice period. The payment in lieu of notice was made in monthly

instalments to 29 April 2023.

Mr Shipsey’s share awards under the Company’s LTIP are preserved in accordance

with the good leaver provisions of the LTIP, subject to a time pro-rating adjustment

and normal vesting dates. Mr Shipsey’s FY2021 LTIP will vest in 2023, pro-rated for

service to 31 July 2022. 63,892 shares will vest at 75.6%. This is equivalent to 48,302

shares with an estimated value of £797,466.

PAYMENTS FOR LOSS OF OFFICE

There were no payments for loss of office in FY2023.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

105

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION

CONTINUED

DIRECTORS’ SHARE OPTIONS AND LONG-TERM SHARE PLANS (AUDITED)

Director and Plan

Options and

awards held

on 31 July

2023

Options and

awards held

on 31 July

2022

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

Paul Keel

LTIP

141,059

n/a

28/09/21

01/10/23

189,900

n/a

05/11/21

01/10/24

189,900

n/a

02/11/22

15/10/25

Deferred bonus award

5,378

–

n/a

05/11/21

04/11/24

14,941

–

n/a

03/10/22

03/10/25

SAYE

1,547

–

1163p

17/05/22

01/08/25

01/02/26

Clare Scherrer

LTIP

91,342

n/a

02/11/22

15/10/25

Deferred bonus award

2,009

–

n/a

03/10/22

03/10/25

SAYE

1,346

–

1,337p

16/05/23

01/08/26

01/02/27

NOTES

– The high and low market prices of the ordinary shares during the period 1 August 2022 to 31 July 2023 were 1,807p and 1,478p respectively. The mid-market closing price on 29 July 2022 was 1,543p and on 31 July

2023 was 1,699p.

– The mid-market closing price of a Smiths Group share on the date of the LTIP awards made to Directors in the FY2023 financial year was 1,554p (2 November 2022).

– The SAYE options over 1,547 shares granted to and held by Paul Keel at 31 July 2023 were granted at an exercise price below the market price of a Smiths Group share on 17 May 2022 (1,454p). Shares are granted

in May but the savings period commences in August.

– The SAYE options over 1,346 shares granted to and held by Clare Scherrer at 31 July 2023 were granted at an exercise price below the market price of a Smiths Group share on 16 May 2023 (1,337p). Shares are

granted in May but the savings period commences in August.

– None of the options or awards listed above was subject to any payment on grant.

– No options or awards have been granted to or exercised by Directors or have lapsed during the period 1 August to 15 September 2023.

– At 31 July 2023, the trustee of the Employee Share Trust held 1,742,929 shares. The market value of the shares held by the trustee on 31 July 2023 was £29,612,364 and all dividends were waived in the year in

respect of the shares held by the trustee.

– Special provisions permit early exercise of options and vesting of awards in the event of retirement, redundancy, and death.

KEY

LTIP

The Smiths Group

Long-Term Incentive

Plan 2015.

SAYE

The Smiths Group

Sharesave Scheme.

The vesting dates shown

above in respect of awards

made under the LTIP are

subject to the relevant

performance test(s) being

passed.

The expiry dates shown

above apply in normal

circumstances.

PERFORMANCE

TESTS

A LTIP awards in 2020 – 25%

subject to EPS growth;

25% subject to ROCE; 25%

subject to free cash-flow;

25% subject to organic

revenue growth.

B LTIP awards in 2021 and

2022 – 20% subject to EPS

growth; 15% subject to

ROCE; 20% subject to free

cash-flow; 30% subject

to revenue growth; 15%

subject to reduction in

greenhouse gas emissions.

– There are no performance

criteria for the Deferred

Bonus Shares awards or

SAYE.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

106

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION

CONTINUED

SHARE OWNERSHIP REQUIREMENT FOR EXECUTIVE DIRECTORS

Executive Directors are required to build a minimum shareholding equivalent to the

annual fixed number of shares awarded under the LTIP within five years. Executive

Directors are required to retain at least 50% of any net vested share awards (after

sales to meet tax liabilities) until those guidelines are achieved. Shares under

deferred bonus awards and LTIP awards which have vested but are subject to a

further holding period (net of assumed income tax) count towards the requirement.

Awards that are still subject to performance conditions do not count towards

the requirement.

Executive Directors will be required to hold shares equivalent to their full in-

employment shareholding guideline, or actual holding if lower, for two years

post-employment, in line with best practice guidance. To enforce this requirement,

vested shares are held in a nominee account provided by Smiths share plan

administrator. This policy applies to Andy Reynolds Smith, who stepped down from

the Group during FY2021, and John Shipsey who stepped down from the Group

during FY2022. Mr Reynolds Smith was required to hold a number of shares in the

Company with a value at least equal to £2,109,450 at 31 July 2021 until at least 31 July

2023, while Mr Shipsey is required to hold 54,959 shares in the Company until at least

31 July 2024.

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 2023

the headroom available under these limits was 7.93% and 3.67% respectively.

EXECUTIVE DIRECTORS’ SHAREHOLDINGS (AUDITED)

The table below shows the shareholding for each Executive Director against their respective shareholding requirement as at 31 July 2023.

Director

Shareholding

requirement

Shares owned

outright

subject to

performance

Vested

shares in

holding period

arising from

bonus deferral

Save As

You Earn

(SAYE)

Current

shareholding

(% of requirement)

Shareholding

requirement

met

Paul Keel

189,900 shares

25,000

520,859

20,319

1,547

20%

Clare Scherrer

91,342 shares

25,000

91,342

2,009

1,346

30%

There have been no changes to the Directors’ shareholdings between 1 August 2023 and 15 September 2023.

FOOTNOTES

1 Shares owned outright

(including vested shares

in holding period), and

the net of income tax

value of shares arising

from bonus deferral are

taken into account for the

shareholding requirement.

Executive Directors have

five years from the date

of appointment to meet

the required personal

shareholding; Paul Keel

has until 25 May 2026 and

Clare Scherrer has until

29 April 2027 to meet the

requirement.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

107

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION

CONTINUED

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 2023 were £168.33 and £164.37 respectively.

TOTAL SHAREHOLDER RETURN

£80

£90

£100

£110

£120

£130

£140

£150

£160

£170

£180

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

£100

£107.43

£96.49

£109.31

£90.05

£113.73

£99.38

£135.61

£131.49

£145.39

£141.70

£146.10

£145.29

£132.60

£123.95

£150.77

£146.42

£142.25

£155.77

£168.33

£164.37

£100

SMITHS

FTSE 100

CHIEF EXECUTIVE’S REMUNERATION FOR THE LAST TEN YEARS

FY2023

P Keel

FY2022

P Keel

FY2021

P Keel

FY2021

A Reynolds

Smith

FY2020

A Reynolds

Smith

FY2019

A Reynolds

Smith

FY2018

A Reynolds

Smith

FY2017

A Reynolds

Smith

FY2016

A Reynolds

Smith

FY2016

P Bowman

FY2015

P Bowman

FY2014

P Bowman

Total remuneration £000

4,285

1,832

450

2,753

2,196

4,130

3,251

2,320

2,964

1,602

4,195

3,912

Annual bonus outcome (% max)

70%

39%

76%

70%

17%

41%

42%

96%

89%

88%

80%

43%

Common Investment Plan outcome

(% max)

n/a

100%

LTIP outcome (% max)

76%

n/a

19%

31%

75%

32%

n/a

18%

17%

18%

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

108

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION

CONTINUED

CHIEF EXECUTIVE PAY RATIOS

These ratios set out the comparison between the Chief Executive’s remuneration and

that for employees in the UK workforce.

Total remuneration

Year

Method

25th percentile

ratio

Median pay

ratio

75th percentile

ratio

FY2023

Option B

128:1

92:1

62:1

FY2022

Option B

58:1

39:1

26:1

FY2021

Option B

105:1

75:1

47:1

FY2020

Option B

75:1

53:1

34:1

FY2019

Option B

133:1

97:1

65:1

Salary

Year

Method

25th percentile

ratio

Median pay

ratio

75th percentile

ratio

FY2023

Option B

27:1

19:1

13:1

FY2022

Option B

28:1

20:1

13:1

FY2021

Option B

35:1

25:1

17:1

FY2020

Option B

31:1

22:1

15:1

FY2019

Option B

36:1

26:1

18:1

Salary

(£)

Total

Remuneration

(£)

Chief Executive

893,229

4,285,650

25th percentile employee

33,260

33,452

Median employee

46,521

46,789

75th percentile employee

68,720

69,392

The pay data for employees in the UK workforce has been calculated using Option B,

based on the data used for gender pay reporting, due to the availability of data at the

time the Annual Report was published. The gender pay reporting basis comprises

salary and benefits as at 15 April 2023 and incentive payments payable in respect of

FY2023. The Committee considers that this provides an outcome that is representative

of the employees at these pay levels. It is assumed that the value of employee

benefits is 7.0% of base salary as an average across the workforce.

The workforce remuneration figures are those paid to UK employees whose pay is at

the 25th, median and 75th percentile of pay for the 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 CEO pay ratio

for salary has seen a slight decrease at the 25th percentile and median and remained

static at the 75th percentile. There is a significant increase in all ratios with regard to

total remuneration. Strong business performance this year has resulted in a bonus

between target and maximum for the CEO and FY2023 is the first time the LTIP has

vested for the CEO since the date of his appointment.

PERCENTAGE CHANGE IN DIRECTORS’ REMUNERATION

FY2022 to FY2023

FY2021 to FY2022

FY2020 to FY2021

Salary/

fees

Benefits

Bonus

Salary/

fees

Benefits

Bonus

Salary/

fees

Benefits

Bonus

CEO

2.1% -24.1%

185%

239%

204%

n/a

CFO

0.0%

10.7%

176%

n/a

Non-executive

Director

remuneration

2.5%

12.0%

n/a

2.5%

100%

n/a%

-4.0%

-100%

n/a

Average of all

employees

2.5%

180%

2.5%

-34%

0.0%

267%

‘All employees’ is defined as all UK Group employees. This was 190 employees at

all grades in FY2023. It was 200 employees and 196 employees for FY2022 and

FY2021 respectively.

Remuneration for the CEO Paul Keel was pro-rated for service from 25 May 2021 –

31 July 2021 for FY2021. Remuneration for the CFO Clare Scherrer was pro-rated for

service from 29 April 2022 – 31 July 2022 for FY2022.

RELATIVE IMPORTANCE OF SPEND ON PAY

The table below shows shareholder distributions (i.e., dividends and share

buybacks) and total employee pay expenditure for FY2023 and FY2022, and the

percentage change. The distributions are lower for FY2023 owing to a significantly

lower number of share buybacks than in FY2022.

FY2023

£m

FY2022

£m

Change

Shareholder distributions

350

661

-47%

Employee costs

939

823

14%

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 and for good leavers only, the predetermined sum would include annual

bonus and share awards only in respect of the period they have served, payable

following the end of the relevant performance period and subject to the normal

performance conditions.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

109

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION

CONTINUED

Paul Keel is employed under a service contract with the Company dated and effective

from 25 May 2021. He became an Executive Director with effect from 25 May 2021.

Clare Scherrer is employed under a service contract with the Company dated

13 April 2022 and effective 29 April 2022. She became an Executive Director with

effect from 29 April 2022.

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.

CHANGE OF CONTROL PROVISIONS

In the event of a change of control, LTIP awards will vest to the extent that each of the

performance conditions is met based on the Committee’s assessment of performance

over the performance period to the date of change of control. For internal

performance measures, the Committee may exercise its judgement in determining

the outcome based on its assessment of whether or not the performance conditions

would have been met to a greater or lesser extent at the end of the full performance

period. Awards will also normally be pro-rated to reflect the time that has elapsed

between the grant of the award and the date of change of control. The Committee

retains discretion to vary these provisions on a case by-case basis.

NON-EXECUTIVE DIRECTORS

Single figure of annual remuneration (audited)

Salary/fees

Benefits

Total

FY2023

£000

FY2022

£000

FY2023

£000

FY2022

£000

FY2023

£000

FY2022

£000

Sir George

Buckley

465

461

509

508

Pam Cheng

–

Dame Ann

Dowling

101

Tanya Fratto

–

Karin Hoeing

–

Richard Howes

–

Bill Seeger

151

146

–

155

146

Mark Seligman

100

–

100

Noel Tata

–

NON-EXECUTIVE DIRECTOR FEES

Non-executive Director fees paid during FY2023 and payable during FY2024 are

shown below. It was determined that the fee increase for the outgoing Chairman

and the Non-executive Directors should mirror that awarded to senior employees

and that of the wider UK workforce. The fee increases of 5.0% will be effective from

1 October 2023.

FY2024

FY2023

Fee payable to Chair of the Board for all responsibilities

£467,000

£466,920

Non-executive Director base fee

£78,598

£74,855

Additional fee payable to the Senior Independent Director

£20,000

Additional fee for Committee Chairs

£20,000

Attendance allowance for each meeting outside the Non-executive

Director’s home continent

£4,000

1 The fee stated above will be payable to Steve Williams when he takes over as Chair of the Board at the

conclusion of the 2023 Annual General Meeting

SHARE OWNERSHIP GUIDANCE FOR NON-EXECUTIVE DIRECTORS

Non-executive Directors are encouraged to acquire shares in the Company with a

value of one times the annual base fee, over a five-year period. The five-year period is

from the later of 1 August 2021 or the date of appointment to the Board. In addition,

the Non-executive Directors are encouraged to retain a shareholding of one times

the annual base fee for at least two years after the Director leaves the Board.

NON-EXECUTIVE DIRECTORS’ SHAREHOLDINGS (AUDITED)

The table below shows the shareholding for each Non-executive Director.

31 July 2023

Sir George Buckley

29,649

Pam Cheng

6,000

Dame Ann Dowling

5,813

Tanya Fratto

1,500

Karin Hoeing

1,299

Richard Howes

3,307

Bill Seeger

10,000

Mark Seligman

6,000

Noel Tata

6,000

1 Tanya Fratto retired as a Non-executive Director on 16 November 2022. The shareholding shown

represents shares held as at 16 November 2022.

Following a quarterly acquisition of ordinary shares, under a share purchase

agreement using a fixed proportion of his after-tax fees received from the Company

(20%), Sir George Buckley acquired 783 shares. Karin Hoeing acquired 193 shares

and Richard Howes acquired 104 shares on 1 August 2023. There have been no

further changes between 1 August 2023 and 15 September 2023.

FOOTNOTES

1 Benefits for the Chairman

and Non-executive

Directors relate to

reimbursed travel-related

and other expenses

(including flight costs

and tax support where

applicable), which are

grossed-up for the UK

income tax and National

Insurance contributions

paid by the Company on

their behalf.

2 Sir George Buckley’s fee

is in respect of all his

responsibilities for Smiths

Group.

3 Dame Ann Dowling’s fee

comprised her Non-

executive Director’s fee

and her additional fee

for chairing the Science,

Sustainability & Excellence

Committee.

4 Tanya Fratto retired as a

Non-executive Director

effective from 16 November

2022.

5 Bill Seeger’s fees

comprised his Non-

executive Director’s fee, his

additional fees for chairing

the Remuneration & People

and Finance Committees

and his additional fee

as Senior Independent

Director.

6 Mark Seligman’s fees

comprised his Non-

executive Director’s fee

and his additional fee for

chairing the Audit & Risk

Committee.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

110

SMITHS GROUP PLC ANNUAL REPORT FY2023

REMUNERATION

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.

Date of appointment

Sir George Buckley

1 August 2013

Pam Cheng

1 March 2020

Dame Ann Dowling

19 September 2018

Karin Hoeing

2 April 2020

Richard Howes

1 September 2022

Bill Seeger

12 May 2014

Mark Seligman

16 May 2016

Noel Tata

1 January 2017

STATEMENT OF SHAREHOLDER VOTING

The table below sets out the Company voting outcome of the advisory resolution for

approval of the Directors’ Remuneration Report at the 2022 AGM and the approval of

the Directors’ Remuneration Policy at the 2021 AGM:

Resolution

Votes for

% of votes

cast for

Votes

against

% of votes

cast

against

Total

votes cast

Votes

withheld

(abstentions)

Directors’

Remuneration Report

282,175,313

96.01%

11,719,764

3.99% 293,895,077

192,763

Directors’

Remuneration Policy

282,034,458

86.69% 43,312,009

13.31% 325,346,467

4,371,952

ADVISERS TO THE COMMITTEE

During the year, the Committee received material assistance and advice from

the Chief Executive Officer, the Chief People Officer, the Global Reward Director,

Deloitte LLP and Freshfields Bruckhaus Deringer LLP. The Committee’s appointed

independent remuneration adviser is Deloitte LLP. The Company Secretary is

secretary to the Committee.

The Company paid a total fee of £89,450 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 FY2023, Deloitte LLP provided the Committee with information on market,

compliance support for this year’s Directors’ Remuneration Report and the provision

of other advice relating to remuneration governance and market practice. Deloitte

LLP is a founding member of the Remuneration Consultants Group and a signatory to

its Code of Conduct. Deloitte LLP provided additional tax advisory services including

global corporation tax compliance and employee mobility advice, as well as company

secretarial, internal audit co-source, transaction and consultancy services. The

Committee is satisfied that the advice provided by Deloitte LLP is objective and

independent and that it does not have connections with the Group that may impair

its independence.

SUMMARY OF REMUNERATION POLICY

Full details of the Remuneration Policy for Executive Directors, which was approved

by shareholders at the AGM on 17 November 2021, are set out on the Company’s

website and in the 2021 Annual Report and Accounts on pages 112 to 119.

The Directors’ Remuneration Report has been approved by the Board and signed on

its behalf by:

BILL SEEGER

Chairman of the Remuneration & People Committee

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

111

SMITHS GROUP PLC ANNUAL REPORT FY2023

SCIENCE, SUSTAINABILITY & EXCELLENCE COMMITTEE REPORT

SCIENCE, SUSTAINABILITY &

EXCELLENCE COMMITTEE REPORT

CHAIR’S STATEMENT

I am pleased to present our Committee

Report for FY2023. Science, Sustainability

and Excellence (SSE) are critical elements

of support for the execution of our strategy.

We had a full agenda this year on SSE

topics and have made good progress.

We submitted our proposed Science-Based Targets

(SBTs) and related plans for Scopes 1, 2 and 3 to the

SBTi in May 2023, demonstrating our absolute

commitment to achieving our Net Zero goals.

Completion of ISAE Limited Assurance on our FY2022

and FY2023 emissions inventories and energy efficiency

metric was also an important step forward. This work

was performed by our auditors KPMG and was a

valuable exercise to test our processes and controls

for monitoring the accuracy of these critical

underpinning data.

Our ESG double materiality assessment was finalised

with support from PwC, with the assessment

confirming that our ESG strategy and framework are fit

for purpose and capture well the most material issues

for our stakeholders.

Linking our environmental targets in the form of energy

efficiency to remuneration for a larger group of Smiths

colleagues has generated enthusiasm across the

Company, focusing the business on the necessary

cultural change and building critical foundations to

achieve our Net Zero goals. As such, we were pleased

to recommend further targets to the Remuneration &

People Committee for FY2024. More information can be

found on page 98.

The Committee received deep-dive presentations from

our divisions on a rolling basis throughout the year.

The deep-dives from Smiths Interconnect and Smiths

Detection covered science in the form of innovation

and new product development (NPD). From March, the

deep-dives were expanded for John Crane and Flex-Tek

to include presentations on their divisional roadmaps to

deliver our SBT trajectory. We also received updates on

SES projects. These deep-dives are important to the

Committee as they enable us to review the culture,

opportunities and risks in relation to SSE across the

Group. They also bring to life the innovative and exciting

work taking place in the divisions which, in turn,

ensures the long-term sustainability of Smiths

business model.

Over the next year, I look forward to the Committee’s

continued oversight of our SSE agenda, including

further deep-dives from the divisions and Group

experts, together with regular progress updates on

the development and commercialisation of our new

products and on our journey to Net Zero. I am

particularly excited by the opportunities presented

when these combine, with the innovation and new

products we have in the pipeline supporting us and our

customers in meeting ESG commitments and the wider

green agenda. We believe this is a continuing and

significant commercial opportunity for Smiths.

I would like to thank colleagues across Smiths who

are driving sustainability, innovation, more efficient

processes and the commercialisation of new products.

The Committee has observed a real step change in

enthusiasm for SSE matters over recent years. I would

also like to thank my colleagues on the Committee for

their contributions during the year and I look forward

to continuing our work in FY2024.

DAME ANN DOWLING

Chair of the Science, Sustainability

& Excellence Committee

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

112

SMITHS GROUP PLC ANNUAL REPORT FY2023

SCIENCE, SUSTAINABILITY & EXCELLENCE COMMITTEE REPORT

CONTINUED

COMMITTEE MEMBERSHIP AND

MEETINGS

There were four scheduled meetings during the year.

The members of the Committee, their biographies, and

attendance at meetings during the year can be found on

pages 80, 81 and 84. The Chief Executive Officer, Chief

Sustainability Officer and Group SES Director attended

every meeting. Other senior leaders were invited to

attend as necessary.

COMMITTEE PERFORMANCE

EVALUATION

Through the annual Board evaluation process,

described on pages 85 and 86, the Board confirmed the

effectiveness of the Committee in its role supporting

the Board in compliance with its remit.

COMMITTEE ACTIVITIES

The main topics considered at Committee meetings

were:

SCIENCE

All divisions updated the Committee on their NPD

processes and pipelines and how science, technology,

sustainability and a deep understanding of customer

needs and aspirations are influencing their next

generations of products. These divisional deep-dives

brought to life NPD in each division and enabled the

Committee to test future developments to ensure they

are sufficiently aspirational and aligned with Smiths

strategic aims. The Committee is highly engaged in

this area, regularly tracking the development and

commercialisation of new and emerging technologies

and products. We are excited by the differentiated

product opportunities in the pipeline, particularly

those designed to support our customers to

decarbonise and deliver efficient and sustainable

infrastructure and processes.

SUSTAINABILITY

The Committee continued to monitor progress against

Smiths sustainability metrics including GHG emissions,

renewable electricity, energy efficiency, water use and

waste disposal. The Committee was updated on the

work of the Energy Governance Committee (now known

as the Net Zero Delivery Committee), a cross-divisional

working group set up to coordinate a diverse mix of

projects to meet our Net Zero targets. These projects

include energy efficiency projects, onsite renewable

projects, procurement of green electricity, moving to

green fleets and alternative energy solutions.

During the divisional deep-dives, the Committee heard

how the divisions have been driving environmental

change in their businesses. As part of these updates,

John Crane and Flex-Tek’s roadmaps to achieve their

SBT trajectories were reviewed by the Committee who

provided challenge and guidance.

The Committee recommended to the Audit & Risk

Committee the approval of the ISAE Limited Assurance

of FY2022 and FY2023 energy efficiency and GHG data.

Internal controls and rigour relating to sustainability

data have progressed during the year and the Limited

Assurance review by KPMG was an important exercise

which highlighted where control efforts should be

focused in the future. The Limited Assurance review

also supported the Committee's confirmation to the

Remuneration & People Committee of the attainment

of the FY2023 energy efficiency targets and its

recommendation for the new FY2024 targets to be

included in remuneration.

An ESG double materiality assessment was undertaken

during the year, with oversight from the Committee.

While this was an important exercise, it brought no

surprises but, rather, confirmed that our current

prioritisation of ESG-related topics is indeed on those

of highest importance to our multiple stakeholders.

The results highlighted five key ESG topics where

Smiths must place the most focus. These are: 1)

improving safety, health and well-being; 2) delivering

Net Zero GHG; 3) commercialising high-value green

technologies; 4) behaving ethically and legally; and

5) supply chain management. As well as confirming the

material ESG topics for Smiths, the assessment also

supported our choice of key development areas for

FY2024. The Committee is pleased with the outcome of

the assessment and that so many colleagues engaged

with the process through an internal survey. For more

information on the ESG double materiality assessment,

see page 32.

We were pleased to approve the FY2023 Sustainability

at Smiths report which provides stakeholders with an

enhanced understanding of the Group’s approach to,

and measurement of, ESG progress. The report can be

found on our website.

EXCELLENCE

The Group SES Director attended each Committee

meeting to report on SES. The Committee was updated

on the embedding of phase two of SES which leverages

our Group focus on continuous improvement towards

greater results-orientated process improvements.

The Committee heard how the appointment of Master

Black Belts and Black Belts, as well as projects that

align with business priorities and deliver results, have

helped drive support for SES through the business. High

demand in the business for SES training has also shown

the Committee that the value of SES is understood.

Deep-dives from each division demonstrated how SES

is becoming truly embedded in the business and in

Smiths culture.

Our divisions also highlighted how they have been

working in partnership with our suppliers on SES

projects in the areas of supply and customer

satisfaction to ensure continuity of supply for

key customers.

Finally, the Committee was updated on the Internal

Audit review of SES. The team assessed various

SES projects and metrics to ensure that the

communicated benefits were accurate. This was

a valuable assurance exercise.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

113

SMITHS GROUP PLC ANNUAL REPORT FY2023

DIRECTORS' REPORT

DIRECTORS’

REPORT

The Strategic Report is a requirement of the Companies

Act 2006 (the Act) and can be found on pages 8 to 77.

The Company has chosen, in accordance with section

414C(11) of the Act, to include certain matters in its

Strategic Report that would otherwise be disclosed in

this Directors’ Report. The Strategic Report and the

Directors’ Report together are the management report

for the purposes of Rule 4.1.8R of the Disclosure

Guidance and Transparency Rules.

Other information that is relevant to the Directors’ Report, and which is also incorporated by reference, can be

found as follows:

Disclosure

Location

Likely future developments in the Company

Strategic Report pages 8-31

Directors’ dividend recommendation

Strategic Report pages 21-22

Research and development activities

Strategic Report pages 24-28

Employment of disabled persons

Non-Financial Information Statement pages 64-65

Engagement with UK employees

Our People and Culture page 13-15

Sustainability at Smiths page 46

Employee Share Schemes note 9

Engagement with suppliers, customers and others in a business

relationship with the Company

Stakeholders and Section 172 Statement pages 60-61

Political donations and expenditure

Directors' Report page 114

GHG, energy consumption and energy efficiency

Sustainability at Smiths pages 44-45

Corporate Governance Statement

Governance Report pages 78

Directors during FY2023

Governance Report pages 80-81

Director appointment

Governance Report page 90

Amendment of Articles of Association

Governance Report page 90

Indemnities

Governance Report page 84

Directors’ responsibility statement

Statement of Directors’ responsibilities page 115

Disclosure of information to the auditor

Statement of Directors’ responsibilities page 115

Financial instruments

Financial risk management note 19

Share capital disclosures

Share capital note 24

Acquisition of own shares (share buyback programme)

Share capital note 24

Directors’ powers

Governance Report page 79

Share capital note 24

Post balance sheet event

Post balance sheet event note 30

Overseas branches

Subsidiary undertakings page 210

Change of control

Remuneration Report page 109

Directors' Report page 113

Borrowings and net debt note 18

CHANGE OF CONTROL

The Company and two of its divisions, Smiths Detection and Smiths Interconnect, have Special Security Agreements with

the US Department of Defense in order to comply with the US government’s national security requirements. In the event of a

change of control of the Company, the agreements may be terminated or altered by the US Department of Defense.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

114

SMITHS GROUP PLC ANNUAL REPORT FY2023

DIRECTORS' REPORT

CONTINUED

LISTING RULES DISCLOSURE

Information required by the FCA's Listing Rules can be found as set out below. There are no further disclosures required in accordance with

Listing Rule 9.8R.

Listing Rule

Disclosure

Location

9.8.4R(1)

Capitalised interest

There was no interest capitalised during FY2023

9.8.4R(12)(13)

Dividend waiver

Dividend note 25

9.8.6R(1)

Directors’ interests

Remuneration Report pages 109

9.8.6R(2)

Major shareholders’ interests

Directors' Report page 114

9.8.6R(3)(a)(b)

Going Concern and Viability Statement

Strategic Report pages 75-77

9.8.6R(4)(a)

Purchase of own shares

Share capital note 24

9.8.6R(5)(6)(a) and (b)

UK Corporate Governance Code compliance

Governance Report page 78

9.8.6R(7)

Unexpired term of Service Contract

Remuneration Report pages 108-109

9.8.6R(8)(a)(b)

Statement on inclusion of TCFD

Sustainability at Smiths page 47

9.8.6R(9)(10)(11)

Board diversity targets

Governance Report page 89

POLITICAL DONATIONS

The Group did not give any money for political purposes in the UK, the EU or outside of the EU, nor did it make any political donations to political parties or other political

organisations, or to any independent election candidates, or incur any political expenditure during the year. In accordance with the US Federal Election Campaign Act,

Smiths provides administrative support to a federal Political Action Committee (PAC) in the US funded by the voluntary political contributions of eligible employees. The PAC

is not controlled by the Company and all decisions regarding the amounts and recipients of contributions are directed by a steering committee comprising Government

Relations employees and reported to all eligible to contribute to the PAC. Contributions to political organisations reported by the PAC during FY2023 totalled US$6,000

(FY2022: US$8,000).

MAJOR SHAREHOLDER’ INTERESTS

As at 31 July 2023, the Company had been notified under the FCA's Disclosure Guidance & Transparency Rules, or had received disclosures pursuant to the Act, of the

following holdings of voting rights in its shares:

Number of voting rights

% of total voting rights

Date of notification

BlackRock, Inc.

23.3m

5.9

31 May 2018

Harris Associates L.P.

19.7m

5.0

22 July 2019

Dodge & Cox

19.2m

5.0

12 March 2022

Ameriprise Financial, Inc.

17.7m

5.0

5 December 2022

Artemis Investment Management LLP

17.6m

4.9

25 October 2022

No further notifications were received between 1 August and 15 September 2023.

By order of the Board

MATTHEW WHYTE

Company Secretary

25 September 2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

115

SMITHS GROUP PLC ANNUAL REPORT FY2023

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT

OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

IN RESPECT OF THE ANNUAL REPORT AND THE

FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual

Report, including a Strategic Report, Directors’ Report,

Directors’ Remuneration Report and Corporate

Governance Statement, and the Group and Parent

Company financial statements in accordance with

applicable law and regulations.

Company law requires the Directors to prepare Group

and Parent Company financial statements for each

financial year. Under that law the Directors have elected

to prepare the Group financial statements in

accordance with UK-adopted international accounting

standards in conformity with the requirements of the

Act and applicable law and have elected to prepare the

Parent Company financial statements in accordance

with UK accounting standards and applicable law (UK

Generally Accepted Accounting Practice), including

FRS 101 ‘Reduced Disclosure Framework.’

Under company law the Directors must not approve the

financial statements unless they are satisfied that they

give a true and fair view of the state of affairs of the

Group and the Parent Company and of their profit or

loss for that period. In preparing each of the Group and

Parent Company financial statements, the Directors

are required to:

–

Select suitable accounting policies and then apply

them consistently;

–

Make judgements and estimates that are

reasonable, relevant, reliable and prudent;

–

For the Group financial statements, state whether

applicable UK-adopted international accounting

standards have been followed;

–

For the Parent Company financial statements, state

whether applicable United Kingdom Accounting

Standards have been followed subject to any

material departures disclosed and explained in the

Parent Company financial statements;

–

Assess the Group and Parent Company’s ability to

continue as a going concern, disclosing, as

applicable, matters related to going concern; and

–

Use the going concern basis of accounting unless

they either intend to liquidate the Group or the

Parent Company or to cease operations, or have no

realistic alternative but to do so.

The Directors are responsible for keeping adequate

accounting records that are sufficient to show and

explain the Parent Company’s transactions and disclose

with reasonable accuracy at any time the financial

position of the Parent Company and enable them to

ensure that its financial statements comply with the Act

and, as regards the Group financial statements, Article 4

of the IAS Regulation. The Directors are also

responsible for such internal control as they determine

is necessary to enable the preparation of financial

statements that are free from material misstatement,

whether due to fraud or error and have a general

responsibility for taking such steps as are reasonably

open to them to safeguard the assets of the Group and

to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance

and integrity of the corporate governance and financial

information included on the Company’s website.

Legislation in the United Kingdom governing the

preparation and dissemination of the financial

statements may differ from legislation in other

jurisdictions.

In accordance with Disclosure Guidance and

Transparency Rule 4.1.14R, the financial statements will

form part of the annual financial report prepared using

the single electronic reporting format under the

Transparency Directive European Single Electronic

Format (ESEF) Regulation. The auditor’s report on

these financial statements provides no assurance over

the ESEF format.

DIRECTORS’ RESPONSIBILITY

STATEMENT

Each of the Directors (who are listed on pages 80 and

81) confirms that to the best of his or her knowledge:

–

The financial statements, which have been prepared

in accordance with the applicable set of accounting

standards, give a true and fair view of the assets,

liabilities, financial position and profit or loss of the

Company and the undertakings included in the

consolidation taken as a whole;

–

The Strategic Report and Directors’ Report,

together the management report, includes a fair

review of the development and performance of the

business and the position of the Company and the

undertakings included in the consolidation taken as

a whole, together with a description of the principal

risks and uncertainties that they face; and

–

As at the date of this Annual Report and financial

statements, there is no relevant audit information of

which the Company’s auditor is unaware. Each

Director has taken all the steps he or she should

have taken as a Director in order to make himself or

herself aware of any relevant audit information and

to establish that the Company’s auditor is aware of

that information.

We consider the Annual Report and financial

statements, taken as a whole, is fair, balanced and

understandable and provides the information necessary

for shareholders to assess the Group’s position and

performance, business model and strategy.

Signed on behalf of the Board of Directors:

PAUL KEEL

Chief Executive Officer

25 September 2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

116

SMITHS GROUP PLC ANNUAL REPORT FY2023

FINANCIAL STATEMENTS

KPMG LLP’S INDEPENDENT

AUDITOR’S REPORT

TO THE MEMBERS OF SMITHS GROUP PLC

WHAT OUR OPINION COVERS

We have audited the Group and Parent Company financial statements of Smiths Group Plc (“the Company”) for

the year ended 31 July 2023 (FY2023) included in the Annual Report, which comprise:

GROUP (SMITHS GROUP PLC AND ITS SUBSIDIARIES)

PARENT COMPANY (SMITHS GROUP PLC)

The consolidated income statement, consolidated

statement of comprehensive income, consolidated

balance sheet, consolidated statement of changes in

equity, consolidated cash-flow statement

Company balance sheet, Company statement of

changes in equity

Notes 1 to 31 to the Group financial statements,

including the accounting policies.

Notes 1 to 13 to the Parent Company financial

statements, including the accounting policies.

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable

law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient

and appropriate basis for our opinion. Our audit opinion and matters included in this report are consistent with

those discussed and included in our reporting to the Audit & Risk Committee (“ARC”).

We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with,

UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities.

FINANCIAL STATEMENTS

Independent auditor’s report

116

Consolidated primary statements

Consolidated income statement

130

Consolidated statement of comprehensive

income

131

Consolidated balance sheet

132

Consolidated statement of changes

in equity

133

Consolidated cash-flow statement

134

Basis of preparation

135

Key estimates and significant judgements

135

Sources of estimation uncertainty

135

Significant judgements made in applying

accounting policies

136

Significant accounting policies

137

New accounting standards effective 2023

143

New standards and interpretations

not yet adopted

143

Parent Company

143

Notes to the accounts

1 Segment information

144

2 Operating costs

147

Non-statutory profit measures

148

Net finance costs

150

Earnings per share

151

6 Taxation

151

7 Employees

153

8 Retirement benefits

154

Employee share schemes

161

10 Intangible assets

162

11 Impairment testing

163

12 Property, plant and equipment

165

13 Right of use assets

165

14 Financial assets – other investments

166

15 Inventories

166

16 Trade and other receivables

166

17 Trade and other payables

167

18 Borrowings and net debt

168

19 Financial risk management

169

20 Derivative financial instruments

176

21 Fair value of financial instruments

178

22 Commitments

179

23 Provisions and contingent liabilities

179

24 Share capital

183

25 Dividends

184

26 Reserves

184

27 Acquisitions

185

28 Cash-flow

185

Alternative performance measures and

key performance indicators

186

30 Post Balance Sheet Events

189

Audit exemption taken for subsidiaries

189

Unaudited five-year Group financial record

190

Unaudited US dollar primary statements

191

Smiths Group plc Company accounts

Company balance sheet

197

Company statement of changes in equity

198

Company accounting policies

199

Notes to the Company accounts

201

Subsidiary undertakings

205

1. OUR OPINION IS UNMODIFIED

In our opinion:

–

the financial statements of Smiths Group Plc give a true and fair view of the state of the Group’s and of

the Parent Company’s affairs as at 31 July 2023, and of the Group’s profit for the year then ended;

–

the Group financial statements have been properly prepared in accordance with UK-adopted

international accounting standards;

–

the Parent Company financial statements have been properly prepared in accordance with UK

accounting standards, including FRS 101 Reduced Disclosure Framework; and

–

the Group and Parent Company financial statements have been prepared in accordance with the

requirements of the Companies Act 2006.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

117

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

2. OVERVIEW OF OUR AUDIT

FACTORS DRIVING OUR

VIEW OF RISKS

Following our FY2022 audit, and considering developments affecting the Group since then, we have

updated our risk assessment decisions.

The Group recognises a goodwill balance in the Detection CGU of £630m which is subject to impairment

assessment annually. The impairment assessment relies on assumptions and estimates which are

subject to a high degree of uncertainty. These assumptions are sensitive to changes. Consistent with

FY2022, there is significant auditor judgement involved in evaluating the assumptions and our assessment

of the risk associated with this as a key audit matter remained consistent with the prior year.

The Group recognises a provision of £204m arising from ongoing asbestos litigation claims in John Crane

Inc. There are significant judgements and estimates involved in the assumptions underlying the provision

in respect of JCI asbestos litigation including the quantified projection period, the forecast number of

future claims and associated claim and defence costs respectively and complex estimation methodology.

Consistent with FY2022, there is significant auditor judgement involved in evaluating the assumptions and

our assessment of the risk associated with this as a key audit matter remained consistent with the prior

year.

The Parent company has material pension plan assets and liabilities, especially in the UK. Small changes

in the assumptions used to determine the liabilities, in particular those relating to discount rates, inflation

and mortality can have a significant impact on the valuation of the liabilities. The effect of these matters is

that we determined that the pension assumptions have a high degree of estimation uncertainty. Due to the

increase in discount rates in the year, the carrying value of the pension liability has reduced by £400m in

the year. Consequently, while there is significant auditor judgement involved in evaluating the assumptions,

our assessment of the risk associated with this as a key audit matter indicates a decrease in the potential

impact of a material misstatement on the Group financial statements in the current year.

Key Audit Matters

vs FY2022

Item

Recoverability of goodwill in respect of the

Smiths Detection CGU (a)

4.1

Estimation of litigation provisions for asbestos

in John Crane, Inc (a)

4.2

Defined benefit pension plan liabilities for SIPS (b)

4.3

(a) Key audit matter to the Group financial statements

(b) Key audit matter to the Parent Company financial statements

AUDIT COMMITTEE

INTERACTION

During the year, the ARC met 4 times. KPMG are invited to attend all ARC meetings and are provided with

an opportunity to meet with the ARC in private sessions without the Executive Directors being present. For

each key audit matter, we have set out communications with the ARC in section 6, including matters that

required particular judgement for each.

The matters included in the Audit & Risk Committee Chairman’s report on pages 93 and 94 are materially

consistent with our observations of those meetings.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

118

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

OUR INDEPENDENCE

We have fulfilled our ethical responsibilities and remain independent of the Group in accordance with UK

ethical requirements, including the FRC Ethical Standard as applied to listed public interest entities. Apart

from the matters noted below, we have not performed any non-audit services during the year ended

31 July 2023 or subsequently which are prohibited by the FRC Ethical Standard.

During 2023, we identified that certain KPMG member firms had provided preparation of local GAAP

financial statement services and, in some cases, foreign language translation services over the period

FY2020 to FY2023. Some of those entities to whom services were provided are and have been in scope for

the Group audit. The services, which have been terminated, were administrative in nature and did not

involve any management decision-making or bookkeeping. The work had no direct or indirect effect on

Smiths Group plc’s consolidated financial statements

In our professional judgment, we confirm that based on our assessment of the breach, our integrity and

objectivity as auditor has not been compromised and we believe that an objective, reasonable and

informed third party would conclude that the provision of this service would not impair our integrity or

objectivity for any of the impacted financial years. The Audit & Risk Committee concurred with this view.

We were first appointed as auditor by the shareholders for the year ended 31 July 2020. The period of total

uninterrupted engagement is for the four financial years ended 31 July 2023.

The Group engagement partner is required to rotate every 5 years. As these are the first set of the Group’s

financial statements signed by Mike Barradell, he will be required to rotate off after the FY2027 audit.

The average tenure of partners responsible for component audits as set out in section 7 below is 4 years,

with the shortest being 1 year and the longest being 4 years.

Total audit fee

£8.1m

Audit related fees (including interim review)

£8.4m

Other services

£0.1m

Non-audit fee as a % of total audit and audit related

fee %

1.2%

Date first appointed

13 November 2019

Uninterrupted audit tenure

4 years

Next financial period which requires a tender

2030

Tenure of Group engagement partner

1 year

Average tenure of component signing partners

4 years

MATERIALITY

(ITEM 6 BELOW)

The scope of our work is influenced by our view of materiality and our assessed risk of material

misstatement.

We have determined overall materiality for the Group financial statements as a whole at £18m (FY2022:

£16m) and for the Parent Company financial statements as a whole at £17.8m (FY2022: £15.8m).

A key judgement in determining materiality was the most relevant metric to select as the benchmark, by

considering which metrics have the greatest bearing on shareholder decisions.

Consistent with FY2022, we determined that Group profit before tax from continuing operations

normalised to exclude the effect of specific items as explained in section 5 of this report remains the

benchmark for the Group. We determined that normalised profit before tax remains the benchmark for

the Group as Smiths Group Plc is publicly traded and a profit seeking entity. The Group is well established

and operates in a stable environment across multiple geographies. The profitability and prospects for

future net cash inflows is important to the users of the financial statements. We based our Group

materiality on normalised PBTCO of £392m (FY2022: £314m), of which it represents 4.6% (FY2022: 5.1%).

Materiality for the Parent Company financial statements was determined with reference to a benchmark

of Parent Company total assets, limited to be less than materiality for Group materiality as a whole of

which it represents 0.4% (FY22: 0.4%).

MATERIALITY LEVELS USED IN OUR AUDIT

AMPT

LCM

PLC

HCM

GPM

Group

11.7

10.4

17.8

15.8

1.1

0.5

0.9

0.8

FY2023 £m

FY2022 £m

Group

Group Materiality

GPM

Group Performance Materiality

HCM

Highest Component Materiality

PLC

Parent Company Materiality

LCM

Lowest Component Materiality

AMPT

Audit Misstatement Posting Threshold

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

119

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

GROUP SCOPE

(ITEM 7 BELOW)

We have performed risk assessment and planning procedures to determine which of the Group’s

components are likely to include risks of material misstatement to the Group financial statements, the

type of procedures to be performed at these components and the extent of involvement required from our

component auditors around the world.

We subjected 7 (FY2022: 23) to full scope audits for Group purposes and 10 (FY2022:9) to specified

risk-focused audit procedures or audit of specific account balances. The components for which we

performed audit of specific account balances were not individually financially significant enough to require

a full scope audit for Group purposes but were included in the scope of our Group reporting work in order

to provide further coverage over the Group’s results.

The scope of the audit work performed was predominately substantive as we placed limited reliance

upon the Group’s internal control over financial reporting.

In the prior year, all components were identified based on the Group’s legal entities. In the current year,

we considered the Flex-Tek division as a single component, with the component auditor providing an

opinion on the sub-consolidation prepared at the division level. This change to component scoping

accounts for the reduction in the number of full scope components when compared to FY2022.

The components within the scope of our work accounted for the percentages illustrated opposite.

In addition, we have performed Group level analysis on the remaining components to determine

whether further risks of material misstatement exist in those components.

We consider the scope of our audit, as communicated to the Audit & Risk Committee, to be an

appropriate basis for our audit opinion.

COVERAGE OF GROUP FINANCIAL STATEMENTS

Profit

before tax

Full scope audits

62%

Audits of one or more account

balances

12%

Specified risk-focused audit

procedures

Remaining components

26%

Total

assets

Full scope audits

80%

Audits of one or more account

balances

Specified risk-focused audit

procedures

Remaining components

13%

Revenue

Full scope audits

56%

Audits of one or more account

balances

13%

Specified risk-focused audit

procedures

Remaining components

30%

THE IMPACT OF CLIMATE

CHANGE ON OUR AUDIT

We have considered the potential impacts of climate change on the financial statements as

part of planning our audit. As the Group has set out on page 47, climate change has the

potential to give rise to a number of transition risks and opportunities and physical risks and

opportunities. The Group has stated their commitment to achieve Net Zero for Scope 1 & 2

emissions by 2040 and to achieve Net Zero for Scope 3 emissions by 2050. The areas of the

financial statements that are most likely to be potentially affected by climate related changes

and initiatives are future loss of revenue due to supply chain challenges. The Group

considered the impact of climate change and the Group’s targets in the preparation of the

financial statements, as described on page 47 and concluded this did not have a material

effect on the consolidated financial statements. We performed a risk assessment, taking into

account climate change risks and the commitments made by the Group. We held inquiries of

management regarding their processes for assessing the potential impact of climate change

risk on the Group’s financial statements and held discussions with our own climate change

professionals to challenge our risk assessment.

Based on our risk assessment we determined that that there was no significant impact of

climate change on our key audit matters included in section 4 or other key areas of the audit.

We have read the Group’s disclosure of climate related information in the front half of the

Annual Report as set out on pages 47 to 57 and considered consistency with the financial

statements and our audit knowledge.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

120

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

3. GOING CONCERN, VIABILITY AND PRINCIPAL RISKS AND UNCERTAINTIES

The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the Parent Company or to cease their operations, and as they have concluded that the Group’s and the

Parent Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a

year from the date of approval of the financial statements (“the going concern period”).

GOING CONCERN

We used our knowledge of the Group, its industry, and the general economic environment to identify the inherent

risks to its business model and analysed how those risks might affect the Group’s and Parent Company’s

financial resources or ability to continue operations over the going concern period. The risks that we considered

most likely to adversely affect the Group’s and Parent Company’s available financial resources over this

period were:

–

Adverse trading conditions and impact on the Group’s operations or that of its suppliers and customers,

such as delays and cancellations of orders and deliveries, driven by geo-political and economic factors,

resulting in a significant deterioration in the Group’s liquidity position.

–

Product quality failure which would result in reputational damage amongst customers and therefore

reduction in orders and customer loss as well as potential significant liability claims raised against

the Group.

We considered whether these risks could plausibly affect the liquidity or covenant compliance in the going

concern period by comparing severe but plausible downside scenarios that could arise from these risks

individually and collectively against the level of available financial resources and covenant thresholds indicated

by the Group’s financial forecasts. We also assessed the completeness of the going concern disclosure.

Accordingly, based on those procedures, we found the Directors’ use of the going concern basis of accounting

without any material uncertainty for the Group and Parent Company to be acceptable. However, as we cannot

predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent

with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee

that the Group or the Parent Company will continue in operation.

OUR CONCLUSIONS

–

We consider that the Directors’ use of the going concern basis of accounting in the preparation of the

financial statements is appropriate;

–

We have not identified, and concur with the Directors’ assessment that there is not a material uncertainty

related to events or conditions that, individually or collectively, may cast significant doubt on the Group’s or

Parent Company’s ability to continue as a going concern for the going concern period;

–

We have nothing material to add or draw attention to in relation to the Directors’ statement on page 135 on

the use of the going concern basis of accounting with no material uncertainties that may cast significant

doubt over the Group and Parent Company’s use of that basis for the going concern period, and we found

the going concern disclosure on page 135 to be acceptable; and

–

The related statement under the Listing Rules set out on page 75 is materially consistent with the financial

statements and our audit knowledge.

DISCLOSURES OF EMERGING AND PRINCIPAL RISKS AND LONGER-TERM VIABILITY

OUR RESPONSIBILITY

We are required to perform procedures to identify whether there is a material inconsistency between the

Directors’ disclosures in respect of emerging and principal risks and the viability statement, and the financial

statements and our audit knowledge.

Based on those procedures, we have nothing material to add or draw attention to in relation to:

–

the Directors’ confirmation within the going concern and viability statement on page 75 that they have

carried out a robust assessment of the emerging and principal risks facing the Group, including those that

would threaten its business model, future performance, solvency and liquidity;

–

risk management disclosures describing these risks and how emerging risks are identified and explaining

how they are being managed and mitigated; and

–

the Directors’ explanation in the going concern and viability statement of how they have assessed the

prospects of the Group, over what period they have done so and why they considered that period to be

appropriate, and their statement as to whether they have a reasonable expectation that the Group will be

able to continue in operation and meet its liabilities as they fall due over the period of their assessment,

including any related disclosures drawing attention to any necessary qualifications or assumptions.

We are also required to review the viability statement set out on page 75 under the Listing Rules.

Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial

statements audit. As we cannot predict all future events or conditions and as subsequent events may result in

outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence

of anything to report on these statements is not a guarantee as to the Group’s and Parent Company’s longer-

term viability.

OUR REPORTING

We have nothing material to add or draw attention to in relation to these disclosures.

We have concluded that these disclosures are materially consistent with the financial statements and our

audit knowledge.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

121

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

4. KEY AUDIT MATTERS

WHAT WE MEAN

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of

the financial statements and include the most significant assessed risks of material misstatement (whether or

not due to fraud) identified by us, including those which had the greatest effect on:

–

the overall audit strategy;

–

the allocation of resources in the audit; and

–

directing the efforts of the engagement team.

We include below the key audit matters in decreasing order of audit significance together with our key audit procedures to address those matters and our results from those procedures. These matters were addressed, and

our results are based on procedures undertaken, for the purpose of our audit of the financial statements as a whole. We do not provide a separate opinion on these matters.

4.1 VALUATION OF GOODWILL FOR DETECTION DIVISION (GROUP)

FINANCIAL STATEMENT ELEMENTS

FY2023

FY2022

Carrying Value of Goodwill

£630m

£644m

OUR ASSESSMENT OF RISK VS FY2022

We have not identified any significant changes to our assessment of

the level of risk relating to Valuation of Goodwill for the Detection

division compared to FY2022

OUR RESULTS

FY2023: Acceptable

FY2022: Acceptable

DESCRIPTION OF THE KEY AUDIT MATTER

Forecast-based assessment

The Group holds a significant amount of goodwill, especially in relation to the Smiths Detection cash generating

unit (CGU). The value in use calculation for the CGU, which represents the estimated recoverable amount, is

subjective due to the inherent uncertainty involved in forecasting and discounting estimated future cash flows

(specifically the key assumptions –discount rate, projected cost inflation and 5 year revenue growth). The effect

of these matters is that, as part of our risk assessment, we determined that the value in use of the Smiths

Detection CGU has a high degree of estimation uncertainty, with a potential range of reasonable outcomes

greater than our materiality for the financial statements as a whole, and possibly many times that amount.

OUR RESPONSE TO THE RISK

We performed the tests below rather than seeking to rely on any of the group’s controls because the nature

of the balance is such that we would expect to obtain audit evidence primarily through the detailed

procedures described.

Our procedures to address the risk included:

Benchmarking assumptions and historical comparison:

Assessing and challenging the key assumptions

through retrospective review and comparison to external industry forecast.

Our sector experience:

Using our valuations specialists to challenge the appropriateness of discount rates by

deriving our own independent range and using external market data to challenge the Group’s assumption of

5-year revenue growth rates and EBIT margin.

Comparing valuations:

Using our valuation specialist, we developed an independent valuation of the CGU’s value

in use. In doing so, we considered relevance and reliability of expected enterprise valuations per analyst reports

and comparable companies’ earnings multiple.

Sensitivity analysis:

We performed sensitivity analysis on key assumptions of discount rate, revenue growth rate

and EBIT margin projection

Assessing transparency:

We assessed whether the Group’s disclosures in respect of the judgement and

estimates around goodwill recoverability for the Smiths Detection CGU, including disclosures of the sensitivity in

the value in use calculations to changes in key assumptions

COMMUNICATIONS WITH THE SMITHS GROUP PLC’S AUDIT & RISK COMMITTEE

Our discussions with and reporting to the Audit & Risk Committee included:

–

Our audit procedures relying fully on substantive audit procedures including engaging our valuation

specialist team to test key assumptions in the impairment model.

–

Our conclusion on the overall assessment of the assumptions underlying the impairment model.

–

Our assessment of the adequacy of the disclosures in the financial statements particularly as it

relates to sensitivity of the recoverable amount of the goodwill to changes in key assumptions.

AREAS OF PARTICULAR AUDITOR JUDGEMENT

We identified the following as the areas of particular auditor judgement:

–

Estimate of the cumulative average revenue growth rate including estimate of EBIT margin projections

over the forecast period being within a range we consider to be reasonable.

–

Whether the discount rate used in the impairment model falls within an acceptable range.

OUR RESULTS

We found the Group’s conclusion that there is no impairment of goodwill to be acceptable (FY2022 result:

acceptable). We found the sensitivity disclosures made to be acceptable (FY2022 result: acceptable).

Further information in the Annual Report and Accounts: See the Audit & Risk Committee Report on page 93 for details on how the Audit & Risk Committee considered Valuation of Goodwill for Detection Division as an area of

significant attention, page 140 for the accounting policy on Valuation of Goodwill for Detection Division, and page 163 note 11 for the financial disclosures.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

122

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

4.2 ESTIMATION OF LITIGATION PROVISIONS FOR ASBESTOS IN JOHN CRANE, INC. (GROUP)

FINANCIAL STATEMENT ELEMENTS

OUR ASSESSMENT OF RISK VS FY2022

OUR RESULTS

FY2023

FY2022

Estimation of litigations provision for John

Crane, Inc. (‘JCI’) asbestos

£204m

£229m

We have not identified any significant changes to our assessment of

the level of risk relating to Estimation of litigation provisions for

asbestos in John Crane, Inc. compared to FY2022

FY2023: Acceptable

FY2022: Acceptable

DESCRIPTION OF THE KEY AUDIT MATTER

Subjective estimate

There are significant judgements and estimates involved in the assumptions underlying the provision in respect

of JCI asbestos litigation including the quantified projection period, the forecast number of future claims and

associated claim and defence costs respectively and complex estimation methodology.

The effect of these matters is that, as part of our risk assessment, we determined that the asbestos litigation

provision has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater

than our materiality for the financial statements as a whole.

OUR RESPONSE TO THE RISK

We performed the tests below rather than seeking to rely on any of the Group’s controls because the nature

of the balance is such that we would expect to obtain audit evidence primarily through the detailed

procedures described.

Our procedures to address the risk included:

Our actuarial expertise:

Challenging the key judgement of the ten-year projection period using our own

actuarial specialist and our sector knowledge and expertise.

Benchmarking assumptions:

Using our own actuarial specialists, we derived our own independent range of the

estimated provision. We challenged the Group’s assumptions underlying the asbestos provision relying on

industry trends across comparable peer companies, and effect of inflation and discount rate assumptions

through comparison to external market data.

Enquiry of lawyers:

Obtaining external independent legal confirmations of historical and ongoing claims data

used by the Group’s management expert for estimating the future projected cost and claims.

Assessment of management’s expert:

Assessing the competency, knowledge and independence of the expert

using our own specialist.

Assessing methodology:

Using our own actuarial specialists, we evaluated the methodology applied by

management to the estimation to assess whether the methodology utilised is in line with industry practice.

Historical comparison:

Assessing and challenging the projected indemnity and defence expenditure through

retrospective review of incurred cost.

Assessing transparency:

Assessing whether the disclosures of the effect of reasonably possible changes in

key judgements and assumptions reflects the risks inherent in the provision’s estimation.

COMMUNICATIONS WITH THE SMITHS GROUP PLC’S AUDIT & RISK COMMITTEE

Our discussions with and reporting to the Audit & Risk Committee included:

–

Our audit procedures relying fully on substantive audit procedures including engaging our valuation

specialist team to test the reasonableness of the provision recognised in the year

–

Our conclusion on the overall assessment of the assumptions supporting the litigation provision

–

Our assessment of the adequacy of the related disclosures in the financial statements

AREAS OF PARTICULAR AUDITOR JUDGEMENT

We identified the following as the areas of particular auditor judgement:

–

Appropriateness of ten-year projection period for the estimation of the litigation liability

–

Range of possible outcome on litigation provision based on outcome of court judgements from ongoing

litigation claims

OUR RESULTS

We found the level of litigation provisioning and related disclosures in the financial statements in respect of

John Crane Inc. asbestos litigation to be acceptable (FY2022: acceptable).

Further information in the Annual Report and Accounts: See the Audit & Risk Committee Report on page 93 for details on how the Audit & Risk Committee considered estimation of litigation provision for asbestos in John Crane Inc

as an area of significant attention, page 135 for the accounting policy on estimation of litigation provision for asbestos in John Crane Inc , and page 179 note 23 for the financial disclosures.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

123

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

4.3 VALUATION OF UK DEFINED BENEFIT SIPS PENSION SCHEME LIABILITIES (PARENT COMPANY)

FINANCIAL STATEMENT ELEMENTS

OUR ASSESSMENT OF RISK VS FY2022

OUR RESULTS

FY2023

FY2022

UK defined benefit SIPS pension scheme

liabilities

£1,251m

£1,603m

We noted a significant reduction in the value of UK defined benefit SIPS

pension scheme liabilities and consequently a reduction in the

potential impact of a material misstatement on the financial statement.

FY2023: Acceptable

FY2022: Acceptable

DESCRIPTION OF THE KEY AUDIT MATTER

Subjective valuation and significant transaction

The Parent Company has material pension plan assets and liabilities, especially in the UK. Small changes in the

assumptions used to determine the liabilities, in particular those relating to discount rates, inflation and

mortality can have a significant impact on the valuation of the liabilities.

The effect of these matters is that we determined that the pension assumptions have a high degree of estimation

uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial

statements as a whole, and possibly many times that amount. We draw out amounts recognised and

corresponding disclosures made in respect of uncertainties surrounding effective equalisation of benefits as a

key audit matter for the Parent Company in our auditor’s report.

OUR RESPONSE TO THE RISK

We performed the tests below rather than seeking to rely on any of the Company’s controls because the

nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed

procedures described.

Our procedures to address the risk included:

Benchmarking assumptions:

Challenging the key assumptions applied in the calculation of the liability, including

the discount rates, inflation rates, mortality and pension increases with the support of our own actuarial

specialists by comparing the Company’s estimate of these assumptions against market data.

Assessing actuary’s credentials:

Assessing the competence, independence and integrity of the scheme’s

actuary.

Inspection of relevant documents:

Inspecting legal advices, trustee communications and valuation documents

to assess whether the amounts in relation to equalisation of retirement ages between men and women are

accounted appropriately in the current year in accordance with the requirement of IAS 19 using our own actuarial

specialists and our sector knowledge and expertise.

Assessing legal advisor’s credentials:

Assessing the competence, independence and integrity of the Trustee’s

and Company’s legal advisors.

Assessing transparency:

Assessing the adequacy of the disclosures in respect of the sensitivity of the obligation

to key assumptions and uncertainties in respect of equalisation of benefits.

COMMUNICATIONS WITH THE SMITHS GROUP PLC’S AUDIT & RISK COMMITTEE

Our discussions with and reporting to the Audit & Risk Committee included:

–

Our conclusion on the overall assessment of the assumptions and key judgements supporting the

estimation of the defined benefit obligation.

–

Our assessment of the adequacy of the disclosures in the financial statements.

AREAS OF PARTICULAR AUDITOR JUDGEMENT

We identified the following as the areas of particular auditor judgement:

–

Assessment of the assumptions supporting the defined benefit obligation.

–

Assessment of the appropriateness of the amounts recognised and corresponding disclosures made in

respect of uncertainties surrounding effective equalisation of retirement ages between men and women.

OUR RESULTS

We found the valuation of the pension scheme liabilities of SIPS scheme and the amounts and corresponding

disclosures made in respect of uncertainties surrounding effective equalisation of benefits to be acceptable

(FY2022: acceptable).

Further information in the Annual Report and Accounts: See the Audit & Risk Committee Report on page 93 for details on how the Audit & Risk Committee considered valuation of UK defined benefit SIPS pension scheme liabilities

as an area of significant attention, page 140 for the accounting policy on valuation of UK defined benefit SIPS pension scheme liabilities, and page 154 note 8 for the financial disclosures.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

124

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

5. OUR ABILITY TO DETECT IRREGULARITIES, AND OUR RESPONSE

FRAUD – IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT DUE TO FRAUD

FRAUD RISK ASSESSMENT

To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an

opportunity to commit fraud. Our risk assessment procedures included:

–

Enquiring of Directors, the Audit & Risk Committee, internal audit and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent and

detect fraud, including the internal audit function, and the Group’s channel for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged

fraud.

–

Reading Board, Audit & Risk, Disclosure, Transactions, Nomination & Governance, Remuneration & People, Finance Committee minutes.

–

Considering remuneration incentive schemes and performance targets for management and Directors including the organic revenue growth targets and EPS target for

management remuneration.

–

Using analytical procedures to identify any unusual or unexpected relationships

RISK COMMUNICATIONS

We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the Group to full

scope and audit of specific account balances scope component audit teams of relevant fraud risks identified at the Group level and requesting the full scope and audit account balance

scope component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at Group.

FRAUD RISKS

As required by auditing standards and taking into account possible pressures to meet profit targets, and our overall knowledge of the control environment, we perform procedures to

address the risk of management override of controls and the risk of fraudulent revenue recognition, in particular in the Smiths Detection Inc, USA and Smiths Detection Germany GmbH

components. Within these components a significant portion of multi-year contracts (programme revenue) revenue is normally recognised in the last month of the year. Therefore, there is

a risk of revenue being overstated during the year end closing period through the manipulation of the timing of recording of revenue from such pressure. We did not identify any additional

fraud risks.

PROCEDURES TO ADDRESS

FRAUD RISKS

We performed procedures including:

–

Identifying journal entries to test for all components within full scope and audit of specific account balances scope based on risk criteria and comparing the identified entries to

supporting documentation. These included unusual entries in revenue accounts, cash and cash equivalents or borrowings accounts and entries posted by senior finance

management.

–

Testing consolidation adjustment entries posted and comparing the identified entries to supporting documentation.

–

Specified procedures to be completed by relevant component teams over period end revenue recognition procedures. These procedures included tests over pre-year end and

post year end revenue transactions

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

125

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

LAWS AND REGULATIONS – IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL MISSTATEMENT RELATING TO COMPLIANCE WITH LAWS AND REGULATIONS

LAWS AND REGULATIONS

RISK ASSESSMENT

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience,

through discussion with the Directors and other management (as required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence and discussed

with the Directors and other management the policies and procedures regarding compliance with laws and regulations.

As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory

requirements.

RISK COMMUNICATIONS

We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from

the Group audit team to full-scope component audit teams of relevant laws and regulations identified at the Group level, and a request for full scope component auditors to report to the

Group team any instances of non-compliance with laws and regulations that could give rise to a material misstatement at Group level.

DIRECT LAWS CONTEXT AND

LINK TO AUDIT

The potential effect of these laws and regulations on the financial statements varies considerably.

Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation),

distributable profits legislation, taxation legislation and pensions legislation, and we assessed the extent of compliance with these laws and regulations as part of our procedures on the

related financial statement items.

MOST SIGNIFICANT

INDIRECT LAW/REGULATION

AREAS

Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial

statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery and

corruption, considering dealings with government customers, employment law, and certain aspects of company legislation

Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors and other management and inspection of

regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect

that breach.

CONTEXT

CONTEXT OF THE ABILITY

OF THE AUDIT TO DETECT

FRAUD OR BREACHES OF

LAW OR REGULATION

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have

properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and

transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.

In addition, as with any audit, there

remained a higher risk of non-detection of fraud, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit

procedures are designed to detect material misstatement.

We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws

and regulations.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

126

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

6. OUR DETERMINATION OF MATERIALITY

The scope of our audit was influenced by our application of materiality. We set quantitative thresholds and overlay qualitative considerations to help us determine the scope of our audit and the nature, timing and extent of our

procedures, and in evaluating the effect of misstatements, both individually and in the aggregate, on the financial statements as a whole.

£18M

(FY2022: £16M)

MATERIALITY FOR THE

GROUP FINANCIAL

STATEMENTS AS A WHOLE

What we mean

A quantitative reference for the purpose of planning and performing our audit.

Basis for determining materiality and judgements applied

Materiality for the Group financial statements as a whole was set at £18m (FY2022: £16m).

This was determined with reference to a benchmark of Group normalised profit before tax

from continuing operations (‘PBTCO’).

Consistent with FY2022, we determined that Group normalised PBTCO remains the main

benchmark for the Group.

We determined that normalised profit before tax remains the

benchmark for the Group as Smiths Group Plc is publicly traded and a profit seeking entity.

The Group is well established and operates in a stable environment across multiple

geographies. The profitability and prospects for future net cash inflows is important to the

users of the financial statements.

We normalised PBTCO (FY2022: normalised PBTCO) for these items because they do not

represent the normal, continuing operations of the Group. In making the adjustments for the

current year, we excluded

the net credit of £4m due to the retirement benefit obligation past

service equalisation costs (note 8 of the financial statements) and added back restructuring

costs of £36 million (note 3 of the financial statements). (FY2022: PBTCO was normalised to

exclude foreign exchange gain on intercompany loan with discontinued operations of

£22 million, retirement benefit scheme settlement loss £171 million, past service equalisation

cost £43 million and impairment of assets £19 million). As such, we based our Group

materiality on Group normalised PBTCO of £392m (FY2022: £314m).

Our Group materiality of £18m was determined by applying a percentage to the normalised

PBTCO. When using a benchmark of normalised PBTCO to determine overall materiality,

KPMG’s approach for listed entities considers a guideline range 3% – 5% of the measure. In

setting overall Group materiality, we applied a percentage of 4.6% (FY2022: 5%) to the

benchmark.

Materiality for the Parent Company financial statements as a whole was set at £17.8m

(FY2022: £15.8m), determined with reference to a benchmark of Parent Company total assets,

of which it represents 0.4% (FY2022: 0.4%).

£11.7M

(FY2022: £10.4M

PERFORMANCE

MATERIALITY

What we mean

Our procedures on individual account balances and disclosures were performed to a lower

threshold, performance materiality, so as to reduce to an acceptable level the risk that

individually immaterial misstatements in individual account balances add up to a material

amount across the financial statements as a whole.

Basis for determining performance materiality and judgements applied

We have considered performance materiality at a level of 65% (FY2022: 65%) of materiality for

Smiths Group Plc Group financial statements as a whole to be appropriate.

The Parent Company performance materiality was set at £11.5m (FY2022: £10.2m), which

equates to 64.6% (FY2022: 64.6%) of materiality for the Parent Company financial statements

as a whole.

We applied this percentage in our determination of performance materiality because we did

not identify any factors indicating an elevated level of risk.

£0.89M

(FY2022: £0.79M)

AUDIT MISSTATEMENT

POSTING THRESHOLD

What we mean

This is the amount below which identified misstatements are considered to be clearly trivial

from a quantitative point of view. We may become aware of misstatements below this

threshold which could alter the nature, timing and scope of our audit procedures, for example

if we identify smaller misstatements which are indicators of fraud.

This is also the amount above which all misstatements identified are communicated to Smiths

Group plc’s Audit & Risk Committee.

Basis for determining the audit misstatement posting threshold and

judgements applied

We set our audit misstatement posting threshold at 5% (FY2022: 5%) of our materiality for the

Group financial statements. We also report to the Audit & Risk Committee any other identified

misstatements that warrant reporting on qualitative grounds.

The overall materiality for the Group financial statements of £18m (FY2022: £16m) compares as follows to the main financial statement caption amounts:

Total Group revenue

Group profit before tax

Total Group assets

FY2023

FY2022

FY2023

FY2022

FY2023

FY2022

Financial statement caption

£3,037m

£2,566m

£392m

£314m

£4,355m

£5,223m

Group materiality as % of caption

0.6%

4.6%

0.4%

0.3%

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

127

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

7. THE SCOPE OF OUR AUDIT

GROUP SCOPE

What we mean

How the Group audit team determined the procedures to be performed across the Group.

The Group operates in more than 50 countries across six continents with the largest

footprints being in the US, Europe and Asia. The Group is organised into four divisions: John

Crane, Smiths Detection, Flex-Tek and Smiths Interconnect which is a consolidation of over

200 reporting components. We scoped the audit by obtaining an understanding of the Group

and its environment and assessing the risk of material misstatement at the Group level. We

have considered components based on their contribution to Group revenue; Group assets

and Group profit before tax for continuing operations including whether we had sufficient

coverage over each division and the specific risks in the components.

Of the Group’s 208 (2022: 253) reporting components, we subjected 7 (2022: 23) to full scope

audits for Group purposes and 9 (2022:9) to specified risk-focused audit procedures or audit

of specific account balances. In the prior year, all components were identified based on the

Group’s legal entities.

In the current year, we considered the Flex-Tek division as a single

reporting component, with the component auditor providing an opinion on the sub-

consolidation prepared at the division level.

This change to component scoping accounts for

the reduction in the number of full scope components when compared to FY2022.

The components for which we performed audit of specific account balances were not

individually financially significant enough to require a full scope audit for Group purposes but

were included in the scope of our Group reporting work in order to provide further coverage

over the Group’s results. The audit of account balance has been completed for revenue,

trade receivables and cash and cash equivalents accounts.

The components for which we performed specified risk-focused audit procedures were not

individually financially significant enough to require an audit for Group reporting purposes

but did present specific individual risks that needed to be addressed. Specified risk-focused

audit procedures were performed over a number of areas, including litigation provisions and

defined benefit pension assets and liabilities.

The remaining 30% (FY2022: 26%) of total Group revenue, 26% (FY2022: 18%) of Group profit

before tax and 13% (FY2022: 25%) of total Group assets is represented by 191 (FY2022: 221)

of reporting components, none of which individually represented more than 10% (FY2022:

10%) of any of total Group revenue, Group profit before tax or total Group assets. For these

components, we performed analysis at an aggregated group level to re-examine our

assessment that there were no significant risks of material misstatement within these.

We instructed 7 (FY2022: 23) reporting components to perform full scope audits for Group

purposes, 3 reporting components (FY2022: 2) to perform specified audit procedures and 7

reporting components (FY2022: 7) to perform audit of account balances. The component

materiality for all components ranged from £1.1m to £17.8m (FY2022: £0.6m to £15.8m).

Please see table below for a summary

Scope

Number of components

Range of materiality applied

Full scope audits

£17.8m – £3.5m

Audit of one or more account balances

£3m – £1.1m

Specified risk focused audit procedures

£3m – £1.2m

The Group audit team has also performed audit procedures on the following areas on behalf

of the components:

–

Intercompany balances and transactions

–

Data and analytics

i. Revenue data and analytics routines

ii. Journal entry analysis

–

IT Audit involvement over:

i. Understanding of information technology environment

ii. Test of design and implementation over general IT controls

iii.Test of design and implementation over automated controls

–

Control environment, risk assessment, monitoring and information and communication

components (CERAMIC) of internal control over financial reporting (ICFR)

–

Review of transfer pricing arrangements across the Group

These items were audited by the Group team because of the centralised nature of the data

processing activities within the Group. The Group team communicated the results of these

procedures to the component teams.

The table below shows the summary of the Group reporting scope coverage in the year.

FY2023

Group

revenue

Group profit

before tax

Group

total assets

Full scope audits

56%

62%

80%

Audit of one or more account balances

13%

12%

Specified risk focused audit procedures

–

Remaining components

30%

26%

13%

FY2022

Full scope audits

57%

76%

68%

Audit of one or more account balances

17%

Specified risk focused audit procedures

–

Remaining components

26%

18%

25%

In addition, we have performed Group level analysis on the remaining components to

determine whether further risks of material misstatement exist in those components.

The scope of the audit work performed was predominately substantive as we placed limited

reliance upon the Group’s internal control over financial reporting.

For those items excluded from normalised PBTCO, the component teams performed

procedures on items relating to their components. The Group team performed procedures

on the remaining excluded items.

The Group team instructed component auditors as to the significant areas to be covered,

including the relevant risks detailed above and the information to be reported back.

The

Group team approved the component materialities, as detailed in the table above, having

regard to the mix of size and risk profile of the Group across the components.

The work on 14 of the 17 components (FY2022: 30 of the 32 components) was performed by

component auditors and the rest, including the audit of the Parent Company, was performed

by the Group team.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

128

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

GROUP AUDIT TEAM

OVERSIGHT

What we mean

The extent of the Group audit team’s involvement in component audits.

In working with component auditors, we:

–

Held planning calls with component audit teams to discuss the significant areas of the

audit relevant to the components.

–

Issued Group audit instructions to component auditors on the scope of their work.

–

Held risk assessment update discussions with all component audit teams before the

commencement of the final phases of the audit led by the Group engagement partner.

–

Visited 6 (FY2022: Nil) components in-person as the audit progressed to understand

and challenge the audit approach and organised 4 video conferences with the partners

and directors of the Group and component audit teams. At these visits and/ meetings/

and video conferences, the findings reported to the Group team were discussed in

more detail, and any further work required by the Group team was then performed by

the component audit teams. The Group team also attended the audit close meetings

for all component teams.

–

Inspection of component audit teams’ key work papers in person or using remote

technology capabilities to evaluate the quality of execution of the audits of the

components.

8. OTHER INFORMATION IN THE ANNUAL REPORT

The Directors are responsible for the other information presented in the Annual Report together with the financial statements.

Our opinion on the financial statements does not cover the other information and, accordingly, we do

not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

ALL OTHER INFORMATION

OUR RESPONSIBILITY

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information

therein is materially misstated or inconsistent with the financial statements or our audit knowledge.

OUR REPORTING

Based solely on that work we have not identified material

misstatements or inconsistencies in the other information.

STRATEGIC REPORT AND DIRECTORS’ REPORT

OUR RESPONSIBILITY AND REPORTING

Based solely on our work on the other information described above we report to you as follows:

–

we have not identified material misstatements in the Strategic Report and the Directors’ Report;

–

in our opinion the information given in those reports for the financial

year is consistent with the financial statements; and

–

in our opinion those reports have been prepared in accordance with

the Companies Act 2006.

DIRECTORS’ REMUNERATION REPORT

OUR RESPONSIBILITY

We are required to form an opinion as to whether the part of the Directors’ Remuneration Report to be audited has been properly prepared in

accordance with the Companies Act 2006.

OUR REPORTING

In our opinion the part of the Directors’ Remuneration Report to be

audited has been properly prepared in accordance with the Companies

Act 2006.

CORPORATE GOVERNANCE DISCLOSURES

OUR RESPONSIBILITY

We are required to perform procedures to identify whether there is a material inconsistency between the financial statements and our audit

knowledge, and:

–

the Directors’ statement that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and

understandable, and provides the information necessary for shareholders to assess the Group’s position and performance, business model

and strategy;

–

the section of the Annual Report describing the work of the Audit & Risk Committee, including the significant issues that the Audit & Risk

Committee considered in relation to the financial statements, and how these issues were addressed; and

–

the section of the Annual Report that describes the review of the effectiveness of the Group’s risk management and internal control systems.

OUR REPORTING

Based on those procedures, we have concluded that each of these

disclosures is materially consistent with the financial statements and our

audit knowledge.

We are also required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK

Corporate Governance Code specified by the Listing Rules for our review.

We have nothing to report in this respect.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

129

SMITHS GROUP PLC ANNUAL REPORT FY2023

KPMG LLP’S INDEPENDENT AUDITOR’S REPORT

CONTINUED

OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

OUR RESPONSIBILITY

Under the Companies Act 2006, we are required to report to you if, in our opinion:

–

adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from

branches not visited by us; or

–

the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the

accounting records and returns; or

–

certain disclosures of Directors’ remuneration specified by law are not made; or

–

we have not received all the information and explanations we require for our audit.

OUR REPORTING

We have nothing to report in these respects.

9. RESPECTIVE RESPONSIBILITIES

DIRECTORS’ RESPONSIBILITIES

As explained more fully in their statement set out on page 115, the Directors are responsible for: the preparation

of the financial statements including being satisfied that they give a true and fair view; such internal control as

they determine is necessary to enable the preparation of financial statements that are free from material

misstatement, whether due to fraud or error; assessing the Group and Parent Company’s ability to continue as a

going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of

accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or

have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free

from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report.

Reasonable assurance is a high level of assurance but does not guarantee that an audit conducted in accordance

with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or

error and are considered material if, individually or in aggregate, they could reasonably be expected to influence

the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/

auditorsresponsibilities.

The Company is required to include these financial statements in an annual financial report prepared using the

single electronic reporting format specified in the TD ESEF Regulation.

This auditor’s report provides no

assurance over whether the annual financial report has been prepared in accordance with that format.

10. THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE OWE OUR

RESPONSIBILITIES

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the

Companies Act 2006.

Our audit work has been undertaken so that we might state to the Company’s members

those matters we are required to state to them in an auditor’s report and for no other purpose.

To the fullest

extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the

Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

MIKE BARRADELL

(Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

15 Canada Square, London E14 5GL

25 September 2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

CONSOLIDATED PRIMARY STATEMENTS

CONSOLIDATED INCOME STATEMENT

Year ended 31 July 2023

Year ended 31 July 2022

Notes

Headline

£m

Non-headline

(note 3)

£m

Total

£m

Headline

£m

Non-headline

(note 3)

£m

Total

£m

CONTINUING OPERATIONS

Revenue

3,037

–

3,037

2,566

–

2,566

Operating costs

(2,536)

(98)

(2,634)

(2,149)

(300)

(2,449)

Operating profit/(loss)

501

(98)

403

417

(300)

117

Interest income

–

Interest expense

(71)

(7)

(78)

(55)

–

(55)

Other financing (losses)/gains

–

(8)

–

Other finance income – retirement benefits

–

Finance (costs)/income

(35)

(8)

(43)

(41)

(14)

Profit/(loss) before taxation

466

(106)

360

376

(273)

103

Taxation

(121)

(13)

(134)

(104)

(90)

Profit/(loss) for the year

345

(119)

226

272

(259)

DISCONTINUED OPERATIONS

Profit from discontinued operations

–

973

1,022

PROFIT/(LOSS) FOR THE YEAR

345

(113)

232

321

714

1,035

Profit/(loss) for the year attributable to:

Smiths Group shareholders – continuing operations

344

(119)

225

270

(259)

Smiths Group shareholders – discontinued operations

–

973

1,022

Non-controlling interests

–

345

(113)

232

321

714

1,035

EARNINGS PER SHARE

Basic

65.5p

267.1p

Basic – continuing

63.8p

2.8p

Diluted

65.1p

266.0p

Diluted – continuing

63.4p

2.8p

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 144 to 189, which form an integral part of the consolidated accounts.

130

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

CONSOLIDATED PRIMARY STATEMENTS

CONTINUED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Notes

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

PROFIT FOR THE YEAR

232

1,035

Other comprehensive income (OCI)

OCI which will not be reclassified to the income statement:

Re-measurement of retirement benefit assets and obligations

(114)

(17)

Taxation on post-retirement benefit movements

–

Fair value movements on financial assets at fair value through OCI

(18)

(63)

(100)

(80)

OCI which will be reclassified and reclassifications:

Fair value gains and reclassification adjustments:

– deferred in the period on cash-flow and net investment hedges

(82)

– reclassified to income statement on cash-flow and net investment hedges

(77)

Foreign exchange (FX) movements net of recycling:

Exchange (losses)/gains on translation of foreign operations

(101)

276

Exchange gains recycled to the income statement on disposal of business

–

(196)

(101)

Total other comprehensive income, net of taxation

(187)

(77)

Total comprehensive income

958

Attributable to:

Smiths Group shareholders

957

Non-controlling interests

(1)

958

Total comprehensive income attributable to Smiths Group shareholders arising from:

Continuing operations

131

Discontinued operations

827

958

131

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

CONSOLIDATED PRIMARY STATEMENTS

CONTINUED

CONSOLIDATED BALANCE SHEET

Notes

31 July 2023

£m

31 July 2022

£m

NON-CURRENT ASSETS

Intangible assets

1,521

1,588

Property, plant and equipment

247

243

Right of use assets

105

106

Financial assets – other investments

371

395

Retirement benefit assets

195

309

Deferred tax assets

Trade and other receivables

2,609

2,805

CURRENT ASSETS

Inventories

637

570

Current tax receivable

Trade and other receivables

772

738

Cash and cash equivalents

285

1,056

Financial derivatives

1,746

2,418

TOTAL ASSETS

4,355

5,223

CURRENT LIABILITIES

Financial liabilities:

– borrowings

(3)

(509)

– lease liabilities

(26)

(29)

– financial derivatives

(2)

(27)

Provisions

(70)

(88)

Trade and other payables

(723)

(682)

Current tax payable

(74)

(64)

(898)

(1,399)

NON-CURRENT LIABILITIES

Financial liabilities:

– borrowings

(534)

(538)

– lease liabilities

(91)

(90)

– financial derivatives

(18)

(20)

Provisions

(216)

(247)

Retirement benefit obligations

(106)

(115)

Corporation tax payable

(3)

Deferred tax liabilities

(43)

(44)

Trade and other payables

(40)

(46)

(1,051)

(1,103)

TOTAL LIABILITIES

(1,949)

(2,502)

NET ASSETS

2,406

2,721

Notes

31 July 2023

£m

31 July 2022

£m

SHAREHOLDERS’ EQUITY

Share capital

131

136

Share premium account

365

Capital redemption reserve

Merger reserve

235

Cumulative translation adjustments

386

487

Retained earnings

1,431

1,659

Hedge reserve

(188)

(202)

Total shareholders’ equity

2,384

2,699

Non-controlling interest equity

TOTAL EQUITY

2,406

2,721

The accounts on pages 130 to 189 were approved by the Board of Directors on 25 September 2023

and were signed on its behalf by:

PAUL KEEL

CLARE SCHERRER

Chief Executive Officer

Chief Financial Officer

132

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

CONSOLIDATED PRIMARY STATEMENTS

CONTINUED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Notes

Share capital

and share

premium

£m

Other

reserves

£m

Cumulative

translation

adjustments

£m

Retained

earnings

£m

Hedge

reserve

£m

Equity

shareholders’

funds

£m

Non-controlling

interest

£m

Total

equity

£m

At 31 July 2022

501

254

487

1,659

(202)

2,699

2,721

Profit for the year

–

231

–

231

232

Other comprehensive income:

– re-measurement of retirement benefits after tax

–

(82)

–

(82)

–

(82)

– FX movements net of recycling

–

(101)

–

(99)

(2)

(101)

– fair value gains and related tax

–

(18)

(4)

–

(4)

Total comprehensive income for the year

–

(101)

133

(1)

Transactions relating to ownership interests:

Purchase of shares by Employee Benefit Trust

–

(24)

–

(24)

–

(24)

Share buybacks

(5)

–

(207)

–

(207)

–

(207)

Receipt of capital from non-controlling interest

–

Dividends:

– equity shareholders

–

(143)

–

(143)

–

(143)

Share-based payment

–

At 31 July 2023

496

259

386

1,431

(188)

2,384

2,406

Notes

Share capital

and share

premium

£m

Other

reserves

£m

Cumulative

translation

adjustments

£m

Retained

earnings

£m

Hedge

reserve

£m

Equity

shareholders’

funds

£m

Non-controlling

interest

£m

Total

equity

£m

At 31 July 2021

512

242

509

1,367

(228)

2,402

2,423

Profit for the year

–

1,033

–

1,033

1,035

Other comprehensive income:

– re-measurement of retirement benefits after tax

–

(17)

–

(17)

–

(17)

– FX movements net of recycling

–

(1)

(22)

103

(1)

– fair value gains and related tax

–

(63)

(77)

(140)

–

(140)

Total comprehensive income for the year

–

(1)

(22)

954

957

958

Transactions relating to ownership interests:

Issue of new equity shares

–

Purchase of shares by Employee Benefit Trust

–

(16)

–

(16)

–

(16)

Proceeds from exercise of share options

–

Share buybacks

(13)

–

(511)

–

(511)

–

(511)

Dividends:

– equity shareholders

–

(150)

–

(150)

–

(150)

Share-based payment

–

At 31 July 2022

501

254

487

1,659

(202)

2,699

2,721

133

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

CONSOLIDATED PRIMARY STATEMENTS

CONTINUED

CONSOLIDATED CASH-FLOW STATEMENT

Notes

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Net cash inflow from operating activities

293

279

Cash-flows from investing activities

Expenditure on capitalised development

(21)

(22)

Expenditure on other intangible assets

(7)

(8)

Purchases of property, plant and equipment

(53)

(58)

Disposals of property, plant and equipment

Acquisition of businesses

(22)

–

(Payments)/proceeds on disposal of subsidiaries, net of cash disposed

(7)

1,331

Net cash-flow used in investing activities

(108)

1,246

Cash-flows from financing activities

Proceeds from exercise of share options

–

Share buybacks

(207)

(511)

Purchase of shares by Employee Benefit Trust

(24)

(16)

Proceeds received on exercise of employee share options

–

Settlement of cash-settled options

–

(1)

Dividends paid to equity shareholders

(143)

(150)

Receipt of capital from non-controlling interest

–

Lease payments

(36)

(38)

Reduction and repayment of borrowings

(527)

(295)

Cash (outflow)/inflow from matured derivative financial instruments

(9)

Net cash-flow used in financing activities

(945)

(985)

Net (decrease)/increase in cash and cash equivalents

(760)

540

Cash and cash equivalents at beginning of year

1,055

405

Movement in net cash held in disposal group

–

Foreign exchange rate movements

(10)

Cash and cash equivalents at end of year

285

1,055

Cash and cash equivalents at end of year comprise:

– cash at bank and in hand

175

242

– short-term deposits

110

814

285

1,056

– bank overdrafts

–

(1)

285

1,055

134

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

BASIS OF PREPARATION

The accounts have been prepared in accordance with UK adopted International Accounting

Standards in conformity with the requirements of the Companies Act 2006.

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 8 to 77. The Group’s

financial position, cash-flows, liquidity and borrowing facilities are described in the CFO review

section on pages 21 to 23.

Other factors considered by the Board as part of its going concern assessment included the

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.

RETIREMENT BENEFITS

Determining the value of the future defined benefit obligation involves significant estimates in

respect of the assumptions used to calculate present values. These include future mortality,

discount rate and inflation. The Group uses previous experience and independent actuarial advice

to select the values for critical estimates. A portion of UK pension liabilities are insured via bulk

annuity policies that match all or part of the scheme obligation to identified groups of pensioners.

These assets are valued by an external qualified actuary at the actuarial valuation of the

corresponding liability, reflecting this matching relationship.

The Group’s principal defined benefit pension plans are in the UK and the US and these have been

closed so that no future benefits are accrued. Critical estimates for these plans, and the effect of

variances in these estimates, are disclosed in note 8.

PROVISIONS FOR LIABILITIES AND CHARGES

The Group has made provisions for claims and litigations where it has had to defend itself against

proceedings brought by other parties. These provisions have been made for the best estimate of

the expected expenditure required to settle each obligation, although there can be no guarantee

that such provisions (which may be subject to potentially material revision from time to time) will

accurately predict the actual costs and liabilities that may be incurred. The most significant of

these litigation provisions are described below.

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 £204m (FY2022:

£229m) has been made for the future defence costs which the Group is expected to incur and the

expected costs of future adverse judgements against JCI. Whilst well-established incidence

curves can be used to estimate the likely future pattern of asbestos-related disease, JCI’s claims

experience is significantly impacted by other factors which influence the US litigation

environment. These can include: changing approaches on the part of the plaintiffs’ bar; changing

attitudes amongst the judiciary at both trial and appellate levels; and legislative and procedural

changes in both the state and federal court systems. Because of the significant uncertainty

associated with the future level of asbestos claims and of the costs arising out of the related

litigation, there can be no guarantee that the assumptions used to estimate the provision will

result in an accurate prediction of the actual costs that will be incurred.

In quantifying the expected costs JCI takes account of the advice of an expert in asbestos liability

estimation. The following estimates were made in preparing the provision calculation:

–

The period over which the expenditure can be reliably estimated is judged to be ten years,

based on past experience regarding significant changes in the litigation environment that

have occurred every few years and on the amount of time taken in the past for some of those

changes to impact the broader asbestos litigation environment. See note 23 for a sensitivity

analysis showing the impact on the provision of reducing or increasing this time horizon; and

–

The future trend of legal costs, the rate of future claims filed, the rate of successful resolution

of claims, and the average amount of judgements awarded have been projected based on the

past history of JCI claims and well-established tables of asbestos incidence projections, since

this is the best available evidence. Claims history from other defendants is not used to calculate

ACCOUNTING POLICIES

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

135

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

the provision because JCI’s defence strategy generates a significantly different pattern of legal

costs and settlement expenses. See note 23 for a sensitivity analysis showing the range of

expected future spend.

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 £41m (FY2022: £52m) 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 analysis 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.

TAXATION

The Group has recognised deferred tax assets of £75m (FY2022: £103m) relating to losses and

£60m (FY2022: £69m) 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.

Taxation liabilities included provisions of £46m (FY2022: £38m), the majority of which related to

the risk of challenge to the geographic allocation of profits by tax authorities.

In addition to the risks provided for, the Group faces a variety of other tax risks, which result from

operating in a complex global environment, including the ongoing reform of both international and

domestic tax rules, new and ongoing tax audits in the Group’s larger markets and the challenge to

fulfil ongoing tax compliance filing and transfer pricing obligations given the scale and diversity of

the Group’s global operations.

The Group anticipates that a number of tax audits are likely to conclude in the next 12 to 24

months. Due to the uncertainty associated with such tax items, it is possible that the conclusion

of open tax matters may result in a final outcome that varies significantly from the amounts

noted above.

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.

The Group enters into certain contracts for agreed fees that are performed across more than one

accounting period and revenue is recognised over time. Estimates are required at the balance sheet

date when determining the stage of completion of the contract activity. This assessment requires the

expected total costs of the contract and the remaining costs to complete the contract to be estimated.

At 31 July 2023, the Group held contracts with a total value of £109m (2022: £181m), of which

£83m (2022: £135m) had been delivered and £26m (2022: £47m) remains fully or partially

unsatisfied. £24m of the unsatisfied amount is expected to be recognised in the coming year, with

the remainder being recognised within two years. A 5% increase in the remaining cost to complete

the contracts would have reduced Group operating profit in the current year by less than £1m

(2022: less than £2m).

VALUATION OF FINANCIAL ASSETS

Following the sale of Smiths Medical the Group has recognised a financial asset for the fair value of

the US$100m additional sales consideration that is contingent on the future share price

performance of the enlarged ICU Medical, Inc (ICU) business.

The earnout requires the Group to retain beneficial ownership of at least 1.25 million ICU shares and

for the ICU share price to average US$300 or more for any 30-day period during the first three years

post-completion, or for any 45-day period in the fourth year post-completion.

An external valuation firm has been engaged to undertake Monte Carlo valuation simulations in

order to estimate the probability of the future ICU share price exceeding US$300. These valuation

simulations have determined a fair value of £13m (US$17m).

SIGNIFICANT JUDGEMENTS MADE IN APPLYING ACCOUNTING

POLICIES

BUSINESS COMBINATIONS

On the acquisition of a business, the Group has to make judgements on the identification of specific

intangible assets which are recognised separately from goodwill and then amortised over their

estimated useful lives. These include items such as brand names and customer lists, to which

value is first attributed at the time of acquisition. The capitalisation of these assets and the related

amortisation charges are based on judgements about the value and economic life of such items.

Where acquisitions are significant, appropriate advice is sought from professional advisers before

making such allocations.

136

ACCOUNTING POLICIES

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

RETIREMENT BENEFITS

At 31 July 2023 the Group has recognised £195m of retirement benefit assets (FY2022: £309m)

and a net pension asset of £89m (FY2022: £194m), principally relating to the Smiths Industries

Pension Scheme (SIPS), which arises from the rights of the employers to recover the surplus at

the end of the life of the scheme.

The recognition of this surplus is a significant judgement. There is 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 regard 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. In particular, in the ordinary course of business, the

trustees of the scheme do not have a unilateral power to terminate and wind up the scheme or

augment benefits. If the pension scheme was wound up while it still had members, the scheme

would need to buy out the benefits of all members. The buyout 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 future commercial viability of development projects

requires significant judgement and the use of assumptions. Key judgements made in the

assessment of future commercial viability include:

–

Scope of work to achieve regulatory clearance (where required) – including the level of testing

evidence and documentation;

–

Competitor activity – including the impact of potential competitor product launches on the

marketplace and customer demand; and

–

Launch timeline – including time and resource required to establish and support the

commercial launch of a new product.

TAXATION

As stated in the previous section ‘Sources of estimation uncertainty’, the Group has recognised

deferred tax assets of £75m (FY2022: £103m) relating to losses and £60m (FY2022: £69m) relating

to the John Crane, Inc. and Titeflex Corporation litigation provisions. The decision to recognise

deferred tax assets requires judgement in determining whether the Group will be able to utilise

historical tax losses in future periods. It has been concluded that there are sufficient taxable

profits in future periods to support recognition.

The Group has also applied judgement in the decisions made to recognise provisions against

uncertain tax positions; please see note 6 for further details.

PRESENTATION OF HEADLINE PROFITS AND ORGANIC GROWTH

In order to provide users of the accounts with a clear and consistent presentation of the

performance of the Group’s ongoing trading activity, the income statement is presented in a

three-column format with ‘headline’ profits shown separately from non-headline items. In

addition, the Group reports organic growth rates for sales and profit measures.

See note 1 for disclosures of headline operating profit and note 29 for more information about the

alternative performance measures (‘APMs’) used by the Group.

Judgement is required in determining which items should be included as non-headline. The

amortisation/impairment of acquired intangibles, legacy liabilities, material one-off items and

certain re-measurements are included in a separate column of the income statement. See note 3

for a breakdown of the items excluded from headline profit.

Calculating organic growth also requires judgement. Organic growth adjusts the movement

in headline performance to exclude the impact of foreign exchange, restructuring costs

and acquisitions.

SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The Group’s consolidated accounts include the financial statements of Smiths Group plc (the

‘Company’) and all entities controlled by the Company (its subsidiaries). A list of the subsidiaries

of Smiths Group plc is provided on pages 205 to 210.

The Company controls an entity when it (i) has power over the entity; (ii) is exposed or has rights to

variable returns from its involvement with the entity; and (iii) has the ability to affect those returns

through its power over the entity. The Group reassesses whether or not it controls a subsidiary if

facts and circumstances indicate that there are changes to one or more of these three elements

of control. Subsidiaries are fully consolidated from the date on which control is obtained by the

Company to the date that control ceases.

Where the Group loses control of a subsidiary, the assets and liabilities are derecognised along

with any related non-controlling interest and other components of equity. Any resulting gain or

loss is recognised in the income statement. Any interest retained in the former subsidiary is

measured at fair value when control is lost.

The non-controlling interests in the Group balance sheet represent the share of net assets of

subsidiary undertakings held outside the Group. The movement in the year comprises the profit

attributable to such interests together with any dividends paid, movements in respect of corporate

transactions and related exchange differences.

Interests in associates are accounted for using the equity method. They are initially recognised at

cost, which includes transaction costs. Subsequent to initial recognition, the Group financial

statements include the Group’s share of the profit or loss and other comprehensive income of

equity-accounted investees, until the date on which significant influence ceases.

All intercompany transactions, balances, and gains and losses on transactions between Group

companies are eliminated on consolidation.

ACCOUNTING POLICIES

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

137

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

FOREIGN CURRENCIES

The Company’s presentational currency and functional currency is sterling. The financial position

of all subsidiaries and associates that have a functional currency different from sterling are

translated into sterling at the rate of exchange at the date of that balance sheet, and the income

and expenses are translated at average exchange rates for the period. All resulting foreign

exchange rate movements are recognised as a separate component of equity.

Foreign exchange rate movements arising on the translation of non-monetary assets and

liabilities held in hyperinflationary subsidiaries are recognised in OCI. The amounts taken to the

CTA reserve represent the combined effect of restatement and translation and are expressed as

a net change for the year.

On consolidation, foreign exchange rate movements arising from the translation of the net

investment in foreign entities, and of borrowings and other currency instruments designated as

hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold,

the cumulative amount of such foreign exchange rate movements is recognised in the income

statement as part of the gain or loss on sale.

Foreign exchange rate movements arising on transactions are recognised in the income

statement. Those arising on trading are taken to operating profit; those arising on borrowings are

classified as finance income or cost.

REVENUE

Revenue is measured at the fair value of the consideration received, net of trade discounts

(including distributor rebates) and sales taxes. Revenue is discounted only where the impact of

discounting is material.

When the Group enters into complex contracts with multiple, separately identifiable components,

the terms of the contract are reviewed to determine whether or not the elements of the contract

should be accounted for separately. If a contract is being split into multiple components, the

contract revenue is allocated to the different components at the start of the contract. The basis of

allocation depends on the substance of the contract. The Group considers relative stand-alone

selling prices, contractual prices and relative cost when allocating revenue.

The Group has identified the following different types of revenue:

(i) Sale of goods recognised at a point in time – generic products manufactured by Smiths

Generic products are defined as either:

–

Products that are not specific to any particular customer;

–

Products that may initially be specific to a customer but can be reconfigured at minimal cost,

i.e., retaining a margin, for sale to an alternative customer; or

–

Products that are specific to a customer but are manufactured at Smiths risk, i.e., we have no

right to payment of costs plus margin if the customer refuses to take control of the goods.

For established products with simple installation requirements, revenue is recognised when

control of the product is passed to the customer. The point in time that control passes is defined in

accordance with the agreed shipping terms and is determined on a case-by-case basis. The time

of dispatch or delivery of the goods to the customer is normally the point at which invoicing

occurs. However for some generic products, revenue is recognised when the overall

performance obligation has been completed, which is often after the customer has completed its

acceptance procedures and has assumed control.

Products that are sold under multiple element arrangements, i.e., contracts involving a

combination of products and services, are bundled into a single performance obligation

unless the customer can benefit from the goods or services either on their own, or together with

other resources that are readily available to the customer and are distinct within the context of

the contract.

For contracts that pass control of the product to the customer only on completion of installation

services, revenue is recognised upon completion of the installation.

An obligation to replace or repair faulty products under the standard warranty terms is

recognised as a provision. If the contract includes terms that either extend the warranty beyond

the standard term or imply that maintenance is provided to keep the product working, these are

service warranties and revenue is deferred to cover the performance obligation in an amount

equivalent to the stand-alone selling price of that service.

(ii) Sale of goods recognised over time – customer-specific products where the contractual

terms include rights to payment for work performed to date

Customer-specific products are defined as being:

–

Products that cannot be reconfigured economically such that it remains profitable to sell to

another customer;

–

Products that cannot be sold to another customer due to contractual restrictions; and

–

Products that allow Smiths to charge for the work performed to date in an amount that

represents the costs incurred to date plus a margin, should the customer refuse to take control

of the goods.

For contracts that meet the terms listed above, revenue is recognised over the period that the

Group is engaged in the manufacture of the product, calculated using the input method based on

the amount of costs incurred to date compared to the overall costs of the contract. This is

considered to be a faithful depiction of the transfer of the goods to the customer as the costs

incurred, total expected costs and total order value are known. The time of dispatch or delivery of

the goods to the customer is normally the point at which invoicing occurs.

An obligation to provide a refund for faulty products under the standard warranty terms is

recognised as a provision. If the contract includes terms that either extend the warranty beyond

the standard term or imply that maintenance is provided to keep the product working, these are

service warranties and revenue is deferred to cover the performance obligation in an amount

equivalent to the stand-alone selling price of that service.

(iii) Services recognised over time – services relating to the installation, repair and ongoing

maintenance of equipment

Services include installation, commissioning, testing, training, software hosting and

maintenance, product repairs and contracts undertaking extended warranty services.

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For complex installations where the supply of services cannot be separated from the supply of

product, revenue is recognised upon acceptance of the combined performance obligation (see

Sale of goods (i) above).

For services that can be accounted for as a separate performance obligation, revenue is

recognised over time, assessed on the basis of the actual service provided as a proportion of the

total services to be provided.

Depending on the nature of the contract, revenue is recognised as follows:

–

Installation, commissioning and testing services (when neither linked to the supply of product

nor subject to acceptance) are recognised rateably as the services are provided;

–

Training services are recognised on completion of the training course;

–

Software hosting and maintenance services are recognised rateably over the life of the

contract;

–

Product repair services, where the product is returned to Smiths premises for remedial action,

are recognised when the product is returned to the customer and they regain control of the

asset;

–

Onsite ad hoc product repair services are recognised rateably as the services are performed;

–

Long-term product repair and maintenance contracts are recognised rateably over the

contract term; and

–

Extended service warranties are recognised rateably over the contract term.

Invoicing for services depends on the nature of the service provided with some services charged

in advance and others in arrears.

Where contracts are accounted for under the revenue recognised over time basis, the proportion

of costs incurred is used to determine the percentage of contract completion.

Contracts for the construction of substantial assets, which normally last in excess of one year, are

accounted for under the revenue recognised over time basis, using an input method.

For fixed-price contracts, revenue is recognised based upon an assessment of the amount of cost

incurred under the contract, compared to the total expected costs that will be incurred under the

contract. This calculation is applied cumulatively with any over/under recognition being adjusted

in the current period.

For cost-plus contracts, revenue is recognised based upon costs incurred to date plus any

agreed margin.

For both fixed-price and cost-plus contracts, invoicing is normally based on a schedule with

milestone payments.

CONTRACT COSTS

The Group has taken the practical expedient of not capitalising contract costs as they are

expected to be expensed within one year from the date of signing.

LEASES

Lease liabilities are initially measured at the present value of the future lease payments at the

commencement date, discounted by using either the rate implicit in the lease, or if not observable,

the Group’s incremental borrowing rate. Lease payments comprise contractual lease payments;

variable lease payments that depend on an index or rate, initially measured using the index or rate

at the commencement date; and the amount expected to be payable under residual value

guarantees.

Right of use assets are measured at commencement date at the amount of the corresponding

lease liability and initial direct costs incurred. Right of use assets are depreciated over the shorter

of the lease term and the useful life of the right of use assets, unless there is a transfer of

ownership or purchase option which is reasonably certain to be exercised at the end of the lease

term, in which case depreciation is charged over the useful life of the underlying asset. Right of

use assets are subject to impairment.

When a lease contract is modified, either from a change to the duration of the lease or a change to

amounts payable, the Group remeasures the lease liability by discounting the revised future lease

payments at a revised discount rate. A corresponding adjustment is made to the carrying value of

the related right of use asset.

Leases of buildings typically have lease terms between one and seven years, while plant and

machinery generally have lease terms between one and three years. The Group also has certain

leases of machinery with lease terms of 12 months or less and leases of office equipment with

low value (typically below £5,000). The Group applies the ‘short-term lease’ and ‘lease of low-

value assets’ recognition exemptions for these leases and recognises the lease payments

associated with these leases as an expense on a straight-line basis over the lease term.

Interest on lease liabilities is presented as a financing activity in the Consolidated Cash-Flow

Statement, included under the heading lease payments.

TAXATION

The charge for taxation is based on profits for the year and takes into account taxation deferred

because of temporary differences between the treatment of certain items for taxation and

accounting purposes.

Current income tax assets and liabilities are measured at the amount expected to be recovered

from or paid to taxation authorities. Tax benefits are not recognised unless it is likely that the tax

positions are sustainable. Tax positions taken are then reviewed to assess whether a provision

should be made based on prevailing circumstances. Tax provisions are included in current tax

liabilities. The tax rates and tax laws used to compute the amount are those that are enacted or

substantively enacted, at the reporting date in the countries where the Group operates and

generates taxable income.

The Group operates and is subject to taxation in many countries. Tax legislation is different in each

country, is often complex and is subject to interpretation by management and government

authorities. These matters of judgement give rise to the need to create provisions for uncertain

tax positions which are recognised when it is considered more likely than not that there will be a

future outflow of funds to a taxing authority. Provisions are made against individual exposures

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FINANCIAL STATEMENTS

and take into account the specific circumstances of each case, including the strength of technical

arguments, recent case law decisions or rulings on similar issues and relevant external advice.

The amounts are measured using one of the following methods, depending on which of the

methods the Directors expect will better reflect the amount the Group will pay to the tax authority:

–

The single best estimate method is used where there is a single outcome that is more likely

than not to occur. This will happen, for example, where the tax outcome is binary or the range of

possible outcomes is very limited; or

–

Alternatively, a probability weighted expected value is used where, on the balance of

probabilities, there will be a payment to the tax authority but there are a number of possible

outcomes. In this case, a probability is assigned to each of the outcomes and the amount

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. Deferred tax liabilities and assets are not discounted.

IAS 12 International Tax Reform: Pillar Two Model Rules.

On 19th July 2023, the UK Endorsement Board adopted the Amendments to IAS 12 International

Tax Reform: Pillar Two Model Rules, issued by the IASB in May 2023. The Amendments introduce

a temporary mandatory exception from accounting for deferred taxes arising from the Pillar Two

model rules and the Group has applied this exception to recognising and disclosing information

about deferred tax assets and liabilities related to Pillar Two income taxes.

EMPLOYEE BENEFITS

Share-based compensation

The fair value of the shares or share options granted is recognised as an expense over the vesting

period to reflect the value of the employee services received. The fair value of options granted,

excluding the impact of any non-market vesting conditions, is calculated using established option

pricing models, principally binomial models. The probability of meeting non-market vesting

conditions, which include profitability targets, is used to estimate the number of share options

which are likely to vest.

For cash-settled share-based payment, a liability is recognised based on the fair value of the

payment earned by the balance sheet date. For equity-settled share-based payment, the

corresponding credit is recognised directly in reserves.

Pension obligations and post-retirement benefits

Pensions and similar benefits (principally healthcare) are accounted for under IAS 19. The

retirement benefit obligation in respect of the defined benefit plans is the liability (the present

value of all expected future obligations) less the fair value of the plan assets.

The income statement expense is allocated between current service costs, reflecting the

increase in liability due to any benefit accrued by employees in the current period, any past

service costs/credits and settlement losses or gains which are recognised immediately, and the

scheme administration costs.

Actuarial gains and losses are recognised in the statement of comprehensive income in the year

in which they arise. These comprise the impact on the liabilities of changes in demographic and

financial assumptions compared with the start of the year, actual experience being different to

assumptions and the return on plan assets being above or below the amount included in the net

pension interest cost.

Payments to defined contribution schemes are charged as an income statement expense as they

fall due.

INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s

share of the identifiable net assets of the acquired subsidiary at the date of acquisition.

The goodwill arising from acquisitions of subsidiaries after 1 August 1998 is included in intangible

assets, tested annually for impairment and carried at cost less accumulated impairment losses.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to

the entity sold. The goodwill arising from acquisitions of subsidiaries before 1 August 1998 was

set against reserves in the year of acquisition.

Goodwill is tested for impairment at least annually. Should the test indicate that the net realisable

value of the CGU is less than current carrying value, an impairment loss will be recognised

immediately in the income statement. Subsequent reversals of impairment losses for goodwill

are not recognised.

Research and development

Expenditure on research and development is charged to the income statement in the year in

which it is incurred with the exception of:

–

Amounts recoverable from third parties; and

–

Expenditure incurred in respect of the development of major new products where the outcome

of those projects is assessed as being reasonably certain as regards viability and technical

feasibility. Such expenditure is capitalised and amortised over the estimated period of sale

for each product, commencing in the year that the product is ready for sale. Amortisation is

charged straight line or based on the units produced, depending on the nature of the product

and the availability of reliable estimates of production volumes.

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The cost of development projects which are expected to take a substantial period of time to

complete includes attributable borrowing costs.

Intangible assets acquired in business combinations

The identifiable net assets acquired as a result of a business combination may include intangible

assets other than goodwill. Any such intangible assets are amortised straight line over their

expected useful lives as follows:

Patents, licences and trademarks

up to 20 years

Technology

up to 13 years

Customer relationships

up to 15 years

The assets’ useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Software, patents and intellectual property

The estimated useful lives are as follows:

Software

up to seven 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

2% per annum

Short leasehold property

over the period of the lease

Plant, machinery, etc.

10% to 20% per annum

Fixtures, fittings, tools and other equipment

10% to 33% per annum

The cost of any assets which are expected to take a substantial period of time to complete

includes attributable borrowing costs.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each

balance sheet date. An asset’s carrying amount is written down immediately to its recoverable

amount if the asset’s carrying amount is greater than its estimated recoverable amount.

INVENTORIES

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the

first-in, first-out method. The cost of finished goods and work in progress comprises raw

materials, direct labour, other direct costs and related production overheads (based on normal

operating capacity). The cost of items of inventory which take a substantial period of time to

complete includes attributable borrowing costs.

The net realisable value of inventories is the estimated selling price in the ordinary course of

business, less applicable variable selling expenses. Provisions are made for any slow-moving,

obsolete or defective inventories.

TRADE AND OTHER RECEIVABLES

Trade receivables and contract assets are either classified as ‘held to collect’ and initially

recognised at fair value and subsequently measured at amortised cost, less any appropriate

provision for expected credit losses or as ‘held to collect and sell’ and measured at fair value

through other comprehensive income (FVOCI).

A provision for expected credit losses is established when there is objective evidence that it will

not be possible to collect all amounts due according to the original payment terms. Expected

credit losses are determined using historical write-offs as a basis, adjusted for factors that are

specific to the debtor, general economic conditions of the industry in which the debtor operates

and with a default risk multiplier applied to reflect country risk premium. The Group applies the

IFRS 9 simplified lifetime expected credit loss approach for trade receivables and contract assets

which do not contain a significant financing component

PROVISIONS

Provisions are recognised when the Group has a present obligation (legal or constructive) as a

result of a past event, it is probable that an outflow of resources embodying economic benefits

will be required to settle the obligation, and a reliable estimate can be made of the amount of the

obligation. Where the Group expects some or all of a provision to be reimbursed, for example

under an insurance contract, the reimbursement is recognised as a separate asset but only when

the reimbursement is virtually certain.

Provisions for warranties and product liability, disposal indemnities, restructuring costs, property

dilapidations and legal claims are recognised when: the Company has a legal or constructive

obligation as a result of a past event; it is probable that an outflow of resources will be required to

settle the obligation; and the amount has been reliably estimated. Provisions are not recognised

for future operating losses.

Provisions are discounted where the time value of money is material.

Where there is a number of similar obligations, for example where a warranty has been given, the

likelihood that an outflow will be required in settlement is determined by considering the class of

obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect

to any one item included in the same class of obligations may be small.

DISCONTINUED OPERATIONS

A discontinued operation is either:

–

A component of the Group’s business that represents a separate major line of business or

geographical area of operations that has been disposed of, has been abandoned or meets the

criteria to be classified as held for sale; or

–

A business acquired solely for the purpose of selling it.

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Discontinued operations are presented on the income statement as a separate line and are

shown net of tax.

In accordance with IAS 21, gains and losses on intra-group monetary assets and liabilities are not

eliminated. Therefore foreign exchange rate movements on intercompany loans with discontinued

operations are presented on the income statement as non-headline finance cost items.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash at bank and in hand and highly liquid interest-bearing

securities with maturities of three months or less.

In the cash-flow statement, cash and cash equivalents are shown net of bank overdrafts, which

are included as current borrowings in liabilities on the balance sheet.

FINANCIAL ASSETS

The classification of financial assets depends on the purpose for which the assets were acquired.

Management determines the classification of an asset at initial recognition and re-evaluates the

designation at each reporting date. Financial assets are classified as: measured at amortised

cost, fair value through other comprehensive income or fair value through profit and loss.

Financial assets primarily include trade receivables, cash and cash equivalents (comprising cash

at bank, money-market funds, and short-term deposits), short-term investments, derivatives

(foreign exchange contracts and interest rate derivatives) and unlisted investments.

–

Trade receivables are classified either as ‘held to collect’ and measured at amortised cost or

as ‘held to collect and sell’ and measured at fair value through other comprehensive income

(FVOCI). The Group may sell trade receivables due from certain customers before the due date.

Any trade receivables from such customers that are not sold at the reporting date are classified

as ‘held to collect and sell’.

–

Cash and cash equivalents (consisting of balances with banks and other financial institutions,

money-market funds and short-term deposits) and short-term investments are subject to low

market risk. Cash balances, short-term deposits and short-term investments are measured at

amortised cost. Money market funds are measured at fair value through profit and loss (FVPL).

–

Derivatives are measured at FVPL.

–

Listed and unlisted investments are measured at FVOCI.

–

Deferred contingent consideration are measured at FVPL.

Financial assets are derecognised when the right to receive cash-flows from the assets has

expired, or has been transferred, and the Group has transferred substantially all of the risks and

rewards of ownership.

On initial recognition, the Group may make an irrevocable election to designate certain

investments as FVOCI, if they are not held for trading or relate to contingent consideration on a

business combination. When securities measured at FVOCI are sold or impaired, the

accumulated fair value adjustments remain in reserves.

Financial assets are classified as current if they are expected to be realised within 12 months of

the balance sheet date.

FINANCIAL LIABILITIES

Borrowings are initially recognised at the fair value of the proceeds, net of related transaction

costs. These transaction costs, and any discount or premium on issue, are subsequently

amortised under the effective interest rate method through the income statement as interest over

the life of the loan and added to the liability disclosed in the balance sheet. Related accrued

interest is included in the borrowings figure.

Borrowings are classified as current liabilities unless the Group has an unconditional right to

defer settlement of the liability for at least one year after the balance sheet date.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The Group uses derivative financial instruments to hedge its exposures to foreign exchange and

interest rates arising from its operating and financing activities.

Derivative financial instruments are initially recognised at fair value on the date a derivative

contract is entered into and are subsequently re-measured at their fair value. The method of

recognising any resulting gain or loss depends on whether the derivative financial instrument is

designated as a hedging instrument and, if so, the nature of the item being hedged.

Where derivative financial instruments are designated into hedging relationships, the Group

formally documents the following:

–

The risk management objective and strategy for entering the hedge;

–

The nature of the risks being hedged and the economic relationship between the hedged item

and the hedging instrument; and

–

Whether the change in cash-flows of the hedged item and hedging instrument are expected to

offset each other.

Changes in the fair value of any derivative financial instruments that do not qualify for hedge

accounting are recognised immediately in the income statement.

Fair value hedge

The Group uses derivative financial instruments to convert part of its fixed rate debt to floating

rate in order to hedge the risks arising from its external borrowings.

The Group designates these as fair value hedges of interest rate risk. Changes in the hedging

instrument are recorded in the income statement, together with any changes in the fair values of

the hedged assets or liabilities that are attributable to the hedged risk to the extent that the hedge

is effective. Gains or losses relating to any ineffectiveness are immediately recognised in the

income statement.

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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.

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 2023

No new accounting standards have been adopted in the financial year. The accounting policies

adopted in the preparation of these consolidated financial statements are consistent with those

followed in the previous financial year.

NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

No other new standards, new interpretations or amendments to standards or interpretations have

been published which are expected to have a significant impact on the Group’s financial

statements.

PARENT COMPANY

The ultimate Parent Company of the Group is Smiths Group plc, a company incorporated in

England and Wales and listed on the London Stock Exchange.

The accounts of the Parent Company, Smiths Group plc, have been prepared in accordance with

the Companies Act 2006 and Financial Reporting Standard 101, ‘Reduced Disclosure Framework’.

The Company accounts are presented in separate financial statements on pages 197 to 204. The

principal subsidiaries of the Parent Company are listed in the above accounts.

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FINANCIAL STATEMENTS

1. SEGMENT INFORMATION

ANALYSIS BY OPERATING SEGMENT

The Group is organised into four divisions: John Crane; Smiths Detection; Flex-Tek; and Smiths

Interconnect. 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; and

–

Smiths Interconnect

– specialised electronic and radio frequency board-level and waveguide

devices, connectors, cables, test sockets and sub-systems used in high-speed, high-reliability,

secure connectivity applications.

The position and performance of each 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 and note 29 for an

explanation of which items are excluded from headline measures.

Intersegment sales and transfers are charged at arm’s length prices.

SEGMENT TRADING PERFORMANCE

Year ended 31 July 2023

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Corporate

costs

£m

Total

£m

Revenue

1,079

803

768

387

–

3,037

Divisional headline operating

profit

244

149

–

545

Corporate headline operating

costs

–

(44)

Headline operating profit/(loss)

244

149

(44)

501

Items excluded from headline

measures (note 3)

(27)

(35)

(18)

(12)

(6)

(98)

Operating profit/(loss)

217

131

(50)

403

Headline operating margin

22.6%

11.2%

19.4%

16.0%

16.5%

Year ended 31 July 2022

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Corporate

costs

£m

Total

£m

Revenue

901

655

647

363

–

2,566

Divisional headline operating

profit

188

133

–

459

Corporate headline operating

costs

–

(42)

Headline operating profit/(loss)

188

133

(42)

417

Items excluded from headline

measures (note 3)

(21)

(37)

(27)

(1)

(214)

(300)

Operating profit/(loss)

167

106

(256)

117

Headline operating margin

20.9%

11.1%

20.6%

18.0%

16.3%

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

Year ended 31 July 2023

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Corporate and

non-headline

£m

Total

£m

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

Transition services cost

reimbursement

–

(10)

OVERVIEW

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FINANCIAL STATEMENTS

144

SMITHS GROUP PLC ANNUAL REPORT FY2023

NOTES TO THE ACCOUNTS

Year ended 31 July 2022

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Corporate and

non-headline

£m

Total

£m

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

Russia impairment charges and

related closure costs

–

Transition services cost

reimbursement

–

(7)

The corporate and non-headline column comprises central information technology, human

resources and headquarters costs and non-headline expenses (see note 3).

SEGMENT ASSETS AND LIABILITIES

Segment assets

31 July 2023

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Corporate and

non-headline

£m

Total

£m

Property, plant, equipment,

right of use assets, development

projects, other intangibles and

investments

162

142

375

829

Inventory, trade and other

receivables

489

599

226

160

1,484

Segment assets

651

741

310

226

385

2,313

31 July 2022

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Corporate and

non-headline

£m

Total

£m

Property, plant, equipment,

right of use assets, development

projects, other intangibles and

investments

167

127

399

831

Inventory, trade and other

receivables

429

524

244

167

1,377

Segment assets

596

651

328

221

412

2,208

Non-headline assets comprise receivables relating to non-headline items, acquisitions

and disposals.

Segment liabilities

31 July 2023

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Corporate and

non-headline

£m

Total

£m

Divisional liabilities

200

357

–

710

Corporate and non-headline

liabilities

–

339

Segment liabilities

200

357

339

1,049

31 July 2022

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Corporate and

non-headline

£m

Total

£m

Divisional liabilities

(155)

(347)

(91)

(85)

–

(678)

Corporate and non-headline

liabilities

–

(385)

Segment liabilities

(155)

(347)

(91)

(85)

(385)

(1,063)

Non-headline liabilities comprise provisions and accruals relating to non-headline items,

acquisitions and disposals.

Reconciliation of segment assets and liabilities to statutory assets and liabilities

Assets

Liabilities

31 July

2023

£m

31 July

2022

£m

31 July

2023

£m

31 July

2022

£m

Segment assets and liabilities

2,313

2,208

(1,049)

(1,063)

Goodwill and acquired intangibles

1,415

1,501

–

Derivatives

(20)

(47)

Current and deferred tax

142

145

(120)

(111)

Retirement benefit assets and obligations

195

309

(106)

(115)

Cash and borrowings

285

1,056

(654)

(1,166)

Statutory assets and liabilities

4,355

5,223

(1,949)

(2,502)

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

145

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

Segment capital expenditure

The capital expenditure on property, plant and equipment, capitalised development and other

intangible assets for each division is:

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Corporate and

non-headline

£m

Total

£m

Capital expenditure year ended

31 July 2023

–

Capital expenditure year ended

31 July 2022

Segment capital employed

Capital employed is a non-statutory measure of invested resources. It comprises statutory net

assets adjusted to add goodwill recognised directly in reserves in respect of subsidiaries acquired

before 1 August 1998 of £478m (FY2022: £478m) and eliminate retirement benefit assets and

obligations and litigation provisions relating to non-headline items, both net of related tax, and net

debt. See note 29 for a reconciliation of net assets to capital employed.

The 12-month rolling average capital employed by division, which Smiths uses to calculate

divisional return on capital employed, is:

31 July 2023

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Total

£m

Average divisional capital employed

1,022

1,154

570

466

3,212

Average corporate capital employed

(16)

Average total capital employed – continuing

operations

3,196

31 July 2022

John Crane

£m

Smiths

Detection

£m

Flex-Tek

£m

Smiths

Interconnect

£m

Total

£m

Average divisional capital employed

970

1,019

520

400

2,909

Average corporate capital employed

Average total capital employed – continuing

operations

2,940

ANALYSIS OF REVENUE

The revenue for the main product and service lines for each division is:

John Crane

Original

equipment

£m

Aftermarket

£m

Total

£m

Revenue year ended 31 July 2023

314

765

1,079

Revenue year ended 31 July 2022

279

622

901

Smiths Detection

Aviation

£m

Other security

systems

£m

Total

£m

Revenue year ended 31 July 2023

535

268

803

Revenue year ended 31 July 2022

467

188

655

Flex-Tek

Aerospace

£m

Industrials

£m

Total

£m

Revenue year ended 31 July 2023

144

624

768

Revenue year ended 31 July 2022

116

531

647

Smiths Interconnect

Components,

connectors &

subsystems

£m

Revenue year ended 31 July 2023

387

Revenue year ended 31 July 2022

363

Aftermarket sales contributed £1,545m (FY2022: £1,238m) of Group revenue: John Crane

aftermarket sales were £765m (FY2022: £622m); Smiths Detection aftermarket sales were £413m

(FY2022: £355m); Flex-Tek aftermarket sales were £367m (FY2022: £261m); and Smiths

Interconnect aftermarket sales were £nil (FY2022: £nil).

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

146

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

Divisional revenue is analysed by the Smiths Group key global markets as follows:

General

Industrial

£m

Safety &

Security

£m

Energy

£m

Aerospace

£m

Total

£m

John Crane

Revenue year ended 31 July 2023

423

–

656

–

1,079

Revenue year ended 31 July 2022

371

–

530

–

901

Smiths Detection

Revenue year ended 31 July 2023

–

803

–

803

Revenue year ended 31 July 2022

–

655

–

655

Flex Tek

Revenue year ended 31 July 2023

624

–

144

768

Revenue year ended 31 July 2022

531

–

116

647

Smiths Interconnect

Revenue year ended 31 July 2023

190

141

–

387

Revenue year ended 31 July 2022

166

144

–

363

Total

Revenue year ended 31 July 2023

1,237

944

656

200

3,037

Revenue year ended 31 July 2022

1,068

799

530

169

2,566

The Group’s statutory revenue is analysed as follows:

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Sale of goods recognised at a point in time

2,244

1,849

Sale of goods recognised over time

Services recognised over time

757

618

3,037

2,566

ANALYSIS BY GEOGRAPHICAL AREAS

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

Revenue

Intangible assets, right of use

assets and property, plant and

equipment

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

31 July 2023

£m

31 July 2022

£m

Americas

1,641

1,423

1,254

1,324

Europe

563

480

519

498

Asia Pacific

493

421

Rest of World

340

242

3,037

2,566

1,873

1,937

Revenue by destination attributable to the United Kingdom was £87m (FY2022: £75m). Other

revenue found to be significant included, the United States of America, totalling £1,383m (FY2022:

£1,206m), China (excluding Hong Kong) £150m (FY2022: £132m) and Germany £143m (FY2022:

£123m). Revenue by destination has been selected as the basis for attributing revenue to

geographical areas as this was the geographic attribution of revenue used by management to

review business performance.

Non-current assets located in the United Kingdom total £123m (FY2022: £108m). Significant

non-current assets held in the United States of America £1,181m (FY2022: £1,260m) and Germany

£345m (FY2022: £340m).

2. OPERATING COSTS

The Group’s operating costs for continuing operations are analysed as follows:

Year ended 31 July 2023

Year ended 31 July 2022

Headline

£m

Non-headline

(note 3)

£m

Total

£m

Headline

£m

Non-headline

(note 3)

£m

Total

£m

Cost of sales – direct materials,

labour, production and

distribution overheads

1,919

–

1,919

1,605

–

1,605

Selling costs

221

–

221

200

–

200

Administrative expenses

406

504

351

300

651

Transition services cost

reimbursement

(10)

–

(10)

(7)

–

(7)

Total

2,536

2,634

2,149

300

2,449

Following the sale of the Smiths Medical business, the Group has provided transition services to

the Smiths Medical Group, which is disclosed above as transition services cost reimbursement.

OPERATING PROFIT IS STATED AFTER CHARGING (CREDITING):

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Research and development expense

Depreciation of property, plant and equipment

Depreciation of right of use assets

Amortisation of intangible assets

Russia impairment and related closure costs

–

Transition services cost reimbursement

(10)

(7)

Research and development (R&D) cash costs were £113m (FY2022: £107m) comprising £73m

(FY2022: £80m) of R&D expensed to the income statement, £21m (FY2022: £12m) of capitalised

costs and £19m (FY2022: £15m) of customer funded R&D.

Administrative expenses include £2m (FY2022: £3m) in respect of lease payments for short-term

and low-value leases which were not included within right of use assets and lease liabilities.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

147

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

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 2023.

Year ended

31 July 2023

£m

Year ended

31 July 2022

(represented)

£m

Audit services

Fees payable to the Company’s auditors for the audit of the Company’s

annual financial statements

2.6

3.0

Fees payable to the Company’s auditors and its associates for other

services:

– the audit of the Company’s subsidiaries

5.5

4.7

8.1

7.7

All other services

0.5

0.8

Other services comprise audit-related assurance services of £0.5m (FY2022: £0.5m) and fees for

reporting accountant services in connection with a class 1 disposal of £nil (FY2022: £0.3m).

Audit-related assurance services include the review of the Interim Report and the limited

assurance of the Group’s Scope 1-3 Greenhouse Gas emissions metrics. Total fees for non-audit

services comprise 6% (FY2022: 10%) of audit fees.

In the current year, the Group has agreed £0.3m of additional fees with the Group auditors relating

to the audit of the prior year financial statements.

3. NON-STATUTORY PROFIT MEASURES

HEADLINE PROFIT MEASURES

The Group has identified and defined a ‘headline’ measure of performance which is not impacted

by material non-recurring items or items considered non-operational/trading in nature. This non-

GAAP measure of profit is not intended to be a substitute for any IFRS measures of performance,

but is a key measure used by management to understand and manage performance. See the

disclosures on presentation of results in accounting policies for an explanation of the

adjustments. The items excluded from ‘headline’ are referred to as ‘non-headline’ items.

NON-HEADLINE OPERATING PROFIT ITEMS

I. CONTINUING OPERATIONS

The non-headline items included in statutory operating profit for continuing operations were

as follows:

Notes

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Post-acquisition integration costs and fair value

adjustment unwind

Fair value loss on contingent consideration

(6)

–

Unwind of acquisition balance sheet fair value uplift

–

(2)

Acquisition and disposal related transaction costs and

provision releases

Business acquisition/disposal costs

(1)

(5)

Legacy pension scheme arrangements

Past service credit/(costs) for benefit equalisation and

improvements

(43)

Scheme administration costs

(2)

Retirement benefit scheme settlement loss

(1)

(171)

Non-headline litigation provision movements

Movement in provision held against Titeflex Corporation

subrogation claims

(2)

Provision for John Crane, Inc. asbestos litigation

(16)

(7)

Cost recovery for John Crane, Inc. asbestos litigation

–

Other items

Amortisation of acquired intangible assets

(52)

(51)

Restructuring costs

(36)

–

Irrecoverable VAT on chain export transaction

(2)

–

Russia impairment charges and related closure costs

–

(19)

Non-headline items in operating profit – continuing

operations

(98)

(300)

Post-acquisition integration costs and fair value adjustment unwind

Following the sale of Smiths Medical to ICU Medical, Inc. (ICU) in FY2022, the Group holds a

financial asset for the fair value of US$100m additional sales consideration that is contingent on

the future share price performance of ICU. In FY2023 a fair value loss of £6m has been

recognised on this financial asset. This is considered to be a non-headline item on the basis that

these charges result from acquisition accounting and do not relate to current trading activity.

The impact of unwinding the acquisition balance sheet fair value adjustments required by IFRS 3

‘Business combinations’ has been recognised as non-headline as the charges do not relate to

trading activity. The £2m charged in the prior period was due to the unwind of fair value uplifts on

the acquisition of Royal Metal Products.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

148

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

Acquisition and disposal related transaction costs and provision releases

The £1m (FY2022: £5m) business acquisition/disposal costs represented incremental transaction

costs including the acquisition of Plastronics in FY2023. These costs did not include the cost of

employees working on transactions and were reported as non-headline because they are

dependent on the level of acquisition and disposal activity in the year.

Legacy pension scheme arrangements

The past service credit/(costs) comprises the following:

–

A net credit of £4m (FY2022: £19m debit) has been recognised in respect of equalisation

charges of retirement benefits for men and women. The net credit comprises a further liability

of £12m and the release of £16m, recognised in previous years, following the identification of

additional evidence of the obligation for equalisation (see note 8 for further details); and

–

In the prior year £24m of costs were recognised following the TI Group Pension Scheme

(TIGPS) executing an insurance buy-in policy.

These past service credits/(costs) are reported as non-headline as they are non-recurring and

relate to legacy pension liabilities.

Scheme administration costs of £2m (FY2022: £nil) relate to the TIGPS legacy pension scheme.

As the Group has no expectation of receiving a refund from the scheme, an economic benefit

value of zero has been placed on the TIGPS surplus. These are non-headline charges as the

Smiths Group effectively has no economic exposure to these costs and they are paid from cash

retained in the scheme.

Settlement losses of £1m (31 July 2022: £171m) on post-retirement benefit schemes relate to

settlement arrangements made between the Group and former employees of the now disposed

of Medical business. The prior year losses arose primarily on the buy-in of the TIGPS scheme.

These items are considered non-headline as they are non-recurring and relate to legacy

pension schemes.

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 £7m credit (FY2022: £2m charge) recognised by Titeflex Corporation was principally driven

by discount rate movements and a reduction in the expected costs to settle future claims. See

note 23 for further details; and

–

The £16m charge (FY2022: £7m) in respect of John Crane, Inc. asbestos litigation is principally

due to litigation costs of £31m offset by £15m of discount rate movements following an increase

in US treasury bond yields. See note 23 for further details; and

–

In FY23 £7m (FY2022: £nil) of asbestos litigation costs were recovered by John Crane, Inc. via

insurer settlements.

Other items

Acquisition related intangible asset amortisation costs of £52m (FY2022: £51m) were recognised

in the current period. This is considered to be a non-headline item on the basis that these charges

result from acquisition accounting and do not relate to current trading activity.

As announced in the FY2022 Annual Report, during FY2023 the Group has completed a

restructuring project across the Group to better serve our customers, maximise growth

opportunities and improve efficiency. In FY2023 £36m of non-headline charges have been

expensed of which £26m has been paid to date, the remainder is forecast to be paid within the

next 18 months. The restructuring project is a non-headline expense as the costs are material,

non-recurring and part of a pre-approved programme.

The £2m of irrecoverable VAT (31 July 2022: £nil) relates to a historical VAT classification error.

This error had resulted in certain intercompany chain export transactions being treated as VAT

exempt when they should have been initially classified as subject to European VAT. This has been

treated as non-headline as it relates to six years of past VAT practice and will involve payment and

recovery of European VAT, which spans FY2023 and FY2024, so may have a material impact on the

Group’s headline cash conversion metric.

In the prior year a £19m charge has been recognised in relation to Russia impairment charges

and related closure costs.

NON-HEADLINE FINANCE COSTS ITEMS

The non-headline items included in finance costs for continuing operations were as follows:

Notes

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Unwind of discount on provisions

(7)

(3)

Other finance income – retirement benefits

Interest payable on overdue VAT

(7)

–

Other sundry financing losses

(1)

–

Fair value gain on investment in early stage business

–

Foreign exchange gain on intercompany loan with

discontinued operations

–

Non-headline items in finance costs – continuing

operations

(8)

Continuing operations – non-headline loss before

taxation

(106)

(273)

The financing elements of non-headline legacy liabilities, including the £7m (FY2022: £3m)

unwind of discount on provisions, were excluded from headline finance costs because these

provisions were originally recognised as non-headline and this treatment has been maintained

for ongoing costs and credits.

Other finance income comprises £7m (FY2022: £7m) of financing credits relating to retirement

benefits. These were excluded from headline finance costs because the ongoing costs and credits

are a legacy of previous employee pension arrangements.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

149

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

The £7m of interest payable on overdue VAT (FY2022: £nil) relates to a historic VAT classification

error. This was excluded from headline finance costs because the underlying issue was

recognised as non-headline and this treatment has been maintained for ongoing costs

and credits.

NON-HEADLINE TAXATION (CHARGE)/CREDIT

The non-headline items included in taxation for continuing operations were as follows:

Notes

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Tax credit on non-headline loss

Increase in unrecognised UK deferred tax asset

(31)

(5)

Non-headline taxation (charge)/credit– continuing

operations

(13)

Continuing operations – non-headline loss for the year

(119)

(259)

Movement in unrecognised UK deferred tax asset

These movements are reported as non-headline because the original credit, related to non-

headline charges was reported as non-headline.

II. DISCONTINUED OPERATIONS

The non-headline items for discontinued operations were as follows:

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Non-headline operating profit items

Medfusion documentation remediation costs

–

(33)

Impairment of investment in Ivenix, Inc. convertible debt

–

(14)

Non-headline finance costs items

Foreign exchange loss on intercompany loan with parent

–

(22)

Gain on sale of discontinued operation

Gain on the sale of Smiths Medical to ICU Medical, Inc.

1,036

Non-headline taxation items

Tax on non-headline loss

–

Non-headline items in profit from discontinued

operations

973

Profit for the year – non-headline items for continuing

and discontinued operations

(113)

714

In the current year the Group has recognised an additional £6m gain on transactions related to

the sale of Smiths Medical. An £11m credit was released in respect of disposal and restructuring

provisions, that are no longer required, and an offsetting additional £5m of provisions were

charged in respect of potential indemnity, litigation and arbitration costs. These items are

considered to be non-headline as they relate to discontinued former business activities.

In the prior period:

–

Smiths Medical recognised a £33m provision against the costs of the remediation actions

required to address each of the observations and discussion items contained in the US Food

and Drug Administration ‘for-cause’ audit findings on the Medfusion product range; and

–

The decision by Smiths Medical to exit its commercial agreement with Ivenix, Inc. triggered an

indicator of impairment to the carrying value of the Smiths Medical investment in Ivenix, Inc.

and management impaired the entire £14m value of Smiths Medical’s investment; and

–

The £22m foreign exchange loss on intercompany loan with parent directly offsets the foreign

exchange gain in continuing operations.

4. NET FINANCE COSTS

Notes

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Interest income

Interest expense:

– bank loans and overdrafts, including associated fees

(50)

(12)

– other loans

(17)

(40)

– interest on leases

(4)

(3)

Interest expense

(71)

(55)

Headline net finance costs

(35)

(41)

Other financing gains/(losses):

– valuation movements on fair value hedged debt

(9)

(32)

– valuation movements on fair value derivatives

– foreign exchange and ineffectiveness on net investment

hedges

(3)

(2)

– retranslation of foreign currency bank balances

(1)

– interest on overdue VAT

(7)

–

– other items including counterparty credit risk

adjustments and non-hedge accounted derivatives

–

Other financing gains/(losses)

(8)

–

Non-headline finance cost items:

Foreign exchange gain on intercompany loan with

discontinued operations

–

Unwind of discount on provisions

(7)

(3)

Fair value gain on investment in early stage business

–

Net interest income on retirement benefit obligations

Non-headline finance cost items

–

Net finance costs

(43)

(14)

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

150

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

5. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the profit for the year attributable to equity

shareholders of the Company by the average number of ordinary shares in issue during the year.

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Profit attributable to equity shareholders for the year:

– continuing

225

– discontinued

1,022

Total

231

1,033

Average number of shares in issue during the year (note 24)

352,891,120

386,678,211

Statutory earnings per share total – basic

65.5p

267.1p

Statutory earnings per share total – diluted

65.1p

266.0p

Statutory earnings per share continuing operations – basic

63.8p

2.8p

Statutory earnings per share continuing operations – diluted

63.4p

2.8p

Diluted earnings per share are calculated by dividing the profit attributable to ordinary

shareholders by 354,681,819 (FY2022: 388,349,758) ordinary shares, being the average number

of ordinary shares in issue during the year adjusted by the dilutive effect of employee share

schemes. No options (FY2022: nil) were excluded from this calculation because their effect

was anti-dilutive.

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

Year ended 31 July 2023

Year ended 31 July 2022

£m

Basic EPS

(p)

Diluted EPS

(p)

£m

Basic EPS

(p)

Diluted EPS

(p)

Total profit attributable to

equity shareholders of the

Parent Company

231

65.5

65.1

1,033

267.1

266.0

Exclude: Non-headline items

(note 3)

113

(714)

Headline earnings per share

344

97.5

97.0

319

82.5

82.1

Profit from continuing

operations attributable to

equity shareholders of the

Parent Company

225

63.8

63.4

2.8

Exclude: Non-headline items

(note 3)

119

259

Headline earnings per share –

continuing operations

344

97.5

97.0

270

69.8

69.5

6. TAXATION

This note only provides information about corporate income taxes under IFRS. Smiths companies

operate in over 50 countries across the world. They pay and collect many different taxes in

addition to corporate income taxes including: payroll taxes; value added and sales taxes; property

taxes; product-specific taxes; and environmental taxes. The costs associated with these other

taxes are included in profit before tax.

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

The taxation charge in the consolidated income statement for the year

comprises:

Continuing operations

– current income tax charge

112

– current tax adjustments in respect of prior periods

(7)

Current taxation

105

Deferred taxation

Total taxation expense – continuing operations

134

Analysed as:

Headline taxation expense

121

104

Non-headline taxation charge/(credit)

(14)

Total taxation expense in the consolidated income statement

134

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Tax on items charged/(credited) to equity

Deferred tax:

– retirement benefit schemes

–

– share-based payment

–

(1)

The £32m (FY2022: £nil) charge to equity for retirement benefit schemes principally related to UK

retirement schemes.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

151

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

CURRENT TAXATION LIABILITIES

Current tax

£m

At 31 July 2021

(19)

Foreign exchange loss

(4)

Charge to income statement

(73)

Tax paid

At 31 July 2022

(17)

Comprising:

Current tax receivable

Current tax payable within one year

(64)

Corporation tax payable after more than one year

(3)

At 31 July 2022

(17)

Charge to income statement

(105)

Tax paid

At 31 July 2023

(30)

Comprising:

Current tax receivable

Current tax payable within one year

(74)

Corporation tax payable after more than one year

(3)

At 31 July 2023

(30)

Provisions for tax liabilities amount to £46m (FY2022: £38m) the majority of which relates to the

risk of challenge from tax authorities to the geographic allocation of profits across the Group.

In addition to the risks provided for, the Group faces a variety of other tax risks, which result from

operating in a complex global environment, including the ongoing reform of both international and

domestic tax rules, new and ongoing tax audits in the Group’s larger markets and the challenge to

fulfil ongoing tax compliance filing and transfer pricing obligations given the scale and diversity of

the Group’s global operations.

The Group anticipates that a number of tax audits are likely to conclude in the next 12 to 24

months for which provisions are recognised based on best estimates and management’s

judgements concerning the ultimate outcome of the audit. Due to the uncertainty associated with

such items, it is possible at a future date, on conclusion of open tax matters, the final outcome

may vary significantly from the amounts noted above.

RECONCILIATION OF THE TAX CHARGE

The headline tax charge for the year of £121m (FY2022: £104m) represents an effective rate of

26.0% (FY2022: 27.6%).

The tax charge on the profit for the year for continuing operations is different from the standard

rate of corporation tax in the UK, with a rate for FY2023 of 21.0% (FY2022: 19.0%). The differences

are reconciled as follows:

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Profit before taxation

366

103

Notional taxation expense at UK corporate rate of 21% (FY2022: 19.0%)

Different tax rates on non-UK profits and losses

Non-deductible expenses and other charges

Tax credits and non-taxable income

(10)

(6)

Non-headline UK deferred tax asset recognition adjustment

Other adjustments to unrecognised deferred tax

Non-tax relievable loss on UK pensions schemes

–

Tax on Smiths Medical consolidation adjustments

–

Prior year true-up

(3)

(6)

Total taxation expense in the consolidated income statement

134

Comprising:

Taxation on headline profit

121

104

Non-headline taxation items:

– Tax credit on non-headline loss

(18)

(19)

– UK deferred tax asset recognition adjustment

Taxation on non-headline items

(14)

Total taxation expense in the consolidated income statement

134

The table above reconciles the notional taxation charge calculated at the UK tax rate, to the actual

total tax charge. As a group operating in multiple countries, the actual tax rates applicable to

profits in those countries are different from the UK tax rate. The impact is shown above as

different tax rates on non-UK profits and losses. The Group’s worldwide business leads to the

consideration of a number of important factors which may affect future tax charges, such as: the

levels and mix of profitability in different jurisdictions; transfer pricing regulations; tax rates

imposed and tax regime reforms; acquisitions; disposals; restructuring activities; and

settlements or agreements with tax authorities.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

152

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

DEFERRED TAXATION ASSETS/(LIABILITIES)

Property, plant,

equipment and

intangible

assets

£m

Employment

benefits

£m

Losses

carried

forward

£m

Provisions

£m

Other

£m

Total

£m

At 31 July 2021

(56)

(105)

144

Reallocations

(15)

–

Charge to income statement –

continuing operations

(54)

(10)

(7)

(17)

Credit to equity

–

(4)

(1)

Foreign exchange rate

movements

(9)

–

At 31 July 2022

(76)

(51)

103

(4)

Comprising:

Deferred tax assets

(1)

(56)

Deferred tax liabilities

(75)

(15)

(44)

At 31 July 2022

(76)

(51)

103

(4)

Reallocations

–

(2)

(4)

–

Charge to income statement –

continuing operations

(3)

(32)

(5)

(2)

(29)

Credit to equity

–

Foreign exchange rate

movements

(1)

(2)

(4)

(2)

At 31 July 2023

(60)

(25)

(4)

Comprising:

Deferred tax assets

(2)

(27)

Deferred tax liabilities

(58)

(18)

(43)

At 31 July 2023

(60)

(25)

(4)

Of the amounts included within ‘Other’, shown in the above table, as at 31 July 2023, amounts

relating to tax on unremitted earnings were £19m (FY2022: £19m). The aggregate amount of

temporary differences associated with investments in subsidiaries for which deferred tax

liabilities have not been recognised is immaterial.

The deferred tax asset relating to losses has been recognised on the basis of strong evidence of

future taxable profits against which the unutilised tax losses can be relieved or it is probable that

they will be recovered against the reversal of deferred tax liabilities. The closing net deferred tax

asset balance related to UK activities and included in the balance at 31 July 2023 amounted to £nil

(FY2022: £nil). The deferred tax asset balance for provisions includes £51m (FY2022: £57m)

relating to John Crane Inc. litigation provision, and £9m (FY2022: £12m) relating to Titeflex

Corporation. See note 23 for additional information on provisions.

UNRECOGNISED DEFERRED TAX

The Group has £521m of unrecognised deferred tax relating to losses (FY2022: £335m).

The expiry date of operating losses carried forward is dependent upon the law of the various

territories in which the losses arise. A summary of expiry dates in respect of which deferred tax

has not been recognised is set out below:

2023

£m

Expiry of

losses

2022

£m

Expiry of

losses

Unrestricted losses – operating losses

521

No expiry

335

No expiry

Total unrecognised deferred tax on losses

521

335

Unrecognised deferred tax relating to losses has increased by £186m (FY2022: £228m). This

comprises an increase of £78m that principally matches the reduction in the UK pensions

deferred tax liability, an increase of £75m relating to Detection and Interconnect USA current year

losses and £33m from a FY2022 change in local accounting method for tax purposes resulting in

additional losses being booked in FY2023.

DEVELOPMENTS IN THE GROUP TAX POSITION

In December 2021, the Organisation for Economic Co-operation and Development published

rules relating to global minimum taxation called ‘Pillar 2 rules’, currently timetabled to apply

in the UK to accounting periods beginning on or after 1 January 2024 (year ended 31 July 2025

for Smiths). The Group will continue to monitor the development and future implementation of

these rules globally.

Smiths is actively working to fully understand the impact of the new rules and developing

processes to enable compliance. Based upon our latest understanding, the current estimate of

additional tax payable is not expected to have a material impact on the Group.

7. EMPLOYEES

Year ended 31 July 2023

Year ended 31 July 2022

Continuing

operations

£m

Discontinued

operations

£m

Total

£m

Continuing

operations

£m

Discontinued

operations

£m

Total

£m

Staff costs during the period

Wages and salaries

802

–

802

700

791

Social security

–

Share-based payment (note 9)

–

Pension costs (including defined

contribution schemes) (note 8)

–

939

–

939

823

107

930

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

153

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

The average number of persons employed, including employees on permanent, fixed term and

temporary contracts, rounded to the nearest 50 employees was:

Year ended

31 July 2023

Year ended

31 July 2022

John Crane

6,050

Smiths Detection

3,250

3,100

Flex-Tek

3,750

3,300

Smiths Interconnect

2,800

2,500

Corporate (including central/shared IT services)

300

Continuing operations

16,150

15,250

Discontinued operations – Smiths Medical (in period to 6 January 2022)

–

6,700

Total

16,150

21,950

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 & People Committee on pages 98

to 110.

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Key management compensation

Salaries and short-term employee benefits

12.0

10.3

Cost of retirement benefits

0.7

Cost of share-based incentive plans

4.9

4.7

No member of key management had any material interest during the period in a contract of

significance (other than a service contract or a qualifying third-party indemnity provision) with the

Company or any of its subsidiaries.

Options and awards held at the end of the period by key management in respect of the Company’s

share-based incentive plans were:

Year ended 31 July 2023

Year ended 31 July 2022

Number of

instruments

’000

Weighted

average

exercise

price

Number of

instruments

’000

Weighted

average

exercise

price

LTIP

1,580

1,411

Restricted stock

–

SAYE

£11.45

£11.43

RELATED PARTY TRANSACTIONS

The only related party transactions in FY2023 were key management compensation

(FY2022: key management compensation).

8. RETIREMENT BENEFITS

Smiths provides retirement benefits to employees in a number of countries. This includes defined

benefit and defined contribution plans and, mainly in the United Kingdom (UK) and United States

of America (US), post-retirement healthcare.

DEFINED CONTRIBUTION PLANS

The Group operates defined contribution plans across many countries. In the UK a defined

contribution plan has been offered since the closure of the UK defined benefit pension plans. In

the US a 401(k) defined contribution plan operates. The total expense recognised in the

consolidated income statement in respect of all these plans was £31m (FY2022: £34m).

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 2023. Contributions to the

schemes are made on the advice of the actuaries, in accordance with local funding requirements.

The changes in the present value of the net pension asset in the period were:

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

At beginning of period

194

413

Foreign exchange rate movements

–

Current service cost

(2)

Headline scheme administration costs

(4)

Non-headline scheme administration costs

(2)

Past service cost, curtailments, settlements – continuing operations

(214)

Settlements – discontinued operations

–

(3)

Finance income – retirement benefits

Contributions by employer

Actuarial (losses)/gains

(114)

Retirement benefit obligations disposed of with Smiths Medical

–

Unrecognised assets due to surplus restriction

–

(20)

Net retirement benefit asset

194

The £413m net retirement benefit asset at the start of FY2022 included £5m of pension obligations

disclosed within liabilities held for sale.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

154

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

UK PENSION SCHEMES

Smiths Group’s funded UK pension schemes are subject to a statutory funding objective, as set

out in UK pension legislation. Scheme trustees need to obtain regular actuarial valuations to

assess the scheme against this funding objective. The trustees and sponsoring companies need

to agree funding plans to improve the position of a scheme when it is below the acceptable

funding level.

The UK Pensions Regulator has extensive powers to protect the benefits of members, promote

good administration and reduce the risk of situations arising which may require compensation

to be paid from the Pension Protection Fund. These include imposing a schedule of contributions

or the calculation of the technical provisions, where a trustee and company fail to agree

appropriate calculations.

Smiths Industries Pension Scheme (SIPS)

This scheme was closed to future accrual effective 1 November 2009. SIPS provides index-linked

(to applicable caps) pension benefits based on final earnings at date of closure. SIPS is governed

by a corporate trustee (S.I. Pension Trustees Limited, a wholly owned subsidiary of Smiths Group

plc). The board of trustee directors currently comprises four Company-nominated trustees and

four member-nominated trustees, with an independent chairman selected by Smiths Group plc.

Trustee directors are responsible for the management, administration, funding and investment

strategy of the scheme.

The most recent actuarial valuation of this scheme has been performed using the Projected Unit

Method as at 31 March 2020. The valuation showed a surplus of £34m on the Technical Provisions

funding basis at the valuation date and the funding position has improved since then. As part of

the valuation agreement, no contributions are currently being paid to SIPS and the Group’s

current expectation is that these contributions will not recommence (although there are

circumstances relating to the Scheme’s funding level in which contributions could be due to

SIPS). The next actuarial valuation, due as at 31 March 2023, is currently in progress, with the

results expected later in 2023.

The duration of SIPS liabilities is around 18 years (FY2022: 20 years) for active deferred members,

19 years (FY2022: 20 years) for deferred members and 10 years (FY2022: 11 years) for pensioners

and dependants. Durations have reduced primarily due to the increase in discount rate

assumption, which reduces the average time it takes to receive all future pension payments when

weighted by the present value of those future pension payments.

Under the governing documentation of SIPS, any future surplus would be returnable to

Smiths Group plc by refund, assuming gradual settlement of the liabilities over the lifetime

of the scheme.

In SIPS, as part of ongoing data cleansing work being undertaken to prepare the scheme for a

potential full buy-out in the future, a wider review is being carried out to determine if the method

used in the early 1990s to equalise retirement ages between men and women was implemented

correctly. In FY2022, an additional liability of £19m was recognised as a past service cost to reflect

the expected impact of correcting this issue for certain sections of the scheme. In the current

year, a further liability of £12m has been recognised and £16m recognised in previous years has

been released following the identification of additional evidence of the obligation for equalisation,

resulting in a net credit to the income statement of £4m. The review remains ongoing however, no

further material additional liabilities are expected.

SIPS uses a Liability Driven Investment (LDI) strategy to hedge against interest and inflation rate

changes. During the significant volatility that followed the UK Government’s mini budget in

September 2022, this hedging policy meant that SIPS asset values fell, as did the value of its

obligations. All of SIPS’s collateral requirements in respect of the LDI assets were met, with no

support required from the Group.

TI Group Pension Scheme (TIGPS)

This scheme was closed to future accrual effective 1 November 2009. TIGPS provides index-

linked (to applicable caps) pension benefits based on final earnings at the date of closure. TIGPS

is governed by a corporate trustee (TI Pension Trustee Limited, an independent company). The

board of trustee directors comprises 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.

In June 2022 the TIGPS trustee completed a deal to secure its remaining uninsured pension

liabilities, by way of a bulk annuity buy-in with Rothesay Life plc. This means all of the scheme’s

liabilities are insured via seven buy-in policies. The final buy-in has been secured with an intention

to fully buy-out the Scheme as soon as reasonably practical and within a period of four years. The

FY2022 income statement recognised a settlement loss of £171m in relation to the buy-in.

In terms agreed between the Group and the TIGPS trustee prior to the transaction, when TIGPS

converts all of its buy-in policies to buy-out policies and subsequently winds up, the trustee is

expected to use any surplus remaining, after the costs of buying-out and winding up the scheme

have been met, to improve member benefits. The FY 2022 income statement recognised a past

service cost of £24m in relation to the derecognition of the remaining surplus. The Group has no

expectation of receiving a refund from the scheme and has placed an economic benefit value of

zero on the TIGPS surplus from 10 June 2022.

As TIGPS currently retains the legal obligation to pay all scheme benefits, TIGPS liabilities remain

part of the retirement benefit obligations on the balance sheet alongside the corresponding

buy-in assets. These liabilities and assets will be derecognised at the point the buy-in policies are

converted to buy-outs and the legal obligation for payment of benefits is transferred to the

relevant insurers.

The most recent actuarial valuation of this scheme has been performed using the Projected Unit

Method as at 5 April 2020. The valuation showed a surplus of £22m on the Technical Provisions

funding basis at the valuation date and the funding position has improved since then. Given

TIGPS’s circumstances, the Group’s current expectation is that no further contributions to TIGPS

will be required. The next actuarial valuation, due as at 5 April 2023, is currently in progress, with

the results expected later in 2023.

The duration of the TIGPS liabilities is around 20 years (FY2022: 21 years) for active deferred

members, 18 years (FY2022: 19 years) for deferred members and 10 years (FY2022: 10 years) for

pensioners and dependants.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

155

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

US PENSION PLANS

The valuations of the principal US pension and post-retirement healthcare plans were performed

using census data at 1 January 2023.

The pension plans were closed with effect from 30 April 2009 and benefits were calculated as

at that date and are not revalued. Governance of the US pension plans is overseen by a Settlor

Committee appointed by Smiths Group Services Corp, a wholly owned subsidiary of the Group.

The duration of the liabilities for the largest US plan is around 15 years (FY2022: 16 years) for

active deferred members, 14 years (FY2022: 15 years) for deferred members and 10 years

(FY2022: 10 years) for pensioners and dependants.

RISK MANAGEMENT

In respect of uninsured liabilities, the pensions schemes are exposed to risks that:

–

Investment returns are below expectations, leaving the schemes with insufficient assets in

future to pay all their pension obligations;

–

Members and dependants live longer than expected, increasing the value of the pensions which

the schemes have to pay;

–

Inflation rates are higher than expected, causing amounts payable under index-linked pensions

to be higher than expected; and

–

Increased contributions are required to meet funding targets if lower interest rates increase

the current value of liabilities.

These risks are managed separately for each pension scheme. However, the Group has adopted a

common approach of closing defined benefit schemes to cap members’ entitlements and of

supporting trustees in adopting investment strategies which aim to hedge the value of assets

against changes in the value of liabilities caused by changes in interest and inflation rates.

Across SIPS and TIGPS, approximately 60% of all liabilities are now de-risked through 11

bulk annuities.

TIGPS

TIGPS has covered roughly 100% of liabilities with matching annuities, eliminating investment

return, longevity, inflation and funding risks in respect of those liabilities.

SIPS

SIPS has covered roughly 33% of liabilities with matching annuities, eliminating investment

return, longevity, inflation and funding risks in respect of those liabilities. It has also adopted a

LDI strategy to hedge interest and inflation risks of the scheme’s uninsured liabilities by

investment in gilts together with the use of gilt repurchase arrangements, total return swaps,

inflation swaps and interest rate swaps. The strategy also takes into account the scheme’s

corporate bond investments.

The critical estimates and principal assumptions used in updating the valuations are set

out below:

2023

Other

2022

Other

Rate of increase in salaries

n/a

2.5%

n/a

2.2%

Rate of increase for active deferred

members

4.0%

n/a

4.0%

n/a

Rate of increase in pensions in payment

3.3%

n/a

1.6%

3.4%

n/a

1.2%

Rate of increase in deferred pensions

3.3%

n/a

3.4%

n/a

Discount rate

5.1%

5.2%

2.8%

3.5%

4.5%

1.1%

Inflation rate

3.3%

n/a

0.4%

3.4%

n/a

1.3%

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 RPI inflation assumption of 3.3% has been derived using the Aon UK Government Gilt Prices

Only Curve with an Inflation Risk Premium of 0.2% p.a.

The Government’s response to its consultation on RPI reform was published on 25 November

2020, and strongly implied that RPI will become aligned with CPI-H from 2030. No specific

allowance (beyond anything already priced into markets) has been factored into the RPI

assumptions for potential changes. The assumption for the long-term gap between RPI and CPI is

0.5% p.a. (FY2022: 0.6%) reflecting the Group’s view on the market pricing of this gap over the

lifetime of the UK schemes’ liabilities, i.e., 0.9% p.a. (FY2022: 1.0%) pre-2030 and 0.1% p.a.

post-2030 (FY2022: 0.2%).

Short-term inflation has continued at rates higher than the Government’s targets, though future

inflation is expected to fall in the short term as the Bank of England increases interest rates to

combat high inflation. Consequently, the long-term inflation assumptions are similar to the prior

year. The full impact of current high inflation is mitigated to an extent by the caps in place on

index-linked increases. The Board considered and declined a request from the Trustee of SIPS to

recommend an additional discretionary increase to pensions in payment. However, there is no

change in the Group’s constructive obligations and allowance for certain discretionary increases

in future continues to be included in the defined benefit obligations shown below.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

156

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

Discount rate assumptions

The UK schemes use a discount rate based on the annualised yield on the Aon GBP Single Agency

Select AA Curve, using the expected cash-flows from a notional scheme with obligations of the

same duration as that of the UK schemes, whereas in previous years the Aon GBP Select AA

Curve was used. The increase in the discount rate assumption at 31 July 2023 arises from market

conditions and is not impacted by the change in discount rate methodology.

The US Plan uses a discount rate based on the annualised yield derived from Willis Towers

Watson’s RATE:Link (10th – 90th) model using the Plan’s expected cash-flows.

The discount rate assumptions have increased significantly since the prior year, largely due to

the significant volatility that followed the UK Government’s mini budget in September 2022,

though other factors have contributed to the continued rise in bond yields since then, including

heightened political uncertainty, increases to interest rates to combat persistent high inflation

and market illiquidity. A higher discount rate has led to a lower value being placed on the

retirement benefit obligations, though there has also been a corresponding reduction in the

value of assets.

Mortality assumptions

The mortality assumptions used in the principal UK schemes are based on the latest ‘SAPS S3’

birth year tables with relevant scaling factors based on the recent experience of the schemes.

The assumption allows for future improvements in life expectancy in line with the 2021 latest

2022 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 latest CMI projections incorporate

allowance for the impact of COVID-19, equivalent to a reduction in life expectancy of around

0.5 years.

The mortality assumptions used in the principal US schemes are based on generational mortality

using the latest Pri-2012 sex-distinct, employee/non-disabled annuitant table, with a 2012 base

year, projected forward generationally with the latest MP-2021 mortality scale. No explicit

adjustment has been made to mortality assumptions in respect of COVID-19. The impact of

COVID-19 remains uncertain and further data studies are underway to better predict the impact

on future mortality.

Expected further years of life

UK schemes

Male

31 July 2023

Female

31 July 2023

Male

31 July 2022

Female

31 July 2022

Member who retires next year at age 65

Member, currently 45, when they retire in 20 years’ time

Expected further years of life

US schemes

Male

31 July 2023

Female

31 July 2023

Male

31 July 2022

Female

31 July 2022

Member who retires next year at age 65

Member, currently 45, when they retire in 20 years’ time

SENSITIVITY

Sensitivities in respect of the key assumptions used to measure the principal pension schemes as

at 31 July 2023 are set out below. These sensitivities show the hypothetical impact of a change in

each of the listed assumptions in isolation, with the exception of the sensitivity to inflation which

incorporates the impact of certain correlating assumptions. In practice, such assumptions rarely

change in isolation.

Profit before

tax

for year

ended

31 July 2023

£m

Increase/

(decrease) in

scheme

assets

31 July 2023

£m

(Increase)/

decrease in

scheme

liabilities

31 July 2023

£m

Profit before

tax

for year

ended

31 July 2022

£m

Increase/

(decrease) in

scheme

assets

31 July 2022

£m

(Increase)/

decrease in

scheme

liabilities

31 July 2022

£m

Rate of mortality – one year

increase in life expectancy

(2)

(88)

(2)

(135)

Rate of mortality – one year

decrease in life expectancy

(62)

(84)

136

Rate of inflation – 0.25% increase

(1)

(43)

(1)

(69)

Discount rate – 0.25% increase

(36)

(49)

Market value of scheme assets –

2.5% increase

–

The effect on profit before tax reflects the impact of current service cost and net interest cost.

The value of the scheme assets is affected by changes in mortality rates, inflation and discounting

because they affect the carrying value of the insurance assets.

Asset valuation

The pension schemes hold assets in a variety of pooled funds, in which the underlying assets

typically are invested in credit and cash assets. These funds are valued. The price of the funds is

set by administrators/custodians employed by the investment managers and based on the value

of the underlying assets held in the funds. Prices are generally updated daily, weekly or quarterly

depending upon the frequency of the fund’s dealing.

Bonds are valued using observable broker quotes. Gilt repurchase obligations are valued by

the relevant manager, which derives the value using an industry recognised model with

observable inputs.

Total return, interest and inflation swaps and forward FX contracts are bilateral agreements

between counterparties and do not have observable market prices. These derivative contracts

are valued using observable inputs.

Insured liabilities comprise annuity policies that match all or part of the scheme obligation to

identified groups of members. These assets are valued by an external qualified actuary at the

actuarial valuation of the corresponding liability, reflecting this matching relationship.

The insurance policies are treated as qualifying insurance policies as none of the insurers are

related parties of 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.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

157

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

Retirement benefit plan assets

31 July 2023 – £m

schemes

Other

countries

Total

Cash and cash equivalents

Pooled funds:

– Pooled equity

–

– Pooled Diversified Growth

–

– Pooled credit

320

–

320

Corporate bonds

203

141

–

344

Government bonds/LDI

421

468

Insured liabilities

1,323

–

1,323

Property

–

Total market value

2,367

186

2,573

31 July 2022 – £m

schemes

Other

countries

Total

Cash and cash equivalents

Pooled funds:

– Pooled equity

–

– Pooled Diversified Growth

–

– Pooled credit

379

–

379

Corporate bonds

412

167

–

579

Government bonds/LDI

498

558

Insured liabilities

1,649

–

1,649

Property

–

Total market value

3,067

225

3,314

The UK Government bonds/LDI portfolios contain £717m (FY2022: £960m) of UK Government

bonds (gilts), £276m (FY2022: £476m) of gilt repurchase obligations and £18m of interest and

inflation swap obligations (FY2022: £9m assets) and forward FX contracts with a net obligation

of £2m (FY2022: £5m asset). These are held to hedge against foreign currency risk. The pooled

funds, insured liabilities and property assets are unquoted. The scheme assets do not include any

property occupied by, or other assets used by, the Group.

The asset valuations are effective as at the end of the period, consistent with the calculations

determining the obligations, except for a small legacy commercial property investment which is

due to be sold down over 2023. This investment is only valued at the end of each calendar quarter,

so no valuation is available as at the period end. The Group considers taking the most recent

available valuation to be appropriate given the size of the commercial property investment relative

to the overall value of invested assets and wider commercial property market returns since the

most recent valuation.

The Group acknowledges that responsibility for the effective management of the schemes’

assets lies primarily with the trustees, but also accepts that any risks inherent in the investment

strategy, including ESG and climate risk, are ultimately underwritten by the Group. Consequently,

the Group ensures that the trustees’ investment strategy and statements of investment principles

are compatible with the Group’s wider sustainability strategy. For TIGPS, where all benefits are

now secured by way of annuity purchase, all investment risks including ESG and climate risk,

have effectively now been eliminated. For SIPS, a significant portion of investment risks have

already been eliminated through annuity purchase and the scheme’s time horizon to full buy-in,

hence exposure to investment risks including ESG and climate risk, continues to reduce.

Present value of funded scheme liabilities and assets for the main UK and US schemes

31 July 2023 – £m

SIPS

TIGPS

schemes

Present value of funded scheme liabilities:

– Active deferred members

(25)

(18)

(31)

– Deferred members

(388)

(326)

(86)

– Pensioners

(838)

(561)

(85)

Present value of funded scheme liabilities

(1,251)

(905)

(202)

Market value of scheme assets

1,446

921

186

Surplus restriction

–

(16)

–

Surplus/(deficit)

195

–

(16)

31 July 2022 – £m

SIPS

TIGPS

schemes

Present value of funded scheme liabilities:

– Active deferred members

(32)

(23)

(41)

– Deferred members

(561)

(442)

(109)

– Pensioners

(1,010)

(670)

(88)

Present value of funded scheme liabilities

(1,603)

(1,135)

(238)

Market value of scheme assets

1,912

1,155

225

Surplus restriction

–

(20)

–

Surplus/(deficit)

309

–

(13)

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

158

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

Net retirement benefit obligations

31 July 2023 – £m

schemes

Other

countries

Total

Market value of scheme assets

2,367

186

2,573

Present value of funded scheme liabilities

(2,156)

(202)

(25)

(2,383)

Surplus restriction

(16)

–

(16)

Surplus/(deficit)

195

(16)

(5)

174

Unfunded pension plans

(37)

(6)

(36)

(79)

Post-retirement healthcare

(3)

(1)

(2)

(6)

Present value of unfunded obligations

(40)

(7)

(38)

(85)

Net pension asset/(liability)

155

(23)

(43)

Comprising:

Retirement benefit assets

195

–

195

Retirement benefit liabilities

(40)

(23)

(43)

(106)

Net pension asset/(liability)

155

(23)

(43)

31 July 2022 – £m

schemes

Other

countries

Total

Market value of scheme assets

3,067

225

3,314

Present value of funded scheme liabilities

(2,738)

(238)

(27)

(3,003)

Surplus restriction

(20)

–

(20)

Surplus/(deficit)

309

(13)

(5)

291

Unfunded pension plans

(43)

(7)

(40)

(90)

Post-retirement healthcare

(4)

(1)

(2)

(7)

Present value of unfunded obligations

(47)

(8)

(42)

(97)

Net pension asset/(liability)

262

(21)

(47)

194

Comprising:

Retirement benefit assets

309

–

309

Retirement benefit liabilities

(47)

(21)

(47)

(115)

Net pension asset/(liability)

262

(21)

(47)

194

Where any individual scheme shows a recoverable surplus under IAS 19, this is disclosed on the

balance sheet as a retirement benefit asset. The IAS 19 surplus of any one scheme is not available

to fund the IAS 19 deficit of another scheme. The retirement benefit asset disclosed arises from

the rights of the employers to recover the surplus at the end of the life of the scheme, i.e., when

the last beneficiary’s obligation has been met.

Amounts recognised in the consolidated income statement

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Amounts charged to operating profit

Current service cost

Past service costs – benefit equalisations

(5)

Settlement loss

171

Headline scheme administration costs

Non-headline scheme administration costs

–

220

The operating cost is charged as follows:

Headline administrative expenses

Non-headline settlement loss

171

Non-headline administrative expenses

(3)

220

Amounts credited to finance costs

Non-headline other finance income – retirement benefits

(7)

Amounts recognised directly in the consolidated statement of comprehensive income

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Re-measurements of retirement defined benefit assets and liabilities

Difference between interest credit and return on assets

(660)

(835)

Experience gains on scheme liabilities

(54)

(31)

Actuarial gains arising from changes in demographic assumptions

Actuarial gains/(losses) arising from changes in financial assumptions

548

868

Movement in surplus restriction

(20)

(114)

(17)

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

159

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

Changes in present value of funded scheme assets

31 July 2023 – £m

schemes

Other

countries

Total

At beginning of period

3,067

225

3,314

Interest on assets

105

116

Actuarial movement on scheme assets

(638)

(21)

(1)

(660)

Scheme administration costs

(5)

(1)

–

(6)

Foreign exchange rate movements

–

(10)

–

(10)

Assets distributed on settlements

–

(4)

–

(4)

Benefits paid

(162)

(13)

(2)

(177)

At end of period

2,367

186

2,573

31 July 2022 – £m

schemes

Other

countries

Total

At beginning of period

4,104

272

4,406

Interest on assets

Actuarial movement on scheme assets

(773)

(62)

–

(835)

Employer contributions

–

Scheme administration costs

(3)

(1)

–

(4)

Foreign exchange rate movements

–

Assets transferred on business disposal

–

(5)

Assets distributed on settlements

(180)

–

(180)

Curtailment gains/(losses)

–

(9)

–

(9)

Benefits paid

(154)

(16)

(5)

(175)

At end of period

3,067

225

3,314

Changes in present value of funded defined benefit obligations

31 July 2023 – £m

schemes

Other

countries

Total

At beginning of period

(2,738)

(238)

(27)

(3,003)

Past service costs

–

Interest on obligations

(94)

(10)

(1)

(105)

Actuarial movement on liabilities

510

530

Foreign exchange rate movements

–

Liabilities extinguished on settlements

–

Benefits paid

162

177

At end of period

(2,156)

(202)

(25)

(2,383)

31 July 2022 – £m

schemes

Other

countries

Total

At beginning of period

(3,558)

(273)

(38)

(3,869)

Past service costs

(43)

–

(43)

Interest on obligations

(61)

(8)

(1)

(70)

Actuarial movement on liabilities

761

817

Foreign exchange rate movements

–

(33)

–

(33)

Liabilities transferred on business disposal

–

Curtailment gains/(losses)

–

Liabilities extinguished on settlements

–

Benefits paid

154

175

At end of period

(2,738)

(238)

(27)

(3,003)

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

healthcare plans

Assets

Obligations

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

At beginning of period

–

(98)

(124)

Current service cost

–

(1)

Interest on obligations

–

(3)

(2)

Actuarial movement

–

Employer contributions

–

Liabilities transferred on business

disposal

–

Benefits paid

(5)

At end of period

–

(85)

(97)

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

160

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

Changes in the effect of the asset ceiling over the year

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Irrecoverable asset at beginning of period

(20)

–

Actuarial movement on scheme assets

(20)

At end of period

(16)

(20)

Cash contributions

Company contributions to the defined benefit pension plans and post-retirement healthcare plans

totalled £5m (FY2022: £9m). No contributions were made to funded schemes in the year (FY2022:

£3m to SIPS, £1m to Other). During the year, £5m (FY2022: £5m) was spent on providing benefits

under unfunded defined benefit pension and post-retirement healthcare plans.

In FY2024, cash contributions to the Group’s schemes are expected to be up to £10m in total.

9. EMPLOYEE SHARE SCHEMES

The Group operates share schemes and plans for the benefit of employees. The nature of the

principal schemes and plans, including general conditions, is set out below:

LONG-TERM INCENTIVE PLAN (LTIP)

The LTIP is a share plan under which an award over a capped number of shares will vest after the

end of a three-year performance period if performance conditions are met. LTIP awards are

made to selected senior executives, including the Executive Directors.

LTIP performance conditions

Each performance condition has a threshold below which no shares vest and a maximum

performance target at or above which the award vests in full. For performance between

‘threshold’ and ‘maximum’, awards vest on a straight-line sliding scale. The performance

conditions are assessed separately; so performance on one condition does not affect the

vesting of the other elements of the award. To the extent that the performance targets are not

met over the three-year performance period, awards lapse. There is no re-testing of the

performance conditions.

LTIP awards have performance conditions relating to organic revenue growth, growth in headline

EPS, ROCE, free cash-flow and meeting ESG targets.

SMITHS EXCELLENCE PLAN (SEP)

The last Smiths Excellence Plan (SEP) grant was issued in October 2019, vested on 31 July 2021

and exercised in October 2021. No further SEP awards have been made.

RESTRICTED STOCK

Restricted stock is used by the Remuneration & People Committee, as a part of recruitment

strategy, to make awards in recognition of incentive arrangements forfeited on leaving a previous

employer. If an award is considered appropriate, the award will take account of relevant factors

including the fair value of awards forfeited, any performance conditions attached, the likelihood of

those conditions being met and the proportion of the vesting period remaining.

SAVE AS YOU EARN (SAYE)

The SAYE scheme is an HM Revenue & Customs approved all-employee savings-related share

option scheme which is open to all UK employees. Participants enter into a contract to save a

fixed amount per month of up to £500 in aggregate for three years and are granted an option

over shares at a fixed option price, set at a discount to market price at the date of invitation to

participate. The number of shares is determined by the monthly amount saved and the bonus paid

on maturity of the savings contract. Options granted under the SAYE scheme are not subject to

any performance conditions.

Ordinary shares under option/award (’000)

Long-term

incentive

plans

SEP

Restricted

stock

Save as you

earn

scheme

Total

Weighted

average

exercise

price

31 July 2021

4,915

851

1,085

6,915

£1.63

Reclassification

348

(348)

–

Granted

2,255

–

212

167

2,634

£0.71

Exercised

(224)

(313)

(163)

(138)

(838)

£1.90

Lapsed

(1,984)

(190)

(30)

(229)

(2,433)

£0.97

31 July 2022

5,310

–

885

6,278

£1.45

Granted

2,023

–

253

2,300

£1.47

Exercised

(309)

–

(20)

(109)

(438)

£2.88

Lapsed

(2,196)

–

(71)

(2,267)

£0.33

31 July 2023

4,828

–

958

5,873

£1.78

Options and awards were exercised on an irregular basis during the period. The average closing

share price over the financial year was 1,629.8p (FY2022: 1,476.3p). There has been no change to

the effective option price of any of the outstanding options during the period. The number of

exercisable share options at 31 July 2023 was nil (31 July 2022: nil).

Range of exercise prices

Total shares under

options/awards

at 31 July 2023

(’000)

Weighted average

remaining

contractual

life at 31 July 2023

(months)

Total shares under

options/awards

at 31 July 2022

(’000)

Weighted

average

remaining

contractual

life at 31 July 2022

(months)

£0.00 – £2.00

4,915

5,393

£6.01 – £10.00

444

490

£10.01 – £12.00

514

395

For the purposes of valuing options to arrive at the share-based payment charge, the binomial

option pricing model has been used. The key assumptions used in the model were volatility of 25%

to 20% (FY2022: 25% to 20%) and dividend yield of 2.4% (FY2022: 2.6%), based on historical data,

for the period corresponding with the vesting period of the option. These generated a weighted

average fair value for LTIP of £15.03 (FY2022: £14.81), and restricted stock of £14.60 (FY2022:

£14.59). Staff costs included £14m (FY2022: £15m) for share-based payments, of which £13m

(FY2022: £14m) related to equity-settled share-based payments.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

161

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

10. INTANGIBLE ASSETS

Goodwill

£m

Development

costs

£m

Acquired

intangibles

(see table

below)

£m

Software,

patents and

intellectual

property

£m

Total

£m

Cost

At 31 July 2021

1,207

156

562

177

2,102

Foreign exchange rate movements

104

188

Additions

–

At 31 July 2022

1,311

174

630

193

2,308

Foreign exchange rate movements

(45)

(2)

(31)

(3)

(81)

Business combinations

–

Additions

–

Disposals

–

(38)

At 31 July 2023

1,273

193

612

159

2,237

Amortisation and impairments

At 31 July 2021

114

287

144

604

Foreign exchange rate movements

Amortisation charge for the year

–

Impairment charge for the year

–

At 31 July 2022

123

373

157

720

Foreign exchange rate movements

(3)

(1)

(19)

(4)

(27)

Amortisation charge for the year

–

Disposals

–

(38)

At 31 July 2023

124

406

122

716

Net book value at 31 July 2023

1,209

206

1,521

Net book value at 31 July 2022

1,244

257

1,588

Net book value at 31 July 2021

1,148

275

1,498

In addition to goodwill, acquired intangible assets comprise:

Patents,

licences

and

trademarks

£m

Technology

£m

Customer

relationships

£m

Total

acquired

intangibles

£m

Cost

At 31 July 2021

134

411

562

Foreign exchange rate movements

At 31 July 2022

152

459

630

Foreign exchange rate movements

–

(9)

(22)

(31)

Business combinations

At 31 July 2023

145

447

612

Amortisation

At 31 July 2021

215

287

Foreign exchange rate movements

Charge for the year

At 31 July 2022

278

373

Foreign exchange rate movements

–

(6)

(13)

(19)

Charge for the year

At 31 July 2023

305

406

Net book value at 31 July 2023

142

206

Net book value at 31 July 2022

181

257

Net book value at 31 July 2021

196

275

Individually material intangible assets comprise:

–

£53m of customer-related intangibles attributable to United Flexible (remaining amortisation

period: 4 years);

–

£48m of customer-related intangibles attributable to Morpho Detection (remaining

amortisation period: 6 years);

–

£27m of customer-related intangibles attributable to Royal Metal (remaining amortisation

period: 5 years);

–

£24m of development cost intangibles attributable to a computed tomography programme in

Detection that is currently under development; and

–

£18m of development cost intangibles attributable to a X-ray diffraction programme in

Detection that is currently under development.

The charge associated with the amortisation of intangible assets is included in operating costs on

the consolidated income statement.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

162

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

11. IMPAIRMENT TESTING

GOODWILL

Goodwill is tested for impairment at least annually or whenever there is an indication that the

carrying value may not be recoverable.

Further details of the impairment review process and judgements are included in the ‘Sources

of estimation uncertainty’ section of the ‘Basis of preparation’ for the consolidated financial

statements.

For the purpose of impairment testing, assets are grouped at the lowest levels for which there

are separately identifiable cash-flows, known as cash generating units (CGUs), taking into

consideration the commonality of reporting, policies, leadership and intra-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:

2023

£m

2023

Number of

CGUs

2022

£m

2022

Number of

CGUs

John Crane

131

132

Smiths Detection*

630

644

Flex-Tek

183

194

Smiths Interconnect

265

274

1,209

1,244

In FY2022 the Smiths Detection CGU was restructured. The Detection Russia business split into a separate CGU and

subsequently fully impaired.

Critical estimates used in impairment testing

The recoverable amount for impairment testing is determined from the higher of fair value

less costs of disposal and value in use of the CGU. In assessing value in use, the estimated

future cash-flows are discounted to their present value using a post-tax discount rate that

reflects current market assessments of the time value of money, from which pre-tax discount

rates are determined.

Fair value less costs of disposal is calculated using available information on past and expected

future profitability, valuation multiples for comparable quoted companies and similar

transactions (adjusted as required for significant differences) and information on costs of similar

transactions. Fair value less costs to sell models are used when trading projections in the

strategic plan cannot be adjusted to eliminate the impact of a major restructuring.

The value in use of CGUs is calculated as the net present value of the projected risk-adjusted

cash-flows of each CGU. These cash-flow forecasts are based on the FY2024 business plan and

the five-year detailed divisional strategic projections which have been prepared by divisional

management and approved by the Board.

The principal assumptions used in determining the value in use were:

–

Revenue: Projected sales were built up with reference to markets and product categories.

They incorporated past performance, historical growth rates and projections of developments

in key markets;

–

Average earnings before interest and tax margin: Projected margins reflect historical

performance, our expectations for future cost inflation and the impact of all completed projects

to improve operational efficiency and leverage scale. The projections did not include the impact

of future restructuring projects to which the Group was not yet committed;

–

Projected capital expenditure: The cash-flow forecasts for capital expenditure were based

on past experience and included committed ongoing capital expenditure consistent with the

FY2024 budget and the divisional strategic projections. The forecast did not include any future

capital expenditure that improved/enhanced the operation/asset in excess of its current

standard of performance;

–

Discount rate: The discount rates have been determined with reference to illustrative weighted

average cost of capital (WACC) for each CGU. In determining these discount rates, management

have considered systematic risks specific to each of the Group’s CGUs. These risk adjusted

discount rates have then been validated against the Group’s WACC, the WACCs of the CGU’s

peer group and an average of discount rates used by other companies for the industries in

which Smiths divisions operate. Pre-tax rates of 11.4% to 13.0% (FY2022: 11.3% to 12.3%) have

been used for the impairment testing; and

–

Long-term growth rates: For the purposes of the Group’s value in use calculations, a long-term

growth rate into perpetuity was applied immediately at the end of the five-year detailed forecast

period. CGU-specific long-term growth rates have been calculated by revenue weighting the

long-term GDP growth rates of the markets that each CGU operates in. The long-term growth

rates used in the testing ranged from 2.2% to 2.7% (FY2022: 1.7% to 2.4%). These rates do not

reflect the long-term assumptions used by the Group for investment planning.

Of the principal assumptions above, the key assumptions that the impairment models are most

sensitive to are: the revenue growth assumption; the average earnings before interest and tax

margin assumption; and the discount rate assumption.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

163

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

The assumptions used in the impairment testing of CGUs with significant goodwill balances were

as follows:

As at 31 May 2023

John Crane

Smiths

Detection

Flex-Tek

Smiths

Interconnect

Net book value of goodwill (£m)

135

649

191

279

Basis of valuation

Value in use

Discount rate

– pre-tax

13.0%

12.2%

11.8%

11.5%

– post-tax

9.7%

9.3%

9.4%

Period covered by management projections

5 years

Capital expenditure – annual average over projection

period (£m)

Revenue – compound annual growth rate over

projection period

5.3%

4.5%

3.4%

4.7%

Average earnings before interest and tax margin

24.6%

14.5%

19.5%

18.6%

Long-term growth rates

2.7%

2.4%

2.2%

2.5%

As at 31 May 2022

John Crane

Smiths

Detection

Flex-Tek

Smiths

Interconnect

Net book value of goodwill (£m)

132

640

187

266

Basis of valuation

Value in use

Discount rate

– pre-tax

12.3%

11.3%

11.7%

11.5%

– post-tax

9.1%

8.7%

9.2%

9.3%

Period covered by management projections

5 years

Revenue – compound annual growth rate over

projection period

5.3%

3.8%

6.0%

Average earnings before interest and tax margin

24.9%

14.1%

19.7%

17.8%

Long-term growth rates

1.9%

2.4%

1.7%

2.1%

Forecast earnings before interest and tax have been projected using:

–

Expected future sales based on the strategic plan, which was constructed at a market level

with input from key account managers, product line managers, business development and

sales teams. An assessment of the market and existing contracts/programmes was made to

produce the sales forecast; and

–

Current cost structure and production capacity, which include our expectations for future cost

inflation. The projections did not include the impact of future restructuring projects to which

the Group was not yet committed.

Sensitivity analysis

Smiths Detection is the only CGU of the Group that has limited goodwill impairment testing

headroom. For all of the Group’s other CGUs the recoverable amount of the CGU exceeded the

carrying value, on the basis of the assumptions set out in the preceding tables and any reasonably

possible changes thereof.

The estimated recoverable amount of the Smiths Detection CGU exceeded the carrying value by

£225m. Any decline in estimated value in use in excess of this amount would result in the

recognition of impairment charges.

Management recognise that the goodwill impairment testing headroom of the Smiths Detection

CGU is most sensitive to movements in the revenue growth rate, the EBIT margin and the

discount rate assumptions. Of these key assumptions, management consider that the EBIT

margin assumption is the most sensitive.

The Smiths Detection financial model assumes that EBIT margins grow from 11.2% in FY2023 to

an average of 14.5% over the five-year financial model period. This increase in EBIT margin is

principally driven by a change in revenue and profit mix, with the proportion of higher margin

aftermarket revenue growing over the five-year projection period.

Management considers that it is plausible that this margin growth may not be fully captured by

the business. For the CGU to be impaired, the average EBIT margin over the five-year financial

model would have to be less than 12.3%; management recognises this to be a reasonably

plausible downside scenario.

If the assumptions used in the impairment review were changed to a greater extent than as

presented in the following table, the changes would, in isolation, lead to impairment losses being

recognised for the year ended 31 July 2023:

Change required for carrying value to equal recoverable amount – FY2023

Smiths Detection

Revenue – compound annual growth rate (CAGR) over five-year projection period

-460 bps decrease

Average earnings before interest and tax margin

-220 bps decrease

Post-tax discount rate

+140 bps increase

Change required for carrying value to equal recoverable amount – FY2022

Smiths Detection

Revenue – compound annual growth rate (CAGR) over five-year projection period

-240 bps decrease

Average earnings before interest and tax margin

-130 bps decrease

Post-tax discount rate

+70 bps increase

Note: Long-term growth rates are not included in the sensitivity tables above as management

consider that there is no reasonably possible change in long-term growth rate that would result

in an impairment.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

164

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

PROPERTY, PLANT AND EQUIPMENT, RIGHT OF USE ASSETS AND FINITE-LIFE

INTANGIBLE ASSETS

At each reporting period date, the Group reviews the carrying amounts of its property, plant,

equipment, right of use assets and finite-life intangible assets to determine whether there is any

indication that those assets have suffered an impairment loss.

The Group has no indefinite life intangible assets other than goodwill. During the year, impairment

tests were carried out for capitalised development costs that have not yet started to be amortised

and acquired intangibles where there were indications of impairment. Value in use calculations

were used to determine the recoverable values of these assets.

12. PROPERTY, PLANT AND EQUIPMENT

Land and

buildings

£m

Plant and

machinery

£m

Fixtures,

fittings,

tools and

equipment

£m

Total

£m

Cost or valuation

At 31 July 2021

172

388

122

682

Foreign exchange rate movements

Additions

Disposals

(14)

(10)

(5)

(29)

At 31 July 2022

176

457

129

762

Foreign exchange rate movements

(6)

(14)

(2)

(22)

Business combinations

–

Additions

Disposals

(2)

(15)

(17)

(34)

At 31 July 2023

178

463

120

761

Depreciation

At 31 July 2021

106

260

104

470

Foreign exchange rate movements

Charge for the year

Disposals

(14)

(10)

(4)

(28)

At 31 July 2022

108

299

112

519

Foreign exchange rate movements

(4)

(8)

(2)

(14)

Charge for the year

Disposals

(2)

(14)

(17)

(33)

At 31 July 2023

110

302

102

514

Net book value at 31 July 2023

161

247

Net book value at 31 July 2022

158

243

Net book value at 31 July 2021

128

212

13. RIGHT OF USE ASSETS

Properties

£m

Vehicles

£m

Equipment

£m

Total

£m

Cost or valuation

At 31 July 2021

146

164

Foreign exchange rate movements

–

Recognition of right of use asset

–

Derecognition of right of use asset

(2)

(1)

–

(3)

At 31 July 2022

174

196

Foreign exchange rate movements

(6)

(1)

–

(7)

Recognition of right of use asset

Derecognition of right of use asset

(5)

–

(5)

At 31 July 2023

190

219

Depreciation

At 31 July 2021

–

Foreign exchange rate movements

–

Charge for the year

–

Derecognition of right of use asset

(1)

–

(2)

At 31 July 2022

–

Foreign exchange rate movements

(4)

–

(4)

Charge for the year

Derecognition of right of use asset

(4)

–

(4)

At 31 July 2023

114

Net book value at 31 July 2023

105

Net book value at 31 July 2022

106

Net book value at 31 July 2021

100

108

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

165

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

14. FINANCIAL ASSETS – OTHER INVESTMENTS

Investment in

ICU Medical,

Inc equity

£m

Deferred

contingent

consideration

£m

Investments

in early stage

businesses

£m

Cash

collateral

deposit

£m

Total

£m

Cost or valuation

At 31 July 2021

–

Foreign exchange rate movements

–

Additions

426

–

460

Disposal

–

(4)

–

(4)

Fair value change through profit and loss

–

(11)

–

(10)

Fair value change through other

comprehensive income

(62)

–

(1)

–

(63)

At 31 July 2022

364

395

Fair value change through profit and loss

–

(6)

–

(6)

Fair value change through other

comprehensive income

(17)

–

(1)

–

(18)

At 31 July 2023

347

371

Following the sale of Smiths Medical the Group has recognised a financial asset for its investment

in 10% of the equity in ICU Medical, Inc (ICU) and a financial asset for the fair value of US$100m

additional sales consideration that is contingent on the future share price performance of ICU.

The Group’s investments in early-stage businesses are in businesses that are developing or

commercialising related technology. Cash collateral deposits represent amounts held on deposit

with banks as security for liabilities or letters of credit.

15. INVENTORIES

31 July 2023

£m

31 July 2022

£m

Raw materials and consumables

201

187

Work in progress

130

106

Finished goods

306

277

Total inventories

637

570

In FY2023, operating costs included £1,622m (FY2022: £1,323m) of inventory consumed, £26m

(FY2022: £12m) was charged for the write-down of inventory and £16m (FY2022: £12m) was

released from provisions no longer required.

INVENTORY PROVISIONING

31 July 2023

£m

31 July 2022

£m

Gross inventory carried at full value

545

492

Gross value of inventory partly or fully provided for

158

131

703

623

Inventory provision

(66)

(53)

Inventory after provisions

637

570

16. TRADE AND OTHER RECEIVABLES

31 July 2023

£m

31 July 2022

£m

Non-current

Trade receivables

Contract assets

Other receivables

Current

Trade receivables

493

506

Prepayments

Contract assets

121

127

Other receivables

118

772

738

Trade receivables do not carry interest. Management considers that the carrying value of trade

and other receivables approximates to the fair value. Trade and other receivables, including

accrued income and other receivables qualifying as financial instruments are accounted for at

amortised cost. The maximum credit exposure arising from these financial assets was £744m

(FY2022: £726m).

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

166

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

Contract assets comprise unbilled balances not yet due on contracts, where revenue recognition

does not align with the agreed payment schedule. The main movements in the year arose from

increases in contract asset balances of £19m (FY2022: £19m) principally within Smiths

Interconnect and Smiths Detection, offset by £9m decreases in John Crane and £7m (FY2022:

£15m) decrease due to foreign currency translation losses.

A number of Flex-Tek’s and Interconnect’s customers provide supplier finance schemes which

allow their suppliers to sell trade receivables, without recourse, to banks. This is commonly

known as invoice discounting or factoring. During FY2023 the Group collected £128m of

receivables through these schemes (FY2022: £92m). The impact of invoice discounting on the

FY2023 balance sheet was that trade receivables were reduced by £26m (2022: £19m). Costs of

discounting were £2m (FY2022: less than £1m), charged to the income statement within financing

costs. The cash received via these schemes was classified as an operating cash inflow as it had

arisen from operating activities.

Trade receivables are disclosed net of provisions for expected credit loss, with historical write-

offs used as a basis, adjusted for factors that are specific to the debtor, general economic

conditions of the industry in which the debtor operates and a default risk multiplier applied to

reflect country risk premium. Credit risk is managed separately for each customer and, where

appropriate, a credit limit is set for the customer based on previous experience of the customer

and third-party credit ratings. The Group has no significant concentration of credit risk, with

exposure spread over a large number of customers. The largest single customer was the US

Federal Government, representing 7% (FY2022: 7%) of Group revenue.

AGEING OF TRADE RECEIVABLES

31 July 2023

£m

31 July 2022

£m

Trade receivables which are not yet due

389

396

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

525

543

Expected credit loss allowance provision

(30)

(36)

Trade receivables

495

507

Movement in expected credit loss allowance

31 July 2023

£m

31 July 2022

£m

Brought forward loss allowance at the start of the period

Exchange adjustments

(1)

Increase in allowance recognised in the income statement

Amounts written off or recovered during the year

(9)

(8)

Carried forward loss allowance at the end of the year

17. TRADE AND OTHER PAYABLES

31 July 2023

£m

31 July 2022

£m

Non-current

Other payables

Contract liabilities

Current

Trade payables

247

282

Other payables

Other taxation and social security costs

Accruals

200

183

Contract liabilities

159

130

723

682

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 £186m (FY2022: £163m) 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 programme performance obligations. Revenue

recognised in the year includes £97m (FY2022: £113m) that was included in the opening contract

liabilities balance. This revenue primarily relates to the delivery of performance obligations in the

Smiths Detection business.

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

167

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

18. BORROWINGS AND NET DEBT

This note sets out the calculation of net debt, an important measure in explaining our

financing position. Net debt includes accrued interest and fair value adjustments relating to

hedge accounting.

31 July 2023

£m

31 July 2022

£m

Cash and cash equivalents

Net cash and deposits

285

1,056

Short-term borrowings

€600m 1.25% Eurobond 2023

–

(502)

Overdrafts

–

(1)

Lease liabilities

(26)

(29)

Interest accrual

(3)

(6)

(29)

(538)

Long-term borrowings

€650m 2.00% Eurobond 2027

(534)

(538)

Lease liabilities

(91)

(90)

(625)

(628)

Borrowings/gross debt

(654)

(1,166)

Derivatives managing interest rate risk and currency profile of the debt

(18)

(40)

Net debt

(387)

(150)

CASH AND CASH EQUIVALENTS

31 July 2023

£m

31 July 2022

£m

Cash at bank and in hand

175

242

Short-term deposits

110

814

Cash and cash equivalents

285

1,056

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 £17m (FY2022: £30m) was

charged to the consolidated income statement in the period in respect of public bonds.

ANALYSIS OF FINANCIAL DERIVATIVES ON BALANCE SHEET

Non-current

assets

£m

Current

assets

£m

Current

liabilities

£m

Non-current

liabilities

£m

Net balance

£m

Derivatives managing interest rate risk and

currency profile of the debt

–

(18)

Foreign exchange forward contracts

–

(2)

–

At 31 July 2023

–

(2)

(18)

(15)

Derivatives managing interest rate risk and

currency profile of the debt

–

(20)

(40)

Foreign exchange forward contracts

–

(7)

–

(3)

At 31 July 2022

–

(27)

(20)

(43)

MOVEMENTS IN ASSETS/(LIABILITIES) ARISING FROM FINANCING ACTIVITIES

Changes in net debt

Changes in

other financing

items: FX

contracts

£m

Total

liabilities

from financing

activities

£m

Cash

and cash

equivalents

£m

Other

short-term

borrowings

£m

Long-term

borrowings

£m

Interest rate

& cross-

currency

swaps

£m

Net debt

£m

At 31 July 2022

1,056

(538)

(628)

(40)

(150)

(3)

(153)

Foreign exchange

gains/(losses)

(10)

(21)

(10)

–

(41)

(4,031)

(4,072)

Net cash inflow

from continuing

operations

(761)

564

–

(189)

4,031

3,842

Net movement

from new leases

and modifications

–

(34)

–

(34)

–

(34)

Interest rate

hedge fair value

movements

–

(2)

–

Revaluation of

derivative contracts

–

Interest expense

taken to income

statement*

–

Interest paid

–

(29)

–

(29)

–

(29)

Reclassifications

–

(3)

–

At 31 July 2023

285

(29)

(625)

(18)

(387)

(384)

The Group has also incurred £9m (FY2022: £8m) of bank charges that were expensed when paid and were not included

in net debt.

168

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Changes in net debt

Changes in

other financing

items: FX

contracts

£m

Total

liabilities

from financing

activities

£m

Cash

and cash

equivalents

£m

Other

short-term

borrowings

£m

Long-term

borrowings

£m

Interest rate

& cross-

currency

swaps

£m

Net debt

£m

At 31 July 2021

405

(36)

(1,466)

(1,022)

(1,021)

Foreign exchange

gains/(losses)

(3)

–

(6,799)

(6,736)

Net cash inflow

from continuing

operations*

589

295

–

918

6,799

7,717

Net movement

from lease

modifications

–

(22)

–

(22)

–

(22)

Interest rate

hedge fair value

movements

–

Revaluation of

derivative contracts

–

(115)

(4)

(119)

Interest expense

taken to income

statement**

–

(35)

–

(35)

–

(35)

Interest paid

–

Reclassifications

–

(478)

478

–

At 31 July 2022

1,056

(538)

(628)

(40)

(150)

(3)

(153)

In FY22, the net cash inflow for the total Group including discontinued operations was £589m, £57m of which related to

the cash held by Smiths Medical at the time of disposal.

** The Group has also incurred £9m (FY2022: £8m) of bank charges that were expensed when paid and were not included

in net debt.

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 2023 the total value of overdrafts on accounts in

interest compensation cash pooling systems was £nil (FY2022: £nil). The balances held in zero

balancing cash pooling arrangements have daily settlement of balances. Therefore netting is

not relevant.

CHANGE OF CONTROL

The Company has in place credit facility agreements under which a change of control would

trigger prepayment clauses. The Company has one bond in issue, the terms of which would allow

bondholders to exercise put options and require the Company to buy back the bonds at their

principal amount plus interest if a rating downgrade occurs at the same time as a change of

control takes effect.

LEASE LIABILITIES

Lease liabilities have been measured at the present value of the remaining lease payments.

The weighted average incremental borrowing rate applied to lease liabilities in FY2023 was 4.01%

(FY2022: 3.63%).

19. FINANCIAL RISK MANAGEMENT

The Group’s international operations and debt financing expose it to financial risks which include

the effects of changes in foreign exchange rates, debt market prices, interest rates, credit risks

and liquidity risks. The management of operational credit risk is discussed in note 16.

TREASURY RISK MANAGEMENT POLICY

The Board maintains a Treasury Risk Management Policy, which governs the treasury operations

of the Group and its subsidiary companies and the consolidated financial risk profile to be

maintained. A report on treasury activities, financial metrics and compliance with the Policy is

circulated to the Chief Financial Officer each month and key elements to the Audit & Risk

Committee on a semi-annual basis.

The Policy maintains a treasury control framework within which counterparty risk, financing

and debt strategy, cash and liquidity, interest rate risk and currency translation management

are reserved for Group Treasury, while currency transaction management is devolved to

operating divisions.

Centrally directed cash management systems exist globally to manage overall liquid resources

efficiently across the divisions. The Group uses financial instruments to raise financing for its

global operations, to manage related interest rate and currency financial risk, and to hedge

transaction risk within subsidiary companies.

The Group does not speculate in financial instruments. All financial instruments hedge existing

business exposures and all are recognised on the balance sheet.

The Policy defines four treasury risk components and for each component a set of financial

metrics to be measured and reported monthly against pre-agreed objectives.

1) Credit quality

The Group’s strategy is to maintain a solid investment-grade rating to ensure access to the widest

possible sources of financing at the right time and to optimise the resulting cost of debt capital.

The credit ratings at the end of July 2023 were BBB+ / Baa2 (both stable) from Standard & Poor’s

and Moody’s respectively. An essential element of an investment-grade rating is consistent and

robust cash-flow metrics. The Group’s objective is to maintain a net debt/headline EBITDA ratio of

two times or lower over the medium term. Capital management is discussed in more detail in

note 26.

2) Debt and interest rate

The Group’s risk management objectives are to ensure that the majority of funding is drawn from

the public debt markets with the average maturity profile of gross debt to be at or greater than

three years, and between 40-60% of gross debt (excluding leases) is at fixed rates. At 31 July 2023

these measures were 100% (FY2022: 100%), 3.6 years (FY2022: 2.7 years) and 54% (FY2022: 44%).

169

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

The Group has no financial covenants in its external debt agreements. Interest rate risk

management is discussed in note 19(b).

3) Liquidity management

The Group’s objective is to ensure that at any time undrawn committed facilities, net of short-

term overdraft financing, are at least £300m and that committed facilities have at least 12 months

to run until maturity. At 31 July 2023, these measures were £622m (FY2022: £657m) and 57

months (FY2022: 27 months). At 31 July 2023, net cash resources were £285m (FY2022: £1,055m).

Liquidity risk management is discussed in note 19(d).

4) Currency management

The Group is an international business with the majority of its net assets denominated in foreign

currency. It protects the balance sheet and reserves from adverse foreign exchange movements

by financing foreign currency assets where appropriate in the same currency. The Group’s

objective for managing transaction currency exposure is to reduce medium-term volatility to

cash-flow, margins and earnings. Foreign exchange risk management is discussed in note 19(a)

below.

(A) FOREIGN EXCHANGE RISK

Transactional currency exposure

The Group is exposed to foreign currency risks arising from sales or purchases by businesses in

currencies other than their functional currency. It is Group policy that, when the net foreign

exchange exposure to known future sales and purchases is material, this exposure is hedged

using forward foreign exchange contracts. The net exposure is calculated by adjusting the

expected cash-flow for payments or receipts in the same currency linked to the sale or purchase.

This policy minimises the risk that the profits generated from the transaction will be affected by

foreign exchange movements which occur after the price has been determined. Hedge accounting

documentation and effectiveness testing are only undertaken if it is cost-effective.

The following table shows the currency of financial instruments. It excludes loans and derivatives

designated as net investment hedges.

At 31 July 2023

Sterling

£m

US$

£m

Euro

£m

Other

£m

Total

£m

Financial assets and liabilities

Financial instruments included in trade and

other receivables

372

127

184

726

Financial instruments included in trade and

other payables

(64)

(216)

(93)

(103)

(476)

Cash and cash equivalents

115

285

Borrowings not designated as net investment

hedges

(27)

(54)

(12)

(24)

(117)

217

148

418

Exclude balances held in operations with the

same functional currency.

(7)

(287)

(57)

(153)

(504)

Exposure arising from intra-Group loans

–

127

(73)

Future forward foreign exchange contract

cash-flows

(63)

(23)

(48)

133

(1)

(68)

(26)

(5)

At 31 July 2022

Sterling

£m

US$

£m

Euro

£m

Other

£m

Total

£m

Financial assets and liabilities

Financial instruments included in trade and

other receivables

423

114

169

747

Financial instruments included in trade and

other payables

(52)

(239)

(98)

(101)

(490)

Cash and cash equivalents

355

506

120

1,055

Borrowings not designated as net investment

hedges

(28)

(58)

(14)

(19)

(119)

316

632

169

1,193

Exclude balances held in operations with the

same functional currency.

(322)

(149)

(80)

(142)

(693)

Exposure arising from intra-Group loans

–

(419)

(27)

(89)

(535)

Future forward foreign exchange contract

cash-flows

(42)

(40)

(38)

120

–

(48)

(69)

(35)

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.

170

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Based on the assets and liabilities held at the year-end, if the specified currencies were to

strengthen 10% while all other market rates remained constant, the change in the fair value of

financial instruments not designated as net investment hedges would have the following effect:

Impact on

profit

for the year

FY2023

£m

Gain/(loss)

recognised in

reserves

FY2023

£m

Impact on

profit

for the year

FY2022

£m

Gain/(loss)

recognised in

reserves

FY2022

£m

US dollar

–

(3)

Euro

–

(1)

Sterling

–

(1)

–

These sensitivities were calculated before adjusting for tax and exclude the effect of quasi-equity

intra-Group loans.

Cash-flow hedging

The Group uses forward foreign exchange contracts to hedge future foreign currency sales and

purchases. At 31 July 2023, contracts with a nominal value of £123m (FY2022: £141m) were

designated as hedging instruments. In addition, the Group had outstanding foreign currency

contracts with a nominal value of £252m (FY2022: £226m) which were being used to manage

transactional foreign exchange exposures, but were not accounted for as cash-flow hedges. The

fair value of the contracts is disclosed in note 20.

The majority of hedged transactions will be recognised in the consolidated income statement in

the same period that the cash-flows are expected to occur, with the only differences arising

because of normal commercial credit terms on sales and purchases. It is the Group’s policy to

hedge 80% of certain exposures for the next two years and 50% of highly probable exposures for

the next 12 months.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic

prospective effectiveness assessments to ensure that an economic relationship exists between

the hedged item and hedging instrument. The foreign exchange forward contracts have similar

critical terms to the hedged items, such as the notional amounts and maturities. Therefore, there

is an economic relationship and the hedge ratio is established as 1:1.

The main sources of hedge ineffectiveness in these hedging relationships are the effect of the

Group’s and the counterparty credit risks on the fair value of the foreign exchange forward

contracts, which is not reflected in the fair value of the hedged item and the risk of over-hedging

where the hedge relationship requires re-balancing. No other sources of ineffectiveness

emerged from these hedging relationships. Any hedge ineffectiveness is recognised immediately

in the income statement in the period that it occurs. Of the foreign exchange contracts designated

as hedging instruments, 98% are for periods of 12 months or less (FY2022: 98%).

The following table presents a reconciliation by risk category of the cash-flow hedge reserve and

analysis of other comprehensive income in relation to hedge accounting:

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Brought forward cash-flow hedge reserve at start of year

(3)

Foreign exchange forward contracts:

Net fair value gains on effective hedges

(6)

Amount reclassified to income statement

– finance costs

Carried forward cash-flow hedge reserve at end of year

–

(3)

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

Changes in value

of the hedged item

for calculating

ineffectiveness

£m

Changes in value

of the hedging

instrument

for calculating

ineffectiveness

£m

Cash-flow hedge

reserve

£m

Sales and

purchases

Foreign

currency risk

Foreign exchange

contracts

FY2023

(1)

FY2022

(6)

Cash-flow hedges generated £nil of ineffectiveness in FY2023 (FY2022: £nil) which was

recognised in the income statement through finance costs.

Translational currency exposure

The Group has significant investments in overseas operations, particularly in the US and Europe. As

a result, the sterling value of the Group’s balance sheet can be significantly affected by movements

in exchange rates. The Group seeks to mitigate the effect of these translational currency exposures

by matching the net investment in overseas operations with borrowings denominated in their

functional currencies, except where significant adverse interest differentials or other factors would

render the cost of such hedging activity uneconomic. This is achieved by borrowing primarily in the

relevant currency or in some cases indirectly using cross-currency swaps.

Net investment hedges

The table below sets out the currency of loans and swap contracts designated as net investment

hedges:

At 31 July 2023

At 31 July 2022

US$

£m

Euro

£m

Total

£m

US$

£m

Euro

£m

Total

£m

Loans designated as net

investment hedges

–

(293)

–

(451)

Cross-currency swap

(247)

–

(247)

(615)

–

(615)

(247)

(293)

(540)

(615)

(451)

(1,066)

171

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

At 31 July 2023, cross-currency swaps hedged the Group’s exposure to US dollars and euros

(31 July 2022: US dollars and euros). All the cross-currency swaps designated as net investment

hedges were non-current (FY2022: current and non-current). Swaps generating £247m of the US

dollar exposure (FY2022: £261m) will mature in February 2027.

In addition, non-swapped borrowings were also used to hedge the Group’s exposure to euros

(31 July 2022: US dollars and euros). Borrowings generating £293m of the euro exposure

(FY2022: £287m) will mature in February 2027.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic

prospective effectiveness assessments to ensure that an economic relationship exists between

the hedged item and hedging instrument. The swaps and borrowings have the same notional

amount as the hedged items and, therefore, there is an economic relationship with the hedge

ratio established as 1:1.

The main sources of hedge ineffectiveness in these hedging relationships are the effect of the

counterparty and the Group’s own credit risk on the fair value of the foreign exchange forward

contracts which is not reflected in the fair value of the hedged item and the risk of over-hedging

where the hedge relationship requires re-balancing. No other sources of ineffectiveness

emerged from these hedging relationships. Any hedge ineffectiveness is recognised immediately

in the income statement in the period that it occurs.

The following table presents a reconciliation by risk category of the net investment hedge reserve

and analysis of other comprehensive income in relation to hedge accounting:

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Brought forward net investment hedge reserve at start of year

(207)

(238)

Cross-currency swaps *

Net fair value gains on effective hedges

(77)

Bonds

Net fair value gains on effective hedges

(29)

Amounts removed from the hedge

reserve and recognised in the income

statement

Profit/(loss) on business disposal

–

103

Carried forward net investment hedge reserve at end of year

(196)

(207)

The FY2022 reported amount for net fair value losses on effective hedges of cross-currency swaps was incorrectly

presented as £82m rather than £77m. The total reserve balances and net assets for FY2022 are not impacted by the

correction to this table.

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 2022 and 31 July 2021:

Hedged item

Hedged exposure

Hedging instrument

Financial year

Changes in value

of the hedged item

for calculating

ineffectiveness

£m

Changes in value

of the hedging

instrument

for calculating

ineffectiveness

£m

Net investment

hedge reserve

£m

Overseas

operation

Foreign

currency risk

Cross-currency

swaps

FY2023

(40)

Bonds

FY2023

(29)

(11)

Overseas

operation

Foreign

currency risk

Cross-currency

swaps

FY2022

(82)

Bonds

FY2022

(5)

(77)

Net investment hedges generated £1m of ineffectiveness in FY2022 (FY2022: £1m) which was

recognised in the income statement through finance costs.

The fair values of these net investment hedges are subject to exchange rate movements.

Based on the hedging instruments in place at the year-end, if the specified currencies

were to strengthen 10% while all other market rates remained constant, it would have the

following effect:

Loss

recognised

in hedge

reserve

31 July 2023

£m

Loss

recognised

in hedge

reserve

31 July 2022

£m

US dollar

Euro

These movements would be fully offset by an opposite movement on the retranslation of the net

assets of the overseas subsidiaries. These sensitivities were calculated before adjusting for tax.

(B) INTEREST RATE RISK

The Group operates an interest rate policy designed to optimise interest cost and reduce volatility

in reported earnings. The Group’s current policy is to require interest rates to be fixed within a band

of between 40% and 60 % of the level of gross debt (excluding leases). This is achieved through fixed

rate borrowings and interest rate swaps. At 31 July 2023 54% (FY2022: 44%) of the Group’s gross

borrowings (excluding leases) were at fixed interest rates, after adjusting for interest rate swaps

and the impact of short maturity derivatives designated as net investment hedges.

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

2023, after interest rate swaps, was 4.53% (FY2022: 3.06%).

172

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Interest rate profile of financial assets and liabilities and the fair value of borrowings

The following table shows the interest rate risk exposure of investments, cash and borrowings,

with the borrowings adjusted for the impact of interest rate hedging. Other financial assets and

liabilities do not earn or bear interest, and for all financial instruments except borrowings, the

carrying value is not materially different from their fair value.

As at 31 July 2023

At fair value

through

profit or loss

£m

Cash and

cash

equivalents

£m

Borrowings

£m

Fair value of

borrowings

£m

Fixed interest

Less than one year

–

(29)

Between one and five years

–

(365)

(347)

Greater than five years

–

(24)

Total fixed interest financial liabilities

–

(418)

(400)

Floating rate interest financial assets/(liabilities)

215

(236)

(240)

Total interest-bearing financial assets/(liabilities)

215

(654)

(640)

Non-interest-bearing assets in the same category

–

Total

285

(654)

(640)

As at 31 July 2022

At fair value

through profit

or loss

£m

Cash and

cash

equivalents

£m

Borrowings

£m

Fair value of

borrowings

£m

Fixed interest

Less than one year

–

(203)

Between one and five years

–

(357)

(359)

Greater than five years

–

(24)

Total fixed interest financial liabilities

–

(584)

(586)

Floating rate interest financial assets/(liabilities)*

970

(582)

(586)

Total interest-bearing financial assets/(liabilities)

970

(1,166)

(1,172)

Non-interest-bearing assets in the same category

–

Total

1,056

(1,166)

(1,172)

Floating rate interest financial assets in the prior year have been amended to remove the investments in ICU Medical

Inc., contingent consideration and investments in early-stage business that were incorrectly reported as having

interest rate exposure.

Interest rate hedging

The Group also has exposures to the fair values of non-derivative financial instruments such as

EUR fixed rate borrowings. To manage the risk of changes in these fair values, the Group has

entered into fixed-to-floating interest rate swaps and cross-currency interest rate swaps, which

for accounting purposes are designated as fair value hedges.

At 31 July 2023 and 31 July 2022, the Group had designated the following hedges 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; and

–

€400m of the fixed/floating element of the EUR/USD interest rate swaps that partially hedged

the € 2023 Eurobond was repaid on 28 April 2022.

The fair values of the hedging instruments are disclosed in note 20. The effect of the swaps was to

convert £257m (FY2022: £588m) debt from fixed rate to floating rate. The swaps have similar

critical terms to the hedged items, such as the reference rate, reset dates, notional amounts,

payment dates and maturities. Therefore, there is an economic relationship and the hedge ratio is

established as 1:1. Hedge effectiveness is determined at the inception of the hedge relationship,

and through periodic prospective effectiveness assessments to ensure that an economic

relationship exists between the hedged item and hedging instrument.

The main source of hedge ineffectiveness in these hedging relationships is the effect of the

currency basis risk on cross-currency interest rate swaps which are not reflected in the fair value

of the hedged item. No other sources of ineffectiveness emerged from these hedging

relationships. Any hedge ineffectiveness was recognised immediately in the income statement in

the period in which it occurred.

173

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

The following table sets out the details of the hedged exposures covered by the Group’s fair value hedges:

Hedged item

Hedged exposure

Financial year

Changes in value

of hedged item

for calculating

ineffectiveness

£m

Changes in value

of the hedging

instrument

for calculating

ineffectiveness

£m

Carrying amount

Accumulated fair value

adjustments on hedged item

Assets

£m

Liabilities

£m

Assets

£m

Liabilities

£m

Fixed rate bonds (a)

Interest rate risk

FY2023

(2)

–

Interest rate & currency rate risk

FY2023

(16)

–

233

–

(21)

(14)

–

233

–

(21)

Fixed rate bonds (a)

Interest rate risk

FY2022

(8)

–

336

–

(2)

Interest rate & currency rate risk

FY2022

(20)

–

252

–

(5)

(28)

–

588

–

(7)

(a) Classified as borrowings.

Fair value hedges generated a £nil ineffectiveness in FY2023 (FY2022: £1m) which was recognised

in the income statement through finance costs.

Sensitivity of interest charges to interest rate movements

The Group has exposure to sterling, US dollar and euro interest rates. However, the Group does

not have a significant exposure to interest rate movements for any individual currency. Based on

the composition of net debt and investments at 31 July 2023, and taking into consideration all fixed

rate borrowings and interest rate swaps in place, a one percentage point (100 basis points)

change in average floating interest rates for all three currencies would have a £2m impact

(FY2022: £2m impact) on the Group’s profit before tax.

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 £295m at 31

July 2023 (FY2022: £1,067m).

31 July 2023

£m

31 July 2022

£m

Cash in AAA liquidity funds

551

Cash at banks with at least a AA- credit rating

104

Cash at banks with all other A credit ratings

170

397

Cash at other banks

Investments in bank deposits

Other investments

296

1,067

At 31 July 2023, the maximum exposure with a single bank for deposits and cash was £65m

(FY2022: £339m). The bank has a credit rating of A+. The maximum mark to market exposure with

a single bank for derivatives was out of the money in both the current and prior year and does not

represent a credit risk.

174

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

(D) LIQUIDITY RISK

Borrowing facilities

Board policy specifies the maintenance of unused committed credit facilities of at least £300m at

all times to ensure that the Group has sufficient available funds for operations and planned

development. The Group has Revolving Credit Facilities of US$800m maturing 5 May 2028. At the

balance sheet date, the Group had the following undrawn credit facilities:

31 July 2023

£m

31 July 2022

£m

Expiring after more than four years (FY 2022: two years)

622

657

Cash deposits

As at 31 July 2023, £110m (FY2022: £814m) of cash and cash equivalents was on deposit with

various banks of which £78m (FY2022: £558m) was in liquidity funds. £4m (FY2022: £4m) of

investments comprised bank deposits held to secure liabilities and letters of credit.

Gross contractual cash-flows for borrowings

As at 31 July 2023

Borrowings

£m

Fair value

adjustments

£m

Contractual

interest

payments

£m

Total

contractual

cash-flows

£m

Less than one year

(29)

–

(11)

(40)

Between one and two years

(27)

–

(11)

(38)

Between two and three years

(20)

–

(11)

(31)

Between three and four years

(13)

–

(11)

(24)

Between four and five years

(561)

–

(540)

Greater than five years

(24)

–

(24)

Total

(674)

(44)

(697)

As at 31 July 2022

Borrowings

£m

Fair value

adjustments

£m

Contractual

interest

payments

£m

Total

contractual

cash-flows

£m

Less than one year

(539)

(17)

(554)

Between one and two years

(23)

–

(11)

(34)

Between two and three years

(20)

–

(11)

(31)

Between three and four years

(14)

–

(11)

(25)

Between four and five years

(552)

(11)

(558)

Greater than five years

(24)

–

(24)

Total

(1,172)

(61)

(1,226)

The figures presented in the borrowings column include the non-cash adjustments which are

highlighted in the adjacent column. The contractual interest reported for borrowings is before the

effect of interest rate swaps.

Gross contractual cash-flows for derivative financial instruments

As at 31 July 2023

Receipts

£m

Payments

£m

Net

cash-flow

£m

Assets

Less than one year

209

(204)

Greater than one year

(6)

–

Liabilities

Less than one year

159

(161)

(2)

Greater than one year

252

(270)

(18)

Total

626

(641)

(15)

As at 31 July 2022

Receipts

£m

Payments

£m

Net

cash-flow

£m

Assets

Less than one year

495

(521)

(26)

Greater than one year

270

(290)

(20)

Liabilities

Less than one year

212

(209)

Greater than one year

(8)

–

Total

985

(1,028)

(43)

This table above presents the undiscounted future contractual cash-flows for all derivative

financial instruments. For this disclosure, cash-flows in foreign currencies are translated using

the spot rates at the balance sheet date. The fair values of these financial instruments are

presented in note 20.

Gross contractual cash-flows for other financial liabilities

The contractual cash-flows for financial liabilities included in trade and other payables were

£463m (FY2022: £474m) due in less than one year, £13m (FY2022: £13m) due between one and

five years.

175

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

20. DERIVATIVE FINANCIAL INSTRUMENTS

The tables below set out the nominal amount and fair value of derivative contracts held by the

Group, identifying the derivative contracts which qualify for hedge accounting treatment.

At 31 July 2023

Contract or

underlying

nominal

amount

£m

Fair value

Assets

£m

Liabilities

£m

Net

£m

Foreign exchange contracts (cash-flow hedges)

123

(1)

–

Foreign exchange contracts (not hedge accounted)

252

(1)

Total foreign exchange contracts

375

(2)

Cross-currency swaps (fair value and net investment

hedges)

247

–

(18)

Total financial derivatives

622

(20)

(15)

Balance sheet entries:

Non-current

256

–

(18)

Current

366

(2)

Total financial derivatives

622

(20)

(15)

At 31 July 2022

Contract or

underlying

nominal

amount

£m

Fair value

Assets

£m

Liabilities

£m

Net

£m

Foreign exchange contracts (cash-flow hedges)

141

(5)

(2)

Foreign exchange contracts (not hedge accounted)

226

(2)

(1)

Total foreign exchange contracts

367

(7)

(3)

Cross-currency swaps (fair value and net investment

hedges)

615

–

(40)

Total financial derivatives

982

(47)

(43)

Balance sheet entries:

Non-current

269

–

(20)

Current

713

(27)

(23)

Total financial derivatives

982

(47)

(43)

ACCOUNTING FOR OTHER DERIVATIVE CONTRACTS

Any foreign exchange contracts which are not formally designated as hedges and tested are

classified as ‘held for trading’ and not hedge accounted.

NETTING

International Swaps and Derivatives Association (ISDA) master netting agreements are in place

with derivative counterparties except for contracts traded on a dedicated international electronic

trading platform used for operational foreign exchange hedging. Under these agreements if a

credit event occurs, all outstanding transactions under the ISDA are terminated and only a single

net amount per counterparty is payable in settlement of all transactions. The ISDA agreements

do not meet the criteria for offsetting, since the offsetting is enforceable only if specific events

occur in the future, and there is no intention to settle the contracts on a net basis.

Assets

31 July 2023

£m

Liabilities

31 July 2023

£m

Assets

31 July 2022

£m

Liabilities

31 July 2022

£m

Gross value of assets and liabilities

(20)

(47)

Related assets and liabilities subject to master netting

agreements

(5)

(4)

Net exposure

–

(15)

–

(43)

176

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

The maturity profile, average interest and foreign currency exchange rates of the hedging instruments used in the Group’s hedging strategies are as follows:

Hedged exposure

Hedging instrument

Maturity at 31 July 2023

Maturity at 31 July 2022

Up to

one year

One to five years

More than

five years

Up to

one year

One to five years

More than

five years

Fair value hedges

Interest rate risk

Interest rate swaps – EUR

– Notional amount (£m)

–

336

–

– Average spread over three-month EURIBOR

–

1.015%

–

Interest rate/

foreign currency risk

Cross-currency swaps (EUR:GBP)

– Notional amount (£m)

–

254

–

254

–

– Average exchange rate

–

0.845

–

0.845

–

– Average spread over three-month GBP

SONIA

–

1.860%

–

1.860%

–

Net investment hedges

Foreign currency risk

Cross-currency swaps (EUR:USD)

– Notional amount (£m)

–

354

–

– Average exchange rate

–

1.0773

–

Cross-currency swaps (GBP:USD)

– Notional amount (£m)

–

247

–

261

–

– Average exchange rate

–

1..2534

–

1.2534

–

Cash-flow hedges

Foreign currency risk

Foreign exchange contracts (EUR:GBP)

– Notional amount (£m)

–

– Average exchange rate

0.7842

0.8893

–

0.8323

1.1676

–

Foreign exchange contracts (EUR:USD)

– Notional amount (£m)

–

– Average exchange rate

1.0939

–

4.1785

–

Foreign exchange contracts (USD:GBP)

– Notional amount (£m)

–

– Average exchange rate

1.2269

–

1.3273

–

Foreign exchange contracts (GBP:CZK)

– Notional amount (£m)

–

– Average exchange rate

27.7919

–

30.2988

–

Foreign exchange contracts (EUR:AUD)

– Notional amount (£m)

–

– Average exchange rate

1.6603

–

1.5226

–

At 31 July 2023, the Group had forward foreign exchange contracts with a nominal value of £123m (FY2022: £141m) 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 19 September 2024. 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 176.

177

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

21. FAIR VALUE OF FINANCIAL INSTRUMENTS

As at 31 July 2023

Notes

Basis for

determining

fair value

At amortised

cost

£m

At fair value

through profit

or loss

£m

At fair value

through OCI

£m

Total

carrying

value

£m

Total

fair value

£m

Financial assets

Other investments

–

347

351

Other investments

–

Cash and cash

equivalents

285

–

285

Trade and other

financial receivables

B/C

726

–

726

Derivative financial

instruments

–

Total financial

assets

1,011

354

1,387

Financial liabilities

Trade and other

financial payables

(476)

–

(476)

Short-term

borrowings

B/D

(3)

–

(3)

Long-term

borrowings

(534)

–

(534)

(520)

Lease liabilities

(117)

–

(117)

Derivative financial

instruments

–

(20)

–

(20)

Total financial

liabilities

(1,130)

(20)

–

(1,150)

(1,136)

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:

Carrying value is assumed to be a reasonable approximation to fair value for all of these assets

and liabilities (Level 1 as defined by IFRS 13).

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 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).

As at 31 July 2022

Notes

Basis for

determining

fair value

At amortised

cost

£m

At fair value

through profit

or loss

£m

At fair value

through OCI

£m

Total

carrying

value

£m

Total

fair value

£m

Financial assets

Other investments

–

364

368

Other investments

–

Cash and cash

equivalents

506

550

–

1,056

Trade and other

financial receivables

B/C

807

–

807

Derivative financial

instruments

–

Total financial

assets

1,313

577

372

2,262

Financial liabilities

Trade and other

financial payables

(728)

–

(728)

Short-term

borrowings

(509)

–

(509)

Long-term

borrowings

(538)

–

(538)

(544)

Lease liabilities

(119)

–

(119)

Derivative financial

instruments

–

(47)

–

(47)

Total financial

liabilities

(1,894)

(47)

–

(1,941)

(1,947)

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).

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).

The fair value of instruments is estimated by using unobservable inputs to the extent that

relevant observable inputs are not available. Unobservable inputs are developed using the

best information available in the circumstances, which may include the Group’s own data,

taking into account all information about market participation assumptions that is reliably

available (Level 3 as defined by IFRS 13).

IFRS 13 defines a three-level valuation hierarchy:

Level 1 – quoted prices for similar instruments

Level 2 – directly observable market inputs other than Level 1 inputs

Level 3 – inputs not based on observable market data

178

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

22. COMMITMENTS

At 31 July 2023, commitments, comprising bonds and guarantees arising in the normal course of

business, amounted to £207m (FY2022: £234m), including pension commitments of £56m

(FY2022: £56m) and charitable funding commitments for the Smiths Group Foundation of £10m

(FY2022: Nil). In addition, the Group has committed expenditure on capital projects amounting to

£13m (FY2022: £15m).

23. PROVISIONS AND CONTINGENT LIABILITIES

Trading

Non-headline and legacy

Total

£m

John Crane,

Inc.

litigation

£m

Titeflex

Corporation

litigation

£m

Other

£m

At 31 July 2021

212

287

Foreign exchange rate movements

Provision charged

Provision released

(3)

–

(3)

Unwind of provision discount

–

Utilisation

(4)

(21)

(4)

(2)

(31)

At 31 July 2022

229

335

Comprising:

Current liabilities

Non-current liabilities

195

247

At 31 July 2022

229

335

Foreign exchange rate movements

–

(12)

(3)

–

(15)

Provision charged

–

Provision released

(4)

–

(7)

(14)

(25)

Unwind of provision discount

–

Utilisation

(4)

(32)

(2)

(14)

(52)

At 31 July 2023

204

286

Comprising:

Current liabilities

Non-current liabilities

177

216

At 31 July 2023

204

286

The John Crane, Inc. and Titeflex Corporation litigation provisions were the only provisions that

were discounted; other provisions have not been discounted as the impact would be immaterial.

TRADING

The provisions included as trading represent amounts provided for in the ordinary course of

business. Trading provisions are charged and released through headline profit.

Warranty provision and product liability

At 31 July 2023, the Group had warranty and product liability provisions of £6m (FY2022: £7m).

Warranties over the Group’s products typically cover periods of between one and three years.

Provision is made for the likely cost of after-sales support based on the recent past experience of

individual businesses.

Commercial disputes and litigation in respect of ongoing business activities

The Group has on occasion been required to take legal action to protect its intellectual property and

other rights against infringement. It has also had to defend itself against proceedings brought by

other parties, including product liability and insurance subrogation claims. Provision is made for any

expected costs and liabilities in relation to these proceedings where appropriate, although there can

be no guarantee that such provisions (which may be subject to potentially material revision from

time to time) will accurately predict the actual costs and liabilities that may be incurred.

Contingent liabilities

In the ordinary course of its business, the Group is subject to commercial disputes and litigation

such as government price audits, product liability claims, employee disputes and other kinds of

lawsuits, and faces different types of legal issues in different jurisdictions. The high level of

activity in the US, for example, exposes the Group to the likelihood of various types of litigation

commonplace in that country, such as ‘mass tort’ and ‘class action’ litigation, legal challenges to

the scope and validity of patents, and product liability and insurance subrogation claims. These

types of proceedings (or the threat of them) are also used to create pressure to encourage

negotiated settlement of disputes. Any claim brought against the Group (with or without merit)

could be costly to defend. These matters are inherently difficult to quantify. In appropriate cases a

provision is recognised based on best estimates and management judgement but there can be no

guarantee that these provisions (which may be subject to potentially material revision from time

to time) will result in an accurate prediction of the actual costs and liabilities that may be incurred.

There are also contingent liabilities in respect of litigation for which no provisions are made.

The Group operates in some markets where the risk of unethical or corrupt behaviour is material

and has procedures, including an employee ethics alert line, to help it identify potential issues.

Such procedures will, from time to time, give rise to internal investigations, sometimes conducted

with external support, to ensure that the Group properly understands risks and concerns and

can take steps both to manage immediate issues and to improve its practices and procedures

for the future. The Group is not aware of any issues which are expected to generate material

financial exposures.

179

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

NON-HEADLINE AND LEGACY

John Crane, Inc.

John Crane, Inc. (JCI) is one of many co-defendants in numerous lawsuits pending in the United

States in which plaintiffs are claiming damages arising from alleged exposure to, or use of,

products previously manufactured which contained asbestos. Until 2006, the awards, the related

interest and all material defence costs were met directly by insurers. In 2007, JCI secured the

commutation of certain insurance policies in respect of product liability. Provision is made in

respect of the expected costs of defending known and predicted future claims and of adverse

judgements in relation thereto, to the extent that such costs can be reliably estimated.

The JCI products generally referred to in these cases consist of industrial sealing products,

primarily packing and gaskets. The asbestos was encapsulated within these products in such a

manner that causes JCI to understand, based on tests conducted on its behalf, that the products

were safe. JCI ceased manufacturing products containing asbestos in 1985.

JCI continues to actively monitor the conduct and effect of its current and expected asbestos

litigation, including the most efficacious presentation of its ‘safe product’ defence, and intends to

continue to resist these asbestos claims based upon this defence. The table below summarises

the JCI claims experience over the last 40 years since the start of this litigation:

Year ended

31 July 2023

Year ended

31 July 2022

Year ended

31 July 2021

Year ended

31 July 2020

Year ended

31 July 2019

JCI claims experience

Claims against JCI that have been dismissed

310,000

306,000

305,000

297,000

285,000

Claims JCI is currently a defendant in

20,000

22,000

25,000

38,000

Cumulative final judgements, after appeals,

against JCI since 1979

154

149

144

Cumulative value of awards (US$m) since

1979

190

175

168

The number of claims outstanding at 31 July 2023 reflected the benefit of 4,000 (FY2022: 1,000)

claims being dismissed in the year.

JCI has also incurred significant additional defence costs. The litigation involves claims for a

number of allegedly asbestos-related diseases, with awards, when made, for mesothelioma

tending to be larger than those for the other diseases. JCI’s ability to defend mesothelioma cases

successfully is, therefore, likely to have a significant impact on its annual aggregate adverse

judgement and defence costs.

John Crane, Inc. litigation provision

The provision is based on past history of JCI claims and well-established tables of asbestos-

related disease incidence projections. The provision is determined using advice from asbestos

valuation experts, Bates White LLC. The assumptions made in assessing the appropriate level of

provision include: the period over which the expenditure can be reliably estimated; the future

trend of legal costs; the rate of future claims filed; the rate of successful resolution of claims; and

the average amount of judgements awarded. The provision utilised in the period is higher than

previous periods, principally due to the resolution of outstanding verdicts from previous periods.

Trial delays arising from the COVID-19 pandemic have largely abated and trial activity has

returned to pre-pandemic levels.

Established incidence curves can be used to estimate the likely future pattern of asbestos-related

disease. However, JCI’s claims experience is also significantly impacted by other factors which

influence the US litigation environment. These can include: changing approaches on the part of

the plaintiffs’ bar; changing attitudes amongst the judiciary at both trial and appellate levels in

specific jurisdictions which move the balance of risk and opportunity for claimants; and legislative

and procedural changes in both the state and federal court systems.

The projections use a limited time horizon on the basis that Bates White LLC consider that there

is substantial uncertainty in the asbestos litigation environment. So probable expenditures are

not reasonably estimable beyond this time horizon. Asbestos is the longest running mass tort

litigation in American history and is constantly evolving in ways that cannot be anticipated. JCI’s

defence strategy also generates a significantly different pattern of legal costs and settlement

expenses from other defendants. Thus JCI is in an extremely rare position, and evidence from

other litigation cannot be used to improve the reliability of the projections. A ten-year (FY2022:

ten-year) time horizon has been used based on past experience regarding significant changes in

the litigation environment that have occurred every few years and on the amount of time taken in

the past for some of those changes to impact the broader asbestos litigation environment.

The rate of future claims filed has been estimated using well-established tables of asbestos

incidence projections to determine the likely population of potential claimants, and JCI’s past

experience to determine what proportion of this population will make a claim against JCI. The JCI

products generally referred to in claims had industrial and marine applications. As a result, the

incidence curve used for JCI projections excludes construction workers, and is a composite of the

curves that predict asbestos exposure-related disease from shipyards and other occupations.

This is consistent with JCI’s litigation history.

The rate of successful resolution of claims and the average amount of any judgements awarded

are projected based on the past history of JCI claims, since this is the best available evidence,

given JCI’s 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 sensitivities

The provision may be subject to potentially material revision from time to time if new information

becomes available as a result of future events. There can be no guarantee that the assumptions

used to estimate the provision will result in an accurate prediction of the actual costs that will be

incurred because of the significant uncertainty associated with the future level of asbestos claims

and of the costs arising out of related litigation, including the unpredictability of jury verdicts.

180

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

John Crane, Inc. statistical reliability of projections over the ten-year time horizon

In order to evaluate the statistical reliability of the projections, a population of outcomes is

modelled using randomised verdict outcomes. This generated a distribution of outcomes with

future spend at the 5th percentile of £180m and future spend at the 95th percentile of £245m

(FY2022: £203m and £268m, respectively). Statistical analysis of the distribution of these

outcomes indicates that there is a 50% probability that the total future spend will fall between

£228m and £257m (FY2022: between £239m and £263m), compared to the gross provision value

of £246m (FY2022: £258m).

John Crane, Inc. litigation provision history

The JCI asbestos litigation provision of £204m (FY2022: £229m) is a discounted pre-tax provision

using discount rates, being the risk-free rate on US debt instruments for the appropriate period.

The deferred tax asset related to this provision is shown within the deferred tax balance (note 6).

The JCI asbestos litigation provision has developed over the last five years as follows:

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Year ended

31 July 2021

£m

Year ended

31 July 2020

£m

Year ended

31 July 2019

£m

John Crane, Inc. litigation provision

Gross provision

246

258

220

235

257

Discount

(42)

(29)

(8)

(4)

(20)

Discounted pre-tax provision

204

229

212

231

237

Deferred tax

(51)

(57)

(54)

(59)

(50)

Discounted post-tax provision

153

172

158

172

187

Operating profit charge/(credit)

Increased provisions for adverse judgements

and legal defence costs

Change in US risk-free rates

(15)

(18)

(5)

Subtotal – items charged to the provision

Litigation management, legal fees in

connection with litigation against insurers and

defence strategy

Recoveries from insurers

(7)

–

(9)

(3)

(11)

Total operating profit charge/(credit)

(3)

Cash-flow

Provision utilisation – legal defence costs and

adverse judgements

(32)

(21)

(13)

(23)

(24)

Litigation management expense

(2)

(1)

–

(1)

(2)

Recoveries from insurers

–

Net cash outflow

(27)

(22)

(4)

(21)

(15)

John Crane, Inc. sensitivity of the projections to changes in the time horizon used

If the asbestos litigation environment becomes more volatile and uncertain, the time horizon over

which the provision can be calculated may reduce. Conversely, if the environment became more

stable, or JCI changed approach and committed to long-term settlement arrangements, the time

period covered by the provision might be extended.

The projections use a ten-year time horizon. Reducing the time horizon by one year would reduce

the provision by £16m (FY2022: £18m) and reducing it by five years would reduce the provision by

£87m (FY2022: £97m).

We consider, after obtaining advice from Bates White LLC, that to forecast beyond ten years

requires that the litigation environment remains largely unchanged with respect to the historical

experience used for estimating future asbestos expenditures. Historically, the asbestos litigation

environment has undergone significant changes more often than every ten years. If one assumed

that the asbestos litigation environment would remain unchanged for longer and extended the

time horizon by one year, it would increase the pre-tax provision by £13m (FY2022: £15m) and

extending it by five years would increase the pre-tax provision by £48m (FY2022: £56m).

However, there are also reasonable scenarios that, given certain recent events in the US asbestos

litigation environment, would result in no additional asbestos litigation for JCI beyond ten years.

At this time, how the asbestos litigation environment will evolve beyond ten years is not

reasonably estimable.

John Crane, Inc. contingent liabilities

Provision has been made for future defence costs and the cost of adverse judgements expected to

occur. JCI’s claims experience is significantly impacted by other factors which influence the US

litigation environment. These can include: changing approaches on the part of the plaintiffs’ bar;

changing attitudes amongst the judiciary at both trial and appellate levels; and legislative and

procedural changes in both the state and federal court systems. As a result, whilst the Group

anticipates that asbestos litigation will continue beyond the period covered by the provision, the

uncertainty surrounding the US litigation environment beyond this point is such that the costs cannot

be reliably estimated.

Although the methodology used to calculate the JCI litigation provision can in theory be applied to

show claims and costs for longer periods, the Directors consider, based on advice from Bates

White LLC, that the level of uncertainty regarding the factors used in estimating future costs is

too great to provide for reasonable estimation of the numbers of future claims, the nature of such

claims or the cost to resolve them for years beyond the ten-year time horizon.

Titeflex Corporation

Titeflex Corporation, a subsidiary of the Group in the Flex-Tek division, has received a number of

claims in the US from insurance companies seeking recompense on a subrogated basis for the

effects of damage allegedly caused by lightning strikes in relation to its flexible gas piping

product. It has also received product liability claims regarding this product in the US, some in the

form of purported class actions. Titeflex Corporation believes that its products are a safe and

effective means of delivering gas when installed in accordance with the manufacturer’s

instructions and local and national codes. However, some claims have been settled on an

individual basis without admission of liability. Equivalent third-party products in the US

marketplace face similar challenges.

181

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Titeflex Corporation litigation provision

The continuing progress of claims and the pattern of settlement, together with recent

marketplace activity, provide sufficient evidence to recognise a liability in the accounts. Therefore

provision has been made for the costs which the Group is expected to incur in respect of future

claims to the extent that such costs can be reliably estimated. Titeflex Corporation sells flexible

gas piping with extensive installation and safety guidance designed to assure the safety of the

product and minimise the risk of damage associated with lightning strikes.

The assumptions made in assessing the appropriate level of provision, which are based on past

experience, include: the period over which expenditure can be reliably estimated; the number of

future settlements; the average amount of settlements; and the impact of statutes of repose and safe

installation initiatives on the expected number of future claims. The assumptions relating to the

number of future settlements exclude the use of recent claims history due to the uncertain impact

that the COVID-19 lockdown has had on the number of claims.

The provision of £41m (FY2022: £52m) is a discounted pre-tax provision using discount rates,

being the risk-free rate on US debt instruments for the appropriate period. The deferred tax asset

related to this provision is shown within the deferred tax balance (note 6).

31 July 2023

£m

31 July 2022

£m

Gross provision

Discount

(37)

(35)

Discounted pre-tax provision

Deferred tax

(9)

(12)

Discounted post-tax provision

Titeflex Corporation litigation provision history

A credit of £8m (FY2022: £2m charge) has been recognised by Titeflex Corporation in respect of

changes to the estimated cost of future claims from insurance companies seeking recompense

for damage allegedly caused by lightning strikes. The lower gross provision value has been

principally driven by an increase in the discount factor deriving from increasing 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.

The projections incorporate a long-term assumption regarding the impact of safe installation

initiatives on the level of future claims. If the assumed annual benefit of bonding and grounding

initiatives were 0.5% higher, the provision would be £2m (FY2022: £3m) lower, and if the benefit

were 0.5% lower, the provision would be £2m (FY2022: £4m) higher.

The projections use assumptions of future claims that are based on both the number of future

settlements and the average amount of those settlements. If the assumed average number of

future settlements increased 10%, the provision would rise by £3m (FY2022: £5m), with an

equivalent fall for a reduction of 10%. If the assumed amount of those settlements increased 10%,

the provision would rise by £2m (FY2022: £4m), also with an equivalent fall for a reduction of 10%.

Other non-headline and legacy provisions

Non-headline provisions comprise all provisions that were disclosed as non-headline items when

they were charged to the consolidated income statement. Legacy provisions comprise non-material

provisions relating to former business activities and discontinued operations and properties no

longer used by Smiths.

These non-material provisions include non-headline reorganisation, disposal indemnities,

litigation and arbitration in respect of old products and discontinued business activities, which

includes claims received in connection with the disposal of Smiths Medical in the prior year.

Provision is made for the best estimate of the expected expenditure related to the defence and/or

resolution of such matters. There is an inherent risk in legal proceedings that the outcome may

be unfavourable to the Group, and as such there can be no guarantee that such provisions (which

may be subject to potentially material revision from time to time) will be sufficient.

Reorganisation

At 31 July 2023, there were reorganisation provisions of £7m (FY2022: £1m) relating to the various

restructuring programmes that are expected to be utilised in the next 18 months.

Property

At 31 July 2023, there were provisions of £10m (FY2022: £10m) related to actual and potential

environmental issues for sites currently or previously occupied by Smiths operations.

182

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

24. SHARE CAPITAL

Number of shares

Average number

of shares

Issued

capital

£m

Consideration

£m

Ordinary shares of 37.5p each

Total share capital at 31 July 2021

396,377,114

396,350,586

149

Issue of new equity shares – exercise of

share options

131,942

125,354

–

Share buybacks

(34,152,897)

(9,797,729)

(13)

(511)

Total share capital at 31 July 2022

362,356,159

386,678,211

136

Share buybacks

(13,053,169)

(32,555,024)

(5)

(207)

Shares held in Employee Benefit Trust

–

(1,232,067)

Total share capital at 31 July 2023

349,302,990

352,891,120

131

SHARE CAPITAL STRUCTURE

As at 31 July 2023, the Company’s issued share capital was 349,302,990 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 2023, 3,335,964 ordinary shares were

held by the nominee of the programme in respect of the same number of ADRs in issue.

The holders of ordinary shares are entitled to receive the Company’s Reports and Accounts, to

attend and speak at General Meetings of the Company, to appoint proxies and to exercise voting

rights. None of the ordinary shares carry any special rights with regard to control of the Company

or distributions made by the Company.

There are no known agreements relating to, or restrictions on, voting rights attached to the

ordinary shares (other than the 48-hour cut-off for casting proxy votes prior to a General

Meeting). There are no restrictions on the transfer of shares, and there is no requirement to

obtain approval for a share transfer. There are no known arrangements under which financial

rights are held by a person other than the holder of the ordinary shares. There are no known

limitations on the holding of shares.

POWERS OF DIRECTORS

The Directors are authorised to issue and allot shares and to buy back shares subject to receiving

shareholder approval at the General Meeting. Such authorities were granted by shareholders at

the 2022 Annual General Meeting. At the 2023 AGM, it will be proposed that the Directors be

granted new authorities to allot and buy back shares.

SHARE BUYBACKS

As at 15 September 2023 (the latest practicable date for inclusion in this report), the Company had

an unexpired authority to repurchase ordinary shares up to a maximum of 10.7 million ordinary

shares (FY2022: 59 million). As at 15 September 2023, the Company did not hold any shares in

treasury. Any ordinary shares purchased may be cancelled or held in treasury.

In connection with the sale of Smiths Medical to ICU Medical, Inc., and in the light of our strong

balance sheet and cash-flows, the Group announced that it intended to return an amount

representing 55% of the initial cash proceeds (equating to an aggregate purchase price of up to

US$1bn or £742m) to shareholders in the form of a Share Buyback Programme. All shares

purchased under the Programme will be cancelled. This Programme was initiated on 19

November 2021 as announced to the London Stock Exchange on 11 November 2021 and following

shareholder approval at the General Meeting held on 17 November 2021.

A total number of 13,008,032 ordinary shares of 37.5p each were repurchased during the period,

for a total consideration of £206,142,265, of which 84,195 shares with a value of £1,430,464 were

yet to settle and be cancelled. In total since the start of the Programme, 47,290,261 shares have

been repurchased, for a total consideration of £718,939,264, representing 11.93% of the called-up

ordinary share capital outstanding at the start of the Programme.

A further 1,379,697 ordinary shares have been repurchased during the period of 1 August

2023 to 15 September 2023, bringing the total number of shares repurchased to 48,669,958.

At 15 September 2023, the Group had paid £737m of the expected £742m payable under the

Programme, with the remaining £5m expected to be utilised within the next two weeks.

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 2023, the Trust held 1,742,929 (FY2022: 618,662)

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.

183

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

25. DIVIDENDS

The following dividends were declared and paid in the period:

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Ordinary final dividend of 27.3p (FY2022: 26.0p) paid 19 November 2022

103

Ordinary interim dividend of 12.9p (FY2022: 12.3p) paid 17 May 2023

143

150

In the current year a total dividend of 40.2p has been paid, comprising a final dividend of 27.3p paid

in respect of FY2022 and an interim dividend of 12.9p paid in respect of FY2023. In the prior year a

total dividend of 38.3p was paid, comprising a final dividend of 26.0p paid in respect of FY2021 and

an interim dividend of 12.3p paid in respect of FY2022.

The final dividend for the year ended 31 July 2023 of 28.7p per share was recommended by the

Board on 21 September 2023 and will be paid to shareholders on 24 November 2023, subject to

approval by the shareholders. This dividend is payable to all shareholders on the register of

members at 6.00pm on 20 October 2023 (the record date).

WAIVER OF DIVIDENDS

The following waived all dividends payable in the year, and all future dividends, on their

shareholdings in the Company:

–

Winterflood Client Nominees Limited (Buck Trustees Dividend Waived Ltd)

26. RESERVES

Retained earnings include the value of Smiths Group plc shares held by the Smiths Industries

Employee Benefit Trust. In the year the Company issued nil (FY2022: nil) shares to the Trust, the

Trust purchased 1,553,558 shares (FY2022: 1,069,998 shares) in the market for a consideration

of £25m (FY2022: £16m) and redeemed 429,291 shares (FY2022: 777,700) to employees for a

cumulative option cost of £1m (FY2022: £nil). At 31 July 2023, the Trust held 1,742,929 (FY2022:

618,662) ordinary shares.

Other reserves comprise the capital redemption reserve, revaluation reserve and merger

reserve, which arose from share repurchases, revaluations of property, plant and equipment, and

merger accounting for business combinations before the adoption of IFRS, respectively.

CAPITAL MANAGEMENT

Capital employed comprises total equity adjusted for goodwill recognised directly in reserves, net

retirement benefit-related assets and liabilities, net litigation provisions relating to non-headline

items and net debt. The efficiency of the allocation of capital to the divisions is monitored through

the return on capital employed (ROCE). This ratio is calculated over a rolling 12-month period and

is the percentage that headline operating profit comprises of monthly average capital employed.

In FY2023 ROCE was 15.7% (FY2022: 14.2%); see note 29.

Capital structure is based on the Directors’ judgement of the balance required to maintain

flexibility, whilst achieving an efficient cost of capital.

The FY2023 ratio of net debt to headline EBITDA of 0.7 (FY2022: 0.3) is within the Group’s stated

policy of 2.0 or less over the medium term. The Group’s robust balance sheet and record of strong

cash generation are more than able to fund immediate investment needs and legacy obligations.

See note 29 for the definition of headline EBITDA and the calculation of this ratio.

As part of its capital management, the Group maintains a solid investment grade credit rating to

ensure access to the widest possible sources of financing and to optimise the resulting cost of

capital. At 31 July 2023, the Group had a credit rating of BBB+/Baa2 (FY2022: BBB+/Baa2) with

Standard & Poor’s and Moody’s respectively.

The Board has a progressive dividend policy for future payouts, with the aim of increasing

dividends in line with the long-term underlying growth in earnings. In setting the level of dividend

payments, the Board will take into account prevailing economic conditions and future investment

plans, along with the objective to maintain a minimum dividend cover of at least two times.

HEDGE RESERVE

The hedge reserve on the balance sheet records the cumulative gain or loss on designated

hedging instruments, and comprises:

31 July 2023

£m

31 July 2022

£m

Net investment hedge reserve (net of £8m of deferred tax (FY2022: £8m))

(188)

(205)

Cash-flow hedge reserve

–

(188)

(202)

See transactional currency exposure risk management disclosures in note 19 for additional

details of cash-flow hedges, and translational currency exposure risk management disclosure

also in note 19 for additional details of net investment hedges.

NON-CONTROLLING INTEREST

The Group has recorded non-controlling interests of £22m (FY2022: £22m), of which the most

significant balance is in John Crane Japan Inc., which represented £19m (FY2022: £20m) of the

total non-controlling interests.

The non-controlling interest in John Crane Japan Inc. represents a 30% interest. John Crane

Japan Inc. generated operating profits of £5m in the period (FY2022: £5m), and cash inflows from

operating activities of £2m (FY2022: £5m). It paid dividends of £1m (FY2022: £1m) and tax of £2m

(FY2022: £1m). At 31 July 2023, the company contributed £53m (FY2022: £57m) of net assets to

the Group.

184

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

27. ACQUISITIONS

On 5 January 2023, the Group’s Interconnect division acquired 100% of the share capital of

Plastronics Sockets & Connectors (Plastronics) for consideration of £25m. The acquisition was

financed using the Group’s own cash resources. Plastronics is a leading supplier of burn-in test

sockets and patented spring probe contacts for the semiconductor test market segment. This

acquisition strengthens the existing portfolio of Smiths Interconnect and provides cross-selling

opportunities in Asia and the US.

The intangible assets recognised on acquisition comprise customer relationships, intellectual

property and technology. Goodwill represents the expected synergies from the strategic fit of the

acquisition and the value of the expertise in the assembled workforce. From the date of acquisition

to 31 July 2023, Plastronics contributed £8m to revenue and less than £1m to profit before taxation

and amortisation. If the Group had acquired this business from the beginning of the financial year,

the acquisition would have contributed £15m to revenue and less than £1m to profit before taxation.

Provisional balances at the date of acquisition have been provided in the table below. The amounts

remain provisional due to the fair value of the deferred consideration not being finalised.

Plastronics

£m

Non-current assets

– acquired intangible assets

– plant and machinery

Current assets

– inventory

– trade and other receivables

Current liabilities

– trade and other payables

(3)

Net assets acquired

Goodwill on current period acquisitions

Cash paid during the period

Deferred consideration

Total consideration

POST BALANCE SHEET DATE ACQUISITION

On 30 August 2023, the Group acquired the business of Heating & Cooling Products (HCP), for

consideration of approximately £65m, financed using the Group’s own cash resources. HCP is a

US-based manufacturer of Heating, Ventilation & Air Conditioning (HVAC) solutions. This

acquisition will further expand the Flex-Tek division’s presence in the North American HVAC

market, enabling Smiths to serve customers with an even broader product range.

The acquisition has historically contributed £47m of annualised revenue and £6m of annualised

profit before taxation. Due to the short time between the completion of the acquisition and the

announcement date, it has not been possible to complete the determination of the fair values of

the acquired balance sheet.

28. CASH-FLOW

CASH-FLOW FROM OPERATING ACTIVITIES

Year ended 31 July 2023

Year ended 31 July 2022

Headline

£m

Non-headline

£m

Total

£m

Headline

£m

Non-headline

£m

Total

£m

Operating profit:

– continuing operations

501

(98)

403

417

(300)

117

– discontinued operations

–

(47)

Amortisation of intangible assets

Impairment of intangible assets

–

Impairment of investment within

discontinued operations

–

Depreciation of property, plant

and equipment

–

Depreciation of right of use

assets

–

(Gain)/loss on disposal of

property, plant and equipment

–

(2)

–

(2)

(Gain)/loss on fair value of

contingent consideration

–

Share-based payment expense

–

Retirement benefits*

(7)

(2)

207

212

Decrease/(increase) in

inventories

(88)

(1)

(89)

(173)

(169)

Decrease/(increase) in trade

and other receivables

(10)

(53)

(63)

(87)

(83)

Increase/(decrease) in trade

and other payables

131

(2)

129

Increase/(decrease) in

provisions

(2)

(32)

(34)

(1)

Cash generated from operations

512

(88)

424

447

(43)

404

Interest paid

(73)

(2)

(75)

(51)

–

(51)

Interest received

–

Tax paid

(92)

–

(92)

(88)

–

(88)

Net cash inflow from operating

activities

383

(90)

293

321

(42)

279

– continuing operations

383

(90)

293

274

(42)

232

– discontinued operations

–

The retirement benefits non-headline operating activities principally relate to employer contributions to legacy defined

benefit and post-retirement healthcare plans.

185

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

HEADLINE CASH MEASURES – CONTINUING OPERATIONS

The Group measure of headline operating cash excludes interest and tax, and includes capital

expenditure supporting organic growth. The Group uses operating cash-flow for the calculation

of cash conversion and free cash-flow for management of capital purposes. See note 29 for

additional details.

The table below reconciles the Group’s net cash-flow from operating activities to headline

operating cash-flow and free cash-flow:

Year ended 31 July 2023

Year ended 31 July 2022

Headline

£m

Non-headline

£m

Total

£m

Headline

£m

Non-headline

£m

Total

£m

Net cash inflow from operating

activities

383

(90)

293

274

(42)

232

Include:

Expenditure on capitalised

development, other intangible

assets and property, plant and

equipment

(81)

–

(81)

(71)

–

(71)

Repayment of lease liabilities

(36)

–

(36)

(34)

–

(34)

Disposals of property, plant and

equipment

–

Free cash-flow

178

130

Exclude:

Repayment of lease liabilities

–

Interest paid

–

Interest received

(36)

–

(36)

(13)

–

(13)

Tax paid

–

Operating cash-flow

433

(90)

343

318

(42)

276

HEADLINE CASH CONVERSION

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

Year ended 31 July 2023

Year ended 31 July 2022

As reported

£m

Restructuring

costs

£m

Pro-forma

excluding

restructuring

costs

£m

As reported

£m

Restructuring

costs

£m

Pro-forma

excluding

restructuring

costs

£m

Headline operating profit

501

–

501

417

–

417

Headline operating cash-flow

433

–

433

318

332

Headline operating cash

conversion

86%

76%

80%

RECONCILIATION OF FREE CASH-FLOW TO NET MOVEMENT IN CASH AND CASH

EQUIVALENTS:

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Free cash-flow

178

130

Investment in financial assets and acquisition of businesses

(22)

–

Disposal of businesses and discontinued operations

(7)

1,331

Other net cash-flows used in financing activities (note: repayment of lease

liabilities is included in free cash-flow)

(909)

(937)

Net decrease in cash and cash equivalents for discontinued operations

–

Net increase/(decrease) in cash and cash equivalents

(760)

540

29. ALTERNATIVE PERFORMANCE MEASURES AND KEY

PERFORMANCE INDICATORS

The Group uses several alternative performance measures (APMs) in order to provide additional

useful information on underlying trends and the performance and position of the Group. APMs

are non-GAAP and not defined by IFRS; therefore, they may not be directly comparable with other

companies’ APMs and should not be considered a substitute for IFRS measures.

The Group uses these measures, which are common across the industry, for planning and

reporting purposes, to enhance the comparability of information between reporting periods and

business units. The measures are also used in discussions with the investment analyst

community and by credit rating agencies.

We have identified and defined the following key measures which are used within the business by

management to assess the performance of the Group’s businesses:

APM term

Definition and purpose

CAPITAL EMPLOYED

Capital employed is a non-statutory measure of invested resources. It

comprises statutory net assets and is adjusted as follows:

– To add goodwill recognised directly in reserves in respect of subsidiaries

acquired before 1 August 1998;

– To eliminate the Group's investment in ICU Medical, Inc. equity and

deferred consideration contingent on the future share price performance

of ICU Medical, Inc; and

– To eliminate post-retirement benefit assets and liabilities and non-

headline litigation provisions related to John Crane, Inc. and Titeflex

Corporation, both net of deferred tax, and net debt.

It is used to monitor capital allocation within the Group. See below for a

reconciliation from net assets to capital employed.

CAPITAL EXPENDITURE

Comprises additions to property, plant and equipment, capitalised

development and other intangible assets, excluding assets acquired

through business combinations: see note 1 for an analysis of capital

expenditure. This measure quantifies the level of capital investment into

ongoing operations.

186

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

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

Free cash-flow is calculated by adjusting the net cash inflow from

operating activities to include capital expenditure, the repayment of lease

liabilities, the proceeds from the disposal of property, plant and equipment

and the investment in financial assets relating to operating activities and

pensions financing outstanding at the balance sheet date. The measure

shows cash generated by the Group before discretionary expenditure on

acquisitions and returns to shareholders. A reconciliation of free cash-flow

is shown in note 28.

GROSS DEBT

Gross debt is total borrowings (bank, bonds and lease liabilities). It is used

to provide an indication of the Group's overall level of indebtedness. See

note 18 for an analysis of gross debt.

HEADLINE

The Group has defined a 'headline' measure of performance that excludes

material non-recurring items or items considered non-operational/

trading in nature. Items excluded from headline are referred to as non-

headline items. This measure is used by the Group to measure and monitor

performance excluding material non-recurring items or items considered

non-operational. See note 3 for an analysis of non-headline items.

HEADLINE EBITDA

EBITDA is a widely used profit measure, not defined by IFRS, being

earnings before interest, taxation, depreciation and amortisation. A

reconciliation of headline operating profit to headline EBITDA is shown in

the note below.

NET DEBT

Net debt is total borrowings (bank, bonds and lease liabilities) less cash

balances and derivatives used to manage the interest rate risk and currency

profile of the debt. This measure is used to provide an indication of the Group's

overall level of indebtedness and is widely used by investors and credit rating

agencies. See note 18 for an analysis of net cash/(debt).

NON-HEADLINE

The Group has defined a 'headline' measure of performance that excludes

material non-recurring items or items considered non-operational/trading

in nature. Items excluded from headline are referred to as non-headline

items. This is used by the Group to measure and monitor material non-

recurring items or items considered non-operational. See note 3 for an

analysis of non-headline items.

OPERATING CASH-

FLOW

Comprises free cash-flow and excludes cash-flows relating to the

repayment of lease liabilities, interest and taxation. The measure shows

how cash is generated from operations in the Group. A reconciliation of

operating cash-flow is shown in note 28.

OPERATING PROFIT

Operating profit is earnings before finance costs and tax. A reconciliation of

operating profit to profit before tax is shown on the income statement on page

130. This common measure is used by the Group to measure and monitor

performance.

RETURN ON CAPITAL

EMPLOYED (ROCE)

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.

The key performance indicators (KPIs) used by management to assess the performance of the

Group’s businesses are as follows:

KPI term

Definition and purpose

DIVIDEND COVER –

HEADLINE

Dividend cover is the ratio of headline earnings per share (see note 5) to

dividend per share (see note 25). This commonly used measure indicates

the number of times the dividend in a financial year is covered by headline

earnings.

EARNINGS PER SHARE

(EPS) GROWTH

EPS growth is the growth in headline basic EPS (see note 5), on a reported

basis. EPS growth is used to measure and monitor performance.

FREE CASH-FLOW (AS

A % OF OPERATING

PROFIT)

This measure is defined as free cash-flow divided by headline operating

profit averaged over a three-year performance period. This cash

generation measure is used by the Group as a performance measure for

remuneration purposes.

GREENHOUSE GAS

(GHG) EMISSIONS

REDUCTION

GHG reduction is calculated as the percentage change in normalised

Scope 1 & 2 GHG emissions. Normalised is calculated as tCO

e per £m of

revenue. This measure is used to monitor environmental performance.

187

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

KPI term

Definition and purpose

GROSS VITALITY

Gross Vitality is calculated as the percentage of revenue derived from new

products and services launched in the last five years. This measure is used

to monitor the effectiveness of the Group's new product development and

commercialisation.

MY SAY ENGAGEMENT

SCORE

The overall score in our My Say employee engagement survey. The

biannual survey is undertaken Group-wide. This measure is used by the

Group to monitor employee engagement.

OPERATING CASH

CONVERSION

Comprises headline operating cash-flow, excluding restructuring costs,

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 28.

OPERATING PROFIT

MARGIN

Operating profit margin is calculated by dividing headline operating profit

by revenue. This measure is used to monitor the Group’s ability to drive

profitable growth and control costs.

ORGANIC GROWTH

Organic growth adjusts the movement in headline performance to exclude

the impact of foreign exchange and acquisitions. Organic growth is used by

the Group to aid comparability when monitoring performance.

ORGANIC

REVENUE GROWTH

(REMUNERATION)

Organic revenue growth (remuneration) is compounded annualised growth

in revenue after excluding the impact of foreign exchange and acquisitions.

The measure used for remuneration differs from organic revenue growth

in that it is calculated on a compounded annualised basis. This measure

has historically been used by the Group for aligning remuneration with

business performance.

PERCENTAGE OF

SENIOR LEADERSHIP

POSITIONS TAKEN BY

FEMALES

Percentage of senior leadership positions taken by females is calculated

as the percentage of senior leadership roles (G14+ group) held by females.

This measure is used by the Group to monitor diversity performance.

R&D CASH COSTS AS A

% OF SALES

This measure is defined as the cash cost of research and development

activities (including capitalised R&D, R&D directly charged to the P&L and

customer-funded projects) as a percentage of revenue. Innovation is an

important driver of sustainable growth for the Group and this measures

our investment in research and development to drive innovation.

RECORDABLE

INCIDENT RATE (RIR)

Recordable Incident Rate is calculated as the number of recordable

incidents – where an incident requires medical attention beyond first aid

– per 100 colleagues, per year across Smiths. This measure is used by the

Group to monitor health and safety performance.

CAPITAL EMPLOYED

Capital employed is a non-statutory measure of invested resources. It comprises statutory net

assets adjusted to add goodwill recognised directly in reserves in respect of subsidiaries acquired

before 1 August 1998 of £478m (FY2022: £478m), to eliminate the Group’s investment in ICU

Medical, Inc. equity and deferred consideration contingent on the future share price performance

of ICU Medical, Inc. and to eliminate post-retirement benefit assets and liabilities and non-

headline litigation provisions related to John Crane, Inc. and Titeflex Corporation, both net of

related tax, and net debt.

Notes

31 July 2023

£m

31 July 2022

£m

Net assets

2,406

2,721

Adjust for:

Goodwill recognised directly in reserves

478

Retirement benefit assets and obligations

(89)

(194)

Tax related to retirement benefit assets and obligations

John Crane, Inc. litigation provisions and related tax

153

172

Titeflex Corporation litigation provisions and related tax

Investment in ICU Medical, Inc. equity

(347)

(364)

Deferred contingent consideration

(13)

(19)

Net debt

387

150

Capital employed

3,038

3,041

RETURN ON CAPITAL EMPLOYED (ROCE)

Notes

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Headline operating profit for previous 12 months – continuing

operations

501

417

Average capital employed – continuing operations (excluding

investment in ICU Medical, Inc. equity)

3,196

2,940

ROCE

15.7%

14.2%

188

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

CREDIT METRICS

Smiths Group monitors the ratio of net debt to headline EBITDA as part of its management of

credit ratings; see note 26 for details. This ratio is calculated as follows:

Headline earnings before interest, tax, depreciation and amortisation (headline EBITDA)

Notes

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Headline operating profit

501

417

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

584

495

Ratio of net debt to headline EBITDA

Notes

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Headline EBITDA

584

495

Net debt

387

150

Ratio of net debt to headline EBITDA

0.7

0.3

30. POST BALANCE SHEET EVENTS

Details of the proposed final dividend announced since the end of the reporting period are given in

note 25.

On 30 August 2023, the Group completed the acquisition of HCP, see note 27 for details.

31. AUDIT EXEMPTION TAKEN FOR SUBSIDIARIES

The following subsidiaries are exempt from the requirements of the Companies Act 2006 relating

to the audit of individual accounts by virtue of Section 479A of that Act for FY2023.

Company name

Company number

EIS Group Plc

61407

Flexibox International Limited

394688

Flex-Tek Group Limited

11545405

Graseby Limited

894638

SI Properties Limited

160881

SITI 1 Limited

4257042

Smiths Detection Group Limited

5138140

Smiths Detection Investments Limited

5146644

Smiths Finance Limited

7888063

Smiths Group Finance EU Limited

10440573

Smiths Group Finance US Limited

10440608

Smiths Group Innovation Limited

10953689

Smiths Interconnect Group Limited

6641403

Smiths Pensions Limited

2197444

189

NOTES TO THE ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

UNAUDITED GROUP FINANCIAL RECORD 2019–2023

Year ended

31 July 2023

£m

Year ended

31 July 2022

£m

Year ended

31 July 2021

£m

Year ended

31 July 2020

£m

Year ended

31 July 2019

£m

Income statement metrics – headline*

Continuing operations

Revenue

3,037

2,566

2,406

2,548

2,498

Headline operating profit

501

417

372

327

427

Headline profit before tax

466

376

332

278

376

Discontinued operations

Revenue

–

356

849

918

874

Headline operating profit

–

177

184

147

Headline profit before tax

–

176

180

144

Income statement metrics – statutory**

Revenue

3,037

2,566

2,406

2,548

2,498

Operating profit

403

117

326

241

326

Profit before taxation

360

103

240

133

304

Profit for the year

232

1,035

285

267

227

Balance sheet metrics***

Net debt

(387)

(150)

(1,018)

(1,141)

(1,197)

Shareholders’ equity

2,384

2,699

2,402

2,373

2,360

Average capital employed

3,196

2,940

4,165

4,315

3,972

Ratios***

Headline operating profit: revenue (%)

16.5

16.9

14.7

17.0

Headline effective tax rate (%)

26.0

27.2

27.1

26.2

25.9

Return on capital employed (%)

15.7

14.2

13.2

11.8

14.4

Return on shareholders’ funds (%)

11.3

10.0

11.6

10.8

12.3

Cash-flow metrics***

Headline operating cash

433

318

630

575

474

Headline operating cash conversion (%)

125

123

Free cash-flow

178

130

383

273

234

Free cash-flow per share (p)

51.0

35.9

96.6

68.9

59.1

Earnings per share***

Headline earnings per share (p)

97.1

82.5

93.1

84.8

96.8

Dividends and dividend cover***

Pence per share

41.6

39.60

37.70

35.00

45.90

Headline dividend cover

2.3

2.1

2.5

2.4

2.1

The headline income statement metrics in the above five-year record have been presented to reflect the reclassification of the Smiths Medical business as a discontinued operation and the Group’s current accounting policy of including

restructuring and pension administration costs within headline profit.

The statutory income statement metrics are presented based on continuing operations for both the current and comparative years.

***

Balance sheet metrics, ratios, cash-flow metrics, earnings per share, dividend cover and number of employees are presented based on both continuing and discontinued operations for all years.

190

UNAUDITED GROUP FINANCIAL RECORD 2019–2023

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

UNAUDITED SUPPLEMENTARY CONSOLIDATED INCOME STATEMENT – US DOLLAR TRANSLATION

Year ended 31 July 2023

Year ended 31 July 2022

Headline

Non-headline

(note 3)

Total

Headline

Non-headline

(note 3)

Total

CONTINUING OPERATIONS

Revenue

3,680

–

3,680

3,377

–

3,377

Operating costs

(3,073)

(119)

(3,192)

(2,828)

(395)

(3,223)

Operating profit/(loss)

607

(119)

488

549

(395)

154

Interest income

–

Interest expense

(86)

(8)

(94)

(72)

–

(72)

Other financing gains/(losses)

–

(10)

–

Other finance charges – retirement benefits

–

Finance costs

(42)

(10)

(52)

(54)

(19)

Profit/(loss) before taxation

565

(129)

436

495

(360)

135

Taxation

(147)

(16)

(163)

(137)

(119)

Profit/(loss) for the year

418

(145)

273

358

(342)

DISCONTINUED OPERATIONS

Profit on discontinued operations

–

1,280

1,344

PROFIT/(LOSS) FOR THE YEAR

418

(138)

280

422

938

1,360

Profit/(loss) for the year attributable to:

Smiths Group shareholders – continuing operations

417

(145)

272

355

(342)

Smiths Group shareholders – discontinued operations

–

1,280

1,344

Non-controlling interests

–

418

(138)

280

422

938

1,360

EARNINGS PER SHARE

Basic

79.4c

351.5c

Basic – continuing

77.3c

3.7c

Diluted

78.9c

350.0c

Diluted – continuing

76.8c

3.7c

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.

191

SMITHS GROUP PLC ANNUAL REPORT FY2023

UNAUDITED US DOLLAR PRIMARY STATEMENTS

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

UNAUDITED SUPPLEMENTARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME – US DOLLAR TRANSLATION

Year ended

31 July 2023

Year ended

31 July 2022

PROFIT FOR THE YEAR

280

1,360

Other comprehensive income (OCI):

OCI which will not be reclassified to the income statement:

Re-measurement of post-retirement benefits assets and obligations

(138)

(22)

Taxation on post-retirement benefits movements

–

Fair value movements on financial assets at fair value through OCI

(22)

(83)

(121)

(105)

OCI which will be reclassified and reclassifications:

Fair value gains/(losses) and reclassification adjustments:

– deferred in the year on cash-flow and net investment hedges

(108)

– reclassified to income statement on cash-flow and net investment hedges

(101)

Foreign exchange (FX) movements net of recycling:

Exchange losses/(gains) on translation of foreign operations

(122)

363

Exchange gains recycled to the income statement on disposal on business

–

(258)

(122)

105

Total other comprehensive income, net of taxation

(226)

(101)

Total comprehensive income

1,259

Attributable to:

Smiths Group shareholders

1,258

Non-controlling interests

(1)

1,259

192

SMITHS GROUP PLC ANNUAL REPORT FY2023

UNAUDITED US DOLLAR PRIMARY STATEMENTS

CONTINUED

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

UNAUDITED SUPPLEMENTARY CONSOLIDATED BALANCE SHEET – US DOLLAR TRANSLATION

31 July 2023

31 July 2022

NON-CURRENT ASSETS

Intangible assets

1,956

1,933

Property, plant and equipment

318

296

Right of use assets

135

129

Financial assets – other investments

477

481

Retirement benefit assets

251

376

Deferred tax assets

122

116

Trade and other receivables

3,355

3,415

CURRENT ASSETS

INVENTORIES

819

694

Current tax receivable

Trade and other receivables

993

897

Cash and cash equivalents

366

1,286

Financial derivatives

2,244

2,943

TOTAL ASSETS

5,599

6,358

CURRENT LIABILITIES

Financial liabilities

– borrowings

(4)

(620)

– lease liabilities

(33)

(35)

– financial derivatives

(3)

(33)

Provisions for liabilities and charges

(90)

(107)

Trade and other payables

(930)

(829)

Current tax payable

(95)

(78)

(1,155)

(1,702)

NON-CURRENT LIABILITIES

Financial liabilities

– borrowings

(687)

(655)

– lease liabilities

(117)

(110)

– financial derivatives

(23)

(24)

Provisions for liabilities and charges

(278)

(301)

Retirement benefit obligations

(136)

(140)

Current tax payable

(4)

Deferred tax liabilities

(55)

(54)

Trade and other payables

(51)

(56)

(1,351)

(1,344)

TOTAL LIABILITIES

(2,506)

(3,046)

NET ASSETS

3,093

3,312

31 July 2023

31 July 2022

SHAREHOLDERS’ EQUITY

Share capital

168

166

Share premium account

469

444

Capital redemption reserve

Merger reserve

302

286

Retained earnings

2,337

2,612

Hedge reserve

(242)

(246)

Total shareholders’ equity

3,065

3,285

Non-controlling interest equity

TOTAL EQUITY

3,093

3,312

193

SMITHS GROUP PLC ANNUAL REPORT FY2023

UNAUDITED US DOLLAR PRIMARY STATEMENTS

CONTINUED

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

UNAUDITED SUPPLEMENTARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY – US DOLLAR TRANSLATION

Share capital

and share

premium

Other

reserves

Retained

earnings

Hedge

reserve

Equity

shareholders’

funds

Non-controlling

interest

Total

equity

At 31 July 2022

610

309

1,617

(246)

3,285

3,312

Profit for the year

–

279

–

279

280

Other comprehensive income:

– re-measurement of retirement benefits after tax

–

(99)

–

(99)

–

(99)

– FX movements net of recycling

999

(13)

(1)

– fair value gains/(losses) and related tax

–

(22)

(4)

–

(4)

Total comprehensive income for the year

1,157

217

–

217

Transactions relating to ownership interests:

Purchase of shares by Employee Benefit Trust

–

(29)

Share buybacks

(6)

(251)

Dividends:

– equity shareholders

–

(173)

(172)

Share-based payment

–

At 31 July 2023

637

333

2,337

(242)

3,065

3,093

Share capital

and share

premium

Other

reserves

Retained

earnings

Hedge

reserve

Equity

shareholders’

funds

Non-controlling

interest

Total

equity

At 31 July 2021

712

336

2,608

(317)

3,339

3,368

Profit for the year

–

1,357

–

1,357

1,360

Other comprehensive income:

– re-measurement of retirement benefits after tax

–

(22)

–

(22)

–

(22)

– FX movements net of recycling

(88)

(44)

(377)

172

(337)

(5)

(342)

– fair value gains/(losses) and related tax

–

(83)

(101)

(184)

–

(184)

Total comprehensive income for the year

(88)

(44)

875

814

(2)

812

Transactions relating to ownership interests:

Issue of new equity shares

–

Purchase of shares by Employee Benefit Trust

–

(21)

–

(21)

–

(21)

Proceeds from exercise of share options

–

Share buybacks

(17)

(672)

–

(672)

–

(672)

Dividends:

– equity shareholders

–

(197)

–

(197)

–

(197)

Share-based payment

–

At 31 July 2022

610

309

2,612

(246)

3,285

3,312

194

UNAUDITED US DOLLAR PRIMARY STATEMENTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

UNAUDITED SUPPLEMENTARY CONSOLIDATED CASH-FLOW STATEMENT – US DOLLAR TRANSLATION

Year ended

31 July 2023

Year ended

31 July 2022

Net cash inflow from operating activities

355

367

Cash-flows from investing activities

Expenditure on capitalised development

(25)

(29)

Expenditure on other intangible assets

(8)

(11)

Purchases of property, plant and equipment

(64)

(76)

Disposals of property, plant and equipment

Receipt of capital from non-controlling interest

–

Acquisition of businesses

(27)

–

Proceeds on disposal of subsidiaries, net of cash disposed

(8)

1,751

Net cash-flow used in investing activities

(129)

1,639

Cash-flows from financing activities

Proceeds from exercise of share options

–

Share buybacks

(251)

(672)

Purchase of shares by Employee Benefit Trust

(29)

(21)

Proceeds received on exercise of employee share options

–

Settlement of cash-settled options

–

(1)

Dividends paid to equity shareholders

(173)

(197)

Lease payments

(44)

(50)

Reduction and repayment of borrowings

(639)

(388)

Cash inflow from matured derivative financial instruments

(11)

Net cash-flow used in financing activities

(1,147)

(1,295)

Net decrease in cash and cash equivalents

(921)

711

Cash and cash equivalents at beginning of year

1,285

563

Cash held in disposal group

–

Exchange differences

(52)

Cash and cash equivalents at end of year

366

1,285

Cash and cash equivalents at end of year comprise:

– cash at bank and in hand

225

295

– short-term deposits

141

991

366

1,286

– bank overdrafts

–

(1)

366

1,285

195

UNAUDITED US DOLLAR PRIMARY STATEMENTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

UNAUDITED GROUP US DOLLAR FINANCIAL RECORD 2019–2023

Year ended

31 July 2023

Year ended

31 July 2022

Year ended

31 July 2021

Year ended

31 July 2020

Year ended

31 July 2019

Income statement metrics – headline*

Continuing operations

Revenue

3,680

3,377

3,264

3,216

3,218

Headline operating profit

607

549

504

412

550

Headline profit before tax

565

495

450

351

484

Discontinued operations

Revenue

–

468

1,152

1,159

1,126

Headline operating profit

–

240

232

189

Headline profit before tax

–

239

227

185

Income statement metrics – statutory**

Revenue

3,680

3,377

3,264

3,216

3,218

Operating profit

488

154

442

304

420

Profit before taxation

436

135

325

169

391

Profit for the year

280

1,362

387

337

291

Balance sheet metrics***

Net debt

(497)

(183)

(1,415)

(1,495)

(1,462)

Shareholders’ equity

3,065

3,285

3,339

3,107

2,882

Average capital employed

4,109

3,578

5,790

5,652

4,852

Ratios***

Headline operating profit: revenue (%)

16.5

16.9

14.7

17.0

Headline effective tax rate (%)

26.0

27.2

27.1

26.2

25.9

Return on capital employed (%)

15.7

14.2

13.2

11.8

14.4

Return on shareholders’ funds (%)

10.9

9.9

12.2

10.6

12.1

Cash-flow metrics***

Headline operating cash

525

829

855

726

611

Headline operating cash conversion (%)

125

123

Free cash-flow

216

171

520

345

301

Free cash-flow per share (c)

61.8

47.2

131.1

68.9

76.1

Earnings per share***

Headline earnings per share (c)

117.7

108.6

126.3

107.0

124.7

Dividends and dividend cover***

Cents per share (c)

50.4

52.1

51.1

44.2

59.1

Headline dividend cover

2.3

2.1

2.5

2.4

2.1

restructuring and pension administration costs within headline profit.

The statutory income statement metrics are presented based on continuing operations for both the current and comparative year.

***

Balance sheet metrics, ratios, cash-flow metrics, earnings per share, dividend cover and number of employees are presented based on both continuing and discontinued operations for all years.

196

UNAUDITED US DOLLAR PRIMARY STATEMENTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SMITHS GROUP PLC COMPANY ACCOUNTS

COMPANY BALANCE SHEET

Notes

31 July 2023

£m

31 July 2022

£m

NON-CURRENT ASSETS

Right of use assets

–

Investments

2,431

2,422

Loans due from subsidiaries

2,447

561

Retirement benefit assets

195

309

5,073

3,297

CURRENT ASSETS

Trade and other receivables

Current tax receivable

–

Cash and cash equivalents

770

Financial derivatives

171

846

TOTAL ASSETS

5,244

4,143

CURRENT LIABILITIES

Trade and other payables

(2,180)

(588)

Lease liabilities

–

(1)

Financial derivatives

(6)

(29)

(2,186)

(618)

NON-CURRENT LIABILITIES

Borrowings

(557)

(545)

Lease liabilities

–

(5)

Loans due to subsidiaries

(5)

–

Provisions for liabilities and charges

(1)

(2)

Retirement benefit liabilities

(40)

(47)

Financial derivatives

(18)

(20)

(621)

(619)

TOTAL LIABILITIES

(2,807)

(1,237)

NET ASSETS

2,437

2,906

Notes

31 July 2023

£m

31 July 2022

£m

SHAREHOLDERS' EQUITY

Called up share capital

131

136

Share premium account

365

Capital redemption reserve

Other reserves

181

Profit and loss account

1,736

2,205

TOTAL EQUITY

2,437

2,906

The Company’s loss for the period was £22m (FY2022: £1,257m profit).

The accounts on pages 197 to 204 were approved by the Board of Directors on 25 September 2023

and were signed on its behalf by:

PAUL KEEL

CLARE SCHERRER

Chief Executive Officer

Chief Financial Officer

Smiths Group plc – registered number 137013

197

SMITHS GROUP PLC ANNUAL REPORT FY2023

SMITHS GROUP PLC COMPANY ACCOUNTS

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

COMPANY STATEMENT OF CHANGES IN EQUITY

capital

£m

premium

£m

Capital

redemption

reserve

£m

Other

reserves

£m

Retained

profit

£m

Shareholders’

equity

£m

At 31 July 2022

136

365

181

2,205

2,906

Profit for the year

–

(22)

Other comprehensive income:

– re-measurement of retirement benefits

–

(117)

– taxation recognised on retirement benefits

–

Total comprehensive income for the year

–

(109)

Transactions with owners:

Purchase of shares by Employee Benefit Trust

–

(24)

Shares purchased under a buyback programme

(5)

–

(207)

Dividends paid to equity shareholders

–

(142)

Share-based payment

–

Total transactions with owners recognised in equity

(5)

–

(360)

At 31 July 2023

131

365

181

1,736

2,437

capital

£m

premium

£m

Capital

redemption

reserve

£m

Other

reserves

£m

Retained

profit

£m

Shareholders’

equity

£m

At 31 July 2021

149

363

181

1,628

2,327

Profit for the year

–

1,257

Other comprehensive income:

– re-measurement of retirement benefits

–

(23)

– taxation recognised on retirement benefits

–

Total comprehensive income for the year

–

1,240

Transactions with owners:

Issue of new equity shares

–

Purchase of shares by Employee Benefit Trust

–

(16)

Proceeds received on exercise of employee share options

–

Shares purchased under a buyback programme

(13)

–

(511)

Dividends paid to equity shareholders

–

(150)

Share-based payment

–

Total transactions with owners recognised in equity

(13)

–

(663)

(661)

At 31 July 2022

136

365

181

2,205

2,906

198

SMITHS GROUP PLC ANNUAL REPORT FY2023

SMITHS GROUP PLC COMPANY ACCOUNTS

CONTINUED

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

COMPANY ACCOUNTING POLICIES

BASIS OF PREPARATION

These financial statements were prepared in accordance with Financial Reporting Standard 101

Reduced Disclosure Framework (FRS 101). In preparing these financial statements, the Company

applies the recognition, measurement and disclosure requirements of UK-adopted international

accounting standards (Adopted IFRSs), but makes amendments where necessary in order to

comply with Companies Act 2006 and has set out below where advantage of the FRS 101

disclosure exemptions has been taken.

These accounts have been prepared on a going concern basis and under the historical cost

convention modified to include revaluation of certain financial instruments, share options and

pension assets and liabilities held at fair value.

As permitted by Section 408(3) of the Companies Act 2006, the Company’s income statement and

statement of comprehensive income have not been presented. As permitted by Section 408(2),

information about the Company’s employee numbers and costs is not presented.

GOING CONCERN

The Directors are satisfied that the Group, (of which the Company is the holding company) has

adequate resources to continue to operate for a period not less than 12 months from the date of

approval of the financial statements and that there are no material uncertainties around their

assessment. Accordingly, the Directors continue to adopt the going concern basis of accounting.

Details of the going concern assessment for the Group are provided in the accounting policies

note of the consolidated financial statements.

EXEMPTIONS FROM THE REQUIREMENTS OF IFRS APPLIED IN ACCORDANCE WITH FRS 101

The following exemptions from the requirements of IFRS have been applied in the preparation of

these financial statements, in accordance with FRS 101:

–

Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and

weighted-average exercise prices of share options, and how the fair value of goods or services

received was determined);

–

IFRS 7, ‘Financial Instruments: Disclosures’;

–

Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques

and inputs used for fair value measurement of assets and liabilities);

–

Paragraph 38 of IAS 1, ‘Presentation of financial statements’ comparative information

requirements in respect of:

–

paragraph 79(a)(iv) of IAS 1;

–

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 judgements that affect the reported amounts of

assets and liabilities and disclosure of contingent assets and liabilities at the date of the accounts

and the reported amounts of revenues and expenses during the reporting period. Actual results

may differ from these estimates.

The key sources of estimation uncertainty together with the significant judgements and

assumptions used in these Parent Company financial statements are set out below.

SOURCES OF ESTIMATION UNCERTAINTY

Taxation

The Company has recognised deferred tax assets of £40m (FY2022: £66m) relating to revenue

losses brought forward. The recognition of these assets requires management to make

significant estimates as to the ability to recover them against the unwind of other tax positions

and forecast UK taxable profits of the tax group. Further detail on the Company’s deferred

taxation position is included in note 4.

Retirement benefits

Determining the value of the future defined benefit obligation involves significant estimates in

respect of the assumptions used to calculate present values. These include future mortality,

discount rate and inflation. The Company uses previous experience and independent actuarial

advice to select the values for critical estimates. A portion of the Company’s pension liabilities are

insured via bulk annuity policies that match all or part of the scheme obligation to identified

groups of pensioners. These assets are valued by an external qualified actuary at the actuarial

valuation of the corresponding liability, reflecting this matching relationship.

The Company’s principal defined benefit pension plans have been closed so that no future

benefits are accrued. Critical estimates for these plans, and the effect of variances in these

estimates, are disclosed in note 8 to the consolidated financial statements.

199

SMITHS GROUP PLC COMPANY ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SIGNIFICANT JUDGEMENTS MADE IN APPLYING ACCOUNTING POLICIES

Taxation

As stated in the previous section ‘Sources of estimation uncertainty’, the Company has

recognised deferred tax assets of £40m (FY2022: £66m) relating to revenue losses brought

forward. The decision to recognise deferred tax assets requires judgement in determining

whether the Company will be able to utilise historical tax losses in future periods. It has been

concluded that there are sufficient taxable profits in future periods to support recognition.

Retirement benefits

At 31 July 2023 the Company has recognised £195m of retirement benefit assets (FY2022: £309m),

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 regard to the rights of the Company

under the relevant Trust deed and rules, it has been determined that the surplus is recoverable by

the Company 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.

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.

LEASES

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 remaining term of five months. 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 135 to 143 for recognition,

measurement and presentation of financial instruments are applied in the Company accounts.

TAXATION

Deferred tax is provided using the balance sheet liability method. A deferred tax asset is recognised

where it is probable that future taxable income will be sufficient to utilise the available relief.

Deferred tax is provided on temporary differences arising on investments in subsidiaries, except

where the timing of the reversal of the temporary difference is controlled by the Company and it is

probable that the temporary difference will not reverse in the foreseeable future.

PROVISIONS

Provisions for disposal indemnities, restructuring costs, property dilapidations and legal claims

are recognised when: the Company has a legal or constructive obligation as a result of a past

event; it is probable that an outflow of resources will be required to settle the obligation; and the

amount has been reliably estimated. Provisions are not recognised for future operating losses.

Provisions are discounted where the time value of money is material.

RETIREMENT BENEFITS

The Company has both defined benefit and defined contribution plans. The policies disclosed

in the Group accounting policies on pages 135 to 143 for recognition, measurement and

presentation of retirement benefits are applied in the Company accounts. Note 8 to the

consolidated accounts explains the valuation basis for the Company’s retirement benefit

schemes assets and liabilities.

SHARE-BASED PAYMENT

The Company operates a number of equity-settled and cash-settled share-based

compensation plans.

The fair value of the shares or share options granted is recognised over the vesting period to

reflect the value of the employee services received. The charge relating to grants to employees of

the Company is recognised as an expense in the profit and loss account and the charge for grants

to employees of other Group companies is recognised as an investment in the relevant subsidiary.

The fair value of options granted, excluding the impact of any non-market vesting conditions, is

calculated using established option pricing models, principally binomial models. The probability

of meeting non-market vesting conditions, which include profitability targets, is used to estimate

the number of share options that are likely to vest.

200

SMITHS GROUP PLC COMPANY ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

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.

NOTES TO THE COMPANY ACCOUNTS

1. AUDIT FEE AND DIRECTORS EMOLUMENTS

The audit fee paid to KPMG LLP for the Parent Company was £0.1m (FY2022: £0.1m).

Directors’ emoluments in the year amounted to £7m (FY2022: £4m). Further information is in the

Remuneration & People Committee Report on pages 98 to 110.

2. RIGHT OF USE ASSETS

Properties

£m

Cost or valuation

At 31 July 2021

At 31 July 2022

Derecognition of right of use asset

(5)

At 31 July 2023

Depreciation

At 31 July 2021

Charge for the year

At 31 July 2022

Charge for the year

–

At 31 July 2023

Net book value at 31 July 2023

–

Net book value at 31 July 2022

Net book value at 31 July 2021

3. INVESTMENTS AND LOANS DUE FROM SUBSIDIARIES

Shares in

subsidiary

undertakings

£m

Loans

due from

subsidiaries

£m

Total

£m

Cost or valuation

At 31 July 2021

2,419

612

3,031

Foreign exchange rate movements

–

Contribution through share options

–

Decrease in advances due from subsidiaries

–

(71)

At 31 July 2022

2,427

562

2,989

Foreign exchange rate movements

–

(16)

Contribution through share options

–

Increase in advances due from subsidiaries

–

1,902

At 31 July 2023

2,436

2,448

4,884

Provision for impairment

At 31 July 2021, 31 July 2022 and 31 July 2023

Net book value at 31 July 2023

2,431

2,447

4,878

Net book value at 31 July 2022

2,422

561

2,983

Net book value at 31 July 2021

2,414

611

3,025

Loans due to subsidiaries are offset against loans due from subsidiaries only to the extent that

there is a legal right of set-off. At 31 July 2023 £nil of loans payable are offset against loans

receivable (FY2022: £1,664m). 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

201

SMITHS GROUP PLC COMPANY ACCOUNTS

CONTINUED

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OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

The principal subsidiaries and their countries of incorporation are:

England

Smiths Detection – Watford Ltd

John Crane UK Limited

Other

Smiths Detection Germany GmbH (Germany)

Smiths Detection (Asia-Pacific) Pte Ltd (Singapore)

John Crane Middle East FZE (UAE)

John Crane Technology (Tianjin) Co Limited (China)

John Crane Saudi Arabia Ltd (Saudi Arabia)

John Crane Canada Inc (Canada)

United States

Smiths Detection, Inc.

John Crane, Inc.

Titeflex Corporation

Flexible Technologies, LLC

Tutco, LLC

Royal Metal Products, LLC

Smiths Interconnect Americas, Inc.

Smiths Interconnect, Inc.

Kreisler Manufacturing Corp

Smiths Tubular Systems – Laconia Inc.

Of the companies above, Smiths Group International Holdings Limited is 100% owned directly

by the Company. The others are 100% owned through intermediate holding companies.

Shareholdings are of ordinary shares or common stock. All of the above subsidiaries operate

in their country of incorporation.

See pages 205 to 210 for a complete list of subsidiary undertakings.

4. DEFERRED TAX ASSETS AND LIABILITIES

The Company has recognised the following deferred tax assets and liabilities:

Share-

based

payment

£m

Retirement

benefit

obligations

£m

Losses

carried

forward

£m

Other

£m

Total

£m

At 31 July 2021

(123)

(28)

(Charge)/credit to income statement

(2)

(23)

(3)

Charge to equity

(1)

–

At 31 July 2022

–

(66)

–

(Charge)/credit to income statement

–

(4)

(26)

–

(30)

Charge to equity

–

At 31 July 2023

–

(40)

–

The Company is part of a UK tax group including all its UK-based subsidiaries. The Company has

recognised deferred tax assets of £40m (FY2022: £66m) relating to revenue losses carried

forward. The recognition of these assets is dependent on the ability to recover them against the

unwind of other tax positions and forecast of the UK tax group. The treatment of these assets is

reviewed regularly.

At 31 July 2023 the Company has unrecognised deferred tax assets of £54m (FY22: £41m)

relating to losses £51m (FY22: £36m), share-based payments £1m (FY22: £3m) and other £2m

(FY22: £2m).

From 1 April 2023, the rate increases from 19% to 25%. Deferred tax, as at 31 July 2023 has been

calculated at the 25% rate.

5. TRADE AND OTHER RECEIVABLES

31 July 2023

£m

31 July 2022

£m

Amounts owed by subsidiaries

Other receivables

6. TRADE AND OTHER PAYABLES

31 July 2023

£m

31 July 2022

£m

Amounts owed to subsidiaries

2,162

Term loans due within one year

–

504

Other creditors

Accruals and deferred income

2,180

588

7. BORROWINGS AND NET DEBT

31 July 2023

£m

31 July 2022

£m

Cash at bank

Short-term deposits

760

Cash and cash equivalents

770

Lease liabilities falling due within one year

–

(1)

Lease liabilities falling due after one year

–

(5)

Term loans falling due within one year

–

(504)

Term loans falling due after one year

(557)

(545)

Borrowings

(557)

(1,055)

Net debt

(459)

(285)

202

SMITHS GROUP PLC COMPANY ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Term loans and lease liabilities

The currency and coupons for the term loans are disclosed in note 18 of the Group accounts.

31 July 2023

£m

31 July 2022

£m

Less than one year

–

505

Between one and two years

–

Between two and five years

557

548

Greater than five years

–

Smiths Group plc term loans and lease liabilities

557

1,055

See the liquidity risk disclosures in note 19 in the Group accounts for information on the cash

and borrowing facilities available to the Group. Smiths has revolving credit facilities of US$800m

maturing on 5 May 2028.

8. PROVISIONS FOR LIABILITIES AND CHARGES

31 July 2022

£m

Charged

against profit

£m

Utilisation

£m

31 July 2023

£m

Disposals

(1)

–

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.

9. DERIVATIVES

The tables below set out the nominal amount and fair value of derivative contracts held by

the Company:

At 31 July 2023

Contract or underlying

nominal amount

£m

Fair value

Assets

£m

Liabilities

£m

Net

£m

Foreign exchange contracts (not hedge

accounted)

647

(6)

–

Cross-currency swaps (fair value and net

investment hedges)

247

–

(18)

Total financial derivatives

894

(24)

(18)

Balance sheet entries

Comprising:

Non-current

–

(18)

Current

(6)

–

Total financial derivatives

(24)

(18)

At 31 July 2022

Contract or underlying

nominal amount

£m

Fair value

Assets

£m

Liabilities

£m

Net

£m

Foreign exchange contracts (not hedge

accounted)

593

(9)

–

Cross-currency swaps (fair value and net

investment hedges)

615

–

(40)

Total financial derivatives

1,208

(49)

(40)

Balance sheet entries

Comprising:

Non-current

–

(20)

Current

(29)

(20)

Total financial derivatives

(49)

(40)

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 debit to the income statement arising from change in fair value in the year was £16m

(FY2022: £28m).

10. POST-RETIREMENT BENEFITS

The Company is the principal employer for the two major defined benefit plans in the UK. The

Company is accounting for all the UK defined benefit schemes (funded and unfunded) and virtually

all of the post-retirement healthcare schemes.

The retirement benefit assets and liabilities comprise:

31 July 2023

£m

31 July 2022

£m

Market value of scheme assets

2,367

3,067

Present value of funded scheme liabilities

(2,156)

(2,738)

Surplus restriction

(16)

(20)

Surplus

195

309

Unfunded pension plans

(37)

(43)

Post-retirement healthcare

(3)

(4)

Present value of unfunded obligations

(40)

(47)

Net pension asset

155

262

Comprising:

Retirement benefit assets

195

309

Retirement benefit liabilities

(40)

(47)

Net pension asset

155

262

203

SMITHS GROUP PLC COMPANY ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

See the disclosures for UK schemes in note 8 to the consolidated accounts for the circumstances

of the major schemes, risk management, principal assumptions, assets and liabilities and the

funding position of the two major schemes.

11. SHARE CAPITAL AND RESERVES

SHARE CAPITAL

Number of shares

Issued

capital

£m

Consideration

£m

Ordinary shares of 37.5p each

Total share capital at 31 July 2021

396,377,114

149

Shares purchased under a buyback programme

(34,152,897)

(13)

(511)

Issue of new equity shares – exercise of share options

131,942

–

Total share capital at 31 July 2022

362,356,159

136

Shares purchased under a buyback programme

(13,053,169)

(5)

(207)

Total share capital at 31 July 2023

349,302,990

131

At 31 July 2023, 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 £nil (FY2022: £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 £25m (2022: £16m) and £1m (2022: £nil) was received as a result of

employees exercising share options under the SAYE. At 31 July 2023 the Trust held 1,742,929

(2022: 618,662) ordinary shares.

Distributable profits

Smiths Group plc, the Parent Company of the Group, holds investments in subsidiaries and

operates as a financing entity for the Group. Its profits are derived from dividend receipts,

royalties, corporate recharges, and loan interests from its subsidiary companies. Prior to the

declaration of interim and final dividends to shareholders, the Board conducts a review of the

level of distributable profits of the Parent Company. This ensures the profits provide sufficient

coverage for dividend payments; see note 26 in the Group accounts for a discussion of capital

management and the factors which the Board considers when proposing dividends.

In accordance with the UK Companies Act 2006 Section 831(1), a public company may only make

a distribution if, after fulfilling this distribution, the amount of its net assets is not less than the

aggregate of its called-up share capital and non-distributable reserves as it appears in the

relevant accounts. The Company establishes what is realised and unrealised in accordance

with the guidance provided by ICAEW TECH 02/17BL and the requirements of UK law.

Profits available for distribution at 31 July 2023 and 31 July 2022 were comprised as follows:

2023

£m

2022

£m

Net assets

2,437

2,906

Less:

Issued share capital

(131)

(136)

Share premium

(365)

Capital redemption reserve

(24)

(19)

Other non-distributable reserves

(1,054)

(1,058)

Distributable profits

863

1,328

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 £31m lower (FY2022: £185m

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.

12. 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 £56m

(FY2022: £56m). The Company has guaranteed the US$800m revolving credit facility available

to a subsidiary.

13. POST BALANCE SHEET EVENT

Details of the proposed final dividend announced since the end of the reporting period are given

in note 25 to the Group consolidated financial statements.

204

SMITHS GROUP PLC COMPANY ACCOUNTS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

SUBSIDIARY UNDERTAKINGS

A full list of the Group’s related undertakings as at 31 July 2023 is provided below. The entities

are grouped by the country in which they are incorporated and details of their registered office

address, classes of shares and ownership is disclosed. Related undertakings include

subsidiaries, associated undertakings, joint ventures and associates.

Name

Security

Direct (%)

Total (%)

UNITED KINGDOM

11-12 St James’s Square, London, SW1Y 4LB

Air Log Limited

Ordinary

100

CVE Trustee Limited

Ordinary

100

EIS Group Plc

Ordinary

100

Flex-Tek Group Limited

Ordinary

100

Flightspares Limited

Ordinary

100

Francis Shaw and Company (Manchester) Limited

Ordinary

100

Francis Shaw PLC

37% 2nd Pref Ordinary;

5.25% Cum Pref; Dif;

Ordinary

100

Graseby Limited

Ordinary

100

Roof Units (Group) Limited

Ordinary

100

S.I. Pension Trustees Limited

Ordinary

100

SI Properties Limited

Ordinary

100

SITI 1 Limited

Common

100

Smiths Aerospace Components Tyseley Limited

Ordinary

100

Smiths Aerospace Gloucester Limited

Ordinary; Ordinary A

100

Smiths Finance Limited

Ordinary; RDM

100

Smiths Group Finance EU Limited

Ordinary

100

Smiths Group Finance US Limited

Ordinary

100

Smiths Group Innovation Limited

Ordinary

100

Smiths Group International Holdings Limited

Ordinary

100

Smiths Industries Limited

7% Non Cum Pref;

Ordinary

100

Smiths Nominees Limited

Ordinary

100

Smiths Pensions Limited

Ordinary

100

Smiths Wolverhampton Limited

Ordinary

100

Sovos Limited

Ordinary

100

TI Corporate Services Limited

Ordinary

100

TI Group Limited

Ordinary

100

Name

Security

Direct (%)

Total (%)

Tigrup No. 7 Limited

Ordinary

100

Tigrup No. 14 Limited

Ordinary

100

TI Pension Trustee Limited

Limited By Guarantee

100

XDG Limited

Ordinary

100

XDG Services Limited

Ordinary

29 Dunsinane Avenue, Dundee, DD2 3QF

Flexible Ducting Limited

Ordinary

100

Trak Microwave Limited

Ordinary

100

Abercanaid, Merthyr Tydfil, Mid Glamorgan, CF48 1UX

Amnitec Hose Limited

Ordinary

100

Amnitec Limited

Ordinary

100

Brooklyn House, 44 Brook Street, Shepshed,

Loughborough, LE12 9RG

Gastite Systems Limited

Ordinary

100

Buckingham House, 361-366 Buckingham Avenue,

Slough, Berkshire, SL1 4LU

Flexibox International Limited

Ordinary

100

John Crane Group Limited

Ordinary

100

John Crane Investments Limited

Ordinary

100

John Crane UK Limited

Ordinary

100

Project Sugar Limited

Ordinary

100

Smiths Business Information Services Limited

Ordinary

100

Century House, Maylands Avenue, Hemel Hempstead,

Hertfordshire, HP2 7DE

Smiths Detection Group Limited

Ordinary

100

Smiths Detection Investments Limited

Ordinary

100

Smiths Detection Kuwait Security Devices and

Systems, their Installation and Maintenance (LLC)*

registered address of parent

Cash share

Smiths Detection Limited

Ordinary

100

Smiths Detection-Watford Limited

Ordinary

100

Smiths Heimann Limited

Ordinary

100

No 1 Exchange, Market Street, Aberdeen, Scotland

John Crane Asset Management Solutions Limited

Ordinary

100

Unit 130 Centennial Park, Elstree, Hertfordshire,

WD6 3TJ

Hypertac Limited

Ordinary

100

Smiths Industries Industrial Group Limited

Ordinary

100

Smiths Interconnect Group Limited

Ordinary

100

205

SUBSIDIARY UNDERTAKINGS

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Name

Security

Direct (%)

Total (%)

ANGOLA

Rue Kwamme Nkrumah, Torres Impor-Africa, 3

Andar, Apt A, Luanda

John Crane (Angola) Prestacao De Services Ltd

Ordinary

100

ARGENTINA

Av. Leandro N. Alem 1110, 13 Floor, Baker Mackenzie

Office, Buenos Aires

John Crane Argentina SA

Common

100

TI Group Automotive Systems (Argentina) SA

Ordinary

100

AUSTRALIA

549 – 551, Somerville Road, Sunshine, Melbourne, VIC

3020

Flexibox Pty Limited

Ordinary

100

John Crane Australia Pty Limited

Ordinary

Botany Grove Estate Unit 5, 14A Baker Street, Botany,

NSW 2019

Smiths Detection (Australia) Pty Ltd

Ordinary

100

AZERBAIJAN REPUBLIC

32, Dostluq Street, Salyan Highway PO Box AZ1023,

Baku

John Crane Baku LLC

Ordinary

100

BELGIUM

Glasstraat 37, Antwerpen, 2170

John Crane Belgium NV

Ordinary

100

BRAZIL

Industrial District of The City of Rio Claro, State of São

Paulo, AV. Brasil Number 4.700, CEP 13505-600

Smiths Brasil Ltda

Ordinary

100

CANADA

423, Green North Road, Stoney Creek, Ontario, L8E

3A1

John Crane Canada Inc

Common

100

3700, Stock Exchange Tower, P.O. Box 242, 800 Place

Victoria, Montreal, PQ, H4Z 1E9

Smiths Detection Montreal Inc.

Class A Shares; Class B

100

4610, Eastgate Parkway, Unit 3, Mississauga, Ontario,

L4W 3W6

Flexible Technologies (Canada) Ltd.

Ordinary

100

16771, Sainte Marie Rd, Kirkland, Quebec, H9H 5H3

Smiths Interconnect Canada Inc

Common Shares

100

Name

Security

Direct (%)

Total (%)

CHILE

Americo Vespucio 2542, Complejo Empresarial El

Cortijo, Conchali, Santiago

John Crane Chile SA

Ordinary

100

CHINA

No. 1, Lane 65, Huanlong Road, Pudong New District,

Shanghai

Smiths (Shanghai) Management Co., Ltd

Ordinary

100

No. 7, Factory Building, Maqiao Industrial Square,

Changshu Economic Development Zone, Changshu,

Jiangsu 215536

Changshu Flex-Tek Thermal Fluid Systems

Manufacturer Co. Ltd

Ordinary

100

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

Ordinary

100

No. 14 Unit, No. 78, XingLin Road, Suzhou Industrial

Park, Suzhou 215026

Antares Advanced Test Technologies (Suzhou) Co. Ltd

Ordinary

100

No. 120, Sanjiang Avenue, Economic Development

Zone, Mianyang, Sichuan Province

Huafeng Smiths Interconnect (Sichuan) Co., Ltd

Ordinary

Room 923B, No 55, Xili Road, Shanghai, (China) Pilot

Free Trade Zone

SMO Detection Equipment (Shanghai) Co., Ltd

Ordinary

100

Room 1668, No. 14F Floor 3 Datong Building, Huanghe

Avenue, Nankai District, Tianjin

John Crane China Co Limited

Ordinary

100

COLOMBIA

Calle 46A No 82-54 Int 14, Parque Empresarial San

Cayetano, Bogota

John Crane Colombia SA

Ordinary

100

COSTA RICA

33rd St. Number 777 Barrio Francisco Peralta,

Central Avenue & 8th, San Jose

Smiths Interconnect Sociedad Anonima

Ordinary

100

CZECH REPUBLIC

Jana Sigmunda 78, Lutin, 78349

John Crane A.S.

Ordinary

100

DOMINICAN REPUBLIC

Calle El Recodo, #2 Bella Vista, Santa Domingo

John Crane Dominicana SA

Ordinary

100

206

SUBSIDIARY UNDERTAKINGS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Name

Security

Direct (%)

Total (%)

EGYPT

139, Mogamaa El Masanea Street, El Amireya, Cairo

John Crane Egypt Llc

Ordinary

100

John Crane Egypt Sealing Systems Llc

Ordinary

100

Nile City Towers, North Tower, 22nd Floor, Ramlet

Boulaq, Nile Cournich, Cairo

Detection Technologies Egypt

Quotas

100

FINLAND

PO Box 10, Punasillantie 15, Muurame, 40950

John Crane Safematic Oy

Ordinary

100

FRANCE

22, Avenue Maurice Chevalier, 77833 Ozoir-La-

Ferriere, Paris

Titeflex Europe S.A.S.

Ordinary

100

31 Rue Isidore Maille, Saint-Aubin-Les-Elbeuf, 76410

Hypertac S.A.

Ordinary

100

36 Rue Charles Heller, Vitry Sur Seine, F-94400

Smiths Detection France S.A.S.

100

114, Rue Jules Ferry, B.p.35, Deville-Les-Rouen,

76250

John Crane France S.A.S.

Ordinary

100

T I S A (France)

Ordinary

100

GERMANY

Am Zirkus 2, Berlin, 10117

John Crane Filtration Technologies GmbH

Ordinary

100

Gewerbestraße 15 a, Graben, 86836

Gastite Systems Deutschland GmbH

Ordinary

100

Im Herzen 4, Wiesbaden, 65205

Smiths Detection GmbH

100

Smiths Detection Germany GmbH

Ordinary

100

Neckarweg 3, Vellmar, 34246

Herkules Holding GmbH

Ordinary

100

Seebach GmbH

Ordinary

100

Reepschlager Str., 10B, Lubeck, 23556

Flexschlauch Produktions GmbH

100

Tolzer Strasse, 15 82031, Grunwald

Zamor KG

Ordinary

Ulrichsberger Strasse 17, Deggendorf, 94469

Hypertac GmbH

Ordinary

100

Werner–Von–Siemens – Str.6, Fulda, 36041

John Crane GmbH

Ordinary

100

Name

Security

Direct (%)

Total (%)

GREECE

3 Stratigou Tobre Street, Municipality Of Agia

Paraskevi, Athens, 153 42

John Crane Hellas – Engineered Sealing Systems

Monoprosopi Epe

Ordinary

100

GUERNSEY

Level 5, Mill Court, La Charroterie, St Peter Port, GY1

1EJ

Smiths Group Insurance Limited

Ordinary

100

HONG KONG

4008-4009, 40/F, One Pacific Place, 88 Queensway

Smiths Interconnect Group (HK) Limited

Ordinary

100

Smiths Interconnect Hong Kong Co Limited

Ordinary

100

Smiths Detection Hong Kong Limited

Ordinary

100

HUNGARY

2040 Budaors, Gyar U. 2

John Crane Hungary Kft

Ordinary

100

INDIA

D-196 Okhla Industrial Area, Phase-1, New Delhi,

110020

Plenty India Limited

Ordinary Shares

100

No 11, 1st Phase, Peenya, Industrial Area, Bangalore,

560058

John Crane Sealing Systems India Private Limited

Ordinary

100

Smiths Interconnect India Private Limited

Ordinary

100

No 38, Kiadb Industrial Area, Bangalore, 561203

STS Titeflex India Pvt Ltd

Ordinary

100

Shirwal, Maharashtra 412801

Seebach Filter Solutions India Pvt Ltd

Ordinary

100

Vardhman Crown Mall, Unit No. 300 3rd Floor,

Sector 19 Dwarka, New Delhi 110075

Smiths Detection Systems Private Limited

Class A Equity Shares;

Class B Equity Shares

100

INDONESIA

Cilandak Commercial Estate Bldg 401A, Ji. Kko

Cilandak, Jakarta, 12560

PT John Crane Indonesia

Ordinary

IRELAND

Deloitte Offices, 6 Lapps Quay, Cork

Smiths Detection Ireland Limited

Ordinary; Ordinary B;

Ordinary D; Series C

100

T53/54, Shannon Industrial Estate, Shannon, Co. Clare

John Crane (Ireland) Limited

Ordinary

100

207

SUBSIDIARY UNDERTAKINGS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Name

Security

Direct (%)

Total (%)

ITALY

Via Da Bissone 7A, Genova, 16153

Hypertac SpA

Ordinary

100

Via Giotto 3, Muggio, 20835

John Crane Italia SpA

Ordinary

100

Smiths Detection Italia srl

Quota Value of Shares

100

Smiths Group Italia Srl

Ordinary

100

JAPAN

1-1-1 Uchisaiwaicho, Chiyoda-ku, Tokyo

Smiths Detection Japan Gk

Cash Contribution

100

2222, Kamitoyama Ritto City, Ritto-Shi, Shiga-Ken

John Crane Japan Inc

Ordinary

KAZAKHSTAN

Atyrau Region, Gatyrau, Station K Arabathan, House

Production Site 14, 060000

John Crane Kazakhstan

Ordinary

100

KOREA, REPUBLIC OF

Migeundong, Westgate Tower 15F, 70 Chungjeong-Ro,

Seodaemun-Gu, Seoul

John Crane Korea Co Ltd

Ordinary

100

MALAYSIA

207, Jalan Tun Razak, Suite 13.03, 13th Floor, Menara

Tan & Tan, Kuala Lumpur, 50400

Flexible Ducting Malaysia Sdn Bhd (in liquidation)

Ordinary

100

Menara LGB, 1, Jalan Wan Kadir Taman Tun Dr Ismail,

60000 Kuala Lumpur, WPKL

John Crane Malaysia Sdn Bhd

Ordinary

100

Smiths Detection Malaysia Sdn Bhd

Ordinary

100

MEXICO

679, Poniente 152, Vallejo Delegacion Azcapotzalco,

Mexico City, 2300

Industrias John Crane Mexico S.A. de C.V.

Series A; Series B

100

Av. Primero De Mayo Lote 3 Edificio 1B, Prologis Park,

Reynosa, 88780

Tutco De Mexico SRL de CV

Ordinary

100

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

Ordinary

100

Carretera Libre Antiguo Camino Tijuana 20221-B,

Fideicomiso el Florido, Tijuana, Baja California, 22234

Name

Security

Direct (%)

Total (%)

Smiths Interconnect Mexico S. de Rl de C.v.

Equity Quotas

100

Paseo De La Reforma 505, Col, Cuauhtemoc, 6500,

Ciudad De Mexico

Smiths Detection Mexico S. de Rl de C.v.

Partes Sociales

100

NETHERLANDS

Abraham van Stolkweg 118, Rotterdam, 3041 JA

Amnitec BV

Ordinary

100

Bergen 9 – 17, Barendrecht, Zuid, 2993LR

John Crane Holland BV

Ordinary

100

Smiths Detection Benelux BV

Ordinary

100

Buckingham House, 361-366 Buckingham Avenue,

Slough, Berkshire, SL1 4LU, England

Smiths Group Holdings Netherlands BV

Ordinary

100

Hydrograaf 25, PO Box 442, 6900 Ak Zevenaar, Duiven,

6921 RS

Indufil BV

Ordinary

100

NEW ZEALAND

Deloitte, Level 18, 80 Queen Street, Auckland 1010

Smiths Detection New Zealand Limited

Ordinary

100

PERU

Av. Guillermo Dansey 2124, Urbanizacion Industrial

Conde, Lima

John Crane Peru Sac

Common Shares

100

POLAND

1327, ul. Bielska, Poland, 43-374 Buczkowi

John Crane Poland Sp Z O.O.

Ordinary

100

PUERTO RICO

654 Plaza, Suite #933, 654 Munoz Rivera Ave, San

Juan, 00918

John Crane Caribe Ltd

Common Shares

100

RUSSIAN FEDERATION

Room 501, Floor 5, bld.1, 5-104 Octyabrskaya Emb.,

St. Petersburg 193079

Smiths Detection Rus LLC

Ordinary

100

B.savvinsky Per, D.11, Moscow, 119435

LLC John Crane Rus

Ordinary

100

SAUDI ARABIA

Dammam Industrial City, Dammam, 3243

John Crane Saudi Arabia Ltd

Ordinary

100

Building 7, Zone A, Airport road, Business Gate, P.O

Box Riyadh 11683, 93597

Smiths Detection Saudi Arabia Ltd

100

208

SUBSIDIARY UNDERTAKINGS

CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Name

Security

Direct (%)

Total (%)

SINGAPORE

6 Shenton Way, OUE Downtown #26-00, 068809

John Crane Singapore Pte Limited

Ordinary

100

20, Pasir Panjang Road, #13-26 Mapletree Business

City, 117439

Smiths Connectors Asia Pte. Ltd.

Ordinary

100

Smiths Detection (Asia Pacific) Pte. Ltd

Ordinary

100

47, Kallang Pudding Road, #06-13, The Crescent,

Kallang, Singapore, 349318

Plastronics Asia Pte. LTD

Ordinary

100

SLOVAKIA

Dvorakovo nabrezie 10, Bratislava-mestska cast

Stare Mesto, 811 02

John Crane Slovakia SRO

Ordinary

100

SOUTH AFRICA

2, Jansen Road, Nuffield Industrial Sites, Springs

Gauteng, 1559

Flexibox (Pty) Limited

Ordinary

100

John Crane Pty Ltd

Ordinary

100

SPAIN

Cemento 1, Torrejon De Ardoz, Madrid

John Crane Iberica SA

Ordinary

100

SWEDEN

Knivsta, 74180

Habia Teknofluor AB

100

Teknofluor Holding AB

100

Faltspatsgatan 4, Se-421 30 Vastra Frolunda

John Crane Sverige AB

Ordinary

100

SWITZERLAND

Hohenrainstrasse 10, 4133 Pratteln

John Crane (Switzerland) AG

Ordinary

100

TAIWAN

324-4, Fong-Jen Road, Renwu District, Kaohsiung

City 814

John Crane Taiwan Co Ltd.

Ordinary

100

THAILAND

9/311, 31st Floor, Um Tower, Ramkhamhaeng Road,

Suanluang District, Bangkok

John Crane (Thailand) Limited

Ordinary; Pref

100

99/3 Moo 5, Kingkaew Road, Tambol Rajatheva,

Amphoe Bangplee, Samutprakarn Province, 10540

Smiths Detection (Thailand) Limited

Pref; Ordinary

100

Name

Security

Direct (%)

Total (%)

TUNISIA

Zone Industrielle Route De Khniss, Monastir, 5000

Smiths Connectors Tunisia SARL

Ordinary

100

TURKEY

Istanbul Sariyer, Huzur Mahallesi, Ahmet Bayman

Caddessi, Dis, Reklamcilik Apt No:17-19/1

John Crane Endustriyel Sizdirmazlik Sistemleri Ltd

Ordinary

100

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

100

S20113, Jebel Ali Free Zone, 61040

John Crane Middle East Fze

Ordinary

100

UNITED STATES OF AMERICA

51 Growth Road, Laconia, NH, 03246

Lakes Region Tubular Products Inc.

Common Stock

100

116, Pine Street, 3rd Floor, Suite 320, Harrisburg, PA

17101

Tutco, LLC

Ordinary

100

180 Van Riper Avenue, Elmwood Park, NJ 07407

Kreisler Industrial Corp

Common Stock

100

Kreisler Manufacturing Corp

Common Stock

100

815 Forestwood Drive, Romeoville, IL 60446

US Hose Corp

Common Stock

100

2001, 46th St. NE, Suite 188, Kansas City, Missouri,

64116

Smiths Interconnect Americas, Inc.

Common Stock

100

2601, Texas Drive, Irving, TX, 75062

Plas2, LLC

Membership interests

100

Plastronics H-Pin, LTD

Membership interests

100

Plastronics Socket Partners, LTD

Membership interests

100

2801 Red Dog Lane, Knoxville, TN 37914

Fulton Bellows LLC

Membership interests

100

The Corporation Trust Company, 1209 Orange Street,

Wilmington, DE, 19801

Asset And Intelligence Management Services, LLC

Ordinary Stock

100

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SUBSIDIARY UNDERTAKINGS

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SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Name

Security

Direct (%)

Total (%)

Flexible Technologies, LLC

Ordinary Shares

100

Flex-Tek Group (US) LLC

Ordinary

100

John Crane Group, LLC

Ordinary

100

John Crane Inc

Common; Preferred

100

John Crane USA, Inc

Ordinary

100

MDII Investments LLC

Ordinary

100

Royal Metal Products, LLC

Ordinary

100

Smiths Business Information Services, Inc.

Common Stock

100

Smiths Detection International, LLC

Equity Interests

100

Smiths Detection US Holdings, LLC

Membership interests

100

Smiths Detection US, LLC

Ordinary

100

Smiths Group Services Corp.

Common Stock

100

Smiths Interconnect, Inc.

Common Stock

100

Smiths US Innovation LLC

Ordinary

100

CT Corporation System, 9 Capitol Street, Concord, NH

03301

Smiths Tubular Systems-Laconia, Inc

Ordinary Shares

100

CT Corporation System, 155 Federal Street, Suite 700,

Boston, MA 02110

Titeflex Commercial, Inc.

Ordinary

100

One Corporate Center, Hartford, CT 06103-3220

Titeflex Corporation

Ordinary

100

The Corporation Trust Company of Nevada, 701 S

Carson Street, Suite 200, Carson City, NV, 89701

Smiths Detection Inc

Common Stock

100

VENEZUELA

Carretera Vía A Perijá, Km 8 ½, Avenida 50, Local N°

185-72,

Zona Industrial El Silencio, Maracaibo, 4001

John Crane Venezuela CA

Class A; Class B;

Common

100

ASSOCIATES

RUSSIAN FEDERATION

28, Academica Vedeneeva Street, Perm, Permskiy

Region, 614038

Llc John Crane Iskra

Ordinary

OVERSEAS BRANCHES

The Company does not operate through any branches. Some Group subsidiary companies have

established branch operations outside the UK.

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OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

FINANCIAL CALENDAR

2023

2024

(provisional)

Announcement of FY2023 Results

26 September

Dividend Ex-Dividend Date

19 October

Dividend Record Date

20 October

Last DRIP Election Date

3 November

Annual General Meeting

16 November

Q1 Trading Update

16 November

Dividend Payment Date

24 November

Announcement of FY2024 Interim Results

22 March

Interim Dividend Ex-Dividend Date

4 April

Interim Dividend Record Date

5 April

Last DRIP Election Date

19 April

Interim Dividend Payment Date

13 May

FY2024 financial year-end

31 July

Announcement of FY2024 Results

September

REGISTERED OFFICE

Smiths Group plc

4th Floor

11-12 St James’s Square

London SW1Y 4LB, UK

+44 (0)20 7004 1600

Incorporated in England & Wales

Company No. 137013

www.smiths.com

REGISTRARS

Our share register is maintained by Equiniti. If you have any questions about your Smiths shares,

please contact Equiniti www.shareview.co.uk.

Telephone:

T: + 44 (0)371 384 2943 (in the UK)

Lines open 8:30am to 5:30pm (UK time), Monday to Friday (excluding public holidays in England

and Wales).

For deaf and speech impaired customers, Equiniti welcomes calls via Relay UK. Please see

www.relayuk.bt.com for more information.

Write to:

Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA

Equiniti offers the Shareview portfolio service to investors; visit www.shareview.co.uk to register

for an account. Through Shareview you can access information about your investments, including

balance movements and indicative share prices, as well as practical help about transferring your

shares or updating your personal details.

DIVIDENDS

Since November 2019 Smiths no longer issues dividend cheques. In order to have your dividends

paid directly to your bank or building society account please contact Equiniti for a copy of the

Bank Mandate Form, or register your nominated bank or building society account by visiting

www.shareview.co.uk.

By registering your account all future dividends will be paid securely by direct credit on the

dividend payment date.

Alternatively, Smiths offers a Dividend Reinvestment Plan. For more information please visit our

website or contact Equiniti.

ORDINARY SHARES

The market value of an ordinary share of the Company on 31 March 1982 for the purposes of

capital gains tax was 136.875p (taking into account the sub-division of 50p shares into 25p shares

on 14 January 1985 and the sub-division and consolidation of 25p shares into 37.5p shares on

18 June 2007).

ANNUAL GENERAL MEETING (AGM)

The 2023 Smiths Group plc AGM will be held at 11.00am on Thursday 16 November 2023 at

Freshfields Bruckhaus Deringer, 100 Bishopsgate, London EC2P 2SR. The Notice of AGM is a

separate document which is sent out at least 20 working days before the AGM and made available

on our website. If you are in any doubt as to what action you should take in relation to the

resolutions being proposed at the AGM, you are recommended to consult your stockbroker, bank

manager, solicitor, accountant or other independent professional adviser authorised under the

Financial Services and Markets Act 2000. The meeting will be webcast and may be viewed online

by registering on our website www.smiths.com.

Shareholders, their appointed proxies and authorised corporate representatives have the right to

ask questions at the AGM relating to the business of the meeting. Such persons will also be able

to submit questions to the AGM in advance by emailing [email protected] by 6.00pm on

Thursday, 9 November 2023 or by asking questions in person at the AGM. Shareholders who

submit questions in advance of the AGM should include their full name and Shareholder

Reference Number in their email. The responses to the pre-submitted questions will be

answered at the AGM. Please note that where a number of similar questions have been asked, we

will group these accordingly.

Shareholders who are unable to attend the AGM in person are encouraged to vote their shares by

appointing a proxy and issuing voting instructions. Electronic and paper proxy appointments and

voting instructions must be received by the Company’s Registrar not later than 48 hours before

the AGM is held in order to be valid. Shareholders who are not CREST members can appoint a

proxy and vote online by visiting www.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.

211

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SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements. They appear in a number of places

throughout this document and include statements regarding the intentions, beliefs and/or current

expectations of Smiths Group plc (the ‘Company’) and its subsidiaries (together, the ‘Group’) and

those of their respective officers, directors and employees concerning, amongst other things, the

results of operations, financial condition, liquidity, prospects, growth, strategies and the

businesses operated by the Group. Forward-looking statements can be identified by the use of

forward-looking terminology, including terms such as “believes”, “estimates”, “anticipates”,

“expects”, “forecasts”, “intends”, “plans”, “projects”, “goal”, “target”, “aim”, “may”, “will”, “would”,

“could” or “should” or, in each case, their negative or other variations or comparable terminology.

By their nature, these statements involve uncertainty and are subject to known and unknown

risks, including, without limitation, those discussed under the section titled ‘Principal risks and

uncertainties’ in this report. Future events and circumstances can cause performance, results

and developments to differ materially from those expressed, implied or anticipated. The past

business and financial performance of the Group is not to be relied on as an indication of its future

performance. The forward-looking statements reflect knowledge and information available at the

date of preparation of this document and, unless otherwise required by applicable law, the

Company undertakes no obligation to update or revise these forward-looking statements. Undue

reliance should not be placed on such forward-looking statements. Nothing in this document

should be construed as a profit forecast or be interpreted to mean that future earnings per share

of the Company will necessarily match or exceed its historical published earnings per share. The

Company and its Directors accept no liability to third parties. This document contains brands that

are trademarks and are registered and/or otherwise protected in accordance with applicable law.

Some of the products described in these materials are under development and are not available

for sale, and we make no definitive claims about the final features or benefits of these products.

212

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CONTINUED

SMITHS GROUP PLC ANNUAL REPORT FY2023

OVERVIEW

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

This publication has been printed on Revive 100 Offset

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Pureprint, a CarbonNeutral

company with FSC

chain

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management system diverting 100% of dry waste from

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carbon emissions through the purchase and preservation

of high conservation value land.

Designed and produced by Conran Design Group

www.conrandesigngroup.com

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