Annual Report 2014 Smiths Group Plc 1851 1914 2014
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Annual Report 2014 Smiths Group plc 1851 1914 2014 Samuel Smith opens his first jewellery S. Smith & Sons floats on the London A world leader in advanced technologies, shop in south London Stock Exchange, only days before the Smiths today employs more than 23,000 First World War breaks out people in over 50 countries Smiths founded Smiths floats Founded in 1851 as a jewellery shop S. Smith & Sons floats on the in south London a year after the Great London Stock Exchange, days before Exhibition, Smiths opened its doors the outbreak of the First World War. during a period of enormous optimism In the supporting prospectus it and huge advances in technology. was clear that Smiths speedometers Establishing itself as a leader in precision and carburettors dominated the instruments over the following decades, domestic car markets. Smiths focus on leading-edge technology Already a substantial business, has remained constant throughout the head office employed over its history. 300 employees. 1914 1851 1912 1913 1904 The earliest speedometer Eyeing the potential of the motor car, Smiths is a pioneer in the development Purpose-built headquarters of speedometers and rapidly becomes Speedometer House, Great Portland the market leader Street, London, is specially built for Smiths Smiths opens for business Samuel Smith opens his first jewellery Sledge-meter aids South Pole success shop in south London A Smiths speedometer is adapted as a sledge-meter for Captain Scott’s epic South Pole expedition Celebrating 100 years as a listed company First synchronous clock Smiths dominates the domestic clock markets, achieving new levels of accurate time-keeping at affordable prices Everest conquered Edmund Hillary leads the first successful ascent of Everest using Smiths equipment and wearing a Smiths De Luxe watch War effort begins Adapting to changed circumstances, Smiths devotes the new Cricklewood factory to munitions-related work Early sonar technology A controlling stake in Henry Hughes is acquired as Smiths branches out into early sonar-type technology for air and sea operations 1915 1930 1935 1953 1919 1939 1927 1958 Clocking up sales Back at the South Pole Smiths now produces 80% of Sir Vivian Fuchs reaches the South Pole speedometers sold in the UK and in January aided by Smiths sledge- recruits gifted engineer Robert Lenoir meters, watches and clocks to develop more sophisticated models Supporting the war effort Smiths wartime production tally includes: 13 million spark plugs, over 10 million aircraft instruments, 4 million clocks and 1.5 million speedometers and mileage counters An embryonic Smiths Medical First transatlantic flight Smiths purchases Portland Plastics, Alcock and Brown make the world’s a small medical supplies firm, for its first direct transatlantic flight, from plastics and nylons experience for use in Newfoundland to Ireland, in a plane fitted aerospace and automobiles. The division with Smiths instruments would later become Smiths Medical Land speed record attempt Aerospace expansion Smiths instruments are on the Bluebird Acquisition of Lear Siegler companies Proteus CN7, in which British racing in the US doubles aerospace sales and legend Donald Campbell attempted the positions Smiths for the next decade world land speed record Smiths Detection consolidates Heimann acquisition adds baggage- screening technology to an emerging Smiths Detection division Changing the face of banking Smiths develops one of the first chip and PIN ATMs 2003 1967 1987 1960 1965 1973 1992 2000 Heads-up display Years ahead of its time, Smiths trials heads-up displays in police cars and TI Group merger with the Transport and Road Research £4.3bn merger with TI Group brings Laboratory scale in aerospace, plus new business lines including John Crane Making aviation history A BAC Trident makes the world’s first Acquiring IVF pioneers fully automatic landing in civil aviation Smiths acquires H.G. Wallace, which using Smiths instruments pioneered IVF, culminating in the birth of the world’s first test-tube baby in 1978 Smiths today 2014 marks Smiths Group’s centenary as a listed company on the London Stock Exchange. Smiths has evolved substantially since its foundation in 1851, successfully reinventing itself in line with market opportunities – from clocks and watches, through automotive and aerospace. Today our portfolio taps into high technology markets with strong long- term growth drivers. We helped shape the modern world through our varied innovations and our products continue to touch the lives of millions of people every day. 2014 2007 2005 John Crane Smiths Medical Aerospace divestment Aerospace is sold to GE for £2.6bn, some 90 years after Smiths first started making aircraft instruments Smiths Detection Smiths Interconnect Find out more about our history at www.smiths.com Medical expansion Acquisition of Medex expands Smiths Medical’s expertise in critical care Flex-Tek products Highlights Operational highlights: Revenue £m • Commer cial market gains but challenging £2,952m (5)% healthcare and homeland security markets 2014 2,952 2013 3,109 • John Crane, Smiths Interconnect and Flex-Tek 2012 3,038 increased underlying revenue and margins 2011 2,842 • Smiths Medical returned to growth in H2 with 2010 2,770 improvement in infusion pumps Read more on page 25 and note 1 • Smiths Detection margins under pressure with Headline operating profit tough trading and additional charges £m • Fuel for Growth restructuring process delivered £504m (10)% £10m of savings 2014 504 2013 560 • FX translation impact on sales of £157m and 2012 554 operating profit of £27m; transaction hit of £16m 2011 517 2010 492 • Company-funded investment in new product Read more on pages 25, 170 development up 5% to underlying £109m and note 1 • Headline operating cash conversion at 97%; Free cash-flow £m dividend up 2% £143m (40)% Continuing activities 2014 143 2014 2013† 2013 237 £m £m 2012 217 Revenue 2,952 3,109 2011 236 Headline operating profit 504 560 2010 331 Statutory operating profit 378 486 Headline basic EPS 81.8p 92.7p Read more on pages 56, 170 Statutory basic EPS 59.0p 80.1p and note 27 Free cash-flow 143 237 Dividend 40.25p 39.5p Headline earnings per share Return on capital employed 15.7% 16.6% Pence Headline profit is before exceptional items, amortisation and impairment of acquired intangible assets, pension charges and financing gains/losses from currency hedging. Free cash-flow and return on capital employed are 81.8p (10.9)p described in the Financial review. †The statutory figures for 2013 have been restated for IAS 19 (revised 2011) 2014 81.8 2013 92.7 2012 92.6 2011 86.5 2010 83.4 Read more on pages 56, 170 and note 6 The purpose of this document is to provide information to the members of the Company. This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and unless otherwise required by applicable law the Company undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should be construed as a profit forecast. The Company and its directors accept no liability to third parties in respect of this document save as would arise under English law. This report contains brands that are trademarks and are registered and/or otherwise protected in accordance with applicable law. 2 Smiths Group plc Annual Report 2014 Contents Strategic report Governance Accounts Strategic overview We introduce our Board, explain our This section contains the financial We explain who we are, where we approach to corporate governance statements, the auditors’ report, operate, our business model and strategy, and give details of the Company’s the accounting policies and the notes investment case and a summary of remuneration principles and policies to the accounts how we performed against our key to support shareholder value creation overview ategic Str performance indicators Statement of directors’ Board of directors 74 responsibilities 118 Who we are 6 Corporate governance statement 77 Independent auditors’ report to Our divisions 8 the members of Smiths Group plc 119 Directors’ remuneration report 92 report Strategic Our geographic reach Consolidated income statement 124 Group directors’ report 110 and end markets 10 Consolidated statement Our business model 12 of comprehensive income 125 Our strategy and progress 14 Consolidated balance sheet 126 Driving competitive advantage Consolidated statement through innovation 16 of changes in equity 127 ational review Securing future returns 18 Consolidated cash-flow statement 128 Oper The investment case 19 Accounting policies 129 Chairman’s statement 20 Notes to the accounts 135 Chief Executive’s statement 22 Unaudited Group financial record Strategic report Strategic 2009-2013 170 Operational review Unaudited US dollar primary For the Group and each division, we statements 171 review their markets and trends, the key operational developments