Annual Report 2015 Smiths Group Plc

Annual Report 2015 Smiths Group plc Bringing technology to life Highlights EPS up 5% and continued strong headline operating Revenue cash conversion at 95%, despite revenue decline of 2% £m £2,897m down 2% Smiths Medical delivers highest revenue growth in almost a decade 2015 2,897 2014 2,952 John Crane aftermarket strength underpins 2013 3,109 resilient performance 2012 3,038 2011 2,842 Smiths Detection reports margin improvement Read more on page 23 and strong order book and note 1 Difficult trading conditions at Smiths Interconnect Headline operating profit Continued solid performance from Flex-Tek £m £511m up 1% Increased investment in growth initiatives through Engineered for Growth programme 2015 511 2014 504 Net accounting pension deficit reduced to £108m 2013 560 – its lowest reported level since 2008 2012 554 2011 517 Read more on pages 23, 174 Continuing activities and note 1 2015 2014 £m £m Free cash-flow Revenue 2,897 2,952 £m Headline operating profit 511 504 Statutory operating profit 394 378 £158m up 10% Headline basic EPS 86.1p 81.8p Statutory basic EPS 62.4p 59.0p 2015 158 Free cash-flow 158 143 2014 143 Dividend 41.00p 40.25p 2013 237 Return on capital employed 16.0% 15.7% 2012 217 Headline profit is before exceptional items, amortisation and impairment of acquired intangible assets, pension 2011 236 charges and financing gains/losses from currency hedging. Free cash-flow and return on capital employed are described in the Financial review. Read more on pages 54, 174 and note 27 Underlying performance is organic growth adjusting for foreign exchange translation. Headline earnings per share Pence 86.1p up 5% 2015 86.1 2014 81.8 2013 92.7 2012 92.6 2011 86.5 Read more on pages 54, 174 and note 6 Read more at www.smiths.com 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. 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 operate, approach to corporate governance and give statements, the auditors’ report, our business model and strategy, investment details of the Company’s remuneration the accounting policies and the notes case and a summary of how we performed principles and policies to support to the accounts against our key performance indicators shareholder value creation Statement of directors’ Bringing technology to life 4 Board of directors 74 responsibilities 120 Who we are 8 Corporate governance statement 77 Independent auditors’ report to the members of Smiths Group plc Our geographic reach 9 Directors’ remuneration report 94 – Group 121 Our divisions 10 Group directors’ report 112 overview – Strategic report Strategic Consolidated income statement 127 Chairman’s statement 12 Consolidated statement Chief Executive’s statement 14 of comprehensive income 128 Our markets 17 Consolidated balance sheet 129 Our business model 18 Consolidated statement of changes in equity 130 Our strategy and progress 20 Consolidated cash-flow statement 131 The investment case 22 Accounting policies 132 Operational review Notes to the accounts 138 For the Group and each division, we review our markets and trends, Unaudited Group financial record review – Operational report Strategic key operational developments during the 2011-2015 174 year and future outlook. We also review Unaudited US dollar primary our financial performance statements 175 Group 23 Independent auditors’ report to the members of Smiths Group plc John Crane 24 – Parent company 180 Smiths Medical 30 Smiths Group plc company accounts 182 Smiths Detection 36 Financial calendar 194 Smiths Interconnect 42 Flex-Tek 48 Financial review 54 and responsibility – Risks report Strategic Litigation 57 Risks and responsibility We set out the key risks that may affect our business and strategy. We also explain our approach to sustainability and our commitments for future improvement Managing risk in delivering our strategy 58 Corporate responsibility 65 Governance Accounts Smiths Group plc Annual Report 2015 1 Strategic report Smiths Detection’s Lightweight Chemical Detector (LCD) is one of the most widely used devices to protect soldiers and emergency responders from chemical warfare agents or toxic substances. Easily held or clipped to a belt, the LCDs continually sample the air and the latest version features both audible and visual alarms. 2 Smiths Group plc Annual Report 2015 Strategic overview We explain who we are, where we operate, our business model and strategy, investment case and a summary of how we performed against our key performance indicators Bringing technology to life 4 Who we are 8 Our geographic reach 9 Our divisions 10 Strategic report – Strategic overview – Strategic report Strategic Chairman’s statement 12 Chief Executive’s statement 14 Our markets 17 Our business model 18 Our strategy and progress 20 The investment case 22 Operational review For the Group and each division, we review our markets and trends, key operational developments during the year and future outlook. We also review review – Operational report Strategic our financial performance Group 23 John Crane 24 Smiths Medical 30 Smiths Detection 36 Smiths Interconnect 42 Flex-Tek 48 Financial review 54 Litigation 57 and responsibility – Risks report Strategic Risks and responsibility We set out the key risks that may affect our business and strategy. We also explain our approach to sustainability and our commitments for future improvement Managing risk in delivering our strategy 58 Corporate responsibility 65 Governance Accounts Smiths Group plc Annual Report 2015 3 We bring technology to life to help to make the world safer, healthier and more productive. We transform laboratory science into advanced, hands–on technologies that solve our customers’ toughest challenges and make the world a safer, healthier and more productive place. Our products and services – often hidden from view – touch the lives of millions of people around the world every day. 4 Smiths Group plc Annual Report 2015 Making the world safer Strategic report – Strategic overview – Strategic report Strategic Strategic report – Operational review – Operational report Strategic Strategic report – Risks and responsibility – Risks report Strategic Governance Millions of air travellers around the world are protected every day by Smiths Detection equipment. Over 75,000 of our advanced X-ray scanners have been deployed around the world. In aviation security they detect and identify threat items in passenger bags, hold luggage and freight. Accounts Smiths Group plc Annual Report 2015 5 Making the world healthier Smiths Medical’s Gripper safety needles access implanted ports to draw blood or deliver medication, particularly in cancer and transplant patients. The safety needle of choice among clinicians, a Gripper is used on average every 3.6 seconds in hospitals and clinics in more than 80 countries. 6 Smiths Group plc Annual Report 2015 Making the world more productive Strategic report – Strategic overview – Strategic report Strategic Strategic report – Operational review – Operational report Strategic Strategic report – Risks and responsibility – Risks report Strategic Governance From extraction and transport to storage and refining, the world’s oil and gas industries rely on John Crane for vital equipment and support. Its mechanical seals, filtration systems and bearings, backed by a global service network, help ensure safe and efficient delivery of the energy that powers the modern world. Accounts Smiths Group plc Annual Report 2015 7 Who we are Smiths Group is a global technology company listed on the London Stock Exchange. Our vision is to establish Smiths Group as a world-leading engineering business. What we do Our markets Our structure We apply leading-edge technology to We serve a wide range of end markets – We employ over 23,000 people in more than design, manufacture and deliver innovative from healthcare, energy and petrochemicals 50 countries through our five divisions: John solutions that meet our customers’ needs. through to threat and contraband detection, Crane, Smiths Medical, Smiths Detection, Our products and services – often hidden telecommunications and equipment Smiths Interconnect and Flex-Tek. from view – touch the lives of millions of manufacture. Our customers range Our approach people

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