27th Sep 2006 07:03
Smiths Group PLC27 September 2006 Smiths reports continued strong growth in sales and headline earnings in 2006,and raises the annual dividend by 8.1% Preliminary 2006 results (unaudited) 2006 2005£m Headline* Statutory Headline* StatutorySales 3,523 3,005Operating profit 520 161 416 382Pre-tax profit 492 132 404 366Basic EPS (p) 64.8p 4.3p 52.8p 48.3pAnnual dividend (pps) 31.35p 29.0p * In addition to statutory reporting, Smiths Group reports on a headline basis,a measure which shows underlying performance. Headline profit is stated beforeexceptional items (including impairment of assets), amortisation of acquiredintangible assets and financing gains or losses from currency hedging. Summary In financial year 2006, Smiths Group sales increased by 17%, of which half camefrom underlying growth. On a headline basis, operating profit increased by 25%,raising the margin on sales by one percent to 14.8%, pre-tax profit increased by22% and EPS by 23%. On the same basis, conversion of operating profit intooperating cash was at 81%. Statutory earnings were reduced by the decision towrite down the carrying value of the company's preference shares in TIAutomotive Ltd. Company-funded R&D spend increased by 35% to £193m, reflectingsignificant investment in new product development which will generate long-termgrowth. The Board is recommending the final dividend be raised to 21.5p,bringing the total dividend for the year to 31.35p, an increase of 8.1% -marking 36 years of successive increases. Commenting on the results, Keith Butler-Wheelhouse, Chief Executive said: "Onceagain, Smiths has achieved double-digit sales growth while improving the profitmargin. We have generated a strong operating cash-flow in 2006 at a time ofsubstantial investment in new product development and in global manufacturing.The dividend increase is a reflection of the Board's confidence in the outlookfor the current year." -o-Media: Chris Fox Investors: Russell Plumley+44 (0) 20 8457 8403 +44 (0) 20 8457 [email protected] [email protected] A meeting with analysts will be webcast at 9:00am UK time today onwww.smiths-group.com/prelims2006 and archived there soon after the event. Ashort interview with the Chief Executive and FD can be seen on the same url oron www.cantos.com. Commentary on performance Sales In the 2006 financial year, Smiths Group sales increased by 17% to £3,523m(2005: £3,005m), with all divisions achieving double-digit growth. Underlyingsales, excluding year-on-year acquisition and currency translation effects, grewby 9%, reflecting the gains being derived from the company's "Full Potential"initiatives, and healthy demand in each of its market sectors. The totalincludes a net contribution of £159m from acquisitions and disposals, notablythe additional eight months' sales by Medex. The translation of foreigncurrency sales at more favourable exchange rates than in 2005, primarily due tothe strengthening of the US dollar, contributed £68m. Headline profits In addition to statutory reporting (detailed below), Smiths reports its earningson a headline basis to provide additional information on underlying trends. Headline operating profit increased by 25% to £520m (£416m). Underlyingoperating profit, excluding year-on-year acquisition and currency effects, grewby 11%, benefiting from the company's strategy of focusing on market sectorswith high growth potential. The net contribution from acquisitions anddisposals was £36m and the contribution from currency translation was £11m. Thecompany's headline net operating margin on sales improved by 100 basis points to14.8% (13.8%). The net interest charge on debt for the year amounted to £54m (£23m). Theincrease was primarily due to the cost of financing acquisitions, includingMedex for the full year, although rising US interest rates were also a factor.The interest charge is 9.6 times covered by headline operating profit. The company recorded a pensions financing gain of £28m (£11m), reflecting thestrengthened funding position of the retirement benefit schemes. In accordancewith IAS 19, the financing gain is now net of administration costs, which werepreviously included in the service cost and charged to operating profit. Headline pre-tax profit increased by 22% to £492m (£404m) and headline EPS by23% to 64.8p (52.8p). The company's effective tax rate on headline profit forthe year was 26%. The Board has recommended a final dividend of 21.5p, anincrease of 8.9%, bringing total dividends for the year to 31.35p, an increaseof 8.1%. This dividend is covered two times by headline earnings per share andwill mark the 36th consecutive year that the Smiths dividend has been increased. Statutory profits On a statutory reporting basis, operating profit was £161m (£382m), pre-taxprofit was £132m (£366m) and earnings per share were 4.3p (48.3p). These resultstake account of a number of items regarded by Smiths as exceptional in nature ornot part of the company's headline performance measures. In total they amountto £360m, of which £325m were non-cash items. Recognising continued deterioration in the automotive component market,particularly in the US, an impairment review of the preference share investmentin TI Automotive has been undertaken, as required by IAS 39. The preference shares have not yet borne any dividends, and it is consideredunlikely that dividends will be paid in the foreseeable future. Similarly,there is no current prospect of the preference shares being redeemed. The Boardhas also considered whether cash-flows could accrue from the investment in TIAutomotive were the enterprise to be sold; such a sale is not currentlyconsidered sufficiently probable to take into account any cash-flows which couldaccrue in such an event. As a result, the Board has decided to write down the carrying value of theinvestment in the TI Automotive preference shares from £325m to nil value in theaccounts. There is no cash impact from this decision. As indicated earlier, the further integration of Medex led to a charge of £19m(£10m), including provision for plant closures. There was a (non-cash) chargeof £17m (£6m) for the amortisation of acquired intangible assets. The companyhas also made a provision of £12m for the settlement of an industry-wide classaction in the US relating to a product made by Titeflex in the SpecialtyEngineering division (detailed in Legal Matters). There were financing lossesof £3m (2005: £4m) from the impact of derivatives and other financialinstruments not hedge accounted under IFRS. The company recorded a profit of£16m (£9m) on the disposal of businesses during the year. Cash and debt Smiths generated a strong headline operating cash-flow in 2006. At £420m, itrepresents an 81% conversion ratio from headline operating profit (2005: 62% onan IFRS basis). Headline operating cash is measured after expenditure onproperty, plant & equipment and development costs, and before the integrationcosts of acquisitions and special pension payments. On this basis, the companyis now targeting a minimum 75% conversion ratio for the years ahead. Cash expenditure on exceptional items was £17m (£10m) and, in addition, thecompany made a £61m special pension contribution (detailed later). Freecash-flow, after interest and tax, was £170m (£147m). Dividend payments were£167m (£155m) during the year and net acquisition/disposal expenditure was £46m(£598m). Net debt at the year-end amounted to £923m (£931m), of which, after currencyswaps, some 42% is US dollar denominated and some 62% is at variable rates ofinterest. Research & Development As an applied technology company, Smiths "Full Potential" strategy is to developengineered solutions that best meet customer requirements. Investment inResearch & Development drives future performance and is a measure of thecompany's commitment to achieving long-term organic growth. In 2006,company-funded R&D amounted to £193m (£143m), or 5.5% of total sales, of which£108m was charged against operating profit in the year, making a total charge of£116m for the year, after amortisation and deferred income. Additionalcustomer-funding of development programmes increased to £159m (£152m). UnderIFRS, certain development costs are capitalised and then amortised againstdeliveries to customers. The net effect of this accounting treatment in 2006was to add £77m (£43m) to the balance sheet. Major development programmesincluded the Boeing 787 and Airbus A380 commercial jets, which have beencapitalised, and the Boeing 767 Global Tanker, which has been expensed. Asthese aircraft move closer towards production, related R&D is expected todecline. Retirement benefits The company's funded pension schemes around the world moved into an overallsurplus of £75m in 2006, from a deficit of £109m in the prior year. Includingpost retirement healthcare and unfunded pension schemes, the overallpost-retirement liabilities represent a net £60m deficit on the balance sheetcompared with a £255m deficit in the prior year. During the year, schememergers took place involving several small underfunded schemes in the UK, andthe company contributed £61m in cash to facilitate these mergers. Also duringthe year, UK mortality assumptions were updated, including an allowance forfuture longevity increases. Altogether, the company contributed £110m (£52m) tothe funded pension schemes. Operating review Productivity has continued to improve as Smiths establishes new, lower costproduction facilities in emerging markets throughout the world. Sales peremployee, averaged through the year, reached £112,000 (£105,000). At theyear-end, the company employed 31,800 (30,600), including 14,600 in the US and7,300 in the UK. The US is the company's largest market, accounting for 54% oftotal sales by origin and 61% of headline operating profit. Direct exportsworldwide from the UK were £587m (£529m). Smiths Aerospace£m 2006 2005Sales 1,300 1,146Headline operating profit 152 132 Smiths Aerospace sales increased by 13%, or 10% excluding currency andacquisition effects, reflecting strong underlying growth across the business.The headline operating margin on sales remained steady, with the benefit fromhigher volumes offset by higher R&D investment. Smiths Aerospace Systems designs, manufactures and provides in-service supportfor digital, electrical and mechanical systems for military and commercialaircraft. Smiths Aerospace Components supplies high-value machined andfabricated components to the principal engine manufacturers. Military salesacross Smiths Aerospace account for 54% and commercial for 46%, with theaftermarket generating a quarter of total sales. Sales in the commercial sector grew by more than 25%, driven by increasedproduction rates of Boeing 737 and 777, and Airbus A320 aircraft. Production ofpassenger jets continues to rise, as airlines seek to replace their fleets withnewer, more efficient aircraft in the face of higher fuel prices. Smiths has astrong position on the aircraft and engines that are benefiting from this trend. Looking ahead, the company will be supplying high-value equipment for the A380,and for the B 787, which is scheduled to enter service in 2008. Smiths has beenselected by Boeing to provide the thrust reverser for the B 747-8 and to supportits GoldCare service solution for the operators of the B 787. Long-termagreements were reached with GE Aviation to supply components for commercial andmilitary engines, including one to machine critical parts used across the fullrange of GE engines, and with Rolls Royce, for the Trent 1000. Sales in the military sector grew by 5%, reflecting the strong position Smithshas on the key programmes in current production, including the F/A-18 E/F,Eurofighter Typhoon, F/A-22, C-17, C-130J and Apache Longbow helicopter. While US defence procurement is expected to level off in the years ahead, USexports and spending by other governments will assure modest market growth. Thecompany's involvement in military development programmes continues at a highlevel, particularly on the C-130AMP, F-35 JSF and B767 Global Tanker. Thelatter programme has experienced some schedule changes and additional investmentin meeting the initial commitments for Italy and Japan. Meanwhile, theselection process for replacing the US tanker fleet has now commenced, and thisis expected to offer a significant opportunity. Key defence contracts awarded during the year included the large-area cockpitdisplay and the next-generation health & usage monitoring system (HUMS) for theUK's Future Lynx helicopter. The Smiths Aerospace HUMS was also chosen for theSouth Korean helicopter programme. The aftermarket is important in both commercial and military sectors. Demand isdriven by aircraft utlisation. Airline traffic grew by 6% in 2006, while usageof military aircraft remained stable. The performance of Smiths in theaftermarket reflected these trends. During the year, the company formed apartnership with Aviall Services to distribute the complete range of Smithsspare parts for commercial aircraft. The agreement will improve working capitalefficiency, and covers sales forecast at $2billion over the next 10 years,taking advantage of Aviall's specialist global network and advanced logistics. Company-funded R&D amounted to 10% of sales in 2006, of which some 42% wasexpensed. Smiths Aerospace has, over the past three years, invested heavily inR&D and in low-cost production facilities to secure positions on future aircraftand drive revenue growth. This investment has generated business on newaircraft with much higher "shipset" values than on the applications they willreplace. Customer-funded R&D in Smiths Aerospace was 11% of sales. The division is expecting to see further strong growth in the commercialaircraft sector during the current year. In the longer term, recent successfulselection on new commercial and military programmes should ensure a positiveoutlook for Smiths Aerospace. Smiths Detection£m 2006 2005Sales 412 367Headline operating profit 77 69 Sales in Smiths Detection grew by 12%, or 13% on an underlying basis, with acurrency translation gain offset by a small disposal. The headline operatingmargin on sales declined by 20 basis points, to 18.6%, reflecting a varyingbusiness mix from one year to the next. While sales to military customers werelower in this period, across the broad range of commercial applications theygrew strongly. Smiths Detection is a prime contractor, responsible for design, manufacture andimplementation of systems and equipment to detect and identify explosives,weapons, contraband and dangerous substances. It has an unrivalled range oftechnologies, including trace detection, X-ray, millimetre wave, infra-red andbiological analysis. Some 85% of sales are made direct to governments around the world, includingdefence, homeland security and customs & immigration departments. Its productsserve transportation, ports & borders, critical infrastructure, military andemergency response markets. The technology is also adapted for selectedindustrial applications. These markets are particularly influenced by specificevents and the perception of the threat from terrorism or other security issues.Consequently, they remain variable, with the company required to respondquickly when incidents occur. Sales to transportation and airport authorities account for one-third of thedivision's total, and new business secured in this period will sustain growthahead. Airport operators around the world continue to acquire Smiths equipment,including in this period those in Thailand, China, Malaysia, Singapore, India,Pakistan, Japan, Australia and New Zealand. Smiths recently won a contract tosupply security systems for the new Terminal 3 at Dubai airport. In addition,Smiths Detection equipment is now being used on the New York and Prague subwaysand has been trialled at a commuter station in Maryland, and on the Londonunderground. The ports & borders business supplies large X-ray systems to check containers intransit. Turkey, Abu Dhabi and Oman placed orders to screen shipments throughborders and airports. The Belgian customs are deploying new fixed and mobilescanners at Zeebrugge and Antwerp. The company is also now under contract toprovide mobile cargo X-ray systems (HCV) to the US Customs & Border ProtectionAgency. In the military sector, a number of existing contracts were winding down in thisperiod, while several important programmes, including the Chem-Bio ProtectiveShelter, were only just beginning. Smiths is well placed to benefit fromforthcoming military programmes such as the US Department of Defense requirementfor a new generation of chemical detectors. Critical infrastructure and systems provision are growing sectors for SmithsDetection. A contract was received from Thai Airways for a fully-integratedsecurity system for its own facilities at the new Suvarnabhumi Airport inBangkok. Under this programme, software from the new Livewave acquisition willbe used to integrate the security hardware. Technology enhancement remains a high priority for Smiths Detection, whether bycompany-funded R&D or by acquisition. These have yielded a pipeline of newproducts. A new Hi-Scan X-ray system for airport security checkpoints will helpto identify and pinpoint explosives in carry-on baggage. A new desktop system(500DT), able to detect drugs and explosives simultaneously, was launched andhas been certified by the Transportation Security Agency (TSA) in the US. Company-funded R&D was equivalent to 5% of sales in the year, and customerfunding added a further 2%. Smiths Detection employs over 400 scientists andengineers identifying and developing new technologies. To strengthen the business mix, Livewave Inc was acquired in October 2005 for£10m. Livewave has developed software systems which network sensors and videocameras to remote viewing stations. Livewave's technology enables SmithsDetection to provide a complete package of sensors, ranging from X-ray tochemical detectors and CCTV in a single system, linked to a central command andcontrol capability. In June, Smiths Detection opened a manufacturing facility in St Petersburg. Itwill assemble X-ray equipment, and is also a base for both sales and technicalsupport staff to serve the growing Russian security market. In August 2005, Smiths Heimann Biometrics GmbH was merged with Cross MatchTechnologies Inc in exchange for 43% of the issued share capital of thatcompany. This investment is accounted for on an equity basis. Looking ahead, tendering activity is at a high level, giving good confidence ingrowth for the current year. Trading performance in a particular period dependson the contracts secured, which can be large and irregular. During the year,Smiths Detection will absorb an increase in R&D expense and the revenue costs ofstarting up new plants in key market locations. Smiths Medical£m 2006 2005Sales 737 563Headline operating profit 138 88 Smiths Medical sales increased by 31%, helped by the inclusion of Medex for afull twelve months, compared to four in 2005. The underlying sales growth ofthe division was 6%, in line with market trends. The margins on sales improvedto 18.7%. The prior year's profit included the one-time £14m IFRS adjustment tothe value of stock acquired with Medex, so the like-for-like margin improvementwas 60 basis points. The integration of Medex has continued on track, and theincremental synergies of £7m achieved in 2006 are reflected in the division'soverall performance. Smiths Medical focuses on improving medical outcomes. Its products delivermedication, including chemotherapy, pain relief and insulin. They provide vitalcare, such as managing airways and fluids during and after surgical procedures,as well as monitoring vital signs. And they keep people safe, through providingsafety devices for drawing blood samples, giving injections and deliveringintravenous drugs. Its customers are hospitals and other healthcare providersworldwide. Most territories are serviced through wholly-owned local sales anddistribution companies. The dynamics of the medical device and equipment market are mainly driven by thedemographics of ageing populations and rising personal wealth in highlydeveloped countries, and the consequent increase in healthcare spending. Theworld market for products of the type supplied by Smiths amounts to some$7billion per annum and is growing consistently at an annual rate of 5-6%. Sales of single-use devices moved ahead. In January, Smiths Medical signed athree-year agreement with Novation, which offers contracting services to 2,500hospitals throughout the US, under which the company will be one of the twosuppliers of customised kits which provide all the necessary products forclinicians to perform regional anaesthesia. In addition, two major contractswere secured with Premier Purchasing Partners, a group purchasing organisation,for disposable anaesthesia and temperature management products. The company'stemperature management products continued to increase their share of the market,and during the year the temperature probe product range doubled in size,re-affirming its market leadership. Safety devices continued to sell well in the US. The combined Smiths and Medexproducts has improved the range's competitive strength and is generatingincremental sales. During the year, strong growth was seen in sales of infusionpumps, especially the Medfusion(TM) 3500 syringe pump and its integratedPharmaGuard(R) medication safety software. The extended range of disposableitems used in conjunction with insulin delivery pumps has generated additionalsales. Spending on R&D rose by £7m to £25m, representing 3.4% of sales. There were anumber of important new product launches in 2006. The ADVANTIV(R) safetycatheter and the Needle-Pro(R) EDGE(TM) hypodermic were designed in response tocontinuing awareness of needle-stick injuries and consequent health risk. Newrespiratory products launched included the Portex(R) adjustable flangetracheostomy tube, the Portex(R) Thermovent(R) T2 heat & moisture exchangedevice, and the PressureEasy(R) cuff pressure controller. The line ofanaesthesia offerings added a new carbon dioxide absorbent, SODASORB(R) LF, anda single-use bougie for difficult intubations. Smiths Medical also launched anew range of advanced embryo replacement catheters, the Sure-Pro(TM) and Sure-ProUltra(TM) in response to the changing needs of fertility specialists. Regarding the integration of Medex, in both Europe and the US the formerlyseparate Medex units have merged with the existing Smiths Medical operations,generating customer service and marketing synergies. In addition, R&Dprogrammes have been aligned throughout the business. Manufacturing integrationis in progress and is expected to deliver cost reduction from 2007. During theyear, Smiths Medical announced that manufacturing would cease at threefacilities, in Duluth (Georgia), Wampsville (New York) and Hythe (Kent), andthat facilities in Mexico and Ohio would be expanded. The closure ofmanufacturing at Hythe is the largest of these measures, and will take two yearsto complete. With the acquisition synergies now being achieved across SmithsMedical, the separation of the performance of Medex and the original Smithsbusiness is no longer appropriate. Reorganisation of the division's global distribution system is also under way.Working with logistics specialists, a European centre has been established inHolland to serve all markets outside the US, eliminating six nationalwarehouses. In September 2005, at the request of the German competition authorities, thecompany disposed of its pressure monitoring product line in Germany for £6m, abusiness which had generated sales of £11m in year ending 31 July 2005. Looking ahead, the company will continue to develop a global healthcare devicebusiness focused on improving the outcome for patients, through more effectivemedication delivery and vital care provision, while ensuring the safety ofmedical practitioners. Smiths Medical is well placed to make further progressin the coming year, with consistent market growth, the full benefit of synergiesand efficiency gains in operations and manufacturing. Specialty Engineering£m 2006 2005Sales 1,074 929- of which, John Crane 518 463Headline operating profit 153 127- of which, John Crane 69 63 Sales by the Specialty Engineering division increased by 16%, or 9% on anunderlying basis, excluding currency translation and acquisitions. Thedivision's margin improved by 70 basis points to 14.3% as a direct benefit ofthe higher sales achieved across its operations. Within Specialty Engineering, John Crane provides mechanical rotating seals andassociated equipment and services used in process industries. Interconnectsupplies components and sub-systems for connecting, protecting and controllingcritical electronic and radio frequency systems. Flex-Tek provides ducting andhosing for a wide range of applications, mainly for heating & ventilation anddomestic equipment. Marine Systems supplies marine electronics and charts. John Crane's largest markets are the oil and gas sector, the petrochemical andother process industries. Maintenance and support form a large part of totaldemand, with new projects providing an income stream many years after equipmentinstallation. Its markets have been particularly strong in 2006, specifically within the oiland gas sector in the US, Latin America and Asia Pacific. Better global marketconditions, combined with the benefits of focusing on enhanced customer service,drove an underlying increase in sales of 8%, with a headline operating margin of13.4%, after spending £7m on restructuring in Europe and USA. John Crane has won several projects which will secure future revenue streams,including the Minatitlin process plant for Pemex in Mexico and the Qatar gasrefinery. In the UK, a new Technology Centre is being installed in Slough,capable of testing gas seals at extreme pressures, which will give a competitiveadvantage. In February, John Crane opened a manufacturing, service and support centre inBangalore, India. In December, the 33% minority held by local partners in JohnCrane Tianjin, China was purchased for £1m, increasing John Crane's presence inthe wet seal sector in the region, a market which is growing. The business isnow working closely with John Crane Timing, also based in Tianjin. After the year-end, in August 2006 the company completed the disposal of JohnCrane's Safematic bearing lubrication business to SKF for £16m. It had sales of£15m in 2006. In the same month, the acquisition of the Italian pressuresealing company Comet was completed for £4m. Its sales for the year to December2005 were £5m. Interconnect's largest markets are aerospace, defence and wirelesstelecommunications. Within aerospace and defence, its products include antennasystems, connectors, cable assemblies and frequency sources. In the wirelesstelecommunications sector, it supplies devices to protect base stations frompower surges, as well as coaxial cables and electronic components. Across allof these applications, Interconnect achieved strong growth in 2006. Continuing the progress on improving the business mix, in September, Smithsacquired Millitech for £19m, boosting Interconnect's presence in the millimetrewave technology sector. In January, the business and assets of Lorch Microwavewere purchased for £15m, bringing increased capability in microwave filters. Major contracts secured during the year included an agreement to manufacture theaward-winning Tarsier runway debris monitoring systems in the US, won byMillitech shortly after its acquisition, and satellite communications equipmentfor the Boeing 787, won by Tecom. Flex-Tek serves mainly domestic appliance manufacturers and the US constructionindustry. It performed well in 2006, with the house-building market in NorthAmerica remaining robust. It was strengthened by the acquisition of FarnamCustom Products in August 2005 for £4m. Marine Systems, comprising KelvinHughes and Chartco, also performed well. The electronic charts business madegood progress. Specialty Engineering's outlook is for further growth in the year ahead, helpedby the continued upturn in the investment cycles for oil & gas and telecomsinfrastructure. Legal matters As previously reported, John Crane, Inc (John Crane) a subsidiary of thecompany, is one of the many co-defendants in numerous law suits pending in theUnited States in which plaintiffs are claiming damages arising from exposure to,or use of, products containing asbestos. The John Crane products generallyreferred to in these cases are ones in which the asbestos fibres wereencapsulated in such a manner that, according to tests conducted on behalf ofJohn Crane, the products were safe. John Crane ceased manufacturing productscontaining asbestos in 1985. John Crane has resisted every case in which it has been named and will continueits robust defence of all asbestos-related claims based upon this 'safe product'defence. As a result of its defence policy, John Crane has been dismissedbefore trial from cases involving approximately 128,000 claims over the last 27years. John Crane is currently a defendant in cases involving approximately162,000 claims. Despite these large numbers of claims, John Crane has had finaljudgments against it, after appeals, in only 55 cases, amounting to awards ofsome US $52.6m over the 27 year period. To date these awards, the related interest and all material costs of defendingthese claims have been met directly by insurers. Since the year end John Cranehas secured the commutation of certain insurance policies, resulting inanticipated proceeds of approximately $54 million. While substantial insurancewill remain in place, it is likely that John Crane will in future meet defencecosts directly, seeking appropriate contribution from insurers thereafter. No provision relating to this litigation has been made in the company'saccounts. Along with three other companies, Titeflex Corporation, a US subsidiary, hassettled a class action with respect to its corrugated stainless steel tubingproduct in the US. The settlement is a compromise of disputed claims and doesnot imply any admission of liability. Titeflex stands by the safety of thisproduct, and has entered into this agreement solely to avoid the future expense,disruption and burden of protracted litigation. The exceptional charge of £12mcovers all legal fees and administrative costs, and a conservative estimate fora contribution to certain homeowners towards remedial costs connected with thetubing. AGM The Annual General Meeting of the company will be held at the Banqueting Suite,Lord's Cricket Ground, Grace Gate, St John's Wood Road, London NW8 8QN onTuesday, 21 November 2006 at 12.00 midday. If approved at the meeting, therecommended final dividend on the ordinary shares will be paid on 24 November toshareholders registered on the close of business on 3 November. The ex-dividenddate will be 1 November. Changes to the Board Sir Kevin Tebbit, KCB, CMG was appointed a non-executive director in June. SirKevin has had a distinguished career serving widely in policy, management andfinance posts in the Foreign & Commonwealth Office, NATO and finally the UKMinistry of Defence, where he was Permanent Under-Secretary of State from July1998 to his retirement in November 2005. Robert O'Leary, who joined the Board in 1997, died in August, following anillness throughout which he had continued to play an active role. LordRobertson of Port Ellen resigned in February, after two years, due to his othercommitments. Sir Julian Horn-Smith will be retiring at the AGM, after almostseven years. Prospects The markets for Smiths products remain robust, and the outlook for 2007 is forcontinued sales growth. The company is starting to reap the rewards of recentinvestments in R&D and low cost manufacturing, and the benefits are expected toshow in a further improvement in the operating margin. While the growth inreported earnings may be tempered by the effect of a weaker dollar, the Board isconfident that Smiths is well-positioned to make further progress in the yearahead. Tables attached - Income statement - Statement of recognised income & expense - Balance sheet - Cash-flow statement - Notes to the accounts Copies of the Annual Review 2006, or if they have requested it, the AnnualReport & Accounts 2006, will be sent to shareholders in the week commencing 23October, and both will be available at the registered office of Smiths Groupplc, 765 Finchley Road, London NW11 8DS. Consolidated Income Statement (unaudited) Period ended Year ended 5 August 2006 31 July 2005 £m £mRevenue (Note 2) 3,522.9 3,005.4Cost of sales (2,111.2) (1,814.7)Gross profit 1,411.7 1,190.7Sales and distribution costs (354.7) (283.3)Administrative expenses: Normal activities (587.8) (534.1) Impairment of financial asset (325.0)Profit on disposal of businesses (Note 20) 16.4 8.7Operating profit (Note 2) 160.6 382.0Interest receivable 4.2 15.0Interest payable (58.4) (38.2)Other financing losses (0.5) (4.2)Other finance income - retirement benefits 27.6 11.3Finance costs (27.1) (16.1)Share of post-tax losses of associated companies (1.1)Profit before taxation 132.4 365.9Comprising: headline profit before taxation (Note 3) 492.1 403.8 exceptional operating items (Note 4) (14.5) (28.0) amortisation of acquired intangible assets (16.9) (5.7) financing losses (3.3) (4.2) impairment of financial asset (325.0) 132.4 365.9Taxation (Note 5) (108.2) (94.1)Profit for the period attributable to equity shareholders of the 24.2 271.8parent companyEarnings per share (Note 7)Basic 4.3p 48.3pDiluted 4.2p 48.2pDividend per shareInterim 9.85p 9.25pFinal 21.5p 19.75p Consolidated Statement of Recognised Income and Expense (unaudited) Period ended Year ended 5 August 2006 31 July 2005 £m £mExchange (loss) / gain (112.7) 50.2Taxation recognised on exchange losses - current 5.9 - deferred (7.4)Actuarial gains/(losses) on retirement benefit schemes 94.5 (23.4)Taxation recognised on actuarial gains/losses - deferred (24.0) 11.8Fair value gains/(losses): - on cash flow hedges 33.4 - on net investment hedges (4.0)Net (cost)/income recognised directly in equity (20.2) 44.5Profit for the period 24.2 271.8Total recognised income and expense for the periodattributable to equityshareholders of Smiths Group plc 4.0 316.3Effect of change in accounting policy (IAS 32 and IAS 39) 2.9 Consolidated Balance Sheet (unaudited) 5 August 2006 31 July 2005 £m £mNon-current assetsIntangible assets (Note 9) 1,530.6 1,481.7Property, plant and equipment 497.8 502.8Investment accounted for using the equity method 14.0Financial assets - other investments (Note 10) 0.8 328.5Retirement benefit assets (Note 8) 183.7 134.6Deferred tax assets 92.3 117.8Trade and other receivables (Note 12) 16.8 24.7Financial derivatives 6.2 2,342.2 2,590.1Current assetsInventories (Note 11) 558.4 564.2Trade and other receivables (Note 12) 724.4 720.5Cash and cash equivalents (Note 14) 120.6 60.9Financial derivatives 26.1Total assets 3,771.7 3,935.7 Non-current liabilitiesFinancial liabilities: Borrowings (Note 14) (862.3) (937.7) Financial derivatives (4.4) Provisions for liabilities and charges (Note 15) (26.5) (26.4)Retirement benefit obligations (235.8) (371.2)Deferred tax liabilities (49.7) (19.9)Trade and other payables (Note 13) (114.8) (133.2) (1,293.5) (1,488.4) Current liabilitiesFinancial liabilities: Borrowings (Note 14) (185.0) (54.0) Financial derivatives (4.9) Provisions for liabilities and charges (Note 15) (81.8) (64.1)Trade and other payables (Note 13) (699.5) (684.6)Current tax payable (144.1) (160.8)Total liabilities (2,408.8) (2,451.9)Net assets 1,362.9 1,483.8 Shareholders' equity (Note 17)Share capital 141.8 140.9Share premium account 224.1 197.5Revaluation reserve 1.7 1.7Merger reserve 234.8 234.8Retained earnings 734.0 908.9Hedge reserve 26.5Total shareholders' equity 1,362.9 1,483.8 Consolidated Cash-Flow Statement (unaudited) Period ended Year ended 5 August 2006 31 July 2005 £m £mNet cash inflow from operating activities (Note 18) 389.1 319.3 Cash flows from investing activitiesExpenditure on capitalised development (102.0) (67.4)Expenditure on other intangible assets (25.1) (14.3)Purchases of property , plant and equipment (111.2) (99.9)Disposals of property, plant and equipment 12.2 9.3Acquisitions of businesses (Note 19) (54.2) (410.0)Disposals of businesses (Note 20) 8.3 0.5Net cash flow used in investing activities (272.0) (581.8) Cash flows from financing activitiesProceeds from issue of ordinary share capital 27.3 14.6Dividends paid to equity shareholders (Note 6) (167.0) (154.5)Increase in new borrowings 73.5 287.7Reduction and repayment of borrowings (115.9) (249.3)Net cash flow used in financing activities (182.1) (101.5) Net decrease in cash and cash equivalents (65.0) (364.0)Cash and cash equivalents at 1 August 11.9 421.0Exchange differences 2.0 (45.1)Cash and cash equivalents at end of period (51.1) 11.9Cash and cash equivalents at end of period comprise: Cash at bank and in hand 102.3 51.1 Short-term deposits 18.3 9.8 Bank overdrafts (171.7) (49.0) (51.1) 11.9 1 Accounting policies Basis of preparation These accounts are the first accounts following the implementation of IFRS asadopted by the EU. The information for the year ended 31 July 2005, previouslyreported to shareholders under UK Generally Accepted Accounting Principles (UKGAAP) has been restated to conform to IFRS. IAS 32 and IAS 39 have beenadopted, as permitted, prospectively from 1 August 2005. Accordingly financialinstruments in the year to 31 July 2005 are recorded on the UK GAAP basis. On 21 November 2005 the Group published an explanatory report entitled 'SmithsGroup: Transition to International Financial Reporting Standards (IFRS)',available on the Group's website www.smiths.com. This document sets out the keydifferences between UK GAAP and IFRS for the Group, including the Group'sapplication of the first-time adoption exemptions under IFRS, reconciliations ofits income statement for the year ended 31 July 2005 and balance sheets at 1August 2004 and 31 July 2005, together with its principal accounting policiesunder IFRS. 2 Segment information Analysis by business segment For management purposes, the Group is organised into four business segments -Aerospace, Detection, Medical and Specialty Engineering. These businesssegments are the basis on which the Group reports its primary segmentinformation. For reporting purposes Specialty Engineering is analysed into twosegments: John Crane and Specialty - Other. Period ended 5 August 2006 Aerospace Detection Medical John Crane Specialty Total - Other £m £m £m £m £m £mRevenue 1,299.7 411.8 737.0 518.4 556.0 3,522.9Headline operating profit 152.4 76.5 137.5 69.4 84.0 519.8Exceptional operating items (1.7) 5.4 (17.2) 5.6 (6.6) (14.5)Amortisation of acquired intangible (3.9) (0.4) (11.2) (0.3) (1.1) (16.9)assetsFinancing losses (1.0) (0.3) (0.6) (0.4) (0.5) (2.8) 145.8 81.2 108.5 74.3 75.8 485.6Impairment of financial assets (325.0)Operating profit 160.6Net finance costs (27.1)Share of post-tax losses of associatedcompanies (1.1)Profit before taxation 132.4Taxation (108.2)Profit for the period 24.2 Year ended 31 July 2005 Aerospace Detection Medical John Crane Specialty Total - Other £m £m £m £m £m £mRevenue 1,146.2 366.5 563.3 463.2 466.2 3,005.4Headline operating profit 132.4 69.0 87.7 62.5 64.1 415.7Exceptional operating items (11.4) (25.3) 2.4 6.3 (28.0)Amortisation of acquired intangible (1.1) (4.6) (5.7)assetsOperating profit 119.9 69.0 57.8 64.9 70.4 382.0Net finance costs (16.1)Profit before taxation (365.9)Taxation (94.1)Profit for the year 271.8 3 Headline profit measures The Company seeks to present a measure of underlying performance which is notimpacted by exceptional items or items considered non-operational in nature.This measure of profit is described as "headline" and is used by management tomeasure and monitor performance. Normal restructuring costs are charged againstprofits. The following items have been excluded from the headline measure: • Exceptional items including impairments (Note 4); • Amortisation of intangible assets acquired in a business combination- the amortisation charge is a non-cash item, and the directors believe that itshould be added back to give a clearer picture of underlying performance; and • Other financing gains and losses - these represent the results ofderivatives and other financial instruments which do not fall to be hedgeaccounted under IAS 39 and do not form part of the Group's financing strategy.The application of IFRS accounting principles makes this item potentiallyvolatile, and it is therefore excluded to give a clearer picture of theunderlying performance. 4 Exceptional operating items Items which are material either because of their size or their nature, and whichare non-recurring, are presented within their relevant consolidated incomestatement category, but highlighted separately within the line "exceptionaloperating items". The separate reporting of exceptional items helps provide abetter picture of the Company's underlying performance. Items which may beincluded within the exceptional category include: • Profits/(losses) on disposal of businesses; • Spend on the integration of significant acquisitions; and • Significant goodwill or other asset impairments An analysis of the items presented as exceptional in these accounts is givenbelow: Period ended Year ended 5 August 2006 31 July 2005 £m £mIntegration of acquisitions (18.7) (10.4)Patent dispute settlement (14.9)Class action settlement (12.2)Profit on disposal of businesses (Note 20) 16.4 8.7Impairment of goodwill (11.4) (14.5) (28.0) Period ended 5 August 2006 Restructuring costs in connection with the integration of Medex amounting to£18.7m (2005: £10.4m) have been incurred in the period. Along with three other companies, Titeflex Corporation, a US subsidiary, hassettled an industry wide class action with respect to its corrugated stainlesssteel tubing product in the US. The settlement is a compromise of disputedclaims and does not imply any admission of liability. The company stands by thesafety of this product, and has entered into this agreement solely to avoid thefuture expense, disruption and burden of protracted litigation. The exceptionalcharge of £12.2m covers all legal fees and administrative costs, and an estimatefor a contribution to certain homeowners towards remedial costs connected withthe tubing. Profit on disposal of businesses includes £11.2m relating to the release ofprovisions made in respect of prior-year disposals, the warranties and attendantissues for which they were created having been satisfactorily resolved. Year ended 31 July 2005 £14.9m was charged to exceptional operating items in respect of a patent disputerelating to the Cozmonitor insulin pump. Profit on disposal of businesses of £8.7m included a total of £12.1m arisingfrom settlement and curtailment gains in respect of pension and other retirementbenefits. In addition two small product lines with a net asset value of £2.6mwere sold during 2005 for net cash proceeds of £0.5m. This gave rise to a lossof £3.4m after provisions in the year ended 31 July 2005. £11.4m was charged to exceptional operating items in relation to the impairmentof goodwill in respect of an Aerospace business acquired in 2000. 5 Taxation Period ended Year ended 5 August 2006 31 July 2005 £m £mThe taxation charge for the year comprises:-Current income taxation 93.5 101.2Deferred taxation 14.7 (7.1)Total taxation expense in the income statement 108.2 94.1 Reconciliation of the total tax charge The tax expense on the profit for the year is different than the standard rateof corporation tax in the UK of 30% (2005: 30%). The difference is reconciled as follows: Period ended Year ended 5 August 2006 31 July 2005 £m £m Profit before tax 132.4 365.9Notional taxation expense at UK rate of 30% (2005: 30%) 39.7 109.8Effect of overseas taxation (9.2) 1.4Local incentives (15.1) (15.2)Impairment of financial asset 97.5 0.0Tax effect of other non-headline items (7.5) (1.3)Other 2.8 (0.6)Total taxation expense in the income statement 108.2 94.1 Comprising: Taxation on headline profit 126.0 106.8 Tax relief on non headline loss (17.8) (12.7) 108.2 94.1 6 Dividends Period ended Year ended 5 August 2006 31 July 2005 £m £mThe following dividends were declared and paid in the period:Ordinary final dividend of 19.75p for 2005 (2004: 18.25p) paid 18 111.3 102.5November 2005Ordinary interim dividend of 9.85p for 2006 (2005: 9.25p) paid 21 55.7 52.0April 2006 167.0 154.5 The final dividend for the period ended 5 August 2006 of 21.5p per share wasdeclared by the Board on 27 September 2006 and will be paid to shareholders on24 November 2006. This dividend has not been included as a liability in theseaccounts and is payable to all shareholders on the register of Members at closeof business on 3 November 2006. 7 Earnings per share Basic earnings per share are calculated by dividing the profit for the periodattributable to equity shareholders of the Parent Company by the average numberof ordinary shares in issue during the period. Period ended Year ended 5 August 2006 31 July 2005 £m £mProfit for the period 24.2 271.8Average number of shares in issue during the period 565,359,484 562,445,323 Diluted earnings per share are calculated by dividing the profit attributable toordinary shareholders by 569,733,560 (2005: 563,667,777) ordinary shares, beingthe average number of ordinary shares in issue during the period adjusted by thedilutive effect of share options. A reconciliation of basic earnings per share and headline earnings per share isas follows: Period ended 5 August 2006 Year ended 31 July 2005 £m EPS £m EPS (p) (p)Profit attributable to equity shareholders of the Parent 24.2 4.3 271.8 48.3CompanyExclude: integration of acquisitions 18.7 10.4 disposal of businesses (16.4) (8.7) patent dispute settlement 14.9 class action settlement 12.2 impairment of goodwill 11.4 amortisation of acquired intangible assets 16.9 5.7 financing losses - charged to administrative 2.8 4.2 expenses - charged to financing 0.5 impairment of financial asset 325.0 359.7 37.9 less tax (17.8) (12.7) 341.9 60.5 25.2 4.5Headline 366.1 64.8 297.0 52.8Headline EPS - diluted (p) 64.3 52.7 8 Post retirement benefits 2006 2005 UK USA UK USA £m £m £m £m Funded pension plans-market value of assets 2,770.4 332.8 2,546.9 343.9 Funded pension plans surplus/(deficit) 140.3 (61.5) 17.8 (123.3)Unfunded plans and post retirement healthcare liabilities (48.9) (68.8) (49.7) (81.4) Retirement benefits - net assets/(liabilities) 91.4 (130.3) (31.9) (204.7) In addition there are pension liabilities of £13.2m in respect of othercountries. 9 Intangible assets 2006 2005 £m £mGoodwill 1,107.9 1,152.6Development costs 254.2 171.7Acquired intangibles - Patents 35.5 40.8 - Technology 51.7 57.4 - Customer Relationships 31.7 31.7Other (incl. software) 49.6 27.5 1,530.6 1,481.7 10 Non current financial assets 2006 2005 £m £mTI Automotive Limited preference shares - At 1 August 2005 325.0 325.0 - Impairment charge in period (325.0) 325.0Other trade investments 0.8 3.5 0.8 328.5 Recognising continued deterioration in the automotive market particularly in theUS, an impairment review of the preference share investment in TI Automotive hasbeen undertaken, as required by IAS 39. The preference shares have not yet borne any dividends and it is consideredunlikely that dividends will be paid in the foreseeable future. Similarly thereis no current prospect of the preference share interest being redeemed. TheBoard has also considered the possibility that cash flows could accrue from theinvestment in TI Automotive were the enterprise to be sold; such a sale is notcurrently considered sufficiently probable to take into account any cash flowswhich could accrue in such an event. As a result, the directors have decided to write down the carrying value of theinvestment in the TI Automotive preference shares from £325m to nil value inthese accounts. There is no impact on cash-flow from this decision. 11 Inventories 2006 2005 £m £mInventories compriseRaw materials and consumables 164.7 161.3Work in progress 196.3 190.6Finished goods 218.8 234.4 579.8 586.3Less: payments on account (21.4) (22.1) 558.4 564.2 12 Trade and other receivables 2006 2005 £m £mNon-current 16.8 24.7 Current Long-term contract balances 126.2 100.5 Less: attributable progress payments (120.5) (84.9)Amounts due from customers for contract work 5.7 15.6Trade receivables 657.3 652.9Other debtors 9.5 12.1Prepayments and accrued income 51.9 39.9 724.4 720.5 13 Trade and other payables 2006 2005 £m £mNon-current 114.8 133.2 CurrentTrade creditors 252.2 214.7Bills of exchange payable 3.3 2.7Other creditors 63.0 49.9Other taxation and social security costs 23.0 23.7Accruals and deferred income 358.0 393.6 699.5 684.6 14 Borrowings and net debt 2006 2005 £m £mCash and cash equivalentsNet cash and deposits* 120.6 60.9Borrowings- On demand/under one year- Net overdrafts and loans (177.7) (54.0)- One to two years (0.5) (0.3)- Two to five years (575.6) (636.1)- Over five years (290.0) (301.3) (1,043.8) (991.7)Net debt (923.2) (930.8)Borrowings - valuation adjustments** Interest accrual (7.3) Fair value of swapped debt 3.8Total borrowings per balance sheet (1,047.3) (991.7) * IAS 32 requires that cash and overdraft balances within cash pooling systemsbe reported gross in the balance sheet amounting to £83.6m. In line with thetransitional rules of IFRS 1, the Company has adopted IAS 32 on a prospectivebasis from 1 August 2005. ** IAS 39 requires that the carrying value of borrowings includes accruedinterest, and the fair value of any interest rate or currency swaps held tohedge the borrowings. In line with the transitional rules of IFRS 1, theCompany has adopted IAS 39 on a prospective basis from 1 August 2005. The Company's measure of 'net debt' is stated before these adjustments. 15 Provisions for liabilities and charges 2006 2005 £m £mWarranty provision and product liability 68.6 51.6Reorganisation 16.7 9.2Property 10.4 12.1Litigation 12.6 17.6 108.3 90.5 Analysed as: 2006 2005 £m £mCurrent liabilities 81.8 64.1Non-current liabilities 26.5 26.4 108.3 90.5 16 Contingent liabilities In common with many other enterprises of similar size, the Company and itssubsidiaries are from time to time engaged in litigation in respect of a varietyof commercial issues. As previously reported, John Crane, Inc ("John Crane"), a subsidiary of theCompany, is one of many co-defendants in numerous law suits pending in theUnited States in which plaintiffs are claiming damages arising from exposure to,or use of, products containing asbestos. The John Crane products generallyreferred to in these cases are ones in which the asbestos fibres wereencapsulated in such a manner that, according to tests conducted on behalf ofJohn Crane , the products were safe. John Crane ceased manufacturing productscontaining asbestos in 1985. John Crane has resisted every case in which it has been named and will continueits robust defence of all asbestos-related claims based upon this 'safe product'defence. As a result of its defence policy, John Crane has been dismissedbefore trial from cases involving approximately 128,000 claims over the last 27years. John Crane is currently a defendant in cases involving approximately162,000 claims. Despite these large numbers of claims, John Crane has had finaljudgements against it, after appeals, in only 55 cases, amounting to awards ofsome US$52.6m over the 27 year period. To date these awards, the related interest and all material costs of defendingthese claims have been met directly by insurers. Since the year end John Cranehas secured the commutation of certain insurance policies, resulting inanticipated proceeds of approximately $54 million. While substantial insurancewill remain in place, it is likely that John Crane will in future meet defencecosts directly, seeking appropriate contribution from insurers thereafter. No provision relating to this litigation has been made in these accounts otherthan as disclosed in note 15. 17 Movements in shareholders' equity As at As at 31 July 2005 1 August 2004 £m £mShareholders' equity as reported under UK GAAP at 31 July 1,204.8 1,122.5Amendments to inter-company swap accounting (note 1) 35.4 1,240.2 1,122.5Adjustments to comply with IFRS as reported on 21 November 2005 247.5 158.5Additional IFRS adjustments: - amendments to creditors (note 2) (5.6) - revisions to fair values in respect of prior year acquisitions 1.7 (note 3)Shareholders' equity under IFRS at 31 July 1,483.8 1,281.0Change in accounting policy in treatment of embedded derivatives 9.7(note 4)Change in accounting policy to adopt IAS 32 and IAS 39 (6.8)Shareholders' equity under IFRS at 1 August 1,486.7 1,281.0 Note 1 An adjustment to the prior year has been made to amend the accounting of aninter-company swap. The adjustment results in a decrease in creditors of £35.4mand an increase in shareholders' equity of £35.4m. Note 2 During the period since 21 November 2006, the Company has made a minor amendmentto its previously published IFRS information as a result of emerginginterpretations of standards. Note 3 As allowed by IFRS 3, the fair values of assets and liabilities acquired inprior year acquisitions have been finalised. These adjustments result in anincrease of £1.5m, an increase in other assets of £0.2m, and an increase inshareholders' equity of £1.7m Note 4 The basis for valuing non-closely related embedded derivatives was revised inthe year to better represent the contractual cash flows in the relevantcontacts. Period ended Year ended 5 August 2006 31 July 2005 £m £mAt 1 August 1,486.7 1,281.0Profit for the period 24.2 271.8Share-based payment 14.5 5.0Deferred taxation benefit thereon (2.6) 16.0Dividends paid to equity shareholders (167.0) (154.5)New share capital subscribed 27.3 14.6ESOP Trusts - disposal of company shares 5.4Exchange (losses)/gains (112.7) 50.2Taxation recognised on exchange (losses)/gains (7.4) 5.9Fair value gains/(losses) on cash-flow hedges 33.4 on net investment hedges (4.0)Actuarial gains/(losses) on retirement benefit schemes 94.5 (23.4)Deferred taxation benefit thereon (24.0) 11.8At 5 August/31 July 1,362.9 1,483.8 18 Cash flow from operating activities Period ended Year ended 5 August 2006 31 July 2005 £m £mProfit before taxation 132.4 365.9Net interest payable 54.2 23.2Financing losses - charged to administrative expenses 2.8 - charged to financing 0.5 4.2Share of post-tax loss from associate 1.1Other finance income - retirement benefits (27.6) (11.3)Impairment of financial asset 325.0 488.4 382.0Amortisation of intangible assets 39.6 39.1Profit on disposal of property, plant and equipment (4.4)Profit on disposal of business (16.4) (8.7)Depreciation of property, plant and equipment 81.0 71.7Share-based payment expense 16.3 6.3Retirement benefits (61.5) (20.3)Increase in inventories (34.8) (89.3)Increase in trade and other receivables (35.6) (53.7)Increase in trade and other payables 70.7 76.0Other non-cash movements 14.0Cash generated from operations 543.3 417.1Interest (49.5) (19.9)Tax paid (104.7) (77.9)Net cash inflow from operating activities 389.1 319.3 19 Acquisitions During the period of 53 weeks ended 5 August 2006 the Company made a number ofacquisitions: the issued share capital of Livewave, Inc on behalf of Detection(28 October 2005), the issued share capital of Millitech, Inc (16 September2005), together with the businesses and assets of Farnam (1 August 2005) andLorch Microwave LLC (4 January 2006) on behalf of Specialty Engineering. Inaddition, the Company also acquired the minority interests in subsidiarycompanies operating in Canada and China. The values set out below are provisional pending finalisation of the fair valuesattributable, and will be finalised in the period ending 31 July 2007. Allacquisitions are wholly owned. Book value Fair value adjustments Provisional fair value £m £m £mNon-current assets: - intangible assets 5.0 8.3 13.3 - tangible assets 1.6 1.6Current assets: - cash and cash equivalents - other current assets 7.6 (0.4) 7.2Current liabilities - other current liabilities (2.2) (0.5) (2.7)Minority interests 1.8 1.8Net assets acquired 13.8 7.4 21.2Goodwill 30.6Total consideration 51.8 Consideration satisfied by cash 51.8Deferred consideration paid on prior-year 2.4acquisitionsTotal consideration 54.2 20 Disposals The most significant disposal transaction during the period was the sale of theCompany's interest in Heimann Biometric Systems GmbH to Cross MatchTechnologies, Inc. in exchange for 43% of the issued share capital in thatcompany, which is regarded as an associate and its results are thereforeaccounted for on an equity basis. The Company has also released provisions and accruals held in respect ofdisposals made in prior years, following determination of the warranties andother liabilities provided for at the time of disposal. £mShares received in Cross Match Technologies, Inc. - at valuation 13.8Net cash received 8.3Net consideration received 22.1 Net assets excluding cash and retained liabilities at date of saleTangible fixed assets 5.8Inventory 9.9Debtors 5.9Creditors (5.1)Net assets 16.5Provision for retained liabilities 0.4Net assets and retained liabilities 16.9Surplus of proceeds over nets assets, costs and expenses 5.2Provisions in excess of liabilities settled - now released 11.2Profit on disposal of businesses 16.4 The above financial statements do not constitute the full financial statementswithin the meaning of S240 of the Companies Act 1985. Figures relating to theyear ended 31 July 2005 are abridged. Full accounts for Smiths Group plc forthat period have been delivered to the Registrar of Companies. The auditors'report on those accounts was unqualified and did not contain a statement underS237(2) or S237(3) of the Companies Act 1985. -ends- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Smiths Group