Smiths


Medical
	2001 £m	2000 £m

Sales	453	403
Operating profit	93	85

In North America, Europe and most other advanced economies, healthcare has risen to the top of national agendas, bringing greatly increased spending by both government and private health providers. In particular, world market demand is growing at 6% per annum in the medical device sector. Against this background, our medical business performed strongly in 2001, achieving a 12% increase in sales and a 10% increase in profits. We have excluded Eschmann, a business making operating tables, from the comparison, because it was sold during the year for £11m.

We maintained our long-held record of margins above 20% for the Medical division. They have been kept at this level through constant productivity improvement and new product introductions, outpacing any price erosion on mature products.

Sales growth was strong in the largest business sector – single-use products for patient airway management – helped by greater demand for specialised procedure kits. These higher added-value packages are increasingly preferred by busy anaesthetists for the convenience they provide during critical-care procedures.

Another significant area of growth was in needle-protection devices, which prevent nurses and clinicians from injuring themselves with used needles. Recent US legislation now requires all hospitals to use safe-closure devices such as our Portex Needle-Pro, of which we delivered 120 million units from the US business during the year.

The Deltec ambulatory infusion pumps are selling well, and we secured major long-term supply agreements with three of the largest US healthcare groups. The enlarged user base of pumps is generating valuable continuing revenue from the disposable cassettes containing the medication. These ambulatory pumps are gaining acceptance in markets outside the US, including Japan. In the UK, the Graseby pole-mounted pumps used at hospital bedsides have benefited from NHS budget increases.

Our recent reorganisation of the division has established global business units – each focused on a specific therapy. The benefits will include: more rapid introduction of new products and their roll-out into world markets; increased focus on major national accounts; and further production efficiencies, including transfer of labour-intensive work to Mexico.

We are confident these measures will help Medical to grow strongly in a dynamic market. The expansion of the healthcare sector throughout the developed world is likely to continue without pause, regardless of general economic trends.


Industrial
	2001 £m	2000 £m

Sales	520	450
Operating profit	94	81

With sales and profits both up 16%, our Industrial division continued to grow strongly, retaining margins of 18%. Half of the improvement was like-for-like growth, the balance being the full-year benefit of acquisitions made in the previous year. In December we acquired the US antenna company Radio Waves and in March we sold our Hydraulics business.

Interconnect now generates two-thirds of Industrial's profits, and our businesses in this sector continued to thrive. Involved in the connection and protection of sensitive electrical and electronic equipment, they grew their sales in a wide range of applications including aerospace, defence, satellite, medical, rail and other specialised industrial sectors. Among important developments was the step-up in production of filtered Hypertac connectors for the Eurofighter Typhoon, a valuable long-term contract.

Interconnect also serves the market for wireless broadband and mobile communications infrastructure, and this part of the business, like many others, was affected by the global telecoms downturn. About one-fifth of Industrial's sales are into this market, and even at the lower sales levels recorded in the second half, they achieved high levels of profitability. Indications are that infrastructure spending for 2.5 and 3G systems will continue, albeit at a slower pace.

Our Air Movement businesses were in steady-state during 2001, operating in difficult trading conditions but remaining highly cash-generative and with strong competitive positions. UK market leader Vent Axia introduced new low-energy, environmentally friendly ventilation fans, which have been well received by building equipment specifiers. The Flex-Tek businesses in the US gained market share with innovative products for household equipment.

Six businesses have joined and helped transform Industrial over the past two years, and their integration is progressing well. All of them are based in the US and have now started to build significant exports, particularly into Europe.

Industrial enjoys excellent margins and generates cash-flow closely related to profits. Its outlook remains positive, with the broad range of interconnect applications being the principal driver.