Principal activities
The principal activities of the company and its subsidiaries are the development, manufacture, sale and support of:

•	integrated aerospace systems, including electronic and actuation systems and precision components, for civil and military aircraft. Also equipment for land, naval and marine and other defence applications, including detection and protection against chemical and biological agents;
•	medical devices and critical care equipment aligned to specific therapies, principally airway, pain and temperature management and infusion. Also needle protection, critical care monitoring, women's healthcare and vascular access;
•	mechanical and polymer seals used in industries ranging from petrochemical processing to aerospace;
•	interconnect products to connect and protect safety-critical electrical and electronic equipment, and air movement systems and components.

The main manufacturing operations are in the UK, the Americas and Continental Europe.

Results and dividends
The results for the year to 31 July 2002 are set out in the consolidated profit and loss account. Sales for the year amounted to £3,223m, against £4,958m last year. The profit for the year after taxation, minority interests and goodwill amortisation amounted to £191m (2001 loss of £206m). An interim dividend of 8.75p per ordinary share of 25p was paid on 19 April 2002. The directors recommend for payment on 15 November 2002 a final cash dividend on each ordinary share of 16.75p, making a total dividend of 25.5p for the year.

Business review and future developments
The Chairman's statement, Chief Executive's operating review and summary financial review comment on the company's operations and development during the year, the year-end position and likely future development.

Changes during the year
Acquisitions
Bivona, Inc.
Summitek Instruments, Inc.
Anaesthesia kit and tray business
Able Corp.
Disposals
Plenty Group fluid-handling business
European flexible hose business
Vacuum and filtration business
Woodville Airbags business
Dowty Defence companies
Vacuum and Pressure business
John Crane-Lips business
Dan Chambers Limited
Urology and ostomy business
Fans & Spares business
Mixing Solutions business

Post balance sheet events
There have been no post balance sheet events.

Charitable and political donations
Charitable donations were £853,000. No political donations weremade.

Directors
The directors during the year are shown in the Board of Directors. Messrs K Orrell-Jones, L H N Kinet and R W O'Leary will retire at the AGM and seek reappointment. Mr J M Hignett will retire and will not seek re-election. A summary of the directors' remuneration and share options is contained in the remuneration report.

Directors' interests in the company's shares
	Ordinary shares of 25p
	31 July 2002	31 July 2001
Sir Nigel Broomfield	103	103
K O Butler-Wheelhouse	117,537	55,336
Sir Colin Chandler	8,778	8,778
J Ferrie	22,438	0
J M Hignett	67,966	67,685
J M Horn-Smith	6,682	6,682
L H N Kinet	0	0
J Langston	60,270	60,270
D P Lillycrop	65,144	68,158
E Lindh	38,189	33,584
R W O'Leary	2,642	3,315
K Orrell-Jones	3,226	3,226
A M Thomson	51,526	42,066

These interests include beneficial interests in the company's shares held in PEPs and ISAs and holdings through nominee companies. Except as reported below, none of the directors has disclosed any non-beneficial interests in the company's shares.

Mr J Langston and Mr D P Lillycrop also both have a technical interest in 756,955 ordinary shares in the company as discretionary beneficiaries under the TI Group Jersey Employee Share Trust and the TI Group Employee Share Trust. These shares may be transferred to employees who exercise options granted under the TI Group share option schemes. In addition, Mr Langston has a contingent interest in 125,000 ordinary shares and Mr Lillycrop has a contingent interest in 100,000 ordinary shares, arising from contractual arrangements related to the merger with TI Group plc.

The company has not been notified of any changes to the holdings of the directors, their families and any connected persons between 1 August and 24 September 2002.

Corporate governance
The company complies and has during the year complied with the Combined Code, as defined in the Listing Rules of the UK Listing Authority, except that no senior independent non-executive director is recognised. A detailed statement on how the company complies with the Combined Code is set out in the full Annual Report and Accounts 2002.

Payment of creditors
The company's policy is to pay promptly in accordance with agreed terms. The average time to pay an invoice was 37 days for the parent company and 51 days for the group as a whole.

Corporate and social responsibility
This report includes information on the company's employment and environmental policies.

Shareholders' resolutions
Shareholders will be asked to pass resolutions as special business at the AGM:

•	to authorise the directors to allot new shares and to renew the power granted to the directors under section 95 of the Companies Act 1985;
•	to authorise the company to make market purchases of the company's shares; and
•	to approve the adoption of new Articles of Association.

Interests in shares
As at 24 September 2002 the company had been notified, pursuant to the Companies Act 1985, of the following material or notifiable interests in its issued share capital:

	No. of shares	Issued share capital†
The Capital Group Companies, Inc*	61.9m	11.1%
Franklin Resources, Inc.	34.1m	6.1%
Scottish Widows Investment Partnership	16.8m	3.0%

*includes the interests of Capital Guardian Trust Company in 10.0% of the issued share capital
†percentage of share capital in issue on 24 September 2002

New Articles of Association
A resolution to adopt new Articles will be proposed at the AGM. The new Articles will comply with current best practice and UK Listing Authority Rules. The major changes are provisions (i) to facilitate electronic voting and communications; (ii) requiring the directors to retire every three years; (iii) to permit CREST transfers in the company's securities; and (iv) to increase the limit on the aggregate fees payable to non-executive directors from £200,000 per annum, set in 1995, to £500,000 per annum. Further details of the principal changes are included with the Notice of Annual General Meeting.

Auditors
The report of the auditors on the accounts for the year ended 31 July 2002 was unqualified and did not contain a statement under either sections 237(2) or 237(3) of the Companies Act 1985.

Annual Report and Accounts
The full version of the Annual Report and Accounts 2002 is available in electronic form on www.smiths-group.com. Printed copies may be obtained free of charge by writing to the Deputy Group Secretary, Smiths Group plc, 765 Finchley Road, London NW11 8DS (e-mail: secretary@smiths-group.com). Shareholders wishing to receive the full Reports and Accounts as well as the Annual Review and Summary Financial Statement in future years should write to the company's registrars, Lloyds TSB Registrars, The Causeway, Worthing BN99 6DA.

By Order of the Board

DAVID P LILLYCROP
DIRECTOR AND SECRETARY

27 September 2002
765 Finchley Road
London NW11 8DS