DEVELOPING DIVERSE TALENTS
WE ARE COMMITTED TO DEVELOPING THE CAPABILITIES OF SMITHS' EMPLOYEES. IN A HIGHLY COMPETITIVE MARKET FOR TALENT, THE GROUP'S SUCCESS DEPENDS, IN PART, ON ITS ABILITY TO RECRUIT AND RETAIN THE BEST PEOPLE FROM INTERNAL AND EXTERNAL SOURCES TO MEET TODAY'S NEEDS AND TO DEVELOP THEM TO TAKE ON DIFFERENT AND/OR MORE SENIOR ROLES TO MEET THE CHALLENGES OF TOMORROW.

We base our selection processes on a person's work record, competencies and past performance and are developing our appraisal process, management development activity and succession planning to underpin this approach.

Smiths continues to invest in the acquisition, by employees, of new skills. To this end, relevant training opportunities are provided. Smiths employees are encouraged to participate in their own development and are assisted in this by feedback on their performance, in order to help maximise the development of their potential.

An important development in the past year has been the establishment at the Smiths Aerospace site in Cheltenham of the Learning and Resource Centre, officially opened in June 2003 by Alan Johnson, then Minister of State for Employment Relations, Industry and the Regions. The Centre was established as a result of widespread collaboration, but particularly between Smiths Aerospace and the Amicus trade union. The Centre is intended to assist employees and others in the surrounding areas to improve their skills as part of a commitment to lifelong learning.

We advertise job vacancies internally on our website, thereby giving our people an opportunity to manage their own career development. We are developing a detailed plan for the external advertisement of job vacancies through our website. This will permit us to reach many of our potential recruits at reduced cost.

Part of our investment for the future is exemplified by our graduate recruitment and training programme. Our recruitment website, www.whatsnext4u.com, communicates the challenging and exciting opportunities available to graduates who join us.

Smiths has 32,300 employees worldwide at the year-end (based in over 200 facilities), with over 75% of them located in the United Kingdom and North America and the others predominantly in the EU, Japan and China. Smiths is a diverse organisation. This diversity is a source of strength and our employment policies and practices are designed to support it.

BUSINESS ETHICS
Smiths believes that honesty, integrity and transparency should characterise our approach to business. Examples of existing policies and practises that support these beliefs include long-established procedures to protect 'whistleblowers' and a policy that supports employees who may be subjected to bullying and/or harassment at work.

We are reviewing all our existing policies in this area in order to formulate a consolidated statement of business ethics for Smiths. This will be based on mutual respect, fairness and the maintenance of high ethical standards in our dealings with and between employees, customers and suppliers.

COMMUNITY INVOLVEMENT
Smiths supports good community relations practices both corporately and through our businesses, many of which have long-established roots in their local communities. Often, they are major employers in their area and take an active role in supporting the community through charitable and other activities. These extend to programmes of liaison and exchange visits with pupils in their final year in secondary education, in order to help them prepare for the transition to employment. Managers have also provided an 'industrial mentoring' support system for some of these pupils. Smiths continues to support the UK 'Year in Industry' programme.

EMPLOYEE COMMUNICATIONS
Smiths recognises the importance of effective employee communications. At business unit level, communication takes place through a variety of channels, including team briefings, presentations and newsletters. Many businesses have forums for the exchange of information and best practice, as well as discussion of current issues, including business efficiency and 'lean' initiatives; training and development; and environment, health and safety matters.

At group level, the Smiths European Forum (SEF) meets annually to facilitate constructive dialogue with employees from the EU and EEA on issues of a transnational nature. The company strives to improve continuously the quality of information provided to delegates for dissemination to employees. The SEF is an effective means of communication regarding the immediate past performance of the group and provides an opportunity for delegates to raise questions and receive answers on this and future prospects.

The launch, during this last year, of Smiths online newsletter, E-Xtract, which is accessible via the internet and available in five languages, is an important aid to extending the effectiveness of communications with employees.

ENVIRONMENT, HEALTH AND SAFETY
EHS management and reporting
Smiths regards good Environment, Health and Safety (EHS) practices as an integral part of business performance. Improved environmental and safety performance reduces costs, creates business opportunities and minimises risk. We have identified the following EHS areas as being significant across Smiths' worldwide operations:

•	lost time incidents and health and safety performance;
•	energy and water use;
•	generation and disposal of waste;
•	emissions of greenhouse gases from energy use and transport;
•	emissions to air – Volatile Organic Compounds and ozone depleting substances;
•	contaminated land and remediation;
•	product design for reduced environmental impact; and
•	regulatory non-compliances and enforcement.

As mentioned in the 2002 Annual Report and Accounts, Smiths' first EHS Report (for 2002) was published early in 2003 (see www.smiths-group.com). This report follows three very successful years of health and safety reporting. Work is already under way for the 2003 EHS Report, due to be published in early 2004.

Policies and organisation
The Chief Executive of Smiths Group plc has overall responsibility for EHS performance, through the Director, Human Resources. Further convergence on EHS management at a corporate level continues through the creation of a new role of Director, EHS, reporting to the Director, Human Resources and responsible for the development of the group's EHS programmes. A group EHS Committee has been established to review EHS policies, standards and performance. Membership of this committee includes senior representatives from each of Smiths' four divisions. At a local level, each major facility has a safety adviser and environmental coordinator (in some cases, the same individual performs both functions). Annual reports on EHS progress are provided to the Board of Directors.

Policy statements exist for both environment and health and safety. They apply to our operations worldwide and can be viewed in our 2002 EHS Report. These policies are underpinned by:

•	the implementation of recognised international standards for environmental management (ISO 14001);
•	company standards on health and safety management (best practice safety manual); and
•	measurement systems and targets for improved performance.

Management systems
Our environmental impacts are managed through the implementation of environmental management systems certified to the International Standard ISO 14001. In November 2000, we set ourselves a demanding three year goal to achieve ISO 14001 accreditation for all major manufacturing sites by the end of 2003. At 31 July 2003, 96% of our major manufacturing businesses achieved certification. This figure excludes the Polymer businesses and new acquisitions since November 2000 that were not part of the original implementation goal.

The graph below demonstrates the timeframe in which this level of accreditation has been achieved. A further update of progress to the end of 2003 will be provided in our 2003 EHS Report.

Comprehensive standards for health and safety management within the company are defined in a best practice safety manual. This manual applies to Smiths operations worldwide and focuses on the management and control of common hazards in our operations. Sixty hazards and topics are covered ranging from risk assessments, hazardous substances, lone working, safety committees, and travelling on company business. We continue to roll out our internal safety audit tool across our major operations in order to verify compliance with these requirements. The audit tool consists of over 300 questions divided into four sections covering:

•	the management of health and safety;
•	risk assessments and documentation;
•	control and protection arrangements; and
•	health and welfare.

Results from the audit are used to identify areas for improvement.

Measurement and targets
Annual environmental metrics and quarterly accident or lost time incident data is collected via a dedicated EHS website. The information generated is used to track performance and report progress (via the EHS Report).

Smiths became a signatory to MACC2 (Make a Corporate Commitment) in 2003. This is a UK government supported initiative to help organisations improve their resource efficiency and environmental performance (www.macc2.org.uk). Reduction targets have been set for the company as a whole in the areas of greenhouse gas emissions, through more efficient site energy use and transport, water use, and waste disposal to landfill.

Waste minimisation delivers cost savings
We believe that our environmental programmes are also saving us money. Our best estimate indicates savings to the company in the order of £3m per annum from the more efficient use of energy, raw materials, water, and the generation of less waste for disposal.

Our waste minimisation demonstration project, involving five sites during the period 2001-2003 is a good example of the potential for environmental and business efficiency improvements. This project involved each site participating in a common programme of training and sharing of experience through regular meetings. Seventy-five individual opportunities aimed at reducing electricity, gas, water, materials and waste were identified, with an estimated total annual savings of £200,000, of which £65,000 has been achieved so far from 28 opportunities. Whilst the formal stages of the project have been completed, work continues on a site-by-site basis to implement the additional waste minimisation opportunities identified.

Stakeholder dialogue
We embarked on a new programme of stakeholder dialogue during the year to help shape the content and scope of our EHS reporting practices. We appointed The Environment Council, an independent UK organisation with significant expertise in managing and facilitating stakeholder dialogue, to help us in this process. The programme was launched with two employee workshops, one in the United States and the other in the United Kingdom.