AS A LEADING FIRST-TIER SUPPLIER OF INTEGRATED SYSTEMS TO THE PRIME AIRCRAFT MANUFACTURERS, SMITHS AEROSPACE DESIGNS AND MANUFACTURES INNOVATIVE DIGITAL, ELECTRICAL AND MECHANICAL SYSTEMS FOR MILITARY AND CIVIL AIRCRAFT. ADDITIONALLY, IT SUPPLIES COMPLEX, HIGH-VALUE COMPONENTS TO THE PRINCIPAL ENGINE MANUFACTURERS. SMITHS IS ONE OF THE PRE-EMINENT PROVIDERS OF CRITICAL SYSTEMS AND COMPONENTS IN THE AEROSPACE INDUSTRY'S GLOBAL SUPPLY CHAIN.

For the aerospace industry, the last 12 months continued to be demanding. Orders of new commercial aircraft remained low, although there are firm indications that volumes of new aircraft orders and spares will begin to recover in 2005 as passenger numbers increase once more. As has been the case throughout the civil aerospace recession, stable growth in military sales partly compensated for this lack of activity.

In spite of the tough business environment, the Aerospace division made steady underlying progress. At a constant exchange rate, sales improved 7% and operating profit* rose by 2%. Dollar weakness resulted in reported sales 1% ahead at £1,006m, and – despite strenuous cost reduction efforts – operating profit* behind at 5% to £100m. Research and development spending continued to increase – up £6m – in order to enhance the division's potential for growth.

In civil aerospace, The Boeing Company selected Smiths to supply three major systems for the 7E7 Dreamliner, its new generation of commercial aircraft. This confirms Smiths' position as a first-tier systems integrator and key supply chain partner of Boeing, as well as reflecting the strength of our technology. Boeing awarded Smiths the contract for the highly advanced Common Core Computing System, which acts as the plane's central nervous system, hosting the avionics and utilities functions. In addition, Smiths was chosen to supply the landing gear and high lift actuation systems. In total, the revenue from these products is expected to approach US$3bn over their lifetime.

Airbus has selected Smiths to supply a key system for the other major new commercial aircraft, the A380. It will be the world's largest passenger jet and is scheduled to begin test flights early in 2005, before entering service in 2006. The landing gear extension and retraction system contract includes both the mechanical engineering and electronic control. Smiths delivered the landing gear flight test hardware to Airbus France in July.