SMITHS MEDICAL IS A HIGH-MARGIN SPECIALIST MEDICAL DEVICE BUSINESS. PRODUCT DEVELOPMENT CONCENTRATES ON ENHANCING PATIENT CARE AND IMPROVING THE PRODUCTIVITY OF HEALTHCARE DELIVERY. FOCUSED RESEARCH AND DEVELOPMENT SPENDING IS CREATING A GROWING PIPELINE OF NEW PRODUCTS, WHILE REORGANISATION OF GLOBAL MANUFACTURING AND SUPPLY CHAIN OPERATIONS IS FOSTERING GREATER EFFICIENCY.

The Medical division performed well during the year, at constant currency expanding sales in line with an industry that is on a long-term growth trend. This is being driven by the increasing demand of ageing populations in the developed world for healthcare, as well as the progress of technology, which allows this demand to be met.

At a constant exchange rate, sales grew by 5%, while operating profit* rose by 12%. Sales benefited from contributions across the Medication Delivery & Patient Monitoring, and Anaesthesia & Safety Devices business units in the United States. Operating profit gained from efficiency improvements in manufacturing and purchasing. Smiths Medical generates nearly three-quarters of its revenue in the United States, the world's largest medical devices market. As a result of dollar weakness reported sales were flat at £487m, while operating profit* grew by 4% to £92m. Margins rose to 19%.

Two product ranges in particular generated substantial growth. The Cozmo™ glucose pump for diabetics, which was developed internally, is achieving good market penetration in the United States and has recently been introduced into Canada, France and Australia. More than 11,500 patients now use the Cozmo™, which frees Type 1 Diabetes sufferers from the regimen of multiple daily injections. Our comprehensive range of needle protection safety devices enables US hospitals to move towards compliance with legislation committing them to protect healthcare staff from accidental needlestick injuries.

The division invested substantially in new technology during the year. The acquisition of DHD Healthcare in July complements our airway products with a high-growth range of respiratory devices. DHD has a strong record in product development and a promising new product programme.

In addition, we established a technology review council to channel research and development spending to the most attractive opportunities. Forthcoming launches include an advanced version of the fully integrated CozMonitor insulin pump and blood sugar monitor, a next generation ambulatory pump, and silicone airway tubes that minimise infection.