SMITHS SPECIALTY ENGINEERING DESIGNS AND MANUFACTURES CRITICAL COMPONENTS FOR A WIDE RANGE OF INDUSTRIES, INCLUDING THE ENERGY, TELECOMMUNICATIONS, DEFENCE, SPACE AND MARINE SECTORS. THE DIVISION ACHIEVES PROFITABLE GROWTH THROUGH TARGETING EXPANDING NICHE AREAS, MAINTAINING THE HIGHEST QUALITY STANDARDS, AND CONTINUALLY INTRODUCING GREATER EFFICIENCIES IN OUR FACILITIES.

The division achieved robust growth. The Smiths Interconnect business, which manufactures application specific components and sub-systems for connecting, protecting and controlling critical electronic systems, drove the division's expansion, benefiting from a recovery in high technology spending. Across the rest of the division – which also comprises the John Crane, Flex-Tek and Marine Systems businesses – conditions were positive, with steady demand from both consumers and construction, although investment in the oil and gas industry was erratic.

At a constant exchange rate, sales rose by 4% and operating profit* by 11%. Strong growth in high margin businesses, and reduced cost following consolidation of manufacturing facilities, aided profit.

The division's sales were flat on a reported basis for the year at £868m, while operating profit* grew by 5% to £113m. More than 100% of profit was converted into cash.

Smiths Interconnect experienced a substantial recovery in sales and profits. This was due to a combination of new product applications and improved market conditions across the defence, telecommunications and industrial sectors. As the mobile telecommunications industry prepared for third generation telephony, the infrastructure build-out drove demand for a variety of our specialist products. In China, our Shanghai facility, opened in 2003 to service the local wireless communications market, is already contributing to profits. Recent innovations in areas such as microwave components, lightning strike protection and microwave cable assembly strengthened our market position. Manufacturing efficiencies following relocation to low-cost economies in previous years fed through to profits.

In May, we acquired TRAK Communications, a leader in the design and manufacture of microwave sub-systems, antennas and related components, to broaden our offering of microwave components. This is a rapidly growing sector, with microwave technology used in a wide range of applications from mobile telecommunications to defence, homeland security and unmanned aircraft.