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Annual Report and Accounts 1996

SI/1 Annual vAW colour5 PL2 3/3/97 5:35 pm Page a

Contents

Smiths Industries at a Glance Inner Cover

Financial Highlights 1

Chairman’s Statement 2

Board of Directors 6

Business Review 8

Aerospace 8

Medical Systems 12

Industrial 16

The People of Smiths Industries 20

Financial Review 22

Directors’ Report 25

Statement of Directors’ Responsibilities 30

Auditors’ Report 30

Directors’ Emoluments and Interests 31

Accounting Policies 33

Consolidated Profit and Loss Account 34

Statement of Total RecognisedGains and Losses 34

Balance Sheets 35

Cash-Flow Statement 36

Notes to the Accounts 37

Five Year Review 50

Statement of Value Added 51

Analysis of Ordinary Shareholders 51

Organisation and Management 52

Notice of Annual General Meeting 54

Financial Calendar 56

This report illustrates how the three business groups of Smiths Industries –

Aerospace, Medical Systems and Industrial – have moved ahead during the

year by making intelligent use of the very latest technologies, by adding value to

gain competitive advantage, and by building strong customer relationships

through flexible and responsive service.

SI/1 Annual vAW colour5 PL2 3/3/97 5:35 pm Page d

Smiths Industries at a Glance

Aerospace

Smiths Industries Aerospace designs and manufactures advancedavionics in the UK and the United States, and supplies the majorconstructors with integrated systems which enhance the performance oftheir aircraft. The group provides continuing product support to airlineand armed forces customers, and is also a leading supplier of navigationsystems for the naval and marine sector. It operates in four divisions.

Civil Systems works with customers including Boeing, McDonnellDouglas and Airbus to develop systems which help improve theperformance, safety and efficiency of modern commercial jet transportaircraft. While providing aircrews with vital information to help manageflight and navigation parameters, Smiths Industries products also controlthe complex functions where substantial computing power can relievepilot workload, including engine, fuel and electrical load management.

Defence Systems supplies similar products to military equipmentmanufacturers including McDonnell Douglas, Lockheed Martin, BritishAerospace and GKN Westland. A large proportion of the western world’sfront line aircraft are fitted with Smiths Industries avionics, including tactical,transport and training variants, and helicopters. Upgrading existing‘platforms’ with the latest systems is an increasingly important part of thebusiness, and the Company is a first-tier supplier often contracted directlyto the US Department of Defense and the UK Ministry of Defence.

World-wide Product Support for both civil and defence original equipmentis driven from Cheltenham, with other fully equipped repair centres atHeathrow, on the East and West coasts of the US and in Singapore to servethe Asia Pacific region, plus bases in Canada and Australia.

The Naval & Marine division trades as Kelvin Hughes and is a leadingsupplier of ships’ radar and navigation equipment, including integratedbridge systems for the largest tankers, container ships, luxury cruisers and ferries. It also supplies Admiralty charts to the world’s shipping fleets,now available on digital CDs for display on the company’s high-resolution monitors.

ContributionWith a continuing investment in R&D, Aerospace is well-placed to benefitfrom the present upturn in the civil market, while maintaining a strongorder book for defence equipment.

Contribution to Operating ProfitContribution to Total TurnoverSales by Origin UK 42% USA 44%

Continental Europe 13% Other overseas 1%

Smiths Industries is a world leader in advancedavionics, medical systems and specialised industrialproducts. It has achieved a strong record of growththrough investment in research and development,new manufacturing technology and closely focusedmarketing. While generating a healthy cash-flow,the Company has created shareholder value bycontinuing to build the existing businesses andmaking complementary acquisitions. Almost three-quarters of Smiths Industries’ sales are made tocustomers outside the United Kingdom, with theUnited States as its largest single market.

Geographical distribution of salesBy destination and including products made there, 43% of sales were in the USA, and 21% in continental Europe. Direct exports from the UKamounted to £205m.

Sales by Destination UK 25% USA 43%

Continental Europe 21% Other overseas 11%

27%37%

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Medical Systems

Smiths Industries Medical Systems (SIMS) makes a wide range of

single-use, disposable devices used during surgery, critical and intensive

care, together with medical capital equipment, products for care beyond

the hospital environment, and for home healthcare. Manufacturing

takes place in the UK, continental Europe and the United States, but

sales are made on a worldwide basis, with Japan as one of the most

important markets.

SIMS has become a leader in meeting new approaches to healthcare –

including the trends towards less invasive procedures and post-hospital

continuing treatment at ‘alternate sites’ – while focusing on the need to

eliminate risk of cross infection in the healthcare process.

Single-use devices, the largest area of activity, are made by a number of

businesses grouped under SIMS Portex in the UK and SIMS Inc in the

United States. Portex, Concord and other leading brands are well-

recognised by clinicians for their premium quality and innovative design.

In addition to IVF devices, the Simcare range covers urology, ostomy and

incontinence products which help patients lead a relatively normal life.

In the US, SIMS Deltec makes ambulatory infusion pumps and

intravenous access ports which allow users to continue their treatment

without being permanently connected to hospital bedside equipment,

while SIMS Level 1 and RSP together provide temperature management

systems to keep patients at the correct core body temperature during

and after surgery.

Eschmann Equipment in the UK makes capital equipment for use in

hospitals and by GPs and dentists. Products include operating tables,

patient transfer systems, electro-surgery units and instrument sterilisers.

With a strong export record, the Eschmann name is synonymous with

the best operating room equipment at hospitals in many countries.

ContributionMedical Systems is the largest contributor to the profits of Smiths

Industries, and continues to thrive in a steadily expanding market for

healthcare. While securing margins which reflect its reputation for

premium products, it is actively pursuing new opportunities in the

developing world.

Industrial

The Industrial group has expanded rapidly in recent years through

acquisition and organic growth and stands alongside Aerospace and

Medical Systems as one of the Company’s three chosen areas of activity.

It makes a wide range of products at businesses based in the UK,

continental Europe and the United States. The group has focused on

adding value through the quality of its service to customers, providing

them with products which have been ‘customised’ to meet their

particular requirements.

The largest, Flex-Tek manufactures hosing, ducting and conduit in five

European countries and at three locations in the US. The products are

used for moving gases and fluids in industrial processes, air conditioning,

vacuum cleaners and for protecting electrical wiring in hazardous

environments. They are engineered to meet demanding specifications in

terms of durability and flexibility.

The Vent-Axia division is the UK’s leading manufacturer of ventilation

fans used for air extraction in industrial, commercial and domestic

premises. As well as the Vent-Axia company, the division includes the

Air Movement Group making large, plate-mounted fans, Sifan making

hand driers and central heating boiler fans, and Tutco in the United

States, supplying electrical heating elements for clothes driers.

Hypertac Interconnect has been formed around businesses in Europe

and the US all making the unique Hypertac connector. This high-integrity,

low insertion force device is used where multi-pin electrical connections

must be assured in safety-critical applications. These include avionics,

transportation, computer and telecommunications sectors.

Specialist Engineering comprises a number of high-margin niche

businesses manufacturing products, including electrical and electronic

components, which each address a specialised application. They

contain core competencies which can provide the opportunity for further

Industrial group expansion.

ContributionNow more clearly defined into these four divisions, the Industrial group

has achieved critical mass in its principal areas of operation. Further

gains can be made from the integration of recent acquisitions.

Contribution to Operating ProfitContribution to Total TurnoverContribution to Operating ProfitContribution to Total Turnover

More information on the Company organisation and senior management can be found on pages 52 and 53.

43%30% 30%33%

SI/1 Annual vAW colour5 PL2 3/3/97 5:35 pm Page c

Turnover£M

1000

900

800

700

60092 93 94 95 96

Salient points from the accounts 1996 1995

Turnover £1,008.4m £899.3m

Profit before exceptional items £165.4m £138.5m

Profit before tax £170.4m £138.0m

Net borrowings/cash (£28.3m) £0.8m

Amount spent on acquisitions (net) £98.3m £51.6m

Earnings per share, before exceptional items 36.6p 30.7p

Operating profit to turnover 16.7% 15.7%

Dividend for the year 16.2p 14.4p

Dividend cover 2.2 2.1

Employees at year end 12,800 12,300

Market analysis Turnover Profit

1996 1995 1996 1995£m £m £m £m

Aerospace 377.1 374.2 45.3 40.3

Medical Systems 303.3 275.4 73.1 63.0

Industrial 328.0 249.7 49.7 37.6

1,008.4 899.3 168.1 140.9

Net Interest (2.7) (2.4)

165.4 138.5

Operating Profit£M

160

140

120

100

8092 93 94 95 96

Operating Profitto Turnover

%

16

15

14

13

1292 93 94 95 96

Financial Highlights

1

SI/1 Annual vAW colour5 PL2 3/3/97 5:35 pm Page 1

It is a real pleasure to report on another

very good year for Smiths Industries. All

three of our business groups improved

their performances, and increased their

profits and margins while preparing the

ground for further growth.

Record sales and profits were

achieved last year. Sales at £1,008m

(1995: £899m) were up 12%, pre-tax

profits before exceptional items at

£165m (£138m) were up 19%. Cash-flow

was once again very strong at £149m

(£140m) enabling us to make acquisitions

during the year of £104m for cash and to

fund the capital requirements of all three

of our business groups.

Earnings per share increased by 19%

to 36.6p (30.7p) before exceptional items.

The Board is proposing an increased

final dividend of 10.6p making a total for

the year of 16.2p, up 12.5% on last year.

On your behalf I should like to

thank all the Company’s employees for

their individual contributions to these

excellent results.

Aerospace

The Aerospace group earned profits of

£45m (£40m) on sales largely unchanged

year-on-year of £377m (£374m). Margins

increased from 11% to 12% and cash-

flow, which has been such a strong

feature in this group during recent years,

was once again very good.

Company-funded R&D expenditure,

mainly related to civil aircraft prog-

rammes was maintained at a high

level. Customer-funded R&D, principally

military, reduced.

The production rate on new civil

airliners has started to increase and a

further rise in new build rates is

confidently expected during 1997

reflecting the improvement in world

airline demand.

During the year we were selected to

participate in important programmes

which strengthened our position as a

first-tier supplier of avionics for key

military aircraft being developed and

manufactured in the US and Europe.

These programmes will provide valuable

work for our British and American

facilities in the years ahead. We

welcome the support of the British

Government for the Eurofighter 2000

and trust that an early decision will be

made to go ahead with production.

Our reputation for technological and

product quality with our main customers

is the cornerstone of this business and

I believe that we are very well placed to

benefit from increased demand in both

the military and civil sectors.

Medical Systems

The Medical Systems group increased

sales by 10% to £303m (£275m), profits

by 16% to £73m (£63m) and margins

to 24% (23%). This excellent perform-

ance reflects organic growth coupled with

an initial contribution from the Level 1

company acquired in October 1995.

Our UK-based single-use companies

maintained their very good export

performance, particularly to Japan and

Chairman’s Statement 3

• 19% rise in pre-taxprofits beforeexceptionals

• Outlook improves for Aerospace

• Margins remain goodin Medical Systems

• Industrial acquisitionsstrengthen corecompetencies

• Cash generationcontinues strong

SIR ROGER HURN CHAIRMAN & CHIEF EXECUTIVE

“The Board was very pleased to welcomeKeith Butler-Wheelhouse, who joined us in August 1996 and succeeds me as Chief Executive following the AGM”


share of the market for anaesthesia and

respiratory products there.

Industrial

A very good performance from all

divisions in the Industrial group is

reflected in overall sales growth of 31%

to £328m (£250m). This led to a profit

increase of 32% to £50m (£38m) with

margins holding up well at 15%.

During the year we established the

Hypertac Interconnect division following

the acquisition of the FRB Connector

group in the previous year. This

business is in the high-quality, high

specification electrical connector market

with production facilities in the UK, USA,

Germany, France and Italy. It is already

meeting its projected returns and is well

placed for the future.

Vent-Axia had another successful

year and now includes the Air Movement

Group acquired in April 1996. This

acquisition will enhance the product

range and distribution arrangements for

all air moving products.

Our tubing and ducting businesses

were enlarged with the acquisition of

the UK-based Adaptaflex company

in April 1996 and integration is

progressing well.

Acquisitions

The contribution from acquisitions has

been an important feature in the

Company’s growth in recent years and

I am pleased to report that our latest

additions have exceeded expect-

ations with further synergy benefits

still to come. During the year four

4 Chairman’s Statement

Earnings Per SharePence

38

34

30

26

2292 93 94 95 96

Dividends Per SharePence

16

14

12

10

892 93 94 95 96

Dividend Cover

2.2

2.1

2

1.8

1.692 93 94 95 96

the Far East, and new products are

generating significant contributions.

We countered the drop in demand

for medical capital equipment in the

UK, caused by National Health Service

cash constraints, by concentrating

on exports. In the North American

market for single-use devices,

competition has been intensified by

consolidation among customers into

fewer, larger groups of healthcare

providers: we have responded by

focusing on higher added-value

products. We have increased the equity

investment in our Japanese distributor

to improve our already substantial


companies joined Smiths Industries –

MJA Dynamics Ltd in Aerospace, Level

1 Technologies Inc in Medical and both

Air Movement Group Ltd and Adaptaflex

Ltd in the Industrial group. The task

of absorbing these companies is

proceeding smoothly.

The Board

The Board was very pleased to

welcome Keith Butler-Wheelhouse who

joined us in August 1996. He succeeds

me as Chief Executive following the

AGM on 19th November 1996. I will

continue as Chairman and I look

forward to working closely with him in

the future.

Sir Alex Jarratt retires from the

Board at the AGM and I would like to

express my warmest thanks to him for

his enormous contribution to the

success of Smiths Industries. He joined

the Board in 1984 becoming Chairman

in 1985 until I succeeded him in 1991.

He has set an outstanding example

both as Chairman and as our Senior

Non-Executive Director. During our

working relationship I very much valued

his wise counsel and patient guidance

which will now be greatly missed.

Prospects

Good order books for civil airliners,

particularly those manufactured by

Boeing, will follow through into

increased build rates next year and we

shall benefit from this upturn.

The rising demand from developed

and developing markets for our medical

products will keep up the sales

momentum. Innovation and new

products coming on stream will further

enhance this growth.

The Industrial group, assisted by

recent acquisitions which add to its

geographical coverage and product

range, will continue to grow strongly.

Excellent cash-flow used both for

acquisitions and for the growth

requirements of our three business

sectors will continue to be a feature of

the Company.

Overall, I have confidence in the

outlook for increases in sales, profit and

earnings per share.

Sir Roger Hurn

Chairman & Chief Executive

5

“Excellent cash-flow used both for acquisitionsand the growth requirements of our threebusiness sectors will continue to be a featureof the Company”


Sir Roger Hurn

Aged 58, British. Chairman &

Chief Executive. He joined the

Company in August 1958 and was

appointed to the Board in March

1976. He was appointed Chief

Executive in August 1981, and to

his present position in November

1991. Sir Roger will continue as

Chairman when he relinquishes the

position of Chief Executive following

the Annual General Meeting on

19 November 1996. He is a

non-executive director of ICI plc

and Glaxo Wellcome plc.

Keith Butler-Wheelhouse

Aged 50, British. He joined the

Company in August 1996 as an

executive director and, following

the Annual General Meeting on

19 November 1996, will be

appointed Chief Executive.

He was previously President and

Chief Executive Officer of Saab

Automobile in Sweden and prior

to that had been Chairman & Chief

Executive of Delta Motor Corporation

in South Africa. He remains a non-

executive director of that company.

Norman Barber

Aged 57, British. Chairman,

Aerospace group. He joined the

Company in April 1991 and was

appointed to the Board in July

1991. He was previously Managing

Director of British Aerospace

(Dynamics) and British Aerospace,

Military Aircraft Division. He is a

non-executive director of BSG

International plc and is Deputy

President of the Society of British

Aerospace Companies (SBAC).

Sir Alex Jarratt, CB DL *†

Aged 72. British. Non-executive

director and Chairman of the

Company’s Senior Appointments

and Remuneration Committee.

He joined the Board in February

1984 and was Chairman of

the Company from August 1985

to November 1991. Previously

Chairman of Reed International plc,

he is currently Chairman of the

Centre for Dispute Resolution,

and Chancellor of the University

of Birmingham. Sir Alex will

retire from the Board at the

Annual General Meeting on

19 November 1996.

George Kennedy


Medical Systems group.

He joined the Company in

January 1973 and became

Managing Director of the medical

systems companies in August

1980. He was appointed to the

Board in May 1983. He is a

non-executive director of the

Kent and Canterbury Hospitals

NHS Trust and of Carclo

Engineering Group plc where he

is Deputy Chairman. He is

currently Chairman of the

Association of British Healthcare

Industries (ABHI) and is a member

of the Department of Health’s

Medical Devices Agency.

Roger Leverton *†

Aged 57, British. Non-executive

director. He was appointed to

the Board in December 1994.

He is Group Chief Executive of

Pilkington plc.

Einar Lindh


Industrial group since February

1996 when he was also appointed

to the Board. He first joined the

Company in 1973, leaving in 1979

to join Great Universal Stores plc.

He returned to Smiths Industries

in 1983 as Financial Controller of

the Medical Systems group and

in 1990 he became Managing

Director of the principal Medical

Systems group company,

SIMS Portex Ltd.

Keith Orrell-Jones *†


director. He was appointed to the

Board in December 1992. He is

Group Chief Executive of Blue Circle

Industries PLC. He will become

Chairman of the Senior Appointments

and Remuneration Committee in

succession to Sir Alex Jarratt.

Alan Pink *†


director. He was appointed to the

Board in December 1993. He is an

executive director of Zeneca Group

plc. He is a Fellow of the Institution

of Chemical Engineers.

Alan Thomson

Aged 50, British. Financial

Director. He joined the Company

and was appointed to the Board

in April 1995. He was previously

Finance Director of the Rugby

Group plc and prior to that had

worked for Courtaulds plc, Rockwell

International Corporation and

Raychem Ltd. He is a non-executive

director of Laporte plc.

Sir Peter Thompson *†


director and Chairman of the

Company’s Audit Committee.

He was appointed to the Board

in September 1986. He is

Chairman of FI Group plc,

Community Hospitals Group plc,

M33/31 Group and Child Base Ltd.

He is a non-executive director of

Aegis plc and Brewin Dolphin

Holdings plc. He is President

of Pro Share Ltd.

Secretary

Alan Smith

Registrar

Lloyds Bank Registrars

The Causeway

Worthing

West Sussex BN99 6DA

Auditors

Clark Whitehill

Registered Office

765 Finchley Road

London NW11 8DS

Incorporated in England

No. 137013

†Audit Committee

*Senior Appointments and Remuneration Committee

6 Board of Directors


7

Support from non-executive directors benefits the strong team of executive directors and ensures high standards of corporate governance

First Row (left to right):

Sir Roger Hurn, Keith Orrell-Jones,

Norman Barber, Roger Leverton.

Middle Row (left to right):

Sir Peter Thompson, George Kennedy,

Alan Pink, Alan Thomson.

Bottom Row (left to right):

Keith Butler-Wheelhouse (becomes

Chief Executive following AGM),

Sir Alex Jarratt (retires from the

Board at AGM), Einar Lindh

(became Chairman, Industrial

group February 1996)


With the strong

recovery in the civil

market and new

defence orders, the

Aerospace group is

seeing the rewards of long-term

investment in technology and facilities.

Profits increased by 12% to £45.3m on

steady sales of £377.1m (£374.2m) and

the business continues to generate a

strong cash-flow. We have maintained

spending on R&D at a high level, and

our commitment, even during the recent

difficult years, has led to a series of new

business wins.

Now profitable again, airlines are

replacing older planes with new aircraft

which carry more of our advanced

avionics. Meanwhile the decline in

defence spending has also slowed.

Although the emphasis is on upgrades,

delayed decisions on new equipment

are now taking shape.

In both defence and civil areas,

we are positioned to benefit. The

Aerospace group is a world leader in a

number of technologies, our reputation

with customers is good, and our product

support keeps us highly visible while

generating a valuable stream of income.

Although employment levels remain

more stable than earlier in the decade,

reorganisations have continued, including

the integration of the engine and fuels

business within the Civil Systems division.

The Aerospace group now operates

as four divisions: Civil Systems, Defence

Systems, Product Support and Naval

& Marine. The split of defence and civil

business is 60/40, with the longer-term

outlook moving to 50/50.

Civil Systems

Civil Systems is building on its successes.

The selection of our flight management

systems and autothrottle for the new

Boeing 737 6/7/800 series holds far

reaching importance: it is the fastest-selling

aircraft in the world; flight management is

an area of intense focus; and our systems

are central to a new approach to aircraft

navigation which is rapidly becoming a

world standard. There are also good

prospects for retrofitting existing aircraft.

The electrical load management and

fuel quantity indicating systems we

supply for the highly successful Boeing

777 have contributed greatly to the

improved performance of the group.

Orders are strong, and further buoyed

by a credibility with Boeing that makes

us a serious contender for new models.

Improvements in our position at Airbus

are expected to continue. We supply

fuel quantity systems for the smaller

A319/320 series and have just secured

a contract for the first basic-fit flat-panel

display instrument on any Airbus aircraft,

initially for the longer range A330/

A340 models.

Another notable win was an order for

commercial ‘off-the-shelf’ flat-panel

displays and other products for the new

Joint Primary Air Trainer aircraft, of

which over 700 will be built for the

US AirForce and Navy.

The engine controls business –

including the joint venture with Rolls-

Royce, RoSEC – is providing the digital

engine control unit for two new engines

now undergoing certification. Heavy

development costs have weighed on

business performance, but the products

are performing well.

Defence Systems

Defence Systems recorded excellent

progress, building on the inherent

strength of our relationships as first-

tier supplier to the American airframe

manufacturers, the Department of

Defense, the Ministry of Defence, British

Aerospace and GKN Westland.

8 Business Review • Aerospace

Aerospace

• Profits up by 12% to £45.3m

• Boeing relationshipcontinues strong

• Defence Systemsmakes excellentprogress

• Product Support winsagainst competition

• Increase in shipbuilding brings orders

NORMAN BARBER

CHAIRMAN

AEROSPACE GROUP


Among the most important continuing

applications for our avionics are for the

E/F versions of the F/A-18 (of which the

US Navy plans to buy at least 1,000),

the Apache AH-64 helicopter in its latest

Longbow version, the Hawk and its US

counterpart the T-45 Goshawk, and the

Tornado – currently being upgraded with

our latest displays.

Contracts for new business have

included a substantial avionics package

on the RAF’s Nimrod maritime patrol

aircraft, and a health and usage

monitoring system for the UK’s Chinook

helicopter fleet, with large potential for

further business on UK and other

helicopters. Our acquisition of a UK

software specialist, MJA Dynamics,

helped secure this contract. In Europe,

the Eurofighter 2000 and EH-101

helicopter moved towards full-scale

production, both extensively equipped

with our most advanced avionics. In the

US, we are also involved with the F-22,

and the Joint Strike Fighter programme.

Our opportunities have not been

constrained by the continuing consolid-

ation and cross-border alliances among

manufacturers, and may increase with

the emergence of a more commercial

approach to procurement.

Product Support

The Product Support division is

performing well, with more than half of

its business coming from the resurgent

commercial airlines. Although competition

is fierce, we have the advantage of best

access to our own product lines. The

division has invested heavily in information

technology, which allows it to track

components on a world-wide basis.

Naval and Marine

The Naval & Marine division, principally

trading as Kelvin Hughes, is also

benefiting from a rising market and a

modest increase in shipbuilding. Kelvin

Hughes has been increasing its market

share in navigation and radar displays

by introducing integrated systems for

greater safety and efficiency.

In the Far East, the container line

Evergreen has ordered our radar,

electronic charts and navigation

systems for 15 new vessels and a

further 15 re-fits. The unique Integrated

Bridge has been specified for new

P&O container ships, BP tankers, and

a number of high-speed ferries and

cruise ships.

The Naval business has orders from

navies around the world, while the

Charts and Maritime Supplies operation

is profiting from the rapid changeover to

electronic charts, for which we also

make the display units.

Outlook

This is the most promising outlook for

the Aerospace group for several years.

We have proved the value of our

decision to concentrate on internal

efficiency while investing for the future,

and are now experiencing an upturn

which we believe will continue into the

next century. Further, as volumes

improve – if only modestly – we expect

to be able to raise margins while

containing our fixed costs.

9

We have proved the value of our decision toinvest for the future throughout the recessionin both commercial and defence sectors, andwill benefit from the upturn

AerospaceTurnover

£m

350

300

250

200

15092 93 94 95 96

AerospaceProfit

£m

44

42

40

38

3692 93 94 95 96


10 Business Review • Aerospace

The intelligence we channel into advanced technology builds a strong foundation for the future

Health and safetyWith our advancedelectronic ‘health andusage’ monitoring system,we are taking a world leadin the introduction of in-flight diagnostics forhelicopters. The system

monitors nearly 200parameters vital to theaircraft’s operation – suchas rotor track and balance– continuously collecting,processing and storing databoth for routine maintenanceand in a crash-survivable

‘black box’. The UK’sMinistry of Defence haschosen it for the RAF’sChinooks and is reviewingother options, while the USForces are considering itsinstallation on severalthousand military helicopters.

High-tech customerserviceSuppliers to civil aircraftmakers are contracted tomeet stringent turnaroundtimes for repairs, since this is crucial to an airline’sability to keep the aircraftflying. Already industryleaders in repairperformance, our ProductSupport teams haveanalysed and streamlinedinternal processes over thepast two years so thatsome 90% of repairs arecompleted within 10 days. In the coming financial year,we aim to reach 95%.

Developing a clear viewOur very latest flat-paneldisplay technology – Active Matrix Liquid Crystal– halves the powerrequirement, weight anddepth of previoustechnologies, and meets thetight criteria of defencecustomers at a highly

Flat panel display: Halving depth releasesimportant space in newaircraft, but the screen sizealso fits existing cockpits

A. Data Storage Unit: Located behind pilot cockpit

B. Rotor Sensors Monitoring rotor track & balance

competitive price. Morereliable and versatile thanconventional displays, they can present video,text, graphics and dataclearly and in multiplecolours – helping pilots to assimilate flight-criticalinformation quickly andaccurately.

FCR

BRT

DAYNT

GRN

WPNTSD M A/C

COM

VID

VID

TACAN

PTR 1 PTR 2MAP HOVER

WINDOAT

WPT002R

ILS 1 045 135

NMMINNR

0

DEV SEL CRS SEL HDG

KTS TACAN

M

W

VOR

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N

S

160

270/10

+15C

10.08

9

10

11

12 1215

21

24

30

33

3

6

3 0 234.0

5 Minutes: Aircraftarrives at gate. Ground engineerdiagnoses fault andidentifies unit to beremoved.

15 Minutes: Faultyunit is removed fromflight deck and takento stores.

30 Minutes: Faulty unitexchanged for a goodone, (finding ProductSupport’s ‘turn aroundtimes’ have been fullymet). Replacement unit is now installed on aircraft.

A. Multi-function airspeed indicatorB. Multi-function altimeterC. Multi-function vertical speed indicatorD. Primary Engine DisplayE. Fuel quantity/cabin pressure engine instrumentF. Secondary engine display/collision warningG. Standby airspeed indicatorH. Standby altimeter

45 Minutes: Totalelapsed time typically 45 minutes for a Boeing 737 type aircraft.

Chameleon TechnologyIntelligent software is thebase for an integrated cockpitdisplay with interchangeableunits. Their function isdetermined by the connection,thus reducing the costs anddelays associated withnormal replacements andspares. We are the world’slargest supplier of multi-function display units –leading the industry trendaway from hard-wired,single-task devices. Raytheonselected our avionics for itsnew trainer aircraft for theUS AirForce and Navy: aninitial award for 141 trainersexpected to rise to some700 aircraft over 20 years.

A B

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In high-technology avionics and aeronautics, product leadership is won byinvesting in R&D projects to exploit advanced technologies. Through the quality of our R&D we hold patents on a number of developments now central to the industry’s future, and have taken a lead in many innovative applications. The resulting orders for standard equipment on aircraft with long production runs are a solid base for future revenue streams.

Perfect positioningOur Communications,Navigation and Surveillanceand Air Traffic Managementsystems are years ahead ofthe competition. Involving anumber of Smiths Industriespatents, they combine allelements of the completeflight management systemsnow seen as essential forthe future as a means ofsaving cost and relievingpressure on airspace andairport capacity. Our systems

use the Global PositioningSatellite to determine anaircraft’s exact position –making it possible to reduceaircraft separation withsafety, and enabling aircraftto save time and fuel costsby adopting their optimumaltitude and direction.

Armrest control Innovative engineering at ourmarine equipment businesshas given us a clear lead.We hold the patent for anergonomic control interfaceto a sophisticated new radarsystem featuring highresolution, 50-target trackingcapability, and compactsize. With simple controlsmounted in a pod in theseat armrest, users movethe cursor on the screen toselect a function. Its marketis mid-merchant and high-speed craft, where seatedcrew are unable to accessconventional multi-switchcontrol panels. The displayis software driven, thusoffers the flexibility to marketseveral variants from onegeneric design.

D. Ground Station:Relays signal to airtraffic control

E. Air Traffic Control

A. Display: tracks up to 50 targets at any one time

B. Trackerball

C. Operation: The thumbmanipulates the trackerball

A. Flight management system: integrated withglobal positioning satellite

B. Aircraft: Updates positionvia relay satellite and/ordirectly with air traffic control

C. Satellite: Follows theaircraft’s flightpath

A

C

B

C

A

D

E

B


Healthcare is high

on the political

agenda in most

countries, and thus

commands an in-

creasing share of GDP. While this

generates a world market for medical

devices and equipment that is growing

at 6% a year, Smiths Industries

Medical Systems is comfortably out-

performing that rate. One force behind

our success is the group’s highly

developed marketing skills: nearly two-

thirds of UK output is exported, and US

subsidiaries are also becoming more

export-oriented. A second force is our

ability to add value to existing products

to make them the specialist’s choice.

This is a difficult business for

outsiders to enter: there are major

players already in place; government

approval procedures are complex; and

patents enable product differentiation to

be protected. Because of this, we

commit considerable resources to

regulatory affairs and to observing best

medical practice. European Community

(CE) marking, which we now use across

the majority of the product range, has

simplified our selling within Europe –

benefiting our efficient production

in the UK, US and Germany.

Medical Systems increased its

profits by 16% to £73.1m. Sales

increased to £303.3m (£275.4m),

delivering a margin on sales of 24% –

exceeding the 20% target we set during

this rapid expansion phase. There were

three elements to the improved

performance: the first full year’s profits

from companies acquired in the

previous year, part-year profits from

SIMS Level 1, and improvements in

existing businesses.

The performance of all our recent

Medical Systems acquisitions has met

our initial expectations – exceeding their

financing costs and producing margins

that support our overall performance.

Single-Use Products

In the single-use device companies in

the UK and continental Europe we have

recently completed a major reorgan-

isation. One effect will be a sharper

marketing focus, with SIMS Portex Ltd

now the umbrella company for the

complete range of single-use products –

Portex, Simcare, Wallace, Concord,

Eschmann Healthcare, Avon and PVB

devices, plus European sales of products

imported from our US companies.

For both our UK and continental

companies, product development, sales

and marketing, and manufacturing

strategy are all now brought under the

streamlined SIMS Portex management

based at Hythe in Kent. In parallel we

are reviewing our world-wide marketing

activities and have made good progress

in areas including South Africa, Russia,

eastern Europe and China.

Japan

Japan continues to be an important

market, and our equity investment in the

distributors Japan Medico has recently

been doubled. We sell all of our

European products through this highly

successful distribution enterprise,

together with the US-made products

likely to find a valuable niche in Japan.

Capital Equipment

Eschmann Equipment has found the UK

market difficult during the hiatus

between NHS Trusts exhausting their

initial ‘set-up’ capital grants and creating

their own investment programmes. The

company has a healthy overseas order

book and is currently concentrating on

exports, plus its strong business in

maintaining installed equipment.

12 Business Review • Medical Systems

Medical Systems


• Sales increased 10% to £303.3m

• Profit on sales 24%

• Acquisitions meetexpectations

• Growth potential innew markets

GEORGE KENNEDY

CHAIRMAN

MEDICAL SYSTEMS GROUP


North America

North American operations are grouped

under SIMS North America, based in

Keene, New Hampshire. They all supply

plastic consumable devices which

generate a continuous profit stream,

although some of the companies are

better known for the electronic equipment

they make.

SIMS Inc – comprising Concord,

Portex and Intertech – makes single-

use disposables for anaesthesia and

critical care. A unified sales force sells

these devices throughout the US, often

combining groups of products to

provide a more competitive offering. As

a result, we have secured a number of

longer-term supply contracts.

Margins in this highly competitive

environment remain good, although

slightly lower than for Medical Systems

as a whole. One way that we are

addressing this is by investing $15

million in a new main manufacturing

complex in Keene. Meanwhile, we are

concentrating on products with higher

added value, such as the Per-Fit (TM)

kit introduced in the US during the year

and expected to match the success

of the similar UK-made percutaneous

tracheostomy kit.

In its second full year with Smiths

Industries, SIMS Deltec produced

another outstanding performance as the

market leader in the rapidly growing

sector of infusion devices for care

beyond the hospital environment.

Alongside its existing range, the

company has developed a new

ambulatory unit – the Prizm pump – sold

as a premium product with advanced

features. Once in use, Deltec’s pumps

generate a continuing demand for the

disposable plastic cassettes which

contain the prescribed medicines.

Since our purchase of SIMS Level 1

for $57 million in October 1995, its

performance has more than matched

our expectations and we see wide

opportunities for further growth. Like

Deltec, it supplies hardware and then

generates ongoing business from the

supply of single-use sterile items. Blood

and other fluids must be infused at a

temperature close to the patient’s own

to avoid the risk of hypothermia, and

Level 1 products have the best warming

technology yet developed.

These companies have good export

prospects, and new distribution arrange-

ments will enable them to realise their

full potential.

Outlook

Medical Systems is a dynamic business

in a buoyant market. We can maintain

good margins and there are still

opportunities to take the single-use

philosophy into unexploited markets.

South Africa is one example, and we are

already building sales in Asia Pacific

through our offices in Singapore and

Taiwan. We view our growing business

in Japan as the start of a trend in the

Pacific region as a whole. The outlook

and opportunities for the group remain

as good as ever.

13

The world market for medical devices andequipment is growing at 6% a year; we arecomfortably outperforming that rate.

Medical SystemsTurnover

£m

300

250

200

150

10092 93 94 95 96

Medical SystemsProfit

£m

70

55

40

25

1092 93 94 95 96


14 Business Review • Medical Systems

Intelligent product development adds value forpatients and healthcare professionals

Barrier against contaminationDesign refinements transferredfrom ‘clean room’ manufacturingprinciples take the efficiency ofPortex’s Thermovent Bacterial/Viral Filter to 99.99% – providingalmost total protection againstcross-infection for patients, staffand equipment during medicalprocedures that involve managing the airway passagefrom mouth to lungs. Connectedto a tracheal tube inserted into a patient’s airway, the filtermaintains normal humidity andtemperature levels for ingoing air,while removing contamination.

The leading choiceThrough continuous innovation,SIMS Deltec has widened thechoice of PORT-A-CATHproducts to match broadclinical needs and cost targetsin the healthcare industry –commanding a leading role inthis field for over a decade.PORT-A-CATH products aresurgically implantable accessports that reduce damage and trauma for patients whowould have needed repeatedinsertions of a needle forexample into a vein.

A. P.A.S. PORT implantable access systemdesigned exclusively for the arm

B. PORT-A-CATH venous access system port

C. Cross section of PORT-A-CATHdisplaying septum designed for needleretention and stability.

A. Plan of filter

B. Cross section of filter

C

B

A

A

B

septum

Complete kit for safer careTracheostomy involvesinserting a tube into a patient’sneck to enable them tobreathe. Although a relativelycommon procedure, itrequires patients to be movedto a fully staffed operatingtheatre. Portex has advanceda less invasive method –percutaneous tracheostomy– performed quickly at thebedside with less stress andfewer complications for the patient, and thus lowercosts for the hospital. Ourinnovations include a completeprocedure kit – incorporatinga unique forceps design thatallows the airway to beopened for insertion of the tube.In addition to strong UK sales,the kit’s ingenuity has openednew doors in export markets.


15

STOPSTART ENTER OPTIONS

LOCK NEXT

? DOSE

Y

N

Innovative developments from Smiths Industries Medical Systems have far-reaching impact on the treatment and comfort of patients in hospital and in their daily lives. Recognised both for intelligent advances in conventional medical equipment and inspired new ideas, SIMS is increasingly the supplierof choice for healthcare organisations.

12 30 12 30140 60

Combating HypothermiaTwo SIMS companies in the US, Level 1 andRespiratory SupportProducts – are capitalisingon the growing recognitionthat managing a patient’stemperature during surgeryor emergencies contributesto speedy recovery. Theirproducts bring together a revolutionary technique for delivering warmed blood or fluids at precisetemperatures; a disposablethermal blanket warmed byair pumped around itstubular construction; and atemperature monitor withprobes and sensors.

Medication with mobilityA portable infusion pump,worn on the body, delivers ameasured dose of medicationto a patient in hospital or athome. It allows patients tolive as normally as possibleand helps cut hospital andhome nursing costs. Havingpioneered this technology,SIMS Deltec, Inc. this yearadvanced with a new pump– the CADD-Prizm(TM) PainControl System. It is easilyprogrammed to administerthe correct drug dosage andrecord data on the pump’sactivity for review by themedical team.

Triple PowerIn electrosurgery, an electricalcurrent is passed to the tip of a surgeon’s instrument.Eschmann’s expertise is indesigning waveforms thatproduce a precise effect for a specific surgical technique. Its latest system incorporates

three generators that can be used simultaneously forcutting and coagulation –important in trauma caseswhere a team of surgeonscan work at the same time using their ownindependently controlledpower source.

A. Disposable IntravenousTubing Set

B. Intravenous fluid warmer

A. Electrosurgical unitB. Active electrodeC. Dispersive electrode plate

A. CADD-Prizm(TM) PumpB. Belt mounted location C. Catheter port into upper arm

A

B

C E

D

C. Disposable full body blanketD. Warm air hoseE. Convective warming unit

A

B

C

A

C

B


The Industrial group

profit of £49.7m

represented a 32%

increase over the

previous year. The

established businesses continued their

growth patterns with a further profit

increase of 12% through both sales

growth and productivity improvements.

There were two acquisitions during

the year: the Air Movement Group,

which cost £46.6m has joined the

Vent-Axia division; while Adaptaflex,

bought for £21m, has joined Flex-Tek.

Both these acquisitions meet the group

strategy of growing our established core

businesses by expanding our range of

high-quality products supported by first-

class service.

The business now operates in four

divisions. Each has reached critical

mass through a combination of

acquisitions in our areas of core

competence and development of the

existing operations.

Flex-Tek

Flex-Tek manufactures flexible ducting,

hosing and electrical conduit in five

European countries and three sites in

North America. The business units

are close to their customers both

geographically and in terms of their

ability to tailor products to specific

needs. This competitive advantage

is continually strengthened by the

extensive inter-change of commercial

and technical information between

companies.

Interplas – the European group of

manufacturing companies acquired

last year – has integrated well, and

continues to generate profits at the level

expected. Flexible Ducting in the UK

and Flexible Technologies in the US

both increased their sales volumes,

aided by requirements for better

environmental, health and safety

standards. Adaptaflex – which employs

138 and is based near Birmingham –

has joined alongside Kopex to offer

an extended range of high performance

conduit and fasteners for hazardous

and safety-critical applications. This is

an area of growing demand: durable

protective conduits are becoming a

standard safety measure across a range

of applications as wide as the uses of

electrical and fibre-optic cables.

Adaptaflex has brought a versatile

and complementary range of products

to the division.

Vent-Axia

The Vent-Axia division is a mainly

UK-based operation making extractor

fans and associated air-moving units.

The Vent-Axia company itself – a

Smiths Industries company since 1992 –

has been capitalising on its well-

known brand name as a base for

introducing new products for the home,

including an innovative heat-recovery

system. This year’s acquisition of the

Air Movement Group, based near

Birmingham and with 350 employees,

has increased the size of the division

substantially. Its large, industrial-scale

units add an important new dimension to

the business by complementing Vent-

Axia’s range of fans for commercial and

domestic premises. AMG also brings a

nationwide distribution network through

which we can offer a highly responsive

customer service. The original Smiths

Industries fan company, Sifan, which

makes domestic boiler fans and hand

driers, was the kernel around which

this substantial division has grown.

It now extends to the US, where our

heating element producer Tutco con-

tinues to expand. Tutco joined Smiths

Industries in 1994, and is the market

leader in its field.

16 Business Review • Industrial

Industrial


• Rising demand forflexible conduit

• Air-moving businesswidens

• World-wide reach for Hypertac

• Good margins in niche operations

EINAR LINDH

CHAIRMAN

INDUSTRIAL GROUP


Hypertac Interconnect

During the year we established Hypertac

Interconnect as a separate division of the

Industrial group. It comprises the FRB

connector businesses acquired at the

end of the previous year and our exist-

ing connector companies in the UK

and US. The Hypertac connector is a

unique product increasingly in demand

as the market for reliable electronic

connections widens in virtually every form

of transport and mobile communications.

We now have a commanding position

world-wide with six operations in five

countries all making products using the

Hypertac low insertion force contact.

The first full-year performance of these

businesses exceeded our expectations.

We expect to take advantage of

the opportunities to improve the

productivity of the combined businesses

further by exploiting the many

marketing and operational synergies.

One of the major opportunities will be

the international expansion of our

products’ applications.

Specialist Engineering

The Specialist Engineering division now

encompasses a number of smaller

niche businesses successfully supplying

electronic, electrical and mechanical

products. These companies perform well

and deliver good profit margins. Some

are the seed-bed for core competencies

which may form a base for enlarging our

activities. Equally, businesses which do

not fit the future strategy will be given

the opportunity to achieve success

independently. During the year, we

disposed of two businesses which were

no longer within the group’s areas of

focus – one manufacturing consumer

electrical devices and the other, spark

plug production equipment.

Outlook

The developments during the year give

the Industrial group a clear logic to its

structure. Two of its divisions now each

have a turnover well in excess of £100m

a year: one is the clear UK leader in

ventilation, and the other a major

international supplier of specialist ducting.

In a third area we are building another

world-wide business based on a

proprietary, high-integrity connector that

is a vital component in many existing

and emerging electronics applications.

Completing the current picture is the

group of very profitable, cash-generating,

niche engineering businesses.

The outlook for the future remains

positive. The priority over the next year

will be to integrate fully the recent

acquisitions with the established core

businesses and maximise their potential.

The Industrial group will continue to

seek further acquisition opportunities

which are consistent with the group’s

high standard of performance.

17

Our priority over the next year is to fullyintegrate the recent acquisitions with theestablished businesses and maximise their potential

IndustrialTurnover

£m

300

250

200

150

10092 93 94 95 96

IndustrialProfit

£m

50

40

30

20

1092 93 94 95 96


18 Business Review • Industrial

By responding intelligently to market opportunities we gain a competitive advantage

The world’s most reliableconnectionMulti-pin connectors mustmake continuous contact forsecure transmission of powerand data. Yet through vibrationor frequent unplugging, the griploosens. Low insertion force,reliability and long life are usuallymutually exclusive, yet Hypertacconnectors achieve them all.With fingertip effort, pins pushinto a network of wires whichhug the pins’ surface to createhundreds of unshakeablecontacts, and let connectorsglide in and out for 60 times theusual lifespan. Where the penaltyfor failure is high, Hypertactakes a clever idea to newheights and depths: aircraftcrash recorders, space probessuch as Calypso, and under-ground drill-head guidance.

New features find new markets

By working with customers,Flexible Technologies in

South Carolina developshoses with exclusive featuresthat add value to products. This vacuum cleaner hose for Electrolux USA carries

wires for multiple electricalconnections to the head of

the cleaner, putting controls at the user’s fingertips.

In recent years, design ideaslike a self-retracting hose

have brought growth fromorders for upright vacuumcleaners, which are 70%

of the market.

Fully planned in a few hoursVent-Axia combines its strongbrand name with advancedCAD systems and technicalexpertise to deliver exceptionalcustomer service, and is highlysuccessful in meeting the

growing demand for energyefficiency in homes andapartment blocks. From an on-site survey, Vent-Axiaspecialists can downloadinformation through thetelephone line and produce adetailed design drawing in aslittle as three hours. With everycomponent identified fromstock, the design is a workingplan for installers, a base forinvoicing, and a reference forspare parts and extensions.The central component is aheat exchanger that uses the heat from outgoing air to warm incoming fresh air –minimising heat loss.


19

Companies in this group differentiate themselves through the added value of theirservice as well as the quality of their products. By identifying new potential in nicheapplications and customising products to the precise needs of customers, Industrialgroup companies have profited in their fiercely competitive marketplaces by liftingtheir products above the commodity level.

No need to compromiseBy designing and manufacturingits components in-house,Adaptaflex can respond atmarket-leading speed, using its outstanding ability tocustomise its flexible conduit systems to match precisedesign and price criteria.Reliable and durable in all staticand flexing applications, theconduit is used wherever thereis a need to protect electricalcables or fibre optics inbuildings, machinery, plant,roads, and railways. Customerneeds are constantly fed backinto product development –resulting in such simply effective products as this push-on Adaptalock nylon fitting.

Designed by customersThe Air Movement Groupmakes fans as large as a metre in diameter –expanding Smiths Industries’air-handling capabilities intothe industrial marketplace. Following a wide survey

that collected customers’design criteria for the perfectproduct range, the companydeveloped multi-purpose units that deliver the featurescustomers see as essential –quality, high specification, price,technical support and delivery.


20 The People of Smiths Industries

Although widely spread by geography

and variety of business, Smiths Industries

is a close community of nearly 13,000

people whose individual successes are

building the success of the Company.

We offer every encouragement for

personal progress: internal communi-

cations within the businesses is

well established; information about

performance and objectives is shared

at all levels; ideas and dialogue are

encouraged and employee councils

are widespread.

In May this year we held our first

European Communication Forum in

Munich, with 22 delegates from eight

countries joined by the Chairman at an

informal session. Underlining our

constructive relationship with trade

unions, we also welcomed a visit from

John Monks, secretary general of the

Trade Union Congress, to SIMS Portex

during the year.

Good communication leads to a

better understanding of individual

expectations and capabilities, so that

training and development can be fine-

tuned. The responsibility for equipping

employees with the right skills is taken

seriously. We do not expect ‘natural-

born’ salespeople: instead we offer a

combination of intense training and

experience to develop the skills needed

to present our products and to deliver

the responsive service that is the

hallmark of our businesses.

In her negotiations with local

authority housing officers for the

installation of complete energy-efficient

ventilation schemes in large public

buildings, Vent-Axia’s Catherine Lodge

uses a hand-held computer to calculate

specifications on-site and provide direct

input for fast quotations.

Training

We complement business-level training

with corporate programmes aimed at

developing future senior managers early

in their careers. The past 18 months

have seen 25 management courses

bringing together people from across

the Company to study such topics as

advanced negotiating skills and financial

appreciation, equipping them with the

skills they need to make progress in

their field.

Nearly 50 people have participated

in our development centres, where

their potential can be matched to the

opportunities. This gives us the ability to

promote from within in many cases, and

thus retain our best candidates today to

be our leaders tomorrow.

International Development

Aerospace’s Naveed Deen has taken

the opportunities a Company this size

can offer. After joining Smiths Industries

in the UK from Rockwell 10 years ago,

he spent three years in Seattle

marketing products to Boeing before

returning to Cheltenham. Currently he is

back on the US West Coast, developing

our civil avionics business with Douglas

Aircraft at Long Beach. After 18 months

of working to meet the client’s needs, he

has been instrumental in winning

valuable orders, bringing production

work to both Cheltenham in the UK and

Malvern in the US.

Our inter-company MBA programme

with the Henley Management College

Acquiring the skills for success

Above: Catherine Lodge withChris Turnham from ShawSprunt, architects working onbehalf of the London Boroughof Lewisham.


21

rooms during critical care procedures.

During the year, Defence Systems

Cheltenham became the second of our

UK businesses to achieve ‘Investors in

People’ status, and a number of others

are approaching the level required for

accreditation. This tough standard set

by the UK Government demands a high

degree of commitment from the

Company, but is a valuable independent

assessment of our efforts. If similar

schemes were established interna-

tionally, Smiths Industries would be

among the first to subscribe to them.

These are only a few examples of

the values which form the culture of our

Company. As we continue to grow, we

aim to gain acceptance for those values

from each new employee or newly

joining business.

The objective is to make them feel

as much a part of our success-oriented

culture as those employees who have

contributed their expertise over a much

longer period.

now has a number of participants from

each of the three groups in the UK. In

1997 we will launch a parallel scheme

for US-based employees. In partnership

with Ford, British Telecom and Inter-

Continental Hotels we have tailored an

MBA programme which meets our

specific needs and will allow for study

transfer between the UK and US for

those employees who relocate as part

of their career development.

Industry Experience

There remains no substitute for

experience, and the deep industry

knowledge of our people is an in-

valuable base for our relationships

with customers. For example, clinicians

in the healthcare sector would expect

advice only from someone with

expertise that matches their own.

As regional sales trainer and repre-

sentative covering the St Louis area,

Tom Pelikan has the theoretical and

practical skills to show how the price/

performance of our single-use devices

can satisfy both administrators and

clinicians in a hospital, and often closes

a sale by demonstrating the best way of

using the products. He is a frequent

and well-accepted visitor to operating

Training and experience equip the people of Smiths Industries to differentiate ourservice through an intelligent appraisal ofcustomers’ needs

Above Right: Naveed Deen (right) with Keith Stockton,Senior Subcontract Negotiator with the McDonnellDouglas MD-95 Supplier Management Team.

Right: Tom Pelikan, with David Patient, RC-MISSpecialist, Respiratory Care Services, at the BarnesHospital, St. Louis, part of the BJC Network.


Turnover increased

by 12% to £1008m,

resulting from real

growth in the con-

tinuing businesses

and the first-time contributions of recent

acquisitions. Profit before tax and

exceptional items increased by 19% to

£165.4m with all three operating groups

contributing. Profits earned overseas

exceeded 50%, which highlights the

growing international spread of business

within the portfolio. We continued with

our policy of divesting non-core, under-

performing businesses and replacing

them with operations which will improve

the return to shareholders.

This year saw the Company’s total

sales exceed £1 billion for the first

time, indicating that our main markets

are beginning to turn in our favour.

Operating margins before interest and

exceptional items improved for the

seventh successive year to 16.7%, a

record level. Each operating group

improved its return in the year; in

particular Aerospace margins showed

a positive increase to 12% and we

expect further improvement as the

recovery in civil aviation feeds through to

profits and margins.

22 Financial Review

Financial Review

ALAN THOMSON

FINANCIAL DIRECTOR

Competitive pressures – especially in the

North American medical markets – have

been countered by a continued focus

on product innovation, reducing the

cost base and seeking further new

markets overseas.

The results of our overseas

operations are translated at average

exchange rates. The year-on-year effect

of different exchange rates on this year’s

results is immaterial, with sales

increasing by £7m, profits by £1m and

year end borrowings by £5m. We do

not hedge the effects of currency

movements on the translation of

overseas earnings.

Exceptional Items

During the year a dividend of £14.8m

was received from Ceewood Housing

Ltd, an unconsolidated subsidiary,

following the sale of its property

portfolio. Following the increase in the

Company’s interest in Japan Medico Co

Ltd to 50%, the opportunity has been

taken to review the basis of eliminating

the intercompany profit on stock held by

associated companies. All profit on

stocks held by associated companies is

eliminated, compared with the elimination

in earlier years of the profit proportionate

to the equity holding.

Acquisitions and disposals

The Company acquired four businesses

in the year at a cost of £104m. The new

businesses are Adaptaflex and Air

Movement Group in the Industrial

group, Level 1 in Medical and MJA

Dynamics in Aerospace. Towards the

end of the year our investment in Japan

Medico Co Ltd was increased to 50%.

This company remains an associate

as we control neither the board of

directors nor the management. In

accordance with the new Financial

Reporting Standard No 7, restructuring

costs have been charged against

operating profits.

The Company also disposed of its

interest in three companies: Aero Quality

Sales, SIMAC Ltd and Timeguard Ltd.

Operating profits/margins 1996 1995 1994 1993 1992

Sales £1,008m £899m £766m £701m £657m

Operating Profits £168m £141m £114m £100m £91m

Operating margins 16.7% 15.7% 14.9% 14.3% 13.8%


23

Total sales exceeded £1 billion for the first time, underlining how our mainmarkets are turning in our favour

Cash-Flow

Cash-flow from operations amounted

to £149m. We spent £41m on capital

projects – mainly organic growth

projects which promise attractive

financial returns. This continues our

policy of growing the capital base of our

existing operations as well as investing

in new businesses. We ended the

year with net borrowings of £28m,

representing a gearing ratio of 13%.

Over the past three years, the Company

has generated £220m of net cash to

fund acquisitions totalling £285m.

Free cash-flow – defined as cash-

flow before acquisitions and dividends

– amounted to £105m, covering the

dividend paid more than twice.

Shareholder Funds

Consolidated shareholders’ funds at

the end of the year were £860m before

deducting the goodwill reserve of

£648m. Although we enjoy a high return

on our net tangible assets, we evaluate

it on its total shareholder investment,

including goodwill, to ensure that it

earns more than its cost of capital.

Total return on this basis has now

reached 19.2%.

Financial Controls

Smiths Industries is a decentralised

organisation with day-to-day control

delegated to the management of indi-

vidual businesses. Managers are directly

responsible for the procedures and

controls in their operations without relying

on other parts of the organisation to

identify weaknesses and recommend

corrective action. Senior finance staff at

the centre and our internal and external

auditors perform in-depth reviews to

ensure that effective controls are in

place at all levels. Comprehensive

budgeting systems and regular forecast

updates are approved by the Board.

The procedures for review and approval

of major revenue and capital projects

enable us to monitor closely the

progress of those investments.

Individual financial executives report

directly to their own management but

also have direct reporting lines to the

Financial Director.

Financing and treasury

The Company monitors all foreign

exchange transactions from the

centre and permits no speculation in

currencies. US Dollar borrowings at year

end amounted to $159m and largely

Cash-Flow 1996 1995£m £m

Profit before exceptional items 165 138

Depreciation 31 29

196 167

Capital Expenditure (41) (36)

Asset sale proceeds 9 9

Working Capital (15) –

Cash-Flow from Operations 149 140

Tax (50) (36)

Dividends (45) (40)

New Shares 5 5

59 69

Exceptional Item 15 –

Acquisitions (net of disposals) (98) (52)

Exchange rates (5) 4

Decrease/increase in cash (29) 21

Return on Shareholder investment 1992-1996

Ratio of pre-tax profit to shareholder investment

£m

800

600

400

200

092 93 94 95 96

16.1% 15.7% 15.9% 17.6% 19.2%

%


24 Financial Review

matched dollar net assets. All substantial

foreign currency commitments are

covered forward. Other than for a US

private placing the Company has not given

guarantees of subsidiaries’ borrowings.

Research and development

The Company maintained its policy of

investing significant sums in developing

products that will underpin future

growth. The £107m cost of research

and development projects in the year

includes £50m funded by the Company.

We continued our prudent policy of

writing off against profit the costs

incurred during the year.

Pensions

We operate a number of pension

schemes in the UK and US. Our

triennial evaluation of the UK schemes

in 1995 showed that the current surplus

of assets over future liabilities would

enable the Company’s contribution

holiday towards the main UK scheme

to continue into the next decade.

The UK surplus is analysed in

accordance with current accounting

practice, with the surplus amortised

over the estimated remaining working

life of the employees.

Audit

With our rising international profile

and more than half of the Company’s

profits now generated outside the UK,

the Board is seeking the approval of

shareholders to move to a firm of

auditors with world-wide capability.

This is increasingly necessary to

ensure that a single firm audits our

operations on a consistent basis. We

also rely heavily on our auditors to assist

with our investigations associated with

acquisitions in the UK and overseas.

Accordingly it is the Board’s intention that

for 1996/97 Price Waterhouse acts

jointly as auditors with Clark Whitehill –

a firm which has served us well since

1922 – with Price Waterhouse alone

taking responsibility for the worldwide

audit from 1997/98.

This year we have also set up our

own fully staffed internal audit depart-

ment. Located in the UK and overseas, it

will perform ongoing operational reviews

to ensure that all businesses are

reviewed on a regular basis.

Shareholder Value

In December 1995 the Company entered

the FT-SE 100, reflecting the increase in

market value of the Company’s shares.

Our investment for future growth, healthy

cash-flows, and progressive dividend

policy is a combination that should

continue to create substantial share-

holder value. On a five-year basis,

shareholder value – defined by share

price appreciation plus gross dividends

re-invested – has increased at a

compound rate of 28% per annum,

compared with a rise of 13% in the All-

Share index and 18% in the Engineering

Sector index.

Shareholder Value£m

400

300

200

100

092 93 94 95 96

Financial Review continued

334

227

187

Smiths IndustriesEngineering SectorFT-SE All Share

1991 = 100


Principal Activities

The principal activities of the Company

and its subsidiaries are the development,

manufacture and sale of avionics for

commercial aircraft and military require-

ments; marine and fighting vehicle

systems; single-use disposable medical

products for critical care applications;

medical infusion pumps; operating tables

and related equipment; ducting and

ventilation systems; and a varied range

of products for consumer, industrial

and engineering applications. The main

manufacturing operations are in the UK

and USA.

Results and dividends

The results for the 52 weeks ended

3 August 1996 are set out in the

Consolidated Profit and Loss Account on

page 34. Sales for the year amounted to

£1,008.4m, against £899.3m last year.

The profit for the year after taxation

amounted to £117.8m (1995 £93.9m).

An interim dividend of 5.6p per

ordinary share of 25p was paid on 7 June

1996. The directors recommend for pay-

ment on 8 January 1997 a final dividend

on each ordinary share of 10.6p, making

a total dividend of 16.2p for the year.

The retained profit of £68.7m was

transferred to Reserves.


£107m was spent on research and

development during the year, of which

£50m was funded by the Company

and the balance by customers. Each

business carries out research and

development programmes to suit its

own particular market and product

needs. Interchange of technology

and technical information between

businesses in the manufacturing sector

is centrally co-ordinated.

Changes in Company interests

during the year

On 17 October 1995, the Company

acquired the issued share capital of

Level 1 Technologies, Inc. for a cash

consideration of US$57m.

On 21 December 1995, the Company

acquired the issued share capital of M.J.A.

Dynamics Limited for a consideration of

£4.9m, of which £2.6m was met by the

issue of loan notes and £1.8m is deferred.

On 22 March 1996, the Company

sold the business and assets of SIMAC

Limited for a consideration of £0.8m.

On 1 April 1996, the Company sold

its Aero Quality Sales businesses for

US$4.7m.

On 19 April 1996, the Company

acquired over 90% of the issued ordinary

and ‘A’ non-voting share capital of Air

Movement (Holdings) Limited and made

an unconditional offer for the balance

of the shares. The offer was accepted

by all the remaining shareholders. The

initial consideration for the acquisition

was £40.6m, of which £8.4m was paid in

cash, £23m by way of variable rate

unsecured loan notes, and £9.2m

borrowings assumed on acquisition. An

additional payment not exceeding £6m

may be made if the net tangible assets

of Air Movement (Holdings) Limited on

31 March 1996 exceeded £13.125m.

On 19 April 1996, the Company

acquired all the issued share capital

of Adaptaflex Limited for a cash

consideration of £21m.

On 28 June 1996, the Company

sold the business and assets of the

Timeguard business for a cash con-

sideration of £1.9m.

Future developments

The Company will pursue its existing

international activities and continue to

seek business opportunities in both the

UK and overseas.

Interests in land

Land and buildings were professionally

revalued as at 30 July 1994. At 3 August

1996 the value of land and buildings

is estimated to exceed book value by

around £15m. This valuation has not

been reflected in these accounts.

Charitable and political donations

During the year the Company made

donations of £767,000 for charitable

purposes including a payment of

£243,000 for the Portex Chair of

Paediatric Anaesthesia. No political

donations were made.

Directors

The names of those who were directors

at the end of the financial year are listed

on page 6. Mr R. Williams retired from

Directors’ Report 25

Directors’ Report


the Board on 22 February 1996. Mr E.

Lindh and Mr K. O. Butler-Wheelhouse

were appointed to the Board, as

executive directors, on 13 February

1996 and 1 August 1996, respectively.

Re-appointment of directors

In accordance with Article 73, follow-

ing their appointments during the year,

Mr E. Lindh and Mr K. O. Butler-

Wheelhouse will retire as directors at the

Annual General Meeting on 19 November

1996 and will seek re-appointment.

Sir Roger Hurn and Mr N.V. Barber

will both retire by rotation, in accordance

with Article 74, and will seek re-appoint-

ment at the Annual General Meeting.

Sir Alex Jarratt will retire at the

Annual General Meeting and will not

seek re-appointment.

Directors’ service contracts

Sir Roger Hurn has a service contract

which is subject to three months’

notice expiring on or after 24 November

1998. Mr N. V. Barber, Mr K. O. Butler-

Wheelhouse, Mr G. M. Kennedy, Mr E.

Lindh and Mr A. M. Thomson have

service contracts with the Company

which are subject to termination by two

years’ notice, given to expire at any time.

With the exceptions referred to

above, no director had a beneficial

interest in any contract to which the

Company or its subsidiaries was a party

during the year.

Interests in shares

As at 15 October 1996 the Company had

been notified, pursuant to the Companies

Act 1985, of the following material

interests in its issued share capital:

No. of shares Percentage of*issued*

share capital*

Prudential Corporation group of companies 9,856,031 3.24

Norwich Union group of companies 12,101,317 3.98

*percentage of share capital in issue on 15 October 1996

The Company has not acquired

or disposed of any interests in its

own shares.

The interests of the directors, their

families and any connected persons in

the issued share capital of the Company

and details of their share options are

shown on page 41.

Corporate Governance

The Company subscribes to the

recommendations of the Cadbury

Committee on financial aspects of

corporate governance and complies

with the Code of Best Practice

published on 1 December 1992.

The Board of Directors normally

meets formally seven times a year to

make and review major business

decisions and monitor current trading

against budgets which it has approved.

It additionally exercises control by

determining matters specifically reserved

for it in a formal schedule which only

the Board may change: those matters

include the acquisition of companies

and major capital expenditure. Once a

year the Board meets in informal

conference to consider long-term

strategy and industrial developments

affecting the Company. Additional meet-

ings are arranged to deal with urgent

developments.

Sir Roger Hurn is both Chairman and

Chief Executive of a Board with

exceptionally strong non-executives. After

the Annual General Meeting Sir Roger

Hurn will relinquish his role as Chief

Executive but will continue as Chairman.

Mr K. O. Butler-Wheelhouse will be

appointed Chief Executive in his place.

There is an agreed procedure for

all directors to take independent

professional advice at the Company’s

expense in connection with their duties.

They also have access to the advice and

services of the Company Secretary,

whose appointment is in accordance

with the Code.

The terms of appointment of the

executive directors and their remuner-

ation are determined by the Stand-

ing Committee described below. The

directors have two year rolling contracts.

All directors are subject to retirement by

rotation; any director who attains the age

of 70 is subject to annual re-election.

The formal process of appointing

non-executive directors involves selection

by the Board and confirmation by the

shareholders; initial appointments are

for three years. Non-executive directors

do not participate in bonus, share

option or pension schemes.

The Standing Committee on Senior

Appointments and Remuneration which

meets at least three times a year, consists

26 Directors’ Report

Directors’ Report continued


of all the non-executive directors. After Sir

Alex Jarratt’s retirement it will be chaired

by Mr K. Orrell-Jones. Sir Roger Hurn and

Mr K. O. Butler-Wheelhouse will attend

meetings of the Committee by invitation,

but will not participate in discussions of

their own interests. The Committee

monitors the performance of the chief

executive and other directors and has

access to all information required for that

purpose. The report of the Committee

on executive remuneration is set out in

pages 31 to 32.

The Audit Committee’s terms of

reference accord with the Cadbury

recommendations. The Committee con-

sists of all the non-executive directors

and meets at least twice a year, with the

chief executive, financial director and

auditors normally attending meetings.

The Chairman is Sir Peter Thompson; he

and his committee also meet the auditors

in the absence of executive directors.

Internal Control. The Board accepts

its responsibility for maintaining the

effective system of internal control which

includes not only internal financial

control but also compliance with

relevant laws and regulations. Any

system of internal control can provide

only reasonable, not absolute,

assurance against material loss to the

Company or material misstatements in

the financial accounts.

In the highly regulated environment

of the aerospace and medical

industries, procedures are codified in

detailed operating procedures manuals

and are reinforced by regular educational

programmes. This is designed to ensure

not only compliance with regulatory

requirements but also with the general

principles of business integrity.

A key element in any system is

communication and a number of

committees exist which enable the

executive directors and senior corporate

staff to address financial, human

resource, risk management and other

issues. Risk management surveys seek to

limit the incidence of injuries to employees

and prevent environmental damage.

Experience is shared by subsidiaries

through company wide seminars.

During the year the Company has

created an Internal Audit Department.

The Director of Internal Audit reports to

the Chairman of the Audit Committee.

The Internal Audit Department is

charged with reporting upon the

Company’s internal control processes.

The internal financial control systems

includes the following key features,

which have been designed and

established over a number of years

to provide internal financial control

appropriate to the Company’s businesses:

• The approval of comprehensive

budgets by the Board and the monthly

monitoring of performance against

budget referred to above;

• A detailed investment approval process

requires Board approval of all major

capital projects;

• The Audit Committee’s consideration

of any significant control matters;

• Appointment of experienced and

professional staff both by recruitment

and promotion.

The Audit Committee has reviewed

the effectiveness of the Company’s

system of internal financial control. In

addition to consideration of reports from

the Director of Internal Audit and from

the Company’s external auditors, the

Committee has reviewed the results of

an internal self-assessment exercise

which required the heads of all the

business units of each operating group

to report through their operating groups

to the Chairman and Chief Executive.

Going concern. The Board’s review

of the accounts, budgets and forward

plans, together with the internal control

system, lead the directors to believe that

the Company has ample resources to

continue in operation for the foreseeable

future. The accounts are therefore

prepared on a going concern basis.

Auditors. The auditors have

confirmed that, in their opinion: with

respect to the above statements on

internal financial control and going

concern, the directors have provided

the disclosures required by the Code as

supplemented by the related guidance

for directors and such statements are

not inconsistent with the information of

which they are aware from their audit

work on the accounts; and that the

other statements on page 26 and

this page appropriately reflect the

Company’s compliance with the

paragraphs of the Code dealing with

27


other matters which are specified for

their review. The Code does not require

the auditors to perform the additional

work necessary to express an opinion

on the effectiveness of either the

Company’s system of internal financial

control or its corporate governance

procedures nor on the ability of the

Company to continue as a going

concern.

Policy on payment of creditors

The Company’s policy is to pay creditors

promptly in accordance with agreed

terms of business.

Environment

The Company seeks to ensure that

its operations and products cause

the minimum reasonably achievable

detriment to the environment. Care is

taken to avoid discharges of environ-

mentally harmful substances and to

dispose of waste in a safe and approved

manner. Contingency arrangements and

plans exist to reduce the risk of and limit

the effect of any accidental spillage.

Where sites occupied by the Company

have been found to be contaminated by

past industrial practices, programmed

clearance has been undertaken in

co-operation with the appropriate

regulatory authorities.

Personnel policies

It is the Company’s policy to provide

equal opportunities for employment and

to give the fullest consideration to

employment prospects for the disabled.

The Company continues to be actively

involved in all aspects of the training

and development of young persons,

including government sponsored schemes

and unit initiatives designed to ease the

transition from school to work.

Share option schemes enable

employees to participate financially in

the affairs of the Company.

Employees are regularly provided with

a wide range of information concerning

the performance and prospects of the

business in which they are involved by

means of Employee Councils and other

similar consultative bodies which allow

the views and opinions of personnel to be

taken into account.

All matters concerning the environ-

ment, health and safety continue to be

regulated by preventative, investigatory

and consultative systems; issues

relevant to the Company pension

scheme are likewise covered by means

of structured committees, including

negotiation with representatives of

recognised trade unions.

Authority to issue shares

At the Annual General Meeting share-

holders will be asked to revise the

authority, given to the directors at the

Annual General Meeting in November

1995, to allot shares for the purposes of

section 80 of the Companies Act 1985

so as to reflect the increase in the

Company’s issued share capital since

the last Annual General Meeting. The

authority proposed will expire on the

fifth anniversary of the Meeting, unless

otherwise renewed. The ordinary

resolution is set out in the Notice

of AGM.

Also in the Notice is the special

resolution to renew the power granted

to directors under section 95 of the

Companies Act 1985. The new authority

sought will be on substantially similar

terms to those attaching to the existing

authority and will permit the directors to

allot equity securities:

• in connection with a rights issue pro

rata to the rights of the existing

shareholders;

• pursuant to the terms of any share

scheme approved by the shareholders

in General Meeting; and

• for any other purpose provided that

the aggregate value of such allotments

does not exceed £3,794,960 (approx-

imately 5% of the issued share capital).

Authority to purchase shares

At the Annual General Meeting the

Company will seek to renew the auth-

ority, granted in general meeting on

28 November 1995, to make market

purchases of its shares, as defined in

section 163 of the Companies Act 1985.

The authority will be limited to not more

than 5% of the issued share capital and

will be renewed annually. The maximum

price that may be paid under the authority

will be limited to 105% of the average of

the middle market quotations of the

Company’s shares, as derived from the

28 Directors’ Report

Directors’ Report continued


1995, the directors give notice to

shareholders that on 15 October 1996

the directors passed a resolution that

title to ordinary shares of 25p each in the

capital of the Company, in issue or to be

issued, may be transferred by means of

CREST or any other relevant system, as

defined. The resolution will become

effective immediately prior to CRESTCo

Limited granting permission for the

shares to be transferred by way of the

CREST system.

This resolution will permit the

dematerialisation of the Company’s

ordinary shares so that they may be

traded through CREST, the new,

paperless settlement system for UK

traded shares and other securities. The

resolution also has the effect of

disapplying such of the provisions of the

Company’s Articles of Association as are

inconsistent with the holding and transfer

of the Company’s ordinary shares in

CREST and any provisions of the

Uncertificated Securities Regulations

1995, as and when the shares concerned

enter the CREST system.

The Company has provisionally

agreed with CRESTCo, the operator of

the system, that shares may be traded

in uncertificated form from 17 March

1997 – the Company’s “C Date”. Share-

holders who wish neither to become

members of CREST nor to transfer their

holdings into nominee companies may

continue to hold their shares and deal

in them in certificated form. Further

information on the opportunities

presented by and the effects of

dematerialising shares can be obtained

from CRESTCo Limited, Trinity Tower,

9 Thomas Moore Street, London E1 9YN.

By Order of the Board

Alan Smith

Secretary

15 October 1996

London NW11 8DS

29

London Stock Exchange Daily Official

List, for the ten business days prior to

any purchase.

The directors will only exercise the

authority if they are satisfied that any

purchase will increase the earnings

per share of the ordinary share capital

in issue and will be in the interests of

the shareholders.

Auditors

In view of the Company’s increasing

size and international presence the

directors feel that it would be in the

best interests of the Company to appoint

an auditor with a world-wide organisation.

In order to ensure a smooth hand over, it

is proposed that Price Waterhouse be

appointed as joint-auditor along with

Clark Whitehill for 1996/97.

Thereafter, Price Waterhouse would

become sole auditor. Resolutions will be

proposed at the Annual General Meeting

to appoint Clark Whitehill and Price

Waterhouse as joint-auditors and to

authorise the directors to determine the

auditors’ remuneration.

Personal Equity Plans

The Company has introduced a

Corporate PEP and a single company

PEP, which are managed by Henderson

Investment Services (Helpline tel:

0171 542 1357).

Dematerialisation of shares

In accordance with the requirements of

the Uncertificated Securities Regulations


To the Shareholders of Smiths

Industries plc

We have audited the accounts on pages

33 to 49 which have been prepared

under the accounting policies set out

on page 33.

Respective responsibilities of directors

and auditors

As described above, the Company’s

directors are responsible for the preparation

of accounts. It is our responsibility to

form an independent opinion, based on

our audit, on those accounts and to

report our opinion to you.

Basis of opinion

We conducted our audit in accordance

with Auditing Standards issued by the

Auditing Practices Board. An audit

includes examination, on a test basis, of

evidence relevant to the amounts and

disclosures in the accounts. It also

includes an assessment of the signifi-

cant estimates and judgements made

by the directors in the preparation of

the accounts, and of whether the

accounting policies are appropriate to

the Company’s circumstances, consis-

tently applied and adequately disclosed.

We planned and performed our

audit so as to obtain all the information

and explanations which we considered

necessary in order to provide us with

sufficient evidence to give reasonable

assurance that the accounts are free

from material mis-statement, whether

caused by fraud or other irregularity or

error. In forming our opinion we also

evaluated the overall adequacy of

the presentation of information in

the accounts.

Opinion

In our opinion the accounts give a true

and fair view of the state of affairs of the

Company and the group as at 3 August

1996 and of the profit of the group for

the 52 weeks then ended and have

been properly prepared in accordance

with the Companies Act 1985.

Clark Whitehill

Chartered Accountants and

Registered Auditor

London

15 October 1996

Auditors’ Report

Company law requires the directors to

prepare accounts for each financial year

which give a true and fair view of the

state of affairs of the Company and the

group at the end of the year, and of

the profit or loss of the group for that

period. In preparing those accounts, the

directors are required to

• select suitable accounting policies and

then apply them consistently;

• make judgements and estimates that

are reasonable and prudent;

• state whether applicable accounting

standards have been followed, subject

to any material departures disclosed

and explained in the accounts;

• prepare the accounts on the going

concern basis unless it is inapprop-

riate to assume that the Company will

continue in business.

The directors are responsible for

keeping proper accounting records

which disclose with reasonable accuracy

at any time the financial position of the

Company and enable them to ensure

that the accounts comply with the

Companies Act 1985. They are also

responsible for safe-guarding the assets

of the Company and hence for taking

reasonable steps for the prevention of

fraud and other irregularities.

30 Smiths Industries

Statement of Directors’ Responsibilities


31

Directors’ Emoluments and Interests

Report of the Standing Committee on

Senior Appointments & Remuneration

The Standing Committee of the Board

referred to on page 26 determines the

remuneration of executive directors

including their annual bonus targets

and share options. Its constitution and

operation comply with Section A of

the best practice provisions annexed

to the Listing Rules of the London Stock

Exchange.

The Standing Committee seeks to

maintain a competitive programme

which enables the Company to attract

and retain the highest calibre of

executive. The Committee consults with

the Chief Executive and seeks advice

from external remuneration consultants

on a regular basis and has access to

surveys published by those consultants

which enable wide ranging comparisons

to be made. In framing its remuneration

policy the Committee has given full

consideration to Section B of the best

practice provisions annexed to the

Listing Rules. The Committee considered

whether there should be a further

reduction in contract terms for executive

directors and confirmed its view that

one year rolling contracts give the

Company less assurance of continuity

than is desirable. It accepts and

endorses the principle of mitigation of

damages on termination of a contract.

Salaries are reviewed annually. The

Committee takes into account individual

performance and experience, the size

and nature of the job, the relative

performance of the Company pay policy

within the Company and the salary

available in comparable engineering

companies. Benefits include a company

car, pension, health insurance and,

where appropriate, relocation expenses,

generally in line with benefits available

for executives in similar positions in

other engineering companies.

Bonuses are based on successful

performance and are only paid on the

achievement or over achievement of a

carefully considered annual business

plan which has been approved by the

whole Board. All bonuses are capped.

Under a deferred share scheme,

established in 1992, senior executives

may use their after-tax bonus to buy the

Company’s shares at the prevailing

market price; if they retain those shares

for three years they may exercise

options over a matching number of

shares for a nominal sum. Income tax is

payable on the market value of the

matching shares when the option is

exercised. In December 1995 executive

directors participated in the scheme in

respect of their 1995 bonus and were

granted options over shares to the

values listed in a table on page 40.

The total remuneration of directors is

listed in a table on page 40.

The annual bonus and any gains

under share option schemes are not

pensionable. Company car benefits

which are subject to income tax

and for which a cash alternative is

available are pensionable. This is

consistent with general practice.

Subject to Revenue limits a final

salary scheme provides a pension of up

to two thirds of final salary (including

pensionable benefits). Where Revenue

limits apply the difference between the

pension payable on the cap and that

payable on two thirds of final salary is,

after taking into account any pension

transfers, made good by the Company

from its own resources. Details of

pension provisions are set out in a table

on page 41.

Non-executive directors were paid

fees of £100,000 in the year to 31 July

1996; they have no service contracts

and are not eligible for bonuses or

participation in share schemes and

no pension contributions are made on

their behalf.

The remuneration of non-executive

directors is determined by the Board

within the limits set out in the articles

of association.

Directors’ interests in the

Company’s shares

The interests of directors in the issued

share capital of the Company are set

out in a table on page 41.

The executive share option scheme

approved at the Annual General Meeting

last year covers approximately 137

executives. Awards are approved by the

Standing Committee. In awarding share

options the Standing Committee has

regard to guidelines published by

investor protection committees, the



Directors’ Emoluments and Interests continued

individual performance of participants

and any evidence that the scheme

has encouraged option holders to

become shareholders. Options may only

be exercised after three years if there

has been a sustained and significant

improvement in the financial performance

of the Company and a performance

requirement has been met: initially that

requirement is that the increase in the

total shareholder return of the Company,

over a period of three years from the

date of grant, must exceed the average

increase in total shareholder return

achieved by the companies comprising

the Engineering Sector of the FT-SE

Actuaries Index over the same period.

The Save-as-you-Earn scheme

which is open to all UK employees with

12 months’ service is subject to UK

legislation as to the amount which can

be saved. Participants save a fixed sum

per month for five years and may use

the sum generated by their savings

contracts to exercise the options which

are usually granted at a 20% discount to

the market price at the start of the five

year period.

In the 52 weeks to 3 August 1996,

executive directors exercised share

options and at 3 August 1996 held

unexercised options as described in a

table on page 41.

There were no changes in the

options held by directors between

3 August 1996 and 15 October 1996.

The Register of Directors’ Interests

(which is open to inspection) contains

full details of directors’ shareholdings

and options to subscribe for shares in

the Company.

Subject to the overriding require-

ment of the Company the Committee is

prepared to allow executive directors to

accept external appointments where it

considers that such appointments will

contribute to the director’s breadth of

knowledge and experience. Directors

are permitted to retain fees associated

with such appointments.


Accounting convention

The accounts have been prepared in

accordance with all applicable financial

reporting and accounting standards

under the historical cost convention

modified to include the revaluation of

certain properties.

Company profit and loss account

In accordance with the concession

granted under section 230(3) of the

Companies Act 1985 the profit and

loss account of Smiths Industries plc

has not been separately presented in

these accounts.

Basis of consolidation

Goodwill arising on consolidation and

representing the difference between the

cost of acquisition of a subsidiary

undertaking and the fair value of its net

assets at the date of acquisition is

transferred to a separate reserve in the

year of acquisition.

Results of subsidiaries acquired

during the year are consolidated from

the date of acquisition. The Company’s

interest in Ceewood Housing Ltd has

been excluded from the consolidation on

the grounds that it has sold its assets, has

paid an interim dividend and is in the

process of making a final distribution.

Full provision is made for the

unrealised profit on stock held by

associated companies (see Note 6).

Turnover

Turnover represents the invoiced

amount of goods sold and services

provided during the year, after the

deduction of trade discounts and sales

related taxes, and the value of work

undertaken during the year on long-

term contracts.


Expenditure, other than that recoverable

from third parties, is written off in the

year in which it is incurred.

Fixed assets

Depreciation is provided at rates

estimated to write off the relevant assets

by equal annual amounts over their

expected useful lives. In general, the

rates used are: Freehold and long

leasehold buildings – 2%, Short lease-

hold property – over the period of the

lease, Plant, machinery etc. – 10% to

20%, Motor vehicles – 25%, Tools and

other equipment – 10% to 33%.

Fixed assets under finance leases are

capitalised and depreciated in accordance

with the Company’s depreciation policy.

The capital element of future lease

payments is included in creditors.

Stocks

Stocks and work in progress are valued

at cost, including related production

overheads, reduced to estimated net

realisable value where appropriate.

Profit is taken on long-term contracts

by reference to the work completed.

Provision for losses is made as soon as

they are recognised.

Foreign currencies

Assets and liabilities in foreign currencies

are translated into sterling at market

rates ruling at the balance sheet

date. The profit and loss accounts of

overseas subsidiaries are translated at

average rates of exchange for the year.

Exchange adjustments arising from the

retranslation of opening net assets in

overseas subsidiaries are dealt with

through reserves.

Taxation

Provision for deferred taxation liabilities

is made to the extent that it is

considered that such liabilities will arise

in the future. Account is taken of all

short-term timing differences and all

timing differences relating to post

retirement benefits.

Post retirement benefits

The cost of providing pensions and post

retirement healthcare for employees is

charged in the profit and loss account

over the working life of the employees

taking into account the recom-

mendation of qualified actuaries. Any

funding surpluses or deficits that arise

are amortised over the average working

life of employees.

33

Accounting Policies


Ordinary Exceptional 52 Weeks ended 53 Weeks endedActivities Items 3 August 1996 5 August 1995

Note £m £m £m £m

TurnoverContinuing operations 964.2 964.2 879.3Acquisitions 31.4 31.4Disposals 12.8 12.8 20.0

1 & 2 1,008.4 1,008.4 899.3

Cost of sales 3 & 6 (591.3) (9.1) (600.4) (550.6)

Gross profit 417.1 (9.1) 408.0 348.7Operating expenses 4 (251.5) (251.5) (209.6)

Operating profitContinuing operations 161.0 (9.1) 151.9 138.9Acquisitions 4.2 4.2Disposals 0.4 0.4 0.2

5 165.6 (9.1) 156.5 139.1Share of profits of associated companies 2.5 2.5 1.8

Operating profit including associated companies 168.1 (9.1) 159.0 140.9Distribution from Ceewood Housing Ltd after expenses 6 14.2 14.2Profit on sale of properties 6 0.3 0.3 3.0Loss on sale of businesses 6 (0.4) (0.4) (3.5)

Profit before interest 168.1 5.0 173.1 140.4Net interest 7 (2.7) (2.7) (2.4)

Profit before taxation 165.4 5.0 170.4 138.0Tax on profit 8 (54.6) 2.0 (52.6) (44.1)

Profit for the financial year 110.8 7.0 117.8 93.9Dividends 9 (49.1) (49.1) (43.4)

Retained profit for the year 61.7 7.0 68.7 50.5

Earnings per share 10 36.6p 38.9p 31.3p

Statement of Total Recognised Gains and Losses

£m £m

Profit for the financial year 117.8 93.9Exchange adjustments 0.6 1.7

118.4 95.6

Notes on pages 37 to 49 form part of these accounts.

Consolidated Profit and Loss Account


SI/1 Accounts vAW colour5 3/3/97 5:33 pm Page 34

Consolidated Company

3 August 1996 5 August 1995 3 August 1996 5 August 1995Note £m £m £m £m

Fixed assetsTangible assets 14 185.3 166.7 44.5 42.7Investments and advances 16 5.3 4.6 496.9 461.8

190.6 171.3 541.4 504.5Current assetsStocks 17 150.7 136.2 32.5 29.4Debtors 18 248.7 227.0 81.8 95.1Cash at bank and on deposit 120.4 102.3 95.9 65.0

519.8 465.5 210.2 189.5

Creditors: amounts falling due within one year 19 (345.3) (276.3) (151.9) (118.5)

Net current assets 174.5 189.2 58.3 71.0

Total assets less current liabilities 365.1 360.5 599.7 575.5Creditors: amounts falling due after more than one year 19 (119.2) (91.8) (25.4) (6.0)Provisions for liabilities and charges 20 (34.1) (43.2) (8.2) (17.5)

Net assets 211.8 225.5 566.1 552.0

Capital and reservesCalled up share capital 22 75.9 75.4 75.9 75.4Share premium account 23 29.6 24.2 29.6 24.2Revaluation reserve 23 3.3 3.8 0.6 0.6Other reserves 23 220.9 220.2 182.5 182.3Profit and loss account 23 530.3 461.2 277.5 269.5Goodwill reserve 23 (648.2) (559.3) – –

Shareholders’ funds 24 211.8 225.5 566.1 552.0

The accounts on pages 33 to 49 were approved by the board of directors on 15 October 1996 and were signed on its behalf by:

Sir Roger Hurn Alan M Thomson

Balance Sheets

35


52 weeks ended 53 weeks ended 3 August 1996 5 August 1995

Note £m £m

Net cash inflow from operating activities (see below) 183.3 168.8

Returns on investment and servicing of finance:Interest received 7.2 6.5Interest paid (9.5) (8.2)Distribution received from Ceewood Housing Limited 14.8 .–Dividends paid (45.2) (40.3)

Net cash outflow from returns on investment and servicing of finance (32.7) (42.0)

Tax paid (50.3) (36.2)

Investing activities:Purchase of fixed assets (40.7) (36.0)Sales of fixed assets 8.7 8.5Acquisition of subsidiary companies (net of £5.4m from disposals) 26 (98.3) (51.6)Net decrease in deposits 27 20.0 25.0

Net cash outflow from investing activities (110.3) (54.1)

Net cash outflow – 1995 inflow – before financing (10.0) 36.5Financing:Share issues 27 5.9 5.7Net increase – 1995 decrease – in borrowings 27 42.2 (5.2)

Net cash inflow from financing 48.1 0.5

Increase in cash and cash equivalents 27 38.1 37.0

Reconciliation of operating profit to net cash inflow from operating activitiesOperating profit 168.1 140.9Depreciation 30.5 28.7Increase – 1995 decrease – in stocks (4.7) 5.2Increase in debtors (2.3) (8.1)Decrease – 1995 increase – in creditors (8.3) 2.1

183.3 168.8

Notes on pages 37 to 49 form part of these accounts.

Cash-Flow Statement



Turnover Profit Assets

1996 1995 1996 1995 1996 19951 Analyses of turnover, profit and assets £m £m £m £m £m £m

MarketAerospace 377.1 374.2 45.3 40.3 63.5 68.1Medical Systems 303.3 275.4 73.1 63.0 83.4 78.1Industrial 328.0 249.7 49.7 37.6 93.2 78.5

1,008.4 899.3 168.1 140.9 240.1 224.7Net interest/net borrowings (1995 net cash ) (2.7) (2.4) (28.3) 0.8

165.4 138.5 211.8 225.5Exceptional items 5.0 (0.5)

Profit before tax 170.4 138.0

GeographicalUnited Kingdom 451.0 421.6 75.1 71.5 105.1 119.9USA 466.5 440.1 71.4 56.9 103.0 70.9US dollars $723.1m $695.4m $110.7m $89.9m $158.6m $114.1mEurope 140.5 89.7 17.2 9.2 29.8 32.1Other overseas 12.8 11.5 4.4 3.3 2.2 1.8Inter-company (62.4) (63.6)

1,008.4 899.3 168.1 140.9 240.1 224.7

1996 1995 2 Analysis of turnover by destination £m £m

United Kingdom 256.3 232.5USA 429.9 420.9Europe 213.3 149.6Other overseas 108.9 96.3

1,008.4 899.3

3 Cost of sales

Cost of sales of £591.3m includes £16.0m in respect of acquisitions made during the year and £9.8m (1995 £15.5m) in respect of disposals.

1996 1995 4 Operating expenses £m £m

Continuing operationsDistribution costs 110.2 98.9Administrative expenses 127.5 106.4

237.7 205.3

AcquisitionsDistribution costs 4.5Administrative expenses 6.7

11.2

DisposalsDistribution costs 1.7 2.8Administrative expenses 0.9 1.5

2.6 4.3

Total operating expenses 251.5 209.6

Notes to the Accounts

37


1996 1995 5 Operating profit is after charging – £m £m

Depreciation of fixed assets 30.5 28.7Operating leases – Land and buildings 6.1 5.0

– Others 1.9 1.8Auditors – Audit fees 1.4 1.3

– Other fees 0.1 0.1Restructuring and redundancy costs 4.6 2.3Research and development expenditure 50.0 49.2

1996 19956 Exceptional items £m £m

Unrealised profit elimination relating to associated company (9.1) .–Distribution from Ceewood Housing Ltd after expenses 14.2 .–Profit on sale of properties 0.3 3.0Loss on sale of businesses (0.4) (3.5)

Exceptional items before tax 5.0 (0.5)

Tax relief on unrealised profit elimination relating to associated company (1995 sale of business) 2.0 2.3

Exceptional items after tax 7.0 1.8

Following the increase in the Company’s interest in Japan Medico Co Ltd to 50%, the opportunity has been taken to review the basis ofeliminating the intercompany profit on stock held by associated companies. It has been decided to adopt the more prudent approach ofeliminating all such profit and as a result £9.1m has been charged as an exceptional item in arriving at the cost of sales.

Loss on sale of businesses comprises assets sold £5.3m and goodwill written off £0.5m, less proceeds of sale £5.4m.

1996 1995 7 Net interest £m £m

Receivable 6.6 6.3Payable:

Bank loans and overdrafts repayable within 5 years (3.8) (3.5)Other loans repayable within 5 years (0.7) .–11.25% Debenture stock 1995/2000 – (0.5)Other loans repayable in more than 5 years (4.8) (4.7)

(2.7) (2.4)

1996 1995 8 Taxation £m £m

Taxation on the profit for the year:UK corporation tax at 33% 38.9 27.0Deferred taxation (1.3) 3.9Overseas taxation 16.4 15.3Double taxation relief (0.7) (0.7)Exceptional items (2.0) (2.3)Associated companies 1.3 0.9

52.6 44.1

Notes to the Accounts continued



1996 1995 9 Dividends £m £m

Ordinary interim paid 5.6p per share (1995 5.05p) 16.9 15.2Ordinary final proposed 10.6p per share (1995 9.35p) 32.2 28.2

49.1 43.4

10 Earnings per share

Separate figures are given for earnings per share related to the average number of shares in issue of 302,386,924 (1995 300,036,882), in respect of:

(i) Profits after taxation of £110.8m (1995 £92.1m) arising from ordinary activities(ii) Total net profits after exceptional items and taxation of £117.8m (1995 £93.9m)

11 Post-Retirement benefits

Smiths Industries operates a number of pension schemes throughout the world. The major schemes are of the defined benefit type withassets held in separate trust administered accounts.

Contributions to pension schemes are made on the advice of independent qualified actuaries, using, in the United Kingdom, the ProjectedUnit method and in the USA a type of Aggregate Method. The aim is for the benefits to be fully funded during the scheme members’working lives. In both countries the regular pension cost is assessed under the Projected Unit method. The latest actuarial assessmentswere as at 31 March 1995 for the UK and 31 July 1996 overseas. The most significant assumptions were:-

Investment Return 9% per annum

Salary Inflation 7% per annum

Dividend Growth 4.5% per annum

Pension Increases 4.5% per annum

The variation from regular cost, which recognises the excess of assets over liabilities in the pension schemes, including that existing at the timeof initially adopting the present accounting policy, has been spread over approximately 10 years, being the average remaining working life.

The Company’s defined benefit schemes had assets with a market value of £515m. The actuarial value of the scheme assets represented111% of the liabilities for benefits that had accrued to members, after allowing for expected future increases in salaries.

A prepayment of £28.1m is included in debtors, this being the excess of the amount funded over the accumulated pension cost.

Smiths Industries operates post retirement healthcare benefit plans, principally at Grand Rapids in the United States. These costs areaccounted for on a basis similar to pensions. The liabilities in respect of the benefits are assessed by qualified independent actuaries andare fully accrued (see note 20). The major assumptions are interest rate 7% p.a., and medical inflation 7% p.a.

1996 1995 12 Employees £m £m

Staff costs during the year:Wages and salaries 268.9 250.1Social Security 27.3 22.6Company pension costs 7.6 6.8

303.8 279.5

The average number of persons employed was: 1996 1995

Aerospace 4,755 4,945Medical Systems 3,971 3,756Industrial 3,482 3,017

12,208 11,718

39


13 Directors’ emoluments and interests

RemunerationThe Standing Committee of the Board referred to on page 26 determines the remuneration of Executive Directors including their annualbonus targets and share options. A report from the Standing Committee is set out on page 31.

The total remuneration of directors is as follows:

1996 1995£000 £000

Fees 100 88Salaries and benefits 1,196 1,120Performance related bonuses 519 416Deferred share scheme 211 141Pension to past director 6 6Pension contributions 42 89Compensation for loss of office – 245Ex-gratia payment to former director 42 –

2,116 2,105

The pension contributions are the proportion of the payments made to the pension trustees relating to the Executive Directors. The amounts are determined by the Company’s actuaries.

The remuneration of the Chairman & Chief Executive and Executive Directors is set out below:

Deferred shareSalary Bonus Benefits scheme Total

1996 1995 1996 1995 1996 1995 1996 1995 1996 1995£000 £000 £000 £000 £000 £000 £000 £000 £000 £000

Chairman & Chief ExecutiveSir Roger Hurn 380 365 190 182 21 15 109 82 700 644Executive DirectorsN V Barber 203 195 81 78 31 17 47 32 362 322G M Kennedy 190 180 95 72 21 14 43 27 349 293E Lindh (appointed 13.2.96) 65 – 29 – 4 – – – 98 –C S Taylor (resigned 31.3.95) – 91 – – – 10 – – – 101A M Thomson 150 50 75 20 21 4 12 – 258 74R Williams (retired 22.2.96) 99 160 49 64 11 19 – – 159 243

1,087 1,041 519 416 109 79 211 141 1,926 1,677

The deferred share scheme amounts relate to the previous year’s bonus.

With effect from 1 August 1996 Mr Butler-Wheelhouse was paid a salary of £350,000 a year: he will participate in the executive bonus andshare option schemes, and will be entitled to pension benefits.




13 Directors’ emoluments and interests continued

The accrued pension benefits for Executive Directors were:

Years of Additional pension Accrued entitlement at year endservice at earned during the or at date of appointment

3 August 1996 year endedAge at or at date of 3 August 1996 3 August 1996 5 August 1995

3 August 1996 retirement £000 £000 £000

Sir Roger Hurn 58 37 18 256 238N V Barber 57 5 11 110 99G M Kennedy 56 23 11 118 107E Lindh 51 13 3 54 51A M Thomson 49 1 7 33 26R Williams 62 36 7 108 101

The gross emoluments excluding pension contributions of the Directors fell within the following bands:

1996 1995 1996 1995

£5,001 – £10,000 – 1 £240,001 – £245,000 – 1£10,001 – £15,000 – 1 £255,001 – £260,000 1 –£15,001 – £20,000 5 4 £290,001 – £295,000 – 1£70,001 – £75,000 – 1 £320,001 – £325,000 – 1£95,001 – £100,000 1 – £345,001 – £350,000 1 –

£100,001 – £105,000 – 1 £380,001 – £385,000 1 –£155,001 – £160,000 1 – £640,001 – £645,000 – 1

£695,001 – £700,000 1 –

Ordinary shares of 25p Ordinary shares of 25pDirector 3 August 1996 5 August 1995 3 August 1996 5 August 1995

Directors’ interests in the Company’s sharesN V Barber 91,031 68,733 E Lindh 13,728 †13,578K O Butler-Wheelhouse Nil *Nil K Orrell-Jones 2,000 2,000Sir Roger Hurn 137,412 84,387 A I H Pink Nil NilSir Alex Jarratt 5,333 5,333 Sir Peter Thompson 5,000 5,000G M Kennedy 35,318 24,503 A M Thomson 1,936 NilR F Leverton 1,000 Nil

*Interest on appointment on 1 August 1996†Interest on appointment on 13 February 1996

The Company has not been notified of any changes to the beneficial holdings of the Directors, their families and any connected personsbetween 3 August and 15 October 1996.

Sir Roger Hurn also has interests as a joint-trustee and a potential beneficiary in 4,080 ordinary shares of 25p held by a family trust.

41


13 Directors’ emoluments and interests continued

Options Optionsheld on held on

3 August 5 August WeightedDirector Scheme 1996 1995 Average Options exercised Options granted

Exercise Date Exercise Market Date Exercise ExpiryNumber Number price exercised Number price price† of grant Number price date

Directors’ share options

Sir Roger Hurn A 193,666 408,615 445.19p 25/04/96 214,949 347.00p 705.42p

B 68,196 632.00p 20/12/95 68,196 632.00p 20/12/2005

C 6,061 6,061 294.44p

D 45,101 37,376 0.10p 25/04/96 10,150 0.10p 709.00p 06/12/95 17,875 0.10p 06/11/2002

N V Barber A 118,737 141,983 446.03p 29/05/96 23,246 347.00p 718.00p

B 33,964 632.00p 20/12/95 33,964 632.00p 20/12/2005

C 7,560 7,560 248.00p

D 17,156 12,223 0.10p 23/04/96 2,706 0.10p 708.00p 06/12/95 7,639 0.10p 06/11/2002

G M Kennedy A 114,630 177,457 425.61p 23/04/96 62,827 347.00p 708.00p

B 31,560 632.00p 20/12/95 31,560 632.0p 20/12/2005

C 6,324 6,324 305.96p

D 14,337 11,048 0.10p 23/04/96 3,763 0.10p 708.00p 06/12/95 7,052 0.10p 06/11/2002

E Lindh A 71,939 75,939* 383.82p 22/05/96 4,000 347.00p 712.00p

B 4,905 4,905* 632.00p

C 3,409 572.00p 17/05/96 3,409 572.00p 01/01/2004

D 7,511 7,511* 0.10p

A M Thomson A 62,500 62,500 480.00p

B 20,569 632.00p 20/12/95 20,569 632.00p 20/12/2005

C 3,015 572.00p 17/05/96 3,015 572.00p 01/01/2002

D 1,936 0.10p 06/12/95 1,936 0.10p 06/11/2002

KEY: A. The Smiths Industries (1984) Executive Share Option Scheme

B. The Smiths Industries 1995 Executive Share Option Scheme

C. The Smiths Industries 1982 SAYE Share Option Scheme

D. The Smiths Industries Senior Executive Deferred Share Scheme

* Options held at date of appointment (13 February 1996)†

Mid-market quotation from the London Stock Exchange Daily Official List or actual sale price if shares sold on date of acquisition

Notes: The high and low market prices of the ordinary shares during the period 5 August 1995 to 3 August 1996 were 724p and 522p, respectively.

The market price on 5 August 1995 was 544p and on 3 August 1996 was 724p.

All options held on 3 August 1996 were granted at exercise prices less than the market price on that date.

No options lapsed during the period 5 August 1995 to 3 August 1996.

No options have been granted or exercised or have lapsed between 3 August and 15 October 1996.

There are no performance criteria for the The Smiths Industries (1984) Executive Share Option Scheme or The Smiths Industries Senior Executive Deferred Share Scheme apart from

market price. The Smiths Industries 1995 Executive Share Option Scheme is subject to a performance criterion based on total shareholder return of the Company versus the total

return of the Engineering Sector of the FT-SE All Shares Index.

Deferred Share Scheme options were granted on 6 December 1995 at an exercise price of 0.1p per share and match shares purchased in the market by the grantee on that day.

Special provisions permit early exercise of SAYE Options in the event of retirement; redundancy; death; etc.

Full details of the Directors’ shareholdings and options are contained in the Register of Directors’ Interests in Shares (which is open to inspection).

Options held by Mr R Williams, who retired on 22 February 1996, are not included.




Fixtures,Land and Plant and fittings, toolsbuildings machinery and equipment Total

14 Tangible fixed assets £m £m £m £m

ConsolidatedCost or valuationAt 6 August 1995 98.1 123.6 165.1 386.8 Exchange adjustments 1.7 3.7 2.0 7.4 Additions 10.0 13.2 17.5 40.7 Acquisitions 7.3 6.4 5.3 19.0 Disposals (1.5) (3.2) (8.2) (12.9)

At 3 August 1996 115.6 143.7 181.7 441.0

DepreciationAt 6 August 1995 28.9 83.1 108.1 220.1Exchange adjustments 0.8 2.6 1.4 4.8 Charge for the year 2.2 10.2 18.1 30.5 Acquisitions 0.8 4.4 3.6 8.8 Eliminated on disposals (0.3) (1.1) (7.1) (8.5)

At 3 August 1996 32.4 99.2 124.1 255.7

Net book valueAt 3 August 1996 83.2 44.5 57.6 185.3

At 5 August 1995 69.2 40.5 57.0 166.7

CompanyCost or valuationAt 6 August 1995 17.9 8.1 66.5 92.5 Additions 4.3 0.3 7.0 11.6 Disposals (1.3) (0.5) (2.1) (3.9)

At 3 August 1996 20.9 7.9 71.4 100.2

DepreciationAt 6 August 1995 1.7 5.8 42.3 49.8Charge for the year 0.2 0.5 7.7 8.4 Eliminated on disposals (0.2) (0.5) (1.8) (2.5)

At 3 August 1996 1.7 5.8 48.2 55.7

Net book valueAt 3 August 1996 19.2 2.1 23.2 44.5

At 5 August 1995 16.2 2.3 24.2 42.7

Consolidated Company£m £m

Land and buildingsCost 108.3 20.1Valuation 1974 7.3 0.8

115.6 20.9

Freehold 107.0 20.9Long leasehold 2.5 –Short leasehold 6.1 –

115.6 20.9

If land and buildings had not been revalued they would have been included at the following amounts:Cost 111.5 20.1Aggregate depreciation 31.7 1.7

43


1996 199515 Capital commitments £m £m

Estimated commitments not included in the accounts:Company 1.3 1.9Subsidiaries 5.1 5.7

6.4 7.6

Amounts authorised by Directors but not committed:Company 9.3 15.1Subsidiaries 13.9 7.7

23.2 22.8


1996 1995 1996 199516 Investments and advances £m £m £m £m

At cost less amounts written off:Subsidiary Companies – .– 495.0 459.2Associated Companies 5.3 4.2 1.9 2.2Unlisted Investments – 0.4 – 0.4

5.3 4.6 496.9 461.8

Investments in subsidiariesShares at cost or valuation 261.8 194.7Due from subsidiaries 268.0 295.5

529.8 490.2Due to subsidiaries (34.8) (31.0)

495.0 459.2

The Company’s principal subsidiaries and their countries of incorporation are:

England USASmiths Industries Aerospace & Defence Systems Limited Smiths Industries, Inc.SIMS-Portex Limited Smiths Industries Aerospace & Defense Systems, Inc.*Eschmann Bros & Walsh Limited Smiths Industries Medical Systems, Inc.*Smiths Industries Industrial Group Limited SIMS-Deltec, Inc.*Air Movement (Holdings) Limited SIMS-Level 1, Inc.*Lighthome Limited Tutco, Inc.*SI Properties Limited Flexible Technologies, Inc.*

All the subsidiaries are 100% owned by the Company, apart from those marked* which are wholly owned by Smiths Industries, Inc.Shareholdings are of ordinary shares, ordinary stock units or common stock. All subsidiaries operate in their country of incorporation. Theinformation given above relates only to undertakings whose results or financial position principally affected the figures in these accounts.

Associated CompaniesThe Company owns 50% of the ordinary shares of Japan Medico Co. Limited and 30% of the ordinary shares of Mednova Co. Limited.Both companies are incorporated and operate in Japan.

Summarised information for the last financial year of these companies comprises:

£m

Sales 69.0Profit after interest 9.7Net assets excluding borrowings 48.5Borrowings 28.4





1996 1995 1996 199517 Stocks £m £m £m £m

Stocks comprise:Raw materials and consumables 51.4 44.0 5.2 5.6Work in progress 53.9 53.1 24.4 20.4Finished goods 56.7 47.6 8.0 7.1

162.0 144.7 37.6 33.1Less: Payments on account 11.3 8.5 5.1 3.7

150.7 136.2 32.5 29.4


1996 1995 1996 199518 Debtors £m £m £m £m

Amounts falling due within one year:Trade debtors 183.6 158.1 37.7 34.3Amounts recoverable on contracts 22.8 22.0 8.4 8.4Amounts owed by subsidiaries – .– 2.3 19.9Other debtors 4.9 11.1 2.6 2.5Prepayments and accrued income 7.9 8.1 2.7 2.8

219.2 199.3 53.7 67.9Amounts falling due after more than one year:Other debtors 1.4 0.6 – 0.1Pensions prepayment 28.1 27.1 28.1 27.1

248.7 227.0 81.8 95.1


1996 1995 1996 199519 Creditors £m £m £m £m

Amounts falling due within one yearBank loans and overdrafts 50.7 35.9 0.4 0.2Floating rate loan notes 5.2 .– 5.2 .–Trade creditors 66.2 61.3 21.8 16.5Bills of exchange payable 1.4 1.5 – .–Amounts owed to subsidiaries – .– 0.9 0.8Other creditors 18.5 5.0 7.0 1.6Proposed dividend 32.2 28.2 32.2 28.2Corporate taxation 38.5 30.6 33.3 24.3Other taxation and social security costs 9.9 8.1 2.2 1.6Accruals 122.7 105.7 48.9 45.3

345.3 276.3 151.9 118.5

Amounts falling due after more than one year:8.34% Senior Notes 2002 64.9 62.1 – .–Floating rate loan notes 23.0 2.7 23.0 2.7Other loan notes 4.2 – – –Bank loans 0.7 0.8 – .–Other creditors 26.4 26.2 2.4 3.3

119.2 91.8 25.4 6.0

45


19 Creditors

Bank loans and overdrafts at 3 August 1996 amounted to £51.4m (1995 £36.7m). Bank loans and overdrafts are repayable:

Within one year or on demand £50.7mWithin two to five years £0.7m

Smiths Industries, Inc. has in issue US$100m 8.34% Senior Notes 2002, guaranteed by the Company. Co-terminous interest rate swapswere taken out covering US$75m of these fixed rate borrowings, reducing the effective rate of interest in the year to 7.3%.

Floating rate loan notes carry interest at rates which vary from 0.45 of a percentage point below 3 – month Sterling LIBID to 1.0% above3 – month Sterling LIBOR. They are repayable:-

Within one year or on demand £5.2mWithin two to five years £21.7mAfter more than five years £1.3m

Other loan notes carry fixed interest rates varying from 8.5% p.a. to 10% p.a. They are repayable within two to five years.

At 3 August 1996 the Company had annual commitments under non-cancellable operating leases as follows:

Land and buildings Others£m £m

Expiring within one year 1.6 0.2Expiring within two to five years 3.2 0.9Expiring after five years 1.2 .–

6.0 1.1

Postretirement Deferred

Total healthcare Acquisitions taxation20 Provisions for liabilities and charges £m £m £m £m

ConsolidatedAt 6 August 1995 43.2 28.8 22.2 (7.8)Exchange adjustments 0.6 1.2 0.4 (1.0)Acquisitions 0.8 – – 0.8Profit and loss account (1.0) – 2.3 (3.3)Utilisation (9.5) (0.9) (6.3) (2.3)

At 3 August 1996 34.1 29.1 18.6 (13.6)

CompanyAt 6 August 1995 17.5 2.8 2.7 12.0Acquisitions 0.4 – – 0.4Profit and loss account (8.1) – – (8.1)Utilisation (1.6) – (0.6) (1.0)

At 3 August 1996 8.2 2.8 2.1 3.3


1996 1995 1996 1995£m £m £m £m

Deferred taxationAccelerated capital allowances 15.7 14.6 6.7 7.0Advance corporation tax (8.1) (7.0) (8.1) (7.0)Post-retirement benefits (11.5) (11.4) (0.9) (0.9)Short-term and other timing differences (9.7) (4.0) 5.6 12.9

(13.6) (7.8) 3.3 12.0

No provision has been made for potential taxation which could arise on the remittance to the United Kingdom of retained overseas earnings, as noremittances are envisaged in the foreseeable future which could give rise to a material liability.




21 Acquisitions

Major acquisitions in the year comprised Level 1 Technologies Inc. in the USA for Medical Systems Group, and Adaptaflex and Air Movement Group in the UK for the Industrial Group.

Details of the consideration, book values of net assets at the date of acquisition, and adjustments to reflect the Company’s assessmentsof fair values are set out below. The resulting goodwill has been taken to goodwill reserve in the consolidated balance sheet

Consideration Goodwill Net assets£m £m £m

Level 1 Technologies 36.6 33.9 2.7 Adaptaflex 21.0 16.5 4.5Air Movement Group 46.6 33.8 12.8 M J A Dynamics 4.9 4.8 0.1 Other 0.4 0.4 .–

109.5 89.4 20.1

Book value Revaluation Total£m £m £m

Fixed assets 10.9 (0.7) 10.2 Stock 10.2 0.5 10.7 Debtors 23.7 23.7 Creditors (12.5) (9.4) (21.9) Taxation (3.1) 0.5 (2.6)

29.2 (9.1) 20.1

The goodwill on the above acquisitions has been calculated on a provisional basis pending the outcome of matters requiring further assessment.

Issued capital Consideration22 Called up share capital Shares £m £m

At 5 August 1995 301,516,333 75.4Exercise of share options 2,080,535 0.5 5.9

At 3 August 1996 303,596,868 75.9

The authorised capital at 3 August 1996 consisted of 400,000,000 shares of 25p each.At 3 August 1996 the following options had been granted and were still outstanding:

DatesSubscription normally

Date issued Number of shares prices exercisable

SAYE 1989 89,710 275.00p 1994/19961990 635,354 178.00p 1995/19971991 343,966 220.00p 1996/19981992 857,557 248.00p 1997/19991993 805,576 278.00p 1998/20001994 835,734 392.00p 1999/20011995 1,270,515 384.00p 2000/20021996 1,209,101 572.00p 2001/2003

Executive 1989 11,226 269.00p 1992/19991990 29,981 205.00p 1993/20001991 125,305 250.00p 1994/20011993 419,032 347.00p 1996/20031993 1,415,584 395.00p 1996/20031994 1,336,592 451.00p 1997/20041995 62,500 480.00p 1998/20051995 725,807 632.00p 1998/2005

47


Share premium Revaluation Profit and Goodwillaccount reserve Other reserves loss account reserve

23 Share premium account and reserves £m £m £m £m £m

ConsolidatedAt 6 August 1995 24.2 3.8 220.3 461.1 (559.3)Premium on allotments 5.4Disposals (0.5) 0.5 0.5Retained profit 68.7Exchange rate changes 0.6Goodwill (89.4)

At 3 August 1996 29.6 3.3 220.9 530.3 (648.2)

CompanyAt 6 August 1995 24.2 0.6 182.3 269.5Premium on allotments 5.4Retained loss (3.2)Exchange rate changes 11.2Goodwill 0.2

At 3 August 1996 29.6 0.6 182.5 277.5

1996 199524 Movements in shareholders’ funds £m £m

Profit for the year 117.8 93.9Dividends (49.1) (43.4)

68.7 50.5Exchange variations 0.6 1.7Share issues 5.9 5.7Goodwill – on acquisitions (89.4) (44.4)

– on disposal 0.5 .–

Net decrease – 1995 increase – in shareholders’ funds (13.7) 13.5Shareholders’ funds: at 5 August 1995 225.5 212.0

at 3 August 1996 211.8 225.5

1996 199525 Contingent liabilities £m £m

The Company has guaranteed the 8.34% Senior Notes 2002 privately placed by a subsidiary 64.9 62.1




1996 199526 Acquisition of subsidiary companies £m £m

Fixed assets 10.2 10.4Stocks 10.7 11.2Debtors 23.7 19.0Creditors (21.9) (36.0)Taxation (2.6) 2.6

20.1 7.2Goodwill 89.4 44.4

Net assets acquired/consideration 109.5 51.6

Satisfied by cash (£77.7m) and loan notes (£25.6m) (103.3) (51.6)Deferred consideration (5.8) .–Prior year acquisition (0.4) .–

(109.5) (51.6)

1996 199527 a) Analysis of cash and cash equivalents £m £m

Cash at bank and on deposit 120.4 102.3Bank loans and overdrafts (51.4) (35.9)

69.0 66.4Items exceeding three months’ maturity when acquired

Deposits – (20.0)Bank loans 51.4 35.9

120.4 82.3

b) Analysis of change in cash and cash equivalentsAt 6 August 1995 82.3 45.3Net cash inflow 38.1 37.0

At 3 August 1996 120.4 82.3

Share capitaland share premium Borrowings

c) Analysis of changes in financing £m £m

At 6 August 1995 99.6 101.5Cash inflow from financing 5.9 42.2Exchange rate changes – 5.0

At 3 August 1996 105.5 148.7

28 Summary of the change from net cash to net borrowings(defined as all borrowings, including loan notes, less cash at bank and on deposit) £m

At 6 August 1995 – net cash 0.8Exchange rate changes (5.0)Net decrease in deposits (20.0)Net increase in borrowings (42.2)Increase in cash and cash equivalents 38.1

At 3 August 1996 – net borrowings (28.3)

49


1996 1995 1994 1993 1992£m £m £m £m £m

Turnover 1,008.4 899.3 766.3 701.4 656.7Operating profit 168.1 140.9 114.1 100.5 90.8Net interest (2.7) (2.4) 1.7 6.7 12.4Profit before exceptional items 165.4 138.5 115.8 107.2 103.2Exceptional items 5.0 (0.5) 1.8 (2.9) 0.2Profit before taxation 170.4 138.0 117.6 104.3 103.4Profit after taxation 117.8 93.9 79.7 70.6 69.4Shareholders’ funds 211.8 225.5 212.0 266.7 330.0Represented by:Fixed assets 190.6 171.3 160.1 147.7 123.2Net current assets 49.5 53.4 72.3 85.1 86.7Net cash (28.3) 0.8 (20.4) 33.9 120.1

Funds employed 211.8 225.5 212.0 266.7 330.0Goodwill 648.2 559.3 514.9 415.5 312.3

Shareholder investment 860.0 784.8 726.9 682.2 642.3

RatiosOperating profit: turnover (%) 16.7 15.7 14.9 14.3 13.8Profit before exceptional items: shareholder investment (%) 19.2 17.6 15.9 15.7 16.1Taxation (%) 30.9 32.0 32.2 32.3 32.9Cash-flowCash-flow from operations (£m) 149.0 139.6 128.9 119.5 101.5Free cash-flow (£m) 104.6 109.1 108.2 96.6 75.9(before acquisitions and dividends, after capital expenditure)Free cash-flow per share (p) 34.5 36.4 36.2 32.6 25.8Earnings per share before exceptional items (p) 36.6 30.7 26.1 24.3 23.5DividendsPence per share 16.2 14.40 13.00 11.85 11.25Times covered 2.2 2.1 2.0 2.1 2.1Number of employees (000’s) UK 6.5 6.1 6.3 6.7 6.6Overseas 6.3 6.2 5.4 4.5 4.6

Five Year Review



1996 1995£m £m

Turnover 1,008.4 899.3Deduct:Purchased materials and services 501.4 447.9

Value added 507.0 451.4

% %

Utilised as followsWages, pension contributions and employee benefits 303.8 60.0 279.5 61.9Reorganisation costs 4.6 0.9 2.3 0.5Taxation 52.6 10.4 44.1 9.8Net interest 2.7 0.5 2.4 0.5Exceptional items (5.0) (1.0) 0.5 0.1Dividends 49.1 9.7 43.4 9.6Depreciation 30.5 6.0 28.7 6.4Retained profit 68.7 13.5 50.5 11.2

Value added 507.0 100.0 451.4 100.0

Analysis of Ordinary Shareholders: 4 October 1996

% of total Class of Shareholder No. of Holders No. of Shares Listed Shares

Insurance Companies 43 12,994,101 4.28Pension Funds 13 2,704,101 0.89Banks 14 76,860 0.02Nominees 9,148 256,440,037 84.40Limited Companies and other Corporate Bodies 1,262 16,317,574 5.37Individuals 7,061 15,315,842 5.04

Total 17,541 303,848,515 100.00

Statement of Value Added

51



Organisation and Management

Single-Use ProductsAnaesthesia, respiratory therapy and intensive careTracheal, tracheostomy tubes andconnector systems, breathing andresuscitation systems, epiduralanaesthesia kits, patient monitoring.

General surgeryThoracic and general wound drainage devices.

CardiovascularIntravascular and embolectomycatheters, infusion systems, bloodpressure transducers.

Med

ical

Sys

tem

s SIMS Portex & EuropeSIMS Portex LimitedSIMS Medical Distribution LimitedSIMS SA – France Laboratoire Portex SA – Francepvb medizintechnik GmbH – GermanyMedic-Eschmann HmbH – Germany

Community CareSimcare

Capital EquipmentEschmann Equipment

PacificSIMS Pte Ltd – SingaporeSIMS Japan

North AmericaSIMS NASIMS Inc. – USASIMS Deltec Inc. – USASIMS Level 1 Inc. – USARespiratory Support Products Inc. – USASIMS Canada

DiagnosticsInstruments and blood gas analysis kits.

Community CareOstomy and incontinenceA wide range of products for hospital and community use.

UrologyFoley and specialised balloon catheters.

Drug delivery systemsImplantable ports and ambulatory infusionpumps.

Temperature managementBlood and intravenous fluid warmingsystems; core body temperature probes;disposable thermal blankets.

Crew information systemsHead-up displays, head-down displays,control displays, flight instruments,interactive voice systems.

Data control systemsFlight recorders, data transfer systems,health & usage monitoring systems.

Engine control systemsElectronic engine controls, transducers.

Flight management systemsFlight management computers.

Ground EquipmentAir data test sets, automated test equipment.

Aero

spac

e

Civil SystemsBasingstoke; Cheltenham;Malvern, Pennsylvania; Grand Rapids, Michigan

Defence SystemsStamford, Connecticut (International) Grand Rapids, MichiganFlorham Park, New JerseyClearwater, FloridaCheltenhamNew AddingtonHamble

Naval and MarineKelvin Hughes Limited, HainaultCharts and Maritime Supplies, HainaultLokata Limited, Hainault

Kelvin Hughes Observator bv, RotterdamA/S Kelvin Hughes, Aarhus

Product SupportCheltenhamHeathrowClearwaterSeattleMelbourneTorontoSingapore

Mission management systemsStores management systems, navigation attack systems.

Marine electronicsRadar systems, integrated navigationsystems, communications, charts & maritime supplies.

Navigation & guidance systemsAttitude and heading reference systems, inertial control measurement units, land systems.

Flex-TekFlexible ducting and conduit for consumerdurable, air-conditioning, heating andventilation, automotive and industrialapplications.

Vent-AxiaVentilation and fan systems for domestic,commercial and industrial applications.Fans for domestic and industrialappliances. Heating elements.

Indu

stri

al

Flex-TekUS: Abbeville, South Carolina; Los Angeles, California; Plymouth, IndianaUK: Birmingham, Glasgow, SloughGermany: Hamburg, LübeckFrance: Courbevoie Switzerland: Lugano Italy: BisuschioSpain: Barcelona

Vent-AxiaUS: Cookeville, TennesseeUK: Dudley, Crawley, Chichester, Cheadle, WitneyGermany: Schwenningen

EngineeringUS: Wallingford, Connecticut; Los Angeles,California; San Francisco, CaliforniaUK: Knaresborough, London, NewtownRugby, Slough, Witney, Germany: Bad Homburg

Hypertac InterconnectUK: LondonUSA: Hudson, Massachusetts; Sunnyvale, CaliforniaGermany: Deggendorf France: AsnièresItaly: Genova-Sestri

EngineeringProducts for interconnection and cabling in telecommunications,industrial, aerospace and defence.Specialised engineering products in the fields of industrial ignition, polymers and hydraulic systems.

Operating Businesses Areas of Business




53

George Kennedy Chairman

Michael WallsDirector & Group Controller

Malcolm CarlisleDirector, Regulatory Affairs & Legal Adviser

Don Cooper Director, Business Development

Bryan Muddell Director, Business Planning

EquipmentOperating theatresOperating tables, electrosurgery, suction systems.

SterilisationSteam autoclaves for hospitals/ dental surgeries.

Paul Battersby Managing Director, Eschmann Equipment

Tony Beran President, Respiratory Support Products Inc.

David Buyher President, SIMS North America

Peter EiseleGeschäftsführer, pvb GmbH

John HertigPresident, SIMS Level1 Inc.

Martin Jamieson Managing Director, SIMS Portex & Europe

Ken LittlePresident, SIMS Canada

Ray MorganManaging Director, SIMS Medical Distribution Limited

Jeff Spielman President, SIMS Inc.

Jim StittPresident, SIMS Deltec Inc.

Norman BarberChairman

Ian DonovanDirector & Group Controller

George DonovanVP Government Liaison, USA

Nigel HughesDirector, Technology

Graham ThorntonDirector, Strategy & Business Development

Lee BartholdVP & General Manager, Civil Systems,Malvern

Vehicle management systemsFuel management systems, utilitiesmanagement systems, electrical powermanagement systems.

Mike BridgmanDirector and General Manager, Controls and Utilities, Civil Systems UK.

Doug ClarkPresident, Civil Systems

Robert EhrPresident, Defense Systems, North America

Colin HowDirector and General Manager, EngineAccessories/HUMS, Civil Systems UK

Jerry HinesPresident, Defense Systems, International, USA

James KirbyGeneral Manager, Instruments and Displays,Civil Systems UK

Einar LindhChairman

Brian KnightDirector & Group Controller

Martin JonesManaging Director, Engineering

Roger EllisManaging Director, Hypertac Interconnect

Peter NorrisManaging Director, Vent-Axia

Steve LarawayManaging Director, Flex-Tek Europe

Tedd SmithPresident, Flex-Tek US

Ken BaileyManaging Director, Lodge Ignition

Geoff BallManaging Director, Air Movement Group

Phil BattleManaging Director, Flexible Ducting

Giovanni CodaManaging Director, Interplas

Dick DowneyPresident, Hypertronics

Alan EldretManaging Director, Sifan Systems

Arthur FotheringhamManaging Director, Unitex

Bruce FraserManaging Director, Elkay

Bruce HendersonManaging Director, Icore

Tony JonesManaging Director, Hypertac

Giuseppe LancellaGeneral Manager, Connei

Mike MahoneyPresident, Tutco

Peter PageExecutive VP, Times Microwave

Jean-Pierre RegeDirecteur General, FRB Connectron

Kevin SargeantManaging Director, Vent-Axia (Crawley)

Mike WallaceManaging Director, Hydraulics

John LeggManaging Director, Product Support

Nigel PlantDirector and General Manager, Fuel Systems,Civil Systems UK

David SheppardManaging Director, Naval & Marine

Grahame StovoldManaging Director, Defence Systems, Newmark

Keith WestonDirector and General Manager, Engine Controls, Civil Systems UK

Nick WiltonManaging Director, Defence Systems, Cheltenham

Key Personnel

Key Personnel

Key Personnel

Hypertac Interconnect

A wide range of high integrity electricalconnectors, including printed circuitboards, rectangular and circular products.

Sir Roger HurnChairman & Chief Executive

Keith Butler-WheelhouseChief Executive (as from 19.11.96)

Norman BarberChairman, Aerospace group

George KennedyChairman, MedicalSystems group

Einar LindhChairman, Industrial group

Alan ThomsonFinancial Director

Ron AlbrechtVP Administration,North America

Stephen AubreyReal Estate

Donald BroadInternal Audit

Alan CanteloTreasurer

Jonathan Flint Patents

David FlowerdayStrategic Finance

Jeff HawkesChief Accountant

Peter MasonTaxation

Russell PlumleyPublic Affairs

Alan Smith(Associate Director)Secretary & Solicitor

David SpencerHuman Resources

Robin TauntBusinessDevelopment

Martyn Wenzerul(Associate Director)Finance

Corporate Staff DirectorsExecutive Directors



Notice is hereby given that the eighty-second Annual General Meeting of Smiths Industries Public Limited Company will be

held at 765 Finchley Road, London NW11 8DS on Tuesday 19 November 1996 at 12.00 noon for the following purposes:

Ordinary business

1. To adopt the reports of the directors and the auditors and the audited accounts for the 52 weeks ended 3 August 1996.

2. To declare a final dividend on the ordinary shares.

To re-appoint the following directors:

3. Sir Roger Hurn

4. Mr Norman Victor Barber

5. Mr Keith Oliver Butler-Wheelhouse

6. Mr Einar Lindh

7. To appoint Clark Whitehill as joint auditors to the Company.

8. To appoint Price Waterhouse as joint auditors to the Company.

9. To authorise the directors to fix the remuneration of the joint auditors.

Special business

10. To consider and, if thought fit, pass the following ordinary resolution:

That, subject to and in accordance with Article 6 of the Articles of Association of the Company, the directors be and are

hereby authorised to allot relevant equity securities having a nominal value not exceeding £25,299,739 in aggregate and that

all previous authorities under section 80 of the Companies Act 1985 are hereby revoked and shall henceforth cease to

have effect.

11. To consider and, if thought fit, pass the following special resolution:

That, subject to and in accordance with Article 7 of the Articles of Association of the Company, the directors be and are

hereby authorised to allot equity securities for cash, provided that this power shall be limited for the purposes described

in paragraphs (a) and (b) of Article 7 and, for the purposes of limitation of said power referred to in paragraph (b) of Article

7, the nominal amount therein mentioned shall be £3,794,960.

12. To consider and, if thought fit, pass the following special resolution:

That the Company is hereby generally and unconditionally authorised to make market purchases (within the meaning

of section 163 of the Companies Act 1985) of ordinary shares of 25p each in the capital of the Company (“ordinary

shares”) provided that:

(a) the maximum number of ordinary shares hereby authorised to be purchased is 15,179,843;

Notice of Annual General Meeting


55

(b) the minimum price which may be paid for ordinary shares is 25p per ordinary share;

(c) the maximum price which may be paid for an ordinary share is an amount equal to 105% of the average middle market

quotations for an ordinary share, as derived from the London Stock Exchange Daily Official List, for the ten business days

immediately preceding the day on which the ordinary share is purchased;

(d) the authority hereby conferred shall expire at the conclusion of the next general meeting of the Company, unless such

authority is renewed at such time; and

(e) the Company may make a contract to purchase ordinary shares under the authority hereby conferred prior to the expiry

of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a

purchase in pursuance of any such contract.

By Order of the Board

Alan Smith

Secretary

15 October 1996

London NW11 8DS

Notes1. A member entitled to attend and vote may appoint a proxy or proxies to attend and, on a poll, vote on his behalf. A proxy need not be

a member. Proxy Forms must be deposited not later than 48 hours before the Meeting to be effective. In the case of a corporation, theappointment of a proxy must be made either under its common seal or by a duly authorised officer or attorney. In the case of jointholders, the vote of the first named on the register will be accepted to the exclusion of other joint holders.

2. A copy of the contract of service of each director of the Company with the Company or any of its subsidiaries will be available forinspection at the registered office of the Company during normal business hours on any weekday (Saturdays and Bank Holidaysexcepted) from the date of this Notice until the conclusion of the Annual General Meeting on 19 November 1996.

3. Subject to the final dividend being approved at the Annual General Meeting, dividend warrants will be payable on 8 January 1997 tothe ordinary shareholders on the register at the close of business on 5 November 1996.

4. The market value of an ordinary share on 31 March 1982 for the purposes of capital gains tax was:

Ordinary shares 91.25p (taking into account the sub-division of 50p shares into 25p shares on 14 January 1985).

5. Although copies of the Annual Report are distributed to share- and option-holders, only ordinary shareholders, or their proxies, areentitled to attend and vote at the Meeting.



765 Finchley Road London NW11 8DS

Tel: +44 (0) 181 458 3232 Fax: +44 (0) 181 458 4380

E-Mail: [email protected] http://www.smithsind.com Pub

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Financial Calendar

1996October

28 Ordinary shares final dividend ex-div date.

November

5 Ordinary shares final dividend record date.

19 Annual General Meeting.

1997January

8 Ordinary shares final dividend payment date.

March

17 CREST “C” Date (provisional).

April

9 1996/97 interim results announced.

21 Ordinary shares interim dividend ex-div date.

29 Ordinary shares interim dividend record date.

June

6 Ordinary shares interim dividend payment date.

August

2 Smiths Industries financial year end.


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