Notes to the accounts

7 Discontinued operations

On 5 May 2007, the Company sold its Aerospace operations to General Electric Company. The Aerospace operations sold comprised the Aerospace business segment as reported in previous annual reports and accounts plus the US microwave company previously reported in Specialty – Other. The revenue and profit before taxation of the US microwave company in the period ended 31 July 2007 were £32.2m and £7.6m respectively. As the Aerospace operations represented a separate business segment, the disposal group was treated as a discontinued operation in the 2007 Annual report and accounts. The post-tax result of the Aerospace operations was disclosed as a discontinued operation in the consolidated income statement. In the cash-flow statement, the operating cash-flows of the Aerospace Group for the period ended 31 July 2007 were aggregated with those of the continuing operations, but are shown separately in the note below.

Profit on disposal of operation

	Year ended 31 July 2008 £m	Period ended 31 July 2007 £m
Total consideration	6.1	2,585.4
Foreign exchange recycled to the income statement on disposal		(48.4)
Provisions and disposal costs	17.1	(76.0)
Pension curtailment gains		63.3
Provision for settlement loss	3.6	(24.3)
	26.8	2,500.0
Net assets disposed		(1,030.4)
Pre-tax profit on disposal	26.8	1,469.6

		£m
Cash received from disposal of Aerospace operations	3.0	2,585.4
Disposal costs	(9.3)	(31.9)
Cash and cash equivalents of subsidiaries disposed		(62.5)
Borrowings of subsidiaries disposed		4.0
Net cash (outflow)/inflow on disposal	(6.3)	2,495.0

The £6.1m consideration recognised in the year ended 31 July 2008 arises from the finalisation of the working capital adjustment.

The provisions and disposal costs movement for the year ended 31 July 2008 include £4.3m other finance income relating to retirement benefits and £12.7m relating to the reassessment of the carrying value of other assets and liabilities.

Assets and liabilities of discontinued operations at the date of disposal

			£m
Assets
Intangible assets			553.0
Property, plant and equipment			256.1
Retirement benefit assets			6.8
Inventories			297.0
Trade and other receivables			1,357.1
Inter-company receivables			1,024.5
Cash and cash equivalents			62.5
Financial derivatives			12.1
Total assets			3,569.1
Liabilities
Financial liabilities
– borrowings			(4.0)
– financial derivatives			(2.5)
Provisions for liabilities and charges			(20.6)
Retirement benefit obligations			(0.5)
Deferred tax liabilities			(17.4)
Trade and other payables			(2,493.7)
Total liabilities			(2,538.7)
Net assets			1,030.4

Financial information for the Aerospace operations after Group eliminations is presented below.

Results from discontinued operations

	Year ended 31 July 2008 £m	Period ended 31 July 2007 £m
Revenue		955.6
Cost of sales		(667.9)
Gross profit		287.7
Sales and distribution costs		(29.9)
Administrative expenses		(116.6)
Loss on disposal of business
Operating profit		141.2
Interest payable		(1.2)
Other financing gains		0.7
Other finance income – retirement benefits		3.1
Profit before taxation		143.8
Taxation relating to performance of discontinued operations (note 6)		(36.9)
Profit on disposal	26.8	1,469.6
Attributable tax charge (note 6)	(2.3)	(51.3)
Profit for the period	24.5	1,525.2

Earnings per share from discontinued operations – pence
Basic	6.3p	277.8p
Diluted	6.2p	273.9p

The profit before taxation for the period ended 31 July 2007 represents the results of the operations for the period to the date of disposal.

Analysis by geographical location

The Group's revenue from discontinued operations by destination is shown below:

	Year ended 31 July 2008 £m	Period ended 31 July 2007 £m
Revenue
United Kingdom		125.7
North America		688.6
Europe		95.0
Other overseas		46.3
		955.6

The Group operating profit from discontinued operations was after charging:

	Year ended 31 July 2008 £m	Period ended 31 July 2007 £m
Cost of inventories recognised as an expense		594.6
Employee costs (note 11)		342.5
Depreciation of property, plant and equipment		8.4
Amortisation of intangible assets		3.8
Impairment losses recognised in the period on receivables		0.1
Research and development costs		29.4
Operating leases
– land and buildings		4.1
– other		1.0
Fair value movements on derivatives
– embedded		(0.1)
– held for trading		0.7

Cash-flows from discontinued operations

	Year ended 31 July 2008 £m	Period ended 31 July 2007 £m
Profit before taxation (including profit on disposal of Aerospace operations)	26.8	1,613.4
Net interest payable		1.2
Financing (gains)/losses
– charged to financing		(0.7)
Other finance income – retirement benefits		(3.1)
Profit on disposal of discontinued operations	(26.8)	(1,469.6)
		141.2
Amortisation of intangible assets		3.8
Profit on disposal of property, plant and equipment		0.2
Profit on disposal of business
Depreciation of property, plant and equipment		8.4
Share-based payment expense		3.5
Retirement benefits		(22.6)
Increase in inventories		(51.0)
(Increase)/decrease in trade and other receivables		(17.3)
(Decrease)/increase in trade and other payables		(16.4)
(Decrease)/increase in provisions		(1.1)
Cash generated from operations		48.7
Interest		(1.2)
Tax paid		(6.9)
Net cash inflow from operating activities		40.6

	Year ended 31 July 2008 £m	Period ended 31 July 2007 £m
Operating activities		40.6
Investing activities	(6.3)	2,373.1
Financing activities		14.2
	(6.3)	2,427.9

Smiths Group divisions:
Smiths Detection, Smiths Medical, John Crane, Smiths Interconnect, Flex-Tek