We have maintained technology leadership in many areas through a firm commitment to new product development and innovation, which in turn is a key driver of future sales and margin growth as new products typically command higher margins and deliver superior returns. We raised company-funded investment in R&D by 5% to £99m and secured a further £12m of customer-funded investment to bring our total spend to £111m, or 3.9% of sales (2010: 3.9%). This long-term investment is delivering results. In Canada, Smiths Medical launched a new syringe pump with wireless networking, Medfusion™ 4000, as well the new CADD®-Solis VIP pump which targets the growing alternate site and homecare markets. The Medfusion™ 4000 recently received FDA 510(k) clearance for sale in the US and we expect to extend both products to other markets subject to regulatory clearances. In Smiths Detection, the development of a next-generation explosives detection system for screening airport checked baggage, in co-operation with Analogic Corporation, is meeting our programme milestones. John Crane has continued to make progress on its portfolio of environmentally focused zero and low emission seals and on extending the high pressure capabilities of its compressor dry gas seals.

To support growth opportunities in emerging markets, we established a direct sales and marketing team in India for Smiths Medical. This builds on an existing distributor presence and supports further direct investment to drive accelerated growth in this rapidly growing market. We also made two acquisitions during the period, buying Smiths Detection’s existing distributors in India and Brazil, to create a direct sales presence in these important fast growing markets. Smiths Detection is already prominent in India with its equipment operating at more than 125 sites, while in Brazil, Smiths Detection’s systems are deployed throughout the vast country, from airports and ports in major cities such as Sao Paulo and Rio de Janeiro to remote border crossings in the Amazon.

Margins have continued to benefit from the major restructuring programme that began in 2008, delivering further savings of £15m in the period. To date, we have generated savings of £56m against our total planned savings of £70m when completed in 2012/13.

We have also launched a performance improvement programme in Smiths Detection which is expected to deliver annualised savings of £40m by the end of financial year 2014, at a cost of £40m. It is expected that £15m of these savings will be delivered in the first year. This will lower the fixed cost base and make the business better able to respond to variations in demand while improving customer service.

We have achieved strong free cash-flow which has reduced net debt by £108m to £729m. The Group benefits from high cash conversion and a sound balance sheet. During the year, we refinanced our bank facility with a new US$800m revolving credit facility. The new facility, which matures in December 2015, is currently undrawn. Over the past three years, we have progressively refinanced all our facilities, giving us an average maturity of almost five years and a strong balance sheet to finance our plans.

The Group continues to focus on improving returns on capital across all divisions by enhancing margins while operating an efficient capital base. This has increased headline return on capital employed by 40 basis points to 17.0%.

Subject to suitable market conditions, we will undertake more active management of our portfolio through a combination of acquisitions that satisfy our strategic and financial objectives and disposals that realise additional value for our shareholders. This will be undertaken in the context of continuing to manage the legacy issues of the actuarial deficits on the defined benefit pension plans and the ongoing historic product liability litigation against John Crane, Inc.

There are attractive opportunities to invest in our businesses to deliver superior returns. After the year end, Smiths Interconnect agreed to acquire Power Holdings Inc., a leading designer and manufacturer of specialist power distribution, conditioning and monitoring systems for $235m, subject to regulatory approvals. This acquisition will transform Smiths Interconnect’s existing power protection group with a complementary range of products and technologies, as well as new growth opportunities. In August 2011, John Crane agreed, conditional upon regulatory approvals, to acquire the business of Turbo Components and Engineering Inc. which services, repairs and builds replacement bearings and seals used in critical rotating equipment. This will accelerate the development of John Crane’s aftermarket services offering for bearings.

In September 2008, we set out ranges for sales growth and margins for each of the divisions based on what we believed the businesses could achieve over the medium term in an economic environment consistent with the immediately preceding period. However, the downturn in world economies since then has made it harder to operate within these targets in the near term; particularly sales growth, which is harder to deliver than improved margins, where we have greater control over delivering cost savings and efficiencies.

We are planning to review these targets during the course of the 2012 financial year, although the recent economic uncertainty and risk of a further recession has made this more challenging in the near term. In the meantime, we will continue to strive to deliver improvements in sales growth and margins against our targets.

We manage two areas of material historic liabilities: actuarial deficits on our defined benefit pension plans and ongoing product liability litigation in connection with John Crane, Inc.

The net funding position for the pension schemes has deteriorated in recent years as a result of increased liabilities caused by low bond yields and increased longevity, and poor asset performance in weak equity markets. Over this time, the Group has taken steps to minimise this liability by closing the defined benefit schemes and capping our obligations for post-retirement health benefits. In addition, the Group has agreed 10-year funding plans with the UK Trustees. Steps have also been taken to improve the matching of the Schemes’ assets and liabilities. In September 2011, the Trustee of the TI Group Pension Scheme invested approximately £147m in a bulk annuity policy as a match for specific pensioner liabilities, thereby mitigating the longevity risk in the Scheme. This follows similar annuity purchases in 2008 involving assets of around £500m.

The product liability litigation relates to various sealing products containing asbestos that John Crane, Inc. ('JCI'), a US subsidiary of John Crane, ceased making in 1985. JCI resists these claims based on a 'safe product' defence because the asbestos was encapsulated in such a manner that, based on tests conducted on its behalf, the products were safe. In our accounts, we disclose details of recent claims experience and of the provisions established for these liabilities. During the year, the provisioning approach for both the adverse judgments and legal defence costs was harmonised by using the same asbestos valuation experts and the same 10-year rolling period for both, compared with up to 16-years for previous estimates of legal costs. We will continue to update these provisions every six months. During the year, the number of claims in which JCI is a defendant continued to fall. Further details are given in note 23 to the accounts.

Having reached our target dividend cover of around 2.5 times last year, the Board has adopted a progressive dividend policy for future payouts while maintaining this prudent level of cover. This policy will enable us to retain sufficient cash-flow to meet our legacy liabilities and finance our investment in the drivers of growth.

The Board has recommended a final dividend of 25.0p per share giving a total for the year of 36.25p, an increase of 7%. The final dividend will be paid on 25 November to shareholders registered at the close of business on 28 October. The ex-dividend date is 26 October.

The economic outlook remains uncertain and continued pressures on government spending, which particularly impacted Smiths Detection, Medical and Interconnect are likely to continue to constrain revenue opportunities of some of our businesses during fiscal 2012. However, we still see further potential to drive operational improvements, enhance margins and deliver strong cash conversion. Outlook statements for the divisions are provided in the Business review.