Downloadable PDFs and Excel tables of the Interim Report 2009 are available below.

Financial review

Earnings per share

Basic headline earnings per share from continuing activities were 32.5p (2008: 30.8p) a rise of 6%. On a statutory basis, the basic earnings per share from continuing activities were 28.0p (2008: 34.3p).

Exceptional and other items excluded from headline profit before tax

These items amounted to £31m, compared to a profit of £7m in 2008. They comprised:

  • £8m in respect of restructuring corporate and divisional headquarters; this is part of a programme expected to cost approximately £48m over the next two years;
  • £20m (2008: £8m) in connection with John Crane, Inc. asbestos litigation. Of this sum, £12m (2008: £8m) relates to discounting effects and £8m (2008: nil) was in respect of changes in the assumptions underlying the provision based on expert advice. The increase in balance sheet provision includes not only the charge to profit but also £53m arising from foreign exchange translation;
  • Amortisation of intangible assets acquired in business combinations of £15m (2008: £7m). The amortisation relates principally to technology and customer relationships;
  • Profit on disposal of businesses of £1m (2008:£27m); and
  • Profit on disposal of property of £14m (2008: nil).
  • Exceptional items in 2008 also included acquisition integration costs (£2m).

Financing losses totalled £3m (2008: £3m). These represent exchange gains and losses on financing which are not hedge accounted under IFRS.

Cash generation and net debt

Headline operating cash-flow was £154m, representing 83% of headline operating profit. This compares to £99m in the prior period and cash conversion of 63%. Cash expenditure on exceptional items was £7m (2008: £14m). On a statutory basis, net cash inflow from continuing operations was £132m (2008:£64m).

Free cash-flow from continuing operations (after interest and tax but before acquisitions, financing activities and dividends) was £104m (2008: £26m). Dividends paid on ordinary shares totalled £91m (2008: £91m). Net debt has increased since July 2008 by £204m to £975m primarily as a result of foreign exchange translation (£118m), maturing net investment hedges (£45m) and acquisitions (£40m).

Interest and other financing costs

Interest payable on debt, less interest on cash deposits, was £21m, compared with £20m in 2008. Net interest costs were 8.8 times covered by headline operating profits. The Group accounts for pensions using IAS19. As required by this standard, a finance credit is recognised reflecting the expected return on pension scheme assets and a finance charge is recognised reflecting the unwinding of the discount on the future pension liability. The net financing income for continuing operations was £2m in the period (2008:£21m).

Research and development

Investment in research and development (R&D) drives future performance and is a measure of the Group’s commitment to the long-term organic growth of the business.

We invested a total of £49m in R&D on continuing operations, equivalent to 4% of sales. Of that total, £9m was funded by customers. The comparative figures for 2008 were £39m and £5m. Under IFRS, certain of these development costs are capitalised. The amount capitalised is shown as an intangible asset. Where customers contribute to the costs of development, the contribution is included as deferred income and disclosed within trade and other payables.


The tax charge for the period represented an effective rate of 24% on the headline profit before taxation, compared to 25% in 2008. The rate reduced as a result of global tax incentives, the tax-efficient use of capital, active tax compliance management together with the impact of resolving certain open issues. On a statutory basis, the tax charge on continuing activities was £26m.

Retirement benefits

As required by IFRS the balance sheet reflects the net surplus or deficit in retirement benefit plans, taking assets at their market values at 31 January 2009 and evaluating liabilities at year-end AA corporate bond interest rates.

The period end retirement benefit position was:


31 January

31 July

Funded plans



UK plans – funding status



US plans – funding status



Other plans – funding status










Funded plans



Unfunded plans



Total liability




The increase in deficit is largely caused by the fall in global equity values. Company contributions to the funded pension plans were £13m (2008: £18m). A summary of the retirement benefit position is shown in note 8. The Bank of England’s policy of quantitative easing has caused discount rates to fall which will have increased pension fund liabilities since the period end. The triennial review of the pension schemes will begin in April 2009 which will cause future contributions to increase.

Exchange rates

The results of overseas operations are translated into sterling at average exchange rates. The net assets are translated at period end rates. The principal exchange rates, expressed in terms of the value of sterling, are shown in the following table.


31 January

2 February


Average rates


US Dollar



  Dollar strengthened 19%




  Euro strengthened 15%

Period end rates


US Dollar



  Dollar strengthened 26%




  Euro strengthened 15%

Risks and uncertainties

The principal risks and uncertainties affecting the business activities of the Group were identified on pages 30 and 31 of the Annual Report for the year ended 31 July 2008, a copy of which is available at the Company’s website at The key risks and uncertainties were summarised under the following headings:

  • Competition, innovation and major projects
  • Raw materials and inability to supply
  • Global political and economic conditions
  • Information technology
  • Acquisitions and disposals
  • Internal controls
  • Legislative and regulatory
  • Litigation and product liability
  • Environmental and external events
  • Financial
  • Pension funding
  • Human resources

In the view of the Board, the risks and uncertainties affecting the Group for the remaining six months of the financial year continue to be those set out in the above section of the Annual Report. In the last six months, the outlook for the global economy has deteriorated which is expected to affect adversely the Group’s performance in the second half of the year relative to the same period last year. The downturn in financial markets since the year end has adversely affected the funding position of the Group’s pension schemes which is likely to affect our results.

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


Smiths Group plc:
Registered office 2nd Floor, Cardinal Place, 80 Victoria Street, London SW1E 5JL
Incorporated in England No. 137013
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