A fall in profits from manufacturing computer control systems for civil and military aircraft was offset by advances in medical equipment and industrial products, mainly the Vent-Axia fan business.
Roger Hurn, chief executive, said cash flow amounting to more than pounds 240m over the past two years would fund further acquisitions on the medical and industrial sides.
Smiths spent pounds 129m buying businesses during the year and a further pounds 122m on research and development.
Group profits increased from pounds 104.6m to pounds 117.2m, helped by lower interest payments and the absence of a research and development write-off, which held back the previous year. Earnings per share rose 11 per cent to 26.6p. A final dividend of 8.4p contributed to a 10 per cent increase in the full- year payout to 13p.
Aerospace profits fell 4 per cent to pounds 38.9m following a 5 per cent fall in sales as lower profits from US domestic airlines and defence cuts reduced budgets. Despite the cutbacks, the group recently secured a contract to supply computer systems for the US Navy's F-18 fighter. But the division's reorganisation programme, costing pounds 5m- pounds 6m a year is likely to continue.
Margins were maintained at 10 per cent, thanks to continuing cost-cutting, which has seen staff numbers in the division fall by 45 per cent in four years. Mr Hurn said there would be further job cuts this year but at a lower level than last year's 650 redundancies.
He expected an upturn in civil markets in the second half of the decade, with first profits from the Boeing 777 expected next year.
Although Smiths had lost out to Honeywell in its bid to provide equipment for the new Boeing 737-700, Mr Hurn said the high- margin replacement market for the 2,500 old-style 737s would maintain profits in the future.
In Medical Systems, the acquisition of Deltec in July for dollars 130m gave Smiths an introduction to the expanding community healthcare sector. Deltec makes drug delivery pumps for use outside hospitals, a market growing at 6 to 8 per cent a year in the US.
Margins in the division held at 23 per cent, with profits of pounds 46.6m ( pounds 41.3m) benefiting from strong sales of single-use, intensive care equipment and growing turnover from operating tables.
A full year's contribution from Vent-Axia helped the industrial division to increase profits by 32 per cent to pounds 27.8m and lifted margins from 13.8 per cent to 15.1 per cent.Reuse content