Final Results

16th Mar 2006 07:04

Laird Group PLC16 March 2006 NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY IN OR INTO THE UNITED STATES, CANADA, JAPAN, AUSTRALIA OR THE REPUBLIC OF SOUTH AFRICA. 16 March 2006 The Laird Group Public Limited Company Audited Results for the year ended 31 December 2005 4 for 17 Rights Issue at 325 pence per share to raise £117.8 million (net of expenses) and Acquisition of RecepTec The Laird Group Public Limited Company ("Laird") today announces the Group'saudited results for the year ended 31 December 2005, a 4 for 17 Rights Issueof 37,602,512 New Ordinary Shares at 325 pence per share and the acquisition of the assets of RecepTec Holdings, LLC ("RecepTec"), a leading designer and supplier of satellite digital and other specialist antennae, for a cash consideration of $89.0 million (£51.0 million). Peter Hill, Chief Executive of Laird, commented: "Over recent years Laird has been transformed from a diversified industrialconglomerate into a higher growth, increasingly profitable company focused ontwo market leading divisions, Laird Technologies and Laird Security Systems,which we continue to strengthen and expand both through organic investment andthrough acquisition. We have made further good progress in 2005, with goodgrowth in underlying profits and earnings. We believe that now is the right time to strengthen Laird's capital base to fundthe acquisitions we have announced this year, our investment in organic growthand the ongoing strategic development of the Group." Key Points Audited Results for the year ended 31 December 2005 2005 2004 £m £mRevenue- Continuing operations 490.3 345.5 +42%- Discontinued operations 18.4 122.5 ----- ----- 508.7 468.0 +9% Underlying profit before tax (ii) 55.1 46.4 +19%Profit before tax from continuing 34.3 40.6operationsTrading cash flow 34.0 24.3 +40%Net borrowings 148.1 118.6Shareholders' funds 284.3 260.2 p/share p/share p/share Underlying earnings (ii) 28.9 26.3 +10%Basic earnings from continuing 16.0 20.7operationsDividend 9.75 9.2 + 6 % See explanatory notes below i The results for the year ended 31 December 2005 represent the Group's firstfull year financial statements prepared under International Financial ReportingStandards. As a consequence, the 2004 results have been amended accordingly. ii Laird uses underlying results as key performance indicators. Underlyingprofit before tax and underlying earnings per share are stated beforeexceptional items, the amortisation of acquired intangible assets, deferred taxon acquired intangible assets and goodwill, the gain or loss on disposal ofbusinesses and the impact arising from the fair valuing of financialinstruments. iii The narrative that follows is based on underlying operating profit, profitbefore tax and earnings per share, as the Directors believe that these provide amore consistent measure of operating performance. iv The average number of shares in issue was 157.9 million in 2005 and 145.6million in 2004. Highlights • Revenue from continuing operations increased by 42% to £490.3 million (2004: £345.5 million). Organic revenue growth of 7%. • Underlying profit before tax of £55.1 million, up 19% compared with £46.4 million in 2004. • Profit before tax from continuing operations of £34.3 million (2004: £40.6 million). • Trading cash flow of £34.0 million, up 40% compared with £24.3 million in 2004. • Underlying earnings per share of 28.9 pence, up 10% compared with 26.3 pence in 2004. • A final dividend of 6.45 pence per share making a total dividend for the year of 9.75 pence per share, up 6% on the total dividend for 2004. • Recent acquisitions performing at or ahead of expectations, adding strategically to the Group's market positions and capabilities. • Further good progress achieved, maintaining the momentum established in recent years. Rights Issue • 4 for 17 Rights Issue of 37,602,512 New Ordinary Shares at 325 pence per share, to raise approximately £117.8 million (net of expenses). • The Rights Issue will allow Laird to continue to pursue its strategy of delivering profitable growth through the strengthening and development of its two market leading divisions, Laird Technologies and Laird Security Systems. • The proceeds of the Rights Issue will be used to: • strengthen the capital base of the Group; • refinance the acquisitions of RecepTec, announced today, Antenex, Inc. announced on 8 March 2006 and Bandlock Corporation and Balance UK announced on 1 March 2006 respectively (approximately £74.3 million); • fund deferred consideration, payable in 2006, resulting from acquisitions made in 2004 and 2005 (approximately £8.0 million); • fund approximately £8.0 million of costs in connection with the expansion in 2006 of the Group's manufacturing operations and technical capabilities; and • provide financing for future acquisition opportunities in the furtherance of the Group's growth strategy. • The acquisitions of RecepTec, together with those of Antenex, Inc., Bandlock Corporation and Balance UK are expected to be earnings enhancing in 2006. Acquisition of RecepTec • RecepTec is a leader in the design, testing and supply of technically complex, satellite digital radio, global positioning system and other specialist communications antennae to the North American and European automotive markets, where demand for these antennae has been growing strongly. • RecepTec also has a wide range of other antennae products, covering FM/ AM radio, Digital Audio Broadcast radio, TV, Bluetooth and cellular antennae, complementing Laird Technologies' existing antennae offering. • RecepTec reported revenue for the year ended 31 December 2005 of $73.7 million (£40.5 million) with operating profit of $9.1 million (£5.0 million) and profit before tax of $8.6 million (£4.7 million). RecepTec has grown rapidly, with the comparable figures for 2004 being revenue of $39.6 million (£21.6 million) and operating profit of $2.5 million (£1.4 million). Gross assets as at 31 December 2005 were approximately $17.2 million (£10.1 million). • The consideration for the acquisition is $89.0 million (£51.0 million) which comprises an initial payment of $70.0 million (£40.1 million) together with three further payments totalling $19.0 million (£10.9 million) plus interest payable in annual instalments until March 2009, being $5.0 million (£2.9 million) in each of March 2007 and March 2008, and $9.0 million (£5.1 million) in March 2009. • The acquisition of RecepTec continues the repositioning of Laird to higher growth markets and expands Laird Technologies' product range and technical capabilities, with RecepTec and Laird Technologies together benefiting from the geographic and market spread of the combined businesses. • The acquisition of RecepTec completed today. JPMorgan Cazenove is acting as sponsor, bookrunner and broker to Laird. JPMorgan(on behalf of JPMorgan Cazenove) and Rothschild are acting as joint underwritersand Rothschild is acting as financial adviser. Contacts: For The Laird Group Public Limited The Maitland Consultancyenquiries: Company Peter Hill, Chief Executive Brian Hudspith Jonathan Silver, Finance Director Charlotte Barker Tel: 020 7468 4040 Tel: 020 7379 5151 JPMorgan Cazenove N M Rothschild & Sons Limited Julian Cazalet Tim Hancock Robert Constant Anselm Frost Tel: 020 7588 2828 Tel: 020 7280 5000 This summary should be read in conjunction with the full text of thisannouncement. This announcement does not constitute, or form part of an offer to sell, or thesolicitation of an offer to subscribe for or buy any of the New Ordinary Sharesto be issued or sold in connection with the Rights Issue. Any decision to investin the New Ordinary Shares should only be made on the basis of information inthe prospectus which will contain further details relating to the Rights Issue,the Acquisition, the Audited Results and Laird in general as well as a summaryof the risk factors to which an investment in the New Ordinary Shares issubject. The prospectus and provisional allotment letters in connection with theRights Issue are being issued today. None of the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares northe Provisional Allotment Letters has been or will be registered under theUnited States Securities Act 1933, as amended, or under the applicablesecurities laws of any state of the United States, any province or territory ofCanada, Japan, Australia or the Republic of South Africa. Accordingly, unless arelevant exemption from such requirements is available, neither the New OrdinaryShares nor the Provisional Allotment Letters may, subject to certain exceptions,be offered, sold, taken up, renounced or delivered, directly or indirectly,within the United States, Canada, Japan, Australia or the Republic of SouthAfrica or in any country, territory or possession where to do so may contravenelocal securities laws or regulations. JPMorgan Cazenove Limited, which is regulated in the United Kingdom by theFinancial Services Authority, is acting exclusively for Laird and for no oneelse in relation to the Rights Issue and will not be responsible to anyone otherthan Laird for providing the protections afforded to customers of JPMorganCazenove or for providing advice in relation to the Rights Issue or on anymatter referred to herein. J.P. Morgan Securities Ltd., which is regulated in the United Kingdom by theFinancial Services Authority, is acting exclusively for Laird and for no oneelse in relation to the Rights Issue and will not be responsible to anyone otherthan Laird for providing the protections afforded to customers of J.P. MorganSecurities Ltd. or for providing advice in relation to the Rights Issue or onany matter referred to herein. N M Rothschild & Sons Limited, which is regulated in the United Kingdom by theFinancial Services Authority, is acting exclusively for Laird and for no oneelse in relation to the Rights Issue and will not be responsible to anyone otherthan Laird for providing the protections afforded to customers of N M Rothschild& Sons Limited or for providing advice in relation to the Rights Issue or on anymatter referred to herein. The release, publication or distribution of this announcement in certainjurisdictions may be restricted by law and therefore persons in suchjurisdictions into which this announcement is released, published or distributedshould inform themselves about and observe such restrictions . Prices and values of, and income from Ordinary Shares may go down as well as upand an investor may not get back the amount invested. It should be noted thatpast performance is no guide to future performance. Persons needing adviceshould consult an independent financial adviser. Certain statements made in this announcement constitute "forward lookingstatements". These statements, which reflect the Company's beliefs andexpectations, are subject to issues and uncertainties that may cause actualresults or events to differ materially from those reflected or contemplated insuch forward looking statements. THE LAIRD GROUP PUBLIC LIMITED COMPANY Audited Results for the year ended 31 December 2005 4 for 17 Rights Issue at 325 pence per share to raise approximately £117.8 million (net of expenses) and Acquisition of the assets of RecepTec Holdings, LLC ("RecepTec") 1. Introduction Laird announces today the Group's audited results for the year to 31 December2005, details of which are set out in section 4. Total Group revenue in 2005 was £508.7 million, 9% up on the £468.0 million oftotal revenue in 2004. Revenue from continuing operations, that is includingacquisitions but excluding the disposals made in 2004 and 2005, was £490.3million, up 42% on the £345.5 million in 2004. Underlying organic revenue growthfrom continuing operations was 7%. Underlying profit before tax was £55.1 million in 2005, 19% higher than £46.4million in 2004. The Group's underlying operating profit margin increased to12.9%, from 11% in 2004 as a result of organic growth, a greater proportion ofmanufacturing from low cost countries and the portfolio repositioning. Profit before taxation from continuing operations after exceptional items, theamortisation of acquired intangibles and the fair valuing of financialinstruments, in 2005 was £34.3 million compared with £40.6 million in 2004. Underlying earnings per share in 2005 were 28.9 pence, 10% up on the 26.3 pencein 2004. Laird also announces today its intention to raise approximately £117.8 million(net of expenses) by means of a Rights Issue of 37,602,512 Ordinary Shares at a price of 325 pence per share, payable in full on acceptance. This represents 4 New Ordinary Shares for every 17 existing Ordinary Shares held on the Record Date. The Rights Issue is being made to all Qualifying Shareholders. Laird also announces today that it has acquired the assets of RecepTec, a marketleader in the design, testing and supply of technically complex, satellitedigital radio, global positioning system and other specialist communicationsantennae to the US and European automotive markets, where demand for theseantennae has been growing strongly. The consideration for the acquisition is $89.0 million (£51.0 million) whichcomprises an initial payment of $70.0 million (£40.1 million) together withthree further payments totalling $19.0 million (£10.9 million) plus interestpayable in annual instalments through March 2009, being $5.0 million (£2.9million) in each of March 2007 and March 2008, and $9.0 million (£5.1 million)in March 2009. RecepTec had revenue for the year ended 31 December 2005 of $73.7 million (£40.5million) with operating profit and profit before tax of $9.1 million (£5.0million) and profit before tax of $8.6 million (£4.7 million). RecepTec hasgrown rapidly, with the comparable figures for 2004 being revenue of $39.6million (£21.6 million), and operating profit of $2.5 million (£1.4 million).Gross assets as at 31 December 2005 were approximately $17.3 million (£10.1million). The acquisition of RecepTec follows the recent acquisitions of Antenex, Inc.announced on 8 March 2006 and Bandlock Corporation and Balance UK announced on1 March 2006, for a combined consideration of $40.5 million (£23.3 million). Laird is also expanding its production capacity and technical capabilities tomeet future organic growth. This is particularly in Laird Technologies,including the construction of new manufacturing facilities in Shenzhen andBeijing, China, and the intended opening of a new production facility in Mexico,together with the expansion of Laird Security Systems' facilities in NorthAmerica. It is anticipated that these expansion costs will be approximately £8.0million during 2006. The Rights Issue price of 325 per share represents a discount of 27% to themiddle market closing price of 443.75 pence per Ordinary Share on 15 March 2006,the last business day before the announcement of the Rights Issue. The Rights Issue has been fully underwritten by JPMorgan (on behalf of JPMorganCazenove) and Rothschild. Set out below are the reasons for the Rights Issue, details of the Acquisition,and an explanation as to why the Directors believe the Rights Issue is in thebest interests of Shareholders as a whole. 2. Background to and reasons for the Rights Issue Background Over the last five years the Group has been transformed from a diversifiedindustrial conglomerate to a higher growth, increasingly profitable companyfocused on two market leading divisions, Laird Technologies and Laird SecuritySystems. Lower growth, lower margin and non strategic businesses have been, and whereappropriate will continue to be, divested. The two remaining divisions have beenand continue to be strengthened and expanded, both through organic investmentand through acquisitions which have enhanced the technology, product offering,market positioning and geographic spread of the Group. The Board believes that now is the appropriate time to strengthen the capitalbase of the Group, and the net proceeds of the Rights Issue will be used torefinance the acquisition of RecepTec (which completed today), Antenex, Inc.,Bandlock Corporation and Balance UK (which completed earlier this year) and toreduce net debt. The proceeds will also provide funding for the expansion of theGroup's operations and technical capabilities planned in 2006, and will enablethe Group to take advantage of future acquisition opportunities in furtheranceof its growth strategy. Strategy Laird has established a successful strategy of focusing on higher growthmarkets, obtaining a competitive edge through technology and customer serviceallied to a well established, but still expanding, low cost manufacturing base,currently in Asia and Central Europe and with the potential to be developedadditionally in Mexico and India. Laird's strategy is to focus on specialistmarkets which provide opportunities for growth, with a global reach whichprovides advantages compared to many of its more regional or local competitors.By following this strategy Laird has expanded, and intends to continue toexpand, the technology, market access, product offering and geographic spread ofits two divisions. The Laird strategy is one driven by the overriding objectiveof creating and growing shareholder value. Benefits of the acquisition Laird Technologies is a market leader in the design and supply of complementaryproduct offerings in the EMI shielding, thermal, and wireless antennae markets.The division has grown substantially in recent years through the acquisition,integration and organic development of a number of businesses in these areas,each of which has expanded the division's product offering and market positionand transformed Laird Technologies' overall capabilities and scale. Thedivision's position has also been enhanced substantially by establishing andexpanding its low cost manufacturing activities in Asia and Central Europe. Laird acquired a capability in antenna technology through the acquisition ofCenturion Wireless Technologies in 2004. Centurion has been combinedsuccessfully into Laird Technologies, with the enlarged business benefiting froma broader product offering and market base, and enhanced technical capabilities.The acquisition of RecepTec should allow Laird to exploit further the division'srevenues from the automotive market. The vertical integration of RecepTec'sdesign, marketing and sales capabilities with Laird Technologies' own design andmanufacturing skills should provide further benefits and enhance the growthopportunities of both businesses benefiting from a broader product marketoffering and enhanced technical capabilities. The Board believes that over time the enlarged antennae business should benefitfrom the greater scale of research and development across the combinedbusinesses, as well as the opportunity for cross-fertilisation of antennaetechnology development. There is also the potential for RecepTec's business tobenefit from Laird Technologies' established position in Europe as well as itsstrong presence in Asia. RecepTec's strong presence in the automotive andtransportation segments has the potential to allow cross-selling of LairdTechnologies' EMI shielding and thermal management products into those markets. Laird's financial performance reflects the transformation achieved in recentyears. Positive organic revenue growth has been achieved in each of the lastthree years, while profit before exceptional items, goodwill amortisation andtax on a UK GAAP basis, has increased from £25.2 million in 2001 to £47.1million in 2004, a compound annual growth rate of 23%. Underlying profit on anIFRS basis, increased by 19% in 2005 compared to 2004. Laird's operating profitmargin, on the same basis, more than doubled from 5.4% in 2001 to 11.3% in 2004(UK GAAP), and increased in 2005 to 12.9% on an IFRS basis.* * From 2001 to 2004, under UK GAAP, before exceptional items and goodwillamortisation. For 2004 and 2005, under International Financial ReportingStandards, before exceptional items, amortisation for acquired intangibleassets, deferred tax on acquired intangible asssets and goodwill, the gain orloss on disposal of businesses, and the impact arising from the fair valuing offinancial instruments. Funding As at 31 December 2005, net borrowings of the Group amounted to £148.1 millionwith interest cover for the year of 6.2 times. Since the year end, the netindebtedness of the Group has increased, partly as a result of the acquisitionsof Antenex, Inc. and Bandlock Corporation and Balance UK, which have alreadycompleted, and RecepTec, which completed earlier today. In August 2005 the Group replaced £165 million of loan facilities, which weredue to expire in 2008, with £195 million of new committed facilities which willexpire in 2010 unless an option is exercised to extend the facilities. Theoption to extend the facility by one year can be exercised in each of the firsttwo years, if both Laird and the corresponding bank agree. These new facilities,together with the Group's US dollar private placement facilities, whichgenerally expire between 2008 and 2016, provide the Group with total committedfacilities of £309 million. Dividends The Board's policy on dividends is to increase returns to Shareholdersprogressively over time, reflecting both the underlying profitability of theLaird Group and the cash flow requirements of the business. The New OrdinaryShares will rank pari passu in all respects with the existing Ordinary Sharesincluding for any future dividends paid by the Company. The Board is recommending a final dividend of 6.45 pence per share, payable toShareholders in respect of their shareholdings recorded on the register as at 5May 2006, subject to approval at the 2006 Annual General Meeting. Thisrepresents a total dividend for the year of 9.75 pence per share, compared with9.2 pence per share for 2004, and represents an increase of 6%. General The prospectus providing further details of the Rights Issue and ProvisionalAllotment Letters will be posted to Shareholders later today. Copies of theprospectus will also be available from The Laird Group Public Limited Company, 3St. James's Square, London SW1Y 4JU. 3. Information on RecepTec RecepTec is a leader in the design, testing and supply of technically complex,satellite digital radio, global positioning system and other specialistcommunications antennae to the North American and European automotive marketswhere demand for these antennae has been growing strongly. Through itsfacilities near Detroit, Michigan, USA and near Hannover, Germany, it is aleading supplier to automotive manufacturers ("OEMs") in both these regions andis also a leading supplier into the North American retrofit and retail markets(the "aftermarket"). RecepTec's business is focused on the development oftechnology and the provision of integrated design solutions to its customers,with product manufacture currently outsourced to suppliers including LairdTechnologies. The consideration payable for the acquisition of RecepTec is $89.0 million(£51.0 million) which comprises an initial payment of $70.0 million (£40.1million) together with three further payments totalling $19.0 million (£10.9million) plus interest payable in annual instalments until March 2009, being$5.0 million (£2.9 million) in each of March 2007 and March 2008, and $9.0million (£5.1 million) in March 2009. RecepTec had revenue for the year ended 31 December 2005 of $73.7 million (£40.5million) with operating profit and profit of $9.1 million (£5.0 million) andprofit before tax of $8.6 million (£4.7 million). RecepTec has grown rapidly,with the comparable figures for 2004 being revenue of $39.6 million (£21.6million), and operating profit of $2.5 million (£1.4 million). Gross assets as at 31 December 2005 were approximately $17.3 million (£10.1 million). RecepTec has a wide range of antennae products, covering Global PositioningSystem, FM/AM radio, Digital Audio Broadcast radio, TV, Bluetooth and cellularantennae. The majority of its revenues is currently derived from SatelliteDigital Audio Radio Services ("SDARS") antennae for the satellite radio market.SDARS automotive antennae are a complex, evolving technology in which RecepTechas established product leadership and strong customer relationships, whichenabled it to capture a high market share and deliver significant revenue growthin 2005. Rapid end market growth for RecepTec's products in the North American market isbeing driven by increased installation of satellite radio by OEM customers aswell as increased uptake rates for hardware installation into the aftermarket.Since its launch in mid 2001, demand for satellite radio has demonstrated stronggrowth in the US market, attracting more than 9 million subscribers by the endof 2005. This market growth is expected to continue due to: • increased roll out of satellite technology on US vehicles by the manufacturers themselves (which are now actively promoting this product); and • increased customer demand through awareness of the product, improvements in the quality of programming and reduced installation costs. RecepTec's main OEM customers include Audi/Volkswagen, BMW, DaimlerChrysler, GMand Ford. RecepTec also supplies, or has recently supplied, Honda, Hyundai andKia. RecepTec's design and technology leadership, together with its links to keyOEMs gives it a strong market position and it should be well placed to capturefuture sales growth. Of RecepTec's 2005 revenue, approximately 75% was from OEMsand 25% from the aftermarket. Sales in North America are complemented by a strong presence in the Europeanregion, which makes up approximately one third of sales. The European market isless developed than North America and a significant proportion of sales toEuropean manufacturers currently relates to vehicles exported into NorthAmerica. Potential opportunities for future growth exist in markets outsideNorth America and Europe, where satellite radio is expected to be launched inIndia and China; through expanding RecepTec's OEM customer base and throughexpansion of its product offering into active/passive safety, and intelligenttransportation, systems antennae where RecepTec already possesses the applicabletechnology. RecepTec was owned by its founders, George Caston and Bernd Leinwetter, a numberof senior employees and a consortium of investors including Lear Corporation,PPG Industries and Kathrein-Werke KG. Messrs. Caston and Leinwetter have enteredinto employment agreements with Laird Technologies for two years. The remainingmanagement of RecepTec are staying with the business, which will be operated asa unit of Laird Technologies, including those manufacturing operations withinLaird Technologies which have hitherto supplied RecepTec. 4. Audited results for the year ended 31 December 2005 Results Laird has made further good progress in 2005, and has again delivered positiveorganic revenue growth together with good growth in underlying profits andearnings. Total Group revenue in 2005 was £508.7 million, 9% up on the £468.0 million oftotal revenue in 2004. Revenue from continuing operations, that is includingacquisitions but excluding the disposals made in 2004 and 2005, was £490.3million, up 42% on the £345.5 million in 2004. Underlying organic revenue growthfrom continuing operations was 7%. Underlying profit before tax was £55.1 million in 2005, 19% higher than £46.4million in 2004. The Group's underlying operating profit margin increased to12.9%, from 11% in 2004 as a result of organic growth, a greater proportion ofmanufacturing from low cost countries and the portfolio repositioning. Profit before taxation from continuing operations after exceptional items, theamortisation of acquired intangibles and the fair valuing of financialinstruments, in 2005 was £34.3 million compared with £40.6 million in 2004. Underlying earnings per share in 2005 were 28.9 pence, 10% up on the 26.3 pencein 2004. Exceptional costs of £15.5 million were incurred in the year (2004: nil). Thiswas largely as a result of the restructuring of Laird Technologies' Swedishantennae operations and their relocation to Central Europe and of Laird SecuritySystems' UK window hardware business and the resultant relocation to China, allas originally planned, together with the effects of the Pennsylvania flood inApril 2005 and the £4.0 million lease provision made consequent upon thedisposal of the business of Permacell Finesse in September. Net borrowings at the year end were £148.1 million (2004: £118.6 million),representing 52% of shareholders' funds. Interest cover for the year was 6.2times. There was a trading cash inflow in the year of £34.0 million, comparedwith an inflow of £24.3 million in 2004. There was a net cash outflow onacquisitions and disposals of £29.1 million compared with £77.3 million in 2004,additional contributions above the normal funding level in 2005 of £1.8 millioninto the Group's defined benefit pension schemes of £5.8 million, and a cashspend on exceptional items of £4.7 million compared with £2.6 million in 2004. Continuing dividend growth In light of the strong results for 2005, the Board is recommending a final dividend of 6.45 pence per share, payable to Shareholders in respect of their shareholdings recorded on the register as at 5 May 2006, subject to approval at the 2006 Annual General Meeting. This represents a total dividend for the year of 9.75 pence per share, compared with 9.2 pence per share for 2004, and represents an increase of 6%. Laird Technologies Year ended 2005 200431 December £m £m Growth Revenue 259.4 142.8 82% ----- ----- ---Underlying operating profit* 37.7 20.7 82% *Before exceptional items and amortisation of acquired intangibles Partners in design Laird Technologies is a leading international supplier of custom designedelectronic components and solutions to the global electronics industries,including telecommunications infrastructure, cellular handsets, data transferand information technology, and also supplies the automotive, aerospace anddefence, consumer electronics, medical and industrial markets. Laird believes that Laird Technologies is the global market leader in the designand supply of both EMI shielding solutions and wireless cellular handsetantennae; it also has an increasing presence in the emerging applications oftelematics and Wi-Fi. Laird has also established a growing presence in thedesign and supply of thermal management products and solutions for electronicdevices. Its products, often co-designed in conjunction with its customers, arecritical in protecting or enhancing the performance of electronic devices. As leading global electronics manufacturers look to focus their internalprocesses around brand management and sales generation, they look increasinglyto Laird Technologies to provide a more comprehensive suite of products, designengineering and testing, as well as integration with their global supply chainand research and development. Strong growth in revenues and profits In markets that generally remained buoyant in 2005, Laird Technologies benefitedparticularly from the strong demand for its EMI shielding and antennae productsfor the cellular handset market, where industry commentators believe that globalunit handset shipments increased by approximately 20% compared with 2004, toapproximately 820 million units. Revenue grew by some 82% in the year to £259.4 million compared with £142.8million in 2004. This strong growth in revenues was the result of acquisitions,most notably that of Centurion Wireless Technologies which was acquired inOctober 2004, and the organic revenue growth of 15% achieved in the year. EMI product line revenues were £135.0 million in 2005, with organic revenuegrowth of 16%. Antennae revenues were £103.0 million, with organic revenuegrowth of 36%, while revenues from the lower margin power products were £9.0million, a decline of 58% organically as programmes became end-of-life and werenot replaced. Thermal products revenues were £12.0 million in the year, with thebusiness undergoing a period of consolidation. Underlying operating profits also grew by some 82%, to £37.7 million, comparedwith £20.7 million in 2004, as a result of the organic revenue growth, thebenefits of acquisitions and the increased levels of production from lower costcountries. Operating margins were maintained, at 14.5%, despite the acquisitionof Centurion's lower margin businesses which have a higher "bought in" materialscontent compared to Laird Technologies' EMI shielding and thermal products. Benefits of strategic acquisitions Laird Technologies made two acquisitions in 2005. Cateron, based in Taiwan andwith a manufacturing facility in China, was acquired in January forapproximately £13.0 million and has performed ahead of expectations. Cateron isbelieved to be the leading supplier of EMI shielding, fabric over foam gasketsand tape to the global PC notebook market. Its strong position with TaiwaneseOriginal Design Manufacturers has the potential to provide sales of antennae andthermal products and to provide a full service design and supply offering. The acquisition of Melcor, for approximately £11.0 million, was completed inOctober 2005. Melcor has facilities in New Jersey, USA and Quanzhou, China. TheCompany designs and produces thermoelectric coolers, which actively transportthermal energy across a semiconductor junction coupled with electron flow,expanding Laird Technologies' existing thermal product range and broadening itsserved markets. The acquisition of Antenex, Inc., for approximately £9.7 million, was announcedon 8 March 2006. Antenex Inc. designs and manufactures a range of antennaeproducts for communications in the transportation, defence, public safety,system and medical sectors, complementing Laird Technologies' existing antennaeproduct offering. Centurion Wireless Technologies, acquired in October 2004, also performed aheadof expectations. Cost synergies of $5.0 million in 2006, announced at the timeof the acquisition, are still expected to be achieved, while the first "synergy"sales have been made. Laird Technologies, including Centurion, shipped 170million cellular antennae units, a growth of 23% compared with Centurion'sshipments in 2004, as a result of strong market demand and market share gains.Strong growth was also achieved in telematics and other wireless antennaeshipments. In October 2005 Centurion reached a milestone with the shipping ofits one billionth wireless handset antenna. Operational and geographic development Asia continues to be of increasing importance to Laird Technologies, both as agrowing market and as a low cost manufacturing base, and is also becomingincreasingly important as a design and development centre. In 2005, 50% of LairdTechnologies' revenues by destination were from Asia (2004: 45%) and 55% ofrevenues by origin (2004: 33%). At the end of 2005, Laird Technologies hadapproximately 6,600 employees, of whom 75% were in Asia, the majority in China. In China, construction of a new 35,000 square metre facility in Shenzhen wascompleted by the year end, and it is expected that the facility will becomeoperational during the first half of 2006 focusing initially on EMI shieldingproducts. A global production tooling centre for Laird Technologies is alsobeing established there. Construction of a new 23,000 square metre facility in Beijing for production ofwireless handset antennae, and incorporating a major design centre, is wellunder way, and is expected to be operational by June 2006. Further expansion in Tianjin will support growth in the production of shieldingproducts for the wireless handset market, as well as thermally or electricallyconductive elastomer ("ECE") products and materials. It is expected that from early 2006, the manufacture of ECE products for Asia will be relocated to Tianjin from the USA and Europe. Additional production space was secured in Shanghai to support the increased output of board level shields for the wireless handset market. Elsewhere in Asia, a new production facility was established in Johor Baru,Malaysia, to provide shielding products for wireless handsets. In Korea twofacilities have been consolidated into a new facility in Seoul, to create asingle design and sales support centre for all Laird Technologies' products. InTaiwan, facility consolidation has taken place following the acquisition ofCenturion and Cateron. Antennae design, prototyping and testing capabilitieswill be established in both Korea and Taiwan in 2006 to support local customers. In the USA, the EMI shielding plant in Pennsylvania closed by flood damage inApril 2005 was re-opened and order intake was restored. Approximately 20% of thepre-flood production has been relocated permanently to other Laird Technologiesfacilities, and the head count has reduced by approximately one third. A newflood protection levee has been constructed on site. In Europe, the two UK facilities were consolidated into one, and the majority ofUK manufacturing relocated to Liberec in the Czech Republic where productioncontinues to be expanded. Liberec now supplies the majority of European EMIshielding products. Almost all antennae production from Sweden has beenrelocated to Beijing, China and to a new facility in Szombathely, Hungary, tosupply the Central European electronics manufacturing centres of LairdTechnologies' customers. A new facility is planned for Reynosa, Mexico during 2006, initially forantennae production but with the ability to expand to cover other products, anda feasibility study in 2006 will assess the potential for a similar facility inIndia. Technical development During 2005 Laird Technologies continued to expand and develop its technologycapabilities with approximately 370 patents issued and 180 pending and some 280engineers and technologists were employed worldwide at the year end. New EMI shielding products under development or commercialised during 2005included "Eco Green", a fabric over foam product for the consumer electronicsindustry and the development of a range of mould-in place environmental gaskets. In antennae, Laird Technologies continues to develop new integrated antennaemodules, including the first software controlled antennae, to cope with theincreasing complex demands for multiple applications. New antennae productsincluded an enhanced, ceramic based production line for non-cellularfrequencies. A number of new thermal interface products including specialist thermallyconductive greases, are being developed. In August, Laird Technologies'T-Pli2000(R) series gap filler was selected by NASA for use aboard the spaceshuttle Discovery. Following the acquisition of Melcor, a new range of enhancedthermoelectric coolers to improve thermal and mechanical performance isplanned. Extending global leadership Laird Technologies had another successful year in 2005. Its close customerrelationships, its increasingly broad product offering, its expanding base oftechnical expertise and its well established, but still growing, low costmanufacturing base, is expected to provide a sound platform from which to extendfurther its global leadership positions during 2006. Laird Security Systems 2005 2004 GrowthYear ended 31 December £m £m Revenue 230.9 202.7 14% ----- ----- ---Underlying operating profit* 28.1 26.7 5% *Before exceptional items and amortisation of acquired intangibles Innovative home improvement solutions Laird Security Systems is a leader in the design, development, manufacture anddistribution of innovative products and solutions. These aim to improveperformance and thermal efficiency, and enhance protection and security, forhomes and buildings within the UK and USA residential building and homeimprovement markets. Its wide range of products include window and doorhardware, composite doors, conservatories, uPVC products and weather strippingseals. In recent years the product range has been broadened and the business is beingrepositioned towards the higher growth segments of its markets. Laird SecuritySystems sources an increasing proportion of its hardware products from its wellestablished supply base in China, both from its own manufacturing facilities andfrom its partner suppliers. Benefits of broad market spread Laird Security Systems' markets were mixed in 2005. In the UK the overallhousing market slowed, as did the renovation market, while the markets forreplacement windows and conservatories were particularly hard hit. In contrast,the UK social housing market, where Laird Security Systems is a major supplierof composite doors, remained buoyant. In the USA, the market overall continued to be favourable across all of LairdSecurity Systems' product lines. In particular the renovation market remainedrelatively buoyant, as geographically did the Southern US and West Coast marketsoverall. Laird Security systems delivered a solid performance in 2005, with continuingrevenue up 14% to £230.9 million in the year, compared with £202.7 million in2004. Organic revenue growth was flat overall for Laird Security Systems as awhole, with a decline of 10% in the UK being offset by positive organic growthof 15% in the USA. UK revenue from continuing businesses in 2005 was approximately £131.0 million.Of this, 29% represented window hardware, 27% doors, 22% door hardware, and 12%windows and conservatories. USA revenue in 2005 was approximately £100.0 million. Of this, 60% representedwindow hardware, 18% seals, 12% door hardware and 10% uPVC extrusions. Laird Security Systems was again able to show underlying profit growth, of 5%,despite its mixed markets and the adverse impact of commodity prices. Underlyingoperating profits for 2005 were £28.1 million, compared with £26.7 million in2004. Operating margin for the year was 12%. Commodity prices remained volatile overall. Through carefully managing therelationship between input and output pricing, Laird Security Systems was ableto contain the adverse effect of higher commodity prices in the year to some£1.0 million. Portfolio repositioning In May 2005, Laird Security Systems consolidated its position as the largest UKprovider of composite doors to the growing social housing and HousingAssociation market with the acquisition of Securidor for approximately £6.0million. This followed the acquisition of Intron in 2003 and Lindman in 2004 andincreases further the product range offered to this growing market. In September 2005, the acquisition of Builders Hardware in California, forapproximately £6.0 million, provided an expanded presence in the growing WestCoast market and complements the existing door hardware product range in theUSA. Profitability should be enhanced by re-sourcing the majority of BuildersHardware's existing product lines to our and our partner suppliers' operationsin China. The acquisition of Builders Hardware was supplemented by the acquisition ofBandlock Corporation in March 2006 for approximately £10.1 million. BandlockCorporation is a California-based seals and extrusion business, which willprovide Laird Security Systems not only with the benefits of a broader productoffering close to customers on the US West Coast, but will also complement itsexisting US seals and extrusions businesses. Balance UK, acquired on 1 March 2006, supplies a range of heavy duty windowbalances. This will enhance the product range of Laird's US operations, to whichBalance UK will report, allowing sales of these window balances to Laird'sexisting US customers. The disposal of the business of Permacell Finesse in the UK, an extruder ofrigid uPVC window profiles and cellular uPVC products, was completed inSeptember 2005. Laird Security Systems had a relatively small market share inthis business segment, which was also under significant price pressure as aresult of high oil and resin prices. The business was facing increasingly difficult trading conditions, and recordedan operating loss in the year of £0.2 million through the point of sale.Following certain post closing adjustments, the net proceeds received wereapproximately £5.0 million. The effect of these acquisitions and the disposal has been to continue toreposition Laird Security Systems towards higher growth markets, particularly inthe USA, in line with the Group's strategy. It is expected that this overallstrategy will continue to be pursued. Operational and geographic development In response to market conditions, headcount in the UK window hardware andcomponents businesses was reduced by some 300 during the year, or some 35% ofthe combined total in these businesses. The hardware facility in Essex wasdownsized significantly, with the majority of manufacturing being re-sourced toChina. At Laird Lifestyle Products, manufacturing operations were consolidatedfurther, to improve efficiencies and provide a greater emphasis on marketing andproduct positioning. In the UK composite door business, the three sites resulting from acquisitionsin this sector will be consolidated into two in the first half of 2006, with acapacity expansion at one of the facilities scheduled for completion at the endof the first quarter of 2006. These actions, together with Laird SecuritySystems' technical capabilities and broad product range, should leave thisbusiness well placed to take advantage of the continuing market growth expectedin this sector. In the USA, the window hardware, door hardware, weather seals and uPVCextrusions businesses each had an excellent year, with each product line showinggood growth. The capacity expansion at the seals business in the North EasternUS, which was commenced in 2004, became fully operational in 2005. In 2006,capacity of door hardware in the Mid Western US, and of window hardware in theSouth Eastern US, will be expanded to allow Laird to service increasing demandfrom customers. Laird Security Systems in the USA is benefiting from the growing renovation andimprovement market, through favourable product trends in its main marketsegments, and through market share gains, both directly and through thecontinuing consolidation of its customer base. Laird Security Systems' designcapabilities and its high levels of customer service remain key to its successin North America. In Asia, sales of products manufactured in Asia grew by approximately 15% in2005. The facilities in Ningbo, China, were expanded during the year. Sourcingfrom partner suppliers was also expanded; these suppliers are integrated intoLaird Security Systems' supply chain, which provides them with engineeringexpertise, specialised investment and quality control. Innovation Laird Security Systems maintained its focus on product innovation anddevelopment, continuing to develop its intellectual property portfolio, whileacting aggressively to defend successfully a number of attempted patentinfringements. There were sales in 2005 from the new Springback sealing productrange, innovative new window balance designs, and an increasing range ofmultipoint locks, all developed since 2003. Laird Security Systems continueswith its product innovation and new designs, both to differentiate itself fromits competitors and to provide enhanced functionality for its customers. Design teams in the UK and the USA are being integrated with the engineering,tooling and prototyping capabilities that are now firmly established in Asia. Asa result of this initiative, an innovative new range of window hardware productswill be introduced into the US market during 2006 and 2007. Laird Security Systems is targeting its product development to benefit fromthree macro trends which it sees emerging over the next few years. One is moredemanding construction standards in North America, to reduce hurricane damage. Asecond is higher security allied to ease of use, including electronic accesscontrols, which is seen to be particularly applicable as demographic trends movetowards an increasingly ageing population. A third is the expected trend towardseven greater insulation and thermal efficiency, as governments and consumersadjust to higher energy prices. Development of the strategy Laird Security Systems has continued to provide innovative local solutions toits customers allied to what are believed to be industry leading service levelson a global basis, underpinned by a still expanding low cost engineering andmanufacturing capability in Asia. Within the division there is now a muchbroader presence in a range of markets, products and sales channels, allowingthe division to continue its record of profitable growth despite increasedcommodity prices and some weaker market sectors. Laird Security Systems isreducing its exposure to the mature UK window market and continuing itsrepositioning to higher growth markets, particularly in North America. Maintaining the momentum of the Group Laird has made further progress during 2005, again delivering good growth inrevenue and underlying profit. The strategic decisions which were made to focusthe Group on its two high quality divisions, both of which have opportunitiesfor growth, together with the investments that have been made to strengthen anddevelop each of them and to broaden their product and market spread, have againallowed the Group to move forward. The Group intends to continue to pursue andimplement this strategy, and is well positioned to make further progress in2006. N.J. Keen P.J. Hill Chairman Chief Executive Finance Director's Report International Financial Reporting Standards The 2005 results have been reported using IFRS accounting policies. Revenue Total revenue increased from £468.0 million to £508.7 million in 2005. Revenuefrom continuing operations increased from £345.5 million in 2004 to £490.3million in 2005. Revenue from continuing operations increased by 42%. Revenue from discontinued operations in 2004 was £122.5 million and includes£91.9 million of revenue from Laird Plastics, which was divested in October 2004and £30.6 million of revenue from Permacell Finesse (PFL) which was divested inSeptember 2005. Revenue from PFL in 2005 up to the date of its disposal was£18.4 million. Organic growth from continuing operations was 7% and is measured by restating2005 revenue at 2004 exchange rates and comparing it to revenue in 2004 afterincluding revenue in 2004 for the acquired businesses in the equivalent periodnot in our ownership. Laird Lifestyle Products revenue is excluded from thecalculation as it was purchased from a receiver in September 2004 and wassubsequently restructured significantly with a number of product lines beingdiscontinued. Profit for the year Profit on ordinary activities before taxation, from continuing operations, was£34.3 million (2004: £40.6 million). After taxation of £9.0 million (2004: £10.4million) and after the loss from discontinued operations of £5.1 million (2004:£7.0 million profit ), profit for the year was £20.2 million (2004: £37.2million). Underlying profit before tax in the year was £55.1 million (2004: £46.4million). Underlying profit is defined as profit before tax, exceptional items,amortisation of acquired intangible assets, the gain or loss on sale ofbusinesses and the impact arising from the fair valuing of financial instrumentsas set out in note 5. Under the Group's IFRS accounting policies, certain development costs (£2.4million) have been capitalised and these are partly offset by an increase in thecharge (£0.8 million) made for share based payments. The net impact is thatunderlying profits in the year on an IFRS basis are £1.6 million higher thanthey would have been under UK GAAP. Finance costs Finance costs, net of a fair value adjustment of £1.1 million, were £10.5million compared to the £5.6 million in 2004, the increase due largely to thefunding costs of the acquisitions and to higher US dollar interest rates. Taxation The tax charge is equivalent to an average tax rate of 17.3% on underlyingprofit before tax and is marginally higher than the 17.2% for 2004 (note 6).Profits in the USA are subject to a relatively low charge and should remain sofor many years due to tax deductions for amortised goodwill resulting fromacquisitions in past years. A growing proportion of profits are also fromjurisdictions with low tax rates or with tax incentives. An analysis of thetotal tax charge is given in note 6. Earnings Underlying profit before tax was 19% up on 2004 and with more shares in issue,underlying earnings per share were up by 10% (note 9). Underlying earnings are based on underlying profit less underlying tax and exclude deferred tax on acquired intangible assets and goodwill. Basic earnings per share from continuing operations were 16.0p (2004: 20.7p) and12.8p (2004: 25.5p) on profit for the year. Cash flow There was a healthy trading cash flow surplus of £34.0 million in the year. Analysis of cash flow £m Operating profit - continuing 65.8 - discontinued (0.2)Depreciation/asset disposal gain 12.8Other non cash (0.8) ------ 77.6 Increase in working capital* (14.0)Capital expenditure less disposals (17.1)Interest (10.3)Taxation (2.2) ------Trading cash flow surplus 34.0 Dividends (14.9)Net cost of acquisitions and disposals (29.1)Exceptional costs (4.7)Pension contributions above the normal level (5.8)Share issues 3.5Exchange translation movement (12.5) ------Increase in net borrowings (29.5) ------ * After adjusting for accruals on exceptional items of £5.0 million in 2005. An increase in trade debtors has contributed to the rise in working capital duein part to higher levels of activity but also due to the increasing proportionof the Group's revenues generated in Asia where terms of payment are longer. Inaddition, some of the increase in working capital arose at PFL which was soldpart of the way through the year when working capital levels were higher thanwould be expected to be the case at the year end. Capital expenditure of £17.1 million was £4.3 million in excess of depreciationlargely due to expansions in capacity to meet demand, with much of the excessoccurring in Asia, and in particular in plants supplying products in China forthe cellular handset markets. Cash tax payments were lower than the tax charge due largely to tax repaymentsin respect of previous years. Overall, there was a £29.5 million increase in net borrowings as the tradingcash surplus was more than offset by dividend payments, the net spend onacquisitions and disposals and by translation movements following thestrengthening of the US dollar. Net borrowings and debt facilities Net borrowings at the year end increased by £29.5 million compared to 2004, to£148.1 million. As much of the Group's borrowings are in US dollars and the USdollar has strengthened since the end of 2004, £12.5 million of the increase isdue to the translation of borrowings using the US dollar rate at the end ofDecember 2005. In August 2005, the Group replaced £165 million of bilateral loan facilitieswhich were due to expire in 2008 with new committed facilities of £195 millionwhich will expire in August 2010 unless an option is exercised to extend thefacilities. The option to extend the facility by one year can be exercised ineach of the first two years, if both Laird and the corresponding bank agree. These new facilities, together with the Group's US dollar private placement facilities which generally expire between 2008 and 2016, provide the Group with committed facilities totalling £309 million. Currency The Group's revenue and profits are affected by currency movements ontranslating overseas revenue and profits into sterling for reporting purposes.The actual translation effects on cross border transactions which involve thesale of goods or services in currencies foreign to a Group entity are notsignificant taking into account that a number of currencies are pegged to the USdollar. The average exchange rates during the year for the US dollar were 1.82 (2004:1.83), 1.46 for the Euro (2004: 1.48) and 14.90 for the RMB (2004: 15.18).Average exchange rates in 2005 were not significantly different to 2004 so therewas little impact on profits. The difference in year end exchange rates between 2004 and 2005 for the USdollar and the RMB was more marked with the closing rate for the US dollar in2005 at 1.72 (2004: 1.92) and for the RMB 13.85 (2004: 15.89). The majority ofthe Group's assets are held overseas and these are hedged in part by foreigncurrency loans. Due regard is given to the adequacy of the capitalisation levelsof foreign subsidiaries and tax considerations in order to obtain relief forinterest charges. The translation impact of exchange rate movements at the endof 2005 compared with the end of 2004 increased shareholders' funds by £21.7million. Pensions The Group's defined benefit pension schemes' deficit, measured in accordancewith IAS 19, has increased from £14.8 million at the beginning of the year to£16.4 million at the end of the year. Asset values increased by £4.5 millionover and above the returns on assets of £4.3 million assumed in the charge tothe Income Statement and £5.8 million of additional contributions above thenormal contribution level of £1.8 million were paid in. However, these were morethan offset by changes in the assumptions used to calculate liabilities; thebond rate used to discount liabilities was reduced from 5.4% in 2004 to 4.75%,adding £9.3 million to liabilities and more conservative mortality assumptionswere adopted in moving to the "medium cohort" which added a further £4.6 millionto liabilities. Shareholders' funds Shareholders' funds at the 2005 year end were £284.3 million (2004: £260.2million). Profit for the year was £20.2 million to which must be added exchangegains on translation of overseas assets but from which must be deducteddividends paid of £14.9 million and an actuarial increase in the net pensionliabilities of £7.9 million. Group income statementfor the year to 31 December 2005 2004 £m £mNote Continuing operations Revenue 490.3 345.5 ------- ------- Operating profit before amortisation of 65.8 47.4 acquired intangible assets and exceptional items Amortisation of acquired intangible (4.4) (1.2) assets 4 Exceptional items (15.5) - ------- ------- 3 Operating profit 45.9 46.2 5 Finance revenue 0.8 0.7 5 Finance costs (11.2) (6.3) 5 Financial instruments - fair value (1.1) - adjustment 5 Other net finance costs - pension (0.1) - ------- ------- Profit before tax from continuing 34.3 40.6 operations 6 Taxation (9.0) (10.4) ------- ------- Profit for the year from continuing 25.3 30.2 operations Discontinued operations 7 (Loss) / profit for the year from (5.1) 7.0 discontinued operations ------- ------- Profit for the year 20.2 37.2 Earnings per share 8 Basic from continuing operations 16.0p 20.7p 8 Diluted from continuing operations 15.9p 20.5p Basic on profit for the year 12.8p 25.5p Diluted on profit for the year 12.7p 25.2p Total revenueRevenue (from continuing and discontinued 508.7 468.0operations) 9 Underlying results* Profit before tax 55.1 46.4 Earnings per share Basic 28.9p 26.3p Diluted 28.6p 26.0p 10 Dividends declared Dividends 15.6 14.6 Dividend per share 9.75p 9.2p * Before amortisation of acquired intangible assets, exceptional items, deferredtax on acquired intangible assets and goodwill, the gain or loss on disposal of businesses, and the impact arising from the fair valuing of financial instruments. Statement of recognised income and expensefor the year to 31 December 2005 2004 £m £mNote Profit for the year 20.2 37.2 13 Actuarial losses on retirement benefit obligations (7.9) (6.1)11 Deferred tax (2.0) 1.3 Exchange differences on retranslation of overseas 34.5 (18.6) net investments Exchange differences on retranslation of loans* (4.1) 6.3 Exchange differences on net investment hedges (8.7) - ------- ------ 11 Tax on exchange differences 1.8 1.4 ------- ------ Total income and expense recognised directly in 13.6 (15.7) equity ------- ------ Total income and expense recognised during the 33.8 21.5 year ------- ------ Restatement for the effects of IAS32 and 39 (0.4) - ------- ------ Total income and expense recognised for the year 33.4 21.5 ------- ------ * Exchange differences on retranslation of loans relate to foreign currencyloans to overseas subsidiaries. Group balance sheetAs at 31 December 2005 2004Note £m £m Assets Non-current assets Property, plant and equipment 81.6 75.6 Intangible assets 364.5 313.4 Deferred tax assets 0.3 - Other non-current assets 1.3 1.4 ----- ----- 447.7 390.4 ----- ----- Current assets Inventories 59.5 57.4 Trade and other receivables 97.0 81.0 Income tax receivable 0.3 2.6 Cash and cash equivalents 23.9 22.2 ----- ----- 180.7 163.2 ----- ----- Liabilities Current liabilities Borrowings (6.7) (6.5) Derivative financial instruments (1.4) - Trade and other payables (95.9) (89.1) Current tax liabilities (3.7) (2.9) (107.7) (98.5) ----- ----- Net current assets 73.0 64.7 ----- ----- Non-current liabilities Borrowings (165.3) (134.3) Income tax payable (15.7) (13.3) Deferred tax liabilities (23.1) (15.7)13 Retirement benefit obligations (16.4) (14.8) Other non-current liabilities (1.4) (7.4) Provisions (14.5) (9.4) ----- ----- (236.4) (194.9) Net assets 284.3 260.2 ----- ----- Capital and reserves11 Equity share capital 40.0 39.5 Share premium 155.5 152.211 Retained earnings 91.5 71.411 Treasury shares (2.7) (2.9) ----- ----- Total shareholders' equity 284.3 260.2 ----- ----- Group cash flow statementfor the year to 31 December 2005 2004Notes £m £m 12 Cash flows from operating activities Cash generated from operations 53.1 46.7 Tax paid (2.2) (4.4) ------- ------- Net cash flows from operating activities 50.9 42.3 ------- ------- Cash flow from investing activities Interest received 0.8 0.7 Acquisition of businesses (net (35.7) (90.9) of cash acquired) Purchase of property, plant (17.1) (17.9) and equipment Inflow from sale of businesses 6.9 32.5 Proceeds from sales of - 2.3 property, plant and equipment ------- ------- Net cash flows from investing activities (45.1) (73.3) ------- ------- Cash flows from financing activities Interest paid (11.1) (5.7) Net proceeds from issue of 3.5 1.5 ordinary share capital Proceeds from borrowings 16.0 34.0 Dividends paid to shareholders (14.9) (13.0) ------- ------- Net cash flows from financing activities (6.5) 16.8 ------- ------- Effects of movements in 1.8 (0.4) foreign exchange rates ------- ------- Increase in cash and cash 1.1 (14.6) equivalents for the year 12 Cash and cash equivalents at 1 January 20.6 35.2 ------- -------12 Cash and cash equivalents at 31 December 21.7 20.6 ------- ------- Notes to the financial statementsfor the year ended 31 December 1 Segmental analysis Primary reporting format - business segments Laird Laird Laird Total Technologies Security Plastics Systems 2005 2004 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m £m £mContinuing operations Revenue 259.4 142.8 230.9 202.7 - - 490.3 345.5 ------ ------ ------ ------ ------ ------ ------ ------Segment result 37.7 20.7 28.1 26.7 - - 65.8 47.4before:Amortisation ofacquired (4.4) (1.2) - - - - (4.4) (1.2)intangible assetsExceptional items (5.9) - (9.6) - - - (15.5) - ------ ------ ------ ------ ------ ------ ------ ------ 27.4 19.5 18.5 26.7 - - 45.9 46.2 ------ ------ ------ ------ ------ ------ ------ ------Finance revenue 0.8 0.7Finance costs (12.4) (6.3) ------ ------Profit before tax 34.3 40.6Taxation (9.0) (10.4)Profit for the year ------ ------from continuingoperations 25.3 30.2 ------ ------Discontinued operationsRevenue - - 18.4 30.6 - 91.9 18.4 122.5 ------ ------ ------ ------ ------ ------ ------ ------Segment result - - (0.2) 1.4 - 3.1 (0.2) 4.5(Loss) / profit ondisposal - - (7.8) - - 3.6 (7.8) 3.6 ------ ------ ------ ------ ------ ------ ------ ------(Loss) / profitbefore - - (8.0) 1.4 - 6.7 (8.0) 8.1taxTaxation - - 2.9 (0.2) - (0.9) 2.9 (1.1) ------ ------ ------ ------ ------ ------ ------ ------(Loss) / profit forthe year fromdiscontinuedoperations - - (5.1) 1.2 - 5.8 (5.1) 7.0 ------ ------ ------ ------ ------ ------ ------ ------Profit for the year 20.2 37.2 ------ ------ Segment assets 488.8 410.0 139.1 139.2 - - 627.9 549.2Unallocated assets - - - - - - 0.5 4.4 ------ ------ ------ ------ ------ ------ ------ ------Total assets 488.8 410.0 139.1 139.2 - - 628.4 553.6 ------ ------ ------ ------ ------ ------ ------ ------Segment liabilities 88.8 76.1 41.2 40.9 - 0.5 130.0 117.5Unallocated liabilities- corporate - - - - - - 168.4 136.7borrowings - other - - - - - - 45.7 39.2 ------ ------ ------ ------ ------ ------ ------ ------Total liabilities 88.8 76.1 41.2 40.9 - 0.5 344.1 293.4 ------ ------ ------ ------ ------ ------ ------ ------Other segment itemsCapital expenditure 14.8 9.6 5.6 6.6 - 0.6 20.4 16.8Acquisition of 23.7 142.4 8.3 20.1 - - 32.0 162.5assets ------ ------ ------ ------ ------ ------ ------ ------Total additions 38.5 152.0 13.9 26.7 - 0.6 52.4 179.3 ------ ------ ------ ------ ------ ------ ------ ------Depreciation 7.0 4.9 5.8 5.9 - 0.6 12.8 11.4 ------ ------ ------ ------ ------ ------ ------ ------Amortisation ofintangible assets 4.4 1.2 0.2 - - - 4.6 1.2 ------ ------ ------ ------ ------ ------ ------ ------ 1 Segmental analysis (continued) There are no sales between primary reporting segments - all revenue arises fromexternal sales. Secondary reporting format - geographical segments The Group manages its business segments on a global basis. The operations arebased in four main geographical areas. The parent company is resident in the UK.The main operations in the principal territories are as follows: UK, Continental Europe, North America, Asia and Rest of World. The segment revenue analysis in the table below is based on the location of thecustomer. Segment assets and additions are based on location of production. Segment revenue Segment assets Total additions 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £mContinuing operationsUnited Kingdom 144.6 119.4 97.7 90.4 8.3 22.3Continental Europe 59.3 31.6 57.8 63.8 1.9 3.3North America 175.9 133.5 394.2 325.9 21.5 149.1Asia 99.5 56.8 78.2 51.6 20.5 2.9Rest of World 11.0 4.2 - - - - ----- ----- ----- ----- ----- ----- 490.3 345.5 627.9 531.7 52.2 177.6 ----- ----- ----- ----- ----- -----Discontinued operationsUnited Kingdom 17.6 30.6 - 17.5 0.1 1.1Continental Europe 0.8 - - - - -North America - 91.9 - - - 0.6 ----- ----- ----- ----- ----- ----- 18.4 122.5 - 17.5 0.1 1.7Unallocated - - 0.5 4.4 0.1 - ----- ----- ----- ----- ----- ----- 508.7 468.0 628.4 553.6 52.4 179.3 ----- ----- ----- ----- ----- ----- 2 Exchange rates The results and cash flows of overseas subsidiaries are translated into sterlingusing weighted average rates of exchange for the year. The principal rates usedwere as follows: Average Closing 2005 2004 2005 2004Euros 1.46 1.48 1.45 1.41US Dollars 1.82 1.83 1.72 1.92Renminbi 14.90 15.18 13.85 15.89 3 Operating profit before finance costs and tax 2005 2004 £m £mRevenue 490.3 345.5Cost of sales (360.7) (251.7) ------ -------Gross profit 129.6 93.8Administration expenses (83.7) (47.6) ------ -------Operating profit before finance costs and tax 45.9 46.2 ------ ------- Included in administration expenses are £15.5m (2004: £nil) of exceptional itemsas described in note 4 to the financial statements and £4.4m (2004: £1.2m) ofamortisation relating to acquired intangible assets. 2005 2005 2004 2004 Continuing Discontinued Continuing Discontinued operations operations operations operations £m £m £m £mProfit for the year isstated after charging thefollowing items:Staff costs 126.1 3.5 85.7 15.3Cost of inventoriesrecognised as anexpense (includedin cost of sales) 289.4 11.1 178.6 88.5Exceptional items 15.5 - - -Research and developmentexpenditure- incurred 16.0 - 7.7 -- capitalised (2.6) - - -Depreciation andamortisationProperty, plant andequipment 12.0 0.8 9.6 1.8Intangible assets 4.6 - 1.2 -Operating lease rentalsHire of plant andmachinery 2.5 - 1.6 -Other 5.5 - 4.0 -Auditors' remuneration *Audit fees 0.9 - 0.8 -Tax fees- Compliance services 0.5 - 0.6 -- Planning services 0.6 - 0.6 -Other services 0.2 - 0.1 - * In addition, fees of £0.8m (2004: £1.1m) for services largely in respect ofacquisitions and disposals were paid to the auditors but not charged againstoperating profit. Total fees paid to the auditors were £3.0m (2004: £3.2m). Fees for non audit related services were as follows: 2005 2004 £m £mServices supplied to the Company 0.1 0.1Services supplied to other Group subsidiaries 2.0 2.3 ------- ------- 2.1 2.4 ------- ------- 4 Exceptional items 2005 2004 £m £mLaird TechnologiesFlood costs, before insurance proceeds 4.5 -Insurance proceeds (1.3)Restructuring costs 2.7 -Laird Security Systems (UK)Plant closure and restructuring costs 4.8 -Future rental costs for onerous leases 4.0Loss on disposal of business 0.8 - ---- ---- 15.5 - ---- ---- Note (a) There was a flood at a Laird Technologies plant during the year. Asset writeoffs and clean up costs incurred amounted to £4.5m. Insurance proceeds of £1.3mhave been received. (b) Laird Technologies incurred restructuring costs of £2.7m largely as a resultof the integration of acquired companies including the relocation of productionfrom Sweden to Central Europe. (c) Laird Security Systems incurred restructuring costs of £4.8m largelyrelating to the closure of plants in the UK and the transfer of production toChina. (d) Following the sale of the business of Permacell Finesse Limited, an onerouslease provision of £4.0m was made for the site that the business presentlyoccupies and which the Group retains. (e) The total cash outlay for exceptional costs in 2005 was £4.7m. (f) The tax effect on exceptional items is £3.6m (2004: £nil). 5 Finance costs and revenues 2005 2004 £m £mInterest expenseInterest payable on bank loans and overdrafts 3.8 2.5Interest payable on other loans 6.8 3.3Other finance charges 0.6 0.5 ---- ----Finance costs 11.2 6.3Fair value adjustment on interest rate swap 1.1 - ---- ---- 12.3 6.3 ---- ----Interest income (0.8) (0.7) ---- ---- 6 Taxation 2005 2004 £m £m (a) Analysis of the tax charge / (credit) for the year Current taxUK corporation tax - continuing operations 3.0 2.7 - discontinued operations - 0.2 ----- -----UK corporation tax 3.0 2.9Overseas tax - continuing operations 5.7 4.5 - discontinued operations - 0.9Adjustments in respect of prior years - continuing operations (0.8) (2.2) - discontinued operations (0.6) - ----- -----Total current tax charge / (credit) 7.3 6.1 ----- -----Deferred taxContinuing operations 2.5 5.4Discontinued operations (2.3) -Adjustments in respect of prior years (1.4) ----- -----Total deferred tax charge / (credit) (1.2) 5.4 ----- -----Tax charge in the income statement 6.1 11.5 ----- ----- The tax charge in the income statement isdisclosed as follows: Tax charge on continuing operations 9.0 10.4Tax (credit) / charge on discontinued operations (2.9) 1.1 ----- ----- 6.1 11.5 ----- ----- (b) Tax included in the statement of recognised income and expense 2005 2004 £m £m The tax charge / (credit) is made up as follows:UK corporation tax - exchange differences (1.8) (1.4)Deferred taxActuarial losses on retirement benefit 2.0 (0.9)obligationsShare based payments - (0.2)Property revaluation surplus - (0.2) ----- ----- 0.2 (2.7) ----- ----- 6 Taxation (continued) (c) Reconciliation of the total tax charge / (credit) for the year The tax charge / (credit) in the income statement for the year is lower than thestandard rate of corporation tax in the UK of 30% (2004: 30%). The differencesare reconciled below: 2005 2004 £m £m Profit before tax from continuing operations 34.3 40.6(Loss) / profit before tax from discontinued (8.0) 8.1operations ----- -----Profit before tax 26.3 48.7 ----- ----- Profit before tax multiplied by the standardrate of corporation 7.9 14.6tax in the UK of 30% (2004 30%)Effects of:Expenses not deductible for tax purposes 2.6 0.9Benefits of special tax status (6.1) (2.4)Overseas tax rate differences 2.6 1.2Adjustments in respect of prior years (2.8) (2.2)Unrelieved tax losses 1.5 -Other 0.4 (0.6) ----- -----Total tax expense reported in the income 6.1 11.5statement ----- ----- (d) Factors that may affect future tax charges Since the Group operates internationally, it is subject to income taxes in manydifferent tax jurisdictions. The Group's average expected tax rate is a weightedaverage of the tax rates in the tax jurisdictions in which the Group operatesand may vary depending upon results in each jurisdiction. 7 Discontinued operations Laird Security Systems divested its window systems business in September 2005.Operating losses were £0.2m in 2005 up to the date of disposal (2004: profit£1.4m). The loss on disposal in 2005 was £7.6m. In October 2004, Laird Plasticswas divested and up to the date of its disposal it had operating profits of£3.1m before tax and a tax charge of £0.9 m. 2005 2004 £m £mResults from discontinued operations:Revenue 18.4 122.5 ----- -----Operating (loss) / profit (0.2) 4.5Taxation - (1.1) ----- -----(Loss) / profit after tax from discontinued (0.2) 3.4operations (Loss) / profit on disposal of businesses:(Loss) / profit on current year disposals (7.6) 7.4Loss on prior year disposals (0.2) (3.8)Taxation 2.9 - ----- -----(Loss) / profit after tax on disposals (4.9) 3.6 ----- -----(Loss) / profit from discontinued operations (5.1) 7.0 ----- ----- 8 Earnings per share The calculation of basic and diluted earnings per share is based on the profitfor the year divided by the daily average of the number of shares in issueduring the year. Diluted earnings per share is based on the same profits butwith the number of shares increased to reflect the daily average effect ofrelevant share options granted but not yet exercised where performanceconditions have been met and shares contingently issuable in respect of theacquisition in 2004 of Centurion Wireless Technologies, Inc. 2005 2004 Continuing Discontinued Total Continuing Discontinued Total £m £m £m £m £m £m Profit aftertax 25.3 (5.1) 20.2 30.2 7.0 37.2 ---- ---- ---- ---- --- ---- No. of No. of No. of No. of No. of No. of shares shares shares shares shares shares (m) (m) (m) (m) (m) Basic weightedaverage shares 157.9 157.9 157.9 145.6 145.6 145.6Options 1.4 1.4 1.4 1.5 1.5 1.5Contingentshares 0.3 0.3 0.3 0.4 0.4 0.4 ----- ----- ----- ----- ----- -----Fully dilutedweightedaverage shares 159.6 159.6 159.6 147.5 147.5 147.5 ----- ----- ----- ----- ----- ----- Pence Pence Pence Pence Pence Pence Basic earningsper share 16.0 (3.2) 12.8 20.7 4.8 25.5 ----- ----- ----- ----- ----- -----Fully dilutedearnings per share 15.9 (3.2) 12.7 20.5 4.7 25.2 ----- ----- ----- ----- ----- ----- 9 Underlying results Underlying profit and earnings per share are shown as the Board considers themto be relevant guides to the performance of the Group. The tax charge for theperiod is equivalent to 17.3% (2004: 17.2%) of underlying profit. 2005 2004 £m £m Profit for the year 20.2 37.2Loss / (profit) before tax on sale of businesses 7.8 (3.6)Taxation from discontinued operations (2.9) 1.1Taxation from continuing operations 9.0 10.4Financial instruments - fair value adjustment 1.1 -Exceptional items 15.5 -Amortisation of acquired intangible assets 4.4 1.2 ------ ------Underlying profit before tax 55.1 46.4Underlying tax charge (see below) (9.5) (8.0) ------ ------Underlying earnings 45.6 38.4 ------ ------Underlying earnings per share basic 28.9p 26.3p ------ ------Underlying earnings per share diluted 28.6p 26.0p ------ ------ The underlying tax charge is calculated as follows: 2005 2004 £m £m Taxation from continuing operations (9.0) (10.4) ------ ------Adjustments to calculate underlying taxcharge:Taxation from discontinued operations - (1.1)Taxation on exceptional items (3.6) -Deferred tax on acquired goodwill and 3.1 3.5intangible assets ------ ------Underlying tax charge (9.5) (8.0) ------ ------ 10 Dividends paid and proposed On 15 March 2006 the Board declared, subject to approval from shareholders, afinal dividend of 6.45p per share (2004: 6.05p). The final dividend will be paidon 2 June 2006 to shareholders registered on 5 May 2006. Dividends are recordedin the financial statements in the period in which they are declared andapproved as shown in the table below. Dividends paid Dividends declared 2005 2004 2005 2004 £m £m £m £m Final 2003 - 8.0 - -Interim 2004 - 5.0 - 5.0Final 2004 9.6 - - 9.6Interim 2005 5.3 - 5.3 -Final 2005 - - 10.3 - ---- ---- ---- ---- 14.9 13.0 15.6 14.6 ---- ---- ---- ---- Dividends paid Dividends declared 2005 2004 2005 2004 Pence Pence Pence Pence Final 2003 - 5.60 - -Interim 2004 - 3.15 - 3.15Final 2004 6.05 - 6.05Interim 2005 3.30 3.30 -Final 2005 - 6.45 - ---- ---- ---- ---- 9.35 8.75 9.75 9.20 ---- ---- ---- ---- 11 Reconciliation of movements in equity Ordinary share Share Retained Translation Treasury capital premium earnings reserve shares Total £m £m £m £m £m £m At 1 January 2004 35.8 106.6 99.9 (37.8) (2.9) 201.6Total recognisedincome and expensefor the year - - 33.8 (12.3) - 21.5Realisation of property - - - - - -revaluation gainExercise of shareoptions 0.2 1.3 - - - 1.5Issue of shares onacquisition ofbusinesses 3.5 44.3 - - - 47.8Share based payments - - 0.8 - - 0.8Dividends paid - - (13.0) - - (13.0) ---- ----- ----- ----- ----- -----At 31 December 2004 39.5 152.2 121.5 (50.1) (2.9) 260.2Adjustment forimplementation ofIAS 32/39 - - (0.4) - - (0.4) ---- ----- ----- ----- ----- -----At 1 January 2005 39.5 152.2 121.1 (50.1) (2.9) 259.8Total recognisedincome and expensefor the year - - 12.1 21.7 - 33.8Exercise of shareoptions 0.5 3.0 - - - 3.5Issue of shares onacquisition ofbusinesses - 0.3 0.3 - - 0.3Share based payments - - 1.6 - - 1.6Treasury shares - - - - 0.2 0.2Dividends paid - - (14.9) - - (14.9) ---- ----- ----- ----- ----- -----At 31 December 2005 40.0 155.5 119.9 (28.4) (2.7) 284.3 ---- ----- ----- ----- ----- ----- The investment in Laird shares held by the company ESOP Trust are treated foraccounting purposes as treasury shares. At 31 December 2005 the Trust held1,015,000 shares (2004: 1,015,000 shares) which relate to the Long TermIncentive Plan. The shares held by the Trust had a total market value at thatdate of £4.3m (2004: £3.2m). 12 Additional cash flow information Cash generation from operations Continuing operations 2005 2004 £m £m Net profit after taxation 25.3 30.2Depreciation and other non-cash itemsDepreciation 12.0 9.5Amortisation of capitalised development costs 0.2Exceptional fixed asset write-downs 2.0 -Exceptional inventory write-downs 2.1Exceptional loss on disposal of business 0.7 -Profit on disposal of fixed assets - (0.4)Capitalised development costs (2.6) -Share-based payments 1.6 0.8Amortisation of acquired intangible assets 4.4 1.2Financial instruments - fair value adjustment 1.1 -Pension charges 1.3 0.8Other net finance costs 10.4 5.6Taxation 9.0 10.4Pension contributions (7.6) (2.2)Changes in working capitalInventories (0.3) (12.3)Trade and other receivables (9.3) (8.2)Trade, other payables and provisions 5.6 7.0 ---- ----Cash generated from continuing operations 55.9 42.4 ---- ---- Discontinued operations Net (loss) / profit after taxation (5.1) 7.0Taxation (2.9) 1.1Loss / (profit) on disposal of businesses before 7.8 (3.6)taxationDepreciation 0.8 1.9Changes in working capital (3.4) (2.1) ---- ----Cash flow from discontinued operations (2.8) 4.3 ---- ----Cash generated from operations 53.1 46.7 ---- ---- Notes (a) The working capital movement from continuing operations has been reduced byprovisions for exceptional items of £5.0m largely relating to an onerous leaseprovision. The working capital movement increased in 2004 due to exceptionalitems of £2.6m which were provided for in 2003. 12 Additional cash flow information (continued) Net cash outflow on acquisitions and disposals 2005 2004 £m £mAcquisition of businesses Consideration:Cash consideration (34.1) (85.4)Net cash acquired 4.9 5.4 ------ ------ (29.2) (80.0)Deferred consideration paid (6.5) (10.9) ------ ------Net cash outflow on acquisition of businesses (35.7) (90.9) ------ ------Borrowings acquired (0.3) (18.9) ------ ------ Disposal of businesses Consideration:Net cash consideration 6.9 32.9Net cash disposed of - (0.4) ------ ------Net cash inflow on disposal of businesses 6.9 32.5 ------ ------ Analysis of movements in net borrowings At 1 Non- At 31Period to 31 January Cash cash Exchange DecemberDecember 2005 2005 flow Acquisitions changes differences 2005 £m £m £m £m £m £m Cash at bank 22.2 (0.5) - - 2.2 23.9Overdrafts (1.6) (0.2) - - (0.4) (2.2)Loans due withinone year (4.7) 4.0 - (3.0) (0.5) (4.2)Loans due aftermore than one year (133.8) (20.3) (0.1) 3.0 (13.8) (165.0) Finance leases (0.7) 0.3 (0.2) - - (0.6) ------ ----- ----- ---- ----- -------Total (118.6) (16.7) (0.3) - (12.5) (148.1) ------ ----- ----- ---- ----- ------- At 1 Non- At 31Period to 31 January Cash cash Exchange DecemberDecember 2005 2005 flow Acquisitions changes differences 2005 £m £m £m £m £m £m Cash at bank 37.3 (14.4) - - (0.7) 22.2Overdrafts (2.0) 0.1 - - 0.3 (1.6)Loans due withinone year (21.8) 26.2 (7.0) (3.0) 0.9 (4.7)Loans due aftermore than one year (73.3) (60.4) (11.2) 3.0 8.1 (133.8)Finance leases (0.3) 0.3 (0.7) - - (0.7) ------ ----- ------ ---- ----- -------Total (60.1) (48.2) (18.9) - 8.6 (118.6) ------ ----- ------ ---- ----- ------- 13 Retirement benefit obligations Pension schemes The Group operates a number of pension schemes of both the defined benefit anddefined contribution types. Approximately 500 (2004: 650) employees are members of seven different definedbenefit schemes and these schemes have approximately 1,900 (2004: 1,800) deferred and current pensioners. The employer contributions made to theseschemes during the year was £7.6m (2004: £2.2m). The total assessed value of the schemes' assets at 31 December 2005 at theirmarket value is estimated at £78.2m (2004: £64.6m) and the liabilities estimatedat £94.6m (2004: £79.4m). The resultant aggregate net pension liability underIAS 19 is £16.4m (2004: £14.8m). Since last year equity markets have risen,however this increase has not been sufficient to offset reductions in corporatebond yields and higher longevity assumptions for the schemes' members whichimpact upon the value of discounted liabilities, resulting in a higher aggregatenet pension liability. The market value of the schemes' assets, the present value of the schemes'liabilities and the net pension liability under IAS 19 at 31 December were asfollows: 2005 2004 £m £m Annuities 10.2 10.4Equities 41.6 34.8Gilts and bonds 20.8 17.2Other including cash 5.6 2.2 ----- -----Total market value of assets 78.2 64.6 Present value of scheme liabilities (94.6) (79.4) ----- -----Deficit in the schemes (16.4) (14.8) ----- ----- There are minor variations in the assumptions used by the different actuariesemployed to value the separate schemes. The expected long term rates of returnon gilts and bonds are estimated at 4.4% per annum (2004: 4.6%) and those forequities at 7.8% per annum (2004: 8.2%). The returns on the annuities match therelevant liabilities. The mortality assumption used at the year end is based on 92 series tables witha medium cohort allowance for future mortality improvements to 2015 forpensioners and 2025 for non-pensioners. The future life expectancies are around2 years longer than those assumed at the last year end. 13 Retirement benefit obligations (continued) For IAS 19 the schemes' liabilities have been calculated under the projectedunit method and the main financial assumptions were inflation of 2.75% per annum(2004: 2.7%), salary increases of 3.75% per annum (2004: 3.7%) and a discountrate for liabilities of 4.75% per annum (2004: 5.4%). Analysis of the defined benefit cost for the year ended 31 December : 2005 2004 £m £mCurrent service cost 1.9 2.1Past service cost - -Gain on settlements or curtailments (0.7) (1.3) ----- -----Total charge to operating profit 1.2 0.8Expected return on pension investments 4.4 4.0Interest on pension liabilities (4.3) (4.0) ----- -----Total amount of expense relating to finance 0.1 -income ----- -----Total charge to income statement before 1.3 0.8deduction of tax ----- ----- The charge in respect of defined contribution plans was £3.1m during 2005(2004: £3.3m). Analysis of the amount recognised in the statement of recognised income andexpense ("SORIE"): 2005 2004 % of % of Plan assets Plan assets /liabilities £m /liabilities £m Actual return less expectedreturn on pension scheme assets 6 4.5 - (0.1)Experience (loss) / gain onPlan liabilities 2 1.9 - -Loss on change of assumptions 15 (14.3) 8 (6.0) --- ------ --- -----Total actuarial loss recognisedin SORIE 8 (7.9) 8 (6.1) --- ------ --- ----- Changes in the present value of defined benefit pension obligations are analysedas follows: 2005 2004 £m £mAs at 1 January 79.4 71.1Current service cost 1.9 2.1Past service cost - -Interest cost 4.4 4.0Employee contributions 0.3 0.3Actuarial gains and losses 12.4 6.0Benefits paid (2.5) (2.5)Settlement / curtailment gain (1.8) (1.3)Foreign currency differences 0.5 (0.3) ----- -----As at 31 December 94.6 79.4 ----- ----- 13 Retirement benefit obligations (continued) The defined benefit obligation comprises £4.0m (2004: £2.9m) arising from anunfunded plan, and £90.6m (2004: £76.5m) from plans that are wholly or partlyfunded. Changes in the fair value of the plan assets are analysed as follows: 2005 2004 £m £mAs at 1 January 64.6 61.2Employer contributions 7.6 2.2Employee contributions 0.3 0.3Benefits paid (2.5) (2.5)Expected return on assets 4.3 4.0Asset gain / (loss) 4.5 (0.1)Settlement gain / (loss) (1.1) -Foreign currency differences 0.5 (0.5) ----- -----As at 31 December 78.2 64.6 ----- ----- Employer contributions of £7.6m during 2005 include £5.8m of additionalpayments made over and above regular contributions. History of experience gains and losses: 2005 2004 2003 £m £m £m Fair value of plan assets 78.2 64.6 61.2Present value of defined benefit (94.6) (79.4) (71.1)obligation ------ ------ ------(Deficit) in the schemes (16.4) (14.8) (9.9) ------ ------ ------Experience adjustments arising on 1.9 - (0.8)plan liabilitiesExperience adjustments arising on 4.5 (0.1) 0.9plan assets The cumulative amount of actuarial gains and losses recognised in the Groupstatement of recognised income and expense is £14.0m (2004: £6.1m) since 1January 2004. The directors are unable to determine the amount of actuarialgains and losses that would have been recognised in the Group statement ofrecognised income and expense from the date of inception of the company schemesto 31 December 2003. The Group estimates that the total value of contributions to defined benefitplans will be £3.2m in 2006, which is expected to include £1.8m of additionalcontributions to be paid over and above normal contributions. Within Sweden, the Group operates a plan, included within a multi-employer plan,for its employees which is insured with Alecta. This scheme is a defined benefitplan, but Alecta is currently unable to provide sufficient information to reportthe Group's proportional share of the defined benefit commitments and the assetsunder management and expenses associated with the plan. Consequently, Alectacannot provide the information regarding the Group's proportional share of thesurplus or deficit in the plan. As a result, the scheme is reported as if it were a defined contribution plan, although it is actually a defined benefit plan. 14 Other information The financial information for the year ended 31 December 2005 set out above hasbeen extracted from the 2005 Annual Report and Accounts which have been auditedby Ernst & Young LLP who have given an unqualified audit opinion. The Accountsfor 2005 are expected to be filed following the Company's Annual General Meetingto be held on 12 May 2006. The Company's 2005 Annual Report and Accounts,including the notice of Annual General Meeting, will be posted to shareholderson 6 April 2006. The proposed final dividend will be paid on 2 June 2006 to shareholdersregistered on 5 May 2006. This information is provided by RNS The company news service from the London Stock Exchange

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