7th Mar 2006 07:01
Meggitt PLC07 March 2006 Please contactCharles Ryland or Jeremy GarciaBuchanan CommunicationsTel: +44 20 7466 5000 7 March 2006 Meggitt PLC audited results for the year ended 31 December 2005 "Strong growth" Financial Highlights • Turnover up 29% to £616.3m. Up 30% at constant exchange rates. • Underlying profit before tax1 up 29% to £116.3m. Up 35% at constant exchange rates. • Profit before tax up 25% to £88.1m. • Underlying earnings per share2 (EPS) up 15% to 20.0p. • Basic EPS up 11% to 15.4p • Cash inflow from operations up 20% to £132.8m. • Final dividend up 10% to 5.3p. Full year dividend increased 10% to 7.7p. • Order book at December 2005 30% up on December 2004 at constant exchange rates. Terry Twigger, Chief Executive, commented: "2005 was another year of strong growth for Meggitt. The Group is well placed totake advantage of the sustained recovery in the large jet civil market andassociated aftermarket, while military markets continue to be attractive. Withthe Dunlop acquisition fully integrated and trading in line with expectations,we look forward to continued growth in 2006." cont'd ... ________________________ 1 See note 2 2 See note 6 RESULTS A rapidly improving civil aerospace market and continuing healthy militarydemand have contributed to another excellent set of results. Strong organicgrowth was once again supplemented by acquisitions. Group turnover increased by 29% to £616.3m (2004: £476.6m), with acquisitionscontributing £112.6m of this increase. Excluding acquisitions and the adverseimpact of currency movements (£4.6m), Group turnover increased by 7%. Recent acquisitions have greatly increased the Group's exposure to a rapidlystrengthening civil aerospace market. In 2005, civil aerospace accounted for 42%of Group turnover (2004: 35%); military markets accounted for 41% of turnover(2004: 45%). The aftermarket in aggregate (civil plus military) accounted for40% of turnover (2004: 34%). Underlying operating profit increased by 28% to £130.6m (2004: £101.7m). Netinterest expense increased by £2.9m to £14.3m (2004: £11.4m) with the cost offunding acquisitions partially offset by strong underlying cash flow. This leftunderlying profit before taxation of £116.3m (2004: £90.3m) an increase of 29%.The increase included a £5.3m adverse impact from currency movements and a£19.5m benefit from acquisitions. Excluding currency and acquisitions, theunderlying profit before tax increase was 11%. Profit after tax increased by 26% to £66.2m (2004: £52.5m). The underlying tax rate for the Group reduced to 26% (2004: 27%) and underlyingEPS increased by 15% to 20.0 pence (2004: 17.4 pence). The Group continued its track record of sustained cash generation withunderlying cash inflow from operations up 20% to £132.8m (2004: £111.0m)representing 102% conversion of operating profit to cash. Net cash generated in the year was £43.3m and interest cover (based onunderlying operating profit) improved to 9.1 times (2004: 8.9 times). Gearingreduced to 63% at the end of December 2005 compared with 71% at the end ofDecember 2004. As a result of this excellent performance the Board is proposing to increase thefinal dividend by 10% to 5.3 pence (2004: 4.8 pence). This brings the full yeardividend to 7.7 pence (2004: 7.0 pence). OPERATIONAL HIGHLIGHTS AEROSPACE • Turnover increased 36% to £458.6m (£2004: £336.9m). At constant exchange rates this equates to a 38% increase. • Underlying operating profit increased 37% to £107.2m (2004: £78.4m). At constant exchange rates the increase was 43%. • Excluding the impact of acquisitions and at constant exchange rates, turnover increased by 8% and underlying operating profit by 10%. • The Aerospace order book at December 2005 was 33% up on December 2004 at constant exchange rates. Meggitt's aerospace businesses account for 74% of Group turnover and 82% ofunderlying operating profit and have continued their excellent performance. Theincrease in turnover and underlying operating profit reflects good organicgrowth as a result of the continuing growth in civil aerospace and an on-goinghealthy demand from the military markets together with the impact ofacquisitions. Major orders received in the year included the second tranche of Eurofighterwhere in total Meggitt received £80m of orders for products ranging from thewheels, brakes and braking system, air data transducers, crash survivable memoryunits to engine optical pyrometers. These orders, together with other successeshave resulted in the aerospace order book increasing by 33% on December 2004 atconstant exchange rates. In condition monitoring, development of the Engine Monitoring Units (EMUs) forthe Boeing 787 aircraft for both the General Electric GEnx and the Rolls-RoyceTrent 1000 engines is progressing well. The EMUs on the A380 aircraft, for theGP7200 and the Rolls-Royce Trent 900 engines have achieved engine certificationduring 2005 with preparation now advanced for these units to move intoproduction. In February 2006, further confirming its leading position in aeroengine condition monitoring, Meggitt was chosen to replace the incumbentsupplier of the Advanced Engine Vibration Monitoring unit (AEVM) for Boeing 777aircraft. Following a development programme this product will be fitted to newbuild aircraft from mid 2007. In addition, a contract has been received fromRolls-Royce to retrofit 210 of those units to the existing 777 fleet withdeliveries also commencing in mid 2007. The Advanced Airborne Vibration Monitor(AAVM) for the Boeing 737, which was a joint Meggitt, Boeing and CFMI programme,has now been introduced into airline revenue service. The AAVM provides earlyinformation on potential engine bearing deterioration. Several airlines haveopted for initial fit of the AAVM into new aircraft and two major US airlineshave also decided to retrofit their whole 737 fleet. Meggitt's airborne fire detection business continued its excellent progress in2005 with a number of contract wins. These included the fire detection systemfor the A400M military transport aircraft, which comprises a central computerand fire detectors for the engines, main landing gear and auxiliary power unitand is an evolution of Meggitt's Airbus A380 fire detection system. A contractwas also received from Embraer for engine fire detection systems and cargo smokedetection products that will be incorporated into Embraer's very light jet andlight jet applications. Meggitt's fluid dynamics businesses have continued to secure multiple programmeawards. The number of new engineering programmes in 2006 will increasesignificantly which will drive sales in future years. These included contractsfrom GE for a number of valves on the GEnx engine, contracts from Hispano Suizafor the SAM146 engine that will power the future Russian regional jets family;anti-icing valves for the BR710 large jet engines that are used in theBombardier Global Express and the Gulfstream V aircraft; air/oil separatorproducts for Pratt & Whitney Canada for the 610, 615 and 617 range of generalaviation engines and Hamilton Sundstrand for the F135, F136 and Trent 1000engines. All of these are expected to lead to substantial future aftermarketdemand. Following the integration of recent acquisitions Meggitt is developing a strongcapability in thermal management. Successes included orders in September 2005 tosupply the engine anti-ice and high pressure environmental control systems forthe Javelin very light jet/military trainer aircraft, followed by orders inJanuary 2006 to supply the engine anti-ice system for the Embraer Phenom 100very light jet. Other thermal systems orders received include the supply of environmentalcontrol system ducting for Alenia Aeronautica's ATR 42 and ATR 72 aircraft, agrowing family of twin turboprop, short-haul regional airliners. The polymers businesses also had a successful year, winning numerous orders froma range of customers including Boeing, GE, Gulfstream and Hawker. The firststage of the consolidation of the UK polymers businesses was completed with thesuccessful move of Meggitt's business in Slough to Dunlop facilities in theMidlands. The next stage is to enlarge the capacity on Dunlop's Shepshed site toenable a further consolidation with a nearby facility. This should be completedduring 2006. In braking systems, the continued increase in the utilisation of Gulfstream andRaytheon business jets and the continued success of the ATR72 aircraft have ledto increased sales despite a small reduction in the flying hours of the BAE 146aircraft, many of which have been temporarily parked as a result of liquidityissues being faced by several major US airlines. New orders received includedthe second tranche of Eurofighter and Raytheon have also selected Meggitt tosupply wheels, brakes and the braking system to two new models, the RaytheonHawker 750 and 900. In the wheel and brake repair and overhaul market good progress has also beenmade with new contracts being received to manage the support of the UK MoD'sfleet of 19 VC10 aircraft together with a five year contract to manage thesupport of Britannia and Monarch's fleet of aircraft. In addition, Dunlop'srepair facility in Singapore has been expanded to support all Meggitt productsused by the rapidly expanding airline industry in the region. With the successful polymers site consolidation, procurement savings and theintroduction of a more simplified management structure in braking systems,Meggitt has realised £7.0m of synergy benefits from Dunlop in 2005, at the upperend of expectations at the time of acquisition. This is expected to increase to£10.0m in 2006 as further consolidation occurs. The operating exceptional costof achieving these savings was £4.2m in 2004 and £2.0m in 2005, at the lower endof expectations. The Avica UK factory, which manufactures metallic ducting parts for aircraftenvironmental control systems (sales £10m per annum) was severely damaged as aresult of explosions at the nearby Buncefield fuel distribution depot, HemelHempstead on 11 December 2005. Despite the severe damage a superb reaction fromthe workforce and robust business continuity plans meant limited productionrecommenced in early January 2006. A decision has been made to move productionto a smaller facility nearby and other factories in the Group. This move shouldbe completed by the end of the first half of 2006 and a £5m provision to coverthis has been included within 2005 operating exceptional costs. DEFENCE SYSTEMS • Turnover increased 25% to £86.0m (2004: £68.9m). At constant exchange rates the increase was 24%. • Underlying operating profit increased by 19% to £14.7m (2004: £12.3m). At constant exchange rates the increase was 19%. • Excluding the impact of 2004 acquisitions and at constant exchange rates, turnover increased by 19% and underlying operating profit by 18%. • Defence Systems' order book at December 2005 was 17% up on December 2004 at constant exchange rates. Defence Systems made excellent progress in 2005, maintaining its strong positionin its chosen markets of weapon training systems, ammunition handling,environmental control systems for military applications and launch and recoverysystems for countermeasures. Weapon training systems grew significantly in the year benefiting from the largeinvestments being made in live fire training for armed services personnel.Meggitt was awarded orders by the US Army in connection with its ten year rangemodernisation programme, digital multiplex ranges and military operations inurban terrain. US law enforcement agencies also increased their orders for livefire mobile road ranges. Ammunition handling featured strongly in the year. New production contracts weresecured for the Stryker mobile gun replenisher, the Apache 12 Pak and Combo Pakmagazines and the AC130 Gunship Mk44 magazine. Further sole source developmentcontracts for the Future Combat Systems (FCS) mounted combat vehicle were alsoreceived. These will position Meggitt to win further ammunition handlingbusiness on other vehicle variants of the FCS. Environmental control system production on the M1A2 Abrams Tank thermalmanagement system is projected to continue for at least the next five years andthe development and production of the vapour cycle cooling system for the C130avionics modernisation programme has begun. In countermeasures, 2005 was dominated by customer funded development programsfor next generation countermeasures. As these projects start transition toproduction in late 2006, Meggitt should experience strong growth in thisbusiness sector. At the end of 2005, Meggitt Defence Systems announced the merger of its threeCalifornian businesses. This merger will accommodate the growing demands of thedefence market place, enabling Defence Systems to capitalise on broaderintegrated engineering skills and increased operational capacity, which shouldgive the business significant competitive advantage. This consolidation shouldbe completed in early 2007. ELECTRONICS • Turnover increased 1% to £71.7m (2004: £70.8m). At constant exchange rates the increase was 1%. • Underlying operating profit reduced by £2.3m to £8.7m (2004: £11.0m). At constant exchange rates the decrease was £2.1m. • Electronics' order book at December 2005 was 26% up on December 2004 at constant exchange rates due mainly to the receipt of Eurofighter second tranche orders. Electronics sales (12% of Group total) in 2005 were held back due to weakness inthe automotive and test and measurement markets. Two major medical companiesalso announced their intention to reduce inventory levels significantly.However, investment in new technologies to drive long term growth continued withsignificant progress in the development of smart sensing and high temperaturesensors which are expected to generate sales from 2007 onwards. Our position sensing business, based in Spain, saw reduced demand for sensorsfor on-board automotive applications as a result of the slow down in theautomotive industry in Europe and the US. Margins in this business were alsoaffected by continuing cost increases in raw materials, particularly copper andsilver. A number of new orders were secured on new automotive platforms andorder intake in the last quarter for position sensors improved compared to thethird quarter. Investment in a divisionwide direct sales force in Europe is starting to showsome benefits with successes including new missile programmes with Diehl inGermany and Thales in France. In addition, the division secured orders for thesecond tranche of Eurofighter covering sensors for engine control and monitoringapplications. The facility in Xiamen, China continues to perform in line with ourexpectations. The second phase of product transfers commenced in September 2005with a number of position sensors being transferred from Spain and a project hasjust started to assemble commercial aerospace speed probes in the facility. Inline with our original investment plans, by the end of 2006 we will haveexpanded into a second (adjacent) building adding another 5,000m2 ofmanufacturing space. CORPORATE ACTIVITY During 2005 Meggitt has continued its successful strategy of focussing itsactivities on aerospace, defence and high performance sensors. In the secondhalf of 2005 two transactions were completed. 1. The acquisition of the Avery Hardoll business for £8.4m. Located in the UK, this business provides a range of products in the aerospace ground fuelling market and complements products in our existing US business. 2. The acquisition of Sensorex and ECET in France for £7.1m These businesses design and manufacture high performance sensors for the aerospace market with the products being used on all major Airbus aircraft including the A380 as well as a number of military programmes. In 2005, Meggitt received a net payment of £16.0m in respect of the 2004acquisition of Dunlop. This amount related primarily to an amount ofconsideration held in escrow pending resolution of certain ongoing commercialissues and to normal asset adjustments on finalisation of the acquisitionaccounts. PENSIONS The Group's pension deficits increased from £75.0m (before tax) at 31 December2004 to £98.2m (before tax) at 31 December 2005. Overall liabilities increasedby £74.2m. The movement was principally due to reflecting more up to datemortality assumptions and a reduction in AA corporate bond rates which are thebasis for the discount rate used to calculate the liabilities. This was partlyoffset by an increase in the market value of assets of £51.0m. INVESTING FOR THE FUTURE Meggitt has continued to invest in research and development (R&D) ensuring thatorganic growth continues. Cash spend in 2005 was £30.8m, around 5% of turnoverand a similar level to previous years. (This does not include customer fundedresearch and development which is an additional 2% of turnover.) Capital expenditure of £19.2m continues to ensure our businesses have the bestfacilities and equipment available to them. To that end, in the second half of2005, the Board approved a number of major facility investments which willincrease capacity, productivity or both. These include: • New facilities for the aerospace businesses in Basingstoke (UK) and in Manchester (USA) on expiry of their current leases; • Expansion of the aero engine condition monitoring facility in Fribourg (Switzerland) and also of the polymers facility in Shepshed (UK), which will lead to the eventual closure of the nearby facility in Bagworth; and • The consolidation of our three Californian Defence Systems businesses into one nearby facility in Irvine, to provide increased capability and efficiency. As a result of these investments, capital expenditure will increase to around£35m in 2006 before settling back to a more typical £20-25m thereafter, andaround £2m of related expenses will be charged to underlying profit in 2006. In addition to investing in products and facilities, Meggitt has continued toinvest in human resources. In 2005, particular emphasis was placed on theenhancement of business processes and systems to maintain the impressive growthrecord achieved over the last three years. To that end, Group resources havebeen strengthened, particularly in business development, organisationaldevelopment, IT and compliance management. OUTLOOK The Group has continued to achieve strong growth in turnover and underlyingprofit and has once again delivered an outstanding cash performance. Prospectsfor the civil aerospace market look very good with large jet production expectedto increase by 21% in 2006 and 11% in 2007. We also expect continuing healthymilitary demand. Trading in our electronics businesses is likely to remain softfor at least the first half of 2006 as medical customers continue to destock.Overall, the order book is robust with a 30% increase during 2005 givingconfidence that Meggitt will deliver further growth in 2006. As a consequencethe Directors are recommending a 10% increase in the final dividend. CONSOLIDATED AUDITED INCOME STATEMENTfor the year ended 31 December 2005 2005 2004 £'000 £'000Continuing operations Revenue 616,317 476,573 Cost of sales (338,136) (269,288) Gross profit 278,181 207,285 Net operating costs (175,740) (125,234) Operating profit * 102,441 82,051 Finance income 4,874 1,094 Finance costs (19,188) (12,489) Net finance costs (14,314) (11,395) Profit before tax from continuing operations ** 88,127 70,656 Tax (21,892) (18,116) Profit for the year from continuing operations attributable to equity shareholders 66,235 52,540 Earnings per share Basic 15.4p 13.9p Diluted 15.3p 13.8p Dividends paid to equity shareholders 30,994 24,493 * Underlying operating profit (see note 2) 130,599 101,694 ** Underlying profit before tax (see note 2) 116,285 90,299 CONSOLIDATED AUDITED BALANCE SHEETas at 31 December 2005 2005 2004 £'000 £'000Non-current assets Goodwill 551,361 515,767 Development costs 21,692 14,429 Other intangible assets 177,491 185,085 Property, plant and equipment 116,941 111,550 Trade and other receivables 68,018 46,652 Deferred tax assets 32,034 28,850 Investments available for sale 1,057 1,075 968,594 903,408 Current assets Inventories 134,341 105,342 Trade and other receivables 138,693 130,001 Derivative financial instruments 51 - Current tax recoverable 6,027 106 Cash and cash equivalents 45,490 42,732 324,602 278,181 Total assets 1,293,196 1,181,589 Current liabilities Trade and other payables (168,229) (140,838) Derivative financial instruments (4,465) - Current tax liabilities (20,369) (16,124) Bank and other borrowings (12,957) (5,914) Provisions (18,447) (21,604) (224,467) (184,480) Net current assets 100,135 93,701 Non-current liabilities Trade and other payables (4,623) (1,975) Derivative financial instruments (1,555) - Deferred tax liabilities (52,468) (51,136) Bank and other borrowings (346,818) (366,242) Provisions (67,642) (40,382) Retirement benefit obligations (98,217) (74,954) (571,323) (534,689) Total liabilities (795,790) (719,169) Net assets 497,406 462,420 Equity Share capital 21,660 21,481 Share premium 350,239 342,636 Other reserves 14,118 14,118 Hedging and translation reserve (1,091) (5,557) Retained earnings 112,480 89,742 Total equity 497,406 462,420 CONSOLIDATED AUDITED CASH FLOW STATEMENTfor the year ended 31 December 2005 2005 2004 £'000 £'000 Cash inflow from operations before exceptionaloperating costs 132,784 111,012Cash outflow from exceptional operating costs(see note 4) (5,533) (3,088)Cash inflow from operations 127,251 107,924Interest received 1,431 1,094Interest paid (14,862) (11,223)Debt issue costs (285) (1,122)Taxation (21,209) (18,578)Cash inflow from operating activities 92,326 78,095 Purchase of subsidiary undertakings 518 (440,447)Net cash acquired with subsidiaries 852 6,914Capitalised internal development costs (8,024) (5,010)Purchase of other intangible assets (3,505) (22)Purchase of property, plant and equipment (16,215) (14,159)Proceeds from disposal of property, plant andequipment 514 192Proceeds from disposal of investmentsavailable for sale 18 25Cash outflow from investing activities (25,842) (452,507) Dividends paid to Company's shareholders (26,015) (13,529)Issue of equity share capital 2,803 188,542Expenses of issue of ordinary share capital - (5,625)Proceeds from borrowings 81,182 253,369Repayment of borrowings (124,605) (28,906)Cash (outflow)/inflow from financing activities (66,635) 393,851 Net (decrease)/increase in cash and bank overdrafts (151) 19,439Cash and bank overdrafts at start of year 42,343 22,670Exchange gains on cash and bank overdrafts 3,298 234Cash and bank overdrafts at end of year 45,490 42,343 Reconciliation of underlying profit to cash 2005 2004from operations before exceptional operating costs: £'000 £'000 Underlying operating profit 130,599 101,694Depreciation and amortisation 17,963 14,655(Profit)/loss on disposal of fixed assets (185) 57Working capital movements (15,593) (5,394) 132,784 111,012 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENDITUREfor the year ended 31 December 2005 Retained Hedging and Total earnings translation reserve £'000 £'000 £'000 Balance at 1 January 2004 53,892 - 53,892 Actuarial gains 6,957 - 6,957Currency translation differences - (5,557) (5,557)Profit for the financial year 52,540 - 52,540Employee share schemes:Value of services provided 846 - 846Dividends (24,493) - (24,493) Total recognised income andexpense for the year 35,850 (5,557) 30,293 Balance at 31 December 2004 89,742 (5,557) 84,185 Actuarial losses (16,400) - (16,400)Currency translation differences - 4,466 4,466Profit for the financial year 66,235 - 66,235Employee share schemes:Value of services provided 7 - 7Dividends (30,994) - (30,994)Total recognised income andexpense for the year 18,848 4,466 23,314Adoption of IAS 32 and IAS 39 3,890 - 3,890Balance at 31 December 2005 112,480 (1,091) 111,389 SUMMARY OF CHANGES IN EQUITYfor the year ended 31 December 2005 2005 2004 £'000 £'000 Balance at 1 January 462,420 238,246Adoption of IAS32 and IAS39 3,890 -Total recognised income and expense for the year 23,314 30,293Shares issued 7,782 193,881Balance at 31 December 497,406 462,420 NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 2005 1. BASIS OF PREPARATION The financial information contained in this document has been prepared on thebasis of the policies that have been applied in the annual financial statementsfor the year ended 31 December 2005. It contains abridged preliminary Groupaccounts for the year ended 31 December 2005 together with comparatives. It doesnot constitute the statutory accounts but has been extracted from the statutoryfinancial statements for the year ended 31 December 2005, which will bedelivered to the Registrar of Companies in due course and on which theindependent auditors' report is unqualified. Prior to 2005 the Group prepared its statutory accounts in accordance with UKGenerally Accepted Accounting Practice (UK GAAP). For the year ended 31 December2005 the Group is required to prepare its statutory financial statements inaccordance with International Financial Reporting Standards (IFRS). Accordinglythe statutory accounts have been prepared in accordance with IFRS adopted foruse in the European Union and therefore comply with Article 4 of the EU IASregulation. The statutory accounts have been prepared in accordance with those parts of theCompanies Act 1985 applicable to companies reporting under IFRS and have alsobeen prepared under the historical cost convention as modified by therevaluation of investments available for sale and financial assets andliabilities at fair value. The Group's transition date for IFRS is 1 January 2004. Comparative data for2004 has been restated to conform to the new accounting policies. These newpolicies reflect exemptions from restating certain financial information aspermitted under IFRS 1 ("First time Adoption of International FinancialReporting Standards"). The exemptions taken by the Group are stated below: • Under IAS 16 ("Property, Plant and Equipment") the Group has elected to treat the revalued amount of land and buildings revalued prior to 1 January 2004 as deemed cost. • Under IAS 21 ("The Effects of Changes in Foreign Exchange rates") cumulative translation differences arising on the consolidation of foreign subsidiaries are required to be held in a separate reserve within equity. The cumulative translation differences at 1 January 2004 have been deemed to be nil. • IAS 39 ("Financial instruments: Recognition and Measurement") has been applied with effect from 1 January 2005 and not to the comparative data. The comparative results for 2004 in so far as they relate to financial instruments have been stated in accordance with UK GAAP as allowed by IFRS 1. • IFRS 2 ("Share-based Payment") has been applied to all the awards after 7 November 2002 that remained unvested at 1 January 2005. Earlier awards have not been restated. • IFRS 3 ("Business Combinations") has been applied prospectively to acquisitions after 1 January 2004. Earlier acquisitions have not been adjusted. On 21 June 2005, the Group released to the Stock Exchange a provisional analysisof the effects of adopting IFRS with effect from 1 January 2004. This includedreconciliations of the income statement, balance sheet and equity together withexplanations of the impacts. This analysis is also available at the web sitewww.meggitt.com. Adjustments made to these statements include the recognition ofthe final fair values of businesses acquired in 2004 including the Design andManufacturing Division of Dunlop Standard Aerospace Group Limited and a numberof reclassifications. 2. RECONCILIATIONS BETWEEN PROFIT AND UNDERLYING PROFIT The Group has historically reported additional profit measures where it was feltthat these gave a better view of the underlying trading performance. Under IFRSthe Group will continue to report these additional measures, now calledunderlying operating profit and underlying profit before tax and the derivationof these measures is shown below: 2005 2004 £'000 £'000 Operating profit 102,441 82,051 Amortisation of intangibles acquired in abusiness combination a 10,883 3,272Revaluation of inventory acquired in a business combination b 226 8,492Financial instruments c 10,054 -Exceptional operating costs (Note 4) 6,995 7,879Adjustments to operating profit 28,158 19,643 Underlying operating profit 130,599 101,694 Profit before taxation 88,127 70,656Adjustments to operating profit per above 28,158 19,643 Underlying profit before taxation 116,285 90,299 Profit for the year 66,235 52,540Adjustments to operating profit per above 28,158 19,643Tax effect of adjustments to operating profit (8,342) (6,265) Underlying profit for the year 86,051 65,918 a. For acquisitions after 1 January 2004 the Group now identifies,separately from goodwill, the fair value of intangible assets that meet the IFRS3 criteria to be recognised, including customer relationships, technology,tradenames and order backlogs. These intangible assets are amortised over theiruseful lives to the income statement. Previously these intangible assets werenot recognised separately from goodwill. The Group excludes this amortisationfrom its underlying profit figures. b. IFRS 3 requires acquired businesses' finished goods to be valued atselling prices less costs of disposal and a reasonable profit allowance for theselling effort. Work in progress (WIP) of an acquired business is valued atselling prices less costs to complete, costs of disposal and a reasonable profitallowance for the work not yet completed. The fair value of inventory acquiredis thus generally higher than that built post completion which includes noprofit element. This increase arising from the revaluation of acquired inventoryis charged to the income statement as the inventory is consumed and is excludedfrom the Group's underlying figures. c. Although the Group uses foreign currency forward contracts to hedgeagainst foreign currency exposures it has decided that the costs of meeting theextensive documentation required to be able to apply hedge accounting under IAS39 ("Financial Instruments: Recognition and Measurement") are not merited. TheGroup's underlying profit figures exclude amounts which previously would nothave been recorded if hedge accounting had been applied. IAS 39 was adopted witheffect from 1 January 2005 and accordingly there are no comparative figures. 3. SEGMENTAL ANALYSIS The Group's primary segments are its business segments. 2005 2004 £'000 £'000Revenue Aerospace 458,615 336,860Defence 85,977 68,949Electronics 71,725 70,764 616,317 476,573 Underlying operating profit Aerospace 107,224 78,385Defence 14,681 12,288Electronics 8,694 11,021 130,599 101,694 Operating profit Aerospace 80,983 62,415Defence 14,393 12,288Electronics 7,065 7,348 102,441 82,051 Net assets / Liabilities Aerospace 869,012 844,476Defence 48,123 41,547Electronics 31,480 25,260Unallocated (4,587) (6,196) 944,028 905,087 Net assets/liabilities exclude taxation, net debt, retirement benefitobligations, investments available for sale and interest rate derivatives. 4. EXCEPTIONAL OPERATING COSTS The exceptional charge in 2005 of £6,995,000 relates to completion of theconsolidation of Meggitt's polymers business into Dunlop Aerospace's facilitiesin the Midlands and the costs associated with the requirement to move the Avicafacility in Hemel Hempstead following the explosion at the Buncefield FuelDistribution Depot. The exceptional charge in 2004 of £7,879,000 related to the consolidation ofMeggitt's polymers business referred to above and the costs of closure of theGroup's manufacturing facilities in the US Virgin Islands and the relocation ofproduction to a new facility in China. Cash expenditure on exceptional operating costs was £5,533,000 (2004:£3,088,000). 5. DIVIDENDS The Board is recommending a final dividend of 5.3p per ordinary share (2004:4.80p). Taken with the interim dividend of 2.40p (2004: 2.20p) paid in the yearthis gives a total dividend of 7.70p (2004: 7.00p) representing an increase of10.0%. Subject to approval at the Annual General Meeting to be held on 11 May2006, the proposed dividend will be paid on 7 July 2006 to persons registered asholders of the Ordinary Shares at close of business on 31 March 2006. Incontinuation of recent practice, ordinary shareholders will be offered theopportunity to elect for shares in lieu of cash for the final dividend. 6. EARNINGS PER SHARE The calculation of earnings per ordinary share is based on profits of£66,235,000 (2004: £52,540,000) and on the weighted average 430,775,000 (2004:378,972,000) ordinary shares in issue during the year to 31 December 2005. The calculation of diluted earnings per ordinary share is based on the sameprofits as used in the calculation of basic earnings per ordinary share. Theweighted average number of shares of 433,419,000 (2004: 380,775,000) used in thecalculation is based on the weighted average number used in the calculation ofbasic earnings per share adjusted for the effect of options. Underlying earnings per share which is based on underlying profit (see note 2)is calculated below: 2005 2004 p pBasic earnings per share 15.4 13.9 Add back:Amortisation of intangibles acquired in a business combination 1.8 0.6Revaluation of inventory acquired in a business combination - 1.6Financial instruments 1.7 -Exceptional operating costs 1.1 1.3Underlying earnings per share 20.0 17.4 - E N D S - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
MGGT.L