19th Mar 2007 07:04
Laird Group PLC19 March 2007 The Laird Group PLC ("Laird") announces record profits for 2006, the proposed divestment of its Security Systems Division for £242.5 million to create a focused electronics and technology company, and a proposed return of cash to shareholders of £100 million Audited Results for the year ended 31 December 2006 2006 2005 £m £m Revenue - Continuing operations 608.3 490.3 + 24%- Discontinued operations - 18.4 --------------------- 608.3 508.7 +20% Underlying profit before tax (i) 73.3 55.1 + 33%Profit before tax from continuing 66.4 34.3 + 94%operations Trading cash flow 50.9 34.0 + 50%Net borrowings 109.1 148.1 Shareholders' funds 408.7 284.3 p/share* p/share* Underlying earnings (i) 31.7 27.3 + 16%Basic earnings from continuing 26.5 15.1 + 75%operations Dividend 10.3 9.56 + 8% i Laird uses underlying results as key performance indicators. Underlying profit before tax and underlying earnings per share are stated before exceptional items, the amortisation of acquired intangible assets, deferred tax 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. The narrative that follows is based on underlying operating profit, underlying profit before tax and underlying earnings per share, as the directors believe that these provide a more consistent measure of operating performance. * The average number of shares in issue was 189.2 million in 2006 and 157.9 million in 2005. The 2005 earnings and dividend per share have been adjusted for the bonus element of the 4 for 17 Rights Issue in 2006. Results Highlights • Revenue from continuing operations up 24% to £608.3 million (2005: £490.3 million). Organic revenue growth for the Group of 11%. • Underlying profit before tax up 33% to a record £73.3 million (2005: £55.1 million). • Profit before tax from continuing operations up 94% to £66.4 million (2005: £34.3 million). • Trading cash flow up 50% to £50.9 million (2005: £34.0 million). • Underlying earnings per share up 16% to 31.7 pence (2005: 27.3 pence). • Strong performance from Laird Technologies: organic revenue growth of 23% and underlying operating profit up 47% to £55.4 million. • Further good progress achieved, accelerating the momentum established in recent years. Proposed divestment of the Security Systems division • Security Systems division proposed to be sold to Lupus Capital plc ("Lupus") for an aggregate consideration of £242.5 million, of which £230.0 million is payable on completion and £12.5 million after one year on a non-contingent basis. • Circular to be posted to shareholders convening an extraordinary general meeting to seek approval for the disposal. • The Board believes that the disposal: • will crystallise the value generated by the Group's development of the Security Systems division, for a consideration which is a fair reflection of the prospects for the business; • will increase shareholder value by the re-deployment of capital into the higher growth Laird Technologies; • will establish Laird as a focused electronics and technology company, operating in specialist high growth markets with a broad range of proprietary products and strong customer relationships; • will enable Laird to continue to fund its already attractive organic growth prospects and to supplement these with complementary, value adding acquisitions. • In the year to 31 December 2006, the Security Systems division reported an underlying operating profit after central charges of £27.8 million, broadly level with that achieved in 2005, performing creditably in difficult market conditions. Gross assets of the division at 31 December 2006 were £155.8 million. Proposed return of cash to shareholders • The Board believes that it is important that Laird maintains an efficient capital structure, while also retaining sufficient financial resources to continue to fund the ongoing development of the Group. • The Board further believes that it is appropriate that shareholders participate directly in the crystallisation of value to be realised through the proposed disposal. • Accordingly, the Board is proposing that a special dividend of 50 pence per ordinary share, equivalent to approximately £100 million, be paid as soon as practicable following the completion of the disposal. • The total amount of the return of cash is equivalent to approximately 11% of the Group's market capitalisation on 16 March 2007. The Board is proposing, for consideration at the forthcoming Extraordinary General Meeting, a consolidation of the Group's Ordinary Shares on the basis of 8 new shares for 9 old ones. Peter Hill, Chief Executive of Laird, commented: "2006 was another excellent year for Laird. We delivered strong revenue growthand a record underlying pre-tax profit of £73.3 million, 33% ahead of theprevious year. At Laird Technologies, organic revenue growth was 23% and underlying operatingprofits were up nearly 50% as we continued to strengthen the division throughorganic investment and value adding acquisitions. This process has continuedinto 2007. The proposed divestment of our Security Systems division achieves two importantstrategic aims. First, it will increase shareholder value through theredeployment of capital into the higher growth Laird Technologies division, andsecond, it establishes Laird as a focused electronics and technology companyoperating in specialist, high growth markets. Our proposed return of cash allowsshareholders to participate directly in the crystallisation of the value we havecreated through our development of the Security Systems division. We are confident that Laird will make further good progress in 2007." For enquiries: The Laird Group Public Limited Company Maitland Peter Hill, Chief Executive Brian Hudspith Jonathan Silver, Finance Director Charlotte Barker Tel: 020 7468 4040 Tel: 020 7379 5151 Results for the year ended 31 December 2006, the proposed disposal of the Security Systems division, and the proposed return of cash of £100 million STRATEGY Over recent years Laird has been transformed from a diversified industrialconglomerate into a higher growth, increasingly profitable company. We haveestablished a successful strategy of focusing on high growth markets, obtaininga competitive edge through technology and customer service allied to a wellestablished, and still expanding, low cost manufacturing base in East Asia,India, Mexico and Central Europe. We operate in specialist markets that provideopportunities for growth, with a global reach that provides advantages comparedto many of our more regional or local competitors. We have expanded, and intendto continue to expand, our technology, market access, product offering andgeographic spread, both organically and through acquisitions, as lower growthbusinesses have been divested. The Laird strategy is one driven by theoverarching objective of creating and growing shareholder value. The proposeddivestment of our Security Systems division, announced today, represents afurther major step in our execution of this strategy. AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Results Overview Group revenue in 2006 was £608.3 million, up 24% on the £490.3 million ofcontinuing revenue in 2005, with organic revenue growth for the Group of 11%. Underlying profit before tax was a record £73.3 million in 2006, 33% higher thanthe £55.1 million in 2005, with the increase coming entirely from LairdTechnologies. The Group's underlying operating profit margin in the yearincreased to 13.7%, from 12.9% in 2005 as a result of organic growth, a greaterproportion of manufacturing from low cost countries and the portfoliorepositioning. Profit before tax from continuing operations after exceptional items, theamortisation of acquired intangibles, the gain or loss on disposal of businessesand the fair valuing of financial instruments, in 2006 was £66.4 million, up 94%on the £34.3 million in 2005. Underlying earnings per share in 2006 were 31.7 pence, up 16% on the 27.3 pencein 2005 (which have been restated for the bonus element of the 4 for 17 RightsIssue in the first half of 2006). There were no exceptional costs incurred in the year (2005: £15.5 million). Net borrowings at the year end were £109.1 million (2005: £148.1 million),representing 27% of shareholders' funds. Interest cover for the year was8.4 times. There was a trading cash inflow in the year of £50.9 million (2005:£34.0 million), before a net cash outflow on acquisitions and disposals in theyear of £122.1 million (2005: £29.1 million). The Rights Issue, announced on16 March 2006, raised approximately £118 million. Continuing Dividend Growth The Board's dividend policy is to increase returns to shareholders progressivelyover time, reflecting both the underlying profitability of the Group and thecash requirements of the business. The Board is recommending a final dividend of6.95 pence per share, payable to shareholders in respect of their shareholdingsrecorded on the register as at 25 May 2007, subject to approval at the 2007Annual General Meeting. This represents a total dividend for the year of10.3 pence per share, compared with 9.56 pence per share for 2005, (restated forthe bonus element of the Rights Issue), and represents an increase year-on-yearof 8%. PROPOSED DIVESTMENT OF SECURITY SYSTEMS DIVISION Background The Board continually reviews its strategy for the Group, in order to increase shareholder value. Of the Group's two market leading divisions, we have in recent years weighted our investment to the higher growth Laird Technologiesdivision, funding capacity expansion and new product development for organicgrowth, as well as acquisitions to enhance its product and technology offering.This has strengthened its market positions and broadened its geographic spread,allowing it to exploit the greater growth prospects of the market sectors inwhich it operates. In the last three years, Laird Technologies' underlying operating profit hasmore than quadrupled, accounting for almost two-thirds of the Group's underlyingoperating profit in 2006, compared with less than one-third in 2003. Over thesame period, Laird Security Systems has grown its underlying operating profit by12%, accounting for just over one-third of the Group's underlying operatingprofit in 2006 compared with 60% in 2003. In late 2006 the Board was approached by Lupus Capital plc, which has anexisting door and window seals business, to discuss the possibility of Lupusacquiring Laird Security Systems. The Board, having completed an in-depthreview, decided to enter into substantive discussions with Lupus and has nowentered into a definitive agreement for the disposal of the Security Systemsdivision to Lupus. Rationale In the last few years the Security Systems division has helped support thegrowth of Laird Technologies, which has now reached sufficient scale, breadthand profitability to stand alone. We believe that the time is now right tocrystallise the considerable value we have created by our development ofSecurity Systems, and that the consideration payable is a fair reflection ofprospects for the division. We believe that the disposal will also increaseshareholder value by enabling the re-deployment of capital into the highergrowth Technologies business, and by establishing Laird as a focused electronicsand technology company, operating in specialist high growth markets with a broadrange of proprietary products and strong customer relationships. Principal terms of the disposal The consideration payable is £242.5 million in cash on a debt free basis,comprising £230.0 million payable at completion and £12.5 million payable on thefirst anniversary of completion on a non-contingent basis. Gross assets of thebusinesses being sold are £155.8 million, and net assets £106.4 million as at 31December 2006. The disposal is conditional upon the approval of shareholders of Laird andLupus, US Hart-Scott-Rodino antitrust clearance, the admission of new ordinaryshares of Lupus to trading on AIM, and the completion of an intra-groupreorganisation by Laird. We will be posting shortly a Circular to shareholders, convening anExtraordinary General Meeting to seek approval for the disposal. PROPOSED RETURN OF CASH TO SHAREHOLDERS AND RELATED SHARE CONSOLIDATION Return of cash The Board believes that it is important that Laird maintains an efficientcapital structure, whilst also maintaining sufficient financial resources tocontinue to fund the ongoing development of the Group. The Board also believesthat it is appropriate that shareholders participate directly in thecrystallisation of value to be realised through the disposal of the SecuritySystems division. Accordingly, the Board proposes to return cash to shareholdersby way of a special dividend of 50 pence per ordinary share, equivalent to areturn of approximately £100 million. The return of cash is expected to takeplace as soon as practicable following completion of the disposal. Financial effects of the disposal and use of proceeds The net cash proceeds will be used initially to fund the special dividenddescribed above and one-off contributions of approximately £14 million into theGroup's UK defined benefit pension schemes to eliminate scheme deficits. Thebalance will be used to pay down Group borrowings, and in the future to fundcontinuing investment for organic growth and further acquisitions by LairdTechnologies in the pursuit of its strategy. The Group's net debt at 31 December 2006 was £109.1 million. Pro forma net debt,after the initial payment on completion of the disposal, the return of cash, theone-off pension contributions, and the expenditure of approximately £82 millionon the three acquisitions which have been made since the year end, would havebeen approximately £82 million. Share consolidation The total amount of the return of cash is equivalent to approximately 11% of themarket capitalisation of Laird at the close of business on 16 March 2007. Theeffect of the share consolidation will be to reduce the number of ordinaryshares in issue by approximately the same percentage. The purpose of the shareconsolidation is, inter alia, to ensure that (subject to normal marketmovements) the market price of each new ordinary share is approximately the sameas the market price of each existing ordinary share, thereby allowingcomparability in earnings per share and share prices with prior financialperiods. DIVISIONAL RESULTS Laird Technologies 2006 2005 Year ended 31 December £m £m Growth Revenue 370.6 259.4 43% -------------------------------Underlying operating profit* 55.4 37.7 47% *Before exceptional items and amortisation of acquired intangibles Strategic Development Laird Technologies is a leader in the design and supply of customisedperformance critical products for wireless and other advanced electronicsapplications. From its origins as a supplier of electromagnetic interference("EMI") shielding products, in which field it grew to become the global marketleader, Laird Technologies has been developed into a broad based businessoperating in specialist high growth markets, with an extensive range ofproprietary and complementary products. As well as being the global market leader in EMI shielding, Laird Technologiesis now also the global leader in cellular antennae, and holds strong positionsin a wide range of other markets, including mobile and infrastructure wirelessantennae, thermal interface materials and thermoelectric coolers, mechanicalactuation devices, power products, signal integrity components and completeradio modules and systems. Laird Technologies supplies components and systems to the global electronicsindustries, including cellular handsets, telecommunications infrastructure,voice and data communications, asset tracking, satellite radio and informationtechnology sectors, and also supplies the automotive, aerospace and defence,consumer electronics, medical and industrial markets. Laird Technologies nowemploys 9,000 people in 35 facilities in 14 countries, including over400 engineers and technologists. It has 390 patents issued with a further340 pending. Strong growth in revenues and profits In markets that remained buoyant in 2006, Laird Technologies benefitedparticularly from the strong demand for its EMI shielding and antennae productsfor the cellular handset market, as well as for its products sold into thetelecommunications infrastructure, wireless antennae, notebook PC and plasmadisplay panel markets. Revenue grew by some 43% in the year to £370.6 million, compared with£259.4 million in 2005, driven by a combination of organic revenue growth of 23%together with the effects of the acquisitions of Antenex, RecepTec, Supercooland Steward. Underlying operating profit grew by some 47%, to £55.4 million, compared with£37.7 million in 2005, as a result of the organic revenue growth, the benefitsof acquisitions and the increased levels of production from lower costcountries. Operating margins again increased, to 15%. Underlying market growth maintained The largest market for our products in 2006 was cellular handsets, accountingfor some 47% of revenues. We supply a range of antennae and EMI shieldingproducts to the major global OEMs, including Nokia, Motorola, Sony Ericsson andLG. Our first combination products, of EMI shielding and antennae, and EMIshielding and thermal interface materials, were shipped during the year. Theworldwide cellular handset market experienced another year of strong growth,driven by emerging markets' demand, increasing functionality, and style.Industry commentators believe that global unit handset shipments increased byover 20% compared with 2005, to nearly 1 billion units. Laird Technologies saw continuing growth in the IT, telecommunicationsinfrastructure and data transfer markets during the year, to Cisco and Huawei inparticular, benefiting the sales of our EMI shielding, thermal interface andwireless antennae products. Our sales into the server and networking equipmentmarkets remained buoyant, as well as into the notebook PC market where globalunit shipments were estimated by industry commentators to be up some 25%compared with 2005. These markets accounted for some 23% of 2006 revenues. Demand for our products, particularly satellite radio antennae from the majorOEM automotive manufacturers, grew in 2006, with new programmes also beingawarded. We continue to develop new products, are devoting greater effort to thesatellite radio consumer electronics market, and are starting to benefit from anew focus on intelligent transportation systems. This segment accounted for some11% of 2006 revenues. In our other markets (including industrial, services, military and security,consumer and medical), we were successful in obtaining design wins into plasmadisplay panels for Samsung, Panasonic and Hitachi, for manufacture in our plantsin China, Central Europe and North America. Thermoelectric cooler sales, intothe industrial, aerospace and medical markets, grew strongly, as did sales ofour wide range of communications antennae into the security, industrial, andvoice and data transfer markets. Laird Technologies' percentage of total revenue from its top five customers was53%. Benefits of strategic acquisitions Laird Technologies made four acquisitions in 2006. In March we acquired US-basedAntenex, Inc., a leading rapid response supplier of wireless communicationsantennae for a variety of voice and data transmission applications, for£9.7 million. In March we also acquired RecepTec LLC for £54.7 million. RecepTec is a leaderin the design, testing and supply of satellite digital radio, global positioningsystem and other specialist communications antennae to the North American andEuropean automotive markets. With its wide range of other vehicular antennaeproducts including FM/AM and Digital Audio Radio, Bluetooth and cellular,RecepTec has broadened Laird Technologies' antennae portfolio for telematicsapplications. In December, we acquired Steward, Inc. for £26.8 million. Steward, which hasmanufacturing facilities in Hermosillo, Mexico and Shunde, China, is aninternational leader in the field of ferrite-based products designed to ensuresignal integrity in electronic cable and board level applications, and will formthe nucleus of our focus on the Signal Integrity Products market. We also acquired Coolab AB in December for £8.9 million. Coolab, which tradesunder the Supercool brand, is a leading designer, manufacturer and supplier ofthermoelectric modules and cooling systems for a wide variety of end usemarkets. From its operations in Sweden and California, USA, Supercool providesadditional technology, market access and resources with which Laird Technologieswill develop the next generation of thermal management products and solutionsrequired by customers. We have continued to invest in Laird Technologies through acquisitions in 2007.In January we acquired AeroComm, Inc. for £19.1 million. AeroComm is forming thecore of Laird Technologies' focus on the high growth market in embedded wirelesscommunications solutions. AeroComm's unique and proprietary RF modules providewireless communications in applications that previously communicated by cablesand, combined with Laird Technologies' antennae, shielding and signal integrityproducts, will allow the development of a full wireless systems capability. In late February 2007 we acquired M2sys Co. Limited, for a cash consideration of£17.0 million, and Cushcraft, Inc., for £45.9 million. South Korea-based M2sysdesigns and manufactures custom products that enable mechanical actuation ofhandheld devices while maintaining electrical integrity and performance. M2sysjoins Laird Technologies' growing handheld products business and enables us tooffer integrated designs and convergence of functions and components in futureOEM electronic applications. US-based Cushcraft designs and manufactures advanced communications antennae andaccessory products to provide highly engineered customised RF solutions for OEMlight infrastructure applications in a variety of communications marketsincluding WLAN, WiMax and RFID. Cushcraft will be integrated into LairdTechnologies' Wireless Infrastructure Antennae business and will provide thecombined customer base with the broad range of products needed to transmit andreceive signals over an increasing spread of wireless protocols. 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 now also as a designand development centre. In 2006, 52% of Laird Technologies' revenue bydestination was from Asia (2005: 50%) and 61% of revenue by origin (2005: 56%).At the end of 2006, Laird Technologies had approximately 9,000 employees, ofwhom 75% were in Asia, the majority in China. In China, we opened three new plants in April: a new 35,000 square metrefacility for EMI shielding and thermal products in Shenzhen; a new 23,000 squaremetre facility in Beijing for the design, testing and production of wirelesshandset antennae, and a new expanded facility in Tianjin, to support the growthin the production of shielding products for the wireless handset market, as wellas that of thermal and electrically conductive elastomer products and materials.A new, expanded facility in Shanghai, to support the increased output of boardlevel shields for the wireless handset market, is expected to become operationalin April 2007. Elsewhere in Asia, our antennae design and assembly operations in Penang,Malaysia were relocated to larger premises in early 2007, with production ofshielding and thermal products also being added to better support our customersin that region. In 2006 we established antennae design, testing and assembly inKorea, initially serving Pantech/Curitel and LG. In Europe, our UK and French facilities have been rationalised, our plants inthe Czech Republic and Hungary reached record levels of production, and inSweden we established a multi-product design and development centre to servecellular handset customers including Nokia, Sony Ericsson and Sagem. In mid 2006 we established our first facility in Mexico, initially for antennaeassembly. We expect to relocate to larger premises in 2007 and to initiateproduction there of a number of our other product lines. In late 2006 we secured government approval for the construction of a newfacility in Chennai, India, with groundbreaking in the first quarter of 2007,and with production scheduled to commence by year end. This production capacity,together with the associated design and application engineering which will beadded, will enhance significantly our proximity and support to the increasingnumber of our key customers who are themselves establishing operations in thisfast growing electronics market. Technical development During 2006 Laird Technologies continued to expand and develop its technologycapabilities. New EMI shielding products included "EcoGreenTM", a fabric overfoam product for plasma display panels, Recyclable Clean CopperTM fingerstockproducts for use in telecommunications and data transfer equipment and high flow"MaxAirTM" shielded ventilation panels for military and telecommunicationsapplications. In antennae, new integrated antennae modules, including software controlledantennae were developed, to cope with the increasingly complex demands formultiple applications. Other new antennae products included "NanoAntTM", a verysmall directional antenna for a wide variety of wireless applications, "PhantomElite(R)" indoor and outdoor mobile antennae for use in public safety, utilityvehicle and WiFi applications, a ceramic antenna for handheld and data devicesthat come equipped with Bluetooth WLAN and GPS capabilities, and"UltrasphereTM", named "Product of the year" by Electronics Products magazine, aminiature, low profile multi-band omni-directional in-building wireless antenna. We also launched a wideband mobile antenna for use in public safety and othercommunications applications, providing US government agencies with a singleantenna with interoperability capability to exchange voice and datatransmissions across multiple frequencies in the event of an emergency. Anupdate of "MercuryTM", a GPS antenna with tri-band functionality, was alsointroduced, combining voice, data and locations communications for fleettracking, theft protection and self-diagnostic systems. The first integratedmodule combining a cellular antenna and EMI board level shield was rolled outwith Nokia, and a new antenna developed for the Microsoft Xbox gaming console. A number of new thermal interface products were also developed, includingspecialist thermally conductive greases, the "T-GardTM" high performanceinsulator, and the first board level shield with an integrated thermal interfacepad for 3G applications for Motorola. A breakthrough was achieved with thedevelopment and commercialisation of our new thermoelectric cooler embedded inDell's XPS desktop computer. Extending global leadership Laird Technologies had another very successful year in 2006. It now possesses aunique combination of products and solutions covering a wide range ofapplications. Its ability to "bundle" products and exploit their technologyconvergence both differentiates Laird Technologies from many of its competitorsand creates added value for customers. Its focus on increasing the content and"value-add" of its products, in customers' devices and applications, providesboth revenue growth for Laird Technologies and supply chain simplification forits customers. Its global footprint and its well established and still expandinglow cost manufacturing base gives Laird Technologies the ability to best serveits main global OEM customers at competitive prices. As we focus increasingly onproviding complete systems and solutions we believe that Laird Technologies iswell placed to continue to extend further its global leadership positions. Laird Security Systems 2006 2005 GrowthYear ended 31 December £m £m £m Revenue 237.7 230.9 3% ------------------------------Underlying operating profit* 27.8 28.1 (1%) *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 includes window and doorhardware, composite doors, conservatories, windows, uPVC products and weatherstripping seals. In recent years the product range has been broadened and the businessstrengthened. Laird Security Systems sources an increasing proportion of itshardware products from its well established supply base in China, both from itsown manufacturing facilities and from its partner suppliers. Benefits of broad market spread Laird Security Systems' markets were mixed in 2006. In the UK the overallhousing market improved somewhat during the second half of the year after aweaker first half, as did the renovation market, although the retail markets forour windows and conservatories remained weak. The UK social housing market,where Laird Security Systems is a major supplier of composite doors, continuedits long term growth trend. Overall, Laird Security Systems' total UK revenuesreturned to positive organic growth in the second half of 2006, compared withthe second half of 2005. In the USA, the new build residential housing market suffered its wellpublicised downturn during the year, and this accelerated in the second half. Incontrast, the replacement and renovation market showed greater stability. TotalUS revenues for Laird Security Systems, after positive organic growth in thefirst half of the year, showed a small organic decline in the second half of2006 compared with the second half of 2005. Against this backdrop, Laird Security Systems demonstrated its resilience anddelivered a very respectable performance in 2006, with revenue up 3% to£237.7 million in the year (2005: £230.9 million). Organic revenue growth wasslightly negative for Laird Security Systems as a whole, with a year-on-yearorganic decline of 4% in the UK and 3% in the USA. UK revenue from continuing businesses in 2006 was approximately £125 million. Ofthis, 34% represented window hardware, 21% composite doors, 24% door hardware,17% windows and conservatories and 3% seals. US revenue in 2006 was approximately £108 million. Of this, 53% representedwindow hardware, 15% seals, 14% door hardware and 17% uPVC extrusions. Laird Security Systems was broadly able to maintain underlying profits despiteits mixed markets and the increases in commodity prices. Underlying operatingprofits for 2006 were £27.8 million, compared with £28.1 million in 2005.Operating margin in 2006 was 12%. Commodity prices remained volatile overall. Through carefully managing therelationship between input and output pricing, Laird Security Systems was ableto contain fully the adverse effect of higher commodity prices in the year. Portfolio repositioning In March 2006 Laird Security Systems enhanced its growing position in the USbuilding products market with the acquisition of Bandlock Corporation inCalifornia for £10.4 million. Bandlock, a supplier of an extensive range of PVCextrusions, supplements Security Systems' existing extrusion business in thecentral US, while enhancing its critical mass on the West Coast. March also saw the acquisition of Balance UK, for £3.3 million. Balance suppliesa range of heavy duty window balances used in the manufacture of verticallysliding windows for a growing niche segment of the UK market. These heavy dutybalances also provide the potential for Laird Security Systems to enter thecommercial window market, and fill its remaining product gap in the US, allowingit to participate in the replacement of traditional windows with heavier,hurricane-proof ones along the eastern US seaboard. Operational and geographic development In Laird Security Systems' UK window hardware and components businesses, aheadcount reduction of 75 took place in the first half of 2006, following areduction of some 300, or 35% of the combined total, in 2005. Both of theseactions benefited the 2006 results. Emphasis has now been switched to productdevelopment and new account targeting, with benefits expected in 2007 and 2008.At Laird Lifestyle Products, manufacturing operations were consolidated further,to improve efficiencies and allow a greater emphasis on marketing and productpositioning. In the UK composite door business, the three sites resulting from acquisitionsin this sector were consolidated into two in the first quarter of 2006, with acapacity expansion at one of the two facilities being completed at the end ofthe first quarter of 2006. These actions, together with Laird Security Systems'technical capabilities and broad product range, should position the UK businessto maintain its return to growth. In the USA, the window hardware, door hardware, weather seals and uPVCextrusions businesses all had a good first half, with each product line showingorganic growth. Although the revenues from these businesses declinedyear-on-year in the second half, action was swiftly taken to protect operatingmargins, with personnel reductions of 135 or 12% of the total. The long term outlook for the US window and door market remains positive, drivenby favourable demographics, job creation and mobility, and expected sustainableeconomic growth. The replacement cycle lags considerably that of the UK,implying long term growth in that sector. Although market conditions are nowmore competitive, Laird Security Systems expects to benefit from new productintroductions, its industry leading levels of customer service, and market sharegains both directly and through the continuing consolidation of its customerbase. Sales of products manufactured in Asia by Laird Security Systems or its partnersuppliers grew by over 40% in 2006, on top of an increase of 15% in 2005. 30% ofLaird Security Systems' hardware sales in 2006 were sourced from Asia, comparedwith 22% in 2005. Its own facilities in Ningbo, China, were expanded during theyear, while sourcing from partner suppliers also grew; these suppliers areintegrated into Laird Security Systems' supply chain, which provides them withengineering expertise, specialised investment and quality control. Innovation Laird Security Systems maintained its focus on product innovation anddevelopment, and continued to develop its intellectual property portfolio. Therewere benefits in 2006 from the Springback sealing product range introducedduring 2005, innovative new window balance designs, and an increasing range ofmultipoint locks. A new door seal product has been developed for the US market,as has its first ever range of casement window hardware, a significant US marketsegment where Laird Security Systems currently has minimal sales. In the UK, thecomposite doors business will be launching a new glass-reinforced-plastic faceddoor in 2007, replacing its current product with one which has lower productioncosts but with a higher specification. Laird Security Systems continues with itsproduct innovation and new designs, both to differentiate itself from itscompetitors and to provide enhanced functionality for its customers. Laird Security Systems is targeting its product development to take advantage ofthree macro trends which it sees emerging over the next few years. The first ismore demanding construction standards in North America, to reduce hurricanedamage. The second is higher security allied to ease of use, includingelectronic access controls, which is seen to be particularly applicable asdemographic trends move towards an increasingly ageing population. The third isthe expected trend towards even greater insulation and thermal efficiency, asgovernments and consumers adjust 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 the ongoing expansion of the low costengineering and manufacturing capability in Asia. Although the year-on-yearmarket decline in 2007 in the US may not be fully offset by the betterconditions expected in the UK, within the division there is now a much broaderpresence in a range of markets, products and sales channels, which shouldprovide considerable resilience during 2007. MAINTAINING THE MOMENTUM OF THE GROUP Laird had another excellent year in 2006, again delivering good growth inrevenue and underlying profit. The strategic decisions which were made tocontinue to focus the Group, together with the investments that have been madeto strengthen and develop it and to broaden its product and market spread, haveagain allowed Laird to progress strongly. We will continue to implement thisstrategy as a focused electronics and technology company, and we are confidentthat Laird will make further good progress in 2007. N.J. Keen P.J. HillChairman Chief Executive FINANCE DIRECTOR'S REPORT Revenue Total revenue increased from £508.7 million to £608.3 million in 2006. Revenuefrom continuing operations increased by 24%. There was no revenue fromdiscontinued operations in 2006. Revenue from discontinued operations in 2005 was £18.4 million; PermacellFinesse was divested in September 2005. Organic growth from continuing operations was 11% and is measured by restating2006 revenue at 2005 exchange rates and comparing it to revenue in 2005 afterincluding revenue in 2005 for the acquired businesses in the equivalent periodnot in our ownership. On this basis, revenue from acquired businesses was £58.0million in 2006 (2005, £107.0 million). Profit before tax Profit before tax, from continuing operations, was £66.4 million (2005, £34.3million). The profit from discontinued operations was £0.5 million (2005, loss£5.1 million). Underlying profit before tax in the year was £73.3 million (2005, £55.1million). 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 financialinstruments, as set out in note 7. There were no exceptional costs in 2006 (2005, £15.5 million). Integration ofthe acquisitions completed at the end of 2006 together with those completed sofar in 2007, are likely to result in some exceptional costs in 2007. Finance costs Finance costs, excluding a fair value adjustment gain of £0.2 million (2005,loss of £1.1 million) were £9.9 million compared to the £10.5 million in 2005.Interest cover was 8.4 times, well above the minimum of 2.5 required by thelending group's principal loan agreement covenants. Taxation The underlying tax charge on underlying profit before tax is equivalent to anaverage tax rate of 18.1% and is marginally higher than the 17.3% for 2005.Profits in the USA are subject to a relatively low charge and should remain sofor many years in part due to tax deductions for amortised goodwill resultingfrom acquisitions. A growing proportion of profits are also from jurisdictionswith low tax rates or with tax incentives. An analysis of the total tax chargeis given in note 4. Underlying Earnings Underlying profit before tax was 33% up on 2005 and underlying earnings pershare were up by 16% (note 7) with more shares in issue in 2006 following the 4for 17 Rights Issue completed in April 2006. Underlying earnings are based onunderlying profit less underlying tax and exclude deferred tax on acquiredintangible assets and goodwill. Cash flow There was a healthy trading cash flow surplus of £50.9 million in the year. Analysis of cash flow £m Operating profit - continuing 83.2 - discontinued -Depreciation/asset disposal gain (£0.3 million) 12.5Other non cash (0.9) ------- 94.8Increase in working capital* (11.3)Capital expenditure less disposals (£3.4 million) (19.5)Finance costs (9.7)Taxation (3.4) -------Trading cash flow surplus 50.9Dividends (19.4)Net cost of acquisitions and disposals (122.1)Exceptional costs (0.5)Pension contributions above the normal level (2.2)Share issues 117.8Exchange translation movement 14.5 -------Reduction in net borrowings 39.0 ------- * after adjusting for outflows on exceptional items of £0.5 million in 2006. There was a rise in working capital due in part to higher levels of activity butalso due to an increasing proportion of the Group's revenues generated in Asiawhere terms of payment are longer. Capital expenditure of £22.9 million was £10.4 million in excess of depreciationlargely due to expansions in capacity to meet demand, with much of the excessoccurring in Asia, and in particular in new plants supplying products to theGroup's customers in China. Cash tax payments were lower than the tax charge due largely to tax repaymentsin respect of previous years. Trading cash flow was 61% of operating profitbefore interest and tax. Overall, there was a £39.0 million reduction in net borrowings as the tradingcash surplus together with the proceeds from the rights issue more than offsetdividend payments and the net spend on acquisitions and disposals. Netborrowings were also lower as a result of translation movements of £14.5 millionon foreign currency loans, largely due to those denominated in US dollars. Net borrowings and debt facilities Net borrowings at the end of December 2006 were £109.1 million, 26% ofshareholders' funds. Taking into account the acquisitions, net borrowings were0.9 times earnings before interest, tax, depreciation and amortisation, 25% ofthe maximum permitted of 3.5 times by the Group's principal loan covenants. In August 2006, the Group extended the term of its 5 year bilateral revolvingcredit facilities of £195 million from August 2010 to August 2011. Thesefacilities, together with the Group's US dollar private placement facilitieswhich generally expire between 2008 and 2016, provide the Group with committedfacilities totaling £291 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 not thatsignificant 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 1.85 (2005,1.82), 1.47 for the Euro (2005, 1.46) and 14.70 for the RMB (2005, 14.90).Average exchange rates in 2006 were not significantly different to 2005 so therewas little impact on profits. Although average exchange rates were little different year on year, thedifference in year end exchange rates between 2005 and 2006 for the US dollarand the RMB was more marked with the closing rate for the US dollar in 2006 at1.96 (2005, 1.72) and for the RMB 15.28 (2005, 13.85). The majority of theGroup's assets are held overseas and these are hedged in part by foreigncurrency loans. Due regard is given to the adequacy of the capitalisation levels of foreignsubsidiaries and tax considerations in order to obtain relief for interestcharges. The translation impact of exchange rate movements at the end of 2006compared with the end of 2005 reduced shareholders' funds by £30.6 million. Pensions The Group's defined benefit pension schemes' deficit has fallen from £16.4million at the beginning of the year to £10.9 million at the end of the year. £2.2 million of the increase in asset values was due to additional contributionsabove the charge to the income statement. There was a change in the assumptionsused to calculate liabilities; the bond rate used to discount liabilities wasmarginally higher at 5.1% than 4.75% in 2005 which together with changes inlegislation allowing greater tax free cash lump sums to be taken in lieu ofpension, have reduced liabilities by £6.9 million. These changes have beenoffset in part by an increase in the inflation assumption and an assumption thatmortality will improve which together add £3.7 million to liabilities. Shareholders' Funds Shareholders' funds at the 2006 year end were £408.7 million (2005, £284.3million). The principal movements were profit attributable to equityshareholders of £50.7 million (2005, £20.2 million) to which must be added anactuarial reduction in the net pension liabilities of £4.2 million the netproceeds from share issues of £118.5 million and deducted exchange losses ontranslation of overseas assets and net investment hedges of £30.6 million anddividends paid of £19.4 million. Return on Capital Employed Return on capital employed (profit before interest and tax over shareholders'funds plus net borrowings) increased to 16.9% compared to 15.6% in 2005. Proposed Sale of Laird Security Systems Today the Group announced the proposed sale of Laird Security Systems for £242.5million. Laird Security Systems had revenues of £237.7 million in 2006 (2005,£230.9 million) and underlying operating profits of £27.8 million (2005, £28.1million) after an allocation of central costs of £3.8 million (2005, £3.6million). Laird Security Systems' net assets at the end of 2006 were £106.4million. On completion, the net gain on sale is estimated at £110.0 million. Taking into account the initial proceeds from the sale, the transaction costs,the proposed special dividend of approximately £100 million, the expenditure onacquisitions since the end of 2006 of £82 million and one off contributions tothe UK defined benefit schemes of approximately £14 million, pro-forma net borrowings are estimated at £82 million. Group income statementfor the year to 31 December 2006 2006 2005 £m £mNote Continuing operations Revenue 608.3 490.3 Operating profit before amortisation of 83.2 65.8 acquired intangible assets and exceptional items Amortisation of acquired intangible assets (7.1) (4.4) Exceptional items - (15.5) -------------------3 Operating profit 76.1 45.9 Finance revenue 2.1 0.8 Finance costs (12.5) (11.2) Financial instruments - fair value 0.2 (1.1) adjustment Other net finance revenue / (costs) - pension 0.5 (0.1) ------------------- Profit before tax from continuing operations 66.4 34.34 Taxation (16.2) (9.0) ------------------- Profit for the year from continuing operations 50.2 25.3 Discontinued operations 5 Profit / (loss) for the year from discontinued 0.5 (5.1) operations ------------------- Profit for the year 50.7 20.2 ------------------- Earnings per share 6 Basic from continuing operations 26.5p 15.1p6 Diluted from continuing operations 26.3p 14.9p Basic on profit for the year 26.8p 12.1p Diluted on profit for the year 26.6p 11.9p Total revenue Revenue (from continuing and discontinued 608.3 508.7 operations) 7 Underlying results* Profit before tax 73.3 55.1 Earnings per share Basic 31.7p 27.3p Diluted 31.5p 27.0p 8 Dividends declared Dividends 20.4 15.6 Dividend per share 10.3p 9.56p *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 2006 2006 2005Note £m £m Profit for the year 50.7 20.2 Actuarial gains / (losses) on retirement benefit 4.2 (7.9) obligations Deferred tax on actuarial gains / (losses) - (2.0) Exchange differences on retranslation of overseas net (48.4) 34.5 investments Exchange differences on net investment hedges 17.8 (12.8) Tax on exchange differences (1.1) 1.8 Financial instruments - losses on cash flow hedges (0.3) - taken to equity ---------------- Total income and expense recognised directly in equity (27.8) 13.6 ---------------- Total income and expense recognised during the year 22.9 33.8 Restatement for the effects of IAS 32 and 39 - (0.4) ---------------- Total income and expense recognised for the year 22.9 33.4 ---------------- Group balance sheetAs at 31 December 2006 2006 2005Note £m £m Assets Non-current assets Property, plant and equipment 86.6 81.6 Intangible assets 429.7 364.5 Deferred tax assets 0.1 0.3 Other non-current assets 3.5 1.3 ----------------- 519.9 447.7 ----------------- Current assets Inventories 69.6 59.5 Trade and other receivables 123.5 97.0 Income tax receivable 0.7 0.3 Cash 44.0 23.9 ----------------- 237.8 180.7 ----------------- Liabilities Current liabilities Borrowings (4.9) (6.7) Derivative financial instruments (0.3) - Trade and other payables (108.2) (95.9) Current tax liabilities (2.5) (3.7) Provisions (0.9) - ----------------- (116.8) (106.3) ----------------- Net current assets 121.0 74.4 ----------------- Non-current liabilities Borrowings (148.2) (165.3) Derivative financial instruments (1.2) (1.4) Income tax payable (22.7) (15.7) Deferred tax liabilities (33.7) (23.1)12 Retirement benefit obligations (10.9) (16.4) Other non-current liabilities (5.9) (1.4) Provisions (9.6) (14.5) ----------------- (232.2) (237.8) ----------------- Net assets 408.7 284.3 ----------------- Capital and reserves 9 Equity share capital 49.5 40.09 Share premium 266.0 155.59 Retained earnings 154.9 119.99 Translation reserve (59.0) (28.4)9 Treasury shares (2.7) (2.7) ----------------- Total shareholders' equity 408.7 284.3 ----------------- Group cash flow statementfor the year to 31 December 2006 2006 2005Note £m £m 10 Cash flows from operating activities Cash generated from operations 80.8 53.0 Tax paid (3.4) (2.2) --------------- Net cash flows from operating activities 77.4 50.8 --------------- Cash flow from investing activities Interest received 2.1 0.810 Acquisition of businesses (net of cash acquired) (102.0) (35.7) Purchase of property, plant and equipment (22.9) (17.1)10 (Outflow) / inflow from sale of businesses (8.5) 6.9 Proceeds from sales of property, plant and equipment 3.4 - --------------- Net cash flows from investing activities (127.9) (45.1) --------------- Cash flows from financing activities Interest paid (11.8) (11.1) Net proceeds from issue of ordinary share capital 118.5 3.5 Movement in treasury shares (0.7) 0.1 (Decrease) / increase in borrowings (11.4) 16.0 Dividends paid to shareholders (19.4) (14.9) --------------- Net cash flows from financing activities 75.2 (6.4) --------------- Effects of movements in foreign exchange rates (2.4) 1.8 --------------- Increase in cash and cash equivalents for the year 22.3 1.1 10 Cash and cash equivalents at 1 January 21.7 20.6 ---------------10 Cash and cash equivalents at 31 December 44.0 21.7 --------------- Notes to the financial statementsfor the year ended 31 December 2006 1 Segmental analysis Primary reporting format - business segments Laird Laird Total Technologies Security Systems 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £mContinuing operations Revenue 370.6 259.4 237.7 230.9 608.3 490.3 ------------------------------------------ Segment result before: 55.4 37.7 27.8 28.1 83.2 65.8 Amortisation of acquired (6.1) (4.4) (1.0) - (7.1) (4.4)intangible assets Exceptional items - (5.9) - (9.6) - (15.5) ------------------------------------------ 49.3 27.4 26.8 18.5 76.1 45.9 ---------------------------- Finance revenue 2.1 0.8 Fair value adjustment on 0.2 (1.1)interest rate swap Finance costs (12.5) 11.2)Other finance revenue / (costs) 0.5 (0.1)- pension --------------Profit before tax 66.4 34.3 Taxation (16.2) (9.0) --------------Profit for the year from 50.2 25.3continuing operations -------------- Discontinued operations Revenue - - - 18.4 - 18.4 ------------------------------------------Segment result - - - (0.2) - (0.2)Loss on disposal - - - (7.8) - (7.8) ------------------------------------------Loss before tax - - - (8.0) - (8.0)Taxation - - - 2.9 - 2.9 ------------------------------------------Loss for the year from - - - (5.1) - (5.1)discontinued operations ----------------------------Loss before tax on prior year (2.1) - disposal * Taxation * 2.6 - -------------- 0.5 (5.1) --------------Profit for the year 50.7 20.2 -------------- * These relate to other business segments disposed of in years prior to 2006. Segment assets 588.9 488.8 164.5 139.1 753.4 627.9 Unallocated assets - - - - 4.3 0.5 ------------------------------------------Total assets 588.9 488.8 164.5 139.1 757.7 628.4 ------------------------------------------Segment liabilities 79.3 60.0 33.9 37.9 113.2 97.9 Unallocated liabilities - borrowings - - - - 153.1 172.0 - other - - - - 82.7 74.2 ------------------------------------------Total liabilities 120.4 60.0 33.9 37.9 349.0 344.1 ------------------------------------------ Other segment items Capital expenditure 20.7 14.8 6.3 5.6 27.0 20.4Acquisition of assets 102.3 23.7 13.4 8.3 115.7 32.0 ------------------------------------------Total additions 123.0 38.5 19.7 13.9 142.7 52.4 ------------------------------------------Depreciation 8.0 7.0 5.3 5.8 13.3 12.8 ------------------------------------------Amortisation of intangible assets 7.0 4.4 1.0 0.2 8.0 4.6 ------------------------------------------ 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 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £mContinuing operations United Kingdom 131.4 144.6 97.7 97.7 6.6 8.3Continental Europe 75.8 59.3 95.3 57.8 20.5 1.9 North America 212.4 175.9 416.7 394.2 99.8 21.5 Asia 179.5 99.5 143.7 78.2 15.8 20.5 Rest of World 9.2 11.0 - - - - ----------------------------------------------------- 608.3 490.3 753.4 627.9 142.7 52.2 Discontinued operations United Kingdom - 17.6 - - - 0.1 Continental Europe - 0.8 - - - - - 18.4 - - - 0.1 -----------------------------------------------------Total continuing and 608.3 508.7 753.4 627.9 142.7 52.3 discontinued Unallocated - - 4.3 0.5 - 0.1 ----------------------------------------------------- 608.3 508.7 757.7 628.4 142.7 52.4 ----------------------------------------------------- 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 2006 2005 2006 2005 Euros 1.47 1.46 1.48 1.45 US dollars 1.85 1.82 1.96 1.72 Renminbi 14.70 14.90 15.28 13.85 3 Operating profit before finance costs and tax 2006 2005 2005 Continuing Continuing Discontinued operations operations operations £m £m £m Profit for the year is stated after charging the following items: Staff costs 117.0 126.1 3.5 Cost of inventories recognised as an expense (included in cost of sales) 370.0 289.4 11.1 Exceptional items - 15.5 - Research and development expenditure Incurred 20.9 16.0 - Capitalised (3.8) (2.6) - Depreciation and amortisation Property, plant and equipment 13.3 12.0 0.8 Intangible assets 8.0 4.6 - Operating lease rentals Hire of plant and machinery 1.6 2.5 - Other 8.0 5.5 - Auditors' remuneration * Audit fees - Group accounts 0.2 0.2 - - Local statutory audit 0.8 0.7 - Tax fees - Compliance services 0.5 0.5 - - Planning services 0.6 0.6 - Transaction support services - - - Other services - 0.2 - * In addition, fees of £1.0m (2005, £0.8m) for services largely in respect ofacquisitions, disposals and the Rights Issue were paid to the auditors but notcharged against operating profit. Total fees paid to the auditors were £3.1m(2005, £3.0m). 4 Taxation (a) The tax charge in the income statement is disclosed as follows: 2006 2005 £m £m Tax charge on continuing operations 16.2 9.0Tax credit on discontinued operations (2.6) (2.9) ---------------- 13.6 6.1 ---------------- (b) 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% (2005, 30%). The differencesare reconciled below: 2006 2005 £m £m Profit before tax from continuing operations 66.4 34.3Loss before tax from discontinued operations (2.1) (8.0) -----------------Profit before tax 64.3 26.3 -----------------Profit before tax multiplied by the standard 19.3 7.9rate of corporation tax in the UK of 30% (2005, 30%)Effects of: Expenses not deductible for tax purposes 4.6 2.6Regional tax incentives (9.7) (6.1)Overseas tax rate differences 2.4 2.6Adjustments in respect of prior years (4.8) (2.8)Unrelieved tax losses 1.8 1.5Other - 0.4 -----------------Total tax expense reported in the income 13.6 6.1statement ----------------- 5 Discontinued operations 2006 2005 £m £mResults from discontinued operations: Revenue - 18.4 ------------------Operating loss - (0.2)Taxation - - ------------------Loss after tax from discontinued operations - (0.2) Profit / (loss) on disposal of businesses: Loss on current year disposals - (7.6)Loss on prior year disposals (2.1) (0.2)Taxation 2.6 2.9 ------------------Profit / (loss) after tax on disposals 0.5 (4.9) ------------------Profit / (loss) from discontinued operations 0.5 (5.1) ------------------ 6 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. 2006 2005 £m £mProfit Profit after tax from continuing operations 50.2 25.3Profit / (loss) from discontinued operations 0.5 (5.1) ---------------------Profit for the year 50.7 20.2 --------------------- Number of Number of shares shares (restated) (m) (m) Weighted average shares Basic weighted average shares 189.2 167.5Options 1.5 1.5Contingent shares - 0.3 ----------------------Diluted weighted average shares 190.7 169.3 ---------------------- Pence PenceEarnings per share Basic from continuing operations 26.5 15.1 ----------------------Diluted from continuing operations 26.3 14.9 ----------------------Basic on profit for the year 26.8 12.1 ----------------------Diluted on profit for the year 26.6 11.9 ---------------------- Comparative figures for weighted average number of shares and earnings per sharehave been restated after adjusting for the bonus element of the 4 for 17 RightsIssue in March 2006. The adjustment factor is 0.9429 calculated using 464p pershare, being the closing price on 16 March 2006. 7 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 theyear is equivalent to 18.1% (2005, 17.3%) of underlying profit before tax. 2006 2005 £m £m Profit for the year 50.7 20.2Loss before tax on discontinued operations 2.1 7.8Taxation from discontinued operations (2.6) (2.9)Taxation from continuing operations 16.2 9.0Financial instruments - fair value adjustment (0.2) 1.1Exceptional items 15.5Amortisation of acquired intangible assets 7.1 4.4 ---------------------Underlying profit before tax 73.3 55.1Underlying tax charge (see below) (13.3) (9.5) ---------------------Underlying earnings 60.0 45.6 --------------------- Underlying earnings per share basic 31.7p 27.3p ---------------------Underlying earnings per share diluted 31.5p 27.0p --------------------- The underlying tax charge is calculated as follows: Taxation from continuing operations (16.2) (9.0) ---------------------Adjustments to calculate underlying tax charge: Taxation on exceptional items - (3.6)Deferred tax on acquired goodwill and 2.9 3.1intangible assets ---------------------Underlying tax charge (13.3) (9.5) --------------------- 8 Dividends paid and proposed On 16 March 2007 the Board declared, subject to approval from shareholders, afinal dividend of 6.95p per share (2005, 6.45p). The final dividend will be paid on 22 June 2007 to shareholders registered on 25 May 2007. Dividends are recorded in the financial statements in the period in which they are declared, and approved as shown in the table below: Dividends paid Dividends declared 2006 2005 2006 2005 £m £m £m £m Final 2004 - 9.6 - -Interim 2005 - 5.3 - 5.3Final 2005 12.8 - - 10.3Interim 2006 6.6 - 6.6 -Final 2006 - - 13.8 - -------------------------------------- 19.4 14.9 20.4 15.6 -------------------------------------- Dividends paid Dividends declared 2006 2005 2006 2005 Pence Pence Pence Pence Final 2004 - 6.05 - -Interim 2005 - 3.11 - 3.11Final 2005 6.45 - - 6.45Interim 2006 3.35 - 3.35 -Final 2006 - - 6.95 - -------------------------------------- 9.80 9.56 10.30 9.56 -------------------------------------- 9 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 2005 39.5 152.2 121.1 (50.1) (2.9) 259.8Total recognised income and expnese - - 12.1 21.7 - 33.8for the year Exercise of share options 0.5 3.0 - - - 3.5Issue of shares on acquisition - 0.3 - - - 0.3of businesses Share based payments - - 1.6 - - 1.6Treasury shares - - 0.2 0.2Dividends paid - - (14.9) - - (14.9) ----------------------------------------------------At 1 January 2006 40.0 155.5 119.9 (28.4) (2.7) 284.3Total recognised income and expense - - 53.4 (30.6) - 22.9for the year Issue of shares - Rights Issue 9.4 108.2 - - - 117.6Exercise of share options 0.1 0.9 - - - 1.0Issue of shares on acquisition 0.0 1.4 - - - 1.4of businesses Share based payments - - 1.6 - - 1.6Purchase of treasury shares - - - - (0.7) (0.7)Grant of LTIPs - - (0.7) - 0.7 -Dividends paid - - (19.4) - - (19.4) ----------------------------------------------------At 31 December 2006 49.5 266.0 154.9 (59.0) (2.7) 408.7 ---------------------------------------------------- 10 Additional cash flow information Cash generation from operations Continuing operations 2006 2005 £m £m Net profit after taxation 50.2 25.3Depreciation and other non-cash items Depreciation 13.2 12.0Amortisation of capitalised development costs 1.0 0.2Exceptional fixed asset write-downs - 2.0Exceptional inventory write-downs - 2.1Exceptional loss on disposal of business - 0.7Profit on disposal of fixed assets (0.7) -Capitalised development costs (3.5) (2.6)Share based payments 1.6 1.6Amortisation of acquired intangible assets 7.1 4.4Financial instruments - fair value adjustment (0.2) 1.1Pension charges 1.0 1.3Other net finance costs 9.9 10.4Taxation 16.2 9.0Pension contributions (3.2) (7.6)Changes in working capital Inventories (6.8) (0.3)Trade and other receivables (19.4) (9.3)Trade, other payables and provisions 14.4 5.5 ----------------Cash generated from continuing operations 80.8 55.8 ---------------- Discontinued operations Net profit / (loss) after taxation 0.5 (5.1)Taxation (2.6) (2.9)Loss on disposal of businesses before taxation 2.1 7.8Depreciation - 0.8Changes in working capital - (3.4) ----------------Cash flow from discontinued operations - (2.8) ----------------Cash generated from operations 80.8 53.0 ---------------- Notes (a) The working capital movement from continuing operations in 2006 includes a£0.5m outflow in respect of exceptional items provided for in 2005. In 2005 theworking capital movement from continuing operations was reduced by provisionsfor exceptional items of £5.0m largely relating to an onerous lease provision. Net cash outflow on acquisitions and disposals 2006 2005 £m £mAcquisition of businesses Consideration: Cash consideration (97.6) (34.1)Net cash acquired 0.9 4.9 ----------------- (96.7) (29.2)Deferred consideration paid (5.3) (6.5) -----------------Net cash outflow on acquisition of businesses (102.0) (35.7) -----------------Borrowings acquired (11.6) (0.3) -----------------Disposal of businesses Consideration: Net cash consideration (8.5) 6.9Net cash disposed of - - -----------------Net cash (outflow) / inflow on disposal of (8.5) 6.9businesses ----------------- Analysis of movements in net borrowings At 1 At 31 January Cash Non-cash Exchange DecemberPeriod to 31 December 2006 2006 flow Acquisitions changes differences 2006 £m £m £m £m £m £m Cash at bank 23.9 22.5 - - (2.4) 44.0Overdrafts (2.2) 2.2 - - - -Loans due within one year (4.2) 3.0 (4.0) - 0.5 (4.7)Loans due after more (165.0) 8.1 (7.6) - 16.4 (148.1)than one year Finance leases (0.6) 0.3 - - - (0.3) ---------------------------------------------------------------Total (148.1) 36.1 (11.6) - 14.5 (109.1) --------------------------------------------------------------- At 1 At 31 January Cash Non-cash Exchange DecemberPeriod to 31 December 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 within one year (4.7) 4.0 - (3.0) (0.5) (4.2)Loans due after more (133.8) (20.3) (0.1) 3.0 (13.8) (165.0)than one year Finance leases (0.7) 0.3 (0.2) - - (0.6) ---------------------------------------------------------------Total (118.6) (16.7) (0.3) - (12.5) (148.1) --------------------------------------------------------------- 11 Post balance sheet events The following non-adjusting events occurred after the balance sheet date butbefore the financial statements were approved: On 24 January 2007 the Group acquired AeroComm for a cash consideration of£19.1m on a debt free basis. On 26 February 2007 the Group acquired M2sysCompany Limited, for a cash consideration of £17.0m on a debt free basis andCushcraft Inc., for a cash consideration of £45.9m on a debt free basis. 12 Retirement benefit obligations 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: 2006 2005 £m £m Annuities 10.3 10.2Equities 45.5 41.6Gilts and bonds 27.3 20.8Other including cash 0.1 5.6 ----------------Total market value of assets 83.2 78.2 Present value of scheme liabilities (93.2) (94.6) ----------------Funded status (10.0) (16.4) ----------------Disallowed assets (0.9) - ----------------Deficit in the schemes (10.9) (16.4) ---------------- 13 Other information The financial information for the year ended 31 December 2006 set out above hasbeen extracted from the 2006 Annual Report and Accounts which have been auditedby Ernst & Young LLP who have given an unqualified audit opinion. The Accountsfor 2006 are expected to be filed following the Company's Annual General Meetingto be held on 11 May 2007. The Company's 2006 Annual Report and Accounts,including the notice of Annual General Meeting, will be posted to shareholderson 10 April 2007. The proposed final dividend will be paid on 22 June 2007 to shareholdersregistered on 25 May 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Laird