5th Sep 2006 07:01
Meggitt PLC05 September 2006 For Immediate Release 5 September 2006 Meggitt PLC Please contact Terry Twigger, Chief Executive Stephen Young, Group Finance Director Meggitt PLC Tel: +44 1202 597597 Charles Ryland or Jeremy Garcia Buchanan Communications Tel: +44 20 7466 5000 5 September 2006 "Continuing strong growth" Meggitt PLC ("Meggitt" or "the Group"), the international aerospace, defence andelectronics group, today announces unaudited interim results for the six monthsended 30 June 2006. Financial highlights 2006 20051Group turnover £325.9m £296.1m +10%Profit before tax £65.4m £40.1m +63%Profit before tax - underlying2 £62.0m £55.2m +12%EPS 11.0p 6.9p +59%EPS - underlying2 10.4p 9.5p +9%Dividend 2.6p 2.4p +8% • Net borrowings reduced from £314m (at December 2005) to £280m. • Order book at July 2006 up 7% on December 2005 at constant exchange rates. Operational highlights • Civil aerospace remains strong. • Defence reported strong growth in first half. • Electronics to return to growth in the second half. • Significant investment made in the Group's manufacturing facilities. • Continuing strategy of pursuing bolt-on acquisitions. Terry Twigger, Chief Executive, commented: "Meggitt has made further good progress in the first half of 2006. Our Aerospaceand Defence businesses have again delivered strong growth and we are continuingto invest to expand their capabilities and production capacity. We haveincreased the interim dividend by 8%, and expect to make further progress in thesecond half." ________________________ 1 Restated where applicable for the effect of finalising the fair values ofprior year acquisitions (see note 6). 2 The directors consider that underlying profit and underlying EPS betterreflect the trading performance of the Group (see notes 3 and 10). RESULTS Meggitt has delivered another set of strong results, driven by continued growthin civil aviation, where turnover increased by 17%. Military turnover increasedby 7%. Sales in other markets, which account for less than 16% of the Grouptotal, declined 3% due to the expected reduction in our Electronics business.With the order book at July 2006 up 7% on December 2005 we expect to makefurther progress in the second half. The Group is well balanced between civil and military markets and also betweenoriginal equipment sales and the aftermarket. In total, civil markets accountedfor 46% of Group turnover (2005: 43%) and military markets 38% (2005: 39%). Theaftermarket in aggregate (civil plus military) accounted for 37% (2005: 40%). Group turnover in total increased by 10% to £325.9m (2005: £296.1m) andunderlying operating profit increased by 13% to £69.9m (2005: £61.8m). Interestcosts increased by £1.3m to £7.9m (2005: £6.6m) due to higher rates and pensionfinance costs, which more than offset the benefit of lower average borrowings.This left underlying profit before tax 12% up at £62.0m (2005: £55.2m). The underlying tax rate for the Group increased, as expected, to 27% (2005: 26%)and underlying earnings per share (EPS) increased by 9% to 10.4 pence (2005: 9.5pence). Underlying profit is used by the Board to measure the underlying tradingperformance of the Group and excludes certain items, as detailed in note 3.Including these items, profit before tax increased by 63% to £65.4m and EPSincreased by 59% to 11.0 pence. Cash conversion, the ratio of underlying cash flow from operations to underlyingoperating profit, was 80%. The Group is making significant investment in expanding, consolidating andrelocating manufacturing facilities in 2006, which drove capital expenditure of£18.0m in the first six months (2005: £7.7m). This investment is expected todeliver efficiencies and will increase capacity. Expenditure on research and development (excluding customer funded) alsoincreased, by 17% to £19.7m (2005: £16.8m). Net borrowings have reduced from £314m at December 2005 to £280m. Interest cover(underlying) was a very healthy 8.9 times (at December 2005: 9.1 times) and theGroup had undrawn committed bank facilities of £205m at June 2006. As a result of this strong performance the Board is increasing the interimdividend by 8% to 2.6 pence (2005: 2.4 pence). CORPORATE ACTIVITY The Group has continued its strategy of making bolt-on acquisitions whichcomplement its existing businesses. On 24 August 2006, Meggitt signed an agreement to acquire Firearms TrainingSystems Inc ("FATS") in a transaction valued at $144m, subject to regulatoryapprovals. FATS is a leading provider of simulated training solutions that improve theskills of military, law enforcement and security organisations around the world.Their highly engineered solutions provide a range of judgemental, tactical andcombined arms training which is complementary to Meggitt's live fire trainingbusinesses. FATS is headquartered in Suwanee, Georgia and had sales of $78.6mand EBIT of $8.8m (after non-recurring expenses estimated at $3.1m) in itsfiscal year to 31 March 2006. Agreement was reached on 4 August 2006 to acquire, subject to regulatoryapproval, Keith Products LP. Keith Products is a leading supplier of vapourcycle equipment for business jets and general aviation aircraft, whichcomplements our existing range of thermal management products. Considerationwill be $30m, potentially rising to $32m. In 2005 Keith Products reported salesof $11.1m and EBIT of $3.7m. On 22 August 2006 the Group completed the acquisition of Radatec Inc, for aconsideration of $2m, potentially rising to $10m if certain milestones are met.Radatec, which will be integrated into our condition monitoring business, is inthe early stages of developing microwave-based sensing, initially for turbineblade tip clearance measurement for gas turbine engines. The tip clearanceapplication is expected to produce significant fuel savings and reduction inemissions. OPERATIONAL HIGHLIGHTS AEROSPACE (76% of Group turnover) • Turnover increased 13% to £248.5m (2005: £219.2m). • Underlying operating profit increased 15% to £59.2m (2005: £51.4m). • Aerospace order book at July 2006 11% up on December 2005 at constant exchange rates. Civil aerospace sales increased by 17%, with original equipment sales growingfaster than the aftermarket. Military sales grew by 3% with a healthy increasein original equipment sales partially offset by a temporary reduction inaftermarket sales, due to the late approval of the US Department of Defense(DoD) second supplemental budget for their 2006 fiscal year. One of the Group's key strengths is in condition monitoring, where sensors andelectronics are combined to provide essential operating and maintenanceinformation, principally to users of gas turbine engines. These existingproducts allow operators to reduce significantly costs and downtime. The recentagreement entered into with AeroMechanical Services (AMS) is aimed at furtherstrengthening our product offering. Using the AMS product, aircraft owners andoperators can transmit flight and engine data in real time enabling them tocontrol costs and manage assets better, streamline logistics support, increaseefficiency and improve safety. The acquisition of Radatec, discussed above, is apotentially exciting development in sensor technology which will lead to furtherincreases in fuel efficiency and emissions. Our condition monitoring businesses again had a very strong first half.Development of the engine monitoring units for the GEnx and Trent 1000 engineson the Boeing 787 is continuing well and the engine monitoring units on bothengines for the Airbus 380 are on schedule. Recent contract wins include theadvanced vibration monitoring system for the Superjet 100 regional jet tomonitor the SaM146 engine and which complements our position on the Chineseregional jet. The Group continues to develop products for US naval vessels in support of theircondition based maintenance initiatives with pre-production optical flamecontaminant detectors for shipboard evaluation on the Rolls-Royce AllisonGTG-501K engine scheduled for delivery in the second half of the year. The first phase delivery of 330 sets of auto fault oil debris monitoring systemsto the US Army for the Apache AH-64A and AH-64D attack helicopters has beencompleted. The system will greatly improve mission effectiveness by reducing thenumber of unnecessary precautionary landings and aborted missions. Delivery of afurther 440 units is expected through the remainder of this programme. Meggittalso secured a contract to supply Hispano-Suiza with engine speed sensors forapplications including the CFM56 and GE90 engine families. The industrial turbine market is experiencing a period of rising demand whichhas created opportunities for additional condition monitoring revenues. We haveexpanded our sales network to reach more industrial end users in more marketsand recently secured orders from the Shanghai Electric Group, through theirSiemens joint venture. Meggitt's aircraft fire and smoke detection products were selected by Boeing andFederal Express. Boeing will incorporate the company's new generation smokedetection and sensor system in its new 777 cargo aircraft whilst Federal Expressawarded a contract for Meggitt's fire detection control unit as an integral partof its modification program to upgrade fire detection performance on several ofits aircraft models. These orders complement previous fire detection systemorders from Airbus for the A380 and A400M, and Embraer for the engine firedetection systems on the Phenom 100 and 300 aircraft. Another of the Group's key capabilities is thermal management and fluid control.Our heat exchanger businesses had a good first six months with Heatric inparticular benefiting from increased investment in oil and gas exploration.Other businesses have continued to secure multiple programme awards. Meggittwill supply the air/oil separator for the Trent 1000 under a contract withHamilton Sundstrand; inlet anti-ice system integration for the Embraer Phenom100 very light jet; bleed valves and air/oil separators for a variety of Pratt &Whitney turbofan and turboprop engines; environmental control system valves thatwill be used on the US Navy's new Boeing 737 multi-mission maritime aircraft(MMA) and motor operated hydraulic and environmental control system valves thatwill be installed on Boeing 757 aircraft that are being converted from passengerto cargo mode. A significant win for the Braking Systems business was the new Embraer Phenom300 light jet which is expected to enter service in 2009. The contract coversthe main and nose wheels, brakes and brake-by-wire control system, including anemergency park brake and anti-skid system and is expected to be worth $100m. EbrakeTM, the advanced electric braking technology developed by Meggitt's DunlopAerospace Braking Systems business, successfully completed its maiden flightaboard the Barracuda unmanned air vehicle technology demonstrator in April. Thissuccessful mission represents the culmination of nearly a decade of investmentby Dunlop in the development of advanced electric braking technology andassociated control systems. Designed for commercial, military, manned andunmanned flight, EbrakeTM is one of the first to have flown with an anti-skidsystem and contains features that offer aircraft constructors and operators thebenefits of reduced weight, increased reliability, enhanced ground handling andsimplified aircraft systems architecture. DEFENCE SYSTEMS (14% of Group turnover) • Turnover increased 14% to £45.0m (2005: £39.6m). • Underlying operating profit increased by £2.5m to £8.5m (2005: £6.0m). • Defence Systems' order book at July 2006 down 19% on December 2005 at constant exchange rates. Defence Systems reported strong growth in the first half with a higher mix ofproduction contracts leading to margin improvements. Turnover increased by 14%and underlying operating profit by 42%. The order book position was impacted bythe late approval of the US DoD supplemental budget on 26 June, several monthslater than anticipated, and is expected to recover in the second half. Our weapons training business maintained its strong position with a number ofsignificant wins. Following the successful demonstrations of the GT400 GlideTarget, initial orders have been received from the US, Australian and Frenchmilitary. In addition, Meggitt has been selected by Qinetiq, the UK Ministry ofDefence's preferred bidder for its Combined Aerial Targets (CATS) programme, toprovide Banshee, Voodoo and Helicopter Target Systems, with an order value ofapproximately £40m over 20 years. Meggitt continues to enhance its product and technology leadership in ammunitionhandling and environmental control systems. The Group won a further $4.8mtranche of funded development on the Future Combat Systems mounted combat systemautoloader, the production value of which is ultimately expected to be around$300m. Production orders remain strong for the AC130, Apache Combo-Pak and theStryker ammunition handling system. Development work continues on the C130avionics environmental control systems and production orders for the M1A2Thermal Management System remain healthy. ELECTRONICS (10% of Group turnover) • Turnover reduced 13% to £32.4m (2005: £37.3m). • Underlying operating profit reduced by £2.2m to £2.2m (2005: £4.4m). • Electronics' order book at July 2006 16% up on December 2005 at constant exchange rates. The decrease in turnover is principally driven by the expected reduction inmedical sales and sales to test laboratories. The reduction in medical reflectsa major destocking exercise by one customer and product recalls (unrelated toMeggitt products) at another. The net impact is that sales of these highermargin products in the first six months were low. We expect a gradual return tonormal sales levels to begin in the second half. Despite the difficult trading conditions we have continued to invest in keyareas of the business which are forecast to generate increased sales in futureyears. Significant progress has been made on our network sensing architecturefor next generation flight test and monitoring applications. This technologyallows up to 1,064 sensors to send up to 20,000 signals/second along a singlecable, replacing up to 60% of the weight of previous systems. Investment in our silicon Micro Electro-Mechanical Systems (MEMS) facility isdelivering benefits with new sensor designs including high shock sensors forweapons fusing applications, new devices for implantable medical applicationsand next generation crash and crush sensors for automotive and aerospace safetytesting. In addition our development of new high temperature sensing technologyis progressing well. We are currently increasing capacity at our Xiamen, China facility byconstructing a second factory adjacent to the existing one, in order toaccommodate further transfers of commercial product manufacture from other Groupcompanies. INVESTING FOR THE FUTURE As previously reported, 2006 is a year of significant investment in the Group'smanufacturing facilities. Two Meggitt businesses have successfully completedfactory relocations in the first six months of the year. Vibro-Meter, Inc movedto their new facility in New Hampshire, USA, and Meggitt Defence Systems Limitedcompleted the relocation of their business in Ashford, Kent. There will be further investments in the second half to ensure that ourbusinesses continue to have the best facilities and equipment. The two largestare the expansion of the Vibro-Meter condition monitoring facility inSwitzerland, which will commence later this year and be completed in 2007, andthe co-location of the three Californian Defence Systems businesses onto onesite, which is on schedule to be completed in the first quarter of next year.Capital expenditure is expected to be around £35m for 2006 which is in line withour previous estimates. OUTLOOK Meggitt has delivered a strong first half result in 2006. The order book hasincreased by 7% in the seven months to July 2006 and the outlook remainspositive. Prospects for civil aerospace are excellent, with large jet productionexpected to increase by more than 20% in 2006 and 8% in 2007, and a continuingstrong aftermarket. Although military orders have been soft in recent months dueto the timing of US budget approvals, we expect some recovery in the second halfand for military sales to continue to run ahead of last year. Our Electronicsbusiness is expected to return to growth in the second half. The impact on Meggitt of the recent weakening of the US dollar will be modestand the Group remains on track to deliver further improvements in the secondhalf of this year. The Board has increased the interim dividend by 8%, and isconfident that Meggitt will continue to trade in line with expectations. CONSOLIDATED UNAUDITED INCOME STATEMENT for the six months ended 30 June 2006 Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m Restated Restated £m £mContinuing operations Revenue 325.9 296.1 616.3 Cost of sales (177.6) (162.2) (338.8) ---------- --------- ---------- Gross profit 148.3 133.9 277.5 Net operating costs (75.0) (87.2) (176.0) ---------- --------- ---------- Operating profit* 73.3 46.7 101.5 Finance income 1.3 1.3 4.9Finance costs (9.2) (7.9) (19.2) ---------- --------- ----------Net finance costs (7.9) (6.6) (14.3) Profit before tax from continuingoperations** 65.4 40.1 87.2 Tax - UK (1.0) (0.8) (1.2)Tax - Overseas (16.7) (9.5) (20.4) ---------- --------- ----------Tax (17.7) (10.3) (21.6) ---------- --------- ----------Profit for the period from continuingoperations 47.7 29.8 65.6attributable to equity shareholders Earnings per share - basic 11.0p 6.9p 15.2pEarnings per share - diluted 10.9p 6.9p 15.1p Dividends paid to equity shareholders - - 31.0Dividends proposed to equity shareholders 11.3 10.4 33.3 * Underlying operating profit 69.9 61.8 130.6** Underlying profit before tax 62.0 55.2 116.3 CONSOLIDATED UNAUDITED BALANCE SHEET as at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 £m Restated Restated £m £mNon-current assetsGoodwill 528.9 530.6 546.9Development costs 26.4 18.3 21.7Other intangible assets 176.7 180.9 182.3Property, plant and equipment 122.0 110.2 116.9Trade and other receivables 56.1 46.8 68.0Derivative financial instruments 2.3 1.2 -Deferred tax assets 27.7 34.6 32.0Investments available for sale 1.1 1.1 1.1 --------- ---------- ---------- 941.2 923.7 968.9Current assetsInventories 150.8 116.5 134.4Trade and other receivables 158.0 127.0 138.7Derivative financial instruments 2.8 0.7 0.1Current tax recoverable 10.2 0.1 6.0Cash and cash equivalents 47.3 42.0 45.5 --------- ---------- ---------- 369.1 286.3 324.7 --------- ---------- ----------Total assets 1,310.3 1,210.0 1,293.6 --------- ---------- ---------- Current liabilitiesTrade and other payables (191.0) (141.8) (168.2)External dividend payable (23.0) (20.6) -Derivative financial instruments (1.7) (2.2) (4.5)Current tax liabilities (27.9) (19.9) (20.4)Bank and other borrowings (3.8) (2.8) (13.0)Provisions (12.5) (19.2) (18.4) --------- ---------- ---------- (259.9) (206.5) (224.5) Net current assets 109.2 79.8 100.2 Non-current liabilitiesTrade and other payables (4.7) (2.6) (4.6)Derivative financial instruments - (1.6) (1.6)Deferred tax liabilities (52.5) (49.2) (53.3)Bank and other borrowings (323.6) (346.4) (346.8)Provisions (56.7) (41.8) (67.9)Retirement benefit obligations (90.4) (87.9) (98.2) --------- ---------- ---------- (527.9) (529.5) (572.4) Total liabilities (787.8) (736.0) (796.9) --------- ---------- ----------Net assets 522.5 474.0 496.7 --------- ---------- ---------- EquityShare capital 21.7 21.6 21.7Share premium 351.4 344.2 350.2Other reserves 14.1 14.1 14.1Hedging and translation reserve (5.8) (0.8) (1.1)Retained earnings 141.1 94.9 111.8 --------- ---------- ----------Capital and reserves attributable to equityshareholders of the Company 522.5 474.0 496.7 --------- ---------- ---------- CONSOLIDATED UNAUDITED CASH FLOW STATEMENT for the six months ended 30 June 2006 Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Cash inflow from operations before 56.0 52.3 132.8exceptional operating costsCash outflow from exceptional operatingcosts (0.9) (4.9) (5.5) --------- --------- ----------Cash inflow from operations 55.1 47.4 127.3Interest received 0.5 0.7 1.4Interest paid (8.3) (6.8) (14.9)Debt issue costs (0.3) (0.3)Taxation (12.8) (10.2) (21.2) --------- --------- ----------Cash inflow from operating activities 34.5 30.8 92.3 --------- --------- ---------- Purchase of subsidiary undertakings 15.8 0.5Net cash acquired with subsidiaries 0.9Capitalised internal development costs (6.2) (4.3) (8.0)Purchase of other intangible assets (2.3) (1.8) (3.5)Purchase of property, plant and equipment (15.7) (5.9) (16.2)Proceeds from disposal of property, plantand equipment 3.5 0.3 0.5 --------- --------- ----------Cash (outflow)/inflow from investingactivities (20.7) 4.1 (25.8) --------- --------- ---------- Dividends paid to Company's shareholders (26.0)Issue of equity share capital 1.1 1.7 2.8Proceeds from borrowings 4.3 56.3 81.2Repayments of borrowings (16.2) (94.2) (124.6) --------- --------- ----------Cash outflow from financing activities (10.8) (36.2) (66.6) ========= ========= ========== Net increase/(decrease) in cash and cashequivalents 3.0 (1.3) (0.1)Cash and cash equivalents at start of 45.5 42.3 42.3periodExchange (losses)/gains on cash and cashequivalents (1.2) 1.0 3.3 --------- --------- ----------Cash and cash equivalents at end of period 47.3 42.0 45.5 ========= ========= ========== CONSOLIDATED UNAUDITED STATEMENT OF RECOGNISED INCOME AND EXPENSE for the six months ended 30 June 2006 Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m Restated Restated £m £m Currency translation differences (4.7) 4.7 4.5Actuarial gains/(losses) 3.8 (8.7) (16.4) --------- --------- ----------Net expense recognised directly in equity (0.9) (4.0) (11.9)Profit for the period 47.7 29.8 65.6 --------- --------- ----------Total recognised income and expense for theperiod 46.8 25.8 53.7 ========= ========= ========== NOTES TO THE FINANCIAL STATEMENTS For the six months ended 30 June 2006 1. General information The information presented in this document has not been audited or reviewed anddoes not constitute Group statutory accounts as defined in section 240 of theCompanies Act 1985. A copy of the statutory accounts for the year ended31 December 2005 has been delivered to the Registrar. The auditors' report onthose accounts was unqualified. 2. Basis of preparation The financial statements have been prepared in accordance with those parts ofthe Companies Act 1985 applicable to companies reporting under IFRS. Thefinancial statements have been prepared under the historical cost convention asmodified by the revaluation of investments available for sale and financialassets and liabilities at fair value. The financial statements have beenprepared in accordance with the accounting policies used in the preparation ofthe statutory accounts for the year ended 31 December 2005. These policies arecurrently expected to be used in the preparation of statutory accounts for theyear ended 31 December 2006. 3. 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. Thederivation of these "underlying" profit measures are shown below: Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m Restated Restated £m £m a) Operating profit 73.3 46.7 101.5 Exceptional operating costs (note 5) - 1.8 7.0Amortisation of intangibles acquired inbusiness combinations 5.4 5.6 11.1Revaluations of inventory acquired inbusiness combinations 0.1 0.2 0.9Financial instruments (note 7) (8.9) 7.5 10.1 --------- --------- ---------Adjustments to operating profit (3.4) 15.1 29.1 --------- --------- ---------Underlying operating profit 69.9 61.8 130.6 ========= ========= ========= b) Profit before tax 65.4 40.1 87.2Adjustments to operating profit per above (3.4) 15.1 29.1 --------- --------- ---------Underlying profit before tax 62.0 55.2 116.3 ========= ========= ========= c) Profit for the period 47.7 29.8 65.6Adjustments to operating profit per above (3.4) 15.1 29.1Tax effect of adjustments to operatingprofit 1.0 (4.0) (8.6) --------- --------- ---------Underlying profit for the period 45.3 40.9 86.1 ========= ========= ========= 4. Segmental analysis The Group's primary segments are its business segments. Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m Restated Restated £m £m RevenueAerospace 248.5 219.2 458.6Defence Systems 45.0 39.6 86.0Electronics 32.4 37.3 71.7 --------- --------- --------- 325.9 296.1 616.3 ========= ========= ========= Underlying operating profit *Aerospace 59.2 51.4 107.2Defence Systems 8.5 6.0 14.7Electronics 2.2 4.4 8.7 --------- --------- --------- 69.9 61.8 130.6 ========= ========= ========= Operating profitAerospace 62.1 37.6 80.1Defence Systems 8.4 5.9 14.4Electronics 2.8 3.2 7.0 --------- --------- --------- 73.3 46.7 101.5 ========= ========= ========= * See note 3. 5. Exceptional operating costs The exceptional charge in the first half of 2005 of £1.8m related to DunlopAerospace reorganisation costs and the consolidation of Meggitt's polymersmanufacturing operations into Dunlop facilities in the Midlands. Cash expenditure in the period amounted to £0.9m (2005: £4.9m) of which £0.8m(2005: £Nil) related to the requirement to move the Avica facility in HemelHempstead following the explosion at the Buncefield Fuel Distribution Depot,£0.1m (2005: £4.0m) related to Dunlop Aerospace reorganisation costs and theconsolidation of Meggitt's polymers manufacturing operations into Dunlopfacilities in the Midlands, and £Nil (2005: £0.9m) related to the closure of theGroup's manufacturing facilities in the US Virgin Islands and the relocation ofproduction to a new facility in China. 6. Acquisitions and restatement of prior periods IFRS requires fair values to be finalised within 12 months of the acquisitiondate. All fair value adjustments are required to be recorded with effect fromthe date of acquisition and consequently result in the restatement of previouslyreported financial results. In 2005 the Group finalised the fair values for three acquisitions completed in2004 and this resulted in adjustments to the profit for the 6 months ended 30June 2005 and to the balance sheet at that date. These fair value adjustmentshad already been reflected in the accounts for the year ended 31 December 2005as previously reported. 6. Acquisitions and restatement of prior periods (continued) During 2006 the Group finalised the fair values for three acquisitions completedin the second half of 2005 and this resulted in adjustments to the profit forthe year ended 31 December 2005 and to the balance sheet at that date. The impact of the adjustments is shown below: Six months Year ended ended 30 June 31 December 2005 2005 £m £m Profit for the period as previously reported 30.3 66.2Amortisation of intangibles acquired in businesscombinations (0.7) (0.3)Revaluations of inventory acquired in businesscombinations (0.2) (0.7)Tax effect of adjustments above 0.4 0.4 --------- ----------Profit for the period as restated 29.8 65.6 ========= ========== 30 June 31 December 2005 2005 £m £m Goodwill as previously reported 537.3 551.4Intangibles acquired in business combinations (7.9) (5.0)Revaluations of inventory acquired in businesscombinations (0.2) (0.8)Tax effect of adjustments above 2.0 1.8Other (0.6) (0.5) --------- ----------Goodwill as restated 530.6 546.9 ========= ========== 7. Financial instruments Movements in the income statement in respect of financial instruments areanalysed below: Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m £m £mMovement in the period in the fair value offoreign currency forward contracts 10.6 (8.0) (11.1)Impact of retranslating net foreigncurrency (1.4) 0.5 1.0assets and liabilities at spot rateDifference between the fair value ofinterest rate swaps and associated fixedrate borrowings (0.3) - - --------- --------- ----------Gain/(Loss) 8.9 (7.5) (10.1) ========= ========= ========== 8. Dividends The Directors have declared an interim net dividend of 2.60p per ordinary share(2005: 2.40p) which will be paid on 1 December 2006 to shareholders on theregister on 13 October 2006. A scrip dividend will be available for shareholderswho wish to take the dividend in the form of shares rather than cash. As thedividend was approved by the Directors after 30 June 2006 the dividend cost of£11.3m (2005: £10.4m) is not recorded as a liability at 30 June 2006. 9. Taxation The tax charge for the period has been based on the expected tax rate for theyear on the Group's profit before tax. 10. Earnings per share The calculation of earnings per ordinary share is based on profits of £47.7m(2005: £29.8m) and on the weighted average 433.8m (2005: 429.9m) ordinary sharesin issue during the six months to 30 June 2006. 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 437.2m (2005: 432.2m) 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 is based on underlying profit (see note 3) and iscalculated below: 2006 2005 Pence Restated Pence Basic earnings per share 11.0 6.9Add back exceptional operating costs - 0.3Add back amortisation of IFRS 3 intangibles 0.9 0.9Add back effect of financial instruments (1.5) 1.4 --------- ----------Underlying earnings per share 10.4 9.5 ========= ========== 11. Cash inflow from operations Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m Restated Restated £m £m Profit for the period 47.7 29.8 65.6Adjustments for:Tax 17.7 10.3 21.6Depreciation and amortisation 15.5 14.6 29.1Profit on disposal of property, plant &equipment (1.8) (0.1) (0.2)Net finance costs 7.9 6.6 14.3Financial instruments (8.9) 7.5 10.1Changes in working capital (23.0) (21.3) (13.2) --------- --------- ----------Cash inflow from operations 55.1 47.4 127.3 ========= ========= ========== 12. Reconciliation of net cash flow to movement in net debt Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Movement in the period in:Cash and bank overdrafts 3.0 (1.3) (0.1)Bank and other borrowings 11.9 37.9 43.4 --------- --------- ----------Change in net debt resulting from cash 14.9 36.6 43.3flows On acquisition of businesses (1.5)Other non-cash movements 0.4 0.8 (1.2)Exchange differences 18.9 (15.2) (25.5) --------- --------- ----------Movement in net debt in the period 34.2 22.2 15.1 Net debt at 1 January (314.3) (329.4) (329.4) --------- --------- ----------Net debt at end of period (280.1) (307.2) (314.3) ========= ========= ========== 13. Share capital Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 No. m No. m No. m Number of shares outstanding at start ofperiod 433.2 429.6 429.6Issued on exercise of executive shareoptions 0.5 1.2 1.8Issued on exercise of SAYE share options 0.3 0.1Scrip dividend 1.7 --------- --------- ----------Number of shares outstanding at end ofperiod 434.0 430.8 433.2 ========= ========= ========== 14. Summary of movements in equity Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Restated Restated £m £m £m At 1 January 496.7 462.4 462.4Total recognised income and expense for theperiod 46.8 25.8 53.7Employee share schemes:Value of services provided 0.8 0.8Proceeds from shares issued 1.2 1.7 2.7Dividends (23.0) (20.6) (26.0)Adoption of IAS32 and IAS39 3.9 3.9 --------- --------- ----------At end of period 522.5 474.0 496.7 ========= ========= ========== 15. Retirement benefit obligations 30 June 30 June 31 December 2006 2005 2005 £m £m £m Fair value of schemes' assets 347.7 318.0 349.1Fair value of schemes' liabilities (438.1) (405.9) (447.3)Retirement benefit obligations (90.4) (87.9) (98.2) Principal financial assumptions:Discount rate - UK schemes 5.25% 5.00% 4.85%Discount rate - US schemes 6.25% 5.25% 5.50% Inflation rate - UK schemes 2.85% 2.75% 2.60%Inflation rate - US schemes N/A N/A N/A The other assumptions at 30 June 2006 are consistent with those used at31December 2005. 16. Approval of interim financial statements These interim financial statements were approved by the Board of Directors on 4September 2006. 17. Availability of interim financial statements A copy of the interim financial statements will be sent to all shareholders andwill be available to the public at the Company's registered office at AtlanticHouse, Aviation Park West, Bournemouth International Airport, Christchurch,Dorset, BH23 6EW from 29 September 2006. 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