12th Sep 2007 07:01
Melrose PLC12 September 2007 For Immediate Release 12 September 2007 MELROSE PLC UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 Melrose PLC today announces its interim results for the six month period to 30June 2007. The highlights of these results, which are reported under IFRS, are: • Revenue for the continuing group for the period was £172.9 million (2006: £161.4 million) • Headline Operating Profit for the continuing group (before exceptional costs, exceptional income and intangible asset amortisation other than computer software amortisation) for the period increased by 39% to £11.4 million (2006: £8.2 million). After these items operating profit was £11.3 million (2006: £1.8 million) • Interim dividend of 2.5p (2006: 2.25p) per share • Sale of McKechnie Aerospace division and most of PSM division for a total of £458 million - which was more than was paid for the whole Dynacast and McKechnie group • Cash in hand of over £250 million at 30 June 2007 prior to the return of capital of £220 million approved by shareholders on 14 August 2007 • Acquisition search underway Christopher Miller, Chairman of Melrose PLC, today said: "Just over two years from acquisition we have sold Aerospace and PSM fastenersfor more than we paid for the whole of Dynacast and McKechnie and returned toshareholders nearly all the original equity raised. Trading at Dynacast and therest of the remaining group is on track. We are now looking for our nextacquisition and believe that recent events in the markets are, if anything,likely to be helpful." Enquiries: Nick Fox 020 7153 1540James Hill 020 7153 1559M:Communications CHAIRMAN'S STATEMENT I am pleased to report our interim results for the six months to 30 June 2007. The figures for the continuing group exclude the profits of the divisions wehave sold, namely Aerospace OEM and Aerospace Aftermarket divisions (together"McKechnie Aerospace") and the majority of our PSM division ("PSM"). Theseresults pre-date the return of capital and share consolidation and thus excludethe effect of these events. RESULTS For the continuing group revenue in the period was £172.9 million (2006: £161.4million). Headline operating profit and earnings per share (before exceptionalcosts, exceptional income and intangible asset amortisation other than computersoftware amortisation) were £11.4 million (2006: £8.2 million) and 3.5p (2006:1.6p) respectively. After these items, operating profit was £11.3 million (2006:£1.8 million) and earnings per share were 3.8p (2006: (0.7)p). SALE OF MCKECHNIE AEROSPACE On 11 May 2007, we completed the sale of McKechnie Aerospace for £428 millionrealising a profit of nearly £200 million in two years since acquisition. Theseproceeds approximated to the price paid for the whole of the McKechnie andDynacast group. This outstanding result is testimony to the quality of thebusinesses within this division and to the swift increase in their profitabilityduring our ownership. The upturn in the Aerospace cycle is now well known, butmuch of the improvement came from our substantial capital investment, addressingoutstanding commercial issues with customers and suppliers, and operationalimprovements made by a good management team under our direction. In addition to a good return for our shareholders, as a result of this sale wehave also been able to much improve the funding of the McKechnie Pension Schemefor the benefit of its members. SALE OF PSM Having successfully completed its restructuring, on 18 May 2007 the core of thePSM division was sold for £30 million. During our ownership this divisionincreased its profitability substantially as a result of the closure of its lossmaking European operations and further investment in the profitable operationsin the Far East. RETURN OF CAPITAL Following these disposals and in line with our stated objectives, on 31 August2007 Melrose returned £220 million of capital to shareholders representing apayment equivalent to approximately 95% of the total equity raised sinceMelrose's inception (including previous dividends). We are delighted both tohave been able to return this capital and to have had the opportunity for suchan early validation of our business model. We have of course retained sufficientcash resources for the future development of the existing group. As is commonwith large returns of capital, at the same time shares in issue were reduced bymeans of a share consolidation. The effect of this is that the number ofordinary shares in issue has dropped to 133.7 million. DIVIDENDS The Board intends to continue with a progressive dividend policy and I ampleased to report that the Board has declared an interim dividend of 2.5p pershare (2006: 2.25p per share). This will be paid on 16 November 2007 to ordinaryshareholders on the register at the close of business on 19 October 2007. TRADING We are pleased that overall underlying trading remains encouraging. While thebulk of our restructuring effort is now completed, the search for furtheroperational improvements is never ending. The trading outlook is discussed inmore detail in the Chief Executive's Review. STRATEGY We are well placed to pursue a major acquisition and the search for a suitableopportunity continues. As we have said before, we will be as strict as ever inapplying our acquisition criteria. In the meantime the current uncertainty, in credit markets in particular, mayincrease our competitive advantage given Melrose's ability to raise publiccapital and our lack of need for high levels of debt to finance acquisitions. Weare encouraged by the outlook. CHIEF EXECUTIVE'S REVIEW I am pleased to set out below reports on the continuing operating divisions. DYNACAST Period Ended Period Ended £m 30 June 2007 (£m) 30 June 2006 (£m) Turnover 117.6 107.3HeadlineOperatingProfit 13.8 11.1 Dynacast is a global manufacturer of precision engineered, diecast metalcomponents and assemblies. The products are manufactured using proprietarydie-casting technology and are supplied to a wide range of end markets,including automotive, healthcare, telecommunications, consumer electronics andcomputer hardware and peripherals. Dynacast performed well in the first half of 2007. Sales and operating profitwere up by nearly 10% and 24% respectively over the corresponding period in2006. These results were achieved after suffering an exchange loss ontranslation (resulting from the strength of Sterling) of £0.4 million and anexchange loss on transactions (largely resulting from the increased strength ofthe Canadian $ versus the US $) of £0.6 million. Profitability on slightly lower sales in North America improved over the sameperiod last year, partly as a result of increased efficiency arising from theclosure of the Spartanburg factory in South Carolina and investment in Mexico.Sales and operating profit in Europe showed steady growth while in Asiacontinuing strong growth in China was partially offset by lower sales inSingapore, where a number of products reached their "end-of-life". As a result of management actions last year, Dynacast's profit is now much lessexposed to changes in the price of zinc. Although Dynacast benefits from beingable to fully recover raw material price increases for nearly all of its sales,previously there was a time lag for this recovery of, in some cases, up to threemonths, which meant that at times of major change in the price of zincDynacast's profits were significantly impacted. It is estimated that in thefirst half of 2006 Dynacast suffered an adverse impact on profit of about £2.5million. The quality of Dynacast's earnings has been much improved as a resultof these actions. Dynacast has continued to invest heavily in China with further expansion of itsoperations and now occupies more than 200,000 square feet of manufacturing spacein Shanghai. It is encouraging that a lot of the new opportunities for thisoperation are coming from the indigenous market. Having closed four factories since Dynacast was acquired in May 2005, therestructuring of its manufacturing operations is now complete. In addition to acontinuation of Dynacast's active investment programme, particularly in Asia,management are focusing on add-on acquisitions. Given the fragmented nature ofthe market Dynacast operates in, it is likely that these will be quite small. Iam pleased to report the acquisition last week of Q Zip Diecasting in Quebec,Canada for £5.9 million. Whilst nothing is certain, we are optimistic of furtherprogress on acquisitions by the year end. MOTOR VEHICLE COMPONENTS (MVC) Period Ended Period Ended £m 30 June 2007 (£m) 30 June 2006 (£m) Turnover 29.5 26.5HeadlineOperating Loss (0.2) (0.7) MVC manufactures decorated exterior trim products for the US automotiveindustry, principally coated metal and plastic wheel trims. MVC's trading performance in the first six months of 2007 shows a reasonableimprovement over the first six months of 2006 and a notable improvement over thesecond half of 2006. Although conditions in the North American automotive industry remain extremelychallenging, it is encouraging that the radical actions taken by the newmanagement team at MVC are beginning to bear fruit. In particular, managementhave been successful in contract negotiations with customers to recover aproportion of recent substantial raw material cost increases, primarily nickeland stainless steel. In addition, significant improvements have been made at theNicholasville plant in terms of scrap reduction, labour efficiency and overheadcontrol. A significant milestone in the strategic development at MVC is the new chromeplating line at Nicholasville, which is currently being commissioned. This is acritical function in the manufacturing process of highly engineered wheel cladsand positions MVC well to meet the high level of contracted orders fromcustomers for these products. In addition to enhancing MVC's competitiveadvantage, it means MVC will not be dependent on outside platers, thereby savingfreight costs and third party profit margins. Newberry continues to perform well. The transfer of a production line fromNicholasville has improved Newberry's capacity utilisation; and as the onlyproducer of metal wheel covers in North America, it is well placed in itsmarket. Although a lot of progress has been made in this business by the new managementteam, there still remains a lot to be done. We remain committed to seeingthrough the improvements to date and to further progress being made. MCKECHNIE PLASTIC COMPONENTS (MPC) Period Ended Period Ended £m 30 June 2007 (£m) 30 June 2006 (£m) Turnover 21.2 23.9HeadlineOperatingProfit 1.3 1.0 MPC is a UK producer of engineered plastic injection moulded components forproducts used in a variety of industries, including power tools, food andbeverage packaging, personal care and automotive. MPC's results for the first half of 2007 were good. As a result of the closureof the plant in Northampton and the planned exiting of lower margin business,sales were down over the corresponding period in 2006. This has resulted in aslimmed down but more profitable business. MPC will continue to focus on maximising its engineering expertise on moreautomated, highly engineered, value added products and processes. Its Stamford Bridge facility is seeing the benefit of this by developingexcellent customer partnerships with both Diageo and Scotco, securing additionalcontracts on new technology 'widgets' for beverage cans. At Pickering, its automotive plant, MPC has benefited from a robust approach torecovering increased raw material and energy costs. At the same time significantcapital investment has helped to secure contracts on technically complexplatforms for both the Ford Fiesta and the Land Rover Freelander. Management have taken the steps to create a more focused and competitivebusiness and we look forward to a solid performance for the full year. PRELOK AND CANNING BRETT (PSM Continuing) Period Ended Period Ended£m 30 June 2007 (£m) 30 June 2006 (£m) Turnover 4.6 3.7Headline Operating Profit 0.3 0.3 Following the disposal of the fastener manufacturing division of McKechnie PSMin May this year, the Thread Locking and Sealing division has been renamedPrelok. Prelok, which has operations throughout Europe, supplies a comprehensiverange of high specification pre-applied sealing and locking products forfastening solutions to the automotive and other industries. Canning Brett, whichwas also part of McKechnie PSM, manufactures engineered fasteners and componentsprimarily for the automotive industry. In view of all the corporate changes that took place in the first half of 2007,this division has produced a creditable result. OUTLOOK We are very pleased with the outcome of the Aerospace division sale. We acquiredthis business because we could see the nascent upturn in the aerospace cycle andthe opportunity to improve this division by capital investment and bettermanagement focus on some key issues. The success of the sale process clearlyshows the improvement in both the performance and quality of the division duringour ownership. Dynacast continues to benefit from strong demand in China. Having completed therestructuring of its manufacturing base, Dynacast is focusing on identifyingsmall bolt-on acquisitions and it is pleasing that the first acquisition wascompleted last week. This is very encouraging as it opens up a new avenue ofgrowth for the business. Despite the challenging conditions in the North American automotive industry,MVC's performance is beginning to improve and now that it has its own platingplant it is a stronger business. It has a largely new and much improvedmanagement team. There remain challenges ahead and further improvement isnecessary to meet our expectations. As we turn our attention to the next acquisition, we are confident about theperformance of the existing businesses and the outcome for this year. FINANCE DIRECTOR'S REVIEW CONTINUING OPERATIONS The continuing operations comprise Dynacast, McKechnie Vehicle Components (MVC),McKechnie Plastic Components (MPC) and the remaining smaller part of PSM, nowtrading as Prelok and Canning Brett. In the first six months of 2007, thesedivisions collectively achieved sales growth of 7.1% and headline operatingprofit growth of 39.0% over the corresponding period last year. This was anencouraging performance and was achieved despite an exchange loss mainly causedby the weakening US dollar of £1.1 million. Further detail on the trading resultof the Group and by division can be found in the Chief Executive's Review. Central costs are divided between the ongoing corporate costs, which are largelycash costs, and the required charge in respect of the group LTIP schemes formanagement which are non cash during the period. Both the Dynacast LTIP, whichruns until May 2009, and the Melrose share incentive scheme require a charge tobe amortised in the period up to crystallisation. EXCHANGE The group has three main exchange risks: the translation risk of foreign tradingresults into Sterling at the average exchange rate for the period; thetransaction risk of individual business units trading in a currency that isdifferent from their natural currency; and the exchange risk arising when theproceeds from disposal are received in a foreign currency. The exposure of thegroup to different currencies has altered as a consequence of the disposals. Asplit of sales by currency, and the relevant exchange rates used for thecontinuing group were as follows for the six months to June. US$ Euro Sterling Other Total--------------------------------------------------------------------------------Sales by currency 32% 30% 15% 23% 100%-------------------------------------------------------------------------------- --------------------------------------------------------------------------------Exchange rates used in the period Average Closing rate rate--------------------------------------------------------------------------------US Dollar 1.97 2.002007 June 1.84 1.962006 December 1.80 1.852006 June--------------------------------------------------------------------------------Euro 1.48 1.492007 June 1.47 1.492006 December 1.46 1.452006 June-------------------------------------------------------------------------------- This shows the exposure to the dollar and Euro within the continuing group. Asthe dollar weakened during the period the translation loss suffered in theperiod was £0.5 million compared to the same period in 2006. In addition, andlargely due to Dynacast Canada trading mainly with US based customers, atransaction exchange loss of £0.6 million was incurred in the period. It is thepolicy of the board to take out exchange instruments to try to minimise thetransaction risk, which is a cash cost, but not the translation risk which isnon cash. The board continued this policy in the six months to June 2007 toreduce the exposure. The exchange risk on the receipt of disposal proceeds in a foreign currency isprotected if considered appropriate by the board on a case by case basis. Theboard entered into a forward cover option for the majority of US $ proceeds onthe exchange of contracts in March 2007 for the McKechnie Aerospace sale whichwere not naturally hedged by US $ debt, at US dollar = 1.985. For the PSMdisposal no instrument was taken out and the proceeds were converted at spot ofUS $ = 1.980 on receipt in May 2007. FINANCE COSTS AND INCOME Part of the proceeds from the disposals in the period were used to repay debt.Melrose had £251.3 million of net cash in hand at 30 June 2007 compared to thestart of the year when it had net debt of £162.6 million. Virtually all the debtrepayment took place in May and hence the finance costs and income in the firsthalf of the year are not reflective of the continuing group. On 14 August theshareholders approved £220 million of the cash in hand to be repaid toshareholders. TAX The continuing group tax charge was 19% in the period, which includes a £0.8million exceptional credit. The underlying headline tax rate excluding thisadvantage was 26%. This is a reduction from the underlying headline 28% chargefor the group in 2006. The ongoing management of tax remains a focus and thecash tax rate at 5% in the period remains significantly below the headlineprofit and loss rate. In addition Melrose is not due to pay any tax on thedisposals of the divisions. EARNINGS PER SHARE AND NUMBER OF SHARES IN ISSUE The basic earnings per share (EPS) for the six months to June were 3.8p (2006:loss per share of 0.7p) and the headline EPS 3.5p (2006: 1.6p). These arecalculated using the continuing group results only and ignore both the tradingin the period and the profit on sale of the divisions which were sold. Includingthese the basic EPS was 81.3p (2006: 4.7p). These are all calculated using theaverage number of shares in issue for the period of 257.1 million (2006: 257.1million). This is prior to the crystallisation of the Melrose share incentivescheme, the 1 for 2 share consolidation and the repayment of £220 million toshareholders all of which change the number of shares in issue to 133.7 million.This new number of shares will be the base for future EPS calculations. PROFIT/LOSS ON DISPOSAL OF BUSINESSES On the 11 May 2007 the Group disposed of its interest in the OEM and Aftermarketdivisions. Gross proceeds from the sale of these divisions were £428.0 millionand costs incurred were £9.6m. Net assets disposed of were £203.7 million,(including goodwill and intangible assets other than computer software of £135.4million), and the cumulative exchange loss occurred since acquisition of £18.2million, previously written off straight to reserves, was recycled on disposal.As a result the profit on sale was £196.5 million. In addition on 18 May the group disposed of the large part of the PSM divisionfor gross proceeds of £30.0m and incurred costs of £1.2 million. Net assetsdisposed of were £29.9 million and cumulative exchange losses of £3.8 millionwere recycled on disposal, resulting in a loss on sale of £4.9 million. PENSIONS Melrose obtained clearance from the UK Pensions Regulator for its agreement withthe trustees of the McKechnie UK defined benefit pension plan on the disposal ofthe OEM division. This agreement required Melrose to contribute £20 million asan initial payment into the pension scheme and to pay a total of £18.3 millionin equal quarterly instalments over the next three years. Melrose PLC hasguaranteed the funding of the scheme on an ongoing basis. In addition to thesecontributions being made and agreed the scheme assumptions have been updated toreflect current conditions at June 2007. The deficit for this scheme in additionto the other smaller schemes in the Melrose group has consequently reduced to£28.0 million from £55.4 million at December 2006. Melrose PLC Consolidated Income Statement-----------------------------------------------------------------------------------Continuing operations Notes Restated(3) Restated(3) 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Unaudited Unaudited Audited £m £m £m ----------------------------------------------------------------------------------- Revenue 3 172.9 161.4 323.6Cost of sales (141.3) (134.1) (265.1)----------------------------------------------------------------------------------- Gross profit 31.6 27.3 58.5----------------------------------------------------------------------------------- Net operating expenses before exceptional items and intangible asset amortisation (1) (20.2) (19.1) (39.3) Intangible asset amortisation (1) (1.0) (1.0) (2.1) Exceptional costs 5 - (5.4) (5.9) Exceptional income 6 0.9 - 0.7 ------------------------------------------------------------------------------- Total net operating expenses 4 (20.3) (25.5) (46.6)----------------------------------------------------------------------------------- Operating profit 11.3 1.8 11.9 ------------------------------------------------------------------------------- Headline operating profit (2) 3 11.4 8.2 19.2 ------------------------------------------------------------------------------- Finance costs (3.4) (3.3) (7.3)Finance income 4.1 0.1 0.2----------------------------------------------------------------------------------- Profit/(loss) before tax 12.0 (1.4) 4.8Tax 7 (2.3) (0.5) (1.6)----------------------------------------------------------------------------------- Profit/(loss) for the periodfrom continuing operations 9.7 (1.9) 3.2----------------------------------------------------------------------------------- Discontinued operationsProfit for the period fromdiscontinued operations 8 199.4 14.1 34.6----------------------------------------------------------------------------------- Profit for the period 209.1 12.2 37.8----------------------------------------------------------------------------------- Attributable to:Equity holders of the parent 209.0 12.2 37.7Minority interests 0.1 - 0.1----------------------------------------------------------------------------------- 209.1 12.2 37.8----------------------------------------------------------------------------------- Earnings/(loss) per shareFrom continuing operations - Basic 9 3.8p (0.7)p 1.2p - Diluted 9 3.6p (0.7)p 1.2p From continuing and discontinuedoperations - Basic 9 81.3p 4.7p 14.7p - Diluted 9 78.3p 4.6p 14.4p----------------------------------------------------------------------------------- (1) other than computer software amortisation(2) the terms 'headline operating profit', 'headline profit before tax' and'headline earnings per share' have the same definition as operating profit, profitbefore tax and earnings per share respectively except that they are calculatedbefore exceptional costs, exceptional income and intangible asset amortisationother than computer software.(3) prior periods have been restated to separate the results of continuing anddiscontinued operations Melrose PLC Consolidated Statement of Recognised Income and Expense Notes 6 months ended 6 months ended Year 30 June 30 June ended 31 2007 2006 December 2006 Unaudited Unaudited Audited £m £m £m Currency translation on netinvestments in subsidiaryundertakings (5.0) (23.3) (41.4)Gains on cash flow hedges 0.5 1.2 1.4Actuarial adjustments onpension liabilities 4.1 1.7 1.2---------------------------------------------------------------------------------------- Net loss recognised directlyin equity (0.4) (20.4) (38.8)Transferred to incomestatement on cash flow hedges (1.2) 0.1 (1.4)Transfer to income statementfrom equity of cumulativetranslation differences ondiscontinued operations 22.0 - -Profit for the period 209.1 12.2 37.8----------------------------------------------------------------------------------------Total recognised income andexpense for the period 229.5 (8.1) (2.4)---------------------------------------------------------------------------------------- Attributable to:Equity holders of the parent 229.4 (8.1) (2.5)Minority interests 0.1 - 0.1---------------------------------------------------------------------------------------- 229.5 (8.1) (2.4)---------------------------------------------------------------------------------------- Melrose PLC Consolidated Balance Sheet Notes 30 June 30 June 31 December 2007 2006 2006 Unaudited Unaudited Audited £m £m £m Non-current assetsGoodwill and other intangibleassets 196.5 378.3 356.2Property, plant and equipment 53.7 85.7 79.4Interests in joint ventures - 2.8 2.6Derivative financialinstruments 0.7 2.6 1.4Deferred tax assets 4.0 27.2 29.8-------------------------------------------------------------------------------- 254.9 496.6 469.4Current assetsInventories 26.5 57.2 59.3Trade and other receivables 67.5 96.5 90.7Cash and short term deposits 13 265.3 15.4 33.3-------------------------------------------------------------------------------- 359.3 169.1 183.3-------------------------------------------------------------------------------- Total assets 3 614.2 665.7 652.7-------------------------------------------------------------------------------- Current liabilitiesTrade and other payables 73.4 99.3 104.8Interest-bearing loans andborrowings 2.0 0.7 1.0Current tax liabilities 8.6 13.0 8.8Provisions 2.2 8.5 2.9-------------------------------------------------------------------------------- 86.2 121.5 117.5-------------------------------------------------------------------------------- Net current assets 273.1 47.6 65.8-------------------------------------------------------------------------------- Non-current liabilitiesInterest-bearing loans andborrowings 12.0 202.3 194.9Deferred tax liabilities 8.7 18.9 18.6Retirement benefit obligations 12 28.0 57.8 55.4Provisions 4.0 10.4 11.2-------------------------------------------------------------------------------- 52.7 289.4 280.1-------------------------------------------------------------------------------- Total liabilities 3 138.9 410.9 397.6--------------------------------------------------------------------------------Net assets 475.3 254.8 255.1-------------------------------------------------------------------------------- EquityIssued share capital 10 0.3 0.3 0.3Share premium account 10 214.6 214.6 214.6Merger reserve 10 42.0 42.0 42.0Hedging and translationreserves 10 (6.2) (3.1) (22.5)Accumulated profits 10 223.5 0.1 19.7-------------------------------------------------------------------------------- Equity attributable to holdersof the parent 474.2 253.9 254.1 Minority interest 10 1.1 0.9 1.0-------------------------------------------------------------------------------- Total equity 475.3 254.8 255.1-------------------------------------------------------------------------------- Melrose PLC Consolidated Cash Flow Statement Notes Restated Restated 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Unaudited Unaudited Audited £m £m £m------------------------------------------------------------------------------------ Net cash from operating activitiesfor continuing operations 13 0.1 2.3 9.7Net cash from operating activitiesfor discontinued operations 13 1.8 8.1 23.6----------------------------------------------------------------------------------- Net cash from operating activities 1.9 10.4 33.3----------------------------------------------------------------------------------- Investing activities:Disposal of businesses 447.8 7.2 7.4Contribution of disposal proceeds topension plans (20.0) - -Net cash disposed (5.8) - -Purchases of property, plant andequipment (4.7) (6.5) (11.7)Proceeds on disposal of property,plant and equipment - 3.2 9.9Purchase of intangible assets (0.1) - -Interest received 4.1 0.1 ------------------------------------------------------------------------------------ Net cash from investing activitiesfrom continuing operations 421.3 4.0 5.6Net cash used in investingactivities 13 (2.6) (2.8) (5.6)by discontinued operations----------------------------------------------------------------------------------- Net cash from investing activities 418.7 1.2 ------------------------------------------------------------------------------------ Financing activities:Repayment of borrowings (179.0) - -Decrease in bank loans - (3.0) (3.0)Repayment of obligations underfinance leases (0.2) (0.1) (0.3)Dividends paid (9.6) (7.7) (13.5)Loan notes repaid - (0.5) (0.5)----------------------------------------------------------------------------------- Net cash used in financingactivities (188.8) (11.3) (17.3)by continuing operationsNet cash from financing activitiesfrom discontinued operations 13 0.3 1.2 2.7----------------------------------------------------------------------------------- Net cash used in financing (188.5) (10.1) (14.6)activities----------------------------------------------------------------------------------- Net increase in cash and cashequivalents 232.1 1.5 18.7Cash and cash equivalents atbeginning of the year 33.3 15.2 15.2Effect of foreign exchange ratechanges (0.1) (1.3) (0.6)----------------------------------------------------------------------------------- Cash and cash equivalents at end ofthe period 265.3 15.4 33.3----------------------------------------------------------------------------------- NOTES TO THE FINANCIAL INFORMATION 1. General Information Melrose PLC is a company incorporated in Great Britain under the Companies Act1985. The address of the registered office is Precision House, Arden Road,Alcester B49 6HN. The interim financial information for the six months ended 30 June 2007 isunaudited and does not constitute statutory accounts within the meaning ofsection 240 of the Companies Act 1985. The results for the year ended 31December 2006 shown in this report do not constitute the Company's statutoryaccounts for that period but have been extracted from those accounts which havebeen filed with the Registrar of Companies. The auditors have reported on theseaccounts. Their report was unqualified and did not contain a statement undersection 237 (2) or (3) of the Companies Act 1985. The comparative information has been restated to show the Aerospace OEM ("OEM"),the Aerospace Aftermarket ("Aftermarket"), part of the PSM division and the UScorporate centre as discontinued operations. 2. Summary of Significant Accounting Policies The interim financial information for the six months ended 30 June 2007, whichhas been approved by a committee of the board of directors on 11 September 2007,has been prepared on the basis of the accounting policies set out in the Group's2006 Annual Report and accounts on pages 42 to 47, which are consistent withInternational Financial Reporting Standards (IFRSs) as endorsed by the EuropeanUnion, and can be found on the Group's website www.melroseplc.net. This interimreport should therefore be read in conjunction with the 2006 information. Theaccounting policies used in the preparation of the interim financial informationhave been consistently applied to all periods presented. The Group has notadopted early all of the provisions of IAS 34 'Interim Financial Reporting' inthis interim financial information. 3. Segment Information The Group's primary reporting format is business segments and its secondaryreporting format is geographical segments. The operating businesses areorganised and managed separately according to the nature of the products andservices provided, with each segment representing a strategic business unit thatoffers different products and serves different markets. All reported revenue isderived from one activity, the sale of goods. During the period, the Group discontinued its operations in the OEM,Aftermarket, part of the PSM division and the US corporate centre segments. The Dynacast segment is a supplier of die-cast parts and components to a rangeof industries. McKechnie Vehicle Components ("MVC") supplies exterior trimproducts to major vehicle manufacturers in the USA. McKechnie Plastic Components("MPC") is a UK supplier of plastic injection moulded and extruded components tothe automotive, consumer durable, IT and other industries. The McKechnie PSM("PSM") continuing segment consists of the specialised Prelok and Canning Brettbusinesses. Transfer prices between business segments are set on an arm's length basis in amanner similar to transactions with third parties. The Group's geographical segments are determined by the location of the Group'sassets and operations. Inter segment sales are not material and have not beenincluded in the analysis below. 3. Segment Information (continued) Business segments The following table presents revenue and headline operating profit information(which the Directors believe is the best indicator of performance) and certainasset and liability information regarding the Group's business segments for theperiod ended 30 June 2007. Notes 5 and 6 give details of exceptional costs andincome. Revenue Headline operating profit/(loss) (2) ---------------------------------------------------------------------------------------- 6 months ended 6 months ended Year 6 months ended 6 months ended Year 30 June 30 June ended 30 June 30 June ended 2007 2006 31 December 2007 2006 31 December 2006 2006 £m £m £m £m £m £m Continuing operationsDynacast 117.6 107.3 221.7 13.8 11.1 25.1MVC 29.5 26.5 48.0 (0.2) (0.7) (2.3)MPC 21.2 23.9 46.1 1.3 1.0 2.4PSM continuing 4.6 3.7 7.8 0.3 0.3 0.6Central -corporate - - - (2.8) (2.7) (5.5)Central -LTIPS(1) - - - (1.0) (0.8) (1.1)-------------------------------------------------------------------------------------------------------------- Continuingoperationstotal 172.9 161.4 323.6 11.4 8.2 19.2 Discontinued operationsOEM 53.7 69.1 140.1 11.9 15.5 33.1Aftermarket 5.2 11.7 19.3 0.1 0.4 0.6PSMdiscontinued 8.4 13.3 24.0 1.4 2.0 4.2Centraldiscontinued - - - (0.4) (0.3) (1.0)------------------------------------------------------------------------------------------------------------Discontinuedoperationstotal 67.3 94.1 183.4 13.0 17.6 36.9------------------------------------------------------------------------------------------------------------ Total 240.2 255.5 507.0 24.4 25.8 56.1------------------------------------------------------------------------------------------------------------ (1) Long term incentive plans(2) As defined on the income statement 3. Segment Information (continued) Total assets Total liabilities ----------------------------------------------------------------------------------------- 6 months ended 6 months ended Year 6 months ended 6 months ended Year 30 June 30 June ended 30 June 30 June ended 2007 2006 31 December 2007 2006 31 December 2006 2006 £m £m £m £m £m £mContinuingoperationsDynacast 307.4 298.9 308.9 76.5 56.1 74.9MVC 37.3 40.6 35.7 13.8 11.1 12.1MPC 21.8 35.3 24.7 9.7 8.8 11.5PSM continuing 6.7 12.5 7.5 2.0 6.0 1.5Central -corporate 241.0 4.9 (4.6) 34.7 199.9 165.5Central -LTIPS(1) - - - 2.2 0.8 1.5--------------------------------------------------------------------------------------------------------------- Continuingoperationstotal 614.2 392.2 372.2 138.9 282.7 267.0 Discontinued operationsOEM - 212.4 217.9 - 26.3 32.5Aftermarket - 5.9 7.2 - 1.7 1.8PSMdiscontinued - 30.1 34.4 - 9.1 5.7Centraldiscontinued - 25.1 21.0 - 91.1 90.6--------------------------------------------------------------------------------------------------------------- Discontinuedoperationstotal - 273.5 280.5 - 128.2 130.6--------------------------------------------------------------------------------------------------------------- Total 614.2 665.7 652.7 138.9 410.9 397.6--------------------------------------------------------------------------------------------------------------- (1) Long term incentive plans Following the disposal of OEM, Aftermarket and US corporate centre, certaincentral assets relating to those businesses were disposed of, leaving a centraloverdraft in excess of central assets. This is shown as a negative asset in thetable above in accordance with IAS 14. 3. Segment Information (continued) Capital expenditure Depreciation and computer software amortisation ----------------------------------------------------------------------------------------------- 6 months ended 6 months ended Year 6 months ended 6 months ended Year 30 June 30 June ended 30 June 30 June ended 2007 2006 31 December 2007 2006 31 December 2006 2006 £m £m £m £m £m £mContinuing operationsDynacast 2.0 4.0 6.9 3.4 3.5 7.0MVC 1.8 1.8 3.3 1.0 1.0 1.8MPC 0.5 0.5 1.2 0.7 0.9 1.7PSM continuing 0.5 0.2 0.3 0.2 0.2 0.4Central - - - - - 0.1--------------------------------------------------------------------------------------------------------------------- Continuingoperationstotal 4.8 6.5 11.7 5.3 5.6 11.0 Discontinued operationsOEM 2.6 2.4 6.9 1.2 1.5 2.8Aftermarket - 0.1 0.1 - 0.1 0.1PSMdiscontinued 0.1 0.6 1.0 0.2 0.3 0.7--------------------------------------------------------------------------------------------------------------------- Discontinuedoperationstotal 2.7 3.1 8.0 1.4 1.9 3.6--------------------------------------------------------------------------------------------------------------------- Total 7.5 9.6 19.7 6.7 7.5 14.6--------------------------------------------------------------------------------------------------------------------- Geographical Area Revenue Headline operating profit/(loss) (2) ---------------------------------------------------------------------------------------- 6 months ended 6 months ended Year 6 months ended 6 months ended Year 30 June 30 June ended 30 June 30 June ended 2007 2006 31 December 2007 2006 31 December 2006 2006 £m £m £m £m £m £mContinuing operationsNorth America 68.2 65.9 127.0 3.4 0.9 3.6Europe 79.4 73.0 146.3 8.8 8.5 16.6Asia 25.3 22.5 50.3 3.0 2.3 5.6Central -corporate - - - (2.8) (2.7) (5.5)Central -LTIPS(1) - - - (1.0) (0.8) (1.1)--------------------------------------------------------------------------------------------------------------------- Continuingoperationstotal 172.9 161.4 323.6 11.4 8.2 19.2 DiscontinuedoperationsNorth America 41.0 55.7 109.1 10.7 13.2 27.7Europe 21.1 31.1 59.8 1.8 2.5 6.7Asia 5.2 7.3 14.5 0.9 2.2 3.5Central - - - (0.4) (0.3) (1.0)--------------------------------------------------------------------------------------------------------------------- Discontinuedoperationstotal 67.3 94.1 183.4 13.0 17.6 36.9--------------------------------------------------------------------------------------------------------------------- Total 240.2 255.5 507.0 24.4 25.8 56.1--------------------------------------------------------------------------------------------------------------------- (1) Long term incentive plans(2) As defined on the income statement 3. Segment Information (continued) Certain comparative figures have been restated to reflect more appropriatecorporate cost allocations. Total assets Total liabilities --------------------------------------------------------------------------------------- 6 months ended 6 months ended Year 6 months ended 6 months ended Year 30 June 30 June ended 30 June 30 June ended 2007 2006 31 December 2007 2006 31 December 2006 2006 £m £m £m £m £m £mContinuing operationsNorth America 187.3 255.7 183.5 37.3 52.5 36.2Europe 148.6 104.2 156.9 51.4 17.8 50.1Asia 37.3 27.4 36.4 13.3 11.7 13.7Central -corporate 241.0 4.9 (4.6) 34.7 199.9 165.5Central -LTIPS(1) - - - 2.2 0.8 1.5--------------------------------------------------------------------------------------------------------------------- Continuingoperationstotal 614.2 392.2 372.2 138.9 282.7 267.0 Discontinued operationsNorth America - 162.4 172.8 - 16.2 23.3Europe - 53.3 57.6 - 17.6 12.6Asia - 32.7 29.1 - 3.3 4.1Central - 25.1 21.0 - 91.1 90.6--------------------------------------------------------------------------------------------------------------------- Discontinuedoperationstotal - 273.5 280.5 - 128.2 130.6--------------------------------------------------------------------------------------------------------------------- Total 614.2 665.7 652.7 138.9 410.9 397.6--------------------------------------------------------------------------------------------------------------------- (1) Long term incentive plans Capital expenditure Depreciation and computer software amortisation -------------------------------------------------------------------------------------------- 6 months ended 6 months ended Year 6 months ended 6 months ended Year 30 June 30 June ended 30 June 30 June ended 2007 2006 31 December 2007 2006 31 December 2006 2006 £m £m £m £m £m £mContinuing operationsNorth America 2.2 2.5 5.2 2.1 2.3 4.4Europe 1.4 2.6 4.2 2.5 2.6 5.1Asia 1.2 1.4 2.3 0.7 0.7 1.4Central - - - - - 0.1-------------------------------------------------------------------------------------------------------------------- Continuingoperationstotal 4.8 6.5 11.7 5.3 5.6 11.0 Discontinued operationsNorth America 1.7 1.6 5.5 0.7 0.9 1.7Europe 0.9 1.3 1.6 0.5 0.8 1.5Asia 0.1 0.2 0.9 0.2 0.2 0.4-------------------------------------------------------------------------------------------------------------------- Discontinuedoperationstotal 2.7 3.1 8.0 1.4 1.9 3.6-------------------------------------------------------------------------------------------------------------------- Total 7.5 9.6 19.7 6.7 7.5 14.6-------------------------------------------------------------------------------------------------------------------- 4. Net Operating Expenses Net operating expenses comprise:-------------------------------------------------------------------------------- 6 months ended 6 months Year 30 June ended ended 2007 30 June 31 December 2006 2006 £m £m £m --------------------------------------------------------------------------------Continuing operationsSelling and distribution costs (7.2) (6.0) (13.1)Administration expenses (14.0) (14.1) (28.3)Other operating costs -exceptional - (5.4) (5.9)(note 5)Other operating income -exceptional 0.9 - 0.7(note 6) -------------------------------------------------------------------------------- Total net operating expenses fromcontinuing operations (20.3) (25.5) (46.6)-------------------------------------------------------------------------------- Discontinued operationsSelling and distribution costs (4.1) (4.7) (11.9)Administration expenses (5.2) (7.7) (14.4)Share of joint ventures operating profits 0.2 0.5 0.8Other operating costs - exceptional(note 5) - - (2.0)Other operating income - exceptional(note 6) - 2.3 2.3Profit on disposal of fixed assets - 3.2 3.2-------------------------------------------------------------------------------- Total net operating expenses fromdiscontinued operations (9.1) (6.4) (22.0)-------------------------------------------------------------------------------- Total net operating expenses (29.4) (31.9) (68.6)-------------------------------------------------------------------------------- 5. Exceptional Costs --------------------------------------------------------------------------------Other operating costs 6 months ended 6 months ended Year 30 June 30 June 2006 ended 2007 £m 31 December £m 2006 £m-------------------------------------------------------------------------------- Continuing operationsDynacast restructure - (3.7) (3.7)MPC restructure - (1.7) (2.2)--------------------------------------------------------------------------------Total other operating costs -continuing - (5.4) (5.9)Discontinued operationsPre-disposal expenses - - (2.0)-------------------------------------------------------------------------------- Total other operating costs -discontinued - - (2.0)--------------------------------------------------------------------------------Total other operating costs - (5.4) (7.9)-------------------------------------------------------------------------------- The Dynacast restructuring costs in 2006 related to the closure of theSpartanburg, South Carolina, USA manufacturing facility. The MPC restructuringcosts related to the closure of the Northampton manufacturing facility ("BurnettPolymer Engineering"). The pre-disposal costs in 2006 related to the sale ofdivisions which were completed in 2007. 6. Exceptional Income --------------------------------------------------------------------------------Other operating income 6 months ended 6 months ended Year 30 June 30 June 2006 ended 2007 £m 31 December 2006 £m £m--------------------------------------------------------------------------------Continuing operationsProfit on disposal of land andbuildings - - 0.7Pension curtailment gain 0.9 - ---------------------------------------------------------------------------------Total other operating income -continuing 0.9 - 0.7Discontinued operationsOnerous contract provision release - 2.3 2.3--------------------------------------------------------------------------------Total other operating income -discontinued - 2.3 2.3--------------------------------------------------------------------------------Total other operating income 0.9 2.3 3.0-------------------------------------------------------------------------------- Following the disposal of the OEM division, all employees in this segmentbelonging to the McKechnie UK defined benefit pension plan became deferredmembers. The curtailment gain associated with this was £0.9million. At acquisition, in May 2005, an onerous contract was identified and appropriateprovision was made based on the circumstances prevailing at acquisition. During2006, the terms of the contract were renegotiated and the improved terms of thecontract were reflected in the accounts resulting in a release to the incomestatement of £2.3million. During the year ended 31 December 2006, land and buildings held in the MPCbusiness segment were sold in a sale and leaseback transaction resulting in anet profit of £0.7 million. 7. Tax Analysis of the charge in the period:-------------------------------------------------------------------------------- 6 months ended 6 months ended Year 30 June 30 June 2006 ended 2007 £m 31 December £m 2006 £m--------------------------------------------------------------------------------Continuing operationsCurrent tax 3.2 1.6 4.5Deferred tax (0.9) (1.1) (2.9)--------------------------------------------------------------------------------Tax charge from continuing 2.3 0.5 1.6operationsDiscontinued operationsCurrent tax (1.7) 4.4 0.6Deferred tax 4.2 0.3 (3.0)--------------------------------------------------------------------------------Tax charge/(credit) fromdiscontinuing operations 2.5 4.7 (2.4)-------------------------------------------------------------------------------- Total tax charge/(credit) 4.8 5.2 (0.8)-------------------------------------------------------------------------------- 7. Tax (continued) The expected effective rate in respect of headline operating profit before taxon continuing activities for the year ended 31 December 2007 is 26%. The taxcharge on ordinary activities has been calculated by applying this rate to theheadline operating profit before tax of £12.1million, giving £3.1million. Thisis lower than the statutory rate of 30% due to the mix of and tax rates inforeign jurisdictions. In addition, the tax charge on certain activities has been reduced by a creditof £0.8million. This consists of a £0.2million credit relating to tax onamortisation of intangible assets and a £0.6million credit which reflects thereduction in net deferred tax liabilities associated with the recentlysubstantially enacted fall in the corporation tax rate from 30% to 28%. Thesehave been applied in full, giving a total tax charge for the period oncontinuing activities of £2.3million. 8. Discontinued operations On 11 May 2007 the Group disposed of its interest in OEM and Aftermarketdivisions. Gross proceeds from the sale of these divisions were £428.0millionand costs incurred during the period were £9.6million, of which £1.3millionremains in accruals. In addition costs of £1.8million were incurred in 2006. On 18 May 2007 the Group disposed of its PSM fastener manufacturing business,which comprised part of the PSM division. Gross proceeds from this sale were£30.0million and costs incurred during the period were £1.2million, of which£0.9million remains in accruals. In addition, costs of £0.2million were incurredin 2006. Details of net assets disposed of and disposal proceeds are as follows: -------------------------------------------------------------------------------- OEM and PSM Fasteners 30 June Aftermarket 2007 £m £m £m -------------------------------------------------------------------------------- Goodwill 112.4 17.1 129.5Intangible assets 23.0 - 23.0Computer software 0.9 0.1 1.0Property, plant and equipment 23.4 2.5 25.9Joint ventures 0.3 2.6 2.9Deferred tax assets 20.8 - 20.8Inventories 32.0 3.3 35.3Trade and other receivables 25.2 7.1 32.3Cash at bank 4.3 1.5 5.8-------------------------------------------------------------------------------- Gross assets disposed of 242.3 34.2 276.5Trade and other payables (20.6) (3.8) (24.4)Finance lease obligations (2.5) - (2.5)Post employment benefitobligations - (0.2) (0.2)Tax - (0.3) (0.3)Deferred tax liability (8.6) - (8.6)Provisions (6.9) - (6.9)-------------------------------------------------------------------------------- Gross liability disposed of (38.6) (4.3) (42.9) Net assets disposed of 203.7 29.9 233.6Cumulative exchangetranslation loss recycled ondisposals 18.2 3.8 22.0Profit/(loss) on disposal 196.5 (4.9) 191.6-------------------------------------------------------------------------------- Consideration net of costs 418.4 28.8 447.2Cash disposed of (4.3) (1.5) (5.8)-------------------------------------------------------------------------------- Cash inflow from current yeardisposals 414.1 27.3 441.4-------------------------------------------------------------------------------- 8. Discontinued operations (continued) Financial performance of discontinued operations: OEM and PSM Fasteners 30 June 30 June 31 December Aftermarket 2007 2006 2006 £m £m £m £m £m-------------------------------------------------------------------------------------Externalrevenue 58.9 8.4 67.3 94.1 183.4Operating costs (47.3) (7.0) (54.3) (76.5) (146.5)------------------------------------------------------------------------------------- Headlineoperatingprofit 11.6 1.4 13.0 17.6 36.9Intangibleamortisation (1.0) - (1.0) (1.7) (3.1)Reported asexceptionalitems - - - 2.3 0.3Profit ondisposal ofbusinesses - - - 3.2 3.2------------------------------------------------------------------------------------- Net financecosts (1.5) (0.2) (1.7) (2.6) (5.1)------------------------------------------------------------------------------------- Profit beforetax 9.1 1.2 10.3 18.8 32.2Tax (charge)/credit (2.2) (0.3) (2.5) (4.7) 2.4 ------------------------------------------------------------------------------------- Profit afterincome taxfromdiscontinuedoperations 6.9 0.9 7.8 14.1 34.6 Profit ondisposal ofnet assets ofdiscontinuedoperations 214.7 (1.1) 213.6 - -Cumulativeexchange loss (18.2) (3.8) (22.0) - -------------------------------------------------------------------------------------- Profit/(loss)on disposal 196.5 (4.9) 191.6 - -------------------------------------------------------------------------------------- Profit/(loss)for the yearondiscontinuedoperations 203.4 (4.0) 199.4 14.1 34.6------------------------------------------------------------------------------------- 9. Earnings Per Share 6 months ended 6 months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £m £m £m Earnings forthe purposesof basicearnings pershare 209.1 12.2 37.8Less profitfor the periodfromdiscontinuedoperations (199.4) (14.1) (34.6)-------------------------------------------------------------------------------------Earnings forbasis ofearnings pershare fromcontinuingoperations 9.7 (1.9) 3.2 Exceptionalcosts - 5.4 5.9Exceptionalincome (0.9) - (0.7)Otherintangibleassetamortisation(1) 1.0 1.0 2.1Tax (0.8) (0.3) (1.9)------------------------------------------------------------------------------------- Earnings forbasis ofheadlineearnings pershare fromcontinuingoperations 9.0 4.2 8.6------------------------------------------------------------------------------------- (1) Other than computer software amortisation 9. Earnings Per Share (continued) 6 months ended 6 months ended Year ended 30 June 2007 30 June 2006 31 December 2006 Number Number Number------------------------------------------------------------------------------------- Weighted average numberof ordinary shares for thepurposes of basic earningsper share (million) 257.1 257.1 257.1 Further shares for thepurposes of fully diluted 9.9 4.8 5.1earnings per share (million)------------------------------------------------------------------------------------- 6 months ended 6 months ended Year ended 30 June 2007 30 June 2006 31 December 2006-------------------------------------------------------------------------------------Basic earnings per shareFrom continuedanddiscontinuedoperations 81.3p 4.7p 14.7pFromdiscontinuedoperations 77.5p 5.4p 13.5pFromcontinuingoperations 3.8p (0.7)p 1.2p------------------------------------------------------------------------------------- Fully diluted earnings per shareFrom continuedanddiscontinuedoperations 78.3p 4.6p 14.4pFromdiscontinuedoperations 74.7p 5.3p 13.2pFromcontinuingoperations 3.6p (0.7)p 1.2p------------------------------------------------------------------------------------- Headline earnings per shareFromcontinuingoperations 3.5p 1.6p 3.3p------------------------------------------------------------------------------------- Fully diluted headline earnings pershareFromcontinuingoperations 3.4p 1.6p 3.3p------------------------------------------------------------------------------------- Where basic earnings per share are a loss, the dilutive effect of any furthershares is ignored. 10. Issued Capital and Reserves Share Capital------------------------------------------------------------------------------------- 30 June 30 June 31 December 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------------Authorised342,830,000 Ordinary Shares of 0.1p each 0.3 0.3 0.359,170 Convertible B shares of £1 each 0.1 0.1 0.1------------------------------------------------------------------------------------- Authorised share capital 0.4 0.4 0.4------------------------------------------------------------------------------------- Allotted, called up and fully paid257,119,989 Ordinary Shares of 0.1p each 0.2 0.2 0.259,170 Convertible B shares of £1 each 0.1 0.1 0.1------------------------------------------------------------------------------------- Allotted, called up and fully paid sharecapital 0.3 0.3 0.3------------------------------------------------------------------------------------- Share premium account and merger reserve Share Merger premium Reserve account £m £m------------------------------------------------------------------------------------- At 31 December 2006 and at 30 June 2007 214.6 42.0------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------Reserves Hedging and Accumulated Minority translation profits/(losses) Interests reserve £m £m £m------------------------------------------------------------------------------------- At 31 December 2006 (22.5) 19.7 1.0 Currency translation andhedging adjustments (5.7) - -Profit for the period 22.0 209.0 0.1Actuarial adjustments onpension liabilities - 4.1 -Dividend paid - (9.6) -Credit to equity for equitysettled share based payments - 0.3 -------------------------------------------------------------------------------------- At 30 June 2007 (6.2) 223.5 1.1------------------------------------------------------------------------------------- Hedging and translation reserve Hedging reserve Translation Total reserve £m £m £m------------------------------------------------------------------------------------- At 31 December 2006 1.4 (23.9) (22.5) Exchange differences ontranslation of overseasoperations - (5.0) (5.0)Increase in fair value ofhedging derivatives 0.5 - 0.5Transfer to income (1.2) 22.0 20.8-------------------------------------------------------------------------------------At 30 June 2007 0.7 (6.9) (6.2)------------------------------------------------------------------------------------- 11. Dividends 6 months ended 6 months ended Year 30 June 30 June ended 31 December 2007 2006 2006 £m £m £m------------------------------------------------------------------------------------- Final dividend for the year ended31 December 2005 paid of 3.0p - 7.7 7.7Interim dividend for the yearended 31 December 2006 paid of2.25p - - 5.8Final dividend for the year ended31 December 2006 paid of 3.75p 9.6 - --------------------------------------------------------------------------------------Dividends paid 9.6 7.7 13.5------------------------------------------------------------------------------------- 12. Retirement Benefit Obligations The defined benefit obligation at 30 June 2007 is estimated based on the latestactuarial valuation at 31 December 2005. In addition, the McKechnie UK definedbenefit plan's assumptions have been updated to reflect market conditions at 30June 2007 where appropriate. The defined benefit plan assets have been updatedto reflect their market value as at 30 June 2007 and to reflect the £22.5millioncontributions made to the McKechnie UK defined benefit plan during the period. 13. Cash Flow ------------------------------------------------------------------------------------- 6 months 6 months Year ended ended ended 31 30 June 30 June December 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------------Reconciliation of operating profit to cash generated byoperations Headline operating profit from continuingoperations (1) 11.4 8.2 19.2Adjustments for:Depreciation of property, plant and equipment 5.2 5.6 10.9Amortisation of computer software 0.1 - 0.1Restructuring costs paid and decrease in otherprovisions (1.2) (1.5) (5.5)------------------------------------------------------------------------------------- Operating cash flows before movements inworking capital 15.5 12.3 24.7 Increase in inventories (0.1) (2.1) (6.3)Increase in receivables (6.9) (11.5) (8.4)(Decrease)/increase in payables (0.9) 6.9 10.2------------------------------------------------------------------------------------- Cash generated by operations 7.6 5.6 20.2Tax paid (0.6) (0.6) (2.0)Interest paid (4.9) (1.4) (4.0)Pension contributions paid (2.0) (1.3) (4.5)------------------------------------------------------------------------------------- Net cash from operating activities forcontinuing operations 0.1 2.3 9.7------------------------------------------------------------------------------------- (1) As defined on the income statement ------------------------------------------------------------------------------------- 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £m £m £m-------------------------------------------------------------------------------------Cash flow from discontinued operations Cash generated from discontinued operations 7.4 10.7 30.8Tax paid (0.6) (0.6) (2.0)Interest paid (4.2) (1.2) (3.5)Pension contributions paid (0.6) (0.3) (0.9)Profit of joint ventures (0.2) (0.5) (0.8)------------------------------------------------------------------------------------- Net cash from operating activities fordiscontinued operations 1.8 8.1 23.6------------------------------------------------------------------------------------- Dividends from joint ventures - 0.3 0.5Interest received 0.1 - -Purchase of property, plant and equipment (2.6) (2.9) (7.7)Proceeds on disposal of property, plant andequipment - - 1.9Purchase of intangible assets (0.1) (0.2) (0.3)------------------------------------------------------------------------------------- Net cash used in investing activities bydiscontinued operations (2.6) (2.8) (5.6)------------------------------------------------------------------------------------- Repayments of obligations under financeleases - (0.2) (0.3)New finance leases 0.3 1.4 3.0------------------------------------------------------------------------------------- Net cash from financing activities fordiscontinued operations 0.3 1.2 2.7------------------------------------------------------------------------------------- Net debt reconciliation At 31 December Cash flow Foreign Acquisitions New leases Other non-cash At 2006 exchange and disposals changes 30 June 2007 difference (excluding cash and overdrafts) £m £m £m £m £m £m £m----------------------------------------------------------------------------------------------------------------- Cash 33.3 232.1 (0.1) - - - 265.3Debt duewithin oneyear - - - - - (1.7) (1.7)Debt due afterone year (192.1) 179.0 0.4 - - 1.7 (11.0)Leases (3.8) - 0.1 2.5 (0.1) - (1.3)----------------------------------------------------------------------------------------------------------------- Net(debt)/funds (162.6) 411.1 0.4 2.5 (0.1) - 251.3----------------------------------------------------------------------------------------------------------------- 14. Subsequent Events On 14 August 2007, at an Extraordinary General Meeting, shareholders approvedresolutions to return capital of £220million to shareholders, crystallise thevalue accrued up to 18 July 2007 in the Existing Incentive Share scheme andincrease the Company's authorised share capital by £50,000 in respect of the New2007 Incentive Share scheme. As a consequence of crystallising the ExistingIncentive Share arrangements, in the second half of the year there will be anexceptional charge of £1.2million relating to the remaining IFRS 2 charge on theExisting Incentive Shares and an exceptional charge of £0.9million relating tothe accelerated National Insurance charge. In addition following the EGM on 14August 2007 the 59,170 Existing Incentive Shares converted into 10,210,069Ordinary Shares and 59,170 Deferred Incentive Shares and the latter wererepurchased by the Company for an aggregate sum of one penny. The conversion formula for the New 2007 Incentive Shares is based uponprinciples identical to the conversion formula for the Existing Incentive Sharesand, broadly provides for the New 2007 Incentive Shares to convert into OrdinaryShares equal to 10 per cent of the increase in shareholder value from 18 July2007 (excluding the Return of Capital). As with the Existing Incentive Shares,the New 2007 Incentive Shares will have early "trigger dates" upon which theRemuneration Committee can permit up to one third of the New 2007 IncentiveShares held by a 2007 Incentive Shareholder to be converted into OrdinaryShares. The early trigger dates for the New 2007 Incentive Shares will be on 31May in each of the years 2010 and 2011. On 31 May 2012, the final trigger date,all unconverted New 2007 Incentive Shares will convert into Ordinary Shares inaccordance with the formula set out in the Company's articles. The Articles willnot permit holders of New 2007 Incentive Shares to convert more than two thirdsof their holding of such shares before 31 May 2012. The rights and restrictionsof the New 2007 Incentive Shares will be similar to the rights and restrictionsof the Existing Incentive Share scheme. The Return of Capital took place by increasing the authorised share capital by£220million by the creation of 267,330,058 redeemable C shares of 82.3 pencenominal value each and capitalising £214.6million of the Share Premium Accountand £5.4million of the Merger reserve to pay up in full the C shares. The Cshares were allotted on the basis of one C share for each Existing OrdinaryShare held on 15 August 2007. Shareholders had the option to receive the cashvalue inherent in the C share by way of income or two capital options. As aresult of the choices made by shareholders in respect of the return of capital: • 187,786,984 C shares were redeemed and subsequently cancelled with effect from 23 August 2007. • 9,053,594 C shares will be redeemed on 30 June 2008. • 70,489,480 shares were paid a dividend which was payable on 23 August 2007 and these C shares converted into C deferred shares. 14. Subsequent Events (continued) Both the remaining 9.1million C shares and 70.5million deferred C shares carryno voting rights. With the conversion of the Existing Incentive Shares on 14 August 2007, theallotted Ordinary Share capital increased to 267,330,058. On 15 August 2007 a 1for 2 share consolidation process reduced the allotted ordinary share capital to133,665,029 with the first day of trading being the 16 August 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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