Final Results

Smiths Group PLC 26 September 2001 Smiths Group: Preliminary Results 2001 Highlights: * Operating profit on continuing activities up 13% to £525m * Increased sales and profits from all four divisions * Margins maintained at 15%, cash at 80% of profits * Dividend increased by 5% to 25.00p for the year * Successful demerger of Automotive * Restructuring in Aerospace and Sealing Solutions well underway Commenting on the results, Keith Butler-Wheelhouse, Chief Executive said: 'We delivered strong growth in all four divisions in 2001, at the same time as demerging Automotive and focusing on the real opportunities in our core activities. 'In an uncertain economic environment following the tragic events of 11 September, our wide range of activities will provide resilience in difficult market conditions. The slowdown will principally affect our civil aerospace business, which in total is less than 20% of group sales. The outlook for our other activities, especially defence and medical, remains positive.' Further information: Russell Plumley +44 (0) 20 8457 8203 russell.plumley@smiths-group.com Smiths Group: Preliminary Results 2001 Financial performance: for the 12 months to 31 July 2001 Total, incl. Continuing activities discontinued activities £m 2001 2000 2001 2000 Sales 4,958 4,653 3,466 3,062 Group operating profit 651 622 525 465 Pre-tax 535 542 448* 428* Earnings per share 68.3p 68.6p 57.4p* 54.5p* before exceptionals and amortisation * proforma Including its now demerged automotive business, Smiths Group earned pre-tax profits of £535m before exceptionals and amortisation, generating earnings per share of 68.3p for the year ended 31 July 2001, (37.3p) after exceptionals and amortisation. On sales of £3.5 billion from continuing activities, the company recorded operating profits of £525m, an increase of 13% from the previous year. After allocating interest costs on a pro-forma basis, the pre-tax profit on the continuing activities was up 5% at £448m, and earnings per share were up 6% at 57.4p. The Board is recommending a final dividend of 16.25p, bringing the total for the year to 25.00p, an increase on the ordinary dividend of 5% and more than twice covered by continuing EPS. The company's four divisions - Aerospace, Sealing Solutions, Medical and Industrial - performed strongly during 2001, mainly as a result of organic growth, and achieved an average profit margin of 15%. Acquisitions costing £ 166m made a part year contribution of £9m to profits. Restructuring following the merger has already started to yield significant benefits. Corporate offices have been consolidated from four locations into the existing Smiths' HQ in North London. Smiths Aerospace, which brought together the Smiths and Dowty avionics and equipment businesses, has made rapid progress eliminating overlap. Sealing Solutions is well advanced on relocating manufacturing to lower cost countries. These measures improved profits by £15m in 2001. The company is on target to reach annualised savings of £50m in the current year and £80m from 2003 onwards. This operational restructuring of the continuing activities led to an exceptional charge of £116m. Merger expenses of £54m and restructuring in Automotive of £18m took exceptional charges with a cash impact to a total of £ 188m before tax relief, or £150m net. There were addtionally goodwill write-downs arising from the Automotive demerger (£299m), and in relation to certain former EIS and other businesses (£125m) in anticipation of their prospective disposal. The final exceptional item was a £13m profit on disposal of non-core activities in Medical and Industrial during the year. Further Industrial and Sealing Solutions businesses have been sold since the year end. The company's net debt at 31 July stood at £1,120m, after receipt of £615m cash consideration for the Automotive transaction in July. Interest costs for the year were £116m, of which £77m is attributable to the continuing operations. These operations generated cash-flow of £419m after capital spending of £112m, a profit-to-cash ratio of 80%. The net effect of exchange rates on profits compared to a year earlier was broadly neutral. Translation gains were largely offset by transaction losses, including those on the now significant exports from the US. The company's investment in research and development (R&D) for its continuing activities totalled £188m in 2001, of which £91m was directly charged against profits, and the balance recovered from customers. The majority of R&D is carried out in Aerospace, but a growing proportion is spent on developing new medical devices to keep Smiths Medical at the forefront of technology in its field. There were 37,700 people working for Smiths at the year end, including 14,100 in the US and 13,500 in the UK. UK operations accounted for one third of sales, of which half, worth £600m, were directly exported. By operating division, Aerospace contributed 40% of group profit, Sealing Solutions 24%, Medical 18% and Industrial 18%. Aerospace £m 2001 2000 Sales 1,329 1,145 Operating profit 210 178 Aerospace sales rose to £1,329m, an increase of 16% compared to the then separate Smiths and Dowty aerospace sales a year earlier. Profit increased by 18% to £210m, giving an unchanged margin of 16%. This strong performance reflected buoyant demand for original equipment on new aircraft, and for upgrades and aftermarket support of aircraft in current operation. Sales of machined components for turbine engines also increased. Business on commercial aircraft remained healthy through this period, while defence sales continued their upward trend. Among several significant programme wins, Smiths Aerospace was selected by Boeing to help upgrade the avionics on the USAF's fleet of over 500 C-130 military transport aircraft, an order worth more than $250 million. Two US acquisitions were added to the division during the year: Fairchild Defense (cost: £75m) making data recording and analysis for military aircraft; and Barringer Technologies (cost: £39m) making explosive and narcotic detection systems. They complement existing activities in these sectors. The increased threat of terrorism is being addressed by the Detection & Protection Systems business with new equipment to identify dangerous substances being carried through airports. Completing the integration of the original Smiths and Dowty aerospace businesses, Smiths Aerospace has now been organised into six customer-focused business units: electronic systems, actuation systems, precision components, customer services, detection & protection systems and naval & marine systems. The restructuring will contribute to performance in 2002 and beyond. Significantly, the more highly-integrated systems now being offered to the aircraft prime manufacturers as a result of the combination are securing incremental orders. While Aerospace performed strongly last year, the immediate outlook for the civil part of the business has deteriorated since the events of 11 September. Original equipment and aftermarket sales into this sector, £600m last year, are likely to be impacted in the period ahead. Divisional sales are divided equally between civil and defence, and sales of defence equipment, for which the company has a secure orderbook, continue to grow strongly. Sealing Solutions £m 2001 2000 Sales 1,165 1,064 Operating profit 128 121 On sales of £1,165m, Sealing Solutions generated profits of £128m, an increase of 6%. After a strong first half, the division was affected by a slowdown in some of its market sectors, particularly in the US and for industrial products in Europe. Margins remained at 11%, with the benefit of restructuring only showing through in the current year. This restructuring has included the relocation of high volume, labour intensive production from the UK and France to the Czech Republic, and from the US to Mexico. A number of low-margin activities are in the process of being divested. Sealing Solutions comprises operations involved in the mechanical, polymer and marine sectors. The largest, John Crane Mechanical Seals, increased its world market leadership in metal and ceramic rotating seals used in process industries and in a range of high volume industrial applications. While sales in oil, gas and petrochemical markets benefited from increased capital spending, the gain was offset by reduced demand for other industrial products including vacuum and filtration systems, now in the process of being sold. John Crane's margins, which had fallen in recent years, have been stabilised and will improve as the restructuring takes effect. Polymer Sealing Solutions, specialising in high technology plastic and rubber seals, achieved modest growth on the previous year. Sales increased in aerospace, medical and industrial applications, but sales into the automotive market were reduced. Both John Crane and Polymer improved their competitive positions with new products for high-potential markets and by moving rapidly into e-commerce for their sales activities. John Crane-LIPS performed strongly last year, responding to healthy demand for its marine systems. The alliance with marine diesel maker Wartsila generated a substantial orderbook for combined power and propulsion units. Looking ahead, organic growth in Sealing Solutions will be broadly related to GDP in its principal markets, although the cost savings expected within the next two years will lead to an improvement in margins. Medical £m 2001 2000 Sales 453 403 Operating profit 93 85 In North America, Europe and most other advanced economies, healthcare has risen towards the top of national agendas, bringing a significant increase in spending by both government and private health providers. In particular, world market demand is growing at 6% per annum in the medical device sector. Against this background Medical performed strongly in 2001, achieving a 12% increase in sales to £453m and a 10% increase in profits to £93m. Eschmann, a business making operating tables, was sold during the year for £11m. Medical maintained its long-held record of margins above 20%. This has been achieved through constant productivity improvement and new product introductions, outpacing any price erosion on mature products. Sales growth was strong in the largest business sector, single-use products for patient airway management, helped by greater demand for specialised procedure kits. These higher added-value packages are increasingly preferred by busy anaesthetists for the convenience they provide during critical care procedures. Another significant area of growth was in Needle-Protection devices which prevent nurses and clinicians from injuring themselves with used needles. Recent US legislation now requires all hospitals to use safe closure devices such as the Portex Needle-Pro, of which 100 million were delivered by the US business during the year. The Deltec ambulatory infusion pumps are selling well, and major long-term supply agreements have been secured with three of the largest US healthcare purchasing groups. The enlarged user base of pumps is generating valuable continuing revenue from the disposable cassettes containing the medication. These ambulatory pumps are gaining acceptance in markets outside the US, including Japan. In the UK, the Graseby pole-mounted pumps used at hospital bedsides have benefited from NHS budget increases. Recent reorganisation of the division has established global business units, each focused on a specific therapy. The benefits will include: more rapid introduction of new products and their roll-out into world markets; increased focus on major national accounts; and further production efficiencies, including transfer of labour-intensive work to Mexico. These measures will help ensure Medical continues to grow strongly in a dynamic market. The expansion of the healthcare sector throughout the developed world is likely to continue without pause, regardless of general economic trends. Industrial £m 2001 2000 Sales 520 450 Operating profit 94 81 With sales and profits both up by 16% to £520m and £94m respectively, Industrial continued to grow strongly, retaining margins of 18%. In December 2000, US antenna company Radio Waves was acquired for £17m, and in March this year the Hydraulics business was sold for £12m. The acquisitions made part way through the prior year also contributed to the improvement. Interconnect now generates two thirds of Industrial's profits, and these businesses continued to thrive. Involved in the connection and protection of sensitive electrical and electronic equipment, they grew their sales in a wide range of applications including aerospace, defence, satellite, medical, rail and other specialised industrial sectors. Among important developments was the step-up in production of filtered Hypertac connectors for the Eurofighter Typhoon, a valuable long-term contract. Interconnect also serves the market for wireless broadband and mobile communications infrastructure and this part of the business, like many others in the sector, was affected by the global telecoms downturn. About one-fifth of Industrial's sales are involved, and even at the lower sales levels recorded in the second half, they were highly profitable. The Air Movement businesses were in steady-state during 2001, operating in difficult trading conditions but remaining strongly cash-generative and with good competitive positions. UK market leader Vent-Axia introduced new low energy, environmentally friendly ventilation fans which have been well-received by building equipment specifiers. The Flex-Tek businesses in the US gained market share with innovative products for household equipment. There was substantial progress on the integration of the six businesses which have joined and helped transform Industrial over the past two years. All of them are based in the US and have now started to build significant exports, particularly into Europe. Industrial enjoys excellent margins and generates cash-flow closely related to profits. Its outlook remains positive, with the broad range of interconnect applications being the principal driver. The immediate prospects for the world economy are uncertain at best, and Smiths is not immune to these external market forces. The civil aerospace business, less than 20% sales, will be most directly affected. However, the company's wide spread of activities from defence to healthcare, strong market positions, increased competitiveness from restructuring and emphasis on cash-flow all contribute to its greater resilience during more difficult trading conditions. The company is confident that it can continue to outperform in the period ahead. The Annual General Meeting of the company will be held at the offices of JP Morgan, 10 Aldermanbury, London EC2V 7RF, on Tuesday 13 November at 12.00 noon. If approved at the meeting, the recommended final dividend on the ordinary shares will be paid on 16 November to shareholders registered at the close of business on 5 October. The ex-dividend date will be 3 October 2001. Tables attached + Profit and Loss Account + Market and Geographical Analyses + Summarised Cash-flow Statement + Summarised Balance Sheet + Notes to the Accounts The financial statements attached have been prepared in accordance with merger accounting principles and the accounting policies set out in the company's accounts for the year ended 31 July 2000 which are in accordance with the FRS18 (Accounting Policies). Figures relating to that period are abridged. Full accounts for Smiths Industries plc to 31 July 2000 and TI Group plc to 31 December 1999 on which the auditors made unqualified reports have been delivered to the Registrar of Companies. Smiths Group: Preliminary Results 2001 - Unaudited Profit and loss account Year ended 31 July 2001 Ordinary Discontinued Goodwill Exceptional Total Activities Businesses amortisation Items £m £m £m £m £m Continuing operations 3398.3 3398.3 Acquisitions 67.9 67.9 Discontinued businesses 1492.0 1492.0 Turnover 3466.2 1492.0 4958.2 Continuing operations 516.0 (31.0) (115.8) 369.2 Acquisitions 8.6 (3.6) 5.0 Discontinued 123.7 (14.1) (17.7) 91.9 businesses Operating 524.6 123.7 (48.7) (133.5) 466.1 Profit Share of profits of associated 3.0 3.0 companies Total group operating 524.6 126.7 (48.7) (133.5) 469.1 profit Exceptional Items: Merger costs (54.2) (54.2) Loss on disposal of (286.0) (286.0) business Write-down of goodwill (125.0) (125.0) on anticipated future disposals Profit before interest 524.6 126.7 (48.7) (598.7) 3.9 and tax Net interest payable (76.5) (39.7) (116.2) Profit before taxation 448.1 87.0 (48.7) (598.7) (112.3) Taxation (129.9) (26.3) 3.6 60.5 (92.1) Profit / (loss) after 318.2 60.7 (45.1) (538.2) (204.4) taxation Minority (1.1) (0.5) (1.6) interests Profit / (loss) 317.1 60.2 (45.1) (538.2) (206.0) for the period Dividends (199.5) (199.5) Retained Profit / 117.6 60.2 (45.1) (538.2) (405.5) (Loss) Earnings per share: Basic 57.4p 10.9p (8.2)p (97.4)p (37.3)p Fully-diluted 57.2p 10.8p (8.1)p (97.0)p (37.1)p Note: The 2001 dividend included a special interim dividend of 12p per share (£60.6m) paid on TI Group plc shares in issue prior to the merger. Profit and loss account Year ended 31 July 2000 Ordinary Discontinued Goodwill Exceptional Total Activities Businesses amortisation Items £m £m £m £m £m Continuing 3061.5 3061.5 operations Acquisitions Discontinued 1591.4 1591.4 businesses Turnover 3061.5 1591.4 4652.9 Continuing 464.9 (20.5) (19.3) 425.1 operations Acquisitions Discontinued 153.6 (15.0) 138.6 businesses Operating 464.9 153.6 (35.5) (19.3) 563.7 Profit Share of profits of 4.3 4.3 associated companies Total group 464.9 157.9 (35.5) (19.3) 568.0 operating profit Exceptional Items: Merger costs Loss on disposal (3.3) (3.3) of business Write-down of goodwill on anticipated future disposals Profit before 464.9 157.9 (35.5) (22.6) 564.7 interest and tax Net interest (37.1) (43.6) (80.7) payable Profit before 427.8 114.3 (35.5) (22.6) 484.0 taxation Taxation (131.0) (35.0) 1.6 6.1 (158.3) Profit / (loss) 296.8 79.3 (33.9) (16.5) 325.7 after taxation Minority (1.0) (0.7) (1.7) interests Profit / 295.8 78.6 (33.9) (16.5) 324.0 (loss) for the period Dividends (165.6) (165.6) Retained 130.2 78.6 (33.9) (16.5) 158.4 Profit / (Loss) Earnings per share: Basic 54.2p 14.4p (6.2)p (3.0)p 59.4p Fully-diluted 54.0p 14.4p (6.2)p (3.0)p 59.2p ANALYSIS OF TURNOVER AND PROFIT - CONTINUING ORDINARY ACTIVITIES Market analysis Turnover Profit 2001 2000 2001 2000 £m £m £m £m Aerospace 1328.6 1144.5 210.1 177.7 Sealing Solutions 1164.7 1064.0 127.5 121.1 Medical 452.5 403.4 93.3 85.2 Industrial 520.4 449.6 93.7 80.9 3466.2 3061.5 524.6 464.9 Net Interest (76.5) (37.1) 448.1 427.8 Geographical origin Turnover Profit 2001 2000 2001 2000 £m £m £m £m United Kingdom 1136.7 1043.9 130.5 140.0 USA 1674.8 1336.6 275.8 222.9 In US dollars 2428.5 2111.8 399.9 352.2 Continental Europe 635.2 649.9 77.4 73.4 Other overseas 295.1 295.5 40.9 28.6 Inter-company (275.6) (264.3) 3466.2 3061.5 524.6 464.9 SUMMARY CASH - FLOW STATEMENT SHOWING CONTINUING ACTIVITIES Year Year ended ended 31 July 31 July 2001 2000 Continuing Total Activities £m £m £m Operating profit before goodwill 524.6 648.3 618.5 amortisation Depreciation 91.6 139.3 132.0 Working capital (85.8) (86.6) (61.3) Net cash inflow from ordinary 530.4 701.0 689.2 activities before capex Capital expenditure (111.6) (188.0) (168.2) Net cash inflow from ordinary 418.8 513.0 521.0 activities after capex Interest paid (117.9) (69.6) Tax paid (115.6) (114.9) Free cash flow before exceptional 279.5 336.5 items Merger & Restructuring costs (128.4) (22.6) Acquisitions (198.1) (625.0) Disposals 604.8 5.0 Dividends (171.3) (145.3) Other (40.6) (40.9) Reduction/(Increase) in net 345.9 (492.3) debt Net debt at beginning of (1465.7) (973.4) period Net debt at end of period (1119.8) (1465.7) Cash - flow statement (FRS1 BASIS) 2001 2000 £m £m Operating profit 599.6 583.0 Goodwill amortisation 48.7 35.5 Depreciation 139.3 132.0 (Increase) in stocks (34.4) (12.2) (Increase)/Decrease in debtors (71.7) 36.5 Increase/(Decrease) in creditors 19.5 (85.6) Net cash inflow from operating activities before 701.0 689.2 exceptionals Operating exceptional items (74.2) (22.6) Net cash inflow from operating activities after 626.8 666.6 exceptionals Merger costs (54.2) Returns on investment and servicing of finance (117.9) (69.5) Tax paid (115.6) (114.9) Capital expenditure (188.0) (168.2) Acquisitions/disposals 368.6 (590.5) Equity dividends paid (171.3) (145.3) Management of liquid resources 193.6 87.4 Financing (448.2) 326.7 Increase/(decrease) in cash 93.8 (7.7) Reconciliation to net debt Net debt at beginning of period (1465.7) (973.4) Net cash inflow / (outflow) 93.8 (7.7) Reduction in short-term deposits (193.6) (87.4) Term deposits acquired with subsidiaries 19.0 8.4 Term debt acquired with subsidiaries (37.9) Debt de-consolidated on disposals 19.1 Loan note issues net of repayments 3.5 (Reduction) / increase in other borrowings 452.8 (329.4) Exchange variations (48.7) (38.3) Net debt at end of period (1119.8) (1465.7) SUMMARISED BALANCE SHEET 2001 2000 £m £m Fixed assets Intangible assets 678.3 851.4 Tangible assets 620.1 977.2 Investments: Automotive 325.0 : Other 12.1 41.6 Current assets and liabilities Assets held for resale 7.0 Stocks 567.6 616.8 Debtors 918.6 1180.1 Creditors (914.6) (1201.1) 2207.1 2473.0 Net Borrowings / cash (1119.8) (1465.7) Provisions for liabilities and charges (208.9) (205.2) Funds employed 878.4 802.1 Capital and reserves Share capital and 285.0 256.6 Share premium Reserves 580.7 530.8 Shareholders' equity 865.7 787.4 Minority interests 12.7 14.7 Capital employed 878.4 802.1 Smiths Group : Preliminary Results 2001 -Unaudited NOTES TO THE ACCOUNTS Earnings per share are calculated on the weighted average number of shares in issue for each period: Basic Fully-diluted Year ended 31 July 2001: 552,770,686 554,884,489 Year ended 31 July 2000: 545,391,448 546,960,100 2) Exceptional charges The exceptional charges comprise £149.6m (post tax) charges with cash impact and a non-cash charge relating to goodwill on sales and prospective sales of non-core activities. The non-cash charge is principally writing off through the P&L goodwill that had previously been written off directly to reserves. Charges with cash impact: Charged to Operating Charged to Operating Profit Profit £m £m Head office closures 43.9 Operational restructuring 71.9 Merger costs 54.2 Total charges with cash 115.8 54.2 impact Automotive restructuring 17.7 Pre-tax costs 133.5 54.2 Tax relief (38.1) After-tax cost 95.4 54.2 The charge for head office closure relates to the closure of premises in Abingdon, Central London and New York. All 3 closures were completed in the year. The charge for operational restructuring relates to the transfer of work to low cost facilities and other restructuring activities. The charge is analysed £42.5m Sealing Solutions, and £29.4m Aerospace. The £17.7m Automotive restructuring took place in January 2001. The cash spend in the year including head office closures and Automotive was £74.2m. Merger costs are as specified in the listing particulars for the Merger with TI Group. Other exceptional charges £m Loss on automotive demerger 299.0 Gain on disposal of other businesses (13.0) 286.0 Goodwill previously written off to reserves now expensed to P&L relating 125.0 to prospective sales Pre-tax costs 411.0 Tax (22.4) After-tax cost 388.6 The loss on the Automotive demerger and gain on other disposals are detailed in note 11. The writedown on prospective sale relates to goodwill previously written off to reserves and charged to the profit and loss account in anticipation of the sale of the businesses concerned. The businesses in question are principally Air Movement businesses and various subsidiaries of EIS plc. Of the total charge of £125m the Industrial Division accounts for £54m with the remainder principally within the Sealing Solutions Division. 3) Operating profit is after charging 2001 2000 £m £m Depreciation of fixed assets 139.3 132.0 Research and development 109.5 97.3 4) Taxation 2001 2000 £m £m Taxation on the profit for the year: UK corporation tax at 30% (2000 - 30%) 95.8 81.1 Double taxation relief (20.9) (13.3) 74.9 67.8 Overseas taxation 84.4 94.6 Share of associates taxation 1.0 0.9 160.3 163.3 Tax relief on exceptional items (60.5) (6.1) Deferred taxation (7.7) 1.1 92.1 158.3 5) Stocks 2001 2000 Stocks comprise: £m £m Raw materials and consumables 154.3 222.3 Work in progress 199.7 179.5 Finished goods 235.0 235.6 589.0 637.4 Less payments on accounts (21.4) (20.6) 567.6 616.8 6) Debtors 2001 2000 £m £m Amounts falling due within one year: Trade debtors 641.6 912.4 Amounts recoverable on contracts 61.3 32.9 Other debtors 18.6 19.8 Prepayments and accrued income 30.9 32.4 752.4 997.5 Amount falling due after more than one year: Other debtors 20.8 40.9 Deferred taxation 6.3 Pensions prepayments 145.4 135.4 166.2 182.6 7) Creditors 2001 2000 £m £m Amounts falling due within one year: Bank loans and overdrafts 37.8 107.8 Short term loans 303.3 137.5 Finance leases 1.5 3.0 342.6 248.3 Trade creditors 285.1 496.6 Bills of exchange payable 3.4 12.4 Other creditors 51.0 60.9 Proposed dividend 90.4 93.7 Corporate taxation 60.4 87.9 Other taxation and social security costs 23.3 38.8 Accruals and deferred income 325.2 340.4 1181.4 1379.0 Amounts falling due after more than one year: Term loans 892.5 1527.5 Finance leases 1.9 11.9 894.4 1539.4 Other creditors 75.8 70.4 970.2 1609.8 8) Borrowings and net debt Fixed rate borrowings Floating Total Total borrowings 2001 2000 Weighted average InterestRate YearsFixed Amount £m £m £m £m Currencies: Sterling 7.03% 7 347.5 272.8 620.3 663.6 US Dollar 8.70% 2 59.4 269.9 329.3 579.1 EMU participants 5.51% 1 123.9 76.7 200.6 405.5 Japanese Yen 2.30% 3 21.3 11.3 32.6 42.5 Other 30.9 23.3 54.2 97.1 583.0 654.0 1237.0 1787.8 Cash and deposits (117.2) (322.1) Net debt 1119.8 1465.7 Maturity On demand / under 31.9 310.7 342.6 245.3 one year 1-2 years 37.7 52.9 90.6 430.0 2-5 years 364.7 142.1 506.8 811.1 Over 5 years 148.7 148.3 297.0 301.4 583.0 654.0 1237.0 1787.8 9. Provisions for liabilities and charges At Exchange P&L At 1.8. adjust cha Relea Acquisiti Utilisa Dispo 31.7.2001 2000 ment rge ses ons tion sals Post-retire ment healthcare 90.8 3.4 3.5 (3.5) 94.2 Product liability & 36.5 0.9 15.2 0.4 (15.2) 37.8 guarantees Reorganisation 6.0 0.1 62.6 (24.9) 43.8 Property 14.6 0.2 10.2 (2.5) 22.5 Legal 14.9 0.1 2.2 (5.2) (3.1) 8.9 Deferred 1.7 1.7 taxation Total 162.8 4.7 95.4 (5.2) 0.4 (49.2) 208.9 Discontinued 42.4 1.8 3.9 (10.7) (37.4) - Total 205.2 6.5 99.3 (5.2) 0.4 (59.9) (37.4) 208.9 10. Acquisitions During the year under review the Company acquired businesses set out below. The fair values are provisional, and will be finalised in subsequent financial statements. Date of Consideration Goodwill Net Assets Acquisition £m £m £m Fairchild Defense 30.10.00 75.3 58.2 17.1 Barringer 11.05.01 38.6 32.0 6.6 Radio Waves 18.12.00 17.0 15.9 1.1 Other Various 34.9 27.3 7.6 165.8 133.4 32.4 Book Value Revaluation Consistency of accounting policy Fair Value £m £m £m £m Fixed assets 16.1 16.1 Stock 24.7 (2.9) (3.3) 18.5 Debtors 23.3 (0.3) 23.0 Creditors (18.1) (4.3) (2.1) (24.5) Provisions (0.1) (0.1) (0.2) Taxation 0.3 (0.8) (0.5) 46.2 (7.5) (6.3) 32.4 Goodwill 133.4 Consideration - all satisfied cash 165.8 Deferred consideration - prior year acquisitions 32.3 Total acquisition spend including assumed borrowings/deposits 198.1 The acquired businesses at date of acquisition had cash deposits of £19.0m The deferred consideration on prior year acquisitions gave rise to further goodwill of £4.8m. In accordance with the provisions of FRS10 - Goodwill and Intangible Assets, the company amortises goodwill arising on acquisitions after 1 August 1998 on a straight-line basis over a period of up to 20 years. The charge for the year was £48.7m. Goodwill relating to acquisitions up to 1 August 1998 has been charged to Reserves. 11) Disposals The losses on disposals are: Pre-tax Tax relief Net £m £m £m Automotive (299.0) 22.4 (276.6) Other 13.0 13.0 Total (286.0) 22.4 (263.6) The loss on sale of Automotive is attributable to goodwill previously written off to reserves which on sale is required to be charged through the profit and loss account. The automotive demerger can be summarised: £m £m Consideration received: Gross cash received 615.0 Preference shares 325.0 940.0 Net assets at 30th June 2001 including capitalised goodwill (836.6) Fees and expenses (57.1) Surplus of net consideration over net assets 46.3 Goodwill previously written-off to reserves (345.3) Loss on sale (299.0) The consideration is subject to adjustment according to the value of net assets at completion. The net asset value is not yet agreed and provision has been made in relation to unresolved issues. The other disposals were principally Eschmann Equipment Ltd and its Singapore affiliate, Lambda Advanced Analogue and Smiths Hydraulics Company. The combined net assets of other disposals were £24.0m and the aggregate cash consideration received was £37.0m. Net cash realised from the disposals totalled £604.8m. The Automotive demerger included the deconsolidation of term debt of £19.1m. 12) Share premium account and reserves Share Revaluation Merger Profit premium reserve reserve and account loss account £m £m £m £m Adjusted consolidated 119.7 3.3 234.8 292.7 balance at 1 August 2000 Premium on allotments 26.4 (2.2) Retained profit / (loss) (0.1) (405.4) Write-back of goodwill on actual and 470.3 anticipated future disposals Exchange rate changes (including tax (12.7) on recognised gains) At 31 July 2001 146.1 3.2 234.8 342.7 During the year the Company received £10.3m on the issue of shares in respect of the exercise of options awarded under various share option schemes. Employees paid £8.1m for the issues of these shares and the balance comprised contributions to the qualifying employee share ownership trust (QUEST) from undertakings within the Company. The trust has been included within the financial statements. 2,624,134 shares at market value totalling £18.1m were taken up by shareholders as a scrip alternative to cash dividends.

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