melrose plc annual report 2007
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melrose plc annual report 2007
081022melroseracover12736melroserapoc  27308  1835  page 1 contents
01 highlights
03 melrose at a glance
04 chairman’s statement
06 chief executive’s review
08 business review
12 finance director’s review
18 board of directors 
20 directors’ report
26 corporate governance report
30 remuneration report
34 statement of directors’ responsibilities
35 independent auditors’ report to the members of melrose plc
on the consolidated financial statements 
36 consolidated income statement
37 consolidated statement of recognised income and expense
38 consolidated balance sheet
39 consolidated cash flow statement
40 notes to the consolidated financial statements
76 independent auditors’ report to the members of melrose plc
on the company financial statements
77 company balance sheet for melrose plc
78 notes to the company balance sheet
86 company and shareholder information 
87 notice of annual general meeting
printed by st ives westerham press
081022melroseracover12736melroserapoc  27308  2008  page 2 melrose plc annual report 2007  01
highlights
financial highlights
1
revenue
2007
2006
£3236 million
£3440 million
2007
2006 £192 million
£245 million
2007
2006
£119 million
£187 million
2007
2006
12 pence
74 pence
1
continuing operations only unless otherwise stated
2
before exceptional costs exceptional income and intangible asset amortisation other than computer software
group headline operating profit
2
group operating profit
2007
2006
£121 million
£270 million
headline profit before tax
2
2007
2006
£48 million
£212 million
profit before tax
basic earnings per share
2007
2006
60 pence per share
675 pence per share
full year dividend
2007
2006
147 pence
1021 pence
basic earnings per share
for continuing and discontinued group
081022melrosera12736melrosera  26308  1819  page 01 02 melrose plc annual report 2007
highlights continued
“
in line with our stated
objectives we returned £220
million of capital to shareholders
in august together with
dividends this means we have
returned to shareholders 95 of
the equity raised since melrose’s
inception in 2003
”
christopher miller executive chairman
“
i am very pleased with the
results of the group in 2007 
our strong financial condition
and solid trading performance
position us well to take
advantage of the current market
conditions to pursue acquisition
opportunities 
”
david roper chief executive
“
since the acquisition of the
dynacast and mckechnie
businesses the profit conversion
to cash for the continuing group
has averaged 94
”
geoffrey martin group finance director
■
disposal of mckechnie aerospace and psm 
at a profit of over £190 million
■
return of £220 million to shareholders 
on 31 august 2007
■
2007 proforma earnings per share
1
of 143p
■
net cash of £324 million 
2006 net debt of £1626 million
1
defined in section “earnings per share and number of shares in issue” of the finance director’s review
081022melrosera12736melrosera  27308  1221  page 02 melrose plc annual report 2007  03
melrose at a glance
year ended 31 december 2007
revenue £m 2359
headline operating profit £m 289
average number of employees 2394
dynacast
business units
dynacast north america
dynacast europe
dynacast asia pacific
key strengths
■
precision engineered diecast zinc aluminium
and magnesium alloy components
■
full service capability
■
concept and design engineering
■
rapid prototyping
■
machine building capability
sectors served
computing consumer electronics 
healthcare automotive hardware tooling 
and telecommunications
business description
global design and manufacture 
of diecast metal components
major customers and products
apple – ipod components 
motorola – phone and radio components 
procter  gamble – gillette razor handles
sony – digital camera decorative components
valeo – automotive trim and housings 
autoliv – automotive components
avago – fibre optic connectors
year ended 31 december 2007
revenue £m 554
headline operating profit £m 05
average number of employees 488
mckechnie vehicle
components mvc
business units
mvc newberry mvc nicholasville 
mvc troy and 
mckechnie tool and engineering
key strengths
■
manufacture of coated metal and plastic
wheel trim products 
■
stamping in stainless steel for aluminium
wheel market
■
design and development capability
■
focus on products which require technical
expertise
sectors served
us automotive industry
business description
design and manufacture of decorative 
exterior wheel trim products for the 
us automotive industry
major customers
daimlerchrysler ford toyota mitsubishi
nissan general motors
year ended 31 december 2007
revenue £m 527
headline operating profit £m 39
average number of employees 594
mckechnie plastic
components mpc
business units
mpc pickering mpc stamford bridge 
canning brett and prelok
key strengths
■
inhouse design and toolmaking facilities
■
leading edge technical development
■
secondary operation capability including
painting printing welding and packaging 
■
bespoke product testing
sectors served
automotive consumer packaging 
it hardware lifestyle telecommunications
electronics and general engineering
business description
design and manufacture of engineered and
injection moulded plastic components industrial
metal fasteners and application of treatment for
locking and sealing of threaded components
major customers and products
land rover aston martin jaguar and honda –
automotive trim makita – power tool housing 
marks  spencer – food packaging containers
diageo and scotco – widgets 
wavin – pipe seals cmp – battery seals
finnveden fiat mavic and schneider – 
precoated fastener applications prelok
austria
canada
china
france
germany
india
italy
korea
malaysia
mexico
singapore
slovenia
spain
uk
usa
the melrose businesses
operations across the globe
melrose plc annual report 2007  03
081022melrosera12736melrosera  27308  1220  page 03 i am pleased to report melrose’s fifth set of annual results since
flotation in october 2003
results for the continuing group
following the sale of mckechnie aerospace and aerospace
aftermarket divisions “mckechnie aerospace” and the majority 
of our psm division “psm” together the “disposals” these
accounts report the results of our businesses for the twelve months 
to 31 december 2007 and the relevant comparatives for the previous
year they take into account the effect of the return of capital and
share consolidation during august 2007
revenue for the year was £3440 million 2006 £3236 million
headline profit before tax before exceptional costs exceptional
income and intangible asset amortisation other than computer
software was £270 million 2006 £121 million 
after these items the profit before tax was £212 million 2006 
£48 million and basic earnings per share were 74p 2006 12p
further explanation of these results is provided in the finance
director’s review
our businesses and their employees have worked very hard to
produce these good results and i thank them on behalf of our
shareholders
2007 was a very busy year 
in which much was achieved 
in may we sold mckechnie
aerospace for £428 million and
psm for £30 million realising 
a combined profit of over 
£190 million in the two years
since acquisition
christopher miller executive chairman
04 melrose plc annual report 2007
chairman’s statement
081022melrosera12736melrosera  26308  1819  page 04 2007 was a very busy year in which much was achieved in may we
sold mckechnie aerospace for £428 million and psm for £30 million
realising a combined profit of over £190 million in the two years since
acquisition in line with our stated objectives we returned £220
million of capital to shareholders in august together with dividends
this means we have returned to shareholders 95 of the equity
raised since melrose’s inception in 2003 at the same time as the
return of capital shares in issue were reduced by means of a share
consolidation notwithstanding this repayment of capital melrose had
year end net cash of £324 million compared with net debt of
£1626 million at the end of last year
in such an active year it would be easy to overlook the strong
performances of our continuing businesses all three divisions have
bettered their results of last year and although mvc continues to
trade in a very difficult market place in the usa we are optimistic that
this overall improvement will continue into 2008 cash generation
remains very strong
david roper reports in more detail on each of our businesses in his
chief executive’s review
dividends
the board intends to propose a final dividend of 425p per share
together with an interim dividend of 25p per share paid on 
16 november 2007 a total of 675p per share 2006 60p 
per share at the annual general meeting on 7 may 2008 the
dividend is payable on 16 may 2008 to shareholders on the register
at 14 march 2008
strategy and outlook
our model is to acquire businesses which we understand and which
are capable of substantial improvement under our ownership it is an
important part of this model that we return capital to shareholders as
and when value has been created and realised we are pleased to
have been able to give an effective demonstration of this during 2007
i said last september that we were well placed to pursue suitable
acquisitions and that market conditions were potentially aiding us 
in this respect that continues to be the case and we are optimistic 
of concluding one or more acquisitions in the next twelve months
which will give us the opportunity for substantial further growth 
and profitability
christopher miller
5 march 2008
melrose plc annual report 2007  05
95
return of capital to shareholders
we return capital to shareholders as and when value has been
created and realised we are pleased to have been able to give 
an effective demonstration of this during 2007
of the original
subscribed capital
081022melrosera12736melrosera  25308  1420  page 05 i am very pleased with the results of the group in 2007 a lot
happened during the year and the makeup of the group is markedly
different from this time last year
the sale of the mckechnie aerospace division and psm in may
resulting in a profit to melrose of over £190 million after only two
years in our ownership was very gratifying this enabled us to return 
£220 million to shareholders in august this means that shareholders
have received by way of distribution or return of capital 95 of the
equity capital raised since melrose floated in october 2003
in addition the trading result for the group in 2007 was good i set
out below the reports on the divisions and would mention the
following highlights
■
at dynacast a major investment programme in south china is
underway to take advantage of the continuing strong trading
conditions in the far east having completed the restructuring of its
operational base and turned its attention to bolton acquisitions it is
pleasing to report that dynacast has successfully completed two
such acquisitions in the second half of the year – the search
continues for more
■
at mvc although market conditions remain extremely challenging
operational improvements continue to be made and the new
chrome plating line was successfully introduced which assisted the
launch of mvc’s new plasticlad product
■
at mpc the benefits of operational restructuring and of focusing on
higher margin value added products are coming through well new
product introductions supported by targeted capital investment
were notable achievements
having successfully sold
businesses and returned capital 
to our shareholders we have been
able to show how our business
model works in practice
david roper chief executive
06 melrose plc annual report 2007
chief executive’s review
081022melrosera12736melrosera  26308  1822  page 06 outlook
dynacast continues to show the quality of its business franchise by
reporting increased profits and margins even in the face of large raw
material price rises in addition to its active ongoing capital investment
programme particularly in the far east the company is looking to 
make further valueenhancing bolton acquisitions 
at both mvc and mpc the strategy is to exploit the high level of
technical engineering and design expertise in the businesses
supported by bold but highly focused capital investment to deliver
improved returns
as chris miller says in his chairman’s statement having successfully
sold businesses and returned capital to our shareholders we have
been able to show how our business model works in practice our
strong financial condition and solid trading performance position us
well to take advantage of the current market conditions to pursue
acquisition opportunities
i am most encouraged by the trading performance of the group 
and i look forward to further achievements in the year ahead
david roper
5 march 2008
melrose plc annual report 2007  07
081022melrosera12736melrosera  27308  1941  page 07 dynacast is a global manufacturer of precision engineered diecast
metal components and assemblies the products are manufactured
using proprietary diecasting technology and are supplied to a wide
range of end markets including automotive healthcare
telecommunications consumer electronics and computer hardware
and peripherals
dynacast performed well in 2007 revenue and headline operating
profit were up by 64 and 151 respectively over the previous year
these results are after suffering an exchange loss on translation
resulting from the weakness of the us dollar of £05 million and
exchange losses on transactions primarily as a result of the increased
strength of the canadian dollar against the us dollar of £1 million 
whereas dynacast’s 2006 headline operating profit was adversely
impacted by approximately £3 million because of the nonrecovery of
zinc cost the company’s major raw material management’s actions
in the second half of 2006 in aligning movements in zinc input prices
with selling prices to customers have to a large degree removed the
effect of movements in the price of zinc from headline operating profit
europe was ahead of expectations buoyed generally by favourable
economic and trading conditions in its markets in particular germany
austria and spain performed strongly and finished ahead of target we
were pleased with the recovery of dynacast france after having
transferred some of its less profitable work to lower cost countries
2007 was the first full year of running the gillette “fusion” product
dynacast
08 melrose plc annual report 2007
business review
year ended 31 december 2007 2006
revenue £m 2359 2217
headline operating profit £m 289 251
dynacast revenue by sector 
automotive 40
electronics computers
 telecoms 26
healthcare 11
hardware  tooling 7
others 16
dynacast revenue by geographic area 
europe 43
north america 33
asia 24
quality and durability 
are key requirements
dynacast manufactures
decorative components 
for consumer electronics
products including digital
cameras mp3 players and
mobile phones here is an
example of a hinge which is
manufactured for the
motorola “razr” mobile
phone range
081022melrosera12736melrosera  28308  1547  page 08 produced in a purposebuilt factory in austria and volumes were in
line with original predictions 
performance in north america was reasonable both at the revenue
and headline operating profit level market conditions in this region are
more difficult at present than in both europe and asia largely due to a
higher proportion of sales to the automotive sector it was encouraging
to see in the early part of the year the operational benefits from the
closure of the spartanburg factory in south carolina of special note is
the continuing robust sales of handles for the “mach iii” gillette razor
which has been produced in our factory in montreal for ten years 
in asia trading continued to be buoyant with dynacast china leading
the way with revenue and headline operating profit up 469 and
597 respectively over the previous year singapore performed
particularly well in winning new sales to replace products that reached
their “endoflife” earlier in the year in view of the continuing strong
demand in the region a capital expenditure project has been
approved to invest approximately £4 million over the next four years
in a new manufacturing facility in southern china 
when melrose acquired dynacast in may 2005 we embarked upon a
restructuring programme to align dynacast’s manufacturing sites with
its customer base which itself was continuing to migrate production
to lower cost countries this phase is now complete and we have
seen dynacast’s return on sales on a constant zinc and currency
basis improve significantly since acquisition to 148 following this
in order to further develop the business and generate additional
revenue growth dynacast is now focusing on addon acquisition
opportunities the market that dynacast operates in is very
fragmented and affords considerable consolidation opportunities
two businesses qzd and techmire both based in montreal
canada were acquired in september 2007 for a total cost of 
£87 million qzd a precision zinc diecasting business has been
successfully integrated into dynacast’s montreal factory techmire 
is a designer and manufacturer of multipleslide diecasting machines
and will be operated as a standalone business techmire’s overheads
have already been significantly reduced and a new site has been
found close to the existing dynacast site to rehouse the production
facilities both acquisitions are expected to improve the profitability 
of dynacast’s operations
management are continuing to look for suitable acquisition
opportunities including eastern europe and to invest heavily in the
fast growing far east markets while maintaining their focus on
achieving the highest levels of operating efficiency in the business
dynacast benefits from a strong market share a well diversified
geographic and product sector exposure and excellent cash
generation qualities we are confident that management will deliver
another strong set of results in 2008
melrose plc annual report 2007  09
high quality
precision
mouldings
dynacast supplies high quality housings 
for avago a leading manufacturer of high
technology fibre optic connectors for the
transfer of electronic data
081022melrosera12736melrosera  28308  1547  page 09 mckechnie vehicle components mvc
10 melrose plc annual report 2007
business review continued
mvc manufactures decorated exterior trim products for the us
automotive industry principally coated metal and plastic wheel
products
although mvc reported substantially improved results in 2007 over
2006 it is disappointing that the company did not reach breakeven
mvc’s new products in 2007 were targeted towards the smaller
crossover vehicles rather than the suvs and pickup trucks which
provided it with growth in a difficult marketplace unfortunately the
benefits of this growth have been reduced principally by higher raw
material costs whilst considerable progress was made by mvc
management to recover these raw material costs in 2007 a
combination of the growth in output and the size of the increases
resulted in higher overall costs improved levels of recovery negotiated
during the latter part of 2007 and the fall in raw material costs back
toward the prices at the beginning of 2007 should help to continue
with the progress of this business towards a more satisfactory result 
a key challenge for mvc management during 2008 will be addressing
the profitability of a number of legacy products
the highlight of the year was the successful introduction in
september of the new chrome plating line at our nicholasville plant
this was critical in enabling mvc to meet the high level of contracted
orders from customers for the new plasticlad product in addition
significant improvements have been made in the wheel assembly
process at nicholasville which bode well for the forthcoming new
product launches in 2008
our newberry plant continues to deliver a good performance it
coped well with the transfer of the duraclad assembly line from
nicholasville which improved capacity utilisation and has flexed its
operational cost base well to match demand
the operational improvement in 2007 has been pleasing however
even allowing for its good position in a niche market conditions in the
us automotive market are tough with constant attention to the basics
and the new plating line geared up to meet the projected demands of
the new programmes coming on stream in the second half of 2008
we expect a continuing improvement
year ended 31 december 2007 2006
revenue £m 554 480
headline operating loss £m 05 23
£75m
investment in chrome plating
line at nicholasville plant
advanced design techniques
mvc manufactures plastic
wheel claddings for the new
pontiac vibe produced by
new united motor
manufacturing inc a joint
venture between toyota and
general motors 
this is toyota’s first plasticlad
and is manufactured at mvc’s
nicholasville plant using the
new chrome plating line
081022melrosera12736melrosera  28308  1548  page 10 mckechnie plastic components mpc
melrose plc annual report 2007  11
mpc is a uk producer of engineered plastic injection moulded
components for products used in a variety of industries including
power tools it hardware food and beverage packaging and
automotive following the sale of the fastener division of mckechnie
psm in may 2007 the results of both the psm thread locking and
sealing business which has been renamed prelok and canning brett
are included in this section
mpc has delivered a strong set of results in 2007 although the
closure of the northampton plant in 2006 resulted in a fall in
revenue this action had the desired effect of a more profitable
business with headline operating profit up by 30 over 2006
mpc continues to focus its engineering expertise on more automated
highly engineered value added products and processes whilst
building strong long term relationships with its customers this
strategy has enabled mpc to differentiate itself from its competitors
the stamford bridge facility has had a good year as a result of its
rigorous adherence to the above strategy supplemented by a
substantial capital expenditure programme in addition to the
successful development of new highly automated production cells
together with process reengineering for a number of key customers
new long term contracts have been signed with diageo and scotco
for the supply of “widgets” for use in cans and bottles
the quality of the business at mpc’s automotive operation at
pickering has improved notably during the year – headline operating
profit has more than doubled on broadly unchanged sales again
focusing on the core strategy of a targeted capital investment
programme together with emphasis on pricing discipline to recover
input costs has paid dividends
prelok’s results in the year were most encouraging with production
volumes outstripping capacity in its cologne facility a new production
unit located in germany became fully operational in july 2007 this
new facility close to the polish and czech borders is well positioned
to profit from new business opportunities in the burgeoning eastern
european markets
with a favourable start to 2008 and further opportunities in the uk
industry afforded by the demise of certain competitors we expect
mpc to continue to build on its strong foundation and to deliver
another good performance this year
mpc revenue by sector 
automotive 59
telecommunications  it hardware 3
consumer packaging  lifestyle 17
general engineering  construction 11
others 10
year ended 31 december 2007 2006
revenue £m 527 539
headline operating profit £m 39 30
30
headline operating profit up
over 2006
targeted capital investment
mpc manufactures door
claddings for the land
rover freelander
claddings are moulded
using an automated multi
shot process on a new
1500 tonne injection
machine the largest within
the division the finished product is painted and assembled ready
for fitment on the land rover freelander
081022melrosera12736melrosera  28308  1548  page 11 the year to 31 december 2007 included the disposal of the
mckechnie aerospace and psm division taken together these sold
businesses constituted 36 of group sales and 66 of group
headline operating profit in 2006
consequently the melrose group is now significantly smaller than in
2006 and in compliance with ifrs 5 the trading results for the group
are split into continuing operations and discontinued operations
group trading results – continuing operations
the continuing operations comprise dynacast mckechnie vehicle
components mvc and mckechnie plastic components mpc the
latter division now includes the remaining smaller part of psm trading
as prelok and canning brett
to help understand the results the term “headline” has been used in
this review this refers to numbers that are calculated before
exceptional costs exceptional income and intangible asset
amortisation other than computer software
the group achieved revenue from continuing operations for the year
ended 31 december 2007 of £3440 million 2006 £3236 million
representing an increase of £204 million 63 over the previous
year or 97 at constant currency 
headline operating profit grew by 276 to £245 million 2006
£192 million this represents a headline operating profit return on
revenue of 71 2006 59 a 12 percentage point increase on
the previous year
at constant currency the profit growth in 2007 was 302 as a £05
million translation exchange loss was incurred largely due to the
weakness of the us dollar
after exceptional costs exceptional income and intangible asset
amortisation the operating profit was £187 million 2006 £119 million
trading results by division
the improvement in the trading results has been driven by stronger
performance at each division a split of revenue and headline
operating profit by division is as follows
headline
operating
headline profit before
operating return on depreciation  return on 
revenue profit sales amortisation sales
£m £m  £m 
dynacast 2359 289 123 357 151
mvc 554 05 09 14 25
mpc 527 39 74 55 104
central costs – 58 – 57 –
central – ltips – 20 – 20 –
group 3440 245 71 349 101
melrose places strong emphasis
on cash generation and
management dynacast in
particular which now trades with
only two weeks of net working
capital has excellent profit
conversion to cash averaging
107 during melrose ownership 
geoffrey martin group finance director
12 melrose plc annual report 2007
finance director’s review
081022melrosera12736melrosera  25308  1420  page 12 the performance by division is discussed in more detail in the chief
executive’s review the change in headline operating profit return on
revenue percentage from 2006 to 2007 is shown below
headline operating profit return on revenue
group dynacast mvc mpc

2007 71 123 09 74
2006 59 113 48 56
the increase in the continuing group return on revenue has been
driven by an improvement in all three divisions
cash generation and management
melrose places strong emphasis on cash generation and management
this is achieved by the careful monitoring of the key cash and working
capital metrics in each division and by ensuring that divisional
management is incentivised to turn profit into cash 
since the acquisition of the dynacast and mckechnie businesses the
profit conversion to cash for the continuing group has averaged 94
post working capital movement and capital expenditure this high
conversion ratio has been achieved even after spending in excess of
depreciation on capital projects dynacast in particular which now
trades with only two weeks of net working capital has excellent profit
conversion to cash averaging 107 during melrose ownership since
acquisition dynacast has generated £68 million in cash after all
working capital movement capital expenditure and restructuring costs
the cash generation performance in 2007 is summarised as follows
£m
headline operating profit 245
depreciation and computer software amortisation 104
working capital increase 29
total capital expenditure 160
disposal of assets 04
headline cash generated from operations 164
disposal of businesses 4467
capital distribution paid 2126
acquisition of subsidiaries 87
restructuring costs and spend on other provisions 19
interest and tax 28
pension contributions 261
dividends paid 130
exchange  other including discontinued operations 30
total movement in net debtnet cash in 2007 1950
during 2007 67 of headline operating profit was converted into
cash post working capital and capital expenditure this was despite
the exceptionally high capital spend in mvc during the year adjusting
for this the profit conversion to cash was 94 in 2007 in line with
the longer term melrose average
capital and restructuring projects
since the acquisition of the dynacast and the mckechnie businesses
melrose has spent significant amounts on capital and restructuring
projects averaging approximately £25 million per year equal to 13x
depreciation on capital projects and 05x depreciation on restructuring
projects this level of expenditure demonstrates the importance the
board place on this method of creating shareholder value the total
expenditure on these items over the last three reporting periods has
been as below
2005 
7 mths 2006 2007 average x 
£m £m £m £m
capital expenditure 7 1 197 187 13 x
restructuring projects – 
cash spend 89 92 10 05 x
total 160 289 197 18 x
the capital expenditure in 2007 includes continued investment in the
dynacast production facility in china however the most significant
item of capital expenditure in 2007 was in mvc over the last 15
months mvc has invested £75 million on a new nickel chrome
plating line for its plasticlad wheel cover ranges as a consequence
the book value of the old discontinued plating line has been fully
impaired this £15 million non cash charge has been shown in
exceptional costs 
the new restructuring projects in 2007 relate mainly to integrating the
small acquisitions made by dynacast
profit on sale of businesses
gross proceeds from the disposals during the year were £4580 million
and costs charged during the period were £108 million net assets
disposed of were £2336 million including goodwill and intangible
assets other than computer software of £1525 million and the
cumulative exchange translation movement on assets since acquisition
of £220 million previously booked straight to reserves was recycled on
disposal as a result the profit on sale was £1916 million
melrose plc annual report 2007  13
081022melrosera12736melrosera  25308  1420  page 13 tax
the melrose group remains in a strong tax position the headline tax
charge in the profit and loss account has reduced to 26 in 2007
from 28 in 2006 this is below the uk statutory rate during the
period of 30 as the group continues to benefit from lower far east
tax rates balanced in part with higher north american and european
tax rates
the headline cash tax rate of 16 for the continuing group remains
below the profit and loss account rate but as expected the gap
between the two is narrowing the group has significant tax losses
available to it but due to the split of profits geographically most are
not recognised as deferred tax assets because the majority of the
losses are in the uk where insufficient profits are generated a
summary of tax losses by geography is shown below
recognised unrecognised total
£m £m £m
uk – 1386 1386
north america 26 67 93
rest of world – 186 186
total 26 1639 1665
the group paid no corporation tax on the profits it made on the
disposals this is largely a result of the group benefiting from the
substantial shareholder exemption rules in the uk
return of capital and subsequent share consolidation
during august 2007 following the disposals and in line with the
melrose strategy to return surplus cash to shareholders the group
returned £220 million of capital to shareholders shareholders had
the option of receiving a payment either in august 2007 or deferred
until 2008 this meant that within 28 months of acquiring the
mckechnie and dynacast businesses in may 2005 95 of capital
raised from shareholders had been returned and the group had
moved to a net cash position 
the capital return was made in conjunction with a 1 for 2 share
consolidation which resulted in the number of shares in issue
reducing from 2673 million to 1337 million as permitted some
shareholders opted to defer the capital payment until 2008 and
therefore a £72 million creditor is included in the 31 december 2007
balance sheet to represent the outstanding balance on the £220
million capital repayment
long term incentive scheme
melrose has an incentive scheme which rewards certain senior
management with melrose shares as defined in the remuneration
report the original scheme set up at the start of melrose in october
2003 was due to run until may 2009 however with the approval of
both the remuneration committee and shareholders on 14 august
2007 in conjunction with the return of capital to shareholders this
scheme was crystallised this resulted in 102 million shares being
awarded to senior management and created a £19 million
crystallisation charge in the profit and loss account to recognise the
national insurance due on the value of the shares awarded and the
acceleration of the ifrs 2 charge associated with these shares this
one off crystallisation charge has been shown in exceptional costs
shareholders approved a new incentive scheme on 14 august 2007
that mirrors the old scheme but has an end date extended to may
2012 and only rewards the creation of value above that which the
original scheme rewarded
the charge to headline operating profit for the incentive scheme was
£20 million this consisted of a £06 million charge relating to the
original melrose scheme for the period 1 january 2007 to 14 august
2007 a £03 million charge for the new melrose scheme from 
14 august 2007 to 31 december 2007 and a £11 million charge for 
a dynacast senior management scheme
earnings per share and number of shares in issue
in accordance with ias 33 two basic earnings per share numbers are
disclosed on the face of the income statement one for continuing
operations only and one which also includes discontinued operations
however because a 1 for 2 share consolidation occurred part way
through the year these measures do not give a good indication of the
underlying earnings per share for the continuing group on an ongoing
basis the 1 for 2 share consolidation and the early crystallisation of the
original melrose incentive scheme caused the number of shares to
change throughout the year as follows
number of
shares
at 1 january 2007 257 1m
crystallisation of original melrose incentive scheme 
on 14 august 2007 102m
at 14 august 2007 267 3m
1 for 2 share consolidation completed on 15 august 2007 1336m
at 31 december 2007 1337m
weighted average number of shares in the year 2105m
the earnings per share calculation for continuing operations uses the
weighted average number of shares in existence for the whole of
2007 and not the lower number of shares in issue post the share
consolidation this therefore understates the underlying performance
on an on going basis conversely the earnings per share including
discontinued operations includes the one off profit on the disposals
in the year and therefore significantly overstates the underlying
ongoing trading performance
14 melrose plc annual report 2007
finance director’s review continued
081022melrosera12736melrosera  25308  1420  page 14 to help understand the underlying performance a calculation is detailed
below to show earnings per share of 143p on a proforma basis 
£m
2007 headline operating profit 245 
proforma interest received
1
14
259 
tax
2
67
192 
shares in issue
3
1337m
proforma eps 143p
1
interest income assumed at 57 2007 average rate since moving to a net cash
position on £25 million net cash as at 31 december 2007 less remaining return of
capital of £7 4 million
2
tax at 2007 headline rate 26
3
issued share capital after share consolidation
acquisitions during the year
during the year two small acquisitions were made by dynacast for a
combined consideration of £87 million including £03 million of costs
both transactions were asset purchases rather than share purchases
the fair value of net assets purchased was £42 million including
intangible assets of £16 million and therefore the goodwill was 
£45 million these acquisitions contributed only £02 million to the
dynacast headline operating profit in the year as they were not
completed until september
exceptional costs and income
excluded from the headline operating profit are certain costs and
income of an exceptional nature that are considered outside the normal
course of business for the divisions these charges are as follows
year ended 
31 december 2007
cash non cash total
£m £m £m
exceptional cost
dynacast restructure of acquisitions 10 05 15
mvc “old” nickel plater impairment – 15 15
crystallisation of original melrose 
incentive scheme 08 11 19
total exceptional cost 18 31 49
exceptional income
pension curtailment gain – 11 11
the three items of exceptional cost have all been discussed previously
in this review the total cost of these exceptional items is £49 million
of which £18 million is a cash cost the item of exceptional income
relates to the pensions curtailment gain that arose on the sale of the
mckechnie aerospace division
assets and liabilities
the split of assets and liabilities is shown in the table below
31 december 31 december 
2007 2006
£m £m
goodwill and intangible assets 2074 3562
property plant and equipment 607 794
net working capital 188 452
net tax liabilityasset 128 24
ias 19 employee benefits pension 252 554
provision and other 138 101
total 2351 4177
these assets and liabilities are funded by
31 december 31 december 
2007 2006
£m £m
net cashdebt 324 1626
equity 2675 2551
total 2351 4177
the assets and liabilities of the group have changed significantly
during 2007 as a result of the disposals the group has sold 
£2336 million of assets and liabilities during the year and moved
into a net cash position 
impairment review
in compliance with ias 36 the carrying value of the net assets by
division has been compared to their future cash flows discounted 
at a rate reflective of their circumstances and method of funding 
this confirmed the carrying value of each division in the group
balance sheet
pensions
the group has a number of defined benefit and defined contribution
schemes in place globally
the current market value of the assets of the defined benefit
schemes is insufficient to satisfy the liabilities to members when they
are valued on a basis consistent with ias 19 the net accounting
deficit on the schemes was £252 million 2006 £554 million of
which 63 2006 82 was derived from the most significant
scheme in the group the uk mckechnie pension plan the “plan”
this had assets at 31 december 2007 of £1147 million 2006
£830 million liabilities of £1307 million 2006 £1284 million
and therefore a deficit of £160 million 2006 £454 million
melrose plc annual report 2007  15
081022melrosera12736melrosera  25308  1420  page 15 as part of the disposal process of the mckechnie oem division
melrose obtained clearance from the uk pensions regulator for its
agreement with the trustee of the plan melrose made a cash payment
of £200 million to the plan in may 2007 and agreed to pay a further
£183 million in equal quarterly instalments of £15 million over the
next three years starting in july 2007 melrose plc has also guaranteed
the funding of the plan on an ongoing basis as a consequence of this
the company has contributed £258 million 2006 £54 million into
the plan in 2007 significantly more than in the previous year and the
total pension deficit in the melrose group has reduced by more than
half the movement in the plan deficit from £454 million in 2006 to
£160 million in 2007 is explained below
£m
2006 ias 19 deficit 454
interest on liabilities 65
expected return on assets 65
investment outperformance 23
change in key pension assumptions 80
increase in life expectancy lower mortality 7 6
curtailment gain 11
employer contributions 258
other 02
2007 ias 19 deficit 160
the assumptions used to calculate the ias 19 deficit are considered
carefully by the board of directors and are considered suitable for a
scheme of this nature the mortality assumption has been made more
prudent during the year to allow both for a higher level of current life
expectancy than previously used but also for further increases in the
expected future improvements to life expectancy a male aged 65 in
2007 is expected to live for 206 years this life expectancy is assumed
to increase by 12 years 6 by 2020 this has added a further £76
million to liabilities in the year a summary of the key assumptions of
the plan are disclosed below
31 december 31 december
2007 2006
 
discount rate 57 51
inflation 33 29
pension increases 33 29
31 december 31 december
2007 2006
age age
life expectancy for 
a male aged 65 in 2007 856 836
life expectancy for 
a male aged 65 in 2020 868 851
the long term strategy for the plan is to concentrate on the cash flows
required to fund the liabilities as they fall due these cash flows
extend many years into the future and the ultimate objective is that
the total pool of assets derived from future company contributions
and the investment strategy allows each cash payment to members
to be made when due viewed on this basis the investment strategy
has many years for the assets to grow to help fund the liabilities
consistent with this approach a new investment strategy targeted at
an absolute rate of return has been implemented by the trustee with
the company’s agreement during 2007
risk management
the significant financial risks the group faces have been considered
and policies have been implemented to best deal with each risk the
four most significant financial risks are considered to be liquidity risk
finance cost risk exchange rate risk and commodity risk these are
discussed in turn
liquidity risk
the group moved from a net debt position of £1626 million at 
31 december 2006 to a net cash position at 31 december 2007 of
£324 million as a result the group repaid a significant amount of its
bank term loans during the year the committed bank term loan facility
comprises a term loan of £110 million 2006 £1904 million which
expires in 2010 the additional committed working capital facility of 
£30 million remains unchanged from the previous year and the group
also benefits from a few small local overdraft facilities and some finance
lease arrangements for specific assets which have £12 million 2006
£38 million outstanding capital balances at 31 december 2007
the combination of having a net cash position and a reduced
committed bank facility means that the directors consider 
that the group has sufficient capital for its current needs
finance cost risk
the interest rates the group is exposed to are variable and linked to
libor previously when the group had net debt it was appropriate
that financial instruments were entered into to protect against
movements in interest rates now that the group has net cash this
protection is not considered necessary since moving into a net cash
position and repaying the majority of the term loan in may 2007 the
group has received interest at an average rate of 57
16 melrose plc annual report 2007
finance director’s review continued
081022melrosera12736melrosera  25308  1420  page 16 exchange rate risk
the group trades in various countries around the world and hence the
group is exposed to many different foreign currencies the group
therefore carries an exchange risk that can be categorised into three
types described below the board policy is designed to protect against
some of the cash risks but not the noncash risks the most common
cash risk is the transaction risk the group takes when it invoices a sale
in a different currency to the one in which its cost of sale is incurred
this is addressed by taking out forward cover against approximately
80 of the anticipated cash flows over the following twelve months
placed on a rolling quarterly basis this does not eliminate the cash risk
but does bring some certainty to it during 2007 the group incurred a
£10 million transaction exchange loss
exchange rates used in the period
average rate closing rate
to £ sterling to £ sterling
us dollar
2007 200 200
2006 184 196
euro
2007 146 136
2006 147 149
the effect on the key headline numbers in 2007 for the continuing
group due to the translation movement of exchange rates from 2006
to 2007 is summarised as follows
2007 
exchange rate 
versus 2006 
exchange rate
£m
2007 effect
sales reduction 110
headline operating profit reduction 05
net asset increase 37
for reference guidelines to show the net translation exchange risks that
the group currently carries are shown below
increase in 
profit
£m
for every 10 cent strengthening 
of the us dollar against sterling 02
for every 10 cent strengthening 
of the euro against sterling 11
as the translation risk is not a cash cost no exchange instruments are
used to protect against this risk however when the group has net
debt which it currently does not the hedge of having a multicurrency
debt facility funding these foreign currency trading units protects
against some of this risk
the most significant exchange risk that the group takes arises when 
a division that is predominantly based in a foreign currency is sold 
the proceeds for those divisions will most likely be received in a
foreign currency and therefore an exchange risk arises if these
proceeds are converted back to sterling for instance to pay a dividend
to shareholders protection against this risk is taken on a casebycase
basis on the signing of the agreement to sell the mckechnie
aerospace oem and aerospace aftermarket divisions melrose
purchased sterling call options to protect against the currency exposure
on us575 million of the proceeds at an average exchange rate of
£1us1986 no financial instruments of this nature currently exist 
in the group
commodity risk
as melrose owns engineering businesses across various sectors the
cumulative expenditure on commodities is significant to the group
results the group addresses the risk of base commodity costs
increasing by wherever possible passing on the cost increases to
customers or by having suitable purchase agreements with its
suppliers which sometimes fix the price over some months in the
future melrose does not generally enter into financial instruments on
commodities as this is not considered to be the most efficient way of
protecting against movements
geoffrey martin
group finance director
5 march 2008
melrose plc annual report 2007  17
081022melrosera12736melrosera  25308  1420  page 17 christopher miller david roper simon peckham geoffrey martin
christopher miller  executive chairman
age 56 he qualified as a chartered accountant with coopers 
lybrand following which he was an associate director of hanson plc
in september 1988 he joined the board of wassall plc as its chief
executive between october 2000 and may 2003 he was involved in
private investment activities mr miller was appointed as an executive
director of melrose on 29 may 2003 he is currently chairman of
tmo renewables limited
david roper  chief executive
age 57 he qualified as a chartered accountant with peat marwick
mitchell following which he worked in the corporate finance divisions
of sg warburg  co limited bzw and dillon read in september
1988 he was appointed to the board of wassall plc and became its
deputy chief executive in 1993 between october 2000 and may
2003 he was involved in private investment activities and served as 
a nonexecutive director on the boards of two companies mr roper
was appointed as an executive director of melrose on 29 may 2003
simon peckham  chief operating officer
age 45 he qualified as a solicitor in 1986 in 1990 he joined wassall
plc and became an executive director of wassall plc in 1999 from
october 2000 until may 2003 he worked for the equity finance
division of the royal bank of scotland and was involved in several
high profile transactions mr peckham was appointed as an executive
director of melrose on 29 may 2003
geoffrey martin  group finance director
age 40 he qualified as a chartered accountant with coopers 
lybrand where he worked within the corporate finance and audit
departments in 1996 he joined royal doulton plc he was group
finance director of royal doulton from october 2000 until june
2005 during this time he was involved in projects including raising
public equity debt refinancings and the restructuring and outsourcing
of royal doulton’s manufacturing and supply chain mr martin was
appointed as an executive director of melrose on 7 july 2005
the board of melrose 
which combines commercial
experience with financial
expertise is dedicated to
delivering shareholder value 
by improving the quality of the
businesses it owns through
restructuring and investment
where appropriate 
18 melrose plc annual report 2007
board of directors
081022melrosera12736melrosera  27308  1315  page 18 miles templeman  nonexecutive director
age 60 he has been a director of several consumer goods and
retailing companies he was managing director of threshers 
offlicences between 1985 and 1988 and managing director of
whitbread beer company between 1990 and 2001 mr templeman
was chief executive officer of hp bulmer holdings plc from january
2003 to july 2003 he has also held a number of other non
executive directorships and was appointed as a nonexecutive director
of melrose on 8 october 2003 since october 2004 mr templeman
has held the position of director general of the institute of directors
he is currently nonexecutive chairman of shepherd neame the
kentish family brewer and nonexecutive chairman of restaurant chain
yo sushi
perry crosthwaite  nonexecutive director
age 59 he has over 30 years’ experience as a director in the city 
of london he was a founding director of henderson crosthwaite
institutional brokers limited serving on the board until its acquisition
by investec group uk plc in 1998 he became a director of
investec bank uk limited and chairman of the investment banking
division until his retirement in 2004 mr crosthwaite was appointed as
a nonexecutive director of melrose on 26 july 2005 he is currently
chairman of jupiter green investment trust plc and a nonexecutive
director of toluna plc 
john grant  nonexecutive director
age 62 he spent his executive career in a variety of senior
international roles within the automotive industry and other
engineering businesses in 2000 mr grant led a successful
management buyout of four specialist engineering businesses from
ascot plc to form hasgo group limited and peter stubs limited prior
to that he was chief executive of ascot plc between 1997 and
2000 mr grant previously worked as group finance director for
lucas industries plc subsequently lucas varity plc between 1992
and 1996 and held a number of senior positions within ford motor
company in europe and the usa
mr grant was appointed as a nonexecutive director of melrose on 
1 august 2006 he is currently nonexecutive chairman of hasgo
group limited and torotrak plc and nonexecutive director of mhp
sa and the royal automobile club limited 
miles templeman perry crosthwaite john grant
melrose plc annual report 2007  19
081022melrosera12736melrosera  26308  1824  page 19 the directors of melrose plc present their report and the 
audited financial statements of the group for the year ended 
31 december 2007
principal activities and business review 
melrose plc’s stated strategy is to acquire companies and businesses
whose operational performance the melrose plc directors believe
can be improved to create shareholder value the executive directors
have extensive experience of identifying and evaluating acquisition
opportunities quoted and unquoted both uk and overseas 
on 26 may 2005 melrose plc acquired the dynacast group and the
mckechnie group for a consideration of £429 million plus costs
since acquisition melrose has significantly improved the performance
of these businesses 
the board announced on 14 may 2007 that the company had
completed the disposal of its aerospace oem and aerospace
aftermarket divisions for a consideration of £428 million further it
announced on 18 may 2007 that it had completed the sale of part of
the mckechnie psm division for a consideration of £30 million 
the board used £173 million of the proceeds of the disposals to
repay term loan facilities and returned £220 million of the proceeds
to shareholders details of the capital reorganisation are shown on
page 21 and in the finance director’s review
the chairman’s statement on pages 4 and 5 together with the 
chief executive’s review business review and finance director’s 
review on pages 6 to 17 describe the principal activities operations
performance financial position and likely future prospects of the group
the results of the group are set out in detail on pages 36 to 39 and in
the accompanying notes
the subsidiary and associated undertakings principally affecting the
profits or net assets of the group in the year are listed in note 3 to the
melrose uk gaap accounts company balance sheet
in addition to the disposals referred to above actions taken to enhance
the value of the group during the year included investment across all
divisions further restructuring within mvc and two targeted acquisitions
by dynacast
the company is required by the companies acts to set out in this
report a fair review of the business of the group during the year and of
the position of the group at the end of the year and a description of
the principal risks and uncertainties facing the group the information
that fulfils these requirements can be found within the chief
executive’s review business review and finance director’s review on
pages 6 to 17 the finance director’s review also indicates the key
performance indicators that management use
financial results and dividend 
the group’s profit for the financial year attributable to members was
£2150 million 2006 £378 million including £02 million minority
interests 2006 £01 million the directors are pleased to
recommend the payment on 16 may 2008 to ordinary shareholders
on the register at the close of business on 14 march 2008 of a final
dividend of 425 pence per ordinary share
it is the intention of the board to maintain a progressive dividend
policy going forward
directors’ appointment and powers
the directors of melrose plc as at the date of this report together
with their biographical details are given on pages 18 to 19 no other
person served as a director during the year there were no changes
to the board during the year
the company’s articles of association the “articles” give the directors
power to appoint and replace directors under the terms of reference
of the nomination committee any appointment must be
recommended by the nomination committee for approval by the
board of directors the articles also require directors to retire and
submit themselves for election at the first annual general meeting
following their appointment and at each annual general meeting one
third of the directors are subject to retirement by rotation and must
therefore submit themselves for reelection
the directors are responsible for managing the business of the
company and may exercise all the power of the company subject to
the provision of relevant statutes to any directions given by special
resolution and to the company’s memorandum and articles the
articles for example contain specific provisions concerning the
company’s power to borrow money powers relating to the issuing of
shares and powers to purchase the company’s own shares are also
included in the articles and such authorities are renewed by the
shareholders at the annual general meeting each year
pursuant to section 166 of the companies act 1985 the company
has power to purchase its own shares limited to an aggregate
maximum number of 13366502 ordinary shares
directors’ interests and remuneration
information on directors’ beneficial interests including those of
connected persons within the meaning of section 252 of the
companies act 2006 in the shares of the company is shown in the
remuneration report on pages 30 to 33
no director had a material interest at any time during the year in any
contract other than a service contract with the company or any of its
subsidiary undertakings
directors’ indemnities
the directors have the benefit of “qualifying third party indemnity
provisions” for the purposes of sections 309a to 309c of the
companies act 1985
20 melrose plc annual report 2007
directors’ report
081022melrosera12736melrosera  26308  1824  page 20 significant agreements – change of control
there are no agreements that take effect alter or terminate upon a
change of control of the company following a takeover bid that are
considered to be significant in terms of their potential impact on the
business of the group as a whole on 5 march 2008
in the event of the takeover of the company the 2007 incentive shares
would convert into ordinary shares the conversion being based upon
the offer price of shares as calculated on the date of change of control
of the company if part or all of the offer price were not in cash the
remuneration committee would determine the value of the noncash
element having been advised by an investment bank of repute that
such valuation is fair and reasonable
share capital
details of the structure of the company’s share capital and rights
attached to the company’s shares are set out below in compliance
with the requirements of section 992 of the companies act 2006
changes to the issued share capital of melrose plc in issue during
the year are detailed below
ordinary shares
following approval at the extraordinary general meeting on 14 august
2007 options over 8877 convertible b shares “original incentive
shares” were exercised by executive directors and senior management
and converted into original incentive shares this resulted in 59170
original incentive shares being held by directors senior management
and the employee benefit trust which were converted into 10210069
ordinary shares of 01p the total number of ordinary shares of 01p
then in issue was 267330058
on 15 august 2007 these ordinary shares of 01p were consolidated
so that shareholders received one ordinary share of 02p for every
two ordinary shares of 01p ordinary shares of 02p are traded on
the london stock exchange in the same way as the ordinary shares
of 01p and are equivalent in all material respects to the ordinary
shares of 01p including their dividend voting and other rights
incentive shares
on 14 august 2007 the original incentive scheme was replaced by a
new share incentive scheme the “2007 incentive scheme” running
until 31 may 2012 based on the same principles as the original share
incentive arrangements other than the trigger dates 50000 new
2007 incentive shares of £1 each were issued to directors senior
management and ogier employment benefit trustee limited as
trustee of the employee benefit trust 
the 2007 incentive shares do not confer a right to be paid a dividend
or the right to vote at a general meeting on winding up the holders
are entitled to participate in the company’s assets equal to an amount
to which they would have been entitled if their incentive shares had
converted into ordinary shares as at the date of winding up
c shares and return of capital
on 14 august 2007 shareholders approved the return of £220
million in capital to shareholders and as a result 267330058
redeemable preference c shares of 823p “c shares” were issued
on the basis of one c share for every ordinary share of 01p held
holders of 187786984 c shares opted to redeem their shares on 
23 august 2007 and these c shares were subsequently cancelled
holders of 70489480 c shares opted to take the single c share
dividend on 23 august 2007 when c shares were converted into c
deferred shares final redemption of the c shares will take place on
30 june 2008 when 9053594 c shares will be redeemed and
these c shares will then be cancelled together with the 
c deferred shares
the holders of the remaining c shares and c deferred shares shall
not be entitled to 
■
any further right of participating in the profits of the company
■
the right to vote at general meetings except holders of c shares
can vote on the winding up of the company
on a winding up the holders of the c shares shall be entitled in
priority to all other classes of shares to 823 pence per c share the
holders of the c deferred shares shall not be entitled to any right or
participation in the assets of the company on a winding up
further rights and obligations attaching to shares
following the implementation of the eu takeover directive into uk law
the following description provides the required information for
shareholders where not already provided elsewhere in this report this
summary is based on the company’s current articles of association but
please note that it is proposed that the company will adopt new articles
of association with effect from the conclusion of the annual general
meeting on 7 may 2008 brief details of which are set out on pages 24
and 89
share capital
1 january issued during changes during 31 december 
2007 2007 2007 2007
ordinary shares 257 119989 10210069 133665029 133665029
original incentive shares 59170 – 59170 –
2007 incentive shares – 50000 – 50000
redeemable preference c shares – 267 330058 – 9053594 
initial redemption – – 187 786984 –
single c shares dividend – – 70489480 –
c deferred shares arising on payment of single c share dividend – – 70489480 70489480
melrose plc annual report 2007  21
081022melrosera12736melrosera  26308  1824  page 21 voting
only ordinary shares have voting rights attached in a general meeting
of the company subject to the provisions of the current articles and to
any special rights or restrictions as to voting attached to any class of
shares in the company of which there are currently none
■
on a show of hands every member present in person shall have
one vote and
■
on a poll every member who is present in person or by proxy shall
have one vote for every share of which he is the holder
no member shall be entitled to vote at any general meeting or class
meeting in respect of any shares held by him if any call or other sum
then payable by him in respect of that share remains unpaid currently
all issued shares are fully paid the employee benefit trustee holds
25279 ordinary shares and the remuneration committee may direct
how the voting rights of those shares are exercised 
deadlines for voting rights 
full details of the deadlines for exercising voting rights in respect of
the resolutions to be considered at the annual general meeting to be
held on 7 may 2008 are set out in the notice of annual general
meeting on pages 87 to 90
dividends and distributions 
subject to the provisions of the companies act 1985 and the
companies act 2006 the “companies acts” the company may by
ordinary resolution declare a dividend to be paid to the members
but no dividend shall exceed the amount recommended by the
board the board may pay interim dividends and also any fixed rate
dividend whenever the financial position of the company in the
opinion of the board justifies its payment all dividends shall be
apportioned and paid pro rata according to the amounts paid up on
the shares currently all issued shares are fully paid
the board may deduct from a dividend or other amounts payable to
a person in respect of the share amounts due from him to the
company on account of call or otherwise in relation to a share
liquidation
under the current articles if the company is in liquidation the
liquidator may on obtaining any sanction required by law
■
divide among the members in kind the whole or any part of the
assets of the company or
■
vest the whole or any part of the assets in trustees upon such trusts
for the benefit of members as the liquidator with the like sanction
shall determine
transfer of shares
subject to the articles any member may transfer all or any of his
certificated shares by an instrument of transfer in any usual form or in any
other form which the board may approve and the instrument shall be
executed by or on behalf of the transferor subject to the articles and the
requirements of any relevant investment exchange the board may in its
absolute discretion and without giving any reason refuse to register any
instrument of transfer of a certificated share which is not a fully paid share
or on which the company has a lien the board may also decline to
register a transfer of a certificated share unless the instrument of transfer
is i in respect of only one class of shares ii in favour of not more than
four joint transferees or renouncees iii duly stamped if required and
iv delivered for registration to the registered office or such other place
as the board may decide accompanied by the certificate for the shares 
to which it relates and such other evidence as the board may reasonably
require to prove the title of the transferor or person renouncing and the
due execution by him of the transfer or renunciation
the board may permit any class of shares in the company to be held
in uncertificated form and subject to the articles title to uncertificated
shares to be transferred by means of a relevant system and may
revoke any such permission registration of a transfer of an
uncertificated share may be refused where permitted by the articles
substantial shareholdings 
as at 5 march 2008 the company has been advised of the following
interests in the ordinary share capital of the company
direct holding indirect holding 
artemis investment 
management 13670796 1023
ameriprise financial 
threadneedle 13444817 1006
blackrock investment 
management 11291819 845
standard life investments 7 421360 2073089 7 10
lloyds tsb group 8172976 612
hsbc bank plc 7 857 127 588
fidelity international 6423194 481
legal and general group 5382968 403
credit suisse asset 
management 4653968 348
directors’ interests in shares
directors’ interests in the shares of the company are set out in the
remuneration report on pages 30 to 33
22 melrose plc annual report 2007
directors’ report continued
081022melrosera12736melrosera  26308  1825  page 22 employees
the group recognises its responsibilities for the fair treatment of all its
employees in accordance with national legislation applicable to the
territories within which it operates having regard to their skills and
abilities the group gives full and fair consideration to applications for
employment received from disabled persons and so far as particular
disabilities permit will give employees disabled during their period of
employment continued employment in the same job or if this is not
practicable a suitable alternative job equal opportunities for
appropriate training career development and promotion are available
to all employees regardless of any physical disability gender religion
race nationality sexual orientation or age
employee involvement and consultation 
the directors attach great importance to good labour relations and
employee involvement and development the results for the half year
and financial year are discussed with senior management and the
opportunity is taken where possible to inform them of group
developments the nature of the group’s activities places the
responsibility for employee consultation with local management in a
manner appropriate to the particular circumstances of each business
several of the businesses operate works councils for the purposes of
consultation and dissemination of information newsletters are also
used as a means of communicating with employees
employee involvement in the group’s profitability is encouraged
through appropriate bonus and incentive schemes
pensions
companies within the melrose group operate various pension
schemes around the world the only significant scheme to the group
is the mckechnie pension plan the “plan” a uk defined benefit
pension scheme with mckechnie limited as its principal employer
the plan closed to new members on 9 may 2003 and for future
accrual as at 30 june 2005 the primary liability for funding the plan
rests with the participating employers although melrose plc has
guaranteed the payment of certain contributions 
as part of the disposal process of the mckechnie aerospace division
melrose obtained clearance from the uk pensions regulator for its
agreement with the trustee of the plan  melrose made a cash
payment of £20 million to the plan in may 2007 and agreed to pay a
further £183 million in equal quarterly instalments of £15 million
over the next three years starting in july 2007  the company further
agreed to meet the reasonable administration expenses of the plan
and the pension protection fund levy up to 30 april 2010 and has
guaranteed the funding of the plan on an ongoing basis
on today’s assumptions the above mentioned contributions will be
sufficient to eliminate the deficit in the plan on an ongoing basis by
2010 the funding level of the plan and the overall security of
members’ benefits have been significantly improved as a result of the
agreement reached with the trustee
research and development
the group continually invests in research and development into new
products and new products were launched across the group during
the year some of these are mentioned in the business review no
research and development expenditure has been capitalised in the
year the group continues to invest in new technology in order to
reduce manufacturing costs and to improve productivity the group
will continue to invest in research and development that has a
suitable payback
social responsibility
melrose plc recognises the importance of social environmental and
ethical matters and the directors endeavour to take into account the
interests of all stakeholders including investors employees customers
suppliers and business partners when managing the businesses within
the group 
community involvement
during its ownership of the dynacast and mckechnie businesses
melrose has invested in its businesses in order to enhance their
reputation within the markets and communities in which they
operate
dynacast provide training within the community through an internship
scheme this programme is designed to provide work experience and
vocational training for local graduates improving their opportunity to
obtain permanent employment in the local market where skilled and
experienced workers are in demand
risk factors
the group’s financial risk management objectives and policies in
relation to the use of financial instruments are described in the
finance director’s review on pages 12 to 17 additionally key risks
which if they were to occur could impact on the business are covered
in the business review on pages 8 to 11
health safety and the environment
the directors seek to minimise risk to the health and safety of the
group’s employees by ensuring effective management of the group’s
activities
the group uses external consultants where appropriate to carry out
health and safety and environmental audits areas for improvement
identified by the external auditor are monitored and audit reports
quantify performance in key areas these audit reports facilitate the
targeting and measurement of future improvements operating
businesses have established health and safety committees who
meet regularly to review health and safety incidents and to plan
initiatives to further reduce risks
melrose plc annual report 2007  23
081022melrosera12736melrosera  26308  1825  page 23 the group recognises the importance of its environmental
responsibilities monitors its impact on the environment and
implements local policies to reduce any damage that might be caused
by the group’s activities the group is committed to ensuring that its
operations have minimum adverse effect upon the environment and
that employees are aware of their role in safeguarding the future of the
environment many sites have continued with a number of initiatives
targeted to enhance the group’s environmental and ultimately
competitive position 
initiatives designed to minimise the group’s impact on the
environment include improvements to energy efficiency reductions in
co2 emissions recycling and waste reduction mckechnie plastic
components established an energy committee during the year in
order to push forward ideas for reductions in energy consumption
they undertook an initiative to measure their carbon footprint which
has since reduced significantly as a result of changing to a “carbon
friendly” energy supplier and reducing transport between
manufacturing and warehouse locations 
other specific measures include management and recycling of waste
including scrap solvents and plastics energy efficient lighting and
reductions in water usage
many of the businesses across the group are accredited to the
international environmental standard iso14001 
payments to suppliers 
it is the group’s general policy to abide by the terms of payment
agreed with its suppliers at the time of individual transactions and to
ensure that suppliers are made aware of the terms of payment and
abide by them the nature of the company’s transactions is such that
any calculation of creditor days in the company only accounts does
not have any meaning
charitable and political donations 
the group paid £3293 2006 £5950 to uk charities during the
year principally to local charities serving the communities in which the
group operates there were no political donations made during the
year 2006 £nil
auditors
under the companies audit investigation and community
enterprise act 2004 auditors have the right to access all information
necessary for performance of their duties as auditor and the duties of
directors in this regard are clarified
so far as each director is aware there is no relevant audit information
of which the auditors are unaware and the directors have taken all
the steps which they ought to have taken as a director to make
themselves aware of any relevant audit information and to establish
that the company’s auditors are aware of that information
this confirmation is given and should be interpreted in accordance
with the provisions of section 234za of the companies act 1985 
deloitte  touche llp have expressed their willingness to continue in
office as auditors accordingly a resolution will be proposed at the
annual general meeting of the company to reappoint deloitte 
touche llp as auditors of the company and to authorise the directors
to determine their remuneration
annual general meeting 
the annual general meeting of the company will be held at the
offices of investec at 2 gresham street london ec2v 7qp at 1100
am on 7 may 2008
resolutions dealing with the following special business will be
proposed at the annual general meeting
resolution 7 will seek shareholder approval of the remuneration
report
resolution 8 will seek approval to amend the articles of association
in accordance with the printed document produced to the meeting
and initialled by the chairman for the purposes of identification the
changes are to reflect the provisions of the companies act 2006 “ca
2006” and to remove any inconsistencies with current law
explanatory notes on the changes are set out in the appendix to the
notice of meeting the key changes can be summarised as follows
■
references to extraordinary resolutions have been removed as
these have not been retained under ca 2006 
■
amendments have been made to provisions relating to convening of
general meetings and the length of notice required in particular the
notice required for a general meeting at which a special resolution is
to be considered has been reduced from 21 to 14 days
■
the quorum for a general meeting has been amended to two
“qualifying persons” which now includes a person authorised to act
as a representative of a corporation in relation to the meeting
■
the articles reflect enhanced rights of proxies provided by ca 2006
to speak at a meeting and to be counted on a show of hands
■
provisions relating to the age of a director have been updated
following the implementation of the employment equality age
regulations 2006 
■
provisions of ca 2006 regarding directors’ interests are expected to
come into force in october 2008 the articles will from such time
as those provisions come into force give the directors authority to
approve conflicts of interest subject to certain safeguards
■
ca 2006 has widened the scope of the power of a company to
indemnify directors who are also directors of a company which is a
trustee of an occupational pension scheme against liability incurred
in connection with that company’s activities as a trustee of that
scheme amendments have been made to reflect this and also the
fact that the company may grant indemnities to directors of
associated companies
■
the articles have also been amended as described in the note on
resolution 9 below to allow for electronic communications as
permitted under ca 2006 
24 melrose plc annual report 2007
directors’ report continued
081022melrosera12736melrosera  25308  1420  page 24 melrose plc annual report 2007  25
resolution 9 will seek the approval of members to the company
communicating with shareholders by sending or supplying documents
or information to members by making them available on its website
following the changes to its articles and implementation of sections of
the ca 2006 as noted in resolution 8
provisions of ca 2006 enable companies to communicate with
members by electronic andor website communications the revised
articles continue to allow communications to members in electronic
form and also permit the company to use the new provisions relating
to website communications 
before the company can communicate with a member by means of
website communication the relevant member must be asked
individually by the company to agree that the company may send or
supply documents or information to him by means of a website and
the company must either have received a positive response or as
provided by ca 2006 if no response is received within the period of 28
days beginning with the date on which the request was sent may
deem receipt of a positive response the company will notify the
member either in writing or by other permitted means when a
relevant document or information is placed on the website if required
a member can request a hard copy version at any time
resolution 10 will seek shareholder approval to renew the directors’
authority to allot relevant securities pursuant to section 80 of the
companies act 1985 the “section 80 authority” the authority
contained in the resolution will be limited to an aggregate nominal
amount of £89110 representing approximately one third of the
company’s issued ordinary share capital as at 5 march 2008 the
company does not hold any treasury shares
resolution 11 will seek to renew the authority conferred on the
board to allot equity securities of the company for cash pursuant to
section 95 of the companies act 1985 the “section 95 authority”
which disapplies the preemption rights provided by section 891 of
the companies act 1985 it is limited to the allotment of equity
securities which have been offered pro rata to ordinary shareholders
subject to any arrangements the directors consider appropriate to
deal with fractions and overseas requirements and otherwise in
relation to the allotment of equity securities up to a maximum
nominal value of £13366 representing approximately 5 per cent of
the company’s issued ordinary share capital as at 5 march 2008
which is in accordance with the relevant guidelines for the company
if approved the section 80 authority and the section 95 authority will
expire at the conclusion of next year’s annual general meeting the
directors have no present intention of exercising the section 80
authority or the section 95 authority
resolution 12 will seek to renew the authority conferred on the
company to purchase its own shares pursuant to section 166 of the
companies act 1985 this authority is limited to an aggregate
maximum number of 13366502 ordinary shares representing
approximately 10 per cent of the company’s issued ordinary share
capital as at 5 march 2008 this power will expire at the conclusion of
next year’s annual general meeting the maximum price which may
be paid for an ordinary share will be an amount which is not more
than 5 per cent above the average of the midmarket quotations of
the ordinary shares as derived from the london stock exchange daily
official list the directors have no present intention of exercising all or
any of the powers conferred by this resolution and will only exercise
their authority if it is in the interests of shareholders generally
recommendations
the board believes that each of the resolutions to be proposed at the
annual general meeting is in the best interests of the company and
its shareholders as a whole accordingly the directors unanimously
recommend that you vote in favour of all of the resolutions proposed
as they intend to do in respect of their own beneficial holdings
disclosures in the directors’ report
the corporate governance report and business review and finance
director’s review form part of the directors’ report
approved by the board of directors and signed on its behalf by
garry barnes
secretary
5 march 2008
081022melrosera12736melrosera  27308  1223  page 25 26 melrose plc annual report 2007
statement of compliance
the company supports the principles of corporate governance contained
in the 2006 combined code on corporate governance which is
appended to the listing rules of the financial services authority
the board is accountable to the company’s shareholders for good
governance the company has complied with the provisions of
section 1 of the combined code on corporate governance the
statements below describe how the company has applied the
principles identified in the combined code 
the board
the board meets regularly during the year as well as on an adhoc
basis as required by time critical business needs the board is
responsible to shareholders for the effective and proper management
and control of the company and has a formal schedule of matters
reserved for its decisions its primary roles are to determine and
review company strategy and policy consider acquisitions and
disposals assess requests for major capital expenditure and give
consideration to all other significant financial matters this process is
undertaken following discussions in conjunction with senior executive
management who in turn are responsible for day to day conduct of
the group’s operations and for reporting to the board on the progress
being made in meeting the objectives there were nine scheduled
board meetings held during the year including five meetings
convened in order to consider corporate transactions and related
activities the attendance of each of the directors is shown on page 28 
as at 31 december 2007 the board comprised seven members
being the executive chairman mr christopher miller three other
executive directors and three nonexecutive directors the four
executive directors mr christopher miller chairman mr david roper
chief executive officer mr simon peckham chief operating officer
and mr geoffrey martin group finance director and the three 
nonexecutive directors mr miles templeman mr perry crosthwaite
and mr john grant served throughout the year the terms and
conditions of the nonexecutive directors’ appointments and the
executive directors’ service contracts are available for inspection 
at the company’s registered office and the nonexecutive directors’
appointment letters are available on the company’s website
wwwmelroseplcnet 
the board believes the directors possess diverse business 
experience in spheres complementary to the activities of melrose plc
as well as other sectors biographies of the directors are shown on
pages 18 to 19 these biographies identify any other appointments
held by the directors the only executive director to hold non
executive director appointments elsewhere is mr christopher miller
and he does not receive any income from his appointment with tmo
renewables limited
in accordance with the provisions of the combined code
consideration has been given to the independence of all the 
nonexecutive directors the board considers all the nonexecutive
directors to be independent 
mr miles templeman held 1478 convertible b shares which he
purchased in 2003 at the time the company was admitted to aim
these convertible b shares converted into 255036 ordinary shares
on 14 august 2007 when members approved the proposal to
terminate the company’s existing incentive share arrangements
details of the conversion into ordinary shares are shown on page 32
the board believes that notwithstanding the provisions of paragraph
a31 of the combined code mr templeman’s holding of convertible
b shares prior to the crystalisation of the original incentive share
scheme does not affect his independence as a nonexecutive director
of the company on the same date the 2007 incentive share
scheme was approved based on the same principles as the original
incentive share scheme the nonexecutive directors are not entitled
to any shares under the new incentive arrangement
a process of evaluating the performance of the board and standing
committees is in place the chairman has held meetings with the
directors including the senior independent nonexecutive director 
mr miles templeman to discuss the performance of the executive
directors and the board as a whole it was considered that the individual
directors and the board as a whole were operating effectively in
addition each of the directors completed a questionnaire during the
year designed to identify any failures in performance of the board and
each of its committees in order to determine any training requirements
the findings of these questionnaires were reviewed by the company
secretary and feedback was provided to the board
in accordance with the company’s articles of association one third or
the number nearest to but not less than one third of all directors are
required to retire and submit themselves for reelection at each annual
general meeting of the company it is the policy of the board that non
executive directors are appointed for an initial term of three years
following which their appointment will be reviewed
certain directors are proposed for reelection as set out in the notice
of annual general meeting on page 87 the board and nomination
committee have carefully considered the time commitments required
and the contribution made by each director and both the nomination
committee and the board are of the belief that the performance of
each executive and nonexecutive director continues to be effective
and that each director demonstrates commitment to their role 
corporate governance report
081022melrosera12736melrosera  26308  1825  page 26 melrose plc annual report 2007  27
on appointment all directors receive a formal and tailored induction
directors are advised that they have access to the advice and services
of the company secretary and in addition that they are entitled to
seek independent professional advice in the furtherance of their
duties if necessary at the company’s expense 
a pack of briefing papers and an agenda is provided for each director
in advance of each scheduled meeting the directors are able to seek
further clarification and information on any matter from any other
director or employee of the group whenever necessary decisions
are taken by the board in conjunction with the recommendations of
its committees and advice from external consultants and executive
management
chairman and chief executive
the board’s policy is that the roles of chairman of the board and
chief executive of the company should be split 
the division of responsibilities of the chairman and the chief
executive is set out in writing and has been approved by the board
the board considers that the respective roles and responsibilities are
clearly understood by both individuals and by the board as a whole
with the chairman alone responsible for the leadership of the board
and for ensuring effective communication with shareholders and the
chief executive being responsible for decisions involving the dayto
day management of the company
committees of the board
in accordance with the provisions of the combined code the board has
three standing committees the audit nomination and the
remuneration committee each of which comprise the three
independent nonexecutive directors the duties of the committees are
set out in formal terms of reference which were updated during the
year these are available from the company secretary and on the
company’s website wwwmelroseplcnet membership of the
committees is shown below the company secretary acts as secretary
to each of the committees
remuneration committee
the remuneration committee currently comprises the three
independent nonexecutive directors mr miles templeman 
mr perry crosthwaite and mr john grant mr perry crosthwaite chairs
the committee 
the function of the committee is to establish and review the terms
and conditions of employment of the executive directors and to
make recommendations to the board on the overall framework and
broad policy for the remuneration of the company’s directors and
other senior executives within the group
the committee met four times during the year the attendance 
of its members is shown in the table on page 28 the report to
shareholders on how directors are remunerated together with details
of individual directors’ remuneration are shown on pages 30 to 33
nomination committee
the nomination committee currently comprises mr christopher miller
and the three independent nonexecutive directors mr miles
templeman mr perry crosthwaite and mr john grant mr miles
templeman is the chairman of the nomination committee 
the committee reviews the structure size and composition of the
board particularly in relation to the balance of skills experience and
knowledge and seeks to ensure that both executive and non
executive directors have the necessary skills and attributes for the
future success of the company the committee reviews succession
plans for the directors and makes recommendations to the board on
membership of the board and of its committees the committee
retains external search consultants as appropriate
the committee is expected to meet not less than twice a year and
during 2007 the committee met twice
audit committee
the audit committee currently comprises the three independent non
executive directors mr miles templeman mr perry crosthwaite and
mr john grant mr miles templeman is the chairman of the audit
committee each member of the committee brings relevant financial
experience from senior executive and nonexecutive positions as
described in their biographies on pages 18 to 19
the committee invites the group finance director the head of
financial reporting and senior representatives of the external auditors
to attend meetings as appropriate to the business being considered
in addition the committee has the right to invite any other
employees to attend meetings where this is considered appropriate 
the committee monitors and reviews the effectiveness of the
group’s internal control systems accounting policies and practices
risk management procedures and compliance controls as well as the
integrity of the company’s financial statements 
the committee is responsible for the development implementation
and monitoring of the company’s policy on external audit and for
overseeing the objectivity and effectiveness of the auditors the
committee recommends the appointment and reappointment of the
company’s external auditors and considers the scope of their audit work
and the cost effectiveness of their work 
081022melrosera12736melrosera  25308  1420  page 27 corporate governance report continued
28 melrose plc annual report 2007
the committee has a policy on the engagement of the external
auditor to supply nonaudit services and the committee is aware of
the audit and nonaudit services including taxation advice which
have been provided by deloitte  touche llp during 2007 a
significant proportion of the nonaudit services related to non
recurring work in connection with the sale of the mckechnie
aerospace and psm divisions the provision of nonaudit services
were considered to be appropriate given the external auditor’s depth
of knowledge of the affairs and financial practices in the group the
committee is satisfied that notwithstanding nonaudit work deloitte
 touche llp have retained objectivity and independence during the
year the committee will continue to monitor its policy in this regard
the chairman of the committee will attend the company’s annual
general meeting to respond to any shareholder questions that might
be raised concerning the committee’s activities 
the committee is expected to meet not less than three times a year
and during 2007 the committee met three times the attendance of
its members along with the group finance director is shown in the
table below
attendance at meetings
the table below shows the attendance of each of the directors at the
scheduled and significant meetings of the board and its standing
committees held during the year the quorum necessary for the
transaction of business by the board and each of its standing
committees is two decisions are taken by the board in conjunction
where appropriate with the recommendations of its committees and
advice from external advisors and executive management the
representations of any director who is unable to attend a scheduled
meeting of the board or a standing committee are duly considered by
those directors in attendance
board audit remuneration nomination
number of meetings
1
9342
christopher miller 8 na na 2
david roper 8 na na na
simon peckham 7 na na na
geoffrey martin 9 3
2
na na
miles templeman 8332
perry crosthwaite 7231
john grant 9342
1
in addition adhoc meetings are held from time to time which are attended by a
quorum of directors and are convened to deal with specific items of business
2
mr martin attends by invitation 
internal control and risk management
philosophy and policy
the objective of the directors and senior management is to safeguard
and increase the value of the business and assets of the group
achievement of this objective requires the development of policies
and appropriate internal controls to ensure the group’s resources are
managed properly and any risks are identified
the board is ultimately responsible for the system of internal control
and for reviewing its effectiveness the systems and processes
established by the board are designed to manage rather than
eliminate the risk of failure to achieve business objectives and cannot
provide absolute assurance against material misstatement or loss 
the audit committee ensures the effectiveness and efficiency of the
internal control processes implemented by senior management this
includes discussions with senior management of the company these
findings are in turn discussed by the full board the board is
committed to satisfying the internal control guidance for directors set
out in the icaew turnbull report further the board is aware of the
major risks facing the company and the steps taken by the company
where possible to mitigate such risks
key risks
the group’s financial risk management objectives and policies in
relation to the use of financial instruments are described in the
finance director’s review on pages 12 to 17 other key risks which
could adversely affect the group are described in the chief
executive’s review and business review on pages 6 to 11
managing and controlling risk
a summary of the structures and processes in place to identify and
manage risks across the group are set out below divisional
executives plant managers and financial controllers are responsible
for managing the business risks within their business
there is an ongoing process to identify and evaluate risks faced by the
group through the conduct of regular meetings and business reviews
with the group’s senior management the risk process is regularly
reviewed by the board
the group has policies which address a number of key business risks
including financial treasury health and safety and environmental the
policies are made available to relevant employees through manuals
and also via specific employee briefings and other communications as
appropriate senior management assume responsibility for managing
risk in the businesses where appropriate external advisers are
appointed in order to support this process
081022melrosera12736melrosera  25308  1420  page 28 melrose plc annual report 2007  29
the group has a whistleblowing policy in place which enables
individuals to make protected disclosures to the divisional human
resources manager group company secretary or senior independent
nonexecutive director if they have concerns about possible
improprieties in financial reporting or other malpractices within their
business
accountability and audit
the statement of directors’ responsibilities in relation to the
consolidated financial statements is set out on page 34
going concern
on the basis of current financial projections and facilities available the
directors have a reasonable expectation that the group has adequate
resources to continue in operational existence for the foreseeable
future for this reason they continue to adopt the going concern basis
in preparing the financial statements
internal financial controls
the group has a comprehensive system for regular monitoring and
reporting of financial performance and assessing the efficiency of the
group’s systems of internal controls a detailed budget is prepared by
management and thereafter is reviewed and formally adopted by the
board the budget and other targets are regularly updated via a rolling
forecast process and regular business review meetings are also held
involving senior management at which the group’s overall
performance is assessed the results of these reviews are in turn
reported to and discussed by the board at each meeting
the audit committee has considered whether there is a requirement
for an internal audit function and based on the group’s strong
financial controls and management the committee is satisfied that an
internal audit function is not presently required instead the audit of
internal financial controls forms part of the responsibilities of the
group’s finance function this matter will be kept under regular
review during the year members of the head office finance team
conducted internal audits over financial controls in place at various
divisional locations
the board confirms that from its review of the system of internal
control it has not determined any significant failings or weaknesses
that it considers requires remedial action the board also confirms
that it has not been advised of any material weaknesses in the
internal control systems that relate to financial reporting
communications with shareholders
principally via the executive directors the company seeks to build on a
mutual understanding of objectives with its institutional shareholders
through regular meetings and presentations following announcements
of annual and interim results the senior independent director mr
miles templeman is available to meet institutional shareholders should
there be unresolved matters they wish to bring to his attention 
the views of key analysts and shareholders are communicated back
to the board directly by individual directors and via the company’s
brokers ensuring all members of the board develop an understanding
of the views of major shareholders
corporate information is also available on the company’s website
wwwmelroseplcnet
constructive use of the annual general meeting
the board welcomes the attendance of shareholders at the annual
general meeting and the attendance of all directors is required 
the number of proxy votes cast for and against each of the
resolutions proposed is announced at the agm and a summary will
be available shortly after the agm on the company’s website
wwwmelroseplcnet
by order of the board
garry barnes
secretary
5 march 2008
081022melrosera12736melrosera  28308  1910  page 29 30 melrose plc annual report 2007
introduction and compliance
this report has been prepared by the remuneration committee on
behalf of the board in accordance with the requirements of the
directors’ remuneration report regulations of the companies act
1985 as amended the combined code and the listing rules of the
financial services authority a resolution inviting shareholders to
approve the report will be put to the annual general meeting on 
7 may 2008 
the directors’ emoluments and directors’ shareholdings have been
subject to audit 
biographies of the directors are shown on pages 18 to 19 these
biographies identify any other significant appointments held by the
directors none of the executive directors receives any income from
their appointment as nonexecutive director elsewhere
unaudited information
remuneration committee
the company has established a remuneration committee which is
chaired by mr perry crosthwaite an independent nonexecutive
director other members of the committee are the other two
independent nonexecutive directors mr miles templeman and 
mr john grant
the terms of reference of the remuneration committee are posted
on the corporate governance section of the company’s website
wwwmelroseplcnet and are also available from the company
secretary page 27 of the corporate governance report sets out the
function of the remuneration committee
remuneration policy 
the remuneration policy is established by the board on the
recommendation of the remuneration committee
the policy for remuneration is that the package offered should be
sufficient to attract retain and motivate executive directors and senior
executives of the quality required but not more than is necessary for
this purpose it is intended that performance related pay should
comprise a significant proportion of the total remuneration 
remuneration is reviewed annually generally effective on 1 january
the remuneration committee and its advisers use a number of
surveys of the employment market from which to obtain
remuneration data
the remuneration package 
the remuneration package for all executive directors comprises 
base salary and benefits annual bonus long term incentive
arrangements and pension contribution some senior employees 
of the group are also remunerated using these arrangements which
are described below 
base salary and benefits
base salary takes into account the performance of the individual and
information from independent sources and consultants on market
levels an executive director’s basic salary is reviewed by the committee
prior to the beginning of each year and when an individual changes
position or responsibility basic salaries were reviewed in december
2007 and it was agreed that all directors’ base salaries would be frozen
and reviewed following the next substantial acquisition the executive
directors also receive a company car allowance fuel allowance private
medical insurance life insurance and permanent health insurance
cover mr martin also receives paid train travel to london and
accommodation costs paid whilst working in london
bonuses
bonus scheme arrangements are in place for executive directors and
senior employees the executive directors and senior employee bonus
arrangements are calculated based on improvement in headline
operating profit of the business over the previous year and is where
appropriate adjusted for operating cashflow changes the maximum
bonus payable is 100 of an executive director’s base salary excluding
the chairman who does not participate in the annual bonus scheme
long term incentives 
during 2007 melrose plc operated the following long term incentive
schemes
■
dynacast long term incentive scheme
■
convertible b shares “original incentive shares” which were
approved by shareholders on 15 october 2003 and crystallised on
14 august 2007
■
2007 incentive share scheme approved by shareholders on 
14 august 2007
dynacast long term incentive scheme
during 2006 the dynacast long term incentive scheme was created
for the senior management of the dynacast division payment in cash
will be made either upon the sale of dynacast or in 2009 if the latter
payment will be based upon the average financial performance of
dynacast during 2007 and 2008 a non cash charge of £11 million
was made to the income statement during the year in respect of this
scheme this charge represents an estimate of this year’s proportion
of the amortisation of the estimated future entitlement to the
members of the scheme over its life
convertible b shares “original incentive shares” 
at the extraordinary general meeting on 14 august 2007 the
“egm” the members approved the proposal to terminate the
existing share incentive arrangements by requiring holders of the
original incentive shares and original incentive share options to
convert into ordinary shares crystallising the accrued value up to 
18 july 2007 attributable to the original incentive shares details of
the conversion into ordinary shares are shown on page 32
2007 incentive share scheme
at the egm a new long term incentive plan the “2007 incentive
share scheme” was approved together with an allocation of 2007
incentive shares to all the executive directors and two senior
employees the 2007 incentive share scheme is based on the same
principles as the original incentive share scheme whereby
participants are only rewarded if shareholder value is created thereby
aligning the interests of management with those of shareholders 
remuneration report
081022melrosera12736melrosera  27308  1149  page 30 melrose plc annual report 2007  31
under these new incentive arrangements the participants hold 2007
incentive shares which convert shortly after 31 may 2012 or if earlier
on the takeover of the company into ordinary shares with an
aggregate value at conversion equal to 10 per cent of the increase in
shareholder value with the consent of the remuneration committee
participants may convert early up to onethird of their holdings in 2010
and in 2011 the number of ordinary shares arising on conversion will
be determined by reference to the average market price of an ordinary
share for 40 business days prior to conversion or the takeover offer
price as the case may be
the increase in shareholder value is calculated as the difference
between the market capitalisation at conversion determined by
reference to the average market price of an ordinary share for 
40 business days prior to conversion or the offer price as the case
may be and the net invested capital in melrose plc being the
aggregate of the amounts paid on the ordinary shares up to
conversion less all amounts paid by melrose plc by way of dividends
or other distributions in respect of those shares and where each such
amount shall be adjusted in line with the movement in the rpi 
plus 2 per cent per annum from july 2007 up to the month prior to
the relevant trigger date
as at 31 december 2007 the fair value attributable to the 2007
incentive shares including those held by the employee benefit trust
was calculated as £31 million £27 million of this amount was
attributable to the executive directors details of the directors’
beneficial interest in the 2007 incentive shares are shown in the table
of directors’ shareholdings later in this report
all options over original incentive shares were exercised on 
14 august 2007 resulting in the 293 original incentive shares held 
by the employee benefit trust converting into 25279 ordinary shares
after the share consolidation exercise the employee benefit trust
also holds 3000 2007 incentive shares and in due course may grant
options over these shares to executive directors andor senior
employees the period during which the options may be exercised is
as detailed above for the 2007 incentive shares 
pension
no director is a member of any group pension arrangement the
executive directors may elect to receive a company contribution to
their individual pension arrangement or a supplement to basic salary
in lieu of a pension arrangement company contributions are
calculated on base salary only
service contracts 
the company’s policy on directors’ service contracts is that in line
with the best practice provisions of the combined code they should
be terminable by the company on one year’s notice and directors’
contracts do not provide for predetermined compensation in the
event of termination any payments made would be determined by
reference to normal contractual principles with mitigation being
applied as appropriate 
the nonexecutive directors do not have service contracts but have
letters of appointment for an initial period of three years which may
be renewed by mutual agreement normally for a maximum of two
further three year terms the terms of appointment do not contain
any contractual provisions regarding a notice period or the right to
receive compensation in the event of early termination 
details of the directors’ contracts and letters of appointment are as
set out below
executive directors date of contract notice period
christopher miller 15 october 2003 12 months
david roper 15 october 2003 12 months
simon peckham 15 october 2003 12 months
geoffrey martin 5 december 2005 12 months
end of period
nonexecutive directors letter of appointment of appointment
miles templeman 18 december 2006 27 october 2009
perry crosthwaite 29 november 2005 25 july 2008
john grant 30 june 2006 31 july 2009
total shareholder return 
the ordinary share capital of melrose plc was admitted to the
official list and to trading on the london stock exchange on 
9 december 2005 
the performance of the company’s ordinary shares compared with
the ftse all share index and the ftse industrial engineering index for
the year ended on 31 december 2007 is shown in the graph below
the total shareholder return graph shows the value as at december
2007 of £100 invested in melrose plc in december 2005 the month
when the company was admitted to the official list of the london
stock exchange compared with £100 invested in the ftse all share
index and the industrial engineering sector the ftse all share index
applies for the period being tracked and has been used for these
purposes the shareholder return has been adjusted to reflect the
return of capital to shareholders and the one for two share
consolidation both of which took place during august 2007
100
110
120
130
140
150
160
170
dec
05
dec
07
dec
06
feb
06
feb
07
apr
06
apr
07
jun
06
jun
07
aug
06
aug
07
oct
06
oct
07
melrose return
ftse all share index
ftse industrial engineering index
081022melrosera12736melrosera  28308  1550  page 31 remuneration report continued
32 melrose plc annual report 2007
number of 
ordinary shares 
of 02p of
number of ordinary shares of 01p of melrose plc melrose plc
1
received on 
conversion of
original incentive
shares on total 31 december
director 1 january 2007 14 august 2007 14 august 2007 2007
christopher miller
2
4950000 2654928 7604928 3802464
david roper 750000 2654928 3404928 1702464
simon peckham 521206 2654928 3176134 1588067
geoffrey martin 100000 1123160 1223160 611580
miles templeman 83522 255036 338558 169279
perry crosthwaite 150000 nil 150000 75000
john grant nil nil nil nil
1
ordinary shares of 01p each were consolidated on 15 august 2007 into ordinary shares of 02p each in the ratio of one new ordinary share for two existing ordinary shares
2
the interest of mr christopher miller includes 2000000 ordinary shares of 02p during 2006 and prior to the ordinary share capital consolidation 4000000 ordinary shares of 01p
held by harris  sheldon investments limited a company which is connected with mr christopher miller within the meaning of the companies act 2006
nonexecutive directors’ fees
the executive directors are responsible for proposing the nonexecutive directors’ fees in proposing such fees they take account of similar fees
paid to nonexecutive directors in listed companies within the group’s listing sector and of similar size any decision on fee changes is taken by
the board as a whole individual nonexecutive directors do not take part in discussion on their remuneration 
nonexecutive directors do not receive benefits or pension contributions from the group
audited information
aggregate directors’ remuneration
the total amounts for directors’ remuneration were as follows
2007 2006
emoluments £1888578 £1729524
money purchase pension contributions £177300 £165300
subtotal £2065878 £1894824
amounts awarded under ltip
1
£15817242 nil
total £17883120 £1894824
1
the remuneration under the long term incentive plan is a non cash payment representing the taxable gain made on the conversion of the original incentive shares as described on page 33
directors’ shareholdings
ordinary shares
the directors’ beneficial interests including interests of connected persons within the meaning of section 346 of the act in the ordinary shares
of the company at the end of the financial year are shown below none of the directors had any nonbeneficial interest at any time in the financial
year none of the directors who held office at the end of the financial year had any beneficial interest in the shares of other group companies
directors’ emoluments including pension contributions
2007 2006
pension total total
directors salaryfees bonus taxable benefits contributions
1
emoluments emoluments
christopher miller £310000 – £18831 £46500 £375331 £351674
david roper £310000 £180978 £17 384 £46500 £554862 £517924
simon peckham £310000 £180978 £18019 £46500 £555497 £517027
geoffrey martin £252000 £147 118 £28270 £37 800 £465188 £425699
miles templeman
2
£40000––– £40000 £35000
perry crosthwaite
3
£40000––– £40000 £35000
john grant appointed 1 august 2006 £35000––– £35000 £12500
total £1297000 £509074 £82504 £177300 £2065878 £1894824
1
of the £177 300 pension contributions £93000 is paid as a supplement to basic salary in lieu of pension arrangements for those directors whose pension is expected to exceed the
lifetime allowance the balance of £84300 is paid into the individual director’s nominated private pension scheme
2
includes £5000 per annum in recognition of chairmanship of the audit and nomination committees
3
includes £5000 per annum in recognition of chairmanship of the remuneration committee
081022melrosera12736melrosera  25308  1420  page 32 melrose plc annual report 2007  33
number of original incentive shares and options number of 2007 incentive shares 
of melrose plc of melrose plc
converted to
ordinary shares issued
1 january 14 august 31 december 1 january 14 august 31 december
director 2007 2007 2007 2007 2007 2007
christopher miller 15386 15386 nil nil 12000 12000
david roper 15386 15386 nil nil 12000 12000
simon peckham 15386 15386 nil nil 12000 12000
geoffrey martin 6509 6509 nil nil 7500 7500
miles templeman 1478 1478 nil nil nil nil
perry crosthwaite nil nil nil nil nil nil
john grant nil nil nil nil nil nil
gains arising on original incentive shares
upon conversion of the original incentive shares and original incentive share options on 14 august the following gains arose
a b c d cxdaxb
option number of
exercise price ordinary shares
number price paid per arising upon
date of of existing incentive share conversion on market price on
director conversion optionsshares at subscription 14 august 15 august
1
gain
2
christopher miller 14 aug 2007 15386 100p 2654928 169875p £4494673
david roper 14 aug 2007 15386 100p 2654928 169875p £4494673
simon peckham 14 aug 2007 15386 100p 2654928 169875p £4494673
geoffrey martin 14 aug 2007 6509 100p 1123160 169875p £1901459
miles templeman 14 aug 2007 1478 100p 255036 169875p £431764
1
the market value of 169875p was determined on 15 august 2007 which was the first day that the ordinary shares arising from the conversion of the original incentive shares 
started trading
2
the total gain attributable to directors arising on the original incentive shares is £15817 242
incentive shares
in addition the directors had a beneficial interest in andor held options over the original incentive shares and 2007 incentive shares of £100
each of melrose plc at 31 december 2007 as follows 
included in the directors’ interests set out above at 1 january 2007 were options granted on 10 may 2006 over 6509 original incentive shares
granted to mr geoffrey martin and options over 592 original incentive shares granted to each of mr christopher miller mr david roper and 
mr simon peckham at an exercise price of £1 per share no further options over original incentive shares were granted between 1 january 2007
and 14 august 2007 
the remuneration committee recommended in the context of the disposal of mckechnie aerospace and the return of capital to shareholders
that it was appropriate for all options over the original incentive shares to be exercised during 2007 this was approved by shareholders at the
extraordinary general meeting held on 14 august 2007 and subsequently these options were exercised on 14 august 2007 at an exercise
price of £1 
there were no options over 2007 incentive shares outstanding as at 31 december 2007
following the early exercise of options over original incentive shares and early conversion of original incentive shares into ordinary shares of
01p each the “incentive share conversion” each of the directors agreed to enter into a lockin undertaking with the company whereby they
undertook not to sell transfer or in any way dispose of the ordinary shares acquired as a result of the incentive share conversion before 
31 may 2009 or if earlier on the takeover of the company the share price on the date of conversion used in the above table was £169875 
and the share price as of 31 december 2007 was £158
this report was approved by the board on 5 march 2008 and signed on its behalf by
perry crosthwaite
chairman of the 
remuneration committee
5 march 2008
081022melrosera12736melrosera  25308  1420  page 33 34 melrose plc annual report 2007
statement of directors’ responsibilities
the directors are responsible for preparing the annual report
directors’ remuneration report and the financial statements in
accordance with applicable law and regulations
company law requires the directors to prepare financial statements
for each financial year the directors are required by the international
accounting standard ias regulation to prepare the group financial
statements under international financial reporting standards ifrss
as adopted by the european union the group financial statements
are also required by law to be properly prepared in accordance with
the companies act 1985 and article 4 of the ias regulation 
ias 1 requires that ifrs financial statements present fairly for each
financial year the company’s financial position financial performance
and cash flows this requires the faithful representation of the effects
of transactions other events and conditions in accordance with the
definitions and recognition criteria for assets liabilities income and
expenses set out in the international accounting standards board’s
framework for the preparation and presentation of financial
statement in virtually all circumstances a fair presentation will be
achieved by compliance with all applicable ifrss however directors
are also required to
■
properly select and apply accounting policies
■
present information including accounting policies in a manner that
provides relevant reliable comparable and understandable
information and 
■
provide additional disclosures when compliance with the specific
requirements in ifrss are insufficient to enable users to understand
the impact of particular transactions other events and conditions
on the entity’s financial position and financial performance
the directors have elected to prepare the parent company financial
statements in accordance with united kingdom generally accepted
accounting practice united kingdom accounting standards and
applicable law the parent company financial statements are
required by law to give a true and fair view of the state of affairs of
the company in preparing these financial statements the directors
are required to
■
select suitable accounting policies and then apply them
consistently
■
make judgments and estimates that are reasonable and prudent
■
state whether applicable uk accounting standards have been
followed and
■
prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the company will continue in
business
the directors are responsible for keeping proper accounting records
that disclose with reasonable accuracy at any time the financial
position of the company and enable them to ensure that the parent
company financial statements comply with the companies act 1985
they are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities
the directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company’s
website legislation in the united kingdom governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions
081022melrosera12736melrosera  25308  1420  page 34 melrose plc annual report 2007  35
independent auditors’ report  
independent auditors’ report to the members of melrose plc
on the consolidated financial statements 
we have audited the consolidated financial statements of melrose plc for
the year ended 31 december 2007 which comprise the consolidated
income statement the consolidated balance sheet the consolidated cash
flow statement the consolidated statement of recognised income and
expense and the related notes 1 to 30 these consolidated financial
statements have been prepared under the accounting policies set out
therein we have also audited the information in the directors’
remuneration report that is described as having been audited
we have reported separately on the parent company financial
statements of melrose plc for the year ended 31 december 2007
this report is made solely to the company’s members as a body in
accordance with section 235 of the companies act 1985 our audit
work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an
auditors’ report and for no other purpose to the fullest extent
permitted by law we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body for
our audit work for this report or for the opinions we have formed
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report the
directors’ remuneration report and the consolidated financial
statements in accordance with applicable law and international
financial reporting standards ifrss as adopted by the european
union are set out in the statement of directors’ responsibilities
our responsibility is to audit the consolidated financial statements in
accordance with relevant legal and regulatory requirements and
international standards on auditing uk and ireland
we report to you our opinion as to whether the consolidated financial
statements give a true and fair view whether the consolidated financial
statements have been properly prepared in accordance with the
companies act 1985 and article 4 of the ias regulation and whether
the part of the directors’ remuneration report described as having been
audited has been properly prepared in accordance with the companies
act 1985 we also report to you whether in our opinion the information
given in the directors’ report is consistent with the consolidated financial
statements the information given in the directors’ report includes that
specific information presented in the business review chief executive’s
review and finance director’s review that is cross referred from the
business review section of the directors’ report
in addition we report to you if in our opinion we have not received
all the information and explanations we require for our audit or if
information specified by law regarding directors’ remuneration and
other transactions is not disclosed
we review whether the corporate governance statement reflects the
company’s compliance with the nine provisions of the 2006 combined
code specified for our review by the listing rules of the financial
services authority and we report if it does not we are not required to
consider whether the board’s statements on internal control cover all
risks and controls or form an opinion on the effectiveness of the group’s
corporate governance procedures or its risk and control procedures
we read the other information contained in the annual report as
described in the contents section and consider whether it is
consistent with the audited consolidated financial statements we
consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
consolidated financial statements our responsibilities do not extend
to any further information outside the annual report
basis of audit opinion
we conducted our audit in accordance with international standards on
auditing uk and ireland issued by the auditing practices board an audit
includes examination on a test basis of evidence relevant to the amounts
and disclosures in the consolidated financial statements and the part of
the directors’ remuneration report to be audited it also includes an
assessment of the significant estimates and judgments made by the
directors in the preparation of the consolidated financial statements and
of whether the accounting policies are appropriate to the group’s
circumstances consistently applied and adequately disclosed
we planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance
that the consolidated financial statements and the part of the
directors’ remuneration report to be audited are free from material
misstatement whether caused by fraud or other irregularity or error in
forming our opinion we also evaluated the overall adequacy of the
presentation of information in the consolidated financial statements
and the part of the directors’ remuneration report to be audited
opinion
in our opinion
■
the consolidated financial statements give a true and fair view in
accordance with ifrss as adopted by the european union of the
state of the group’s affairs as at 31 december 2007 and of its
profit for the year then ended
■
the consolidated financial statements have been properly prepared
in accordance with the companies act 1985 and article 4 of the
ias regulation 
■
the part of the directors’ remuneration report described as having
been audited has been properly prepared in accordance with the
companies act 1985 and
■
the information given in the directors’ report is consistent with the
consolidated financial statements
separate opinion in relation to ifrss
as explained in note 1 to the consolidated financial statements the
group in addition to complying with its legal obligation to comply with
ifrss as adopted by the european union has also complied with the
ifrss as issued by the international accounting standards board
in our opinion the consolidated financial statements give a true and
fair view in accordance with ifrss of the state of the group’s affairs
as at 31 december 2007 and of its profit for the year then ended
deloitte  touche llp
chartered accountants and registered auditors
london united kingdom
5 march 2008
081022melrosera12736melrosera  26308  1826  page 35 36 melrose plc annual report 2007
restated
3
year ended year ended
31 december 31 december
2007 2006
notes £m £m
continuing operations
revenue 4 5 3440 3236
cost of sales 2801 2651
gross profit 639 585
net operating expenses before exceptional items and intangible asset amortisation
1
394 393
intangible asset amortisation
1
20 21
exceptional costs 6 49 59
exceptional income 6 11 07
total net operating expenses 7 452 466
operating profit 5 187 119
headline operating profit
2
5 245 192
finance costs 7 43 73
finance income 7 68 02
profit before tax 212 48
tax 8 56 16
profit for the year from continuing operations 156 32
discontinued operations
profit for the year from discontinued operations 9 1994 346
profit for the year 2150 378
attributable to
equity holders of the parent 25 2148 377
minority interests 25 02 01
2150 378
earnings per share
from continuing operations
– basic 11 74p 12p
– diluted 11 72p 12p
from continuing and discontinued operations
– basic 11 1021p 147p
– diluted 11 992p 144p
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 profit before tax and earnings per share
respectively except that they are calculated before exceptional costs exceptional income and intangible asset amortisation other than computer software 
3
prior periods have been restated to separate the results of continuing and discontinued operations
consolidated income statement
081022melrosera12736melrosera  25308  1421  page 36 melrose plc annual report 2007  37
year ended year ended
31 december 31 december
2007 2006
notes £m £m
currency translation on net investments in subsidiary undertakings 25 37 414
gains on cash flow hedges 25 11 14
actuarial adjustments on net pension liabilities 23 25 35 12
net incomeexpense recognised directly in equity 83 388
transferred to income statement on cash flow hedges 25 21 14
transfer to income statement from equity of cumulative translation 
differences on discontinued operations 25 220 –
profit for the year 2150 378
total recognised income and expense for the year 2432 24
attributable to
equity holders of the parent 2430 25
minority interests 25 02 01
2432 24
consolidated statement of recognised income and expense
081022melrosera12736melrosera  25308  1421  page 37 38 melrose plc annual report 2007
31 december 31 december
2007 2006
notes £m £m
noncurrent assets
goodwill and other intangible assets 12 2074 3562
property plant and equipment 13 607 794
interests in joint ventures 14 – 26
derivative financial instruments 24 04 14
deferred tax assets 21 31 298
2716 4694
current assets
inventories 15 297 593
trade and other receivables 16 670 907
cash and short term deposits 17 464 333
1431 1833
total assets 5 4147 6527
current liabilities
trade and other payables 18 779 1048
interestbearing loans and borrowings 19 81 10
current tax liabilities 78 88
provisions 20 35 29
973 1175
net current assets 458 658
noncurrent liabilities
interestbearing loans and borrowings 19 131 1949
deferred tax liabilities 21 81 186
retirement benefit obligations 23 252 554
provisions 20 35 112
499 2801
total liabilities 5 1472 3976
net assets 2675 2551
equity
issued share capital 25 583 03
share premium account 25 – 2146
merger reserve 25 370 420
capital redemption reserve 25 1546 –
hedging and translation reserves 25 22 225
accumulated profits 25 142 197
equity attributable to holders of the parent 2663 2541
minority interest 25 12 10
total equity 2675 2551
the financial statements were approved by the board of directors on 5 march 2008 and were signed on its behalf by
geoffrey martin simon peckham
group finance director chief operating officer
consolidated balance sheet
081022melrosera12736melrosera  25308  1421  page 38 melrose plc annual report 2007  39
year ended year ended
31 december 31 december
2007 2006
notes £m £m
net cash from operating activities for continuing operations 26 141 97
net cash from operating activities for discontinued operations 26 13 236
net cash from operating activities 154 333
investing activities
disposal of businesses 4467 74
net cash disposed 58 –
lump sum contribution to pension plan 200 –
purchases of property plant and equipment 155 117
proceeds on disposal of property plant and equipment 04 99
purchase of computer software 05 –
interest received 71 –
acquisitions of subsidiaries 87 –
net cash from investing activities for continuing operations 4037 56
net cash used in investing activities for discontinued operations 26 26 56
net cash from investing activities 4011 –
financing activities
repayment of borrowings 1790 –
repayment of working capital facility – 30
repayment of obligations under finance leases 03 03
dividends paid 130 135
loan notes repaid – 05
capital distribution 2126 –
issue of 2007 incentive shares 01 –
net cash used in financing activities for continuing operations 4048 173
net cash from financing activities for discontinued operations 26 03 27
net cash used in financing activities 4045 146
net increase in cash and cash equivalents 26 120 187
cash and cash equivalents at beginning of year 26 333 152
effect of foreign exchange rate changes 26 11 06
cash and cash equivalents at end of year 26 464 333
consolidated cash flow statement
081022melrosera12736melrosera  25308  1421  page 39 40 melrose plc annual report 2007
1 corporate information
the consolidated financial statements of melrose plc for the year
ended 31 december 2007 were authorised in accordance with a
resolution of the directors of melrose plc on 5 march 2008
melrose plc is a company incorporated in the united kingdom under
the companies act 1985 the address of the registered office is given
on page 86 the nature of the group’s operations and its principal
activities are set out in note 5
these financial statements are presented in pounds sterling because
that is the currency of the primary economic environment in which the
company is based foreign operations are included in accordance with
the policies set out in note 2
at the date of authorisation of these financial statements the following
standards and interpretations are in issue but not yet effective
amendments to ias 1 presentation of financial statement – a revised
presentation
amendments to ias 23 borrowing costs
amendments to ifrs 2 vesting conditions and cancellations
amendments to ias 32 and ias 1 instruments puttable at fair value
revised ifrs 3 business combinations
revised ias 27 consolidated and separate financial statements
ifrs 8 operating segments
ifric 12 service concession arrangements
ifric 13 customer loyalty programmes
ifric 11 ifrs 2 – group and treasury share transactions
ifric 14 ias 19 – limit on a defined benefit asset minimum funding
requirements and their interaction
in the current year the group has adopted ifrs 7 financial instruments
disclosures which is effective for annual reporting periods beginning 
on or after 1 january 2007  and the consequential amendments to 
ifrs 1 presentation of financial statements the effect of the adoption
of ifrs 7 is to expand the disclosures provided in the financial
statements of the group’s financial instruments and management of
capital as detailed in note 24 ifrs 8 operating segments ifric 11
ifrs 2 group and treasury share transactions and ifric 12 service
concession arrangements were in issue at the date of authorisation of
the financial statements but not yet effective ifrs 8 affects only
disclosures and therefore has no material impact on the financial
statements of the group ifric 11 will have no impact on the group’s
financial statements but will affect the accounting by the company for
share options it grants to the employees of its subsidiaries ifric 12
relates to the accounting for service concession arrangements 
however ifric 12 is not yet endorsed for use in the european union
the european commission is currently preparing an effect study and 
an endorsement decision is expected by mid 2008 
the comparative information has been restated to show more
appropriate allocation of results following the disposal of the aerospace
oem “oem” the aerospace aftermarket “aftermarket” part of the
psm division and the us corporate centre and classification of these
divisions as discontinued operations
2 summary of significant accounting policies
basis of accounting
the financial statements have been prepared in accordance with
international financial reporting standards “ifrss” and uk law the
financial statements have also been prepared in accordance with ifrss
adopted for use in the european union and therefore comply with
article 4 of the eu ias regulation
the consolidated financial statements have been prepared on 
a historical cost basis the consolidated financial statements are
presented in pound sterling and accounting policies adopted are
consistent with prior year
basis of consolidation
the group financial statements include the results of the parent
undertaking and all its subsidiary undertakings the results of
businesses acquired during the period are included from the effective
date of acquisition and of those sold during the period to the effective
date of disposal
where group accounting policies are not adopted in the financial
statements of subsidiary undertakings appropriate adjustments are
made in the group financial statements
all intercompany balances and transactions including unrealised profits
arising from intragroup transactions have been eliminated in full
business combinations and goodwill
the acquisition of subsidiaries is accounted for using the purchase
method the cost of acquisition is measured as the cash paid and the
fair value of other assets given and liabilities incurred or assumed at
the date of exchange and equity instruments issued by the group in
exchange for control of the acquiree plus costs directly attributable to
the acquisition the acquired identifiable assets and liabilities are
measured at their fair value at the date of acquisition any excess of the
cost of acquisition over the fair values of the identifiable net assets
acquired is recognised as goodwill any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired
ie discount on acquisition is credited to the income statement in the
period of acquisition
goodwill on acquisition is initially measured at cost being the excess of
the cost of the business combination over the acquirer’s interest in the
net fair value of the identifiable assets liabilities and contingent
liabilities following initial recognition goodwill is measured at cost less
any accumulated impairment losses goodwill is reviewed for
impairment annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired
notes to the accounts
081022melrosera12736melrosera  27308  1337  page 40 melrose plc annual report 2007  41
2 summary of significant accounting policies
continued
business combinations and goodwill continued
as at the acquisition date any goodwill acquired is allocated to each of
the cashgenerating units acquired impairment is determined by
assessing the recoverable amount of the cashgenerating unit to which
goodwill relates where the recoverable amount of the cashgenerating
unit is less than the carrying amount an impairment loss is recognised
when there is a disposal of a cash generating unit goodwill relating to
the operation disposed of is taken into account in determining the gain
or loss on disposal of that operation the amount of goodwill allocated
to a partial disposal is measured on the basis of the relative values of the
operation disposed of and the operation retained
joint ventures
a joint venture is an entity which is not a subsidiary undertaking but in
which the interest of the group is that of a partner in a joint venture
over which the group exercises joint control the results assets and
liabilities of joint ventures are accounted for using the equity method of
accounting
exceptional costsincome
exceptional costsincome are those costsincome of a significant and
nonrecurring nature or those associated with significant restructuring
programmes
operating profit
operating profit is stated after charging exceptional costs crediting
exceptional income profit on disposal of businesses and after the share
of results of joint ventures but before finance income and finance costs
revenue
revenue is recognised when the significant risks and rewards of
ownership of the goods have passed to the buyer and can be reliably
measured revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for goods
provided in the normal course of business net of discounts customs
duties and sales taxes
borrowing costs
borrowing costs directly attributable to the acquisition construction or
production of qualifying assets which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale are
added to the cost of those assets until such time as the assets are
substantially ready for their intended use or sale investment income
earned on the temporary investment of specific borrowings pending
their expenditure on qualifying assets is deducted from the borrowing
costs eligible for capitalisation
all other borrowing costs are recognised in the income statement in the
period in which they are incurred
issue costs of loans
the finance cost recognised in the income statement in respect of
capital instruments is allocated to periods over the terms of the
instrument at a constant rate on the carrying amount
use of estimates
the preparation of financial statements in conformity with generally
accepted accounting practice requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities as well as the disclosure of contingent assets and liabilities at
the balance sheet date and the reported amounts of revenues and
expenses during the reporting period actual outcomes could differ
from those estimates
property plant and equipment
property plant and equipment are stated at cost less accumulated
depreciation and any impairment in value
the initial cost of an asset comprises its purchase price or construction
cost and any costs directly attributable to bring the asset into operation
the purchase price or construction cost is the aggregate amount paid
and the fair value of any other consideration given to acquire the asset
the capitalised value of a finance lease is also included within property
plant and equipment
for property the deemed cost as at the date of transition to ifrs was
the fair value at the date of the last valuation of these assets less
accumulated depreciation until the date of transition
depreciation is calculated on a straightline basis over the estimated
useful life of the asset as follows
freehold land nil 
freehold buildings and over expected economic life not
long leasehold property exceeding 50 years
short leasehold property over the term of the lease
plant and other equipment 312 years
the estimated useful lives of property plant and equipment are
reviewed on an annual basis and if necessary changes in useful lives
are accounted for prospectively
the carrying values of property plant and equipment are reviewed for
impairment when events or changes in circumstances indicate the
carrying value may not be recoverable if any such indication exists and
where the carrying values exceed the estimated recoverable amount
the assets are written down to their recoverable amount the
recoverable amount of property plant and equipment is the greater of
net selling price and value in use in assessing value in use the
estimated future cash flows are discounted to their present value using a
pretax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for an asset that
does not generate largely independent cash inflows the recoverable
amount is determined for the cashgenerating unit to which the asset
belongs and allocated proportionately 
081022melrosera12736melrosera  25308  1421  page 41 42 melrose plc annual report 2007
2 summary of significant accounting policies
continued
property plant and equipment continued
an item of property plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset any gain or loss arising on
derecognition of the asset calculated as the difference between the
net disposal proceeds and the carrying amount of the item is included
in the income statement in the year the item is derecognised
intangible assets
intangible assets are stated at cost less accumulated amortisation and
accumulated impairment losses
on acquisition of businesses separately identifiable intangible assets
are determined in relation to the specific circumstances of the business
acquired and are valued on an appropriate basis
access to the use of patented technology and trade names are valued
using a “relief from royalty” method which determines the net present
value of future additional cash flows arising from the use of the
intangible asset
customer relationships are valued on the basis of the net present value
of the future additional cash flows arising from customer relationships
with appropriate allowance for attrition of customers
the estimated useful lives of intangible assets are
patented technology 5 years or less
customer relationships 10 years or less
trade names 20 years or less
computer software is initially recorded at cost where these assets have
been acquired through a business combination this will be the fair
value allocated in the acquisition accounting where these have been
acquired other than through a business combination the initial cost is
the aggregate amount paid and the fair value of any other
consideration given to acquire the asset
computer software assets are amortised over their estimated useful
lives up to five years on a straight line basis
as with property plant and equipment intangible assets are tested for
impairment annually or more frequently whenever events or changes
in circumstances indicate that the carrying value may not be
recoverable impairment losses are measured on a similar basis to
property plant and equipment useful lives are also examined on an
annual basis and adjustments where applicable are made on a
prospective basis
research and development costs
research costs are expensed as incurred
clearly defined and identifiable development projects in which the
technical degree of exploitation adequacy of resources and potential
market or development possibility in the undertaking are recognisable
and where it is the intention to produce market or execute the project
are capitalised when a correlation exists between the costs incurred
and future benefits and the costs can be measured reliably costs not
meeting such criteria are expensed as incurred
inventories
inventories are valued at the lower of cost and net realisable value 
cost includes all direct expenditure and appropriate production
overhead expenditure incurred in bringing goods to their current state
under normal operating conditions net realisable value is based on
estimated selling price less costs expected to be incurred to completion
and disposal provision has been made for obsolescence or other losses
where necessary
trade and other receivables
trade receivables are recognised and carried at original invoice 
amount less an allowance for doubtful debts an allowance is recorded
for the difference between the carrying amount and the estimated
recoverable amount
cash and cash equivalent
cash and shortterm deposits in the balance sheet comprise cash in
hand and current balances with banks and similar institutions and short
term deposits with an original maturity of three months or less which are
subject to insignificant risks of changes in value
for the purpose of the consolidated cash flow statement cash and
cash equivalents consist of cash and cash equivalents as defined
above net of outstanding bank overdrafts
interestbearing loans and borrowings
all loans and borrowings are initially recognised at cost being the fair
value of the consideration received net of issue costs associated with
the borrowings
after initial recognition interestbearing loans and borrowings are
subsequently measured at amortised cost using the effective interest
method amortised cost is calculated by taking into account any issue
costs and any discount or premium on settlement
gains and losses are recognised in net profit or loss when the liabilities
are derecognised or impaired as well as through the amortisation
process
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 42 melrose plc annual report 2007  43
2 summary of significant accounting policies
continued
leases
finance leases which transfer to the group substantially all the risks and
benefits incidental to ownership of the leased item are capitalised at the
inception of the lease at the fair value of the lease or if lower at the
present value of the minimum lease payments lease payments are
apportioned between the finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on the remaining
balance of the liability 
finance charges are charged directly against income
capitalised leased assets are depreciated over the shorter of the
estimated useful life of the asset or the lease term
operating lease payments are recognised as an expense in the income
statement on a straightline basis over the lease term
other financial liabilities 
other financial liabilities including borrowings are initially measured at
fair value net of transaction costs other financial liabilities are
subsequently measured at amortised cost using the effective interest
method with interest expense recognised on an effective yield basis
the effective interest method is a method of calculating the amortised
cost of a financial liability and of allocating interest expense over the
relevant period the effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of
the financial liability or where appropriate a shorter period
derivative financial instruments and hedging
the group uses derivative financial instruments to manage its exposure
to interest rate and foreign exchange rate risks arising from operating
and financing activities the group does not hold or issue derivative
financial instruments for trading purposes details of derivative financial
instruments are disclosed in note 24 of the financial statements
movements on the hedging reserve in equity are detailed in note 25
derivative financial instruments are recognised and stated at fair value
their fair value is recalculated at each reporting date the accounting
treatment for the resulting gain or loss will depend on whether the
derivative qualifies for hedge accounting
where derivatives do not qualify for hedge accounting any gains or
losses on the revaluation to fair value at the period end is recognised
immediately in the income statement where derivatives qualify for
hedge accounting recognition of any resulting gain or loss on
revaluation depends on the nature of the hedge relationship and the 
item being hedged
derivative financial instruments with maturity dates of less than one
year from the balance sheet date are classified as current in the
balance sheet 
hedge accounting
in order to qualify for hedge accounting the group is required to
document from inception the relationship between the item being
hedged and the hedging instrument the group is also required to
document and demonstrate the relationship between the hedged item
and the hedging instrument showing that the hedge will be highly
effective on an ongoing basis this effectiveness testing is performed at
each period end to ensure that the hedge remains highly effective
hedge accounting is discontinued when the group revokes the
hedging relationship the hedge instrument expires or is sold
terminated exercised or no longer qualifies for hedge accounting 
the group designates certain hedging instruments as either fair 
value hedges cash flow hedges or hedges of net investments in
foreign operations
fair value hedge
derivative financial instruments are classified as fair value hedges when
they hedge the group’s exposure to changes in the fair value of a
recognised asset or liability changes in the fair value of derivatives that
are designated and qualify as fair value hedges are recorded in the
income statement immediately together with any changes in the fair
value of the hedged item that is attributable to the hedged risk 
cash flow hedge
derivative financial instruments are classified as cash flow hedges when
they hedge the group’s exposure to the variability in cash flows that are
either attributable to a particular risk associated with a recognised asset or
liability or a highly probable forecasted cash flow 
the effective portion of any gain or loss from revaluing the derivative
financial instrument is recognised directly in equity the gain or loss
relating to the ineffective portion is recognised immediately in the
income statement as part of other income or other expense 
amounts deferred in equity are recycled to the income statement in the
periods when the hedged item is recognised in the income statement
however when the forecast transaction that is hedged results in the
recognition of a nonfinancial asset or a nonfinancial liability the gains
and losses previously deferred in equity are transferred from equity and
included in the initial measurement of the cost of the asset or liability
hedges of net investments in foreign operations
derivative financial instruments are classified as net investment hedges
when they hedge the group’s net investment in foreign operations
the effective element of any foreign exchange gain or loss from
revaluing the derivative at a reporting period end is recognised directly
in equity any ineffective element is recognised immediately in the
income statement
gains and losses accumulated in equity are recognised immediately in
the income statement when the foreign operation is disposed of
081022melrosera12736melrosera  25308  1421  page 43 44 melrose plc annual report 2007
2 summary of significant accounting policies
continued
provisions
provisions are recognised when the group has a present obligation 
legal or constructive as a result of a past event it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and a reliable estimate can be made of the amount
of the obligation where the group expects some or all of a provision to
be reimbursed for example under an insurance contract the
reimbursement is recognised as a separate asset but only when the
reimbursement is virtually certain is the expense relating to any provision
presented in the income statement net of any reimbursement if the
effect of the time value of money is material provisions are determined
by discounting the expected future cash flows at a pretax rate that
reflects the current market assessment of the time value of money and
where appropriate the risks specific to the liability where discounting is
used the increase in the provision due to the passage of time is
recognised as a finance cost
environmental liabilities
liabilities for environmental costs are recognised when environmental
assessments or cleanups are probable and the associated costs can
be reasonably estimated generally the timing of these provisions
coincides with the commitment to a formal plan of action the amount
recognised is the best estimate of the expenditure required where the
liability will not be settled for a number of years the amount recognised
is the present value of the estimated future expenditure
employee benefits
wages salaries bonuses social security contributions paid annual leave
and sick leave are accrued in the year in which the associated services
are rendered by employees of the group the accounting policy for
pensions and other postretirement benefits is described below
the group also operates divisional long term incentive plans ltips for
certain employees the expected settlement costs of these plans are
expensed on a straight line basis over the life of the plan
pensions and other postretirement benefits
the group operates defined benefit pension schemes and defined
contribution schemes which require contributions to be made to
administered funds separate from the group in some jurisdictions
funds are not administered separately from the group but appropriate
liabilities are recognised in the balance sheet
for the defined benefit pension and postretirement benefit plans plan
assets are measured at fair value and plan liabilities are measured on
an actuarial basis using the projected unit credit method and
discounted at an interest rate equivalent to the current rate of return on
a high quality corporate bond of equivalent currency and term to the
plan liabilities
the service cost of providing pension and other postretirement
benefits to employees for the period is charged to the income
statement the cost of making improvements to pension and other
postretirement benefits is recognised in the income statement on a
straight line basis over the period during which the increase in benefits
vests to the extent that the improvement in benefits vests
immediately the cost is recognised immediately these costs are
recognised as an expense
a charge representing the unwinding of the discount on the plan
liabilities during the period is included within other finance costs
a credit representing the expected return on the plan assets during the
period is included within other finance costs this credit is based on the
market value of the plan assets and expected rates of return at the
beginning of the year
actuarial gains and losses may result from differences between the
expected return and the actual return on plan assets differences
between the actuarial assumptions underlying the plan liabilities and
actual experience during the period or changes in the actuarial
assumptions used in the valuation of the plan liabilities actuarial gains
and losses and taxation thereon are recognised in the statement of
recognised income and expense
for defined contribution plans contributions payable for the year are
charged to the income statement as an operating expense
foreign currency translation
the individual financial statements of each group company are
presented in the currency of the primary economic environment in
which it operates its functional currency for the purpose of the
consolidated financial statements the results and financial position of
each group company are expressed in pound sterling which is the
functional currency of the company and the presentation currency for
the consolidated financial statements
in preparing the financial statements of the individual companies
transactions in currencies other than the entity’s functional currency
foreign currencies are recorded at the rates of exchange prevailing on
the dates of the transactions at each balance sheet date monetary
assets and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date non
monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair
value was determined nonmonetary items that are measured in
terms of historical cost in a foreign currency are not retranslated
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 44 melrose plc annual report 2007  45
2 summary of significant accounting policies
continued
foreign currency translation continued
exchange differences arising on the settlement of monetary items and on
the retranslation of monetary items are included in the income statement
for the period exchange differences arising on the retranslation of non
monetary items carried at fair value are included in the income statement
for the period except for differences arising on the retranslation of non
monetary items in respect of which gains and losses are recognised
directly in equity for such nonmonetary items any exchange component
of that gain or loss is also recognised directly in equity
in order to hedge its exposure to certain foreign exchange risks the
group enters into forward contracts and options see above for details of
the group’s accounting policies in respect of such derivative financial
instruments
for the purpose of presenting consolidated financial statements the
assets and liabilities of the group’s foreign operations are translated at
exchange rates prevailing on the balance sheet date income and
expense items are translated at the average exchange rates for the
period unless exchange rates fluctuate significantly during that period
in which case the exchange rates at the date of transactions are used
exchange differences arising if any are classified as equity and
transferred to the group’s translation reserve such translation
differences are recognised as income or as expenses in the period in
which the operation is disposed of
goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate
taxation
tax expense represents the sum of the tax paid or currently payable
and deferred tax
the tax expense is based on the taxable profits for the period taxable
profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never
taxable or deductible the group’s liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by the
balance sheet date
deferred tax is provided using the liability method on all temporary
differences at the balance sheet date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting
purposes
deferred tax liabilities are recognised for all taxable temporary
differences
■
except where the deferred tax liability arises on goodwill that is not
tax deductible or the initial recognition of an asset or liability in a
transaction that is not a business combination and at the time of the
transaction affects neither the accounting profit nor taxable profit or
loss and
■
in respect of taxable temporary differences associated with
investments in subsidiaries and interests in joint ventures except
where the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will not
reverse in the foreseeable future
deferred tax assets are recognised for all deductible temporary
differences carryforward of unused tax assets and unused tax losses
to the extent that it is probable that taxable profit will be available
against which the deductible temporary differences and carryforward
of unused tax assets and unused tax losses can be utilised
■
except where the deferred tax asset arises from the initial recognition
of an asset or liability in a transaction that is not a business
combination and at the time of the transaction affects neither the
accounting profit nor taxable profit or loss and
■
in respect of deductible temporary differences associated with
investments in subsidiaries associates and interests in joint ventures
deferred tax assets are only recognised to the extent that it is
probable that the temporary differences will reverse in the
foreseeable future and taxable profit will be available against which
the temporary differences can be utilised
the carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the
deferred tax asset to be utilised
deferred tax assets and liabilities are measured at the tax rates that are
expected to apply to the year when the asset is realised or the liability is
settled based on tax rates and tax laws that have been enacted or
substantially enacted at the balance sheet date
tax relating to items recognised directly in equity is recognised in equity
and not in the income statement
revenues expenses and assets are recognised net of the amount of
sales tax except
■
where the sales tax incurred on a purchase of goods and services is
not recoverable from the taxation authority in which case the sales
tax is recognised as part of the cost of acquisition of the asset or as
part of the expense item as applicable and
■
receivables and payables are stated with the amount of sales tax
included
the net amount of sales tax recoverable from or payable to the 
taxation authority is included as part of receivables or payables in the
balance sheet
081022melrosera12736melrosera  25308  1421  page 45 46 melrose plc annual report 2007
2 summary of significant accounting policies
continued
sharebased payments
the group has applied the requirements of ifrs 2 sharebased
payments the group issues equitysettled sharebased payments to
certain employees equitysettled sharebased payments are measured
at fair value at the date of grant the fair value determined at the grant
date of the equitysettled sharebased payments is expensed on a
straightline basis over the vesting period based on the group’s
estimate of shares that will eventually vest and adjusted for the effect of
nonmarket based vesting conditions
fair value is measured by use of the black scholes model the expected
life used in the model has been adjusted based on management’s best
estimate for the effects of nontransferability exercise restrictions and
behavioural considerations
3 critical accounting judgments
in applying the group’s accounting policies as set out in note 2
management has made critical accounting judgements in the
determination of the fair value of assets and liabilities acquired the
quantification of provisions and the impairment of goodwill and
intangible assets due to the inherent uncertainty involved in making
assumptions and estimates actual outcomes will differ from those
assumptions and estimates an analysis of the key sources of estimation
uncertainty at the balance sheet date that have a significant risk of
causing a material adjustment to the carrying amount of assets and
liabilities within the next financial year is provided below
provisions
the quantification of certain liabilities within provisions for
environmental remediation obligations and for future legal costs in
relation to certain claims have been estimated however such liabilities
depend on the actions of third parties and on the specific circumstances
pertaining to each obligation neither of which is controlled by the group
impairment of noncurrent assets
goodwill and intangible assets are tested for impairment whenever
events or circumstances indicate that their carrying amounts might be
impaired and at least annually such events and circumstances include
the effects of restructuring initiated by management 
to determine whether goodwill is impaired requires an estimation of the
value in use of the cashgenerating units to which goodwill has been
allocated the value in use calculation requires management to
estimate the future cash flows expected to arise from the cash
generating unit and a suitable discount rate in order to calculate present
value the carrying amount of intangible assets at the balance sheet
date was £207 4m 2006 £3562m at 31 december 2007  the
group recognised no impairment loss in respect of these assets but
impairment losses could arise if changes are necessary to the
assumptions underlying the estimates in future cash flows of cash
generating units or if there are changes in market interest rates which
affect the discount rates applied to the cash flow
retirement benefit obligations
in assessing the group’s obligations relating to retirement benefits
management made key assumptions relating to current and future
mortality expected returns on plan assets discount rates and inflation
intangible assets
the valuation of intangible assets in respect of customer relations
requires management to estimate the additional future cash flows
arising from those relationships after eliminating attrition factor
“customer churn” relevant to the customer relationship and to other
factors such as access to the workforce which were appropriate to the
determination of the additional cash flows
fair values at acquisition
on the acquisitions of the two businesses in canada dynacast
management have made assumptions regarding the fair value of assets
and liabilities acquired in conjunction with professional advisors and
have applied hindsight where appropriate to the circumstances of
particular assetsliabilities estimations were made in particular of
intangible assets plant and equipment deferred tax liabilities inventory
and provisions
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 46 melrose plc annual report 2007  47
4 revenue
an analysis of the group’s revenue is as follows
year ended year ended
31 december 31 december 
2007 2006
notes £m £m
continuing operations
sale of goods 5 3440 3236
interest income 7 68 02
exceptional income 6 11 07
revenue from continuing operations 3519 3245
discontinued operations
sales 5 9 673 1834
exceptional income 6 – 23
revenue from discontinued operations 673 1857
total revenue as defined by ias 18 4192 5102
5 segment information
the group’s primary reporting format is business segments and its secondary reporting format is geographical segments the operating businesses
are organised and managed separately according to the nature of the products and services provided with each segment representing a strategic
business unit that offers different products and serves different markets all reported revenue is derived 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 diecast parts and components to a range of industries mckechnie vehicle components “mvc” supplies
exterior trim products to major vehicle manufacturers in the usa mckechnie plastic components “mpc” is a uk supplier of plastic injection
moulded and extruded components to the automotive consumer durable it and other industries the mckechnie psm “psm” continuing
segment consists of the specialised prelok and canning brett businesses and is now included in the mpc segment for reporting purposes
transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties
the group’s geographical segments are determined by the location of the group’s assets and operations inter segment sales are not material and
have not been included in the analysis below
081022melrosera12736melrosera  27308  1330  page 47 48 melrose plc annual report 2007
5 segment information continued
the following table presents revenue headline operating profit information which the directors believe is the best indicator of performance
operating profit and certain asset and liability information regarding the group’s business segments for the year ended 31 december 2007  
note 6 gives details of exceptional costs and income 
revenue headline operating profitloss
2
operating profitloss
year ended year ended year ended year ended year ended year ended 
31 december 31 december 31 december 31 december 31 december 31 december 
2007 2006 2007 2006 2007 2006
business segments £m £m £m £m £m £m
continuing operations
dynacast 2359 2217 289 251 256 195 
mvc 554 480 05 23 22 25
mpc 527 539 39 30 39 15
central – corporate – – 58 55 47 55
central – ltips
1
– – 20 11 39 11
continuing operations total 3440 3236 245 192 187 119 
discontinued operations
oem 537 1401 119 331 109 308 
aftermarket 52 193 01 06 01 42
psm discontinued 84 240 14 42 14 37
central discontinued – – 04 10 04 14
discontinued operations total 673 1834 130 369 120 373 
total 4113 5070 375 561 307 492
1
long term incentive plans
2
as defined on the income statement
total assets total liabilities
year ended year ended year ended year ended 
31 december 31 december 31 december 31 december 
2007 2006 2007 2006
£m £m £m £m
continuing operations
dynacast 3229 3089 807 749
mvc 324 357 117 121
mpc 315 322 111 130
central – corporate 279 46 422 1655
central – ltips
1
– – 15 15
continuing operations total 4147 3722 1472 2670
discontinued operations
oem – 2179 – 325
aftermarket – 72 – 18
psm discontinued – 344 – 57
central discontinued – 210 – 906
discontinued operations total – 2805 – 1306
total 4147 6527 1472 3976
1
long term incentive plans
following the disposal of oem aftermarket part of the psm division and us corporate centre certain central assets relating to those businesses
were disposed of leaving a central overdraft in excess of central assets in the prior year this is shown as a negative asset in the table above in
accordance with ias 14
notes to the accounts continued
081022melrosera12736melrosera  27308  1351  page 48 melrose plc annual report 2007  49
5 segment information continued
depreciation and computer
capital expenditure software amortisation
year ended year ended year ended year ended 
31 december 31 december 31 december 31 december 
2007 2006 2007 2006
business segments continued £m £m £m £m
continuing operations
dynacast 54 69 68 70
mvc 78 33 19 18
mpc 28 15 16 21
central – corporate – – 01 01
continuing operations total 160 117 104 110
discontinued operations
oem 26 69 12 28
aftermarket – 01 – 01
psm discontinued 01 10 02 07
discontinued operations total 27 80 14 36
total 187 197 118 146
revenue headline operating profitloss
2
operating profitloss
year ended year ended year ended year ended year ended year ended 
31 december 31 december 31 december 31 december 31 december 31 december 
2007 2006 2007 2006 2007 2006
geographical area £m £m £m £m £m £m
continuing operations
north america 1323 1270 73 36 32 13
europe 1552 1463 185 166 17 6 142 
asia 565 503 65 56 65 56
central – corporate – – 58 55 47 55
central – ltips
1
– – 20 11 39 11
continuing operations total 3440 3236 245 192 187 119 
discontinued operations
north america 410 1091 107 277 97 260 
europe 211 598 18 67 18 88
asia 52 145 09 35 09 35
central – – 04 10 04 10
discontinued operations total 673 1834 130 369 120 373 
total 4113 5070 375 561 307 492
1
long term incentive plans
2
as defined on the income statement
081022melrosera12736melrosera  27308  2021  page 49 50 melrose plc annual report 2007
5 segment information continued
total assets total liabilities
year ended year ended year ended year ended 
31 december 31 december 31 december 31 december 
2007 2006 2007 2006
geographical area continued £m £m £m £m
continuing operations
north america 1885 1835 391 362
europe 1572 1569 493 501
asia 411 364 151 137
central – corporate 279 46 422 1655
central – ltips
1
– – 15 15
continuing operations total 4147 3722 1472 2670
discontinued operations
north america – 1728 – 233
europe – 576 – 126
asia – 291 – 41
central – 210 – 906
discontinued operations total – 2805 – 1306
total 4147 6527 1472 3976
1
long term incentive plans
depreciation and computer
capital expenditure software amortisation
year ended year ended year ended year ended 
31 december 31 december 31 december 31 december 
2007 2006 2007 2006
£m £m £m £m
continuing operations
north america 88 52 43 44
europe 51 42 46 51
asia 21 23 14 14
central – corporate – – 01 01
continuing operations total 160 117 104 110
discontinued operations
north america 17 55 07 17
europe 09 16 05 15
asia 01 09 02 04
discontinued operations total 27 80 14 36
total 187 197 118 146
notes to the accounts continued
081022melrosera12736melrosera  27308  1052  page 50 melrose plc annual report 2007  51
6 exceptional costs and income
exceptional costs
year ended year ended
31 december 31 december 
2007 2006
other operating costs £m £m
continuing operations
dynacast restructure 15 37
mvc “old” nickel plater impairment 15 –
crystallisation of melrose original incentive scheme 19 –
mpc restructure – 22
total other operating costs – continuing 49 59
discontinued operations
predisposal expenses – 20
total other operating costs – discontinued – 20
total other operating costs 49 79
the dynacast restructuring costs in 2007 relate mainly to the acquisitions of techmire and qzd in canada the dynacast restructuring costs in
2006 related to the closure of the spartanburg south carolina usa manufacturing facility 
during the year ended 31 december 2007  the old plater was replaced at mvc and as a result an impairment against the carrying value of the asset
was made
on 14 august 2007  the shareholders approved the early crystallisation of the melrose original incentive scheme resulting in an accelerated ifrs 2
charge and associated national insurance charge 
the mpc restructure costs related to the closure of the northampton manufacturing facility in 2006 
the predisposal costs in 2006 related to the sale of divisions which were completed in 2007 
exceptional income
year ended year ended
31 december 31 december 
2007 2006
other operating income £m £m
continuing operations
pension curtailment gain 11 –
profit on disposal of land and buildings – 07
total other operating income – continuing 11 07
discontinued operations
onerous contract provision release – 23
total other operating income – discontinued – 23
total other operating income 11 30
following the disposal of the oem division all employees in this segment belonging to the mckechnie uk defined benefit pension plan became
deferred members the curtailment gain associated with this was £11 million
during the year ended 31 december 2006 land and buildings held in the mpc business segment were sold in a sale and leaseback transaction
resulting in a net profit of £07 million 
upon acquisition of the mckechnie group in may 2005 an onerous contract was identified and appropriate provision was made based on the
circumstances prevailing at acquisition during 2006 the terms of the contract were renegotiated and the improved terms of the contract were
reflected in the accounts resulting in a release to the income statement of £23 million
081022melrosera12736melrosera  27308  1340  page 51 52 melrose plc annual report 2007
7 revenues and expenses
continuing operations discontinued operations total
year ended year ended year ended year ended year ended year ended 
31 december 31 december 31 december 31 december 31 december 31 december 
2007 2006 2007 2006 2007 2006
net operating expenses comprise £m £m £m £m £m £m
selling and distribution costs 143 131 40 119 183 250
administration expenses 271 283 53 144 324 427
share of joint ventures operating profits – – 02 08 02 08
other operating costs – exceptional note 6 49 59 – 20 49 79
other operating income – exceptional note 6 11 07 – 23 11 30
profit on disposal of businesses – – – 32 – 32
total net operating expenses 452 466 91 220 543 686
continuing operations discontinued operations total
year ended year ended year ended year ended year ended year ended 
31 december 31 december 31 december 31 december 31 december 31 december 
2007 2006 2007 2006 2007 2006
operating profit is stated after chargingcrediting £m £m £m £m £m £m
depreciation 103 109 13 33 116 142 
cost of inventories 2785 2645 462 1231 3247 3876
writedown of inventories recognised as an expense 16 06 – 10 16 16
amortisation of other intangible assets 20 21 10 31 30 52
amortisation of computer software 01 01 01 03 02 04
operating lease expense 24 27 02 07 26 34
staff costs see below 836 838 193 525 1029 1363 
research and development costs – – 02 08 02 08
disposal of businesses note 9 – – 1916 32 1916 32
the analysis of auditors’ remuneration is as follows
year ended year ended
31 december 31 december
2007 2006
£m £m
fees payable to the company’s auditors for the audit of the company’s annual accounts 02 04
fees payable to the company’s auditors and their associates for other services to the group
– the audit of the company’s subsidiaries pursuant to legislation 04 04
06 08
year ended year ended
31 december 31 december
2007 2006
£m £m
tax services 06 08
corporate finance services 06 11
total nonaudit fees 12 19
notes to the accounts continued
081022melrosera12736melrosera  27308  1350  page 52 melrose plc annual report 2007  53
7 revenues and expenses continued
year ended year ended
31 december 31 december
2007 2006
£m £m
staff costs during the period including directors
wages and salaries 756 762
social security costs 71 67
pension costs
– defined benefit plans note 23 04 04
– defined contribution schemes 05 05
total continuing costs 836 838
discontinued businesses 193 525
total continuing and discontinued costs 1029 1363
year ended year ended
31 december 31 december
2007 2006
number number
average number of persons employed
dynacast 2394 2268
mvc 488 481
mpc 594 577
corporate 25 24
total continuing businesses 3501 3350
oem 631 1320
aftermarket 10 44
psm – discontinued 277 654
corporate – 1
total discontinued businesses 918 2019
total continuing and discontinued businesses 4419 5369
the average numbers shown above are calculated on a monthly basis 
year ended year ended
31 december 31 december
2007 2006
£m £m
finance costs and income
bank loans and overdrafts 57 72
finance lease expenses 01 01
fair value gain on financial instruments transferred from equity 21 14
finance cost of pensions 04 14
finance costs of redeemable preference c shares 02 –
interest received 68 02
total continuing businesses 25 71
discontinued businesses note 9 17 51
total net finance incomecosts 08 122
the finance cost of pensions is the net of the interest cost on benefit obligations of £7 4 million and the expected return on plan assets of £7 0
million 2006 £68 million and £54 million respectively
081022melrosera12736melrosera  27308  1343  page 53 54 melrose plc annual report 2007
8tax
continuing operations discontinued operations total
year ended year ended year ended year ended year ended year ended 
31 december 31 december 31 december 31 december 31 december 31 december 
2007 2006 2007 2006 2007 2006
analysis of chargecredit in year £m £m £m £m £m £m
current tax 66 45 17 06 49 51
deferred tax note 21 10 29 42 30 32 59
total income tax chargecredit 56 16 25 24 81 08
tax charge on headline operating profit 
after finance costs and income 72 35 28 88 100 123
exceptional tax credits – – – 102 – 102
tax on net exceptional costs 10 13 – – 10 13
tax in respect of intangible asset amortisation 
excluding computer software 06 06 03 10 09 16
total income tax chargecredit 56 16 25 24 81 08
of the charge to current tax approximately £25 million 2006 credit of £24 million related to profits arising in the discontinued divisions which
were disposed of during the year no tax charge or credit arose on the disposal of the relevant subsidiaries
the tax for the period is lower than the standard rate of corporation tax in the uk 30 the differences are explained below
year ended year ended
31 december 31 december
2007 2006
£m £m
profit on ordinary activities before tax
continuing operations 212 48
discontinued operations 103 322
315 370
tax on profit on ordinary activities at uk corporate tax rate 30 95 111
expenses not deductible for tax purposes 06 07
adjustment in respect of foreign tax rates 01 16
excess losses utilisednot utilised 17 16
deductible items not in profit and loss account 09 150
prior year tax adjustments 05 08
total tax chargecredit for the year 81 08
notes to the accounts continued
081022melrosera12736melrosera  27308  1344  page 54 melrose plc annual report 2007  55
9 discontinued operations
on 11 may 2007  the group disposed of its interest in the mckechnie aerospace oem and aftermarket divisions gross proceeds from the sale of
these divisions were £4280 million and costs incurred during the period were £96 million in addition costs of £18 million 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 £300 million and costs incurred during the period were £12 million in addition costs of £02 million were incurred in 2006
details of net assets disposed of and disposal proceeds are as follows
oem and psm
aftermarket fasteners total
£m £m £m
goodwill 1124 171 1295
intangible assets 230 – 230
computer software 09 01 10
property plant and equipment 234 25 259
joint ventures 03 26 29
deferred tax assets 208 – 208
inventories 320 33 353
trade and other receivables 252 71 323
cash at bank 43 15 58
gross assets disposed of 2423 342 2765
trade and other payables 206 38 244
finance lease obligations 25 – 25
post employment benefit obligations – 02 02
tax – 03 03
deferred tax liability 86 – 86
provisions 69 – 69
gross liability disposed of 386 43 429
net assets disposed of 2037 299 2336
cumulative exchange translation loss recycled on disposals 182 38 220
profitloss on disposal 1965 49 1916
consideration net of costs 4184 288 4472
cash disposed of 43 15 58
cash inflow from current year disposals 4141 27 3 4414
081022melrosera12736melrosera  25308  1421  page 55 56 melrose plc annual report 2007
9 discontinued operations continued
financial performance of discontinued operations
year ended year ended 
oem and psm 31 december 31 december 
aftermarket fasteners 2007 2006
£m £m £m £m
revenue 589 84 673 1834
operating costs before exceptional items 47 3 7 0 543 1465
headline operating profit 116 14 130 369
intangible asset amortisation 10 – 10 31
reported as exceptional items – – – 03
net finance costs 15 02 17 51
profit before tax 91 12 103 290
tax chargecredit 22 03 25 24
profit after income tax from discontinued operations 69 09 78 314
profitloss on disposal of net assets of discontinued operations 2147 11 2136 32
cumulative exchange loss 182 38 220 –
profitloss on disposal 1965 49 1916 32
profitloss for the year on discontinued operations 2034 40 1994 346
10 dividends
year ended year ended
31 december 31 december
2007 2006
£m £m
final dividend for the year ended 31 december 2006 paid of 375p 2005 3p 96 77
interim dividend for the year ended 31 december 2007 paid of 25p 2006 225p 34 58
proposed final dividend for the year ended 31 december 2007 of 425p 2006 375p 57 96
the proposed final dividend is subject to approval by shareholders at the annual general meeting and has not been included as a liability in these
financial statements
in addition to dividends paid shareholders approved a £2200 million return of capital of which £2126 million was paid on 31 august 2007  
further details are disclosed in note 25
11 earnings per share
year ended year ended
31 december 31 december
2007 2006
earnings £m £m
earnings for the purposes of basic earnings per share 2150 378
less profit for the year from discontinued operations note 9 1994 346
earnings for basis of earnings per share from continuing operations 156 32
exceptional costs 49 59
exceptional income 11 07
intangible asset amortisation
1
20 21
tax on exceptional items and other intangible asset amortisation
1
16 19
earnings for basis of headline earnings per share from continuing operations 198 86
1
other than computer software
number number
weighted average number of ordinary shares for the purposes of basic earnings per share million 2105 257 1
further shares for the purposes of fully diluted earnings per share million 63 51
further shares for dilution is calculated for 2007 as a weighted average of the two melrose incentive share schemes that were in operation during
the year
notes to the accounts continued
081022melrosera12736melrosera  27308  1346  page 56 melrose plc annual report 2007  57
11 earnings per share continued
year ended year ended
31 december 31 december
2007 2006
earnings per share pence pence
basic earnings per share
from continuing and discontinued operations 1021 147
from discontinued operations 947 135
from continuing operations 74 12
fully diluted earnings per share
from continuing and discontinued operations 992 144
from discontinued operations 920 132
from continuing operations 72 12
headline earnings per share
from continuing operations 94 33
fully diluted headline earnings per share
from continuing operations 91 33
12 intangible assets
other
intangible computer
goodwill assets software total
£m £m £m £m
cost
at 31 december 2006 307 8 552 27 3657
additions – – 06 06
acquisitions 45 16 – 61
disposals 1295 286 21 1602
exchange adjustments 07 06 01 14
at 31 december 2007 1835 288 13 2136
amortisation
at 31 december 2006 – 7 9 16 95
charge for the period – 30 02 32
disposals – 56 11 67
exchange adjustments – 01 01 02
at 31 december 2007 – 54 08 62
net book value
at 31 december 2007 1835 234 05 2074
at 31 december 2006 307 8 47 3 11 3562
other intangible assets include patented technology customer relationships and trade names
081022melrosera12736melrosera  25308  1421  page 57 58 melrose plc annual report 2007
12 intangible assets continued
goodwill has been allocated to the business segments each of which comprises several cash generating units as follows
31 december 31 december
2007 2006
£m £m
dynacast 1645 1578
oem – 1125
aftermarket – 10
mvc 158 161
mpc including prelok 32 –
psm – 204
1835 3078
the group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired
the goodwill recognised on the acquisition of the continuing mckechnie psm “psm” segment has been aggregated within the mpc cash
generating unit
the recoverable amounts of the cash generating units are determined from value in use calculations the key assumptions for the value in use
calculations are those regarding the discount rates growth rates and expected changes to selling prices and direct costs during the period
management estimates discount rates using pretax rates that reflect current market assessments of the time value of money and the risks specific
to the cash generating units the growth rates are based on a prudent estimate of industry growth forecasts changes in selling prices and direct
costs are based on past practices and expectations of future changes in the market
the group prepares cash flow forecasts derived from the most recent financial budgets approved by management and extrapolates cash flows
based on estimated growth rates of between 2 and 25 this rate does not exceed the average longterm growth rate for the relevant markets
the discount rate applied is between 9 and 12 depending on the risk elements associated with each division and the funding structure of each
division mvc is currently loss making and the impairment test takes into account the profit improvement plan
acquisitions
on 7 september 2007  dynacast canada acquired the trade and assets of qzd inc a company incorporated in canada for consideration of 
£63 million including acquisition costs of £02 million
acquiree’s fair value 
carrying amount adjustments fair value
£m £m £m
qzd
property plant and equipment 22 18 04
intangible assets – 16 16
inventories 12 02 10
trade receivables 21 – 21
trade payables 19 – 19
deferred tax liability – 05 05
36 09 27
goodwill 36
total consideration 63
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 58 melrose plc annual report 2007  59
12 intangible assets continued
on 28 september 2007  dynacast canada acquired the trade and assets of techmire limited a company incorporated in canada for consideration
of £24 million including acquisition costs of £01 million
acquiree’s fair value 
carrying amount adjustments fair value
£m £m £m
techmire
property plant and equipment 12 07 05
inventories 17 – 17
trade receivables 07 – 07
trade payables 08 – 08
other payables 02 – 02
provisions – 04 04
26 11 15
goodwill 09
total consideration 24
the adjustments to the carrying value on acquisitions above have been processed to represent the fair value of the assets acquired
the businesses acquired above contributed £51 million revenue and £02 million headline operating profit during the period since acquisition
disclosure of the revenue and profit of the acquired businesses for the year as though the acquisition date for both acquisitions had occurred at
the beginning of the year is not practical to obtain as not all of the trade and assets were acquired
the goodwill arising on the above acquisitions is attributable to the anticipated profitability of the distribution of the group’s products and the
anticipated future operating synergies in the combination
a list of the significant investments in subsidiaries including the name country of incorporation and proportion of ownership interest is given in 
note 3 to the company’s separate financial statements
13 property plant and equipment
land and plant and 
buildings equipment total
£m £m £m
cost
at 31 december 2006 258 744 1002
additions 13 168 181
acquisitions – 09 09
disposal of businesses 110 201 311
disposals – 15 15
exchange adjustments 03 25 28
at 31 december 2007 164 730 894
depreciation
at 31 december 2006 15 193 208
charge for the period 08 108 116
disposal of businesses 06 46 52
disposals – 11 11
impairment – 15 15
exchange adjustments 01 10 11
at 31 december 2007 18 269 287
net book value
at 31 december 2007 146 461 607
at 31 december 2006 243 551 794
the net carrying amount of plant and equipment includes £15 million 2006 £34 million in respect of assets held under finance leases
081022melrosera12736melrosera  25308  1421  page 59 60 melrose plc annual report 2007
14 interests in joint ventures
31 december 31 december
2007 2006
£m £m
aggregated amounts relating to joint ventures
total assets – 36
total liabilities – 10
revenues 17 69
profit 02 08
during the year the company disposed of its interests in joint ventures note 9
15 inventories
31 december 31 december
2007 2006
£m £m
raw materials 113 141
work in progress 83 222
finished goods 101 230
297 593
16 trade and other receivables
31 december 31 december
2007 2006
£m £m
trade debtors 640 857
allowance for doubtful debts 31 26
other debtors 47 47
prepayments 14 29
670 907
trade receivables are noninterest bearing credit terms offered to customers varies upon the country of operation but are generally between 
30 and 90 days 
an allowance has been made for estimated irrecoverable amounts made with reference to past default experience and management’s assessment
of credit worthiness an analysis of which is as follows
dynacast mpc mvc discontinued total
£m £m £m £m £m
balance at 31 december 2005 11 03 01 06 21
exchange differences 01 – – – 01
income statement charge 05 01 – 02 08
written off 01 01 – – 02
balance at 31 december 2006 14 03 01 08 26
exchange differences 02––– 02
income statement charge 06 03 03 01 13
disposed – – – 09 09
written off – – 01 – 01
balance at 31 december 2007 22 06 03 – 31
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 60 melrose plc annual report 2007  61
16 trade and other receivables continued
the concentration of credit risk is limited due to the number of customers being high and that they are unrelated to each other
31 december 31 december
2007 2006
ageing of impaired trade receivables £m £m
0 – 30 days 04 01
31 – 60 days 03 03
60 days 24 22
31 26
included in the group’s trade receivable balance are debtors with a carrying amount of £126 million 2006 £164 million which are past due at
the reporting date for which the group has not provided as there has not been a significant change in credit quality and the group believes that the
amounts are still considered recoverable 
31 december 31 december
2007 2006
ageing of past due but not impaired receivables are £m £m
0 – 30 days 99 117
31 – 60 days 17 26
60 days 10 21
126 164
the directors consider that the carrying amount of trade and other receivables approximates to their fair value
17 cash and short term deposits
31 december 31 december
2007 2006
£m £m
cash at bank and in hand 464 333
cash at bank and in hand earns interest at floating rates based on daily bank deposit rates short term deposits are made for varying periods of
between one day and one month and earn interest at the respective short term deposit rates 
18 trade and other payables
31 december 31 december
2007 2006
£m £m
trade payables 433 614
other payables 70 115
interest payable 27 45
other taxes and social security 31 27
accruals 218 247
779 1048
trade payables are noninterest bearing normal settlement terms vary by country usually being between 30 and 90 days other payables are 
noninterest bearing and have an average term of approximately two months
the directors consider that the carrying amount of trade payables approximates to their fair value
081022melrosera12736melrosera  25308  1421  page 61 62 melrose plc annual report 2007
19 interestbearing loans and borrowings
31 december 31 december 
effective final 2007 2006
interest rate  maturity £m £m
current
finance leases – 20082011 04 10
euro loan austria 10 july 2011 05 –
redeemable preference c shares – june 2008 72 –
81 10
non current bank loans
denominated in the following currencies
us dollar loan –– – 1118
euro loan –– – 586
sterling loan libor plus 035 april 2010 110 200
euro loan austria 10 july 2011 13 17
123 1921
finance leases 20092011 08 28
131 1949
the interest rate repricing profile of financial liabilities after taking into account hedging interest rate derivatives is described in note 24
as described in note 25 the 9053594 redeemable preference c shares will be redeemed on 30 june 2008 at a value of £7 4 million these
shares have been discounted at 6 to show the fair value as at 31 december 2007 of £7 2 million and in accordance with the applicable
accounting standards the liability is not included in net debt as shown in the net debt reconciliation
maturity of financial liabilities
the maturity profile of the anticipated future cash flows including interest in relation to the group’s nonderivative financial liabilities on an
undiscounted basis and which therefore differs from both the carrying value and fair value is as follows
redeemable other
finance lease preference c financial
bank loans obligations shares liabilities total
£m £m £m £m £m
within one year 11 04 7 4 77 9 868
in one to two years 10 04 – – 14
in two to three years 117 04 – – 121
after three years 04 01 – – 05
effect of discountingfinancing rates 14 01 02 – 17
31 december 2007 128 12 72 779 991
within one year 97 11 – 1048 1156
in one to two years 387 11 – – 398
in two to three years 417 11 – – 428
after three years 1316 09 – – 1325
effect of discountingfinancing rates 296 04 – – 300
31 december 2006 1921 38 – 1048 3007
the group has a committed bank facility that provides a term loan and revolver facility this facility expires in april 2010 and throughout the year the
group complied with the covenants the revolver facility is for £30 million and is available for general corporate purposes at 31 december 2007 
the undrawn amount of the revolver facility was £250 million 2006 £187 million the utilisations relate to the issue of bank guarantees and
letters of credit the revolver facility incurs commitment fees and provides funding at floating rates 
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 62 melrose plc annual report 2007  63
20 provisions
surplus environmental incentive 
onerous leasehold remediation factory scheme
contracts property costs costs closure related warranty other total
£m £m £m £m £m £m £m £m
at 31 december 2006 29 26 34 13 15 – 24 141
utilised 02 01 02 14 22 – 03 44
acquisition of subsidiary 04–––––– 04
disposal of subsidiary 25 14 26 – – 07 04 62
income statement – – – 09 22 – – 31
exchange differences ––––––––
at 31 december 2007 06 11 06 08 15 07 17 70
current 04 03 – 08 – 07 13 35
noncurrent 02 08 06 – 15 – 04 35
06 11 06 08 15 07 17 70
the provision for onerous contracts relates to the losses on contracts acquired upon purchase of subsidiaries and to a property lease
the provision for surplus leasehold property costs is the estimated net rentals payable over the period of the leases together with any dilapidation
costs discounted at 6 2006 6 
environmental remediation provisions relate to the estimated clean up costs of pollution soil contamination and legal costs at certain subsidiaries
factory closure costs relate to restructuring programmes around the group
included in the incentive scheme related provisions is £14m 2006 £03m relating to long term incentive plans and £01m 2006 £12m
relating to national insurance on incentive shares
the warranty provision has arisen as a result of the disposals during 2007 
other provisions relate mainly to the estimated legal costs arising from claims for which no other liability is expected to crystallise
21 deferred tax
the following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and prior
reporting period
accelerated
capital
allowances  tax losses  intangible 
other liabilities other assets assets total
£m £m £m £m
at 1 january 2006 32 291 167 92
credit to income note 8 01 42 16 59
charge to equity 17 – – 17
exchange differences 04 35 09 22
at 31 december 2006 44 298 142 112
creditcharge to income note 8 13 57 12 32
disposal 17 208 69 122
acquisitions – – 05 05
exchange differences 01 02 – 03
at 31 december 2007 15 31 66 50
081022melrosera12736melrosera  27308  1323  page 63 64 melrose plc annual report 2007
21 deferred tax continued
certain deferred tax assets and liabilities have been offset the following is the analysis of the deferred tax balances after offset for financial
reporting purposes
31 december 31 december
2007 2006
£m £m
deferred tax liabilities 81 186
deferred tax assets 31 298
50 112
at the balance sheet date the group has unused tax losses of £167 million 2006 £204 million available for offset against future profits 
a deferred tax asset of £31 million 2006 £298 million has been recognised no deferred tax asset has been recognised in respect of the
remaining £164 million 2006 £146 million due to the geographical split of future profit streams these losses may be carried forward
indefinitely subject to certain continuity of business requirements
a significant part of the retirement benefit obligations recognised in the group accounts relates to the mckechnie pension plan no deferred tax
asset has been recognised on this obligation due to the unpredictability of future profit streams in the united kingdom a small deferred tax asset 
of £09 million is recognised with respect to certain overseas pension schemes and is included within the tax losses and other assets category
at the balance sheet date the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred
tax liabilities have not been recognised was £15 million 2006 £15 million no liability has been recognised in respect of these differences
because the group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not
reverse in the foreseeable future
22 share based payments
original equitysettled share incentive scheme
the company had 59170 convertible b shares “original incentive shares” held by directors employees and the melrose employee benefit
trust the “ebt” which were due to convert shortly after 31 may 2009 or earlier on a takeover of the company into ordinary shares with an
aggregate value on conversion equal to 10 of the increase in shareholder value 50000 of these shares were issued to directors and employees
in 2003 and a further 9170 shares were issued to the ebt in 2005 during 2006 options were granted over 8877 of the 9170 shares to directors
and senior employees all options over original incentive shares were exercised on 14 august 2007 at an exercise price of £1
on 14 august 2007  at an extraordinary general meeting “egm” shareholders approved resolutions to crystallise the original incentive share
scheme into 10210069 ordinary shares and 59170 deferred incentive shares based on the increased market value accrued up to 18 july
2007  as a consequence of crystallising the original incentive share arrangements in the second half of the year an exceptional charge of £11
million relating to the remaining ifrs 2 charge on the original incentive shares and an exceptional charge of £08 million relating to the accelerated
national insurance charge occurred the 59170 deferred incentive shares were repurchased by the company for an aggregate sum of one penny
new 2007 incentive scheme
at the egm shareholders approved the increase of the company’s authorised share capital by £50000 in respect of the new 2007 incentive
share scheme following the crystallisation of the original incentive share scheme the conversion formula for the new 2007 incentive shares is
based upon principles identical to the conversion formula for the original incentive shares and broadly provides for the new 2007 incentive
shares to convert into ordinary shares equal to 10 per cent of the increase in shareholder value from 18 july 2007 excluding the return of
capital as with the original incentive shares the new 2007 incentive shares have early “trigger dates” upon which the remuneration committee
can permit up to one third of the new 2007 incentive shares held by a 2007 incentive shareholder to be converted into ordinary shares the early
trigger dates for the new 2007 incentive shares will be on 31 may 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 in accordance with the formula set out in the company’s articles the
articles do not permit holders of new 2007 incentive shares to convert more than two thirds of their holding of such shares before 31 may 2012
the rights and restrictions of the new 2007 incentive shares are similar to the rights and restrictions of the original incentive shares 3000 of the
new 2007 incentive shares are held by the ebt 
the estimated fair value attributable to these new incentive shares using a black scholes option pricing model was £37 million
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 64 melrose plc annual report 2007  65
22 share based payments continued
details of the share options over the original incentive shares which were exercised on 14 august 2007 are as follows
31 december 2007 31 december 2006
weighted weighted
number of average number of average 
share options exercise price share options exercise price
outstanding at beginning of year 8877 £100 ––
granted during the year –– 8877 £100
exercised during the year 8877 £100 ––
outstanding at year end –– 8877 £100
the inputs into the black scholes model used to fair value the original incentive share scheme and 2007 incentive shares are as follows
new 2007 original incentive 
incentive share share scheme
weighted average share price £167 £153
weighted average exercise price £100 £100
expected volatility 250 250
expected life as at 31 december 2007 44 yrs 24 yrs
risk free interest 20 20
expected dividend yield 32 32
expected volatility was determined by calculating the historical volatility of the company’s share price 
the group recognised total expenses of £29 million 2006 £16 million in relation to equitysettled share based payment transactions in 2007
including national insurance charges 
23 retirement benefit obligations
prior to the acquisition mckechnie and dynacast had established a number of pension schemes covering many of its employees and operating 
in several jurisdictions
the most significant schemes are
■
the uk mckechnie pension plan the “plan” which provides defined benefit pensions for its members the assets of the plan are held in 
a fund administered by mckechnie pension trust limited an independent trustee company an actuarial valuation of the plan was carried out 
at 31 december 2005 by a qualified independent actuary plan assets are stated at their bid value at 31 december 2007 
■
the dynacast and mvc pension schemes in the us are funded schemes of a defined benefit type with assets held in separate trustee
administered funds
■
in germany and austria unfunded defined benefit arrangements are operated by dynacast
■
there are also obligations to provide post retirement healthcare to former employees of mvc and to provide termination indemnities in italy and
france to current dynacast employees
081022melrosera12736melrosera  27308  1348  page 65 66 melrose plc annual report 2007
23 retirement benefit obligations continued
the major weighted average assumptions used at 31 december 2007 by the actuaries in calculating the group’s pension scheme assets and
liabilities together with details of the net pension assets or liabilities are as set out below
mckechnie other 
pension plan schemes
 pa  pa
rate of increase in salaries 38 30
rate of increase in pensions in payment 33 19
discount rate 57 59
inflation assumption 33 23
the weighted average assumptions used at 31 december 2006 are set out below
mckechnie other 
pension plan schemes
 pa  pa
rate of increase in salaries 34 27
rate of increase in pensions in payment 29 17
discount rate 51 53
inflation assumption 29 23
mortality
the mortality assumption for the plan has been strengthened during the year at 31 december 2006 a position of halfway between the pa 92
base tables and the pa 92 medium cohort tables was adopted the mortality assumptions at 31 december 2007 relate to the pa 92 medium
cohort tables with an age adjustment of two years and an improvement floor of 1 this is considered appropriate given the plan’s geographical
and industrial sector this added £7 6 million to the liabilities at 31 december 2007 
the average life expectancy underlying the value of defined benefit obligations at 31 december 2007  which have been determined by reference
to applicable mortality statistics are set out below
life expectancy
31 december 31 december 
2007 2006 
years years
male member currently aged 65 856 836
male member aged 65 in 2020 868 851
the amount recognised in the balance sheet arising from obligations in respect of defined benefit schemes is as follows
31 december 31 december 31 december 31 december 31 december
2007 2006 2005 2004 2003
£m £m £m £m £m
plan obligations 1484 1479 1455 – –
plan assets 1232 925 850 – –
net liabilities 252 554 605 – –
this amount is presented in the balance sheet
31 december 31 december 31 december 31 december 31 december
2007 2006 2005 2004 2003
£m £m £m £m £m
noncurrent liabilities
– unfunded plans 41 109 87 – –
– funded plans 211 445 518 – –
252 554 605 – –
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 66 melrose plc annual report 2007  67
23 retirement benefit obligations continued
expected returns and fair value of assets
expected return fair value of assets
31 december 31 december 31 december 31 december
2007 2006 2007 2006
  £m £m
equity instruments 74 74 337 681
debt instruments 46 49 39 127
other assets 68 44 856 117
weighted averagetotal 69 67 1232 925
the expected return on plan assets for 2008 is based on market expectations at 1 january 2008 for returns on assets over the entire life of the
obligation
there is no self investment other than in pooled funds either in the group’s own financial instruments or property or other assets used by the
group
amounts recognised in income in respect of these defined benefit schemes are as follows
year ended year ended 
31 december 31 december
2007 2006
£m £m
in arriving at operating profit included within cost of sales selling and distribution costs and administrative expenses
– current service cost 04 04
– effects of curtailments and settlements 11 –
included in finance costs
– interest cost 74 68
– expected return on assets 70 54
the actual return on scheme assets was £93 million 2006 £7 1 million 
the amount recognised in the consolidated statement of recognised income and expense is as follows
year ended year ended 
31 december 31 december
2007 2006
£m £m
experience gainslosses on scheme liabilities 12 05
experience gains on scheme assets 23 17
35 12
the cumulative amount of actuarial gains and losses recognised in the consolidated statement of recognised income and expense is a total gain 
of £69 million 2006 £34 million
year ended year ended 
31 december 31 december
2007 2006
movements in the benefit liabilities during the year £m £m
at beginning of year 1479 1455
disposals 06 –
current service cost 04 04
interest cost 74 68
actuarial gainlosses 12 05
benefits paid 39 43
plan settlements 08 –
plan curtailments 11 –
currency lossgain 03 10
at end of year 1484 1479
081022melrosera12736melrosera  27308  2022  page 67 68 melrose plc annual report 2007
23 retirement benefit obligations continued
year ended year ended 
31 december 31 december
2007 2006
movements in the fair value of scheme assets during the year £m £m
at beginning of year 925 850
disposals 04 –
expected return on assets 70 54
actuarial gains 23 17
employer contributions 267 50
benefits paid 39 40
plan settlements 08 –
currency loss 02 06
at end of year 1232 925
the company has guaranteed a schedule of contributions of £61 million per annum with the trustee of the mckechnie pension plan up until 
may 2010 
24 financial instruments and risk management
the table below sets out the group’s accounting classification of each category of financial assets and liabilities and their fair values at 
31 december 2007 and 31 december 2006
dynacast mpc mvc central discontinued total
£m £m £m £m £m £m
31 december 2007
financial assets
bank deposits 288 48 138 266 – 464
trade receivables 428 83 97 01 – 609
derivatives
– foreign exchange 07 04 – 01 – 04
financial liabilities
bank loans 18 – – 110 – 128
finance lease obligations – 01 11 – – 12
redeemable preference shares – – – 7 2 – 7 2
other financial liabilities 562 107 86 24 – 77 9
31 december 2006
financial assets
bank deposits 297 50 11 128 125 333
trade receivables 394 96 59 01 281 831
derivatives
– interest swaps and caps – – – 11 – 11
– foreign exchange 02 01––– 03
financial liabilities
bank loans 17 – – 1028 87 6 1921
finance lease obligations 01 01 13 – 23 38
redeemable preference shares ––––––
other financial liabilities 47 8 127 82 112 249 1048
notes to the accounts continued
081022melrosera12736melrosera  27308  1225  page 68 melrose plc annual report 2007  69
24 financial instruments and risk management continued
credit risk
the group considers its maximum exposure to credit risk to be as follows
dynacast mpc mvc central discontinued total
£m £m £m £m £m £m
31 december 2007
bank deposits 288 48 138 266 – 464
trade receivables 428 83 97 01 – 609
derivatives
– foreign exchange 07 04 – 01 – 04
31 december 2006
bank deposits 297 50 11 128 125 333
trade receivables 394 96 59 01 281 831
derivatives
– interest swaps and caps – – – 11 – 11
– foreign exchange 02 01––– 03
the group’s principal financial assets are cash and short term deposits and trade and other receivables which represent the group’s maximum
exposure to credit risk in relation to financial assets
the group’s credit risk is primarily attributable to its trade receivables the amounts presented in the balance sheet are net of allowances for
doubtful receivables estimated by the group’s management based on prior experience and their assessment of the current economic
environment note 16 provides further details of the group’s policies regarding recovery of trade receivables
fair values
the directors consider that the financial assets and liabilities have fair values not materially different to the carrying values
foreign exchange contracts
as at 31 december 2007  the group held foreign exchange forward contracts to mitigate expected exchange fluctuations on cashflows over the
next 12 months on sales to customers and purchases from suppliers these instruments operate as cash flow hedges the terms of the contracts
are as follows 
31 december 31 december 31 december 31 december
2007 2007 2006 2006
millions average rate millions average rate
sell us dollarbuy canadian dollar usd 137 103 usd 167 113
sell us dollarbuy chinese yuan renminbi usd 197 7 30 usd 148 7 64
sell us dollarbuy singapore dollar usd 143 146 usd 139 157
sell us dollarbuy malaysian dollar usd  85 335 usd 79 358
sell eurobuy sterling eur  96 145 eur 153 147
the foreign exchange forward contracts all mature between january 2008 and december 2008
the fair value of the contracts at 31 december 2007 was an asset of £04m 2006 £03 million
081022melrosera12736melrosera  27308  1226  page 69 70 melrose plc annual report 2007
24 financial instruments and risk management continued
hedge of net investments in foreign entities
included in interest bearing loans in 2006 were the following amounts which were designated as hedges of net investments in the group’s
subsidiaries in europe and usa and were being used to reduce the exposure to foreign exchange risks on 15 may 2007 following the disposal of
the oem and aftermarket divisions these loans were repaid in full
borrowings in local currency
31 december 31 december
2007 2006
£m £m
us dollar – 1118
euro – 586
up to the date of repayment gains on the retranslation of these borrowings of £03 million 2006 £169 million have been transferred to equity
to offset any gains or losses on translation of the net investments in subsidiaries
market risk
a one percentage point rise in market interest rates for all currencies would increase profit before tax by the following amounts
31 december 31 december
2007 2006
£m £m
sterling 01 01
us dollar 01 01
euro 01 01
at 31 december 2007  the group had net cash of £324 million and as at 31 december 2006 the group had net debt of £1626 million which
comprised £1904 million of bank term borrowings and net cash of £27 8 million at 31 december 2006 a one percentage point rise in market
interest rates only impacts the net cash balance due to the interest rate exposure on the bank term borrowings being fixed by the group’s interest
rate instruments
interest rate swaps and caps
prior to 15 may 2007  the group had bank term borrowings of us 2193 million 187 3 million and £150 million as a consequence of the sale of
the aerospace division on 11 may 2007 and the majority of the psm division on 18 may 2007  the group repaid the us dollar and euro term
borrowings and partly repaid the sterling borrowing leaving a balance of £110 million
prior to the disposals the group used interest rate derivatives to manage its exposure to floating interest rates on these bank term borrowings 
the group used interest rate swaps to manage its exposure to interest rate movements on its us dollar bank borrowings by swapping from floating
to fixed interest rates two contracts with total nominal values of us 2193 million had fixed interest rates at an average rate of 409 per cent for
periods up to july 2007  following the repayment of the us 2193 million bank borrowing the two interest rate swaps were sold back to the bank
counterparties generating a receipt of us 07 million which was credited to finance income 
the group also used interest rate caps to manage its exposure to movements in sterling and euro interest rates two caps with a total notional
principal amount of £20 million and a cap level of 5 were held to hedge exposure on the group’s sterling borrowings up to july 2007  two caps
with a total notional principal amount of 187 3 million and a cap level of 3 were held to hedge exposure on the group’s euro borrowings up to
july 2007  following the repayment of the euro bank borrowing and the reduction of the sterling borrowing with the remaining sterling borrowing
being rolled into july 2007  the four interest rate caps were sold back to the bank counterparties generating a receipt of 102 million which was
credited to finance income
all interest rate swaps and interest rate caps were designated as cash flow hedges 
foreign currency risk
the group’s policy for managing foreign currency risk is set out in the finance director’s review
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 70 melrose plc annual report 2007  71
24 financial instruments and risk management continued
foreign currency sensitivity analysis
the following table details the increase in group operating profit caused by a 10 cent strengthening of the us dollar and euro against sterling 
31 december 31 december
2007 2006
£m £m
us dollar 02 01
euro 11 10
31 december 31 december
2007 2006
fair value of derivatives £m £m
foreign exchange contracts 04 03
interest rate swaps – 08
interest rate caps – 03
04 14
25 issued capital and reserves
31 december 31 december
2007 2006
share capital £m £m
authorised
201000000 2006  342830000 ordinary shares of 02p each 2006 01p 04 03
267 330058 2006 nil redeemabledeferred c shares of 823p each 2200 –
nil 2006 59170 convertible b shares of £1 each – 01
50000 2006 nil 2007 incentive shares of £1 each 01 –
2205 04
allotted called up and fully paid 
133665029 2006 257 119989 ordinary shares of 02p each 2006 01p 02 02
70489480 2006 nil deferred c shares of 823p each 580 –
nil 2006 59170 convertible b shares of £1 each – 01
50000  2006 nil 2007 incentive shares of £1 each 01 –
583 03
on 14 august 2007 at an extraordinary general meeting shareholders approved resolutions to return capital of £220 million to shareholders
the return of capital took place by increasing the authorised share capital by £220 million by the issue of 267 330058 redeemable preference c
shares “c shares” of 823 pence nominal value each and capitalising £2146 million of the share premium account and £50 million of the
merger reserve to pay up in full the c shares the c shares were allotted on the basis of one c share for each ordinary share of 01p each held on 
15 august 2007  shareholders had the option to receive the cash value inherent in the c share by way of income or two capital options as a result
of the choices made by shareholders in respect of the return of capital
■
187 786984 c shares were redeemed and subsequently cancelled with effect from 23 august 2007  
■
9053594 c shares will be redeemed on 30 june 2008 
■
70489480 c shares were paid a dividend which was payable on 23 august 2007 and these c shares converted into deferred c shares
both the remaining 91 million c shares and 705 million deferred c shares carry no voting rights or rights to dividends
with the conversion of the original incentive shares on 14 august 2007  the allotted ordinary share capital increased to 267 330058 on 
15 august 2007 a 1 for 2 share consolidation process reduced the issued ordinary share capital to 133665029 shares of 02p each with 
the first day of trading being the 16 august 2007 
redemption of the deferred c shares on 30 june 2008 will result in a £580 million transfer from share capital into the capital redemption reserve
the rights of each class of share are described in the directors’ report
081022melrosera12736melrosera  25308  1421  page 71 72 melrose plc annual report 2007
25 issued capital and reserves continued
own shares
the trustee of the melrose plc ebt holds 3000 2007 incentive shares 2006 9170 convertible b shares in melrose plc the ebt also holds
25279 ordinary shares of 02p each in melrose plc
hedging and accumulated 
capital share merger translation profits minority 
redemption premium reserve reserve losses interests
reserves £m £m £m £m £m £m
at 31 december 2005 – 2146 420 189 61 09
dividend paid –––– 135 –
currency translation adjustments – – – 414 – –
profit for the period –––– 377 01
actuarial adjustments on net pension liabilities –––– 12–
credit to equity for equitysettled share based payments –––– 04–
at 31 december 2006 – 2146 420 225 197 10
issue of c shares – 2146 50 – – –
b shares redeemed 01–––––
c shares redeemed 1545–––––
dividend paid –––– 130 –
return of capital –––– 2126 –
currency translation adjustments – – – 27 – –
profit for the period – – – 220 2148 02
actuarial adjustments on net pension liabilities –––– 35–
credit to equity for equitysettled share based payments –––– 18–
at 31 december 2007 1546 – 370 22 142 12
the foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign
subsidiaries it is also used to record the net investments hedged in these subsidiaries
hedging translation
reserve reserve total
hedging and translation reserves £m £m £m
balance at 1 january 2006 14 175 189
exchange differences on translation of overseas operations – 414 414
increase in fair value of hedging derivatives 14 – 14
transfer to income 14 – 14
balance at 31 december 2006 14 239 225
exchange differences on translation of overseas operations – 37 37
increase in fair value of hedging derivatives 11 – 11
transfer to income 21 220 199
balance at 31 december 2007 04 18 22
notes to the accounts continued
081022melrosera12736melrosera  25308  1421  page 72 melrose plc annual report 2007  73
26 cash flow statement
year ended year ended 
31 december 31 december
2007 2006
£m £m
reconciliation of operating profit to cash generated by operations
headline operating profit from continuing operations
1
245 192
adjustments for
depreciation of property plant and equipment 103 109
amortisation of computer software 01 01
restructuring costs paid and decrease in other provisions 19 55
operating cash flows before movements in working capital 330 247
decreaseincrease in inventories 14 63
increase in receivables 05 84
decreaseincrease in payables 38 102
cash generated by operations 301 202
tax paid 42 20
interest paid 57 40
pension contributions paid 61 45
net cash flow from operating activities for continuing operations 141 97
1
as defined on the income statement
year ended year ended 
31 december 31 december
2007 2006
£m £m
cash flow from discontinued operations
cash generated from discontinued operations 69 308
tax paid 06 20
interest paid 42 35
pension contributions paid 06 09
profit of joint ventures 02 08
net cash from operating activities for discontinued operations 13 236
dividends from joint ventures – 05
interest received 01 –
purchase of property plant and equipment 26 77
proceeds on disposal of property plant and equipment – 19
purchase of computer software 01 03
net cash used in investing activities for discontinued operations 26 56
repayments of obligations under finance leases – 03
new finance leases 03 30
net cash from financing activities for discontinued operations 03 27
081022melrosera12736melrosera  25308  1421  page 73 74 melrose plc annual report 2007
26 cash flow statement continued
net debt reconciliation
at foreigndisposals other at
31 december exchange excluding cash noncash 31 december
2006 cash flow difference and overdrafts new leases movements 2007
£m £m £m £m £m £m £m
cash 333 120 11––– 464
debt due within one year ––––– 05 05
debt due after one year 1921 1790 03 – – 05 123
leases 38 03 01 25 03 – 12
net debtcash 1626 1913 15 25 03 – 324
27 commitments and contingencies
future total minimum lease payments under finance leases and hire purchase contracts were as follows
31 december 31 december
2007 2006
£m £m
amounts payable
within one year 05 11
after one year but within five years 08 31
total minimum lease payments 13 42
less amounts representing finance charges 01 04
12 38
future total minimum rentals payable under noncancellable operating leases as at 31 december 2007 were as follows
31 december 2007 31 december 2006
land and plant and land and plant and 
buildings machinery buildings machinery
£m £m £m £m
amounts payable
within one year 22 06 23 08
after one year but within five years 61 15 90 20
over five years 28 01 78 02
111 22 191 30
capital commitments
at 31 december 2007  there were commitments of £04 million 2006 £81 million relating to the acquisition of new plant and machinery
notes to the accounts continued
081022melrosera12736melrosera  27308  1552  page 74 melrose plc annual report 2007  75
28 related parties
transactions between the company and its subsidiaries which are related parties have been eliminated on consolidation and are not disclosed in
this note
during the period the group entered into transactions in the ordinary course of business with related parties as follows
sales of purchase of amounts owed 
goods goods by related parties
£m £m £m
joint ventures at
31 december 2007 –––
31 december 2006 64 – 10
sales to and purchases from related parties are priced as arm’s length transactions and generally are settled on 30 day terms 
remuneration of key management personnel
the remuneration of the directors who are the key management personnel of the group is set out below in aggregate for each of the categories
specified in ias 24 related party disclosures further information about the remuneration of individual directors is provided in the audited part of
the directors’ remuneration report on page 32
31 december 31 december
2007 2006
£m £m
short term employee benefits 21 19
share based payment 16 04
37 23
29 post balance sheet events
there are no post balance sheet events which require disclosure
30 contingent liabilities
prior to the acquisition of the dynacast and mckechnie businesses there were a number of legal and environmental claims outstanding
whilst it is difficult to reasonably estimate the ultimate outcome of these claims the directors’ best estimate of the outcome of these claims has
been included in the balance sheet
081022melrosera12736melrosera  25308  1421  page 75 76 melrose plc annual report 2007
independent auditors’ report to the members of melrose plc
on the parent company financial statements
we have audited the parent company financial statements of melrose
plc for the year ended 31 december 2007 which comprise the
balance sheet and the related notes 1 to 13 these parent company
financial statements have been prepared under the accounting policies
set out therein
we have reported separately on the consolidated financial statements
of melrose plc for the year ended 31 december 2007 and on the
information in the directors’ remuneration report that is described as
having been audited 
this report is made solely to the company’s members as a body in
accordance with section 235 of the companies act 1985 our audit
work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an
auditors’ report and for no other purpose to the fullest extent
permitted by law we do not accept or assume responsibility to
anyone other than the company and the company’s members as a
body for our audit work for this report or for the opinions we have
formed
respective responsibilities of 
directors and auditors
the directors’ responsibilities for preparing the annual report the
directors’ remuneration report and the parent company financial
statements in accordance with applicable law and united kingdom
accounting standards united kingdom generally accepted accounting
practice are set out in the statement of directors’ responsibilities
our responsibility is to audit the parent company financial statements
and the part of the directors’ remuneration report to be audited in
accordance with relevant legal and regulatory requirements and
international standards on auditing uk and ireland
we report to you our opinion as to whether the parent company
financial statements give a true and fair view and whether the parent
company financial statements have been properly prepared in
accordance with the companies act 1985 we also report to you
whether in our opinion the directors’ report is consistent with the
parent company financial statements the information given in the
directors’ report includes that specific information presented in the
business review and finance directors’ review that is cross referred
from the business review section of the directors’ report
in addition we report to you if in our opinion the company has not
kept proper accounting records if we have not received all the
information and explanations we require for our audit or if
information specified by law regarding directors’ remuneration and
other transactions is not disclosed
we read the other information contained in the annual report as
described in the contents section and consider whether it is
consistent with the audited parent company financial statements we
consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the parent
company financial statements our responsibilities do not extend to
any further information outside the annual report
basis of audit opinion
we conducted our audit in accordance with international standards on
auditing uk and ireland issued by the auditing practices board an
audit includes examination on a test basis of evidence relevant to the
amounts and disclosures in the parent company financial statements
it also includes an assessment of the significant estimates and
judgments made by the directors in the preparation of the parent
company financial statements and of whether the accounting policies
are appropriate to the company’s circumstances consistently applied
and adequately disclosed
we planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance
that the parent company financial statements are free from material
misstatement whether caused by fraud or other irregularity or error in
forming our opinion we also evaluated the overall adequacy of the
presentation of information in the parent company financial
statements
opinion
in our opinion
■
the parent company financial statements give a true and fair view
in accordance with united kingdom generally accepted accounting
practice of the state of the company’s affairs as at 31 december
2007
■
the parent company financial statements have been properly
prepared in accordance with the companies act 1985 and
■
the information given in the directors’ report is consistent with the
parent company financial statements
deloitte  touche llp
chartered accountants and registered auditors
london united kingdom
5 march 2008
independent auditors’ report
081022melrosera12736melrosera  26308  1826  page 76 melrose plc annual report 2007  77
31 december 31 december 
2007 2006
notes £m £m
fixed assets
investment in subsidiaries 3 3862 3325
fixtures and fittings – –
3862 3325
non current assets
derivative financial instruments 4 02 11
current assets
debtors 4 460 3086
cash at bank and in hand 278 09
738 3095
creditors amounts falling due within one year
bank overdrafts 6 – 94
other creditors 5 1739 1696
1739 1790
net current liabilitiesassets 1001 1305
total assets less current liabilities 2863 4641
creditors amounts falling due after more than one year
bank loans 5 6 110 1904
provision for liabilities and charges 7 15 15
net assets 2738 2722
capital and reserves 
issued share capital 8 583 03
share premium account 9 – 2146
merger reserve 9 370 420
capital redemption reserve 9 1546 –
profit and loss account 9 237 142
hedging reserve 10 02 11
shareholders’ funds 11 2738 2722
the financial statements were approved by the board of directors on 5 march 2008 and were signed on its behalf by
geoffrey martin simon peckham
group finance director chief operating officer
company balance sheet for melrose plc
081022melrosera12736melrosera  25308  1421  page 77 78 melrose plc annual report 2007
1 significant accounting policies
basis of accounting 
the separate financial statements of the company are presented as
required by the companies act 1985 they have been prepared under
the historical cost convention and in accordance with applicable united
kingdom generally accepted accounting practice “uk gaap” and law
the principal accounting policies are summarised below they have all
been applied consistently throughout the year and the preceding year 
investments
fixed asset investments in subsidiaries and associates are shown at cost
less provision for impairment
for investments in subsidiaries acquired for consideration including 
the issue of shares qualifying for merger relief cost is measured by
reference to the nominal value only of the shares issued any premium
is ignored
borrowing costs
all borrowing costs are recognised as interest payable in the income
statement in the period in which they are incurred
issue costs of loans
the finance cost recognised in the income statement in respect of
capital instruments is allocated to periods over the terms of the
instrument at a constant rate on the carrying amount
property plant and equipment
property plant and equipment are stated at cost less accumulated
depreciation and any impairment in value
the initial cost of an asset comprises its purchase price or construction
cost and any costs directly attributable to bring the asset into operation
the purchase price or construction cost is the aggregate amount paid
and the fair value of any other consideration given to acquire the asset
the capitalised value of a finance lease is also included within property
plant and equipment
depreciation is calculated on a straightline basis over the estimated
useful life of the asset as follows
freehold land nil
freehold buildings and over expected economic life not
long leasehold property exceeding 50 years
short leasehold property over the term of the lease
plant and other equipment 312 years
the estimated useful lives of property plant and equipment are
reviewed on an annual basis and if necessary changes in useful lives
are accounted for prospectively
the carrying values of property plant and equipment are reviewed for
impairment when events or changes in circumstances indicate the
carrying value may not be recoverable if any such indication exists and
where the carrying values exceed the estimated recoverable amount
the assets or cashgenerating units are written down to their recoverable
amount the recoverable amount of property plant and equipment is
the greater of net selling price and value in use in assessing value in
use the estimated future cash flows are discounted to their present
value using a pretax discount rate that reflects current market
assessments of the time value of money and the risks specific to the
asset for an asset that does not generate largely independent cash
inflows the recoverable amount is determined for the cashgenerating
unit to which the asset belongs 
an item of property plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset any gain or loss arising on
derecognition of the asset calculated as the difference between the net
disposal proceeds and the carrying amount of the item is included in
the income statement in the year the item is derecognised
cash and cash equivalents
cash and shortterm deposits in the balance sheet comprise cash in
hand and current balances with banks and similar institutions and short
term deposits with an original maturity of three months or less which
are subject to insignificant risks of changes in value
notes to the company balance sheet
081022melrosera12736melrosera  25308  1421  page 78 melrose plc annual report 2007  79
1 significant accounting policies continued
derivative financial instruments and hedging
derivative financial instruments are initially recognised in the balance
sheet at cost and subsequently remeasured to their fair value the
method of recognising the resulting gain or loss is dependent on
whether the derivative contract is designed to hedge a specific risk and
qualifies for hedge accounting on the date a derivative contract is
entered into the group designates derivatives which qualify as hedges
for accounting purposes as either a a hedge of the fair value of a
recognised asset or liability fair value hedge or b a hedge of a
forecast transaction or firm commitment cash flow hedge or 
c a hedge of a net investment in a foreign entity
changes in the fair value of derivatives which are fair value hedges and
that are highly effective are recognised in the income statement along
with any changes in the fair value of the hedged asset or liability that is
attributable to the hedged risk changes in the fair value of derivatives in
cash flow hedges are recognised in equity where the forecasted
transaction or firm commitment results in the recognition of an asset or
liability the gains and losses previously included in equity are included
in the initial measurement of the asset or liability otherwise amounts
recorded in equity are transferred to the income statement and
classified as revenue or expense in the same period in which the
forecasted transaction affects the income statement
hedges of net investments in foreign entities are accounted for similarly
to cash flow hedges the group hedges certain net investments in
foreign entities with foreign currency borrowings all foreign exchange
gains or losses arising on translation are recognised in equity and
included in cumulative translation differences
certain derivative instruments while providing effective economic
hedges under the group’s policies do not qualify for hedge accounting
changes in the fair value of any derivative instruments that do not qualify
for cash flow hedge accounting are recognised immediately in the
income statement
interestbearing loans and borrowings
all loans and borrowings are initially recognised at cost being the fair
value of the consideration received net of issue costs associated with
the borrowings
after initial recognition interestbearing loans and borrowings are
subsequently measured at amortised cost using the effective interest
method amortised cost is calculated by taking into account any issue
costs and any discount or premium on settlement
gains and losses are recognised in net profit or loss when the liabilities are
derecognised or impaired as well as through the amortisation process
sharebased payments
the group has applied the requirements of ifrs 2 sharebased
payments the group issues equitysettled sharebased payments to
certain employees equitysettled sharebased payments are measured
at fair value at the date of grant the fair value determined at the grant
date of the equitysettled sharebased payments is expensed on a
straightline basis over the vesting period based on the group’s
estimate of shares that will eventually vest and adjusted for the effect of
nonmarket based vesting conditions
fair value is measured by use of the black scholes model the expected
life used in the model has been adjusted based on management’s best
estimate for the effects of nontransferability exercise restrictions and
behavioural considerations
081022melrosera12736melrosera  26308  1828  page 79 notes to the company balance sheet continued
80 melrose plc annual report 2007
2 profit for the year
as permitted by section 230 of the companies act 1985 the company has elected not to present its own profit and loss account for the year
melrose plc reported a profit for the financial year ended 31 december 2007 of £2333 million 2006 £160 million the company paid 
a dividend of £130 million during the year and in addition the shareholders authorised a return of capital of £220 million of which £2126 million
was paid during the year details are given in note 10 to the group accounts
the company has unused tax losses of approximately £17 3 million 2006 £nil available to carry forward and offset against future profits no
deferred tax asset has been recognised in respect of these losses due to uncertainty over future taxable profits arising in the foreseeable future 
the estimated value of the deferred tax asset not recognised at 28 is £47 million 
the auditors’ remuneration for audit services to the company was £02 million 2006 £04 million
31 december 31 december 
2007 2006
staff costs charged to operating profit comprise £m £m
wages and salaries 37 27
social security costs 02 02
other pension costs 01 01
40 30
the pension costs relate to payments made by the company to individual employee personal pension arrangements
3 fixed asset investments
31 december 31 december 
2007 2006
£m £m
subsidiaries 3862 3325
associates – –
3862 3325
the company has investments in the following subsidiaries and associates which principally affected the profits or net assets of the group 
the following subsidiaries are directly owned by melrose plc
subsidiaries country of incorporation principal activity holding 
dynacast canada uk limited england and wales hedging company 100
dynacast holdings limited england and wales holding company 100
dynacast international limited england and wales holding company 100
melrose management resources limited england and wales provision of management services 100
melrose overseas holdings limited england and wales holding company 100
melrose uk holdings limited england and wales holding company 100
melrose uk1 limited england and wales holding company 100
melrose uk2 limited england and wales holding company 100
melrose uk3 limited england and wales holding company 100
mozart jersey no 2 limited jersey holding company 100
081022melrosera12736melrosera  25308  1421  page 80 melrose plc annual report 2007  81
3 fixed asset investments continued
other indirectly owned subsidiaries and joint ventures of the group are
country of incorporation functional currency  equity interest
dynacast melaka sdn bhd malaysia ringgit 100
dynacast singapore pte limited singapore sg dollar 100
dynacast uk limited england and wales sterling 100
dynacast beteiligungs gmbh germany euro 100
dynacast canada inc canada canadian dollar 100
dynacast deutschland gmbh and co kg germany euro 100
dynacast espana sa spain euro 97
dynacast france sas france euro 100
dynacast holdings france sas france euro 100
dynacast inc usa us dollar 100
dynacast investments limited england and wales sterling 100
dynacast italia srl italy euro 100
dynacast korea limited korea korean won 90
dynacast loz doo slovenia euro 70
dynacast österreich gmbh austria euro 100
dynacast us holdings inc usa us dollar 100
dynacast verwaltungs gmbh germany euro 100
fijaciones industriales prelok sa spain euro 100
eachairn aerospace holdings limited  england and wales sterling 100
mckechnie engineered plastics limited 
trading as mckechnie plastic components stamford bridge and pickering england and wales sterling 100
mckechnie ep holdings limited  england and wales sterling 100
mckechnie holdings uk limited  england and wales sterling 100
mckechnie investments usa limited england and wales sterling 100
mckechnie management services limited england and wales sterling 100
mckechnie specialist products limited trading as prelok and canning brett england and wales sterling 100
mckechnie vehicle components usa inc usa us dollar 100
melrose beteiligungs und verwaltungs gmbh austria euro 100
melrose singapore 1 pte ltd singapore sg dollar 100
melrose singapore holdings pte ltd singapore sg dollar 100
melrose spain sl spain euro 100
melrose uk 1a limited england and wales sterling 100
melrose uk 2a limited england and wales sterling 100
melrose uk 3a limited england and wales sterling 100
melrose us 1 llc usa us dollar 100
melrose us 2 llc usa us dollar 100
new dynacast de mexico sa de cv mexico us dollar 100
petcin france sa france euro 100
prelok sas france euro 100
prelok gmbh germany euro 100
shanghai dynacast automotive casting co ltd china rmb 100
shanghai dynacast electronic components ltd china rmb 100
sundaram dynacast limited india rupee 49
 31 owned by mozart jersey no 2 limited
081022melrosera12736melrosera  25308  1421  page 81 notes to the company balance sheet continued
82 melrose plc annual report 2007
3 fixed asset investments continued
subsidiaries £m
cost and net book value
at 31 december 2006 3325
additions 537
disposals –
at 31 december 2007 3862
the additions and disposals relate to group reorganisations in the year sales to and from fellow group companies
during the year the investment in dynacast canada uk limited was increased by £534 million as a result of capitalising a loan due to the
company in addition following the liquidation of mozart jersey holdings 1 limited the investment held by this company in mckechnie ep
holdings limited mckechnie holdings uk limited mckechnie aerospace holdings limited and mozart jersey holdings 2 limited were transferred
to melrose plc resulting in an increase of £03 million
4 debtors
31 december 31 december 
2007 2006
£m £m
amounts falling due after one year
derivative financial instruments 02 11
details of the interest rate swaps and caps on which this amount arises are given in note 24 of the group financial statements
amounts falling due within one year
amounts owed by group undertakings 457 3084
prepayments 03 02
460 3086
5 trade and other creditors
31 december 31 december 
2007 2006
£m £m
amounts falling due within one year
amounts owed to group undertakings 1655 1642
accruals 12 54
preference shares 72 –
1739 1696
amounts falling due after one year
bank loans and overdrafts 110 1904
110 1904
as described in note 8 the 9053594 redeemable preference c shares will be redeemed on 30 june 2008 at a value of £7 4 million the shares
have been discounted at 6 to show the fair value as at 31 december 2007 of £7 2 million
081022melrosera12736melrosera  25308  1421  page 82 melrose plc annual report 2007  83
6 bank loans
effective 31 december 31 december
interest rate 2007 2006
 final maturity £m £m
current
overdrafts – 94
– 94
noncurrent bank loans
denominated in the following currencies
us dollar loan –– – 1118
euro loan –– – 586
sterling loan libor plus 075 april 2010 110 200
110 1904
7 provisions for liabilities and charges
incentive
scheme
related
£m
at 31 december 2006 15
utilised 22
profit and loss account 22
at 31 december 2007 15
included in incentive scheme related provisions is £14 million relating to long term incentive plans and £01 million relating to national insurance
on incentive schemes this provision is considered to be noncurrent
8 calledup share capital
31 december 31 december
2007 2006
share capital £m £m
authorised
201000000 2006 342830000 ordinary shares of 02p each 2006 01p 04 03
267 330058 2006 nil redeemable deferred c shares of 823p each 2200 –
nil 2006 59170 convertible b shares of £1 each – 01
50000 2006 nil 2007 incentive shares of £1 each 01 –
2205 04
allotted called up and fully paid
133665029 2006 257 119989 ordinary shares of 02p each 2006 01p 02 02
70489480 2006 nil deferred c shares of 823p each 580 –
nil 2006 59170 convertible b shares of £1 each – 01
50000  2006 nil 2007 incentive shares of £1 each 01 –
583 03
081022melrosera12736melrosera  25308  1421  page 83 notes to the company balance sheet continued
84 melrose plc annual report 2007
8 calledup share capital continued
on 14 august 2007 at an extraordinary general meeting shareholders approved resolutions to return capital of £220 million to shareholders
the return of capital took place by increasing the authorised share capital by £220 million by the creation of 267 330058 redeemable preference
c shares “c shares” of 823 pence nominal value each and capitalising £2146 million of the share premium account and £50 million of the
merger reserve to pay up in full the c shares the c shares were allotted on the basis of one c share for each ordinary share of 01p each held on
15 august 2007  shareholders had the option to receive the cash value inherent in the c share by way of income or two capital options
as a result of the choices made by shareholders in respect of the return of capital
■
187 786984 c shares were redeemed and subsequently cancelled with effect from 23 august 2007  
■
9053594 c shares will be redeemed on 30 june 2008 
■
70489480 c shares were paid a dividend which was payable on 23 august 2007 and these c shares converted into deferred c shares
both the remaining 91 million c shares and 705 million deferred c shares carry no voting rights or rights to dividends
with the conversion of the original incentive shares on 14 august 2007  the allotted ordinary share capital increased to 267 330058 
on 15 august 2007 a 1 for 2 share consolidation process reduced the allotted ordinary share capital to 133665029 shares of 02p each with 
the first day of trading being the 16 august 2007 
redemption of the deferred c shares on 30 june 2008 will result in a £580 million transfer from share capital into the capital redemption reserve
the rights of each class of share are described in the directors’ report
own shares
the trustee of the melrose plc ebt holds 3000 2007 incentive shares 2006 9170 convertible b shares in melrose plc the ebt also holds
25279 ordinary shares of 02p each in melrose plc
9 reserves
capital share merger accumulated
redemption premium reserve profitslosses
reserves £m £m £m £m
at 31 december 2005 – 2146 420 113
dividend paid – – – 135
profit for the period ––– 160
credit to equity for equitysettled share based payments – – – 04
at 31 december 2006 – 2146 420 142
issue of c shares – 2146 50 –
b shares redeemed 01–––
c shares redeemed 1545–––
dividend paid – – – 130
return of capital – – – 2126
profit for the period ––– 2333
credit to equity for equitysettled share based payments – – – 18
at 31 december 2007 1546 – 370 237
details of share based payments are given in note 22 to the group accounts
081022melrosera12736melrosera  25308  1421  page 84 melrose plc annual report 2007  85
10 hedging reserve
£m
at 31 december 2005 14
increase in fair value of hedging derivatives 11
transfer to income 14
at 31 december 2006 11
increase in fair value of hedging derivatives 08
transfer to income 17
at 31 december 2007 02
11 reconciliation of movements in equity shareholders’ funds
£m
at 31 december 2005 2696
dividends paid 135
profit for the financial year 160
increase in share capital –
decrease in hedging reserve 03
credit to equity for equitysettled share based payments 04
at 31 december 2006 2722
dividends paid 130
return of capital 2126
profit for the financial year 2333
creation of preference c shares 70
decrease in hedging reserve 09
credit to equity for equitysettled share based payments 18
at 31 december 2007 2738
12 operating lease commitments
at the balance sheet date the company had outstanding commitments for future lease payments under noncancellable operating leases which
fall due as follows
2007 2006
£m £m
within one year 01 01
in the second to fifth years inclusive – 01
after five years – –
13 related party transactions
transactions with key management personnel are shown in note 28 of the group financial statements
081022melrosera12736melrosera  25308  1421  page 85 86 melrose plc annual report 2007
as at 31 december 2007 there were 670 holders of ordinary shares in the company their shareholdings are analysed as follows
percentage of 
number of total number number of percentage of 
size of shareholding shareholders of shareholders ordinary shares ordinary shares
1 – 5000 362 5403 621527 047
5001 – 50000 146 2179 2487620 186
50001100000 29 433 2104164 157
100001 – 500000 77 1149 18369950 1374
over 500000 56 836 110081768 8236
total 670 1000 133665029 1000
financial calendar 2008
exdividend date for final dividend 12 march 2008
record date for final dividend 14 march 2008
annual general meeting 7 may 2008
payment of final dividend 16 may 2008
announcement of halfyearly results august 2008
intended payment of interim dividend november 2008
preliminary announcement of 2008 results march 2009
head office
cleveland house
33 king street
london sw1y 6rj
tel 44 0 20 7766 7670
fax 44 0 20 7766 7671
wwwmelroseplcnet
with effect from 30 may 2008
leconfield house
curzon street
london
w1j 5ja
registered office
precision house 
arden road 
alcester
warwickshire 
b49 6hn
tel  44 0 1789 761020 
fax  44 0 1789 761058
registered number 4763064
wwwmelroseplcnet
bankers
lloyds tsb bank plc and barclays bank plc
auditors
deloitte  touche llp 
hill house 
1 little new street 
london ec4a 3tr
registrars
equiniti
the causeway
worthing
west sussex
bn99 6da
wwwshareviewcouk
legal advisers
clifford chance llp 
10 upper bank street 
london e14 5jj 
brokers
investec
2 gresham street
london ec2v 7qp
jp morgan cazenove
20 moorgate
london ec2r 6da
company and shareholder information
081022melrosera12736melrosera  28308  1648  page 86 melrose plc annual report 2007  87
notice is hereby given that the fifth annual general meeting of the
company will be held at the offices of investec at the diagonal room
2 gresham street london ec2v 7qp at 1100 am on 7 may 2008
for the following purposes
ordinary business
1 to receive the company’s audited financial statements for the
financial year ended 31 december 2007 together with the
directors’ report and the auditors’ report on those financial
statements
2 to declare a final dividend for the year ended 31 december 2007
3 to reelect mr simon peckham who retires by rotation as a director
of the company
4 to reelect mr david roper who retires by rotation as a director of
the company
5 to reelect mr john grant who retires by rotation as a director of
the company
6 to reappoint deloitte  touche llp as auditors of the company to
hold office from the conclusion of this meeting until the conclusion
of the next annual general meeting of the company at which
accounts are laid and to authorise the directors to determine their
remuneration
special business
to consider and if thought fit to pass the following resolutions which
will be proposed in the case of resolutions 7 9 and 10 as ordinary
resolutions and in the case of resolutions 8 11 and 12 as special
resolutions
7 that the directors’ remuneration report contained in the
companys report and financial statements for the year ended 
31 december 2007 be approved
8 that with effect from the conclusion of the meeting the company
adopt the new articles of association produced to the meeting 
and for the purpose of identification initialled by the chairman of
the meeting 
9 that the company be authorised subject to and in accordance with
the provisions of the companies act 2006 “ca 2006” to send
convey or supply all types of notices documents or information to
the shareholders by means of electronic equipment for the
processing storage and transmission of data including by making
such notices documents and information available on a website
10 that in substitution for all existing authorities the directors be
generally and unconditionally authorised in accordance with section
80 of the companies act 1985 the “act” to exercise all the
powers of the company to allot relevant securities within the
meaning of that section up to an aggregate nominal amount of
£89110 this authority will expire unless previously renewed
varied or revoked by the company in general meeting at the
conclusion of the next annual general meeting of the company
following the passing of this resolution save that the company
may before such expiry make an offer or agreement which would
or might require relevant securities to be allotted after expiry of this
authority and the directors may allot relevant securities in
pursuance of that offer or agreement as if the authority conferred
by this resolution had not expired
11 that in substitution for all existing powers and subject to the
passing of resolution 10 the directors be generally empowered
pursuant to section 95 of the act to allot equity securities within
the meaning of section 942 of the act for cash pursuant to the
general authority conferred by resolution 10 as if section 891 of
the act did not apply to the allotment provided that the power
conferred by this resolution
a will expire unless previously renewed varied or revoked by the
company in general meeting at the conclusion of the next
annual general meeting of the company following the passing
of this resolution save that the company may before such
expiry make an offer or agreement which would or might
require equity securities to be allotted after expiry of this power
and the directors may allot equity securities in pursuance of
that offer or agreement as if the power conferred by this
resolution had not expired
b is limited to
i allotments of equity securities in connection with a rights
issue and
ii allotments of equity securities for cash otherwise than
pursuant to paragraph i up to an aggregate nominal value
of £13366
for the purposes of this resolution “rights issue” means an offer of
equity securities open for acceptance for a period fixed by the
directors to holders of ordinary shares made in proportion as
nearly as may be to their respective existing holdings of ordinary
shares but subject to the directors having a right to make such
exclusions or other arrangements in connection with the offer as
they deem necessary or expedient
a to deal with equity securities representing fractional
entitlements and
b to deal with legal or practical problems arising in any overseas
territory or by virtue of shares being represented by depositary
receipts the requirements of any regulatory body or stock
exchange or any matter whatsoever
the power conferred on the directors by this resolution shall also
apply to a sale of treasury shares which is an allotment of equity
securities by virtue of section 943a of the act but with the
omission of the words “pursuant to the general authority conferred
by resolution 10”
notice of annual general meeting
081022melrosera12736melrosera  25308  1421  page 87 notice of annual general meeting continued
88 melrose plc annual report 2007
12 that the company be generally and unconditionally authorised to
make one or more market purchases within the meaning of
section 1633 of the act of ordinary shares of 02 pence each in
the capital of the company “ordinary shares” provided that
a the maximum aggregate number of ordinary share authorised
to be purchased is 13366502 representing 10 of the
issued ordinary share capital
b the minimum price which may be paid for an ordinary share is
02 pence
c the maximum price which may be paid for an ordinary share is
not more than the higher of
i 105 per cent of the average of the middle market quotation
for an ordinary share as derived from the london stock
exchange plc’s daily official list for the five business days
immediately preceding the day on which the ordinary
share is purchased which amount shall be exclusive of
expenses and
ii the higher of the price of the last independent trade and
the highest current independent bid on the trading venue
where the purchase is carried out
d this authority will expire at the conclusion of the next annual
general meeting of the company following the passing of this
resolution
e the company may make a contract to purchase ordinary
shares under this authority before expiry of the authority which
will or may be executed wholly or partly after the expiry of that
authority and may make a purchase of ordinary shares in
pursuance of any such contract and
f any ordinary shares purchased pursuant to this authority may
either be held as treasury shares or cancelled by the company
depending on which course of action is considered by the
directors to be in the best interests of shareholders at the time
by order of the board registered office
precision house
garry e barnes arden road
company secretary alcester
31 march 2008 b49 6hn
notes
these notes are important and require your immediate attention
1 the holders of ordinary shares and 2007 incentive shares in the
company are entitled to attend the annual general meeting but
only holders of ordinary shares are entitled to vote a member
entitled to attend and vote may appoint a proxy to exercise all or
any of its rights to attend speak and vote at a general meeting of
the company such a member may appoint more than one proxy
provided that each proxy is appointed to exercise the rights
attached to different shares a proxy need not be a member of the
company
2 a form of proxy is enclosed with this notice to be effective a form
of proxy must be completed signed and deposited together with
any power of attorney or authority under which it is signed or a
certified copy of such power or authority with the company’s
registrars at the address specified on the form of proxy not less than
48 hours excluding any part of a day that is not a working day
before the time for holding the meeting depositing a completed
form of proxy will not preclude a member from attending the
meeting and voting in person
3 any person to whom this notice is sent who is a person nominated
under section 146 of the ca 2006 to enjoy information rights a
“nominated person” may under an agreement between him and
the shareholder by whom he was nominated have a right to be
appointed or to have someone else appointed as a proxy for the
annual general meeting if a nominated person has no such proxy
appointment right or does not wish to exercise it he may under
any such agreement have a right to give instructions to the
shareholder as to the exercise of voting rights
4 pursuant to regulation 41 of the uncertificated securities
regulations 2001 to be entitled to attend and vote at the annual
general meeting and for the purposes of the determination by the
company of the number of votes they may cast members must
be entered on the company’s register of members by 600 pm on
5 may 2008 changes to entries on the register of members after
this time shall be disregarded in determining the rights of any
person to attend or vote at the meeting
5 in order to facilitate voting by corporate representatives at the
meeting arrangements will be put in place at the meeting so that
i if a corporate shareholder has appointed the chairman of the
meeting as its corporate representative with instructions to vote
on a poll in accordance with the directions of all of the other
corporate representatives for that shareholder at the meeting
then on a poll those corporate representatives will give voting
directions to the chairman and the chairman will vote or
withhold a vote as corporate representative in accordance with
those directions and
081022melrosera12736melrosera  27308  1748  page 88 melrose plc annual report 2007  89
ii if more than one corporate representative for the same
corporate shareholder attends the meeting but the corporate
shareholder has not appointed the chairman of the meeting 
as its corporate representative a designated corporate
representative will be nominated from those corporate
representatives who attend who will vote on a poll and the
other corporate representatives will give voting directions to 
that designated corporate representative 
corporate shareholders are referred to the guidance issued by the
institute of chartered secretaries and administrators on proxies and
corporate representatives – wwwicsaorguk– for further details of this
procedure the guidance includes a sample form of representation
letter if the chairman is being appointed as described in i above
6 as at 28 march 2008 being the last business day prior to the
publication of this notice the company’s issued share capital
consists of 133665029 ordinary shares carrying one vote each
therefore the total voting rights in the company as at 28 march
2008 are 133665029
7 copies of the following documents will be available for inspection
at the company’s registered office during normal business hours
saturdays sundays and public holidays excepted from the date
of this notice until the date of the annual general meeting and at
the place of the annual general meeting for 15 minutes prior to
and during the meeting
a the register of directors’ interests in shares of the company
b copies of all service agreements under which directors of the
company are employed by the company or any subsidiaries 
c a copy of the terms of appointment of the nonexecutive
directors of the company and
d a copy of the proposed new articles of association to be
adopted pursuant to resolution 8
explanatory notes on principal changes to the company’s
articles of association
1 articles which duplicate statutory provisions 
provisions in the current articles which replicate provisions contained
in ca 2006 are in the main amended to bring them into line with it
certain examples of such provisions include provisions as to the form
of resolutions the variation of class rights and provisions regarding the
period of notice required to convene general meetings the main
changes made to reflect this approach are detailed below
2 form of resolution
the current articles contain a provision that where for any purpose an
ordinary resolution is required a special or extraordinary resolution is
also effective and that where an extraordinary resolution is required a
special resolution is also effective this provision is being amended as
the concept of extraordinary resolutions has not been retained under
ca 2006 
article 72 of the current articles enables members to act by written
resolution under ca 2006 public companies can no longer pass
written resolutions this provision has therefore been removed in the
proposed new articles 
3 variation of class rights
the current articles contain in article 73 provisions regarding the
variation of class rights the proceedings and specific quorum
requirements for a meeting convened to vary class rights are contained
in ca 2006 the relevant provisions have therefore been amended in
the proposed new articles 
4 convening general meetings
article 48 in the current articles which deals with the convening of
general meetings and the length of notice required to convene general
meetings is being amended to conform to new provisions in ca
2006 in particular a general meeting other than an annual general
meeting to consider a special resolution can be convened on 14
days’ notice whereas previously 21 days’ notice was required
5 votes of members
under the ca 2006 proxies are entitled to vote on a show of hands
whereas under the current articles proxies are only entitled to vote on
a poll multiple proxies may be appointed provided that each proxy is
appointed to exercise the rights attached to a different share held by
the shareholder multiple corporate representatives may be appointed
in accordance with ca 2006 the proposed new articles reflect all of
these new provisions 
6 age of directors on appointment
article 85 of the current articles require a directors age to be disclosed
if he has attained the age of 70 years or more in the notice convening
a meeting at which the director is proposed to be elected or reelected
this provision has been amended in the proposed new articles
following the implementation of the employment equality age
regulations 2006
081022melrosera12736melrosera  27308  1749  page 89 90 melrose plc annual report 2007
notice of annual general meeting continued
7 electronic and web communications
provisions of ca 2006 enable companies to communicate with
members by electronic andor website communications the
proposed new articles continue to allow communications to members
in electronic form and in addition permit the company to take
advantage of the new provisions relating to website communications 
before the company can communicate with a member by means of
website communication the relevant member must be asked
individually by the company to agree that the company may send or
supply documents or information to him by means of a website and
the company must either have received a positive response or as
provided by ca 2006 if no response is received within the period of
28 days beginning with the date on which the request was sent may
deem receipt of a positive response the company will notify the
member either in writing or by other permitted means when a
relevant document or information is placed on the website if required
a member can request a hard copy version at any time 
8 conflicts of interest
ca 2006 sets out directors’ general duties which largely codify the
existing law but with some changes under ca 2006 from 1 october
2008 a director must avoid a situation where he has or can have a
direct or indirect interest that conflicts or possibly may conflict with the
company’s interests the requirement is very broad and could apply
for example if a director becomes a director of another company or a
trustee of another organisation ca 2006 allows directors of public
companies to authorise conflicts and potential conflicts where
appropriate where the articles of association contain a provision to
this effect ca 2006 also allows the articles of association to contain
other provisions for dealing with directors’ conflicts of interest to avoid
a breach of duty the proposed new articles give the directors
authority to approve such situations and to include other provisions to
allow conflicts of interest to be dealt with in a similar way to the
current position 
there are safeguards which will apply when directors decide whether
to authorise a conflict or potential conflict firstly only directors who
have no interest in the matter being considered will be able to take the
relevant decision and secondly in taking the decision the directors
must act in a way they consider in good faith will be most likely to
promote the company’s success the directors will be able to impose
limits or conditions when giving authorisation if they think this is
appropriate
it is also proposed that the new articles should contain provisions
relating to confidential information attendance at board meetings and
availability of board papers to protect a director being in breach of
duty if a conflict of interest or potential conflict of interest arises these
provisions will only apply where the position giving rise to the potential
conflict has previously been authorised by the directors
the relevant new provisions are expressed to take effect from the date
on which the relevant ca 2006 provisions come into force until that
date the existing provisions on conflicts of interests will remain
effective
it is the board’s intention to report annually on the company’s
procedures for ensuring that the board’s powers to authorise conflicts
are operated effectively
9 directors’ indemnities and loans to fund expenditure
ca 2006 has widened the scope of the powers of a company to
indemnify directors in particular a company that is a trustee of an
occupational pension scheme can now indemnify a director against
liability incurred in connection with that company’s activities as a
trustee of that scheme a company may also grant indemnities to
directors of associated companies in addition the existing exemption
allowing a company to provide money for the purpose of funding a
directors defence in court proceedings now expressly covers
regulatory proceedings and applies to associated companies
081022melrosera12736melrosera  25308  1421  page 90 melrose plc annual report 2007  91
notes
081022melrosera12736melrosera  27308  1423  page 91 notes
92 melrose plc annual report 2007
081022melrosera12736melrosera  27308  1424  page 92 contents
01 highlights
03 melrose at a glance
04 chairman’s statement
06 chief executive’s review
08 business review
12 finance director’s review
18 board of directors 
20 directors’ report
26 corporate governance report
30 remuneration report
34 statement of directors’ responsibilities
35 independent auditors’ report to the members of melrose plc
on the consolidated financial statements 
36 consolidated income statement
37 consolidated statement of recognised income and expense
38 consolidated balance sheet
39 consolidated cash flow statement
40 notes to the consolidated financial statements
76 independent auditors’ report to the members of melrose plc
on the company financial statements
77 company balance sheet for melrose plc
78 notes to the company balance sheet
86 company and shareholder information 
87 notice of annual general meeting
printed by st ives westerham press
081022melroseracover12736melroserapoc  27308  2008  page 2 melrose plc annual report 2007
wwwmelroseplcnet
melrose plc annual report 2007
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Summary:
 i am pleased to report melrose’s fifth set of annual results since
flotation in october 2003
results for the continuing group
following the sale of mckechnie aerospace and aerospace
aftermarket divisions “mckechnie aerospace” and the majority 
of our psm division “psm” together the “disposals” these
accounts report the results of our businesses for the twelve months 
to 31 december 2007 and the relevant comparatives for the previous
year they take into account the effect of the return of capital and
share consolidation during august 2007
revenue for the year was £3440 million 2006 £3236 million
headline profit before tax before exceptional costs exceptional
income and intangible asset amortisation other than computer
software was £270 million 2006 £121 million 
after these items the profit before tax was £212 million 2006 
£48 million and basic earnings per share were 74p 2006 12p
further explanation of these results is provided in the finance
director’s review
our businesses and their employees have worked very hard to
produce these good results and i thank them on behalf of our
shareholders
2007 was a very busy year 
in which much was achieved 
in may we sold mckechnie
aerospace for £428 million and
psm for £30 million realising 
a combined profit of over 
£190 million in the two years
since acquisition
christopher miller executive chairman
04 melrose plc annual report 2007
chairman’s statement
081022melrosera12736melrosera  26308  1819  page 04 2007 was a very busy year in which much was achieved in may we
sold mckechnie aerospace for £428 million and psm for £30 million
realising a combined profit of over £190 million in the two years since
acquisition in line with our stated objectives we returned £220
million of capital to shareholders in august together with dividends
this means we have returned to shareholders 95 of the equity
raised since melrose’s inception in 2003 at the same time as the
return of capital shares in issue were reduced by means of a share
consolidation notwithstanding this repayment of capital melrose had
year end net cash of £324 million compared with net debt of
£1626 million at the end of last year
in such an active year it would be easy to overlook the strong
performances of our continuing businesses all three divisions have
bettered their results of last year and although mvc continues to
trade in a very difficult market place in the usa we are optimistic that
this overall improvement will continue into 2008 cash generation
remains very strong
david roper reports in more detail on each of our businesses in his
chief executive’s review
dividends
the board intends to propose a final dividend of 425p per share
together with an interim dividend of 25p per share paid on 
16 november 2007 a total of 675p per share 2006 60p 
per share at the annual general meeting on 7 may 2008 the
dividend is payable on 16 may 2008 to shareholders on the register
at 14 march 2008
strategy and outlook
our model is to acquire businesses which we understand and which
are capable of substantial improvement under our ownership it is an
important part of this model that we return capital to shareholders as
and when value has been created and realised we are pleased to
have been able to give an effective demonstration of this during 2007
i said last september that we were well placed to pursue suitable
acquisitions and that market conditions were potentially aiding us 
in this respect that continues to be the case and we are optimistic 
of concluding one or more acquisitions in the next twelve months
which will give us the opportunity for substantial further growth 
and profitability
christopher miller
5 march 2008
melrose plc annual report 2007  05
95
return of capital to shareholders
we return capital to shareholders as and when value has been
created and realised we are pleased to have been able to give 
an effective demonstration of this during 2007
of the original
subscribed capital
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