melrose plc annual report 2008 melrose’s strategy is to acquire businesses it understands
improve them by a mixture of investment and changed
management focus and in a three to five year time frame
realise the value created and return it to shareholders in the
most efficient way possible
46 corporate information 1
46 summary of significant accounting policies 2
52 critical accounting judgements 3
53 revenue 4
53 segment information 5
56 exceptional costs and income 6
57 revenue and expenses 7
59 tax 8
60 discontinued operations 9
61 dividends 10
62 earnings per share 11
63 intangible assets 12
66 property plant and equipment 13
66 interest in joint ventures 14
67 inventories 15
67 trade and other receivables 16
68 cash and cash equivalents 17
68 trade and other payables 18
69 interestbearing loans and borrowings 19
70 provisions 20
71 deferred tax 21
71 share based payments 22
72 retirement benefit schemes 23
76 financial instruments and risk management 24
79 issued capital and reserves 25
81 cash flow statement 26
82 commitments and contingencies 27
83 related parties 28
83 post balance sheet events 29
83 contingent liabilities 30
introduction  businesses
governance
financial statements  notes
shareholder information
contents
page note
01 highlights
02 melrose businesses at a glance
04 chairman’s statement
06 chief executive’s review
08 energy business review
10 lifting business review
12 dynacast business review
14 other industrial business review
17 finance director’s review
24 board of directors
26 directors’ report
32 corporate governance report
36 remuneration report
40 statement of directors’ responsibilities
41 independent auditors’ report to the members of melrose plc
on the consolidated financial statements
42 consolidated income statement
43 consolidated statement of recognised income and expense
44 consolidated balance sheet
45 consolidated cash flow statement
46 notes to the accounts
84 independent auditors’ report to the members of melrose plc
on the parent company financial statements
85 company balance sheet for melrose plc
86 notes to the company balance sheet
94 notice of annual general meeting
97 company and shareholder information 01
melrose plc annual report 2008
introduction introduction  businesses
highlights
1
introduction
 acquisition of fki plc on 1 july 2008 for a total consideration of £9704 million
including debt
 headline
2
earnings per share of 168p 2007 99p
 headline
2
profit before tax of £754 million 2007 £281 million
 £60 million of cash generation after dividends exceeding expectations
 annualised 2008 ebitda
3
was £241 million at year end closing exchange rates
 profit before tax of £258 million 2007 £240 million
 basic earnings per share after exceptional items and intangible asset amortisation of 48p
2007 87p
 225x net debt to annualised ebitda
3
at year end exchange rates
 net debt of £5431 million after £153 million adverse foreign exchange movement
 proposed final dividend of 425p per share 2007 425p together with the interim
dividend of 275p this gives a full year dividend of 70p 2007 675p up 37
1
continuing operations only unless otherwise stated
2
before exceptional costs exceptional income and intangible asset amortisation other than computer software
3
headline operating profit before depreciation and amortisation assuming acquisitions were held for the full year
“the 2008 outturn has been better than expected it is far too early to be sure where 2009 will end up but
despite a general downturn we are far from discouraged we are ahead of our plans and expect to see over
£50 million of further cash generation in 2009 out of the fki acquisition combined with the improvement
plans we have the translation effect of currency and at least £25 million of cost reduction programmes
already in place this will cushion us from an almost inevitable reduction in the topline
we have a mix of geographically diverse businesses with good market positions and with loyal customers
in sectors such as power generation oil and gas and healthcare where we are exposed to more vulnerable
sectors such as automotive and construction we have excellent management teams who are taking decisive
action on cost reduction programmes product innovation and geographic diversification”
“christopher miller
chairman 02
melrose plc annual report 2008
melrose businesses at a glance
lifting energy
business description
world top three supplier for wire and wire rope world leader in
lifting products and fittings
key strengths
– comprehensive and competitive range of solutions in steel
wire wire rope and strand
– world’s leading supplier of accessories used in material
handling applications
– strategically located around the world
sectors served
onshore and offshore oil and gas deep shaft and surface mining
petrochemical alternative energy general industrial and construction
markets fishing and marine and material handling industries
products
wire rope fibre rope and wire lifting hooks connectors and other
lifting and material handling equipment
major customers
global crane oems mining oems major oil companies global oil
field exploration and construction contractors construction
companies lifting products distributors
business description
world number one independent supplier of turbogenerators and
leading supplier of other electricity generating machinery and
power infrastructure equipment
key strengths
– design and manufacture of medium to high voltage generators
synchronous motors and power management systems
– transformer products in service with every uk supply authority
and many power and supply authorities throughout the world
– range of indoor and outdoor medium voltage distribution
marine and transit switchgear
sectors served
supply turbogenerators to major gas turbine producers specialist
generators to industries including oil and gas mining defence and
telecommunications utilities and industrial contracting
products
power generation medium voltage and transit switchgear power
system and distribution transformers
major customers
ge pratt  whitney rollsroyce uk electricity distribution network
operators
 for more information see pages 10 to 11
 for more information see pages 8 to 9 03
melrose plc annual report 2008
introduction introduction  businesses
business description
global design and manufacture of precision engineered diecast
metal components and assemblies
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 and
telecommunications
products
telecommunications and electronic components automotive
components and consumer products
major customers
procter  gamble valeo autoliv trw bosch apple motorola
sony
other industrial
 for more information see pages 14 to 16
dynacast
 for more information see pages 12 to 13
business descriptions
truth is the us market leader in window hardware and storm
and screen door hardware
logistex provides automated material handling solutions for
airports post and parcel distribution facilities manufacturing and
warehouse operations and library automation
harris designs manufactures and supplies scrap processing
and recycling equipment for the ferrous nonferrous and
paper industries
weber knapp is the us number one manufacturer of spring
mechanisms for ergonomic office furniture solutions
brush traction designs manufactures and refurbishes rail
locomotives and propulsion systems
mpc designs and manufactures engineered plastic plastic
injection moulded and extruded components
prelok provides high specification preapplied thread locking and
sealing products
sectors served
businesses serve a diverse range of sectors including housing
construction distribution retail scrap processing office furniture
rail automotive consumer packaging and general engineering
products
window hardware sortation distribution and warehouse control
systems balers shears waste compactors and auto shredders
ergonomic office and desk equipment rail vehicle and component
manufacture and refurbishment automotive trims and mouldings
food packaging containers and transit trolleys widgets for bottles
and cans sealing products
major customers
us hardware industry oems waste and scrap processors airports
postal distribution facilities libraries manufacturers in various
industries and retailers 04
melrose plc annual report 2008
chairman’s statement
i am pleased to report melrose’s sixth set of annual results since
flotation in october 2003
results for the group
these accounts report the results for the group for the year to
31 december 2008 and the relevant comparatives for the previous
year fki plc was acquired on 1 july 2008 and its results have been
included from that date
revenue for the year was £9383 million 2007 £2886 million
headline profit before tax before exceptional costs exceptional
income and intangible asset amortisation other than computer
software was £754 million 2007 £281 million
headline earnings per share which the board considers to best
represent the true underlying performance of the group increased
15 to 168p compared with proforma earnings per share of 146p
as defined in the finance director’s review in 2007
further explanation of these results is provided in the finance
director’s review
much hard work and dedication from our employees has gone
into producing these highly satisfactory results and on behalf of
shareholders i would like to thank and congratulate them
fki plc
on 1 july 2008 we completed the acquisition of fki plc for a total
consideration including debt of just under £1 billion as i said at the
time of our interim results last august a substantial opportunity exists
for improving the performance of fki’s businesses over the next few
years principally through an increased focus on profitability and much
has already been achieved we are confident that fki will prove to be
an excellent acquisition and produce significant value for shareholders
within our original time frame of three to five years we are ahead of
our plans to improve profitability and generate cash
christopher miller executive chairman
2008 was a very active
year for melrose and many
actions were taken
particularly as regards fki
to further strengthen our
underlying performance 05
melrose plc annual report 2008
introduction introduction  businesses
these results demonstrate that 2008 was a good trading year for
the group as a whole however it will be no surprise to learn that
some of our businesses began to feel the effect of the global
downturn in the final quarter of the year and this of course has
continued into 2009 however our managers have been quick to
respond to this changed environment where appropriate by reducing
manpower and other costs to align their businesses with current and
expected order books it is important to emphasise that not all of our
businesses have been equally affected by the downturn and in many
of our businesses order books remain at a good level
cash generation which was an excellent £600 million after
dividends in 2008 will remain a key priority in 2009 we will
however continue to invest in those businesses with demonstrable
growth prospects it is important to maintain a balance between short
term cost reduction and the need to be positioned for resumed
growth when the upturn comes
2008 was a very active year for melrose and many actions were
taken particularly as regards fki to further strengthen our underlying
performance more information on these actions together with a
detailed review of our businesses and financial position are contained
in the reviews of the chief executive and finance director on the
following pages
dividends
the board intends to propose a final dividend of 425p per share the
same level as last year together with the interim dividend of 275p
per share paid on 14 november 2008 this gives a total for the year of
7p per share 2007 675p per share an increase of 37 if
approved the dividend will be payable on 15 may 2009 to
shareholders on the register at 17 april 2009
this total dividend would be covered 24 times by headline
earnings per share your board recognises the importance of dividends
particularly during difficult economic times and regards the maintenance
of the dividend at the very least as an important objective
strategy
melrose’s strategy is to acquire businesses it understands improve
them by a mixture of investment and changed management focus
and in a three to five year time frame realise the value created and
return it to shareholders in the most efficient way possible although
current economic and stock market conditions suggest the latter end
of the time frame is most likely to be appropriate for realisations the
strategy remains unchanged indeed we believe our competitive
advantage in pursuing this strategy has never been better and we
would expect there to be exciting opportunities to make further
acquisitions when the time is right
outlook
certain things are clear we have within our group businesses which
are able to withstand the worst of the downturn we have substantial
potential particularly within the fki businesses we have excellent
cash generation and we have a strong management team although
this year promises to be the most difficult for some time we have full
confidence in the long term prospects for your company
christopher miller
11 march 2009
15
increase in headline
earnings per share
your board recognises the
importance of dividends
particularly during difficult
economic times and regards
the maintenance of the
dividend at the very least
as an important objective
£60m
cash generated during
2008 after dividends 06
melrose plc annual report 2008
chief executive’s review
i am particularly pleased with the results of the group in 2008
the highlight of the year was the acquisition of fki which was
completed on 1 july 2008 although global financial and economic
conditions have deteriorated since then the rationale behind the
acquisition remains valid we are ahead of our plans for fki our
operational improvement plans have not yet had a material effect on
these results in the short time since acquisition but we have been
very successful in permanently generating cash through better
management of working capital we are hopeful that we can generate
a further £50 million of cash in 2009 from continued improvements
fki was a major international diversified engineering group with
four divisions including some businesses with very good market
positions in general terms at the head office level fki was unfocused
with a weak balance sheet and borrowings due to be refinanced in
the near term the financing terms of melrose’s acquisition enabled
the balance sheet issues to be resolved and the putting in place of
a more appropriate group borrowing structure with lower overall debt
leverage and a maturity date of 2013 further details are set out in the
finance director’s review
in the case of the energy division where endmarket demand is
forecast to remain firm capital expenditure to improve capacity and
efficiency remains a priority however in the lifting division where
lower commodity prices have resulted in a softening in demand
capital for capacity expansion has been pared back until the markets
stabilise nevertheless opportunities to improve efficiency and cash
generation in this division remain
the following specific points relating to the acquisition of fki
should be noted
– following strategic reviews at each of the fki business units
management implemented measures to achieve operational
improvements through capital investment and efficiency gains
– fki’s central costs have been reduced by £10 million per annum
david roper chief executive
there are substantial
opportunities to continue
the operational and cash
generational improvements to
the acquired fki companies 07
melrose plc annual report 2008
introduction introduction  businesses
– cash generated in the six month period from a reduction in working
capital was £792 million net debt to ebitda has been reduced
from 27x on acquisition to 225x at the year end exchange rates
which is significantly better than our expectation at acquisition
– hickory’s businesses formerly part of fki’s hardware division have
either been sold or closed this has resulted in a net inflow of cash
of approximately £102 million significantly higher than our
estimates at the time of acquisition
– we remain hopeful that a sale of logistex north america will be
concluded soon protracted negotiations continue concerning the
disposal reflecting the economic climate and difficult financing
conditions in its field logistex is a world class business with a
strong position in its market there are actions that are being taken
and will continue to be taken were it not to be sold which will
significantly improve profit in any event we would expect logistex
as a whole to remain profitable in 2009
after a strong first nine months of trading in 2008 dynacast saw a
significant decline in sales in the final quarter of the year early action
by the experienced management team to reduce costs and conserve
cash mean that the company is well placed to meet these challenging
conditions and will be in a strong position when markets improve
in the interim statement it was stated that a fundamental review
of mvc had been instigated as a result of the deteriorating conditions
in the us automotive industry we were pleased to report the sale of
the company in november 2008 whilst this business has produced
an unsatisfactory result in a very tough trading environment it should
not detract from the success of the acquisition of mckechnie
outlook
the breadth of the end markets that the melrose group companies
sell into both sectorally and geographically means that although
some companies will face more difficult trading conditions this year
others operate in markets with favourable prospects the fall in the
value of sterling has also resulted in significant translation benefits and
a competitive advantage for our uk based businesses in addition to
this and most importantly there are substantial opportunities to
continue the operational and cash generational improvements to the
acquired fki companies
in addition to the strong underlying cash generation within the
group and the operational improvement plans being put in place we
are fortunate to have operational management that have been
proactive where necessary in taking action to cut costs and conserve
cash recently implemented cost savings initiatives across the group
should yield annual savings of at least £25 million at a cost of around
£2 million
these factors allied to the solid financial base of the group and
the operational improvement plans being put in place give us
confidence that melrose will successfully trade through this difficult
period and position us to be able to benefit from the exciting
opportunities that undoubtedly lie ahead
david roper
11 march 2009
£10m
reduction in fki’s
central costs per annum
the highlight of the year
was the acquisition of fki
which was completed on
1 july 2008
we are ahead for our plans
for fki 08
melrose plc annual report 2008
generators
brush turbogenerators is the world’s largest independent
manufacturer of electricity generating equipment for industrial marine
oil and gas and offshore applications with three plants in the uk
holland and the czech republic it designs manufactures and services
generators ranging from 10 mw to 250 mw for both steam and gas
turbine applications and supplies a globally diverse customer base
marelli motori based in italy is one of the world’s leading
manufacturers of industrial electrical motors and generators with a
product portfolio ranging from 12 kw to 45 mw harrington is a
specialist uk based generator manufacturer servicing the rail
telecommunications construction and military markets
brush turbogenerators benefited during the six months ended
31 december 2008 from continuing strong demand in its principal
market global power generation during this period many changes
and new initiatives have taken place in order to enable the business
to take fuller advantage of the opportunities available in this growing
market sector
first changes were made to senior management to get away
from a productionled culture and this has resulted in a transformation
in the attitudes and morale of the workforce now in place is a
cohesive performancedriven management team working together
towards an agreed set of demanding goals and objectives
approximately £10 million is being invested in new machinery
principally in the czech republic to alleviate capacity bottlenecks and
improve productivity this is part of a continuous improvement in all
aspects of the business incorporating the best principles of “lean key
performance indicators” which will yield further efficiency benefits
going forward it is intended that this will enable brush
turbogenerators to better serve its customers and demonstrate its
commitment to work alongside and support them for the future
the improvement in the manufacturing efficiency of the three
plants will achieve significant reductions in the production cycle not
only will this yield cost savings it will result in material reductions in
stock and work in progress and will free up capacity to enable the
business to engage more in profitable aftermarket and servicing
activities aftermarket has been targeted as a priority by management
on the basis of the opportunity created by the large installed base of
brush machines in operation
business units
revenue year ended 31 december 2008

£2294m
headline
1
operating profit year ended 31 december 2008 
£309m
revenue by sector 
revenue by geographic area 
aftermarket 15
utilities 37
industrials 21
oil  gas 17
other 10
europe 95
asia 3
north america 1
rest of world 1
average number of employees year ended 31 december 2008 
3633
websites
wwwbrusheu
wwwmarellimotoricom
wwwharringtoninternationalcouk
wwwhssltdcom
wwwbrushtransformerscom
energy
since acquisition on 1 july 2008
1
before exceptional costs exceptional income and intangible asset
amortisation other than computer software 09
melrose plc annual report 2008
introduction  businesses
marelli reported good results in the six month period ended
31 december 2008 benefiting from strong end markets marelli took
full advantage recording its highest ever sales in 2008
following the acquisition by melrose and the approval of a capital
investment programme management continued with its successful
strategy of expanding marelli’s product range from motors to a
complementary range of higher value added generators which now
represent 65 of sales
harrington traded satisfactorily in the six months to 31 december
2008 its results were adversely affected by the conclusion of two large
telecom and military projects the business continued its transition
from supplying the uk hire market with standard 3 kva – 100 kva
generators to focus on specialist applications where the company’s
unrivalled technical expertise and facilities can be more fully utilised
outlook
brush turbogenerators’ end markets remain robust and together with
signs of strong tendering activity the company entered 2009 with an
order book of £289 million representing some 73 of budgeted
sales this together with the actions undertaken to improve the
business supported by strong cost control measures give us
confidence that brush turbogenerators will have a good year
hawker siddeley switchgear “hss”
hss produces a wide range of indoor and outdoor electrical
distribution equipment principally electrical switchgear and sells into
global markets
hss continued its recovery in the period ended 31 december
2008 following the supply chain problems arising from the earlier
factory consolidation in blackwood south wales management were
charged with resolving these problems including the recruitment of
a supply chain director and this has resulted in a substantial increase
in the profitability of the business
hss’s market remained buoyant in the period with continuing
demand from the dnos together with increasing orders both in the
uk and in export markets for its switchgear products used in mass
transit systems this should lead to further orders in 2009
as a result of the improvements in supply chain management
and the targeting of working capital control dramatic improvements
were achieved during the year in profit conversion to cash
in order to further improve the profitability of hss a plan has
been approved to open a circuit breaker assembly and test facility in
china this is to be located near shanghai and is due to start
production in the third quarter of 2009 this will initially be for the
purpose of supplying product for use by its facility in blackwood
followed soon after by targeting the chinese market where substantial
opportunities exist
outlook
reflecting the favourable market conditions for hss the company
entered 2009 with an order book equivalent to approximately six
months’ sales this together with management’s actions gives us
confidence that hss will continue to make good progress in 2009
brush transformers
brush transformers manufactures midrange power transformers for
the uk electrical utilities and the oil and gas sector principally in the
middle east
brush transformers reported a creditable set of results for the
six month period ended 31 december 2008 sales increased both as
selling prices were raised to meet significant material cost inflation
especially copper and also as a result of operational efficiencies
gained from lean manufacturing principles
demand from brush transformers’ customers principally uk
based dnos remained firm throughout the year reflecting favourable
market conditions in the uk electricity transmission industry in
addition the new brush transformers’ joint venture started production
in abu dhabi in 2008 with the aim of servicing public utility customers
in the middle east a market in which the ‘brush’ name has a very
strong reputation
outlook
brush transformers entered 2009 with an order book sufficient to meet
the company’s entire budgeted sales for the year with management
firmly focused on achieving the customers’ requirements efficiently and
on time we look forward to a successful year for brush transformers
brush turbogenerators supplied this 48 mw 2 pole synchronous motor for the
ormen lange gas field in norway this project is expected to meet 20 of the
uk’s gas requirements

hawker siddeley switchgear supply the acclaimed horizon outdoor circuit
breaker designed for 38 kv application it is compact simple to install and is
designed to provide a lifetime of troublefree operation and a costeffective
substation solution
 10
melrose plc annual report 2008
bridon
bridon designs and manufactures a comprehensive range of lifting
and stabilising solutions for applications in wire rope fibre rope steel
wire and strand serving global customers in oil and gas mining
industrial marine and infrastructure
bridon performed well in the six months ended 31 december
2008 on the back of strong demand in its principal markets of oil and
gas mining and highperformance cranes although the cost of
bridon’s major raw material steel continued to rise rapidly during
most of the period management was successful in passing these
costs on through a mixture of surcharges and contractual escalation
provisions bridon also benefited from movements in foreign
exchange rates as sales made in us dollars and euros increased in
sterling terms cash generation was particularly good with 105 of
profit being turned into cash in the period
in addition to the strong demand in its offshore oil and gas and
mining markets bridon continued to gain market share by making
inroads into key accounts in all its primary market sectors particularly
the global crane and mining oems major progress has been achieved
in bridon’s marine fibre business based in coatbridge scotland
where certain contracts have been renegotiated and lead times have
been reduced resulting in increased profitability other highlights of
the year include record performances at bridon’s singapore and
indonesian operations
while continuing to focus on its core geographic markets of
europe and north america during the year bridon acquired an 80
interest in a specialist rope maker in hangzhou south eastern china
this is in line with the company’s policy of focusing on high
performance products serving the local industrial oil and gas and
mining industries in faster growing regions including china russia
and south east asia following the acquisition by melrose bridon
management successfully negotiated an exit from its 5050
chinese joint venture engaged in the manufacture of commoditytype
elevator rope
during the year an investment programme of approximately
£3 million over three years was approved to upgrade the wire mill
at doncaster to improve manufacturing efficiencies and significantly
reduce carbon emissions and other environmental waste bridon
business units
revenue year ended 31 december 2008 
£2323m
headline
1
operating profit year ended 31 december 2008 
£357m
revenue by sector 
revenue by geographic area 
wire 5
mining 10
energy 38
industrial 31
other 16
north america 51
europe 35
asia 9
rest of world 5
average number of employees year ended 31 december 2008 
3575
websites
wwwbridoncom
wwwthecrosbygroupcom
wwwaccomhscom
lifting
since acquisition on 1 july 2008
1
before exceptional costs exceptional income and intangible asset
amortisation other than computer software 11
melrose plc annual report 2008
introduction  businesses
which is known for its superior quality technical support and
innovation further increased its product development efforts in
order to meet its customers’ increasingly demanding needs and
applications in addition to this management continues to pursue
with vigour its ongoing commitment to the application of ‘lean’
principles to support sustainable cost reduction efforts across all units
outlook
notwithstanding the adverse economic climate bridon entered 2009
with a record order book of £790 million representing approximately
30 of the year’s budgeted sales although bridon is seeing
weakening in its construction and industrial markets the offshore
sector where bridon has a strong presence and which is dominated
by bigger customers engaged in large projects with long lead times
is performing resiliently and is evidence that this sector will be less
affected than other markets there is also optimism in the speciality
structures sectors as various bridge and stadia projects remain
scheduled for development over the next several years
overall this gives us confidence that bridon will have a good year
crosby
crosby is a world leader in the manufacture and sale of fittings and
blocks to the oil and gas construction and mining sectors primarily
through a global network of specialist distributors
crosby achieved a good result in 2008 on the back of global
economic growth and strong demand particularly from the oil and gas
industry crosby experienced significant raw material cost increases
and shortages during the year however as a result of its strong
market position and close relationships with its customers it was able
to pass on most of these price increases and by working closely with
suppliers it was able to ensure availability of supply
growth was achieved in all of crosby’s geographical markets with
the highest being in north america crosby invested significantly in
product and process development during the year whilst at the same
time introducing new specialised lifting systems and fittings for both
the offshore and onshore oil and gas markets the development of
the block and sheave centres in europe and china was pushed ahead
and resulted in increased sales in these markets
during the period crosby continued to focus on its programme
to train the end users of its products as safety standards in the
industry around the world continue to rise crosby is at the forefront
of a series of initiatives to enable rigging personnel to achieve
certification status this dedicated focus on customer needs and
attention to detail in the provision of a highly technical product where
safety and reliability are of paramount importance serve to
differentiate crosby in its market
outlook
crosby is more exposed to the onshore oil and gas markets – in
contrast to bridon – where the projects tend to be smaller and the
recent falls in oil and gas prices have resulted in a softening of
demand the crosby management team are highly experienced
and have already implemented plans to reduce working capital
further and to take out costs across the business including reducing
the headcount by approximately 10 in the united states which
will result in an annualised saving of £5 million
although 2009 will be a more difficult year for crosby the
strength of its business franchise and the quality of its management
will ensure that the current adverse conditions are well handled and
that the business is in good condition to resume its previous growth
when more normal conditions return
acco material handling solutions “acco”
acco is a us manufacturer of custom engineered material handling
products including monorail cranes wire rope and chain hoists and
industrial carts and trailers
acco achieved a good trading performance in the six months
ended 31 december 2008 together with a decent profit to cash
achievement these results were attributable to an improved revenue
mix as increased sales of monorail cranes were offset by lower sales
of industrial carts and trailers
although acco bore substantial steel cost increases during the
year it was able to protect operating profit by passing these on
sales and margins were also improved through ongoing efforts to
outsource products and components and in addition efficiency gains
were achieved by the rationalisation of two similar product lines
during the year
outlook
we have confidence that acco will have another good year in 2009
the crosby group through its mckissick products division provided nasa with
the lifting tackle used to place the space shuttle onto the 747 for return travel
across the united states

bridon’s big hydra “world record breaking” rope measures 1385mm in
diameter weighs in at 337 tons and is 4000 metres long manufactured at
bridon’s german factory the rope is supplied to heerema marine contractors
and used as a winch rope on the installationpipe laying vessel ‘the balder’
 12
melrose plc annual report 2008
dynacast has reported a satisfactory trading result in 2008 with
revenue and headline operating profit up by 44 and 156
respectively this profit includes a foreign exchange gain on translation
of £39 million primarily from the strengthening of the euro and the
us dollar against sterling and the benefit from recent acquisitions of
just under £1 million in august 2008 dynacast acquired the canadian
and uk assets of fishercast global a former competitor from the
bankruptcy court in canada for approximately £7 million including
acquisition costs
the price of zinc dynacast’s major raw material continued to fall
during 2008 with the average lme cost falling by 42 over the year
to around us1900 per tonne in 2008 which is firmly back within its
historic price range and this bodes well for future business
development at the year end the price stood at us1120 per tonne
although movements in the price of zinc have relatively little effect on
profit as a result of being able to pass on these changes to the
customer they do have a significant effect on revenue this has
resulted in a reduction of the reported revenue in 2008 by
approximately £21 million
as foreshadowed in the interim report the weakening global
economy has resulted in a slowing of dynacast’s profit growth in the
second half of 2008 over the rapid growth experienced in the first
half as is widely known this economic slowdown accelerated sharply
towards the end of 2008 during such times it is encouraging that
dynacast management has an excellent record of cash control and in
2008 dynacast converted 124 of its profit into cash
sales in europe were marginally down in the year and profit was
broadly flat yearonyear the biggest reduction was in spain which
suffered from weak automotive and construction sectors for much of
the year france and austria performed well in the year but saw
slowdowns in demand in the final quarter of the year as automotive
sales slowed strong actions on cost controls together with the
benefits from reorganisations in prior years have helped to mitigate
the impact of the sales reduction
north america had a challenging year in 2008 with the us
being the first of the major economies to head into recession the
construction industry was the first sector to show clear signs of a
slowdown which affected dynacast’s sales of its hardware products
business units
revenue year ended 31 december 2008
£2463m
headline
1
operating profit year ended 31 december 2008
£334m
revenue by sector 
revenue by geographic area 
automotive 35
electronics computers
 telecommunications 26
healthcare 12
hardware  tooling 12
other 15
north america 35
asia 24
europe 41
average number of employees year ended 31 december 2008
2647
website
wwwdynacastcom
dynacast
1
before exceptional costs exceptional income and intangible asset
amortisation other than computer software 13
melrose plc annual report 2008
introduction  businesses
during the year sales in the us automotive industry started the year
weakly and continued to deteriorate throughout the year particularly
in the final quarter management’s decisive action has resulted in
quick and positive returns from the acquisition of fishercast
canada in the last quarter of the year
revenue and profit in asia were both higher in 2008 this
reflected a very strong year in malaysia a good year in singapore and
continued growth in china singapore is an important centre for
dynacast in terms of investment in design and engineering skills and
machine upgrades which supports its active programme of new
product development business wins included supplying components
for the exciting new apple ipod
outlook
we continue to see growth opportunities in asia and dynacast will be
opening its plant in dongguan southern china in the second quarter
of 2009 this plant will target the consumer electronics market in
china and has recently achieved a notable success in securing
business with dell to supply components for its servers which will be
manufactured in china until 2012
with the continuing uncertainty in economic and financial
markets dynacast management remain highly focused on the cost
structure of the business and on aggressive cash management
dynacast has reduced its workforce on a full time equivalent basis by
over 22 which will result in an annualised saving of approximately
£10 million at a cost of approximately £250000 and continues to
carefully monitor customer demand against manufacturing capacity
should demand continue to reduce a deeper restructuring will be
considered particularly in europe and north america where some
further consolidation might be necessary at the same time they will
be alert to opportunities to make small infill acquisitions as less well
financed competitors struggle with lower sales volumes
dynacast is a high quality well managed engineering group
supplying a wide range of products in different sectors to global
markets in which it has strong shares as such although 2009 looks
set to be a difficult year for dynacast it will meet the challenges totally
prepared and should emerge in a stronger position when market
conditions improve
rapid timetomarket is essential to dynacast’s customers dynacast has the
resources and excellent programme management to provide integral
components for laptop computers utilising proprietary thinwall technology

efficient heat dissipation and high strength requirements lead to the choice of
dynacast’s precision aluminum diecasting to produce this complex automotive
fan clutch housing
 14
melrose plc annual report 2008
truth
truth designs and manufactures operating hardware hinges and locks
for north american producers of windows patio doors and skylights
utilised in both the new construction and the repair and remodel
residential markets most of truth’s products are manufactured in its
plants in minnesota usa and ontario canada
revenue and operating profit were significantly lower in 2008
reflecting decreases in us housing starts of 30 compared to 2007
and 60 from their peak in 2005 however truth was successful in
achieving gains in market share as a result of growth initiatives to
increase both its customer base and its product offering
notwithstanding the gains in market share achieved in 2008
customer delivery times were far from satisfactory this was partly due
to the hangover from the closure of truth’s plant in pennsylvania and
the absorption of its operations into the minnesota plant at the end of
2007 these production issues have been the subject of close
attention since acquisition and by focusing on streamlining the
manufacturing process including significant capital investment in new
machines and tooling gains in cost speed and quality have been
achieved resulting in more acceptable customer service
outlook
in view of the continuing weakness of the us housing market
management has embarked on a rigorous programme of cost
reductions including a headcount decrease of about 15 these
actions on costs which should result in annualised savings of
approximately us9 million of payroll expense at a cost of
approximately us15 million supported by truth’s strong presence
in its market give us confidence that truth will continue to trade
profitably through the current downturn and be well placed when
the market improves
logistex europe
logistex is a provider of material handling solutions and products for
airports postal facilities parcel distribution manufacturing and
warehouse and distribution facilities
although revenue for the six months ended 31 december 2008
was lower than in the comparable period in 2007 profit was higher
with the improvement being driven by better project evaluation and
execution together with lower operating costs
revenue year ended 31 december 2008

£2303m
headline
1
operating profit year ended 31 december 2008 
£164m
revenue by sector 
revenue by geographic area 
traction 11
harris 14
logistex europe 29
mpcprelok 24
truth 18
other 4
asia 2
north america 26
europe 72
average number of employees year ended 31 december 2008 
3948
other industrial
for fki businesses since acquisition on
1 july 2008 and mpc for full calendar year
business units websites
wwwtruthcom
wwwfkilogistexcom
wwwharriswastecom
wwwweberknappcom
wwwbrushtractioncom
wwwmckechnieplasticscouk
wwwprelokcom
traction
1
before exceptional costs exceptional income and intangible asset
amortisation other than computer software 15
melrose plc annual report 2008
introduction  businesses
a highlight in the period was the exceptional cash generation
as a result of substantial improvements in the cash management
processes in the six months to 31 december 2008 the cash
generated exceeded operating profit by £16 million these
improvements represent permanent reductions in working capital
and additional actions have been put in place to further lower the
future working capital requirements of the business
in the period under review the airport and post and parcel
businesses secured large project orders with norwegian post
toll post delhi airport and tnt these new orders together with
a stronger opening order book enabled this part of the business
to trade profitably in contrast the european warehouse and
distribution business experienced more difficult trading conditions
with several large project orders being delayed or even cancelled
sales into china during the period were on projects with existing
customers expanding in the territory
further to the launch of the ls4000 the company’s new
sorting system the period under review saw the completion of the
first project incorporating this new system for joseph witt gmbh’s
major newbuild mail order and distribution centre in weiden
germany the ontime delivery of this industryleading energyefficient
sorting system was completed in a timescale of just 22 weeks from
the start of the installation to initial operations commencing
due to the advanced talks in relation to its sale logistex us
is included in discontinued items
outlook
as a result of market conditions restructuring plans were actioned in
january 2009 to reduce the headcount of the business and cut costs
in addition to this the strategy for the business will be to focus on
project selection and execution product excellence working capital
control and operational efficiency this sharpened focus supported by
a strong airport business backlog point to a satisfactory year for
logistex europe
harris
harris is a leader in scrap and waste reduction equipment design
engineering manufacturing and servicing it operates out of two plants
in georgia usa and has full service capability and serves the scrap
metal and fibre recycling industries
harris performed well in the six months ended 31 december
2008 on the back of exceptionally strong scrap metal prices during
most of this period scrap pricing is a key determinant in the activity
levels in this industry
design and engineering capability is at the heart of harris’
business culture with its emphasis on highly engineered solutions for
customised applications as part of this focus a new product
development team was formed in 2008 to introduce new products
and enhance the options and performance of existing products the
most significant were two new products which complement harris’
shredder and baler lines these products have begun to contribute to
both sales and the order books
management has continued with its push into the parts and
service business which in 2008 accounted for about 20 of harris’
revenue this provides a more stable revenue base and will result in
increased profitability
outlook
although the price of steel fell dramatically towards the end of 2008
given the reasonably long lead times in this business harris entered
2009 with a fairly strong order book however the order intake has
fallen and sales in 2009 are projected to be lower than in 2008
the management team has been strengthened and actions have
been taken to reduce the cost base to a level consistent with lower
sales to this end headcount has been reduced by 17 this year and
overheads have been reduced by 12 this will achieve annualised
savings of approximately £2 million
although profit will be lower in 2009 than in 2008 harris will be
well placed to recover strongly when market conditions improve and
in the longer term will benefit from the increasing emphasis on
recycling with its attendant environmental benefits
this harris model hs98115 shredder is located in atlanta georgia and is one
of four different models of ferrous metal shredders offered by harris harris
designs manufactures and installs all of its equipment worldwide

the new fki logistex ls4000e tilttray sorter provides an efficient order
fulfilment solution for the joseph witt gmbh ecommerce distribution centre
in weiden germany the market leading ls4000e products offer customers
energy savings of up to 75
 16
melrose plc annual report 2008
weber knapp
weber knapp manufactures hardware for the appliance and furniture
industries specialising in ergonomically designed office products
revenue and operating profit were adversely affected in 2008 by
the weakness of the us economy in addition although management
was able to pass on the substantial raw material price increases
experienced during the year primarily steel in respect of the high
specification valueadded products this was more difficult for the
more commoditytype volume ergonomic products
significant investments in process improvements and tooling
components were made in 2008 notably the addition of multiple
colour capability to the auto powder coat line and the hard tooling of
the new whirlpool counterbalance hinging system
management took decisive action during the year as the
economy continued to weaken close attention was paid to cash
management resulting in a cashtoprofit conversion ratio of 158 in
addition there was a 19 reduction in the administrative employees
and a 7 reduction in factory employees
outlook
the quality of weber knapp’s products and the strong position it
has in its market supported by the actions of management to meet
the challenges position the company well to benefit when the
economy improves
brush traction “traction”
traction specialises in the refurbishment and reengineering of uk
railway locomotives and components from its two sites at
loughborough and kilmarnock
traction’s results in the six months ended 31 december 2008
were particularly strong due to increased vehicle numbers and
additional work on the high speed train “hst” contract cash
generation was also significantly ahead of plan
the major hst contract which has provided the backbone of
traction’s production over the last two years is coming to an end in
2009 and as a result traction is stepping up its marketing efforts at
loughborough to build on its sales of bogies vehicle upgrade kits and
locomotive upgrades
kilmarnock started work during the year on its first major vehicle
refurbishment contract since the purchase of hunslet barclay at the
end of 2007 this project has to date been successful and is expected
to be completed towards the end of 2009
management continues to improve its processes and reduce
operating costs through the rigorous application of “lean management”
principles together with tight control of overheads and focused
investment in plant and equipment
outlook
the outlook for 2009 looks somewhat mixed so far there has been
little sign of reduced orders although the lower usage of freight
vehicles is beginning to impact wheel replacement and overhaul
although some future projects are likely to be delayed for financial
reasons given the priority attaching to the upgrading of the railway
network the longer term outlook is promising
mpc
mpc manufactures engineered plastic injection moulded and
extruded components and metal pressings for sectors including food
and beverage packaging automotive construction and industrial
mpc reported a good trading result in 2008 although revenue for the
year ended 31 december 2008 was only marginally higher than in
2007 headline operating profit was up by 10 reflecting the
company’s continuing emphasis on higher quality business
underlying cash generation before capital expenditure was particularly
strong and was 119 of operating profit before depreciation
highly engineered valueadded automated processes were again
at the forefront of mpc’s business development strategy with the
business successfully installing and commissioning new production
cells for diageo scottish  newcastle and jaguar land rover
a contraction in the european competitor base brought significant
opportunities for mpc not only to win new business but also to
expand into new leadingedge materials and technologies utilising
mpc’s recognised technical skills particularly regarding tool making
mpc’s success in 2008 was linked to its significant capital
expenditure programme in the year amounting to £35 million this
improved the plant profile increased flexibility and reduced energy
costs machines dedicated to production for marks  spencer and
toyota were installed during the year in addition to a new stateofthe
art robotic fully abated paint plant
outlook
given the poor market conditions management is paying very
close attention to conserving cash and to examining ways of cutting
costs in the business we are confident that the highly experienced
management team will be successful in mitigating the effects of the
downturn whilst at the same time continuing to take advantage of
opportunities that arise to improve and expand the business
david roper
11 march 2009
hst 43301 is the first of a batch of reengineered power cars ordered by arriva
cross country trains for their service from scotland to cornwall shown at
brush traction’s loughborough works test facility
 17
melrose plc annual report 2008
introduction  businesses
finance director’s review
the year to 31 december 2008 has been a significant year for
melrose plc on 1 july 2008 the acquisition of fki plc “fki” was
completed for £9704 million this transaction increased the size of
the melrose group by approximately six times consequently the
results shown for the year ended 31 december 2008 cannot be
compared to the results for the year to 31 december 2007 in
a meaningful way
new segmental split of divisions
continuing operations
the continuing operations at 31 december 2008 consist of four
divisions namely energy lifting dynacast and other industrial this
represents a new divisional split for melrose necessitated by the
acquisition of fki the new divisions comprise the following
businesses
energy lifting dynacast other industrial
brush transformers bridon dynacast harris logistex europe
brush turbogenerators crosby mpc brush traction
hawker siddeley acco truth weber knapp
switchgear
discontinued operations
in addition to the continuing operations some businesses are
categorised as discontinued in the income statement these
businesses are either closed sold or expected to be sold during 2009
in accordance with ifrs 5 they have consequently been excluded
from the continuing operations
mvc was sold on 26 november 2008 all of hickory has either
been sold or closed during 2008 logistex us welland forge and
rhombus are held for sale as at 31 december 2008
group trading results – continuing operations
to help understand the results of the continuing operations the term
‘headline’ has been used in this review this refers to results that are
calculated before exceptional costs exceptional income and
intangible asset amortisation other than computer software as this is
considered by the melrose plc board to give the best illustration of
performance
geoffrey martin group finance director
melrose has a strong record
of generating cash from its
businesses the continuation
of this success was an
important objective for the
fki acquisition excellent cash
generation has enabled
melrose to generate £60
million of cash after all costs finance director’s review continued
18
melrose plc annual report 2008
the group achieved revenue from continuing operations for the
year ended 31 december 2008 of £9383 million 2007 £2886
million headline operating profit in 2008 was £996 million 2007
£250 million and operating profit was £731 million 2007 £209
million headline profit before tax was £754 million 2007 £281
million and profit before tax £258 million 2007 £240 million
the headline earnings per share in 2008 were 168p 2007 99p
representing a 15 increase on the proforma 2007 earnings per
share of 146p as defined later in this section after exceptional
costs exceptional income and intangible asset amortisation other than
computer software the earnings per share were 48p 2007 87p
trading results by division – continuing operations
a split of revenue and headline operating profit by division was as
follows
headline
operating
profitloss
headline before
operating return on depreciation  return on
revenue profitloss revenue amortisation revenue
£m £m  £m 
energy 2294 309 135 347 151
lifting 2323 357 154 402 173
dynacast 2463 334 136 411 167
other
industrial 2303 164 71 212 92
central costs – 106 na 102 na
central ltips – 62 na 62 na
group 9383 996 106 1208 129
the performance of each of these trading divisions is discussed in
detail in the chief executive’s review
central costs comprise £106 million 2007 £58 million of
melrose plc corporate costs and a long term incentive plan “ltip”
charge of £62 million 2007 £20 million the ltip cost consisted of
a charge for the melrose plc ltip of £20 million 2007 £09 million
and a cost for the crystallisation of an ltip scheme for divisional
management of £42 million 2007 £11 million this latter charge
represented a percentage of the increase in business value driven by
the divisional management from 2005 to 2008
the previous corporate overhead incurred by fki prior to the
acquisition by melrose has been cut by £10 million
trading results – discontinued operations
on 26 november 2008 melrose sold 100 of the equity of
mckechnie vehicle components usa inc the holding company of the
mvc business for us1 in addition melrose left us25 million of
cash within mvc to be repaid within one year
this was considered the most suitable course of action due to
the significantly worse outlook in the us automotive industry
however due to the higher book value of mvc a loss on sale of
£399 million was incurred which consisted of £258 million of net
assets £218 million of goodwill and £12 million of disposal costs
less £89 million of translation exchange gain recycled through the
income statement on disposal
the closure and sale of the hickory businesses resulted in
exceptional reorganisation costs of £208 million of which £19 million
were cash during the six month period post acquisition cash
generation from trading and asset disposals was £121 million
meaning that the sale and closure of hickory generated a net positive
cash inflow of £102 million from 1 july 2008 to 31 december 2008
a charge of £635 million has been included in the income
statement for discontinued operations consisting of the following
items
noncash
£m cash costs costs total
discontinued
results of discontinued businesses 77 – 77
loss on disposal of mvc 12 387 399
hickory closure 19 189 208
other including intangible
asset amortisation 19 06 25
tax on discontinued businesses – 74 74
total 127 508 635
cash generation and management
melrose has a strong track record of generating cash from its
businesses the continuation of this success was an important
objective for the fki acquisition a key performance measure for
melrose is the percentage of profit conversion to cash this represents
the amount of headline operating cash post working capital
movement and capital expenditure that is generated from headline
operating profit in the year to 31 december 2008 166 of headline
operating profit has been converted to cash indeed in the six months
post the fki acquisition the percentage was 191 this means the
long term melrose profit conversion to cash from 2003 to 2008 now
averages 119
the cash generation has been achieved across all divisions as
shown in the table below
a highlight of this performance is the exceptional cash generation
from discontinued operations this has been achieved by the cash
positive closure of hickory and by logistex us which during melrose
ownership has generated £151 million of cash indeed logistex as a
whole us and europe shown in other industrial has generated
£335 million of cash
cash generation
other total
£m energy lifting dynacast industrial central continuing discontinued total
headline operating profitloss 309 357 334 164 168 996 73 923
headline operating cash generation
post capex 384 355 416 283 105 1333 204 1537
profit conversion to cash  124 99 124 173 – 134 – 166 19
melrose plc annual report 2008
introduction  businesses
this excellent cash generation has enabled melrose to generate
£600 million of cash after all costs including interest tax exceptionals
and dividends in the year to 31 december 2008 and importantly
£694 million since the acquisition of fki on 1 july 2008 this has
meant that despite a £1529 million adverse exchange movement on
net debt due to the weakening of sterling the net debt at the year
end was kept to £5431 million as shown below
full year six months
since post fki
1 january since 1 july
2008 2008
movement in net debt £m £m
opening net cash 324 223
acquired net debt 4717 4717
net cash flow of acquisitions 131 112
cash flow from trading 600 694
foreign exchange movement 1529 1541
other noncash movement 22 22
closing net debt 5431 5431
the detail of the cash flow from trading and the net cash flow of
acquisitions is shown below
full year six months
since post fki
1 january since 1 july
2008 2008
cash flow from trading £m £m
headline operating profit
1
923 788
depreciation and computer software amortisation 247 190
working capital movement 709 792
net capital expenditure 342 265
operating cash flow post capex 1537 1505
profit conversion to cash  166 191
net interest and net tax paid 448 411
pension contributions 200 160
capital distribution 74 74
dividend paid 194 137
other including all cash flows on
discontinued operations 21 29
cash inflow from trading 600 694
1
including discontinued businesses
full year six months
since post fki
1 january since 1 july
2008 2008
net cash flow of acquisition £m £m
net proceeds on issue of shares 2795 2795
cash payment on acquisitions 2570 2551
dividend to previous fki shareholders 177 177
eurobond and private placements refinance 179 179
cash flow of acquisitions 131 112
melrose had leverage of 265x net debt to headline operating
profit before depreciation and amortisation at 31 december 2008
however if both debt and headline operating profit before
depreciation and amortisation are both converted at the closing
exchange rate rather than the former at closing exchange rates and
the latter at average exchange rates then the leverage at 31
december 2008 was only 225x
it is noteworthy that this performance has been achieved even
after melrose has continued to spend significantly in the divisions on
capital projects in the year to 31 december 2008 the net capital
expenditure continued to be in excess of depreciation with a ratio of
14x consequently the cash generation has only been possible due
to a significant targeted reduction in working capital in the year of
£709 million £792 million since the fki acquisition
capital expenditure
melrose has a track record of spending on capital projects to drive
value in the year ended 31 december 2008 the group continued to
allow capital expenditure to be in excess of depreciation by division
the capital expenditure in the year was as follows
other
energy lifting dynacast industrial central total
net capital
expenditure £m 85 50 80 81 09 305
depreciation £m 38 45 77 48 04 212
capital expenditure to
depreciation ratio 22x 11x 10x 17x 23x 14x
the newly acquired fki divisions have afforded opportunities to spend
money on projects with good pay backs melrose has continued to
invest in dynacast projects where the expected return has been
acceptable
the determinants of what is considered an acceptable return on
capital expenditure have been reviewed by the board and tightened
for 2009 given the current economic climate
working capital management
the melrose board is focused on achieving the correct amount of
working capital to allow each division to have the most suitable
balance between commercial and financial efficiency to ensure this
happens working capital days cover targets are set for each business
unit for inventory trade receivables and trade payables
during the acquisition process it was recognised that fki had too
much working capital for its requirements and in our ownership the
businesses were targeted to produce a permanent reduction in
working capital as a result since the fki acquisition the cash
generated from working capital has been £792 million a further
measure of improvement is that the percentage of net working capital
to sales for the melrose group is 175 at 31 december 2008
compared to over 20 for the fki group prior to its acquisition by
melrose importantly these improvements to working capital have
been achieved without any artificial squeeze to working capital at the
financial period end
tax
as expected the headline tax rate increased in 2008 following the
acquisition of fki to 29 2007 26
following the acquisition of fki a greater proportion of the
enlarged group’s profits are contributed by operations in countries
with higher tax rates including north america the overall effect on
the group of higher rates in north america and certain european
countries is partially offset by the benefit that continues to arise from
lower tax rates in the far east
the rate after exceptional items is 39 which is higher than the
headline rate because certain exceptional costs are not expected to
give rise to tax deductions finance director’s review continued
20
melrose plc annual report 2008
the headline cash tax rate of 21 2007 15 remains below
the headline tax rate due to the utilisation of tax losses and other
deferred tax assets but in the longer term is expected to trend toward
the headline tax rate as available losses and other deferred tax assets
are used up
the total amount of tax losses in the group increased as a result
of the fki acquisition deferred tax has been recognised on losses and
other tax assets only to the extent that it is probable that future taxable
profit will be available against which the assets can be utilised as in
the previous year tax losses carried forward in companies not forecast
to make adequate profits to use these losses are not recognised this
split between recognised and unrecognised losses is as follows
recognised unrecognised total
tax losses £m £m £m
uk – 3060 3060
north america 448 – 448
rest of world 87 330 417
total 535 3390 3925
the group’s net deferred tax liability is £1064 million a £1277
million deferred tax liability is provided in respect of brand names and
customer relationships acquired this liability does not represent a
future cash tax payment and will unwind as the brand names and
customer relationships are amortised
earnings per share and number of shares in issue
in accordance with ias 33 two basic earnings per share eps
numbers are disclosed on the face of the income statement one for
continuing operations which was 48p in 2008 2007 87p and one
which also includes discontinued operations which was a loss of
153p in 2008 2007 earnings of 1020p
in addition a headline basic earnings per share number is shown
the melrose board believe that this gives a better reflection of the
performance in the year as it strips out the impact of exceptional
costs exceptional income and intangible asset amortisation the
headline eps for the year to 31 december 2008 is 168p 2007
99p which represents a 15 rise on the 146p proforma eps in
2007 which was calculated as follows
£m
2007 headline
1
operating profit
2
250
proforma interest received
3
14
264
tax
4
69
195
shares in issue
5
1337m
2007 proforma eps 146p
1
before exceptional costs exceptional income and intangible asset amortisation other than
computer software
2
2007 headline operating profit has been restated to include mvc within discontinued
operations
3
interest income assumed at 57 2007 average rate since moving to a net cash position
in the year on £25 million net cash  as at 31 december 2007 less remaining return of
capital of £74 million
4
tax at 2007 headline rate 26
5
issued share capital after share consolidation in august 2007
as a consequence of the equity issue for the fki acquisition the
weighted average number of shares in 2008 was 3156 million
2007 2105 million assuming no further changes in the number
of shares the weighted average number of shares in 2009 will be
4976 million as follows
number of shares
million
as at 1 january 2008 1337
issue of shares for the fki acquisition 1 july 2008 3639
as at 1 july 2008 and 31 december 2008 4976
weighted average number of shares in the year 3156
acquisition during the year
on 1 july 2008 the company acquired fki for a total consideration of
£9704 million comprising debt acquired of £4717 million and equity
consideration totalling £4987 million
the equity consideration comprised a cash element of 40p per
share totalling £2360 million and the issue of 0277 melrose plc
shares for each fki share with a total value of £2484 million in
addition acquisition costs of £136 million were incurred and with an
initial investment of £07 million in fki gave a total consideration of
£4987 million
to fund the cash element of the consideration 2005 million
ordinary shares were issued generating cash receipts of £2907 million
with placement costs of £112 million
in order to finance the repayment of £4717 million of acquired
debt melrose refinanced its existing bank facility which until then
consisted of an £110 million term loan and a £30 million revolver
loan facility on 22 april 2008 a new £750 million five year
committed bank facility was signed equivalent to £825 million at
2008 year end exchange rates more details on this facility are
included in the liquidity risk management section of this report
in accordance with ifrs 3 the impact on the group results
if this acquisition had been made at the start of the year has been
calculated this shows that melrose continuing revenue would have
been £15335 million and headline operating profit £1650 million in
the year to 31 december 2008
fair value exercise accounting policies and
exceptional costs and income
following the acquisition of fki melrose has undergone an extensive
review of the fki assets liabilities and accounting policies this has
resulted in a significant amount of fair value adjustments and the
adoption of melrose accounting policies including revenue
recognition to the fki businesses the revenue recognition policy has
been altered where necessary to bring fki into line with the melrose
group policy this has resulted in revenue generally being recognised
later more aligned to when the risks and reward are transferred to the
customer consequently a smaller proportion of revenue is now
recognised on a long term contracting percentage of completion
basis and more on the final despatch of the end product to the
customer this potentially recognises profit more slowly and is less
judgemental in nature the only material revenue now recognised
using a percentage of completion methodology is in logistex 21
melrose plc annual report 2008
introduction  businesses
in addition to a fair value review of all the fki assets and liabilities
at acquisition and a review of accounting policies melrose has
undertaken significant action to improve the operational and financial
nature of the fki group to achieve this a number of exceptional costs
have been incurred total exceptional costs and intangible asset
amortisation have been highlighted on the face of the income
statement in two sections showing exceptional operating costs and
intangible asset amortisation of £265 million and exceptional finance
costs of £231 million these consist of the following items
noncash
cash costs costs total
exceptional operating costs £m £m £m
fki head office closure 56 24 80
other reorganisation costs 11 38 49
intangible asset amortisation – 136 136
total 67 198 265
exceptional finance costs
eurobond refinance 90 – 90
us private placements refinance 89 – 89
exceptional discount on provisions – 52 52
total 179 52 231
the fki head office closure and other reorganisation costs deliver
significant cost savings the exceptional finance costs relate to
refinancing the previous fki debt facilities to replace them with the
cheaper melrose bank facility the £90 million charge to achieve this
consisted of a premium to bond holders and associated costs the
£89 million charge to refinance the us private placements was the
make whole payment required
assets and liabilities
after the fair value review of all assets and liabilities the melrose
group position is shown below
31 december 31 december
2008 2007
£m £m
fixed assets including computer software 2989 612
intangibles 4560 234
goodwill 8215 1835
net working capital 2139 188
pension and retirement benefits 1433 252
provisions 1530 70
deferred tax and corporate tax 1400 128
net assets held for resale 204 –
other 221 04
total 13523 2423
these assets and liabilities are funded by
31 december 31 december
2008 2007
£m £m
net cashdebt 5448 252
1
equity 8075 2675
total 13523 2423
1
net of £72 million of redeemable preference shares paid in june 2008
goodwill intangible assets and impairment review
the total value of goodwill as at 31 december 2008 is £8215 million
and intangible assets £4560 million these items are split by division
as follows
other
energy lifting dynacast industrial total
£m £m £m £m £m
net other assets 567 682 157 69 1475
intangible assets 1550 2510 274 226 4560
goodwill 2472 3121 2226 396 8215
total carrying value 4589 6313 2657 691 14250
the above values have been tested for impairment as at
31 december 2008 the melrose plc board is comfortable no
impairment is required
pensions
the group has a number of defined benefit and defined contribution
schemes
the current market value of the assets of the two main uk
pension schemes which are the fki and the mckechnie uk defined
benefit schemes the ‘uk plans’ are insufficient to satisfy the liabilities
to members when they are valued on a basis consistent with ias 19
the net accounting deficit on these two schemes was £693 million at
31 december 2008 these two schemes had assets at 31 december
2008 of £6107 million of which £141 million were unrecognised in
accordance with ias 19 to stop the deficit being smaller than the
amount of the committed payments and liabilities of £6659 million
in addition a us defined benefit scheme for fki exists at
31 december 2008 this has assets of £1829 million liabilities of
£2109 million and consequently a deficit of £280 million employees
have been consulted about the scheme closing in 2009
the assumptions used to calculate the ias 19 deficit of the
pension schemes within the melrose group are considered carefully
by the board of directors for the uk plans a male aged 65 in 2008 is
expected to live for a further 208 years this life expectancy is
assumed to increase by 11 years 5 over the next 20 years
this assumption allows for longer life expectancy for the fki uk
defined benefit pension scheme than used prior to the acquisition by
melrose plc a summary of the key assumptions of the uk plans are
shown below
2008 2007
assumption assumption
 
discount rate 63 57
inflation 275 33
pension increases 29 33
2008 2007
assumption assumption
age age
life expectancy for a male aged 65 in 20072008 858 856
life expectancy for a male aged 65 in 20202021 869 868 finance director’s review continued
22
melrose plc annual report 2008
it is noted that a 01 percentage point decrease in the discount rate
would increase the pension liability on the main uk fki defined
benefit scheme by £9 million and a similar increase of 01 percentage
points to inflation would increase the liability on this scheme by
£5 million
the long term strategy for the uk plans 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
the melrose group contributes £180 million to the fki uk
defined benefit scheme and £61 million cash to the mckechnie uk
defined benefit scheme per annum both schemes are due to be
formally valued again based on the position as at 31 december 2008
and new cash contribution agreements will be signed in due course
as a result
risk management
the 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 management
the group moved from a net cash position of £324 million at
31 december 2007 to a net debt position of £5431 million at
31 december 2008 the increase in debt resulted from the fki
acquisition when £4717 million of net debt was acquired
subsequent to 1 july 2008 melrose has refinanced all of the
significant fki debt facilities which consisted of a euro 600 million
eurobond us dollar 80 million private placements and us dollar
140 million revolving bank debt together with a number of cross
currency and interest rate swaps that were used to manage the
underlying currency and interest rate exposures of the debt ahead of
the acquisition the group entered into a £750 million fiveyear
committed term and revolving credit facility which has been
syndicated amongst 12 international banks as planned the £500
million term portion of this facility has been converted into currency
facilities comprising us dollars 686 million euro 58 million and
sterling 50 million consequently at the 2008 year end exchange
rates the facility is now equivalent to £825 million the facility which
matures in april 2013 has been substantially drawn down in us
dollars euro and sterling to repay the fki debt with undrawn facility
headroom of £1086 million remaining at 31 december 2008 the
facility has two financial covenants a net debt to headline ebitda
headline operating profit before depreciation and amortisation
covenant and an interest cover covenant the former covenant is
35x at december 2008 325x for june and december 2009 and
then reducing by 025x each year until 2013 tested at june and
december the interest cover covenant remains at 35x through the
facility period until 2013 in addition there are a number of
uncommitted overdraft and borrowing facilities made available to
the group these uncommitted facilities are lightly used
cash deposits and marketable securities amounted to £1677
million at 31 december 2008 and are offset to arrive at the net debt
position of £5431 million in combination with the undrawn
committed facility headroom of £1086 million the directors consider
that the group has sufficient access to liquidity for its current needs
in accordance with the new reporting requirements on going
concern issued by the financial reporting council the directors
acknowledge that the economic environment causes uncertainty as to
a trading outcome for 2009 the group has committed borrowing
facilities until april 2013 importantly the breadth of the end markets
that the melrose group companies fall into both sectorally and
geographically means that although some companies will face more
difficult trading conditions this year others operate in markets with
more favourable prospects in addition there are opportunities to
improve the operations and cash flow of the acquired fki companies
current forecasts taking into account the reasonable possible changes
to trading performances show that the group stays within its current
facilities as a consequence the directors believe that the group can
manage its business risks successfully and accordingly the group
financial statements have been prepared on a going concern basis
finance cost risk management
the group maintained a net cash position during the first half of the
year to 31 december 2008 and consequently prior to the fki
acquisition interest rate protection was not considered necessary the
fki debt assumed on 1 july 2008 was substantially held at floating
rates of interest and included swaps used to synthetically alter the
debt’s denomination this debt was repaid prior to 31 december
2008 being funded through floating rate debt drawn under the new
£750 million committed facility the new melrose facility carries a cost
of libor plus a current 200 basis point margin
subsequent to 31 december 2008 the group entered into a
number of interest rate swaps to fix £374 million us546 million of
us dollar debt for a fouryear term under the terms of these swaps
the group has fixed the interest rate at 21 for four years plus the
bank margin these terms run through to the maturity of the swaps
on 31 january 2013 and will provide the group with interest rate
protection on over half of its gross debt currently this results in
melrose having a total cost of debt of under 4 23
melrose plc annual report 2008
introduction  businesses
exchange rate risk management
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 60 to 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
exchange rates used in the period
twelve month six month
average rate average rate closing rate
us dollar
2008 186 174 146
2007 200 na 200
euro
2008 126 123 105
2007 146 na 136
the effect on the key headline numbers in 2008 for the continuing
group due to the translation movement of exchange rates from 2007
to 2008 is summarised as follows
2008
exchange rate
versus 2007
exchange rate
£m
2008 effect
revenue increase 868
headline operating profit increase 114
for reference guidelines to show the net translation exchange risks that
the group currently carries and an indication of the unhedged
transaction risk are shown below
increase in profit
£m
for every 10 cent strengthening
of the us dollar against sterling 76
for every 10 cent strengthening
of the euro against sterling 55
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 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
commodity cost risk management
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 on occasions melrose does enter into financial instruments on
commodities when this is considered to be the most efficient way of
protecting against movements
geoffrey martin
11 march 2009 24
melrose plc annual report 2008
board of directors
christopher miller executive chairman 1
age 57 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 2
age 58 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 3
age 46 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 4
age 41 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 and he was
group finance director 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
the manufacturing and supply chain mr martin was appointed as
an executive director of melrose on 7 july 2005
1
3
5
7
4
6
2 25
melrose plc annual report 2008
introduction  businesses
miles templeman nonexecutive director 5
age 61 he has been a director of several consumer goods and
retailing companies he was managing director of threshers off
licences 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 and nonexecutive chairman of restaurant chain
yo sushi between 2003 and 2008 he has also held a number of
other nonexecutive directorships and was appointed as a non
executive 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
perry crosthwaite nonexecutive director 6
age 60 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 7
age 63 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
ltd and peter stubs ltd 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 pace plc and the royal automobile club limited
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
audit committee
miles templeman chairman
perry crosthwaite
john grant
during 2008 the audit committee met three times
 for more information see pages 33 to 35
nomination committee
miles templeman chairman
perry crosthwaite
john grant
christopher miller
during 2008 the nomination committee met twice
 for more information see pages 33 to 34
remuneration committee
perry crosthwaite chairman
miles templeman
john grant
during 2008 the remuneration committee met twice
 for more information see page 33 26
melrose plc annual report 2008
directors’ report
the directors of melrose plc present their report and the
audited financial statements of the group for the year ended
31 december 2008
principal activities and business review
the company’s stated strategy is to acquire companies and
businesses whose operational performance the 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 the company acquired the dynacast group
and the mckechnie group for a consideration of £429 million plus
costs since acquisition the company has significantly improved the
performance of these businesses
on 14 may 2007 the company completed the disposal of its
aerospace oem and aerospace aftermarket divisions for a
consideration of £428 million on 18 may 2007 it completed the
sale of part of the mckechnie psm division for a consideration of
£30 million the company used £173 million of the proceeds of the
disposals to repay term loan facilities and returned £220 million of
the proceeds to shareholders
on 1 july 2008 the company completed the acquisition of fki for
a total consideration of £9704 million comprising debt acquired of
£4717 million and equity consideration totalling £4987 million the
equity consideration comprised a cash element of 40p per share totalling
£2360 million and the issue of 0277 melrose plc shares for each fki
share with a total value of £2484 million in addition acquisition costs of
£136 million were incurred and with an initial investment of £07 million
in fki gave a total consideration of £4987 million
on 26 november 2008 the company sold 100 of the equity of
mckechnie vehicle components for us1 in addition us25 million
of cash has been left within mvc to be repaid to the company with
interest within one year of the sale such payment is secured against
the assets of the mvc business with no performance conditions
following the acquisition of fki group structures and reporting
procedures were reviewed and policies were aligned across the
enlarged group the uk fki head office was closed within three
months of acquisition and all of the hickory hardware business was
closed or the assets sold before the end of the year
further actions during the year intended to enhance the value of
the group included a review of the cost base across all businesses
impacted by the global economic downturn the impact of the
economic conditions on the industries in which businesses operate also
gave opportunities including targeted acquisitions by dynacast canada
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 23 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 42
to 45 and in the accompanying notes
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
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 finance director’s review
and in this directors’ report the finance director’s review also
discusses the key performance indicators that management use
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 plc uk gaap accounts company balance sheet
financial results and dividend
the group’s loss for the financial year attributable to shareholders of
the company was £478 million 2007 profit of £2150 million
including £05 million minority interests 2007 £02 million the
directors are pleased to recommend the payment on 15 may 2009
to ordinary shareholders on the register at the close of business on
17 april 2009 of a final dividend of 425p pence per ordinary share
it is the intention of the board to maintain a progressive dividend
policy where appropriate going forward
directors’ appointment and powers
the directors of the company as at the date of this report together
with their biographical details are given on pages 24 to 25 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 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
provisions 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 and restrictions 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 submitted for approval
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 49758677 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 36 to 39
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 an indemnity from the company in
respect of liabilities incurred as a result of their office this indemnity is
provided under the articles of association and satisfies the indemnity
provisions as set out in the companies act 2006
the company has taken out an insurance policy in respect of
those liabilities for which the directors may not be indemnified
neither the indemnity nor the insurance provides cover in the event
that a director is proved to have acted dishonestly or fraudulently 27
melrose plc annual report 2008
introduction  businesses
directors’ responsibilities
the statement of directors’ responsibilities in relation to the
consolidated financial statements is set out on page 40
share capital
details of the structure of the company’s share capital and rights
attached to the company’s shares are set out on pages 27 and 28
in compliance with the requirements of section 992 of the
companies act 2006
changes to the issued share capital of the company in issue
during the year are detailed below
ordinary shares
on the acquisition of fki on 1 july 2008 holders of fki shares were
entitled to receive 40p in cash and 0277 of a melrose ordinary share
in consideration for each fki share held which resulted in the issue of
163420463 new melrose ordinary shares of 02p each
in connection with the acquisition of fki existing melrose
shareholders were offered three open offer shares for every four
melrose ordinary shares already held resulting in 86540401
ordinary shares being issued under the open offer in addition
113960886 ordinary shares were placed with institutional investors
following the acquisition the total number of ordinary shares of 02p
in issue was 497586779
the new ordinary shares of 02p are traded on the london stock
exchange in the same way as the existing ordinary shares of 02p and
are equivalent to them in all material respects including their
dividend voting and other rights
incentive shares
on 14 august 2007 a share incentive scheme was approved the
“2007 incentive scheme” which expires on 31 may 2012 during
2007 50000 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 2007
incentive shares had converted into ordinary shares as at the date of
winding up further details of the 2007 incentive shares can be found
in the remuneration report on pages 36 to 39
at a meeting of the remuneration committee on 9 december
2008 it was agreed that a total of 1250 2007 incentive shares
would be allocated to three senior managers these shares had not
been allocated as at 31 december 2008
c shares and return of capital
in august 2007 the company returned £220 million of capital to
shareholders 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
took place on 30 june 2008 when 9053594 c shares were
redeemed and cancelled together with all c deferred shares
further rights and obligations attaching to shares
following the implementation of the eu takeover directive into
english law the following paragraphs provide the required information
for shareholders where not already provided elsewhere in this report
this summary is based on the company’s current articles as adopted
at the annual general meeting on 7 may 2008
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 or by proxy
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 resulting from the crystallisation of the original
incentive scheme in august 2007 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 14 may 2009 are set out in the notice of annual general
meeting on pages 94 to 96
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 their shares amounts due from him to the
company on account of a call or otherwise in relation to such shares
share capital
redeemable c deferred
preference shares
2007 c shares arising on
ordinary incentive single c share payment of single
shares shares dividend c share dividend
1 january 2008 133665029 50000 9053594 70489480
issued to fki shareholders 163420463 –– –
open offer 86540401 –– –
placed 113960886 –– –
redeemed –– 9053594 70489480
31 december 2008 497586779 50000 –– 28
melrose plc annual report 2008
directors’ report continued
liquidation
under the current articles if the company is in liquidation the
liquidator may on obtaining any sanction required by law
– divide amongst 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 trust for the benefit of
members as the liquidator shall determine
transfer of shares
subject to the articles any member may transfer all or any of his
shares in any form which the board may approve and the transfer
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 a transfer of a 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 unless the 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
substantial shareholdings
as at 11 march 2009 the company has been advised of the following
interests in the ordinary share capital of the company
shareholder direct holding indirect holding 
blackrock investment
management – 49381108 992
standard life investments 28888551 15172821 885
aviva plc  its subsidiaries 25918895 16472636 852
ameriprise financial – 38609973 776
artemis investment
management 36392468 – 731
lloyds banking group plc 3707058 23733186 551
risks and uncertainties
the group’s diversified portfolio of specialised businesses generate
sales in a variety of engineering markets this reduces the group’s
exposure to any single market customer or other third party a number
of factors affect the operating results financial condition and prospects
of the group 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 17 to 23 the procedures in
place for risk management and control are explained in the
governance report on pages 32 to 35 this directors’ report describes
the company’s management of health and safety environmental and
intellectual property risks additionally any key commercial and
economic risks are covered in the business review on pages 8 to 16
significant agreements and change of control
with the exception of the group’s banking facilities and the 2007
incentive share scheme 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 11
march 2009
the company’s debt funding is provided through a £750 million
term and revolving credit facility maturing in april 2013 in the event
of a change of control of the company following a takeover bid the
company and lenders under this facility are obliged to enter into
negotiations to determine whether and if so how to continue with
the facility there is no obligation for the lenders to continue to make
the facility available for more than 30 days beyond any change of
control failure to reach agreement with parties on revised terms
could require an acquirer to put in place replacement facilities
in the event of a takeover of the company the 2007 incentive
shares convert into ordinary shares the conversion being based upon
the offer price of the company’s ordinary shares as calculated on the
date of the change of control of the company if part or the entire
offer price is not in cash the remuneration committee will determine
the value of the noncash element having been advised by an
investment bank of repute that such valuation is fair and reasonable
product and employee liability claims
ongoing risks in relation to understanding future product liabilities
asbestos claims and workers’ compensation claims have been
determined using actuarial projections discussed with the board and
where appropriate amounts have been provided in the balance sheet
environmental liabilities
the environmental laws of various jurisdictions impose potential and
real obligations on the group to remediate contaminated sites both
currently and previously owned within the group
environmental liabilities have to be notified to the company
secretary all environmental claims are closely managed by external
environmental specialists in conjunction with the company and
remediation is undertaken as appropriate the board are updated on
environmental matters at each board meeting
the group incurs costs in meeting these obligations and
maintains provisions for known and potential liabilities the group
continually monitors any liabilities and provisions are reviewed on
a regular basis
key customers
a review of key customers has been conducted across the group
the loss of any one key customer would not affect the group’s results
materially but the loss of a key customer could be material to an
individual business
intellectual property
the company values intellectual property and where appropriate
seeks protection and enforcement of rights over intellectual property
intellectual property is managed routinely on a decentralised basis
and with the support of the company each business is responsible for
the protection and enforcement of its intellectual property rights this is
considered sensible due to the diversified nature of the business the
company conducts internal ip audits periodically
employment policies
the group is managed on a decentralised basis and each business is
responsible for the adoption of employment policies and practices
applicable to the size and nature of that business this is appropriate 29
melrose plc annual report 2008
introduction  businesses
due to the diversified nature of the group’s businesses and allows the
businesses to respond to changes in the environment in which they
operate and to retain identity while benefiting from being part of the
group companies within the group have developed a wide range of
voluntary practices and procedures for employee involvement
appropriate to their own circumstances and needs the group
encourages the provision of information and consultation with
employees and believes that this promotes a better understanding of
the issues facing the business in which the employee works
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 further and so far as
particular disabilities permit the group 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
a wide range of practices and procedures have developed within
the group appropriate to local needs several of the businesses operate
works councils for the purposes of consultation and dissemination of
information businesses use their own websites and newsletters as a
means of communicating with employees
employee involvement in the group’s profitability is encouraged
through appropriate bonus schemes
pensions
companies within the group operate various pension schemes around
the world the following defined benefit schemes are material to the
group
as at 31 december 2008
assets liabilities number of
name of scheme status £m £m members
fki uk closed to new 4626 5203 11148
pension scheme members in october
2001 open for
future accrual on
a final salary basis
fki us closed to new 1829 2109 8936
1
pension plan members in april
2003 closure for
future accrual
completing in 2009
mckechnie uk closed to new 1162
2
1107 3408
pension plan members in 2003
and for future
accrual in 2005
1
as at 1 january 2008
2
£141m of this figure is not recognised in line with ias19 in order to restrict the deficit to
the guaranteed contributions
the fki pension scheme ‘the fki uk scheme’ is a uk defined
benefit pension scheme with fki as its principal employer the
primary liability for funding the fki uk scheme rests with the
participating employers
the participating employers currently pay £180 million per
annum into the fki uk scheme which was expected to remove the
funding deficit by 31 december 2015 when this was last formally
assessed as at 31 december 2005 the company and fki uk
scheme trustee will review the funding of the fki uk scheme as part
of the actuarial valuation as at 31 december 2008
the fki us pension plan is a defined benefit pension scheme
covering several of fki’s us business units the primary liability for
funding the fki us pension plan rests with the participating
employers
based on the 1 january 2008 actuarial valuation the participating
employers are currently not required to pay into the fki us pension
plan the company and the trustee will review the funding of the fki
us pension plan as part of the actuarial valuation as at 1 january 2009
the mckechnie uk pension plan the ‘mckechnie uk plan’
is a uk defined benefit pension scheme with mckechnie limited as
its principal employer the primary liability for funding the mckechnie
uk plan rests with the participating employers although the company
has guaranteed the payment of certain contributions
the participating employers currently pay £61 million per annum
into the mckechnie uk plan and have agreed to meet the reasonable
administration expenses of the mckechnie uk plan and the pension
protection fund levy up to 30 april 2010 the company has guaranteed
the funding of the mckechnie uk plan on an ongoing basis
the company and plan trustee will review the funding
of the mckechnie uk plan as part of the actuarial valuation as at
31 december 2008
health and safety
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 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
in accordance with the decentralised nature of the group health
and safety policy is dictated by the company and adhered to by
individual businesses through adoption of local policies in accordance
with health and safety legislation all business units have their own
health and safety policy and many measure performance and set
improvement targets businesses have established health and safety
committees who meet regularly to review health and safety incidents
and to plan initiatives to further reduce risks
in order to maintain control over the diversified businesses all
divisions are required to report to the board on health and safety
matters on a monthly basis and to notify the board of any reportable
incidents health and safety is covered at every meeting of the board
and a process of harmonising the recording of health and safety
incidents and initiatives has been implemented throughout the group
during the year thus enabling future measurement of key indicators 30
melrose plc annual report 2008
directors’ report continued
the environment
the group recognises the importance of its environmental
responsibilities and 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 of the business units seek to actively improve their processes
and have implemented local policies to reduce any damage that
might be caused by the group’s activities
the group monitors its impact on the environment and fki’s
process of reporting and monitoring of environmental issues has
continued under the company’s ownership and has been extended to
the enlarged group environmental performance questionnaires were
issued to each of the businesses in 2008 in order to better
understand and measure the group’s impact on the environment
consumption of fuel and water is monitored disposal of liquid and
solid waste materials is measured on turnoverbased factors
the fki businesses already had well established environmental
policies and initiatives in place at the time of the acquisition initiatives
are also in place elsewhere in the group dynacast for example has
implemented a programme of key performance indicators which
includes environmental factors this like other local initiatives has
resulted in cost savings and reduced the adverse impact of the business
on the environment demonstrating that targeted initiatives enhance the
group’s environmental and ultimately competitive position the group
encourages business units to move towards renewable energy and
received substantial income from recycling during the year
as much waste as possible is recycled and hazardous substances
replaced by less harmful substitutes some units have been able to
make increased use of renewable resources by enhancing natural
lighting through installation of transparent roofing material and the use
of wind power other specific measures include transport reduction
and reductions in water usage many operating businesses have
established an energy committee in order to push forward ideas for
reductions in energy consumption simple practices such as switching
off equipment when not in use and printing on both sides of paper
are encouraged in order to minimise waste and energy usage
businesses communicate energy saving advice to employees through
newsletters and best practice guidance notes
many of the businesses across the group are accredited to the
international environmental standard iso14001 and are therefore subject
to the stringent compliance requirements which this standard requires
research and development
using both internal expertise and external consultants the group
continually invests in research and development into new products
and processes and new products were launched across the group
during the year 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 return
social responsibility
the company 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
the group regards employee training and advancement as an
essential element of industrial relations disputes and days lost
through strike action are negligible many units have a social and
ethical policy with a senior manager holding responsibility for
communicating and implementing it such policies apply and extend
local law and standards which prohibit discrimination and exploitation
the majority of the businesses provided community support
during the year with efforts ranging from charitable donations to
voluntary assistance and fund raising support is given to local schools
by offering traineeships and work experience to students
the company will continue to invest in its businesses during its
ownership enhancing their reputation within the markets and
communities in which they operate
charitable and political donations
the group paid £8750 2007 £3293 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 2007 £nil
payments to suppliers
operating businesses are responsible for agreeing the terms and
conditions of their transactions with suppliers
payment is made on those terms subject to the terms and
conditions being met by the supplier the company as a holding
company did not have any amounts owing to trade creditors at
31 december 2008
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 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 llp as
auditors of the company and to authorise the directors to determine
their remuneration 31
melrose plc annual report 2008
introduction introduction  businesses
going concern
the group’s business activities together with the factors likely to affect
its future development performance and position are set out in the
business review on pages 8 to 16 the financial position of the group
its cash flows liquidity position and borrowing facilities are described in
the finance director’s review on pages 17 to 23 in addition notes 19
and 24 to the consolidated financial statements include the group’s
policies and processes for managing its capital its financial risk
management objectives details of its financial instruments and hedging
activities and its exposures to liquidity risk credit risk exposure is
discussed in note 24 to the consolidated financial statements
the group’s committed borrowing facilities are detailed in the
finance director’s review on pages 17 to 23 the group prepares
regular business forecasts and monitors its projected compliance with
its banking covenants which are reviewed by the board forecasts are
then adjusted for sensitivities which address the principal risks to
which the group is exposed such as fluctuations in exchange rates
between sterling and both the us dollar and the euro and best
estimates of the possible impact of the macroeconomic environment
on the group’s underlying trading results
consideration is then given to the potential actions available to
management to mitigate the impact of one or more of the
sensitivities the group should be able to operate within the level of
its current facility and remain covenant compliant for the foreseeable
future being a period of at least twelve months from the date of
approval of these financial statements
after making appropriate enquiries the directors have a
reasonable expectation that the company and the group have
adequate resources to continue in operational existence for the
foreseeable future accordingly they continue to adopt the going
concern basis in preparing the annual report and financial statements
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 14 may 2009
resolutions dealing with the following special business will be
proposed at the annual general meeting
resolution 9 will seek shareholder approval to hold all general
meetings other than an annual general meeting on not less than
14 clear days’ notice the eu shareholders rights directive enables
companies to call such meetings on 14 days’ notice but only if
shareholders have agreed an enabling resolution and the company
offers the facility for shareholders to vote by electronic means
accessible to all shareholders the passing of this resolution will give
the company greater flexibility
resolution 10 proposes that the authorised share capital of the
company be increased by 100000000 ordinary shares representing
a percentage increase of approximately 009 this increase is being
sought in order to give the company sufficient authorised share
capital to take full advantage of the ability to allot ordinary shares
under the authorities proposed in resolution 11
resolution 11 paragraph a of this resolution would give the
directors the authority to allot ordinary shares up to an aggregate
nominal amount equal to £331724 representing 165862000
ordinary shares of 02 pence each this amount represents
approximately onethird of the issued ordinary share capital of the
company as at 11 march 2009
in line with recent guidance issued by the association of british
insurers the ‘abi’ paragraph b of this resolution would give the
directors authority to allot ordinary shares in connection with a rights
issue in favour of ordinary shareholders up to an aggregate nominal
amount equal to £663449 representing 331724500 ordinary
shares as reduced by the nominal amount of any shares issued
under paragraph a of this resolution this amount before any
reduction represents approximately twothirds of the issued ordinary
share capital of the company as at 11 march 2009
the authorities sought under paragraphs a and b of this
resolution will expire at the earlier of 30 june 2010 the last date by
which the company must hold an annual general meeting in 2010
and the conclusion of the annual general meeting of the company
held in 2010 the directors have no present intention to exercise
either of the authorities sought under this resolution
resolution 12 will seek authority to allot ordinary shares or sell
any ordinary shares which the company elects to hold in treasury for
cash without first offering them to existing shareholders in proportion to
their existing shareholdings except as provided in the next paragraph
this authority would be limited to allotments or sales in connection with
preemptive offers and offers to holders of other equity securities if
required by the rights of those shares or as the board otherwise
considers necessary or otherwise up to an aggregate nominal amount
of £49758 representing 24879338 ordinary shares this aggregate
nominal amount represents approximately 5 of the issued ordinary
share capital of the company as at 11 march 2009
allotments made under the authorisation in paragraph b of
resolution 11 would be limited to allotments by way of a rights issue
only subject to the right of the board to impose necessary or
appropriate limitations to deal with for example fractional
entitlements and regulatory matters as at the date of this report no
ordinary shares are held by the company in treasury
the authority will expire at the earlier of 30 june 2010 the last
date by which the company must hold an annual general meeting in
2010 and the conclusion of the annual general meeting of the
company held in 2010
resolution 13 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 49758677 ordinary shares representing
approximately 10 per cent of the company’s issued ordinary share
capital as at 11 march 2009 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 members 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
11 march 2009 32
melrose plc annual report 2008
corporate governance report
statement of compliance
the company supports the principles of corporate governance
contained in the 2006 combined code on corporate governance
that was issued by the financial reporting council ‘the code’
the board is accountable to the company’s shareholders for
good governance throughout the year ended 31 december 2008
the company has complied with the provisions of section 1 of the
2006 financial reporting council 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 five scheduled
board meetings held during the year and the attendance of each of
the directors is shown on page 34
as at 31 december 2008 the board comprised seven members
being the executive chairman christopher miller three other
executive directors and three nonexecutive directors the four
executive directors christopher miller chairman david roper chief
executive officer simon peckham chief operating officer and
geoffrey martin group finance director and the three nonexecutive
directors miles templeman perry crosthwaite and 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 the
nonexecutive directors’ appointment letters are also available on the
company’s website wwwmelroseplcnet
the board believes that the directors possess diverse business
experience in areas complementary to the activities of the company
biographies of the directors are shown on pages 24 to 25 these
biographies identify any other appointments held by the directors
the only executive director to hold nonexecutive director
appointments elsewhere is mr christopher miller who is chairman
of tmo renewables limited and he receives remuneration from
this appointment
in accordance with the provisions of the combined code
consideration has been given to the independence of all the non
executive directors the board considers all the nonexecutive
directors to be independent the nonexecutive directors are not
entitled to any shares under the 2007 incentive share scheme
a process of annually evaluating the performance of the board
and each committee 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 an evaluation
questionnaire during the year designed to identify any failures in the
performance of the board and each of its committees in order to
determine any development requirements the findings of the
evaluations 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 nonexecutive 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 94 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 his role
all directors receive a formal and tailored induction shortly after
their appointment 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 advisers 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
the chairman alone is responsible for the leadership of the board and
for ensuring effective communication with shareholders the chief
executive is responsible for decisions involving the day to day
management of the company 33
melrose plc annual report 2008
governance
committees of the board
in accordance with the provisions of the combined code the board
has three standing committees the audit remuneration and
nomination committee each of which include the three independent
nonexecutive directors the duties of the committees are set out in
formal terms of reference these are available from the company
secretary and on the company’s website wwwmelroseplcnet
membership of the committees is shown above the company
secretary acts as secretary to each of the committees
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 audit committee brings relevant
financial experience from senior executive and nonexecutive positions
as described in their biographies on pages 24 to 25
the audit 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 audit committee has the right to
invite any other employees to attend meetings where this is
considered appropriate
the audit committee monitors and reviews the effectiveness
of the group’s internal control systems accounting policies and
practices financial reporting process risk management procedures
and compliance controls as well as the integrity of the company’s
financial statements
the audit 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 audit 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
the audit committee receives regular reports from the group’s
external auditors
the audit 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 llp during 2008 a significant
proportion of the nonaudit services related to nonrecurring work in
connection with the acquisition of fki plc the proposed disposal of
the logistex business provision of tax advisory services and pensions
advice the provision of nonaudit services was considered to be
appropriate given the external auditor’s depth of knowledge of the
affairs and financial practices in the group the audit committee is
satisfied that notwithstanding nonaudit work deloitte llp have
retained objectivity and independence during the year the audit
committee will continue to monitor its policy in this regard and
accepts that nonaudit work should be controlled to ensure that it
does not compromise the independence of the auditors
the audit committee is expected to meet not less than three
times a year and during 2008 the audit committee met three times
the attendance of its members along with the group finance
director is shown in the table on page 34
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
remuneration committee
the function of the remuneration 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 remuneration committee is expected to meet not less
than twice a year and during 2008 the remuneration committee
met twice the attendance of its members is shown in the table on
page 34 the report to shareholders on how directors are
remunerated together with details of individual directors’
remuneration are shown on pages 36 to 39
the board
christopher miller executive chairman
david roper chief executive
simon peckham chief operating officer
geoffrey martin group finance director
miles templeman senior nonexecutive director
perry crosthwaite nonexecutive director
john grant nonexecutive director
remuneration committee
perry crosthwaite chairman
miles templeman
john grant
audit committee
miles templeman chairman
perry crosthwaite
john grant
nomination committee
miles templeman chairman
perry crosthwaite
john grant
christopher miller 34
melrose plc annual report 2008
corporate governance report continued
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 nomination 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 nonexecutive directors have the necessary skills and
attributes for the future success of the company the nomination
committee reviews succession plans for the directors and makes
recommendations to the board on membership of the board and of
its committees the nomination committee retains external search
consultants as appropriate
the nomination committee is expected to meet not less than
twice a year and during 2008 the nomination committee met twice
the attendance of its members 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 briefing papers and a meeting agenda are
provided for each director in advance of each meeting decisions are
taken by the board in conjunction where appropriate with the
recommendations of its committees and advice from external
advisers and executive management the representations of any
director who is unable to attend a meeting of the board or a standing
committee are duly considered by those directors in attendance
board audit remuneration nomination
number of meetings
1
53 22
christopher miller 5 na na 2
david roper 5 na na na
simon peckham 5 na na na
geoffrey martin 53
2
na na
miles templeman 52 22
perry crosthwaite 53 22
john grant 53 22
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
objectives 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 key 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 entails discussions with senior management of the group the
findings of which are in turn discussed by the full board the board is
committed to satisfying the internal control guidance for directors set
out in the turnbull report further the board is aware of the major
risks facing the group and the steps taken by the group where
possible to mitigate such risks
the group has policies which address a number of key business
risks including financial treasury health and safety and environmental
risks these 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
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 17 to 23 other key risks which
could adversely affect the group are described in the business review
on pages 8 to 16 and directors’ report on pages 26 to 31
managing and controlling risk
the group operates on a decentralised basis and divisional executives
plant managers and financial controllers are responsible for managing
the operating risks within their business lines of responsibility are
clearly defined and local operating businesses have autonomy within
a framework of central management
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 operating
performance of each business is regularly reviewed by the executive
directors and progress is monitored against business plans 35
melrose plc annual report 2008
governance
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 held
involving senior management at which the group’s overall
performance is also 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 based on the group’s
strong financial controls and management the audit 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
following the acquisition of fki the company utilised the
services of an external audit firm specialising in internal control reviews
to assist with the evaluation of the internal controls in place at fki site
visits in the uk and overseas were conducted and the outcome of the
reports was shared with the company the audit committee and the
company’s auditors the recommendations are in the process of
being implemented where appropriate
the board confirms that from its review of internal controls it has
not determined any significant failings or weaknesses that it considers
require 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
whistleblowing policy
the group has a whistleblowing policy in place which enables
individuals to make protected disclosures to their 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
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 nonexecutive
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 major 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 available on the company’s website
wwwmelroseplcnet
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
by order of the board
garry barnes
secretary
11 march 2009 36
melrose plc annual report 2008
remuneration report
introduction and compliance
this report has been prepared by the remuneration committee on
behalf of the board in accordance with the requirements of schedule
7a of the companies act 1985 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 14 may 2009
biographies of the directors are shown on pages 24 to 25 these
biographies identify any other significant appointments held by the
directors
unaudited information
remuneration committee
the company has established a remuneration committee which is
chaired by mr perry crosthwaite an independent nonexecutive
director the other members of the committee are the two other
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 the corporate governance report on page 33 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 from
1 january the remuneration committee and its advisers use 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 for an equivalent role an executive director’s basic salary is
reviewed by the remuneration committee prior to the beginning of
each year and when an individual changes position or responsibility
basic salaries were reviewed in december 2007 when it was agreed
that all executive directors’ base salaries would be frozen and
reviewed following the next substantial acquisition a subsequent
review was implemented and a pay increase applied with effect from
1 july 2008 following the acquisition of fki no further increases to
the executive directors’ salaries were approved at the december
2008 review
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 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 generally calculated based on improvement
in operating profit of the business over the previous year and are
where appropriate adjusted for operating cashflow changes the
maximum bonus payable is 100 of an executive director’s or
senior employee’s base salary excluding the chairman who does
not participate in the annual bonus scheme
following the acquisition of fki the remuneration committee
decided it was appropriate to amend the 2008 bonus scheme for the
bonus conditions applicable to the remainder of 2008 a number of
challenging objectives were set these included improvement in the
working capital management of the fki businesses reduction in
central costs disposal of noncore businesses and improvements in
operating performance for existing melrose businesses and the newly
acquired fki businesses
long term incentives
during 2008 the group operated the following long term
incentive schemes
– 2007 incentive share scheme
– divisional long term incentive scheme
– fki long term incentive plan 37
melrose plc annual report 2008
governance
2007 incentive share scheme
a long term incentive plan the ‘2007 incentive share scheme’ was
approved by shareholders during 2007 under which 2007 incentive
shares were issued to all the executive directors and two senior
employees the 2007 incentive share scheme rewards participants
only if shareholder value is created thereby aligning the interests of
management with those of shareholders
under these incentive arrangements the participants hold 2007
incentive shares which convert shortly after 31 may 2012 or if earlier
on a 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 each
of 2010 and in 2011 the number of ordinary shares arising on
conversion will be based upon the increase in shareholder value
calculated as the difference between the market capitalisation at
conversion determined by reference to the average market price of
an ordinary share over 40 business days prior to conversion or the
offer price as the case may be and the net invested capital in the
company being the aggregate of the amounts paid on the ordinary
shares up to conversion less all amounts paid by the company 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 2008 the fair value attributable to the 2007
incentive shares including those held by the employee benefit trust
was calculated as £10 million of which £09 million 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 on page 38 of this report
the employee benefit trust holds 3000 2007 incentive shares
and in due course may transfer these shares or grant options over
them to executive directors andor senior employees in december
2008 1250 2007 incentive shares were allocated to senior
employees which were not allocated from the employee benefit trust
at 31 december 2008 the period during which any options granted
by the employee benefit trust may be exercised is as detailed above
for the 2007 incentive shares
divisional long term incentive scheme
the divisional long term incentive scheme was created for senior
management within the group the scheme was established to pay
cash either on the sale of the division or based upon financial
performance during the year a cash payment of £23 million has
been made under the scheme with a final payment of £45 million
payable in 2009 based upon an increase in the value of the
respective division driven by the divisional management from 2005
to 2008 a non cash charge of £42 million was made to the income
statement during the year in respect of this scheme this charge
represents the final charge of the entitlements to the members of the
scheme over its life
fki long term incentive plan
fki operated a share based long term incentive plan which crystallised
on acquisition by the company there is also a cash long term
incentive plan for senior executives which operates over three year
rolling performance periods ending on 31 march 2009 31 march
2010 and 31 march 2011 this arrangement is entirely discretionary
and is based on performance targets for the relevant business unit
for each plan year
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 are
terminable by the company on a maximum of one year’s notice
directors’ service contracts do not provide for predetermined
compensation in the event of termination any payments made would
be determined by reference to normal contractual principles including
mitigation 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
nonexecutive directors letter of appointment end of appointment period
miles templeman 18 december 2006 27 october 2009
perry crosthwaite 18 june 2008 25 july 2011
john grant 30 june 2006 31 july 2009
nonexecutive directors’ fees
the executive directors are responsible for proposing the non
executive 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 save that nonexecutive
directors do not take part in discussions on their own remuneration
nonexecutive directors do not receive benefits or pension
contributions from the group 38
melrose plc annual report 2008
remuneration report continued
directors’ shareholdings
ordinary shares
the directors’ beneficial interests including interests of connected
persons within the meaning of section 252 of the companies act
2006 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
number of ordinary shares of 02p of melrose plc
purchased purchased total
1 january in the during 31 december
director 2008 open offer
2
the year 2008
christopher miller
1
3802464 1000000 900000 5702464
david roper 1702464 344828 415000 2462292
simon peckham 1588067 207000 153000 1948067
geoffrey martin 611580 100000 – 711580
miles templeman 169279 45000 – 214279
perry crosthwaite 75000 56250 – 131250
john grant –– 153806 153806
total 7948854 1753078 1621806 11323738
1
the interest of mr christopher miller includes 2750000 ordinary shares of 02p
at 31 december 2007 2000000 held by harris  sheldon investments limited
a company which is connected with mr christopher miller within the meaning of section
252 of the companies act 2006
2
as described on page 27 of the directors’ report 
incentive shares
in addition the directors had a beneficial interest in the 2007
incentive shares of £100 each of melrose plc at 31 december 2008
as follows
number of 2007 incentive shares of melrose plc
director 1 january 2008 and 31 december 2008
christopher miller 12000
david roper 12000
simon peckham 12000
geoffrey martin 7500
miles templeman –
perry crosthwaite –
john grant –
there were no options over 2007 incentive shares outstanding as at
31 december 2008
total shareholder return
the ordinary share capital of the company 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 period since the company became fully listed on the
london stock exchange is shown in the graph below
the total shareholder return graph shows the value as at december
2008 of £100 invested in the company in december 2005
compared with £100 invested in the ftse all share index and the
industrial engineering sector
the source data for the above chart assumes that the cash
returned to shareholders in august 2007 was reinvested to purchase
shares in the company this results in an adjustment factor on the
price and this factor is used in ongoing calculation of shareholder
return for the company this means that the benefit of any cash
distribution is retained within the shareholder return performance of
the company
dec
05
dec
08
dec
07
dec
06
jun
06
jun
08
jun
07
melrose return
ftse all share index
ftse industrial engineering index
180
160
140
120
100
80
60 39
melrose plc annual report 2008
governance
audited information
aggregate directors’ remuneration
the total amounts for directors’ remuneration were as follows
2008 2007
emoluments £2144124 £1888578
money purchase pension contributions £195525 £177300
subtotal £2339649 £2065878
amounts awarded under ltip
2
– £15817242
total £2339649 £17883117
1
of the £195525 pension contributions £102750 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 £92775 is paid into the individual director’s nominated private pension scheme
2
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
directors’ emoluments including pension contributions
emoluments during 2008
2008 2007
taxable pension total total
directors salaryfees bonus benefits contributions
1
emoluments emoluments
christopher miller
2
£342500 – £19280 £51375 £413155 £375331
david roper £342500 £225000 £18040 £51375 £636915 £554862
simon peckham £342500 £225000 £18352 £51375 £637227 £555497
geoffrey martin £276000 £180000 £32452 £41400 £529852 £465188
miles templeman
3
£42500 –– – £42500 £40000
perry crosthwaite
4
£42500 –– – £42500 £40000
john grant £37500 –– – £37500 £35000
total £1426000 £630000 £88124 £195525 £2339649 £2065878
1
of the £195525 pension contributions £102750 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 £92775 is paid into the individual director’s nominated private pension scheme
2
mr miller is a nonexecutive director of tmo renewables limited his fees for the year were £19000 and are excluded from the table above
3
includes £5000 per annum in recognition of chairmanship of the audit and nomination committee
4
includes £5000 per annum in recognition of chairmanship of the remuneration committee
this report was approved by the board on 11 march 2009 and signed on its behalf by
perry crosthwaite
chairman of the remuneration committee
11 march 2009 40
melrose plc annual report 2008
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 ias regulation to prepare the group financial statements under
international financial reporting standards as adopted by the
european union ifrss 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
international accounting standard 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 statements’ 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 judgements and estimates that are reasonable and prudent
– state whether applicable uk accounting standards have been
followed subject to any material departures disclosed and
explained in the financial statements 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 for safeguarding the assets for taking
reasonable steps for the prevention and detection of fraud and
other irregularities and for the preparation of a directors’ report
and directors’ remuneration report which comply with the
companies act 1985
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
directors’ responsibility statement
the directors confirm to the best of their knowledge
1 the financial statements prepared in accordance with the applicable
set of accounting standards give a true and fair view of the assets
liabilities financial position and profit or loss of the company and the
undertakings included in the consolidation taken as a whole and
2 the chairman’s statement chief executive’s review and finance
director’s review which are incorporated into the directors’ report
include a fair review of the development and performance of the
business and the position of the company and the undertakings
included in the consolidation taken as a whole together with a
description of the principal risks and uncertainties they face
by order of the board
geoffrey martin simon peckham
group finance director chief operating officer
11 march 2009 41
melrose plc annual report 2008
introduction financial statements  notes
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 2008 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 2008
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 judgements 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 2008 and of its loss
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 2008 and of its loss for the year then ended
deloitte llp
chartered accountants and registered auditors
london united kingdom
11 march 2009 42
melrose plc annual report 2008
consolidated income statement
restated
2
year ended year ended
31 december 31 december
2008 2007
notes £m £m
continuing operations
revenue 5 9383 2886
cost of sales 7101 2290
gross profit 2282 596
headline
1
operating expenses 1285 346
share of results of joint ventures 01 –
intangible asset amortisation 136 18
exceptional costs 6 129 34
exceptional income 6 – 11
total net operating expenses 7 1551 387
operating profit 5 731 209
headline
1
operating profit 5 996 250
headline
1
finance costs 291 37
exceptional finance costs 6 231 –
total finance costs 522 37
finance income 4 7 49 68
profit before tax 258 240
headline
1
profit before tax 754 281
headline
1
tax 218 71
tax on exceptional items 117 16
total tax 8 101 55
profit for the year from continuing operations 157 185
headline
1
profit for the year from continuing operations 536 210
discontinued operations
lossprofit for the year from discontinued operations 9 635 1965
lossprofit for the year 478 2150
attributable to
equity holders of the parent 25 483 2148
minority interests 25 05 02
478 2150
earnings per share
from continuing operations
– basic 11 48p 87p
– fully diluted 11 48p 84p
– headline
1
11 168p 99p
from continuing and discontinued operations
– basic 11 153p 1020p
– fully diluted 11 153p 991p
1
before exceptional costs exceptional income and intangible asset amortisation other than computer software
2
prior periods have been restated to include the results of the mvc segment within discontinued operations 43
melrose plc annual report 2008
financial statements  notes
consolidated statement of recognised income
and expense
year ended year ended
31 december 31 december
2008 2007
notes £m £m
currency translation on net investments 25 1230 37
lossesgains on cash flow hedges 25 170 11
actuarial lossesgains on net pension liabilities 25 82 35
limit on pension scheme surplus 23 25 141 –
net income recognised directly in equity 837 83
transfer to income statement on cash flow hedges 25 11 21
transfer to income statement from equity of cumulative translation
differences on discontinued operations 25 89 220
lossprofit for the year 478 2150
total recognised income and expense for the year 281 2432
attributable to
equity holders of the parent 276 2430
minority interests 25 05 02
281 2432 44
melrose plc annual report 2008
consolidated balance sheet
31 december 31 december
2008 2007
notes £m £m
noncurrent assets
goodwill and other intangible assets 12 12795 2074
property plant and equipment 13 2969 607
interests in joint ventures 14 01 –
derivative financial assets 24 – 04
deferred tax assets 21 298 31
16063 2716
current assets
inventories 15 3293 297
trade and other receivables 16 3358 670
derivative financial assets 24 31 –
cash and cash equivalents 17 1657 464
assets held for sale 929 –
9268 1431
total assets 5 25331 4147
current liabilities
trade and other payables 18 4481 779
interestbearing loans and borrowings 19 07 81
derivative financial liabilities 24 253 –
current tax liabilities 336 78
provisions 20 565 35
liabilities held for sale
1
725 –
6367 973
net current assets 2901 458
noncurrent liabilities
trade and other payables 18 31 –
interestbearing loans and borrowings 19 7098 131
deferred tax liabilities 21 1362 81
retirement benefit obligations 23 1433 252
provisions 20 965 35
10889 499
total liabilities 5 17256 1472
net assets 8075 2675
equity
issued share capital 25 11 583
share premium account 25 2791 –
merger reserve 25 2851 370
capital redemption reserve 25 2201 1546
hedging and translation reserves 25 1004 22
retained earnings 25 806 142
equity attributable to holders of the parent 8052 2663
minority interest 25 23 12
total equity 8075 2675
1
liabilities directly associated with assets classified as held for sale
the financial statements were approved by the board of directors on 11 march 2009 and were signed on its behalf by
geoffrey martin simon peckham
group finance director chief operating officer 45
melrose plc annual report 2008
financial statements  notes
consolidated cash flow statement
restated
1
year ended year ended
31 december 31 december
2008 2007
notes £m £m
net cash from operating activities from continuing operations 26 971 182
net cash fromused in operating activities from discontinued operations 26 215 28
net cash from operating activities 1186 154
investing activities
disposal of businesses 15 4467
net cash disposed – 58
lump sum contribution to pension plan – 200
purchases of property plant and equipment 305 77
proceeds on disposal of property plant and equipment 06 04
purchase of computer software 05 05
dividends received from joint ventures 02 –
dividends paid to minority interests 05 –
interest received 44 71
acquisition of subsidiaries in previous year – 87
acquisition of subsidiaries – fki 12 2503 –
acquisition of subsidiaries – fishercast 12 67 –
cash acquired on acquisition of fki 12 853 –
net cash used infrom investing activities from continuing operations 1995 4115
net cash used in investing activities from discontinued operations 26 38 104
net cash used infrom investing activities 2033 4011
financing activities
net proceeds on issue of shares 2795 –
disposal of financial instruments 171 –
net movement on borrowings 194 1790
costs of raising finance 118 –
exceptional finance costs paid 179 –
repayment of obligations under finance leases 26 03
dividends paid 194 130
fki dividend paid 12 177 –
capital distribution 74 2126
issue of 2007 incentive shares – 01
net cash fromused in financing activities from continuing operations 2004 4048
net cash used infrom financing activities from discontinued operations 26 06 03
net cash fromused in financing activities 1998 4045
net increase in cash and cash equivalents 26 1151 120
cash and cash equivalents at beginning of year 26 464 333
effect of foreign exchange rate changes 26 62 11
cash and cash equivalents at end of year 26 1677 464
cash classified as held for resale 20 –
cash and cash equivalents in continuing group at end of year 17 1657 464
1
prior periods have been restated to include the results of the mvc segment within discontinued operations 46
melrose plc annual report 2008
notes to the accounts
1 corporate information
the consolidated financial statements of melrose plc for the year
ended 31 december 2008 were authorised in accordance with a
resolution of the directors of melrose plc on 11 march 2009
melrose plc is a company incorporated in great britain under the
companies act 1985 the address of the registered office is given on
the inside back cover 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 ifrs 1ias 27 cost of an investment in a subsidiary
jointly controlled entity or associate
amendments to ias 1 presentation of financial statement – a revised
presentation
amendments to ifrs 2 share based payments vesting conditions and
cancellations
amendments to ias 32 and ias 1 puttable financial instruments and
obligations arising on liquidation
revised ifrs 3 business combinations
revised ias 23 borrowing costs
revised ias 27 consolidated and separate financial statements
ifric 12 service concession arrangements
ifric 13 customer loyalty programmes
ifrs 8 operating segments
ifric 15 agreements for the construction of real estate
ifric 16 hedges of a net investment in a foreign operation
during the period the group adopted ifric 14 ‘ias 19 – the limit
of a defined benefit asset minimum funding requirements and their
interaction’ the group has considered ifric 14 when determining the
value of pension assets and liabilities the directors do not anticipate
that the adoption of these standards and interpretations will have a
material impact on the group’s financial statements in the period of
initial application with the exception of additional segmental
disclosures required by ifrs 8 and the treatment of acquisition of
subsidiaries when ifrs 3 comes into effect for business combinations
for which the acquisition date is on or after the beginning of the first
annual period beginning on or after 1 july 2009 if ifrs 3 revised
had been adopted in these accounts directly attributable costs of
£136 million would have been expensed during the year
the comparative information has been restated to show more
appropriate allocation of results following the disposal of mvc and
classification of this division as discontinued operations
2 summary of significant accounting policies
basis of accounting
the consolidated 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 except for the revaluation of certain financial
instruments the principal accounting policies adopted are consistent
with the prior year and are set out below
the financial statements have been prepared on a going concern basis
in accordance with the rationale set out in the directors’ statement of
going concern on page 31 of the directors’ report
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
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
minority interests in the net assets of consolidated subsidiaries are
identified separately from the group’s equity therein minority interests
consist of the amount of those interests at the date of the original
business combination and the minority’s share of changes in equity
since the date of the combination losses applicable to the minority in
excess of the minority’s interest in the subsidiary’s equity are allocated
against the interests of the group except to the extent that the minority
has a binding obligation and is able to make an additional investment to
cover losses
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 47
melrose plc annual report 2008
financial statements  notes
2 summary of significant accounting policies
continued
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 the fair
value of other assets given the 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 except for non
current assets that are classified as held for sale in accordance with ifrs
5 “non current assets held for sale and discontinued operations”
which are recognised and measured at fair value less costs to sell any
excess of the cost of acquisition over the fair values of the identifiable
net assets acquired is recognised as goodwill
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
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
in the profit or loss and is not subsequently reversed 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
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
where percentage of completion accounting is applied and where the
outcome of a construction contract can be estimated reliably revenue
and costs are recognised by reference to the stage of completion of the
contract activity at the balance sheet date this is normally measured by
the proportion that contract costs incurred for work performed to date
bear to the estimated total contract costs except where this would not
be representative of the stage of completion variations in contract work
claims and incentive payments are included to the extent that they have
been agreed with the customer
where the outcome of a construction contract cannot be estimated
reliably contract revenue is recognised to the extent of contract costs
incurred where it is probable they will be recoverable contract costs are
recognised as expenses in the period in which they are incurred
when it is probable that total contract costs will exceed total contract
revenue the expected loss is recognised as an expense immediately
interest income is accrued on a time basis by reference to the principal
outstanding and the effective interest applicable
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 exceptional operating costs and income
intangible amortisation and the share of results of joint ventures but
before finance income and finance costs
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 using the effective interest rate method
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 purchased 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 48
melrose plc annual report 2008
notes to the accounts continued
2 summary of significant accounting policies
continued
property plant and equipment continued
depreciation is calculated on a straight line basis over the estimated
useful life of the asset as follows
freehold land nil
freehold buildings and over expected economic life
long leasehold property not exceeding 50 years
short leasehold property over the term of the lease
plant and 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
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
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
costs relating to 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 and expensed on a straight line basis over their useful lives
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 fair value an allowance
is recorded in the income statement for the difference between the
carrying amount and the estimated recoverable amount
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
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 49
melrose plc annual report 2008
financial statements  notes
2 summary of significant accounting policies
continued
interestbearing loans and borrowings
all loans and borrowings are initially recognised at 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 the income statement when the
liabilities are derecognised or impaired as well as through the
amortisation process
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 the corresponding
liability to the lessor is included in the balance sheet as a finance lease
obligation 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 foreign exchange rate risks and commodity 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 and to show 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 50
melrose plc annual report 2008
notes to the accounts continued
2 summary of significant accounting policies
continued
derivative financial instruments and hedging continued
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
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 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 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 pounds 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
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 51
melrose plc annual report 2008
financial statements  notes
2 summary of significant accounting policies
continued
foreign currency translation continued
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 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
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 excluding the effect of nonmarket based vesting conditions
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 52
melrose plc annual report 2008
notes to the accounts continued
2 summary of significant accounting policies
continued
noncurrent assets and businesses held for sale
noncurrent assets and businesses classified as held for sale are
measured at the lower of carrying amount and fair value less costs to sell
noncurrent assets and businesses are classified as held for sale if their
carrying amount will be recovered through a sale transaction rather than
through continuing use this condition is regarded as having been met
only when the sale is highly probable and the asset or business is
available for immediate sale in its present condition management must
be committed to the sale which should be expected to qualify for
recognition as a completed sale within one year from the date of
classification
3 critical accounting judgements
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
fair values at acquisition
following the acquisition of fki management have made assumptions
regarding the fair value of assets and liabilities acquired these fair value
assumptions are described in note 12
intangible assets
the valuation of intangible assets requires management to estimate the
net present value of future cash flows arising from customer relationships
after estimating the attrition factor relevant to the customer relationship
and other factors such as access to the workforce which were appropriate
to the determination of the additional cash flows the valuation of
intangible assets in respect of brand names requires management to
estimate future cash flows using a relief from royalty model
provisions
the quantification of certain liabilities within provisions environmental
remediation obligations and 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 cashgenerating unit
and a suitable discount rate in order to calculate present value the
carrying amount of intangible assets at the balance sheet date was
£12795 million 2007 £2074 million at 31 december 2008 the
group recognised no impairment loss in respect of these assets
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
financial instruments
derivative financial instruments are recognised as assets and liabilities in
the group’s balance sheet measured at their fair value at the balance
date the fair value of derivatives continually changes in response to
changes in prevailing market conditions where permissible under ias
39 the group uses hedge accounting to mitigate the impact of changes
in the fair value of derivatives on the income statement but the group’s
results may be affected by changes in the fair values of derivatives where
hedge accounting cannot be applied or due to hedge ineffectiveness
revenue and profit recognition of construction contracts
revenue and profit is recognised for certain construction contracts
based on the stage of completion of the contract activity this is
measured by the proportion of costs incurred to estimated wholelife
contract costs except where this would not be representative of the
stage of completion 53
melrose plc annual report 2008
financial statements  notes
4 revenue
an analysis of the group’s revenue is as follows
restated
1
year ended year ended
31 december 31 december
2008 2007
notes £m £m
continuing operations
sale of goods 8722 2886
sales from construction contracts 661 –
interest income 7 49 68
exceptional income 6 – 11
revenue from continuing operations 9432 2965
discontinued operations
sale of goods 5 9 1505 1227
revenue from discontinued operations 1505 1227
total revenue as defined by ias 18 10937 4192
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
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 the split of reported revenue is shown in note 4 above
during the period the group acquired the fki group of companies and as a result recognised three new continuing business segments energy
lifting and other industrial as part of the acquisition several fki business units were acquired with a view to immediate resale and as such have
been classified in the discontinued segment the group also discontinued its operation in the mckechnie vehicle components “mvc” segment
prior periods have been restated to include the results of the mvc segment within discontinued operations in the following segmental tables
the dynacast segment includes only the dynacast business which is a supplier of diecast parts and components to a range of industries the
energy segment incorporates turbogenerators transformers and switchgear business units all specialist suppliers of energy industrial products to
the global market the lifting segment consists primarily of the businesses of bridon and crosby serving oil and gas production mining
petrochemical alternative energy and general construction markets other industrial incorporates all other operating businesses not held for resale
from the acquisition of fki as well as the mckechnie plastic components “mpc” business unit previously reported as a primary business
segment details of the companies included within the other industrial segment are set out in the finance director’s review on page 17
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 54
melrose plc annual report 2008
notes to the accounts continued
5 segment information continued
the following table presents revenue headline operating profit which the directors believe is the best indicator of performance operating profit
total asset and total liability information regarding the group’s business segments for the year ended 31 december 2008 note 6 gives details of
exceptional costs and income
revenue headline
2
operating profitloss 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
2008 2007 2008 2007 2008 2007
business segments £m £m £m £m £m £m
continuing operations
energy 2294 – 309 – 263 –
lifting 2323 – 357 – 291 –
dynacast 2463 2359 334 289 287 256
other industrial 2303 527 164 39 155 39
central – corporate – – 106 58 203 47
central – ltips
1
– – 62 20 62 39
continuing operations total 9383 2886 996 250 731 209
discontinued operations 1505 1227 73 125 705 98
total 10888 4113 923 375 26 307
1
long term incentive plans
2
as defined on the income statement
total assets total liabilities
31 december 31 december 31 december 31 december
2008 2007 2008 2007
£m £m £m £m
continuing operations
energy 7609 – 3020 –
lifting 8371 – 2058 –
dynacast 3491 3229 834 807
other industrial 2373 315 1682 111
central – corporate 2558 279 8890 422
central – ltips
1
– – 47 15
continuing operations total 24402 3823 16531 1355
discontinued operations 929 324 725 117
total 25331 4147 17256 1472
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
2008 2007 2008 2007
£m £m £m £m
continuing operations
energy 85 – 38 –
lifting 50 – 45 –
dynacast 80 54 77 68
other industrial 81 28 48 16
central – corporate 09 – 04 01
continuing operations total 305 82 212 85
discontinued operations 38 105 35 33
total 343 187 247 118 55
melrose plc annual report 2008
financial statements  notes
5 segment information continued
revenue headline
2
operating profitloss 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
2008 2007 2008 2007 2008 2007
geographical area £m £m £m £m £m £m
continuing operations
north america 2894 769 349 78 273 54
europe
3
2697 1079 383 150 352 141
uk 2744 473 315 35 258 35
asia 904 565 106 65 106 65
rest of world 144 – 11 – 07 –
central – corporate – – 106 58 203 47
central – ltip
1
– – 62 20 62 39
continuing operations total 9383 2886 996 250 731 209
discontinued operations 1505 1227 73 125 705 98
total 10888 4113 923 375 26 307
1
long term incentive plans
2
as defined on the income statement
3
revenue in europe includes non euro denominated currencies of £425 million 2007 £nil headline
2
operating profit in europe includes non euro denominated currencies of
£80 million 2007 £nil
total assets total liabilities
31 december 31 december 31 december 31 december
2008 2007 2008 2007
£m £m £m £m
continuing operations
north america 8097 1561 1809 274
europe
2
7571 1228 2476 361
uk 5183 344 2960 132
asia 739 411 256 151
rest of world 254 – 93 –
central – corporate 2558 279 8890 422
central – ltip
1
– – 47 15
continuing operations total 24402 3823 16531 1355
discontinued operations total 929 324 725 117
total 25331 4147 17256 1472
1
long term incentive plans
2
total assets in europe includes non euro denominated currencies of £1353 million 2007 £nil total liabilities in europe includes non euro denominated currencies of £897 million 2007 £nil
depreciation and computer
capital expenditure software amortisation
year ended year ended year ended year ended
31 december 31 december 31 december 31 december
2008 2007 2008 2007
£m £m £m £m
continuing operations
north america 83 10 63 24
europe
1
114 29 82 32
uk 63 22 41 14
asia 35 21 21 14
rest of world 01 – 01 –
central – corporate 09 – 04 01
continuing operations total 305 82 212 85
discontinued operations total 38 105 35 33
total 343 187 247 118
1
capital expenditure in europe includes non euro denominated currencies of £59 million 2007 £nil depreciation and computer software amortisation includes non euro denominated
currencies of £18 million 2007 £nil 56
melrose plc annual report 2008
notes to the accounts continued
6 exceptional costs and income
restated
1
year ended year ended
31 december 31 december
2008 2007
exceptional costs £m £m
continuing operations
fki head office closure 80 –
fishercast reorganisation 24 –
realisation of losses on captive insurance investments 17 –
loss on disposal of subsidiaries and joint ventures 08 –
dynacast restructure – 15
crystallisation of melrose original incentive scheme – 19
total exceptional costs 129 34
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
following the acquisition of fki the company made the decision to close the fki head office structure resulting in a cost of £80 million
since acquisition of the fishercast businesses in august 2008 reorganisation costs have been incurred during the integration with the dynacast
segment totalling £24 million
during 2008 group management made the decision to realise the losses on underperforming assets held within the captive insurance company
which will result in a loss of £17 million
during 2008 certain assets and liabilities have been disposed of within the bridon and mpc businesses resulting in a loss of £08 million
the dynacast restructuring costs in 2007 related mainly to the acquisitions of techmire and qzd in canada
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
year ended year ended
31 december 31 december
2008 2007
exceptional finance costs £m £m
continuing operations
eurobond refinance 90 –
us private placements refinance 89 –
exceptional unwind of discount on provisions 52 –
total exceptional finance costs 231 –
on 1 july 2008 the group assumed fki plc’s existing debt which consisted of us dollar denominated us private placements and bank debt plus a
euro denominated eurobond during the year both the us private placements and the eurobond have been redeemed at a premium and the
existing bank debt has been repaid and replaced
where material provisions within the group are discounted to net present value and the normal unwinding of the discount is shown within finance
costs during the year there has been a significant reduction in international interest rates which has been reflected by the group in its discount
rate and resulted in an additional exceptional discount charge of £52 million reflecting the movement in interest rates
year ended year ended
31 december 31 december
2008 2007
exceptional income £m £m
continuing operations
pension curtailment gain – 11
total exceptional income – 11
in 2007 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 57
melrose plc annual report 2008
financial statements  notes
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
2008 2007
1
2008 2007
1
2008 2007
net operating expenses comprise £m £m £m £m £m £m
selling and distribution costs 566 132 142 51 708 183
administration expenses 855 232 99 92 954 324
share of joint ventures operating lossesprofits 01 – – 02 01 02
other operating costs – exceptional note 6 129 34 231 15 360 49
other operating income – exceptional note 6 – 11 – – – 11
total net operating expenses 1551 387 472 156 2023 543
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
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
2008 2007
1
2008 2007
1
2008 2007
operating profit is stated after chargingcrediting £m £m £m £m £m £m
depreciation 207 84 35 32 242 116
cost of inventories 7101 2282 1339 965 8440 3247
writedown of inventories recognised as an expense – 08 – 08 – 16
amortisation of other intangible assets 136 18 02 12 138 30
amortisation of computer software 05 01 – 01 05 02
operating lease expense 45 20 14 06 59 26
staff costs see below 2419 717 355 312 2774 1029
research and development costs 18 – 13 02 31 02
disposal of businesses note 9 – – 399 1916 399 1916
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
the analysis of auditors’ remuneration is as follows
year ended year ended
31 december 31 december
2008 2007
£m £m
fees payable to the company’s auditors for the audit of the company’s annual accounts 11 02
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 05 04
16 06 58
melrose plc annual report 2008
notes to the accounts continued
7 revenues and expenses continued
year ended year ended
31 december 31 december
2008 2007
£m £m
tax services 14 06
corporate finance services 23 06
valuation and actuarial services 01 –
other 03 –
total nonaudit fees 41 12
fees for the audit of the company’s accounts represent fees payable to deloitte llp in respect of the audit of the company’s individual financial
statements and the group’s consolidated financial statements corporate finance services in the current year relate to the acquisition of fki plc and
the proposed sale of the logistex us division
restated
1
year ended year ended
31 december 31 december
2008 2007
£m £m
staff costs during the period including directors
wages and salaries 1963 652
social security costs 287 56
pension costs
– defined benefit plans – note 23 52 04
– defined contribution schemes 117 05
total continuing costs 2419 717
discontinued businesses 355 312
total continuing and discontinued costs 2774 1029
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
restated
1
year ended year ended
31 december 31 december
2008 2007
number number
average number of persons employed
energy 3633 –
lifting 3575 –
dynacast 2647 2394
other industrial 3948 594
melrose corporate 26 25
total continuing businesses 13829 3013
total discontinued businesses 1657 1406
total continuing and discontinued businesses 15486 4419
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
the average numbers shown above are calculated on a monthly basis the table above reflects the average number of employees as if fki plc
were owned for the full year the average numbers based on six month ownership were 8545 for the continuing business and 1120 for the
discontinued businesses 59
melrose plc annual report 2008
financial statements  notes
7 revenues and expenses continued
restated
1
year ended year ended
31 december 31 december
2008 2007
£m £m
finance costs and income
bank loans and overdrafts 232 48
amortisation of costs of raising finance 14 –
interest on obligations under finance leases 02 –
fair value lossgain on financial instruments transferred from equity 11 21
finance cost of pensions 18 04
unwinding of discount on provisions 08 –
finance costs of redeemable preference c shares 02 02
bank interest received 49 68
exceptional finance expenses note 6 231 –
other finance costs 04 04
total continuing businesses 473 31
discontinued businesses 04 23
total net finance expenseincome 477 08
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
the finance cost of pensions is the interest cost on benefit obligations of £334 million net of the expected return on plan assets of £316 million
2007 £74 million and £70 million respectively
8 tax
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
2008 2007
1
2008 2007
1
2008 2007
1
analysis of chargecredit in year £m £m £m £m £m £m
current tax 211 66 02 17 209 49
deferred tax note 21 110 11 72 43 182 32
total income tax chargecredit 101 55 74 26 27 81
tax charge on headline
2
operating profit after
finance costs and income 218 71 02 29 220 100
tax on exceptional operating costs 19 10 76 – 95 10
tax on exceptional finance costs 59 – – – 59 –
tax in respect of intangible asset amortisation
excluding computer software 39 06 – 03 39 09
total income tax chargecredit 101 55 74 26 27 81
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
2
as defined on the income statement
of the charge to current tax approximately £nil 2007 £26 million related to trading in the discontinued divisions which were disposed of during
the year no tax charge or credit arose on the net loss of £399 million note 9 on the disposal of the relevant subsidiaries a credit of £74 million
2007 £nil related to losses arising in businesses held for sale 60
melrose plc annual report 2008
notes to the accounts continued
8 tax continued
the average standard rate of corporation tax in the uk for the year was 285 2007 30 a tax charge arises on the loss in the year as
explained below
restated
1
year ended year ended
31 december 31 december
2008 2007
£m £m
profitloss on ordinary activities before tax
continuing operations 258 240
discontinued operations note 9 310 75
52 315
tax on lossprofit on ordinary activities at uk corporate tax rate 285 2007 30 15 95
tax effect of
net permanent differences 01 06
non deductible exceptional items 36 –
adjustment in respect of foreign tax rates 10 01
timing differences not recognised in deferred tax 26 17
deductible items not in the income statement – 09
prior year tax adjustments 09 05
total tax charge for the year 27 81
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
9 discontinued operations
on 26 november 2008 the group disposed of its interest in the mckechnie vehicle components division consideration net of costs was a
charge of £12 million
details of net assets disposed of and disposal proceeds are as follows
year ended
31 december
2008
£m
goodwill 213
intangible assets 05
property plant and equipment 210
inventories 53
trade and other receivables 96
cash at bank 12
gross assets disposed of 589
trade and other payables 80
post employment benefit obligations 09
tax 02
interest bearing loans and borrowings 10
provisions 12
gross liability disposed of 113
net assets disposed of 476
cumulative exchange translation loss recycled on disposals 89
loss on disposal 387
consideration net of costs 12
cash disposed of 12
cash outflow from current year disposals 24 61
melrose plc annual report 2008
financial statements  notes
9 discontinued operations continued
financial performance of discontinued operations including assets held for sale
restated
1
year ended year ended
31 december 31 december
2008 2007
£m £m
revenue 1505 1227
operating costs before exceptional items 1578 1102
headline
2
operating lossprofit 73 125
intangible asset amortisation 02 12
impairment of mvc nickel plater – 15
logistex costs of sale 15 –
hickory closure 208 –
rhombus reorganisation 08 –
net finance costs 04 23
lossprofit before tax 310 75
tax creditcharge 74 26
lossprofit after income tax from discontinued operations 236 49
lossprofit on disposal of net assets of discontinued operations 488 2136
cumulative exchange gainloss 89 220
lossprofit for the year from discontinued operations 635 1965
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
2
as defined on the income statement
the prior year comparative includes the mckechnie aerospace oem mckechnie aerospace aftermarket psm fasteners and mckechnie vehicle
components businesses
assets held for sale
on acquisition of the fki group of companies and at the balance sheet date the following business units were classified as held for sale and are
therefore presented separately in the balance sheet
logistex us
rhombus
welland forge
the board immediately resolved to dispose of these operations on acquisition of fki and negotiations with several interested parties have
subsequently taken place the operations are expected to be sold within the next twelve months the operations are included within discontinued
operations in the segmental analysis in note 5
10 dividends
year ended year ended
31 december 31 december
2008 2007
£m £m
final dividend for the year ended 31 december 2007 paid of 425p 2006 375p 57 96
interim dividend for the year ended 31 december 2008 paid of 275p 2007 25p 137 34
proposed final dividend for the year ended 31 december 2008 of 425p 2007 425p 211 57
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 a £74 million return of capital was paid on 30 june 2008 62
melrose plc annual report 2008
notes to the accounts continued
11 earnings per share
restated
1
year ended year ended
31 december 31 december
2008 2007
earnings £m £m
lossprofit for the purposes of basic earnings per share 483 2148
less lossprofit for the year from discontinued operations note 9 635 1965
earnings for basis of earnings per share from continuing operations 152 183
exceptional costs – operating 129 34
exceptional costs – finance 231 –
exceptional income – 11
intangible asset amortisation 136 18
tax on both exceptional items and intangible asset amortisation
3
117 16
earnings for basis of headline
2
earnings per share from continuing operations 531 208
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
2
as defined on the income statement
3
other than computer software
number number
weighted average number of ordinary shares for the purposes of basic earnings per share million 3156 2105
further shares for the purposes of fully diluted earnings per share million – 63
restated
1
year ended year ended
31 december 31 december
2008 2007
earnings per share pence pence
basic earnings per share
from continuing and discontinued operations 153 1020
from continuing operations 48 87
from discontinued operations 201 933
fully diluted earnings per share
from continuing and discontinued operations 153 991
from continuing operations 48 84
from discontinued operations 201 907
headline
2
earnings per share
from continuing operations 168 99
fully diluted headline
2
earnings per share
from continuing operations 168 96
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
2
as defined on the income statement 63
melrose plc annual report 2008
financial statements  notes
12 intangible assets
other
intangible computer
goodwill assets software total
£m £m £m £m
cost
at 1 january 2007 3078 552 27 3657
additions – – 06 06
acquisitions 45 16 – 61
disposal of subsidiaries 1295 286 21 1602
exchange adjustments 07 06 01 14
at 31 december 2007 1835 288 13 2136
additions – – 05 05
acquisitions 5137 3756 14 8907
disposal of subsidiaries 213 15 01 229
exchange adjustments 1456 750 04 2210
at 31 december 2008 8215 4779 35 13029
amortisation
at 1 january 2007 – 79 16 95
charge for period – 30 02 32
disposal of subsidiaries – 56 11 67
exchange adjustments – 01 01 02
at 31 december 2007 – 54 08 62
charge for the period – 138 05 143
disposal of subsidiaries – 10 01 11
exchange adjustments – 37 03 40
at 31 december 2008 – 219 15 234
net book value
at 31 december 2008 8215 4560 20 12795
at 31 december 2007 1835 234 05 2074
other intangible assets include patented technology customer relationships and trade names the additional amounts recognised during the year
arose on the acquisition of fki plc
goodwill has been allocated to the business segments each of which comprises several cash generating units as follows
31 december 31 december
2008 2007
£m £m
energy 2472 –
lifting 3121 –
dynacast 2226 1645
other industrial 396 32
discontinued – 158
8215 1835
the group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired
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 these
assumptions have been revised in the year in the light of the current economic environment which has resulted in more conservative estimates
about the future the company estimates discount rates using pretax rates that reflect current market assessments of the time value of money and
the risks specific to each cash generating unit the growth rates are based on a prudent estimate of long term industry growth forecasts changes in
selling prices and direct costs are based on past practices and expectations of future changes in the market 64
melrose plc annual report 2008
notes to the accounts continued
12 intangible assets continued
the group prepares cash flow forecasts derived from the most recent twelve month financial budgets approved by management and extrapolates
cash flows based on estimated growth rates of between 2 and 3 this rate does not exceed the average longterm growth rate for the relevant
markets the pretax discount rate applied is between 7 and 9 depending on the risk elements associated with each cash generating unit
acquisition of subsidiaries
on 1 july 2008 the group acquired 100 of the issued share capital of fki plc fki plc is the parent company of a group of companies operating
in segments described in note 5 the fki plc dividend of £177 million was paid by melrose plc on 15 july 2008
the following assets and liabilities were acquired fair values are provisional as at 31 december 2008 based on the information held to date
acquiree’s
carrying fair value
amount adjustments fair value total
£m £m £m £m
fki
property plant and equipment 2191 219 1972
intangible assets and computer software 743 3027 3770
derivative financial assets 386 – 386
associate investments 09 05 04
inventories 1811 568 2379
trade and other receivables 3405 575 2830
bank and cash balances 853 – 853
trade and other payables 3106 321 3427
provisions 258 1046 1304
deferred tax 224 864 1088
postretirement benefit obligation 206 751 957
current tax 330 191 139
interest bearing loans and borrowings 5972 84 5888
assets held for resale 926 445 481
228 356 128
goodwill 5115
total consideration including directly attributable acquisition costs of £136 million 4987
satisfied by
shares issued 2484
cash consideration including directly attributable acquisition costs of £136 million 2503
total 4987
the fair value adjustments to property plant and equipment primarily relate to property valuations at the date of acquisition
the fair value adjustments to intangible assets relate to the valuation of brand names and customer relationships held within the fki group
deemed separately identifiable and measurable at the date of acquisition the fair value adjustment to deferred tax primarily relates to the valuation
of the intangibles noted above
the fair value adjustments to inventories arise primarily on changes to accounting policies as well as additional provisions recognised against net
realisable value
the fair value adjustments to trade and other receivables predominately relate to the write off or provision against doubtful debts as well as a
change to accounting policies
the fair value adjustments to trade and other payables arise on the recognition of identifiable and measurable liabilities at the date of acquisition
the fair value adjustments to provisions relate primarily to environmental and legal claims acquired 65
melrose plc annual report 2008
financial statements  notes
12 intangible assets continued
the fair value adjustment to post retirement benefit obligations arises from aligning the assumptions used in valuing the fki schemes with melrose
plc’s assumptions
the goodwill arising on acquisition of the fki group is attributable to the anticipated profitability and cash flows arising from the businesses
acquired
the shares issued on the acquisition of fki plc are detailed in note 25
the fki group contributed £6358 million revenue and £787 million of continuing headline
1
operating profit during the period since acquisition
if the acquisition had taken place at the beginning of 2008 the continuing revenue for the group would have been £15335 million and headline
operating profit from continuing operations would have been £1650 million
on 22 august 2008 the group acquired the trade and assets of fishercast global operating in canada and the uk for consideration of
£67 million including acquisition costs of £04 million
1
before exceptional costs exceptional income and intangible asset amortisation other than computer software
acquiree’s
carrying fair value
amount adjustments fair value total
£m £m £m £m
fishercast
property plant and equipment 49 30 19
inventories 36 20 16
trade and other receivables 34 05 29
trade and other payables 15 – 15
provisions – 04 04
104 59 45
goodwill 22
total consideration including acquisition costs of £04 million paid in cash 67
the adjustments to the carrying value on the acquisitions above have been processed to represent the fair value of the assets acquired
the fishercast business contributed £89 million revenue and £08 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 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 synergies in the combination 66
melrose plc annual report 2008
notes to the accounts continued
13 property plant and equipment
land and plant and
buildings equipment total
£m £m £m
cost
at 1 january 2007 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
additions 31 304 335
acquisitions 920 1071 1991
disposal of businesses 51 250 301
disposals 03 27 30
exchange adjustments 172 512 684
at 31 december 2008 1233 2340 3573
depreciation
at 1 january 2007 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
charge for the period 19 188 207
charge for the period on disposals – 20 20
disposal of businesses 07 62 69
disposals – 21 21
exchange adjustments 08 172 180
at 31 december 2008 38 566 604
net book value
at 31 december 2008 1195 1774 2969
at 31 december 2007 146 461 607
the net carrying amount of plant and equipment includes £04 million 2007 £15 million in respect of assets held under finance leases
14 interests in joint ventures
31 december 31 december
2008 2007
£m £m
aggregated amounts relating to joint ventures
total assets 40 –
total liabilities 39 –
interests in joint ventures 01 –
revenues 10 17
lossprofit 01 02
a list of all the significant investments in subsidiaries and joint ventures including the name country of incorporation and proportion of ownership
interest is given in note 3 to the company’s separate financial statements 67
melrose plc annual report 2008
financial statements  notes
15 inventories
31 december 31 december
2008 2007
£m £m
raw materials 872 113
work in progress 1388 83
finished goods 1033 101
3293 297
31 december 31 december
2008 2007
construction contracts £m £m
contracts in progress at the balance sheet date
amounts due from contract customers included in trade and other receivables 165 –
amounts due to contract customers included in trade and other payables 81 –
84 –
contract costs incurred plus recognised profit less recognised losses to date 4680 –
less progress billings 4596 –
84 –
the average life of a construction contract is 23 years
16 trade and other receivables
31 december 31 december
2008 2007
£m £m
trade debtors 2958 640
allowance for doubtful debts 111 31
other debtors 347 47
prepayments 164 14
3358 670
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
other
energy lifting dynacast industrial discontinued central total
£m £m £m £m £m £m £m
at 1 january 2007 – – 14 03 09 – 26
exchange differences – – 02 – – – 02
income statement charge – – 06 03 04 – 13
disposed – – – – 09 – 09
written off – – – – 01 – 01
at 31 december 2007 – – 22 06 03 – 31
acquired 39 13 – 12 – 02 66
exchange differences 04 02 05 02 01 – 14
income statement charge 08 09 08 07 – 02 34
disposed – – – – 04 – 04
written off 10 04 11 03 – 02 30
at 31 december 2008 41 20 24 24 – 02 111 68
melrose plc annual report 2008
notes to the accounts continued
16 trade and other receivables continued
the concentration of credit risk is limited due to the number of customers being high and the fact that they are unrelated to each other
31 december 31 december
2008 2007
ageing of impaired trade receivables £m £m
0 – 30 days 15 04
31 – 60 days 14 03
60 days 82 24
111 31
included in the group’s trade receivable balance are overdue trade receivables with a carrying amount of £816 million 2007 £126 million
against which an appropriate provision of £111 million 2007 £31 million is held
the balance deemed recoverable of £705 million is past due as follows
31 december 31 december
2008 2007
£m £m
0 – 30 days 381 99
31 – 60 days 152 17
60 days 172 10
705 126
the directors consider that the carrying amount of trade and other receivables approximates to their fair value
17 cash and cash equivalents
31 december 31 december
2008 2007
£m £m
cash and cash equivalents 1657 464
cash and cash equivalents comprises cash at bank and in hand which earns interest at floating rates based on daily bank deposit rates and short
term deposits which are made for varying periods of between one day and one month and earn interest at the respective short term deposit rates
the carrying amount of these assets is approximately equal to their fair value
18 trade and other payables
31 december 31 december
2008 2007
current £m £m
trade payables 2227 433
other payables 1139 70
interest payable 16 27
other taxes and social security 161 31
accruals 938 218
4481 779
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
31 december 31 december
2008 2007
non current £m £m
other payables 14 –
other taxes and social security 01 –
accruals 16 –
31 – 69
melrose plc annual report 2008
financial statements  notes
19 interestbearing loans and borrowings
this note provides information about the contractual terms of the group’s interestbearing loans and borrowings details of the group’s exposure to
interest rate foreign currency and liquidity risk are included in note 24
current non current total
31 december 31 december 31 december 31 december 31 december 31 december
interest final 2008 2007 2008 2007 2008 2007
rate  maturity £m £m £m £m £m £m
fixed rate obligations
euro loan austria 15 july 2011 06 05 09 13 15 18
redeemable preference c shares – june 2008 – 72 – – – 72
06 77 09 13 15 90
floating rate obligations
bank borrowings –
us dollar loan libor  2 april 2013 – – 4698 – 4698 –
bank borrowings –
euro loan euribor  2 april 2013 – – 1984 – 1984 –
bank borrowings –
sterling loan libor  2 april 2013 – – 500 – 500 –
bank borrowings –
sterling loan libor  035 april 2010 – – – 110 – 110
finance leases 01 04 11 08 12 12
01 04 7193 118 7194 122
unamortised finance costs – – 104 – 104 –
total interest bearing loans and borrowings 07 81 7098 131 7105 212
at 31 december 2008 the bank borrowings were drawn under the group’s £750 million five year committed term and revolving credit facility
a number of group companies act as guarantors to this facility drawdowns bear interest at interbank rates of interest plus an initial margin of 20
this margin is determined by reference to the group’s performance under its debt cover covenant ratio and ranges between 125 and 235
the interest rate repricing profile of financial liabilities after taking into account hedging interest rate derivatives is described in note 24
the 9053594 redeemable preference c shares were redeemed on 30 june 2008 at a value of £74 million
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 shown in the table below interest on floating rate
debt is based on a one year libor curve calculations for us dollar debt take into account interest rate swaps taken out in january 2009 on
us5460 million of debt as described in note 24 70
melrose plc annual report 2008
notes to the accounts continued
19 interestbearing loans and borrowings continued
redeemable other
finance lease preference financial
bank loans obligations c shares liabilities total
£m £m £m £m £m
within one year 191 01 – 4481 4673
in one to two years 335 11 – 31 377
in two to three years 334 – – – 334
after three years 7762 – – – 7762
effect of financing rates 1529 – – – 1529
31 december 2008 7093 12 – 4512 11617
within one year 11 04 74 779 868
in one to two years 10 04 – – 14
in two to three years 117 04 – – 121
after three years 04 01 – – 05
effect of financing rates 14 01 02 – 17
31 december 2007 128 12 72 779 991
during the year the group arranged a new committed bank facility that provides a term loan and revolver facility this facility expires in april 2013
and throughout the year the group complied with the covenants the revolver facility is for £250 million and is available for general corporate
purposes at 31 december 2008 the undrawn amount of the revolver facility was £1086 million 2007 £25 million the revolver facility incurs
commitment fees and provides funding at floating rates
20 provisions
surplus leasehold environmental incentive scheme fki captive
property costs and legal costs related insurance other total
£m £m £m £m £m £m
at 31 december 2007 11 06 15 – 38 70
acquisition of subsidiaries 222 455 – 223 408 1308
disposal of subsidiaries – – – – 20 20
exchange differences 38 78 09 – 16 141
expenditureutilised 14 17 41 – 280 352
arising in the year 05 03 64 57 194 323
change of discount rate note 6 08 44 – – – 52
unwind of discount note 7 05 03 – – – 08
at 31 december 2008 275 572 47 280 356 1530
current 43 244 45 55 178 565
noncurrent 232 328 02 225 178 965
275 572 47 280 356 1530
the provision for surplus leasehold property costs is the estimated net rentals payable over the period of the leases together with any dilapidation costs
environmental remediation and legal provisions relate to the estimated remediation costs of pollution soil contamination and the associated
estimated legal costs at certain sites
included in incentive scheme related provisions is £45 million 2007 £14 million relating to long term incentive plans and £02 million 2007
£01 million relating to national insurance on incentive shares
the fki captive insurance provision relates to known and actuarial assessments of future claims covered by the captive including but not limited to
public and product liability employers liability in the uk workers compensation in the usa and automotive claims in the uk and usa
other provisions relate primarily to onerous contracts
where appropriate provisions have been discounted using a discount rate of 36 2007 6 71
melrose plc annual report 2008
financial statements  notes
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 relating to
allowances tax losses  intangible
 other liabilities other assets assets total
£m £m £m £m
at 1 january 2007 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
credit to income note 8 36 107 39 182
credit to equity 38 02 – 36
intercategory transfers 03 03 – –
acquisitions 129 91 1050 1088
exchange differences 12 68 200 144
at 31 december 2008 85 298 1277 1064
as at 31 december 2008 the group has gross unused tax losses of £392 million 2007 £167 million available for offset against future profits
a deferred tax asset of £186 million 2007 £31 million has been recognised in respect of losses together with an asset of £112 million
2007 £nil on other timing differences no deferred tax asset has been recognised in respect of the remaining £339 million 2007 £159 million
due to the geographic split of anticipated 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 uk plan the fki uk plan and the
fki north america plans no deferred tax asset has been recognised on these obligations due to the unpredictability of future profit streams in the
united kingdom a small deferred tax asset of £10 million 2007 £09 million is recognised with respect to certain overseas pension schemes
and is included within the tax losses and other assets category
as at 31 december 2008 the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred
tax liabilities have not been recognised was £38 million 2007 £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
melrose 2007 incentive scheme
the company has 50000 2007 incentive shares held by directors employees and the melrose employee benefit trust of these shares 47000
2007 47000 were issued to directors and employees and 3000 2007 3000 are held in the employee benefit trust during the year
1250 of these shares have been allocated to senior management but not yet issued at 31 december 2008 the conversion formula for the 2007
incentive shares broadly provides for conversion into ordinary shares equal to 10 per cent of the increase in shareholder value from 18 july 2007
excluding the return of capital the 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 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 estimated fair value attributable to the 2007 incentive shares using a black scholes option pricing model was £10 million 2007 £37 million 72
melrose plc annual report 2008
notes to the accounts continued
22 share based payments continued
31 december 2008 31 december 2007
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 –– ––
exercised during the year –– 8877 £100
outstanding at year end –– ––
the inputs into the black scholes model used to fair value the scheme in 2007 were as follows
2007 incentive scheme
weighted average share price £167
weighted average exercise price £100
expected volatility 250
expected life as at inception 48yrs
risk free interest 20
expected dividend yield 32
expected volatility was determined by calculating the historical volatility of the company’s share price
the group recognised total expenses of £20 million 2007 £29 million in relation to equitysettled share based payment transactions in 2008
including national insurance charges of £02 million
23 retirement benefit schemes
melrose holds several pension schemes covering many of its employees and operating in several jurisdictions
the most significant schemes for continuing operations are
– the fki uk pension scheme and cleco scheme logistex uk these are defined benefit in type and are funded schemes where the future
liabilities for members benefits are provided for by the accumulation of assets held externally to the group in separate trustee administered funds
– the mckechnie uk 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 2008
– the fki group north america plan this is defined benefit in type and is a funded scheme where the future liabilities for members benefits are
provided for by the accumulation of assets held externally to the group in separate trustee administered funds
– the dynacast 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 termination indemnities in italy and france to current dynacast employees
the cost of these schemes is determined in accordance with ias 19 with the advice of independent professionally qualified actuaries on the basis
of formal actuarial valuations using the projected unit credit method in line with normal practice these valuations are undertaken triennially in the
united kingdom and annually in the united states
the valuations are based on the uk full actuarial valuation as of 31 december 2005 updated at 31 december 2008 by independent actuaries and
united states full actuarial valuations as of 31 december 2007 updated at 31 december 2008 by independent actuaries
the group also operates a number of unfunded postretirement medical and welfare benefit schemes principally in the united states 73
melrose plc annual report 2008
financial statements  notes
23 retirement benefit schemes continued
the major weighted average assumptions used at 31 december 2008 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
fki mckechnie fki north
uk plans uk plan america plans us medical other plans
 pa  pa  pa  pa  pa
rate of increase in salaries 325 325 325 na 30
rate of increase in pensions in payment 290 290 na na na
discount rate 630 630 625 625 560
inflation assumption 275 275 275 na 20
the weighted average assumptions used at 31 december 2007 are set out below
mckechnie
uk plan other plans
 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
mortality
the mortality assumptions for the plans are consistent with the previous year the mortality assumptions at 31 december 2008 relate to the pa92
medium cohort tables with an age adjustment of two years and an improvement floor of 1 this is considered appropriate given the plans’
geographical and industrial sector
the average life expectancy underlying the value of defined benefit schemes which have been determined by reference to applicable mortality
statistics are set out below
life expectancy
31 december 31 december
2008 2007
years years
male member currently aged 65 in 20072008 858 856
male member aged 65 in 20202021 869 868
the amount recognised in the balance sheet arising from liabilities in respect of defined benefit schemes is as follows
31 december 31 december 31 december 31 december 31 december
2008 2007 2006 2005 2004
£m £m £m £m £m
plan liabilities 9397 1484 1479 1455 –
plan assets 8105 1232 925 850 –
limit on pension scheme surplus 141 –– ––
net liabilities 1433 252 554 605 –
the plan liabilities and assets at 31 december 2008 were split by scheme as follows
fki mckechnie fki north
uk plans uk plan america plans us medical other plans total
£m £m £m £m £m £m
plan liabilities 5552 1107 2109 270 359 9397
plan assets 4945 1162 1829 – 169 8105
limit on pension scheme surplus – 141 –– – 141
net liabilities 607 86 280 270 190 1433 74
melrose plc annual report 2008
notes to the accounts continued
23 retirement benefit schemes continued
this amount is presented in the balance sheet
31 december 31 december 31 december 31 december 31 december
2008 2007 2006 2005 2004
£m £m £m £m £m
noncurrent liabilities
– unfunded plans 452 41 109 87 –
– funded plans 840 211 445 518 –
limit on pension scheme surplus 141 –– ––
1433 252 554 605 –
in accordance with ias 19 the value of the assets held within the mckechnie uk plan have been limited by £141 million to show a deficit on the
scheme equal to the remaining committed contributions
expected return fair value of assets
year ended year ended year ended year ended
31 december 31 december 31 december 31 december
2008 2007 2008 2007
expected returns and fair value of assets   £m £m
equity instruments 83 74 2301 337
debt instruments 53 46 4735 39
other assets 64 68 1069 856
weighted averagetotal 63 69 8105 1232
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 tracker 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
2008 2007
£m £m
in arriving at operating profit included within cost of sales selling and distribution costs and administrative expenses
– current service cost 52 04
– effects of curtailments and settlements – 11
included in finance costs
– interest cost 334 74
– expected return on assets 316 70
the actual return on scheme assets was a loss of £473 million 2007 gain of £93 million
the amount recognised in the consolidated statement of recognised income and expense is as follows
year ended year ended
31 december 31 december
2008 2007
£m £m
actuarial gains on scheme liabilities 707 12
actuarial lossesgains on scheme assets 789 23
limit on pension scheme surplus 141 –
223 35
the cumulative amount of actuarial gains and losses recognised in the consolidated statement of recognised income and expense is a total loss of
£154 million 2007 gain of £69 million 75
melrose plc annual report 2008
financial statements  notes
23 retirement benefit schemes continued
movements in the benefit liabilities during the year
year ended year ended
31 december 31 december
2008 2007
£m £m
at beginning of year 1484 1479
acquisition 7817 –
disposals 24 06
current service cost 52 04
interest cost 334 74
actuarial gains 707 12
benefits paid 257 39
plan settlements – 08
plan curtailments – 11
currency loss 698 03
at end of year 9397 1484
movements in the fair value of scheme assets during the year
year ended year ended
31 december 31 december
2008 2007
£m £m
at beginning of year 1232 925
acquisition 6860 –
disposals 15 04
expected return on assets 316 70
actuarial lossesgains 789 23
employer contributions 200 267
benefits paid 257 39
plan settlements – 08
currency gainloss 558 02
at end of year 8105 1232
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 in addition the company contributes £180 million per annum to the fki uk pension scheme
sensitivities around movements in discount rate and inflation assumptions are discussed in the finance director’s review 76
melrose plc annual report 2008
notes to the accounts continued
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 2008 and 31 december 2007
other total assets held
lifting energy dynacast industrial central mvc continuing for resale total
£m £m £m £m £m £m £m £m £m
31 december 2008
financial assets
bank deposits –– –– 1657 – 1657 20 1677
trade receivables 702 1173 397 572 03 – 2847 273 3120
derivative financial assets 04 05 01 21 –– 31 – 31
financial liabilities
bank loans –– 18 – 7075 – 7093 03 7096
finance lease obligations 12 –– ––– 12 – 12
derivative financial liabilities 80 113 18 42 –– 253 – 253
other financial liabilities 884 1502 576 1248 302 – 4512 489 5001
31 december 2007
financial assets
bank deposits –– 288 48 266 138 464 – 464
trade receivables –– 428 83 01 97 609 – 609
derivative financial assets –– 07 04 01 – 04 – 04
financial liabilities
bank loans –– 18 – 110 – 128 – 128
finance lease obligations –– – 01 – 11 12 – 12
redeemable preference shares –– – – 72 – 72 – 72
other financial liabilities –– 562 107 24 86 779 – 779
credit risk
the group considers its maximum exposure to credit risk to be as follows
other total assets held
lifting energy dynacast industrial central mvc continuing for sale total
£m £m £m £m £m £m £m £m £m
31 december 2008
bank deposits –– –– 1657 – 1657 20 1677
trade receivables 702 1173 397 572 03 – 2847 273 3120
derivative financial assets
– foreign exchange 04 05 01 21 –– 31 – 31
31 december 2007
bank deposits –– 288 48 266 138 464 – 464
trade receivables –– 428 83 01 97 609 – 609
derivative financial assets
– foreign exchange –– 07 04 01 – 04 – 04
the group’s principal financial assets are cash and short term deposits trade receivables and derivative financial assets 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 77
melrose plc annual report 2008
financial statements  notes
24 financial instruments and risk management continued
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 2008 the group held foreign exchange forward contracts to mitigate expected exchange fluctuations on cash flows on sales to
customers and purchases from suppliers these instruments operate as cash flow hedges unless the amounts involved are small the terms of the
material contracts with principals in excess of sterling £1 million equivalent are as follows
31 december 31 december 31 december 31 december
2008 2008 2007 2007
millions average rate millions average rate
sell danish kronebuy sterling dkk 279 dkk 923 ––
sell eurobuy sterling eur 145 eur 136 eur 96 eur 145
sell eurobuy danish krone eur 542 dkk 748 ––
sell hong kong dollarbuy danish krone hkd 422 hkd 153 ––
sell norwegian kronebuy danish krone nok 497 nok 110 ––
sell norwegian kronebuy sterling nok 222 nok 1045 ––
sell sterlingbuy czech koruna gbp 202 czk 2845 ––
sell sterlingbuy danish krone gbp 16 dkk 977 ––
sell uae dirhambuy sterling aed 75 aed 665 ––
sell us dollarbuy canadian dollar usd 372 cad 114 usd 137 cad 103
sell us dollarbuy chinese yuan renminbi usd 43 cny 675 usd 197 cny 730
sell us dollarbuy danish krone usd 351 dkk 525 ––
sell us dollarbuy euro usd 57 eur 069 ––
sell us dollarbuy singapore dollar usd 358 sgd 140 usd 143 sgd 146
sell us dollarbuy sterling usd 1059 usd 184 ––
sell us dollarbuy malaysian ringgit usd 47 myr 332 usd 85 myr 335
the foreign exchange contracts all mature between january 2009 and december 2010
the fair value of the contracts at 31 december 2008 was a liability of £202m 2007 £04 million asset
as at 31 december 2008 the group held a number of copper swap contracts that were designated as cash flow hedges these swap contracts
lock the group into fixed copper prices to protect against fluctuations in the market price of copper the terms of these contracts are
commodity swaps commodity total quantity maturity pricing
group pays copper 800 tonnes january 2009 to march 2009 monthend settlements at fixed
price of us dollar 6680 per tonne
group receives copper 800 tonnes january 2009 to march 2009 monthend settlements at the
average lme price for each month
the fair value of the contracts at 31 december 2008 was a liability of £20 million 2007 £nil
hedge of net investments in foreign entities
included in interest bearing loans at 31 december 2008 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
borrowings in local currency
31 december 31 december
2008 2007
£m £m
us dollar 4698 –
euro 1984 – 78
melrose plc annual report 2008
notes to the accounts continued
24 financial instruments and risk management continued
on 1 july 2008 the group assumed fki plc’s existing debt which consisted of us dollar denominated us private placements a euro denominated
eurobond and a revolving credit facility this debt was wholly repaid by 31 december 2008 having previously been partially overlaid with a
number of crosscurrency swaps and been designated as a hedge of net investments in europe and north america
interest rate sensitivity analysis
a one percentage point rise in market interest rates for all currencies would decreaseincrease profit before tax by the following amounts
year ended year ended
31 december 31 december
2008 2007
£m £m
sterling 05 01
us dollar 43 01
euro 19 01
67 03
interest rate risk management
the group maintained a net cash position during the first half of the year to 31 december 2008 and interest rate protection was not considered
necessary the fki debt assumed on 1 july 2008 was substantially held at floating rates of interest this debt including swaps used to synthetically
alter the debt’s denomination was repaid prior to 31 december 2008 being funded through floating rate debt drawn under the new £750 million
committed facility this debt carries a cost of libor plus an initial 20 margin
in january 2009 the group entered into a number of interest rate swaps to hedge us5460 million of us dollar denominated bank debt into
fixed rates of interest under the terms of these swaps the group will pay an average rate of 21 pa plus a 20 margin annually in arrears and
receive 3 month us dollar libor plus 20 quarterly in arrears these interest rate hedges have been designated as cash flow hedges
the group’s policy for managing interest rate risk is set out in the finance director’s review
foreign currency risk
the group’s policy for managing foreign currency risk is set out in the finance director’s review
foreign currency sensitivity analysis
currency risks are defined by ifrs 7 as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
foreign exchange rates
the following table details the impact of hypothetical changes in foreign exchange rates on financial instruments at the balance sheet date
illustrating the increase in group operating profit caused by a 10 cent strengthening of the us dollar and euro against sterling and a 10
strengthening of the czech koruna and canadian dollar against sterling compared to the year end spot rate the analysis assumes that all other
variables in particular other foreign currency exchange rates remain constant the group operates in a range of different currencies and those
with a material impact are noted here
31 december 31 december
2008 2007
£m £m
us dollar 04 02
euro 24 11
canadian dollar 17 –
czech koruna 06 –
the following table details the increasedecrease in group equity caused by a 10 cent strengthening of the us dollar and euro against sterling
and a 10 strengthening of the czech koruna and canadian dollar against sterling 79
melrose plc annual report 2008
financial statements  notes
24 financial instruments and risk management continued
31 december 31 december
2008 2007
£m £m
us dollar 06 –
euro 14 –
canadian dollar 04 –
czech koruna – –
fair value of derivatives
foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates
matching the maturities of the contracts
commodity swaps are measured using quoted forward commodity prices
31 december 31 december
2008 2007
£m £m
foreign exchange contracts 202 04
commodity swaps 20 –
222 04
25 issued capital and reserves
31 december 31 december
2008 2007
share capital £m £m
authorised
754999996 2007  201000000 ordinary shares of 02p each 2007 02p 15 04
267330058 2007 267330058 redeemabledeferred c shares of 823p each 2200 2200
50000 2007 50000 2007 incentive shares of £1 each 01 01
2216 2205
allotted called up and fully paid
497586779 2007 133665029 ordinary shares of 02p 2007 02p 10 02
nil 2007 70489480 deferred c shares of 823p – 580
50000  2007 50000 2007 incentive shares of £1 each 01 01
11 583
on 1 july 2008 the acquisition of fki plc involved the issue of 363921750 ordinary shares issue costs totalling £112 million were incurred and
this amount has been deducted from the share premium account
on 30 june 2008 9053594 c shares of 823p each were redeemed on the same date all deferred c shares of 823p each were cancelled
which resulted in a transfer of £655 million to the capital redemption reserve
the rights of each class of share are described in the directors’ report 80
melrose plc annual report 2008
notes to the accounts continued
25 issued capital and reserves continued
own shares
the trustee of the melrose plc ebt holds 3000 2007 incentive shares 2007 3000 2007 incentive shares in melrose plc the ebt also holds
25279 ordinary shares of 02p each in melrose plc 2007 25279 ordinary shares relating to unallocated shares following the crystallisation of
the original incentive scheme in august 2007
hedging and accumulated
share merger capital translation profits minority
premium reserve redemption reserve losses interests
reserves £m £m £m £m £m £m
at 1 january 2007 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 gains on net pension liabilities – – – – 35 –
credit to equity for equitysettled share based payments – – – – 18 –
at 31 december 2007 – 370 1546 22 142 12
issue of ‘offer and placement’ ordinary shares 2791 – – – – –
acquisition of fki – 2481 – – – 26
c shares redeemed – – 655 – 74 –
dividend paid – – – – 194 05
currency translation adjustments – – – 1043 – 06
disposal of subsidiaries – – – 89 – 21
lossprofit for the period – – – – 483 05
actuarial losses on net pension liabilities – – – – 82 –
limit on pension scheme surplus – – – – 141 –
taxation adjustments to equity – – – 28 08 –
credit to equity for equitysettled share based payments – – – – 18 –
at 31 december 2008 2791 2851 2201 1004 806 23
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 2007 14 239 225
currency translation on net investments – 37 37
gains on cash flow hedges 11 – 11
transfer to income 21 220 199
balance at 31 december 2007 04 18 22
currency translation on net investments – 1230 1230
losses on cash flow hedges 170 – 170
transfer to income 11 89 78
balance at 31 december 2008 155 1159 1004 81
melrose plc annual report 2008
financial statements  notes
26 cash flow statement
restated
1
year ended year ended
31 december 31 december
2008 2007
£m £m
reconciliation of operating profit to cash generated by continuing operations
headline
2
operating profit from continuing operations 996 250
adjustments for
depreciation of property plant and equipment 207 84
amortisation of computer software 05 01
restructuring costs paid and decrease in other provisions 41 16
operating cash flows before movements in working capital 1249 319
increasedecrease in inventories 232 26
decrease in receivables 538 39
increasedecrease in payables 124 48
cash generated by operations 1679 336
tax paid 161 42
interest paid 326 51
pension contributions paid 198 61
incentive scheme payments 23 –
net cash flow from operating activities from continuing operations 971 182
1
prior periods have been restated to include the results of the mvc segment within discontinued operations
2
as defined on the income statement
restated
1
year ended year ended
31 december 31 december
2008 2007
£m £m
cash flow from discontinued operations
cash generated from discontinued operations 222 34
tax paid 01 06
interest paid 04 48
pension contributions paid 02 06
profit of joint ventures – 02
net cash fromused in operating activities from discontinued operations 215 28
interest received – 01
purchase of property plant and equipment 38 104
purchase of computer software – 01
net cash used in investing activities from discontinued operations 38 104
repayments of obligations under finance leases 06 –
new finance leases – 03
net cash used infrom financing activities from discontinued operations 06 03
1
prior periods have been restated to include the results of the mvc segment within discontinued operations 82
melrose plc annual report 2008
notes to the accounts continued
26 cash flow statement continued
net debt reconciliation
at foreign other at
31 december exchange noncash 31 december
2007 cash flow
1
difference acquisitions disposals movements 2008
£m £m £m £m £m £m £m
cash 464 1151 62 –– – 1677
debt due within one year 05 05 – –– 05 05
debt due after one year 123 307 1398 5868 – 09 7091
financial derivatives – 171 190 331 – 30 –
leases 12 30 03 33 06 – 12
net cashdebt 324 1322 1529 5570 06 16 5431
1
includes £853 million of cash acquired on acquisition of fki plc
27 commitments and contingencies
future total minimum lease payments under finance leases and hire purchase contracts were as follows
31 december 31 december
2008 2007
£m £m
amounts payable
within one year 01 05
after one year but within five years 11 08
total minimum lease payments 12 13
less amounts representing finance charges – 01
12 12
future total minimum rentals payable under noncancellable operating leases as at 31 december 2008 were as follows
31 december 31 december
2008 2007
£m £m
amounts payable
within one year 167 28
after one year but within five years 428 76
over five years 128 29
723 133
capital commitments
at 31 december 2008 there were commitments of £104 million 2007 £04 million relating to the acquisition of new plant and machinery 83
melrose plc annual report 2008
financial statements  notes
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
the group did not enter into any transactions in the ordinary course of business with joint ventures during the current or prior year
sales to and purchases from related parties are priced at arms 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 39
year ended year ended
31 december 31 december
2008 2007
£m £m
short term employee benefits 23 21
share based payment 17 16
40 37
29 post balance sheet events
there are no post balance sheet events which require disclosure
30 contingent liabilities
as a result of the acquisition of the dynacast mckechnie and fki businesses certain contingent legal environmental and tax liabilities have been
identified 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
the group has contingent liabilities representing guarantees and contract bonds given in the ordinary course of business on behalf of trading
subsidiaries no losses are anticipated to arise on these contingent liabilities 84
melrose plc annual report 2008
independent auditors’ report
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 2008 which comprise
the balance sheet and the related notes 1 to 15 these parent
company financial statements have been prepared under the
accounting policies set out therein
we have reported separately on the group financial statements
of melrose plc for the year ended 31 december 2008 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 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 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
chairman’s statement 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 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
judgements 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
2008
– 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 llp
chartered accountants and registered auditors
london united kingdom
11 march 2009 85
melrose plc annual report 2008
financial statements  notes
company balance sheet for melrose plc
31 december 31 december
2008 2007
notes £m £m
non current assets
investment in subsidiaries 3 8849 3862
tangible fixed assets 4 05 –
derivative financial instruments 5 – 02
8854 3864
current assets
debtors 6 8428 460
cash at bank and in hand 17 278
8445 738
creditors amounts falling due within one year
creditors 7 1902 1739
1902 1739
net current assetsliabilities 6543 1001
total assets less current liabilities 15397 2863
creditors amounts falling due after more than one year
bank loans 7 8 7078 110
provisions for liabilities and charges 9 02 15
net assets 8317 2738
capital and reserves
issued share capital 10 11 583
share premium account 11 2791 –
merger reserve 11 2851 370
capital redemption reserve 11 2201 1546
profit and loss account 11 463 237
hedging reserve 12 – 02
shareholders’ funds 13 8317 2738
the financial statements were approved by the board of directors on 11 march 2009 and were signed on its behalf by
geoffrey martin simon peckham
group finance director chief operating officer 86
melrose plc annual report 2008
notes to the company balance sheet
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 company financial statements have been prepared on a going
concern basis in accordance with the rationale set out in the directors’
statement of going concern on page 31 of the directors’ report
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 at the fair
value of the consideration paid
bank borrowings
interest bearing bank loans and overdrafts are recorded at the proceeds
received net of direct issue costs finance charges including direct
issue costs are accounted for on an accruals basis in profit or loss using
the effective interest method and are added to the carrying amount of
the investment to the extent that they are not settled in the period in
which they arise
tangible fixed assets
tangible fixed assets 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
depreciation of fixtures and fittings is calculated on a straightline basis
over three to twelve 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 tangible fixed assets 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 of
cashgenerating units are written down to their recoverable amount
the recoverable amount of tangible fixed assets 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 tangible fixed assets 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
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 company 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 company 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 company’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 87
melrose plc annual report 2008
financial statements  notes
1 significant accounting policies continued
sharebased payments
the company has applied the requirements of frs 20 sharebased
payments the company 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
cash flow statement
the company has taken advantage of the exemption from preparing a
cash flow statement under the terms of financial reporting standard
no 1 revised “cash flow statements” because it prepares a
consolidated cash flow statement which is shown on page 87 of the
group financial statements
taxation
current tax including uk corporation tax and foreign tax is provided at
amounts expected to be paid or recovered using the tax rates and
laws that have been enacted or substantively enacted by the balance
sheet date
foreign currency
monetary assets and liabilities in foreign currencies are translated into
sterling at the rates of exchange ruling at the year end transactions in
foreign currencies are translated into sterling at the exchange rates
ruling at the dates of the transactions profits and losses on exchange
arising in the normal course of trading and realised exchange
differences arising on the conversion of foreign currency assets and
liabilities are dealt with in the profit and loss account
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 2008 of £476 million 2007 £2333 million the
company paid a dividend of £194 million 2007 £130 million during
the year and in addition distributed a return of capital of £74 million
2007 £2126 million
the company has unused tax losses of approximately £202 million
2007 £173 million 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
£56 million 2007 £47 million
the auditors’ remuneration for audit services to the company is
disclosed in note 7 to the consolidated financial statements
staff costs charged to operating profit comprise
31 december 31 december
2008 2007
£m £m
wages and salaries 59 37
social security costs 02 02
other pension costs 01 01
62 40
the pension costs relate to payments made by the company to
individual employee personal pension arrangements 88
melrose plc annual report 2008
notes to the company balance sheet continued
3 fixed asset investments
31 december 31 december
2008 2007
£m £m
subsidiaries 8849 3862
8849 3862
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
country of
subsidiaries incorporation principal activity holding 
dynacast canada uk limited great britain holding company 100
dynacast holdings limited great britain holding company 100
dynacast international limited great britain holding company 100
fki plc great britain holding company 100
melrose management resources limited great britain dormant 100
melrose overseas holdings limited great britain holding company 100
melrose uk holdings limited great britain holding company 100
melrose uk1 limited great britain holding company 100
melrose uk2 limited great britain holding company 100
melrose uk3 limited great britain holding company 100
mozart jersey no 2 limited jersey holding company 100 89
melrose plc annual report 2008
financial statements  notes
3 fixed asset investments continued
other significant indirectly owned subsidiaries and joint ventures of the group are
country of
subsidiaries incorporation principal activity  equity interest
lifting
bridonamerican corporation usa engineering company 100
bridon international limited great britain engineering company 100
bridon new zealand limited new zealand engineering company 100
crosby europe nv belgium engineering company 100
the crosby group inc usa engineering company 100
energy
brush electrical machines limited great britain engineering company 100
brush hma bv netherlands engineering company 100
brush sem sro czech republic engineering company 100
brush transformers limited great britain engineering company 100
harrington generators international limited great britain engineering company 100
hawker siddeley switchgear limited great britain engineering company 100
marelli motori spa italy engineering company 100
dynacast
dynacast singapore pte limited singapore engineering company 100
dynacast canada inc canada engineering company 100
dynacast deutschland gmbh and co kg germany engineering company 100
dynacast espana sa spain engineering company 97
dynacast inc usa engineering company 100
dynacast österreich gmbh austria engineering company 100
shanghai dynacast automotive casting co ltd china engineering company 100
shanghai dynacast electronic components ltd china engineering company 100
other industrial
fki logistex as denmark engineering company 100
fki logistex limited great britain engineering company 100
fki logistex holdings inc usa engineering company 100
industry general corporation usa engineering company 100
mckechnie engineered plastics limited great britain engineering company 100
mckechnie specialist products limited great britain engineering company 100
the harris waste management group inc usa engineering company 100
truth hardware corporation usa engineering company 100
weberknapp company usa engineering company 100
group
fki engineering limited great britain holding company 100
fki industries canada limited canada holding company 100
fki industries inc usa holding company 100
mckechnie management services limited great britain management services company 100
west house insurance limited guernsey insurance company 100 90
melrose plc annual report 2008
notes to the company balance sheet continued
3 fixed asset investments continued
subsidiaries £m
cost and net book value
at 1 january 2008 3862
additions 4987
at 31 december 2008 8849
on 1 july 2008 the company acquired 100 of the share capital of fki plc for consideration of £4987 million split £2503 million cash including
acquisition costs of £136 million and £2484 equity details of the acquisition and businesses acquired are detailed in note 12 of the group
financial statements
4 tangible fixed assets
fixtures and
fittings
£m
cost
at 1 january 2008 02
additions 05
at 31 december 2008 07
depreciation
at 1 january 2008 02
charge for the period –
at 31 december 2008 02
net book value
at 31 december 2008 05
at 31 december 2007 –
5 derivative financial instruments
31 december 31 december
2008 2007
£m £m
fair value of derivatives
foreign exchange contracts – 02
– 02
6 debtors
31 december 31 december
2008 2007
£m £m
amounts falling due within one year
amounts owed by group undertakings 8423 457
prepayments 05 03
8428 460 91
melrose plc annual report 2008
financial statements  notes
7 creditors
31 december 31 december
2008 2007
£m £m
amounts falling due within one year
amounts owed to group undertakings 1850 1655
accruals 52 12
preference shares – 72
1902 1739
amounts falling due after one year
bank loans and overdrafts 7078 110
7078 110
8 bank loans
effective 31 december 31 december
interest rate 2008 2007
 final maturity £m £m
current
preference shares june 2008 – 72
– 72
noncurrent bank loans
denominated in the following currencies
bank borrowings – us dollar loan libor  2 april 2013 4698 –
bank borrowings – euro loan euribor  2 april 2013 1984 –
bank borrowings – sterling loan libor  2 april 2013 500 –
bank borrowings – sterling loan libor  035 april 2010 – 110
7182 110
unamortised finance costs 104 –
7078 110
at 31 december 2008 the bank borrowings were drawn under the group’s £750 million five year committed term and revolving credit facility
a number of group companies act as guarantors to this facility drawdowns bear interest at interbank rates of interest plus an initial margin of 2
this margin is determined by reference to the group’s performance under its debt cover covenant ratio and ranges between 125 and 235
the interest rate repricing profile of financial liabilities after taking into account hedging interest rate derivatives is described in note 19 of the
group financial statements
the 9053594 redeemable preference c shares were redeemed on 30 june 2008 at a value of £74 million as disclosed in note 19 of the group
financial statements
9 provisions for liabilities and charges
incentive
scheme related
£m
at 1 january 2008 15
utilised 24
additional provision in the year 11
at 31 december 2008 02
included above is £02 million relating to national insurance on incentive schemes this provision is considered to be noncurrent 92
melrose plc annual report 2008
notes to the company balance sheet continued
10 calledup share capital
31 december 31 december
2008 2007
share capital £m £m
authorised
754999996 2007  201000000 ordinary shares of 02p each 2007 02p 15 04
267330058 2007 267330058 redeemabledeferred c shares of 823p each 2200 2200
50000 2007 50000 2007 incentive shares of £1 each 01 01
2216 2205
allotted called up and fully paid
497586779 2007 133665029 ordinary shares of 02p 2007 02p 10 02
nil 2007 70489480 deferred c shares of 823p – 580
50000  2007 50000 2007 incentive shares of £1 each 01 01
11 583
on 1 july 2008 the acquisition of fki plc involved the issue of 363921750 ordinary shares issue costs totalling £112 million were incurred and
this amount has been deducted from the share premium account
on 30 june 2008 9053594 c shares of 823p each were redeemed on the same date all deferred c shares of 823p each were cancelled
which resulted in a transfer of £655 million to 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 2007 3000 2007 incentive shares in melrose plc the ebt also holds
25279 ordinary shares of 02p each in melrose plc 2007 25279 ordinary shares
11 reserves
share merger capital accumulated
premium reserve redemption profitslosses
reserves £m £m £m £m
at 1 january 2007 2146 420 – 142
creation of preference c shares 2146 50 ––
b shares redeemed –– 01 –
preference 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 – 370 1546 237
issue of ‘offer and placement’ ordinary shares 2791 –– –
acquisition of fki – 2481 ––
preference c shares redeemed –– 655 –
dividend paid –– – 194
return of capital –– – 74
profit for the period –– – 476
credit to equity for equitysettled share based payments –– – 18
at 31 december 2008 2791 2851 2201 463
details of share based payments are given in note 22 to the group accounts 93
melrose plc annual report 2008
financial statements  notes
12 hedging reserve
£m
at 1 january 2007 11
increase in fair value of hedging derivatives 08
transfer to income 17
at 31 december 2007 02
transfer to income 02
at 31 december 2008 –
13 reconciliation of movements in shareholders’ funds
£m
at 1 january 2007 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 equity settled share based payments 18
at 31 december 2007 2738
dividends paid 194
issue of ‘offer and placement’ ordinary shares 2797
acquisition of fki 2484
profit for the financial year 476
decrease in hedging reserve 02
credit to equity for equity settled share based payments 18
at 31 december 2008 8317
14 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
2008 2007
£m £m
within one year – 01
15 related party transactions
the company has taken the exemption in frs8 not to disclose intercompany balances and transactions in the year 94
melrose plc annual report 2008
notice of annual general meeting
notice is hereby given that the sixth 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 14 may 2009
for the following purposes
ordinary business
1 to receive the company’s audited financial statements for the
financial year ended 31 december 2008 together with the
directors’ report and the auditors’ report on those financial
statements
2 to approve the directors’ remuneration report contained in the
company’s report and financial statements for the year ended
31 december 2008
3 to declare a final dividend for the year ended 31 december
2008
4 to reelect mr christopher miller who retires by rotation as a
director of the company
5 to reelect mr geoffrey martin who retires by rotation as a
director of the company
6 to reelect mr miles templeman who retires by rotation as a
director of the company
7 to elect mr perry crosthwaite who has been reappointed as a
director since the last annual general meeting as a director of
the company
8 to reappoint deloitte 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 10 and 11 as ordinary
resolutions and in the case of resolutions 9 12 and 13 as special
resolutions
9 that a general meeting other than an annual general meeting
may be called on not less than 14 clear days’ notice
10 that the authorised share capital of the company be and is
hereby increased by the creation of an additional 100000000
ordinary shares of 02 pence each in the company
11 that in substitution for all existing authorities the directors be
generally and unconditionally authorised to exercise all the powers
of the company to allot
a relevant securities as defined in the companies act 1985 up
to an aggregate nominal amount of £331724 and
b relevant securities comprising equity securities as defined in
the companies act 1985 up to an aggregate nominal
amount of £663449 such amount to be reduced by the
aggregate nominal amount of relevant securities issued under
paragraph a of this resolution 11 in connection with an
offer by way of a rights issue
i to ordinary shareholders in proportion as nearly as may
be practicable to their existing holdings and
ii to holders of other equity securities as required by the
rights of those securities or subject to such rights as the
directors otherwise consider necessary
and so that the directors may impose any limits or restrictions and
make any arrangements which they consider necessary or
appropriate to deal with treasury shares fractional entitlements
record dates legal regulatory or practical problems in or under
the laws of any territory or any other matter such authorities to
apply until the end of the company’s next annual general meeting
after this resolution is passed or if earlier until the close of
business on 30 june 2010 but in each case so that the
company may make offers and enter into agreements before the
authority expires which would or might require relevant securities
to be allotted after the authority expires and the directors may
allot relevant securities under any such offer or agreement as if
the authority had not expired
12 that in substitution for all existing powers and subject to the
passing of resolution 11 the directors be generally empowered to
allot equity securities as defined in the companies act 1985 for
cash pursuant to the authority granted by resolution 11 andor
where the allotment constitutes an allotment of equity securities
by virtue of section 943a of the companies act 1985 in each
case free of the restriction in section 891 of the companies act
1985 such power to be limited
a to the allotment of equity securities in connection with an
offer of equity securities but in the case of an allotment
pursuant to the authority granted by paragraph b of
resolution 11 such power shall be limited to the allotment of
equity securities in connection with an offer by way of a rights
issue only
i to ordinary shareholders in proportion as nearly as may
be practicable to their existing holdings and
ii to holders of other equity securities as required by the
rights of those securities or subject to such rights as the
directors otherwise consider necessary
and so that the directors may impose any limits or restrictions and
make any arrangements which they consider necessary or
appropriate to deal with treasury shares fractional entitlements
record dates legal regulatory or practical problems in or under
the laws of any territory or any other matter and
b to the allotment of equity securities pursuant to the authority
granted by paragraph a of resolution 11 andor an
allotment which constitutes an allotment of equity securities
by virtue of section 943a of the companies act 1985 in
each case otherwise than in the circumstances set out in
paragraph a of this resolution 12 up to a nominal amount
of £49758
such power to apply until the end of the company’s next annual
general meeting after this resolution is passed or if earlier until
the close of business on 30 june 2010 but so that the company
may make offers and enter into agreements before the power
expires which would or might require equity securities to be 95
melrose plc annual report 2008
shareholder information
allotted after the power expires and the directors may allot equity
securities under any such offer or agreement as if the power had
not expired
13 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 49758677 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 or if earlier at the close of business on 30 june
2010
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 barnes arden road
company secretary alcester
14 april 2009 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 companies act 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 12 may 2009 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
a 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 96
melrose plc annual report 2008
notice of annual general meeting continued
b 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 a above
6 as at 13 april 2009 being the last business day prior to the
publication of this notice the company’s issued share capital
consists of 497586779 ordinary shares carrying one vote each
therefore the total voting rights in the company as at 13 april
2009 are 497586779
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 97
company and shareholder information
as at 31 december 2008 there were 8237 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 7458 9054 5444599 109
5001 – 50000 454 551 6046464 122
50001100000 54 066 3902871 078
100001 – 500000 124 151 30047429 604
over 500000 147 178 452145416 9087
total 8237 10000 497586779 10000
financial calendar 2009
exdividend date for final dividend 15 april 2009
record date for final dividend 17 april 2009
annual general meeting 14 may 2009
payment of final dividend 15 may 2009
announcement of interim results august 2009
intended payment of interim dividend november 2009
preliminary announcement of 2009 results march 2010
directors
christopher miller
david roper
simon peckham
geoffrey martin
miles templeman
perry crosthwaite
john grant
company secretary
garry barnes
head office
leconfield house
curzon street
london w1j 5ja
tel 44 0 20 7647 4500
fax 44 0 20 7647 4501
wwwmelroseplcnet
registered office
precision house
arden road
alcester
warwickshire
b49 6hn
tel  44 0 1789 761020
fax  44 0 1789 761057
registered number
4763064
bankers
lloyds tsb bank plc
barclays bank plc
commerzbank ag
hsbc bank plc
jp morgan plc
the royal bank of scotland plc
auditors
deloitte llp
2 new street square
london ec4a 3bz
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
registrars
equiniti
the causeway
worthing
west sussex
bn99 6da
shareholders can view up to date information
about their shareholding and register to receive
future electronic communications from the
company by visiting the shareholders’ website
at wwwshareviewcouk
designed and produced by merchant
typeset by bettina brux
printed by st ives westerham press wwwmelroseplcnet spine
melrose plc annual report 2008


Summary:
 04
melrose plc annual report 2008
chairman’s statement
i am pleased to report melrose’s sixth set of annual results since
flotation in october 2003
results for the group
these accounts report the results for the group for the year to
31 december 2008 and the relevant comparatives for the previous
year fki plc was acquired on 1 july 2008 and its results have been
included from that date
revenue for the year was £9383 million 2007 £2886 million
headline profit before tax before exceptional costs exceptional
income and intangible asset amortisation other than computer
software was £754 million 2007 £281 million
headline earnings per share which the board considers to best
represent the true underlying performance of the group increased
15 to 168p compared with proforma earnings per share of 146p
as defined in the finance director’s review in 2007
further explanation of these results is provided in the finance
director’s review
much hard work and dedication from our employees has gone
into producing these highly satisfactory results and on behalf of
shareholders i would like to thank and congratulate them
fki plc
on 1 july 2008 we completed the acquisition of fki plc for a total
consideration including debt of just under £1 billion as i said at the
time of our interim results last august a substantial opportunity exists
for improving the performance of fki’s businesses over the next few
years principally through an increased focus on profitability and much
has already been achieved we are confident that fki will prove to be
an excellent acquisition and produce significant value for shareholders
within our original time frame of three to five years we are ahead of
our plans to improve profitability and generate cash
christopher miller executive chairman
2008 was a very active
year for melrose and many
actions were taken
particularly as regards fki
to further strengthen our
underlying performance 05
melrose plc annual report 2008
introduction introduction  businesses
these results demonstrate that 2008 was a good trading year for
the group as a whole however it will be no surprise to learn that
some of our businesses began to feel the effect of the global
downturn in the final quarter of the year and this of course has
continued into 2009 however our managers have been quick to
respond to this changed environment where appropriate by reducing
manpower and other costs to align their businesses with current and
expected order books it is important to emphasise that not all of our
businesses have been equally affected by the downturn and in many
of our businesses order books remain at a good level
cash generation which was an excellent £600 million after
dividends in 2008 will remain a key priority in 2009 we will
however continue to invest in those businesses with demonstrable
growth prospects it is important to maintain a balance between short
term cost reduction and the need to be positioned for resumed
growth when the upturn comes
2008 was a very active year for melrose and many actions were
taken particularly as regards fki to further strengthen our underlying
performance more information on these actions together with a
detailed review of our businesses and financial position are contained
in the reviews of the chief executive and finance director on the
following pages
dividends
the board intends to propose a final dividend of 425p per share the
same level as last year together with the interim dividend of 275p
per share paid on 14 november 2008 this gives a total for the year of
7p per share 2007 675p per share an increase of 37 if
approved the dividend will be payable on 15 may 2009 to
shareholders on the register at 17 april 2009
this total dividend would be covered 24 times by headline
earnings per share your board recognises the importance of dividends
particularly during difficult economic times and regards the maintenance
of the dividend at the very least as an important objective
strategy
melrose’s strategy is to acquire businesses it understands improve
them by a mixture of investment and changed management focus
and in a three to five year time frame realise the value created and
return it to shareholders in the most efficient way possible although
current economic and stock market conditions suggest the latter end
of the time frame is most likely to be appropriate for realisations the
strategy remains unchanged indeed we believe our competitive
advantage in pursuing this strategy has never been better and we
would expect there to be exciting opportunities to make further
acquisitions when the time is right
outlook
certain things are clear we have within our group businesses which
are able to withstand the worst of the downturn we have substantial
potential particularly within the fki businesses we have excellent
cash generation and we have a strong management team although
this year promises to be the most difficult for some time we have full
confidence in the long term prospects for your company
christopher miller
11 march 2009
15
increase in headline
earnings per share
your board recognises the
importance of dividends
particularly during difficult
economic times and regards
the maintenance of the
dividend at the very least
as an important objective
£60m
cash generated during
2008 after dividends