Melrose PLC Melrose PLC Annual Report 2010 Annual Report 2010

Making acquisitions Driving performance www.melroseplc.net Realising value Contents How we performed

Business performance “ These are excellent results from businesses 01 Financial highlights well positioned to enjoy superior growth in the 02 Group at a glance years to come. We are proud of the fact that 04 Chairman’s statement overall group profits have not declined through 06 Chief Executive’s review this sharp recession and at the current share 08 Energy business review price Melrose has created over £1 billion of 11 Lifting business review shareholder value since flotation in 2003. 14 Dynacast business review 16 Other Industrial business review We are considering the sale of Dynacast and 19 Finance Director’s review looking for our next acquisition but will only 26 Board of Directors proceed if we believe it creates shareholder 28 Directors’ report value. Looking ahead, we are confident of further progress in 2011 and beyond.” Governance 36 Corporate Governance report 40 Remuneration report Christopher Miller 44 Statement of Directors’ responsibilities Chairman Financials 45 Financial contents 46 Independent auditor’s report – consolidated statements 47 Consolidated Income Statement 48 Consolidated Statement of Comprehensive Income 49 Consolidated Statement of Cash Flows 50 Consolidated Balance Sheet 51 Consolidated Statement of Changes in Equity 52 Notes to the accounts 88 Independent auditor’s report – Company statements 89 Company Balance Sheet for Melrose PLC 90 Notes to the Company Balance Sheet Shareholder information 97  Notice of Annual General Meeting 100 Company and shareholder information

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Melrose PLC Annual Report 2010 Annual Report 2010 Melrose PLC Business performance Financial highlights(1) Governance Revenue (2) (Year ended 31 December 2010) Headline 2010 profit before tax of £170.8 million (2009: £118.6 million), £1,379.5m an increase of 44% 2009: £1,298.5m Headline(2) 2010 earnings per share Headline(2) operating profit of 25.4p (2009: 16.6p), up 53% (Year ended 31 December 2010) Headline(2) operating profit margin in the £196.9m second half of 2010 of 14.9% 2009: £149.7m Financials Revenue up 6% year on year and 15% Headline(2) basic earnings per share in the second half of 2010 (Year ended 31 December 2010) Profit before tax of £155.3 million 25.4p (2009: £82.0 million), an increase of 89% 2009: 16.6p Basic earnings per share after exceptional items and intangible asset amortisation of 28.4p (2009: 11.0p), up 158% Shareholder information Net debt of £287.4 million (2009: £321.7 million) reduced by £34.3 million. Net debt is now 1.25x EBITDA(3) (2009: 1.76x) Final dividend increased by 46% to 7.0p per share (2009: 4.8p) Full year dividend increased by 43% to 11.0p per share (2009: 7.7p) Since flotation over £1 billion shareholder value created at current market price Dynacast sale process underway

The Singapore Flyer is currently the tallest Ferris wheel in the world; it is forty two stories high, with a total height of 165m (541ft). (1) Continuing operations only unless otherwise stated. Bridon supplied 24 backstay cable assemblies (2) Before exceptional costs, exceptional income and intangible asset amortisation. and 112 spoke cable assemblies. (3) Headline(2) operating profit before depreciation and amortisation.

Annual Report 2010 Melrose PLC 01 Group Melrose’s strategy is to acquire businesses it understands, improve them by a mixture at a glance 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.

Division Key strengths

Expertise to design and manufacture an extensive Energy range of high quality, multi-pole low, medium and high voltage generators and electric motors Comprehensive and integrated aftermarket support World number one independent tailored to meet customers’ needs throughout the supplier of turbogenerators and operating life of their equipment leading supplier of other electricity Switchgear and transformer products in service with generating machinery, switchgear, all UK energy supply authorities transformers and power infrastructure Hydropower generators to produce environmentally equipment. Strong aftermarket Brush Aftermarket provides green energy service capabilities. dedicated customer support, Generators and electric motors for ship power replacement parts, repair, servicing and propulsion and product training for generators and control equipment. Strategically located around the world. More information see page 8

Comprehensive and competitive range of solutions in Lifting steel wire, wire and fibre rope and strand Technical expertise to support customers demanding applications, training, installation and testing Top three supplier worldwide World’s leading supplier of accessories used in lifting for wire and wire rope and leading and material handling applications supplier worldwide of lifting fittings Strategically located around the world. and blocks and custom engineered material handling products.

Crosby’s McKissick® oilfield drilling block has a height of 12ft and a capacity of 350 tonnes for the lifting and lowering of drilling pipes. More information see page 11

Precision engineered die-cast zinc, aluminium Dynacast and magnesium alloy components Full service capability Concept and design engineering Global design and manufacturer of Rapid prototyping precision engineered die-cast metal Machine building capability. components and assemblies.

Seatbelt component made by Dynacast, using an automated vision system designed to check twenty different safety critical components. More information see page 14

Market leading design and engineering capabilities Other Industrial In-depth aftermarket service supply capabilities Leading innovative product development and technology choice for customers Truth Trusted long-standing quality brand names. Harris MPC Weber Knapp Prelok MPC’s automated manufacture and assembly cell for the production of wheel arch claddings for equipment supplied to leading car manufacturers. More information see page 16

02 Melrose PLC Annual Report 2010 Business performance

Revenue Headline Average number 1 operating profit 1 of employees 1 4 4 4

2 2 3 3 2 3

1 Energy £427.5m (31%) 1 Energy £73.7m (35%) 1 Energy 3,277 (29%) 2 Lifting £422.7m (31%) 2 Lifting £66.7m (31%) 2 Lifting 2,917 (26%) 3 Dynacast £275.7m (20%) 3 Dynacast £43.0m (20%) 3 Dynacast 2,647 (24%) 4 Other Industrial £253.6m (18%) 4 Other Industrial £28.7m (14%) 4 Other Industrial 2,300 (21%) Governance Products Major customers Financial data

Power generation equipment with 10 kW to General Electric Revenue 250 MW electric generators Pratt & Whitney Synchronous motors, induction motors, Wartsila submersible and traction motors Hitachi £427.5m Power management and excitation systems L3 2009: £418.3m Generator control and protection panels Converteam Generator terminal cubicles Rolls-Royce Headline operating profit Medium voltage AC and DC traction switchgear Scottish & Southern Electricity Power and system transformers Scottish Power Aftermarket servicing. UK Power Networks Financials Network Rail and London Underground. £73.7m 2009: £61.0m

Wire rope, fibre rope and wire Global crane original equipment Revenue Lifting hooks, connectors, clamps manufacturers (“OEMs”) and mining OEMs and hoist rings Major oil companies Material handling products Global oil field exploration and £422.7m Monorail systems construction contractors 2009: £419.0m Chain hoists Construction companies Industrial carts and trailers. Lifting products distributors. Headline operating profit £66.7m Shareholder information 2009: £62.5m

Automotive components P&G (Gillette) Revenue Telecommunications Autoliv Electronic components Valeo Consumer products Dell £275.7m Die-casting machines. TRW 2009: £208.7m Motorola Avago Headline operating profit Apple MGI HUF. £43.0m 2009: £21.3m

Window and door hardware US hardware industry OEMs Revenue Balers, shears, waste compactors Waste and scrap processors and auto shredders Manufacturers and distributors in Automotive trims and mouldings various industries and retailers. £253.6m Food packaging containers and 2009: £252.5m transit trolleys Widgets for bottles and cans Sealing products Headline operating profit Ergonomic office and desk equipment. £28.7m 2009: £20.6m

Annual Report 2010 Melrose PLC 03 Chairman’s statement

“In the first half of the year the Group story was one of substantially increased operating margins on essentially flat turnover. In the second half of the year this has been augmented by the return of top-line growth.”

I am pleased to report Melrose’s eighth set of annual results since flotation in 2003. Over this period Melrose’s market Headline profit before tax capitalisation has grown from £13 million at flotation to £1.5 billion as at the date of this report. This has been achieved with a net investment(1) by our shareholders of c£450 million and so at the current share price over £1 billion of shareholder value £170.8m has been created since flotation. 2009: £118.6m Results for the Group These accounts report the results for the Group for the year Headline basic earnings per share to 31 December 2010 and comparatives for the previous year. Revenue for the year was £1,379.5 million (2009: £1,298.5 million). Headline profit before tax (before exceptional costs, exceptional income and intangible asset amortisation) was £170.8 million 25.4p (2009: £118.6 million) and headline basic earnings per share 2009: 16.6p were 25.4p (2009: 16.6p). Profit before tax was £155.3 million (2009: £82.0 million) and the basic earnings per share were 28.4p (2009: 11.0p). Total 2010 dividend Further explanation of these results is provided in the Finance Director’s review. 11.0p Dividends 2009: 7.7p The Board intends to propose a final dividend of 7.0p per share (2009: 4.8p). Together with the interim dividend of 4.0p per share (2009: 2.9p) paid on 1 October 2010 this gives a total for the year of 11.0p per share (2009: 7.7p), an increase of 43%. This reflects both the highly successful performance in 2010 and the Board’s confidence in the future.

Trading The trading performance of our businesses in 2010 has been outstanding.

(1) Value of equity issued less returns of capital and dividends.

04 Melrose PLC Annual Report 2010 Business performance Governance “We are well placed operationally and financially to take on another substantial acquisition. We are as selective as ever with our criteria and although it is impossible to be precise about timing we are confident of identifying a value enhancing opportunity in due course.” Financials

In the first half of the year the Group story was one of Strategy and outlook substantially increased operating margins on essentially flat Much has been achieved in the period since the acquisition turnover. In the second half of the year this has been augmented of FKI with our existing businesses and management and by the return of top-line growth. This combination has produced employees are to be congratulated on this performance. an increase of 32% in annual headline operating profit and However, there remains much opportunity for more to an even higher 53% increase in the year’s headline earnings be achieved. per share due to reductions in tax and net financing costs. Shareholder information None of our major businesses has yet regained the levels of Group headline operating margins are now at 14.3% up from sales reached in the recent past, nor do we believe they have 11.5% last year and in the second half of the year we have reached their potential in terms of profitability. Our strategy virtually achieved the margin target of 15% we set on the of selling businesses at the appropriate moment in their acquisition of FKI. improvement cycle remains in place and this moment has not Much of this profit growth has come from FKI businesses arrived for the majority of our businesses. Demand, though acquired in July 2008, but also from Dynacast, our principal stronger in Europe and South East Asia than North America, early cycle business, which saw strong sales growth particularly continues to be good and current order books lead us to be in the first half of the year. Order books for the Group remain optimistic on the sales outlook for 2011. Our ability to pass strong going into 2011. on raw material price increases, together with many initiatives on the cost front, mean we are also hopeful of further Cash generation in 2010 remained extremely strong. Over 100% improvements in operating margins. of profits were turned into cash, generating headline operating cash (after capital expenditure) of £202.5 million; and working We are well placed operationally and financially to take on capital remained under strict control even in the face of improving another substantial acquisition. We are as selective as ever sales. Capital expenditure, which had been somewhat curtailed with our criteria and although it is impossible to be precise during the downturn, is now back on a rising trend – we expect about timing we are confident of identifying a value enhancing this to exceed depreciation over the next few years as our opportunity in due course. investment plans are implemented. We see opportunities for In the meantime the inherent strengths of our businesses and profitable investment in all of our businesses. their management teams gives the Board confidence of further progress in 2011. Dynacast Dynacast has been owned since May 2005 and the Board considers this to be an appropriate time to seek to realise the value created since then. A sale process has commenced and we are hopeful of a satisfactory outcome. Shareholders, however, can be confident that this excellent business will only Christopher Miller be sold at a price which fully reflects the quality of its prospects. 9 March 2011 In the event a sale is successful it is our intention to return the proceeds to shareholders.

Annual Report 2010 Melrose PLC 05 Chief Executive’s review

“The Energy division had an excellent year in 2010. Although the global power generation market started to recover during the year, it was not until well into the second half of the year that Brush Turbogenerators’ generator sales started to gather momentum, reflecting the later cycle nature of its business.”

I am very pleased with the trading performance of the Group in 2010. As we move back into a period of sales growth though, Revenue it is worth noting that profits have increased in the Group (Full year) notwithstanding the severe global downturn of the last few years. In the first half of the year, the profit increase was achieved £1,379.5m largely through lower costs on flat sales, whereas in the second 2009: £1,298.5m half the profit growth was driven by increasing sales as the order books, particularly from our later cycle businesses, started to kick in. This has resulted in a steady and gratifying Headline operating profit margin improvement in headline operating profit margins (a key Melrose (Second half) performance indicator) to 14.9% in the second half of the year. This is significant in that it demonstrates the transition to increasing revenue driving profit growth rather than cost 14.9% reduction. The Group is well placed to benefit from this in that 2009: 13.0% many of its businesses operate in industries and regions with strong long term growth characteristics. As a result, during the second half of 2010 the Group has stepped up its capital Headline basic earnings per share growth expenditure programme significantly. Whilst there are concerns about the effect of raw material price increases on the global economy, individually our businesses 53% all benefit from strong positions in their markets and we are 2010: 25.4p versus 2009: 16.6p confident that, absent to an overall decline in the global economy, the Group will not be adversely affected. The Energy division had an excellent year in 2010. Although the global power generation market started to recover during the year, it was not until well into the second half of the year that Brush Turbogenerators’ generator sales started to gather momentum, reflecting the later cycle nature of its business. In addition, the acquisition of GMS in the year has greatly boosted Brush Turbogenerators’ presence in the higher margin aftermarket business and this represents a major strategic opportunity for Brush. We continue to target growth in higher margin aftermarket sales and are confident that we will continue to see further success in this area over the months to come.

06 Melrose PLC Annual Report 2010 Business performance Governance “On the back of healthy order books, supported by an aggressive capital investment programme and a healthy pipeline of exciting new product introductions, we look forward to a further year of progress for the Group in 2011.” Financials

The continuing strength of the order book, allied to the efficiency The Other Industrial division performed well in 2010 – profit gains being achieved, especially in relation to the absorption of was up substantially on the back of a modest increase in sales. Brush Transformers’ operations, gives us confidence that 2011 MPC in particular had an exceptional year as the benefits of a will be another good year. focused programme of technically differentiated new products supported by capital investment started to come on stream. In the Lifting division, Bridon’s profit in 2010 fell marginally short This has led to a strong business relationship with Jaguar Land

of its record profit in 2009. Whilst a number of Bridon’s markets Shareholder information Rover which we have been pleased to support with capital saw some recovery in the year, the offshore oil and gas industry investment. We look forward to another year of progress from remained subdued, exacerbated by the moratorium on this division. deepwater drilling following the Horizon oil spill in the Gulf of Mexico. During the year Bridon launched a number of exciting In February 2011, Brush Traction, Logistex UK and Madico new products designed to meet the increasingly demanding were sold for a total consideration of £20.7 million. applications required by its customers and continued to invest in the upgrading of its manufacturing and research and Outlook development facilities. With general market conditions Melrose group companies operate in markets that are forecast continuing to improve and the expectation that the offshore oil to continue to expand and to have good medium and long term and gas market will start to recover in the second half of 2011, growth characteristics. This, combined with an ongoing benefit allied to the benefits from the new products and higher capital from tight cost control, gives us confidence that we will continue spending, Bridon looks forward to a year of progress. Crosby to see progress over the years to come. recovered sharply in 2010 following a difficult 2009. Both sales and profit grew strongly, partly as a result of a general pick up On the back of healthy order books, supported by an aggressive in market conditions, but also as a result of the hard work put in capital investment programme and a healthy pipeline of exciting during 2009 to work closely with its well established distributor new product introductions, we look forward to a further year of base and continue to focus on developing new products, progress for the Group in 2011. thereby resulting in gains in market share. With major advances being made in expanding in the Far East and increasing orders in its established North American and European markets, Crosby looks forward to a successful outcome in 2011. Dynacast performed exceptionally well in 2010 with revenue and profit recovering strongly after a difficult 2009. Some of the cost David Roper savings made during the downturn have been retained as sales 9 March 2011 have recovered and this has resulted in a highly encouraging return on sales in the year of over 15 per cent. Sales in all three of Dynacast’s main geographic regions grew strongly in the year and new tool sales, a key indicator of future growth, reached a record high in Asia during the year. As market conditions continue to show improvement, Dynacast is confident of a further year of progress.

Annual Report 2010 Melrose PLC 07 Market leading manufacturers Energy of electricity generating equipment, review switchgear and transformers.

One of the four stator frames supplied by Brush to the Bohunice nuclear power plant in the Slovak Republic. Brush also supplied five rewound generator rotors as part of the modernisation of the plant, which was completed in September 2010.

Revenue Revenue by geographical destination (%) 4 1 (Year ended 31 December 2010) (Year ended 31 December 2010) 3

£427.5m 1 Europe 66% 2 2009: £418.3m 2 North America 21% 3 Asia 8% 4 Rest of World 5% Headline operating profit Sectors served: Power generation plants, oil and gas, utilities, (Year ended 31 December 2010) industrial, marine, rail, telecommunications, construction, commercial, military, hydropower, cogeneration, uninterrupted £73.7m power supply and aftermarket. 2009: £61.0m

Energy businesses Generators Brush Turbogenerators is the world’s largest independent Brush Turbogenerators manufacturer of electricity generating equipment for the power www.brush.eu generation, industrial, oil and gas and offshore sectors. From its four plants in the UK, Holland, the Czech Republic and the USA, it designs, manufactures and services generators principally in Brush GMS the 10 MW to 250 MW range for both gas and steam turbine www.brushgms.com applications and supplies a globally diverse customer base. In addition, Brush Turbogenerators designs and manufactures Hawker Siddeley Switchgear Systems and Power transformers under the Brush name for www.hss-ltd.com UK electrical utilities and for the oil and gas sector primarily in the Middle East. Marelli Motori Brush Turbogenerators performed very well in 2010 with a www.marellimotori.com particularly strong second half of the year. Revenue was nearly 10 per cent higher than in 2009 and headline operating profit Harrington Generators was approximately one third higher, resulting in a most healthy www.hgigenerators.com and satisfying outcome in return on sales, one of Melrose’s key performance indicators.

08 Melrose PLC Annual Report 2010 Business performance Governance “Sales were delivered on a far leaner Brush Turbogenerators Brush is in the process of supplying four water-hydrogen and more efficient cost base, cooled generators as part of an extension to the nuclear producing a significant improvement power plant situated at Mochovce, Slovak Republic. The picture shows one of the generators on test at the in operating margins and backed Brush factory in the Czech Republic. All four Brush generators up by excellent cash generation.” will be installed by 2013, together with new hydrogen and water systems for cooling the generators, oil systems for lubrication and static excitation systems for power supply. Aftermarket sales performed well and produced a 25 per cent increase in the year, aided by the contribution from the acquisition in February 2010 of GMS, a US company based More information about Brush Turbogenerators is available in Pennsylvania. GMS has exceeded its first year targets for online at www.brush.eu both orders and sales. Financials The global power generation market began a slow recovery in 2010 resulting in Brush Turbogenerators’ new-build sales increasing by 3 per cent in 2010 over 2009. These sales were delivered on a far leaner and more efficient cost base, producing a significant improvement in operating margins and backed up by excellent cash generation. Significant progress was also made in the year in implementing Sectors served: Power generation plants, oil and gas, utilities, the new Brush manufacturing strategy. A combination of industrial, marine, rail, telecommunications, construction, targeted capital investment in core facilities, outsourcing of commercial, military, hydropower, cogeneration, uninterrupted non-core operations and a factory management philosophy power supply and aftermarket. based on value stream principles has reduced average generator manufacturing lead times by 15 per cent. Shareholder information Furthermore, this improved performance is being carried out off an inventory base which is half what it was when FKI was acquired in 2008. As reported in the Interim Statement last August, the operations of Brush Transformers were absorbed into Brush Turbogenerators in July 2010. The integration of the transformers business proceeded Marelli Motori (“Marelli”) according to plan and was largely completed during 2010, Marelli, based in Italy, is one of the world’s leading resulting in significant operational gains, which will be reflected manufacturers of industrial generators and electric motors in Brush Turbogenerators’ performance in 2011. The softness with a product portfolio ranging from 0.2 kW to 7.2 MW. in the UK demand for transformers experienced in the first half With five overseas offices in Germany, UK, Malaysia, USA of 2010 has continued into the second half of the year. and South Africa it serves worldwide markets for power generation, marine, oil and gas and industrial manufacturing. Harrington, the specialist generator manufacturer based in the UK, saw a small fall in sales in 2010 following the 30 per cent Sales in 2010 were marginally below 2009 and headline decline in 2009. There is evidence to suggest that the UK operating profit in the year was affected by adverse sales mix small generator market bottomed out in 2010 as orders and increasing raw material costs. During 2010 sales shifted increased by 14 per cent, primarily in the last quarter of the away from higher margin larger specialist machines towards year. The transition of the business to more specialised more standard machines, reflecting the impact of the economic applications is on track and Harrington enters 2011 with downturn which hit the marine sector particularly hard. Marelli a healthy order book. once again confirmed its cash generating abilities by converting 135% of its headline operating profit into cash. Outlook Brush Turbogenerators entered 2011 with a new-build order The building of the Malaysian plant is well underway and should book of £132 million representing well over half of its budgeted be fully operational by the middle of this year. This plant will new-build sales for 2011. These sales, allied to the improved make the smaller, more standard generators, thereby enabling operational efficiency of the plants, together with the increased Marelli’s Italian operation to focus on manufacturing larger, more proportion of higher margin aftermarket business and the sophisticated machines. benefits from the integration of Brush Transformers, give us confidence that Brush Turbogenerators will have another good year in 2011.

Annual Report 2010 Melrose PLC 09 Energy review continued

Outlook Hawker Siddeley Switchgear (“HSS”) The positive momentum in orders experienced in 2010 has HSS produces a wide range of indoor and outdoor medium continued into the new year and gives us confidence that 2011 voltage switchgear, selling into the global power distribution will be a year of progress at Marelli. and transit markets. Based in the UK, where it has both a manufacturing and a R&D facility, HSS also has manufacturing plants in Australia and China. HSS produced another good trading result in 2010 with further encouraging progress in operating margins, assisted by continuing focus on operational efficiency improvements during the year. In addition, tight control of working capital resulted in a creditable cash generation performance. Both UK and Australian operations recorded healthy sales and an encouraging order intake during the year on the back of a focused product development programme designed to expand the reach and the range of HSS’s core products. The indoor and outdoor power distribution markets remained strong, supported by the further development of the UK and overseas mass transit markets, where HSS secured significant business on a number of high profile infrastructure projects. The facility in Shanghai is now fully operational, supplying circuit breakers into HSS’s UK operation. This will now be further developed to support the company’s growth strategy in South East Asia, with particular regard to the growth of metropolitan systems throughout the region. This presents a significant opportunity for HSS. Outlook On the back of positive trading momentum at the end of 2010 and with a strong opening order book in 2011, HSS looks forward to a good year.

Marelli In 2010, Marelli supplied and installed a medium-voltage high-speed Vertical Hydropower Synchronous Generator to a hydropower plant in Bürglen, Switzerland. The generator is fitted with water cooled sleeve bearings able to withstand static and hydraulic loads and has a rated power of 3,700 kVA and a rated speed of 1,000 rpm. The generator weighs 19 tonnes and is able to satisfy the electric power requirements of over 900 family houses.

More information about Marelli is available online at www.marellimotori.com HSS Part of the HSS ‘Fit and Forget’ family of products, the Horizon fills the market need for outdoor, ground-mounted circuit breakers. Designed for a 38kV application, the Horizon can be used with other HSS products to provide cost effective and compact substations, or breathe new life into existing substations by replacing old and obsolete equipment.

More information about HSS is available online at www.hss-ltd.com

10 Melrose PLC Annual Report 2010 Business performance World leading suppliers of wire, Lifting wire rope products, lifting fittings review and blocks. Governance Revenue (Year ended 31 December 2010) £422.7m 2009: £419.0m

Headline operating profit (Year ended 31 December 2010) £66.7m 2009: £62.5m Financials

Revenue by geographical destination (%) 1 (Year ended 31 December 2010) 4

3 2 1 Europe 26% 2 North America 49% 3 Asia 14% 4 Rest of World 11% Sectors served: Onshore and offshore oil and gas, deep shaft and surface mining, petrochemical, alternative energy, general industrial and construction markets, fishing and marine, infrastructure (e.g. bridges and sports stadia) and material Shareholder information handling industries.

Bridon cables and end fittings were used to support the Infinity Bridge in Stockton-on-Tees. See page 12 for further details.

Lifting businesses Bridon Bridon designs and manufactures a comprehensive range Bridon of lifting and stabilising solutions for applications in wire rope, www.bridon.com fibre rope, steel wire and strand. The company services global customers in the oil and gas, mining, industrial, marine and Crosby infrastructure sectors. www.thecrosbygroup.com As foreshadowed in the Interim Statement in August, Bridon’s profit in 2010 fell short of the record profit recorded in 2009, Acco which benefited particularly from strong orders in the later www.accomhs.com cycle offshore oil and gas business. Headline operating margins in the second half of 2010 were weaker, due to lower sales in this business and low margin contracts in Bridon’s structures business. Whilst a number of Bridon’s markets experienced some recovery in 2010, market conditions in the offshore oil and gas industry remained subdued throughout the year. By contrast the onshore oil and gas sector did see some recovery.

Annual Report 2010 Melrose PLC 11 Lifting review continued

Bridon The Infinity Bridge is a public pedestrian and cycle footbridge across the River Tees in the borough of Stockton-on-Tees. Bridon manufactured the locked coil cable assemblies and end fittings for this award-winning bridge. The design utilises two tied arches and is supported using Bridon Galfan® locked coil cables fitted with Stylite® architectural sockets. The largest of the arches is tied using 90mm diameter cable assemblies and the deck is hung from the arches using 44 x 30mm diameter cables. The total length of the bridge is 237 metres.

More information about Bridon is available online at www.bridon.com

General demand in the offshore market was weak in the aftermath of the global recession and this was exacerbated “Bridon’s focus on leading technology by the moratorium on deep water drilling following the Horizon oil spill in the Gulf of Mexico. Indeed, the impact of the spill product development accelerated in was felt in markets beyond North America, as the regulatory 2010 with the introduction of eleven authorities continued to scrutinise safety issues connected with deep water drilling. new products designed to meet the By contrast, the mining market continued to improve for both increasingly demanding applications deep shaft and surface mining as a result of the renewed demand for commodities, which has led to increased orders required by its customers.” in most markets. The commercial construction markets in North America, the Bridon continues to invest in the upgrading of its manufacturing Middle East and Europe remained subdued in 2010. As a result, and research and development facilities. The programme to many industrial crane companies have been cautious in placing improve the wire mill in Doncaster, designed to increase orders, although activity has continued at reasonable levels in manufacturing efficiencies and significantly reduce carbon China and other parts of Asia. However, industrial production emissions and other environmental waste, is due for completion has increased in some countries, which has driven demand for in the second half of 2011. The £3 million investment in industrial ropes. the company’s German factory, necessary to increase manufacturing capability for large multi-strand ropes, is on Bridon’s focus on leading technology product development schedule to complete shortly. Further substantial capital accelerated in 2010 with the introduction of eleven new products investment is also planned over the next two years. designed to meet the increasingly demanding applications required by its customers. New product introductions in 2010 Outlook included the 2G Big Hydra, an enhanced multi-layer winch rope Although Bridon expects demand in the offshore oil and gas for the oil and gas industry, which provides greater strength and market to remain subdued in the first half of 2011, it is expected rotational stability to meet the growing challenges of deep-sea that this market will start to see some recovery in the second deployment and the Tiger BiG Bristar rope, used in the surface half of the year, particularly in light of the continuing strength mining industry for dragline applications. Improvements have in the price of oil. The higher oil price will also benefit Bridon’s also been made to Bridon’s industrial and crane range with the mining business, positively affecting activity levels in the introduction of a new high strength Dyform 8 Bristar rope, which Canadian Tar Sands. offers improved design and plastic sheathing, resulting in significantly increased fatigue resistance.

12 Melrose PLC Annual Report 2010 Business performance Governance Whilst the outlook for Bridon’s construction market remains Crosby uncertain, global manufacturing, particularly in the Far East, is likely to continue to increase during 2011, bringing modest In October 2010, Crosby supplied growth to Bridon’s industrial business. an integral piece of the system used in rescuing thirty three Chilean Bridon’s strategy to lead technology development through high coal miners from their sixty nine quality manufacturing and innovative technical solutions in the day underground imprisonment. wire and fibre rope industry leaves it well placed to benefit from market recovery. Through a local distributor, Crosby provided the key link between the wire rope used to hoist the miners Crosby out of the mine and the capsule in Crosby is a world leader in the design, manufacture and sale which they made the trip to safety. of lifting fittings and blocks to the oil and gas, construction and A Crosby S421 Wedge Socket

mining sectors, serviced primarily through a global network Financials was used to connect the 24mm wire of specialist distributors. rope to the 600kg rescue capsule. The recovery in Crosby’s trading performance from a difficult 2009, reported in the Interim Statement, has continued on the back of an ongoing improvement in order bookings throughout the year. Crosby’s sales in the second half of 2010 were over More information about Crosby is available online at 20 per cent higher than in the second half of 2009 (the low www.thecrosbygroup.com point in Crosby’s sales cycle) and this has resulted in a very encouraging recovery in Crosby’s profit and operating margins. During the year Crosby continued to focus and build upon its broad product mix of lifting fittings sold through its traditional distributor base. Market share gains have been achieved as a result of working closely with its distributors and focusing on technical training and end-customer service and support. Shareholder information This model has proved very successful in North America and is beginning to gain traction in other parts of the world. An integral part of this model is a continuing focus on new product development. During the year Crosby introduced a number of new product lines and also made refinements to existing products. The Split Nut design, used in crane blocks to enable quick removal and easy inspection, has become widely accepted in its market. In addition, Crosby is in the process of introducing a new e-applications system, soon to be available on services such as the Apple iPad, designed to provide customers with real-time information regarding the installation and usage of Crosby products. The expansion of the Crosby franchise beyond North America and Europe, where it has a powerful presence, remains a high priority. In addition to the rationalisation of the manufacturing base in Europe, further investment was made in strengthening the sales and marketing team with a view to increasing penetration, including territories such as India and the Middle East. Crosby continues to expand its capabilities in China by extending its network of distributors – sales volume has increased by an average of 35 per cent per annum over the past few years. This effort has been greatly assisted by the new crane block and sheave centre, based in Hangzhou, Outlook China, which has resulted in shorter delivery lead times to On the back of a growing order book in its established North customers. Although at an early stage, Crosby has started American and European markets, and significant advances stocking inventory in Brazil in order to take advantage of the being made in penetrating newer regions, we look forward to fast growing offshore oil exploration opportunities. a further year of good progress.

Annual Report 2010 Melrose PLC 13 Global designer and manufacturer Dynacast of precision engineered die-cast review metal components and assemblies.

Revenue (Year ended 31 December 2010) £275.7m 2009: £208.7m

Headline operating profit (Year ended 31 December 2010) £43.0m 2009: £21.3m

4 Revenue by geographical destination (%) 1 (Year ended 31 December 2010)

3

1 Europe 41% 2 North America 33% 3 Asia 25% 2 4 Rest of World 1% Sectors served: Automotive, telecommunications, consumer electronics, computing, healthcare and construction.

The Dynacast TV lamp bracket functions as a grip for the colour wheel inside Samsung’s Digital Light Protection (DLP) high-definition, flat screen television. The lamp bracket is made of aluminium alloy to deliver high strength and low product weight.

Dynacast businesses Dynacast is a global manufacturer of precision engineered products, including die-cast metal components that can be Dynacast machined, plated and assembled to customer specifications. www.dynacast.com The products are manufactured using proprietary die-casting technology and are supplied to a wide range of end markets, including automotive, healthcare, telecommunications, Techmire consumer electronics, hardware, computers and peripherals. www.techmire.com After a very challenging 2009, Dynacast staged an outstanding Fishercast recovery in 2010. Revenue was 32 per cent higher than in the www.fishercast.co.uk previous year and headline operating profit more than doubled. Particularly pleasing was the improvement in the return on sales in the year to over 15 per cent. A large proportion of the costs that were taken out of the business to deal with the downturn have since returned as volumes have grown; however, it is expected that there will be some permanent saving, resulting in increased profitability.

14 Melrose PLC Annual Report 2010 Business performance Governance Zinc is the major raw material used in the manufacture of Dynacast’s products and the LME price increased from an “After a very challenging 2009, average of US $1,658 per tonne in 2009 to US $2,156 per Dynacast staged an outstanding tonne in 2010, accounting for approximately £12 million of the increase in revenue in 2010. Dynacast benefits from an recovery in 2010. Revenue was established metal cost pass-through mechanism, such that 32 per cent higher than in the this price increase had little impact on profit during the period. The underlying (adjusted for metal and foreign currency) sales previous year and headline increase in Europe in 2010 over the previous year was over operating profit more than doubled.” 30 per cent, with particularly strong performances in Germany, Austria and Spain. Sales to Gillette were up significantly as a result of the introduction of the new Fusion Pro-Glide razor.

North America, having been the hardest hit of Dynacast’s Financials regions in 2009 as a result of the severe downturns in the automotive and construction sectors, saw a gradual recovery in 2010 with sales picking up. During the year management Dynacast closed the Montreal die-casting facility and transferred the production to other Dynacast plants in North America and The telecommunications connector acts as a housing for Europe. After adjusting for this effect and foreign currency a midsize video jack, a video patching system product from and metal prices, underlying sales in the region rose by a company called ADC (a company that provides connections 13 per cent over 2009. for wireless, cable, broadcast and enterprise networks around the world). The connector replaces six separate components, In Asia, where the downturn in Dynacast’s sales was not as significantly improving quality as well as reducing production pronounced as in Europe and North America, the underlying costs for Dynacast customers. sales growth in 2010 was a most encouraging 23 per cent. China continues to be the growth engine in Asia with Dynacast More information about Dynacast is available online at www.dynacast.com

Shanghai leading the way with underlying revenue and headline Shareholder information operating profit growth in the year of 48 per cent and 153 per cent respectively over 2009. The new 4,500 square metre factory, which opened in Dongguan, South China, in 2009, has continued to develop rapidly. In view of the exciting growth potential in this region, Dynacast invested in a greenfield facility in Batam, Indonesia, which operates as a satellite unit of Dynacast Singapore and commenced production in the second half of 2010. In 2010 there has been pleasing development of Dynacast’s international business development team which operates centrally to target sales to large multi-national companies which can then source product from any of Dynacast’s factories worldwide. New tool sales, which are a key indicator of future growth, recovered in 2010 and, although more modest in the more developed economies, were at a record high in Asia in the year, which bodes well for 2011 and beyond. Outlook Having recovered dramatically from the downturn in 2009 through positive management actions on costs and improving markets, Dynacast remains well positioned to continue to produce good returns.

Annual Report 2010 Melrose PLC 15 Market leading manufacturers Other across the housing, construction, Industrial automotive, scrap processing review and other industrial sectors.

The equipment pictured shows a Harris BSH-30-1223 B-4 guillotine shear, based in Alabama, USA. This was sold to a customer involved in the processing of miscellaneous steel scrap, pipe, plate and selected sections of freight rail cars and ship scrap. With 1,118 metric tonnes of cutting force and a capacity to produce up to 46.3 metric tonnes of scrap material per hour, this shear epitomises Harris’ lead in the manufacture of recycling equipment in the industry and remains at the leading edge of technology and innovation.

4 Revenue Revenue by geographical destination (%) 3 1 (Year ended 31 December 2010) (Year ended 31 December 2010)

£253.6m 1 Europe 43% 2009: £252.5m 2 North America 53% 3 Asia 3% 4 Rest of World 1% 2 Headline operating profit Sectors served: Businesses serve a diverse range of sectors, (Year ended 31 December 2010) including housing, construction, retail, scrap processing, fibre recycling, automotive, consumer packaging, brewing, food distribution, power tools, industrial, medical, office furniture £28.7m and general engineering. 2009: £20.6m

Other Industrial businesses Truth Truth designs and manufactures a wide range of quality components for North American producers of fenestration Truth products including windows and patio doors utilised in both www.truth.com the new construction and the repair and remodel residential markets. Most of Truth’s products are manufactured in plants Harris in Minnesota, USA, and Ontario, Canada, with some lower www.harrisequip.com margin products outsourced to China. Truth reported a creditable trading result for 2010. As previously MPC reported, the dramatic recovery in Truth’s trading performance www.mckechnie-plastics.co.uk from the low point in the first half of 2009 started levelling off in the first half of 2010 as distribution pipelines were replenished. Although since that time US housing indicators have improved, Weber Knapp they nevertheless remain significantly below average. Truth has www.weberknapp.com done well to continue to raise its operating margins despite increasing pressure from substantial increases in the cost Prelok of materials, a testament to its leading market position in www.prelok.com North America.

16 Melrose PLC Annual Report 2010 Business performance Governance Truth continued to increase its market share during the year, both through organic sales growth and new product “Truth continued to increase its development. Management’s focus during the year has centred market share during the year, both on the control of labour costs, productivity, quality, service levels and customer satisfaction, together with constant attention to through organic sales growth and working capital management. new product development.” The major strategic initiative to outsource the manufacturing of lower margin products to China continues to make good progress and this has resulted in more capacity being made Harris available for the efficient production of higher margin casement Harris is a market leader in the scrap and waste recycling units in Truth’s Minnesota plant. industries, operating from two plants in Georgia, USA. The company designs, manufactures and services a full Outlook range of equipment solutions and serves the scrap metal Notwithstanding the appalling weather conditions in a large Financials and fibre recycling industries. part of the US at the beginning of 2011, which has made comparisons to last year very difficult to assess, there is a Harris performed well in 2010. Although revenue declined feeling that, although US housing remains sluggish, Truth will slightly in the year, headline operating profit was over show moderate sales growth in the year. In view of the efficiency 15 per cent higher than in 2009, as a result of improved gains continuing to be made in the business and its growth in efficiency and lower costs, resulting in a healthy improvement market share, Truth should continue to improve its performance in operating margin. Demand for scrap recycling machines in 2011 and is very well placed to benefit when the US housing recovered in 2010 with order intake being 50 per cent market recovers. higher than in 2009. Harris continued to invest in design and engineering in 2010 through its new product development group. During the year, Truth Harris introduced four new products that boast higher throughput but with approximately half the energy consumption. Truth Hardware’s Marvel™ Power Operator system for These new products present a strong value proposition in Shareholder information windows and skylights is a sleek new design that is simple the market. to install, easy to operate and above all reliable and affordable. Rated to lift skylight sashes weighing up to 90 lbs, the Marvel During the year Harris decided to build on its strong reputation System has an optional hand held remote control and roof in the scrap and waste recycling industries by expanding its mounted rain sensor to add convenience and peace of mind. presence in Latin America in order to take advantage of the rapidly growing markets in that region. In addition, during the year Harris continued to add resources More information about Truth is available online at to its growing aftermarket business. This has grown from www.truth.com approximately 20 per cent of Harris’ sales in 2008 to 34 per cent in 2010. Outlook Harris should have another year of progress in 2011 but, based on the current order book, this is expected to be weighted to the second half of the year.

Annual Report 2010 Melrose PLC 17 Other Industrial review continued

MPC The advanced multi-material injection moulded cell has been designed and developed in support of various Jaguar and Land Rover vehicle platforms. The robotic equipment shown below is used in the production of door cladding and exterior body trims. Quick change robotics technology allows for flexible use across a number of similar components, which means that MPC can supply these parts for both three and five door vehicles.

More information about MPC is available online at www.mckechnie-plastics.co.uk

Outlook “MPC’s new business order book MPC’s new business order book remains very strong with a number of key projects due to go live in 2011. This together remains very strong with a number with the solid recovery being seen in UK manufacturing, allied of key projects due to go live to healthy exports, provides confidence for a successful in 2011.” outcome for the year.

MPC MPC designs and manufactures engineered plastic injection moulded and extruded components and metal pressings for sectors including food and beverage packaging, automotive, construction and industrial. The recovery signalled in the Interim Statement has continued and for the year ended 31 December 2010 MPC reported an increase in sales of approximately 35 per cent over 2009 and a near doubling of headline operating profit. The heavy focus on technically differentiated new product introductions has been rewarded with strong sales increases in the year to the automotive, building and consumer durable sectors. For example, MPC worked closely with Wavin in the development of a universal inspection chamber to prevent access to drainage systems of external contaminants into surrounding land. During 2010, in order to achieve its new product development objectives, MPC recruited a number of engineers specifically to focus on design and testing together with the customers to help bring onstream the new value-engineered products. Exploitation of manufacturing niches that use new materials and technologies will remain a priority as the business moves forward.

18 Melrose PLC Annual Report 2010 Business performance Finance Director’s review Governance “During the second six months of 2010 Group revenue increased by 15% compared to the same period in 2009 – a significant improvement from the 1% fall in the first six months of 2010. Headline operating profit in the year ended 31 December 2010 was

£196.9 million (2009: £149.7 million) Financials which was up by 32% on the previous year.”

The year to 31 December 2010 is the first full year since the FKI acquisition for which the prior year performance provides Headline operating profit a meaningful comparative. In addition, no businesses are shown as discontinued in 2010 and hence the 2009 and 2010 results have not been adjusted £196.9m from previously announced numbers. Shareholder information 2009: £149.7m Group trading results – continuing operations The continuing operations at 31 December 2010 include Net debt to headline EBITDA four trading divisions, namely Energy, Lifting, Dynacast and Other Industrial. To help understand the results of the continuing operations the term ‘headline’ has been used. This refers to results calculated 1.25 times before exceptional costs, exceptional income and intangible 2009: 1.76 times asset amortisation as this is considered by the Melrose PLC Board to be the best measure of performance. For the year ended 31 December 2010 the Group achieved Working capital revenue from continuing operations of £1,379.5 million (2009: £1,298.5 million) representing a 6% increase over the previous year. During the second six months of 2010 Group revenue increased by 15% compared to the same period in 2009 – 8.4% of sales a significant improvement from the 1% fall in the first six months 2009: 8.8% of sales of 2010. Headline operating profit in the year ended 31 December 2010 was £196.9 million (2009: £149.7 million) which was up by 32% on the previous year, a significantly faster pace of growth than for Group revenue. This was achieved by an increase in the headline operating profit margin (defined as the percentage of headline operating profit to revenue) from 11.5% in 2009 to 14.3% in 2010. Indeed, in the second half of 2010 the margin increased to 14.9%, just below our long term stated target of 15%. The reasons for this performance are highlighted in the Chief Executive’s review.

Annual Report 2010 Melrose PLC 19 Finance Director’s review continued

The most comprehensive measure of performance is headline the £750 million committed loan facility, a net interest cost on earnings per share (“EPS”) as this also includes both net finance pension plans in excess of the expected return on their assets costs and headline tax. As a consequence of improvements in of £4.1 million (2009: £6.6 million) and the unwind of discounts both of these costs compared to the previous year the headline on long term provisions of £1.7 million (2009: £1.6 million). EPS in 2010 of 25.4p (2009: 16.6p) has increased by 53%. The diluted headline EPS, which recognises the current value of Earnings per share and number of shares in issue the Melrose 2009 Incentive Share Scheme as at 31 December The Board believe that headline EPS gives the best reflection of 2010, was 24.1p for the year ended 31 December 2010 (2009: performance in the year as it strips out the impact of exceptional 16.3p) representing a 5% dilution factor (2009: 2%). costs, exceptional income and intangible asset amortisation. The headline EPS for the year to 31 December 2010 was 25.4p After exceptional costs, exceptional income and intangible (2009: 16.6p) which represents a 53% increase on the prior asset amortisation, Group operating profit was £181.4 million year. The diluted headline EPS for the year ended 31 December (2009: £113.1 million), Group operating margin was 13.1% 2010 was 24.1p (2009: 16.3p). This represents a 5% dilution (2009: 8.7%) and EPS was 28.4p (2009: 11.0p). factor (2009: 2%) to recognise the current value, in number of shares, of the Melrose 2009 Incentive Share Scheme. Trading results by division – continuing operations The performance of each of these divisions is discussed in In accordance with IAS 33, two further basic EPS numbers detail in the Chief Executive’s review. are disclosed on the face of the Income Statement, one for continuing operations which is 28.4p (2009: 11.0p) and one that Central costs comprise £8.6 million (2009: £8.9 million) of Melrose also includes discontinued operations, of which there are none PLC corporate costs and an LTIP accrual of £6.6 million (2009: in 2010, and therefore is also 28.4p (2009: 16.0p). £6.8 million). This accrual includes an amount of £1.8 million (2009: £1.8 million) in respect of the Melrose 2009 Incentive Share Exceptional costs and income Scheme. This annual accrual was calculated in accordance Melrose has continued to undertake significant action to improve with IFRS 2 using a standard pricing model when the scheme the operational and financial performance of the Group. was established and is constant until the date of crystallisation. To achieve this exceptional costs and exceptional income have In addition, an increase in the provision for the cash based been incurred and, along with intangible asset amortisation, senior management incentive schemes of £4.8 million (2009: these have been highlighted on the face of the Income Statement. £5.0 million) was charged. This scheme is for senior operational Exceptional operating costs amounted to £10.3 million (2009: management and is designed to reward improvement in £23.9 million), exceptional income to £21.4 million (2009: business performance mainly over the period to 2014. £14.0 million) and intangible asset amortisation to £26.6 million (2009: £26.7 million). Exceptional operating costs and income Finance costs and income consist of the following items: The net finance cost in 2010 was £26.1 million (2009: £31.1 million). Total Exceptional operating costs £m Net interest on external bank loans, overdrafts and cash Restructuring costs (5.9) balances was £17.9 million (2009: £20.3 million), which is largely Defined benefit pension plan disposal (4.0) protected from interest rate changes by a number of interest Acquisitions and disposals of businesses (0.4) rate swaps which fix the interest rate on £378.7 million (US $546.0 million and €33.3 million) of term debt. More detail on Total (10.3) these swaps is given in the finance cost risk management Total section of this review. The net interest expense on external loans Exceptional operating income £m has reduced during the year. This is because US $80 million Pension curtailment gain 13.1 of the term loan was repaid in 2009 following the sale of the FKI captive insurance commutation gain 5.6 Logistex businesses, and also the margin charged to Melrose Net release of provisions 2.7 by the bank syndicate has become lower due to the reduction Total 21.4 in leverage. In 2010 the Group had a blended interest rate of 3.35% (2009: 3.49%). The Group incurred £5.9 million of costs relating to Also included in the net finance cost is a £2.3 million (2009: restructuring programmes which include the integration of £2.1 million) amortisation charge for the initial costs of raising the Transformers business into the Turbogenerators business within the Energy division.

2010 2009 Headline 2010 Headline 2009 2010 operating Headline 2009 operating Headline Revenue profit/(loss) operating Revenue profit/(loss) operating Trading results by division – continuing operations £m £m profit margin £m £m profit margin Energy 427.5 73.7 17.2% 418.3 61.0 14.6% Lifting 422.7 66.7 15.8% 419.0 62.5 14.9% Dynacast 275.7 43.0 15.6% 208.7 21.3 10.2% Other Industrial 253.6 28.7 11.3% 252.5 20.6 8.2% Central – corporate – (8.6) n/a – (8.9) n/a Central – LTIPs(1) – (6.6) n/a – (6.8) n/a Group 1,379.5 196.9 14.3% 1,298.5 149.7 11.5%

(1) Long Term Incentive Plans.

20 Melrose PLC Annual Report 2010 Business performance

In addition, the Group entered into a buyout arrangement to The headline cash generation since acquiring FKI has been sell the liabilities of the Bridon Group Senior Executive Plan achieved across all divisions as shown in the table at the bottom for £4.0 million in excess of IAS 19 carrying value of plan of the page. net liabilities. This has enabled Melrose to generate £96.9 million of cash from In accordance with IFRS 3 (revised 2008), the £0.2 million of trading after all costs including tax in the year to 31 December costs incurred in the acquisition of Generator & Motor Services 2010. Importantly, since the acquisition of FKI on 1 July 2008,

of Pennsylvania, LLC are shown as exceptional costs in these £341.9 million of cash has been generated from trading after all Governance financial statements. The Prelok France business, previously costs including tax. In addition, £48.5 million of cash net of shown within the Other Industrial division, was disposed of for costs has been generated from disposals and £100.5 million a loss of £0.2 million. has been paid to shareholders. This has meant that, at constant exchange rates, net debt has reduced by £278.5 million, 60% During the year, it was announced to members of the FKI UK since the acquisition of FKI on 1 July 2008. Pension Plan that it would be closed to the accrual of future benefits on 28 February 2011 resulting in a curtailment gain Since FKI 2010 acquisition of £13.1 million. Full year (1 July 2008) Movement in net debt £m £m In addition, a gain of £5.6 million was generated by the commutation of certain insurance policies within the FKI captive Opening net (debt)/cash (321.7) 22.3 insurance company. Acquired net debt – (471.7) Net cash flow of acquisitions (9.1) (20.3) During 2010, provisions created as part of the FKI fair value Net cash flow from disposals (0.1) 48.5 exercise were reassessed based on latest information and this

Cash generated from trading Financials resulted in a net release of £2.7 million, the credit for which has (after all costs including tax) 96.9 341.9 been shown in exceptional income. Amount paid to shareholders (43.8) (100.5) Foreign exchange movement (7.2) (105.3) Acquisition during the period On 12 February 2010, the Group acquired 100% of the Other non-cash movement (2.4) (2.3) issued share capital of Generator & Motor Services of Closing net debt (287.4) (287.4) Pennsylvania, LLC (“GMS”), a company operating in North America supplying aftermarket services to the turbogenerator The detail of the cash flow from trading is shown below: industry. The consideration for GMS was £8.0 million. In addition Since FKI acquisition costs of £0.2 million were incurred and expensed 2010 acquisition Cash generated from trading Full year (1 July 2008) in the Income Statement in accordance with IFRS 3 (revised (including discontinued operations) £m £m 2008). GMS is now reported within the Energy division. Headline operating profit 196.9 440.6 Depreciation and computer

Disposal of businesses – post 31 December 2010 software amortisation 32.9 87.9 Shareholder information Three smaller businesses have been disposed of in the two Working capital movement 3.1 151.4 months following 31 December 2010, namely, Brush Traction, Net capital expenditure (30.4) (80.8) Logistex UK and Madico, all of which were held within the Other Industrial division. Headline operating cash flow (post capex) 202.5 599.1 The net proceeds for these businesses were £20.7 million Headline operating profit conversion and the businesses contributed £58 million to revenue and to cash % 103% 136% £6 million to headline operating profit in 2010. Net interest and net tax paid (43.8) (97.8) In addition, £22 million of pension liabilities went with the Defined benefit pension contributions (27.5) (75.6) Logistex UK business, including a small deficit, and with the Other (including restructuring costs) (34.3) (83.8) Brush Traction disposal over £100 million of parent company Cash generated from trading guarantees and bonds were transferred to the buyer. (after all costs including tax) 96.9 341.9

Cash generation and management The Balance Sheet leverage (calculated as net debt divided by A key performance measure for Melrose is the percentage headline operating profit before depreciation and amortisation) of profit conversion to cash. This represents the amount of was 1.25x at 31 December 2010. This is a 29% reduction from cash (post working capital movement and capital expenditure) leverage of 1.76x at 31 December 2009 and it has more than that is generated from headline operating profit. In the year to halved compared to leverage of 2.65x two years ago. 31 December 2010 103% (2009: 149%) of headline operating profit has been converted to cash. This means that the long term Melrose headline operating profit conversion to cash from 2003 to 2010 is now 122%, and since acquiring FKI is 136%.

Cash generation and management Other Total since FKI acquisition Energy Lifting Dynacast Industrial Central continuing Discontinued Total Headline operating profit/(loss) £m 165.6 164.9 79.7 59.9 (42.8) 427.3 13.3 440.6 Headline operating cash generation (post capex) £m 213.2 185.0 105.3 70.2 (24.0) 549.7 49.4 599.1 Headline operating profit conversion to cash 129% 112% 132% 117% 56% 129% 371% 136%

Annual Report 2010 Melrose PLC 21 Finance Director’s review continued

Capital expenditure The headline cash tax rate of 16% (2009: 3%) is again low The pay back on capital projects is a key part of the Melrose due to the benefit arising from the utilisation of tax losses and strategy to improve operational performance. By division, the other deferred tax assets. In the medium term, the headline capital expenditure in the year was as follows: cash tax rate is expected to trend toward the headline Income Other Statement rate. Energy Lifting Dynacast Industrial Central Total The total amount of tax losses in the Group has increased Capital slightly due to the recalculation of prior year positions. This is expenditure £m 9.4 9.8 7.0 5.5 0.2 31.9 largely offset by the utilisation of losses and other deferred Depreciation £m 8.0 9.4 7.7 7.1 0.7 32.9 tax assets against current year profits. The tax losses are Capital expenditure as follows: to depreciation Recognised Unrecognised Total Tax losses £m £m £m ratio (full year) 1.2x 1.0x 0.9x 0.8x 0.3x 1.0x UK – 214.5 214.5 Capital expenditure North America – 1.3 1.3 to depreciation Rest of World – 35.9 35.9 ratio (second half year) 1.5x 1.6x 1.4x 1.1x 0.3x 1.4x Total 2010 – 251.7 251.7 Melrose six year Total 2009 13.6 237.8 251.4 (2005-2010) average annual The Group’s net deferred tax liability is £81.9 million (2009: multiple 1.2x £103.2 million). A £102.8 million (2009: £112.9 million) deferred tax liability is provided in respect of brand names and customer The capital spend to depreciation ratio was 1.0x in 2010, relationships acquired. This liability does not represent a future compared with 0.7x in 2009. Indeed, in the second half of 2010 cash tax payment and will unwind as the brand names and it increased to 1.4x. This illustrates that the Group is returning to customer relationships are amortised. its investment phase where the Board authorises capital and restructuring projects which will improve the value of the Assets and liabilities businesses. The six year Melrose average annual capital The summary Melrose Group assets and liabilities are spend is in excess of depreciation at 1.2x. shown below: 31 December 31 December Working capital management 2010 2009 The Board continues to allow each division to have the correct £m £m amount of working capital to achieve the most suitable balance Fixed assets (including computer software) 256.1 254.3 between commercial and financial efficiency. To ensure this Intangible assets (excluding Goodwill) 381.1 403.1 happens, working capital days cover targets are set for each Goodwill 798.1 779.2 business unit for inventory, trade receivables and trade payables. Net working capital 115.9 114.3 Retirement benefit obligations (119.6) (169.1) Even in this year of growth, a working capital cash inflow of Provisions (118.7) (144.2) £3.1 million was achieved, which means that working capital has become more efficient in the year. During Melrose’s Deferred tax and current tax (134.3) (152.5) ownership of FKI the cash generated from working capital, Other (8.3) (0.1) at constant exchange rates, is now £151.4 million, which Total 1,170.3 1,085.0 represents a 57% reduction in net working capital. A further measure of improvement is that the percentage of net working These assets and liabilities are funded by: capital to sales for the Melrose Group has now reduced to 8.4% 31 December 31 December at 31 December 2010 compared to 15.4% on acquisition of FKI. 2010 2009 £m £m Tax Net debt (287.4) (321.7) As expected, the headline Income Statement tax rate in 2010 Equity (882.9) (763.3) was 26% (2009: 30%). Total (1,170.3) (1,085.0) This is consistent with the Group’s natural tax rate, based on the mix of 2010 contributions of profit by country and the standard The increase in total equity is primarily related to the profit for statutory tax rate in those countries, as adjusted for specific, the year of £141.3 million, the actuarial gain on defined benefit known factors. The overall effect on the Group of higher tax pension plans of £13.8 million less dividends paid to rates in North America and certain European countries is offset shareholders of £43.8 million. by the benefit that continues to arise from lower tax rates in the Far East and other European countries. The rate after exceptional items and intangible asset amortisation is 9% (2009: 33%), which is lower than the headline rate due mostly to the recognition of exceptional US deferred tax assets of £23.5 million as an exceptional credit. These deferred tax assets are recognised now because sufficient future taxable profits are now expected to arise to benefit from future likely tax deductions and losses.

22 Melrose PLC Annual Report 2010 Business performance

Goodwill, intangible assets and impairment review It is noted that a 0.1 percentage point decrease in the discount The total value of goodwill as at 31 December 2010 is rate would increase the pension liability on the FKI UK Pension £798.1 million (2009: £779.2 million) and the remaining intangible Plan by £9.5 million and a 0.1 percentage point increase to assets £381.1 million (2009: £403.1 million). These items are split inflation would increase the liability on this plan by £3.5 million. by division as follows: Furthermore, an increase by one year in the expected life of a Other 65 year old male member would increase the pension liabilities Energy Lifting Dynacast Industrial Total on this plan by £17.3 million.

£m £m £m £m £m Governance Goodwill 252.1 299.7 207.6 38.7 798.1 The long term strategy for the UK plans is to focus on the cash flows required to fund the liabilities as they fall due. These cash Intangible assets flows extend many years into the future and the ultimate (excluding Goodwill) 129.1 212.5 20.5 19.0 381.1 objective is that the total pool of assets derived from future Net other assets 46.5 48.1 28.5 29.2 152.3 company contributions and the investment strategy allows each Total carrying value 427.7 560.3 256.6 86.9 1,331.5 cash payment to members to be made when due. The Melrose Group contributes £18.5 million to the FKI UK Pension Plan and The non-current assets have been tested for impairment £4.6 million to the McKechnie UK Pension Plan per annum. as at 31 December 2010. The Board is comfortable that no impairment is required. In addition, the strategy includes reducing the volatility of liabilities whenever commercially viable. Pensions The McKechnie UK Pension Plan is closed both to new The Group has a number of defined benefit and defined members and current members’ future service. The FKI UK contribution plans. The IAS 19 deficit of the defined benefit Pension Plan is closed to new members and on 28 February Financials pension plans as at 31 December 2010 was £119.6 million 2011 it closed to current members’ future service, resulting in (2009: £169.1 million). a curtailment gain of £13.1 million. This gain was included in The current market value of the assets of the FKI UK Pension exceptional income so as not to distort headline performance. Plan, the most significant plan in the Group, is insufficient to Further post retirement benefits were terminated during 2010 satisfy the liabilities to members when they are valued on a on US retiree benefit plans reducing liabilities by £3.4 million. basis consistent with IAS 19. The net accounting deficit on In addition, on 5 March 2010 the Group sold the assets this plan was £78.6 million at 31 December 2010 (2009: (£17.4 million) and liabilities (£18.9 million) of the Bridon Group £110.1 million). This plan had assets at 31 December 2010 Senior Executive Plan to Aegon Trustee solutions at a premium of £549.2 million (2009: £508.7 million) and liabilities of to the IAS 19 net liabilities of £4.0 million which is shown in £627.8 million (2009: £618.8 million). exceptional costs. The Trustees are in the process of winding The other UK defined benefit pension plan of significant size up this plan. in the Group, namely the McKechnie UK Pension Plan, was in surplus of £1.9 million at 31 December 2010 (2009: deficit of Shareholder information £12.1 million). This plan had assets at 31 December 2010 of £143.8 million (2009: £128.1 million) and liabilities of £141.9 million (2009: £140.2 million). In addition, a US defined benefit plan for FKI exists. At 31 December 2010, this had assets of £193.3 million (2009: £174.4 million), liabilities of £213.1 million (2009: £191.4 million) and consequently a deficit of £19.8 million (2009: £17.0 million). The assumptions used to calculate the IAS 19 value of the pension plans within the Melrose Group are considered carefully by the Board of Directors. For the FKI UK Pension Plan a male aged 65 in 2010 is expected to live for a further 20.2 years. This is assumed to increase by 2.5 years (12%) for a male aged 65 in 2035. A summary of the key assumptions of the FKI UK Pension Plan are shown below: 2010 2009 Assumption Assumption % % Discount rate 5.55 5.75 Inflation 3.45 3.45 Salary increases 4.00 3.95

Annual Report 2010 Melrose PLC 23 Finance Director’s review continued

Risk management Cash, deposits and marketable securities amounted to The financial risks the Group faces have been considered £195.7 million at 31 December 2010 (2009: £147.5 million) and policies have been implemented to best deal with each and are offset against gross debt of £483.1 million (2009: risk. The four most significant financial risks are considered £469.2 million) to arrive at the net debt position of £287.4 million to be liquidity risk, finance cost risk, exchange rate risk and (2009: £321.7 million). In combination with the undrawn committed commodity cost risk. These are discussed in turn. facility headroom of £234.6 million (2009: £224.9 million), the Board considers that the Group has sufficient access to liquidity Liquidity risk management for its current needs. The Group’s net debt position continued to improve during the year ending 31 December 2010 at £287.4 million compared In accordance with the reporting requirements on going with £321.7 million a year earlier. This decrease in net debt concern issued by the Financial Reporting Council the Directors resulted from strong operational cash generation (more cash acknowledge that the economic environment causes uncertainty was generated than profit) and is despite an exchange rate as to the trading outcome for 2011. The Group has committed translation loss on foreign currency denominated net debt borrowing facilities until April 2013. In addition, the breadth of of £7.2 million. the end markets that the Melrose Group companies trade in, both by sector and geographically, gives some balance to The Group has a multi-currency committed facility that provides various market and economic cycle risks. Furthermore, as a a term loan and revolving credit facility through to April 2013. result of the consistent cash generation record, which has These facilities have reduced from £750 million at inception in allowed net debt at constant exchange rates to reduce by 60% April 2008 to approximately £739 million as at 31 December since July 2008, the financial headroom has significantly 2010. The term loan is fully drawn down, having originally been improved. The Group’s forecasts take into account reasonable set at £500 million and has since been reduced by applying the possible changes to trading performances. As a consequence proceeds from the disposal of the Logistex businesses in 2009. the Board believes that the Group can manage its business The term loan is subject to a 15% repayment amortisation and, risks successfully and accordingly the Group financial as a result of the repayments arising from the Logistex statements have been prepared on a going concern basis. proceeds, the first scheduled repayment of approximately £3 million is not now due until April 2012. The last repayment Finance cost risk management prior to maturity of £25 million is due in October 2012. The Group maintained a net debt position throughout 2010. The revolving credit facility of £250 million is not subject to The Group protects 78% of its gross debt from exposure to any such repayments and the undrawn facility headroom at changes in interest rates by holding a number of interest rate 31 December 2010 was £234.6 million (2009: £224.9 million). swaps to fix £378.7 million (US $546.0 million and €33.3 million) In addition, there are a number of small uncommitted overdraft of term debt. Under the terms of these swaps, the Group has and borrowing facilities made available to the Group. fixed the underlying interest rate at 2.1% for US Dollars and These uncommitted facilities are lightly used. 2.6% for the Euro through to early 2013. At 31 December 2010 this produced a blended interest rate of 3.35% (2009: 3.49%) on In 2008 the term loan portion of this facility was converted into the £750 million facility, calculated after inclusion of the current currency loans comprising US $686.0 million, €58.3 million and 1.5% margin but before amortisation of arrangement fees and £50.0 million. In 2009 the Group used disposal proceeds to non-utilisation fees. repay US $80.0 million of the US Dollar loans equivalent to 9% of the term loan, leaving US $606.0 million, €58.3 million and £50.0 million outstanding at 31 December 2010. Consequently, using the exchange rates as at 31 December 2010, the term loan is now equivalent to £488.8 million. 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 first covenant, which now calculates net debt at average exchange rates during the period, is set at 3.0x for December 2010 reducing by 0.25x each year until 2013. At these exchange rates the net debt to headline EBITDA at 31 December 2010 was 1.27x (compared to 1.25x at Balance Sheet rates) allowing significant headroom compared to the covenant test. The interest cover covenant remains at 3.5x throughout the life of the facility. At 31 December 2010 the actual interest cover was 9.7x which also affords comfortable headroom compared to the covenant test. Covenant tests are performed each June and December.

24 Melrose PLC Annual Report 2010 Business performance

Exchange rate risk management The long term exchange rate risk, which ignores any hedging The Group trades in various countries around the world and instruments in place, is as follows: is exposed to many different foreign currencies. The Group Increase therefore carries an exchange rate risk that can be categorised in headline into three types as described below. The Board policy is Sensitivity of profit to translation and operating profit full transaction exchange rate risk £m designed to protect against some of the cash risks but not the non-cash risks. The most common cash risk is the transaction For every 10 cent strengthening of the risk the Group takes when it invoices a sale in a different US Dollar against Sterling 10.4 Governance currency to the one in which its cost of sale is incurred. This is For every 10 cent strengthening of the addressed by taking out forward cover against approximately Euro against Sterling 9.0 60% to 80% of the anticipated cash flows over the following twelve months, placed on a rolling quarterly basis or for 100% No exchange instruments are used to protect against translation of each committed contract. This does not eliminate the cash risk. However, when the Group has net debt, the hedge of risk but does bring some certainty to it. having a multi-currency debt facility funding these foreign currency trading units protects against some of this risk. Average Closing Exchange rates used in the period rate rate The most significant exchange risk that the Group takes arises US Dollar when a significant business that is predominantly based in a 2010 1.55 1.56 foreign currency is sold. The proceeds for those businesses will 2009 1.57 1.62 most likely be received in a foreign currency and therefore an exchange risk arises if these proceeds are converted back to Euro Sterling, for instance to pay a dividend to shareholders. Financials 2010 1.17 1.16 Protection against this risk is taken on a case-by-case basis. 2009 1.12 1.13 Commodity cost risk management The effect on the key headline numbers in 2010 for the As Melrose owns engineering businesses across various continuing Group due to the translation movement of exchange sectors the cumulative expenditure on commodities is rates from 2009 to 2010 is shown below. The table illustrates important. The Group addresses the risk of base commodity the translation movement in revenue and headline operating costs increasing by, wherever possible, passing on the cost profit if the 2009 average exchange rates had been used to increases to customers or by having suitable purchase calculate the 2010 results rather than the 2010 average agreements with its suppliers which sometimes fix the price exchange rates. over some months into the future. On occasions, Melrose does enter into financial instruments on commodities when The translation difference in 2010 £m this is considered to be the most efficient way of protecting Revenue increase 5.2 against movements. Headline operating profit increase 1.2 Shareholder information For reference, guidelines to show the net translation exchange risks that the Group currently carries and an indication of the short term exchange rate risk, which shows both translation exchange risk and unhedged transaction exchange rate risk is as follows: Geoffrey Martin 9 March 2011 Increase in headline Sensitivity of profit to translation and unhedged operating profit transaction exchange risk £m For every 10 cent strengthening of the US Dollar against Sterling 5.0 For every 10 cent strengthening of the Euro against Sterling 5.0

Annual Report 2010 Melrose PLC 25 Board of Directors

Christopher Miller Age 59, he qualified as a chartered accountant with Coopers & Executive Chairman 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 non-executive Director of TMO Renewables Limited.

David Roper Age 60, he qualified as a chartered accountant with Peat Marwick Chief Executive Mitchell, following which he worked in the corporate finance divisions of S.G. 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 non-executive Director on the boards of two companies. Mr Roper was appointed as an executive Director of Melrose on 29 May 2003.

Simon Peckham Age 48, he qualified as a solicitor in 1986. In 1990 he joined Wassall Chief Operating Officer 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 Age 43, he qualified as a chartered accountant with Coopers & Group Finance Director Lybrand, where he worked within the corporate finance and audit departments. In 1996 he joined Royal Doulton PLC and 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.

26 Melrose PLC Annual Report 2010 Business performance Governance Miles Templeman Age 63, he has been a director of several consumer goods and Senior Non-Executive retailing companies. He was Managing Director of Threshers Director 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 non-executive Chairman of restaurant chain YO! Sushi between 2003 and 2008. He has also held a number of other non-executive 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 non-executive Chairman of Shepherd Neame, the Kentish family brewer. Financials

Perry Crosthwaite Age 62, he has over 30 years’ experience as a Director in the City Non-Executive Director of London. He was a founding Director of Henderson Crosthwaite Institutional Brokers Limited, serving on the board until its acquisition by Investec Bank 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 non-executive Director of Melrose on 26 July 2005. He is currently Chairman of Jupiter Green Investment Trust Plc and a non-executive Director of ToLuna Plc, Investec Limited and Investec Plc. Shareholder information

John Grant Age 65, Mr Grant spent his executive career in a variety of senior Non-Executive Director international roles within the automotive industry and other engineering businesses. He was Chief Executive of Ascot Plc between 1997 and 2000. Prior to that, Mr Grant was Group Finance Director of Lucas Industries Plc (subsequently LucasVarity Plc) between 1992 and 1996. He previously held several senior strategy and finance positions with Ford Motor Company in Europe and the USA. Mr Grant was appointed as a non-executive Director of Melrose on 1 August 2006. He is currently Chairman of Gas Turbine Efficiency Plc, and Torotrak Plc, and non-executive Director of MHP S.A. and Pace Plc.

Audit Committee Remuneration Committee Nomination Committee Miles Templeman (Chairman) Perry Crosthwaite (Chairman) Miles Templeman (Chairman) Perry Crosthwaite Miles Templeman Perry Crosthwaite John Grant John Grant John Grant During 2010 the Audit Committee During 2010 the Remuneration Committee Christopher Miller met three times met twice During 2010 the Nomination Committee met twice

More information see pages 37, 38 More information see page 38 More information see page 38

Annual Report 2010 Melrose PLC 27 Directors’ report

The Directors of Melrose PLC present their report and the Business reviews audited financial statements of the Group for the year ended During the year, in many of the Group’s business units, focus 31 December 2010. has been placed on the development of new product lines; this has helped to ensure that businesses remain at the forefront Strategy and principal activities of technological advances within defined market sectors and Melrose PLC has a strategy to acquire industrial businesses, continue to meet specific customer demand. enhance their performance and realise their value in the medium term. Further details of each part of the strategy are The Group continues to invest in the building of new factory shown below: facilities, particularly in the Far East, with Hawker Siddeley Switchgear, Dynacast, and Marelli opening, or in the process Acquisition Strategy of opening, new plants in China, Indonesia and Malaysia, Melrose aims to acquire industrial businesses that, in the respectively. Elsewhere, investment in the Group’s factories opinion of the Directors, have the potential to improve, both continues; at Bridon a programme to upgrade the wire mill in financially and operationally, and create value for shareholders. Doncaster is due for completion next year, with further In order for this acquisition strategy to be successful, businesses investment also planned at their German, North American and are targeted that have strong headline fundamentals, such as Chinese facilities in order to increase manufacturing capability. high quality products, or a leading market share, to generate sustainable cash flows and achieve profit growth. An emphasis has also been placed on developing leaner manufacturing processes where possible and exploring The executive Directors have extensive experience of outsourcing opportunities to other areas of the world, identifying and evaluating acquisition opportunities, in both predominantly the Far East. Truth made the decision to quoted and unquoted companies, within the UK and overseas. outsource more of its lower margin products to China during  Performance Improvement Strategy 2009 and the benefits of this began to materialise in 2010; The Company is not a passive investor in the businesses that over time Truth plan to further develop this strategy. it acquires. The Directors and senior management team have Within Brush, focus was placed on the Aftermarket business and a hands-on relationship with each acquired company, by this resulted in a 25% increase in Aftermarket sales when working closely with their divisional senior management teams compared to 2009. This performance was assisted by the in developing the long term strategic plans of the business, as purchase of Generator & Motor Services of Pennsylvania, LLC well as having regular input on restructuring decisions, capital (“GMS”), a US company based in Pittsburgh, in February 2010. expenditure and working capital management. The Company is fully committed to investing within the businesses it acquires The development of growth opportunities in emerging markets in order to fully exploit their operational and strategic continued to be a key focus within the Group during the year, strengths. A natural part of this process involves the disposal especially in China, Indonesia, Malaysia and other parts of Asia. of non-core businesses. Some business units are also exploring the opportunities for growth within South America to capitalise on the rapidly growing Generally, Melrose will retain acquired companies for a period sales opportunities that may be available within these markets. of between three to five years. The cost base of all business units was kept under constant  Disposal Strategy review during 2010. Businesses have continued to build on the Once the performance improvement strategy has been various cost reduction initiatives introduced in 2009, with several completed, at the appropriate time each business will be restructuring projects taking place. The Group also continues to disposed of in order to return any value creation to shareholders. regularly review its pension and benefit liabilities and reduce The Directors are experienced in being able to recognise the volatility where possible. A decision has recently been taken to appropriate time in the business cycle for disposal, in order close the largest defined benefit scheme of the Group (the FKI to provide funding for future acquisitions and return funds UK Pension Plan) to future accrual on 28 February 2011; this to investors. decision is expected to result in the funding deficit of this scheme being removed earlier than may have otherwise been expected. The Company has already delivered significant value to shareholders. For example, the acquisition of the McKechnie The Directors remain focused on identifying the next business Group in May 2005 and its subsequent restructure resulted in opportunity in order to create further value for shareholders. the sale of two McKechnie divisions in 2007 (two years after they were acquired), which allowed the Company to repay The Chairman’s statement on pages 4 and 5, together with £173 million of debt and return £220 million to shareholders. the Chief Executive’s review on pages 6 and 7, Business reviews on pages 8 to 18 and Finance Director’s review on pages 19 The largest acquisition by the Group to date has been that of to 25 describe the principal activities, operations, financial FKI plc, in July 2008, for a total consideration of £970.4 million; performance, financial position and likely future prospects this increased the size of the Melrose Group by approximately of the Group. The results of the Group are set out in detail six times. There has been significant ongoing restructuring in the financial statements on pages 47 to 51 and in the within FKI since acquisition, including the disposal of several accompanying notes. non-core businesses. In June 2009, the Company sold its North America operations of the Logistex division for The Company is required by the Companies Act 2006 to set out US $40 million. The European operations of Logistex in this report a fair review of the development and performance were also sold for €30 million, in August 2009. 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 Post year end, the Company has disposed of three non-core uncertainties facing the Group. The information that fulfils these businesses, being Madico, Logistex UK and Brush Traction, for requirements can be found within the Chief Executive’s review, £20.7 million. Business reviews, Finance Director’s review and in this Directors’ report. The Finance Director’s review also discusses the key performance indicators that management use.

28 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 29

2009

Shares

Incentive 50,000

Melrose PLC Melrose Shares Ordinary Ordinary 497,586,779

31 December 2010 1 January 2010 and an interim or final dividend or to vote at a a generalat aninterimfinal or dividendmeeting.vote to or in shareholderin value between periodand the July 2007 of 2012. May The2009 Incentive Sharesbepaid confer right not doa to holders the Onwinding participate entitledareup, to the in whichassets anamountwouldequal they to to Company’s been have entitled theirif 2009 Incentive Shares crystallisedhad Furtherwinding of up. 2009details date the the at of as IncentiveShares can Remuneration the befound in report Report 2010 Annual as an alternative to converting anasalternative Ordinaryto them into Shares and holders requestaward the not may early conversion 2010 in 2011. and/or Participantseither entitledare cash a to dividend, number a or Ordinary of Shares Company the in based anonincrease pageson and 40 41. Furtherrights and obligations attaching sharesto Thefollowing summary current basedis Company’s the on 2010. May Articles,13 on AGM the at adopted as TheCompany has takenout aninsurance policy respectin thoseliabilities of which for beDirectors the not may indemnified. Neither the indemnity the insurance nor provides acted have to Director proved a is that event the in cover dishonestlyfraudulently. or Directors’responsibilities Theresponsibilities Directors’ Statement of the relationin to consolidatedfinancial out statements pageset is on 44. Sharecapital share capital Company’s Detailsstructurethe and the of of shares outrightsset thisareon attached Company’s the to andfollowing the pagecompliance in requirementswith the Companiessection the of of 992 2006.Act changesNo share the capital madeCompany were the to of The number Ordinary of duringyear. the Shares and 2009 IncentiveShares issuein beginning the at yearand the end of shownis below: TheOrdinary Shares and 2009 Incentive Shares represent respectively nominal all total value the of of and 4.8% 95.2% sharesissue. in OrdinaryShares TheOrdinary and are nominalShares a 0.2p have value of tradedLondon the onExchange. Stock IncentiveShares beeneach have awarded The2009 Incentive Shares £1.00 of Directors and seniorto managers together within Company, the Trusteeof Trustee(as withOgier Limited Employee Benefit Trust) replaced and the Employee Benefit Melrose the PLC The rights attaching shareincentive scheme introduced 2007. in 2009 the Incentive Sharesto identicalare thoseoriginally to Incentive Scheme,that attached 2007 exception with the the to dividend a Company the pay may 2009 the on Incentive Shares

Directors’interests and remuneration Informationbeneficial Directors’ on including interests, those final dividend of 7.0p on 16 May 2011 to to Ordinary shareholders 2011 16 May on 7.0p final dividend of April businessclose2011. the register the of onat 15 on Thisdividend recommendation Directors the willof beput shareholders to forthcoming the at Annual General Meeting 2011. May beheld 12 on to Company, the of (“AGM”) maintain progressiveBoard the a to of intention the is It Ordinary Shares. anaggregate maximum number 49,758,677 of TheCompany purchased has not Ordinary any Shares pursuant The authority. this resolutions to being proposed year’s this at include resolutionAGM renewa authority. this to connected of persons the of meaning(within the section of 252 Companiesshares the Company in the shownof is 2006), Act Shareholderdividend TheDirectors pleasedare recommend to paymenta the of Directors’appointment and powers report,this of TheCompanyDirectors date the the at asof togetherwiththeir biographical details, givenare pageson 26 There changesno were Board the during year. to the and27. Articles TheCompany’s Association of (“the Articles”) thegive appoint Directorsand to replacepower Directors. Under the Nominationreference the termsof of Committee, any appointmentmust berecommended Nomination the by CommitteeTheBoard. the Articles approvalby for also require and resubmit retire Directorsthemselvesto election for the at followingAGM theirfirst Furthermore,appointment. at each Directors the subjectareretirementof one third by AGM to and must rotation thereforesubmit themselves re-election. for TheDirectors responsibleare managing for business the of Directors’indemnities ThebenefitDirectors the indemnityof have an the from Companyrespectin liabilities of incurred result theira as of office. This indemnity providedis under the Articles and satisfies indemnity the provisionsCompanies the of 2006. Act Thesubsidiary undertakings principally affecting profits the minority were million losses (2009: interest£0.2 gains of million). £0.2 of dividendpolicy where appropriate going forward. Company, the Companyof the power all the exercise and may directions any provisionsto subject the relevant statutes, of to special givenArticles. by resolution Company’s the and to issuing the shares purchaserelating of to andPowers powers to shares own alsoare included Company’s the current the in Articlesand such authorities submittedare approvalby for shareholders the each year. AGM the at Companies the of 2006Act Pursuantsections 693to and 701 the specialand a resolution 2010, in passed AGM the at Companyauthorisedis purchase shares, own its to limited to Remuneration the in report 43. pageson to 40 DirectormaterialNoduringtime a any had interestat year the in servicethan other a contract, any Companywith the contract, subsidiary its of any or undertakings. Financialresults the financialfor profit year attributableTheto Group’s members addition, thereIn million). million £79.5 (2009: £141.1 was or net assets of the Group in the year are listed in note 3 to to 3 note Groupin year the listed the are assetsin netor of CompanyUK accounts. Melrose the PLC Directors’ report continued

Voting Transfer of shares Only Ordinary Shares have voting rights attached. In a general Subject to the Articles, any member may transfer all or any of meeting of the Company, subject to the provisions of the current his shares in any form which the Board may approve, and the Articles and to any special rights or restrictions as to voting transfer shall be executed by or on behalf of the transferor. attached to any other class of shares in the Company (of which Subject to the Articles and the requirements of any relevant there are currently none): investment exchange, the Board may, in its absolute discretion, refuse to register a transfer of a share which is not a fully paid on a show of hands, every member present shall have one share or on which the Company has a lien. The Board may also vote; and decline to register a transfer unless the transfer is: (i) in respect  on a poll, every member who is present in person or by proxy of only one class of shares; (ii) in favour of not more than four shall have one vote for every share of which he is the holder. joint transferees or renouncees; (iii) duly stamped (if required); The Company’s Articles were amended at last year’s AGM to and (iv) delivered for registration to the registered office, or such take account of Shareholders’ Rights Regulations in relation to other place as the Board may decide, accompanied by the proxy voting. As such, the Articles now provide that each proxy certificate for the shares to which it relates and such other appointed by a member has one vote on a show of hands evidence as the Board may reasonably require to prove the unless the proxy is appointed by more than one member, in title of the transferor. which case the proxy has one vote for and one vote against if the proxy has been instructed by one or more members to vote Substantial shareholdings for the resolution and by one or more members to vote against As at 9 March 2011 the Company has been advised of the the resolution. following substantial interests in the Ordinary Share capital of the Company: No member shall be entitled to vote at any general meeting or Direct Indirect class meeting in respect of any shares held by him, if any call or Shareholder Holding Holding % other sum then payable by him remains unpaid. Currently, all BlackRock Investment issued shares are fully paid. Management – 53,943,970 10.84 The Melrose PLC Employee Benefit Trustee holds 25,279 Standard Life Investments 25,677,592 18,609,404 8.90 Ordinary Shares at a nominal value of 0.2p per share, resulting Ameriprise Financial – 38,609,973 7.76 from the crystallisation of the original incentive scheme in Lloyds Banking Group plc 2,719,814 26,277,830 5.83 August 2007. The FKI Employee Benefit Trust holds a further Artemis Investment Management 24,866,258 – 4.99 158,114 Ordinary Shares at a nominal value of 0.2p per share, Legal & General Group Plc 19,835,016 – 3.99 arising from the Melrose acquisition of FKI plc. The Remuneration Ignis Investment Services Limited – 19,793,953 3.98 Committee may direct how the voting rights of those shares Newton Investment are exercised. Management Limited – 15,078,604 3.03

Deadlines for voting rights Corporate Governance Full details of the deadlines for exercising voting rights in The Corporate Governance report is included as a separate respect of the resolutions to be considered at the AGM to be report on pages 36 to 39. held on 12 May 2011 are set out in the Notice of AGM, on pages 97 to 99. Risks and uncertainties The Group operates a variety of risk management processes Dividends and distributions designed to take into account the identification, management Subject to the provisions of the Companies Act 2006, the and mitigation of business risk, where both short term and long Company may, by ordinary resolution, declare a dividend to be term considerations are monitored. paid to the members, but no dividend shall exceed the amount recommended by the Board. The Board may pay interim Due to the fact that Melrose operates within such a wide range dividends and also any fixed rate dividend, whenever the of specialised engineering markets, across a range of customers, financial position of the Company, in the opinion of the Board, suppliers, labour markets and economic conditions, the justifies its payment. All dividends shall be apportioned and paid Directors believe that many of the business risks are diversified. pro rata according to the amounts paid up on the shares. The fact that a large proportion of the Group’s business units operate within different parts of the world reduces the impact The Board may deduct from a dividend or other amounts of local economic conditions that may be experienced. 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 The Directors have identified a variety of financial risks that may to such shares. affect the Group from time to time; these include liquidity risk, finance cost risk, exchange rate risk and commodity costs. Liquidation The financial risk management objectives and policies in relation Under the current Articles, if the Company is in liquidation, the to the use of financial instruments are described in the Finance liquidator may, on obtaining any sanction required by law: Director’s review on pages 19 to 25.  divide amongst the members in kind the whole or any part of Other risks that have been identified within the Group relate to the assets of the Company; or the financial viability of key customers, product and employer’s vest the whole or any part of the assets in trust for the benefit liability claims, management of health and safety, environmental of members as the liquidator shall determine. matters and intellectual property risks. Further information in relation to these risks is provided within some of the remaining sections of the Directors’ report. Additionally, any key commercial and economic risks are covered in each of the Business reviews on pages 8 to 18.

30 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 31

Melrose PLC Melrose Annual Report 2010 Report 2010 Annual of all its employeesall its of accordancein withlegislation applicable to territories the within which operates.theirit Having regard to skillsand abilities, Group the gives full and fair consideration to applicationsemployment for received from disabled persons. and farparticularasso Further, disabilities permit, Group the Paymentssuppliersto Melrosehas decidedutilise standard respectto in protocols not suppliers, payments to of given international the the of nature operations. responsibility the is It each Group’s of business unit agreetermsand exact conditionsthe transactionsto of with theirsuppliers and these arrangements adheredare to, providedsuppliers that meet their contractual commitments. material any have didnot holding a as company, TheCompany, December tradecreditors 31 amountsat 2010. owingto Intellectualproperty Eachbusiness unit responsibleis and protection the for enforcementintellectual its of property (“IP”) rights through respondedare timely a in manner. to TheGroup recognises responsibilities its fair the treatment for willemployeesgive disabled during their period employment of not is thiscontinuedif employment same the in jobor, practicable,suitable a Equal opportunitiesalternative job. for appropriatetraining, career development and promotion are all employees availableto regardless physical any of disability, sexual orientationreligion,nationality, race, age. or gender, Employeeinvolvement, consultation and development TheDirectors attach great importance good labour to relations, employeeinvolvement and employee development. The nature activities places responsibility the Group’s the of employment for practiceswithlocal management, manner a in appropriate each business. to clear culture A of communication and employee consultation businesses. Employeeinherent is briefing Group’s the in sessions heldare regular a on communicate basis strategy, to changes, key financial results, achievementsother and importantissues affecting operations. Regular appraisals, employeesurveys, boards,notice meetings, intranetteam sites, suggestionand newsletters boxes alsoare used to communicatewithemployees. the use of external use of the agents andthereforemanaged is it a on Directors the recognise decentralisedthe basis. However, importancewithinand IP Group the protect and of seek to enforcesuch rights where necessary. Internal audits IP are conductedGroupperiodic the a on by basis within each of business the units. Employmentpolicies business diverseGroup, the the of Dueunitsnature to manage requiredare theirto employment matters a on decentralisedbasis and thereforeresponsibility adoption the for employment of policies and practices local a sitsat business Thisunit level. position ensures policies that and procedures and local site meet both regulatory requirements, taking into businesses. the account andof size nature the Eachbusiness unit responsibleis setting for and measuring its performance key own indicators and suchas (“KPIs”) these vary such measurements will throughoutHowever, Group. the generallyinclude absenteeism, headcount punctuality, and employeerelations issues. Anyconcerns adverseor trends

Productand employer’s liability claims TheGroupassess seeks to ongoing its risks relationin to future potential liabilities arising from insurance claims via Significant agreements and change of control banking facilities, 2009 the Group’s the of Withexception the IncentiveShare Scheme anddivisional the long incentiveterm schemes,agreementsotherthere no are effect, take that alter uponCompany changeterminate the or a control of following of consideredare that bid, besignificanttakeover a termsto of in theirimpact potential business the on Groupwhole the a as of March 9 on 2011. Uponacquisition the Group the arranged FKIplc, of a comprisingmillion facility, loanterm a andsyndicated £750 a of event the In revolvingcredit facility maturing Aprilin 2013. Companychange the the control of followingbid, takeover of a Companyand lenders under facilitythis obligedinto areenter to continue to determine how negotiations whether to so, if and, There obligationno facility. is with the lenders the for continue to facility the make to available beyondany morethan days 30for reach agreement changeFailureto control. withpartiesof on revisedtermscould require anputplaceacquirer in to replacementfacilities. 2009 the Incentive Company, the of takeover a of event the In Sharesconvert Ordinary into Shares anorentitlement a to dividendpaid cash,conversionin the being based upon the Ordinary offerpriceCompany’s the of Shares calculatedas on part If theor Company. change the the controlof of of date the entireoffer price cash,Remunerationin the not is Committee willdeterminenon-cash the value the of element, having been advisedsuchaninvestment that repute valuationbank by isof fairand reasonable. Key customers Key TheCompany limit riskbusinessseeks the of to failure within its customer base through ankey ongoing reviewprocess, which hasparticular regardfinancial the for key such of strength Company the considers businessthe that customers. However, material a effect customerhave wouldnot one any key loss of results,though acknowledgedeven is it that Group’s the on suchloss a couldan individual bematerial to business unit. Various procedures Various placein provideare within Group the to internalcontrol and risk management and these explainedare moredetailin within Corporate the Governance report on 39. pagesto 36 external use of the actuarial projections measure materialto exposures.An analysis historic claims of experience usedis to analyseless risks relationin significant to exposures. Actuarial projectionsand claims history experience regularlyare analysed management by issues, and trendskey and statistics alsoare discussedBoard at level. arising liabilities future potential to relate Group the within Risks and liability employer’s asbestos), (including disease from product, risks such to relation in Provisions claims. compensation workers’ appropriate. where Sheet, Balance Group’s the in recognised are further provides statements financial consolidated the to 30 Note liabilities. product contingent to regard with information 16949 ISO and 9001 ISO have businesses of number A also which systems, quality management their for certifications recognised a of are processes and products their ensure to helps units business Some claims. product of risk the reducing quality, via standards safety and health international to certified also are to relation in risks that further ensure to helps which 18001, ISO minimum. a to kept are claims liability employer’s Directors’ report continued

Employee engagement at Brush Turbogenerators’ Pensions Loughborough site was a key priority in 2010 and they joined Companies within the Group operate various pension schemes the ‘Innovate Workplaces’ scheme initiated by Unite (the largest around the world. The following defined benefit schemes are union in the UK). Brush and other participating companies are material to the Group: committed to creating site committees and to actively As at 31 December 2010 addressing employee issues to assist in developing Number organisational performance and communication. Following the Assets Liabilities of development of a focus group and a subsequent employee Name of Plan Status £m £m members survey it was decided to introduce a quarterly employee FKI UK Closed to new members 549.2 627.8 10,753 magazine, Falcon News, in March 2010, designed to encourage Pension in October 2001. (2009: (2009: (2009: networking between different parts of the business and to keep Plan Closed to the accrual 508.7) 618.8) 10,953) all employees updated on a variety of company issues. of future benefits on 28 February 2011. Extensive training is available to all staff and is actively encouraged to ensure a high standard of skill is maintained FKI US Closed to new members 193.3 213.1 8,123 across the Group. Cross-training programmes are also in place Pension in April 2003. Closed for (2009: (2009: (2009: at a number of units. The importance of training extends beyond Plan future accrual in 2009. 174.4) 191.4) 8,532) on-the-job training and also focuses on enhancing personal McKechnie Closed to new members 143.8 141.9 3,311 development. Apprenticeship programmes are in place at the UK Pension in 2003. Closed for future (2009: (2009: (2009: majority of sites, which help to assist with succession planning Plan accrual in 2005. 128.1) 140.2) 3,362) in locations where there is an ageing workforce. Employees are encouraged to think in an innovative manner across the Group. The FKI UK Pension Plan (“FKI UK Plan”) is a UK defined benefit pension plan with FKI Limited as its principal employer. Within the business unit of Harris, the ‘New Product The primary liability for funding rests with the participating Development Group’ was formed last year, an in-house initiative employers, which currently pay £18.5 million annually into the designed to encourage employees to deliver new products to FKI UK Plan. This is expected to remove the funding deficit by market, thus enhancing teamwork and transfer of knowledge 31 December 2022, when the contribution levels were last within the workforce. It resulted in four new products being formally assessed as at 31 December 2008. The FKI UK Plan launched in 2010, which were substantially more efficient in closed to future accrual on 28 February 2011 and this is terms of energy use than prior production models and thus expected to lead to the funding deficit being removed earlier also provided environmental benefits. than would otherwise have been the case. A training academy has recently been introduced at the The FKI US Pension Plan is a defined benefit pension plan Brush Turbogenerators site in Loughborough, to ensure that covering several of FKI’s US business units. The primary liability classroom style facilities are made available to enhance the for funding the FKI US Pension Plan rests with the participating skills of existing employees and to ensure that future apprentices employers. The Company and Trustees have reviewed the can benefit from a structured learning environment. These new funding requirements of the FKI US Pension Plan, based on its training facilities are also being used to carry out employee 1 January 2009 actuarial valuation and no pension contributions training courses in relation to the growing Aftermarket customer are required, as it is expected that the deficit will be eliminated service team, in order to further improve customer focus. over time via excess asset returns. Unlike the UK pension plans, Elsewhere within Brush Turbogenerators, the plant in the Czech deferred member liabilities do not increase by inflation each year. Republic has plans to implement a variety of training initiatives during the year, to include opportunities for selected managers The McKechnie UK Pension Plan (“McKechnie UK Plan”) is a UK to study Open University courses, as well as training in relation defined benefit pension plan with McKechnie Limited as its to work related knowledge, leadership and project management. principal employer. The primary liability for funding rests with the participating employers. The Company and Trustees reviewed Various other business units have training and employee the funding of the McKechnie UK Plan as part of the actuarial development initiatives planned for 2011. At Bridon, a new valuation as at 31 December 2008 and it was agreed that the ‘Bridon Leader’ management development programme is participating employers would contribute £4.6 million annually underway, designed to enhance leadership skills within the into the McKechnie UK Plan. The Company has guaranteed the business. Other employee initiatives taking place within some funding of the McKechnie UK Plan on an ongoing basis. of the business units include executive team development programmes, the roll out of local level employee communication Health and safety surveys, cultural and behavioural change programmes and The Directors regard health and safety and the efficient a variety of succession planning initiatives. management of such risks as a key priority within the Group. A significant number of employees are members of unions They regularly review health and safety performance statistics and some businesses operate works councils, both of which within each of the business units. The Group has a policy to are used for consultation and dissemination of information ensure that the Directors are made aware of any serious health as appropriate. and safety incidents, wherever they occur in the world, as soon as possible, to ensure that suitable investigations and corrective The Directors have monthly meetings with divisional senior action can be taken without delay. Health and safety is also management and visit the sites on an ad-hoc basis to covered at every quarterly Board meeting of the Group. communicate with the wider Group. Financial results for the half year and full year are discussed with the Group’s senior Each business unit is responsible for setting its own health and management team and Group developments are safety policies and procedures in accordance with local health communicated to the businesses as appropriate. Employee and safety legislation. Most businesses strive to achieve best involvement in and commitment to the Group’s profitability is practice, in terms of what is suitable and practical for the size encouraged through appropriate bonus schemes. and nature of their operations. Several of the Group’s business

32 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 33

Melrose PLC Melrose ) emissions, water consumption, water contamination, contamination, water consumption, water emissions, ) 2 Annual Report 2010 Report 2010 Annual Theenvironment TheDirectors fully understand importance the Group’s the of environmentalresponsibilities and committedare ensuring to operationsminimum its a that adversehave effect on business units are environment.Group’s the the Many of developingenvironmental policies and procedures linein with bestpractice guidelines, via ongoing local improvements to processesreduce impacttheir the activities.to of number A of business the currentlyachieved,areor units processhave the in achieving, of high the standards 14001 obtain requiredISO to EnvironmentalManagement Systems certification. addition, In subsidiariesUK the comply PackagingUK with the Waste Regulationsand REACH (Registration, Authorisation Evaluation, andRestriction appropriate.as Chemicals), of Althoughstandardisedthereno are environmental KPIs currentlybusiness eachthe used of within Group, the units fully understandimportance the monitoring of impacttheir the of operationsenvironment. the onusedare range KPIs A as of environmentalmeasures, including energy consumption, carbon (CO dioxide of waste created by the cleaning the createdby process,waste of wellpreservingasas localsupplies.Bridon water conjunctionare In strategy, withthis “tripleconservealsonew a investingin to rinse system” water rinse usedproduct to and Otherrecover acid. environmental initiativesBridon at include utilisation the variable of speed drivespumpson within effluent the whichplant, previouslyhad operatedconstant a on full setting,power substantiallythus reducingamountelectricity the of operatesuch required to machinery;initiativethis will befurther developed during 2011, viaintroduction variablethe of speed drives pumpson used borehole extraction process.within Bridon’s rebuild to project a in year last made was investment Truth, At treatment facilities moreefficiently water to waste the control and reduce water consumption waste treatmentof levels. also recruited anenvironmental Truth engineer further to buildenvironmentalclass’ ‘bestin the on reputation hasit establishedyears. past the few over WithinBrush the factory Loughborough,Turbogenerators at effortsbeen have made during last the couple years of to reduceamountvolatile the organic of compounds (solvent emissions)being expelled variousfrom the paint processes. waste disposal, waste solid and generation,liquid waste recycling and volatileorganic compound emissions. Environmental performancemeasuredis orderin each KPIs that via use of the business the of improvements. units can plan year-on-year for variety A business of made substantialunits have capital investmentsduring environmental year the withregard to reduce initiativesenergy to usage consumption, andwater been have Doncastertakento steps site, Bridon’s At waste. substantiallyreduce hydrochloric use of the picklingacid a as This turnin will reduce amount the 2012. end the agent of by Themost significant have benefits this beenof initiative achieved throughincreased the based paintsand water lower use of solventcontentproducts. business the Each of made theirunits have employees aware of the role they play in ensuringin play rolethey the environmentalof the impactthe of minimum a andsafeguarding in to company kept is future the of the environment. the Brush the example, For of Turbogenerators plantCzech the Republicin joined “Green the Company” projectcouple Thisa years aninitiativeis designedof ago. to Electrical developprinciples the Waste EU and the Electronic of Equipmentcollection,set Directive recyclingto and recovery alltargets typesfor electrical of equipment. Activities under this schemeextended were include last recyclingyear the to of

of work. of Divisionalmanagers within each business unit have key a remains safety and health that responsibilitiesensure to monitoring and procedures active that ensure to and focus policies. written to substance provide to place in are systems each businesses most by set are plans safety and health Detailed initiatives. improvement and targets annual determine to year Allbusiness anestablished units have Health and Safety CommitteeCommittee”) (“H&S structure such place; in committeesmeetregular a on basis and madeare of up representativesmanagement fromboth and shop floor level personnel.Committees H&S the Each wide of ranging have responsibilitieswhich vary from business business unit to unit andinclude reported reviewof the incidents andmonitoring the incident of trends.These Committees H&S alsoare responsible ensuring for corrective that measures implementedare when accidentsoccur alland incidents, that whetherare they not or attention. due given are legislation, local under reportable deemed responsibilities key the One of Committees these for H&S to is carryout regularpremises the of tours whichin inwork, they ensure ordercompliance to withlocal policies and procedures. Thesealso tours identify hazards potential which for counter measurescan beidentified accidents prevent to from happening.Committee Each H&S recommendation followedis next the at up committee ensure issues meetingthat to are operations H&S resolved.the Additionally, auditedare by Committeesleast at annually and reports performance of and recommendedimprovements preparedare the and circulated to divisionalsenior management Divisional teams. managers are providedwithdetailed health and safety reports frequent a on ensure such basisthat matters to givenare high visibility and improvements that authorisedare and implemented quickly. Althoughstandardisedthereno are health and safety KPIs currentlybusiness usedthe across Group, the units have establishedmeasures KPI suitable use withinfor their individualbusinesses. minimum a As requirement, these KPI measurementsinclude monitoring number the incidents of andlostinjuries. time Going forward, Company the workingis businesswith eachits of develop Group unitswide to health gain andconsistencysafetyorder in to KPIs, termsof in measurementand analysis. Once measurements KPI have beenagreed each business unit will begiven annual reduction achieve. targetsto units already hold ISO 18001 certification, unitsalready the internationally hold18001 ISO recognisedassessment standard occupational for health and safetymanagement Brush Both systems. Turbogenerators (Loughboroughand Harris achievedsite) (US) duringstatus this year the following rigorous health and safetyBrush audits.At processthis variety a Turbogenerators, also health led to of and safetytraining courses being organised directorand teamat unitmanager introductiontogetherwith additionalthe level, of refreshercourses activities for such manualas handling and forklift medium a truckBridon, termhave usage. they At international health and safety 18001 achieve ISO to strategy standardsall theirfor sites. factory Minnesota,in USA, investment made was to Truth’s At replace2009. saltend the the of paint stripping towards system becameThe system new operational during early the part of and resulted considerablein on-site improvements to 2010 The originalhealth and safety. equipment required regular cleaningsludge remove tank.from the The to system new hasminimal cleaning requirements and thereforesubstantially reduceshealth the and safety risks associated withtypethis Directors’ report continued

fluorescent light tubes and to encourage employees to correctly development that occurred in 2010, the associated costs were dispose of old electrical appliances and batteries. expensed during the year rather than being capitalised, in line with the Group’s accounting policies on page 54. The Group Besides the various high profile environmental investments will continue to invest in research and development that has commissioned during the year, a variety of small scale local a suitable return. initiatives were also introduced. At Bridon’s factory in Doncaster, the introduction of movement detectors to control the use of Corporate social responsibility lighting in unused areas of the factory has resulted in electricity The Group recognises that its operations potentially impact a savings each month; this initiative is due to be rolled out in wide variety of stakeholders in terms of social, environmental other areas of the factory shortly. An analysis at the Brush and ethical matters, including employees, customers, suppliers Turbogenerators site in Holland is underway to identify locations and local communities. of high gas and energy consumption within the plant in order to set reduction targets. Many of the Group’s business units have social and ethical policies, with responsibility for communication and Looking forward into 2011, various environmental improvement implementation resting with relevant senior managers. initiatives are planned, some of which build on the initiatives Such policies apply and extend to local law and standards introduced in 2010. At Bridon’s factory in Doncaster, a feasibility and as a minimum include equal opportunities and anti- study was carried out in partnership with the Carbon Trust last discrimination policies. year to consider what opportunities may exist in relation to the reduction of electricity usage via the process of heat recovery. Applications for employment by disabled persons are always This involves channelling energy created via the various furnaces fully considered by the Group, taking into account job specific and galvanising systems into steam, which in turn can be used requirements and applicant aptitude. It is the policy of the Group for processing heat, thus reducing the need for gas to power that in recruitment, training, career development and promotion the factory’s boiler systems; the research process will continue the treatment of disabled persons should, as far as possible, be through the year. identical to that of other employees. In April 2010, the Carbon Reduction Commitment Energy The Group regards employee training and advancement as an Efficiency Scheme (“CRC”), a new mandatory climate change essential element of industrial relations. Disputes and days lost and energy saving scheme, was introduced in the UK. CRC is through strike action are negligible. part of the UK’s strategy for improving energy efficiency and The majority of the businesses provided community support reducing CO emissions, as set out in the Climate Change Act 2 during the year with efforts ranging from charitable donations to 2008, and requires UK companies to purchase carbon voluntary assistance and fund raising. Support is given to local allowances based on their energy usage. The Group believes schools by offering traineeships and work experience to students. that the introduction of the CRC scheme will further complement each of the UK business units in striving to reduce their carbon The Company will continue to invest in its businesses during its footprint and assist in the measurement and ongoing reduction ownership, enhancing their reputation within the markets and of energy usage. The Company has been proactive in preparing communities in which they operate. for both the scheme’s implementation and ongoing compliance. As part of this process external consultants have been appointed Charitable and political donations to act as the Group’s CRC advisors. The Group paid £21,550 (2009: £8,757) to UK charities during the year, principally to local charities serving the communities A Group registration in the CRC was successfully obtained in in which the Group operates. There were no political donations 2010, for those businesses identified as qualifying and requiring made during the year (2009: nil). registration. Several business units were exempt from registration because they already had Climate Change Agreements in place. Auditor Under the Companies (Audit, Investigation and Community Environmental liabilities Enterprise) Act 2004, auditors have the right to access all The Directors seek to ensure that all environmental risks information necessary for the performance of their duties as are closely managed by external environmental specialists auditor and the duties of Directors in this regard are clarified. in conjunction with internal management. The environmental laws of certain jurisdictions impose obligations to remediate So far as each Director is aware, there is no relevant audit contaminated sites in relation to sites both currently and information of which the auditor is unaware and the Directors previously owned by the Group. have taken all the steps which they ought to have taken as Directors to make themselves aware of any relevant audit The Company Secretary is made aware of all major environmental information and to establish that the Company’s auditor is liabilities that may occur within any of the business units; the aware of that information. Board are also regularly updated on such matters. All costs incurred by the Group with regard to environmental liabilities are This confirmation is given and should be interpreted in monitored, with provisions being made as appropriate. accordance with the provisions of section 418 of the Companies Act 2006. Research and development Deloitte LLP have expressed their willingness to continue in Continuous investment is made within the Group in relation to office as auditor. Accordingly, a resolution will be proposed at the research and development of new designs, products and the AGM of the Company to re-appoint Deloitte LLP as auditor processes. This helps to ensure that each business unit of the Company and to authorise the Directors to determine remains at the forefront of technological advances and is able their remuneration. to meet the ever-changing demands of its customers. Details of some of the new products currently being introduced to Going concern the market are included within the Chief Executive’s review The Group’s business activities, together with the factors likely on pages 6 to 18. Due to the nature of the research and to affect its future development, performance and position are

34 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 35

Melrose PLC Melrose willrenewauthority the seek to conferred theon will seek shareholder allowthe approvalto Barnes Garry Secretary 2011 March 9 Report 2010 Annual the Directors the consider deal appropriate withfractions to andoverseas requirements, and otherwise maximum a to up representing approximately nominal£49,758, value of which accordancein is relevantwith the March 9 2011, at as guidelinesCompany. the for authority andSectionSection the the approved, 570 551 If if authorityor, conclusionAGM willthe expireat next of year’s The Directors businessclose the of at June30on earlier, 2012. authority presentSectionno exercising the of have intention 551 authority. Section the or 570 Resolution10 purchase Companyshares own its to pursuant sections 693to Companies the of 2006.Act This authority and701 limitedto is Ordinary Shares, anaggregate maximum number 49,758,677 of perCompany’s the representingcent of approximately 10 This power issuedOrdinary Share capital March 9 2011. at as at earlier, if or, conclusionAGM willthe expireat next of year’s The maximum price businessclose the of June30on 2012. whichbepaidanOrdinary for may Share will beanamount the which permorethan 5 averageof cent the not is above middlemarketanquotationOrdinary for Share derivedas from Daily OfficialLondon the ExchangeStock plc’s the for five List businessimmediately days preceding whichon day the the OrdinaryShare purchased.is The presentDirectorsno have powers the conferred thisof exercisingall any or of by intention resolutionand will only their exercise authority the in is itif shareholders of interests generally. Resolution11 call continue generalCompany to to thanmeetings (other Changes notice. clearthe made days’ to 14 on AGMs) CompaniesCompanies2006 the Act by (Shareholders’ Rights) Regulations2009“Shareholders’ (the Rights Regulations”) have increasedperiodnotice the required general for meetings the of unless days shareholders 21 Companyto shorter a approve clear days). periodnotice minimum a period(subject to 14 of notice. clear beheldwillleast days’ continue at AGMs on 21 to Theapprovalwill next beeffective AGM, Company’s the until whensimilarintended is a it that resolution will beproposed. changes the Companiesthat the Note to 2006Act in mean that, call general beablea to order to clear meeting lesson than 21 Company the means a mustelectronicnotice, make of days’ all shareholders available to voting meeting. that for Recommendations TheBoard believes resolutions eachthe bethat of to Company the best the in is of interests proposedAGM the at andshareholders its Directors the whole. a Accordingly, as unanimouslyrecommend all of membersfavour in that vote resolutionsrespect the in do of to proposed, intend they as their beneficial own of holdings. Disclosuresinthe Directors’ report TheCorporate Governance report, Business reviewsand reviewform part Financereport. Directors’ the of Director’s Directors Board the of andApproved signedby behalf its on by: 5 per cent of the Company’s issued Ordinary perCompany’s 5 the cent of Share capital

willrenewauthority the seek to conferred theon will seek shareholder renew the approvalto Directors’ authority Directors’ allotshares subscribe grantorto rights to convertor for securities any shares into pursuant section 551 to Companiesauthority”). the of 2006Act “Section (the 551 AnnualGeneral Meeting (“AGM”) Companythe of will Hall,Thebeheld Barber-Surgeons’ AGM at 11.00am at 5BL MonkwellLondon,EC2Y Street, Square,Wood 2011. May 12 on Resolutionsdealing followingwith the special business will be proposedAGM: the at Resolution8 the sensitivities. the consideration, allinto this Group the should beable Taking these least approvalof at twelveof of monthsdate from the financial statements. reasonable a have Directors the enquiries, appropriate making After expectationCompany the that adequate andGroup the have foreseeable the for existence operational in continue to resources going the adopt concerncontinue they to future.Accordingly, basispreparingin Annual the Report and financial statements. Theauthority contained paragraphin resolution the of (A) anaggregate nominal willbelimited to amount£331,724, of issued representing Company’s approximately the oneof third OrdinaryShare capital March 9 2011. at as Insurers, British of Association the by issued guidance with line In authority Directors the give would resolution this of (B) paragraph allotshares subscribe grantorto rights to convertor for any securitiesshares connectioninto in rightsan witha issue to up representing aggregatenominal amount £663,449, equal to Share Ordinary issued Company’s the of two-thirds approximately reducedas nominal the by amount capitalMarch 9 2011, at as shares any of issued under paragraph resolution.this of (A) TheCompany does hold treasury any not shares. Resolution 9 allotequity Boardto securities sell Company the any (or of shareswhich Company the electhold treasury)in may to for Companies the of cash2006Act pursuant section (the 570 to authority”) “Section570 without firstoffering existing to them shareholdersproportionin their existing shareholdings. to Theauthority allotments salesor limitedis to connectionin withpre-emptive offers, arrangementssubject any to that to management impactone moreof the or mitigate to of to current its operatewithin levelof facility the to and remain covenantcompliant foreseeable the for beingfuture, period a set out in the Business reviews on pages 8 to 18. The financial Businessout the set in 18. pagesreviewson to 8 cash liquidityits flows, positionGroup, the of position and borrowingfacilities describedare Finance the in Director’s the to and 24 19 addition, In notes 25. to reviewpageson 19 consolidated policiesfinancial statements include the Group’s andprocesses managing for capital, its liquidityexposures to riskand financial risk management objectives,well as as financialdetails its of instruments and hedging. Credit risk consolidated the to and 24 exposurediscussedis 16 notes in financial statements. TheGroup prepares regular business forecasts and monitors projectedfacility headroom and compliance banking withits ForecastswhichBoard. covenants, the thenare reviewed are by adjustedsensitivities for which address principal the risks to whichGroup the exposed, is such fluctuationsas exchange in between rates SterlingDollar US the andand both andEuro the bestpossible the estimates of macroeconomic the impact of underlying environmenttrading results. Group’s the on Considerationactions potential the available thenis given to Corporate Governance report

Statement of compliance In accordance with the provisions of the Combined Code, The Company supports the principles contained in the 2008 consideration has been given to the independence of all the Combined Code on Corporate Governance issued by the non-executive Directors and the Board considers all the Financial Reporting Council (“the Combined Code”). non-executive Directors to be independent. The non-executive Directors are not entitled to any bonus or shares under the 2009 The Board is accountable to the Company’s shareholders for Incentive Share Scheme. Performance of the Board and each good governance. Throughout the year ended 31 December Committee is evaluated annually. The Chairman has held 2010, the Company has complied with the provisions of Section meetings with the Directors, including the senior independent 1 of the Combined Code and with the requirements of the non-executive Director, Mr Miles Templeman, to discuss the Disclosure and Transparency Rules (“DTR”) on audit committees performance of individual executive Directors and the Board as and corporate governance statements. The statements below a whole. It was considered that the individual Directors and the describe how the Company has applied the principles identified Board as a whole were operating effectively. Directors in the Combined Code and DTR directives. determine whether there are any training requirements, by The Company is currently reviewing the UK Corporate completing an evaluation questionnaire during the year that Governance Code in relation to financial years from 1 January is designed to identify any failures in the performance of the 2011 in light of amendments made to it by the Financial Board and each of its Committees. The findings of the 2010 Reporting Council during 2010, which will apply to financial evaluations were reviewed by the Company Secretary and years beginning on or after 29 June 2010. feedback was provided to the Board. The Board All Directors receive a formal and tailored induction shortly after Members: Christopher Miller, Executive Chairman their appointment. Directors are advised that they have access David Roper, Chief Executive to the advice and services of the Company Secretary, Garry Simon Peckham, Chief Operating Officer Barnes, who is responsible for ensuring that Board procedures Geoffrey Martin, Group Finance Director are followed and that applicable rules and regulations are Miles Templeman, Senior non-executive Director complied with. The Board may seek independent legal and Perry Crosthwaite, Non-executive Director financial advice in the furtherance of their duties, at the John Grant, Non-executive Director Company’s expense. A pack of briefing papers and an agenda are provided to each All of the above Directors served throughout the year. Director in advance of each scheduled Board or standing Committee meeting. The Directors are able to seek further Main responsibilities: clarification and information on any matter from any other effectively and properly manage and control the Company Director or employee of the Group whenever necessary. via a formal schedule of matters reserved for its decision; Decisions are taken by the Board in conjunction with the determine and review Company strategy and policy; recommendations of its Committees and advice from external consider acquisitions, disposals and asset requests for major consultants, advisors and senior management. capital expenditure; Director terms and conditions review trading performance; The terms and conditions of the executive Directors’ service ensure that adequate funding and personnel are in place; contracts and the non-executive Directors’ appointments are maintain sound internal control systems; and available for inspection at the Company’s registered office. The non-executive Directors’ appointment letters are also report to shareholders and give consideration to all other available on the Company’s website: www.melroseplc.net. significant financial matters. Board responsibilities are undertaken in conjunction with senior Rotation of Directors management, who in turn are responsible for the day-to-day In accordance with the Company’s Articles of Association, conduct of the Group’s operations and for reporting to the one third (or the number nearest to but not less than one third) Board on items of significance and progress against objectives. of Directors are required to retire and submit themselves for The Board meets regularly during the year as well as on an re-election at each Annual General Meeting (“AGM”) of the ad-hoc basis as required by time critical business needs. Company. It is the policy of the Board that non-executive There were four scheduled Board meetings held during the Directors are appointed for an initial term of three years, year and the attendance of each of the Directors is shown following which their appointment will be reviewed. on page 38. The Directors proposed for re-election at the AGM on 12 May 2011 are Mr Simon Peckham, Mr Perry Crosthwaite Board balance, independence and performance and Mr Geoffrey Martin. The Board and Nomination Committee The Board believes that the Directors possess diverse business have carefully considered the time commitments required and experience in areas complementary to the activities of the the contribution made by each Director. Both the Nomination Company. Biographies of the Directors are shown on pages Committee and the Board are of the belief that the performance 26 to 27. These biographies identify any other appointments of each executive and non-executive Director continues to be held by the Directors. The only executive Director to hold effective and that each Director demonstrates commitment non-executive Director appointments elsewhere is to his role. Mr Christopher Miller, who is a non-executive Director of TMO Renewables Limited and is allowed to retain the remuneration he receives from that appointment.

36 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 37

Melrose PLC Melrose – Chairman – NominationCommittee MilesTempleman PerryCrosthwaite JohnGrant ChristopherMiller – Chairman – Annual Report 2010 Report 2010 Annual Eachmember Audit the Committee of brings relevant financial experiencefrom senior and executive non-executive positions describedas theirin biographies andpages on 27. 26 TheAudit Committee the Group invitesthe Finance Director, FinancialHead of Reporting and senior representatives the of externalandattend internal meetings auditors to appropriate as business the to being considered. The Audit Committee has the employeesotherattend any meetings invite to right where to consideredis this appropriate.Auditaddition, In the Committee leastmeets at once perexternal the year withboth and internal auditors,without management present. TheAudit Committee lessmeet not expected is than threeto timesyear anda Audit the Committee threemettimes during The attendance members, its of along Groupwith the 2010. tableshown the is in pageon 38. FinanceDirector, Groupauditor external recommendedis auditor TheGroup’s re- for appointmentAudit the Committee by who also assess the appropriatenessscope auditthe workperformedof of and providesrecommendations respectin their remuneration. of TheAudit Committee receives regular reports from the external auditor. Group’s TheAudit Committee policyhas a engagement the on the of externalsupply the non-auditfor auditor of services and the Committeeaudit the and of non-audit aware is services (includingtaxation and transaction advice) whichbeen have significant A proportionDeloitteprovided by LLP during 2010. non-audit the of services non-recurring to related somework, of whichconnectionin was provisiontaxwith the of advisory and transactionservices.related The provisionnon-audit of services considered was beappropriate,given external the to auditor’s knowledge depthof affairs the of and financial practicesthe of The AuditGroup. Committee notwithstandingsatisfiedis that, non-auditDeloittework, LLP has retained objectivity and independenceThe Audit Committee during will year. the policymonitor its regardthiscontinue in and acceptsto that non-auditworkshould ensurebecontrolled does it that not to compromiseindependence the auditor. the of Deloitte end year each At 2003. in appointed was LLP Deloitte independence its believes it how out setting letter a submits LLP to required are they and maintained been have objectivity and subsidiary and Group the for responsible partners audit the rotate changed partner signing audit Group’s The years. five every audits contractual no are There 2010. in process rotation that of part as recommend to capacity Group’s the restrict that obligations auditor. as appointment for firm particular a

– Non-executive – Director – Executive – Chairman – Senior – non-executive Director

– Chief – Operating Officer

– Group – Finance Director

– Chief – Executive – Non-executive – Director Miles Templeman JohnGrant RemunerationCommittee PerryCrosthwaite Miles Templeman MilesTempleman PerryCrosthwaite JohnGrant DavidRoper SimonPeckham GeoffreyMartin TheBoard ChristopherMiller – Chairman – Miles Templeman, Chairman MilesTempleman, Perry Crosthwaite JohnGrant

AuditCommittee MilesTempleman PerryCrosthwaite JohnGrant develop, implement and monitor the Group’s policy on implement develop, and Group’s monitor the externalaudit andoverseeing for objectivity the and effectivenessauditor. the of review the Group’s arrangements employeesraise its for Group’s to review the concernsconfidencein about possible wrongdoing financialin reporting,accordancewhistleblowingin Company’s with the policy;and keepunder financial effectivenessreview the Group’s the of reporting,internal controls,risk management and systems compliancecontrols; focusand challenge consistency the accounting of policies, accountmethods significantused for to unusualor transactionsand compliance withaccounting standards; reviewand integritymonitor the financial the of statements including Group, half the its yearlyof accounts, annual the report,interim management and preliminary statements and formalother any announcements financial the relating to performanceGroup; the of

AuditCommittee Members: Chairmanand Chief Executive TheChairman the roles of and Chief Executive Company the of and will remain,are, separate and distinct from one another in accordancewithbest practice and Board policy. TheChairman alone responsibleis leadership the for of the Board the andensuring for effective communication with shareholdersDirectors. executive other together with the TheChief Executive responsibleis directionstrategic for anddecisions management involvingthe day-to-day the of These respective Company. responsibilities outwritingset in are whobeenBoard, consider the and have approvedby the that respectiveroles and responsibilities clearlyare understood threeindependent non-executive Directors. The duties the of Committeesoutformalset arein reference. These termsof are availableCompanyfrom the Secretary andCompany’s the on www.melroseplc.net.The Companywebsite, Secretary asacts SecretaryCommittees. eachthe of to Committeestheof Board accordance In provisionsCombinedwith the the of theCode, Boardhas threestanding Committees: Remuneration Audit, the andNomination Committees. theseEach includesof the by both individuals both by Boardwhole. the a as and by Mainresponsibilities:      Corporate Governance report continued

Internal audit programme Main responsibilities: Due to the size and complexity of the Group, it is appropriate  keep the size, structure and composition of the Board under for an internal audit programme to be used within the business. regular review and recommend to the Board any adjustments BM Howarth, an external firm provides internal audit services as may be necessary from time to time; to the Group. A rotation programme is in place, such that every  give full consideration to succession planning to ensure an business unit will have an internal audit at least once every three optimum balance of executive and non-executive Directors years, with the largest sites reviewed at least once every two in terms of skills and experience; years. The internal auditors’ remit includes assessment of the  keep under review the leadership needs of the business; and effectiveness of internal control systems, compliance with the Group’s Policies and Procedures Manual and a review of the keep up-to-date and fully informed about strategic issues and businesses’ Balance Sheets. A report of key findings and commercial changes affecting the Company and the market recommendations is presented to the Group Finance Director, in which it operates. Head of Financial Reporting and Group Operations Controller, The Nomination Committee is expected to meet not less followed by a meeting to discuss key findings and resulting than twice a year and during 2010 the Nomination Committee action points. The rotation programme allows divisional met twice. The attendance of its members is shown in the management’s actions and responses to be followed up table below. on a timely basis. The Nomination Committee uses external search consultants Review of the internal audit process and scope of work covered as appropriate. by the internal auditor is the responsibility of the Audit Committee, to ensure their objectives, level of authority and resources are Attendance at meetings appropriate for the nature of the businesses under review. The table below shows the attendance of each of the Directors A report of significant findings is presented by the internal at the scheduled and significant meetings of the Board and its auditor to the Committee at each meeting and implementation standing Committees held during the year. The quorum of recommendations by the Board is followed up at the necessary for the transaction of business by the Board and subsequent Committee meeting. each of its standing Committees is two. Briefing papers and Remuneration Committee meeting agendas are provided to each Director in advance of Members: Perry Crosthwaite, Chairman each meeting. Decisions are taken by the Board in conjunction with the recommendations of its Committees and advice from Miles Templeman John Grant external advisors and senior management as appropriate. The representations of any Director who is unable to attend Main responsibilities: a meeting of the Board or a standing Committee are duly  consider and make recommendations to the Board of the considered by those Directors in attendance. Company on the framework for the remuneration of the Board Audit Remuneration Nomination Company’s executive Directors, the Company Secretary Number of meetings(1) 4 3 2 2 and other senior employees; Christopher Miller 4 n/a n/a 2 ensure that the remuneration of the executive Directors and David Roper 4 n/a n/a n/a senior employees are provided with appropriate incentives to Simon Peckham 4 n/a n/a n/a encourage enhanced performance and that they are rewarded Geoffrey Martin 4 3(2) n/a n/a for their individual contributions to the success of the Company; Miles Templeman 4 3 2 2 approve the structure of, and determine targets for, any Perry Crosthwaite 3 2 1 1 performance related pay schemes operated by the Company John Grant 4 3 2 2 (including long term incentive plans); and (1) In addition, ad-hoc meetings are held from time to time which are attended by a quorum  annually review remuneration trends across the Group of Directors and are convened to deal with specific items of business. and obtain reliable and up to date information about the (2) Mr Martin attends by invitation. remuneration of Directors and senior employees in Internal control and risk management other companies. Objectives and policy In developing its recommendations, the Committee has given The objective of the Directors and senior management is to due consideration to Schedule 8 of Part 15 of the Companies safeguard and increase the value of the business and assets Act 2006. of the Group. Achievement of this objective requires the development of policies and appropriate internal control The Remuneration Committee is expected to meet not less than frameworks to ensure the Group’s resources are managed twice a year and during 2010 the Remuneration Committee met properly and any key risks are identified and mitigated twice. The attendance of its members is shown in the table on where possible. this page. The report to shareholders on how Directors are remunerated, together with details of individual Directors’ The Board is ultimately responsible for the Group’s overall system remuneration is shown in the Remuneration report on pages of internal control and for reviewing its effectiveness, while the 40 to 43. role of management is to implement the policies set by the Board in respect of risk management and controls. The Directors Nomination Committee recognise that the systems and processes established by the Members: Miles Templeman, Chairman Board are designed to manage, rather than eliminate, the risk of Perry Crosthwaite failure to achieve business objectives and cannot provide absolute John Grant assurance against material financial misstatement or loss. Christopher Miller

38 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 39

Melrose PLC Melrose Barnes Garry Secretary 2011 March 9 Report 2010 Annual As partAs process,this of Group a risk assessment currentlyis beingcarried ensure Company the out to has good in systems briberyprevent placeto taking placebusiness areas its any in of An ongoing Act. ensure full andto compliance 2010 with the auditprocess, togetherwithsuitable induction and training initiativescurrentlyare being finalised roll for out within each The internalBoardof review the confirms controls, from that, determined hasit not significant any failingsweaknesses or that considersit require remedial Theaction. Board also confirms been hasit not that advised material any weaknessesof the in financial to reporting.internal relate that control systems Whistleblowingandbribery andcorruption policies TheGroup currentlyis process the in revising bribery of its and Act”). (“2010 Bribery the lightin of corruptionpolicy, 2010 Act business the of units. bribery Theand Group’s corruption policy requires all integrity employeesactwithhonesty, andto transparency and conduct to themselves lawful, a in ethical and professional All employees, agents,consultants, manner. contractors and subsidiaries its agencyMelrose workers of and PLC, associated companieswhichin majorityhas it a forbiddenare interest, from offeringsolicitingor bribe,similar any or inducement; thereis alsoreportanobligation to offer bribeany a unorthodoxor of Thepayment. Company also encourages application its of jointpolicypartners venture by and suppliers. Responsibilityanti-corruption for policies and procedures rests Directors. Boardwith the They of taskedare with ensuring that adequateinternal financial controls keepingrecord and in is placeminimisewithin Group the order in riskbribery the to of andcorruption. TheGroup also whistleblowinghas a policy which sitsalongside bribery the Thisand corruption designedis enable policy. to individualsdisclosures theirprotected divisionalmake to to humanGroup resources Company Secretary manager, or Seniorconcernsnon-executive Directorhave they if about possibleimproprieties financialin reporting other or malpracticeswithin their business. Communicationswith shareholders TheCompany buildmutual seeksa on understanding to objectives of institutionalwith its shareholders, via the presentations and meetings regular through Directors, executive followingannouncements annual its of and interim results. availableis Senior Milesnon-executive Templeman, Director, meet institutional to shareholders should therebeunresolved hisattention.The key bringmatters views of wish to they to analystsand major shareholders Board the backfedare to directlyindividual by brokers, Directors and viaCompany’s the ensuringall members Board the develop of an understanding of the views of major views the of shareholders. of Corporate information is www.melroseplc.net. website, availableCompany’s the on the at shareholders of attendance the welcomes the Board The of each against and for cast votes proxy of number AGM. The summary a and AGM the at announced is proposed website. resolutions Company’s the on AGM, the after shortly provided will be Board the Byorder of

TheBoard committedis satisfying to internal the control guidanceDirectors for revised out the set in version the of Guidance accordanceInternalon In Turnbull Control. withthis guidance,anthereongoingis process, regularly reviewed by Directors, identifying,the for managing evaluating, and mitigating(where possible) significant the the risks facedby internal controls This Group. process reviewing for Group’s the consistentis withprior years and has been placein throughout the of of approval financial the date to year and up 2010 the AnnualReport. Managingandcontrolling risk TheGroup has policies which address number a key of businessrisks, including financial, treasury, health and safety financialand environmental risk risks.management The Group’s objectivesand policies describedare Finance the in Director’s risksOther which key could adversely25. to reviewpageson 19 affectGroup the described are review Chief the in Executive’s and Business 18; reviewspageson to 8 pageson and 7; 6 These report Directors’ 35. policies to pageson and further28 detailedbusiness unit specific policiesavailable to made are employeesthrough manuals and also via specific employee briefingsother and communications, as appropriate. TheGroup operates decentralised a on basis andBoard the hasestablished anorganisational structure withclear reporting procedures,lines responsibility of and delegated authority. Divisionalsenior management, plant managers and financial controllersbeen have delegated responsibility Board the for by establishment the and implementation detailed of control appropriateas systems their for business. the at place in is review regular of programme established An is improvement continuous of culture a and businesses senior with meetings regular through Board the by encouraged progress and performance operating of review management, provides review of process ongoing The plans. business against intended. as operating is environment control the that assurance the of effectiveness the monitors also Committee Audit The through Group the across implemented processes control internal internal and external the by presented findings key the of review ad-hoc an on management senior with discussions and auditors Audit the considering for responsible is Board The basis. and controls internal of respect in recommendations Committee’s management by implementation ensuring and management risk business. the for appropriate deems it recommendations those of Internalfinancial controls TheGroup comprehensivehas a assessing for system the internal of financial systems effectiveness Group’s the of controls,including businessstrategic planning and regular monitoringand reporting financial of performance. A detailed annualbudget preparedis senior by management and thereafterreviewedis and formallyBoard. the by adopted Thebudget and targetsotherregularly are updatedrollingvia a forecastprocess and regular Business reviewmeetings are heldinvolving senior management assess to performance. internal report,this andof 38 BMHowarth Group’s the is Nineteen business been units have visitedauditor. during the yearandDirectors the pleasedare report to nothere were that materialdeficiencies the majoritythat and recommendations of presentedinternal the in reportsauditor been, now have process the in areor being of implemented. further A twenty businessseven units plannedare reviewduring for 2011. Theresultsthese turnin reviewsareof reported and to discussedBoardeach the at meeting. by discussedAs Audit the Committeein section pageson 37 Remuneration report

Introduction and compliance The salaries of all executive Directors and the senior This report has been prepared by the Remuneration Committee management team are reviewed by the Remuneration on behalf of the Board in accordance with the requirements of Committee prior to the beginning of each year. Base salaries Schedule 8 of Part 15 of the Companies Act 2006 and the for 2010 were reviewed in December 2009. In January 2010, Listing Rules of the Financial Services Authority. A resolution each of the executive Directors received an inflationary increase inviting shareholders to approve the report will be put to the of three per cent. Each of the non-executive Directors received Annual General Meeting on 12 May 2011. an increase of £10,000 from January 2010, in order to align them with the market rate for such positions. Biographies of the Directors are shown on pages 26 and 27. These biographies identify any other significant appointments The executive Directors also receive a company car allowance, held by the Directors. fuel allowance, private medical insurance, life insurance and permanent health insurance cover. Mr Martin also receives paid Unaudited information: train travel to and from London and accommodation for working Remuneration Committee in London. The Remuneration Committee is chaired by Mr Perry Crosthwaite, an independent non-executive Director. Mr Miles Annual bonuses Templeman and Mr John Grant, the other two independent Bonus scheme arrangements are in place for executive non-executive Directors, complete the Committee. Directors and senior management. Annual bonuses are awarded to the executive Directors and senior management The terms of reference of the Remuneration Committee are contingent on the achievement of a number of challenging posted on the Corporate Governance section of the Company’s objectives, including improvements in operating performance, website (www.melroseplc.net) and are also available from the earnings per share (“EPS”), working capital, overhead cost Company Secretary. Page 38 of the Corporate Governance control and liability management. The maximum bonus payable report sets out the function of the Remuneration Committee. is 100% of base salary. The Chairman does not participate in the annual bonus scheme. Remuneration policy The remuneration policy in place for the current and Long term incentives subsequent financial years is described below. Long term incentives are granted to Directors and other senior employees in order to promote the success of the Company. Executive Directors and other senior employees The long term incentive arrangements currently in place The Board establishes the remuneration policy based on are structured to ensure that participants are only rewarded the recommendations of the Remuneration Committee. for growth in the underlying value of the business in order The remuneration policy adopted by the Company requires to align the interests of the Directors with those of the the package offered to any executive Director or senior Company’s shareholders. employee to be sufficient to attract, retain and motivate management of a suitable quality, but not to be more than is During 2010 the Group operated the following long term necessary for this purpose. It is intended that performance incentive schemes: related pay should comprise a significant proportion of the 2009 Incentive Share Scheme total remuneration package. Divisional long term incentive plans Non-executive Directors FKI Cash long term incentive plan The executive Directors are responsible for proposing the non-executive Directors’ fees. In proposing such fees they 2009 Incentive Share Scheme take account of fees paid to non-executive Directors of similar The 2009 Incentive Share Scheme (the “2009 Scheme”) sized listed companies within the Company’s listing sector. was approved by shareholders at a General Meeting held in Any decision on fee changes is taken by the executive Directors May 2009; it replaced the 2007 Incentive Share Scheme and as a whole and non-executive Directors do not take part in continues to ensure the interests of the executive Directors discussions on their own remuneration. Non-executive Directors and senior employees are aligned with those of shareholders do not receive other taxable benefits or pension contributions by only rewarding participants if shareholder value is created. from the Group. The executive Directors and five other senior employees are the only participants in the 2009 Scheme. The remuneration package Participants of the 2009 Scheme are entitled to either a Remuneration packages are reviewed annually, generally cash dividend or a number of Ordinary Shares, equal in value effective from 1 January. The Remuneration Committee and its to 10 per cent of the increase in shareholder value from advisors use a number of third party remuneration surveys from 18 July 2007 to 31 May 2012, or earlier upon a takeover of the which to obtain remuneration data in order to carry out Company (the “trigger date”). The increase in shareholder value benchmarking exercises. is calculated as the difference between the market capitalisation The remuneration package for all executive Directors comprises on the trigger date (determined by reference to the average base salary and benefits, annual bonus, long term incentive market price of an Ordinary Share over 40 business days prior arrangements and pension contributions as described within to the trigger date, or the offer price as appropriate) and the net this report. Some senior employees of the Group are also invested capital in the Company. The net invested capital is the entitled to bonuses and long term incentive arrangements as issued share capital at 18 July 2007, plus any amounts paid up noted below. for the issue of new Ordinary Shares, less all dividend payments or other distributions made by the Company in respect of its Base salary and benefits Ordinary Shares, as adjusted in line with the movement in the The Remuneration Committee gives consideration to both the RPI (plus two per cent per annum). performance of the individual during the period of review and of current market salaries for equivalent roles and is based on independently sourced market information.

40 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 41

Nil Nil Nil 2010 End of 7,500 12,000 12,000 12,000

153,806 131,250 398,787 711,580 1,948,067 2,462,292 5,702,464 12 months 12 months 12 months 12 months Notice period 31 December 11,508,246 Melrose PLC Melrose 31 July 2012 25 July 2011

appointment period – – – – – – 27 October 2012 during

the year 44,665 44,665 Purchased Purchased

2010 Date of contract 18 June 2008 27 August 2009 1 January 153,806 (as at 1 January 2010 and 31 December 2010) 131,250 354,122 711,580 15 October 2003 15 October 2003 15 October 2003 Letter of appointment 5 December 2005 1,948,067 2,462,292 5,702,464 Number of 2009 Incentive Shares of Melrose PLC Melrose of Number of 2009 Incentive Shares 11 November 2009 11,463,581

Number of Ordinary Shares of 0.2p of Melrose PLC of 0.2p of Melrose Shares Number of Ordinary

(1) Theinterest ChristopherMr of Miller Ordinaryincludes 2,750,000 Shares 0.2p of December heldHarris (31 by Sheldon 2009:& 2,750,000) Investments Limited, company a whichconnectedis withChristopher Mr Miller within meaningthe the section of of 252 Companies2006.Act

Total John Grant Perry Crosthwaite Miles Templeman Geoffrey Martin Geoffrey Geoffrey Martin Geoffrey Simon Peckham John Grant Simon Peckham David Roper Perry Crosthwaite David Roper Director Christopher Miller Director Christopher Miller Executive Directors Christopher Miller Non-executive Directors Miles Templeman David Roper Simon Peckham Martin Geoffrey Miles Templeman Perry Crosthwaite John Grant Annual Report 2010 Report 2010 Annual Details of the Directors’ contracts Directors’ Detailsand the letters appointmentof of are outset asbelow: There2009 optionsover noIncentive were Shares outstanding December 31 at as2010. (1) 2009Incentive Shares TheDirectors alsobeneficial a had the Company’s interest in December 31 at 2009Incentive Shares (nominal value £1.00) follows: as 2010 Directors’shareholdings OrdinaryShares Thebeneficial Directors’ including interests, of interests connectedpersons the of meaning(within the section of 252 CompaniesOrdinary the in 2006), Act SharesCompany the of theNone of shownare below. December 31 at as2010 Directorsnon-beneficial any had the time in at any interest the Directorsof None who heldofficefinancial theat year. end financial the of year beneficialhad any the in interest shares of Groupother companies.

Act 2006.Act Thenon-executiveservice Directors have not do contracts, letters appointmentbut have of aninitial for period three of yearswhichmutual berenewed may by agreement. Generally, further a non-executive a beappointedDirector to upmay for twoperiods threeyears of after initial the threeyear period Servicecontracts Consistentbestwith the practice guidance theprovided by servicepolicy Combined Directors’ for is Company’s the Code, beterminable contracts maximumnotice. to a on one year’s of service Directors’ providepredeterminedcontracts for not do compensationtermination. Anypayments of made event the in wouldbesubjectnormal to contractual principles, including mitigationappropriate.as The length service of one any for defined Director not executive is the subject and is to requirementsunder rules rotation the Companies the in The Company’s Articles TheCompany’s Association of theprovide that entitlementsettledbecash may a payment dividend of by as conversion Ordinary analternative to to Shares. fair the value attributable 2009 the December to 31 at As2010 IncentiveShares (including Employee thosethe Benefitheld by million)of million £21.0 (2009: calculated was £70.7 as Trust) attributablemillion) was the to million £18.3 (2009: which£61.5 Directors.beneficial executive DetailsDirectors’ the of interest in 2009 the Incentive Shares tableshownDirectors’ are the in of shareholdingsreport.this in later TrustThe currentlyMelrose Employee holdsBenefitthe 500 of 2009Incentive Shares anddue in course transfer may these Directors executive and/ shares,to them, grantor optionsover senioror employees. Divisionallong termincentive plans Divisionallong incentiveterm beenplans have implemented for certaindivisional senior managers. the of intention the is It Boardparticipants that will receive cash a payment upon the division salea of basedor upon financial performance as measuredFKI the growthof operatingin by the profit date from acquisitionDecemberJuly 1 on 2008 to 2014. cash FKI long term incentive plan cash A long incentiveterm plan senior for exists management FKIbusinesses; the of pastrollinghas the operatedthis in over threeyear performance periods anddiscretionary, basedwas performanceon relevant the businesstargets for unit each for planyear. Pension memberDirectorNo a is Group any pension of arrangement. TheDirectors executive electreceive may Company a to contributiontheir individual to pension arrangement, a or supplementbase salary to pension a lieu in of arrangement. Companycontributions calculatedare baseon salary only. hasTheappointmentexpired. termsof contain not do any contractualprovisions regarding periodnotice a right the or receive compensation to early of event the in termination. Remuneration report continued

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.

(£)

320

280

240

200

160

120

80

40

0 Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec 05 06 06 07 07 08 08 09 09 10 10

Melrose return FTSE All Share Index FTSE Industrial Engineering Index

The total shareholder return graph shows the value as at December 2010 of £100 invested in the Company in December 2005, compared with £100 invested in the FTSE All Share Index and the FTSE Industrial Engineering Index. These are considered the most relevant indices given the Company is part of the FTSE All Share Index and the underlying businesses of the Company operate in the industrial engineering sector. The source data for the above chart assumes that the £220 million of cash returned to shareholders in August 2007, following the McKechnie Aerospace and PSM Fasteners disposals, was reinvested to purchase shares in the Company. This results in an adjustment factor on the price and this factor is used in ongoing calculations of shareholder return for the Company, as ordinarily a return of capital would reduce the share price and an analysis of returns going forward would not reflect value already returned to shareholders. The benefit of any cash distribution is thereby reflected within the shareholder return performance of the Company.

42 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 43 (£) Total Total 2009 50,000 50,000 45,000 450,585 712,372 711,927 585,701 2,605,585 remuneration Melrose PLC Melrose

(£) 2010 Total 55,000 60,000 60,000 849,341 463,602 849,353 718,139 3,055,435 remuneration

(1) – – – – – (£) Pension 88,962 48,312 40,650 contributions

(£) 2010 Total Total 55,000 60,000 60,000 849,341 463,602 801,041 677,489 2,966,473 emoluments

(1) – – – (£) 9,625 5,700 pension In lieu of 57,937 57,937 131,199 contributions Annual Report 2010 Report 2010 Annual

– – – (£) Taxable Taxable benefits 18,904 18,916 53,789 19,415 111,024

– – – – Emoluments during 2010 (£) Bonus 386,250 386,250 309,000 1,081,500

(£) fees Salaries/ 55,000 60,000 60,000 386,250 386,250 309,000 386,250 1,642,750

(4) (2) (3) Mr MillerMr non-executive a is Director TMO Renewablesof Limited. Hisfees yeartheforThis were £45,600. amount retainedis MillerMr by andtherefore excluded from tablethe above. Of the £220,161 attributable to pension contributions, £131,199 was paid as a supplementpaid was a as attributable base salary to pension lieupensionto in of contributions, Of£220,161 thearrangements. £131,199 The balance £88,962 paidindividualthewasof into Directors’nominated private pension schemes. Includes£5,000 per annum recognitionin Chairmanship of Auditthe of and Nomination Committees. Includes£5,000 per annum recognitionin Chairmanship of Remunerationthe of Committee.

Directors Christopher Miller Perry Crosthwaite John Grant Total David Roper Simon Peckham Martin Geoffrey Miles Templeman Crosthwaite Perry Committee Remuneration the of Chairman 2011 March 9 (2) (3) (4) and signed behalf its on by: Thisreport BoardMarch the 9 on 2011 approvedby was (1) Auditedinformation: Directors’remuneration Statement of Directors’ responsibilities

The Directors are responsible for preparing the Annual Report The Directors are responsible for keeping adequate accounting and the financial statements in accordance with applicable law records that are sufficient to show and explain the Company’s and regulations. transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to Company law requires the Directors to prepare financial ensure that the financial statements comply with the Companies statements for each financial year. Under that law the Directors Act 2006. They are also responsible for safeguarding the assets are required to prepare the Group financial statements in of the Company and hence for taking reasonable steps for the accordance with International Financial Reporting Standards prevention and detection of fraud and other irregularities. (“IFRSs”) as adopted by the European Union and Article 4 of the IAS Regulation and have chosen to prepare the parent company The Directors are responsible for the maintenance and integrity financial statements in accordance with United Kingdom of the corporate and financial information included on the Generally Accepted Accounting Practice (United Kingdom Company’s website. Legislation in the United Kingdom Accounting Standards and applicable law). Under company law governing the preparation and dissemination of financial the Directors must not approve the accounts unless they are statements may differ from legislation in other jurisdictions. satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for Directors’ responsibility statement that period. The Directors confirm that to the best of their knowledge: In preparing the parent Company financial statements, the financial statements, prepared in accordance with the the Directors are required to: relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or select suitable accounting policies and then apply loss of the Company and the undertakings included in the them consistently; consolidation taken as a whole; and  make judgements and accounting estimates that are the Chairman’s statement, Chief Executive’s review, Finance reasonable and prudent; Director’s report and Directors’ report include a fair review state whether applicable UK Accounting Standards have of the development and performance of the business and the been followed, subject to any material departures disclosed position of the Company and the undertakings included in and explained in the financial statements; and the consolidation taken as a whole, together with a description prepare the financial statements on the going concern basis of the principal risks and uncertainties that they face. unless it is inappropriate to presume that the Company will By order of the Board continue in business. In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:

properly select and apply accounting policies; present information including accounting policies, in a manner Geoffrey Martin Simon Peckham that provides relevant, reliable, comparable and Group Finance Director Chief Operating Officer understandable information; 9 March 2011 9 March 2011 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; and make an assessment of the Company’s ability to continue as a going concern.

44 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 45 91 92 94 95 95 94 94 94 95 89 96 96 88 96 96 90

Melrose PLC Melrose

Relatedparty transactions Reconciliationmovements of shareholders’in funds Hedgingreserve Reserves Issuedshare capital Provisionsliabilitiesfor and charges Bankloans Derivativefinancial instruments Debtors Creditors Investmentsubsidiariesin fixed assetsTangible Profit for the year the for Profit Significant accounting policies

14 13 12 11 10 9 8 5 6 7 3 4 2 CompanyBalance Sheet Melrosefor PLC Notesthe Companyto Balance Sheet Note 1 Companystatements Independentreport auditor’s Company – statements Annual Report 2010 Report 2010 Annual

74 51 47 71 71 75 75 76 70 70 72 72 73 52 87 52 87 67 59 49 59 46 50 62 58 48 85 65 63 84 86 66 66 68 86 80

Corporateinformation Summarysignificant of accounting policies of estimation of uncertainty Criticalaccounting judgements sources and key Revenue Segmentinformation Exceptionalcosts and income Revenuesand expenses Tax Financialinstruments and risk management Cashand cash equivalents Discontinuedoperations and other payables Trade Interest-bearingloans and borrowings Dividends Goodwilland other intangible assets Inventories Earningsper share Interestsjointin ventures Retirementbenefit obligations Cash flow statement Issuedcapital and reserves Commitmentsand contingencies Trade and other receivables Trade Deferredtax Provisions Property,plant and equipment Share-basedpayments Contingentliabilities Relatedparties Post BalancePost Sheet events

ConsolidatedStatement Cash of Flows ConsolidatedStatement Changes of Equityin ConsolidatedStatement Comprehensive of Income ConsolidatedBalance Sheet Notesthe accountsto Note 1 Consolidatedstatements Independentreport auditor’s consolidated – statements ConsolidatedIncome Statement 2 3 4 5 6 7 8 9 18 19 10 11 12 15 24 25 26 16 17 20 21 13 14 22 23 27 30 28

29 Financial contents Financial Independent auditor’s report – consolidated statements

Independent auditor’s report to the members Opinion on other matter prescribed by the Companies of Melrose PLC Act 2006 We have audited the consolidated financial statements of In our opinion the information given in the Directors’ report Melrose PLC for the year ended 31 December 2010 which for the financial year for which the consolidated financial comprise the consolidated Income Statement, the consolidated statements are prepared is consistent with the consolidated Statement of Comprehensive Income, the consolidated financial statements. Statement of Cash Flows, the consolidated Balance Sheet, the consolidated Statement of Changes in Equity and the related Matters on which we are required to report by exception notes 1 to 30. The financial reporting framework that has been We have nothing to report in respect of the following: applied in their preparation is applicable law and International Under the Companies Act 2006 we are required to report to you Financial Reporting Standards (“IFRSs”) as adopted by the if, in our opinion: European Union. certain disclosures of Directors’ remuneration specified by law This report is made solely to the Company’s members, are not made; or as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so we have not received all the information and explanations we that we might state to the Company’s members those matters require for our audit. we are required to state to them in an auditor’s report and for no Under the Listing Rules we are required to review: other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the the Directors’ statement, contained within the Directors’ Company and the Company’s members as a body, for our audit report, in relation to going concern; work, for this report, or for the opinions we have formed. the part of the Corporate Governance statement relating to the Company’s compliance with the nine provisions of the Respective responsibilities of Directors and auditor June 2008 Combined Code specified for our review; and As explained more fully in the Statement of Directors’ certain elements of the report to shareholders by the Board responsibilities, the Directors are responsible for the preparation on Directors’ remuneration. of the consolidated financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit Other matter and express an opinion on the consolidated financial statements We have reported separately on the Company financial in accordance with applicable law and International Standards statements of Melrose PLC for the year ended 31 December on Auditing (UK and Ireland). Those standards require us to 2010 and on the information in the Directors’ Remuneration comply with the Auditing Practices Board’s Ethical Standards report that is described as having been audited. for Auditors.

Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free Nigel Mercer, ACA (Senior Statutory Auditor) from material misstatement, whether caused by fraud or for and on behalf of Deloitte LLP error. This includes an assessment of: whether the accounting Chartered Accountants and Statutory Auditor policies are appropriate to the Group’s circumstances and London, UK have been consistently applied and adequately disclosed; 9 March 2011 the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.

Opinion on financial statements In our opinion the consolidated financial statements: give a true and fair view of the state of the Group’s affairs as at 31 December 2010 and of its profit for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

46 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 47 £m 0.4 5.1 8.8 (0.2) 2009 14.0 82.0 82.5 24.6 79.3 79.5 79.3 54.7 (26.7) (23.9) (36.1) (36.2) (27.3) 328.2 113.1 149.7 118.6 11.0p 10.8p 16.6p 16.3p 16.0p 15.6p (970.3) (215.1) (178.9) 1,298.5 Year ended Year 31 December Melrose PLC Melrose

– £m 9.3 0.2 (0.4) 2010 21.4 30.4 (10.3) (26.6) (44.4) (35.4) (14.0) 391.0 181.4 196.9 155.3 170.8 126.4 141.3 141.1 141.3 141.3 25.4p 24.1p 28.4p 27.0p 28.4p 27.0p (988.5) (209.6) (193.7) 1,379.5 Year ended Year 31 December

6 6 7 5 7 9 8 14 11 11 11 11 11 11 4,5 4,7 Notes

Annual Report 2010 Report 2010 Annual

(2) basic fully diluted (1) (1) tax continuing operations for the year from profit operating profit operating profit tax before profit operating expenses (1) (1) (1) (1) (1)

Includesexceptional tax andtax exceptionalon items andintangible asset amortisation. Beforeexceptional costs, exceptional income andintangible asset amortisation.

Headline Headline Intangible asset amortisation Exceptional costs Exceptional income Exceptional tax Share of results of joint ventures of results Share Headline – Headline – Headline Headline Headline Gross profit Gross Continuing operations Revenue Cost of sales Operating profit Total net operating expenses Total Finance costs Finance income tax before Profit Discontinued operations discontinued operations for the year from Profit for the year Profit Attributable to: Equity holders of the parent interests Non-controlling Earnings per share continuing operations From – Basic – Fully diluted continuing and discontinued operations From – Basic – Fully diluted Total tax Total continuing operations for the year from Profit (2) (1) Consolidated Income Statement Income Consolidated Consolidated Statement of Comprehensive Income

Year ended Year ended 31 December 31 December 2010 2009 Notes £m £m Profit for the year 141.3 79.3

Currency translation on net investments 25 8.0 (32.8) Currency translation on non-controlling interests 0.1 (0.2) Transfer to Income Statement from equity of cumulative translation differences on disposal of foreign operations 25 (0.1) (11.4) (Losses)/gains on cash flow hedges 25 (7.8) 5.9 Transfer to Income Statement on cash flow hedges 25 (0.5) 11.8 Actuarial gain/(loss) on retirement benefit obligations 23 13.8 (89.9) Reversal of limit on pension plan surplus 23 – 14.1

Other comprehensive income/(expense) before tax 13.5 (102.5) Tax relating to components of other comprehensive income/(expense) 8 7.9 13.0 Other comprehensive income/(expense) after tax 21.4 (89.5) Total comprehensive income/(expense) for the year 162.7 (10.2)

Attributable to: Equity holders of the parent 162.4 (9.8) Non-controlling interests 0.3 (0.4) 162.7 (10.2)

48 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 49 – – £m 1.0 0.2 3.8 (0.1) (2.0) (0.6) (0.9) (0.2) (1.3) (1.8) 2009 49.2 29.6 28.3 (35.6) (18.4) (22.9) 176.8 174.8 167.7 147.5 (221.5) (221.5) (185.8) Year ended Year 31 December Melrose PLC Melrose

– – – – £m 0.3 0.3 9.3 5.9 (1.1) (0.1) (1.2) (0.2) (9.1) (0.5) 2010 42.3 (45.4) (45.4) (43.8) (29.5) (30.2) (30.2) 117.9 147.5 117.9 195.7 Year ended Year 31 December

26 26 10 26 26 14 26 26 Notes 17,26

Annual Report 2010 Report 2010 Annual

Net cash used in financing activities from discontinued operations discontinued Net cash used in financing activities from in cash and cash equivalents Net increase/(decrease) Net cash from operating activities from continuing operations continuing from operating activities Net cash from Dividends paid operations continuing Net cash used in financing activities from Net cash used in financing activities Cash and cash equivalents at beginning of year Repayment of obligations under finance leases

Net cash used in operating activities from discontinued operations activities from Net cash used in operating operating activities Net cash from Investing activities Disposal of businesses Net cash disposed and equipment plant of property, Purchase plant and equipment on disposal of property, Proceeds of computer software Purchase joint ventures from Dividends received interests Dividends paid to non-controlling received Interest interests Acquisition of subsidiaries and non-controlling continuing operations investing activities from Net cash (used in)/from operations discontinued Net cash used in investing activities from investing activities Net cash (used in)/from Financing activities Net movement on borrowings exchange rate changes of foreign Effect Cash and cash equivalents at end of year Consolidated Statement of Cash Flows Cash of Statement Consolidated Consolidated Balance Sheet

31 December 31 December 2010 2009 Notes £m £m Non-current assets Goodwill and other intangible assets 12 1,181.6 1,184.3 Property, plant and equipment 13 253.7 252.3 Interests in joint ventures – 0.3 Derivative financial assets 24 – 0.6 Deferred tax assets 21 33.0 22.1 Trade and other receivables 16 1.9 – 1,470.2 1,459.6 Current assets Inventories 15 216.3 222.6 Trade and other receivables 16 257.7 213.0 Derivative financial assets 24 3.9 2.0 Cash and cash equivalents 17 195.7 147.5 673.6 585.1 Total assets 5 2,143.8 2,044.7 Current liabilities Trade and other payables 18 355.3 319.5 Interest-bearing loans and borrowings 19 0.3 1.3 Derivative financial liabilities 24 8.3 2.8 Current tax liabilities 52.4 49.3 Provisions 20 35.9 44.6 452.2 417.5 Net current assets 221.4 167.6 Non-current liabilities Trade and other payables 18 4.7 1.8 Interest-bearing loans and borrowings 19 482.8 467.9 Derivative financial liabilities 24 3.9 0.2 Deferred tax liabilities 21 114.9 125.3 Retirement benefit obligations 23 119.6 169.1 Provisions 20 82.8 99.6 808.7 863.9 Total liabilities 5 1,260.9 1,281.4 Net assets 882.9 763.3 Equity Share capital 25 1.1 1.1 Share premium account 279.1 279.1 Merger reserve 285.1 285.1 Capital redemption reserve 220.1 220.1 Hedging and translation reserves 25 71.0 71.6 Retained earnings 25.1 (95.4) Equity attributable to holders of the parent 881.5 761.6 Non-controlling interests 1.4 1.7 Total equity 882.9 763.3

The financial statements were approved and authorised for issue by the Board of Directors on 9 March 2011 and were signed on its behalf by:

Geoffrey Martin Simon Peckham Group Finance Director Chief Operating Officer

50 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 51 £m 1.8 1.8 (0.9) Total Total 21.4 79.3 equity (44.0) (35.8) (10.2) (89.5) 882.9 763.3 141.3 162.7 807.5

Melrose PLC Melrose – – £m 1.4 1.7 0.2 0.3 0.1 2.3 (0.4) (0.2) (0.2) (0.4) (0.2) (0.2) Non- interests controlling

£m 1.8 1.8 (0.5) (9.8) 21.3 79.5 Equity (43.8) (35.6) (89.3) 881.5 761.6 141.1 162.4 805.2 the parent attributable to holders of

£m 1.8 1.8 (0.5) 25.1 21.9 19.0 79.5 (43.8) (95.4) (35.6) (80.6) (60.5) 141.1 163.0 earnings Retained

– – – – – – – £m and (0.6) (0.6) 71.0 71.6 (28.8) (28.8) 100.4 reserves Hedging translation

– – – – – – – – – – – £m Capital 220.1 220.1 220.1 reserve Annual Report 2010 Report 2010 Annual redemption

– – – – – – – – – – – £m Merger 285.1 285.1 285.1 reserve

– – – – – – – – – – – £m Share Share 279.1 279.1 279.1 account premium

– – – – – – – – – – – £m 1.1 1.1 1.1 Share Share capital

(expense)/income share-based payments share-based share-based payments share-based Profit for the year Profit Other comprehensive Profit/(loss) for the year Profit/(loss) expense Other comprehensive At 31 December 2010 Credit to equity for equity-settled Credit Acquisition of non-controlling interest non-controlling of Acquisition Dividends paid Credit to equity for equity-settled to equity for equity-settled Credit At 31 December 2009 Total comprehensive (expense)/income comprehensive Total Dividends paid Total comprehensive (expense)/income comprehensive Total

Reserves At 1 January 2009 Consolidated Statement of Changes in Equity in Changes of Statement Consolidated Notes to the accounts

1. Corporate information 2. Summary of significant accounting policies The consolidated financial statements of Melrose PLC (“the Basis of accounting Group”) for the year ended 31 December 2010 were authorised The consolidated financial statements have been prepared in in accordance with a resolution of the Directors of Melrose PLC accordance with International Financial Reporting Standards on 9 March 2011. (“IFRSs”). The financial statements have also been prepared in accordance with IFRSs adopted for use in the European Union Melrose PLC (“the Company”) is a company incorporated in the and therefore comply with Article 4 of the EU IAS Regulation. United Kingdom under the Companies Act 2006. The address of the registered office is given on page 100. The nature of the The consolidated financial statements have been prepared Group’s operations and its principal activities are set out in on a historical cost basis, except for the revaluation of certain note 5. financial instruments which are recognised at fair value. Historical cost is generally based on the fair value of the These financial statements are presented in pounds Sterling consideration given in exchange for these assets. The principal which is the currency of the primary economic environment in accounting policies adopted are consistent with the prior year which the Company is based. Foreign operations are included and are set out below. in accordance with the policies set out in note 2. Basis of consolidation 1.1 New Standards and Interpretations affecting The Group financial statements include the results of the parent amounts, presentation or disclosure reported in undertaking and all of its subsidiary undertakings. The results the current period of businesses acquired during the period are included from the During the period, the Group adopted a number of new or effective date of acquisition and for those sold during the period revised Standards and Interpretations, none of which to the effective date of disposal. significantly affected the amounts reported in these financial statements. Details of the Standards and Interpretations that Non-controlling interests in subsidiaries are identified separately were adopted are set out in section 1.2. from the Group’s equity therein. The interest of non-controlling shareholders is initially measured at the non-controlling interests 1.2 New Standards and Interpretations adopted with proportion of the share of the fair value of the acquiree’s no significant effect on financial statements identifiable net assets. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those The following new and revised Standards and Interpretations interests at initial recognition plus the non-controlling interests’ have been adopted in these financial statements. Their adoption share of subsequent changes in equity. Total comprehensive has not had any significant impact on the amounts reported in income is attributed to non-controlling interests even if this these financial statements, but may impact the accounting for results in the non-controlling interests having a deficit balance. future transactions and arrangements. Where Group accounting policies are not adopted in the Amendments to IFRS 2: Share-based payments – Group financial statements of subsidiary undertakings, appropriate cash-settled share-based payment transactions adjustments are made in the Group financial statements. Revised IAS 28 (2008): Investments in associates IFRIC 17: Distributions of non-cash assets to owners All inter-group balances and transactions, including unrealised profits arising from intra-group transactions, have been 1.3 New Standards and Interpretations in issue but eliminated in full. not yet effective At the date of authorisation of these financial statements, the Going concern following Standards and Interpretations are in issue but not The Directors have, at the time of approving the financial yet effective: statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational Amendments to IFRS 7: Transfer of financial assets existence for the foreseeable future. Thus they continue to Amendments to IFRS 9: Financial instruments adopt the going concern basis of accounting in preparing Amendments to IAS 12: Deferred tax – the financial statements. Further detail is contained in the Recovery of underlying assets Directors’ statement of going concern on page 34 and 35 Revised IAS 24 (2009): Related party disclosures of the Directors’ report. Amendments to IAS 32: Classification of rights issues Amendments to IFRIC 14: Prepayments of a minimum Business combinations and goodwill funding requirement The acquisition of subsidiaries is accounted for using the IFRIC 19: Extinguishing financial liabilities with purchase method. The cost of acquisition is measured at the equity instruments fair value of assets given, the liabilities incurred or assumed Annual improvements to IFRSs 2010 at the date of exchange of control and equity instruments The Directors do not anticipate that the adoption of these issued by the Group in exchange for control of the acquiree. Standards and Interpretations will have a material impact on the Costs directly attributable to business combinations are Group’s financial statements in the period of initial application. recognised as an expense in the Income Statement as incurred. The acquired identifiable assets and liabilities are measured at their fair value at the date of acquisition except those where specific guidance is provided by IFRSs. Non-current assets and directly attributable liabilities that are classified as held for sale in accordance with IFRS 5: “Non-current assets held for sale and discontinued operations”, are recognised and measured at fair value less costs to sell. Also, deferred tax assets and liabilities

52 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 53

Melrose PLC Melrose Annual Report 2010 Report 2010 Annual stage of completion stagecontractof the activity of Balance the at Sheet This normallyis date. measured proportion the by contract that costsincurred workperformed for estimated the bear date to to where be contract wouldnot thisexcept costs, total representativecompletion. stagecontract the in of Variations of claimswork, and incentive payments includedareextent the to been have agreedthey that customer. with the contract long-term Where a cannot outcome the of be contract recognisedrevenueis estimatedextent reliably, the to contract costsof incurred where probableis it will they be recoverable.Contract costsrecognised are expensesas the in periodwhichin incurred.are they Whencontract probableis costsit will total exceedtotal that expected contractthe loss revenue, recognisedis anas expense immediately. Interestincome recognisedis when probableis it the that economic Grouptheto benefits the of and amount will flow revenuecan bemeasured Interestincome accruedis reliably. principal the reference basis,time by to a on outstanding and effective the interestapplicable. Exceptionalcosts/income Exceptionalcosts/income thosearecosts/income a of significant and non-recurringthose or associatednature withsignificant restructuring programmes acquisitionsor disposals.or Operatingprofit Operatingafter exceptionalstated is profit operating costs andincome, intangible asset amortisation andGroup’s the resultsjointshare ventures,but finance before of of income andfinance costs. Borrowingcosts Borrowingcosts directly attributable acquisition, the to constructionproductionor qualifying of assets,which are assetsnecessarily that substantial a take get period to time of readytheir for cost intended the of useaddedsale,are or to thosesuchassets,until assets the astimesubstantially are readytheir for intended usesale. or Investmentincome earned temporary the on investment of specific of borrowings pendingtheir expenditure qualifyingon assetsdeductedis borrowingfrom the costs eligible capitalisation. for Allborrowingother costsrecognised are Income the in Statementperiod the in whichin incurred.are they Issuecosts loansof Thefinance recognisedcost the Income in Statement in respectissue the capital of costs of instruments allocatedis periodsinstrument the termsof the to usingover effective the method. interestrate Property,plant and equipment Property,plant and equipment cost lessat stated are accumulateddepreciation andimpairment any value. in Theinitial anasset cost of comprises purchase its price or bringing to attributable directly costs any and cost, construction operation. assetThe the into purchase price constructionor aggregatecostamount the is paid andanyfair the value of considerationother acquire The asset. the givencapitalised to finance a valueof lease is also included within property, plant andequipment.

continued Summary of significant accounting accounting significant of Summary

the Income the Statement subsequently andnot is reversed. Whendisposal a thereis cash-generating a of goodwill unit, operation the account relatingdisposed to intakeninto is of determininggain the lossor disposalon operation. that of Jointventures anjointentityis venture A subsidiarywhich a not is undertaking partner a of Group the that is butinterestbusinessof the a in which over Group the Theexercises joint control. results, assets andliabilities joint ventures accountedof are using for Revenue Revenuerecognisedis when significant the risks rewards and the measurement the additionalor period assets below), or (see liabilitiesrecognised, reflect informationnew to obtained about andfacts circumstances acquisition the of as existed that date affected known,ifwouldhave amounts the recognisedthat, at date. that Themeasurement period period the is of date from the Group the obtains acquisitioncomplete date information the to aboutandfacts circumstances acquisition the of as existed that maximumand subject a is date to period one year. of Goodwillacquisitionon initiallyis measured cost beingat the business the cost the of excessof combination the over identifiable the fair net valuethe interest in of acquirer’s assets, liabilitiesand contingent liabilities. Following initial recognition, goodwillmeasuredis cost lessat accumulated any impairment losses.Goodwill impairmentreviewed is for annually moreor frequentlychangesor events if circumstancesin indicatethat carrying the beimpaired.value may goodwillacquisition any the at As acquired date, allocatedis cash-generating eachthe of to units acquired. Impairment is determinedassessing by recoverable the amountthe of cash-generatingwhich unitgoodwill to Where relates. the recoverablecash-generatingamount the of unit lessis than carrying the anamount,impairment loss recognisedis in Theamountgoodwill of partial a allocated to disposal is measuredrelativevaluesoperation the basisthe the on of of disposedandoperation the of retained. equity the accounting. method of ownership of buyer the goodspassed and canof have beto reliablymeasured. Revenue measuredis thefair the value of at considerationreceived receivableor and represents amounts receivablegoods for provided normal the in course business, of discounts, dutiescustomsof net and sales taxes. Wherepercentage completion of accounting appliedis and contract long-term wherea can outcome the beestimatedof revenueand costsrecognised are reliably, the reference by to policies policies acquisition the of fair the identifiablevalues the over of net assetsacquired recognisedis goodwill.as initial the If accounting business a for combination incompleteis reporting the end the of by period which in combination the occurs,Group the reports provisional amounts where appropriate.Those provisional amounts adjustedare during are recognisedare and measured accordancein 12: with IAS liabilities employee “Incomeandbenefit assets to related taxes”, arrangementsrecognisedare and measured accordancein with “Employee benefits” and liabilities 19: or equityIAS instruments replacement the anacquiree’s Group to the related of by share-basedmeasuredpaymentsare awards accordancein cost the Anyexcessof “Share-based 2: withIFRS payments”. 2. Notes to the accounts continued

2. Summary of significant accounting Computer software is initially recorded at cost. Where these assets have been acquired through a business combination, policies continued this will be the fair value allocated in the acquisition accounting. Depreciation is calculated on a straight-line basis over the Where these have been acquired other than through a business estimated useful life of the asset as follows: combination, the initial cost is the aggregate amount paid Freehold land nil and the fair value of any other consideration given to acquire Freehold buildings and long over expected economic the asset. leasehold property life not exceeding 50 years Computer software assets are amortised over their estimated Short leasehold property over the term of the lease useful lives (up to five years) on a straight-line basis. Plant and equipment 3-12 years Intangible assets are tested for impairment annually, or more frequently whenever events or changes in circumstances The estimated useful lives of property, plant and equipment are indicate that the carrying value may not be recoverable. reviewed on an annual basis and, if necessary, changes in Impairment losses are measured on a similar basis to property, useful lives are accounted for prospectively. plant and equipment. Useful lives are also examined on an The carrying values of property, plant and equipment are annual basis and adjustments, where applicable, are made reviewed for impairment when events or changes in on a prospective basis. circumstances indicate that the carrying value may not be Research and development costs recoverable. If any such indication exists an impairment review Research costs are expensed as incurred. is performed and, where the carrying values exceed the estimated recoverable amount, the assets are written down to Costs relating to clearly defined and identifiable development their recoverable amount. The recoverable amount of property, projects are capitalised when there is a technical degree of plant and equipment is the greater of net selling price and value exploitation, adequacy of resources and a potential market in use. In assessing value in use, the estimated future cash flows or development possibility in the undertaking that are are discounted to their present value using a pre-tax discount recognisable; and where it is the intention to produce, market rate that reflects current market assessments of the time value or execute the project. A correlation must also exist between of money and the risks specific to the asset. For an asset that the costs incurred and future benefits and those costs can does not generate largely independent cash inflows, the be measured reliably. Capitalised expenses are expensed on recoverable amount is determined for the cash-generating unit a straight-line basis over their useful lives. Costs not meeting to which the asset belongs. such criteria are expensed as incurred. An item of property, plant and equipment is derecognised upon Inventories disposal or when no future economic benefits are expected Inventories are valued at the lower of cost and net realisable to arise from the continued use of the asset. Any gain or loss value. Cost includes all direct expenditure and appropriate arising on derecognition of the asset (calculated as the production overhead expenditure incurred in bringing goods difference between the net disposal proceeds or costs and to their current state under normal operating conditions. the carrying amount of the item) is included in the Income Net realisable value is based on estimated selling price less Statement in the year that the item is derecognised. costs expected to be incurred to completion and disposal. Provisions have been made for obsolescence or other Intangible assets expected losses where necessary. Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses. Trade and other receivables On acquisition of businesses, separately identifiable Trade receivables and other receivables are measured and intangible assets are determined in relation to the specific carried at amortised cost using the effective interest method, circumstances of the business acquired and are valued less any impairment. The carrying amount of other receivables on an appropriate basis. is reduced by the impairment loss directly and a charge is recorded in the Income Statement. For trade receivables, the Access to the use of patented technology and trade names are carrying amount is reduced through the use of an allowance valued using a “relief from royalty” method which determines the account. Subsequent recoveries of amounts previously written net present value of future additional cash flows arising from the off are credited against the allowance account and changes in use of the intangible asset. the carrying amount of the allowance account are recognised Customer relationships are valued on the basis of the net in the Income Statement. present value of the future additional cash flows arising from Trade receivables that are assessed not to be impaired customer relationships with appropriate allowance for attrition individually are also assessed for impairment on a collective of customers. basis. Objective evidence of impairment for a portfolio of The estimated useful lives of intangible assets are: receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed Patented technology 5 years or less payments in the portfolio past the average credit period, as well Customer relationships 10 years or less as observable changes in national or local economic conditions Trade names 20 years or less that correlate with default on receivables.

54 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 55

Melrose PLC Melrose Annual Report 2010 Report 2010 Annual Derivativefinancial instruments and hedging TheGroup uses derivative financial instrumentsmanageto its and foreigncommodity exchange rate interestrate, exposureto risks,arising from operating and financing activities. The Group doeshold issueornot derivative financial instrumentstrading for purposes.Details derivative of financial instruments are financial the of statements. Movements on disclosed24 note in hedging the reserve equityin 25. detailedare note in Derivativefinancial instrumentsrecognised are fairat and stated Their value. fair valuerecalculated is each at reporting date. Theaccounting resultingtreatment the for gain lossor will dependwhetheron derivative the meetscriteriaqualify the to hedge for accounting. Wherederivatives meet qualifycriteria the not do to hedge for accounting,gains any lossesorfair value revaluation the onto period the at end recognisedare immediately Income the in Where Statement. derivatives meetdo criteriaqualify the to for hedgeaccounting, recognition resulting any of gain lossor on revaluationdepends hedge the of relationshipnature the on and being item the hedged. Derivativefinancial instruments with maturity lessof than dates oneyear periodfrom the classifiedare end date currentas in Balance the Sheet. Hedgeaccounting qualify order In to hedge for accounting, Group the required is document to from inception relationship the between the item being item hedged andhedging the instrument show and to hedge the that will behighly effective anonongoing basis. Thiseffectiveness performedis testing each at period end ensurehedge the that remainsto highly effective. Hedgeaccounting discontinuedis when Group the revokes the hedging the hedge the relationship, instrument expires or is sold, terminated, exercised, or no longerno or exercised, terminated, qualifiessold, is for hedgeaccounting. TheGroup designates certain hedging instruments, eitheras fairvalue hedges, cash hedges,flow hedgesor net of investmentsforeignin operations. Fairvalue hedge Derivativefinancial instruments classifiedare as valuefair changes exposure hedgesto in when hedge they Group’s the recognised a fair the value of asset Changes liability. or the in derivativesfair value of designatedare that and qualify fairas valuehedges recordedare Income the in Statement changestogetherwith any thefair immediately, the valuein of hedgedattributableis that item hedged the to risk. Cash flow hedge Derivativefinancial instruments classifiedare as flow cash variability the exposure hedgesto when hedge they Group’s the cash in that are eitherflows attributable particulara to risk associatedrecognised witha highly a assetor liability, or probable forecasted cash flow. Theeffective portion gain any lossor of from revaluing the derivativefinancial instrumentrecognised is the of Statement in ComprehensiveIncome and accumulatedThe gainequity. in or ineffective the lossrelating to portion recognisedis immediately Income the in Statement.

continued Summary of significant accounting accounting significant of Summary

Otherfinancial liabilities Otherfinancial liabilities initiallyare measured value,fair at of the estimated assetthe useful the lease the orof of life term. Operatinglease payments recognisedare anasexpense in Income the lease basisthe Statement straight-line over a on Rental term. income from operating leases recognisedis on relevant the lease. of term basisthe straight-line over a transaction of net Theycosts. subsequentlyare measured at amortisedcost using effective the withinterest interest method, expenserecognised anoneffective yield basis. The effective calculating method interestof methoda is amortised the cost policies policies risks the and benefits incidentalownership to the leased of capitalisedare item, inceptionlease the the fair the at value of at present the minimumat the value of lower, if lease the of or, leasepayments. The corresponding liability lessor the to is includedBalance the in Sheet finance a as lease obligation. Leasepayments apportionedare between finance the charges andreduction lease the of liability constantachieve a to as so remaininginterest the on of balance rate liability. the of Financecharges chargedare directly against income. Capitalisedleased assets depreciatedare shorter the over financial a of liability of allocating and expense interest over relevant the periods. that The effective rate the is interestrate discountsestimated future cash payments throughout the where a appropriate, financial the expected of life or, liability, shortercarryingnetperiod the to amount initialon recognition. TheGroup derecognises financial liabilities when the Group’s obligationsdischarged,are cancelled expire. they or Interest-bearingloans and borrowings Allloans and borrowings initiallyare recognised fair valueat of consideration the received issue of net costs associated with borrowings. the Afterinitial recognition, interest-bearing loans and borrowings subsequentlyare measured amortised at cost using the effectiveAmortised interestmethod. cost calculatedis by Cashand cash equivalents Cashand cash equivalents Balance the in Sheet comprise cash handin and current balances withbanks and similar institutions anddepositsshort-term which readilyare convertible cash to whichsubjectinsignificantare to of changesrisks value. in purpose the cash CashFor Statement, the Flow and of cash equivalentsconsist cash of and cash equivalents definedas outstanding of net bank above, overdrafts. 2. Leases Financeleases, whichGroup the substantially transfer to all takingaccount issue any into anddiscountcosts, any or premiumsettlement.on Gainsand losses recognisedare Income the in Statement when liabilities the derecognisedare impaired,or wellthroughasas amortisation the process. Notes to the accounts continued

2. Summary of significant accounting For the defined benefit pension and retirement benefit plans, plan assets are measured at fair value and plan liabilities are policies continued measured on an actuarial basis, using the projected unit credit Amounts previously recognised in the Statement of method and discounted at an interest rate equivalent to the Comprehensive Income and accumulated in equity are recycled current rate of return on a high quality corporate bond of to the Income Statement in the periods when the hedged item is equivalent currency and term to the plan liabilities. Any assets recognised in the Income Statement or the hedged relationship resulting from this calculation are limited to past service cost is discontinued. However, when the forecast transaction that is plus the present value of available refunds and reductions in hedged results in the recognition of a non-financial asset or a future contributions to the plan. non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial The service cost of providing pension and other retirement measurement of the cost of the non-financial asset or non- benefits to employees for the period is charged to the financial liability. Income Statement. A charge representing the unwinding of the discount on the plan Hedges of net investments in foreign operations liabilities during the period is included within finance costs. Derivative financial instruments are classified as net investment hedges when they hedge the Group’s net investment in foreign A credit representing the expected return on the plan assets operations. The effective element of any foreign exchange during the period is included within finance costs. This credit is gain or loss from revaluing the derivative at a reporting period based on the market value of the plan assets, and expected end is recognised in the Statement of Comprehensive Income. rates of return, at the beginning of the year. Any ineffective element is recognised immediately in the Actuarial gains and losses may result from: differences between Income Statement. the expected return and the actual return on plan assets; Gains and losses accumulated in equity are recognised differences between the actuarial assumptions underlying the immediately in the Income Statement when the foreign operation plan liabilities and actual experience during the period; or is disposed of or the hedged relationship is discontinued. changes in the actuarial assumptions used in the valuation of the plan liabilities. Actuarial gains and losses, and taxation Provisions thereon, are recognised in full in the period in which they occur, Provisions are recognised when the Group has a present in the Statement of Comprehensive Income. obligation (legal or constructive) as a result of a past event, it is For defined contribution plans, contributions payable are probable that an outflow of resources embodying economic charged to the Income Statement as they fall due as an benefits will be required to settle the obligation and a reliable operating expense. estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are Foreign currencies determined by discounting the expected future cash flows at The individual financial statements of each Group company a rate that reflects the current market assessment of the time are presented in the currency of the primary economic value of money and, where appropriate, the risks specific to the environment in which it operates (its functional currency). liability. Where discounting is used, the increase in the provision For the purpose of the consolidated financial statements, due to the passage of time is recognised as a finance cost. the results and financial position of each Group company are expressed in pounds Sterling, which is the functional currency Environmental liabilities of the Company, and the presentation currency for the Liabilities for environmental costs are recognised when consolidated financial statements. environmental assessments or clean-ups are probable and the associated costs can be reasonably estimated. Generally, the In preparing the financial statements of the individual timing of these provisions coincides with the commitment to a companies, transactions in currencies other than the entity’s formal plan of action. The amount recognised is the best functional currency (foreign currencies) are recorded at the rates estimate of the expenditure required. Where the liability will not of exchange prevailing on the dates of the transactions. At each be settled for a number of years, the amount recognised is the Balance Sheet date, monetary assets and liabilities that are present value of the estimated future expenditure. denominated in foreign currencies are retranslated at the rates prevailing on the Balance Sheet date. Non-monetary items Employee benefits carried at fair value that are denominated in foreign currencies Wages, salaries, bonuses, social security contributions, paid are translated at the rates prevailing at the date when the fair annual leave and sick leave are accrued in the year in which the value was determined. Non-monetary items that are measured associated services are rendered by employees of the Group. in terms of historical cost in a foreign currency are not retranslated. The accounting policy for pensions and other retirement benefits is described below. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included The Group also operates long term incentive plans (LTIPs) for in the Income Statement for the period. Exchange differences certain employees. The expected settlement costs of these arising on the retranslation of non-monetary items carried at fair plans are expensed on a straight-line basis over the life of value are included in the Income Statement for the period the plans. except for differences arising on the retranslation of non- monetary items in respect of which gains and losses are Pensions and other retirement benefits recognised directly in equity. For such non-monetary items, any The Group operates defined benefit pension plans and defined exchange component of that gain or loss is also recognised contribution plans, some of which require contributions to be directly in equity. made to administered funds separate from the Group. In some jurisdictions, funds are not administered separately from the For the purpose of presenting consolidated financial statements, Group but appropriate liabilities are recognised in the the assets and liabilities of the Group’s foreign operations are Balance Sheet. translated at exchange rates prevailing on the Balance Sheet

56 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 57

Melrose PLC Melrose where sales the tax incurred purchase a ongoods of and servicesrecoverable not is taxationfrom the in authority, whichcase sales the tax recognisedis partas cost the of wherereceivables and payablesamountwith the stated are sales of tax included. of acquisition of asset the partasor of expense the as of item applicable;and

Thecarrying amountdeferred of tax assetseach reviewedis at Balancenoandis Sheetit extent reduced the that date to longerprobable sufficient that taxableavailable to profit willbe allowallpart or deferred the of tax beutilised. asset to Deferredtax assets and liabilities measuredare tax the at rates year the when apply asset expectedthe are realised to is that to liability the or settled,is based taxontax that (and rates laws) been have enacted substantiallyor relevantenacted the at BalanceSheet date. recogniseditems relating to directly equity in Tax recognisedis ComprehensiveStatement the in of Income the in and not IncomeStatement. Revenues,expenses and assets recognisedare the of net amountsales of tax except:  Annual Report 2010 Report 2010 Annual Theamountnetsales of thetax recoverable payableorto, from, taxationauthority includedis partas receivables of payablesor Balance the in Sheet. Share-basedpayments TheGroup has applied “Share- requirements the 2: IFRS of The Group issues equity-settled basedpayments”. share-based certain paymentsto employees. Equity-settled share-based paymentsmeasuredare fair valueeffectat excludingthe of non-marketThebased grant. vesting of conditions date the at equity-settledfair the value determined of grant the date at share-basedpayments expensedis basis straight-line over a on shares of estimate that vesting the period, based Group’s the on willeventually vestandeffect adjustedthe for non-market of basedvesting conditions. valuemeasured Blackis Fair the useScholes of by pricing model.The expected usedlife model the in has been based adjusted, the for management’son best estimate, effectsrestrictions, exercise non-transferability, of and behaviouralconsiderations. Non-currentassets and businesses held for sale Non-currentassets and businesses classified held as for sale measuredarecarrying of lower the at amount and fair value less sell. coststo Non-currentassets and businesses classifiedare heldas sale for theirif carrying amount will berecovered principally throughsale a transaction rather than through continuing use. Thiscondition regardedis havingas been onlymet when the salehighlyis probable andasset the businessor availableis for immediatesale present its in condition. Management must be committedsale the which to should qualify beexpected to for recognitioncompleted a as sale within one year date from the classification. of 

continued Summary of significant accounting accounting significant of Summary

in respect in deductible of temporary differences associated withinvestments subsidiariesin andjoint in interestsventures, deferredtax assets onlyare recognised isitextent the that to probabletemporary the that differences will reversethe in foreseeablefuture and taxable available profit will be against whichtemporary the differences can beutilised.  wheredeferred the tax asset arises initialfrom the recognition anasset liabilityof or transactionbusiness a a in not is that transaction, the combination affectsof time the at and, neither accounting the profit nor taxable or and loss; profit where the timing of the reversal of the temporaryreversal where the the timing the of of differences associatedwithinvestments subsidiariesin and interests wheredeferred the tax liability arises goodwillon not is that taxdeductible initial the or recognition anasset liabilityof or in transactionbusiness a a not is that combination the at and, transaction, the affectsof time neither accounting the profit nortaxable and loss; profit or in jointin ventures can becontrolled andprobable is it that temporary the differences reversethewill in not foreseeablefuture.

Taxation Thetax expense basedis taxable the on the for period profits andrepresents tax the sum of the paid currentlyor payableand deferredtax. profit differs Taxable as reportedprofit net from the Incomein Statementbecause income excludesit of items expense or that taxableare deductibleor yearsother in and furtherit excludes nevertaxableare that items liability deductible.or The Group’s current for tax calculatedis using been tax have that rates enactedsubstantivelyor Balance the enacted by Sheet date. Deferredtax provided,is using liability the allon method, temporarydifferences Balance the at betweenSheet date the taxbases assets and of liabilities and their carrying amounts for financialreporting purposes. Deferredtax liabilities recognisedare all taxablefor temporary differencesexcept: to the Income the Statement. to Goodwilland fair value adjustments arising acquisition the on foreign a entity of assetsas andtreated are liabilities the of foreignentityBalance prevailing the at andrate the translated at Sheetdate. policies policies operationrelated Anyexchangethe differences disposedis of. previously have that been attributednon-controlling to derecognisedareinterests reclassified not are but they date. Income and expensedate. average the translated are items at period, the for exchangeunlessrates fluctuate exchange rates significantly during that period, in which exchange casethe transactions of used.Exchangearedate the at rates differences Comprehensive of Statement the in recognised are any, if arising, Incomeand accumulated equityin non-controlling (attributed to Such translation differencesappropriate). asinterests are recognisedincomeas expensesasor period the in whichin 2. Deferredtax assets recognisedare all deductiblefor temporary differences,carry-forward unused of tax assets and unused tax probableis itextent the that taxablelosses, that to profit will be availableagainst which deductible the temporary differences, andcarry-forward unused of tax assets and unused tax losses canbeutilised except: Notes to the accounts continued

3. Critical accounting judgements and key Retirement benefit obligations In assessing the Group’s obligations relating to retirement sources of estimation uncertainty benefits, management made key assumptions relating to In applying the Group’s accounting policies as set out in note 2, current and future mortality, discount rates and inflation. management has made critical accounting judgements in the quantification of provisions, the impairment of goodwill and Taxation intangible assets and the valuation of retirement benefit The Group is subject to income tax in most of the jurisdictions obligations, taxation and financial instruments. Due to the in which it operates. Management is required to exercise inherent uncertainty involved in making assumptions and judgement in determining the Group’s provision for income estimates, actual outcomes will differ from those assumptions taxes. Management’s judgement is required in estimating tax and estimates. An analysis of the key sources of estimation provisions where additional current tax may become payable in uncertainty at the Balance Sheet date that have a significant the future following the audit by the tax authorities of previously- risk of causing a material adjustment to the carrying amount filed tax returns. Management’s judgement is also required as to of assets and liabilities within the next financial year is whether a deferred tax asset should be recognised based on provided below. the availability of future taxable profits.

Provisions Financial instruments The quantification of certain liabilities within provisions Derivative financial instruments are recognised as assets and (environmental remediation obligations and future legal costs in liabilities in the Group’s Balance Sheet measured at their fair relation to certain claims) have been estimated using the best value at the Balance Sheet date. The fair value of derivatives information available. However, such liabilities depend on the continually changes in response to changes in prevailing market actions of third parties and on the specific circumstances conditions. Where permissible under IAS 39, the Group uses pertaining to each obligation, neither of which is controlled by hedge accounting to mitigate the impact of changes in the fair the Group. value of derivatives on the Income Statement but the Group’s results may be affected by changes in the fair values of Impairment of non-current assets derivatives where hedge accounting cannot be applied Goodwill and intangible assets are tested for impairment or due to hedge ineffectiveness. 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 and intangible assets are impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash- generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill and other intangible assets at the Balance Sheet date was £1,181.6 million (31 December 2009: £1,184.3 million). At 31 December 2010, the Group recognised no impairment loss in respect of these assets.

58 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 59 £m 5.1

2009

32.9 83.8

101.8 185.6 1,265.6 1,298.5 1,303.6 1,489.2 Year ended Year 31 December Melrose PLC Melrose

– – – £m 9.3 2010 21.6 1,357.9 1,379.5 1,388.8 1,388.8 Year ended Year 31 December

5 7 5,9 Notes

Annual Report 2010 Report 2010 Annual (1) Segment information Segment Revenue

Long Term Incentive LongTerm Plans. Centralcorporate – CentralLTIPs – Dynacast OtherIndustrial Energy Lifting

Continuing operations the sale of goods Revenue from Revenue recognised on long-term contracts on long-term Revenue recognised Revenue Finance income by IAS 18 continuing operations as defined from revenue Total Discontinued operations the sale of goods Revenue from on long-term contracts Revenue recognised operations as defined by IAS 18 discontinued from revenue Total defined by IAS 18 as revenue Total the costs associatedthe 2009with the Melrose Incentive Share Scheme anddivisional the schemes management inare that LTIP operationacross Group. the prices between length Transfer basismannerbusiness a in similartransactions unitsanonarm’s set are to parties. with third geographical non-current theThe segmentsrevenue, Group’s assets for and, determinedare locationGroup’s the the of by locationexternal salesof been materialcustomers. not not are and Inter-segment included have segment the in information. TheCentral corporate cost centre contains Melrose the Group head LTIPs cost office centre contains costs whilst the Central of the Group that are regularly reported to the Group’s Board in order to allocate resourcesBoardsegments order the in to Groupregularly are the andthat to assess of reported theirGroup’s the to performance.reportable The operatingGroup’s segments under follows: asare 8 IFRS (1) 5. “Operating segments” 8: IFRS requires operating segmentsbeidentified to the internalbasis of reportson about components 4. follows: as is 18, defined as IAS by revenue, Ananalysis Group’s the of TheEnergy segment includingbusiness Marelli incorporates Transformers (now the and Switchgear unit), Turbogenerators the businessallunits, specialist suppliers energy of industrial globalThe the Liftingmarket. products to segment consists primarily businesses the serving of Bridon of andoil and Crosby, gas production, mining, petrochemical, alternative energy and general constructionThe markets. Dynacast segment only includes Dynacast the business, which supplier a is die-cast of parts and componentsrangeindustries. a of to Other Industrial incorporates alloperating other businesses. Detailssignificant the of companiesincluded within Other the Industrial segment Businessout the set arein pagereviewon 16. Theretwoare central cost centres which alsoare separately reported Board: the to Notes to the accounts continued

5. Segment information continued The following tables present revenue and profit information and certain asset and liability information regarding the Group’s operating segments for the year ended 31 December 2010 and the comparative period. Note 6 gives details of exceptional costs and income.

Segment revenues and results Segment revenue from external customers Year ended Year ended 31 December 31 December 2010 2009 Notes £m £m Continuing operations Energy 427.5 418.3 Lifting 422.7 419.0 Dynacast 275.7 208.7 Other Industrial 253.6 252.5 Total continuing operations 4 1,379.5 1,298.5 Discontinued operations 9 – 185.6 Total revenue 1,379.5 1,484.1

Segment result Year ended Year ended 31 December 31 December 2010 2009 Notes £m £m Continuing operations Energy 73.7 61.0 Lifting 66.7 62.5 Dynacast 43.0 21.3 Other Industrial 28.7 20.6 Central – corporate (8.6) (8.9) Central – LTIPs(1) (6.6) (6.8) Headline(2) operating profit 196.9 149.7

Intangible asset amortisation (26.6) (26.7) Exceptional costs 6 (10.3) (23.9) Exceptional income 6 21.4 14.0 Operating profit 181.4 113.1

Finance costs 7 (35.4) (36.2) Finance income 7 9.3 5.1 Profit before tax 155.3 82.0 Tax 8 (14.0) (27.3) Profit for the year from discontinued operations 9 – 24.6 Profit for the year 141.3 79.3

(1) Long Term Incentive Plans. (2) As defined on the Income Statement.

60 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 61 £m £m £m 7.5 9.2 8.8 7.4 0.7 2.4 7.7 2009 2009 2009 33.6 36.0 50.5 87.3 89.3 377.8 435.9 572.4 242.1 175.5 679.5 1,436.6 1,281.4 (1) Year ended Year 31 December 31 December 31 December Melrose PLC Melrose

– £m £m £m 9.4 7.7 7.1 0.7 8.0 Total liabilities Total Depreciation 2010 2010 2010 32.9 32.9 51.8 88.7 74.1 12.5 369.4 420.1 594.0 216.0 190.1 679.5 Non-current assets Non-current 1,435.3 1,260.9 Year ended Year 31 December 31 December 31 December

(2) – £m £m £m 6.3 3.7 4.1 0.1 1.3 9.6 2009 2009 2009 23.8 25.1 201.8 364.3 500.3 232.1 649.7 730.2 329.1 149.3 186.4 (1) 1,298.5 2,044.7 Year ended Year Year ended Year 31 December 31 December 31 December

– – £m £m £m Total assets Total 9.8 7.0 5.5 0.2 9.4 2010 2010 2010 31.9 31.9 from external from customers 199.8 416.4 525.4 237.9 643.7 750.4 345.3 161.0 243.4 (1) Capital expenditure 1,379.5 2,143.8 Year ended Year Year ended Year 31 December 31 December 31 December Revenue

Annual Report 2010 Report 2010 Annual continued (1) Segment information information Segment

From continuing From operations. Revenuepresentedis destination. by The comparative revenue numbers beenhave restatedshow revenue destination to by rather originthan by previouslyas disclosed. Includingcomputer software. Long Term Incentive LongTerm Plans.

Lifting Dynacast Other Industrial Central – corporate operations continuing Total Discontinued operations Total Europe North America Other Total UK Continuing operations Energy Energy Lifting Dynacast Other Industrial Central – corporate Central – LTIPs Total (2) (1) Geographicalinformation TheGroup operates variousin geographical country domicile areasof andUKGroup’s the the aroundTheis world. the Group’s revenuesand non-current assets andEurope in North America alsoare considered bematerial. to revenuefrom external customers andThe information Group’s about segment its assets (non-current assets inexcludinginterests jointventures,derivative financial assets, deferred tax assets and non-currenttradeother receivables) and by geographical location detailedare below: (1) (1) 5. Notes to the accounts continued

6. Exceptional costs and income Year ended Year ended 31 December 31 December 2010 2009 Exceptional costs £m £m Continuing operations Defined benefit pension plan disposal (4.0) – Acquisitions and disposals of businesses (0.4) – Restructuring costs (5.9) (8.5) Labour related one-off costs – (15.4) Total exceptional costs (10.3) (23.9)

During the year, the Group entered into a buyout arrangement to dispose of the liabilities of the Bridon Group Senior Executive Plan for £4.0 million in excess of the IAS 19 carrying value of plan net liabilities. On 12 February 2010, the Group acquired 100% of the share capital of Generator & Motor Services of Pennsylvania, LLC (see note 12) and, in accordance with IFRS 3 (revised 2008), the £0.2 million of costs incurred on acquisition have been recognised in the Income Statement. Also during the year, the Prelok France business, previously shown within the “Other Industrial” division, was disposed of. A net loss of £0.2 million was incurred which included disposal expenses of £0.1 million and a cumulative exchange gain of £0.1 million recycled from equity. During the year, the Group incurred £5.9 million of costs relating to restructuring programmes which include the integration of the Transformers business into the Turbogenerators business within the Energy division. During 2009, the Group incurred £8.5 million of costs relating to restructuring programmes which included plant closures. During 2009, the Group also incurred £15.4 million of labour related one-off costs, relating primarily to headcount reductions, in response to the economic downturn. Year ended Year ended 31 December 31 December 2010 2009 Exceptional income £m £m Continuing operations Pension curtailment gain 13.1 – FKI captive insurance commutation gain 5.6 – Net release of provisions 2.7 5.0 US retiree benefit plan closures – 9.0 Total exceptional income 21.4 14.0

During the year, it was announced to members of the FKI UK Pension Plan that it would be closed to the accrual of future benefits on 28 February 2011, resulting in a curtailment gain of £13.1 million. In 2010, a gain of £5.6 million was generated by the commutation of certain insurance policies within the FKI captive insurance company. The net release of provisions of £2.7 million during the year represents the release of a provision set up on the acquisition of FKI net of an additional environmental and legal provision (see note 20). In 2009, a review of fair value provisions at the Balance Sheet date identified £5.0 million of liabilities in excess of the amount deemed required. In 2009, certain US retiree benefit plans were closed resulting in a release of the future retirement benefit obligations relating to continuing operations of £9.0 million.

62 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 63 £m £m £m £m 0.4 3.0 0.4 0.6 0.8 1.4 1.6 0.1 0.2 1.9 0.9 9.3 2009 2009 2009 2009 21.7 35.1 26.7 (25.8) (90.0) 387.8 (231.4) (137.7) 1,118.6 Year ended Year ended Year Year ended Year ended Year 31 December 31 December 31 December 31 December Melrose PLC Melrose

Total Total £m £m £m £m 2.4 0.3 0.8 1.4 1.3 1.1 0.2 2.6 0.6 0.9 (0.4) 2010 2010 2010 2010 21.4 32.0 26.6 11.9 (10.3) (87.2) 367.5 988.5 (209.6) (133.1) Year ended Year ended Year Year ended Year ended Year 31 December 31 December 31 December 31 December

– – – – £m £m 7.7 0.6 2.4 0.7 (1.9) 2009 2009 34.0 (16.3) (10.2) (11.9) 148.3 Year ended Year ended Year 31 December 31 December

– – – – – – – – – – – – – – £m £m 2010 2010 Discontinued operations Discontinued operations Year ended Year ended Year 31 December 31 December

£m £m 0.4 2.4 0.4 0.9 8.6 2009 2009 14.0 32.7 26.7 (23.9) (78.1) 970.3 353.8 (215.1) (127.5) Year ended Year ended Year 31 December 31 December Annual Report 2010 Report 2010 Annual

£m £m 2.4 0.3 0.9 (0.4) 2010 2010 21.4 32.0 26.6 11.9 (10.3) (87.2) 988.5 367.5 (209.6) (133.1) Continuing operations Continuing operations Year ended Year ended Year 31 December 31 December

Revenues and expenses and Revenues

Other operating costs – exceptional Other operating costs – – exceptional Other operating income net operating expenses Total Share of results of joint ventures (note 14) of joint ventures of results Share Administration expenses and development costs Research equipment plant and Loss on disposal of property, auditor and their associates for other services to the Group: Fees payable to the Company’s subsidiaries pursuant to legislation – the audit of the Company’s fees audit Total Corporate finance services Other non-audit fees Total Tax services Tax Fees payable to the Company’s auditor for the audit of the Company’s annual accounts auditor for the audit of the Company’s Fees payable to the Company’s Operating profit is stated after charging: Operating profit and impairment Depreciation Selling and distribution costs Selling and distribution Net operating expenses comprise: Net operating expenses Cost of inventories Amortisation of other intangible assets (note 12) (note 12) Amortisation of computer software Operating lease expense costs Staff Fees for the audit of the Company’s accounts represent DeloitteCompany’s the Feesaudit fees the for of payableto LLPrespect in Company’s the audit the of of individual consolidated financialfinancial statementsstatements. the Corporate and Group’s finance services includedue diligence andtransactionother services.related Theanalysis remunerationauditor of follows: as is 7. Notes to the accounts continued

7. Revenues and expenses continued Year ended Year ended 31 December 31 December 2010 2009 £m £m Staff costs during the year (including Directors): Wages and salaries 304.9 287.0 Social security costs 43.9 44.4 Pension costs – defined benefit plans (note 23) 4.3 7.3 – defined contribution plans (note 23) 14.4 15.1 Total continuing staff costs 367.5 353.8 Discontinued staff costs – 34.0 Total staff costs 367.5 387.8

Year ended Year ended 31 December 31 December 2010 2009 Number Number Average number of persons employed (including Directors): Energy 3,277 3,558 Lifting 2,917 2,886 Dynacast 2,647 2,141 Other Industrial 2,300 2,415 Central – corporate 33 29 Total continuing operations 11,174 11,029 Discontinued operations – 1,473 Total average number of persons employed 11,174 12,502

Year ended Year ended 31 December 31 December 2010 2009 £m £m Finance costs and income Interest on bank loans and overdrafts (27.2) (25.4) Amortisation of costs of raising finance (2.3) (2.1) Interest on obligations under finance leases (0.1) (0.1) Fair value loss on financial instruments transferred from equity – (0.4) Net finance cost of pensions (4.1) (6.6) Unwind of discount on provisions (note 20) (1.7) (1.6) Total finance costs (35.4) (36.2) Finance income (note 4) 9.3 5.1 Total continuing operations (26.1) (31.1) Discontinued operations (note 9) – (0.4) Total net finance costs (26.1) (31.5)

The finance cost of pensions is the interest cost on benefit obligations of £57.3 million net of the expected return on plan assets of £53.2 million (2009: £55.2 million and £48.6 million respectively).

64 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 65 – – – £m £m 2.0 1.2 1.4 5.5 5.2 2.2

(5.8) (7.5) 2009 2009 82.0 20.6 28.7 33.0 27.8 33.0 38.3 33.0 102.6

Year ended Year Year ended Year 31 December 31 December Melrose PLC Melrose

Total – – £m £m 1.2 4.3 (0.2) (3.8) (2.9) (0.3) 2010 2010 43.5 14.0 28.8 14.0 14.0 44.4 (23.5) (14.8) (23.5) (11.2) 155.3 155.3 Year ended Year Year ended Year 31 December 31 December

– – £m 1.6 4.1 5.7 3.5 5.7 2.2 2009 Year ended Year 31 December

– – – – – – – – £m 2010 Discontinued operations Year ended Year 31 December

– £m 1.1 (1.3) (7.5) 2009 26.2 27.3 27.3 36.1 Year ended Year 31 December Annual Report 2010 Report 2010 Annual

£m 4.3 2010 28.8 14.0 14.0 44.4 (14.8) (23.5) (11.2) Continuing operations Year ended Year 31 December

operating profit after operating profit (1) Tax

As definedAs the Incomeon Statement. finance costs and finance income finance costs and finance

Discontinued operations (note 9) activities at UK corporate tax rate 28.0% (2009: 28.0%) ordinary on on profit Tax of: effect Tax Net permanent differences Net non deductible exceptional items tax rates of foreign Adjustment in respect tax liability of UK rate change on deferred Effect tax in deferred recognised not previously Timing differences Prior year tax adjustments Exceptional tax credit tax charge for the year Total Profit on ordinary activities before tax: activities before on ordinary Profit Continuing operations Current tax Current Analysis of charge/(credit) in year: in Analysis of charge/(credit) Deferred tax (note 21) Deferred income tax charge Total charge on headline Tax Tax on net exceptional income/(costs) Tax Exceptional tax credit of intangible asset amortisation in respect Tax tax charge income Total In addition to the amount charged to the Income Statement, a credit of £7.9 million (2009: £13.0 million)has been recognised million £13.0 (2009: amount the Incomeadditioncharged the In credit £7.9 a to Statement, of to respectmillion)in of directlyComprehensiveStatement the in million of £15.3 (2009: Income. This represents tax a credit£8.1 of retirementbenefit respectobligations million) in taxa movements of and on (2009: millioncash flow £2.3 £0.2 hedges. chargeof (1) includes Thetax thean exceptional Decembertax chargemillion year the endedrelatesto for creditthat £23.5 of 31 2010 recognitiondeferred a of tax assetconsidered is that berecoverable. to tradingdiscontinued in million tax to related OfDecembertotal divisions the charge year the ended for disposed31 £5.7 2009, of during of taxNo 2009. charge creditor aroseprofit (including the on the cumulativeexchange movementrecycled from equity) The differences explainedare following the in table: 28.0%). (2009: 28.0% 8. of £9.7 million disposal the on relevant the subsidiaries. of £9.7 of Thetax currenthigher) the corporationfor (2009: year lower average thanstandardof is the taxrate year the of for UK the in Notes to the accounts continued

9. Discontinued operations Financial performance of discontinued operations in the prior year includes the Logistex US, Logistex Europe, Rhombus and Welland Forge businesses which were all disposed of during 2009. Year ended 31 December 2009 Notes £m Revenue 4,5 185.6 Operating costs before exceptional items (170.4) Headline(1) operating profit 15.2 Reported as exceptional items: Labour related one-off costs (1.9) US retiree benefit plan closures 7.7

Net finance costs 7 (0.4) Profit before tax 20.6 Tax charge 8 (5.7) Profit after tax 14.9 Cumulative exchange difference recycled on disposals 25 11.4 Loss on disposal of net assets (1.7) Profit for the year from discontinued operations 24.6

(1) As defined on the Income Statement.

10. Dividends Year ended Year ended 31 December 31 December 2010 2009 £m £m Second interim dividend for the year ended 31 December 2009 of 4.80p (2008: nil) 23.9 – Final dividend for the year ended 31 December 2009 paid of nil (2008: 4.25p) – 21.1 Interim dividend for the year ended 31 December 2010 paid of 4.00p (2009: 2.90p) 19.9 14.5 43.8 35.6 Proposed second interim dividend for year ended 31 December 2010 of nil (2009: 4.80p) – 23.9 Proposed final dividend for the year ended 31 December 2010 of 7.00p (2009: nil) 34.8 –

A final dividend of 7.0p was proposed by the Board on 9 March 2011 and, in accordance with IAS 10, has not been included as a liability in these financial statements.

66 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 67 £m 5.0 4.8 (8.8) 2009 2009 16.6 16.3 82.7 10.4 79.5 54.9 23.9 26.7 16.0 11.0 15.6 10.8 pence (24.6) (14.0) 497.6 508.0 Number Year ended Year Year ended Year 31 December 31 December Melrose PLC Melrose

– – – £m 2010 2010 25.4 24.1 25.3 28.4 10.3 26.6 28.4 27.0 27.0 (21.4) (30.4) pence 126.2 522.9 497.6 141.1 141.1 Number ended Year ended Year 31 December 31 December

Annual Report 2010 Report 2010 Annual earnings per share from continuing operations continuing earnings from share per (1)

fully diluted earnings per share basic earnings per share (1) (1) Earnings per share per Earnings

From continuing operations From From continuing operations From Headline Further shares for the purposes of fully diluted earnings per share (million) for the purposes of fully diluted earnings per share Further shares earnings (million) for the purposes of diluted per share Shares average number of Ordinary Weighted Earnings per share Basic earnings per share continuing and discontinued operations From Weighted average number of Ordinary Shares for the purposes of basic earnings (million) for the purposes of basic per share Shares average number of Ordinary Weighted Earnings for the purposes of earnings per share Profit Less: profit for the year from discontinued operations (note 9) discontinued for the year from Less: profit continuing operations Earnings of earnings from for basis per share 6) Exceptional costs (note 6) Exceptional income (note Intangible asset amortisation on exceptional items and intangible asset amortisation Exceptional tax and tax Earningsbasis of headline for continuing operations From discontinued operations From Fully diluted earnings per share continuing and discontinued operations From continuing operations From discontinued operations From Headline (1) As definedAs the Incomeon Statement.(1) (1) As definedAs the Incomeon Statement.(1) 11. Notes to the accounts continued

12. Goodwill and other intangible assets Other intangible Computer Goodwill assets software Total £m £m £m £m Cost At 1 January 2009 829.4 477.9 3.5 1,310.8 Additions – – 0.9 0.9 Disposals – – (0.7) (0.7) Disposal of businesses – – (1.3) (1.3) Exchange adjustments (50.2) (28.1) 0.1 (78.2) At 31 December 2009 779.2 449.8 2.5 1,231.5 Acquisitions 7.8 0.7 – 8.5 Additions – – 1.2 1.2 Disposals – – (0.7) (0.7) Exchange adjustments 11.1 4.2 – 15.3 At 31 December 2010 798.1 454.7 3.0 1,255.8 Amortisation At 1 January 2009 – (21.9) (1.5) (23.4) Charge for period – (26.7) (0.9) (27.6) Disposals – – 0.7 0.7 Disposal of businesses – – 1.2 1.2 Exchange adjustments – 1.9 – 1.9 At 31 December 2009 – (46.7) (0.5) (47.2) Charge for the period – (26.6) (0.9) (27.5) Disposals – – 0.7 0.7 Exchange adjustments – (0.3) 0.1 (0.2) At 31 December 2010 – (73.6) (0.6) (74.2) Net book value At 31 December 2010 798.1 381.1 2.4 1,181.6 At 31 December 2009 779.2 403.1 2.0 1,184.3

Other intangible assets include patented technology, customer relationships and trade names. Goodwill has been allocated to the business segments, each of which comprises several cash-generating units, as follows: 31 December 31 December 2010 2009 £m £m Energy 252.1 245.1 Lifting 299.7 292.6 Dynacast 207.6 203.5 Other Industrial 38.7 38.0 798.1 779.2

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. The Group estimates discount rates using pre-tax 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. The Group prepares cash flow forecasts derived from financial budgets approved by management and extrapolates cash flows based on estimated growth rates of between 2% and 3% (2009: 2% and 3%). This rate does not exceed the average long term growth rate for the relevant markets. The pre-tax discount rate applied is between 8% and 10% (2009: 7% and 9%) depending on the risk elements associated with each cash-generating unit. No impairment was identified and a reasonable possible change in the assumptions applied would not result in any impairment.

68 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 69

£m 0.3 0.7 0.4 0.2 7.8 8.0 8.0 (0.6) (0.3) (0.3) Fair value Melrose PLC Melrose

£m 0.7 (0.6) (0.4) (0.3) (0.3) (1.0) (0.1) Fair value adjustments

– – – £m 1.0 1.2 0.4 (0.2) amount carrying Acquiree’s Acquiree’s

Annual Report 2010 Report 2010 Annual continued Goodwill and other intangible assets assets intangible other and Goodwill

Intangible assets other receivables and Trade other payables and Trade Provisions tax liabilities Deferred assets identifiable Total Goodwill consideration Total Satisfied by: Cash consideration Property, plant and equipment plant Property, Acquisitionnon-controllingof interest non-controllingGroup the acquired Bridon the 20% the interestof Hangzhou Ropes SeptemberCompany On20 Limited2010, withinLifting the division cash for million. consideration £0.9 of Thecarrying the adjustments to values acquisition the on been have includedabove represent assets the fairto and the value of liabilitiesacquired. headline million to operating profit during the period revenuefrom and million £1.5 to TheGMS business contributed £7.2 December acquisition31 2010. to millionAcquisition been have £0.2 incurred costs of andbeen these have expensed Incomeexceptionalas coststhe in Statement 6). note (see Thegoodwill arising GMS the onacquisition attributableis anticipated the profitability to the incremental of distributionthe of products and expected synergies. company’s of Pennsylvania, LLC (“GMS”), a company a operating Northin Pennsylvania, (“GMS”), of America. LLC supplier GMSa is aftermarket of services the to turbogeneratorindustry. Thefollowing assets and liabilities acquired: were 12. Acquisitionsubsidiariesof issued the of share Groupcapital, the acquired Services andGenerator obtained 100% FebruaryMotor of & control, On2010 12 Notes to the accounts continued

13. Property, plant and equipment Land and Plant and buildings equipment Total £m £m £m Cost At 1 January 2009 123.3 229.0 352.3 Additions 4.4 19.2 23.6 Disposals (0.4) (4.7) (5.1) Disposal of businesses (8.4) (3.7) (12.1) Exchange adjustments (6.3) (14.0) (20.3) At 31 December 2009 112.6 225.8 338.4 Acquisitions – 0.3 0.3 Additions 3.8 26.9 30.7 Disposals – (6.3) (6.3) Disposal of businesses – (0.5) (0.5) Exchange adjustments 1.1 3.9 5.0 At 31 December 2010 117.5 250.1 367.6 Accumulated depreciation and impairment At 1 January 2009 (3.8) (56.6) (60.4) Charge for the period (3.2) (30.4) (33.6) Impairments – (0.4) (0.4) Disposals – 3.7 3.7 Disposal of businesses 0.3 0.9 1.2 Exchange adjustments 0.3 3.1 3.4 At 31 December 2009 (6.4) (79.7) (86.1) Charge for the period (3.4) (28.6) (32.0) Disposals – 5.7 5.7 Disposal of businesses – 0.2 0.2 Exchange adjustments (0.3) (1.4) (1.7) At 31 December 2010 (10.1) (103.8) (113.9) Net book value At 31 December 2010 107.4 146.3 253.7 At 31 December 2009 106.2 146.1 252.3

14. Interests in joint ventures 31 December 31 December 2010 2009 £m £m Aggregated amounts relating to joint ventures: Total assets 0.4 3.0 Total liabilities (0.8) (2.7) Interests in joint ventures (0.4) 0.3 Share of joint venture revenues 0.8 3.7 Share of results of joint ventures (0.4) 0.4 Dividends received (0.3) (0.2)

Interests in joint ventures moved to a net liability position during the year and has therefore been recognised in current liabilities. A list of all the significant investments in subsidiaries including the name, country of incorporation and proportion of ownership interest is given in note 3 to the Company’s separate financial statements.

70 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 71 – £m £m £m £m £m 4.1 2.1 8.1 1.2 0.2 6.6 Total (8.3) (8.3) (8.1) (4.7) (0.4) (2.9) 2009 2009 2009 2009 19.7 12.5 11.0 11.1 54.2 88.5 79.9 (12.4) (28.0) 197.6 213.0 222.6 31 December 31 December 31 December 31 December Melrose PLC Melrose

– – – – £m £m £m £m £m 1.9 0.2 0.1 0.1 0.2 4.9 (0.1) (5.2) (0.3) (0.3) (6.6) 2010 2010 2010 2010 26.1 13.1 19.7 54.3 79.6 82.4 (26.4) Central 257.7 231.5 216.3 31 December 31 December 31 December 31 December

£m 2.4 0.5 1.5 0.2 0.1 1.1 (1.3) (0.1) (0.7) Other Industrial

£m 2.4 0.6 2.3 0.4 0.1 2.0 (0.6) (0.1) (0.8) Dynacast

– – £m 2.0 0.6 1.4 0.3 1.1 (1.2) (0.6) Lifting Annual Report 2010 Report 2010 Annual

– £m 4.1 0.4 2.8 0.2 2.2 (1.5) (0.2) (0.8) Energy

Trade and other receivables other and Trade Inventories

Amounts due to contract customers included in trade and other payables Amounts due to contract customers included recognised losses to date less profit plus recognised Contract costs incurred billings Less: progress Allowance for doubtful receivables Other receivables Prepayments At 1 January 2009 Income Statement charge Utilised Exchange differences At 31 December 2009 Income Statement charge Utilised Exchange differences At 31 December 2010 Other receivables Non-current Trade receivables Trade Current Contracts in progress at the Balance Sheet date: Contracts in progress and other receivables contract customers included in trade Amounts due from Raw materials Work in progress Work Finished goods Anallowance has been madeestimated irrecoverablefor amounts madepast defaultwithreference experience to and management’sassessment credit of worthiness, ananalysis which of follows: as is Trade receivables non-interestare Trade bearing. Credit termsoffered customers vary to upon country the operation of butgenerally are betweenand30 90 days. 16. The average life of long-term contracts is 2-3 years. contracts long-term 2-3 The is of averagelife Long-termcontracts The Directors consider that there is no material difference between the Balance Sheet value of inventories and their replacement cost. replacement their and inventories of value Sheet Balance the between difference material no is there that consider Directors The 15. 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 many and because they are unrelated to each other. 31 December 31 December 2010 2009 Ageing of impaired trade receivables past due £m £m 0 – 30 days 1.3 1.1 31 – 60 days 0.9 1.0 60+ days 4.4 6.0 6.6 8.1

Included in the Group’s trade receivables balance are overdue trade receivables with a carrying amount of £43.4 million (31 December 2009: £44.2 million) against which an appropriate provision of £6.6 million (31 December 2009: £8.1 million) is held. The balance deemed recoverable of £36.8 million (31 December 2009: £36.1 million) is past due as follows: 31 December 31 December 2010 2009 £m £m 0 – 30 days 25.9 28.7 31 – 60 days 6.5 4.5 60+ days 4.4 2.9 36.8 36.1

The Directors consider that the carrying amount of trade and other receivables, including amounts not past due and not impaired, approximates to their fair value.

17. Cash and cash equivalents 31 December 31 December 2010 2009 £m £m Cash and cash equivalents 195.7 147.5

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 considered to be equal to their fair value.

18. Trade and other payables 31 December 31 December 2010 2009 Current £m £m Trade payables 160.5 126.8 Other payables 87.8 96.1 Other taxes and social security 11.5 8.8 Accruals 95.5 87.8 355.3 319.5

Trade payables are non-interest bearing. Normal settlement terms vary by country but are usually between 30 and 90 days. Other payables are non-interest bearing and have an average term of approximately 60 days. 31 December 31 December 2010 2009 Non-current £m £m Other payables 3.3 0.3 Accruals 1.4 1.5 4.7 1.8

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

72 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 73

£m £m 0.8 0.8 1.0

Total Total (8.3)

2009 49.2 22.0 53.3 51.6 50.0 (34.2) (76.5) 373.9 466.4 855.3 338.2 456.5 793.5 374.1 476.7 469.2 financial liabilities 31 December Melrose PLC Melrose

Total – – – – £m £m 8.3 0.2 2.8 0.1 3.0 3.7 0.1 0.3 0.3 (6.0) 2010 12.2 50.3 50.0 388.5 488.8 483.1 financial liabilities Derivative 31 December

– – – – – – £m £m 4.7 1.8 0.5 0.5 (8.3) 2009 51.6 50.0 Other 355.3 360.0 319.5 321.3 374.1 475.7 467.9 financial liabilities 31 December

– – – £m £m Non-current Total Total (6.0) 2010 10.3 40.8 15.9 20.1 53.3 50.3 50.0 (34.2) (76.5) 466.2 483.1 456.4 469.2 388.5 488.8 482.8 loans and borrowings 31 December interest-bearing interest-bearing

– – – – – – – – – – – – – £m £m 1.0 1.0 0.3 0.3 1.0 1.0 1.3 2009 lease Finance obligations 31 December Annual Report 2010 Report 2010 Annual

– – – – – – Current £m £m 0.3 0.3 0.3 2010 10.3 40.8 14.9 20.1 53.3 (34.2) (76.5) 466.2 483.1 456.4 468.2 Bank loans 31 December

(1) (2) (4) (3) Interest-bearing loans and borrowings and loans Interest-bearing

Interest rate LIBOR +1.5%, final maturity April2013. InterestLIBOR rate +1.5%, final maturity April2013. InterestLIBOR rate +1.5%, Interest rate 1.5%, final maturityInterest July2011. 1.5%, rate final maturity April2013. InterestEURIBOR rate +1.5%,

Fixed rate obligations loan (Austria) – Euro Bank borrowings In one to two years years In two to three of financing rates Effect At 31 December 2010 Within one year In one to two years years In two to three years After three of financing rates Effect At 31 December 2009 Within one year Floating rate obligations – US Dollar loan Bank borrowings Bank borrowings – Euro loan – Euro Bank borrowings – Sterling loan Bank borrowings Finance leases Unamortised finance costs loans and borrowings interest-bearing Total Maturityfinancialof liabilities The non maturity derivative financial of anticipated profile future cash including flows Group’s liabilities,theto in interest relation for letters for credit. of sensitivity Theinterestrate analysis, after takingaccount hedginginto derivatives, interestdescribedrate is 24. note in anonundiscounted basis differsand which, therefore, carrying the from both value and fair valuetableshown the is in below. based debt is relevant the Interestfloating on LIBOR on rate curve for US Dollar and Sterling balances EURIBOR and curvefor balances. Euro basedInteresthedgingonis swaps relevant the onforward interestrate LIBOR curve Dollar US for amounts and EURIBORcurve cashnet and illustrated a is as flow. Euro for (2) (3) (4) million multi-currencyThe Group utilises £750 committeda bank facility provides that loanterm and revolving credit facilities number A Group companiesof Drawdownsbear interbankfacility. this interest at actguarantorsas to April 22 2013. throughto performance interestplusmargin a of Group’s determined the rates referenceunder covenantdebtby to cover and its ratio ranges 1.5%. was December The margin31 at as2010 and 2.35%. between1.25% Group the remained Throughoutcompliant year, the with all covenants under these facilities. The loanterm facility fullyis drawn downhaving originally been £500 million.at 2009set In Group the repaid and cancelled $80 US millionloan term this facility of million undrawn the £250 revolvingamount the credit of Decemberfollowing disposalbusinesses. the Logistex the of 31 2010, At million)being utilised December million (31 £25.1 2009: million)with £15.4 December million facility(31 £224.9 2009: £234.6 was (1) 19. interest-bearing providesloans Thisand informationborrowings. note aboutDetails the contractual the of Group’s the termsof and foreign currencyinterest rate liquidity, credit, riskexposure includedareto 24. note in Group’s Notes to the accounts continued

20. Provisions Surplus Environmental Incentive FKI leasehold and scheme captive property costs legal costs related insurance Other Total £m £m £m £m £m £m At 31 December 2009 30.4 56.6 7.7 20.2 29.3 144.2 Acquired – – – – 0.3 0.3 Disposal – – – – (0.2) (0.2) Utilised (6.4) (5.5) – (4.7) (15.8) (32.4) Release(1) – – – (5.6) (8.2) (13.8) Arising in the year(2) 0.4 5.5 4.8 – 5.3 16.0 Unwind of discount (note 7) 1.2 0.5 – – – 1.7 Exchange differences 0.8 0.6 – 1.1 0.4 2.9 At 31 December 2010 26.4 57.7 12.5 11.0 11.1 118.7 Current 5.2 20.1 – – 10.6 35.9 Non-current 21.2 37.6 12.5 11.0 0.5 82.8 26.4 57.7 12.5 11.0 11.1 118.7

(1) Includes amounts recognised within exceptional income of £5.6 million relating to the commutation of certain insurance policies held in the FKI captive insurance company and £8.2 million released following the reassessment of an onerous contract provision set up during the fair value exercise on the acquisition of FKI. (2) Includes new provisions in the surplus leasehold property costs and other provision categories relating to restructuring programmes which include the integration of the Transformers business into the Turbogenerators business. Also includes an increase of a legal provision of £5.5 million relating to a business acquired in the FKI acquisition and the £4.8 million increase to divisional senior management Long Term Incentive Plans. 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 and legal provisions relate to the estimated remediation costs of pollution, soil and groundwater contamination at certain sites and estimated future costs and settlements in relation to legal claims. Incentive scheme related provisions are in respect of long term incentive plans for divisional senior management. 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, employer’s liability in the UK, workers’ compensation in the US and US automotive claims. Other provisions relate primarily to onerous contracts and restructuring costs to be incurred. Where appropriate, provisions have been discounted using a discount rate of 3% (31 December 2009: 3% – 6%).

74 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 75

£m 7.9 5.3 5.1 (1.1) (0.3) (2.0) (5.2) 14.8 (81.9)

2.0% 3.2% £1.67 £1.00 (103.2) (106.4) 4.8yrs Total net Total 25.0% Valuation Valuation deferred tax deferred assumptions Melrose PLC Melrose

– £m 7.7 5.5 (1.3) (0.3) (0.2) (2.3) 12.2 (125.3) (136.2) (114.9) tax liabilities Total deferred deferred Total

– – – – £m 7.3 7.5 (1.1) 11.2 tax on assets (112.9) (127.7) (102.8) Deferred intangible

Deferred tax liabilities Deferred – £m 1.0 0.4 (0.2) (0.3) (0.2) (2.3) (2.0) (8.5) (12.4) (12.1) capital liabilities and other allowances Accelerated

– £m 0.2 8.1 2.6 7.4 (2.4) (2.0) 33.0 22.1 29.8 (10.7) assets and other Tax losses Tax assets Annual Report 2010 Report 2010 Annual Deferred tax Deferred

8 8 Notes

Share-based payments Share-based Deferred tax Deferred

At 31 December 2010 Exchange differences Acquisition Credit/(charge) to equity Credit/(charge) Credit to income Credit At 31 December 2009 Exchange differences Disposal Credit/(charge) to equity Credit/(charge) (Charge)/credit to income (Charge)/credit Weighted average exercise price average exercise Weighted Expected volatility Expected life as at inception interest Risk free Expected dividend yield Weighted average share price average share Weighted At 1 January 2009 Furtherschemedetails the of providedare Remuneration the in report pageson and 40 41. Theestimated fair value attributable 2009 the Incentive Sharesto (formerlyIncentive Shares) using Black2007 the a Scholes option million). December million (31 £21.0 2009: £70.7 was December pricingmodel 31 at 2010 Black Thethe inputsScholes into model fair valueScheme the used to when originally was it established follows: as were 2007 in Expectedvolatility determined was calculating by share historical the price. volatility Company’s the of Melrose the 2009relationmillion)in to Incentive Share Scheme million £1.8 (2009: TheGroup recognised accrual 2 anIFRS £1.8 of for which for liabilityNo deferred million). tax December has been liabilities beenmillion not (31 recognised£4.0 2009: have £4.5 was recognisedrespectin these differencesof because temporaryreversal the the timingcontrol position the of of Group a the in is to differencesandprobable is it such that differences foreseeablereverse the will in not future. Melrose2009 Incentive Share Scheme TheCompany has2009 50,000 Incentive Trust.Shares Directors,held employees by Employee Benefit andMelrose the PLC 2010. in 22. As at 31 December 2010, the Group has gross unused losses of £251.7 million (31 December 2009: £251.4 million)available for December million (31 £251.4 2009: Group the has gross unused losses £251.7 December of 31 at As2010, offsetagainst of futurenonewhichbeen profits, recognised have withinthe Balance the divisional to Sheet due and geographic Decembersplitanticipated future of streams(31 2009: profit recognised These lossesmillion). asset£3.8 be carriedmay forward indefinitely subjectto certain million) hascontinuity businessof December£18.3 requirements. million(31 2009: £33.0 assetof An beenrecognised respectin timingother differences. of significant A partretirement the of benefit obligations recognised the to Groupthein McKechnie accounts PensionUK relates Plan, million)has December million (31 £7.4 2009: FKIPensionUK the PlanPensiondeferred andFKI US A the Plan. tax £12.9 asset of beenrecognised generate taxexpectedaretheseon they extent to obligations the that deductions to against foreseeable profits. aggregate amountthe temporary of differences December 31 at As2010, associated withundistributed earnings subsidiaries of 21. Thefollowing major the are deferred tax assets and liabilities recognised Group the and movements by thereon during current the andprior reporting period. Notes to the accounts continued

23. Retirement benefit obligations Melrose holds several pension plans covering many of its employees and operating in several jurisdictions. The most significant defined benefit plans are: The FKI UK Pension Plan. This is defined benefit in type and is a funded plan 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. This is defined benefit in type and is a funded plan (other than £3.3 million of unfunded liabilities) 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 FKI US Pension Plan. This is defined benefit in type and is a funded plan 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. Other plans include the Cleco (Logistex UK) Plan, the Dynacast US defined benefit plan and a number of funded and unfunded defined benefit arrangements across Europe. Further details of the status of the significant plans are disclosed in the Directors’ report on page 32. The cost of these plans 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 UK and annually in the US. The valuations are based on the UK full actuarial valuations as of 31 December 2008 updated at 31 December 2010 by independent actuaries and US full actuarial valuations as of 1 January 2010 updated at 31 December 2010 by independent actuaries. The Group also operates unfunded retiree medical and welfare benefit plans, principally in the US. During the year, it was announced to members that the FKI UK Pension Plan would be closed to the accrual of future benefit as of 28 February 2011 resulting in a curtailment gain of £13.1 million. The Group also entered into a buyout arrangement to dispose of the liabilities of the Bridon Group Senior Executive Plan, formerly part of the FKI UK Pension Plans, for £4.0 million in excess of the carrying value of the plan net liabilities. The Company contributes £18.5 million per annum to the FKI UK Pension Plan and £4.6 million per annum to the McKechnie UK Pension Plan. In addition to this, there are a number of defined contribution plans across the Group. Contributions during the year were £14.4 million (2009: £15.1 million).

Actuarial assumptions The major weighted average assumptions used by the actuaries in calculating the Group’s pension plan assets and liabilities are as set out below:

31 December 2010 FKI US US Retiree FKI UK McKechnie Pension Benefit Other Plan UK Plan Plan Plans plans % p.a. % p.a. % p.a. % p.a. % p.a. Rate of increase in salaries 4.00 3.95 3.50 n/a 3.00 Rate of increase in pensions in payment 3.30 3.45 n/a n/a 3.22 Discount rate 5.55 5.55 5.10 5.10 5.44 RPI inflation assumption 3.45 3.45 2.75 n/a 3.41

31 December 2009 FKI US US Retiree FKI UK McKechnie Pension Benefit Other Plan UK Plan Plan Plans plans % p.a. % p.a. % p.a. % p.a. % p.a. Rate of increase in salaries 3.95 3.95 3.25 n/a 3.00 Rate of increase in pensions in payment 3.30 3.45 n/a n/a 3.17 Discount rate 5.75 5.75 5.80 5.80 5.72 RPI inflation assumption 3.45 3.45 2.75 n/a 3.24

In addition to this, for certain deferred members, it has been determined that inflation will be based upon the Consumer Price Index (“CPI”) rather than the Retail Price Index (“RPI”). This results in an inflation rate 0.85% lower than RPI for those members. The resulting reduction in the present value of plan liabilities of £12.3 million is included in the Consolidated Statement of Comprehensive Income.

76 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 77 – –

£m £m £m £m 1.7 (0.5) 2006 2006 2006 Total 92.5 10.9 44.5 55.4 (55.4) 919.8

(147.9) (119.6)

(1,039.4) 31 December 31 December 31 December Melrose PLC Melrose

– – £m £m £m £m 4.1 1.2 2.3 2007 2007 2007 plans 21.1 25.2 33.5 Other (55.5) (25.2) (22.0) 123.2 (148.4) 31 December 31 December 31 December

– £m £m £m £m (1.1) (1.1) 2008 2008 2008 Plans 45.2 84.0 14.1 70.7 (14.1) (78.9) Benefit 143.3 810.5 (143.3) (939.7) US Retiree US Retiree 31 December 31 December 31 December

– – £m £m £m £m Plan 2009 2009 2009 24.2 41.0 (19.8) FKI US 144.9 169.1 864.4 193.3 (169.1) (130.9) (213.1) Pension (1,033.5) 31 December 31 December 31 December

– – £m £m £m £m 1.9 2010 2010 2010 21.0 98.6 37.6 (23.8) 119.6 919.8 143.8 (141.9) (119.6) UK Plan (1,039.4) McKechnie Annual Report 2010 Report 2010 Annual 31 December 31 December 31 December

£m Plan (78.6) FKI UK 549.2 (627.8)

continued Retirement benefit obligations obligations benefit Retirement

Limit on pension plan surplus Net liabilities – funded plans Limit on pension plan surplus Net liabilities – unfunded plans Plan liabilities Experience adjustments on plan liabilities Plan liabilities Plan assets Plan assets Experience adjustments on plan assets Net (liabilities)/assets Thisamount presentedis Balance the in Sheet: The plan liabilities and assets at 31 December 2010 were split by plansplit were follows: as by The plan liabilities December and assets31 at 2010 Theyear five historyexperience of adjustmentsfollows: as is BalanceSheet disclosures Theamount recognised Balance the in Sheet arising fromliabilities net respectin defined of benefit plansfollows: as is Sensitivities Sensitivitiesaround principalmovements the in and mortalityinflationassumptions rate discount the of rate, discussedare the in reviewpageon 23. FinanceDirector’s further 22.7 years after retirementmalefurther areyears further they ifa and afterfor retirementfemale. are they if 22.7 25.9 Themortality assumptions triennial the linefor Decemberin arewith those adopted valuation results 31 at as2008. 23. Mortality PensionUK FKIPlan Mortality basedare on assumptions 31 Decembermost the significant for Pension 2010 FKI the at UK Plan, as planthe Group, in “heavy” the of 90% Self Administered Pension Scheme tables, (SAPS) reflecting the plan membership being largely theemployed in Cohort,Long the of minimumwomen) subjectfor a improvementsunderpin(60% line in areFuture with to 80% industrial sector. of 1% p.a. 1% of Theassumptions member a that are currently agedfurther a will65 averagefor onlive years maleare they ifanda for 20.2 furtherassumptions the memberyears female. a area will for For agethey livethey if 65, that at are who2035 in retires 23.6 Notes to the accounts continued

23. Retirement benefit obligationscontinued Expected returns and fair value of assets: Expected return Fair value of assets 31 December 31 December 31 December 31 December 2010 2009 2010 2009 % % £m £m Equity instruments 8.4 8.5 411.1 312.1 Debt instruments 5.1 4.8 430.5 440.7 Other assets 3.4 6.1 78.2 111.6 Weighted average/total 6.4 6.3 919.8 864.4

The expected return on plan assets at 31 December 2010 is based on market expectations at 1 January 2011 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. Movements in the present value of defined benefit obligations during the year: Year ended Year ended 31 December 31 December 2010 2009 £m £m At beginning of year 1,033.5 939.7 Disposal of pension plan (18.3) (1.8) Current service cost 4.3 7.3 Interest cost 57.3 55.2 Actuarial losses 23.8 130.9 Benefits paid (52.8) (48.3) Plan curtailments (16.5) (23.5) Currency losses/(gains) 8.1 (26.0) At end of year 1,039.4 1,033.5

Movements in the fair value of plan assets during the year: Year ended Year ended 31 December 31 December 2010 2009 £m £m At beginning of year 864.4 810.5 Disposal of pension plan (22.3) – Settlement contribution on disposal 4.9 – Expected return on assets 53.2 48.6 Actuarial gains 37.6 41.0 Contributions 27.5 32.1 Benefits paid (52.8) (48.3) Currency gains/(losses) 7.3 (19.5) At end of year 919.8 864.4

The actual return on plan assets was a gain of £90.8 million (2009: gain of £89.6 million).

78 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 79 £m £m 7.3 (3.4) (9.0) 2009 2009 55.2 41.0 14.1 (48.6) (11.1) (89.9) (75.8)

(130.9) Year ended Year ended Year 31 December 31 December Melrose PLC Melrose

– – £m £m 4.3 (3.4) (9.1) 2010 2010 37.6 57.3 13.8 13.8 (23.8) (53.2) Year ended Year ended Year 31 December 31 December

Annual Report 2010 Report 2010 Annual continued Retirement benefit obligations obligations benefit Retirement

Actuarial losses on plan liabilities Actuarial gains on plan assets In arriving at operating profit (included within cost of sales, (included profit In arriving at operating costs and administration expenses): selling and distribution service cost – current – effects of curtailments and settlements – effects costs: Included within net finance cost – interest – expected return on assets Included within exceptional items: of curtailment and settlements – net effects discontinued operations: from Included within profit of curtailments and settlements – effects Reversal of limit on pension plan surplus Thecumulative amountactuarial of gains and losses recognised ComprehensiveStatement the in of loss of Income total a is StatementComprehensiveof Income disclosures Theamount recognised ComprehensiveStatement the in of Income follows: as is £77.4 million (2009: loss of £91.2 million). million£91.2 loss of (2009: £77.4 23. IncomeStatement disclosures Amountsrecognised incomein respectin these definedof benefit plansfollows: as are 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 2010 and 31 December 2009: Other Energy Lifting Dynacast Industrial Central Total £m £m £m £m £m £m 31 December 2010 Financial assets Cash and cash equivalents – – – – 195.7 195.7 Trade receivables 88.4 65.5 41.2 29.6 0.2 224.9 Derivative financial assets 2.3 0.4 0.6 0.1 0.5 3.9 Financial liabilities Bank loans – – (0.3) – (482.8) (483.1) Derivative financial liabilities (0.6) (1.0) (0.1) – (10.5) (12.2) Other financial liabilities (109.5) (81.9) (65.1) (61.0) (42.5) (360.0) 31 December 2009 Financial assets Cash and cash equivalents – – – – 147.5 147.5 Trade receivables 72.0 60.0 34.1 23.0 0.4 189.5 Derivative financial assets 0.6 0.4 0.5 – 1.1 2.6 Financial liabilities Bank loans – – (0.8) – (467.4) (468.2) Finance lease obligations – (1.0) – – – (1.0) Derivative financial liabilities (1.4) (1.1) (0.2) – (0.3) (3.0) Other financial liabilities (102.1) (68.8) (60.4) (48.2) (41.8) (321.3)

Credit risk The Group considers its maximum exposure to credit risk to be as follows: Other Energy Lifting Dynacast Industrial Central Total £m £m £m £m £m £m 31 December 2010 Financial assets Cash and cash equivalents – – – – 195.7 195.7 Trade receivables 88.4 65.5 41.2 29.6 0.2 224.9 Derivative financial assets 2.3 0.4 0.6 0.1 0.5 3.9 31 December 2009 Financial assets Cash and cash equivalents – – – – 147.5 147.5 Trade receivables 72.0 60.0 34.1 23.0 0.4 189.5 Derivative financial assets 0.6 0.4 0.5 – 1.1 2.6

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 on cash and cash equivalents and derivative financial instruments is limited because the counter-parties are banks with high credit-ratings assigned by international credit-rating agencies. 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 regarding the recovery of trade receivables.

Liquidity risk The Group’s policy for managing liquidity risk is set out in the Finance Director’s review on page 24.

80 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 81 – – – – – – – – rate 2009 1.64 1.43 1.47 6.77 1.08 1.64 1.11 4.68 9.57 1.13 1.09 1.90

29.71 26.37 27.90

1,184.30

31 December Melrose PLC Melrose Average hedged Average GBP/USD USD/SGD USD/KRW EUR/USD USD/CNY USD/CAD GBP/USD GBP/EUR GBP/CZK GBP/PLN GBP/NOK GBP/EUR EUR/CZK EUR/CZK USD/CAD GBP/AUD

– – – – – – – – 2.0 6.2 6.1 5.7 4.6 2009 64.6 11.4 15.7 24.1 25.3 19.6 19.4 15.9 34.0 52.5 84.1 millions 31 December Selling currency Fixed price of US Dollar 8,063 per tonne Pricing Average LME price for the month Average Fixed price of US Dollar 8,348 per tonne Average LME price for the month Average Fixed price of US Dollar 8,200 per tonne Average LME price for the month Average USD USD USD USD USD USD GBP GBP GBP PLN NOK EUR EUR CZK CAD AUD

– – rate 2010 1.54 1.35 3.15 1.36 6.56 1.04 5.64 1.57 1.17 9.78 1.37 4.70 9.58 1.34 1.18 1.62 1.69 19.06 29.89 11.54 25.34 24.89 4 January 2011 Maturity 4 January 2011 2 February 2011 2 February 2011 2 March 2011 2 March 2 March 2011 2 March 31 December Average hedged Average continued Annual Report 2010 Report 2010 Annual GBP/USD USD/SGD USD/MYR EUR/USD USD/CZK USD/CNY USD/CAD GBP/AED GBP/USD GBP/EUR GBP/CZK GBP/ZAR EUR/ZAR USD/SGD GBP/PLN GBP/NOK EUR/USD GBP/EUR EUR/CZK EUR/CZK GBP/CAD GBP/AUD

– – 8.0 7.1 4.2 7.5 1.3 5.2 1.4 6.1 4.6 Total quantity Total 80 tonnes 80 tonnes 80 tonnes 80 tonnes 80 tonnes 80 tonnes 2010 67.5 14.0 16.3 13.8 11.8 32.2 16.4 30.2 10.3 11.7 16.4 41.5 160.0 millions 31 December Selling currency USD USD USD USD USD USD USD AED GBP GBP GBP ZAR ZAR SGD PLN NOK EUR EUR EUR CZK CAD AUD

Commodity Copper Copper Copper Copper Copper Copper Financial instruments and risk management management risk and instruments Financial

Sell US Dollar/Buy Sterling Sell US Dollar/Buy Singapore Dollar Sell US Dollar/Buy Singapore Sell US Dollar/Buy Malaysian Ringgit Sell US Dollar/Buy Korean Won Sell US Dollar/Buy Korean Sell US Dollar/Buy Euro Sell US Dollar /Buy Czech Koruna Sell US Dollar/Buy Chinese Renminbi Sell US Dollar/Buy Canadian Dollar Sell U.A.E Dirham/Buy Sterling Sell Sterling /Buy US Dollar Sell Sterling/Buy Euro Sell Sterling/Buy Czech Koruna Sell South African Rand/Buy Sterling Sell South African Rand/Buy Euro Sell Singapore Dollar/Buy US Dollar Sell Singapore Sell Polish Zloty/Buy Sterling Sell Norwegian Krone/Buy Sterling Sell Norwegian Krone/Buy Sell Euro/Buy US Dollar Sell Euro/Buy Sell Euro/Buy Sterling Sell Euro/Buy Sell Euro/Buy Czech Koruna Sell Euro/Buy Sell Czech Koruna/Buy Euro Sell Canadian Dollar/Buy US Dollar Sell Canadian Dollar/Buy Sterling Sell Canadian Dollar/Buy Commodity swaps pays Group Sell Australian Dollar/Buy Sterling Sell Australian Dollar/Buy Group receives Group Group pays Group Group receives Group Group pays Group Group receives Group The fair value of the contracts at 31 December 2010 was a net asset of £0.2 million (31 December million (31 nil). 2009:£0.2 asset net a of was December Thecontracts31 the fair at value2010 of Commodityswap contracts Group the held threecopper designatedcontracts were swap that December cashas hedges.flow 31 at TheseAs2010, swap contracts fixed copperlock Group the the into againstof terms prices protect The to fluctuations the in ofmarket price copper. contractsare: The foreign exchange contracts all mature between January 2011 and March The2012. foreign exchange contracts allbetween mature January 2011 million). December million liability(31 net2009: £1.2 of £1.5 assetnet a of was December Thecontracts31 the fair at value2010 of Foreignexchange contracts Group the held foreign exchange forwardexpected mitigate exchange fluctuationsDecember contracts to on 31 at As2010, 24. Fairvalues TheDirectors consider financial the that assets and liabilities valuesfair materiallyhave not different the carryingto values. cash customerson salesto flows and purchases suppliers.from These instruments operate as cash flow hedges unless the amountsmaterialsmall.areinvolved Thethe currencytermsof million principals pairs equivalent withtotal £1 excessof in are as follows: follows: as Notes to the accounts continued

24. Financial instruments and risk management continued Hedge of net investments in foreign entities Included in interest-bearing loans at 31 December 2010 were the following amounts which were designated as hedges of net investments in the Group’s subsidiaries in Europe and the USA and were being used to reduce the exposure to foreign exchange risks. Borrowings in local currency: 31 December 31 December 2010 2009 £m £m US Dollar 388.5 374.1 Euro 50.3 51.6

Interest rate sensitivity analysis A one percentage point rise in market interest rates for all currencies would decrease profit before tax by the following amounts assuming the net debt as at the Balance Sheet date was outstanding for the whole year: Year ended Year ended 31 December 31 December 2010 2009 £m £m Sterling (0.1) (0.1) US Dollar – (0.3) Euro (0.2) (0.2) (0.3) (0.6)

Interest rate risk management The Group’s policy for managing interest rate risk is set out in the Finance Director’s review. In January 2009, the Group entered into a number of interest rate swaps to hedge $546.0 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 2.1% p.a. plus a 2.0% margin annually in arrears and receive 3 month US Dollar LIBOR plus 2.0% quarterly in arrears. These swaps all mature in January 2013. In April 2009, the Group also took out an interest rate swap to hedge €33.3 million of Euro denominated debt into fixed rates of interest. The swap is structured in a similar way to the US Dollar interest rate swaps with the Group paying 2.6% plus a 2.0% margin annually in arrears and receiving 3 month EURIBOR plus 2.0% quarterly in arrears. This swap matures in April 2013. A corresponding amount of debt drawn under the £500 million term loan is matched with these swaps. These interest rate swaps have been designated as cash flow hedges and were highly effective throughout 2010. The fair value of the contracts at 31 December 2010 was a net liability of £10.0 million (31 December 2009: net asset of £0.8 million).

Foreign currency risk The Group’s policy for managing foreign currency risk is set out in the Finance Director’s review.

82 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 83 – £m £m £m 1.6 1.2 0.4 0.1 1.7 0.9 2.6 Total (0.4) (0.5) (2.9) (0.1) (3.0) 2009 2009 2009

Year ended Year 31 December 31 December 31 December Melrose PLC Melrose

– – £m £m £m 2.7 0.7 0.4 0.6 0.6 1.8 (0.1) (0.1) (0.2) (0.1) (1.6) 2009 2010 2010 Non-current Year ended Year 31 December 31 December 31 December

– – £m 1.7 0.3 2.0 (2.8) (2.8) 2009 Current 31 December

– £m 3.7 0.2 3.9 (2.2) 2010 Total (10.0) (12.2) 31 December

– – – – – £m (3.9) (3.9) 2010 continued Non-current Annual Report 2010 Report 2010 Annual 31 December

– £m 3.7 0.2 3.9 (2.2) (6.1) (8.3) 2010 Current 31 December

Financial instruments and risk management management risk and instruments Financial

Euro Czech Koruna Euro Czech Koruna Commodity swaps rate swaps Interest Derivative financial liabilities contracts forward currency Foreign rate swaps Interest Derivative financial assets contracts forward currency Foreign US Dollar US Dollar Thethesefair value derivedareof from inputs prices thanother quoted observableare that asseteither the for liability, or directly derived prices)as indirectlyor from prices) (i.e. categorisedthereforeandare (i.e. they fair the value hierarchy of within 2 Level set 7. outIFRS in Fairvalue measurements recognised inthe Balance Sheet Foreigncurrency forward contract fair values measuredare using forward quoted and exchangeyield rates curves derived from maturities matchingthe interestcontracts.rates the quoted of Commodityfair valuesswap measuredare using forward quoted commodity prices. contract swap fair values Interestrate measuredare using yield curves derived The fairinterest rates. value from is quoted In addition, the change in equity due to a 10 cent strengthening changeaddition, the DollarIn US the equityagainstin of and 10 Euro Sterlinga translation the net for due of to therewouldno be million However, investmentrespectively. hedging instruments million decrease wouldbea and £4.7 £26.6 of effectequityon because therewould beanoffset currency the in translationforeign the operation. of Thefollowing table details impacthypothetical the of changes foreignin financial on exchange rates assets and liabilitiesthe at Balanceillustrating (decrease)/increase the Sheet date, cent Groupin strengthening equity Dollar US the of and caused 10 a by strengthening Czech the Koruna against againstof Sterling.Euro TheSterling analysis 10% and a assumes allvariables,other that particularin foreignother currency remain exchange rates, constant. The Group operatesrange different a in of currencies, and materialthose witha here: impact noted are shownbelow. 24. Foreigncurrency sensitivity analysis Currency the risks the valuefair a7 riskthat defined as are IFRS or financialof future by cash flows or asset liability will fluctuate becausechanges of foreignin exchange rates. Thefollowing table details transactional the impacthypothetical of changes foreignin financialon exchange rates assets and liabilitiesBalance the at illustrating increase10 cent the Sheet strengthening date, Group in the US operating of profit a causedby strengthening DollarCzech the Koruna against againstof and SterlingEuro Sterling yearcompared the 10% endand rate. a spot to Theanalysis assumes allvariables, other that particularin foreignother currency remain exchange rates, constant. The Group operatesrangedifferent a in of currencies, and material those with a here: impact noted are Notes to the accounts continued

25. Issued capital and reserves 31 December 31 December 2010 2009 Share Capital £m £m Allotted, called-up and fully paid 497,586,779 (31 December 2009: 497,586,779) Ordinary Shares of 0.2p each 1.0 1.0 50,000 (31 December 2009: 50,000) 2009 Incentive Shares of £1 each 0.1 0.1 1.1 1.1

The rights of each class of share are described in the Directors’ report on pages 29 and 30.

Own shares The Trustee of the Melrose PLC Employee Benefit Trust (“EBT”) holds 500 2009 Incentive Shares of £1 each (31 December 2009: 500) in Melrose PLC. The Melrose PLC EBT also holds 25,279 Ordinary Shares of 0.2p each in Melrose PLC (31 December 2009: 25,279) relating to unallocated shares following the crystallisation of the original incentive scheme in August 2007. The FKI EBT holds 158,114 Ordinary Shares of 0.2p each in Melrose PLC (31 December 2009: 158,114) which arose upon disposal of its FKI plc shares when FKI plc was acquired by Melrose PLC.

Hedging and translation reserves 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 foreign exchange movements of instruments designated as net investment hedges. Hedging Translation reserve reserve Total Hedging and translation reserves £m £m £m At 1 January 2009 (15.5) 115.9 100.4 Currency translation on net investments – (32.8) (32.8) Gains on cash flow hedges 5.9 – 5.9 Taxation adjustments to equity (2.3) – (2.3) Transfer to Income Statement on cash flow hedges 11.8 – 11.8 Transfer to Income Statement on disposal of foreign operations – (11.4) (11.4) At 31 December 2009 (0.1) 71.7 71.6 Currency translation on net investments – 8.0 8.0 Losses on cash flow hedges (7.8) – (7.8) Taxation adjustments to equity (0.2) – (0.2) Transfer to Income Statement on cash flow hedges (0.5) – (0.5) Transfer to Income Statement on disposal of foreign operations – (0.1) (0.1) At 31 December 2010 (8.6) 79.6 71.0

84 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 85 – – At £m £m £m 0.1 0.2 0.9 (2.0) (0.1) (2.0) (0.2) (1.3) (1.3) (3.4) (4.4) (0.3) 2010 2009 2009 32.7 79.8 66.1 (33.4) (65.8) (13.4) (32.0) 195.7 149.7 149.9 230.0 176.8 (482.8) (287.4) Year ended Year ended Year 31 December 31 December Melrose PLC Melrose 31 December

– – – – – – – – – – – £m £m £m 0.9 (0.5) (0.1) (2.4) (1.8) 2010 2010 32.0 11.2 35.2 Other (34.4) (43.3) (27.2) (25.9) (27.5) 196.9 195.4 198.5 117.9 non-cash movements ended Year ended Year 31 December 31 December

– – – £m (0.1) (0.1) Disposals

– – – £m (9.1) (9.1) Acquisitions

– – £m 5.9 (7.2) (13.1) Foreign Foreign difference exchange Annual Report 2010 Report 2010 Annual

– £m 0.5 1.1 51.5 53.1 Cash flow

At £m (0.3) (1.0) 2009 147.5 (321.7) (467.9) 31 December

operating profit to cash generated by continuing operations to cash generated operating profit (1) operating profit from continuing operations from operating profit (1) Cash flow statement flow Cash

As definedAs the Incomeon Statement.

Headline Debt due within one year Leases Net debt Cash Cash flow from discontinued operations Cash flow from discontinued operations Cash generated from Debt due after one year Reconciliation of headline Tax received Tax Defined benefit pension contributions paid operations discontinued Net cash used in operating activities from Investments in joint ventures plant and equipment of property, Purchase plant and equipment on disposal of property, Proceeds operations discontinued Net cash used in investing activities from discontinued operations Net cash used in financing activities from Adjustments for: plant and equipment of property, Depreciation software Amortisation of computer in other provisions and decrease Restructuring costs paid in working capital movements before Operating cash flows in inventories Decrease in receivables (Increase)/decrease in payables Increase/(decrease) Cash generated by operations paid Tax paid Interest Defined benefit pension contributions paid Incentive scheme payments continuing operations operating activities from Net cash from Netdebt reconciliation (1) 26. Notes to the accounts continued

27. Commitments and contingencies Future total minimum lease payments under finance leases and hire purchase contracts were as follows: 31 December 31 December 2010 2009 £m £m Amounts payable: Within one year – 1.0 After one year but within five years – – Total minimum lease payments – 1.0 Less: amounts representing finance charges – – – 1.0

Future total minimum rentals payable under non-cancellable operating leases as at 31 December 2010 were as follows: 31 December 31 December 2010 2009 £m £m Amounts payable: Within one year 11.2 9.6 After one year but within five years 27.7 22.9 Over five years 20.6 17.5 59.5 50.0

Capital commitments At 31 December 2010, there were commitments of £7.2 million (31 December 2009: £8.1 million) relating to the acquisition of new plant and machinery.

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 significant 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 as 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 43. Year ended Year ended 31 December 31 December 2010 2009 £m £m Short-term employee benefits 3.1 2.6 Share-based payments 1.6 1.6 4.7 4.2

86 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 87

Melrose PLC Melrose Annual Report 2010 Report 2010 Annual Contingent liabilities Contingent Post Balance Sheet events Sheet Balance Post

the Directors’ best estimate of the outcome of these outcome the claimsof best Directors’ the of estimate has been included Balance the in Sheet. TheGroup has contingent liabilities representing guarantees and contract bonds givenordinary the in course business of behalfon trading subsidiaries. of lossesNo arise theseanticipatedonare to contingent liabilities. provided US $7.5 million respectin claim.this of provided$7.5 US acquisitionresult the addition,a asIn Dynacast,of the of McKechnie and FKIbusinesses, certain further contingent legal, environmentaland tax liabilities identified. were Whilst difficult is it to reasonably theseof outcome the claims,ultimate estimate to US $160 million (at current exchange rates) that may be available to respond and Bridon’s insurers been respond have beavailable indemnifying may that to andcurrent Bridon’s million exchange rates) (at its $160 US to Bridonvigorously intendsto date. defence defend costsagainst to claims the asserted Sinceagainst 2008,it. Bridon has 30. Bridon companies Group the acquiredthat Two partas acquisition the of FKIplcdefendants are of withtheir American distributor commenced federalNoblean actionUS in the in by Drilling court Services,Texas, purchaserHouston, in a wireanchor of lines Inc., manufactureddistributor were its moor that soldandNoble certainused Bridon by to by by acquisition(prior its Group), the of to by mobile, semisubmersibleits offshore drilling Noblerigs Mexico. Gulf the in has of claimed approximately $94million US damagesin plusgoodwill,loss of alleging certain that ropes defectiveduring were and broke Hurricane 2008.in adequateNo breakdown Ike 29. Group the has disposedsmaller the threeof Decemberof businesses, andUKSince Logistex 31 2010 namely Brush Traction, Madicogenerating million.aggregated sales proceeds £20.7 of of Noble’s claim has been provided to date. In a separate casea claim In pending has been same date. the in providedcourt, Noble’s to lesseeof the same the offshoreof drilling rigs,millionAnadarko damageshasin sued Corp. Petroleum Noble approximatelydebris, plusfor $24 removalof US claiming that rigs the unseaworthy were agreement its termsbreachof the in rigs. operate the Noble withof Noble turnin has to asserted identicalthoseasserted claims to first the in action, alleging that Nobleif found Bridonliableto is Anadarko, distributor and its shouldliablebe damages any for Noble that suffers. Thetwo cases recently were consolidated and remain earliest the in procedural stages discovery the as process has just claims. early Bridon assesscommenced. too is caseit the in hasto insurance merits the Noble’s Accordingly, of up coverage of Independent auditor’s report – Company statements

Independent auditor’s report to the members Opinion on other matters prescribed by the of Melrose PLC Companies Act 2006 We have audited the Company financial statements of Melrose In our opinion: PLC for the year ended 31 December 2010 which comprise the the part of the Directors’ Remuneration report to be audited Balance Sheet and the related notes 1 to 14. The financial has been properly prepared in accordance with the reporting framework that has been applied in their preparation Companies Act 2006; and is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). the information given in the Directors’ report for the financial year for which the financial statements are prepared is This report is made solely to the Company’s members, as a consistent with the Company financial statements. body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken Matters on which we are required to report by exception so that we might state to the Company’s members those We have nothing to report in respect of the following matters matters we are required to state to them in an auditor’s report where the Companies Act 2006 requires us to report to you if, and for no other purpose. To the fullest extent permitted by law, in our opinion: we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our adequate accounting records have not been kept by the audit work, for this report, or for the opinions we have formed. Company, or returns adequate for our audit have not been received from branches not visited by us; or Respective responsibilities of Directors and auditor the Company financial statements and the part of the As explained more fully in the Statement of Directors’ Directors’ Remuneration report to be audited are not in Responsibilities, the Directors are responsible for the agreement with the accounting records and returns; or preparation of the Company financial statements and for being certain disclosures of Directors’ remuneration specified by satisfied that they give a true and fair view. Our responsibility law are not made; or is to audit and express an opinion on the Company financial statements in accordance with applicable law and International we have not received all the information and explanations we Standards on Auditing (UK and Ireland). Those standards require for our audit. require us to comply with the Auditing Practices Board’s Ethical Other matter Standards for Auditors. We have reported separately on the Group financial statements Scope of the audit of the financial statements of Melrose PLC for the year ended 31 December 2010. An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies Nigel Mercer, ACA (Senior Statutory Auditor) are appropriate to the Company’s circumstances and have for and on behalf of Deloitte LLP been consistently applied and adequately disclosed; the Chartered Accountants and Statutory Auditor reasonableness of significant accounting estimates made by the London, UK Directors; and the overall presentation of the financial statements. 9 March 2011

Opinion on financial statements In our opinion the Company financial statements: give a true and fair view of the state of the Company’s affairs as at 31 December 2010; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006.

88 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 89 – – – £m 1.1 0.8 0.3 0.6 0.2 (7.7) 2009 45.4 27.5 831.6 420.9 279.1 285.1 220.1 831.6 884.9 885.8 644.1 671.8 (467.4) (250.9) (250.9) 1,306.7 31 December Melrose PLC Melrose

– – – £m 1.1 0.1 (3.9) (6.1) (4.9) 2010 (12.5) (10.0) 279.1 905.7 285.1 220.1 523.1 891.9 892.0 (482.8) (204.2) (193.2) 1,298.5 1,797.7 1,298.5 1,109.9 1,109.9 31 December

9 5 3 4 5 5 6 5 7 10 11 11 11 11 12 13 7,8 Notes

Annual Report 2010 Report 2010 Annual Peckham Simon Officer Operating Chief

Provision for liabilities and charges Provision Net assets Capital and reserves capital Share account premium Share Derivative financial instruments Total assets less current liabilities less current assets Total than one year amounts falling due after more Creditors: Bank loans Merger reserve reserve Capital redemption Retained earnings Hedging reserve funds Shareholders’ Net current assets Net current Fixed assets Investment in subsidiaries Tangible fixed assets Tangible Derivative financial instruments Derivative financial instruments Bank overdrafts Current assets Current Debtors Cash at bank and in hand Derivative financial instruments within one year amounts falling due Creditors: Creditors Registerednumber: 4763064 Geoffrey Martin Geoffrey The financial statements were approved by the Board of Directors on 9 March 2011 were signedand behalfits on by: Thefinancial the of Directors2011 Board9 by March were on statements approved Director Finance Group Company Balance Sheet for Melrose PLC Melrose for Sheet Balance Company Notes to the Company Balance Sheet

1. Significant accounting policies A tangible fixed asset is derecognised upon disposal or when Basis of accounting no future economic benefits are expected to arise from the The separate financial statements of the Company are continued use of the asset. Any gain or loss arising on presented as required by the Companies Act 2006. They have derecognition of the asset (calculated as the difference between been prepared under the historical cost convention, except for the net disposal proceeds and the carrying amount of the item) the revaluation of certain financial instruments which are is included in the Profit and Loss Account in the year the item recognised at fair value, and in accordance with applicable is derecognised. United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) and law. Cash and cash equivalents Cash and cash equivalents in the Balance Sheet comprise cash The principal accounting policies are summarised below. in hand and current balances with banks and similar institutions They have all been applied consistently throughout the year and short-term deposits which are readily convertible to cash and the preceding year. and are subject to insignificant risks of changes in value.

Going concern Derivative financial instruments and hedging The Directors have, at the time of approving the financial Derivative financial instruments are initially recognised in the statements, a reasonable expectation that the Company has Balance Sheet at cost and subsequently remeasured to their adequate resources to continue in operational existence for fair value. The method of recognising the resulting gain or loss is the foreseeable future. Thus they continue to adopt the going dependent on whether the derivative contract is designed to concern basis of accounting in preparing the financial statements. hedge a specific risk and qualifies for hedge accounting. On the Further detail is contained in the Directors’ statement of going date a derivative contract is entered into, the Company concern on page 34 and 35 of the Directors’ report. designates derivatives which qualify as hedges for accounting purposes as either a) a hedge of the fair value of a recognised Investments asset or liability (fair value hedge), or b) a hedge of a forecast Fixed asset investments in subsidiaries are shown at cost less transaction or firm commitment (cash flow hedge) or c) a hedge provision for impairment. of a net investment in a foreign operation. For investments in subsidiaries acquired for consideration, Changes in the fair value of derivatives which are fair value including the issue of shares qualifying for merger relief, cost hedges and that are highly effective are recognised in the Profit is measured at the fair value of the consideration paid. and Loss Account, along with any changes in the fair value of Any premium is ignored. the hedged asset or liability that is attributable to the hedged risk. Changes in the fair value of derivatives in cash flow hedges Bank borrowings are recognised in equity. Where the forecasted transaction or Interest-bearing bank loans and overdrafts are recorded at the firm commitment results in the recognition of an asset or liability, proceeds received, net of direct issue costs. Finance charges, the gains and losses previously included in equity are included including direct issue costs, are accounted for on an accruals in the initial measurement of the asset or liability. Otherwise, basis in the Profit and Loss Account using the effective interest amounts recorded in equity are transferred to the Profit and rate method and are added to the carrying amount of the Loss Account and classified as revenue or expense in the same investment to the extent that they are not settled in the period period in which the forecasted transaction affects the Profit and in which they arise. Loss Account. Tangible fixed assets Hedges of net investments in foreign operations are accounted Tangible fixed assets are stated at cost less accumulated for similarly to cash flow hedges. The Company hedges certain depreciation and any impairment in value. The initial cost of net investments in foreign operations with foreign currency an asset comprises its purchase price or construction cost, borrowings. All foreign exchange gains or losses arising on and any costs directly attributable to bringing the asset into translation are recognised in equity and included in cumulative operation. The purchase price or construction cost is the translation differences and are recycled through the Profit and aggregate amount paid and the fair value of any other Loss Account upon derecognition of the hedged item. consideration given to acquire the asset. Certain derivative instruments, while providing effective Depreciation of fixtures and fittings is calculated on a straight- economic hedges under the Company’s policies, do not line basis over the useful economic life of the assets being three qualify for hedge accounting. Changes in the fair value of any to twelve years. The estimated useful lives are reviewed on an derivative instruments that do not qualify for cash flow hedge annual basis and, if necessary, changes in useful lives are accounting are recognised immediately in the Profit and accounted for prospectively. Loss Account.

90 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 91

Melrose PLC Melrose

Profit for the year the for Profit

Annual Report 2010 Report 2010 Annual 2. permittedAs section Companies the by 408of 2006Act the Company presentLoss and Profit has own elected its to not reported the for Melrose profit a PLC Accountyear. the for million(2009: £519.7 of financial year31 December ended 2010 The Company million million). paiddividend a £43.8 of £32.9 million)during year. the £35.6 (2009: TheCompany has unused tax losses approximately of December million million) available (31 £20.2 2009:to £19.7 carryforward and offset against futureNo deferred profits. tax assethas been recognised respectin these lossesof due uncertainty to future taxableover profits arising the in foreseeablefuture. Thedeferred the estimated value of tax asset not million £5.3 is December (31 28%) 2009: recognised27% at December million). (31 £5.6 2009: remuneration audit for services Theauditor’s Company the is to statements. financial consolidated Group the to 7 note in disclosed

continued Significant accounting policies policies accounting Significant

Foreigncurrencies Monetaryassets and liabilities foreignin currencies are exchange ruling yearof the Sterling rates at the translatedat into in hedged,if forward the Transactions at contract rate. endor, foreigncurrencies Sterlingexchange the translated at are into hedged,if the at transactions the rulingof dates rates the or, at and forwardlossesProfits exchange contract on arisingrate. in normal the course trading and realisedof exchange differences arisingconversion the on foreign currencyof assets and liabilitiesrecognisedare Losswithin Account. and Profit the financial statements. 1. Share-basedpayments TheCompany has applied requirements the 20: FRS of The Company issues“Share-based equity-settled payments”. share-basedcertain payments to employees. Equity-settled share-basedpayments measuredare the fair valueat (excluding effectnon-market of basedof vesting date conditions) the at The grant. fairthe value determined of grant the date at equity-settledshare-based payments expensedis a on vesting basisthe period, straight-line over based theon shares the willof estimate eventuallythat vestand Company’s effect adjustedthe for vesting nonconditions. market-based of valuemeasured Blackis Fair the useScholes of by pricing model.The expected usedlife model the in has been CashFlowStatement TheCompany fromhas takenadvantageexemption the of preparingCashStatement a Flow 1 under FRS termsof the becauseStatements” (Revised): “CashFlow preparesit a consolidatedcash statement flow which is shown pageon Taxation Currenttax, including corporationUK tax and foreign tax, is recovered) providedamountspaidbeusing (or at expected to been tax the have enactedthat and substantivelylaws or rates Balance the enactedby Sheet date. Deferredtax recognisedis respectin all timing differencesof originated reversedBalancehave butthe that not at Sheet date wheretransactions result that anpay obligationevents in or to lessmore tax pay taxfuture right the in a or to future the in have occurredBalance the at Timing Sheet differences date. are differencestaxable between Company’s the profits and its financial the resultsin stated as that statements arisethe from inclusiongains andof losses taxin assessments periodsin differentfromwhich thosein recognisedare they the in adjusted, based adjusted, the management’sfor on best estimate, effectsrestrictions, exercise non-transferability, of and behaviouralconsiderations. Group the financial of 49 statements. Notes to the Company Balance Sheet continued

3. Investment in subsidiaries £m At 1 January 2010 884.9 Additions 11.1 Disposal (4.1) At 31 December 2010 891.9

During the year, the Company increased its investment in Eachairn Aerospace Holdings Limited by a total of £11.1 million. In addition, a £4.1 million reduction in investments was recognised following the liquidation of Mozart Jersey No 2 Limited, a wholly owned subsidiary of the Company. Further subsidiary reorganisations also took place during the year which had no impact on the Company’s carrying value of investments in subsidiaries. The Company has investments in the following subsidiaries which principally affected the profits and net assets of the Group. The following subsidiaries are directly owned by Melrose PLC:

Subsidiaries Country of incorporation Principal activity Holding % Dynacast Holdings Limited Great Britain Holding Company 100 Dynacast International Limited Great Britain Holding Company 100 FKI Limited (formerly 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 McKechnie Holdings (UK) Limited Great Britain Holding Company 100 Eachairn Aerospace Holdings Limited Great Britain Holding Company 100 McKechnie EP Holdings Limited Great Britain Holding Company 100 Melrose North America Inc USA Holding Company 100

92 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 93 97 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Melrose PLC Melrose Equity interest % Equity interest Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Holding company Holding company Holding company Captive insurance company Management services company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Engineering company Principal activity Annual Report 2010 Report 2010 Annual Great Britain Great Britain Great Britain Great USA USA USA Britain Great Canada USA Guernsey Britain Great Country of incorporation Great Britain Great Netherlands Czech Republic Britain Great Britain Great Britain Great Italy USA USA Britain Great New Zealand Belgium USA Singapore Canada Germany Spain USA Austria China China Britain Great Canada continued (1) Investment in subsidiaries subsidiaries in Investment

DisposedFebruary 11 2011.

McKechnie Engineered Plastics Limited McKechnie Engineered Limited McKechnie Specialist Products Inc Management Group The Harris Waste Corporation Hardware Truth Company Weber-Knapp Group FKI Engineering Limited Canada Inc (formerly FKI Industries Canada Limited) Crosby FKI Industries Inc House Insurance Limited West McKechnie Management Services Limited Brush HMA B.V. Brush SEM s.r.o. Limited Brush Transformers InternationalHarrington Generators Limited Limited Hawker Siddeley Switchgear Motori SpA Marelli of Pennsylvania LLC Generator & Motor Services Lifting Bridon-American Corporation Bridon International Limited Bridon New Zealand Limited N.V. Europe Crosby LLC Group The Crosby Dynacast PTE Limited Dynacast (Singapore) Dynacast Canada Inc Dynacast Deutschland GmbH and Co KG Dynacast Espana SA GmbH Dynacast Österreich Shanghai Dynacast Automotive Casting Limited Components Limited Shanghai Dynacast Electronic UK Limited Fishercast Dynacast Limited Other Industrial Logistex Limited Subsidiaries Energy Limited Brush Electrical Machines Dynacast Inc (1) 3. Othersignificant indirectlyowned subsidiaries the Group of are: Notes to the Company Balance Sheet continued

4. Tangible fixed assets Fixtures and fittings £m Cost At 1 January 2010 and 31 December 2010 0.7 Depreciation At 1 January 2010 0.4 Charge for the period 0.2 At 31 December 2010 0.6 Net book value At 31 December 2010 0.1 At 31 December 2009 0.3

5. Derivative financial instruments 31 December 31 December 31 December 31 December 31 December 31 December 2010 2010 2010 2009 2009 2009 Current Non-current Total Current Non-current Total £m £m £m £m £m £m Derivative financial assets Interest rate swaps – – – 0.2 0.6 0.8 – – – 0.2 0.6 0.8 Derivative financial liabilities Interest rate swaps (6.1) (3.9) (10.0) – – – (6.1) (3.9) (10.0) – – –

Details of the interest rate swaps are provided in note 24 to the Group consolidated financial statements on pages 80 to 83.

6. Debtors 31 December 31 December 2010 2009 £m £m Amounts falling due within one year: Amounts owed by Group undertakings 1,109.7 643.7 Prepayments 0.2 0.4 1,109.9 644.1

7. Creditors 31 December 31 December 2010 2009 £m £m Amounts falling due within one year: Amounts owed to Group undertakings 172.6 234.6 Accruals and other payables 20.6 16.3 193.2 250.9 Amounts falling due after more than one year: Bank loans 482.8 467.4 482.8 467.4

94 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 95 £m £m £m 7.7 4.8 1.0 0.1 1.1 (8.3) 2009 2009 12.5 50.0 51.6

475.7 467.4 374.1

Incentive plan related 31 December 31 December Melrose PLC Melrose

£m £m 1.0 0.1 1.1 (6.0) 2010 2010 50.0 50.3 488.8 482.8 388.5 31 December 31 December

Final maturity April 2013 April 2013 April 2013

% Interest rate rate Interest LIBOR + 1.5% LIBOR + 1.5% EURIBOR + 1.5%

Annual Report 2010 Report 2010 Annual Issued share capital share Issued Bank loans Bank

Provisions for liabilities and charges and liabilities for Provisions

Unamortised finance costs Bank borrowings – Sterling loan Bank borrowings Bank borrowings – Euro loan – Euro Bank borrowings Additional provision in the year Additional provision At 31 December 2010 At 1 January 2010 50,000 (31 December 2009: 50,000) 2009 Incentive Shares of £1 each 50,000 (31 December 2009: 50,000) 2009 Incentive Shares Share capital Share Allotted, called-up and fully paid of 0.2p each Shares 497,586,779 (31 December 2009: 497,586,779) Ordinary Non-current bank loans Non-current currencies: Denominated in the following – US Dollar loan Bank borrowings Ownshares Trust (“EBT”) December holds500 2009 Employee Benefit(31 2009: £1 Incentiveeach Melrose the Shares of PLC of TheTrustee December Ordinary (31 2009: each Melrosein SharesPLC 0.2p also of holds EBT 25,279 The Melrose PLC 500)Melrosein PLC. Ordinary unallocated Shares) relating to shares 25,279 following crystallisation the original the of incentive scheme Augustin 2007. Ordinary Shares) which December Ordinary (31 158,114 2009: each Melrosein SharesPLC 0.2p of holdsThe 158,114 FKIEBT aroseupon disposal FKIplc shares its of when acquiredFKIplc was Melrose by PLC. Theeach rights of class share issuein of describedare report Directors’ the in pageson and 30. 29 1.25% and 2.35%. 1.25% re-pricing Theinterest rate financialof profile liabilities, takingafter accountinto hedgingderivatives,rate interest is described Group the consolidated of financial 24 statements. note in 10. Thecash provision long incentivetermrelatesto plans divisional for senior management andconsidered is benon-current. to 9. Thebank borrowings drawnareunder year five multi-currencya committed A number bankof Group facility. companies act as December 31 at as2010. Drawdownsbear interestplus1.5% margin interbank a facility. thisinterestof of at guarantors rates to performance Thismargin Group’s determined is the referenceunder covenant ratio debtby to cover and its ranges between 8. Notes to the Company Balance Sheet continued

11. Reserves Share Capital premium Merger redemption Retained account reserve reserve earnings Reserves £m £m £m £m At 1 January 2009 279.1 285.1 220.1 46.3 Dividends paid – – – (35.6) Profit for the year – – – 32.9 Credit to equity for equity-settled share-based payments – – – 1.8 At 31 December 2009 279.1 285.1 220.1 45.4 Dividends paid – – – (43.8) Profit for the year – – – 519.7 Credit to equity for equity-settled share-based payments – – – 1.8 At 31 December 2010 279.1 285.1 220.1 523.1

Details of share-based payments are given in note 22 to the Group consolidated financial statements.

12. Hedging reserve £m At 1 January 2009 – Gains on cash flow hedges 0.8 At 31 December 2009 0.8 Losses on cash flow hedges (10.8) At 31 December 2010 (10.0)

13. Reconciliation of movements in shareholders’ funds £m At 1 January 2009 831.7 Dividends paid (35.6) Profit for the year 32.9 Increase in hedging reserve 0.8 Credit to equity for equity-settled share-based payments 1.8 At 31 December 2009 831.6 Dividends paid (43.8) Profit for the year 519.7 Decrease in hedging reserve (10.8) Credit to equity for equity-settled share-based payments 1.8 At 31 December 2010 1,298.5

14. Related party transactions The Company has taken the exemption in FRS 8: “Related party transactions” not to disclose intercompany balances and transactions in the year.

96 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 97

Melrose PLC Melrose to holders equityother to of securities, requiredas by subjectsuch rights, those securities rights to the of or, Directors the as otherwise consider necessary, to Ordinary to Shareholders proportionin nearly (as as theirbepracticable) existingmay holdings; andto 

and so that the Directors the and imposethat so may limits any or restrictionsarrangements andany make which they considernecessary deal appropriateor withtreasury to shares,fractional entitlements, legal,record dates, regulatorypracticalor problems underor laws in, the territory any matter;other and any or of, to the allotment the (otherwise to circumstances thanthe in set outparagraphin resolutionthis equity of (A) of 9) securitiesauthority the pursuant paragraph to by granted resolution saletreasury the of (A) of and/or 8 shares for nominal a cashamount£49,758, to up of (i) (ii) the authority the paragraph resolution grantedby of (B) 8, allotmentequitysuch the shallpower of belimited to securitiesconnectionin rights a of withan offer way by issueonly): and so that the Directors the imposeand that so may limits any or restrictionsarrangements andany make which they considernecessary deal appropriateor withtreasury to shares,fractional entitlements, legal, record dates, regulatorypracticalor problems underor of, laws in, the territory any matter, other any or equityallotment the of to securities and saletreasury of sharescash for connectionin withan offer equity of securities(but caseanallotment the in of pursuant to

(B) such power to apply until the end of the Company’s next apply Company’s the end suchthe until of to power AnnualGeneral if Meeting after resolutionthis passedis (or, but so businessclose the until of earlier, June30on 2012) Companyoffers the make that may and into enter agreementsexpirespower the before which or would, require might, equity securities beallottedtreasury (and to besold)shares after to expires power the andDirectors the allotequity may securities sell treasury(and shares) under such any offer agreementor expired. not had power the ifas such authorities to apply until the end of the Company’s next suchauthorities applyCompany’s the end the untilof to AnnualGeneral if Meeting after resolutionthis passedis (or, in but, businessclose the until of earlier, June30on 2012) Companyeachoffers the make that socase, may and enter agreements into authority the before expires which or would, requiresubscribe beallottedmight, shares rightsor to to for convertor securities begrantedaftershares the into to authorityexpires andDirectors the allotshares may grantor rightsunder such any offer agreementor authority the ifas expired. not had substitutionin That, all existingfor powers and subject to such to power Act, the of restriction the of sectionin 561(1) belimited: (A) the passing the resolution Directorsof the begenerally8, allotequity empoweredto securities defined Act) the (as in cash for pursuantauthority the to resolution grantedby 8 sell Ordinary to and/or pence Shares 0.2 each theof in capitalCompany the of (“Ordinary Shares”) the held by Companytreasuryas shares cash for eachin case free

Annual Report 2010 Report 2010 Annual

Specialresolutions 9.

to holders equityother to of securities requiredas the by subjectsuch rights,as thosesecurities rights to of or, Directors the otherwise consider necessary, to Ordinary to Shareholders proportionin nearly (as as theirbepracticable) existingmay holdings; andto 

up to an aggregate nominal amount of £331,724; and anaggregate nominal to up amount£331,724; of comprisingequity securities defined (as section in an to up Companies the of 2006Act “Act”)) (the 560(1) amountaggregate nominal(such amount£663,449 of bereduced aggregate nominalthe to by amountany of allotmentsgrantsor made under paragraph this of (A) resolutionconnectionin 8) a of withanoffer way by rightsissue: (i) (ii)

To approve the Directors’ Remuneration Directors’ the approve report contained To To receive the Company’s audited financial receive Company’s forthe statements To together with financial the year31 December ended 2010, report report Directors’ the thoseon andauditor’s the financial statements. To declare a final dividend of 7.0p 7.0p per ordinary thedeclare for share final a dividend of To December yearended 31 2010. re-elect MrSimon Peckham, rotation, who by To retires in the Company’s Annual Report Company’s the in and financial statements December year the ended for 31 2010. Company. the Director a asof re-elect rotation, MrPerry whoby retires To Crosthwaite, Company. the Director a asof re-elect MrGeoffrey To Martin, rotation, who by retires Company. the Director a asof re-appoint Deloitte Company the LLPof auditor as To hold office to the conclusionfrom this meetingtheof until conclusionnext the of Annual General Meetingthe of Companywhich at accounts authorise laidare and to determine Directors the their to remuneration. That, in substitutionin That, all existingfor authorities, Directors the begenerally and unconditionally authorised all exercise to allotshares Company the Company the powers in the of to convert to or security any subscribeand grant rights to for, shares Company: the in into, (A) (B)

THISDOCUMENT IS ANDIMPORTANT REQUIRES IMMEDIATE ATTENTION.YOUR ARE INANY IFYOU DOUBT Notice of Annual General Meeting General Annual of Notice If you have sold otherwiseor have you If transferred sharesyour all of AS TO THE ACTION YOU SHOULDSHOULD STOCKBROKER, THE YOUR ACTION TO ASYOU YOU TAKE, CONSULT BANK, SOLICITOR, FUND MANAGER ORINDEPENDENTOTHER ACCOUNTANT, APPROPRIATE FINANCIAL ADVISOR. should you send documentthisMelrose in PLC soonas as possiblepurchaser the stockbroker, the to transfereeor to or bankagentotheror through whom sale the transferor was effected,delivery for purchaser the to transferee.or herebyNoticeis eighth given the Annualthat General Meeting Company the Monkwellof willHall, beheld Barber-Surgeons’ at amon 11.00 at 5BL London,EC2Y Street, Square,Wood following the for purposes. Resolutions 8 to 1 2011 May 12 Ordinaryresolutions 1. willbeproposed ordinaryas resolutions and resolutions11 to 9 specialas resolutions. 2. 4. 3. 5. 6. 7. 8.

Notice of Annual General Meeting continued

10. That the Company be generally and unconditionally Notes authorised to make one or more market purchases (within 1. The holders of Ordinary Shares and 2009 Incentive Shares the meaning of section 693 of the Act) of Ordinary Shares in the Company are entitled to attend the Annual General provided that: Meeting, but only holders of Ordinary Shares are entitled to vote. A member entitled to attend and vote may appoint a (A) the maximum aggregate number of Ordinary Shares proxy to exercise all or any of its rights to attend, speak and authorised to be purchased is 49,758,677 (representing vote at a general meeting of the Company. Such a member 10% of the issued Ordinary Share capital); may appoint more than one proxy, provided that each proxy (B) the minimum price which may be paid for an Ordinary is appointed to exercise the rights attached to different Share is 0.2 pence; shares. A proxy need not be a member of the Company. (C) the maximum price which may be paid for an Ordinary 2. A form of proxy is enclosed with this notice. To be effective, Share is not more than the higher of: a form of proxy must be completed and returned, together with any power of attorney or authority under which it is (i) 105 per cent of the average of the middle market completed or a certified copy of such power or authority, so quotation for an Ordinary Share as derived from the that it is received by the Company’s registrars at the address London Stock Exchange plc’s Daily Official List for the specified on the form of proxy not less than 48 hours five business days immediately preceding the day on (excluding any part of a day that is not a working day) before which the Ordinary Share is purchased; and the time for holding the meeting. Returning a completed (ii) the higher of the price of the last independent trade form of proxy will not preclude a member from attending the and the highest current independent bid on the meeting and voting in person. trading venue where the purchase is carried out, 3. Any person to whom this notice is sent who is a person in each case, exclusive of expenses; nominated under section 146 of the Companies Act 2006 (the “Act”) to enjoy information rights (a “Nominated Person”) (D) this authority will expire at the end of the next Annual may, under an agreement between him and the shareholder General Meeting of the Company following the passing by whom he was nominated, have a right to be appointed of this resolution (or, if earlier, at the close of business (or to have someone else appointed) as a proxy for the on 30 June 2012); Annual General Meeting. If a Nominated Person has no such (E) the Company may make a contract to purchase Ordinary proxy appointment right or does not wish to exercise it, he Shares under this authority before expiry of the authority may, under any such agreement, have a right to give which will or may be executed wholly or partly after the instructions to the shareholder as to the exercise of voting expiry of that authority, and may make a purchase of rights. The statement of the rights of shareholders in relation Ordinary Shares in pursuance of any such contract; and to the appointment of proxies in paragraphs 1 and 2 above does not apply to Nominated Persons. The rights described (F) any Ordinary Shares purchased pursuant to this in paragraphs 1 and 2 can only be exercised by shareholders authority may either be held as treasury shares or of the Company. cancelled by the Company, depending on which course of action is considered by the Directors to be in the best 4. To be entitled to attend and vote at the Annual General interests of shareholders at the time. Meeting (and for the purposes of the determination by the Company of the number of votes they may cast), members 11. That a general meeting other than an Annual General must be entered on the Company’s register of members by Meeting may be called on not less than 14 clear days’ notice. 6.00 pm on 10 May 2011 (or, in the event of an adjournment, on the date which is two days before the time of the adjourned meeting). 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.

By order of the Board Registered office 5. As at 4 April 2011 (being the last business day prior to the Precision House publication of this notice) the Company’s issued share Garry Barnes Arden Road capital consists of 497,586,779 Ordinary Shares, carrying Company Secretary Alcester one vote each, and 50,000 2009 Incentive Shares, which do 5 April 2011 B49 6HN not carry votes. Therefore, the total voting rights in the Company as at 4 April 2011 are 497,586,779. 6. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.

98 Melrose PLC Annual Report 2010 Business performance Governance Financials Shareholder information 99

Melrose PLC Melrose

copiesallservice of agreements under which Directors Company the Company the employed of are anyor by subsidiaries;and a copy of the terms of appointment termsof non-executivethe the of copy of a Company. Directors the of

Anymember attending meetingask the hasright the to questions.The Company answeredbemust causeany to suchquestionbusiness the relating to being dealt the withat meetingsodo butsuch no answerto need begiven (a) if wouldinterfere unduly preparationwith the meeting the for disclosure the involve confidentialor of the information, (b) answerhas already been formof the in givenwebsite a on undesirableis it question, a (c) orthe in ananswer to Company the good the meetingorof intereststhe order of question the that beanswered. can befound at Act, the of section by 311A A copy of this notice, and informationother notice, this required of copy A www.melroseplc.net. You may not use anelectronic not may address provided eitherin You Annual Noticeof this General Meeting related any or documentscommunicate (including to ProxyForm) the with the Companywith the purposes any for thanother those expresslystated. (B) Thefollowing documents will beavailable inspection for at registered office Company’s the during normal business Sundayshours and public (Saturdays, holidays excepted) Annual the of date the untilnotice this of date from the GeneralMeetingAnnual place the the and at of General minutesand priorduring meeting:to the Meeting15 for (A)     Annual Report 2010 Report 2010 Annual 12. 13. 14. 15.

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8. 7. 11. 9. 10. Company and shareholder information

As at 31 December 2010 there were 7,577 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 – 5,000 6,752 89.11 4,951,356 0.99 5,001 – 50,000 462 6.10 6,098,597 1.23 50,001 – 100,000 59 0.78 4,269,033 0.86 100,001 – 500,000 169 2.23 42,128,877 8.47 Over 500,000 135 1.78 440,138,916 88.45 Total 7,577 100.00 497,586,779 100.00

Financial calendar 2011 Ex-dividend date for final dividend 13 April 2011 Record date for final dividend 15 April 2011 Annual General Meeting 12 May 2011 Payment of final dividend 16 May 2011 Announcement of interim results August 2011 Intended payment of interim dividend November 2011 Preliminary announcement of 2011 results March 2012

Directors Registered office Legal advisors Christopher Miller Precision House Simpson Thacher & Bartlett LLP David Roper Arden Road City Point Simon Peckham Alcester One Ropemaker Street Geoffrey Martin Warwickshire London Miles Templeman B49 6HN EC2Y 9HU Perry Crosthwaite Tel: + 44 (0) 1789 761020 John Grant Fax: + 44 (0) 1789 761057 Brokers Investec Company Secretary 2 Gresham Street Registered number Garry Barnes London 4763064 EC2V 7QP Head office J.P. Morgan Cazenove Bankers Leconfield House 20 Moorgate Lloyds TSB Bank PLC, Curzon Street London Barclays Bank plc, London EC2R 6DA Commerzbank AG, W1J 5JA HSBC Bank PLC, Tel: +44 (0) 20 7647 4500 J.P. Morgan PLC, Registrars Fax: +44 (0) 20 7647 4501 The Royal Bank of Scotland plc. Equiniti www.melroseplc.net Aspect House Spencer Road Auditor Lancing Deloitte LLP West Sussex 2 New Street Square BN99 6DA London EC4A 3BZ

Shareholders can view up to date information about their shareholding by visiting the shareholders’ website at www.shareview.co.uk Shareholder helpline number is 0871 384 2030 (calls charged at 8p per minute from a BT landline, other provider call costs may vary). If calling from overseas – +44 (0)121 415 7047.

Lines are open 8.30am to 5.30pm Monday to Friday.

100 Melrose PLC Annual Report 2010 Contents How we performed

Business performance “ These are excellent results from businesses 01 Financial highlights well positioned to enjoy superior growth in the 02 Group at a glance years to come. We are proud of the fact that 04 Chairman’s statement overall group profits have not declined through 06 Chief Executive’s review this sharp recession and at the current share 08 Energy business review price Melrose has created over £1 billion of 11 Lifting business review shareholder value since flotation in 2003. 14 Dynacast business review 16 Other Industrial business review We are considering the sale of Dynacast and 19 Finance Director’s review looking for our next acquisition but will only 26 Board of Directors proceed if we believe it creates shareholder 28 Directors’ report value. Looking ahead, we are confident of further progress in 2011 and beyond.” Governance 36 Corporate Governance report 40 Remuneration report Christopher Miller 44 Statement of Directors’ responsibilities Chairman Financials 45 Financial contents 46 Independent auditor’s report – consolidated statements 47 Consolidated Income Statement 48 Consolidated Statement of Comprehensive Income 49 Consolidated Statement of Cash Flows 50 Consolidated Balance Sheet 51 Consolidated Statement of Changes in Equity 52 Notes to the accounts 88 Independent auditor’s report – Company statements 89 Company Balance Sheet for Melrose PLC 90 Notes to the Company Balance Sheet Shareholder information 97  Notice of Annual General Meeting 100 Company and shareholder information

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