Driving Growth Driving 2007 report Annual FKI plc

FKI plc Annual report 2007 plc +44 (0)1509 612837 +44 (0)1509 +44 (0)1509 612339 +44 (0)1509 ww.fki.co.uk KI alcon Works alcon Works F w F F PO Box 7713 Meadow Lane Loughborough Leicestershire 1ZF LE11 T

01 Group at a glance Financial highlights 02 Chairman’s statement £1,330.9m Turnover (2006: £1,273.4m) Operating and financial review 04 Chief Executive’s introduction £100.6m Operating profit before special items 06 Lifting Products and Services 08 Energy Technology (2006: £100.0m) 10 FKI Logistex 12 Hardware £65.3m Profit before taxation from continuing operations 14 Outlook (2006: £70.5m) 15 Financial review Corporate social responsibility report £38.6m Cash flow from operating activities 21 Introduction (2006: £122.6m) 22 Social and ethical policy and practice 24 Health and Safety policy and practice £329.9m Net debt (2006: £304.7m) 27 The environment Governance 8.7p Adjusted earnings per share1 (2006: 9.7p) 32 Board of Directors 34 Corporate governance 4.5p Proposed dividend per share (2006: 4.5p) 37 Directors’ report 40 Remuneration report Group financial statements 51 Independent auditor’s report 52 Consolidated income statement 53 Consolidated balance sheet 55 Consolidated cash flow statement 56 Consolidated statement of recognised income and expense 57 Notes to the consolidated financial statements Company financial statements 107 Independent auditor’s report 108 Company balance sheet 109 Notes to the Company financial statements Other information 121 Five year record under IFRS 122 Five year record under UK GAAP 123 Key dates 123 Principal subsidiary undertakings 124 Corporate information 124 Shareholders’ information

1Adjusted earnings per share is calculated by dividing the operating profit/loss for the period, before special items, profit/losses on disposal of discontinued operations, fair value gains/losses on financial instruments and exchange gains/losses included within net finance costs and income and taxation related to those items by the weighted average number of shares in issue during the period. The profit/loss of discontinued operations is included as part of the profit for the year. A full reconciliation between the profit and loss used in the calculation of basic earnings per share and adjusted earnings per share is included in note 16 to the Financial Statements. Group at a glance

FKI plc is a major international diversified engineering group. The Group is driven by value-based metrics, principally return on invested capital, and actively manages the strategy and performance of its businesses. The Group’s objective is to maximise the value of the portfolio as a whole and to deliver growth in shareholder value through increased focus on businesses that have superior and sustainable market positions in sizeable, attractive markets, leading brands and world-class technology.

Lifting Products Energy Technology FKI Logistex Hardware and Services One of the top three in the World number one A major worldwide provider US number one in window world for wire and wire rope. independent supplier of of automated material hardware and storm and A world leader in fittings and turbogenerators and leading handling systems. screen door hardware. US lifting products. World supplier of other electricity number one in mechanisms number one in large shears. generating machinery for ergonomic solutions. and power infrastructure equipment.

Turnover: Turnover: Turnover: Turnover: £434.2m £344.4m £372.6m £179.7m

Businesses: Businesses: Businesses: Businesses:

01 FKI plc Gordon Page Chairman

“This has been another year of good progress for the Group with improvement in operating performance and a further step forward in the strategic development of the business.”

02 FKI plc Chairman’s statement Chairman’s statement

This has been another year of good progress for the Group The strategic review process announced with the interim with improvement in operating performance and a further results is now complete. Since the announcement in late step forward in the strategic development of the business. November of the launch of the review, extensive analysis and market testing have been undertaken by the Company The economic conditions facing the Group have been and advisers.The Board has concluded that the strategic somewhat mixed: those businesses supplying extractive direction that is likely to create the most value for our industries and energy have enjoyed buoyant demand, whilst shareholders is a progressive focus of the Group’s activities those supplying the US housing market have suffered from around the Lifting Products and Services and Energy a severe drop in US housing starts.The movement of the Technology businesses which will have a better growth Sterling/Dollar relationship in the year has adversely profile than the current Group as a whole, reduce affected the translation of profits. The overall effect of complexity and secure access to sufficient and flexible currency translation reduced operating profit before special financing to support business developments. items by £4.7 million which partly masks the progress made by the Group. Rising and volatile commodity prices, The process of separating Hardware and FKI Logistex particularly for copper and zinc, have adversely affected from the rest of the Group will be carried out as quickly operating margins and profits as businesses have been as possible, but may take up to eighteen to twenty-four unable to pass on all increases immediately. months.The balance between time and value will be carefully managed in the best interests of shareholders. Overall turnover from continuing businesses grew by 4.5% to £1,330.9 million (2006: £1,273.4 million) Your Board looks forward to further operating performance with operating profits before special items flat at improvement and driving the next stage of the strategic £100.6 million (2006: £100.0 million). Profit before tax plan. Demand in the energy and extractive industries from continuing activities decreased by 7.4% to £65.3 looks set to continue at high levels.The US housing market million (2006: £70.5 million) and adjusted earnings per continues to weaken and, despite market share gains by the share reduced by 10.3% to 8.7p (2006: 9.7p). businesses, may play a part in dictating more favourable timing for disposing of the Hardware business. During the year investment has been made in higher levels of working capital in order to support increased sales During the process of the strategic review the Company activity. Reported net debt at the end of the period was responded to expressions of interest for the potential £329.9 million, an increase in the year of £25.2 million. acquisition of the Group. Due diligence access was provided to a small number of parties with active Reflecting the Group’s underlying performance, the Board discussions continuing with one. In the light of this has proposed to pay a final dividend of 3.0p per share, process and the significant rise in the share price on bringing the total for the year to 4.5p per share the 31 May 2007, FKI announced that it had been approached same level as last year.The final dividend, if agreed in relation to an offer for the Company at around 130p by shareholders, will be paid on 5 October 2007 per ordinary share.The Board reiterates that there can be to shareholders on the register at 7 September 2007. no certainty that any offer will be made for the Company During the year the acquisition of Harrington Generators or the terms on which such offer will be made. was completed and the sale of four small businesses On behalf of the Board, I would like to thank all employees took place.This continues the process of active portfolio for their efforts and contribution over the last year. management, which since the start of the process in 2003 has resulted in the closure of five businesses, the sale of sixteen businesses and the acquisition of five businesses.

03 FKI plc Chairman’s statement Gordon Page Chairman Operating and financial review: Chief Executive’s introduction

The year was one of mixed fortunes for the Group. Group operating profits before special items for Stronger than anticipated demand from the oil and gas continuing businesses grew slightly to £100.6 million. and mining sectors was reflected in excellent growth in Adjusting for the impact of currency translation, operating turnover and profits in the Lifting Products and Services profits before special items improved by 5.3%. and Energy Technology groups. Increased volumes and The growth of order books and turnover in the Group’s efficiencies continued to feed through to margins, heavy engineering activities increased levels of working with second half improvements in Energy Technology capital during the year, contributing to the year end very encouraging for future performance.As previously closing net debt at £329.9 million being higher than indicated, FKI Logistex reduced activity levels in the last year by £25.2 million.A replacement for the Group’s US airports sector and total turnover was down slightly revolving credit facility of £150 million, which matures on the previous year, with profits little changed. Overall in July, has been agreed post the year end at a reduced performance improved slightly, but was impacted by the level of £120 million. The new facility provides funding completion costs of a number of legacy projects.As also for working capital fluctuations throughout the year and, anticipated, the Hardware group’s performance reduced whilst marginally more expensive, gives improved significantly as a result of a dramatic decline in demand covenant headroom. for window hardware for US housing and was further impacted by the time lag between zinc input cost As planned last year, the Group has transferred surplus increases and their effective recovery in selling prices. properties to the value of £12.5 million to the UK Pension Scheme during the year. Further transfers Encouragingly, the market positions of all of the major of £8.0 million are planned for 2007/8, with one businesses continued to improve during the period as a US property identified for transfer already sold for result of increased customer focus, investment in products $10.5 million.The cash will be transferred to the fund and services, operating efficiencies and the successful when received. During the year the triennial valuation integration of acquisitions. was completed and ongoing funding arrangements, The financial results of the Group were, once again, equivalent to those of the past three years, agreed with significantly impacted by the translation of the US$. the Trustees.At the year end the deficit on the Group’s The average US$ exchange rate for the year was main UK defined benefit scheme reduced from $1.91 compared to $1.78 in 2005/6.The overall effect £110.7 million last year to £72.0 million. of currency translation reduced reported turnover from Changes to the Group’s business portfolio were much continuing activities and operating profit before special reduced compared to the prior year and consisted of the items in 2006/7 by £47.5 million and £4.7 million acquisition of Harrington Generators for £6.2 million respectively, compared to the prior year. and the disposals of the final Certex operation in Italy and Overall, in constant currency terms the Group returned the Group’s chain making operations in the UK and US. continuing business turnover growth of £105 million The Group continues to focus on active portfolio (8.2%), a combination of £129 million (19.3%) increase management and a number of opportunities for in Lifting Products and Services and Energy Technology, acquisition and disposal are being evaluated. offset by the reductions in Hardware and FKI Logistex.

04 FKI plc Operating and financial review Paul Heiden Chief Executive The Board has considered the output from the review and has concluded that the Company should move to concentrate upon the energy sector activities of Lifting Products and Services and Energy Technology. The improved focus and financial flexibility provided by this strategy will enable a clearer understanding of the Company and provide the support for future organic and acquisitive growth. As a consequence, the Group is moving forward progressively with plans to separate its FKI Logistex and Hardware activities.The objective is to secure a new “Encouragingly, the environment for these businesses which will support their growth aspirations whilst providing funds to restructure market positions of all the Group’s financing arrangements. During this period of realignment the Board is fully committed to proactively of the major businesses supporting all of the Group’s activities and customers. As part of the process of separating the Hardware and continued to improve Logistex businesses, replacement financing for the current debt portfolio, including the a600 million Eurobond will during the period” be required at the appropriate time.These considerations, together with the sentiment towards the US housing sector, will be the key determinants of the sequence The key metric for the Group continues to be Return and timing of the planned realignment. Decisions on Invested Capital (ROIC) which reduced from 8.4% on individual transactions will be taken as and when to 7.8% with the disposal last year of Bristol Babcock, appropriate.The target is to complete the programme currency translation and increased pension interest costs as soon as possible, always with the intent of maximising being the principal drivers. value for the shareholder, and accordingly we envisage it may take up to eighteen to twenty-four months. Strategy Proposals for a more appropriate Group financing At the time of the interim results the Board announced structure are well advanced and market testing of the a strategic review of the Group’s activities.This was to potential values for the Hardware businesses are ongoing. address what has become an increasingly restrictive The Board believes a viable option for FKI Logistex financing structure and the Company’s valuation, in the is a demerger, as a listed company, from FKI. Initial Board’s opinion, not reflecting the progress of the Group. preparations for this scenario have already commenced Since that time, considerable work has been completed by whilst other options are still under consideration. the Executive and advisers to analyse, explore and market test the options available to the Group to maximise shareholder value.

05 FKI plc Operating and financial review Paul Heiden Chief Executive Operating and financial review: Lifting Products and Services

Global oil production Million barrels per day* * OPEC (conventional), Non-OPEC (conventional) and unconventional Source: EIA, International Energy Outlook (2006) 0 2040 60 80 100 120 Year ended Year ended 31 March 31 March 2007 2006 2020 £m £m Turnover 434.2 393.3 2015 Operating profit before special items 57.7 45.0 p

s n

o Net operating assets excluding i t c e

2010 j allocated goodwill 146.8 155.3 o r P The Lifting Products and Services group continued 2005 to respond well to favourable market conditions. Turnover increased by £40.9 million (10.4%) to £434.2 million (2006: £393.3 million) as a result of 2004 £57.5 million improvement (14.6% increase) in trading, offset by an unfavourable £16.6 million currency translation effect. Operating profit before special items 1990 rose to £57.7 million (2006: £45.0 million) as a result of higher throughput and manufacturing productivity. This result was impacted by an unfavourable currency Worldwide rig count Source: Baker Hughes Inc translation effect of £2.8 million. The group continued to benefit from its exposure to 0 5001000 1500 2000 2500 3000 3500 increasing demand from extractive industries, particularly in its Bridon and Crosby operations where over 2006 50% of revenues are generated through the energy and mining markets. Market demand continued to be 2005 driven by increased requirements for heavy lifting in oil and gas exploration and production activity around 2004 the world, particularly in Canada and the US.The group

2003 also increased its presence in rapidly industrialising Far Eastern markets in the year, especially China where 2002 Bridon Tianjin Rope’s output continues to increase and Crosby secured new distribution agreements. 2001

2000

1999

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06 FKI plc Operating and financial review The Lifting Products and Services group continued to respond well to favourable market conditions. Turnover increased by £40.9 million (10.4%) to £434.2 million (2006: £393.3 million).

To satisfy increasing demand, major improvements in The group completed the integration of three recent manufacturing performance have been achieved which, acquisitions – IP Clamps,Tianjin and Marlow Ropes. supported by lean manufacturing initiatives, have They continue to perform ahead of expectations and significantly raised output. In some product lines demand the group is benefiting from the further synergies that continues to exceed supply and lead times are longer than have been identified post the acquisitions. In particular, normal. Progress is being made in this area but further Marlow’s synthetic rope technology will become improvements in product availability are required to meet increasingly important as oil and gas exploration moves customer expectations.As part of this activity and in line to deeper waters.The group continues to look for further with long-term growth trends, additional investment strategic acquisitions to expand product range and in capital capacity has been approved for installation geographical coverage and take full advantage of the in the coming year.This expenditure of c £10 million group’s considerable Intellectual Property. will not only increase output capability but also During the first half of the year the group completed the improve productivity. disposal of its Certex Italy operations. Sales and operating The group continued to invest significant resource in losses, which are accounted for as discontinued operations, product and process development initiatives in the year, were £3.0 million (2006: £8.9 million) and £0.4 million introducing a new 150 ton drilling block to complement loss (2006: £1.9 million) respectively. In addition, the Crosby’s existing range of 250 and 350 ton blocks. group exited its chain making operations in the UK Crosby also launched a quick-check tagging and and US. Sales of £5.0 million and operating losses of identification system for chain slings, which has been well £0.3 million in respect of these activities are included received by customers.This system combines an electronic in continuing operations. inspection programme with RFID technology and offers significant financial savings in the required annual inspection of products in the field. Bridon continued to develop higher strength ropes with increased breaking loads for applications in a number of energy and industrial sectors.Work also continues on higher strength mooring systems, both wire and synthetic rope, for offshore applications, particularly in the Gulf of Mexico. Sustained high scrap paper and steel prices continued to drive strong order intake and sales at Harris, the group’s manufacturer of scrap compaction, shearing and shredder equipment. Sales and operating profit were 8.1% and 17.1% ahead of the previous record year with the closing order book equivalent to approximately five months of sales.

07 FKI plc Operating and financial review Operating and financial review: Energy Technology

World net electricity consumption Billion kilowatt-hours Source: EIA, International Energy Outlook (2006)

0 5,00010,000 15,000 20,000 25,000 30,000 35,000 Year ended Year ended 31 March 31 March 2007 2006 2030 £m £m Turnover 344.4 275.0 2025 Operating profit before special items 24.2 21.5 Net operating assets excluding 2020 allocated goodwill 155.8 141.5

A strong opening order book plus significantly improved 2015 order intake levels resulted in turnover growth of 25.2% p

s to £344.4 million (2006: £275.0 million). Orders taken n o i

t in the year totalled £428.5 million, a rise of 50% over the c e 2010 j previous year, giving a closing order book also 50% above o r P last year at £264.0 million, of which 84% is tradable in the coming year. 2003 Operating profit before special items was £24.2 million (2006: £21.5 million). Performance in the year was, Worldwide electricity generation Billion Kilowatt-hours unusually, very second half weighted with the first half Source: Baker Hughes Inc impacted by high copper prices, product development 2003 2030 costs at Brush and operating difficulties at Switchgear. 0 20004000 6000 8000 10000 12000 14000 Operating profit before special items in the second half was £17.6 million (2006: £11.4 million), an increase of 54%. Coal Demand in the FKI Generators business continues to be driven by the ongoing recovery in the global market for Gas power generation equipment and strong order intake from the oil and gas sector.As announced at the interim results, Brush Turbogenerators has secured initial orders under a multi-year agreement for a new range of turbogenerators Oil for an existing customer.At the year end orders worth £19.1 million had been received, with turnover for this product expected to grow to c £40 million per annum Nuclear over the next three years.

Renewables

08 FKI plc Operating and financial review Orders taken in the year totalled Sales growth in the smaller sized generator activities of Marelli Motori was also strong at 24%.The business is £428.5 million, a rise of 50% over becoming increasingly focused on specialist applications the previous year, giving a closing such as flameproof motors and hydro generators. Volatile copper prices have a significant impact on order book also 50% above last this relatively short lead time business, and operating year at £264.0 million, of which performance improved with the more stable pricing 84% is tradable in the coming year. environment in the second half of the year. Harrington Generators, which the group acquired for £6.2 million in April 2006, has performed well. Harrington is a leading designer and supplier of specialist generators. During the year the business secured a major contract with Airwave worth £5 million over two years for original equipment and an additional £3 million over seven years for service and maintenance. The group’s Switchgear business encountered operating difficulties in the year as a result of a programme to outsource low value-added fabrication and associated activities.This activity, together with increased demand, exposed weaknesses within the supply chain which led to significant inefficiencies. Focused remedial actions have materially improved performance in the second half of the year and further steps are planned. Importantly, order intake levels have remained strong, a positive sign for the coming year. The group’s specialist Traction refurbishment business won two major contracts worth approximately £64 million to be delivered over the next two years. Initial deliveries commenced in the second half of the year.

09 FKI plc Operating and financial review Operating and financial review: FKI Logistex

Domestic post and parcel volumes Billions Source: Data extracted from the Universal Postal Union

0 1 23456 Year ended Year ended 31 March 31 March 2007 2006 2001 £m £m Turnover 372.6 403.5 Operating profit before special items 14.2 14.6 2002 Net operating assets excluding allocated goodwill 55.2 43.0

2003 The turnover in FKI Logistex was £372.6 million (2006: £403.5 million), the reduction comprises a £13.9 million trading decrease and a £17.0 million adverse exchange 2004 translation impact. Operating profit before special items at £14.2 million (2006: £14.6 million) was slightly below the previous year but was negatively impacted

2005 by £0.8 million of exchange translation. The improved business processes, including tendering, risk and project management, being embedded within the business, together with the recruitment of specialist competencies required to support the organisation, have been reflected in improved project delivery on the majority of contracts. However, operating performance continued to be adversely impacted by a number of long-running legacy airport and parcel projects, which were contracted more than three years ago prior to recent improvements.The majority of these projects were substantially completed in the year with a total negative impact on operating profit of c £5 million. Overall, constant currency operating margins improved slightly from 3.6% to 3.85%. Order intake remained robust at £366.8 million (2006: £394.9 million), down 8% on the comparable period last year at constant exchange rates.The order book at 31 March stood at £210.8 million (2006: £230.0 million) of which 86% is tradable in the coming year.

10 FKI plc Operating and financial review During the period a comprehensive rationalisation of the group’s facilities in North America was completed, which reduced occupied space by 30% and should lower overheads by £2 million annually.

The North American operations of FKI Logistex New Airport tendering and order activity in Europe generated c 60% of total turnover and reflected strong was relatively subdued during the year with few contract growth in the Warehouse and Distribution sector where bids as the business focused on smaller extension projects order intake was up 16% against the previous year. such as those won at Copenhagen and Johannesburg. Major order wins came from North American retailers Progress on existing contracts is in line with expectations. including Payless, Shoe Source,The Limited, Zappos Post & Parcel activity in Europe remained active with and Canadian Tire. a number of notable project wins in Europe, including sortation and distribution centres/hubs for the British Manufacturing Systems also had a strong period including Forces Post Office, DHL Dublin and Chronpost France. its first order from Sysco, a leading distributor of food and related products and services, and further orders Post & Parcel also gained two major project wins in the from Target Stores and Preferred Freezers. DHL Hong Kong and FedEx Guangzhou express mail hubs. During the year, the group continued to grow its The group’s North American Airport activity was scaled operational presence in China through the expansion back, consistent with the decision to be more selective of its Shanghai office in support of the recent contract following the deterioration in market conditions. wins and its ongoing China development strategy. Post & Parcel activity was subdued overall following a very strong prior year but the company’s Linear Belt FKI Logistex improved its focus on core products and Sorter was selected by the United States Postal Service technologies as a means of strategic differentiation and as part of a new postal sorting solution, which is planned reorganised product and technology development activities for a progressive nationwide roll-out. under a new central planning and management structure. A new standard palletiser range was launched, which will During the period a comprehensive rationalisation of allow the group to service more effectively the global the group’s facilities in North America was completed, market demands in solutions requiring lower palletisation which reduced occupied space by 30% and should speeds than those typically seen in North America. lower overheads by £2 million annually. Other products in the development cycle include a The FKI Logistex European organisation covers sales to new global case conveyor product line and upgraded the rest of the world and constitutes c 40% of turnover. loop sorter products. Against the backdrop of securing two major projects in the prior year, order intake for the Warehouse and Distribution sector reduced as anticipated, although a notable success was the securing of a contract for an automated archival storage facility for the British Library. The year also saw the successful completion of the group’s first project for Wolseley plc for its new National Distribution Centre in Leamington Spa.This turnkey project was the first for the group that included the warehouse construction in addition to the materials handling solution.

11 FKI plc Operating and financial review Operating and financial review: Hardware

US home improvement spending $Billions Source: Home improvement Research Institute

0 50 100 150 200 250 300 350 400 Year ended Year ended 31 March 31 March 2010 2007 2006 £m £m

2009 Turnover 179.7 201.6 Operating profit before special items 16.7 27.8 p

2008 s n

o Net operating assets excluding i t c e

j allocated goodwill 65.9 70.7

2007 o r P Turnover for the Hardware group declined by 10.9% 2006 to £179.7 million (2006: £201.6 million) with £11.9 million of the reduction due to adverse foreign 2005 exchange translation. Operating profit before special items reduced to £16.7 million (2006: £27.8 million) reflecting 2004 a reduction of c 6% in sales volumes, the impact of significant input price increases and £1.2 million 2003 of adverse foreign exchange translation. The basic raw material for decorative and window hardware is zinc. During the period the rapid rise and volatility of this raw material input cost had a significant impact on operating profit as a result of the time lag between incurring input cost rises and passing on sales price increases to customers. Zinc cost surcharges, selling price increases and material substitutes will progressively recover a substantial proportion of the cost increases. The US housing market generates c 70% of the Truth window hardware company sales.After a relatively flat first half of the year, the second half saw the anticipated dramatic fall off in demand as the level of US new housing starts declined rapidly. Official figures indicate that starts in calendar year 2006 were down 15% compared to the prior year, with independent market forecasts indicating a further reduction of between 6% and 10% in calendar year 2007.The balance of Truth’s sales go to the Canadian housing market which remained relatively stable during the period. Steps have been and are being taken to reduce costs, as far as possible, in line with the volume reductions.

12 FKI plc Operating and financial review Encouragingly, the impact of this market reduction Encouragingly, the impact of this was partially offset by excellent success in securing new customers, renewing longstanding accounts and market reduction was partially introducing new products. One particular market initiative offset by excellent success in is designed to grow significantly:Truth’s currently small presence in the patio door market. New product designs securing new customers, have been introduced for patio door locking systems renewing longstanding accounts and a range of patio door handles. and introducing new products. At Hickory, the major reorganisation to consolidate five businesses into one, with the associated reduction in occupied space of one million square feet and full year overheads of £3 million, was largely completed. The new office and distribution centre at Nashville, Tennessee is operational with the last of the satellite warehouse facilities scheduled for closure in July 2007. The consolidation of staff and the improved distribution process will also bring operating efficiencies. The launch of the Hickory brand and the design, source, supply business model continue to be well received by the market.After a number of years of significant sales decline in the decorative hardware businesses, performance in the year was much improved with constant currency sales declining by only 5%. The group has commenced work on the significant new programme it won in the year with a major DIY chain and extended and expanded an existing programme with another customer.As a result of these and other new business wins the Hickory sales force was increased, distribution channels strengthened and marketing and merchandising spend targeted to support future sales growth. Improvements to supply chain logistics has resulted in improved customer delivery performance.

13 FKI plc Operating and financial review Operating and financial review: Outlook

The Group enters the new financial year in a strong Market developments are more difficult to predict in position to capitalise on solid demand in the energy the Hardware group. US housing starts are a key factor; sector. However, as in previous years, reported further falls of c 9% are expected in 2007 with the impact performance will be impacted by currency translation of on sales volumes forecast to be partially offset by secured overseas activities and the rising interest rate environment. market share growth. Underlying demand for decorative hardware products is expected to be relatively stable. Further top line and margin growth is expected in Lifting At the operating profit level the recovery of zinc cost Products and Services. Customer demand is expected increases through pricing, and cost savings, through the to continue to grow but at rates below those of the past reorganisation of Hickory and productivity at Truth, two years, whilst capital investments and lean should benefit group performance. improvements should benefit margin performance. As growth in this sector slows, the pressure on working Net finance charges are expected to increase by capital should reduce. c £4.5 million as a result of rising underlying interest rates and the arrangement fees and higher ongoing costs of the Very strong order books in the Energy Technology group replacement revolving credit facility. Head office costs and provide excellent visibility of likely performance in the special items should remain at levels similar to last year. coming year. Sales growth should improve compared to last year with margin performance above that seen Overall, the Group is well positioned to improve in the second half of 2006/7.The recovery in trading performance in all groups in the coming year.At the same of Switchgear is expected to continue, contributing to time, the Group will continue to look to actively manage enhanced performance. the business portfolio in line with its strategy. In FKI Logistex, the strong North American market for Warehouse and Distribution and Manufacturing Systems is expected to continue its recent positive momentum. The global Post and Parcel market is set to remain active with increasing demand in the Far East for express parcel services.The Airport sector is expected to continue to provide good volume opportunities but the Group will continue to be selective regarding projects tendered. Turnover is expected to show modest growth with margin performance regaining momentum as a result of cost savings and improved overall project performance.

14 FKI plc Operating and financial review Operating and financial review: Financial review

Overview For comparative purposes underlying operating profit, based on operating profit before special items after Group turnover from continuing activities during the adjusting for the pre-tax trading impact of discontinued period was £1,330.9 million (2006: £1,273.4 million). operations, fell by 7.2% from £108.0 million to This increase in turnover comprised a sales increase £100.2 million. from trading of £105.0 million offset by an unfavourable currency translation effect of £47.5 million. Impact of exchange rates Operating profit before special items increased to With 71% of FKI’s continuing turnover originating £100.6 million (2006: £100.0 million).After adjusting from outside the UK, the Group’s results are sensitive to for the unfavourable foreign exchange impact of changes in exchange rates.Trading results and cash flow £4.7 million, operating profit before special items of overseas operations have been converted into Sterling grew by 5.3%. Full year central costs rose in line with at average rates of exchange whilst balance sheets are expectations to £12.2 million, £3.3 million higher converted at year end rates. than last year which benefited from a number of The most significant rates for the Group were as follows: one-off credit adjustments.

Special items amounting to a loss of £9.5 million 2007 2006 (2006: loss of £0.4 million) included a charge of At Average At Average 31 March rates of 31 March rates of £12.0 million relating to the closure and rationalisation 2007 exchange 2006 exchange of certain continuing operations within FKI Logistex to £1 to £1 to £1 to £1 (£6.2 million) and Hardware (£5.8 million). In addition, US Dollar 1.96 1.91 1.73 1.78 a pre-tax loss of £2.7 million on the sale of a number of small operations has been incurred, principally as a Canadian Dollar 2.26 2.16 2.02 2.11 consequence of the Group’s decision to exit its chain Euro 1.47 1.48 1.43 1.46 making activities in the UK and North America. These losses have been offset by a £5.2 million profit Danish Krone 10.98 11.04 10.70 10.91 before taxation on the sale of a number of surplus The average exchange rate of the US Dollar to Sterling property assets. weakened by 7.3% compared with last year which Net finance costs were £26.0 million (2006: primarily affected the Hardware division, FKI Logistex £29.4 million).The decrease over the corresponding and Lifting Products and Services whose US operations period last year is principally a result of reduced average are particularly successful and have a significant exposure net debt levels following the sale of Bristol Babcock to energy markets. in 2006. In addition, there has been an increase of £4.7 million on fair value gains on financial instruments, partially offset by an increase of £2.4 million in net finance costs on pension schemes.

15 FKI plc Operating and financial review Taxation Underlying operating Turnover profit The Group’s effective tax charge on profits from decrease decrease continuing operations before special items after net Currency effect on results £m £m finance costs was 24.8% (2006: 25.2%).A reconciliation Lifting Products and Services 16.6 2.8 of the actual total tax charge to the standard rate of corporation tax in the UK of 30% is set out in note 13 Energy Technology 2.0 0.1 to the financial statements. FKI Logistex 17.0 0.8 Return on invested capital Hardware 11.9 1.2 The return on Invested Capital, rebased for the Discontinued – – introduction of International Financial Reporting Head Office – (0.2) Standards and calculated as profit after tax from continuing and discontinued operations before exceptional items, 47.5 4.7 interest and finance charges, divided by the average of opening and closing shareholders’ equity, net debt and Interest previously written off goodwill, declined to 7.8% The Group’s net finance cost decreased to £26.0 million (2006: 8.4%) with the disposal last year of Bristol (2006: £29.4 million) as a result of reduced average debt Babcock, currency translation and increased pension levels in the year and favourable currency translation interest costs being the principal drivers. effects, despite the adverse impact of higher interest rates Earnings per share and dividends on the Group’s floating rate debt.These net finance costs primarily consist of £27.2 million (2006: £29.1 million) The profit attributable to the equity holders of the of net interest costs arising on the Group’s net debt. Company amounted to £46.4 million (2006: The remaining income of £1.2 million (2006: £93.8 million), and basic earnings per share was 7.9p £0.3 million cost) consists of net pension scheme (2006: 16.1p).Adjusted earnings per share of 8.7p interest of £3.6 million (2006: £1.2 million) and other (2006: 9.7p) is calculated by dividing the operating financing cost gains of £4.8 million (2006: £0.9 million) profit/(loss) for the period, before special items, being mainly fair value gains on financial instruments and profit/loss on disposal of discontinued operations, fair net foreign exchange losses. value gains/losses on financial instruments and exchange gains/losses included within net finance costs and income On an IFRS basis consistent with the Group’s new loan and taxation related to those items by the weighted covenants, the net interest expense was 4.7 times covered average number of shares in issue during the period. (2006: 4.5 times) by profit before interest, special items, depreciation and amortisation, and represented a rate of Reflecting the Group’s underlying performance, the Board 6.1% (2006: 6.1%) on the year’s average weekly net debt has proposed to pay a final dividend for the year of 3.0p of £426.0 million (2006: £480.9 million). per share which, with the interim dividend of 1.5p per share paid on 23 February 2007, brings the total dividends for the year to 4.5p per share, the same level as last year. The total paid out to shareholders in respect of these dividends will amount to £26.4 million.

16 FKI plc Operating and financial review Net debt and cash flow The Group’s net debt, which in 2006 included £1.4 million in respect of businesses classified as Reported net debt at 31 March 2007 was £329.9 million, held for sale, comprised the following: an increase since 31 March 2006 of £25.2 million. The increase was driven primarily by the growing activity 31 March 31 March levels and the phasing of the closing order book in the 2007 2006 relatively more capital intensive Lifting Products and £ million £ million Services and Energy Technology groups, offset by a Eurobond 417.2 442.2 £32.8 million favourable movement in the translation of, primarily, US$ denominated net debt. US Private Placements 49.7 100.0 Net operating cash outflow in the year after interest Revolving credit facility 12.7 0 and taxation payments was £14.1 million (2006: Lease financing 3.9 4.9 £69.3 million inflow). Other loans and overdrafts 2.4 3.5 Capital expenditure was £34.3 million representing Derivative financial liabilities 21.1 19.3 132% of depreciation and amortisation charges.There was a cash outflow of £6.9 million relating to termination and Gross borrowings 507.0 569.9 closure costs of businesses. Cash and short-term deposits (125.5) (237.1) Financing Derivative financial assets (51.6) (28.1) At 31 March 2007 the Group was financed by a mix Net debt 329.9 304.7 of equity, retained earnings, a Eurobond, US private placement loan notes and a syndicated bank facility. The a600 million Eurobond, which matures in February Funding for operating subsidiaries, apart from small local 2010, is carried at a value of £417.2 million (2006: overdraft facilities, is raised centrally and lent internally £442.2 million).The decrease in carrying value of on commercial terms. the Eurobond is due to a weaker Euro, a fair value adjustment to match a corresponding liability arising Gross debt, excluding derivative financial assets and on the Eurobond’s fair value hedges, and the continued liabilities, at the year end amounted to £485.9 million amortisation of a credit attributable to closing out and 78% of the Group’s committed borrowing facilities of interest rate swaps in 2003. £616.9 million were drawn.These committed borrowing facilities are available for 2.8 years on average. US$97.5 million is drawn under a series of US private placements issued in 1996 and 1997 with maturities ranging between 2007 and 2016. During the year surplus cash was applied to redeeming US$76 million of US private placements that matured.At the year end £12.7 million (2006: £nil) was drawn under the £150 million revolving credit facility, which had a scheduled maturity of 26 July 2007.

17 FKI plc Operating and financial review On 5 June 2007 the Company entered into a The weaker US Dollar exchange rate gave rise to an commitment with a number of relationship banks increase in the value of the cross-currency swaps reported to provide a £120 million revolving credit facility in within derivative financial assets of £51.6 million. replacement of the existing £150 million revolving This figure included £45.5 million attributable to the credit facility that matures on 26 July 2007.This new foreign exchange element of the US Dollar cross-currency £120 million facility, which runs until 1 April 2009, swaps that are classified as net investment hedges. will provide working capital funding during a phase Financial risk management when the Company’s operational performance is expected to benefit from strengthening end-markets and further FKI’s financial risk management is based upon sound strategic realignment of the portfolio. It is expected that economic objectives and good corporate practice. this will lead to improved financial metrics allowing the Derivative and other financial instruments are used to Company to subsequently refinance its maturing debt manage trading exposures, liabilities and assets under obligations in a cost-effective manner. parameters laid down by the Board.The Group’s major hedging activities are to mitigate the following risks: The terms and conditions under the new £120 million facility are very similar to the previous facility, but with (i) Currency transaction risks for trading exposures some additional headroom under the financial covenants. denominated in other currencies. The fixed rate Eurobond and US private placements are (ii) Fair value and cash flow interest rate risks associated substantially swapped into floating rate obligations and with the Eurobond. other currencies.These swaps maintain approximately (iii) Currency translation risks of net assets in overseas 80% of gross borrowings at floating rates and 20% at subsidiaries. fixed rates.The cross-currency swaps provide a partial hedge of the foreign exchange exposures described The Group has not used derivative financial instruments below under Financial risk management. Floating rate for purposes other than for hedging its exposures. borrowings are principally linked to LIBOR for periods The Group adopted accounting standard IAS 39 on of between one and six months. 1 April 2005, resulting in the recognition at fair value Year end cash and marketable securities and deposits of all derivative financial instruments previously held totalled £125.5 million (2006: £237.1 million). off balance sheet under UK GAAP.To avoid income £32.8 million (2006: £41.1 million) of cash, marketable statement volatility, and where such benefits outweigh securities and deposits are held and managed by the the costs of compliance, the Group has designated many Group’s captive insurance company in Guernsey. of its economic hedges as hedging instruments under IAS 39. However, for certain effective economic hedging Derivative financial instruments comprise instruments relationships such hedge accounting treatment is not relating to net borrowings (eg cross-currency and interest permitted under IFRS.Where hedge accounting is not rate swaps) and those related to other business transactions achieved, fair value movements on derivatives are recorded (eg forward foreign exchange deals and copper in the consolidated income statement which could give commodity swaps). rise to earnings volatility.

18 FKI plc Operating and financial review It is the Group’s policy to maintain a range of maturity Pensions dates for its borrowings, and to refinance them at the The Group’s IAS 19 aggregate pensions deficit in respect appropriate time so as to reduce refinancing risk. of all pension and post retirement plans decreased to The treasury function provides the Group with cash and £108.8 million as of 31 March 2007 from £156.0 million risk management services by investing surplus funds and a year earlier.The most significant element of this deficit managing and reducing financial risks purely in relation relates to the Group’s main UK scheme which has to underlying trading transactions. It does not operate as a decreased from £110.7 million to £72.0 million as profit centre and no speculative transactions are permitted. of 31 March 2007.The valuation of this deficit is based Counterparty credit limits are established for all banks on the full actuarial valuation as of 31 December 2005, used by the Group, taking account of the credit standing updated at 31 March 2007 by independent actuaries. of each bank.The Group does not hold or issue derivative The Group aggregate deficit net of associated deferred tax financial instruments for trading purposes. assets has reduced from £107.5 million to £75.4 million. A large proportion of the Group’s trading is carried During the year surplus property assets worth out within the domestic territory of each business unit. £12.5 million were transferred to the main UK pension Consequently, foreign exchange transaction exposures, scheme with a further £8.0 million planned for transfer which arise when sales and purchases are made by a in 2007/8.An agreement was also reached with scheme business unit in a currency other than its own functional trustees for the continuation of existing funding levels. currency, are generally not significant.The Group’s policy is to hedge forward foreign exchange contracts as soon as commitment has been given to the underlying transaction. The results of foreign subsidiaries are translated into Sterling at the average rates of exchange for the period concerned.As this conversion has no impact on the cash flow of the Group, the Group chooses not to hedge its foreign subsidiaries’ earnings, other than any dividends which are dealt with as transaction exposures. The balance sheets of foreign subsidiaries are translated into Sterling at the closing exchange rates.Any gains or losses on the translation of these balance sheets into Sterling are recorded in reserves against the gains and losses arising on foreign currency borrowings that are effective as net investment hedges.

19 FKI plc Operating and financial review Risks and uncertainties The Group operates a number of pension schemes as detailed in note 33 to the accounts, the most significant of The Group has adopted a standard process for the which is the main UK scheme which had a pre-tax deficit identification, assessment, treatment, monitoring and of £72.0 million at 31 March 2007.The funding of that reporting of risk.This process helps support business scheme is 65% by long dated bonds and 35% by equities. objectives by linking into business strategy, identifying and The Group is exposed to various funding risks principally reacting to emerging risks and developing cost effective increased longevity of members and poor performance solutions to risk exposures.A detailed description of the of equity investments which could result in increased cash Group’s risk management process is included within the contributions by the Group to the schemes. Corporate Governance Report on pages 34 to 36 of the Annual Report.The Group’s financial risk management In addition to the above the Group’s involvement and practices are discussed earlier in the report on pages 18 operating in global markets creates an exposure to other and 19 and in note 28 to the accounts. risk factors that are both external and internal to the Group.These risks include but are not limited to failure Some 51% of continuing sales are to customers in to comply with legislative and regulatory requirements North America and the Group is therefore particularly including environmental and litigation risk, equipment affected by economic conditions in North America. failures, business continuity and the actions of customers However, the diverse nature of the Group’s products, and competitors.The Group has, as previously described, services and customers help mitigate the effects of changes implemented risk controls and loss mitigation plans but in political and economic risk on the demand that the cannot give absolute assurance that such procedures will Group experiences. be effective in identifying or controlling each of the The Group’s products and manufacturing processes operational risks faced by the Group. require a variety of raw materials including steel, copper and zinc.Any increase or volatility in the price of these commodities and energy together with shortages in supply can affect the Group’s performance.The diversity of operations both in terms of product area and geography reduces the dependence on any single item and supplier. Purchasing policies and practices take into account and seek to mitigate such risks where practicable.

Neil Bamford Finance Director

NB: The Business Review and Finance Review comprise the Group’s compliance with s243ZZB of the Companies Act. It is not intended to comply with all the requirements of RS1 20 FKI plc Operating and financial review as issued by the Accounting Standards Board. Corporate social responsibility report: Introduction

FKI defines corporate social responsibility (CSR) as The importance of CSR is recognised at the highest the effective management of the impact its businesses level. Responsibility for the Group’s CSR policies, have on its employees, partners, customers, shareholders, implementation and monitoring rests with the Chief the environment and both the local and international Executive and is coordinated by the Director of Group community.As such, FKI firmly believes that good Human Resources.This responsibility is delegated to CSR practice is not only desirable but makes good the President or Managing Director of each Business. business sense. CSR objectives are ultimately met by the collective efforts of all Company employees worldwide. The Group strives to maintain its status as a responsible corporate citizen through continuous improvement in all Each year, as part of the annual reporting process, the areas of CSR. FKI’s commitment to CSR is demonstrated Group reviews the performance of each of its businesses through its listing on the FTSE4Good Sustainability Index in what FKI considers to be the three key areas of CSR: for the fourth year running. It also maintains less formal • Social and Ethical Policy and Practice relationships with other CSR linked bodies including Business in the Community (BITC), SAM Indexes • Health and Safety Policy and Practice GmbH (compilers of the Dow Jones Sustainability Index), • The Environment EIRIS (Ethical Investment Research Service) and the Carbon Trust. Information compiled from questionnaires sent to each business unit allows FKI to monitor performance, FKI’s continuing progress in CSR demonstrates it achievement of set targets and individual business unit is a Group that: contributions to CSR. • Has a clear strategy and defined performance targets This annual report includes a summary of the Group’s • Continually seeks out better methods of operation performance with a more comprehensive version of the annual CSR review available on FKI’s website or from • Strives to improve service to customers by developing the Company Secretary. innovative products, systems and solutions • Displays the highest standards of trust and integrity • Strives towards sustainability Individual businesses include CSR issues as part of their routine risk management which forms part of the Group’s established, structured approach to risk management.

! A full version of the annual CSR review is available on FKI’s website: 21 FKI plc Corporate social responsibility report www.fki.co.uk Corporate social responsibility report: Social and ethical policy and practice

FKI recognises that the practice of sound social and • Full compliance with Health and Safety regulations ethical responsibility will deliver competitive advantage • Safeguarding and maximising the use of Group property and contribute to the Group’s long-term success. The greatest contribution that the Group makes in • Protection of confidential information this area comes from the wealth created by maintaining • Communication of policies to appropriate stakeholders employment, both within the Group and through its supply network. In addition to FKI’s policy, 58% [66%]1 of business units operate their own supplementary social and ethical policy, Social and ethical policy which covers 91% of employees.These policies are The FKI social and ethical policy is applied in all regularly reviewed and updated and are shaped to meet businesses worldwide and acts as a reference point to the needs of individual businesses.The vast majority of guide employees and other stakeholders on the aspects FKI business units also have an individual member of that drive the conduct of FKI’s business relationships. staff who is responsible for social and ethical matters. The policy contains detailed provisions covering the The Group’s social and ethical policy states that it following aspects: “respects the legal right of employees to membership of • Standard of conduct to be followed in dealing trade unions”: 32% of its workforce is unionised and 45% with employees and everyone with whom the are covered by collective agreements. In early 2005, the Group has relationships Energy Technology European Works Council was set up to represent European-based businesses within the Energy • Compliance with the law and applicable regulations Technology group.The Council held its second annual • Sound employment policies, which take account of meeting in July 2006.The CEO briefed the Council labour rights and conventions, include recruitment, on Group Strategy and the role played by each Energy employment, promotion on fair and legal grounds Technology business in the Group’s success. and prohibit discrimination As part of social and ethical practice, FKI recognises • Commitments to customers, partners and suppliers the need to encourage the development of its staff, with around 76% of business units offering an employee • Safeguarding of shareholders’ interests including personal development and review programme, which applying good corporate governance and prohibiting covers 83% of the workforce. On average, this year, the insider dealing number of training days per employee was five days • Utmost integrity in business dealings and absolute boosted by an increasing recommendation of a personal probity in business transactions development and review. • Avoidance of conflicts of interest by employees Internal recruitments filled 17% [22%]1 of the Group’s vacancies this year.As well as direct recruitment • Community involvement and charitable assistance opportunities, FKI also operates an engineering graduate • Engagement with government and other organisations recruitment programme, which is fully accredited to promote and defend FKI’s business interests by the relevant professional bodies.This scheme was re-accredited by IMECHE in 2007 for the next five • Continuous improvements in managing its years. Several businesses also offer comprehensive environmental impact apprenticeship programmes. 91% 83% of employees covered by of employees are offered a supplementary social and personal development review ethical policy

22 FKI plc Corporate social responsibility report 1Figures in square brackets [] are the equivalent figures from 2005/06. “Independent audits ensuring FKI remains progressive in Health and Safety policy and practice have been extended globally”

Charity and community Social and ethical compliance FKI businesses are encouraged to support the local This year, there were two [four]1 complaints made communities in which they operate. FKI also supports against FKI businesses, one of which involved two charitable activities and donations to both local and individual complaints pending further investigation. international causes through its corporate donations The other allegation is currently active and pending policy, which includes the potential for funds raised mediation.There were five [five]1 cases of disciplinary by employees for charitable causes to be matched by action against employees. One individual case involved donations from their business or Group. three employees who each received verbal reprimands; another case involved two employees where verbal and This year 68% [68%]1 of FKI’s businesses, representing 74% written reprimands were issued respectively.Two cases are of employees, participated in local community activities, pending further investigations and the final case resulted in charitable events or made charitable donations. A large a dismissal due to a breach of social and ethical policy. number of these businesses supported development of the local community, donating time and money to local Auditing for compliance charities, schools, hospitals and sports teams etc. FKI implemented a policy of peer auditing in 2004 to A large percentage of FKI’s US-based businesses facilitate accelerated continuous improvement in social also support United Way, a charity which includes and ethical policy and practice, whereby business units around 1,350 community-based organisations run are audited by their peers to assess the compliance with by local volunteers.This support included voluntary Group policy at operating business level.Three businesses deductions from employee wages and locally organised were audited in 2006/07 and no major non-compliance fundraising events. issues were identified.All minor non-compliance issues were resolved within the agreed timescales. FKI also makes annual contributions to the Headstart scheme, part of The Engineering Development Trust The FKI human resources network which in turn is a component of The Royal Academy A Group-wide network of people involved in human of Engineering’s Best programme.The Headstart scheme resource operations was established during 2004/05. promotes careers in science and engineering to 16-17 This network has continued to be active in 2006/07 as a year olds through university-based, residential courses. vehicle for more effective and consistent implementation The Group is also becoming more directly involved of Group policies and continues to uphold FKI’s with Headstart through its graduate scheme, providing commitment to CSR. volunteer graduates to speak at a number of the residential courses. FKI embraces opportunities like this to re-invest in the engineering graduates of the future.

Prince’s Trust Challenge three Brush Traction Site Welfare Fund Hickory Hardware connected with Bridon America gave monetary graduates with a sponsorship of has donated £500 each to six local United Way of Middle Tennessee donations to the American Cancer £2,300 each from FKI, took part part in charities in the last year. while moving into its new location Society, United Way, and Independent the Scandinavian three peaks challenge in Nashville and conducted a pledge College Fund. The company also Harrington Generators have loaned in September 2006. The challenge campaign in which the company has a membership with the local generators to several local charity events. was to climb three peaks in Norway, matched employee contributions; Chamber of Commerce and the Sweden and Finland in just four days Marelli Motori maintains good over $5,000 USD in pledges were management is involved on the which they came first place and raised relationship with local schools and received. In the last year, Hickory Board of Directors of NEPIRC – over £11,000. public administration through social began an affiliation with the Nashville Northeastern Pennsylvania Industrial events. They have increased business area Habitat for Humanity where door Resource Center (NEPIRC). Also, the with a local social company that employs and cabinet hardware from excess management is involved on the Board disabled people by outsourcing simple inventory was donated. Lastly, the of Directors for the County Rail Board, work such as assemblies. individual locations support local which promotes use, expansion, blood bank drives. and improvement of local railroads.

23 FKI plc Corporate social responsibility report 1Figures in square brackets [] are the equivalent figures from 2005/06. Corporate social responsibility report: Health and Safety policy and practice

FKI maintains its commitment to progress towards an FKI Health and Safety roles and responsibilities accident-free Health and Safety culture.The diagram opposite illustrates that Health and Safety commitment starts at the highest level of management, with a structure Accident free culture put in place to drive improvement throughout the Group’s worldwide operations. FKI is committed to full compliance with Health and The Guardians (FKI Board of Directors) Safety regulations in the workplace for all of its employees Strategic control, policy approval, monitoring improvement, worldwide. Businesses are requested to record all unsafe managing the external interface and providing resources. acts, near misses and injuries during operations.These are then analysed to enable continuous improvement through shared knowledge, new initiatives and improved working practices.

Last year a UK Health and Safety audit programme was The Champions (Group Health, Safety and Environmental Committee) launched in conjunction with the Group’s insurance Operational control, policy development, monitoring performance, prioritising areas for improvement, integrating best practice and reviewing brokers,AON, which resulted in a number of local for compliance. practice changes.This audit programme is now being rolled out to many Group businesses worldwide. Independent audits such as this ensure FKI remains progressive in this area and that Health and Safety systems are improved and maintained in line with best practice. The Experts (Health, Safety and Environmental network) Ensuring data integrity, data analysis, translating policy into practice, identifying and sharing best practice, influencing regulatory compliance and disseminating new regulations.

The Enforcers (Operational Line Managers) Communicating and educating, ensuring compliance with local policy and practice, investigating incidents/accidents/breaches, eradicating root causes, enforcing agreed standards and performing risk assessments.

The Agents of Change (Each Employee) Complying with and endorsing all local Health and Safety rules and regulations, reporting incidents and accidents, challenging current practice through identifying to colleagues any ways in which hazards and risks can be reduced or removed.

24 FKI plc Corporate social responsibility report Health and Safety policy Health and Safety performance In order to ensure that its workplaces are safe and FKI follows the UK classification of incidents for Group to provide a sustainable healthy working environment reporting. Health and Safety reporting guidelines are FKI pledges to: communicated to every company to assist them in reporting their performances each year.All businesses are • Consider Health and Safety in all transactions also aware of local legislation and reporting mechanisms • Meet or exceed current Health and Safety legislation and often report under both sets of procedures. • Introduce and maintain good working practices The chart on page 26 plots the total number of recorded incidents and occurrences and the Group Accident • Develop effective Health and Safety procedures Frequency Rate respectively.The Accident Frequency including identifying and assigning responsibilities Rate (AFR) is defined as the average number of accidents within each organisation per 100,000 hours worked. Dangerous Occurrences, • Make employees aware of potential risks, hazards, which are incidents that are reported but have not resulted safe systems of working, operating procedures and in an accident, will continue to be recorded by businesses their responsibilities and statutory obligations; and the data utilised internally to help remove the root cause of incidences. • Provide appropriate training This year has seen a continued decrease in the total • Continually improve systems for recording, reporting number of actual accidents, that is, major accidents, and analysing accidents and incidents work related illnesses and other reportable accidents, • Set and publish objectives and targets and monitor hence a reduction in the Group’s AFR.There has also progress and assess performance in relation to been an improvement in the Group’s AFR.There was these targets no workplace fatalities reported in this year. This policy is in operation in all FKI businesses globally. A dedicated Health and Safety committee is set up in a large proportion of FKI businesses, representing 99% of the workforce.These committees are tasked with driving down accident rates and ensuring that the working environment remains safe for all personnel. Detailed performance is measured in 77% [89%]1 of FKI businesses; covering 94% of employees and all businesses are currently practicing the setting of improvement targets.

25 FKI plc Corporate social responsibility report 1Figures in square brackets [] are the equivalent figures from 2005/06. Number of incidences Other reportable incident Work related illness Dangerous occurence Major incident Accident frequency rate 324 77 26 38 313 68 24 39 250 52 15 37 225 48 7 30 216 49 32 19 220 25 9 11

1.50 1.42 1.34 1.26 1.26 1.09

2002 2003 2004 2005 2006 2007

There has also been a reduction in the number of Relative performance standards dangerous occurrences in the last year. In all cases, As part of FKI’s drive towards an accident-free culture, reported dangerous occurrences are investigated and all business units have been encouraged to identify a preventative measures applied. It is by the recording of comparative industry sector accident frequency rate dangerous occurrences and their subsequent resolution (AFR) as an external benchmark for Health and Safety that FKI aims to reduce the number of future incidents performance. Currently over half of the business units and injuries and hence continue to move towards its have identified a target AFR, 12% more than last year goal of an accident-free culture. and of these 68% have successfully achieved or bettered Within the Group, four units received fines in relation this target. FKI will continue to encourage external to breaches in Health and Safety regulations following benchmarking with the aim of accelerating improvements four Health and Safety related convictions.A fifth fine in all areas of Health and Safety. was as a result of a Health and Safety audit following Target setting an accident two years ago.The company in question has implemented the required changes in line with the audit In 2006, the Group moved away from setting a universal recommendations and these have been accepted. Both 1% improvement target for its Health, Safety and policy and practice is been reviewed by all the units in Environmental performance. In its place, the Group order to prevent recurrence. established with each business, targets for 2006/07 based upon previous actual performance.This led to much more ambitious target setting in 2006/07.This actual performance based target setting will also be applied in future years.

26 FKI plc Corporate social responsibility report Corporate social responsibility report: The environment

FKI remains committed to minimising any adverse impact Environmental policy its businesses have on the environment. Local business FKI is committed to the protection and conservation management is responsible for enforcing standards in of the environment in all of its operations.The Group’s line with legal responsibilities and obligations and environmental policy involves the implementation of an managing risks associated with environmental matters. operational management system within each business unit Supporting this commitment, 77% [72%]1 of FKI enforcing standards in line with legal responsibilities and businesses, representing 87% of Group turnover, have an obligations. FKI’s environmental policy aims to: environmental coordinator and nearly 31%, representing 51% of turnover, have an environmental committee. • Develop, install and maintain environmental The importance of environmental issues is emphasised management systems to employees with 37% [30%]1 of FKI businesses, • Meet or exceed current environmental legal representing 59% of the workforce, providing requirements environmental training as part of new employee orientation programmes. • Focus on product stewardship, identifying ways of improving efficiency throughout the supply chain The Group’s main areas of impact on the environment are and manufacturing processes to reduce consumption in the use of energy and water and the production of solid and liquid waste.Where appropriate, businesses have been • Use environmentally responsible suppliers and encouraged to implement environmental management subcontractors systems compatible with ISO 14001.The Group has 21% • Give preference to alternatives for scarce and of its businesses ISO 14001 (or equivalent) accredited and non-renewable resources 32% of Group sales are made by its businesses maintaining these standards. Continuous improvement in • Develop and market products and services meeting environmental performance is facilitated through environmental standards and target each product to implementation of the Group environmental policy, be produced more efficiently than its predecessors monitoring of environmental performance and internal • Maintain control of discharges and emissions and external auditing. • Raise awareness of environmental issues • Identify and communicate best practice throughout the Group • Set and revise environmental targets and policies • Pursue sustainable practices and processes in all operations

77% of FKI businesses have an environmental coordinator

27 FKI plc Corporate social responsibility report 1Figures in square brackets [] are the equivalent figures from 2005/06. “In a year when Group turnover increased, and thereby the underlying levels of activity increased, four out of FKI’s five safety and environmental indicators showed improvement.”

All Group businesses have adopted the corporate Environmental improvements environmental policy. One example of how businesses This year, 18% of FKI businesses, accounting for 24% of are applying policy in practice is the implementation of Group turnover, have introduced environmentally friendly lean operations. Most FKI businesses are implementing initiatives, in many cases with the focus directed towards or are planning to implement Lean in order to streamline the customer.These initiatives include: processes and improve efficiency through elimination of waste and non-value adding activities • Introduction of solvent recovery plant Environmental performance • Installation of a facility-wide computerised heating control system Assessment of environmental risks occurs during day-to-day business operations as part of FKI’s risk • Supply of diesel engines with low noise, low emissions management process. In addition to this practice, and lower fuel consumption in refurbished locomotives 21% [26%]1 of businesses, accounting for 37% of Group • Improved recycling, continuation with trend monitoring turnover, reported completion of a local environmental and evaluating water based paint systems risk assessment in 2006/07. In order to ensure environmental conformity, 42% of businesses, representing • Recycling of cardboard, the use of recycled 60% of turnover, carried out a combination of internal, photocopying paper and the replacement of a governmental and independent environmental audits this solvent degreaser with a water based degreaser year including assessment of air quality, waste water • Encouraging customers to use biodegradable lubricant quality, noise, ergonomics, oil storage and spillage control and legislative and environmental certification compliance. • Additional facilities for treatment of acid from liquid waste system One formal environmental complaint was received during the year.This complaint was in relation to noise • Increased use of electronic means for distribution pollution and the business has worked with its Ministry of information to customers of Environment (Canada) to minimise the concerns of • A plant has switched from a hazardous cleaning solution the local residents. to none hazardous cleaning product. One FKI company based in Denmark reported that 50% of its supplied electricity is sourced from renewable energy: 20% from wind turbines, 30% from biomass. Another UK-based business is currently undertaking a study into the possible use of wind turbines.

28 FKI plc Corporate social responsibility report 1Figures in square brackets [] are the equivalent figures from 2005/06. 7% 4% reduction in kilograms reduction in water of CO2 produced adjusted consumption adjusted for business activity for business activity

Energy consumption Energy consumption kgCO2 FKI’s energy consumption is based on individual kgCO2/£000 turnover consumption of electricity, natural gas, diesel etc which 284,000,000 273,269,161 258,597,268 249,999,100 242,102,831 229,860,252 221,859,681 163 168 178 186 174 159 149 is then converted to an equivalent of carbon dioxide (CO2) in kilograms.This allows a year-on-year direct comparison, where the term “carbon dioxide emissions” represents the best estimate of overall energy consumption. The bar-chart opposite shows a continuing reduction in absolute CO2 emissions.Total CO2 emissions for this year have reduced by 3.5% compared to last year, exceeding the Group’s target of 1% reduction.This year’s emissions are also 22% less than those recorded in 2001. 20012002 2003 2004 2005 2006 2007 The line graph represents relative CO2 emissions adjusted for business activity levels by dividing by Group turnover Water consumption in £000s.The resultant figures indicate that business unit m3 m3/£000 turnover actions reduced CO2 emissions by 7% compared to the prior year. 2,945,000 2,431,005 2,152,499 2,121,480 1,999,656 2,084,930 2,057,405 1.69 1.50 1.48 1.58 1.44 1.44 1.38 Such trends demonstrate FKI’s commitment to the environment and its continuing drive towards sustainability. Water consumption The bar chart below shows that the Group’s absolute water consumption has decreased this year by 1.3%. In relative terms, water consumption (m3/£000 turnover) decreased this year by over 4%.The changing nature of FKI’s business portfolio means that absolute values are 20012002 2003 2004 2005 2006 2007 not directly comparable year-on-year. Relating water consumption to the Group’s turnover allows for a much more accurate picture and gives a better indication of the environmental performance.The Group’s level of fresh water consumption is considered by FKI to have a great impact on the environment. Businesses globally are therefore constantly evaluating ways to recycle, or reduce fresh water consumption.

29 FKI plc Corporate social responsibility report Liquid waste disposal Waste disposal and recycling £000 £ disposal cost/£000 turnover FKI businesses are required to report on both liquid and 1,097 994 792 627 789 489 551 solid waste within the CSR review process.The disposal 0.63 0.61 0.55 0.47 0.57 0.34 0.37 costs are reported within the CSR report – along with the disposal cost per £000 turnover – to allow a year-on-year comparative figure.These figures are presented below. Each unit which produces solid or liquid waste is responsible for disposing of that waste through cost effective and environmentally acceptable methods. No environmental permits were revoked in 2006/07. Liquid waste disposal FKI produces waste liquid mainly from water used 20012002 2003 2004 2005 2006 2007 for cooling purposes, surface treatments, washing down products during the production process and sanitary purposes. Some businesses which produce relatively large quantities of waste water and liquid as a result of manufacturing processes have water treatment plants that are monitored regularly by local water authorities. Where water meets strict standards, discharge into rivers is permitted. Permitted discharge into sewers is also regulated and occurs only with approval. Liquid waste may also be removed by registered disposal companies. Where petroleum, bulk hazardous chemicals or acid wastes are required to be stored on site, appropriate permits are held by the relevant businesses.Where businesses cannot treat liquid waste they have permits in place for the removal and treatment of the waste off site. Consistent and suitable monitoring and reporting of liquid waste processing procedure are in place in all businesses. The graph above shows an increase in liquid waste disposal costs in 2006/07 compared to the previous year. This is due to increased turnover and underlying levels of activity for 2006/07 in those businesses that produce high levels of liquid waste. Improvements in environmental reporting are believed to be the foundation of controlling waste levels and associated costs.

30 FKI plc Corporate social responsibility report 25% reduction in solid waste disposal costs; aided by better recycling

Solid waste disposal Solid waste disposal £000 The Group’s expenditure on processing solid waste £ disposal cost/£000 turnover reduced this year by 25% on last year’s costs.The total 732 668 645 459 571 480 360 0.42 0.41 0.44 0.34 0.41 0.33 0.24 solid waste disposal costs in 2007 have reduced by 51% since 2001. It is the aim of FKI to continue to reduce solid waste levels and hence disposal costs across the Group. FKI businesses make use of opportunities to recycle solid waste produced during operations. Over 68% of businesses, producing 88% of Group turnover, recycle part or all of the solid waste they produce, the overall income from which is substantially higher than the disposal costs of the remaining solid waste and liquid waste together. 20012002 2003 2004 2005 2006 2007 Recycling therefore not only offers a solution to reduce net waste output levels but is also commercially beneficial if fully embraced. Summary The Group remains committed to driving continuous improvement in all areas of CSR performance. In a diversified Company such as FKI, a balance must be maintained between application of policy by the corporate centre and delegation of responsibility to the local businesses.The growth of Group wide communications continues to have a positive influence on CSR performance in all businesses.This is displayed through more ambitious target setting, external benchmarking, company reporting and performance. As businesses share examples of best practice and communicate their local strategies, experiences and performance levels, further improvements are targeted.

31 FKI plc Corporate social responsibility report Board of Directors

1 Gordon Page CBE, DL, M.A., FRAeS 3 Neil Bamford B.A., F.C.C.A. Non-Executive Chairman (born 1943) Finance Director (born 1958) Appointed to the Board in August 2004 as a Appointed to the Board on 1 April 2004. He joined non-executive director and became Chairman in the Group in 1988 and has held a number of posts September 2004. He is Chairman of Hamworthy plc including Managing Director, Lifting Products & and Air Tanker Holdings Limited. He is also Chairman Services, Group Chief Accountant and European of Cobham plc and was previously Chief Executive Managing Director of the Materials Handling Group. there from 1992 until 2001. He is a director of 4 Reg Gott B.Sc., M.Sc. Lockheed Martin UK Holdings Ltd. Engineering Director (born 1957) 2 Paul Heiden B.Sc., A.R.C.S., A.C.A. Appointed to the Board in April 2002. He joined FKI Chief Executive (born 1957) in 1994 as Managing Director of Froude Consine Test Appointed to the Board in January 2003 when he Equipment. He has since managed several operations joined FKI as Chief Executive. Previously he was at and in 1998 became Managing Director of the Rotating Rolls-Royce where he was appointed Director of Machines Division. Since 2004 he has been Managing Industrial Businesses in 1997 and Finance Director Director of FKI Logistex. He is a non-executive director in 1999, a position he held until 2002. He is a of Filtronic plc. non-executive director of United Utilities plc.

12 34

32 FKI plc Board of Directors 5 Sir Michael Hodgkinson B.A., A.C.M.A. 7 David Pearl M.A. Non-executive (born 1944) Non-executive (born 1948) Appointed to the Board as a non-executive director in Appointed to the Board as a non-executive director April 2000. He is senior non-executive director at Royal in 2005. During a long career with BP plc he has held Mail plc and was appointed Chairman of Post Office Ltd various senior positions in the UK, USA,Asia Pacific in May 2003. He retired as Chief Executive of BAA plc in and Europe spanning finance, IT, ventures and general June 2003. He is also a non-executive director of Dublin management. Prior to his current appointment within Airport and Chairman of First Choice Holidays plc. the Office of the Chairman, and as Deputy Company Secretary of BP plc, he was Managing Director of BP 6 Charles Matthews B.Sc. (Hons), M.B.A. in Greece and before that Chief Financial Officer, Non-executive (born 1953) BP Asia Pacific. Appointed to the Board as a non-executive director 8 Richard Case CBE, DL, MSc, FREng, FRAeS on 11 September 2003. He is the founder and Managing Non-executive (born 1945) Director of his own strategy consulting business focusing on the automotive and mobile telecommunications sector. Appointed to the Board as a non-executive director He is also a non-executive director and founder of Sigma on 7 February 2006. He was CEO of GKN Westland QC, and Chairman of a number of other businesses in and, from 2001-2004, was Managing Director of Agusta the motorsports and intellectual asset management sectors. Westland and Chairman of Westland Helicopters Limited. He has extensive experience in the engineering industry including appointments as Chief Executive of Cosworth and Managing Director of the Car Division of Rolls-Royce. He is Chairman of Porvair plc and also Chairman of Axeon Holdings plc.

56 7 8

33 FKI plc Board of Directors

Corporate governance

The directors are committed to achieving and maintaining The directors may at any time appoint an additional the highest possible standards of corporate governance and director.A formal selection process is carried out, making during the year followed the principles set out in Section 1 use of external agencies in the selection of suitable of the Combined Code. candidates where it appears necessary or appropriate. Upon the appointment of a new director, relevant training The directors consider that, throughout the year ended is provided as required. 31 March 2007 the Company complied fully with the provisions set out in Section 1 of the Combined Code Any director so appointed shall hold office until the with the exception of the requirement that at least one next Annual General Meeting and shall be eligible for member of the Audit Committee is identified as having reappointment at that meeting. Following such appointment, recent financial experience.The Company’s position is set the Articles of Association require each director to retire by out on page 35. rotation and seek re-election at least every three years. This statement on corporate governance, together with Board committees the Remuneration report, provides a commentary on The Board has appointed the following principal how the Company complied with the principles included committees: in Section 1 of the Combined Code. Audit Committee The Board The Audit Committee comprises all the non-executive The directors supervise the management of the business directors and, following the retirement of Mr R P Edey, and the affairs of the Company and see their prime is chaired by Mr D J Pearl. It met three times during the responsibility as being to determine the broad strategy year and its primary tasks are: of the Group and to ensure its implementation with a view to enhancing the prosperity of the Group and its • to monitor the integrity of the financial information shareholders over time. to be reported to shareholders. Preliminary results, interim information and annual financial statements are The Board currently comprises three executive and reviewed by the Committee before they are presented five non-executive directors, and their names are listed to the Board, concentrating particularly on accounting on page 32 and 33.The Board has reviewed the position policies and compliance, areas of management judgement of its non-executive directors and has determined that and estimates. they are all independent in character and judgement in accordance with the guidance as set out in the • to review the systems of internal control and risk Combined Code. Sir Michael Hodgkinson has been management. As an integral part of this process the the senior independent director throughout the year. Committee reviews annually the process of risk management and identification with an external advisor. The Board meets at least six times each year with additional meetings as required.All directors receive regular • to receive regular reports from the Group’s external information on the Group’s operational and financial auditors. Each year the external auditors’ effectiveness, performance and the Board has reserved certain items for independence and objectivity is assessed and advice its review and approval, including the annual and interim given to the Board concerning their appointment and results, the strategy of the Company, the annual profit plan, remuneration.The Committee sets the policy on their corporate governance and internal control. It also makes engagement and remuneration for non-audit work. high level decisions regarding acquisitions and divestments, Such work is only authorised where the external auditors and sets policies on, amongst other things, remuneration, are best suited to perform it, will not involve the audit health and safety, and the environment. of their own firm’s work and will not involve them making management decisions for or acting as advocate The Company Secretary is appointed by and responsible for the Company.The Committee monitors the cost of to the Board and all directors have access to his advice non-audit work throughout the year. and services. Directors may obtain independent professional advice if necessary, at the Company’s expense. • to review the remit of the internal audit function, including Formal agenda, papers and reports are supplied to its authority, resources and scope of work. The Committee directors in a timely manner, prior to Board meetings. monitors the management’s response to audit findings at Briefings are also provided at other times, for example, least twice a year. Each year the Committee undertakes through operational visits and business presentations. a review of the effectiveness of internal audit. The Company has a Chairman and a Chief Executive Specific items reviewed during the year included internal each having their own separate responsibilities. Essentially, controls in the wire rope business, taxation planning, the Chairman is responsible for the effective working business risk assessment and accounting and financial of the Board and the Chief Executive is responsible for reporting developments. In addition the Committee all operational matters. held private sessions with both the internal and external auditor.

34 FKI plc The Committee believes it meets all key provisions of the Communications with shareholders Combined Code excepting that the Board considers that In addition to ensuring that sufficient information is the Committee, through the collective experience of its disseminated in order to maintain an orderly market in the members, can fulfil its tasks without the need to identify ordinary shares of the Company, the Company maintains any one individual member as having recent and relevant a regular dialogue with major institutional shareholders and financial experience. analysts, particularly following trading updates and results Remuneration Committee announcements, which are posted on the Company’s website, which provides additional Company information This Committee meets at least twice a year, and consists and is regularly updated. of non-executive directors with Mr R Case as Chairman. Its key role is to make recommendations to the Board on The Board members attend the Annual General the Company’s framework of executive remuneration and Meeting and, in particular, the Chairmen of the Audit, its cost, and to determine specific remuneration packages Remuneration and Nominations Committees are available for each of the executive directors, including pension to answer questions. rights and compensation payments.The objective of At Annual General Meetings, separate resolutions are the Remuneration Committee is to ensure that the proposed on each substantially separate issue and the executive directors are both highly motivated and fairly number of proxy votes received for and against each rewarded for their contributions to the Group’s overall resolution is announced together with the number of performance. Further details of the Committee’s work abstentions. Notices of Annual General Meetings are and of the directors’ emoluments and interests are set sent to shareholders at least 21 days before the meeting. out in the report of the Remuneration Committee on pages 40 to 50. Financial reporting Nominations Committee The directors, who have sole responsibility for the preparation and presentation of this report and accounts The Nominations Committee consists of the Chairman and other price sensitive public reports, seek to prepare of the Board and all the remaining non-executive those reports in a way that represents a balanced and directors. It meets when necessary to make understandable assessment of the Group’s position recommendations to the Board on all new Board and prospects. appointments and also to advise generally on issues relating to Board composition and balance. Internal control and risk management system The number of full scheduled Board meetings and The Board acknowledges its overall responsibility Committee meetings attended by each Director during to safeguard the Company’s assets and shareholders’ the year was as follows: investment. In accordance with “Internal Control: Guidance for Directors on the Combined Code” Board Audit Remuneration Nominations Number of meetings 8 3 3 1 (“the Turnbull Guidance”), the Board of FKI has established a risk management policy and system which Attendance are an integral part of the management’s approach to G F Page 8 3++ 3++ 1 delivery of the strategic and business objectives.The risk management system is a systematic process designed to Sir Michael identify, assess, treat, manage and communicate business Hodgkinson 8 3 3 1 risks. It also provides a process for the escalation and N Bamford 8 n/a n/a n/a delegation of risks to the appropriate level in the R I Case 6 331operations and ensures that actions are properly defined, resourced and effected to give confidence in achievement R P Edey* 2 1 1 1 of business objectives.The system operates throughout R L Gott 8 n/a n/a n/a FKI and is applied equally to the operating units and P Heiden 8 n/a n/a n/a corporate function and report on significant areas of risk and the appropriate controls. C L Matthews 8 3 3 1 D J Pearl 8 331

* up to date of cessation of directorship. ++ by invitation.

35 FKI plc Corporate governance Risks arise from a wide variety of internal and external The Board has overall responsibility for the Group’s sources and can be associated with customer requirements, systems of internal control and for reviewing their competitor actions, regulations and political actions. effectiveness.The Board has reviewed the key risks They may also arise from the products and services sold by inherent in the Group, together with the operating, the Group and the processes used by operations as part of financial and compliance controls that have been their normal activities. Management regularly carries out implemented to mitigate those key risks. However, any risk assessments covering risks in strategy, risks to achieving system of internal control can only provide reasonable commitments contained in contracts with customers, and not absolute assurance against material misstatement risks in organisational change, risks associated with major or loss. projects and risks involving potential acquisitions. The Company has an organisation structure with clearly The output from each assessment is a list of prioritised defined lines of responsibility, accountability and delegated risks, the probability of them happening and their impact authority and with clear local operating autonomy within together with the associated action plans to mitigate them. a framework of central management, stated corporate aims Operating unit and corporate function managers are and objectives.The operating performance of each business responsible for these action plans and their progress is is regularly reviewed by the executive directors, and reported at least twice a year to the FKI Risk Committee progress is monitored against business plans, utilising as part of their performance review.The Risk Committee established procedures for business planning, budgeting, is accountable for the risk management system and for capital expenditure approval and treasury management. reporting key risks and associated mitigating actions to The Board has reviewed the effectiveness of the Group’s the Board through the Audit Committee and meets at systems of internal control and risk management during least twice a year. It is chaired by the Chief Executive the period covered by this annual report. It confirms that and the other members are the senior executive the processes described above which conform with the management.The Finance Director is responsible for guidance on internal control appended to the code (the the implementation of the risk management process revised Turnbull Guidance) have been in place throughout throughout the Group and the compilation of the Group that period and up to the date of approval of the annual risk register which records all risks which management report.The Board also confirms that no significant failings consider to be significant, together with all appropriate or weaknesses were identified in relation to the review. mitigating actions.The risk registers are reviewed with the three year business plans in August/September and with Whistle blowing policy the annual budget in February/March.These reviews cover The Company has a whistle blowing policy that is subject actions completed and the status of ongoing actions. to regular review and if necessary revision. Copies are An independent review of the risk process was completed displayed in Group occupied buildings.Additionally a copy in October 2003 and concluded that the risk process was of the policy is available on the Group’s intranet site. in compliance with the Turnbull guidelines. However it was decided that a number of improvements could be made to the process to help meet business objectives.

36 FKI plc Corporate governance Directors’ report

The directors submit their report and the audited financial Political and charitable donations statements of FKI plc for the year ended 31 March 2007. During the year ended 31 March 2007 the Group Principal activities contributed £0.1 million (2006: £0.1 million) in the UK for charitable purposes.There were no political The principal activities and the development of the Group donations during the year (2006: £nil). are given in the Chairman’s statement on pages 2 and 3 and the Operating and financial review on pages 4 to 20. Research and development Financial instruments Product development and innovation is a continuing process.The Group’s businesses commit resources to The Group’s financial risk management objectives and research and development to assist them in securing policies are discussed in the Operating and financial review their competitive positions in their chosen markets. on pages 18 and 19.The exposure of the Group to foreign currency risk, interest rate risk and liquidity risk are set Employment policies out in note 28 to the financial statements. Companies within the Group have developed a wide Dividends range of voluntary practices and procedures for employee involvement appropriate to their own circumstances and The directors recommend a final dividend on ordinary needs.The Group encourages this approach to providing shares in respect of the year ended 31 March 2007 of 3.0p information and consultation and believes that this per share, payable on 5 October 2007 to shareholders on promotes a better understanding of the issues facing the the register on 7 September 2007, which with the interim individual business in which the employee works. It is the dividend paid on 23 February 2007 absorbs a total of policy of the Group to give full and fair consideration to £26.4 million. applications made by disabled persons for job vacancies Directors and promotions, where particular job requirements are within their ability and, where possible, arrangements are The names of the directors as at the date of this report made for the continuing employment of employees who are listed on pages 32 and 33, together with brief have become disabled. biographical notes. Mr R Edey retired from the Board on 1 August 2006. Further details of employment and health and safety policies are included in the Corporate social responsibility At the forthcoming Annual General Meeting and in report on pages 21 to 31. accordance with the Company’s Articles of Association, Mr C Matthews and Mr N Bamford retire by rotation Environmental policy and being eligible offer themselves for re-election. The Group is committed to adopting a responsible No contract or arrangement has been entered into at approach to environmental matters.The Group’s overall any time during the year in which any director had a policy forms the basis of detailed guidelines that are material interest which was significant in relation to appropriate to the individual businesses. the Group’s business. Management seeks to minimise any adverse impact on Directors’ interests the environment of all aspects of the Group’s operations by means of environmentally sound disciplines, which The interests of the directors (including their family take practical steps to control effectively or eliminate any interests) all of which are beneficial, in the share capital, known pollution risks. Specifically, capital expenditure is share options and the Long-Term Incentive Plan of directed towards the replacement of hazardous materials the company appear in the Remuneration report on with environmentally friendly alternatives and methods pages 40 to 50. of minimising the costs of disposal of toxic waste, the recycling of wood, the reuse of cardboard and paper products, and the reduction of energy consumption. Further details of the Group’s environmental policies are included in the Corporate social responsibility report on pages 27 to 31.

37 FKI plc Payments to suppliers Annual General Meeting Operating businesses are responsible for agreeing the terms The Annual General Meeting of the Company will be and conditions of their transactions with suppliers. held at 12 noon on 24 July 2007 in The Riverside Room of Savoy Place, London WC2R 0BL.A notice of meeting Payment is made on those terms subject to the terms and appears in the enclosed circular and for those members conditions being met by the supplier. FKI plc, as a holding wishing to attend a location map has been included within company, did not have any amounts owing to trade the circular. creditors at 31 March 2007. The Special Business to be considered at the meeting Share capital relates to the following matters:

The movement in the share capital during the year is Description Resolution number detailed in note 34 to the financial statements. General authority to allot equity securities 8 Significant shareholdings Limited authority to allot equity securities As at 12 June 2007, the following major interests of 3% or for cash excluding pre-emption rights 9 more in the ordinary shares in issue had been notified to the Company by: Authority to purchase shares 10 Number Holding Directors’ statement as to disclosure of information of shares%to auditors HSBC Investment Management 57,550,582 9.78 The directors who were members of the Board at the Barclays plc 40,994,024 6.97 time of approving the directors’ report are listed on Franklin Resources Inc 35,687,573 6.07 pages 32 and 33. Each of these directors confirms that: New Star Asset • to the best of each director’s knowledge and belief there Management Ltd 35,420,371 6.02 is no information relevant to the preparation of their report of which the Company’s auditors are unaware; and Nordea Bank SA 29,437,044 5.00 • each director has taken all the steps a director might Newton Investment reasonably be expected to have taken to be aware of Management Ltd 27,155,255 4.62 relevant audit information and to establish that the Witmer Asset Management LLC 24,465,544 4.16 Company’s auditors are aware of that information. Legal & General Group PLC 24,179,942 4.11 Directors’ indemnities Man Financial Limited 19,299,939 3.28 During the financial year the directors have enjoyed the benefit of indemnity insurance. Corporate governance In accordance with the Company’s Articles of Association A review of the Company’s application of the principles directors are granted an indemnity from the Company and provisions of The Combined Code appears on in respect of liabilities incurred as a result of their office. pages 34 to 36. The indemnity extends to legal costs incurred in Auditors proceedings in which judgement is given in their favour. A resolution to reappoint Ernst & Young LLP as the Group’s auditors will be proposed at the Annual General Meeting.

38 FKI plc Directors’ report Directors’ responsibilities The directors are also responsible for maintaining proper accounting records which disclose with reasonable The directors are responsible for preparing the accuracy at any time the financial position of the Company Annual Report and Group and parent Company and of the Group, and enable them to ensure that the financial statements in accordance with applicable financial statements comply with the Companies Act law and regulations. 1985 and Article 4 of the IAS Regulation.They are also Company law requires the directors to prepare Group and responsible for safeguarding the assets of the Company parent Company financial statements for each financial and hence for taking reasonable steps for the prevention year. Under that law the directors are required to prepare and detection of fraud and other irregularities. the Group financial statements in accordance with IFRSs Under applicable law and regulation the directors are as adopted by the European Union (“EU”) and have also responsible for preparing a Directors’ Report, elected to prepare the parent Company financial statements Remuneration Report and Corporate Governance in accordance with UK Accounting Standards. Statement that comply with that law and those regulations. The Group financial statements are required by law and The directors are responsible for the maintenance and IFRSs as adopted by the EU to present fairly the financial integrity of the corporate and financial information position and performance of the Group; the Companies included on the Company’s website. Legislation in Act 1985 provides in relation to such financial statements the UK governing the preparation and dissemination that references in the relevant part of that Act to financial of financial statements may differ from legislation in statements giving a true and fair view are references to other jurisdictions. their achieving a fair presentation. The requirements to provide an enhanced Directors’ The parent Company financial statements are required Report under Section 243ZZB of the Companies Act by law to give a true and fair view of the state of affairs have been addressed in this Report and the preceding of the parent Company. Operating and Financial Review. In preparing each of the Group and parent Company Going concern financial statements, the directors are required to: After making appropriate enquiries, the directors are • select suitable accounting policies and then apply confident that the Company has adequate resources to them consistently; continue in operational existence for the foreseeable future. For this reason, the directors adopt the going • make judgements and estimates that are reasonable concern basis in the preparation of the Group’s and prudent; financial statements. • for the Group financial statements state whether they By order of the Board have been prepared in accordance with IFRSs as adopted by the EU; and Antonio Ventrella Secretary • for the parent Company financial statements state 15 June 2007 whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent Company financial statements.

39 FKI plc Directors’ report Remuneration report

Composition and Role of the Remuneration Committee The Remuneration Committee is responsible for formulating executive remuneration policy and for determining the remuneration of the executive directors and certain senior executives. Its members are the non-executive directors as shown in Table 1, together with their attendance at meetings of the Remuneration Committee during 2006/07. Table 1. Remuneration Committee membership and attendance in 2006/07

1 June 25 July 23 November 29 March Committee member 2006 2006(1) 2006 2007 Mr R I Case (Chairman) Attended Attended Attended Attended Mr R P Edey(2) Attended – – – Sir Michael Hodgkinson Attended Attended Attended Attended Mr C L Matthews Attended – Attended Attended Mr D J Pearl Attended Attended Attended Attended

Notes: (1) The meeting held on 25 July 2006 was a telephone meeting. (2) Mr Edey resigned his position as non-executive director on 1 August 2006. All of the above served on the Remuneration Committee throughout the year, or as indicated, in Table 1.All of the non-executive directors including the Company Chairman are considered by the Company to be independent. The Company Chairman attended the Committee by invitation. Mr Heiden is normally invited to attend meetings as an adviser to the Committee. He was not present when his own remuneration was being determined. During 2006/07 the Committee received information from Mercer Human Resources (TSR monitoring), and Hewitt Associates (remuneration policy and market data). Hewitt also provided administration services to the Group pension scheme and plan. Mr Heiden appointed Hewitt Associates as advisers in 2004/05. Mercer Human Resources was appointed by the Remuneration Committee in 1998. During the year Hewitt Associates were formally appointed as advisers to the Committee. Hewitt Associates continued to act as advisers to the Chief Executive. Should conflict of interest arise for Hewitt in this dual advisory role, the Chief Executive will appoint his own alternative adviser. In accordance with the requirements of the Companies Act, an ordinary resolution seeking shareholders’ approval for the Remuneration report will be proposed at the annual general meeting. Executive remuneration policy The Remuneration Committee’s objectives are to ensure that the Company is able to: • attract, retain and motivate high calibre people; and • align the interests of the executive directors and senior executives with those of shareholders by rewarding executive directors and certain senior executives according to the overall performance of the individual businesses and Group. The Group reviewed its remuneration policy in 2004/5 and introduced many best practices, particularly with regard to annual and long-term incentives. The Group’s remuneration policy is: • setting base salaries at the appropriate market median; • 50% of total remuneration to be variable, for on-target performance; • a balance between short and long-term variable remuneration; • one-third of annual incentives paid as deferred shares that can be matched if an ROIC(1) target is achieved; • long-term incentives are a combination of option grants and/or performance shares. Under this policy, on-target performance is capable of delivering around 50% of total remuneration in the form of variable remuneration.This is achieved through the annual performance related bonus scheme and long-term incentives. (1) ROIC is defined as operating profit adjusted for exceptional items divided by total capital invested in the business.

40 FKI plc Basic salary and benefits Basic salary is reviewed annually having regard to market practices for similar executive positions in a comparable group of companies mainly in the engineering sector and supported by information and advice from independent external consultants. A median based salary policy was adopted in 2005 when it was considered that the former “lower-quartile” policy impaired the Company’s ability to attract and retain high calibre executives. For most roles the comparator group was the engineering and machinery sector. However, for the roles of Chief Executive and Group Finance Director a broader range of comparators, including some outside of the engineering and machinery sector, are used to help determine competitive base salaries. Comparative data and information was provided by Hewitt Associates. Executive directors also receive additional taxable benefits, namely the provision of a fully expensed company car (or an allowance in lieu thereof), medical insurance and disability insurance. Performance appraisal The Company has a structured performance appraisal process for its executive directors and executive management. The outcome from appraisal influences decisions on salary progression and helps to identify individual and collective training and development needs. Annual performance-related bonus scheme The Company operates an annual performance-related bonus scheme for executive directors and other schemes for certain senior executives.The Chief Executive and Group Finance Director participate in a bonus scheme based upon budgeted pre-tax profits of the Group. Mr Gott, Group Engineering Director/MD FKI Logistex participates in a scheme based partly upon budgeted pre-tax profit of the Group and partly on the profit and operating cash flow of FKI Logistex. Other senior executives participate in a bonus scheme based upon business unit profit, operating cash flow and achievement of personal objectives, or Group profit and personal objectives. For executive directors a performance related bonus of 25% of salary is payable for achieving a trigger point of Target profit less 10% budgeted operating profit, after interest but before exceptional items, amortisation and tax.The bonus increases on a straight line pro rata basis from 25% to 50% for achieving between the trigger point and 100% of Target profit.The bonus may increase further on a straight line pro rata basis from 50% to 100% for achieving 100% of Target profit plus 10% of budgeted operating profit. Following approval by the Board of reasonable adjustments to Target profit, the Company’s external auditors check that the calculation of bonuses for the executive directors adheres to the scheme rules governing such calculations. The rules of the bonus scheme will be reviewed in 2007 to take account of the ABI’s updated guidelines on executive remuneration – policy and practice. In 2006, one-third of post-tax cash bonus for executive directors was exchanged for deferred shares. If the Company’s level of ROIC reaches an average of 10% over the following three years the deferred shares will be matched one-for- one. Dividends are paid on deferred shares.This plan is designed to align executive directors’ interests more closely with the long-term interests of shareholders and provides a mechanism that encourages executive directors to grow their personal shareholding in the Company.A similar scheme exists for a small number of senior executives but with reduced levels of matching. Executive directors are now encouraged to accumulate a shareholding of at least one times basic salary over a four year period.

41 FKI plc Remuneration report Long-term incentive plan Long-term incentives were provided through a combination of executive share options and performance shares. Each element of the long-term incentive may vest independently of the other. Executive directors can be awarded the equivalent of up to two times annual salary in options and up to one times annual salary in performance shares, determined on an individual basis by the Remuneration Committee. Details of actual grants can be found in tables on pages 48 and 49. Share options The practice is to grant options within a period of six weeks following the announcement of the Company’s preliminary and/or interim results. The share option element is granted at the average price of FKI plc ordinary shares over five dealing days before the grant date and are normally required to be held for a minimum of three years before they are capable of exercise. If options fail to vest at the third anniversary they lapse. Options that vest at the third anniversary remain live until the tenth anniversary of granting. Options vest against a level of Earnings Per Share (EPS). For grants made in 2006 no options vest for an EPS less than RPI + 12% over the three-year measurement period. For EPS at or greater than RPI + 12%, options vest on a straight-line basis as illustrated in the table below. Earnings per share growth is considered to be an appropriate measure of the Company’s underlying performance, as it requires that there should be a demanding improvement in the Company’s performance before scheme participants can benefit from an increase in the share price.The assessment as to whether performance conditions have been met is calculated by the Secretary to the Remuneration Committee and independently verified by the Remuneration Committee, and, where appropriate, advice is obtained from an external independent firm of Chartered Accountants. Earnings per share is defined as the Company’s headline earnings per share, as calculated in accordance with the principles set out in the Statement of Investment Practice No. 1 “The Definition of IIMR Headline Earnings” issued by the Institute of Investment Management and Research. IIMR Headline earnings are calculated by excluding from the reported results any income statement items of a non-trading or capital nature. Option grants made in 2006/07

RPI + EPS growth over a three year period Percentage of the option grant that vests Below RPI + 12% Nil RPI + 12% 25 RPI + 15% 50 RPI + 18% 75 RPI + 21% 100

Performance shares Performance shares are held in trust for three years.There are two performance conditions for each grant of performance shares. Fifty per cent of a grant may vest against Total Shareholder Return (TSR) and the remaining 50% may vest against return on invested capital (ROIC). Performance shares that fail to vest at the third anniversary of grant automatically lapse.Accrued dividends are paid on any performance shares that vest. For performance shares linked to TSR, no shares vest for a TSR performance below the 50th percentile. For a TSR performance at or above the 50th percentile performance shares vest on a straight line basis as illustrated in the table below:

FKI plc TSR performance Percentage of the TSR-related performance shares that vest Below median Nil Equal to the median 30 Equal to or above the 80th percentile 100

42 FKI plc Remuneration report Long-term incentive plan (continued) For performance shares linked to ROIC, no shares vest for a three-year average ROIC of less than 8%. For a three-year average ROIC performance above 8%, performance shares vest on a straight line basis as illustrated in the table below:

Averaged ROIC over a three year performance period Percentage of the ROIC-related performance shares that vest Below 8% Nil At 8% 40 At 9% 60 At 10% 80 At 11% and above 100

Former long-term incentive plan All executive options granted from July 1996 onwards may only be exercised subject to a performance condition that the Group’s growth in earnings per share, as defined above, must exceed the UK retail price index by 9% or more over a three year period, subject to retesting in subsequent years from a rolling base. Retesting was removed from the former executive option scheme for options granted after April 2004. The level of vesting of awards under the former LTIP is determined by performance of the Company’s Total Shareholder Return (TSR) against a comparator group of all companies which on the date of grant are constituent companies of the former Engineering and Machinery sector as determined by the FTSE Actuaries Industry Classification Committee. The graph below shows the Company’s TSR performance compared with that of the comparator group. No awards vest for below median performance and 50% of an award will vest for median performance. Full vesting occurs only at upper quartile performance, and 75% of an award will vest for performance above the median but below upper quartile.Accrued dividends on vested awards are paid to the executives pending transfer of the shares into the name of the respective participant.The performance condition is Total Shareholder Return, as illustrated in the graph below, as this was considered to be the best means of aligning the interests of directors with shareholders by requiring superior total shareholder return. A table giving full details of the directors’ options, LTIP shares and performances shares granted under the new and former plans and exercised during the year under review is shown on pages 48 and 49.

Total Shareholder Return

FKI plc FTSE All-Share Engineering and Machinery Sector Index

200 180 160 140 120 100 80 60 40 20 0 31 March 02 31 March 03 31 March 04 31 March 05 31 March 06 31 March 07

43 FKI plc Remuneration report Long-term incentive plan (continued) Table 2 below shows a list of competitor companies included during the period 2003/07. Table 2. TSR monitoring awards peer group 2003/07

AGA Foodservice(7) Foseco(8) Morgan Crucible(7) Bodycote International Halma(7) Rotork Castings(2) Henlys Group(4) Senior Charter Hill and Smith(3) Severfield-Rowen(2) Cookson Group(7) IMI Spirax-Sarco Domnick Hunter(1,6) Kidde(5) Stanelco(8) Enodis Melrose(8) Tomkins(7) Fenner Metalrax Group Vitec Group FKI Molins(2) Weir Group

Notes: (1) Domnick Hunter fell outside the FTSE All-Share engineering and machinery index in 2002 but re-entered in December 2003. (2) Castings, Molins and Severfield-Rowen entered the peer group in 2003. Molins dropped back out of the Index in December 2004 and has not been included in subsequent peer groups. (3) Hill and Smith entered the peer group in 2004. (4) Henlys Group delisted in July 2004 and have been excluded from the peer group. (5) Kidde was acquired by United Technologies Corporation in May 2005 and has been excluded from the peer group. (6) Domnick Hunter was acquired by Parker Hannifin Corporation.Trading ceased in December 2005. Domnick Hunter has been excluded from the peer group. (7) After the reclassification to the FTSE indices in January 2006, the following companies were reclassified out of the FTSE engineering and machinery index: Aga Foodservice, Cookson Group, Halma, Morgan Crucible and Tomkins. (8) Foseco, Melrose and Stanelco were added to the FTSE engineering and machinery index in 2006 and so entered the peer group in 2006. The assessment of whether or not the performance conditions have been met is independently calculated by Mercer Human Resources consulting in conjunction with Datastream and is ratified by the Remuneration Committee. Inland Revenue Approved Save-As-You-Earn share option scheme This scheme was approved by shareholders in 1997 and was open to all UK employees who had completed six months’ service and who entered into an approved savings contract for a term of three or five years.The maximum amount that could be saved was £250 per month, and the total savings (including interest) at the end of the term are available to purchase shares at 80% of their market value shortly before the start of the savings contract. Executive directors could participate in this scheme on the same terms as all other employees. No grants of SAYE options were made under the scheme during 2006/07. Recruitment of new directors Executive directors The Nominations Committee review and approve a recruitment specification.The Director of Group HR advises the Committee on availability of internal candidates. If no internal candidate exists, a recruitment consultant or headhunter may be engaged depending on the nature of the assignment.The Chief Executive selects a shortlist of candidates from those presented by the recruitment consultant.A member of the Nominations Committee joins with the Chief Executive to select from the shortlist of candidates.The Nominations Committee recommend an appointment and the Remuneration Committee recommends an appropriate remuneration package.The Board ratifies the appointment. The recruitment process is concluded by the Chief Executive.

44 FKI plc Remuneration report Recruitment of new directors (continued) Non-executive directors The Nominations Committee agree a recruitment specification.The Company Chairman leads the recruitment process that may involve an external search firm.The Company Chairman selects a shortlist of candidates for interview with the Chief Executive and Nominations Committee.The Nominations Committee then make a recommendation for appointment to the Board. Non-executive Chairman The Nominations Committee agree a recruitment specification.They appoint one of their members to lead the recruitment process.A search firm may be engaged to assist with the recruitment process.A shortlist of candidates is presented to the Chief Executive who interviews potential candidates, and refines the shortlist.The Nominations Committee make the final selection and recommendation to the Board. Service contracts It is the Company’s policy that all executive directors have one-year rolling service contracts with a one-year notice period. However, in order to attract high calibre recruits, the Remuneration Committee may exercise its discretion to offer newly recruited executive directors an initial two-year notice period which reduces to one year. Save as listed below, there are no express provisions for compensation payable upon early termination of the executive directors’ contracts and at the date of termination, other than payments due during the notice period. The standard terms within service agreements are being reviewed to ensure they are compliant with ABI revised guidelines published in December 2006. In the case of Mr Heiden, in the event of termination of his service contract by an acquiring company after a change of control, there is provision in his service contract for a payment of liquidated damages equivalent to one year’s pay and contractual benefits without deduction for mitigation and/or accelerated receipt. The contract dates and notice periods for the executive directors during the year were as follows:

Name of director Date of contract Notice period P Heiden 16 December 2002 One year R L Gott 7 April 2005 One year N Bamford 2 June 2004 One year

The non-executive directors do not have service contracts.The dates of the current non-executive directors’ appointments are as follows:

Non-executive director Appointment date Date of last re-election Date of next re-election Mr R P Edey 6 November 1996 23 July 2003 Retired August 2006 Sir Michael Hodgkinson 1 April 2000 1 August 2006 1 August 2009 Mr C L Matthews 11 September 2003 21 July 2004 24 July 2007 Mr G F Page CBE 1 August 2004 20 July 2005 July 2008 Mr D J Pearl 27 September 2005 1 August 2006 1 August 2009 Mr R I Case CBE 7 February 2006 1 August 2006 1 August 2009

45 FKI plc Remuneration report Succession planning In 2004, the Company introduced a succession planning process for its executive directors and senior executive management as part of its risk management process.The Remuneration Committee reviewed the 2005 executive succession plan at its meeting in November 2006 and recommended actions to address succession issues in a small number of Group businesses.The Executive Committee has continued to manage the development of potential successors.The executive development programme continued in 2006 with the help of Ashridge in the UK and Babson College, Boston MA, in the USA. Pensions With the exception of Mr Heiden, executive directors are members of the FKI Group Pension Scheme, a defined benefit scheme with a normal retirement age for directors of 60 years. Mr Gott is also a special member of the FKI Group Pension Plan into which four instalments of £45,000 are being paid in lieu of his former Unfunded Unapproved Retirement Benefits Scheme (“UURBS”). The Scheme’s main features, in respect of executive directors, are: (a) a cash benefit on death in service of four times annual rate of the highest average basic salary (restricted to the earnings cap where it applies) during any three consecutive years within the ten years before the member’s date of death.Additional life assurance cover is purchased where necessary to provide death in service benefits relating to salary above the notional earnings cap; (b) pensions payable in the event of ill health; (c) pensions for dependants on a member’s death generally equal to half the member’s prospective retirement pension at 60 on death in service, or half the member’s pension entitlement on death in retirement; (d) member contributions are 7% of basic salary (restricted to the notional earnings cap where it applies). There are funded unapproved pension arrangements to increase pension benefits where, because of pension scheme limitations (including those resulting from the notional earnings cap), these cannot be paid in total from the FKI Group Pension Scheme. Such arrangements apply to Mr Gott. In lieu of participation in the FKI Group Pension Scheme, Mr Heiden received contributions into a funded unapproved retirement benefit scheme equivalent to 50% of his basic salary. Details of this are shown in the table headed “Directors’ emoluments” on page 47. Details of the directors’ pension benefits during the year under review are shown on page 48. Non-executive directorships The Company believes that there are significant benefits to the individual and the Company from executive directors accepting non-executive directorships in other organisations. Each executive director may normally accept one non-executive directorship provided that it does not conflict with the Company’s interests and is approved by the Board. Fees from any external directorship may be retained by the director concerned. Mr Heiden held one non-executive position with United Utilities plc. Details of fees received by him in 2006/07 in respect of this position are shown below: United Utilities plc £48,900 Appointed 5 October 2005

During the year Mr Gott was appointed non-executive director of Filtronic plc. Details of fees received by him in 2006/07 in respect of this position are shown below: Filtronic plc £21,548 Appointed 13 July 2006

46 FKI plc Remuneration report Directors’ emoluments

Basic salary/fees Taxable benefits(a) Bonus Total Pension contributions(b) 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Name of director £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Executive directors Mr P Heiden 530 502 23 48 174 479 727 1,029 265 251 Mr N Bamford(c) 270 230 19 20 89 219 378 469 – – Mr R L Gott 273 260 24 24 45 157 342 441 101 96 Non-executive directors Mr G F Page CBE 135 135 – – – – 135 135 – – Mr R P Edey 15 37 – – – – 15 37 – – Sir Michael Hodgkinson 37 34 – – – – 37 34 – – Mr C L Matthews 35 34 – – – – 35 34 – – Mr D J Pearl 38 17 – – – – 38 17 – – Mr R I Case CBE 40 5 – – – – 40 5 – – Former director Mr C R N Clark – 32 – – – – – 32 – – Aggregate emoluments 1,373 1,286 66 92 308 855 1,747 2,233 366 347

(a) Taxable benefits consist of permanent health insurance, company car or car allowances, life assurance and private medical insurance.The reduction in Mr Heiden’s taxable benefits arises from more life assurance being provided by the Group Pension Scheme and therefore less purchased externally. Also, Mr Heiden chose to receive a taxable car allowance of £15,000 pa as an alternative to a company car. (b) Company contributions paid in respect of unapproved retirement benefit schemes. (c) The Group Finance Director’s salary was increased by 17.4% in 2006.This increase was deemed appropriate in order to continue the progression of his salary toward the market median salary for the role. Non-executive directors’ fees The fees paid to non-executive directors and the Chairman are determined by the Board after reviewing fee payments for comparable positions within similar organisations, and are normally reviewed every two years.The fee structure for non-executive directors includes a basic fee of £35,000 and an additional fee of £5,000 for a committee chairmanship. The basic fee for the senior non-executive director is £38,000.The last review was in March 2006.The Chairman waived his increase in 2006. Fees for Mr R I Case are paid to Melchester Associates Ltd at his request.

47 FKI plc Remuneration report Directors’ pension benefits The under noted directors were members of a defined benefit scheme provided by the Group during the year. Mr P Heiden is responsible for his own pension provision. Pension entitlements and corresponding transfer values were as follows during the year:

Transfer value of increase in accrued benefit Increase in Increase in (excluding Transfer Transfer transfer accrued inflation) less Accrued Accrued value of value of value less pension contributions pension at pension at pension at pension at contributions (excluding made by 31 March 31 March 31 March 31 March made by inflation) directors 2007 2006 2007 2006 directors Name of director £000 £000 £000 £000 £000 £000 £000 Mr R L Gott 1.6 20.9 23.8 21.4 284.6 249.3 27.7 Mr N Bamford 14.2 176.3 72.6 56.4 796.9 594.4 185.7

Note: In addition to the accrued pension shown in the table, Mr Gott will receive a fixed pension of £24,400 from age 65 in respect of a transfer value paid into the Scheme.The value of this pension is excluded from the transfer values shown. (1) The pension entitlement shown is that which would be paid annually on retirement based on service to the end of the year. (2) The increase in accrued pension during the year excludes any increase for inflation. (3) The transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11, although no adjustment has been made for any under funding of the Scheme.The calculation of each transfer value includes an allowance for the cost of death before retirement benefits. (4) The change in the amount of the transfer value over the year is impacted by the following elements: a. the transfer value of the increase in accrued pension (net of inflation); b. the transfer value of the increase in accrued pension (due to inflation); c. the increase in the transfer value of accrued pension at the beginning of the year due to ageing; d. the change to the transfer value basis methodology; e. the impact of any change in the economic or mortality assumptions underlying the transfer value basis; f. the effect of a. to e. less the director’s own contributions over the year. The change in the amount of the transfer value over the year includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and directors, such as stock market movements which are reflected in e. and the change in method in d. above. (5) Directors have the option to pay Additional Voluntary Contributions. However, neither the contributions nor the resulting benefits are included in the table. (6) Mr Gott’s UK pension scheme benefits are subject to an earnings cap (formerly the Inland Revenue’s earnings cap). In addition, Mr Gott is being paid a supplement of 37% pa of salary (plus an extra £45,000 pa until April 2008) to provide further pension benefits on a defined contribution basis. Directors’ share options

Exercise At Granted Exercised Lapsed At price Date 1 April during during during 31 March per share exercisable Date of grant 2006 the year the year the year 2007 Pence from Expiry date P Heiden Executive share option 06/01/03 1,022,727 – – – 1,022,727 88.00 06/01/06 06/01/13 Executive share option 02/02/04 772,532 – – – 772,532 116.50 02/02/07 02/02/14 Executive share option 26/08/05 850,024 – – – 850,024 103.35 26/08/08 26/08/15 Executive share option 02/08/06 – 944,982 – – 944,982 98.15 02/08/09 02/08/16 Savings related option 01/11/04 9,592 –––9,592 98.25 n/a n/a N Bamford Executive share option 04/12/01 36,140 – – – 36,140 186.75 04/12/04 04/12/11 Executive share option 08/07/02 48,214 – – – 48,214 140.00 08/07/05 08/07/12 Executive share option 06/06/03 141,234 – – – 141,234 77.00 06/06/06 06/06/13 Executive share option 11/06/04 250,000 – – – 250,000 115.75 11/06/07 11/06/14 Executive share option 26/08/05 333,817 – – – 333,817 103.35 26/08/08 26/08/15 Executive share option 02/08/06 – 412,633 – – 412,633 98.15 02/08/09 02/08/16 Savings related option 23/07/03 26,541 – – – 26,541 60.00 n/a n/a

48 FKI plc Remuneration report Directors’ share options (continued) Exercise At Granted Exercised Lapsed At price Date 1 April during during during 31 March per share exercisable Date of grant 2006 the year the year the year 2007 Pence from Expiry date R L Gott Executive share option 22/07/97 50,000 – – – 50,000 166.00 22/07/00 22/07/07 Executive share option 09/12/97 50,000 – – – 50,000 182.50 09/12/00 09/12/07 Executive share option 09/08/99 30,000 – – – 30,000 218.00 09/08/02 09/08/09 Executive share option 04/12/01 35,340 – – – 35,340 186.75 04/12/04 04/12/11 Executive share option 08/07/02 125,000 – – – 125,000 140.00 08/07/05 08/07/12 Executive share option 06/06/03 409,091 – – – 409,091 77.00 06/06/06 06/06/13 Executive share option 11/06/04 300,000 – – – 300,000 115.75 11/06/07 11/06/14 Executive share option 26/08/05 373,004 – – – 373,004 103.35 26/08/08 26/08/15 Executive share option 02/08/06 – 417,218 – – 417,218 98.15 02/08/09 02/08/16 Savings related option 23/07/03 15,416 – 15,416 – – 60.00 n/a n/a

Notes: (1) All executive share options granted in 2006 were granted under the rules of the 2005 LTIP approved by shareholders in July 2005 and were at nil cost to the director concerned. (2) The market price of an ordinary share on 31 March 2007 was 116.25p (2006: 126p) and the range during the year was 88p to 124p. (3) All executive share options granted in 1997 and subsequent years are exercisable from the dates stated above, subject to them satisfying the performance conditions stated in the policy section. (4) Executive Share Options granted in June 2004 under the former scheme were not subject to retesting. (5) Share options granted in 2006 vest on a different scale compared with options granted prior to 2006. Details of the vesting scales for both new and former options are shown in the policy section. (6) Mr Gott exercised the savings related options at 60.0p per share and has retained beneficial ownership of these shares. Directors’ LTIPs Shares Value Shares Cash allocated Shares of award allocated Market awarded at Shares Shares lapsed Shares at date at Performance Earliest value in lieu of 1 April allocated vested during year transferred of grant 31 March period date for (Note 2) dividends Date of award 2006 during year during year (Note 1) during year £ 2007 end date transfer £ £ P Heiden 09/06/03 409,091 – – 409,091 – 342,614 – n/a n/a n/a – 11/06/04 292,095 – – – – 338,100 292,095 11/06/07 11/06/07 339,560 – 26/08/05 485,728 – – – – 510,014 485,728 26/08/08 26/08/08 564,659 – 02/08/06 – 539,989 – – – 529,999 539,989 02/08/09 02/08/09 627,737 – N Bamford 12/08/99 8,616 – – – 8,616 55,000 – n/a n/a n/a – 09/06/03 65,909 – – 65,909 – 55,198 – n/a n/a n/a – 11/06/04 120,950 – – – – 140,000 120,950 11/06/07 11/06/07 140,604 – 26/08/05 222,545 – – – – 233,672 222,545 26/08/08 26/08/08 258,709 – 02/08/06 – 275,089 – – – 270,000 275,089 02/08/09 02/08/09 319,791 – R L Gott 09/06/03 190,909 – – 190,909 – 159,886 – n/a n/a n/a – 11/06/04 151,188 – – – – 175,000 151,188 11/06/07 11/06/07 175,756 – 26/08/05 248,670 – – – – 261,102 248,670 26/08/08 26/08/08 289,079 – 02/08/06 – 278,145 – – – 272,999 278,145 02/08/09 02/08/09 323,344 –

The price of an ordinary share on 2 August 2006, being the date that awards were made during the year was 98.00p. The awards are subject to the performance conditions for LTIP awards, as outlined in the policy section. Performance shares granted in 2006 vest on a different scale compared with shares granted in the former LTIP prior to 2005. Details of vesting scales can be found on page 43. Notes: (1) The Company’s Total Shareholder Return performance for the three-year performance period that ended in March 2007 ranked below median compared against its comparator group. Under the terms of the rules applicable to the 2003 awards, 100% of the awards lapsed. (2) The market value of shares as yet unvested is stated at 116.25p per share, being the closing mid-market price on 31 March 2007. If the ranking position of the award made in 2004 were to be maintained until the end of the respective performance period, the awards granted in 2004 would not vest. (3) The performance period end date for the LTIP award commencing on 11 June 2004 was previously incorrectly stated as 2 June 2007.This has now been amended to 11 June 2007 which corresponds with the three-year performance period as set out in the rules of the Plan.

49 FKI plc Remuneration report Directors’ beneficial interests in ordinary shares of FKI plc

As at As at 31 March 1 April 2007 2006 or subsequent date of appointment Ordinary Ordinary Name of director shares shares G F Page 60,000 25,000 N Bamford(1) 115,440 66,872 R P Edey 6,250 6,250 R L Gott(1) 67,016 23,098 P Heiden(1) 297,209 210,000 Sir Michael Hodgkinson 5,370 5,370 C L Matthews – – D J Pearl – – R I Case 10,000 10,000

(1) The beneficial interests for executive directors includes invested shares purchased from their deferred bonus in 2006 which are being held in trust. Any ordinary shares required to fulfil entitlements under the current or former LTIP are provided by the FKI Employee Benefit Trusts.As beneficiaries under the Employee Benefit Trusts, the directors are deemed to be interested in the shares held by the Employee Benefit Trusts which, at 31 March 2007, amounted to 1,788,782 FKI plc ordinary shares. Auditable information The information in the Remuneration report subject to audit is that included in the tables and related notes in the section on directors’ emoluments, directors’ LTIPs, directors’ share options and directors’ pension benefits. By order of the Board

R I Case CBE Chairman of the Remuneration Committee 15 June 2007

50 FKI plc Remuneration report Independent auditor’s report to the members of FKI plc

We have audited the Group financial statements of FKI plc Authority, and we report if it does not.We are not required for the year ended 31 March 2007 which comprise to consider whether the board’s statements on internal the Consolidated income statement, the Consolidated control cover all risks and controls, or form an opinion balance sheet, the Consolidated cash flow statement, on the effectiveness of the Group’s corporate governance the Consolidated statement of recognised income and procedures or its risk and control procedures. expense and the related notes 1 to 42.These Group We read other information contained in the financial statements have been prepared under the Annual Report and consider whether it is consistent accounting policies set out therein. with the audited Group financial statements.The other We have reported separately on the parent company information comprises only the Chairman’s statement, financial statements of FKI plc for the year ended the Operating and financial review, the Corporate social 31 March 2007 and on the information in the responsibility review, the Corporate governance statement, Remuneration report that is described as having the Directors’ report, and the unaudited part of the been audited. directors’ Remuneration report.We consider the implications for our report if we become aware of any This report is made solely to the Company’s members, as apparent misstatements or material inconsistencies with a body, in accordance with Section 235 of the Companies the Group financial statements. Our responsibilities do Act 1985. Our audit work has been undertaken so that not extend to any other information. we might state to the Company’s members those matters we are required to state to them in an auditors’ report and Basis of audit opinion for no other purpose.To the fullest extent permitted by We conducted our audit in accordance with International law, we do not accept or assume responsibility to anyone Standards on Auditing (UK and Ireland) issued by the other than the Company and the Company’s members Auditing Practices Board.An audit includes examination, as a body, for our audit work, for this report, or for the on a test basis, of evidence relevant to the amounts and opinions we have formed. disclosures in the Group financial statements. It also Respective responsibilities of directors and auditors includes an assessment of the significant estimates and judgements made by the directors in the preparation of the The directors’ responsibilities for preparing the Annual Group financial statements, and of whether the accounting Report and the Group financial statements in accordance policies are appropriate to the Group’s circumstances, with applicable United Kingdom law and International consistently applied and adequately disclosed. Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of We planned and performed our audit so as to obtain all directors’ responsibilities. the information and explanations which we considered necessary in order to provide us with sufficient evidence Our responsibility is to audit the Group financial to give reasonable assurance that the Group financial statements in accordance with relevant legal and regulatory statements are free from material misstatement, whether requirements and International Standards on Auditing caused by fraud or other irregularity or error. In forming (UK and Ireland). our opinion we also evaluated the overall adequacy We report to you our opinion as to whether the of the presentation of information in the Group Group financial statements give a true and fair view and financial statements. whether the Group financial statements have been properly Opinion prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation.We also report to you In our opinion: whether in our opinion the information given in the – the Group financial statements give a true and fair view, Directors’ report is consistent with the financial statements. in accordance with IFRSs as adopted by the European The information given in the Directors’ report includes Union, of the state of the Group’s affairs as at 31 March that specific information presented in the Operating and 2007 and of its profit for the year then ended; financial review that is cross referred from the Business review section of the Directors’ report. – the Group financial statements have been properly prepared in accordance with the Companies Act 1985 In addition we report to you if, in our opinion, we have and Article 4 of the IAS Regulation; and not received all the information and explanations we require for our audit, or if information specified by law – the information given in the Directors’ report is regarding director’s remuneration and other transactions is consistent with the Group financial statements. not disclosed. Ernst & Young LLP Registered auditor We review whether the Corporate governance London statement reflects the Company’s compliance with the nine provisions of the 2003 Combined Code specified for 15 June 2007 our review by the Listing Rules of the Financial Services

51 FKI plc Consolidated income statement For the year ended 31 March 2007

Year ended Year ended 31 March 31 March 2007 2006 Note £m £m CONTINUING OPERATIONS Revenue 4,5 1,330.9 1,273.4 Cost of Sales (1,024.9) (978.7) Gross profit 306.0 294.7 Operating expenses 6 (205.4) (194.7) Operating profit before special items 5 100.6 100.0 Loss on sale of operations 10 (2.7) (4.3) Reorganisation, closures and impairments 11 (12.0) (0.2) Profit on sale of property 5.2 4.1 Profit from continuing operations before taxation and finance costs 91.1 99.6 Share of post tax results of associates 0.2 0.3 Finance costs 12 (36.8) (34.2) Finance income 12 10.8 4.8 Profit before taxation from continuing operations 65.3 70.5 Taxation 13 – UK 0.4 – – Overseas (17.5) (17.8) (17.1) (17.8) Profit for the year from continuing operations 48.2 52.7

DISCONTINUED OPERATIONS (Loss)/profit for the year from discontinued operations 14 (1.6) 41.3 Profit for the year 7 46.6 94.0 Attributable to: Equity holders of the parent 46.4 93.8 Minority interest 0.2 0.2 46.6 94.0

Earnings per share 16 pence pence Basic earnings per ordinary share – continuing operations 8.2 9.0 – discontinued operations (0.3) 7.1 7.9 16.1 Diluted earnings per ordinary share – continuing operations 8.2 9.0 – discontinued operations (0.3) 7.0 7.9 16.0

52 FKI plc Consolidated balance sheet As at 31 March 2007

Year ended Year ended 31 March 31 March 2007 2006 Note £m £m Assets Non-current assets Property, plant and equipment 17 226.1 247.4 Goodwill 18 375.1 407.5 Intangible assets 19 1.6 2.1 Investments in associates 20 0.7 0.7 Other receivables 23 5.0 5.2 Deferred tax assets 31 46.6 62.5 Pension and other post-retirement benefit assets 33 9.6 7.5 Derivative financial assets 28 48.4 27.5 713.1 760.4 Current assets Inventories 21 191.8 182.7 Trade and other receivables 23 326.0 296.5 Cash and short-term deposits 24 125.5 237.1 Current tax recoverable 0.3 3.6 Derivative financial assets 28 3.2 0.6 646.8 720.5 Assets classified as held for sale 30 – 7.0 Total assets 1,359.9 1,487.9 Liabilities Non-current liabilities Interest bearing loans and borrowings 27 (462.5) (503.4) Trade and other payables 26 (5.7) (7.5) Provisions 29 (21.0) (21.1) Deferred tax liabilities 31 (35.1) (34.2) Pension and other post-retirement benefit obligations 33 (118.4) (163.5) Derivative financial liabilities 28 (19.6) (18.2) (662.3) (747.9) Current liabilities Interest bearing loans and borrowings 27 (23.4) (45.8) Trade and other payables 25 (350.4) (352.5) Provisions 29 (7.0) (6.4) Corporation tax and overseas tax (35.4) (65.4) Derivative financial liabilities 28 (1.5) (1.1) (417.7) (471.2) Liabilities directly associated with assets classified as held for sale 30 – (6.8) Total liabilities (1,080.0) (1,225.9) Net assets 279.9 262.0

53 FKI plc Consolidated balance sheet (continued) As at 31 March 2007

Year ended Year ended 31 March 31 March 2007 2006 Note £m £m Equity Share capital 34,36 58.8 58.4 Share premium account 36 159.1 156.4 Capital redemption reserve 36 2.0 2.0 Own shares 36 (2.4) (2.6) Share-based payments accrual 36 3.6 4.5 Exchange reserve 36 (9.7) 6.6 Hedging reserve 36 1.0 (0.2) Retained earnings 36 66.3 35.8 Equity attributable to equity holders of the parent 278.7 260.9 Minority interest 36 1.2 1.1 Total equity 36 279.9 262.0

These financial statements were approved by the Board of Directors on 15 June 2007 and signed on its behalf by: P Heiden – Director N Bamford – Director

54 FKI plc Consolidated balance sheet Consolidated cash flow statement For the year ended 31 March 2007

Year ended Year ended 31 March 31 March 2007 2006 Note £m £m Operating activities Cash flow from operating activities 38 38.6 122.6 Interest paid (41.1) (40.1) Interest received 4.6 3.8 Taxation paid (16.2) (17.0) Net cash (outflow)/inflow from operating activities (14.1) 69.3 Cash flow from investing activities Purchase of property, plant and equipment (33.6) (25.5) Purchase of intangible assets (0.7) (0.7) Proceeds from sale of property, plant and equipment 20.3 12.4 Acquisition of businesses net of cash acquired (6.0) (4.5) Taxation paid relating to disposal of businesses in prior year (19.6) – Proceeds from disposal of businesses 8.4 84.9 Net cash disposed with businesses – (1.8) Payment of deferred purchase consideration (0.4) (0.6) Net cash (outflow)/inflow from investing activities (31.6) 64.2 Cash flows from financing activities Received from sale of interest rate swaps – 23.6 Dividends paid (26.3) (26.3) Repayment of loans (43.2) (61.0) New loans 16.9 – Proceeds from issue of share capital 3.1 0.6 Net cash outflow from financing activities (49.5) (63.1) Net (decrease)/increase in cash and cash equivalents (95.2) 70.4 Cash and cash equivalents at beginning of the year 235.7 155.7 140.5 226.1 Effect of foreign exchange rate changes (15.2) 9.6 Cash and cash equivalents at the end of the year 24 125.3 235.7

55 FKI plc Consolidated statement of recognised income and expense For the year ended 31 March 2007

Year ended Year ended 31 March 31 March 2007 2006 £m £m Profit for the year 46.6 94.0 (Expenses)/income not recognised in the income statement: Actuarial gain on defined benefit pensions and other post-retirement benefits 21.8 8.8 Taxation on actuarial gain on defined benefit pensions and other post-retirement benefits (13.5) (7.4) Currency translation differences arising in the year (16.3) 11.4 Net gains/(losses) on cash flow hedges 1.6 (0.7) Taxation on net gains/(losses) on cash flow hedges (0.4) – Total recognised income and expense for the year 39.8 106.1 Adoption of IAS 32 and IAS 39 – (5.0) Total recognised income/(expense) 39.8 101.1 Attributable to: Equity holders of the parent 39.6 100.9 Minority interest 0.2 0.2 39.8 101.1

56 FKI plc

Notes to the consolidated financial statements

1) General information FKI plc is a public limited company incorporated and domiciled in England and Wales.The Company’s ordinary shares are traded on the London Stock Exchange.The consolidated financial statements comprise the Company and its subsidiaries (together referred to as the “Group”). The financial statements are presented in sterling and all values are rounded to the nearest hundred thousand pounds except where otherwise indicated. 2) Statement of compliance The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union and applied in accordance with the provisions of the Companies Act 1985. The Company has elected to prepare its parent company financial statements in accordance with UK GAAP and these are presented in a separate section of this report on pages 107 to 120. 3) Significant accounting policies (a) Basis of preparation The policies set out below have been consistently applied. The financial statements for the year ended 31 March 2007 have been prepared on the historic cost basis except for derivative financial instruments, financial instruments held for trading and available for sale financial assets which have been measured at fair value.The carrying values of recognised assets and liabilities that are hedged are adjusted to record changes in the fair values attributable to the risks that are being hedged. Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less estimated costs to sell. (b) Basis of consolidation The consolidated financial statements comprise the financial statements of FKI plc and its subsidiaries as at 31 March each year, together with the Group’s share of the results of associates using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The results of companies acquired or disposed of during the year are included from or up to the date on which control is transferred to or out of the Group respectively. (c) Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies.The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases.When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate. (d) Foreign currency translation Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair values were determined. Exchange gains and losses arising on foreign currency borrowings that provide a hedge against a net investment in a foreign entity are taken directly to reserves to the extent that they can be offset against the exchange differences arising on the equity investments.

57 FKI plc Notes to the consolidated financial statements 3) Significant accounting policies (continued) (d) Foreign currency translation (continued) On consolidation, the assets and liabilities, including goodwill and fair value adjustments, of overseas subsidiary and associated undertakings are translated into sterling at the rates of exchange ruling at the balance sheet date.The income and cash flows of overseas subsidiary and associated undertakings are translated into sterling at average rates of exchange prevailing during the year, with the year end adjustment to closing rates being taken to equity. Differences on exchange arising from the re-translation at year end rates of the net investment in overseas subsidiary and associated undertakings at the beginning of the year are taken to equity.All other exchange differences are dealt with in the determination of profit for the financial year. Exchange adjustments arising from the translation of the net investment in foreign operations and of related hedges are taken to translation reserves in equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement as part of the profit or loss on disposal.The Group has adopted the exemption allowing these cumulative translation differences to be reset to zero at the transition date (1 April 2004) to IFRS. (e) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and provision for any impairment in value. Depreciation is calculated on all assets, other than freehold land, at rates calculated to write off the cost, less estimated residual value, of each asset on a straight line basis over their estimated useful lives as follows: Freehold buildings 50 years Long leasehold property 50 years Short leasehold property over the lease term Plant and machinery – heavy production 15 years – other 10 years Office equipment 5 to 10 years Motor vehicles 3 to 5 years

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds, less costs of disposal, and the carrying amount of the asset and is recognised in the income statement. (f) Goodwill Goodwill on business acquisitions is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill on acquisitions after 31 March 2004 is not amortised and goodwill arising on acquisition before the date of transition to IFRS (which was 1 April 2004), is not amortised after that date. Goodwill existing at the date of transition to IFRS has been retained at the previous UK GAAP amounts as the Group has elected not to restate business combinations that occurred before the date of transition to IFRS. Goodwill is reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Negative goodwill arising on any acquisition is recognised directly in the income statement.

58 FKI plc Notes to the consolidated financial statements 3) Significant accounting policies (continued) (g) Intangible assets (i) Research and development costs Research costs are expensed as incurred. Development expenditure incurred on an individual project is capitalised when its future recoverability can reasonably be regarded as assured. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses.Any expenditure capitalised is amortised over the lesser of the useful life of the project or three years. (ii) Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Intangible assets including those arising from a business combination are amortised over their remaining useful lives. Amortisation is charged to the income statement on a straight line basis over the estimated useful life of the asset, unless such lives are indefinite.The estimated useful lives are as follows: Computer software – 3 years (h) Non-current assets held for sale Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use.This condition is regarded as having been met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. (i) Leases Assets obtained under leases and hire purchase contracts which result in the transfer to the Group of substantially all the risks and rewards of ownership (finance leases) are capitalised at the estimated present value of underlying lease payments and are depreciated over their expected useful lives.The capital elements of future lease obligations are recorded as liabilities whilst the finance elements of the rental payments are charged to the income statement over the period of the lease or hire purchase contract so as to produce a constant rate of charge on the outstanding balance of the net obligation in each period. Rentals paid under other leases (operating leases) are charged to the income statement on a straight line basis over the lease term. (j) Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value, less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money, and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

59 FKI plc Notes to the consolidated financial statements 3) Significant accounting policies (continued) (j) Impairment (continued) If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount.An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years.A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. An impairment loss in respect of goodwill is not reversed. (k) Inventories Inventories are stated at the lower of cost, on a first-in first-out basis, and net realisable value after making due allowance for any obsolete or slow moving inventory. Cost comprises direct materials and labour and an appropriate proportion of manufacturing overheads, based on normal levels of activity. Net realisable value represents the estimated selling price less all estimated costs of completion and the estimated costs necessary to make the sale. (l) Construction contracts Revenue and costs are recognised by reference to the stage of completion of the contract. Stage of completion is determined by the costs incurred to date to the extent that such costs represent progress made on the project. Cost comprises direct materials and labour and an appropriate proportion of manufacturing overheads based on normal levels of activity. The Group presents as an asset the gross amount due from construction contract customers, for all contracts in progress for which costs incurred plus recognised profits less provisions for foreseeable losses exceeds progress billings. Progress billings not yet paid by customers and retentions are included within trade and other receivables. The Group presents as a liability the gross amount due to construction contract customers for all contracts in progress for which progress billings exceed costs incurred plus recognised profits, less recognised foreseeable losses. (m) Provisions Provisions are recognised when the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (n) Pensions and other post-retirement benefits (i) Defined contribution pension schemes Pension costs for the Group’s defined contribution pension schemes are recognised within operating profit at an amount equal to the contributions payable to the scheme for the period.Any prepaid or outstanding contributions at the balance sheet date are recognised respectively as assets or liabilities within prepayments or accruals.

60 FKI plc Notes to the consolidated financial statements 3) Significant accounting policies (continued) (n) Pensions and other post-retirement benefits (continued) (ii) Defined benefit pension schemes and other post-retirement benefits Pension liabilities are measured at their present value in accordance with actuarial assumptions that are updated at each balance sheet date. Pension assets are measured at fair value.The pension liability or asset is recognised in the balance sheet. Pension costs for the Group’s defined benefit pension schemes and other post-retirement benefits are recognised as follows: (a) Within operating profit • The current service cost arising from employee service in the current period; • The prior service cost related to employee service in prior periods arising in the current period as a result of improvements to benefits; • Gains and losses arising on unanticipated settlements or curtailments where the item that gave rise to the settlement or curtailment is recognised within operating profit. (b)Within other finance cost or income • The interest cost on the liabilities, calculated by reference to the scheme liabilities and discount rate at the beginning of the period. • The expected return on assets, calculated by reference to the assets and their long-term expected rate of return at the beginning of the period; (c)Within the statement of recognised income and expense • On the scheme assets – the difference between the expected and actual return on assets; • On the scheme liabilities – (a) the differences between the actuarial assumptions and actual experience, and (b) the effect of changes in actuarial assumptions. (o) Share-based payment transactions Certain employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (“equity-settled transactions”). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted.The fair value is determined by an external valuation. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of FKI plc (“market conditions”). The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”).The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of awards at that date based on the best available estimate of the number of equity instruments that will ultimately vest. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

61 FKI plc Notes to the consolidated financial statements 3) Significant accounting policies (continued) (o) Share-based payment transactions (continued) Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share. The Group has an employee share incentive plan and an employee share trust for the granting of non-transferable options to executives and senior employees. Shares in the Group held by the employee share trust are presented in the balance sheet as a deduction from equity. The Group has taken advantage of the transitional provisions of IFRS 2 in respect of equity-settled awards and has applied IFRS 2 only to equity-settled awards granted after 7 November 2002 that had not vested on or before 1 April 2004. (p) Revenue Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts,VAT and other sales related taxes. Sales of goods are recognised when the significant risks and rewards of ownership have passed to the buyer. Revenue from construction contracts is recognised in accordance with the Group’s accounting policy on construction contracts. Revenue from services rendered is recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Revenue from services provided on a short-term basis is recognised when the service is complete. Interest income is recognised as the interest accrues (using the effective interest method that discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. (q) Derivative financial instruments and hedge accounting The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financial and investment activities.The Group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition they are stated at fair value.The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. The fair value of forward foreign exchange contracts is determined by reference to current forward exchange rates for contracts with similar maturity profiles.The fair value of interest rate and cross currency swap contracts is determined by reference to the present value of the estimated future cash flows. For the purpose of hedge accounting, hedges are classified as either fair value hedges where they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecasted transaction. In relation to fair value hedges (eg: interest rate swaps) which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in the income statement.Any gain or loss on the hedged item attributable to the hedged risk is recognised as an adjustment to the carrying amount of the hedged item and recognised in the income statement.Where the adjustment is to the carrying amount of a hedged interest-bearing financial instrument, the adjustment is amortised to the net profit and loss such that it is fully amortised by maturity.

62 FKI plc Notes to the consolidated financial statements 3) Significant accounting policies (continued) (q) Derivative financial instruments and hedge accounting (continued) In relation to cash flow hedges to hedge the exposure to variability in cash flows and which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly to equity and the ineffective portion is recognised in net profit or loss. When the hedged firm commitment results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For cash flow hedges that do not result in the recognition of an asset or a liability, the gains or losses that are recognised in equity are transferred to the income statement in the same period in which the hedged firm commitment affects the net profit and loss, for example when the future sale actually occurs. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting.At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year. (r) Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid, or recovered, using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised, using the liability method, on all temporary differences, subject to the exceptions noted below, at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax in respect of taxable or deductible temporary differences associated with investments in subsidiaries is not recognised where the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future or in the case of assets, taxable profit will be unavailable against which the temporary differences, can be utilised. Deferred tax assets are recognised for all deductible temporary differences, carried forward unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and carried forward unused tax assets and unused tax losses can be utilised. Deferred tax is measured at the tax rates that are expected to apply in the periods in which it is anticipated that the asset will be realised or the liability will be settled, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. (s) Investments All investments are initially recognised at cost, being the fair value of the consideration given and the costs of acquisition. After initial recognition, investments which are classified as held for trading or available for sale, are measured at fair value. Gains or losses on investments held for trading are recognised in income. Gains or losses on available for sale investments are recognised as a separate component of equity until the investment is sold or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the income statement. Investments classified as held to maturity are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any discount or premium on acquisition, over the period to maturity. For investments carried at amortised cost, gains and losses are recognised in the income statement when the investments are derecognised or impaired. The fair values of quoted investments are determined by reference to current bid prices. For investments for which there is no quoted market price, fair value is determined by reference either to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment.

63 FKI plc Notes to the consolidated financial statements 3) Significant accounting policies (continued) (t) Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in net profit or loss when the liabilities are derecognised or impaired, as well as through the amortisation process. (u) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a major qualifying asset, are capitalised as part of the cost of the asset if the costs are significant and a significant period of time is required to complete the asset. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the income statement in the period in which they are incurred. (v) Standards and interpretations not yet applied During the year, the IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements which are mandatory for the Group’s accounting periods beginning on or after 1 April 2007 or later periods but which the Group has not early adopted.The effective date quoted below relates to the annual period beginning on or after: International Accounting Standards Board (IAS/IFRSs)

Effective date Amendment to IAS 1: Presentation of financial statements – capital disclosures 1 January 2007 Amendment to IAS 23: Borrowing costs 1 January 2009 IFRS 7: Financial instruments – disclosures 1 January 2007 IFRS 8: Operating segments 1 January 2009

International Financial Reporting Interpretations Committee (IFRIC) IFRIC 8: Scope of IFRS 2 1 May 2006 IFRIC 9: Reassessment of embedded derivatives 1 June 2006 IFRIC 10: Interim financial reporting and impairment 1 November 2006 IFRIC 11: IFRS 2: Group and treasury share transactions 1 March 2007 IFRIC 12: Service concession arrangements 1 January 2008

The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements in the periods of initial application commencing on or after 1 April 2007.

64 FKI plc Notes to the consolidated financial statements 3) Significant accounting policies (continued) (w) Key sources of estimation uncertainty In applying the above accounting policies, management has made appropriate estimates and judgements in a number of areas.The key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are: Post-retirement benefits The determination of the pension and other post-retirement benefits cost and obligation is based on assumptions determined with independent actuarial advice.The assumptions include discount rate, inflation, pension and salary increases, expected return on scheme assets, mortality and other demographic assumptions. Impairment of goodwill Determining whether goodwill is 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 an estimate of the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate present value. Deferred income tax Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular, significant judgement is used when assessing the extent to which deferred tax assets should be recognised which is dependent on the generation of sufficient future taxable profits.The Group recognises deferred tax assets where it is more likely than not that the benefit will be realised. 4) Revenue Revenue of continuing operations disclosed in the income statement is analysed as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Sale of goods 917.0 862.4 Rendering of services 72.0 61.5 Construction contracts 341.9 349.5 1,330.9 1,273.4

5) Segment information The primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services provided. Secondary segment information is reported geographically. For management purposes the Group is organised into four operating groups: Lifting Products and Services has a capability in design, manufacture, distribution and servicing of lifting and other equipment for customers in the industrial, mining, energy, construction, marine and fishing markets. Energy Technology is a supplier of electrical plant and systems to a wide variety of customers in industry, power generation and oil and gas supply. FKI Logistex is a supplier of automated material handling systems to warehouse and retail distribution, freight and parcel, airport baggage handling and manufacturing sectors around the world. Hardware has extensive capability in the design, manufacture and distribution of window and door hardware, furniture hardware, ergonomic equipment and castors for original equipment manufacturers, distributors and retailers. Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment revenue and operating profit includes trading between business segments which is eliminated on consolidation. Inter segment sales are not material in relation to total Group revenue.

65 FKI plc Notes to the consolidated financial statements 5) Segment information (continued) Business segments An analysis of revenue, operating profit before special items from continuing operations and certain assets and liabilities information by operating group is given below. The contribution from acquisitions for the year ended 31 March 2007 was revenue of £14.5 million and operating profit of £2.6 million.The acquisition related to Energy Technology.For the year ended 31 March 2006 the contribution from acquisitions which related to Lifting Products and Services was revenue £9.4 million and operating profit £1.1 million. (a) Revenue

Year ended Year ended 31 March 31 March 2007 2006 £m £m Lifting Products and Services 434.2 393.3 Energy Technology 344.4 275.0 FKI Logistex 372.6 403.5 Hardware 179.7 201.6 Continuing operations 1,330.9 1,273.4 Discontinued operations 3.0 65.4 Total operations 1,333.9 1,338.8

(b) Operating profit before special items

Year ended Year ended 31 March 31 March 2007 2006 £m £m Lifting Products and Services 57.7 45.0 Energy Technology 24.2 21.5 FKI Logistex 14.2 14.6 Hardware 16.7 27.8 Unallocated corporate costs (12.2) (8.9) Operating profit before special items 100.6 100.0 Loss on sale of operations (2.7) (4.3) Reorganisation, closures and impairments (12.0) (0.2) Profit on sale of property 5.2 4.1 Profit from continuing operations before taxation and finance costs 91.1 99.6 Share of post tax results of associates 0.2 0.3 Net finance (costs)/income (26.0) (29.4) Taxation (17.1) (17.8) Discontinued operations (1.6) 41.3 Profit for the year 46.6 94.0

The share of post tax results of associates in both the years ended 31 March 2007 and 31 March 2006 relate to Energy Technology.

66 FKI plc Notes to the consolidated financial statements 5) Segment information (continued) (b) Operating profit before special items (continued) In the year ended 31 March 2007 reorganisation, closures and impairments were incurred in FKI Logistex of £6.2 million and Hardware of £5.8 million. In the year ended 31 March 2006 such costs were incurred in Hardware of £3.4 million offset by credits in Lifting Products and Services of £3.0 million and Energy Technology of £0.2 million. Profits on sale of property arose in the year ended 31 March 2007 in Corporate of £5.3 million offset by losses on sale in FKI Logistex of £0.1 million. In the year ended 31 March 2006 profits on the sale of property arose in Lifting Products and Services of £4.7 million and Hardware of £0.1 million offset by losses on sale in Energy Technology of £0.4 million, FKI Logistex of £0.2 million and Corporate of £0.1 million. The loss on sale of operations in the year ended 31 March 2007 was incurred in Lifting Products and Services of £2.4 million and Hardware of £1.4 million offset by a credit of £1.1 million in Corporate relating to prior years’ disposals. In the year ended 31 March 2006 the loss on sale of operations was incurred in FKI Logistex. (c) Segment assets and liabilities

Year ended Year ended Year ended Year ended 31 March 31 March 31 March 31 March 2007 2007 2006 2006 Assets Liabilities Assets Liabilities £m £m £m £m Lifting Products and Services 229.4 (78.7) 232.1 (72.8) Energy Technology 266.9 (105.1) 227.8 (85.1) FKI Logistex 510.4 (109.5) 550.7 (127.4) Hardware 111.6 (26.2) 122.1 (29.4) Reporting segments 1,118.3 (319.5) 1,132.7 (314.7) Corporate 6.8 (52.0) 8.4 (57.7) Discontinued including held for sale – (7.0) 7.0 (13.2) 1,125.1 (378.5) 1,148.1 (385.6)

The investment in associates in both the years ended 31 March 2007 and 31 March 2006 related to Energy Technology. (d) Other segment information An analysis of total additions to tangible fixed assets and intangible fixed assets (“capital expenditure”) and depreciation of tangible fixed assets and amortisation of intangible assets (“depreciation”) is provided below.

Year ended Year ended 31 March Year ended 31 March Year ended 2007 31 March 2006 31 March Capital 2007 Capital 2006 expenditure Depreciation expenditure Depreciation £m £m £m £m Lifting Products and Services 11.8 9.7 8.5 10.1 Energy Technology 8.2 6.0 8.2 7.1 FKI Logistex 4.3 4.0 3.2 4.6 Hardware 7.8 5.5 4.5 7.4 Reporting segments 32.1 25.2 24.4 29.2 Corporate 0.5 0.7 0.6 0.9 Discontinued operations ––1.2 1.1 32.6 25.9 26.2 31.2

67 FKI plc Notes to the consolidated financial statements 5) Segment information (continued) (d) Other segment information (continued) Geographical segments The following tables present revenue, segment assets and capital expenditure on tangible fixed assets and intangible assets by geographical segment. Sales to external customers are based on the geographical location of customers. Segment assets and capital expenditure are determined by the location of the Group’s assets. (a) Revenue by geographical location of customer

Year ended Year ended 31 March 31 March 2007 2006 £m £m United Kingdom 183.7 161.9 Rest of Europe 308.5 255.4 North America 683.5 716.2 Rest of the World 155.2 139.9 Continuing operations 1,330.9 1,273.4 Discontinued operations 3.0 65.4 1,333.9 1,338.8

(b) Segment assets and total capital expenditure on tangible and intangible fixed assets

Year ended Year ended Year ended Year ended 31 March 31 March 31 March 31 March 2007 2007 2006 2006 Segment Capital Segment Capital assets expenditure assets expenditure £m £m £m £m United Kingdom 246.4 6.8 232.8 6.1 Rest of Europe 306.4 8.3 281.9 7.4 North America 538.9 15.0 597.6 10.6 Rest of the World 33.4 2.5 28.8 0.9 Continuing operations 1,125.1 32.6 1,141.1 25.0 Discontinued operations – – 7.0 1.2 1,125.1 32.6 1,148.1 26.2

68 FKI plc Notes to the consolidated financial statements 5) Segment information (continued) (b) Segment assets and total capital expenditure on tangible and intangible fixed assets (continued) Reconciliation of segment operating assets to total assets and segment operating liabilities to total liabilities:

Year ended Year ended Year ended Year ended 31 March 31 March 31 March 31 March 2007 2007 2006 2006 Assets Liabilities Assets Liabilities £m£m£m£m Segment assets/(liabilities) 1,125.1 (378.5) 1,148.1 (385.6) Investments in associates 0.7 – 0.7 – Non operating deferred income – (0.1) – (0.1) Corporation tax and overseas tax 0.3 (35.4) 3.6 (65.4) Deferred tax 46.6 (35.1) 62.5 (34.2) Interest receivable/(payable) 0.5 (5.5) 0.3 (7.2) Pension and other post-retirement benefits 9.6 (118.4) 7.5 (163.5) Cash and short-term deposits 125.5 – 237.1 – Derivative financial assets/(liabilities) 51.6 (21.1) 28.1 (19.3) Interest bearing loans and borrowings – (485.9) – (549.2) Held for sale ––– (1.4) Total assets/(liabilities) 1,359.9 (1,080.0) 1,487.9 (1,225.9)

The investment in associates in both years ended 31 March 2007 and 31 March 2006 related to segment assets in Energy Technology. 6) Operating expenses – continuing operations

Year ended Year ended 31 March 31 March 2007 2006 £m £m Distribution and sales costs 104.7 100.1 Administrative costs 100.7 94.6 205.4 194.7

7) Profit for the year This is stated after charging:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Research and development expense 4.7 7.5 Depreciation of property, plant and equipment 25.0 29.9 Amortisation of intangible assets 0.9 1.3 Operating lease rentals 12.1 11.6

69 FKI plc Notes to the consolidated financial statements 8) Auditors’ remuneration

Year ended Year ended 31 March 31 March 2007 2006 £m £m Audit of the Company annual financial statements 0.5 0.5 Audit of the Company’s subsidiaries – pursuant to legislation 1.3 1.3 1.8 1.8 Other services – audit of the Group pension schemes 0.1 0.1 – taxation services 0.1 0.1 – other services pursuant to legislation – 0.4 – other 0.3 – 0.5 0.6

All fees payable to the Company’s auditors have been charged to the income statement, except for those in relation to associated pension schemes which are borne by the respective schemes. 9) Staff costs The average number of persons (including directors) employed by the Group in each of the following categories during the year was:

Year ended Year ended 31 March 31 March 2007 2006 Number Number Production 9,558 9,599 Distribution and sales 1,179 1,473 Administration and management 1,398 1,335 12,135 12,407

Their aggregate remuneration comprised:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Wages and salaries 299.0 313.4 Social security and other allied costs 34.7 36.3 Pension costs – defined benefit 10.5 10.5 – defined contribution 8.3 7.8 Other post-retirement benefits – (4.3) 352.5 363.7

Included in wages and salaries is a total expense of share-based payments of £1.4 million (2006: £1.4 million) all of which arises from transactions accounted for as equity settled share-based payment transactions. Further information relating to pensions and other post-retirement benefits are included in note 33. The remuneration of the Directors is disclosed in the Remuneration report.

70 FKI plc Notes to the consolidated financial statements 10) Loss on sale of operations – continuing The pre-tax loss on sale of operations can be analysed as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Loss before tax 3.2 3.8 Exchange previously written off against reserves 0.6 0.5 Relating to prior years’ disposals (1.1) – 2.7 4.3

The operations sold comprised the chain manufacturing businesses in the US and UK and the distribution activities of Certex Equatorial Guinea which were part of Lifting Products and Services. In addition, part of Wright Products was sold which was a part of Hardware. In the year ended 31 March 2006 the operation sold was White Systems which was part of FKI Logistex. 11) Reorganisation, closures and impairments

Year ended Year ended 31 March 31 March 2007 2006 £m £m Reorganisation and closure costs 12.0 (1.0) Impairment loss – 4.3 Reversal of impairment – (3.1) 12.0 0.2

The reorganisation costs in the year ended 31 March 2007 relate to the closure and rationalisation of certain continuing operations within Hardware of £5.8 million and FKI Logistex of £6.2 million.The £1.0 million credit of reorganisation costs in the year ended 31 March 2006 related to the release of provisions made in previous years no longer required. The impairment loss during the year ended 31 March 2006 of £4.3 million arose from reducing the carrying value of assets of a business operation within Hardware.The impairment review was performed as a result of changes in the competitive environment.The recoverable amount of the business operation based on its value in use and a discount rate of 9.2% was applied in the calculation. The impairment loss was allocated to reduce the carrying amount of assets of the business operation pro rata on the basis of the carrying amount of each asset as follows:

Year ended 31 March 2006 £m Property, plant and equipment 2.4 Inventory 1.9 4.3

The reversal of the impairment loss during the year ended 31 March 2006 of £3.1 million arose from a business operation in Lifting Products and Services.The initial impairment was in the year ended 31 March 2004. The reversal arose because of changes in market conditions.The recoverable amount of the business operation is based on its value in use and a discount rate of 9.2% was applied in the calculation.

71 FKI plc Notes to the consolidated financial statements 12) Finance (costs)/income – continuing operations

Year ended Year ended 31 March 31 March 2007 2006 £m £m Interest payable on: – bank loans and overdrafts (3.7) (3.9) – other loans (28.1) (28.5) – finance lease charges (0.2) (0.2) Net finance costs on pension schemes and other post-retirement benefits (3.6) (1.2) Foreign exchange losses (1.2) (0.4) Total finance costs (36.8) (34.2) Interest receivable 4.8 3.5 Fair value gains on financial instruments 6.0 1.3 Total finance income 10.8 4.8

13) Taxation

Year ended Year ended 31 March 31 March 2007 2006 £m £m Current tax – UK 5.1 8.0 Double taxation relief (5.1) (8.0) Current tax – overseas 15.5 17.2 Adjustments in respect of prior years: – UK (0.4) – – overseas (0.8) – Total current taxation 14.3 17.2 Deferred tax – UK – – Deferred tax – overseas 2.8 0.8 Adjustments in respect of prior years: – overseas – (0.2) Total taxation on continuing operations 17.1 17.8

72 FKI plc Notes to the consolidated financial statements 13) Taxation (continued) The tax charge above includes the following with regard to reorganisations, closures and impairments and profit/(loss) on sale of properties and loss on sale of operations classified as special items within continuing profit.

Year ended Year ended 31 March 31 March 2007 2006 £m £m (Credit)/charge (1.4) (0.1)

In addition to the amounts charged to the income statement, deferred tax on actuarial gains and losses on defined benefit pensions and other post-retirement benefits and hedged forward foreign exchange contracts of £13.5 million and £0.4 million respectively, (2006: charge of £7.4 million) has been charged to equity. Translation differences on long-term foreign currency loans have been taken to reserves together with a tax credit thereon of £nil (2006: £nil). The tax expense in the income statement for the year is lower (2006: higher) than the standard rate of corporation tax in the UK of 30% (2006: 30%) as explained below:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Profit from continuing operations before taxation 65.3 70.5 (Loss)/profit before taxation from discontinued operations (1.6) 8.1 Profit/(loss) before taxation on disposal of discontinued operations – 56.5 63.7 135.1 Taxation on above at the UK corporation tax rate of 30% (2006: 30%) 19.1 40.5 Effects of: – non deductible expenses 1.3 0.5 – (lower)/higher tax rates on overseas earnings (2.1) 0.3 – adjustment to tax charge in respect of prior years (1.2) (0.2) Total tax charge for the year 17.1 41.1

The total tax charge for the year is analysed as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Taxation on continuing operations 17.1 17.8 Taxation on results of discontinued operations in the current year – 3.7 Taxation on the (loss)/gain on disposal and closure of businesses included in discontinued operations – 19.6 17.1 41.1

73 FKI plc Notes to the consolidated financial statements 14) Discontinued operations

Year ended Year ended 31 March 31 March 2007 2006 £m £m Post tax (losses)/profits of discontinued operations (0.4) 4.4 Post tax (loss)/gain on disposal of discontinued operations (1.2) 36.9 (1.6) 41.3

The results of the discontinued operations which have been included in the consolidated income statement were as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Revenue 3.0 65.4 Expenses (3.4) (57.4) Finance income/(costs) – 0.1 (Loss)/profit before taxation (0.4) 8.1 Taxation – (3.7) (Loss)/profit after taxation (0.4) 4.4

The post tax (loss)/gain on the disposal and closure of businesses can be analysed as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m (Loss)/gain before taxation (1.2) 54.3 Taxation – (19.6) Exchange previously written off against reserves – 2.2 (1.2) 36.9

The net cash flows attributable to discontinued operations are as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Operating cash flows 0.1 3.7 Investing cash flows – (0.7) Financing cash flows – – Net cash inflow 0.1 3.0

74 FKI plc Notes to the consolidated financial statements 14) Discontinued operations (continued) The major classes of assets and liabilities comprising the operation classified as held for sale are as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Property, plant and equipment – 0.2 Inventories – 2.7 Trade and other receivables – 4.1 Assets classified as held for sale – 7.0 Trade and other payables – (5.4) Interest bearing loans and borrowings – (1.4) Liabilities associated with assets classified as held for sale – (6.8) Net assets of disposal group held for sale – 0.2

The business held for sale at 31 March 2006 related to Certex Italy SpA (part of Lifting Products and Services) which was sold on 28 July 2006. 15) Dividends The amounts recognised as distributions to equity holders in the year were:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Final dividend for the year ended 31 March 2006 of 3p (2005: 3p) per ordinary share 17.5 17.5 Interim dividend for the year ended 31 March 2007 of 1.5p (2006: 1.5p) per ordinary share 8.8 8.8 26.3 26.3

The proposed final dividend is subject to approval by the shareholders at the Annual General Meeting and in accordance with IFRS has not been included as a liability as at 31 March 2007.This proposed final dividend will be paid on 5 October 2007 to ordinary shareholders on the register at 7 September 2007.

Year ended Year ended 31 March 31 March 2007 2006 £m £m Proposed final dividend for the year ended 31 March 2007 of 3p (2006: 3p) per ordinary share 17.6 17.5

75 FKI plc Notes to the consolidated financial statements 16) Earnings per share The basic, diluted and adjusted earnings per share are set out below:

Year ended Year ended 31 March 31 March 2007 2006 pence pence Basic earnings per ordinary share – continuing operations 8.2 9.0 – discontinued operations (0.3) 7.1 7.9 16.1 Diluted earnings per ordinary share – continuing operations 8.2 9.0 – discontinued operations (0.3) 7.0 7.9 16.0 Adjusted earnings per ordinary share 8.7 9.7 Diluted adjusted earnings per ordinary share 8.7 9.6

Basic earnings per ordinary share and diluted earnings per ordinary share are calculated by dividing the profit attributable to the equity holders of the Company for the year by respectively the basic weighted ordinary shares in issue during the year or diluted weighted average ordinary shares in issue during the year. Adjusted earnings per share, which provides a better understanding of the underlying performance of the Group, is calculated by dividing the operating profit/(loss) for the year before special items, (profit/(loss) on sale of businesses, reorganisations, closures and impairments and profit/(loss) on property sales), profit/(loss) on disposal of discontinued operations, fair value gains/(losses) on financial instruments and exchange gains/(losses) included within finance costs and income and taxation related to those items by the weighted average number of shares in issue during the period. The profit/(loss) for the period until disposal of discontinued operations is included as part of the profit for the year. Profit attributable to minority interest is excluded from this calculation.

76 FKI plc Notes to the consolidated financial statements 16) Earnings per share (continued) The calculation of the basic, diluted and adjusted earnings per share is based on the following: (a) Earnings

Year ended Year ended Year ended Year ended 31 March 31 March 31 March 31 March 2007 2007 2006 2006 £m pence £m pence Profit attributable to the equity holders of the Company for the year: – continuing operations 48.0 8.2 52.5 9.0 – discontinued operations (1.6) (0.3) 41.3 7.1 – Total operations 46.4 7.9 93.8 16.1 Adjustments: – Fair value gains on financial instruments included in net finance costs (6.0) (1.0) (1.3) (0.2) – Foreign exchange losses included in net finance costs 1.2 0.2 0.4 0.1 Add back special items: – continuing – loss on sale of businesses 2.7 0.5 4.3 0.7 – continuing – reorganisations, closures and impairments 12.0 2.0 0.2 – – continuing – profit on sale of property (5.2) (0.9) (4.1) (0.7) – tax on special items (1.4) (0.2) (0.1) – Discontinued loss/(profit) on disposal of businesses including tax 1.2 0.2 (36.9) (6.3) Adjusted earnings for the year 50.9 8.7 56.3 9.7

(b) Number of shares

Year ended Year ended 31 March 31 March 2007 2006 Number Number 000s 000s Weighted average number of ordinary shares for the purposes of basic and adjusted earnings per share 583,559 582,714 Effect of dilution on exercise of outstanding share options 2,045 3,521 Weighted average number of ordinary shares for the purpose of diluted earnings per share 585,604 586,235

The weighted average number of shares in issue excludes shares held in trust under the Long Term Incentive Plan until such time as they vest unconditionally.

77 FKI plc Notes to the consolidated financial statements 17) Property, plant and equipment

Long Short Plant, Freehold leasehold leasehold equipment property property property and vehicles Total £m £m £m £m £m Cost: At 1 April 2005 202.4 11.7 6.5 508.7 729.3 Exchange 9.3 0.3 0.2 25.3 35.1 Acquisition of subsidiaries 0.7 – 1.2 1.0 2.9 Disposal of subsidiaries – – (2.5) (13.5) (16.0) Transferred to assets held for sale (0.2) – – (2.5) (2.7) Additions 3.7 – 0.1 21.7 25.5 Disposals (21.2) (0.3) – (26.6) (48.1) Reclassifications 1.2 – – (1.2) – At 31 March 2006 195.9 11.7 5.5 512.9 726.0 Exchange (12.2) (0.3) (0.1) (32.2) (44.8) Acquisition of subsidiaries – – – 0.2 0.2 Disposal of subsidiaries (1.9) – – (25.9) (27.8) Additions 3.5 0.3 – 28.1 31.9 Disposals (9.6) (1.4) (0.2) (31.7) (42.9) At 31 March 2007 175.7 10.3 5.2 451.4 642.6 Depreciation and impairment At 1 April 2005 (68.2) (1.1) (5.6) (398.7) (473.6) Exchange (3.9) – (0.1) (20.1) (24.1) Disposal of subsidiaries – – 2.0 9.7 11.7 Transferred to assets held for sale 0.2 – – 2.3 2.5 Charge for the year (4.4) (0.3) (0.1) (25.1) (29.9) Disposals 9.1 0.1 – 24.9 34.1 Impairment loss (1.5) – – (0.9) (2.4) Reversal of impairment 2.5 – – 0.6 3.1 Reclassifications (0.8) – – 0.8 – At 31 March 2006 (67.0) (1.3) (3.8) (406.5) (478.6) Exchange 5.7 – 0.1 26.1 31.9 Disposal of subsidiaries 0.6 – – 23.1 23.7 Charge for the year (3.6) (0.2) (0.1) (21.1) (25.0) Impairment (0.6) – – (1.5) (2.1) Disposals 2.3 0.3 0.1 30.9 33.6 At 31 March 2007 (62.6) (1.2) (3.7) (349.0) (416.5) Net book value at 31 March 2007 113.1 9.1 1.5 102.4 226.1 Net book value at 31 March 2006 128.9 10.4 1.7 106.4 247.4

78 FKI plc Notes to the consolidated financial statements 17) Property, plant and equipment (continued) The impairment in the year ended 31 March 2007 relates to the closure and restructuring of certain continuing operations and the associated write down of certain property, plant and equipment.This charge is included in special items as part of the £12.0 million reorganisation and closure costs. Details of the impairment loss and reversal of impairment in the year ended 31 March 2006 are given in note 11. The net book value of the Group’s property, plant and equipment includes £7.6 million (2006: £8.0 million) in respect of assets held under finance leases and hire purchase contracts. An analysis of the cost of freehold property between land and buildings is shown below:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Land 35.4 38.3 Buildings 140.3 157.6 Cost 175.7 195.9

18) Goodwill

Total £m Cost: At 1 April 2005 381.6 Exchange adjustments 26.2 Disposal of subsidiaries 2.8 Transferred to assets held for sale (3.1) At 31 March 2006 407.5 Exchange adjustments (37.3) Acquisition of subsidiaries 4.9 At 31 March 2007 375.1 Impairment losses At 1 April 2005, 31 March 2006 and 31 March 2007 – Net book value at 31 March 2007 375.1 Net book value at 31 March 2006 407.5

Goodwill acquired in a business combination is allocated to cash-generating units.A summary of the net book value of goodwill by business segment is as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Lifting Products and Services 3.9 4.0 Energy Technology 6.0 1.2 FKI Logistex 345.7 380.3 Hardware 19.5 22.0 375.1 407.5

79 FKI plc Notes to the consolidated financial statements 18) Goodwill (continued) The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. In assessing whether goodwill has been impaired, the Group compares the carrying value (net assets plus goodwill) of the cash-generating units (“CGU”) with their recoverable amounts. In all cases the recoverable amounts have been determined to be the CGUs’ value in use and not their fair value, less costs to sell.Value in use is derived from the most recent financial plans for the next three years approved by the Board and extrapolated cash flows thereafter.The key assumptions are the risk adjusted discount rate, the long-term growth rate and expected changes to selling prices and direct costs which are based on past experience, expectations of future changes in the market, inflation and the benefits of identified productivity and cost saving initiatives.The applied pre-tax discount rate, based on a risk adjusted Group weighted average cost of capital (WACC), is 8.9% (2006: 9.2%) for all CGUs, except Logistex where 11% (2006: 9.2%) has been applied.The applied long-term growth rates are within the range of external industry growth rates at 1.5–3% (2006: 1.5–3%). With regard to the assessment of the value in use of the Lifting Products and Services, Hardware and Energy Technology CGUs, management believes that no reasonably possible change in the above key assumptions would cause the carrying value of any unit to exceed the recoverable amount. For the Logistex CGU, the assessment of recoverable amount exceeds the carrying amount of goodwill and operating assets by £49 million (2006: £167 million) . It is estimated that an increase in the discount rate of 1% to 12% or the realisation of less than 76% of the benefits of the productivity and cost saving initiatives included in the three year plan period would give a value in use equal to the carrying amount. Management believes that no other reasonably possible change in key assumptions would give a value in use equal to the carrying amount. 19) Intangible assets

Computer software £m Cost: At 1 April 2005 12.9 Exchange adjustments 0.4 Additions 0.7 Disposals (0.6) Disposal of subsidiaries (0.2) At 31 March 2006 13.2 Exchange adjustments (0.5) Additions 0.7 Disposals (1.0) At 31 March 2007 12.4 Amortisation At 1 April 2005 (9.9) Exchange adjustments (0.2) Disposals 0.3 Amortisation for the year (1.3) At 31 March 2006 (11.1) Exchange adjustments 0.4 Disposals 0.8 Amortisation for the year (0.9) At 31 March 2007 (10.8) Net book value at 31 March 2007 1.6 Net book value at 31 March 2006 2.1

80 FKI plc Notes to the consolidated financial statements 20) Investment in associates The Group has a 26% interest in Mediterranean Power Electric Company Limited which manufactures electrical distribution switchgear in Malta.

£m At 1 April 2006 0.7 Share of post tax profits 0.2 Dividends (0.2) At 31 March 2007 0.7 At 1 April 2005 0.6 Share of post tax profits 0.3 Dividends (0.2) At 31 March 2006 0.7

21) Inventories

Year ended Year ended 31 March 31 March 2007 2006 £m £m Raw materials and consumables 57.2 59.2 Work in progress 75.7 64.0 Finished goods 81.8 74.4 214.7 197.6 Payments on account (22.9) (14.9) 191.8 182.7 Write down of inventories 2.4 1.7 Write down of inventories relating to impairment loss (note 11) – 1.9 Reversal of write down of inventories (0.2) (0.4) Inventories pledged as security – –

22) Construction contracts

Year ended Year ended 31 March 31 March 2007 2006 £m £m Contracts in progress at the balance sheet date Contract costs incurred plus recognised profits less recognised losses to date 641.7 762.2 Less progress billings (583.3) (739.3) 58.4 22.9 Amounts due from construction contract customers included in trade and other receivables 84.2 53.1 Amounts due to construction contract customers included in trade and other payables (25.8) (30.2) 58.4 22.9

81 FKI plc Notes to the consolidated financial statements 23) Trade and other receivables

Year ended Year ended 31 March 31 March 2007 2006 £m £m Current assets Trade receivables 214.4 211.6 Due from construction contract customers (note 22) 84.2 53.1 Other receivables 14.3 20.0 Prepayments and accrued income 13.1 11.8 326.0 296.5 Non current assets Other receivables 5.0 5.2

24) Cash and short-term deposits

Year ended Year ended 31 March 31 March 2007 2006 £m £m Cash at bank and in hand 73.3 32.3 Short-term deposits 52.2 204.8 125.5 237.1

For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise the following:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Cash at bank and in hand 73.3 32.3 Short-term deposits 52.2 204.8 Bank overdrafts (0.2) – 125.3 237.1 Bank overdrafts net of cash included within assets and liabilities held for sale – (1.4) 125.3 235.7

The Group’s Guernsey based captive insurance company is required to maintain a level of assets in support of the insurance business underwritten on behalf of the Group.At 31 March 2007 this amounted to £30.0 million (2006: £35.2 million) of cash and short-term deposits. Until such time as alternative arrangements are in place the £30.0 million remains assigned to the captive insurance company.

82 FKI plc Notes to the consolidated financial statements 25) Trade and other payables – current

Year ended Year ended 31 March 31 March 2007 2006 £m £m Trade payables 211.3 199.9 Payments received on account 4.8 6.5 Amounts due to construction contract customers (note 22) 25.8 30.2 Other payables 37.0 36.3 Other taxes and social security 11.8 9.8 Accruals and deferred income 59.7 69.8 350.4 352.5

26) Trade and other payables – non-current

Year ended Year ended 31 March 31 March 2007 2006 £m £m Other payables 3.0 4.2 Accruals and deferred income 2.7 3.3 5.7 7.5

27) Interest-bearing loans and borrowings This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. Details of the Group’s exposure to interest rate, foreign currency and liquidity risk are included in note 28.

Non-current Current Total 31 March 31 March 31 March 31 March 31 March 31 March 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m Euro 600 million guaranteed Eurobond 417.2 442.2 – – 417.2 442.2 Guaranteed bank borrowings – – 12.7 – 12.7 – Guaranteed US private placement loan notes 40.8 56.2 8.9 43.8 49.7 100.0 Bank loans and overdrafts 0.5 0.2 1.0 2.0 1.5 2.2 Other borrowings 0.9 0.8 – 0.5 0.9 1.3 Obligations under finance leases 3.1 4.0 0.8 0.9 3.9 4.9 462.5 503.4 23.4 47.2 485.9 550.6

The March 2006 current total figure of £47.2 million includes £1.4 million classified as liabilities held for sale and £45.8 million classified as current liabilities on the face of the balance sheet. The Euro 600 million guaranteed Eurobond matures on 22 February 2010 and bears interest at 6.625%. Costs incurred in issuing these bonds are amortised over the ten year life of the bond.The remaining unamortised issue costs at 31 March 2007 are £1.7 million (2006: £2.2 million).The Company has transacted a number of cross-currency swaps and interest rate swaps to synthetically alter the currency and interest rate obligations of Euro 576 million out of the Euro 600 million obligation.These cross-currency and interest rate swaps are reported as derivative financial instruments.

83 FKI plc Notes to the consolidated financial statements 27) Interest-bearing loans and borrowings (continued) The Eurobond issue is guaranteed by FKI Engineering Limited (formerly named FKI Engineering PLC) and FKI Industries Inc.At 31 March 2007 FKI Engineering Limited, whose statutory accounts have been prepared under UK GAAP, had gross assets of £1,683.8 million (2006: £1,724.6 million), net assets of £1,206.6 million (2006: £1,228.0 million) and a profit after tax of £68.6 million for the year then ended (2006: £82.0 million). At 31 March 2007 FKI Industries Inc., whose unaudited special purpose financial statements have been prepared under US GAAP, had gross assets of US Dollar 447.5 million (2006: US Dollar 537.3 million), a net liabilities of US Dollar 166.0 million (2006: US Dollar 204.5 million) and net profit of US Dollar 23.7 million for the year then ended (2006: US Dollar 74.2 million).FKI plc has represented that it will continue to provide any necessary funding and liquidity to enable FKI Industries Inc. to satisfy its obligations, including repayment of third party borrowings. At 31 March 2007 the guaranteed bank borrowings of US Dollar 25.0 million (2006: nil) were drawn under the Company’s £150.0 million syndicated multi-currency revolving credit facility maturing on 26 July 2007, being guaranteed by the Company’s subsidiaries FKI Engineering Limited and FKI Industries Inc. Drawdowns under this facility bear interest at LIBOR plus a margin ranging between 0.5% and 0.7% depending upon the level of the Company’s debt. On 5 June 2007 the Company entered into a commitment with a number of relationship banks to provide a £120 million revolving credit facility in replacement of the existing £150 million revolving credit facility that matures on 26 July 2007.This new £120 million facility, which runs until 1 April 2009, will provide working capital funding during a phase when the Company’s operational performance is expected to benefit from strengthening end-markets and further strategic re-alignment of the portfolio. It is expected that this will lead to improved financial metrics allowing the Company to subsequently refinance its maturing debt obligations in a cost-effective manner. The terms and conditions under the new £120 million facility are very similar to the previous facility, but with some additional headroom under the financial covenants. The US Dollar 97.5 million (2006: US Dollar 173.5 million) guaranteed US private placement loan notes are issued by the Company’s subsidiary FKI Industries Inc. and guaranteed by the Company.The interest rates and maturities on these loan notes are shown below. US Dollar 17.5 million (2006: US Dollar 10 million) of this debt obligation has been swapped into other currencies.These cross-currency and interest rate swaps are reported as derivative financial instruments.

2007 2006 £m £m US Dollar 66 million 6.98% loan notes maturing 1 April 2006 – 38.0 US Dollar 10 million 8.27% loan notes maturing 21 October 2006 – 5.8 US Dollar 17.5 million 7.1% loan notes maturing 10 October 2007 8.9 10.1 US Dollar 25 million 7.37% loan notes maturing 1 April 2011 12.7 14.4 US Dollar 55 million 7.75% loan notes maturing 1 April 2016 28.1 31.7 As at 31 March 49.7 100.0

Bank loans and overdrafts are at floating interest rates. Certain of the Company’s bank overdrafts are netted off against cash for Group purposes in accordance with the right of set off contained in the banking agreements. Other loans amounting to £1.3 million (2006: £0.4 million) are secured by fixed and floating charges on a subsidiary Company’s assets.

84 FKI plc Notes to the consolidated financial statements 27) Interest-bearing loans and borrowings (continued)

2007 2006 Fixed rate Floating rate Total Fixed rate Floating rate Total £m£m£m£m£m£m The borrowings are repayable as follows: On demand or within one year (8.9) (14.5) (23.4) (38.5) (8.7) (47.2) In the second year – (2.3) (2.3) (10.1) (0.8) (10.9) In the third year (44.4) (373.7) (418.1) – (2.3) (2.3) In the fourth year – (0.1) (0.1) (60.9) (381.4) (442.3) In the fifth year (12.8) (0.1) (12.9) – (0.9) (0.9) After five years (28.9) (0.2) (29.1) (47.0) – (47.0) (95.0) (390.9) (485.9) (156.5) (394.1) (550.6) Less repayable within one year 8.9 14.5 23.4 38.5 8.7 47.2 Amount repayable in more than one year (86.1) (376.4) (462.5) (118.0) (385.4) (503.4)

28) Derivative financial instruments

31 March 2007 31 March 2006 Net Net Derivative Derivative derivative Derivative Derivative derivative financial financial financial financial financial financial assets liabilities instruments assets liabilities instruments £m £m £m £m £m £m Derivative financial instruments – non-current Cash flow hedges – (0.4) (0.4) – –– Fair value hedges – (13.9) (13.9) 3.4 (1.0) 2.4 Net investment hedges 47.2 (5.3) 41.9 22.6 (16.7) 5.9 Other hedges 1.2 – 1.2 1.5 (0.5) 1.0 48.4 (19.6) 28.8 27.5 (18.2) 9.3 Derivative financial instruments – current Interest rate swaps – other hedges 0.2 – 0.2 ––– Forward foreign exchange contracts 3.0 (1.5) 1.5 0.6 (1.1) (0.5) 3.2 (1.5) 1.7 0.6 (1.1) (0.5) 51.6 (21.1) 30.5 28.1 (19.3) 8.8

The Group adopted IAS 32 and IAS 39 with effect from 1 April 2005. On this date a number of derivative financial instruments held by the Group qualified as effective cash flow, fair value or net investment hedges.

85 FKI plc Notes to the consolidated financial statements 28) Derivative financial instruments (continued) Cash flow hedges At 31 March 2007 the Company held two cross-currency swaps that were designated as cash flow hedges.These swaps hedge the cash flow variability arising on movements in the Euro: Sterling exchange rate and protect Euro 30 million of the Euro 600 million Eurobond.The terms of the contracts are:

Currency Principal Maturity Interest rate Cross-currency swaps FKI pays Sterling 20.7 million 22 February 2010 8% fixed, payable semi-annually FKI receives Euro 30.0 million 22 February 2010 6.625% fixed, receivable annually

There have been no changes in the above swaps during the course of the year. At 31 March 2007 the Company held 12 copper swap contracts that are designated as cash flow hedges. These contracts lock the Company into fixed copper prices which help protect it against fluctuations in the market price of copper. The terms of these contracts are:

Commodity Total quantity Maturity Pricing Commodity swaps FKI pays Copper 2,550 tonnes 31 March 2008 Month-end settlements at fixed prices averaging US Dollars 5,773 per tonne FKI receives Copper 2,550 tonnes 31 March 2008 Month-end settlements at the average LME price for each month

At 31 March 2007 the Company held a number of forward foreign exchange contracts to hedge against the risk of exchange rate fluctuations.Those forward foreign exchange contracts that were accounted for as cash flow hedges are set out below:

Currency Principal Maturity Exchange rate Forward foreign exchange contracts FKI pays US Dollar 49.3 million Various dates between Various US Dollar: Sterling 30 August 2007 and exchange rates ranging from 22 February 2009 $1.87 to $1.96 FKI receives Sterling 25.4 million Various dates between Various US Dollar: Sterling 30 August 2007 and exchange rates ranging from 22 February 2009 $1.87 to $1.96 FKI pays Sterling 10.1 million 5 April 2007 Czech Koruna: Sterling exchange rate of CZK 41.91 FKI receives Czech Koruna 425.0 million 5 April 2007 Czech Koruna: Sterling exchange rate of CZK 41.91

There were no forward foreign exchange contracts or commodity swaps accounted for as cash flow hedges in the prior year ended 31 March 2006.

86 FKI plc Notes to the consolidated financial statements 28) Derivative financial instruments (continued) Fair value hedges At 31 March 2007 the Company held a number of cross-currency interest rate swaps that were designated as fair value hedges.These swaps hedge against changes in interest rates affecting the fair value of Euro 544 million of the Euro 600 million fixed rate Eurobond.The terms of the contracts are:

Currency Principal Maturity Interest rate Cross-currency swaps FKI pays Sterling 335.3 million 22 February 2010 3 to 6 months LIBOR plus 3% FKI receives Euro 486.0 million 22 February 2010 6.625% fixed Interest rate swaps FKI pays Euro 58.0 million 22 February 2010 3 months EURIBOR plus 3.46% FKI receives Euro 58.0 million 22 February 2010 6.625% fixed

The above interest rate swaps leave a residual Euro 58.0 million of Euro foreign exchange exposure which the Company has designated as an effective net investment hedge of its investments in the Eurozone. There have been no changes in the above swaps during the course of the year. Net investment hedges At 31 March 2007 the Company held a number of cross-currency swaps that were designated as net investment hedges of investments in non-Sterling subsidiary companies.These swaps protect against changes in exchange rates affecting the Sterling value of subsidiaries that are located in the United States, Canada, Denmark and the Eurozone.The terms of the contracts are:

Currency Principal Maturity Interest rate basis Cross-currency swaps – US Dollars FKI pays US Dollar 363.6 million 22 February 2010 3 to 6 months LIBOR plus 3.54% to 4.49% FKI receives Sterling 224.9 million 22 February 2010 3 to 6 months LIBOR plus 3% FKI pays US Dollar 29.4 million 22 February 2010 8.51% fixed FKI receives Sterling 20.7 million 22 February 2010 8% fixed Cross-currency swaps – Canadian Dollars FKI pays Canadian Dollar 45.1 million 22 February 2010 3 months CAD BA rate plus 3.65% FKI receives Sterling 19.3 million 22 February 2010 3 months LIBOR plus 3% Cross-currency swaps – Danish Krone FKI pays Danish Krone 981.4 million 22 February 2010 6 months CIBOR plus 3.54% FKI receives Sterling 91.1 million 22 February 2010 6 months LIBOR plus 3% Cross-currency swaps – Euro FKI pays Euro 15.0 million 10 October 2007 7.21% fixed FKI receives Sterling 10.4 million 10 October 2007 8% fixed

There have been no changes in the above swaps during the course of the year. The Company also holds a number of other interest swaps that do not qualify for hedge accounting under IAS 39. These LIBOR-in-arrears swaps reduce the Company’s exposure to floating US Dollar interest rates, on a total of US Dollars 133.7 million, through a combination of interest rate caps and spreading of reference dates for interest rate resets. Changes in the fair value of these swaps are booked to profit or loss.There have been no changes in these swaps during the year.

87 FKI plc Notes to the consolidated financial statements 28) Derivative financial instruments (continued) Financial risk management (a) Fair value of financial instruments Fair value is defined as the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed and willing parties and is calculated by reference to market prices discounted to current value. Where market values are not available, fair values have been calculated by discounting cash flows at prevailing rates translated at year end exchange rates.

2007 2006 Book Market Book Market value value value value £m£m£m£m Short-term borrowings and current portion of long-term borrowings (23.4) (23.4) (47.1) (47.2) Long-term portion of long-term borrowings (462.5) (474.2) (503.5) (508.3) Cash and short-term deposits 125.5 125.5 237.1 237.1 (360.4) (372.1) (313.5) (318.4) Derivative financial instruments Cross-currency swaps 39.4 39.4 19.3 19.3 Interest rate swaps (11.9) (11.9) (10.0) (10.0) Commodity swaps 1.3 1.3 –– Forward foreign exchange contracts 1.7 1.7 (0.5) (0.5) 30.5 30.5 8.8 8.8 Net financial liabilities (329.9) (341.6) (304.7) (309.6)

Following the adoption of IAS 32 and IAS 39 on 1 April 2005, for financial reporting purposes cross-currency swaps, interest rate swaps and forward foreign exchange contracts are shown on the face of the balance sheet as derivative financial instruments within derivative financial assets or liabilities as appropriate. (b) Foreign currency risk The Group operates globally with the majority of its profits outside the UK. It has significant investments outside the UK with the largest investments being in North America followed by Europe. In order to protect the Group’s balance sheet and reduce cash flow risk the Group has financed most of its investments in the USA, Canada and Europe by borrowing in US Dollars, Canadian Dollars, Euros and Danish Krone. Some of this funding is achieved by directly borrowing the relevant currency whilst some is achieved through cross-currency swaps which can be more efficient and reduce costs and credit exposure. The Group uses forward foreign exchange contracts to hedge foreign currency exposures on committed, and occasionally forecast, receipts and payments in foreign currencies.

88 FKI plc Notes to the consolidated financial statements 28) Derivative financial instruments (continued) (c) Interest rate risk The interest rate profiles of the Group’s borrowings are set out below.The figures are shown after taking into account the effect of cross-currency swaps and interest rate swaps which are used to manage the Group’s net debt and which are shown separately from borrowings in the Group balance sheet.

Financial liabilities (gross borrowings) Financial assets Cash and Net financial Fixed Floating short-term assets/ rate rate Total deposits (liabilities) £m £m £m £m £m Sterling – – – 35.4 35.4 US Dollars (55.8) (197.9) (253.7) 45.4 (208.3) Euro (38.3) (48.6) (86.9) 20.4 (66.5) Danish Krone (0.9) (92.5) (93.4) 1.8 (91.6) Canadian Dollars – (20.4) (20.4) 8.1 (12.3) Other – (1.0) (1.0) 14.4 13.4 As at 31 March 2007 (95.0) (360.4) (455.4) 125.5 (329.9)

Financial liabilities (gross borrowings) Financial assets Cash and Net financial Fixed Floating short-term assets/ rate rate Total deposits (liabilities) £m £m £m £m £m Sterling – – – 49.5 49.5 US Dollars (101.1) (221.2) (322.3) 134.9 (187.4) Euro (54.1) (46.6) (100.7) 30.1 (70.6) Danish Krone (1.3) (93.9) (95.2) 3.2 (92.0) Canadian Dollars – (23.2) (23.2) 7.5 (15.7) Other – (0.4) (0.4) 11.9 11.5 As at 31 March 2006 (156.5) (385.3) (541.8) 237.1 (304.7)

89 FKI plc Notes to the consolidated financial statements 28) Derivative financial instruments (continued) (c) Interest rate risk (continued) The financial assets shown in the tables above attract floating rate interest at the Interbank bid rate of the appropriate currency less a margin.The floating rate financial liabilities bear interest at the Interbank offered rate of the appropriate currency plus a margin.The interest rate profile of the fixed rate financial liabilities is shown below.

2007 2006 Average Average interest Weighted interest Weighted Total rate ofaverage Total rate ofaverage fixed rate fixed rate period for fixed rate fixed rate period for financial financial which rate financial financial which rate liabilities liabilities is fixed liabilities liabilities is fixed £m % Years £m % Years US Dollars (55.8) 7.9 6.2 (101.1) 7.5 4.5 Euro (38.3) 6.8 2.1 (54.1) 6.8 3.0 Danish Krone (0.9) – 5.0 (1.3) 0.9 3.6 As at 31 March (95.0) 7.4 4.9 (156.5) 7.2 4.0

(d) Liquidity risk The Group’s policy on funding capacity is to ensure sufficient long-term funding and committed borrowing facilities are in place to meet foreseeable peak borrowing requirements.The Group’s borrowings exhibit some seasonal variations during the year and for that reason the Board requires long-term funding and committed borrowing facilities to always exceed actual and projected debt figures by at least 10%.At the year end 78% (2006: 78%) of the Group’s committed facilities were drawn. Of the £616.9 million (2006: £692.2 million) committed borrowing facilities available to the Group, the undrawn committed facilities were as follows:

2007 2006 £m £m Expiring in less than one year 137.3 – Expiring in more than one year but no more than two years – 150.0 As at 31 March 137.3 150.0

The Group also has a number of uncommitted loan and overdraft facilities at its disposal. These facilities are lightly used. 29) Provisions

Business Insurance restructuring and litigation Total £m £m £m At 1 April 2006 3.9 23.6 27.5 Exchange adjustments – (0.2) (0.2) Utilised (5.3) (3.6) (8.9) Arising in the year 9.6 – 9.6 At 31 March 2007 8.2 19.8 28.0

90 FKI plc Notes to the consolidated financial statements 29) Provisions (continued)

Year ended Year ended 31 March 31 March 2007 2006 £m £m Analysed as: Current liabilities 7.0 6.4 Non-current liabilities 21.0 21.1 28.0 27.5

The costs associated with the restructuring provisions for various reorganisations within the Group are supported by detailed plans and based on previous experience as well as other known factors.With the exception of amounts related to vacant leasehold properties, the provisions are generally utilised within one to two years.The vacant leasehold property provisions will be utilised in between one and nine years. The insurance and litigation provisions represents management’s best estimate of the likely outcome. Due to the inherent uncertainty of the nature of such liabilities it is difficult to give an indication of the timing of their settlement but generally this would be between one and ten years. 30) Assets and (liabilities) classified as held for sale

Year ended Year ended 31 March 31 March 2007 2006 £m £m Assets held for sale Assets of businesses held for sale – 7.0 Property held for sale – – Total assets held for sale – 7.0 (Liabilities) directly associated with assets held for sale – (6.8)

Further details of the businesses held for sale, including an analysis of the assets and liabilities, is provided in note 14 to the financial statements. 31) Deferred tax assets and liabilities Deferred tax included in the balance sheet is as follows:

Asset Liability £m £m At 1 April 2005 67.8 (31.4) Exchange adjustments 2.0 (2.1) Amount (charged)/credited to income statement (2.4) 1.8 Amount (charged)/credited to the statement of recognised income and expense/direct to equity (4.9) (2.5) At 1 April 2006 62.5 (34.2) Exchange adjustments (2.4) 2.3 Amount (charged)/credited to income statement – (2.8) Amount (charged)/credited to the statement of recognised income and expense/direct to equity (13.5) (0.4) At 31 March 2007 46.6 (35.1)

91 FKI plc Notes to the consolidated financial statements 31) Deferred tax assets and liabilities (continued) Deferred tax liabilities

Year ended Year ended 31 March 31 March 2007 2006 £m £m Goodwill (15.3) (16.0) Pensions and other post-retirement benefits (5.3) (5.4) Accelerated capital allowances (9.2) (8.4) Short-term timing differences (4.9) (4.4) Net gain on cash flow hedge (0.4) – (35.1) (34.2)

Deferred tax assets

Year ended Year ended 31 March 31 March 2007 2006 £m £m Pensions and other post-retirement benefits 38.7 53.9 Accelerated capital allowances 1.9 – Short-term timing differences (1.1) 0.6 Losses 7.1 8.0 46.6 62.5

At the balance sheet date no deferred tax asset has been recognised in respect of certain trading and capital losses as based on currently available evidence it is considered unlikely that sufficient taxable profits or gains will be generated. The unrecognised deferred tax asset is £34.9 million (2006: £47.7 million). Deferred taxation is not provided in respect of liabilities that might arise on the distribution of available overseas reserves of subsidiary undertakings, except to the extent that the decision to remit such profits has been taken. Where a liability has not been recognised, it is because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.At the balance sheet date the aggregate amount of such temporary differences for which deferred tax has not been recognised was £22.4 million (2006: £18.3 million). 32) Finance and operating leases Obligations under finance leases and hire purchase contracts The Group leases certain of its property, plant and equipment under finance leases.These leases have an average duration of between three and ten years.The majority of the leases are on a fixed repayment basis and where escalation clauses exist they are linked to LIBOR. No arrangements have been entered into for contingent rental payments. Future minimum lease payments under finance leases and hire purchase contracts are as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Not later than one year 0.8 0.9 After one year but not more than five years 3.2 4.2 4.0 5.1 Less finance charges allocated to future periods (0.1) (0.2) Present value of minimum lease payments 3.9 4.9

92 FKI plc Notes to the consolidated financial statements 32) Finance and operating leases (continued) Obligations under finance leases and hire purchase contracts (continued) The present value of minimum lease payments is as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Not later than one year 0.8 0.9 After one year but not more than five years 3.1 4.0 3.9 4.9

Commitments under operating leases The total future minimum rental payable under non-cancellable operating leases are as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Not later than one year 10.3 9.6 After one year but not more than five years 27.0 26.7 After five years 19.8 17.5 57.1 53.8

33) Pensions and other post-retirement benefits (a) Defined contribution pension schemes The Group operates a number of defined contribution pension schemes, the assets of which are held externally to the Group in separate trustee administered funds. Contributions to these defined contribution pension schemes in the year, which were the same as the amount charged to the income statement, amounted to £8.3 million (2006: £7.8 million). (b) Defined benefit and other post-retirement benefits The main pension schemes operated by the Group are in the United Kingdom and North America and are defined benefit in type.These are funded schemes, where the future liabilities for benefits are provided for by the accumulation of assets held externally to the Group in separate trustee administered funds. The cost of these schemes is determined in accordance with IAS 19 with the advice of independent professionally qualified actuaries on the basis of formal actuarial valuations using the projected unit method. In line with normal business practice, these valuations are undertaken triennially in the United Kingdom and annually in the United States. These valuations are based on the full actuarial valuation as of 31 December 2005, updated at 31 March 2007 by independent actuaries. The dates of the most recent full actuarial valuations, on which the amounts in the financial statements are based, were as follows:

Location Date of valuation FKI Group Pension Scheme UK 31 December 2005 FKI Industries Inc. Group Pension Plan US 31 December 2005

The Group also operates a number of unfunded post-retirement medical and welfare benefit schemes, principally in the United States.

93 FKI plc Notes to the consolidated financial statements 33) Pensions and other post-retirement benefits (continued) (b) Defined benefit and other post-retirement benefits (continued) The assets and liabilities of the schemes at 31 March 2007 are: Year ended 31 March 2007

North UK & ROW American Group schemes schemes US Medical Total £m £m £m £m Schemes assets at fair value Equities 175.0 93.5 – 268.5 Bonds 309.8 87.9 – 397.7 Other 15.9 0.7 – 16.6 Fair value of scheme assets 500.7 182.1 – 682.8 Present value of scheme liabilities (585.9) (169.2) (33.2) (788.3) (85.2) 12.9 (33.2) (105.5) Limit on recognition of surplus – (3.3) – (3.3) Net pension (liability)/asset and past service cost not recognised (85.2) 9.6 (33.2) (108.8)

Year ended 31 March 2006

North UK & ROW American Group schemes schemes US Medical Total £m £m £m £m Schemes assets at fair value Equities 158.3 103.1 – 261.4 Bonds 307.8 96.7 – 404.5 Other 6.2 0.9 – 7.1 Fair value of scheme assets 472.3 200.7 – 673.0 Present value of scheme liabilities (595.6) (190.2) (40.1) (825.9) (123.3) 10.5 (40.1) (152.9) Limit on recognition of surplus – (3.0) (0.1) (3.1) Net pension (liability)/asset and past service cost not recognised (123.3) 7.5 (40.2) (156.0)

During the year the Group sold property valued at £12.5 million on the basis of professional independent valuations to the fund with a corresponding reduction in the deficit.This resulted in a profit on sale of £5.3 million which has been disclosed as part of special items (profit on sale of property) in the income statement.

94 FKI plc Notes to the consolidated financial statements 33) Pensions and other post-retirement benefits (continued) (b) Defined benefit and other post-retirement benefits (continued) The amounts recognised in the Group income statement and in the Group statement of recognised income and expense for the year are analysed as follows: Year ended 31 March 2007

North UK & ROW American Group schemes schemes US Medical Total £m £m £m £m Recognised in the income statement Current service cost 7.7 3.4 – 11.1 Past service cost –––– Gain on settlement (0.6) – – (0.6) Recognised in arriving at operating profit 7.1 3.4 – 10.5 Expected return on scheme assets (25.3) (12.3) – (37.6) Interest cost on scheme liabilities 29.2 10.0 2.0 41.2 Other finance costs 3.9 (2.3) 2.0 3.6 Taken to the statement of recognised income and expense Actual return on scheme assets 17.0 16.2 – 33.2 Expected return on scheme assets (25.3) (12.3) – (37.6) (8.3) 3.9 – (4.4) Other actuarial gains and (losses) 24.2 0.3 1.7 26.2 Actuarial gains and (losses) recognised in the statement of recognised income and expense 15.9 4.2 1.7 21.8

Year ended 31 March 2006

North UK & ROW American Group schemes schemes US Medical Total £m £m £m £m Recognised in the income statement Current service cost 7.9 3.7 0.6 12.2 Past service cost – – – – Gain on settlement (0.7) (0.4) (4.9) (6.0) Recognised in arriving at operating profit 7.2 3.3 (4.3) 6.2 Expected return on scheme assets (26.5) (13.7) – (40.2) Interest cost on scheme liabilities 28.4 10.7 2.3 41.4 Other finance costs 1.9 (3.0) 2.3 1.2 Taken to the statement of recognised income and expense Actual return on scheme assets 78.2 14.8 – 93.0 Expected return on scheme assets (26.5) (13.7) – (40.2) 51.7 1.1 – 52.8 Other actuarial gains and (losses) (41.9) (0.9) (1.2) (44.0) Actuarial gains and (losses) recognised in the statement of recognised income and expense 9.8 0.2 (1.2) 8.8

95 FKI plc Notes to the consolidated financial statements 33) Pensions and other post-retirement benefits (continued) Pensions The cost of these schemes is determined in accordance with IAS 19 with the advice of independent professionally qualified actuaries on the basis of formal actuarial valuations, using the projected unit method. In line with normal business practice, these valuations are undertaken triennially in the United Kingdom and annually in the United States. Both the FKI Group Pension Scheme and the main FKI Industries Inc. Group Pension Plan are now closed to new members and therefore under the projected unit method the current service costs would be expected to increase as the members of the scheme approach retirement. Scheme assets are stated at their market values at the respective balance sheet dates and overall expected rates of return are established by applying published brokers forecasts to each category of the scheme.

Group Group UK & ROW North America 2007 2006 2007 2006 % % % % Main assumptions: Rate of salary increases 4.2 4.0 3.5 3.5 Rate of increase in pensions in payment 2.5 2.5 – – Discount rate 5.4 5.0 6.0 6.0 Expected rates of return on scheme assets: Equities 7.7 7.3 9.1 9.4 Bonds 4.9 4.3 5.6 5.3 Other 6.4 4.5 4.8 3.8 Inflation assumption 3.2 3.0 2.8 2.8

2007 2006 2007 2006 years years years years Post-retirement mortality Current pensioners at 65 – male 19.1 18.3 17.9 17.9 Current pensioners at 65 – female 20.7 21.2 21.3 21.3 Future pensioners at 65 – male 19.8 19.3 17.9 17.9 Future pensioners at 65 – female 21.4 22.2 21.3 21.3

2007 2006 2007 2006 % % % % Rate of increase in healthcare costs n/a n/a 10.0(1) 10.0(2)

(1) Decreasing to 5% in 2012 and thereafter. (2) Decreasing to 5% in 2011 and thereafter. The post-retirement mortality assumptions allow for expected increases in longevity. The “current” disclosures above relate to assumptions based on longevity (in years) following retirement at the balance sheet date. A one percentage point change in the assumed rate of increase in healthcare costs would have the following effects:

Increase Decrease £000 £000 Effect on aggregate service cost and interest cost 149 (131) Effect on defined benefit obligation 2,112 (1,867)

96 FKI plc Notes to the consolidated financial statements 33) Pensions and other post-retirement benefits (continued) Pensions (continued) Changes in the present value of the defined benefit pension obligations are analysed as follows:

North UK & ROW American Group schemes schemes US Medical Total £m £m £m £m As at 1 April 2005 538.8 179.8 39.9 758.5 Current service cost 7.9 3.7 0.6 12.2 Past service cost – – – – Curtailment 0.2 (9.5) (4.4) (13.7) Interest cost 28.4 10.7 2.3 41.4 Contributions by plan participants 2.7 – – 2.7 Benefits paid (24.3) (12.8) (3.4) (40.5) Actuarial (gains) and losses 41.9 0.9 1.2 44.0 Foreign currency differences – 17.4 3.9 21.3 As at 31 March 2006 595.6 190.2 40.1 825.9 Current service cost 7.7 3.4 – 11.1 Past service cost – – – – Curtailment (0.6) – – (0.6) Interest cost 29.2 10.0 2.0 41.2 Contributions by plan participants 2.5 – – 2.5 Benefits paid (24.0) (11.9) (2.5) (38.4) Actuarial (gains) and losses (24.2) (0.3) (1.7) (26.2) Foreign currency differences (0.3) (22.2) (4.7) (27.2) As at 31 March 2007 585.9 169.2 33.2 788.3

The defined benefit obligation comprises £788.3 million (2006: £825.9 million) arising from plans that are wholly or partly funded.

97 FKI plc Notes to the consolidated financial statements 33) Pensions and other post-retirement benefits (continued) Pensions (continued) Changes in the fair value of plan assets are analysed as follows:

North UK & ROW American Group schemes schemes Total £m £m £m As at 1 April 2005 395.4 189.8 585.2 Expected return on plan assets 26.5 13.7 40.2 Employer contributions 20.3 0.3 20.6 Contributions by plan participants 2.7 – 2.7 Benefits paid (24.3) (12.8) (37.1) Actuarial gains 51.7 1.1 52.8 Disposal divesture – (8.8) (8.8) Foreign currency differences – 17.4 17.4 As at 31 March 2006 472.3 200.7 673.0 Expected return on plan assets 25.3 12.3 37.6 Employer contributions 32.9 0.3 33.2 Contributions by plan participants 2.5 – 2.5 Benefits paid (24.0) (11.9) (35.9) Actuarial gains/(losses) (8.3) 3.9 (4.4) Disposal divesture – – – Foreign currency differences – (23.2) (23.2) As at 31 March 2007 500.7 182.1 682.8

History of experience gains and losses:

2007 2006 2005 £m £m £m UK Pensions Fair value of scheme assets 500.7 472.3 395.4 Present value of defined benefit obligation (585.9) (595.6) (538.8) Deficit in the scheme (85.2) (123.3) (143.4) Experience adjustments arising on plan liabilities 24.2 (41.9) (8.8) Experience adjustments arising on plan assets (8.3) 51.7 (12.3) North American Pensions Fair value of scheme assets 182.1 200.7 189.8 Present value of defined benefit obligation (169.2) (190.2) (179.8) Surplus in the scheme 12.9 10.5 10.0 Experience adjustments arising on plan liabilities 0.3 (0.9) 1.0 Experience adjustments arising on plan assets 3.9 1.1 (6.8) US Medical Present value of defined benefit obligation (33.2) (40.1) (39.9) Experience adjustments arising on plan liabilities 1.7 (1.2) (3.7)

In accordance with the transitional provisions for the amendments to IAS 19 – Employee Benefits, the disclosures above are determined prospectively from 2006.

98 FKI plc Notes to the consolidated financial statements 34) Authorised and issued share capital

Ordinary shares of 10p each Number Amount million £m Authorised 1 April 2006 and 31 March 2007 745.0 74.5

Ordinary shares of 10p each Number Value million £m Allotted, called up and fully paid 1 April 2006 583.2 58.4 Issued under share option schemes 4.9 0.4 31 March 2007 588.1 58.8

Executive share option schemes At 31 March 2007, the total number of options outstanding was 18,344,417 exercisable between 2007 and 2016 at subscription prices between 77.0p and 233.0p. 836,639 options were exercised during the year and options of 1,366,621 lapsed. Options of 2,796,579 were granted during the year as shown below. FKI share save schemes At 31 March 2007 the total number of options was 5,757,347 exercisable between 2007 and 2010 at subscription prices between 60.0p and 126.0p. No options over shares were granted during the year. 4,119,693 shares were exercised during the year and options of 1,377,387 lapsed. Long term incentive plan (LTIP) At 31 March 2007 the total number of options outstanding was 3,742,709 exercisable between 2007 and 2016.A total of 1,234,979 options lapsed during the year and 1,728,901 were granted during the year as shown below.

Granted Exercise during price the year per share Date of grant Number Pence Date exercisable from Expiry date 2 August 2006 – share options 2,796,579 98.15 2 August 2009 1 August 2016 2 August 2006 – LTIP 1,728,901 2 August 2009 1 August 2016

99 FKI plc Notes to the consolidated financial statements 35) Acquisitions On 18 April 2006 the Group acquired Harrington Generators International Limited for a total consideration of £6.2 million inclusive of costs of £0.2 million.The fair value of net assets acquired was £1.3 million and goodwill arising was £4.9 million.The company’s principal activity is the design and supply of specialist generators. From the date of acquisition, Harrington has contributed £14.5 million revenue and £2.6 million to the Group’s profit before taxation and finance costs/income. The aggregate book and fair values of the net assets of the acquisitions at the relevant date of acquisition were as follows:

Book Fair value Fair value values adjustments to Group £m £m £m Property, plant and equipment 0.2 – 0.2 Inventories 1.7 (0.2) 1.5 Receivables 1.6 – 1.6 Cash and short-term deposits 0.2 – 0.2 Payables (2.0) – (2.0) Corporation tax (0.2) – (0.2) Net assets acquired at fair value 1.5 (0.2) 1.3 Goodwill arising on acquisition 4.9 Total consideration 6.2 Satisfied by: Cash paid net of costs 6.2 Deferred consideration – 6.2

Goodwill arose on the acquisition as the criteria for the recognition of intangible assets were not met at the date of acquisition and goodwill represents the anticipated future operating synergies from the combination. The fair value adjustment relates to the recognition of an obsolete and slow moving inventory provision in line with the Group’s accounting policy.

100 FKI plc Notes to the consolidated financial statements 36) Reconciliation of movement in equity

Share- Share Capital based Share premium redemption Own Retained Exchange payments Hedging Minority Total capital account reserve shares earnings reserve accrual reserve interests equity £m £m £m £m £m £m £m £m £m £m As at 1 April 2006 58.4 156.4 2.0 (2.6) 35.8 6.6 4.5 (0.2) 1.1 262.0 Actuarial gain on defined benefit pensions and other post-retirement benefits – – – – 21.8 – – – – 21.8 Taxation on actuarial gain on defined benefit pensions and other post-retirement benefits – – – – (13.5) – – – – (13.5) Exchange differences on retranslation of net assets of subsidiaries and loans – – – – – (16.9) – – – (16.9) Net gains/(losses) on cash flow hedges – – – – – – – 1.6 – 1.6 Taxation on net gains/(losses) on cash flow hedges – – – – – – – (0.4) – (0.4) Dividends – – – – (26.3) – – – – (26.3) Profit for the year – – – – 46.4 – – – 0.2 46.6 Share-based payments – – – – – – 1.4 – – 1.4 Exchange differences transferred to income statement in respect of disposals – – – – – 0.6 – – – 0.6 Premium on shares issued 0.4 2.7 – – – – – – – 3.1 Own shares movement – – – 0.2 (0.2) – – – – – Other movement – – – – – – – – (0.1) (0.1) Transfer between reserves re. share-based options – – – – 2.3 – (2.3) – – – As at 31 March 2007 58.8 159.1 2.0 (2.4) 66.3 (9.7) 3.6 1.0 1.2 279.9 As at 1 April 2005 – previously stated 58.2 156.0 2.0 (2.9) (27.3) (2.6) 3.1 – 0.2 186.7 Adoption of IAS 32 and IAS 39 – – – – (5.5) – – 0.5 – (5.0) As at 1 April 2005 58.2 156.0 2.0 (2.9) (32.8) (2.6) 3.1 0.5 0.2 181.7 Actuarial gain on defined benefit pensions and other post-retirement benefits – – – – 8.8 – – – – 8.8 Taxation on actuarial gain on defined benefit pensions and other post-retirement benefits – – – – (7.4) – – – – (7.4) Exchange differences on retranslation of net assets of subsidiaries and loans – – – – – 11.4 – – – 11.4 Net gains/(losses) on cash flow hedges – – – – – – – (0.7) – (0.7) Dividends – – – – (26.3) – – – – (26.3) Profit for the year – – – – 93.8 – – – 0.2 94.0 Share-based payments – – – – – – 1.4 – – 1.4 Exchange differences transferred to income statement in respect of disposals – – – – – (2.2) – – – (2.2) Premium on shares issued 0.2 0.4 –––––––0.6 Acquisitions of minority interests – – – – – – – – 0.7 0.7 Own shares movement – – – 0.3 (0.3) – – – – – As at 31 March 2006 58.4 156.4 2.0 (2.6) 35.8 6.6 4.5 (0.2) 1.1 262.0

Capital redemption reserve The capital redemption reserve arose when the Company redeemed shares wholly out of distributable profits.

101 FKI plc Notes to the consolidated financial statements 36) Reconciliation of movement in equity (continued) Own shares Own shares relate to shares of the Company held by the FKI plc Employee Benefit Trust which are transferred to employee option scheme holders on exercise of their options.The costs of funding and administering the scheme are charged to the income statement of the Company. Exchange reserve The exchange reserve comprises all foreign exchange differences arising from the translation of financial statements of foreign operations. It also includes the effect of translation of liabilities that hedge the Group’s net investment in foreign subsidiaries. Share-based payments accrual IFRS 2 requires that an expense for share-based payments be recognised in the income statement based on the fair value at the date of grant.This expense is recognised over the vesting period of the options.A share-based payment accrual is recognised as part of equity. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments that are determined to be an effective hedge. 37) Share-based payments Disclosures of the share-based payments offered to employees are set out below. In accordance with the transitional provisions of IFRS 2, the Group has recognised an expense in respect of all equity settled awards granted after 7 November 2002 that had not vested on or before 1 April 2004. The charge to the income statement in respect of share-based payments for the year ended 31 March 2007 was £1.4 million (2006: £1.4 million). (a) Share option scheme The Group operates an executive share option scheme.All executive options granted up to and including 31 March 2007 may only be exercised subject to a performance condition that the Group’s growth in earnings per share must exceed the UK retail price index by 9% or more over a three year period, subject to re-testing in subsequent years from a rolling base.The re-testing condition was removed for options granted after April 2004.The contractual lifetime of the options is ten years. For options granted from 1 April 2006 none will vest for an earnings per share less than the retail price index plus 12% over the three years movement period. For earnings per share at or greater than retail price index plus 12%, awards will vest on a straight-line basis. Details of the vesting levels are included in the Remuneration report. The range of exercise prices for options outstanding at 31 March 2007 is 87.0p to 116.5p (2006: 87.0p to 116.5p). The options exercised during the year relate to options exercised by employees of disposed of companies and employees made redundant. The fair value is charged to the income statement over the vesting period and is estimated on the date of the grant by Hewitt, Bacon & Woodrow Limited using the binomial pricing model and the following weighted average assumptions. Assumptions are made for each separate grant but weighted averages have been disclosed because share options were granted at different dates within certain years.

102 FKI plc Notes to the consolidated financial statements 37) Share-based payments (continued) (a) Share option scheme (continued)

Years ended 31 March 2007 2006 2005 2004 2003 Weighted Weighted Weighted Weighted Weighted average average average average average Risk free interest rate 4.70% 4.18% 5.24% 4.03% 4.45% Expected volatility 25.0% 25.0% 25.0% 25.0% 25.0% Expected dividend yield 4.0% 3.2% 3.2% 3.2% 3.2% Expected option life (years) 4 6 6 6 6 Fair value (pence) 19.2p 20.0p 26.0p 21.6p 19.5p

Details of the share options outstanding during the year are as follows:

Year ended 31 March 2007 Year ended 31 March 2006 Weighted Weighted average average Number of exercise Number of exercise share options price share options price 000’s £ 000’s £ Outstanding as at 1 April 10,837 0.93 8,768 0.90 Granted during the year 2,797 0.98 2,192 1.03 Forfeited during the year (975) (0.79) –– Exercised during the year (836) (0.77) (123) (0.77) Outstanding as at 31 March 11,823 0.96 10,837 0.93 Options exercisable at end of year ––––

The share options outstanding at 31 March 2007 had a weighted average remaining contractual life of 7.5 years (2006: 7.7 years). (b) Long Term Incentive Plan (LTIP) Participants receive annual conditional awards of shares in the Company which may vest only after the achievement of certain long term performance conditions. Participants may receive these shares, three years after the award, provided the performance conditions are met. Details of the performance conditions of the award granted in August 2006 and for awards granted prior to that date are provided in the Remuneration report. The fair value is charged to the income statement over the vesting period and is estimated on the date of the grant by Hewitt, Bacon & Woodrow Limited, using the Monte Carlo pricing model and the following weighted average assumptions. Assumptions are made for each separate grant but weighted averages have been disclosed because options were granted at different dates within certain years.

Years ended 31 March 2007 2006 2005 2004 2003 Weighted Weighted Weighted Weighted Weighted average average average average average Risk free interest rate 4.78% 4.17% 5.16% 3.44% 4.04% Expected volatility 25.0% 25.0% 25.0% 25.0% 25.0% Expected dividend yield 4.0% 3.2% 3.2% 3.2% 3.2% Expected option life (years) 3 3333 Fair value (pence) 76.4p 77.7p 68.0p 50.0p 52.0p

103 FKI plc Notes to the consolidated financial statements 37) Share-based payments (continued) (b) Long Term Incentive Plan (LTIP) (continued) Details of the LTIP’s outstanding during the year are as follows:

2007 2006 Number of Number of shares shares 000s 000s Outstanding as at 1 April 3,681 2,426 Granted during the year 1,729 1,339 Forfeited during the year (616) – Exercised during the year – (84) Lapsed during the year (1,106) – Outstanding as at 31 March 3,688 3,681 Options exercisable at end of year – –

(c) Save As You Earn scheme This scheme is open to all UK employees who have completed six months service and who enter into an approved savings contract for a term of three or five years.The maximum amount which can be saved is £250 per month and the total savings (including interest) at the end of the term are available to purchase shares at 80% of their market value shortly before the start of the savings contract. The fair value is charged to the income statement over the vesting period and is estimated on the date of the grant by Hewitt, Bacon & Woodrow Limited, using the binomial pricing model and the following weighted average assumptions. Assumptions are made for each separate grant but weighted averages have been disclosed because SAYE options were granted at different dates within certain years.

Years ended 31 March 2007 2006 2005 2004 Weighted Weighted Weighted Weighted average average average average Risk free interest rate – 4.30% 5.14% 3.86% Expected volatility – 25.0% 25.0% 25.0% Expected dividend yield – 3.2% 3.2% 3.2% Expected option life (years) – 3.8 3.9 4.1 Fair value (pence) – 35.3p 32.9p 36.9p

Details of the SAYE options outstanding during the year are as follows:

Year ended 31 March 2007 Year ended 31 March 2006 Weighted Weighted average average Number of exercise Number of exercise SAYE options price SAYE options price 000’s £ 000s £ Outstanding as at 1 April 10,157 0.69 10,272 0.65 Granted during the year – – 1,860 0.86 Forfeited during the year (538) (0.80) (509) (0.79) Exercised during the year (4,081) (0.60) (686) (0.60) Cancelled during the year ––(780) (0.65) Outstanding as at 31 March 5,538 0.74 10,157 0.69 Options exercisable at end of year 130 0.60 – –

104 FKI plc Notes to the consolidated financial statements 37) Share-based payments (continued) (c) Save As You Earn scheme (continued) The SAYE options outstanding at 31 March 2007 had a weighted average remaining contractual life of 1.7 years (2006: 1.8 years). The options exercised during the year include 3,976,000 relating to the maturing of a scheme and the remainder to options exercised by employees of disposed of subsidiaries and employees made redundant. The range of exercise prices for options outstanding at 31 March 2007 is 60.0p to 98.25p (2006: 60.0p to 98.25p). 38) Reconciliation of cash flow from operating activities

Year ended Year ended 31 March 31 March 2007 2006 £m £m Operating profit before special items – continuing operations 100.6 100.0 (Loss)/profit before taxation and finance costs of discontinued operations (0.4) 8.0 Depreciation 25.0 29.9 Amortisation of intangible assets 0.9 1.3 Loss/(gain) on disposal of plant and equipment – 0.3 Loss on disposal of intangible assets – 0.3 Outflows relating to termination and closure of businesses (6.9) (12.5) Share-based payments 1.4 1.4 Pensions and other post-retirement benefits assets and liabilities (21.1) (14.6) Increase in inventories (22.5) (1.4) Increase in receivables (46.5) (5.8) Increase in payables and provisions 7.9 15.7 Dividend received from associated company 0.2 – Cash generated by operations 38.6 122.6

39) Net debt

Year ended Year ended 31 March 31 March 2007 2006 £m £m Cash and short-term deposits 125.5 237.1 Interest-bearing loans and borrowings including finance leases and overdrafts: – non-current (462.5) (503.4) – current (23.4) (45.8) Bank overdrafts net of cash included within assets and liabilities held for sale – (1.4) Derivative financial instruments 30.5 8.8 (329.9) (304.7)

105 FKI plc Notes to the consolidated financial statements 40) Capital commitments Amounts contracted for but not provided in the financial statements were as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Acquisition of property, plant and equipment 9.9 1.4 Acquisition of software costs defined as intangible assets – 0.1 9.9 1.5

41) Contingent liabilities The Group has contingent liabilities amounting to £111.9 million (2006: £125.0 million), principally representing the guarantees given in the ordinary course of business on behalf of the trading subsidiaries on which no losses are anticipated. In addition, there are contingent liabilities in the ordinary course of business in connection with the completion of contracts within specification, including responsibilities for maintenance. The Group is also the subject of various pending legal proceedings which have arisen in the normal course of business, including claims on contracts, product liability, environmental claims and others.The claims giving rise to such proceedings are likely to be mitigated by legal defences, insurance and third-party indemnities.While the outcome of some of these matters cannot precisely be foreseen, the directors do not believe that these claims, after allowing for provisions already made, will have a material adverse effect upon the Group's financial results. 42) Related party transactions 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’s associate is Mediterranean Power Electric Company Limited and no transactions were made between the Group and its associate during the years ended 31 March 2007 and 31 March 2006. The remuneration of the Directors, who are considered to be the key management personnel, is provided in the Remuneration report.

106 FKI plc Notes to the consolidated financial statements Independent auditor’s report to the members of FKI plc

We have audited the parent company financial statements We read other information contained in the Annual of FKI plc for the year ended 31 March 2007 which Report and consider whether it is consistent with the comprise the balance sheet and the related notes 1 to 16. audited parent company financial statements.The other These parent company financial statements have been information comprises only the Chairman’s statement, prepared under the accounting policies set out therein. the operating and financial review, the corporate social We have also audited the information in the directors’ responsibility report, the corporate governance statement, remuneration report that is described as having the directors’ report and the unaudited part of the directors’ been audited. remuneration report.We consider the implications for our report if we become aware of any apparent misstatements We have reported separately on the Group financial or material inconsistencies with the parent company statements of FKI plc for the year ended 31 March 2007. financial statements. Our responsibilities do not extend This report is made solely to the Company’s members, to any other information. as a body, in accordance with Section 235 of the Companies Basis of audit opinion Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we We conducted our audit in accordance with International are required to state to them in an auditors’ report and for Standards on Auditing (UK and Ireland) issued by the no other purpose.To the fullest extent permitted by law, Auditing Practices Board.An audit includes examination, we do not accept or assume responsibility to anyone other on a test basis, of evidence relevant to the amounts and than the Company and the Company’s members as a body, disclosures in the parent company financial statements and for our audit work, for this report, or for the opinions we the part of the directors’ remuneration report to be have formed. audited. It also includes an assessment of the significant estimates and judgements made by the directors in the Respective responsibilities of directors and auditors preparation of the parent company financial statements, The directors’ responsibilities for preparing the Annual and of whether the accounting policies are appropriate Report, the directors’ remuneration report and the parent to the Company’s circumstances, consistently applied and company financial statements in accordance with applicable adequately disclosed. United Kingdom law and Accounting Standards (United We planned and performed our audit so as to obtain all Kingdom Generally Accepted Accounting Practice) are the information and explanations which we considered set out in the statement of directors’ responsibilities. necessary in order to provide us with sufficient evidence to Our responsibility is to audit the parent company financial give reasonable assurance that the parent company financial statements and the part of the directors’ remuneration statements and the part of the directors’ remuneration report to be audited in accordance with relevant legal report to be audited are free from material misstatement, and regulatory requirements and International Standards whether caused by fraud or other irregularity or error. on Auditing (UK and Ireland). In forming our opinion we also evaluated the overall adequacy of the presentation of information in the parent We report to you our opinion as to whether the parent company financial statements and the part of the directors’ company financial statements give a true and fair view and remuneration report to be audited. whether the parent company financial statements and the part of the directors’ remuneration report to be audited Opinion have been properly prepared in accordance with the In our opinion: Companies Act 1985.We also report to you whether in our opinion the information given in the parent company • the parent company financial statements give a true directors’ report is consistent with the financial statements. and fair view, in accordance with United Kingdom The information given in the directors’ report includes Generally Accepted Accounting Practice, of the state that specific information presented in the operating and of the Company’s affairs as at 31 March 2007; financial review that is cross referred from the business • the parent company financial statements and the part review section of the directors’ report. of the directors’ remuneration report to be audited In addition we report to you if, in our opinion, the have been properly prepared in accordance with the Company has not kept proper accounting records, if we Companies Act 1985; and have not received all the information and explanations we • the information given in the directors’ report is require for our audit, or if information specified by law consistent with the parent company financial statements. regarding directors’ remuneration and other transactions is not disclosed. Ernst & Young LLP Registered auditor London 15 June 2007

107 FKI plc Company balance sheet As at 31 March 2007

31 March 31 March 2007 2006 Note £m £m Fixed assets Tangible assets 2 0.3 0.4 Investments in subsidiaries 3 2,562.9 2,562.9 2,563.2 2,563.3 Current assets Debtors due within one year 4 1,661.5 1,075.8 Derivative financial assets due within one year 6 0.2 – Derivative financial assets due after more than one year 6 48.4 27.5 Cash and short-term deposits 14.5 64.5 1,724.6 1,167.8 Creditors: amounts falling due within one year Bank and other borrowings 5 (44.1) (48.4) Derivative financial liabilities 6 (1.5) – Other creditors 7 (3,305.3) (2,791.4) (3,350.9) (2,839.8) Net current liabilities (1,626.3) (1,672.0) Total assets less current liabilities 936.9 891.3 Creditors: amounts falling due after more than one year Bank and other borrowings 5 (417.2) (442.2) Derivative financial liabilities 6 (19.6) (18.2) Other creditors 7 – – Net assets before pension liability 500.1 430.9 Pension liability 8 (51.3) (77.3) Net assets 448.8 353.6 Capital and reserves Called up share capital 9, 10 58.8 58.4 Share premium account 10 159.1 156.4 Capital redemption reserve 10 2.0 2.0 Own shares 10 (2.4) (2.6) Share-based payments accrual 10 3.6 4.5 Hedging reserve 10 – – Profit and loss account 10 227.7 134.9 Equity shareholders’ funds 448.8 353.6

These financial statements were approved by the Board of Directors on 15 June 2007 and signed on its behalf by: P Heiden – Director N Bamford – Director

108 FKI plc Notes to the Company financial statements

1) Significant accounting policies Basis of preparation The financial statements of FKI plc are presented as required by the Companies Act 1985.As permitted by the Act, the separate financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Standards (“UK GAAP”) using the historical cost convention except where certain financial instruments have been measured at fair value. As permitted by Section 230 of the Companies Act 1985, the profit and loss account is not presented. Under Financial Reporting Standard 1, the Company is exempt from the requirement to prepare a cash flow statement on the grounds that the cash flows of the Company are included within the published consolidated financial statements. The following accounting policies have been applied consistently in dealing with items considered material in relation to the financial statements, except as noted below. Foreign currency translation Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Sterling at the foreign exchange rate ruling at that date.All profits and losses on exchange are credited or charged to the profit and loss account. Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation and provision for any impairment in value. Depreciation is calculated on all assets, other than freehold land, at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over their estimated useful lives as follows: Plant and machinery – heavy production 15 years – other 10 years Office equipment 5 to 10 years Motor vehicles 3 to 5 years

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds, less costs of disposal, and the carrying amount of the asset and is recognised in the income statement. Leases Assets obtained under leases and hire purchase contracts which result in the transfer to the Company of substantially all the risks and rewards of ownership (finance leases) are capitalised as tangible fixed assets at the estimated present value of underlying lease payments and are depreciated over their expected useful lives.The capital elements of future lease obligations are recorded as liabilities whilst the finance elements of the rental payments are charged to the income statement over the period of the lease or hire purchase contract so as to produce a constant rate of charge on the outstanding balance of the net obligation in each period. Rentals paid under other leases (operating leases) are charged to the income statement on a straight-line basis over the lease term. Investments The Company’s investment in shares in group companies are stated at cost less provision for impairment.

109 FKI plc 1) Significant accounting policies (continued) Taxation Current tax is provided at amounts expected to be paid, or recovered, using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised, using the liability method, on all timing differences, subject to the exceptions noted below, at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax in respect of taxable or deductible timing differences associated with investments in subsidiaries is not recognised where the timing differences can be controlled and it is probable that the timing differences will not reverse in the foreseeable future or in the case of assets, taxable profit will be unavailable against which the timing differences, can be utilised. Deferred tax assets are recognised for all deductible timing differences, carried forward unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible timing differences, and carried forward unused tax assets and unused tax losses can be utilised. Deferred tax is measured at the tax rates that are expected to apply in the periods in which it is anticipated that the asset will be realised or the liability will be settled, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Dividends on shares presented within shareholders’ funds Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements. Pensions and other post-retirement benefits (i) Defined contribution pension schemes Pension costs for the Company’s defined contribution pension schemes are recognised within operating profit at an amount equal to the contributions payable to the scheme for the period.Any prepaid or outstanding contributions at the balance sheet date are recognised respectively as assets or liabilities within prepayments or accruals. (ii) Defined benefit pension schemes and other post-retirement benefits Pension liabilities are measured at their present value in accordance with actuarial assumptions that are updated at each balance sheet date. Pension assets are measured at fair value.The pension liability or asset is recognised in the balance sheet. Pension costs for the Company’s defined benefit pension schemes and other post-retirement benefits are recognised as follows: (a) Within operating profit • The current service cost arising from employee service in the current period; • The prior service cost related to employee service in prior periods arising in the current period as a result of improvements to benefits; • Gains and losses arising on unanticipated settlements or curtailments where the item that gave rise to the settlement or curtailment is recognised within operating profit. (b) Within other finance cost or income • The interest cost on the liabilities, calculated by reference to the scheme liabilities and discount rate at the beginning of the period; • The expected return on assets, calculated by reference to the assets and their long-term expected rate of return at the beginning of the period.

110 FKI plc Notes to the Company financial statements 1) Significant accounting policies (continued) (c) Within the statement of total recognised gains and losses • On the scheme assets – the difference between the expected and actual return on assets; • On the scheme liabilities – (a) the differences between the actuarial assumptions and actual experience, and (b) the effect of changes in actuarial assumptions. Derivative financial instruments of hedge accounting The Company uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financial and investment activities.The Company does not use derivative financial instruments for speculative purposes. As the Company accounts for its investments in subsidiaries and associates at cost in its separate books, certain derivative instruments could not be designated as the hedging instrument in a net investment hedge in the Company accounts. Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition they are stated at fair value.The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting recognition of any resultant gain or loss depends on the nature of the item being hedged. The fair value of forward foreign exchange contracts is determined by reference to current forward exchange rates for contracts with similar maturity profiles.The fair value of interest rate swap contracts is determined by reference to the present value of the estimated future cash flows. For the purpose of hedge accounting, hedges are classified as either fair value hedges, where they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecasted transaction. In relation to fair value hedges (eg: interest rate swaps) which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in the income statement.Any gain or loss on the hedged item attributable to the hedged risk is recognised as an adjustment to the carrying amount of the hedged item and recognised in the income statement.Where the adjustment is to the carrying amount of a hedged interest-bearing financial instrument, the adjustment is amortised to the net profit and loss such that it is fully amortised by maturity. In relation to cash flow hedges to hedge the exposure to variability in cash flows and which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly to equity and the ineffective portion is recognised in net profit or loss. When the hedged firm commitment results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For cash flow hedges that do not result in the recognition of an asset or a liability, the gains or losses that are recognised in equity are transferred to the income statement in the same period in which the hedged firm commitment affects the net profit and loss, for example when the future sale actually occurs. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting.At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year.

111 FKI plc Notes to the Company financial statements 1) Significant accounting policies (continued) Share-based payments Certain employees (including directors) receive remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (“equity-settled transactions”). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted.The fair value is determined by an external valuation. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of FKI plc (“market conditions”). The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”).The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of awards at that date based on the best available estimate of the number of equity instruments that will ultimately vest. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The Company has an employee share incentive plan and an employee share trust for the granting of non-transferable options to executives and senior employees. Shares in the Company held by the employee share trust are presented in the balance sheet as a deduction from equity. The Company has taken advantage of the transitional provisions of FRS 20 in respect of equity-settled awards and has applied FRS 20 only to equity-settled awards granted after 7 November 2002 that had not vested on or before 1 April 2004. 2) Tangible fixed assets

Plant, equipment and vehicles Total £m £m Cost 1 April 2006 1.2 1.2 Additions 0.1 0.1 Disposals (0.1) (0.1) 31 March 2007 1.2 1.2 Depreciation 1 April 2006 (0.8) (0.8) Charge for the year (0.2) (0.2) Disposals 0.1 0.1 31 March 2007 0.9 0.9 Net book value 31 March 2007 0.3 0.3 Net book value 31 March 2006 0.4 0.4

112 FKI plc Notes to the Company financial statements 3) Investments in subsidiaries

Subsidiary undertakings £m Cost 1 April 2006 and 31 March 2007 2,562.9 Provisions 1 April 2006 and 31 March 2007 – Net book value 31 March 2007 2,562.9 Net book value 31 March 2006 2,562.9

A list of principal subsidiary undertakings is give on page 123 of the Group consolidated financial statements. 4) Debtors receivable within one year

31 March 31 March 2007 2006 £m £m Amounts owed by subsidiary undertakings 1,660.4 1,071.0 Other prepayments and accrued income 1.1 0.9 Current tax recoverable – 3.3 Deferred tax – 0.6 1,661.5 1,075.8

5) Bank and other borrowings

31 March 31 March 2007 2006 £m £m Bank loans 44.1 48.4 Other loans 417.2 442.2 461.3 490.6

The total borrowings of the Company are repayable as follows:

Bank loans Other loans 31 March 31 March 31 March 31 March 2007 2006 2007 2006 £m £m £m £m Within one year or on demand 44.1 48.4 – – Between one and two years – – – – Between two and five years – – 417.2 442.2 In five years or more – – – – 44.1 48.4 417.2 442.2

On 5 June 2007 the Company entered into a commitment with a number of relationship banks to provide a £120 million revolving credit facility in replacement of the existing £150 million revolving credit facility that matures on 26 July 2007.This new £120 million facility, which runs until 1 April 2009, will provide working capital funding during a phase when the Company’s operational performance is expected to benefit from strengthening end-markets and further strategic re-alignment of the portfolio. It is expected that this will lead to improved financial metrics allowing the Company to subsequently refinance its maturing debt obligations in a cost-effective manner. The terms and conditions under the new £120 million facility are very similar to the previous facility, but with some additional headroom under the financial covenants.

113 FKI plc Notes to the Company financial statements 6) Derivative financial instruments

31 March 31 March 2007 2006 £m £m Debtors falling due within one year 0.2 – Debtors falling due after more than one year 48.4 27.5 Creditors amounts falling due within one year (1.5) – Creditors amounts falling due after one year (19.6) (18.2) 27.5 9.3

31 March 2007 31 March 2006 Net Net Derivative Derivative derivative Derivative Derivative derivative financial financial financial financial financial financial assets liabilities instruments assets liabilities instruments £m£m£m£m£m£m Derivative financial instruments – non-current Cash flow hedges – (0.4) (0.4) – –– Fair value hedges – (13.9) (13.9) 3.4 (1.0) 2.4 Net investment hedges 47.2 (5.3) 41.9 24.1 (17.2) 6.9 Other hedges 1.2 – 1.2 – –– 48.4 (19.6) 28.8 27.5 (18.2) 9.3 Derivative financial instruments – non-current Interest rate swaps – other hedges 0.2 – 0.2 – –– Forward foreign exchange contracts – ––– –– Other hedges – (1.5) (1.5) – –– 0.2 (1.5) (1.3) – –– 48.6 (21.1) 27.5 27.5 (18.2) 9.3

The Company adopted FRS 25 and FRS 26 with effect from 1 April 2005. On this date a number of derivative financial instruments held by the Company qualified as effective cash flow and fair value hedges. Cash flow hedges At 31 March 2007 the Company held two cross-currency swaps that were designated as cash flow hedges.These swaps hedge the cash flow variability arising on movements in the Euro: Sterling exchange rate and protect Euro 30.0 million of the Euro 600 million Eurobond.The terms of the contracts are:

Currency Principal Maturity Interest rate Cross-currency swaps Company pays Sterling 20.7 million 22 February 2010 8% fixed, payable semi-annually Company receives Euro 30.0 million 22 February 2010 6.625% fixed, receivable annually

There have been no changes in the above swaps during the course of the year.

114 FKI plc Notes to the Company financial statements 6) Derivative financial instruments (continued) At 31 March 2007 the Company held 12 copper swap contracts that are designated as cash flow hedges. These contracts lock the Company into fixed copper prices which help protect it against fluctuations in the market price of copper.The terms of these contracts are:

Commodity Total quantity Maturity Pricing Commodity swaps Company pays Copper 2,550 tonnes 31 March 2008 Month-end settlements at fixed prices averaging US Dollars 5,733 per tonne Company receives Copper 2,550 tonnes 31 March 2008 Month-end settlements at the average LME price for each month

At 31 March 2007 the Company held a number of forward foreign exchange contracts to hedge against the risk of exchange rate fluctuations.Those forward foreign exchange contracts that were accounted for as cash flow hedges are set out below:

Currency Principal Maturity Exchange rates Forward foreign exchange contracts Company pays US Dollar 49.3 million Various dates between Various US Dollar: Sterling 30 August 2007 and exchange rates ranging from 22 February 2009 $1.87 to $1.96 Company receives Sterling 25.4 million Various dates between Various US Dollar: Sterling 30 August 2007 and exchange rates ranging from 22 February 2009 $1.87 to $1.96 Company pays Sterling 10.1 million 5 April 2007 Czech Koruna: Sterling exchange rate of CZK 41.91 Company receives Czech Koruna 425.0 million 5 April 2007 Czech Koruna: Sterling exchange rate of CZK 41.91

There were no forward foreign exchange contracts or commodity swaps accounted for as cash flow hedges in the prior year ended 31 March 2006 Fair value hedges At 31 March 2007 the Company held a number of cross-currency interest rate swaps that were designated as fair value hedges.These swaps hedge against changes in interest rates affecting the fair value of Euro 544 million of the Euro 600 million fixed rate Eurobond.The terms of the contracts are:

Currency Principal Maturity Interest rate Cross-currency swaps Company pays Sterling 335.3 million 22 February 2010 3 to 6 months LIBOR plus 3% Company receives Euro 486.0 million 22 February 2010 6.625% fixed Interest rate swaps Company pays Euro 58.0 million 22 February 2010 3 months EURIBOR plus 3.46% Company receives Euro 58.0 million 22 February 2010 6.625% fixed

The above interest rate swaps leave a residual Euro 58 million of Euro foreign exchange exposure which the Company has designated as an effective net investment hedge of its investments in the Eurozone. There have been no changes in the above swaps during the course of the year.

115 FKI plc Notes to the Company financial statements 6) Derivative financial instruments (continued) Other derivative instruments At 31 March 2007 the Company held a number of cross-currency swaps.The terms of the contracts are:

Currency Principal Maturity Interest Rate Cross-currency swaps – US Dollars Company pays US Dollar 363.6 million 22 February 2010 3 to 6 months LIBOR plus 3.54% to 4.49% Company receives Sterling 224.9 million 22 February 2010 3 to 6 months LIBOR plus 3% Company pays US Dollar 29.4 million 22 February 2010 8.51% fixed Company receives Sterling 20.7 million 22 February 2010 8% fixed Cross-currency swaps – Canadian Dollars Company pays Canadian Dollar 45.1 million 22 February 2010 3 months CAD BA rate plus 3.65% Company receives Sterling 19.3 million 22 February 2010 3 months LIBOR plus 3% Cross-currency swaps – Danish Krone Company pays Danish Krone 981.4 million 22 February 2010 6 months CIBOR plus 3.54% Company receives Sterling 91.1 million 22 February 2010 6 months LIBOR plus 3% Cross-currency swaps – Euro Company pays Euro 15.0 million 10 October 2007 7.21% fixed Company receives Sterling 10.4 million 10 October 2007 8% fixed

There have been no changes in the above swaps during the course of the year. The Company also holds a number of other interest swaps that do not qualify for hedge accounting under FRS 26. These LIBOR-in-arrears swaps reduce the Company’s exposure to floating US Dollar interest rates, on a total of US Dollars 133.7 million, through a combination of interest rate caps and spreading of reference dates for interest rate resets. Changes in the fair value of these swaps are booked to profit or loss. There have been no changes in these swaps during the year. 7) Other creditors

31 March 31 March 2007 2006 £m £m Amounts falling due within one year: Amounts owed to subsidiary undertakings 3,278.7 2,760.0 Other taxes and social security 0.3 0.3 Accruals and deferred income 21.6 26.4 Other creditors 4.7 4.7 3,305.3 2,791.4 Amounts falling due after more than one year: Accruals and deferred income – –

116 FKI plc Notes to the Company financial statements 8) Pension liability The Company is a participating member of the FKI Group Pension Scheme which is the main defined benefit scheme in the United Kingdom.The date of the most recent, full actuarial valuation was 31 December 2005. The fair value of the Scheme’s assets, the present value of its liabilities and the net pension liability are as follows:

31 March 31 March 2007 2006 £m £m Equities 168.6 153.0 Bonds 303.3 302.7 Other 15.8 6.1 Total fair value of Scheme assets 487.7 461.8 Present value of Scheme liabilities (561.8) (572.1) Deficit in the Scheme (74.1) (110.3) Related deferred tax asset 22.8 33.0 Net pension liability (51.3) (77.3)

The movement in the deficit in the Scheme during the year was as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m 1 April (110.3) (130.3) Charged within operating profit (6.6) (6.9) Charged within other net finance charges (3.7) (1.7) Recognised within the statement of total recognised gains and losses 15.2 9.8 Employer contributions 31.3 18.8 31 March (74.1) (110.3)

9) Called up share capital

Ordinary shares of 10p each Number Amount million £m Authorised 1 April 2006 and 31 March 2007 745.0 74.5

Ordinary shares of 10p each Number Value million £m Allotted, called up and fully paid 1 April 2006 583.2 58.4 Issued under share option schemes 4.9 0.4 31 March 2007 588.1 58.8

117 FKI plc Notes to the Company financial statements 9) Called up share capital (continued) Executive share option schemes At 31 March 2007, the total number of options outstanding was 18,344,417 exercisable between 2007 and 2016 at subscription prices between 77.0p and 233.0p. 836,369 options were exercised during the year and options of 1,366,621 lapsed. Options of 2,796,579 were granted during the year as shown below. FKI share save schemes At 31 March 2007, the total number of options was 5,757,347 exercisable between 2007 and 2010 at subscription prices between 60.0p and 126.0p. No options over shares were granted during the year. 4,119,693 shares were exercised during the year and options of 1,377,387 lapsed. Long term incentive plan (LTIP) At 31 March 2007 the total number of options outstanding was 3,742,709 exercisable between 2007 and 2016.A total of 1,234,979 options lapsed during the year and 1,728,901 were granted during the year as shown below.

Granted Exercise during price the year per share Date of grant Number Pence Date exercisable from Expiry date 2 August 2006 – share options 2,796,579 98.15 2 August 2009 1 August 2016 2 August 2006 – LTIP 1,728,901 2 August 2009 1 August 2016

10) Share capital and reserves

Share Share Capital Own Profit Share- Hedging Total Capital premium redemption shares and based reserve equity account reserve loss payments account accrual £m £m £m £m £m £m £m £m As at 1 April 2006 58.4 156.4 2.0 (2.6) 134.9 4.5 – 353.6 Actuarial gain on defined benefit pensions and other post-retirement benefits net of tax – – – – 5.0 – – 5.0 Net gains/(losses) on cash flow hedges – – – – – – – – Dividends – – – – (26.3) – – (26.3) Profit for the year – – – – 112.0 – – 112.0 Share-based payments – – – – – 1.4 – 1.4 Premium on shares issued 0.4 2.7 – ––––3.1 Own shares movement – – – 0.2 (0.2) – – – Transfer between reserves re. share-based options – – – – 2.3 (2.3) – – As at 31 March 2007 58.8 159.1 2.0 (2.4) 227.7 3.6 – 448.8 As at 1 April 2005 – previously stated 58.2 156.0 2.0 (2.9) 237.6 3.1 – 454.0 Adoption of FRS 25 and FRS 26 – – – – (5.4) – 0.4 (5.0) As at 1 April 2005 58.2 156.0 2.0 (2.9) 232.2 3.1 0.4 449.0 Actuarial gain on defined benefit pensions and other post-retirement benefits net of tax – – – – 3.6 – – 3.6 Net gains/(losses) on cash flow hedges – – – – – – (0.4) (0.4) Dividends – – – – (26.3) – – (26.3) Loss for the year – – – – (74.3) – – (74.3) Share-based payments – – – – – 1.4 – 1.4 Premium on shares issued 0.2 0.4 – – – – – 0.6 Own shares movement – – – 0.3 (0.3) – – – As at 31 March 2006 58.4 156.4 2.0 (2.6) 134.9 4.5 – 353.6

118 FKI plc Notes to the Company financial statements 11) Share-based payments For details of share-based payments, see note 37 of the Group accounts. 12) Dividends The amounts recognised as distributions to equity holders in the year were:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Final dividend for the year ended 31 March 2006 of 3p (2005: 3p) per ordinary share 17.5 17.5 Interim dividend for the year ended 31 March 2007 of 1.5p (2006: 1.5p) per ordinary share 8.8 8.8 26.3 26.3

The proposed final dividend is subject to approval by the shareholders at the Annual General Meeting and in accordance with FRS 21 has not been included as a liability as at 31 March 2007. This proposed final dividend will be paid on 5 October 2007 to ordinary shareholders on the register at 7 September 2007.

Year ended Year ended 31 March 31 March 2007 2006 £m £m Proposed final dividend for the year ended 31 March 2007 of 3p (2006: 3p) per ordinary share 17.6 17.5

13) Directors’ remuneration The directors are remunerated by FKI plc for their services to the Group as a whole. Information covering directors’ remuneration is given in the Remuneration report of the Group. 14) Contingent liabilities The Company has contingent liabilities of £20.4 million (2006: £16.7 million) in respect of guarantees of subsidiary undertakings banking obligations. In addition, the Company has guaranteed £49.7 million (2006: £100.0 million) of US Dollar fixed rate guaranteed senior notes issued on behalf of FKI Industries Inc. The Company is also the subject of various pending legal proceedings which have arisen in the normal course of business, including claims on contracts, product liability, environmental claims and others.The claims giving rise to such proceedings are likely to be mitigated by legal defences, insurance and third-party indemnities.While the outcome of some of these matters cannot precisely be foreseen, the directors do not believe that these claims, after allowing for provisions already made, will have a material adverse effect upon the Company’s financial results. Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group, the Company considers these to be insurance arrangements and treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make payments under the guarantee.

119 FKI plc Notes to the Company financial statements 15) Leasing commitments Annual commitments under non-cancellable operating leases are as follows:

Year ended Year ended 31 March 31 March 2007 2006 £m £m Not later than one year – 0.1 After one year but not more than five years 0.1 0.4 After five years – – 0.1 0.5

16) Other information (a) Auditors remuneration for the statutory audit is £0.5 million (2006: £0.5 million) (b) Operating lease rentals charged to the profit and loss account is £0.1 million (2006: £0.1 million).

120 FKI plc Notes to the Company financial statements Five year record Under IFRS

2007 2006 2005 Year ended 31 March £m £m£m Total turnover Continuing operations 1,330.9 1,273.4 1,118.8 Discontinued operations 3.0 65.4 171.7 1,333.9 1,338.8 1,290.5 Underlying operating profit 100.2 108.0 94.6 Underlying profit before tax 74.4 79.0 69.2 Adjusted earnings per share 8.7p 9.7p 8.9p Basic earnings/(loss) per share 7.9p 16.1p (7.0)p Proposed dividends per share 4.5p 4.5p 4.5p Reported net debt 329.9 304.7 350.7 Total shareholders’ funds employed 278.7 260.9 186.5

The Group has applied IAS 32 Financial instruments: Disclosure and Presentation and IAS 39 Financial instruments: Recognition and Measurement from 1 April 2005 and has not restated comparative figures for 2005.

121 FKI plc Five year record Under UK GAAP

2004 2003 Year ended 31 March £m £m Turnover 1,345.1 1,452.6 Results (before exceptional items and goodwill amortisation) Profit before interest* 96.5 103.9 Interest and other finance charges* (29.7) (26.5) Profit before taxation* 66.8 77.4 Taxation (16.9) (19.7) Profit after taxation* 49.9 57.7 Adjusted earnings per share* 8.6p 10.0p (Loss)/earnings per share* (3.6)p 1.9p Dividends per share 4.5p 4.5p Reported net debt 349.1 498.4 Total shareholders’ funds employed* 238.9 284.5

*Amounts for 2004 have been restated on adoption of FRS 17 “Retirement Benefits”.

122 FKI plc Key dates

Financial calendar Dividends on ordinary shares: Date paid/payable Interim 1.5p 23 February 2007 Final 3.0p 5 October 2007 Annual general meeting 24 July 2007 Announcement of Group results: Half year results 29 November 2007 Annual results 5 June 2008

Principal subsidiary undertakings

Lifting Products and Services group Hardware group Acco Material Handling Solutions (USA)† Hickory Hardware, Inc (USA) Bridon International Limited Rhombus Casters Malaysia Bhd (Malaysia) Bridon New Zealand Limited (New Zealand) Rhombus Rollen Holding GmbH (Germany) Bridon American Corporation (USA) Truth Hardware Corporation (USA) BTS Drahtseile GmbH (Germany) Weber-Knapp Company (USA) Crosby Canada (Canada)† Other N.V.Crosby Europe (Belgium) The Crosby Group Inc (USA) FKI Engineering Limited* The Harris Waste Management Group Inc (USA) FKI Industries Canada Limited (Canada) Welland Forge (Canada)† FKI Industries Inc (USA) West House Insurance Limited (Guernsey)* Energy Technology group All companies are wholly owned. Brush Electrical Machines Limited* Shares of companies marked * are held directly by FKI plc. †For statutory purposes these businesses operate as divisions of other FKI Group Brush HMA B.V.(Netherlands) companies. Brush SEM s.r.o. (Czech Republic) Brush Traction† All companies are incorporated and operate in Great Brush Transformers Limited Britain and are registered in England and Wales unless Froude Hofmann† otherwise stated. Companies located overseas operate Harrington Generators International Limited principally in the country of incorporation. Hawker Siddeley Switchgear Limited A full list of subsidiary companies incorporated in Great Marelli Motori SpA (Italy) Britain and registered in England and Wales will be lodged Whipp & Bourne† with the Registrar of Companies. FKI Logistex group As permitted by Section 231 (5) of the Companies Act FKI Logistex North America Inc (USA) 1985, only principal operating subsidiary undertakings have FKI Logistex A/S (Denmark) been shown above. FKI Logistex Limited Industry General Corporation (USA)

123 FKI plc Corporate information

Directors Principal bankers G F Page CBE, Chairman Barclays Bank PLC P Heiden, Chief Executive Wachovia Bank, NA N Bamford, Finance Director Dresdner Bank AG R L Gott, executive director HSBC Bank plc R I Case CBE, non-executive Nordea Sir Michael Hodgkinson, non-executive ABN AMRO Bank NV C L Matthews, non-executive Deutsche Bank AG D J Pearl, non-executive Lloyds TSB Bank plc Company Secretary Auditors A Ventrella Ernst & Young LLP Registered office 1 More London Place, London SE1 2AF Stockbrokers Falcon Works, PO Box 7713 Meadow Lane, Loughborough Hoare Govett Limited Leicestershire LE11 1ZF 250 Bishopsgate, London EC2M 4AA Telephone +44 (0)1509 612837 Registrars and transfer office Fax +44 (0)1509 612339 Registered number Capita Registrars Northern House,Woodsome Park 164945 Fenay Bridge, Huddersfield HD8 0LA Telephone +44 (0)870 1623131 Fax +44 (0)1484 600911 www.capitaregistrars.com Company website www.fki.co.uk

Shareholders’ information

Analysis of shareholdings at 31 March 2007

Number of % of Number of % of Size of holding shareholders total shares share capital 0 - 500 1,879 20.2982 419,029 0.0713 501 - 2,500 3,941 42.5732 5,247,253 0.8922 2,501 - 5,000 1,549 16.7333 5,683,606 0.9664 5,001 - 10,000 911 9.8412 6,548,226 1.1134 10,001 - 25,000 443 4.7856 6,805,799 1.1572 25,001 - 50,000 125 1.3503 4,418,948 0.7514 50,001 - 75,000 46 0.4969 2,818,282 0.4792 75,001 - 100,000 47 0.5077 4,137,835 0.7036 100,001 - 250,000 105 1.1343 16,784,712 2.8539 250,001 - 500,000 58 0.6266 21,894,756 3.7228 Above 500,000 153 1.6528 513,364,029 87.2886 Total 9,257 588,122,475

124 FKI plc Driving Growth Driving Report 2007 Annual FKI plc

FKI plc Annual report 2007 plc +44 (0)1509 612837 +44 (0)1509 +44 (0)1509 612339 +44 (0)1509 ww.fki.co.uk KI alcon Works alcon Works F w F F PO Box 7713 Meadow Lane Loughborough Leicestershire 1ZF LE11 T