Chairman and Chief Executive's statement
“Tomkins is now a leaner organisation, well placed for an eventual recovery in its end markets.”
“Reporting in US dollars will provide a better reflection of the underlying performance of our businesses.”
Dear shareholder,
The Group’s performance in 2007 reflected the result of management actions to mitigate economic weakness across a number of the Company’s markets, to enhance the portfolio of the Group and to drive for growth through developing both attractive new products and our presence in emerging markets. These actions are reflected in the robust margin performance in our key businesses and strong cash flow.
Tomkins is now a leaner organisation, well placed for an eventual recovery in its end markets.
Results
Sales from continuing operations were £2,941.9 million (2006: £3,133.8 million) and adjusted operating profit from continuing operations was £264.7 million (2006: £295.8 million). Operating cash flow was higher at £220.8 million (2006: £219.0 million). Diluted earnings per share from continuing operations were 20.45 pence (2006: 22.98 pence).
Dividend and share buyback
The Board has recommended a final dividend of 8.57 pence per ordinary share, which together with the interim dividend of 5.32 pence paid on 15 November 2007, maintains the dividend at 13.89 pence per share.
Dividend growth (pence)
Subject to approval by shareholders at the Annual General Meeting on 1 May 2008, the final dividend will be paid on 15 May 2008 to ordinary shareholders on the register as at the close of business on 18 April 2008.
The Board has decided that it will consider utilising an on-market share repurchase programme for between 5% and 10% of the issued share capital of the Company. We will remain flexible in relation to the timing and amount of the share repurchases, taking into account Tomkins’ share price, balance sheet and cash flow, maintaining our investment grade rating, and any opportunities that might arise to make strategic bolt-on acquisitions.
Highlights 2007
The Group made good progress against its key priorities:
- Simplified our management structure by appointing Richard Bell and Terry O’Halloran to the new roles of Chief Operating Officer for Industrial & Automotive and Building Products, respectively.
- Made good progress in the introduction of new products that focus on fuel economy and reduced emissions that resulted in a number of contract wins.
- Continued to rationalise some of our older facilities in North America and Europe and invested in new plant and equipment, especially in Asia and Eastern Europe.
- Completed the disposal of three non-core businesses.
- Completed two acquisitions in India, one after the year-end, and a small bolt-on acquisition for Schrader Electronics.
- Implemented a number of self-help measures that enabled us to maintain our operating margin at a solid level.
- Continued to dispose of non-productive real estate.
Total shareholder return (%)
January 2003-December 2007
Performance improvement initiative
Although management has done a good job of managing the cost base, we believe more can be done. We have therefore accelerated our performance improvement initiatives. We estimate that by consolidating some of our manufacturing facilities, stepping up low-cost country sourcing, implementing pricing excellence across our businesses and outsourcing some of our support functions, we have the opportunity to capture approximately US$100 million of annual performance improvements by 2010.
More details can be found in the Strategy section.
Corporate governance
After eight years with Tomkins, Ken Lever stepped down from his role as Finance Director. We would like to thank Ken for the significant contribution he has made to the Group. We are pleased that John Zimmerman joined the Board as Finance Director in October 2007, after leading the Group’s corporate development efforts since 1999.
We are pleased to welcome John McDonough and Leo Quinn to the Board. They bring invaluable experience and we look forward to working with them.
Future reporting
The Board has decided to present the Group’s financial statements in US dollars with effect from the beginning of 2008. Around 60% of the Group’s sales originate in the US and reporting in US dollars will therefore provide a better reflection of the underlying performance of our businesses. The move to US dollar reporting also allows the Group to align its external reporting with its internal reporting, which is US dollar based, thereby simplifying and improving the efficiency of our internal processes.
Subject to approval by shareholders at the 2008 Annual General Meeting, we intend to redenominate the ordinary share capital of the Company from sterling to US dollars. Details of the proposal to redenominate the Company’s ordinary share capital will be set out in the notice of the Annual General Meeting circulated separately to shareholders. If the proposal to redenominate the shares is approved, the 2007 final dividend will be the last to be declared and paid in sterling. Subsequent to the redenomination, dividends would be declared and paid in US dollars, although, unless they elect otherwise, UK shareholders would continue to receive dividends in sterling. The US dollar equivalent of the 2007 dividend of 13.89 pence per share at the year end exchange rate (£1 = US$1.99) would have been US cents 27.64 per share.
The Company’s ordinary shares will remain listed on the London Stock Exchange, where they will continue to be quoted in sterling. The Company will remain listed on the New York Stock Exchange with its American Depository Receipts quoted in US dollars. The Company will continue to have its headquarters in the UK.
Following changes in the rules of the European Transparency Directive, which have been adopted by the UK Listing Authority, Tomkins will in future publish Interim Management Statements. We will therefore cease to report on a quarterly basis and publish our first Interim Management Statement on the day of our Annual General Meeting. Interim Management Statements will provide shareholders with detail on the performance of the business. The Board believes that these changes are consistent with its aim to reduce, where possible, the complexity of the Group’s financial reporting and focus on those matters that are of significance to investors.
Tomkins will continue to publish a half-yearly report that includes condensed financial statements prepared in accordance with IAS 34 “Interim Financial Statements”.
Employees, customers and investors
On behalf of the Board, we should like to thank all of our employees for their hard work and commitment during the past year. Equally, we should like to thank our customers, suppliers, business partners and investors for their continued support.
Outlook
The outlook for a number of the Group’s end markets, particularly in North America, remains challenging. The management team continues to be focused on protecting profitability and generating cash through tightening costs, headcount adjustments and reducing capital expenditure where appropriate. The acceleration of our performance improvement initiatives will help us to significantly improve our cost base over a three-year period. In addition, the Group is focused on driving growth, through expansion in emerging markets and through product development. Overall, Tomkins is committed to managing its businesses vigorously to improve performance.
David Newlands
Chairman
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James Nicol
Chief Executive
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