Review of financial performance and position

“We focus on driving top-line growth, managing the cost base and the balance sheet and reshaping our portfolio of businesses.”

Group overview

Sales from continuing operations for the year were £2,941.9 million (2006: £3,133.8 million) and adjusted operating profit was £264.7 million (2006: £295.8 million). The operating margin was 9.0% for the year (2006: 9.4%).

Operating cash flow in 2007 was higher at £220.8 million (2006: £219.0 million), as a result of reduced capital expenditure and lower restructuring and working capital cash outflows. Net debt amounted to £296.8 million (2006: £403.0 million, excluding preference shares).

Approximately 59% of the Group’s sales arise in the US. The US dollar weakened further against sterling during the year and, together with exchange losses on other currencies, lowered the reported Group sales by 6.1% or £191.9 million and adjusted operating profit by 6.5% or £19.3 million. Financial information has been translated into sterling at an average rate of £1=$2.00 for the year (2006: £1=$1.83) and a year end rate of £1=$1.99 (2006: £1=$1.96).

The ability to procure lower-cost materials and to re-source materials used in our products is an ongoing priority, particularly with the challenging cost environment for raw materials that has existed for the past three years. We have established functions in both China and India to source low-cost materials for businesses across the Group. We continued to expand our presence in the high growth regions of China, India, Eastern Europe and the Middle East. It is our aim to both manufacture for these growing local markets and to supply some of our traditional markets from this lower-cost manufacturing base. Sales to Asia, Latin America and Eastern Europe in 2007 were approximately 12.4% of total sales for the Group.

During the third quarter of 2007, we acquired UK-based Swindon Silicon Systems as a bolt-on acquisition to Schrader Electronics. We also entered into a joint venture with Caryaire, a leading Indian manufacturer and distributor of HVAC products, and increased our interest in Schrader Engineered Products (Kunshan) Co Ltd. in China from 60% to 100%. Consideration paid for these acquisitions was £10.0 million, and goodwill of £3.1 million has been recognised. Subsequent to the year end, we have acquired a controlling interest in Rolastar, an Indian duct profile manufacturer, further bolstering our presence in the high-growth HVAC market.

Three businesses, Lasco Fittings, Trico and Dearborn Mid-West, were identified as non-core businesses in December 2006, with Trico, which constituted the Group’s Wiper Systems segment, being classified as a discontinued operation in 2006 and 2007. We are pleased to report that all three businesses have been sold during 2007. In the second quarter, we announced the intended sale of two further businesses, Stant Manufacturing Inc. and Standard-Thomson Corporation, and we continue to actively seek buyers. We continuously review our portfolio of businesses and may, in due course, further reshape the Tomkins portfolio.

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. Tomkins 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, and any opportunities which might arise to make strategic bolt-on acquisitions.

Group sales bridge    

Group adjusted operating profit bridge

Underlying movements from 2006 to 2007 (unaudited)