In my interim statement, I reported that each of our business areas increased operating profit and three of the four were able to repeat that performance in the second half, although Fluid Power did not match its excellent result of the second half of the previous year. The overall performance of the Group for the year was encouraging given the increasingly uncertain economic background which affected some of our major sectoral and geographic markets during the year.

Although the underlying tax rate at around 33 per cent is similar to last year, the actual tax charge on profit before exceptional items was 30 per cent compared with 27 per cent in 1997. This year the benefit from paying the interim dividend as a foreign income dividend was £3.5 million whereas in 1997, when both the interim and final dividends were paid as foreign income dividends, the benefit was £8.5 million.

Basic earnings per share were 33.5p compared with 31.2p after including an exceptional profit from disposals of £14.8 million. As a result of the increased tax charge adjusted earnings per share reduced from 30.7p to 30.4p for the year.

The Board recommends a final dividend of 9.1p, making the total dividend for the year 14.8p (1997: 14.0p). The dividend is covered 2 times by earnings before exceptional items.

Our balance sheet continues to be strong with year-end gearing of 21 per cent compared with 58 per cent at the start of the year and 42 per cent at the interim stage. Interest cover was substantial at 28 times.

Strategy
During the year we successfully completed a series of divestments of non-core businesses based primarily in the UK. These disposals significantly improve the focus of the Group and release financial and management resources further to progress the operational and strategic development of our businesses.

We have reshaped Special Engineering into a cohesive energy controls business through the disposal of substantially all of the engineering components activities and have renamed this business area “Energy Controls” to reflect these changes. We have also taken the opportunity to change the name of Building Products to “Hydronic Controls”, which again, more closely reflects our business activity.

We have continued to make acquisitions. In mid-June we acquired KIP Inc., of Connecticut, USA for £18 million to add a US solenoid valve business to Fluid Power. Since the year-end, in Drinks Dispense, we have acquired Melrose Displays Inc. for £5 million in order to grow Cannon’s successful point of purchase equipment business.

The changes we have made over recent years have improved the international profile of the Group. The proportion of sales in our two largest geographic markets, the USA and Continental Europe, were 25 per cent and 42 per cent respectively in 1998. Our continuing strategy is to enhance our ability to respond to growth in world-wide markets.

Our balance sheet strength will allow us to take advantage of further opportunities to develop the Group both by acquisition and through organic growth.

Corporate Governance
I can confirm that the Company complies with the various codes in the field of corporate governance as required by the London Stock Exchange. We adopted new Articles of Association in May 1998 in anticipation of the publication of the Combined Code by the Hampel Committee in
June 1998. A detailed account of how the Company has complied with the principles and the best practice provisions of the Combined Code is set out in Corporate Governance.

Our People
I would like to express my appreciation for the hard work and commitment shown by employees at all levels in our world-wide operations. The achievement of another year of record results demonstrates yet again the quality and strength of our people.

Outlook
Our expectation is that the general economic environment in which we operate will remain flat throughout the year. For the longer-term we are confident that the leadership positions that we have established in our key business areas keep us in a strong position for our ongoing development and profitable growth.

Eric Pountain, Chairman
8 March 1999