Tender-Offer Statement — Third-Party Tender Offer — Schedule 14D-1
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3: EX-99.(A)(2) Letter of Transmittal 11 54K
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12: EX-99.(C)(1) Agreement and Plan of Merger 58 251K
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14: EX-99.(G)(1) Ti Group Plc's Annual Report Dec 1997 84 362K
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EX-99.(G)(1) — Ti Group Plc’s Annual Report Dec 1997
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EXHIBIT (G)(1)
TI Group [LOGO] 1997
Global Specialised Engineering
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[GRAPHIC]
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TI Group plc Annual Report
TI Group's strategy is to be an international engineering group concentrating on
specialised engineering businesses, operating in selected niches on a global
basis.
Key businesses must be able to command positions of sustainable technological
and market share leadership. They will have a high knowledge and service content
and will be able to anticipate and meet customers' needs.
Summary of Results
1996
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(pound)million
Turnover 1,756.6
Turnover - subsidiary undertakings 1,552.5
Profit before taxation 232.2
Profit before taxation (pre-exceptionals) 211.1
Net debt 68.0
TI shareholders' funds - gross 1,364.6
TI shareholders' funds - net 324.5
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%
Operating margin 12.5
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p
Earnings per Ordinary share 34.1
Earnings per Ordinary share (pre-exceptionals) 30.0
Dividends per Ordinary share 14.5
FIVE YEAR FINANCIAL HIGHLIGHTS
TI Group is one of the world's leading specialised engineering companies and is
quoted on the London Stock Exchange. The Group operates on a global basis and
employs 25,500 people at over 350 manufacturing and customer facilities in 46
countries. TI Group's four world leading business groups are John Crane,
Forsheda Polymer Engineering, Bundy and Dowty.
Total Sales
(pounds) Million
[GRAPHIC]
Profit Before Taxation & Exceptional Items
(pounds) Million
[GRAPHIC]
Pre-Exceptional Earnings/Dividends Per Share
EPS pence DPS pence
[GRAPHIC]
Free Cash Flow
(pounds) Million
[GRAPHIC]
TI GROUP 1
STATEMENT BY THE CHAIRMAN
[GRAPHIC]
"1997 was another year of strong performance and significant investment, with
the Group continuing to benefit from the global spread and balance of its
businesses.
With our strong balance sheet, healthy order books and the establishment
of our top management team, we are confident we will continue to satisfy our
customers and enhance shareholder value."
Sir Christopher Lewinton, Chairman
PERFORMANCE
1997 was another year of strong performance. The Group benefited from the global
spread and balance of its activities, achieving organic sales and profit growth
of 12% in mixed market conditions. All three core businesses continued to
perform well.
In December 1997 it was announced that the Groups 50% share of Messier-Dowty and
TI's wholly-owned associated landing gear repair and overhaul business, which
together account for around 8% of group profit before interest and exceptional
items, were to be sold to Snecma. Whilst Messier-Dowty's results were the best
since the formation of the joint venture three years ago, it still failed to
meet TI's expectations and, without the opportunity to gain 100% control in the
foreseeable future, the decision was taken to dispose of the business. The Group
remains committed to the 100% owned Dowty Aerospace business which has enjoyed
strong sales growth and further margin improvements.
The Group's pretax profit (before exceptional items) was (pound)222.5m, up from
(pound)211.1m in 1996 after adverse currency translation of (pound)15.2m,
reflecting organic profit growth of 12%. After exceptional items of
(pound)(1.9)m (1996: (pound)21.1m) arising from property disposals, profit
before tax was (pound)220.6m (1996: (pound)232.2m). Earnings per share before
exceptional items were 32.0p(1996: 30.0p), an increase of 7% or, at constant
exchange rates, an increase of l4%.
After exceptional items, earnings per share were 31.6p (1996: 34.1p), 7% lower,
reflecting the exceptional profit on the sale of the Smaller Engineering
Businesses in 1996.
Revenue and capital investment in 1997 was significantly increased to
(pound)121m, from (pound)104m in 1996, of which capital expenditure rose to
(pound)80m from (pound)63m in the previous year.
Group return on investment rose from 15% to 16%, and interest cover remained
strong at 16 times. The dividend has been increased by 10% from 14.5p to 15.9p
and is covered 2.0 times by earnings. Further commentary on the results is given
in the operating and financial review on pages 6 to 25.
BUSINESS REVIEW
During the year it was announced that John Crane's Polymer Engineering division
had grown sufficiently -- organically and through acquisition -- to become TI's
fourth business group alongside John Crane, Bundy and Dowty. This took effect in
January 1998 and Polymer Engineering has subsequently been re-named Forsheda
Polymer Engineering Group, an internationally recognised name with a strong
reputation for quality and service.
2 TI GROUP
John Crane
John Crane, a world leader in engineered sealing systems, demonstrated good
performance in difficult industrial markets and continued to make significant
investment in future growth opportunities. Its three divisions -- Mechanical
Seals, Marine and Polymer Engineering -- recorded a good financial performance
and continued to gain market share.
John Crane's order books at the end of 1997 were ahead of those one year before.
Mechanical Seals
The Mechanical Seals division continued to strengthen its market position,
enjoying strong order books as the year ended. Through its wide global coverage,
the division was well placed to develop further global supplier relationships
with its customers and added 10 major new alliances in 1997. Product development
and globalisation remained key to the division's success and several important
new products were launched in 1997 including the T2800 High Pressure
non-contacting seal and the T5600 Universal Cartridge Seal, a process industry
product, which has already received strong customer acceptance. The global sales
force was significantly strengthened during the year with the recruitment of
additional sales and application engineers bringing the total to around 1,200,
supported by around 140 service centres worldwide. Over (pound)15m has been
committed to advanced global IT networks and business systems which will greatly
enhance the competitiveness of John Crane Mechanical Seals in bringing its high
level of knowledge and service to customers in markets which are increasingly
service driven.
The division will be further strengthened by the acquisition of EG&G's Sealol
Industrial Division. Sealol is a leading manufacturer of mechanical seals with a
primary focus on the high temperature segment of the petroleum and chemical
industries which is complementary to the John Crane product range. Sealol's
primary market is the United States and it is anticipated that John Crane's
worldwide marketing and service capability will accelerate the growth of this
business globally.
Marine
The Marine division performed well, increasing its market share in both the
commercial shipbuilding and defence markets. The division will be strengthened
further with the acquisitions announced in December. The combination of John
Crane's global presence and sealing expertise and the additional products of
Lips will help satisfy the growing demand for fully integrated marine propulsion
systems. In addition, an agreement to purchase the Sealol marine seal product
line from EG&G increased access to the US Navy's submarine fleet.
Polymer Engineering
Polymer Engineering continued to make significant progress with the Forsheda
business, acquired in November 1996, being integrated into the division and the
necessary investment made for the creation of TI's fourth business group.
Forsheda had a good year, performing in line with expectations, and the process
of globalising its product range and engineering skills has begun. To accelerate
expansion from its traditional Scandinavian and Continental European markets,
focused investment is underway in North America and projects are in hand in
Latin America and Asia Pacific.
Sales continued to grow in broadly flat market conditions. The division
continued to benefit from the extension of existing business supported by a new
product management structure designed to accelerate the growth of its world
leader Engineered Seals and Pipe Seals businesses.
Bundy
Bundy, a world leader in fluid carrying systems, performed well in both its
automotive and refrigeration markets and gained market share. During the year,
the management team was strengthened with the appointment of Ken Templeton as
Deputy Chief Executive and John Langston as Chief Executive of Bundy Automotive,
and the arrival of Malcolm Aitken as Chief Executive of Bundy Refrigeration. In
addition, Jim Davis became President of Bundy North America.
Bundy ended the year with order books at a record level, well up on the previous
year.
Automotive
The Automotive division continued to outperform. A number of major vehicle
platforms, including the GM Saturn, the VW A4 and the BMW E46, moved into full
scale production. In addition, there were further platform wins throughout the
world, in part assisted by the development of new coatings which provide
superior performance, and the continued focus on lean manufacturing to create
world class facilities. Bundy made significant revenue and capital investment to
support major OEM programmes won in earlier years which are now moving into
production. The division achieved
TI GROUP 3
STATEMENT BY THE CHAIRMAN continued
Quality and customer recognition in all its major markets, including the
worldwide "Supplier of the Year" award from General Motors.
Refrigeration
The Refrigeration division continued to make progress alongside customers who
are becoming increasingly global in their operations, although refrigeration
markets remained difficult with European production down slightly on 1996 and
North America flat. The 1996 acquisition of Alcan's refrigeration components
business in Brazil expanded the division's product range and provided further
globalisation opportunities. The global partnership agreement with Peerless of
America, established in the first half of 1997 for the marketing, sale and
distribution of frost-free evaporator systems, has also started to create new
business opportunities.
Significant successes included a major contract with Whirlpool in India and the
division's first contract -- with Electrolux -- to supply its new innovative
Waveline(TM) condenser. In addition, a further contract with Electrolux in
Eastern Europe strengthened its presence in the region.
Dowty
In 1997 Dowty comprised two separately managed businesses:
Dowty Aerospace, wholly-owned by TI Group, primarily serving the aerospace
engine and hydraulic and actuation markets; and Messier-Dowty, the 50:50 landing
gear joint venture with Snecma of France. As mentioned above, TI has announced
its intention to sell to Snecma its landing gear interests which comprise its
stake in Messier-Dowty and its 100% owned repair and overhaul business which
primarily services Messier-Dowty's product range.
These two businesses continued to benefit from strong growth in their aerospace
markets. The management team was strengthened with the appointment of Geoff
Smith as Deputy Chief Executive.
Dowty Aerospace's order book stood at a record level at the year end, well up on
1996.
Messier-Dowty
Messier-Dowty had a good year, benefiting from the increase in Airbus A320 and
A330/A340 production and, at the Toronto operation, from regional and business
jet programmes. During the year, it delivered the 750th set of Airbus A320
family landing gear and the 200th set of A330/A340 landing gear.
Dowty Aerospace
Dowty Aerospace benefited from its strong position on key civil and military
programmes and from the continued outsourcing of components by the aero engine
manufacturers. Further major supply contracts were awarded in 1997 which
underlined the strong performance across the business.
The Propellers business won contracts to supply the C-27J Spartan transport
aircraft while the Engine Rings business won -- from GE --its largest ever
order. The Hydraulics and Actuation business was selected to provide a major
part of the hydraulic system on the Raytheon Company's Premier 1 entry-level
business jet and actuators and offset gearboxes for the new Boeing 767-400ER
aircraft. Dowty continued to invest in additional capacity to meet this ongoing
growth in demand, particularly for turbine engine components.
BOARD AND MANAGEMENT
I was pleased to be able to announce during 1997 that Bill Laule was to become
Chief Executive of TI. I had said publicly that I was confident that my
successor as Chief Executive would come from within the Company, and so it has
proved. Bill, who has headed Bundy since 1994 and who joined the Board the
following year, is already making an important contribution to the development
of the Group. His appointment, which became effective on 1st January 1998, will
help to ensure continuity of the strategy and culture which have been so crucial
to the Group's success.
To make the transition as seamless as possible we have made certain structural
changes within the TI headquarters. A Chairman's Committee has been formed which
comprises myself, Bill Laule as Chief Executive, and Martin Angle who joined the
Board as Group Finance Director in February 1997. This committee is responsible
on behalf of the Board for maintaining the strategic direction of the Group.
An Executive Board has also been formed: this is chaired by Bill Laule and is
responsible for the overall management of the business. The membership of the
Executive Board is the executive Directors of the Company together with John
Edwards, Deputy Group Finance Director, and David Lillycrop whose appointment as
General Counsel, in addition to his existing role of Group Secretary, was
announced in October 1997. Further details of these developments appear in the
report of the Directors on pages 32 and 33.
4 TI GROUP
I referred in last year's Annual Report to the appointment to the TI Board of
Martin Angle, Group Finance Director, and Gerrit Aronson, Group Director of
Human Resources. Both appointments have proved highly successful, and have done
much to facilitate the development of the global management team needed for the
continuing development of the Group.
The non-executive element of the Board has also been strengthened recently with
the appointment of Sir Nigel Broomfield on 18th February 1998. Sir Nigel has
enjoyed a distinguished diplomatic career, culminating in a term as British
Ambassador to the Federal Republic of Germany. His experience gained in a
variety of European and other overseas postings will make him a valuable
addition to the Board.
Senior management continued to demonstrate its confidence in the Company by its
significant TI shareholdings. As in previous years, executive Directors' and
other senior executives' after tax bonuses were paid half in shares. The total
value of TI shares currently held by the management team is in excess of
(pound)5m, with senior management continuing to align its interests more closely
with those of shareholders generally.
OUTLOOK
1997 was another successful year for the Group. We achieved strong organic
growth in both sales and profits, good cash generation along with continuing
improvements in margins and return on investment.
We have established a top management team with Bill Laule as Chief Executive,
and Martin Angle as Group Finance Director, both of whom along with myself will
work closely together to ensure the continuing direction and growth of the
Group.
Following a year of significant investment, including the creation of the
Forsheda Polymer Engineering Group as our fourth leg and the implementation of
advanced IT systems within John Crane, we entered 1998 with a strong balance
sheet, good cash resources, order books well up on last year and we had a good
trading start to the year.
We are confident that with our global spread and balance we will achieve
continued growth both in our businesses and in returns to our shareholders.
/s/ Christopher Lewinton
Sir Christopher Lewinton Chairman
11th March 1998
TI GROUP 5
FINANCIAL REVIEW
[GRAPHIC]
"In 1997 TI Group achieved organic growth in sales and profit of 12% with all
core businesses continuing to capture market share. The Group continued to
generate strong cash flow whilst increasing its investment to support future
growth."
Martin Angle, Group Finance Director
INTRODUCTION
The Group's accounting policies are unchanged from last year. The Group has
adopted FRS 9 "Associates and Joint Ventures" in 1997 and has increased the
disclosures given in respect of the use of financial instruments drawing on the
recommendations in FRED 13 "Derivatives and Other Financial Instruments:
Disclosures".
FRS 10 "Goodwill and Intangible Assets" was issued in December 1997 and
will be adopted for the 1998 financial statements.
The strength of sterling had a material effect on the translation of the
1997 results of the Group's overseas subsidiaries for accounting purposes.
However, the Group does not suffer any material foreign exchange transaction
exposure because of the global spread of its operations. The table below shows
the 1996 and 1997 average and year end exchange rates for the US dollar and the
Deutschmark, the movement of which against sterling was representative of other
major European currencies.
(pound)1=US$ (pound)1=DM
1997 average 1.64 2.84
1996 average 1.56 2.37
Sterling stronger 5% 20%
1997 year end 1.65 2.96
1996 year end 1.71 2.64
Sterling stronger/(weaker) (4)% 12%
Year-on-year comparisons in 1997 are affected by the first full year
contribution made by Forsheda and other businesses acquired in 1996 and by the
reduction in the proportion of Messier-Dowty sales, profit and dividend
attributable to TI Group from 80% in 1996 to 62.5% in 1997 in accordance with
the joint venture agreement. Details of corporate activity completed in 1997 are
given in note 1 on page 48.
Towards the end of the year, it was announced that the Group's 50% share of
Messier-Dowty and TI's wholly-owned associated landing gear repair and overhaul
business, which together in 1997 accounted for around 8% of Group profit before
interest and exceptional items, are, subject to contract, to be sold to Snecma
of France. The 1997 results are not affected directly by this proposed disposal
but, for clarity, the analysis of results by business segment set out in note 2
on page 49 identifies separately the contribution of the businesses to be
divested.
ANALYSIS OF RESULTS
1997 was another year of strong performance by the Group with organic growth of
12% both in sales and in profit before interest and exceptional items. Earnings
per share excluding exceptional items increased by 7% and at constant exchange
rates were up 14%. Cash flow generation was strong despite a significant
increase in investment.
Total sales in 1997, including the Group's share of joint ventures, were
(pound)1,870m (1996: (pound)1,757m). Adjusting for adverse currency translation
of (pound)126m, and for changes in the portfolio, organic sales growth was 12%
over 1996.
John Crane demonstrated good performance in difficult industrial markets.
The principal process industry markets served by John Crane's Mechanical Seals
division were weaker than in 1996.
Against this background, sales by The John Crane Group, which
6 TI GROUP
OPERATING AND FINANCIAL REVIEW
in 1997 comprised Mechanical Seals, Marine and Polymer Engineering, were up 11%
at (pound)655m (1996: (pound)593m) after adverse currency translation of
(pound)43m and representing 35% of Group turnover. At constant exchange rates
and after adjusting for portfolio changes, including the Forsheda acquisition in
November 1996, sales grew organically by 4%. Within this the sales of Mechanical
Seals and Marine grew organically by 3% and Polymer Engineering by 8%.
All three of John Crane's divisions strengthened their market positions.
Mechanical Seals added 10 new alliance agreements worldwide in 1997, launched
several important new products and made significant investment in IT networks
and business systems. The Marine division experienced strong market growth
driven by record commercial shipbuilding order books. Polymer Engineering made
significant progress during the year. The Forsheda business, acquired in
November 1996, was integrated into the division. Forsheda had a good year,
performing in line with expectations. Polymer Engineering's sales in 1997 were
(pound)244m (1996: (pound)168m), with operating profit of (pound)33.6m and a
margin of 14%.
Sales by the Bundy Group, which comprises two divisions, Automotive and
Refrigeration, were up 3% at (pound)740m (1996: (pound)718m) after adverse
currency translation of (pound)62m, and representing 40% of the Group's
turnover. At constant exchange rates and adjusting for changes in the portfolio,
Bundy achieved organic sales growth of 11%, significantly above its underlying
markets.
North American automotive production continued at high levels, 4% ahead of
1996. In Europe, production increased by a similar amount although there was
considerable variation in individual markets. Latin American production volumes
showed year-on-year growth but were depressed late in the year by economic
issues. Production volumes in Asia Pacific were only marginally higher than in
1996.
Bundy's Automotive division sales benefited from a number of major vehicle
platforms moving into full scale production and there were further platform wins
throughout the world.
The Refrigeration business continued to make progress although markets
remained mixed with European production down slightly on 1996 and North America
flat.
In 1997 The Group's aerospace interests comprised two separately managed
businesses: Dowty Aerospace, wholly-owned by TI, which primarily serves the
aerospace engine and hydraulic and actuation markets; and Messier-Dowty, The 50%
owned landing gear joint venture.
Aerospace markets showed a significant increase production levels for large
commercial aircraft following the upturn in airline orders in 1996. Activity
levels at the aerospace engine manufacturers also showed significant growth.
Excluding the landing gear repair and overhaul business, Dowty Aerospace
represented 15% of Group turnover with sales in 1997 increasing by 34% on an
organic basis to (pound)275m (1996: (pound)218m). The division benefited from
its strong position on key civil and military programmes and from the continued
outsourcing of components by the aero engine manufacturers.
For Messier-Dowty, total sales were (pound)266m (1996: (pound)247m),
benefiting from the increase in Airbus A320 and A330/340 production. TI Group's
attributable sales from Messier-Dowty and the wholly-owned associated landing
gear repair and overhaul business in 1997 totalled (pound)200m (1996:
(pound)228m) up 16% on an organic basis and representing around 10% of the
Group's turnover.
Group profit before interest and exceptional items was (pound)237.0m, up
(pound)17.3m over 1996, representing organic growth of 12% after adjusting for
adverse currency translation of (pound)15.2m and for changes in the portfolio.
Within this total, operating profit at John Crane declined by 3% on an organic
basis as a consequence of significantly increased revenue investment coupled
with a decline in the principal process industry markets served by Mechanical
Seals. Bundy achieved organic profit growth of 7%, reflecting increased volumes,
cost efficiencies and added product value offset by weakness in the Brazilian
market towards the end of the year which TI sees persisting for the balance of
1998. Organic profit growth at
Return on investment
[GRAPHIC]
TI GROUP 7
FINANCIAL REVIEW continued
Dowty Aerospace, excluding the landing gear repair and overhaul business being
divested, was 87%, reflecting the increase in sales volume.
North America showed strong profit performance throughout 1997 and, in the
second half, there was considerable improvement in Continental Europe compared
with the same period in 1996. With only around 10% of its businesses in Asia
Pacific and Latin America, there was no material effect on the Group's results
from the economic downturn in these regions.
The Group's share of operating profit from joint ventures and associates,
principally Messier-Dowty, was (pound)18.2m (1996: (pound)18.7m). Group
operating margin increased to 12.7% (1996: 12.5%). Return on investment (profit
before interest, exceptional items and tax as a percentage of investment
including goodwill) for the Group as a whole increased by 1 percentage point
over the prior year to 16%.
Net interest expense for the year was (pound)14.5m (1996: (pound)8.6m) with
the increase principally due to the full year effect of the acquisition of
Forsheda in November 1996. Interest was well covered at 16 times (1996: 26
times) by profit before interest and exceptional items.
Group profit before tax and exceptional items was (pound)222.5m, an
increase of (pound)11.4m or 5%. After exceptional items relating to property
disposals of (pound)(1.9)m (1996: (pound)21.1m), profit before tax was
(pound)220.6m (1996: (pound)232.2m).
The effective rate of tax on profit before exceptional items reduced to
30.9% (1996: 31.7%) following changes announced in the UK Budget on 2nd July
1997. No tax was attributable to the 1997 exceptional items (1996: (pound)2.2m
charge).
Earnings per share excluding exceptional items were 32.0p (1996: 30.0p) an
increase of 7%, or 14% after adjusting for the effect of changes in exchange
rates. After exceptional items earnings per share were 31.6p (1996: 34.1p), 7%
lower reflecting the exceptional profit on the sale of the Smaller Engineering
Businesses in 1996.
DIVIDEND
The Directors are recommending a final dividend of 10.8p giving a total dividend
per Ordinary share for the year of 15.9p (1996:14.5p), an increase of 10% over
the previous year. The dividend is covered 2.0 times by earnings before
exceptional items (1996: 2.1 times) and will be paid as a Foreign Income
Dividend. Payment details for the final dividend are set out in the report of
the Directors on page 31.
CASH AND DEBT
The strong cash generative nature of all the business groups was demonstrated
again in 1997. Cash flow from operating activities increased by (pound)23.3m or
11% to (pound)241.4m compared with (pound)218.1m in 1996 due to the increase in
operating profit and tight control over working capital, which as a percentage
of sales at the year end was below 12% (1996: 12.5%).
The Group's total investment, comprising revenue investment, which is
charged to the profit and loss account, and capital expenditure, increased
significantly to (pound)121.2m from (pound)104.2m in 1996. Within this, capital
expenditure increased to (pound)79.9m (1996: (pound)63.4m) with all business
groups investing in new capacity, new products and the application of advanced
manufacturing techniques. Excluding the Group's joint ventures, total investment
rose by 21% to (pound)106.4m (1996: (pound)88.1m) of which (pound)71.7m was
capital expenditure.
Group free cash flow (net cash flow from operating activities after the
cash effect of capital expenditure) was (pound)192.0m (1996: (pound)173.2m),
which exceeded interest, tax and dividend payments by (pound)35.6m representing
a free cash flow ratio of 1.25 times, or more than 10% of sales. After
(pound)13.7m net expenditure on acquisitions and disposals during the year,
internal cash generation reduced debt at 31st December 1997 to (pound)37.9m
(1996: (pound)68.0m).
Net TI shareholders' funds increased to (pound)392.6m (1996:
(pound)324.5m), principally as a result of retained profits of (pound)74.5m, and
Change in Net Debt
[GRAPHIC]
8 TI GROUP
OPERATING AND FINANCIAL REVIEW
gearing reduced to 10% (1996: 2l%). The impact of exchange translation on net TI
shareholders' funds and net debt at the year end was not significant.
TREASURY
TI operates a central treasury function providing services to the whole Group
arranging borrowings, investing surplus funds and managing and reducing
financial risks. Group Treasury is not a profit centre and no speculative
transactions are permitted. It operates within specific Board policies with
compliance confirmed regularly in formal reports to the Audit Committee. There
are extensive written control procedures in place and Group Treasury is subject
to regular reviews by the financial control function, and by internal and
external audit. Treasury systems, including disaster recovery arrangements, are
also reviewed and updated regularly. Prudent use is made of financial
instruments, mainly forward rate agreements, interest rate swaps, and forward
foreign exchange contracts, with relationship banks as the counterparty. Such
instruments may also include the purchase, but not the writing, of options in
specific circumstances.
The Group's principal exposures to exchange rate fluctuations arise on the
translation of overseas net assets and profits into sterling for accounting
purposes.
Translation exposures arising on consolidation of the Group's overseas net
assets are minimised by broadly matching assets with borrowings in each major
currency. The level of hedging cover required by Group policy is over 80% across
all currencies and TI is fully hedged in all relevant major currencies. As a
consequence the Group has significant foreign currency denominated debt offset
by sterling deposits.
The Group's gross debt at 31st December 1997 totalled (pound)406.8m (1996:
(pound)366.6m), with (pound)256.7m in US and Canadian dollars, reflecting the
Group's strong North American presence, and (pound)118.6m denominated in
Continental European currencies. The principal components of this debt are two
private placements of US $220m in total outstanding, and centrally administered
bank loans totaling (pound)163.2m. The Group also has a US commercial paper
programme rated A1/P1 by Standard and Poor's Corporation and Moody's Investor
Services respectively. To support the commercial paper programme and to provide
medium term liquidity, the Group has committed bank facilities of (pound)260m
maturing in 1999 or later and a further (pound)78m maturing in late 1998.
Year end cash and deposits predominantly in sterling, totalled
(pound)368.9m (1996: (pound)298.6m). The Group adopts a conservative investment
policy for its surplus funds, most of which are pooled and managed centrally,
with deposits limited by amount and maturity across highly-rated banks.
Counterparty risk limits are established for all banks used by the Group,
depending on the credit standing of the bank. Extensive use is made of
intra-group loans to provide cost effective core funding to operating businesses
worldwide.
Interest rate exposures on borrowings and deposits are monitored carefully
and hedging actions taken when market conditions are considered appropriate.
Normally, at least one third of borrowings in each major currency is hedged at
fixed rates for the next 12 months, using long dated drawings, forward rate
agreements, interest rate swaps or collars. Interest rate differentials between
the US dollar private placement loans and sterling deposits currently give rise
to a net interest charge.
Exchange translation exposures arising on the consolidation of overseas
operating profits are partially offset by interest charges on foreign currency
borrowings. These exposures are monitored but are not normally hedged, and no
such hedging was undertaken in 1997.
Exposures to movements in exchange rates on transactions are minimised
using forward foreign exchange contracts, normally up to 12 months forward, on a
rolling basis. Some aerospace businesses may hedge exposures up to four years
into the future, reflecting the nature of commitments in that industry. All TI
business units hedge their net exposures through or at the direction of Group
Treasury.
LITIGATION
The circumstances surrounding the civil action in the US courts against Dowty
Woodville Polymer remain as disclosed in the 1996 Annual Report. The Group does
not believe there is any material substance to the claim and will continue to
defend its position vigorously.
YEAR 2000 AND EMU
Work is well advanced throughout TI's operations to ensure that `Millennium
compliance' is achieved both for all business critical systems and to minimise
the potential for disruption arising from any non-compliance by suppliers or
customers. Action is also being taken to ensure that, where appropriate, the
Group's electronic and other systems will be adapted to handle the introduction
of the Euro following European Economic and Monetary Union.
Martin D. Angle, Group Finance Director
TI GROUP 9
OPERATING REVIEW
[GRAPHIC]
EXECUTIVE BOARD
Foreground
William J Laule Chief Executive
Background from left to right
Martin D Angle Group Finance Director
John W Potter Chief Executive, John Crane
L Antony Edwards Chief Executive, Dowty
Gerrit O Aronson Group Director of Human Resources
James L Roe Director of Strategic Development
Robert J M Fisher President, Asia Pacific
David P Lillycrop General Counsel & Group Secretary
John R Edwards Deputy Group Finance Director
10 TI GROUP
OPERATING AND FINANCIAL REVIEW
TI Group Structure
Throughout 1997 and 1996, TI Group consisted of three core businesses, John
Crane, Bundy and Dowty, each of which is briefly described below. This structure
is reflected in the segment analysis of results on pages 49 and 50. The
principal businesses included within each segment are shown on pages 72 and 73.
As from 1st January 1998, the Polymer Engineering business of John Crane Group
was separated to form a fourth core business, as described on pages 16 and 17,
which now trades as Forsheda Polymer Engineering Group.
------------------------------------
John Crane[LOGO}
------------------------------------
world leader in engineered
sealing systems
------------------------------------
Mechanical Seals
------------------------------------
Marine
------------------------------------
Polymer Engineering*
------------------------------------
John Crane is a world leader in the design, manufacture and distribution of
engineered sealing systems. Through its divisions, John Crane provides a wide
range of sealing solutions which satisfies customers' needs for knowledge and
service in the process, marine and general industrial markets of the world.
*part of John Crane Group until 31st December 1997
------------------------------------
FORSHEDA[LOGO}
------------------------------------
world leader in engineered
elastomer seals
------------------------------------
Engineered Seals
------------------------------------
Pipe Seals
------------------------------------
Speciality Products
------------------------------------
Forsheda Polymer Engineering is a world leader in engineered elastomer seals for
the industrial, automotive and aerospace industries. It has a world class
capability in design, materials and process engineering and focuses on products
and applications with exacting environmental and service demands.
------------------------------------
BUNDY[LOGO}
------------------------------------
world leader in fluid
carrying systems
------------------------------------
Automotive
------------------------------------
Refrigeration
------------------------------------
Bundy is a world leader in specialised small diameter fluid carrying systems for
the automotive and refrigeration industries. Through its unrivalled capability
in design, development and manufacturing, Bundy supplies systems to satisfy the
global needs of its customers in both the automotive and refrigeration markets.
------------------------------------
DOWTY[LOGO]
MESSIER-DOWTY[LOGO]
------------------------------------
world leader in
aerospace systems
------------------------------------
Dowty Aerospace
------------------------------------
Messier-Dowty
------------------------------------
Dowty, through its Dowty Aerospace business units, is one of the world's leaders
in hydraulic and actuation systems, turbine engine components and propellers.
Through the Messier-Dowty joint venture between TI Group and Snecma of France,
it is part of the world leading team in design, development and manufacture of
landing gear systems.
--------------------------------------------------------------------------------
Distribution of sales by geographic origin
--------------------------------------------------------------------------------
[GRAPHIC]
United Kingdom (19%)
Continental Europe (26%)
North America (44%)
Rest of World (11%)
--------------------------------------------------------------------------------
Distribution of profits by geographic origin
--------------------------------------------------------------------------------
[GRAPHIC]
United Kingdom (20%)
Continental Europe (25%)
North America (49%)
Rest of World (6%)
TI GROUP 11
JOHN CRANE GROUP
world leader in engineered sealing systems
John Crane is a world leader in the design, manufacture and distribution of
engineered seals and sealing systems. Through its three divisions John Crane
provides the most Comprehensive range of sealing solutions to satisfy customers'
needs for knowledge and service in the process, marine and general industrial
markets of the world. There are 10,000 employees based in more than 240
locations in 46 countries ensuring a global presence which is unsurpassed in the
industry.
During the year John Crane's world leadership was enhanced by continued
investment in new products and capacity, the integration of Forsheda into the
existing Polymer activities and the announcement of three strategically
significant acquisitions. Against a background of mixed market conditions, John
Crane consolidated its position as a world leader and gained share in all three
divisions. Order books at the end of the year were stronger than at the previous
year end and, when coupled with the substantial investment programme implemented
during 1997, John Crane is well positioned to continue to serve its customers
and sustain profitable growth.
On 1st January 1998 the Polymer Engineering business was separated from John
Crane Group to form a fourth core business which now trades as Forsheda Polymer
Engineering Group. See pages 16 and 17 for further information.
(pound) million 1997 1996
Turnover 654.9 592.5
Profit Before Interest 99.0 97.1
Net Assets 193.5 199.2
Management
Under the continued leadership of John Potter, the John Crane management team
has been further strengthened during the year. Robin Thompson was appointed
Director of Strategic Development and John Crane's commitment to people was
confirmed with the appointment of Frank Richardson as Director of Management
Development. Bob Saunders was appointed Managing Director, Lubrication Systems
to focus on global growth opportunities for this developing business.
John Cousins OBE continues as Managing Director of Marine and Clive
Stearnes as Chief Executive, Polymer Engineering (now Forsheda Polymer
Engineering).
With the regional management of Mechanical Seals also continuing unchanged
John Crane has a strong and highly experienced team clearly focused on
generating profitable growth.
12 TI GROUP
John Crane[LOGO]
[GRAPHIC]
Group Structure
Mechanical Seals
Designs manufactures and distributes a comprehensive range of mechanical seals
and sealing systems for the process industries of the world.
Marine
Provides a total on-board sealing service for the commercial and naval fleets of
the world.
Polymer Engineering*
Supplies an extensive range of engineered polymer sealing solutions for global
industrial markets.
*part of John Crane Group until 31st December 1997
TI GROUP 13
Mechanical Sales
[GRAPHIC]
New T2800EX Slurry Seals
The new Type 2800EX gas lubricated non-contacting pump seals were specified to
seal molten product pumps at this Mid-West chemical plant.
[GRAPHIC]
Eli Lilly chooses John Crane products
Following a recently signed alliance agreement, a Type 5600 Universal Cartridge
Seal is fitted to a Syltherm circulation pump at Eli Lilly and Company's
Lafayette, Indiana facility.
The world's process industries, principally chemical, petroleum, pulp and paper
and food and beverage, represented challenging markets in 1997 which were weaker
than the previous year. The Mechanical Seals division outperformed the
underlying growth of its served market with continued investment in new
products, extension of its alliance programme and the recruitment of additional
sales and application engineers. At the end of the year the order book was at a
record high, 5% greater than at the same time as last year.
In 1997 the global launch of the T5600 Series Universal Cartridge Seal was
completed. First year sales, coupled with outstanding customer acceptance, make
the T5600 one of the most successful new products ever launched by John Crane.
The innovative T2800 Seal, which uses the principle of non-contacting technology
developed for use in compressors, was extended during the year to cover high
pressure applications and high purity equipment used in the production of
pharmaceuticals and chemicals.
An Integrated Sealing Information System (ISIS) was launched, providing the
John Crane global sales force with a powerful and portable software tool. Using
ISIS, sales engineers are able to produce an optimum proposal at a customer
site, utilising state-of-the-art seal selection software that provides access to
the total John Crane global database. ISIS puts John Crane knowledge, technology
and service at the fingertips of any authorised user worldwide.
Customer alliances continue to be an important source of organic growth for
John Crane. Under an alliance programme, John Crane actively participates in the
management of maintenance and repair of its customer's pumping system to achieve
improved reliability and reduce operating costs. In return John Crane can become
an exclusive supplier of mechanical sealing systems to the customer. In 1997 a
more focused organisation was established specifically to develop relationships
with customers in this respect. During the year 10 new alliance agreements were
added worldwide, including agreements with Koch Refining and ICI.
Additional sales and application engineers were recruited in all regions of
the world and there are now some 1,200 highly skilled individuals dedicated to
satisfying the needs of John Crane's customers globally. During the year the
number of sales and service locations was increased by 16 including 9 new
service centres in areas such as Czech Republic, Germany, Mexico, Venezuela,
Colombia and Norway, demonstrating John Crane's continuing commitment to total
customer support on a global basis.
In December it was announced that John Crane had reached agreement to
acquire the Sealol Industrial Division of EG&G. The primary focus of Sealol is
on the high temperature segment of the petroleum and chemical industries and it
is anticipated that John Crane's worldwide organisation will accelerate the
global growth of Sealol. At the same time John Crane agreed to sell its Belfab
business to EG&G.
John Crane's unrivaled capability to provide knowledge and service that
satisfies customer needs worldwide will ensure that Mechanical Seals continues
to strengthen its global leadership position and continues to grow.
14 TI GROUP
OPERATING AND FINANCIAL REVIEW
Marine
[GRAPHIC]
Seals for US Navy
John Crane Marine stern shaft seals for an aircraft carrier: submarine
propulsion shaft seals will be supplied following the acquisition of EG&G's
marine product line.
Polymer Engineering 1997
[GRAPHIC]
Forsheda Polymer Engineering
3.6m diameter Forsheda pipe seals were specified to seal the Cologne flood
control reservoir's 50 tonne concrete pipes.
John Crane Marine continued to strengthen its global leadership position,
increasing market share by outperforming both the defence and commercial
shipbuilding markets.
The strength of the commercial shipbuilding market continued in 1997, with
the world order book at an all time high. The division expanded its global
network during the year and, along with its extensive technological sealing
portfolio, was able to take advantage of this trend to record strong gains.
Major contracts were secured to supply products for all types of ships ranging
from cruise liners to offshore support vessels.
Despite the relatively flat market in the defence sector the division
continued to expand in both existing and new countries with the number of navies
served increasing from 62 to 65. In the US major contracts were received for
hull seals for 3 aircraft carriers and 14 new destroyers. In Australia, the
seals of 6 submarines were upgraded as part of the Australian Navy's new
shipbuilding programme.
The precision handling cable systems business, integrated into the
division at the beginning of the year, also benefited from leveraging the global
network and from the rapidly expanding underwater telecommunications cable
market to secure multimillion pound contracts in Asia Pacific and Europe.
Substantial investments were made in the division. An agreement to take a
30% stake in Lips United was announced, with an option to buy the remaining 70%
by mid 1998. Based in the Netherlands, Lips designs and manufactures propellers,
shafts, thrusters and water jets together with electronic controls for
manoeuvring ships. The acquisition of the marine seal product line from US based
EG&G to enlarge the division's on-board product portfolio was also announced.
The products comprise hull, pump and torpedo seals, used predominantly by the US
Navy's submarine fleet. The division is already the major marine seals supplier
to the US surface fleet.
The integration of these businesses will provide the basis to transform
the division from a global leader in seals and bearings into a world leader in
Marine Propulsion Systems.
1997 was a year of substantial expansion for Polymer Engineering as the Swedish
industrial group Forsheda was successfully integrated into the existing Polymer
Engineering activities. A new organisational structure for the combined
operations was established on a global basis designed to increase customer focus
and maximise operating efficiency.
During 1997 markets were mixed with favourable conditions in North America
and the UK but industrial markets in Continental Europe were flat. However, both
Forsheda and Polypac performed in line with expectations and good growth was
maintained across the division.
Performance was enhanced by opportunities which were identified in the
Forsheda acquisition and the introduction of new sealing programmes.
With the recent acquisition now integrated and the new global organisation
in place, Polymer Engineering is of sufficient size and substance to operate on
a "stand alone" basis. From 1st January 1998 it was separated from John Crane
Group to form a fourth core business which now trades as Forsheda Polymer
Engineering Group.
TI GROUP 15
FORSHEDA
POLYMER ENGINEERING GROUP
world leader in engineered elastomer seals
From 1st January 1998, TI Group's polymer engineering interests have been
combined in Forsheda Polymer Engineering Group, which now stands alongside John
Crane, Bundy and Dowty as TI Group's fourth world leader business.
Forsheda Polymer Engineering has 5,000 employees, operates from 41
locations and has 24 manufacturing sites spread across 16 countries. The product
range covers three main areas: Engineered Seals, Pipe Seals and Speciality
Products. Very much a knowledge and service business, Forsheda Polymer
Engineering specialises in devising customised polymer sealing solutions, Its
main customer base is in the industrial, automotive and aerospace markets,
serving blue chip customers who value quality, seek innovation and delegate
design. It has one of the world's largest range of elastomer seals and an
extensive capability in design, materials and process engineering. There are
dedicated centres of excellence in the UK, USA, Sweden and Malta with fully
equipped laboratories working on product development. Enabling technologies
include finite element modelling, and prototypes are tested and evaluated in
comprehensive facilities which incorporate environmental, dynamic, thermal and
pressure cycle testing.
Forsheda Polymer Engineering has an internationally experienced senior
management team with a clear global strategy and has good prospects for enhanced
organic growth. With the Support of TI Group, there will be continued investment
in process and product and, where appropriate, bolt-on acquisitions to
accelerate global spread and to expand technological capability.
(pound) million 1997
--------------------------------------
Turnover 243.8
--------------------------------------
Profit Before Interest 33.6
--------------------------------------
Net Assets 22.0
--------------------------------------
The figures in the above table are included in the review for John Crane on page
12.
Management
A new global management structure was established in 1997 under the leadership
of Clive Stearnes as Chief Executive. Regional heads are Eduardo Moraes in
Europe, Geoff Bicknell in North America, Nick Anderson in Latin America, and
Mick Davies as Technical Director.
The management team will be further strengthened in 1998 with the
appointment of a President for Asia Pacific, and Fred DeCusatis will be joining
the team as Finance Director.
16 TI GROUP
OPERATING AND FINANCIAL REVIEW
[LOGO]
New in 1998
[GRAPHIC]
Group Structure
Engineered Seals
Includes "0" rings, shaft seals, hydraulic seals, gaskets and diaphragms
designed for industrial, automotive and aerospace markets. The focus is on
exacting environmental and service applications.
Pipe Seals
A world leader in sealing systems for concrete and plastic pipes used
principally in the water and construction industries. The products service the
increasing worldwide demand for leak-free, long service life sealing for water
and sewer systems.
Speciality Products
A range of niche polymer engineering activities servicing specialised
applications including rail gangways, protective masks, military vehicle track
components and resonance dampers.
TI GROUP 17
BUNDY GROUP
world leader in fluid carrying systems
Bundy is a world leader in specialised small diameter fluid carrying systems for
the automotive and refrigeration industries, The business employs over 12,000
people located in over 95 facilities in 27 countries and its sales are
approximately 70% automotive and 30% refrigeration. Bundy's geographical spread
is 45% North America, 40% Europe and 15% Rest of World.
During 1997 Bundy's global position was further strengthened through
continued investment in new product technology and capacity together with
increased shareholdings in subsidiaries in China and India,
In the year Bundy consolidated its world leadership position recording
market share gains in both Automotive and Refrigeration against a background of
mixed market conditions.
Following the successful launch of a significant number of new programmes
during the year, Bundy is well positioned to sustain profitable growth entering
1998 with record order book levels.
(pound) million 1997 1996
--------------------------------------
Turnover 740.0 717.9
--------------------------------------
Profit Before Interest 78.2 79.3
--------------------------------------
Net Assets 247.4 231.3
--------------------------------------
Management
Bill Laule, promoted to Chief Executive of TI Group on 1st January 1998,
continues as Chief Executive, Bundy Group. Ken Templeton was appointed Deputy
Chief Executive in addition to his role as Finance Director to ensure continuity
of Bundy's overall objective of profitable growth. John Langston was appointed
Chief Executive of the Automotive division and Malcolm Aitken was appointed
Chief Executive of the Refrigeration division.
Supporting the above is a strong management team clearly focused on
growing the business profitably.
18 TI GROUP
OPERATING AND FINANCIAL REVIEW
[LOGO]
[GRAPHIC]
Group Structure
Bundy
Automotive
Leading global supplier of small diameter fluid carrying systems for brake, fuel
and powertrain applications. The combination of Bundy's technologies in rigid
tube, flexible hoses and quick connectors offers complete solutions for fluid
carrying systems to the world's automotive industry.
Refrigeration
World leader in the design, manufacture and supply of a comprehensive range of
cooling systems, including condensers, evaporators, freezer shelves and heat
exchangers, thereby offering a global capability to supply the world's
refrigeration manufacturers.
TI GROUP 19
[GRAPHIC]
Bundy Supplies Ford Taurus/Sable
Bundy's Kit Scarbrough joins the Ford Atlanta Assembly Fuel Line Supervisor to
see Bundy front and rear fuel bundles fitted on the vehicle line.
[GRAPHIC]
Thrust SSC
Thrust SSC relied on Bundy brake and fuel lines when it set the world's first
supersonic and speed record of 763.035 mph.
1997 was a year of continued success for Bundy Automotive. The management team
was strengthened with the appointment of John Langston as Chief Executive,
Automotive.
During the year Bundy gained full control over its North China subsidiary
by increasing its shareholding to 90% whilst the investment in Bundy India was
increased from 56% to 7l% via a preferential share issue.
Investment continued in 1997, both in capital and in product development,
to provide quality support to customer programmes and to further enhance
"just-in-time" delivery concepts.
New product introductions included the Alu/Pa coating in Europe for the VW
Group. This product has also been selected by Fiat for its Multipla model.
An important co-operation agreement with Freudenberg was announced during
1997. This will support further growth through the joint marketing of brake
systems to the major OEMs adding Freudenberg's flexible hose technology to
Bundy's product range.
In 1997 dedicated business units were formed to provide improved support
and service to customers on a global basis. The creation of these business
units, together with improved advanced quality planning techniques, enabled
Bundy to successfully introduce 56 new vehicle programmes.
In North America, automotive production remained strong with a continued
increased market share for light trucks. Bundy benefited from this trend with
its participation on key volume platforms, notably the Ford F series and
Expedition, and the Chrysler Ram. The capability to design, develop and
manufacture solutions to meet the ever increasing legislation and environmental
standards of safety and emissions resulted in new business gains. Business won
included brake systems for the GM T800 light truck, the Mitsubishi Galant
programme and the Nissan Frontier combined brake and fuel systems.
In Europe, automotive production was mixed across the major markets but
overall was slightly ahead of last year. Bundy achieved increased sales driven
by the launching of several major programmes including the GM Astra by Bundy
Belgium, the Volvo S90 by Bundy Sweden and the Rover Freelander by Bundy UK.
In the rest of the world, Bundy successfully leveraged its product and
technological expertise in coatings, quick connectors and multi-layer fuel hose
into many countries including Brazil, Mexico, India and Korea. Bundy China was
awarded 100% of the brake and fuel line business for the GM Buick Regal whilst
Bundy Brazil secured the GM Blue Macaw business, through providing the level of
support being sought on a global basis.
Bundy's commitment to quality was recognised and rewarded in all of the
continents with many "Best Supplier" awards including, for the third year, GM's
"Supplier of the Year - Brake and Fuel Lines". All major facilities are now
approved to ISO 9000 quality levels with progress towards achieving the ISO14001
environmental standard well underway.
Order books at the end of 1997 were at record levels and Bundy Automotive
is well positioned to continue its profitable growth.
20 TI GROUP
OPERATING AND FINANCIAL REVIEW
[GRAPHIC]
No-Frost Evaporator
These evaporators use Peerless advanced all aluminium technology available to
Bundy under the strategic alliance.
[GRAPHIC]
Chest Freezer Evaporator
Bundy's Klas Klogborg inspecting evaporators for chest freezers which are
supplied in wrap-round or serpentines.
In 1997 Malcolm Aitken was appointed Chief Executive of the Refrigeration
division. Following this appointment, the division was reorganised into a
clearly focused global business to provide an improved service to all its
customers. Bundy is the only truly global supplier of refrigeration cooling
systems and the dedicated focus will ensure the continuing growth of the
division.
Bundy formed a global alliance with Peerless of America for the
manufacture, sale and distribution of frost-free evaporators, adding this
important product to Bundy's comprehensive range of cooling system products.
Major refrigeration OEMs, including Electrolux, Whirlpool Bosch Siemens
and Daewoo, are becoming increasingly global in their activities, providing
Bundy with opportunities on all continents to leverage its established global
presence.
Investment in 1997 included a new satellite for Whirlpool in Delhi and a
single-wall tube line in Baroda, India. Further investments were made in Europe,
Asia Pacific and Latin America, where Bundy is the lead supplier in cooling
systems to the refrigeration OEMs.
In North America, markets were fairly flat but Bundy continued to achieve
growth from outsourcing opportunities. Newly focused teams are building
relationships with the major OEMs and Bundy is well placed for substantial
growth in this region.
In Latin America, the division benefited from the acquisition of the
Roll Bond evaporator business of Alcan in the second half of 1996. This enabled
the complete range of cooling system products to be sold in Brazil, Mexico,
Colombia and Venezuela.
Bundy Mexico is working with Vitro in Mexico and a number of OEMs in the
USA to provide components which will help them meet the new energy regulations.
New business has also been won in Brazil to supply components to Bosch Siemens,
for a new range of refrigerators, and Embraco, for its compressors.
In Europe, the market was slightly weaker than in 1996 but Bundy continued
to grow its sales and won new programmes. These included the supply of Candy's
cold wall evaporators in the UK, products to Arcelik in Turkey, all condensers
and evaporators for Electrolux's chest freezer production in Hungary and
compressor components to both Electrolux and Embraco. Of significant importance
was the contract to supply the new patented Waveline(TM) condenser to Electrolux
and the first contract for frost-free evaporators in Europe. A contract has also
been finalised to supply condensers and door-warmers to Daewoo's new factory in
Spain.
In Asia Pacific, Bundy maintained its leading position in Australia and
substantially increased sales in China and India. In China sales to the largest
OEM, Kelon, improved, whilst in India Whirlpool awarded Bundy the contract to
supply all condensers for its direct cool business. This success, built upon
Bundy's relationship with Whirlpool in Europe and Latin America, positions Bundy
as the largest condenser manufacturer in India.
During 1997 Electrolux do Brazil awarded "Best Supplier" status to Bundy
Brazil.
Bundy's commitment to its customers and the ever increasing demands of
greater quality, environmental legislation and energy usage regulations around
the world have supported growth in 1997 and place it well for accelerating the
rate of growth in the future.
TI GROUP 21
DOWTY GROUP
world leader in aerospace systems
The Dowty Aerospace businesses and Messier-Dowty, the joint venture between TI
Group and Snecma of France, enjoyed another good year. As major suppliers to
Airbus and Boeing they were able to benefit from the buoyant civil aerospace
market, within which the world's two leading aircraft manufacturers announced
record build rates and substantial new orders.
Dowty Group has recorded an increase in both sales and profit, despite the
decrease in TI Group's share of Messier-Dowty profits which was 80 percent in
1996 and 62,5 percent in 1997, The Dowty Aerospace businesses continued to grow
strongly and, with an order book which has strengthened considerably, are well
positioned for further growth in 1998.
In December it was announced that Snecma of France, the joint venture
partner, would acquire TI's share of Messier-Dowty, together with TI's
wholly-owned landing gear repair and overhaul business.
(pound) million 1997 1996
--------------------------------------
Turnover 475.5 446.2
--------------------------------------
Profit Before Interest 61.5 43.5
--------------------------------------
Net Assets 127.5 118.3
--------------------------------------
Management
Dowty Group has continued under the leadership of Tony Edwards and, during the
year, appointed Geoff Smith to the position of Deputy Chief Executive.
For the strengthened Dowty Aerospace international management team, 1997
has been a year of team building and consolidation. Led by Peter Wright,
Managing Director, increasing attention has been given to customer service and
reducing costs while successfully managing this group of businesses through a
significant growth period.
Messier-Dowty has increased its focus on the service provided to customers
worldwide through a management reorganisation. Within this, Andy Stevens has
been appointed Managing Director of Messier-Dowty Europe which combines the
facilities at Gloucester, Velizy, Bidos and Montreal.
22 TI GROUP
OPERATING AND FINANCIAL REVIEW
[LOGO]
[GRAPHIC]
Dowty Global Locations
Group Structure
Dowty Aerospace
Specialised aerospace systems for major civil and military aircraft programmes
throughout the world -- hydraulic and actuation systems, turbine engine
components, propeller systems and repair and overhaul.
Messier-Dowty
All types of landing gear systems for civil and military aircraft from
helicopters to large transport Design and manufacture on both sides of the
Atlantic with worldwide customer support.
TI GROUP 23
Dowty Aerospace
[GRAPHIC]
Boeing 737 Thrust Reverser Actuator
James Gutierrez assembling one of 300 such actuators supplied monthly by Dowty
Aerospace Los Angeles.
[GRAPHIC]
Combustion Chamber Outer Case
Tru-Form's Brad Fleeger inspects critical height dimensions on a combustion
chamber outer case for the new Pratt & Whitney (Canada) PW3O8 engine.
Dowty Aerospace has been well placed to benefit from the aerospace growth cycle
through its involvement on a number of key aircraft programmes and strong
position with the major engine manufacturers.
The Hydraulics and Actuation businesses benefited from the growth in
aircraft build rates, in terms of both original equipment sales and increased
spares demand. This, coupled with significant gains in manufacturing efficiency
through various lean manufacturing initiatives, has resulted in an improved
financial performance.
Products with unsurpassed in-service records have led to selection on
major programmes and a customer list that includes all the major civil and
military, fixed and rotary wing aircraft constructors. In 1997 a significant
milestone was reached with on-time delivery of the first sets of equipment for
the aircraft selected to satisfy the US Air Force/US Navy Joint Primary Aircraft
Training System (JPATS), which includes over 700 aircraft. Another boost came
with the decision to proceed with Eurofighter, on which Dowty is a major
supplier. A number of new orders were secured during the year. The Raytheon
Aircraft Company selected Dowty to provide a major part of the hydraulic system
on its Premier 1 business jet and Boeing placed contracts to supply high lift
systems equipment for the new Boeing 767-400ER, a new extended range and
increased capacity version of the highly successful Boeing 767.
Dowty Turbine Engine Components (D-TEC) leads the world in aircraft
engine ring technology and rigid tube fabrication, supplying gas turbine engine
components to every major engine programme in the Western World. The D-TEC
businesses had another strong year, with increases in sales to all of the big
three engine companies, General Electric, Rolls-Royce and Pratt & Whitney.
Specialist machining outsourced from the engine companies also increased
substantially enabling D-TEC to capitalise upon the programme of focused
investment carried out in previous years. Penetration of the world market was
widened with delivery of equipment for Zorya, in the Ukraine for the MR-90
industrial gas turbine engine.
In addition, the company was successful in securing a US$100m order to
supply engine rings to General Electric Aircraft Engines. This three-year
contract which starts in 1999, is the largest ever won by D-TEC.
Dowty Aerospace Propellers increased its sales in 1997 as production of
the new C-130J Hercules aircraft was stepped up, first deliveries to both the
Royal Air Force and the Royal Australian Air Force being scheduled for 1998.
Following its success on that programme, the company was selected to supply the
propeller system for the Lockheed Martin/Alenia C-27J Spartan transport
aircraft, an order worth US$100m on projected aircraft sales. Dowty's advanced
propeller systems are also being supplied to Bombardier for the new de Havilland
Dash 8 Series 400 aircraft which was unveiled at a ceremony in November.
The Repair and Overhaul business in the UK, USA and Singapore, which
largely supports the landing gear activities of Messier-Dowty, continued to grow
steadily. Volume increases and wide ranging efficiency improvements resulted in
improved sales and profit margins.
Demand for heat treatment services from Thermal Processing Group remained
high throughout the year. This business was sold in early 1998.
24 TI GROUP
OPERATING AND FINANCIAL REVIEW
Messier-Dowty
[GRAPHIC]
Combustion Chamber Liner
Bryan Monahan checking co-ordinates at D-TEC's Valley Manufacturing, where these
components are machined and assembled.
[GRAPHIC]
Equipment for Eurofighter
Messier-Dowty is the main contractor for Eurofighter landing gear systems. Dowty
Aerospace supplies hydraulic and actuation systems and turbine engine
components.
Dowty Aerospace equipment is flying on more than 200 current types of
aircraft and supporting some 450 airlines and 150 military operators worldwide.
It has entered 1998 with an increased order book and a strong position on key
civil and military programmes, including all of the current Airbus and Boeing
programmes. To take advantage of the buoyant aerospace market, capital
investment was increased substantially in 1997 and is forecast to be further
increased in 1998. These factors, coupled with a commitment to maintain high
levels of customer service and quality, give confidence in the division's
ability to ensure future strength and profitable growth.
Messier-Dowty has continued to build on its strong foundations. The facilities
in UK and France, together with Montreal, benefited from the increase in Airbus
A319/A320/A321 and A330/A340 production build rates while Toronto achieved a
strong performance from its regional and business jet programmes.
During the year, the Raytheon Aircraft Company chose Messier-Dowty to
design and manufacture the integrated landing gear system for the all-new Hawker
Horizon business jet and Fairchild Dornier selected the company to supply
landing gear for the DO328-300 commuter jet. These contracts should be worth
US$150m over the life of the two aircraft programmes.
CASA, one of the partners in Airbus Industrie, selected Messier-Dowty to
develop the landing gear system for its new C295 military transport aircraft, a
programme launched at the Paris Air Show. The same venue was used by Airbus
Industrie to communicate the commercial launch of the A340-500/600 aircraft and
for the announcement of Messier-Dowty's selection as the landing gear supplier
on both programmes. The Airbus Industrie Board authorised full go-ahead for
these new ultra long-range/increased capacity derivatives of the A340 aircraft
in December, after finalising agreements with several major launch customers.
These new contracts, combined with Messier-Dowty's position on existing
major programmes in all segments of the aerospace market, have helped
consolidate its world leading position. To cope with the growing order book, the
company has continued its investment programme, primarily in manufacturing
facilities and equipment.
All sites have benefited, including Toronto which completed a new assembly
facility that was officially opened by Canada's Minister of Economic
Development, Trade and Tourism.
Messier-Dowty has continued to pursue initiatives aimed at achieving
efficiencies and improved customer service and it has produced increases in
market share, sales and profitability. These achievements over its first three
years have meant that the business is well positioned to develop its world
leadership under the ownership of Snecma.
TI GROUP 25
INTERNATIONAL MANAGEMENT -- TI Group's global businesses are driven by a strong
Cadre of senior managers, all of whom have extensive international experience.
Pictured below are just some of the senior team whose knowledge and experience
covers all regions of the globe, from North America to Europe and from South
America to the Far East,
[GRAPHIC]
1 Joe Macneil
Vice President Finance
Bundy North America, DETROIT
2 Jim Davis
President
Bundy North America, DETROIT
3 Dan Cook
Commercial Director
Bundy Automotive, DETROIT
4 John Cousins OBE
Managing Director
John Crane Marine, HAMPSHIRE
5 Derek Wilson
Managing Director
John Crane Mechanical Seals,
Europe, Middle East and Africa
6 Clive Stearnes
Chief Executive
Forsheda Polymer Engineering Group, ABINGDON
7 Geoff Bicknell
President
Forsheda Polymer Engineering,
North America, CHICAGO
8 Jorge Garces
President
John Crane Mechanical Seals,
Latin America, MEXICO CITY
9 Doug Fockler
Senior Vice President Operations
John Crane North America, CHICAGO
10 Roger Fix
President
John Crane Mechanical Seals,
North America, CHICAGO
11 Pracheesh Mathur
President
Dowty Aerospace Asia Pacific, SINGAPORE
12 Eduardo Moraes
Managing Director
Forshedo Polymer Engineering,
Europe, Middle East and Africa, ABINGDON
13 Tony Martin
President
Bundy Asia Pacific, ADELAIDE
14 Geoff Gieske
Vice President Human Resources
John Crane North America, CHICAGO
15 Bob Wasson
Senior Vice President Finance
John Crane North America, CHICAGO
26 TI GROUP
[GRAPHIC]
16 Fred DeCusatis
Chief Financial Officer
Messier Dowty International, ABINGDON
17 Andy Stevens
Managing Director
Messier-Dowty Europe, PARIS/GLOUCESTER
18 Malcolm Aitken
Chief Executive
Bundy Refrigeration, ABINGDON
19 Ken Templeton
Deputy Chief Executive
Bundy Group, ABINGDON
20 Rick Berg
President
Dowty Aerospace Los Angeles, LOS ANGELES
21 Peter Wright
Managing Director
Dowty Aerospace, ABINGDON/PENNSYLVANIA
22 Mark Celusniak
President
Dowty Turbine Engine
Components, PENNSYLVANIA
23 Richard Scanlon
Managing Director
John Crane Asia Pacific, SINGAPORE
24 Roger Bishop
Process Industry Sales Director
John Crane Mechanical Seals, SLOUGH
25 Keith McCartney
Director Human Resources
TI Asia Pacific, SINGAPORE
26 Ralph Kessler
Vice President Legal Affairs
TI Group Inc, NEW YORK
27 Jim Katzoff
Executive Vice President
TI Group Inc, NEW YORK
28 Michael Steel
Commercial/Legal Director
Messier-Dowty International, ABINGDON
29 Geoff Smith
Deputy Chief Executive
Dowty Group, ABINGDON/GLOUCESTER
30 John Langston
Chief Executive
Bundy Automotive, ABINGDON
TI GROUP 27
DIRECTORS AND SECRETARY
[GRAPHIC]
Sir Christopher Lewinton ++ #
Chairman
Joined the Board in 1986 as Chief Executive and Deputy Chairman, becoming
Chairman in 1989. Wide international experience; based in the United States for
many years. A non-executive Director of Reed Elsevier and a member of the
Supervisory Board of Mannesmann AG. Age 66
o Member, Organisation and Remuneration Committee
+ Member, Audit Committee
++ Member, Nominations Committee
# Member, Chairman's Committee
NON-EXECUTIVE DIRECTORS
[GRAPHIC]
John M Hignett o + ++
Deputy Chairman
Joined the Board in 1989, becoming Deputy Chairman in 1993.
Chairman, Audit Committee.
A Director of Sedgwick Group and Alfred McAlpine. Formerly a Director of Glaxo
Holdings, a Managing Director of Lazard Brothers & Co and Director General of
the Takeover Panel. Age 64
[GRAPHIC]
Sir Colin Chandler o +
Joined the Board in 1992. Chairman and Chief Executive, Vickers. A Director
of Guardian Royal Exchange. Vice President, Engineering Employers Federation.
A Member of the National Defence Industries Council. Formerly Head of Defence
Export Services, Ministry of Defence. Age 58
[GRAPHIC]
Lord Fanshawe of Richmond KCMG o + ++
Joined the Board in 1990.
Chairman, Organisation and
Remuneration Committee.
A Director of Xerox UK. Member, Pratt & Whitney European Advisory Board.
Chairman of Sedgwick Group until 1997. Formerly a Foreign Office Minister. Age
70
[GRAPHIC]
John M Harris o
Joined the Board in 1991. President, The Forum Corporation based in Boston.
Formerly President and CEO, Rockefeller Financial Services Inc and President of
the European operations of Booz Allen & Hamilton. An American citizen. Age 57
[GRAPHIC]
Rudolf G Mueller CBE o
Joined The Board in 1996. Chairman of Chiltern Group. Member of the Board of
Lend Lease Corporation and Chairman of Lend Lease Europe. Previously held senior
positions with DBS in Zurich, Singapore and London where he was Chairman of the
DBS Group until December 1997. Formerly Director of the London Stock Exchange. A
Swiss citizen. Age 63
[GRAPHIC]
Sir Nigel Broomfield KCMG +
Joined the Board in February 1998. A non-executive Director of Foreign and
Colonial German Investment Trust. Director Designate of the Ditchley Foundation
and an adviser to Arthur Andersen. A retired diplomat, British Ambassador to the
Federal Republic of Germany until March 1997. Age 61
28 TI GROUP
EXECUTIVE DIRECTORS
[GRAPHIC]
William J Laule #
Chief Executive
Joined the Board in 1995. Chief Executive, Bundy since 1994 becoming Chief
Executive, TI Group in January 1998. Previously President Bundy North America.
Senior management experience gained with Rockwell International in the United
States and Europe. An American citizen. Age 49
[GRAPHIC]
Martin D Angle #
Group Finance Director
Joined the Board in February 1997. Wide international business experience gained
in senior positions with SG Warburg, Morgan Stanley and the Dresdner Kleinwort
Benson Group, based in the United States and the UK. A Chartered Accountant. Age
47
[GRAPHIC]
John W Potter
Chief Executive, John Crane
Joined the Board in 1992, becoming Chief Executive, John Crane in 1994.
Previously Chief Executive, Bundy. International operating and senior management
experience gained in global companies whilst based in Europe and the United
States. Age 54
[GRAPHIC]
L Antony Edwards
Chief Executive, Dowty
Joined the Board in 1992. Senior management experience gained with General
Electric in the United States and as President, Canadair. Formerly Group
Managing Director, Lucas Industries. Past President, Society of British
Aerospace Companies. A Member of the National Defence Industries Council. Age
53
[GRAPHIC]
Gerrit O Aronson
Group Director of Human Resources
Joined the Board in February 1997. Senior human resource management experience
gained with Northern Telecom and Bell-Northern Research in the UK, the United
States and Canada. Formerly, Group Director of Human Resources, Wellcome,
subsequently Glaxo-Wellcome. A Canadian citizen. Age 47
[GRAPHIC]
James L Roe
Director of Strategic Development
Joined the board in 1994. Director, Strategic Development since 1986.
Previously, Senior Vice President, John Crane International. Experience outside
TI includes management consultancy. Age 53
[GRAPHIC]
Robert J M Fisher
President, Asia Pacific
Joined the Board in 1992, becoming President, Asia Pacific in 1996. Previously,
Managing Director, Operations and Chief Executive, John Crane. International
marketing and senior management experience gained in global companies whilst
based in Asia, South America and the United States. Age 59
David P Lillycrop
General Counsel and Group Secretary
TI GROUP 29
STATUTORY INFORMATION
31 REPORT OF THE DIRECTORS
36 REPORT OF THE ORGANISATION AND REMUNERATION COMMITTEE
40 STATEMENTS OF THE DIRECTORS
41 AUDITORS' REPORTS
42 ACCOUNTING POLICIES
44 CONSOLIDATED PROFIT AND LOSS ACCOUNT
45 BALANCE SHEETS
46 CASH FLOW STATEMENT
47 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
MOVEMENTS IN NET TI SHAREHOLDERS' FUNDS
48 NOTES TO THE FINANCIAL STATEMENTS
72 PRINCIPAL SUBSIDIARIES, ASSOCIATED UNDERTAKINGS AND OTHER PARTICIPATING
INTERESTS
74 GROUP FINANCIAL HISTORY
75 NOTICE OF ANNUAL GENERAL MEETING
IBC GROUP ADDRESSES, REGISTRARS AND ADR DEPOSITARY
30 TI GROUP
REPORT OF THE DIRECTORS
TI group is an international engineering group concentrating on products in
specialised niches on a global basis. A summary of the businesses in each
segment with the names of the principal Group companies appears on pages 72 and
73. The Chairman's statement is set out on pages 2 to 5, the operating and
financial review on pages 6 to 25, and the profit and loss account on page 44.
DIVIDEND
The Board recommends a final dividend of 10.8p per Ordinary share of 25p payable
on 29th May 1998 to Ordinary shareholders registered on the books of the Company
at the close of business on 27th March 1998. When taken with the interim
dividend of 5.1p per Ordinary share paid on 7th October 1997 this makes a total
of 15.9p per Ordinary share for the year ended 31st December 1997 (1996 14.5p
per Ordinary share). The 1997 final dividend will be paid as a Foreign Income
Dividend ("FID"). No scrip dividend alternative is being offered in respect of
this dividend as this is precluded under current FID regulations.
In the UK Budget Statement on 2nd July 1997, the Government announced
changes to the rules surrounding the taxation of dividends. These changes make
it advantageous for an international group such as TI Group to pay dividends as
FIDs, as the Company can reclaim advance corporation tax paid on the dividend by
setting it against tax on overseas profits,
At the Annual General Meeting held in 1997 shareholders authorised the
Directors to offer a scrip alternative to any dividend declared or paid during a
period of five years. In accordance with the Directors' intention to seek annual
renewal, and to provide flexibility for offering scrip dividends in the future,
resolution 5 will be proposed as an Ordinary Resolution at the Annual General
Meeting to extend this authority until 2003.
EMPLOYMENT POLICIES
Due to the spread of TI Group's constituent businesses and the devolution of
responsibility to local management, the arrangements for involving employees in
the business vary considerably, Nevertheless the overriding objective -- to
achieve a shared commitment by all employees to the success of the business in
which they work -- applies throughout the Group.
Team briefings, management conferences and house newspapers are some of
the methods used to ensure that employees are well informed. Employees in the UK
are encouraged to be financially involved in the Group through participation in
Savings-Related Share Option Schemes. Member participation in the affairs of the
TI Group Pension Scheme is provided in the form of member and pensioner
representation on the trustee body,
Occupational health and safety matters continue to receive management
attention at Group and company level. The employment, training. career
development and promotion of disabled persons receive positive consideration by
Group companies.
RESEARCH AND DEVELOPMENT
TI Group has a continuing commitment to a strategy of market leadership through
investment in customer-focused applied technology. Each of the Group's core
businesses maintains self-sufficiency in applied technology geared to new
product development and world-class manufacturing practice.
ENVIRONMENT
TI Group's environmental policies are implemented by its global Environmental
Co-ordination Panel which reports to a main Board Director. It is tasked with
ensuring that all TI businesses execute the Group's environmental policies
through the implementation of environmental management systems.
TI GROUP 31
REPORT OF THE DIRECTORS continued
Specific objectives have been developed for TI Group's main business
groups which have active programmes for the management of scarce resources,
reducing discharges to the air, waste management amid energy conservation. TI
Group's commitment is endorsed by senior management and environmental issues are
an integral part of managerial responsibilities at every level.
The Panel has undertaken a global audit of TI Group's businesses and is
implementing regular reporting against agreed objectives, TI Group has begun
working towards the international environmental standard ISO14001 in all its
worldwide businesses.
TI Group's businesses are used to operating in the most demanding
legislative environment. As proof of this, the Group has won Environmental
Awards in the UK, the USA and Continental Europe and is a member of
environmental organisations in these regions.
DIRECTORS
The Directors retiring by rotation are Sir Colin Chandler and Sir Christopher
Lewinton who, being eligible, offer themselves for re-election. Sir Colin does
not have a service contract with the Company. Sir Christopher has a service
contract with the Company determinable on 2 years' notice.
Sir Nigel Broomfield was appointed to the Board on 18th February 1998. Sir
Nigel does not have a service contract with the Company. In accordance with the
Articles, Sir Nigel will retire at the Annual General Meeting and members will
be invited to re-elect him.
The present constitution of the Board is set out on pages 28 and 29.
SHARE SCHEMES
At 31st December 1997, the total number of Ordinary shares in TI Group plc under
option was 13,351,538. The holders of these options are members of TI Group plc
schemes and/or of one or more of three schemes operated by Dowty Group PLC prior
to its acquisition by TI Group in 1992. In the latter case these options were
obtained, following the acquisition, in exchange for options over shares in
Dowty Group.
There are 3,291 participants in the TI Group schemes and 273 participants
in the Dowty Group schemes. Details of Ordinary shares under option are shown in
note 21 on pages 64 and 65, The interests of Directors of the Company who are
participants in the above schemes are shown in the table on page 54.
CORPORATE GOVERNANCE
The Board is satisfied that the Company has complied throughout 1997 with the
provisions of the Code of Best Practice issued in 1992 as part of the Cadbury
Report on the Financial Aspects of Corporate Governance. The report of the
Company's auditors, Price Waterhouse, concerning the Company's compliance with
the Cadbury Code appears on page 41. Compliance, where appropriate, with the
recommendations of the Greenbury Report is a matter covered by the report of the
Organisation and Remuneration Committee on pages 36 to 39.
Statements by the Directors of their responsibilities in relation to
financial statements, the adoption of the going concern basis for the
preparation of accounts and the Group's system of internal financial control
appear on page 40, opposite the auditors' report.
The Board and Management
With effect from 1st January 1998 the roles of Chairman and Chief Executive were
separated on the appointment of Mr W J Laule as Chief Executive with Sir
Christopher Lewinton continuing as Chairman. The Board is broadly balanced with
the Chairman supported by a non-executive Deputy Chairman and five other
non-executive Directors and by seven executive Directors. The Board includes US,
Canadian and Swiss, as well as UK, nationals reflecting the international nature
of the Company's activities. The non-executives, who provide a strong and
independent element, are appointed initially for a three year term and may be
re-appointed. The business reserved to the Board includes, in particular,
matters of policy, approval of the strategic and financial plans, major
expenditure proposals and acquisitions and disposals.
32 TI GROUP
A number of key committees, some of which have been in place for several
years with others recently constituted, contribute to an effective check and
balance on the operations and to good communication throughout the Group.
The Chairman's Committee is chaired by the TI Group Chairman with Mr Laule and
Mr Angle as members. The Committee is responsible, on behalf of the Board, for
maintaining the strategic direction of the Group.
The Executive Board, which is responsible for the overall management of the
business, comprises the executive Directors, the General Counsel & Group
Secretary and the Deputy Group Finance Director, and is chaired by Mr Laule.
The Investment Committee, chaired by the Chief Executive, and the Finance
Committee, chaired by the Group Finance Director, have responsibility for the
management of financial issues, the application of financial disciplines to the
decision-making process, and the evaluation of the commercial aspects of major
proposals.
The Contract Review Committee, also chaired by the Group Finance Director, is
responsible for the review and approval of major contract and bid terms.
In addition, the Board has had in place for many years the Committees
referred to below where the non-executive Directors are primarily responsible,
on behalf of the Board, for the business undertaken.
Audit Committee
The Audit Committee, which was established in 1987. is comprised wholly of
non-executive Directors and normally meets three times per year. Currently four
non-executive Directors are members and the Committee is chaired by Mr J M
Hignett.
Its objective is to give formal support to the Board in fulfilling its
obligations to shareholders to maintain standards of management and financial
control and reporting throughout the Group consistent with regulatory
requirements and current best practice. Its terms of reference include:
1. The review of such written reports from the auditors as the Committee may
from time to time require, including for example a report on the quality
of TI Group's financial accounting and operational controls worldwide and
on any significant areas of vulnerability in control, accounting or
financial management resource which the audit process has identified.
2. The review of the work of the Internal Audit function and its relationship
with the external audit.
3. The review prior to publication and to submission to the TI Board of the
TI Group published accounts for the half-year and full year.
The external auditors attend the meetings of the Audit Committee. They are
entitled to and do meet with the Audit Committee privately and have direct
access to the Chairman of the Committee.
Organisation and Remuneration Committee
The role of this Committee, which was also set up in 1987, was reviewed
following publication of the Greenbury Report and the incorporation of aspects
of the 'Greenbury Code' into the listing requirements of the London Stock
Exchange. The Committee comprises not less than three non-executive Directors.
Currently five non-executive Directors are members and the Committee is chaired
by Lord Fanshawe. The powers and terms of reference of the Committee include the
following:
a. to approve the organisation of the Company's top management structure and
succession planning;
b. to determine the terms of appointment and total remuneration of members of
the Board;
c. to approve annual and longer term incentive plans and to administer any
Group share option schemes or related arrangements;
d. to determine policy and maintain governance over any Group pension schemes
or related arrangements.
The Company complies with part A of the Best Practice provisions
concerning Directors' remuneration included within the Stock Exchange Listing
Rules. There is set out on pages 36 to 39 a separate report to shareholders by
the Organisation and Remuneration Committee.
TI GROUP 33
REPORT OF THE DIRECTORS continued
Nominations Committee
This Committee currently comprises the TI Group Chairman, the Deputy Chairman
who is also Chairman of the Audit Committee, and the Chairman of the
Organisation and Remuneration Committee.
Its objective is to provide a forum at which the TI Group Chairman may
seek general counsel and advice in relation to matters which may not have
reached a stage where formal consideration by the Board is appropriate.
The Committee has responsibility for initial consideration of all Board
appointments.
The Committee also has responsibility for considering and if appropriate
approving the obtaining of independent external advice by either a Director or a
Board committee in accordance with standing guidelines adopted by the Board.
SHARE CAPITAL
Details of shares issued during the year are set out in note 21 on page 64.
At the Annual General Meeting held in 1997 shareholders authorised the
Directors, pursuant to section 80 of the Companies Act 1985, to allot Ordinary
shares without the prior consent of shareholders for a period of five years. In
accordance with the Directors' intention to seek annual renewal, resolution 7
will be proposed as an Ordinary Resolution at the Annual General Meeting to
extend this authority until 2003. The (pound)39,800,000 nominal amount of
relevant securities to which the authority relates, including Ordinary shares
that are subject to options, represents approximately 33% of the nominal amount
of issued Ordinary share capital of the Company as at 11th March 1998. Except
pursuant to the exercise of options, the Directors have no present intention of
exercising this authority.
Also at last year's meeting a Special Resolution was passed, pursuant to
section 95 of the Companies Act 1985, empowering the Directors to allot equity
securities for cash without first being required to offer such shares to
existing shareholders. Resolution 8 will be proposed as a Special Resolution to
renew this power until 13th May 2003. The (pound)5,900,000 nominal amount of
equity securities to which this authority relates represents approximately 5% of
the issued Ordinary share capital of the Company as at 11th March 1998.
PURCHASE BY THE COMPANY OF ITS OWN SHARES
The Company was authorised at the Annual General Meeting held in 1997 to
purchase in the market Ordinary shares representing up to approximately 10% of
the then issued share capital. This authority has not been used and expires at
the conclusion of the Annual General Meeting. In accordance with the Directors'
intention to seek annual renewal, resolution 6 will be proposed as a Special
Resolution at the Annual General Meeting to renew this authority until the
earlier of 13th August 1999 and the next Annual General Meeting.
The Directors have no current intention of using this authority and, in
relation to any decision to purchase, will take into account the Company's
gearing levels and general financial position, and the effect of any purchase on
earnings per share.
Any shares purchased by the Company pursuant this authority will form part
of the Company's authorised but unissued share capital and will be available for
re-issue subject to the Directors being authorised pursuant to Article 17 of the
Company's Articles of Association.
34 TI GROUP
INTERESTS IN SHARE CAPITAL
As at 10th March 1998 the Company had been notified under section 198 of the
Companies Act 1985 of the following persons who are interested in 3% or more of
the issued share capital of the Company:
NUMBER OF PERCENTAGE OF
HOLDER SHARES ISSUED CAPITAL
----------------------------------------------- ---------- --------------
The Capital Group Companies, Inc 24,152,300 5.05
Scottish Widows Fund and Life Assurance Society 20,434,761 4.27
Prudential Corporation plc 17,522,225 3.68
Apart from the shareholdings detailed above, there are no other notifiable
interests appearing in the Company register maintained under the provisions of
section 211 of the Companies Act 1985.
The interests of the Directors in the share capital of the Company are
shown in note 10 on page 54. There were no changes in these interests between
1st January 1998 and 11th March 1998 other than those shown in note 10. The
register recording the Directors' interests in the share capital will be open
for inspection at the Annual General Meeting.
INTERESTS IN CONTRACTS
During the year no Director was materially interested in any contract which was
significant in relation to the Company's business.
PAYMENT POLICY
The Group is a registered supporter of the CBI's Prompt Payers Code of Good
Practice, copies of which are available from the Confederation of British
Industry, Centre Point, 103 New Oxford Street, London WC1A 1DU.
It is the Group's policy to agree with its suppliers terms of settlement
which are appropriate for the markets in which they operate, and to abide by
such terms where suppliers have also met their obligations.
CHARITABLE AND POLITICAL CONTRIBUTIONS
During the year the UK companies in the Group made charitable donations
totalling (pound)275,000 gross. The annual donations budget is administered by
the Charitable Donations Committee.
The Group's policy on donations is to direct its support primarily towards
assisting charities with selected medical, engineering or educational
objectives, as well as objectives connected with the Group's business and role
in the community.
A contribution of (pound)50,000 was made to the Conservative Party during
the year.
INCOME AND CORPORATION TAXES ACT 1988
The close company provisions of this Act do not apply to the Company.
AUDITORS
The Company's auditors, Price Waterhouse, are willing to continue in office and
a resolution proposing their re-appointment and authorising the Directors to fix
their remuneration will be put to the Annual General Meeting.
By order of the Board
DAVID P LILLYCROP
Secretary
11th March 1998
TI GROUP 35
REPORT OF THE ORGANISATION AND REMUNERATION COMMITTEE
On behalf of the Board, the Organisation and Remuneration Committee ("the
Committee") presents this report to shareholders pursuant to the recommendations
of the Study Group on Directors' Remuneration (the Greenbury Report) as now
incorporated in the listing requirements of the London Stock Exchange. In
framing its policy on executive Directors' remuneration the Committee has given
full consideration to section B of the Best Practice provisions annexed to the
Listing Rules.
The members of the Committee are Lord Fanshawe (Chairman), Mr J M Hignett.
Sir Colin Chandler, Mr J M Harris and Mr R C Mueller.
REMUNERATION POLICY - EXECUTIVE DIRECTORS
Policy
The remuneration of the executive Directors is determined by the Committee, in
consultation with the Chairman of the Company (save in respect of his own
remuneration) and after obtaining appropriate independent professional advice
reflecting the international nature of the Company. Since the Company has 80% of
its business outside the United Kingdom and in particular around 44% in North
America, its remuneration policies must be internationally competitive and
flexible. This both attracts and retains high quality management as well as
facilitating global management succession.
The philosophy of the Committee is to offer internationally competitive
total compensation packages, a significant proportion of which is
performance-related and set against challenging objectives. It is inherent in
this approach that significant elements of the package may prove to have no
value at the end of the life of a particular scheme even though they have had a
paper value at some time in the past. However, such incentives, which stimulate
enhanced performance and lead to enhanced shareholder value, are considered to
be in the best interests of shareholders, customers, suppliers and employees
alike. This philosophy has been successfully applied since 1987.
A large part of the performance-related elements of the package is paid in
the form of TI shares transferred from the TI Group Employee Share Ownership
Trust which was established in 1995.
Remuneration Package
The remuneration package of the executive Directors comprises four components:
i Basic salary and benefits
Salaries are determined within the international marketplace and reflect
experience and responsibility. Salaries are reviewed annually as at 1st January.
Principal benefits include use of a motor car, fuel, and medical expenses
insurance.
ii Annual bonus
For headquarters staff executive Directors the annual bonus is based partly on
Group performance against plan, and partly on achievement of individual
objectives. The annual bonus for executive Directors with line responsibility
for operations is based partly on a combination of Group performance and
business area performance against annual plan and partly on achievement of
individual objectives. The annual plan includes specific cash targets. The
maximum potential bonus for executive Directors for 1997 was 60% of basic salary
(100% for the Chairman), with the maximum amount normally achievable only if
performance exceeds plan by a clear margin. The Committee retains the right to
exercise an overview with regard to the quality of achievement.
Payments in respect of 1997, comprising cash and shares, are shown in the
table on page 39. The share element reflects the general policy of encouraging
executives to invest in the Company. For 1998 a similar scheme is in force.
iii Long term Incentives
The committee considers that it is appropriate to provide the long term
component of executive Directors' compensation through a combination of share
options and long term bonus plans. In each case, as set out below, there are
demanding performance criteria.
36 TI GROUP
a. Three-year share performance plan
There is a three-year share performance plan in place covering measurement
periods from 1995-98 onwards. The purpose of the plan is to encourage senior
executives to think longer term and to develop an affinity with performance
achievements beyond the normal one year horizon. This benefits both shareholders
and management. Benefits under these plans do not vest on an annual basis;
participants do not have any entitlement until cumulative performance over the
three-year period is ascertained. The share performance plan rewards performance
measured by growth in Total Shareholder Return (share price and reinvested
dividends) against the performance of a group of more than 20 comparator
companies. The comparator companies have been chosen with regard to size,
complexity and overall relevance, after consultation by the Committee with
independent advisers. Maximum potential bonus is achieved only if TI is in the
top 10% ranking of comparator companies. No award is made for performance below
the median level.
Under the plan the potential bonus is itself expressed by reference to a
number of TI shares which could be purchased at a certain time during the first
year of the relevant three-year period for an amount equal to the basic salary
for that year, rather than a cash sum. It is intended that the shares to which
participants in the plan will become entitled will be provided from the TI Group
Employee Share Ownership Trust.
b. Share options
The TI Group and TI Group (1990) Executive Share Option Schemes link reward to
added shareholder value and encourage executives to align their longer term
career aspirations with the longer term interests of the Group. Subject to
performance requirements being fulfilled the Schemes enable executives to
participate in share price growth, options normally becoming exercisable between
three and ten years after grant.
Participants are encouraged to build up an equity interest in the Group.
Options granted since 1987 have been exercisable only if the percentage increase
in earnings per share over a three year period has exceeded the percentage
increase in the Retail Prices Index over that period. Starring in 1996, options
granted to executive Directors are subject to a minimum performance requirement
equal to the increase in the Retail Prices Index plus 2% per annum. The
legislative changes effected by the Finance Act 1996 had the effect of reducing
the individual limit for Inland Revenue approved share options. In order to
maintain the value to the Company of the 1990 scheme the Committee has granted
subsequent options under the existing unapproved international section of the
scheme.
Details of options held by Directors are set out in the table on page 54.
iv Pensions
Pension and life assurance arrangements are consistent with those provided by
other leading companies. The executive Directors are members of the TI Group and
Executive (1992) pension schemes and Mr Laule is also a member of Bundy
Corporation's defined benefits plan. They are entitled to earn pension benefits,
dependent on their length of service, as agreed by the Group. In some
circumstances, the taxation authorities will not permit the schemes to meet the
executive Directors full pension entitlement, in which case the Group has
promised to make good any shortfall by means of unapproved arrangements. Set out
on the next page are details of the pension benefits earned by each of the
executive Directors during the year ended 31st December 1997.
TI GROUP 37
REPORT OF THE ORGANISATION AND REMUNERATION COMMITTEE continued
Cash
Increase in equivalent
accrued pension of increase Total accrued
(excluding (excluding Members' pension at
inflation) members' contributions 31 December
during 1997 contributions) in 1997 1997
(pound)'000 (pound)'000 (pound)'000 (pound)'000
--------------- -------------- ------------- -------------
W J Laule 4 9 -- 21
M D Angle 8 89 3 8
G O Aronson 6 59 4 6
LA Edwards 12 157 4 55
R J M Fisher 17 240 4 85
J W Potter 20 271 16 122
J L Roe 13 171 10 109
B A Walsh 18 201 1 59
Notes:
1. The Cash equivalent of increase", which has been calculated on the basis
of actuarial advice in accordance with GN11, is the same as the "transfer
value of the increase" and does not represent a sum payable to individual
Directors. It cannot therefore meaningfully be added to annual
remuneration.
2. The pension entitlement shown is that which would be paid annually on
retirement based on service to 31st December 1997, except in the case of
Mr B A Walsh. The figure shown for Mr B A Walsh is the pension accrued at
retirement date (1st June 1997).
3. Sir Christopher Lewinton is not shown in the above table. He did not
accrue any additional pension (excluding inflation) under the UK
arrangements during the period having reached Normal Pension Date on 1st
February 1997. His accrued pension at 31st December 1997, which includes
benefits transferred into the scheme, was (pound)348,000 p.a. He is not
accruing further benefits, but his pension will increase each year until
drawn to reflect deferred payment.
4. Sir Christopher Lewinton also participates in a US defined contribution
pension arrangement; during the period contributions amounted to
(pound)25,460 (1996 (pound)11,058).
5. Mr W J Laule is also a member of Bundy Corporation's US defined
contribution arrangements; during the period contributions amounted to
(pound)10,955 (1996 (pound)26,157).
6. Pensionable salary does not include annual bonuses or long term incentive
scheme payments. Members' contributions shown above do not include AVCs.
Service Contracts
The Company's policy in relation to contracts of service for executive Directors
is to provide notice or contract periods not exceeding two years. Each of the
executive Directors, including Sir Christopher Lewinton who offers himself for
re-election at this year's Annual General Meeting, is accordingly employed under
a contract entitling him to two years' notice of termination. As previously
reported, the then executive Directors agreed in 1994, without compensation, to
reduce the notice period applicable to their contracts of service from three
years to two years. The Committee has again reviewed the situation this year and
continues to believe that this period of notice is in line with practice in the
marketplace and is in fact necessary to enable the Company to attract and retain
the highest calibre of management. The Company takes account of the legal duty
to mitigate damages. The contracts of the executive Directors do, however,
contain provision for payment based on two years' salary and benefits on
termination following a change of control of the Company.
REMUNERATION POLICY -- NON-EXECUTIVE DIRECTORS
The remuneration of the non-executive Directors is determined by the Board of
Directors. Non-executive Directors absent themselves from any discussion or
decisions relating to their own remuneration. The remuneration reflects both the
amount of time given and the contribution made by the non-executive Directors to
the Company's affairs, including membership or Chairmanship of Board committees,
and is on the basis of advice taken by the Board from independent consultants.
The non-executive Directors do not receive any bonuses related to the Company's
performance nor do they participate in any share option values.
38 TI GROUP
SUMMARY REMUNERATION TABLE
Executive Directors
-- Salary, Annual Bonus and Benefits
[Enlarge/Download Table]
Annual Bonus
--------------------------
1996 1997 Benefits TI Shares 1997 1996
Basic Salary Basic Salary (Note 1) Cash (Note 2) Total Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Sir Christopher Lewinton 625 675 50 216 216 1,157 1,131
W J Laule 272 294 31 87 88 500 396
M D Angle -- 259 83 62 63 467 --
G O Aronson -- 174 13 38 37 262 --
L A Edwards 300 315 17 78 79 489 424
R J M Fisher 260 300 79 48 47 474 434
J W Potter 300 330 22 25 25 402 447
J L Roe 190 210 12 38 39 299 293
B A Walsh 300 124 8 -- -- 132 452
Notes:
1. Benefits include provision of a motor car, fuel, medical expenses
insurance, unapproved life cover, relocation expenses and accommodation
(net of contributions).
2. The bonus award has been allocated between cash and TI shares from the TI
Group Employee Share Ownership Trust. The numbers of shares thus acquired,
calculated after deduction of an amount in respect of personal tax, are
included in the holdings as at 11th March 1998 shown in the summary of
Directors' share interests on page 54.
3. Messier-Dowty International Ltd, a joint venture, bears 60% of the amount
shown in respect of Mr Edwards' salary and annual performance-related
bonus.
4. Mr M D Angle and Mr G O Aronson became Directors on 19th February and 1st
February 1997 respectively. Mr Walsh retired on 1st June 1997.
-- Long Term Incentives (Three-Year Plans)
The Directors and former Director, Mr B A Walsh, listed below are participants
in the Three-Year Share Performance Plan for the measurement periods 1995-98,
1996-99 and (except Mr Walsh) 1997-2000. In addition Mr Angle and Mr Aronson
both participate in the Three-Year Share Performance Plan for the measurement
period 1997-2000. As explained on page 55 contingent interests under the Share
Performance Plan in respect of the periods commencing in 1995 and subsequent
years do not vest until the end of the relevant measurement period; in respect
of each period it will not be known what, if any, entitlement has actually
accrued until after the announcement of the Company's results for the relevant
year. However, as required by UITF 17, a prudent estimate has been made of the
anticipated costs in respect of the Three-Year Share Performance plan and, for
the above periods, a provision of (pound)900,000 has been charged to the profit
and loss account (1996 (pound)482,000). Details of the payments made in 1997 in
respect of the three-year period 1994-96 (estimates of which were disclosed in
the 1996 Annual Report) were as follows:
1994-96
Cash TI Shares Total
(pound)'000 (pound)'000 (pound)'000
----------- ----------- -----------
Sir Christopher Lewinton 178 179 357
W J Laule -- -- --
L A Edwards 78 78 156
R J M Fisher 75 75 150
J W Potter 62 62 124
J L Roe 49 49 98
B A Walsh 82 81 163
Notes:
5. As reported in last year's Annual Report, during 1996 the Chairman
exercised notional stock options arising under his US employment over
41,800 TI Ordinary shares and a payment of (pound)132,500 was made. There
was no exercise or payment during 1997 and the Chairman holds no further
notional stock options. During the year the Chairman exercised options
over 282,000 (1996 442,000) TI Ordinary shares, the notional aggregate
gain resulting from the exercise was (pound)756,855 (1996
(pound)1,366,996). Further details are set out on page 54.
6. Details of share options held by the Directors are set out on page 54.
Non-Executive Directors
1997 1996
Total Total
(pound)'000 (pound)'000
J M Hignett 77 75
Sir Colin Chandler 29 27
Lord Fanshawe 52 50
J M Harris 39 37
R G Mueller 39 27
TI GROUP 39
STATEMENTS OF THE DIRECTORS
DIRECTORS' RESPONSIBILITIES IN RELATION TO FINANCIAL STATEMENTS
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and the Group and of the profit of the Group for that period. In
preparing those financial statements, the Directors are required to:
o select suitable accounting policies and then apply them consistently;
o make judgements and estimates that are reasonable and prudent; and
o state whether applicable accounting standards have been followed.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors confirm that these financial statements comply with these
requirements.
GOING CONCERN
The Directors are confident, after making appropriate enquiries, that the Group
has adequate resources to continue in operation for the foreseeable future.
Accordingly they continue to adopt the going concern basis in preparing the
accounts.
FINANCIAL CONTROL
The Directors have overall responsibility for the Group's system of internal
financial control. Such a system can provide reasonable, though not absolute,
assurance against material misstatement or loss.
The Board has a schedule of matters which are required to be brought to it
for decision, ensuring that it maintains full and effective control over
strategic, financial, organisational and compliance issues. Policies and
procedures, for such matters as the delegation of authority to management, are
distributed to executive management and are regularly updated. Responsibility
for implementing a system of internal financial control is delegated to
executive management.
The management process of the Group includes monthly performance reviews
for each major business, which focus on expectations and actual performance.
These reviews are considered monthly by the Executive Board and are summarised
for the Board.
An annual budget is prepared for each operating company. This is updated
quarterly and is used by divisional and Group management to monitor actual
performance. As part of this process major business risks are identified and
appropriate plans developed to address any financial implications.
Significant treasury and investment matters are reviewed directly by the
Board or a committee thereof.
The system of internal financial control is monitored through the work of
internal and external auditors who report to the Audit Committee on matters
identified in the course of their work.
By these means the Directors have reviewed the effectiveness of the
Group's system of internal financial control.
40 TI GROUP
AUDITORS' REPORTS
Price Waterhouse Southwark Towers [LOGO]
32 London Bridge Street
London SE1 9SY
REPORT TO THE SHAREHOLDERS OF TI GROUP plc
We have audited the financial statements on pages 38, 39 and 42 to 73 which have
been prepared under the historical cost convention and the accounting policies
set out on pages 42 and 43.
Respective responsibilities of Directors and Auditors
As described on page 40 the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the Directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Group's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinions we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group as at 31st December 1997 and of the
profit and cash flows of the Group for the year then ended and have been
properly prepared in accordance with the Companies Act 1985.
Price Waterhouse
Chartered Accountants and Registered Auditors
11th March 1998
REPORT TO THE DIRECTORS ON CORPORATE GOVERNANCE MATTERS
In addition to our audit of the financial statements we have reviewed your
statements on pages 32 and 40 concerning the Group's compliance with the
paragraphs of the Cadbury Code of Best Practice specified for our review by the
London Stock Exchange and the adoption of the going concern basis in preparing
the financial statements. The objective of our review is to draw attention to
non-compliance with Listing Rules 12.43(j) and 12.43(v), if not otherwise
disclosed.
Basis of opinion
We carried out our review having regard to guidance issued by the Auditing
Practices Board. That guidance does not require us to perform the additional
work necessary to, and we do not, express any opinion on the effectiveness of
either the Group's system of internal financial control or corporate governance
procedures, nor on the ability of the Group to continue in operational
existence.
Opinion
In our opinion, your statements on internal financial control and going concern
on page 40 have provided the disclosures required by the Listing Rules referred
to above and are consistent with the information which came to our attention as
a result of our audit work on the financial statements.
In our opinion, based on enquiry of certain Directors and Officers of the
Company and examination of relevant documents, your statement on page 32
appropriately reflects the Group's compliance with the other aspects of the Code
specified for our review by Listing Rule 12.43(j).
Price Waterhouse
Chartered Accountants
11th March 1998
TI GROUP 41
ACCOUNTING POLICIES
There have been no changes in accounting policies during the year.
BASIS OF CONSOLIDATION
The consolidated financial statements set out on pages 38, 39 and 44 to 73,
which are prepared under the historical cost convention and which comply with
applicable Accounting Standards, incorporate the financial statements of TI
Group plc and its subsidiaries. New subsidiaries are included from their
respective dates of acquisition during the year. The results of subsidiaries
disposed of during the year are included to the date of disposal.
YEAR END DATES
The financial year end date of the Group is 31st December, except for some
overseas companies in respect of which the use of a different year end date does
not have a material effect on the consolidated financial statements.
TURNOVER
Turnover represents the amounts receivable in the ordinary course of business
for goods sold and services provided after deducting sales taxes and eliminating
turnover within the Group. Turnover relating to long term contracts represents
the value of work completed during the year.
ASSOCIATED UNDERTAKINGS
Treatment of a company as an associated undertaking has regard to the Group's
holding of at least 20% of the equity capital, representation on its Board of
Directors and participation in policy-making, including dividend policy.
FOREIGN CURRENCIES
Profit and loss items are translated into sterling at average exchange rates and
assets and liabilities are translated at the exchange rates ruling on 31st
December.
Exchange differences arising from the translation into sterling of the net
equity interest in overseas subsidiary and associated undertakings are treated
as movements in reserves together with exchange differences on translation of
foreign currency borrowings which finance overseas investments. Exchange
differences arising in respect of foreign exchange instruments taken out as
hedges of overseas investments are also treated as movements in reserves.
The results of businesses operating in hyper-inflationary economies are
translated into a stable functional currency. The exchange translation movement
arising from this process is taken to the profit and loss account.
RESEARCH AND DEVELOPMENT
Expenditure on research and development is written of in the year in which it is
incurred except where a major project is undertaken and it is reasonably
anticipated that costs will be recovered through future commercial activity.
Such costs are written off over the life of the project, subject to a maximum of
seven years.
OTHER INTANGIBLE ASSETS
Expenditures on patents, trade marks and goodwill is written off in the year in
which it is incurred.
COST OF ACQUISITIONS
In the Parent Company investments in subsidiary companies are stated at cost
less provisions for diminution in value. In the Group financial statements the
difference between the cost of shares and the fair value of net assets
attributable to such shares at the date of acquisition of subsidiary and
associated undertakings is written of to reserves as goodwill.
42 TI GROUP
INVESTMENT GRANTS
Investment grants received to fund the purchase of fixed tangible assets are
included within creditors as deferred income and are credited to the profit and
loss account on a straight line basis over the expected lives of the related
assets.
DEPRECIATION
Depreciation of fixed tangible assets is on the straight line basis and is
charged as follows:
-- freehold land nil
-- freehold buildings between 2% and 3% per annum
-- leasehold land and buildings 2% per annum, or over the period of the lease
if less than 50 years
-- plant, machinery and equipment mainly between 7 1/2% and 10% per annum
-- data processing installations, equipment and software between 12 1/2% and
33 1/3% per annum
-- tooling and test rigs between 10% and 33 1/3% per annum.
DEFERRED TAXATION
Deferred taxation relating to capital allowances and other timing differences is
provided in the financial statements only in so far as a liability is expected
to crystallise. Deferred taxation on pension balances and provisions for
post-retirement obligations is recognised in full.
Advance corporation tax paid and payable in respect of dividends is set
off against UK corporation tax to the extent possible, otherwise it is written
off to the profit and loss account.
PENSIONS AND OTHER POST-RETIREMENT OBLIGATIONS
The cost of providing pensions through defined benefit schemes and other
post-retirement benefits, principally US healthcare. is charged to the profit
and loss account so as to spread the regular cost over the service lives of
employees in accordance with the advice of qualified actuaries. Actuarial
surpluses and deficits are spread forward over the average remaining service
lives of employees.
The cost of providing pensions through defined contribution schemes is
charged to the profit and loss account in the year in respect of which
contributions become payable.
REPAIRS AND RENEWALS
Repairs and renewals are charged to revenue in the year in which the expenditure
is incurred.
STOCKS
Stocks and work in progress are valued at the lower of cost, including an
appropriate proportion of overheads, and net realisable value, less payments on
account. Profit is taken on long term contracts by reference to the work
completed.
LEASED ASSETS
Fixed assets acquired under finance leasing contracts are recorded in the
balance sheet as fixed tangible assets at their equivalent capital value and are
depreciated over the useful life of the asset. The corresponding liability is
recorded as a creditor and the interest element of the finance charge is charged
to the profit and loss account over the primary lease period.
TI GROUP 43
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31ST DECEMBER 1997
[Download Table]
1997 1996
Notes (pound)m (pound)m
Turnover 2
Total Group and share of joint ventures 1,870.4 1,756.6
Less share of joint ventures (166.0) (264.1)
Group 1,704.4 1,552.5
Costs, less other income 3 (1,485.6) (1,351.5)
Operating profit 2 218.8 201.0
Joint ventures and associates 2 18.2 18.7
Profit before interest and exceptional items 2 237.0 219.7
Exceptional profit on disposal of operations 4 -- 19.6
Exceptional (loss)/profit on disposal of fixed assets 4 (1.9) 1.5
Profit before interest 235.1 240.8
Interest 5 (14.5) (8.6)
Profit on ordinary activities before taxation
Before exceptional items 222.5 211.1
Exceptional items (as above) (1.9) 21.1
220.6 232.2
Taxation 6 (68.8) (66.9)
Exceptional items 6 -- (2.2)
(68.8) (69.1)
Profit on ordinary activities after taxation 151.8 163.1
Minority interests (1.3) (2.1)
Profit for the financial year 150.5 161.0
Dividends 7 (76.0) (69.0)
Retained profit 74.5 92.0
======== ========
EARNINGS PER SHARE: 8
On profit for the financial year 31.6p 34.1p
Effect of exceptional items (after tax) 0.4p (4.1)p
On profit before exceptional items 32.0p 30.0p
======== ========
The Group has adopted FRS 9 'Associates and Joint Ventures' and accordingly the
comparative figures for Joint ventures and Interest and related notes have been
reanalysed.
44 TI GROUP
BALANCE SHEETS
AS AT 31ST DECEMBER 1997
[Enlarge/Download Table]
Notes The Group The Company
1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m
Fixed assets
Tangible assets 11 361.6 342.7 -- --
Investments 12
-- joint venture 28.0 29.8 -- --
share of gross assets 112.9 112.9
share of gross liabilities (84.9) (83.1)
-- associates 3.7 9.9 -- --
-- other 6.7 3.6 1,174.4 1.193.0
400.0 386.0 1,174.4 1,193.0
======= ======= ======= =======
Current assets
Stocks 13 200.9 187.0 -- --
Debtors and prepayments
--falling due within one year 14 305.4 277.4 121.6 96.3
--falling due after one year 14 119.7 108.3 361.0 379.4
Cash and deposits 15 368.9 298.6 259.5 200.1
994.9 871.3 742.1 675.8
Creditors falling due within one year
Short term borrowings 16 (145.3) (74.7) (134.1) (14.3)
Other creditors 16 (424.6) (400.5) (84.0) (76.5)
Net current assets 425.0 396.1 524.0 585.0
Total assets less current liabilities 825.0 782.1 1,698.4 1,778.0
Creditors falling due after more than one year
Loans and other borrowings 17 (261.5) (291.9) (17.6) (17.6)
Other creditors 17 (16.9) (10.9) (681.4) (768.1)
(278.4) (302.8) (699.0) (785.7)
Provisions for liabilities and charges 20 (142.6) (143.6) -- --
404.0 335.7 999.4 992.3
======= ======= ======= =======
Capital and reserves
Called up equity share capital 21 119.7 119.1 119.7 119.1
Share premium account 22 57.8 52.6 57.8 52.6
Capital reserve 22 596.6 596.6 596.6 596.6
Profit and loss account 22 637.5 596.3 225.3 224.0
TI shareholders' funds - gross 1,411.6 1.364.6 999.4 992.3
Goodwill written off 22 (1,019.0) (1,040.1) -- --
TI shareholders' funds - net 392.6 324.5 999.4 992.3
Equity interests of minority shareholders 11.4 11.2 -- --
Total shareholders' funds 404.0 335.7 999.4 992.3
======= ======= ======= =======
Signed on behalf of the Board on 11th March 1998
Sir Christopher Lewinton
M D Angle Directors
TI GROUP 45
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31ST DECEMBER 1997
[Download Table]
1997 1996
Notes (pound)m (pound)m
Net cash inflow from operating activities 23 241.4 218.1
Dividends received from joint ventures and associates 23 10.6 11.6
Returns on investments and servicing of finance 24 (13.3) (4.7)
Taxation 25 (73.5) (61.5)
Capital expenditure and financial investment 26 (59.6) (50.0)
Acquisitions and disposals 27 (13.7) (175.4)
Equity dividends paid (69.6) (55.2)
Management of liquid resources 28 (94.0) 60.8
Cash flow before financing (71.7) (56.3)
Issue of shares 5.8 12.8
Capital element of finance leases (0.4) (0.7)
Increase in loans 26.7 64.2
Financing 32.1 76.3
(Decrease)/increase in cash (39.6) 20.0
===== =====
Movement in Group net debt
(Decrease)/increase in cash (39.6) 20.0
Increase/(decrease) in short term deposits 28 94.0 (60.8)
Increase in loans (26.7) (64.2)
Short term deposits acquired with new subsidiaries 27 -- 11.9
Loans acquired with new subsidiaries 27 -- (9.9)
Finance leases 0.4 (1.8)
Exchange translation 28 2.0 27.2
Movement in Group net debt 30.1 (77.6)
Net (debt)/cash at start of year 28 (68.0) 9.6
Net debt at end of year 28 (37.9) (68.0)
===== =====
The Group has adopted FRS 9 'Associates and Joint Ventures' and accordingly
dividends received from joint ventures and associates are now shown separately.
46 TI GROUP
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31ST DECEMBER 1997
[Enlarge/Download Table]
The Group The Company
-------------------- --------------------
1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Profit for the financial year 150.5 161.0 76.1 92.2
Exchange translation (34.5) (102.9) -- --
Total recognised gains and losses for the year 116.0 58.1 76.1 92.2
====== ====== ====== ======
MOVEMENTS IN NET TI SHAREHOLDERS' FUNDS
[Enlarge/Download Table]
Notes The Group The Company
-------------------- --------- -----------
1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
At start of year 324.5 400.9 992.3 947.8
Profit for the financial year 150.5 161.0 76.1 92.2
Exchange translation
on gross TI shareholders' funds 22 (34.5) (102.9)
on goodwill 22 22.4 88.9
on net TI shareholders' funds (12.1) (14.0) -- --
Goodwill written off in current year 1 (1.3) (175.7) -- --
Dividends 7 (76.0) (69.0) (76.0) (69.0)
Issue of shares 21
For cash 5.8 12.8 5.8 12.8
Scrip dividends 1.2 8.5 1.2 8.5
At end of year 392.6 324.5 999.4 992.3
===== ===== ===== =====
TI GROUP 47
NOTES TO THE FINANCIAL STATEMENTS
1 ACQUISITIONS AND DISPOSALS
Acquisitions and disposals completed during 1997 were:
January Disposal of 20% interest in Valti SA for (pound)2.9m.
May Acquisition of a further 40% of Hua Yan Bundy Tubing Corp (Bundy
North China) for (pound)1.7m, increasing TI Group's interest to
90%.
October Acquisition of a further 15% of Bundy India through a rights
issue, increasing TI Group's Interest to 71%.
Consideration in these transactions was cash. The acquisitions were
accounted for by the acquisition method. Other acquisitions and disposals
announced during 1997 but not completed at the year end are set out in
note 33.
Goodwill written off (pound)m
--------
Consideration (1.7)
Professional fees and other deal costs (0.4)
Fair value of net assets acquired 0.2
--------
Goodwill arising on acquisitions (1.9)
Goodwill written back -- unutilised provisions 0.6
--------
(1.3)
=========
No fair value adjustments were made to the book values of net assets
acquired.
Goodwill written back relates to estimated provisions set up on the
acquisition of Forsheda AB in November 1996 in respect of five specific
legal and environmental issues. Four of these have been determined and,
after charging costs where appropriate, the unutilised provisions have
been released. The fifth issue is in arbitration, which has not yet been
concluded, and accordingly the original provision remains.
Messier-Dowty
In addition to the transactions set out above, comparison between the
Group's 1996 and 1997 results was affected by the reduced share of the
profit before tax of Messier-Dowty International Ltd (`Messier-Dowty').
Messier-Dowty, a 50:50 joint venture between TI Group and Snecma of
France, was formed in 1995 by combining the Dowty and Messier aircraft
landing gear businesses which operate primarily in Canada, France and the
UK. Messier-Dowty pursues a policy of fully distributing its profit after
tax by way of cash dividend. In each of the first three years of the joint
venture TI Group was entitled to a share of its dividends in excess of
50%. For 1995 the proportion was 90%, for 1996 it was 80%, and for 1997 it
was 62.5% after which dividends will be shared equally. The Group's share
of Messier-Dowty's profit before tax reflects these entitlements (see note
2).
On 10th December 1997 TI Group announced that a letter of intent had been
signed with Snecma, agreeing, subject to contract, to sell its landing
gear interests to Snecma for an aggregate gross consideration of
(pound)207.5m, before adjustment for the net debt in Messier-Dowty. TI
Group's landing gear interests consist of its 50% stake in Messier-Dowty
and its 100% owned landing gear repair and overhaul business, which
primarily services Messier-Dowty's product range.
48 TI GROUP
2 SEGMENT ANALYSIS
[Enlarge/Download Table]
Turnover Operating Profit Operating Assets
----------------- ---------------- ----------------
1997 1996 1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
-------- -------- -------- -------- -------- --------
By class of business
John Crane 654.9 592.5 99.0 97.1 193.5 199.2
Bundy 740.0 717.9 78.2 79.3 247.4 231.3
Dowty Aerospace 275.1 218.1 42.0 24.2 74.1 63.9
Messier-Dowty/Repair and Overhaul 200.4 228.1 19.5 19.3 53.4 54.4
Parent and other -- -- (1.7) (0.2) 23.0 10.0
-------- -------- -------- -------- -------- --------
1,870.4 1,756.6 237.0 219.7 591.4 558.8
Less: joint ventures and associates (166.0) (204.1) (18.2) (18.7) (31.7) (39.7)
-------- -------- -------- -------- -------- --------
1,704.4 1,552.5 218.8 201.0 559.7 519.1
======== ======== ======== ======== ======== ========
By geographical origin
United Kingdom 357.0 334.9 48.3 49.3 76.8 75.4
Continental Europe 489.7 473.3 58.8 50.6 147.3 159.1
North America 827.4 774.7 117.0 101.8 260.3 241.3
Rest of World 196.3 173.7 14.6 18.2 84.0 73.0
Parent and other -- -- (1.7) (10.2) 23.0 10.0
-------- -------- -------- -------- -------- --------
1,870.4 1,756.6 237.0 219.7 591.4 558.8
Less: joint ventures and associates (166.0) (204.1) (18.2) (18.7) (31.7) (39.7)
-------- -------- -------- -------- -------- --------
1,704.4 1,552.5 218.8 201.0) 559.7 519.1
======== ======== ======== ======== ======== ========
By geographical destination
United Kingdom 235.2 221.2
Continental Europe 560.2 536.2
North America 809.4 750.8
Rest of World 265.6 248.4
-------- -------
1,870.4 1,756.6
Less: joint ventures and associates (166.0) (204.1)
-------- -------
1,704.4 1,552.5
======== =======
On 10th December 1997 TI Group announced that it had agreed, subject to
contract, to sell its landing gear interests to Snecma of France. TI
Group's landing gear interests consist of its 50% stake in Messier-Dowty
and its 100% owned repair and overhaul business, which primarily services
Messier-Dowty's product range. The businesses to be disposed of have been
shown separately in the segment analysis above in order to assist
comparison.
TI GROUP 49
NOTES TO THE FINANCIAL STATEMENTS continued
2 SEGMENT ANALYSIS continued
Sales between business and geographical segments are not material, other
than for sales from the United Kingdom to Continental Europe of
(pound)94.7m (1996 (pound)86.6m).
Operating assets are defined as total assets less current liabilities,
excluding cash and deposits, short term borrowings, prepaid pension
contributions, corporate and deferred taxation, and dividends. This
includes the Group's investment in the Messier-Dowty's joint venture net
of its borrowings and taxation balances.
Joint ventures and associates
The Group's attributable turnover and operating profit of its joint
ventures and associates are incorporated into the segment analysis as
follows:
[Enlarge/Download Table]
1997 1996
-------------------- ---------------------
Operating Operating
Turnover Profit Turnover Profit
(pound)m (pound)m (pound)m (pound)m
-------- --------- -------- ---------
John Crane -- associate -- 0.4 -- 0.3
Bundy -- joint venture -- -- 6.3 0.1
Bundy -- associates -- 1.0 -- 0.5
Messier-Dowty/Repair and Overhaul-- joint venture 166.0 16.8 197.8 17.8
166.0 18.2 204.1 18.7
===== ==== ===== ====
Bundy for 1996 included 50% of the results of the Bundy Asia Pacific joint
venture until it became wholly-owned from November of that year.
Messier-Dowty/Repair and Overhaul for 1997 includes 62.5% (1996 80%) of
the results of Messier-Dowty, in line with the Group's dividend
entitlement (see note 1).
3 COSTS LESS OTHER INCOME
1997 1996
(pound)m (pound)m
-------- --------
Change in stocks of finished goods
and work in progress (2.9) (2.0)
Raw materials and consumables 598.8 535.6
Other external charges 244.2 213.2
Staff costs (see note 9) 599.9 564.0
Depreciation of fixed tangible assets 45.6 40.7
1,485.6 1,351.5
======== =======
50 TI GROUP
Costs charged in arriving at operating profit include:
[Enlarge/Download Table]
1997 1996
(pound)m (pound)m
-------- --------
Research and development expenditure
By subsidiaries, net of external funding 39.0 37.4
By subsidiaries and Messier-Dowty
and externally funded expenditure 60.0 62.7
Property rents 13.3 13.1
Hire of plant and machinery 10.9 10.2
Amounts paid to Price Waterhouse
As auditors -- including the Company (pound)0.2m (1996 (pound)0.2m) 2.2 2.1
Non audit work -- of which (pound)0.2m in UK (1996 (pound)0.2m) 0.4 0.4
The amounts shown above for research and development expenditure are
stated in accordance with the definition contained in SSAP 13. This strict
accounting definition does not include the significant investment in
application engineering and related development costs to support customer
needs and external investment to obtain new technology through
acquisitions. Details of the Group's total investment are set out in the
operating and financial review.
4 EXCEPTIONAL ITEMS
Exceptional items all arose in continuing operations.
The loss on disposal of fixed assets in 1997 arose from the sale of
surplus properties, mainly in the UK, and related costs.
The profit on disposal of operations in 1996 comprised (pound)21.6m
arising from the sale on 31st January 1996 of Desford Tubes, Hollow
Extrusions and Matrix Engineering for (pound)44.2m in cash, offset by a
loss on the disposals in September 1996 of the Accles & Pollock and Apollo
businesses. No goodwill was attributable to these disposals.
The profit on disposal of fixed assets in 1996 arose from the sale of the
20% investment in Usui Bundy Tubing (Japan) offset by losses on property
disposals.
5 INTEREST
1997 1996
(pound)m (pound)m
-------- --------
Overdrafts and other short term borrowings (5.1) (3.1)
Loans (24.0) (24.5)
Finance leases (0.2) (0.3)
Interest payable (29.3) (27.9)
Interest receivable 16.8 22.9
Net Group interest payable (12.5) (5.0)
Share of joint ventures interest (1.6) (3.5)
Share of associates' interest (0.4) (0.1)
(14.5) (8.6)
===== ====
TI GROUP 51
NOTES TO THE FINANCIAL STATEMENTS continued
6 TAXATION
1997 1996
(pound)m (pound)m
-------- --------
UK corporation tax at 31.5% (1996 33%) (41.2) (49.0)
Advance corporation tax 4.1 10.0
Relief in respect of overseas taxes 25.1 17.4
Total UK taxation (12.0) (21.6)
Overseas taxation (51.6) (40.3)
Total Group taxation (63.6) (61.9)
Share of joint ventures' taxation (4.8) (4.9)
Share of associates' taxation (0.4) (0.1)
(68.8) (66.9)
===== =====
The above includes deferred taxation credited of (pound)0.7m (1996 charged
(pound)4.8m). Provision for deferred taxation is made only in respect of
liabilities likely to arise in the foreseeable future. Had provision for
deferred taxation been made on the full liability method, the Group tax
charge would have been unchanged (1996 -- unchanged).
The disposal of Usui Bundy Tubing gave rise to an exceptional tax charge
of (pound)2.2m in 1996.
7 DIVIDENDS OF TI GROUP plc
1997 1996
(pound)m (pound)m
-------- --------
Interim paid of 5.1p per 25p share (1996 4.75p) 24.4 22.6
Proposed final of 10.8p per 25p share (1996 9.75p) 51.6 46.4
---- ----
76.0 69.0
==== ====
As a consequence of changes to the rules concerning the taxation of
dividends announced in the UK Budget Statement of 2nd July 1997 TI Group's
interim dividend for 1997 was paid as a Foreign Income Dividend (FID) and
the final dividend for 1997 will also be paid as a FID.
8 EARNINGS PER SHARE
Earnings per share are calculated on a weighted average basis using the
earnings for each month, which total (pound)150.5 (1996 (pound)161.1m),
and the weighted average number of shares in issue, 476.7m (1996 472.8m).
Earnings per share before exceptional items, which provide a consistent
measure of operating performance, are calculated in the same way using the
earnings for each month excluding exceptional items, which were a net
(pound)1.9m charge in 1997 (1996 net (pound)18.9m gain).
52 TI GROUP
9 EMPLOYEE INFORMATION
1997 1996
(pound)m (pound)m
-------- --------
Staff costs:
Wages and salaries 471.8 443.5
Social security costs 101.7 94.9
Pensions and other post-retirement obligations 26.4 25.6
----- -----
599.9 564.0
===== =====
The total for pensions and other post-retirement obligations is before
deducting a net credit of (pound)4.1m (1996 (pound)4.8m) in respect of an
actuarial surplus in the main UK pension scheme (see note 29).
The average number of persons employed by the Group during the year was:
1997 1996
------ ------
UK 4,550 4,650
Overseas 20,950 18,000
------ ------
25,500 22,650
====== ======
10 EMOLUMENTS AND INTERESTS OF DIRECTORS
Details of Directors' emoluments are as follows:
[Enlarge/Download Table]
1997 1996
(pound) 000 (pound) 000
----------- -----------
Aggregate emoluments (incl. fees, benefits and annual performance-related payments) 4,418 3,793
Aggregate notional gains on the exercise of share options 1,812 3,341
Company contributions to defined contribution pension schemes 36 37
A detailed statement of Directors' emoluments. which forms part of these
financial statements, appears on pages 38 and 39. This includes details of
the emoluments of Sir Christopher Lewinton, Highest Paid Director. and
details of long term incentive plans and defined benefit pension
arrangements.
TI GROUP 53
NOTES TO THE FINANCIAL STATEMENTS continued
SUMMARY OF TI DIRECTORS' SNARE INTERESTS
[Enlarge/Download Table]
Ordinary Shares Ordinary Share Under Option
Balance Balance
as at as at
31 Dec 95 31 Dec 95
Balance Balance or date of Balance or date of
as at as at appointment as at Date of appointment
Director 11 Mar 98 31 Dec 97 if later 31 Dec 97 Grant Exercised Granted if later
Sir Christopher 347,245 321,698 267,013 -- 27/03/91 96,000 -- 96,000
Lewinton* -- 21/08/91 186,000 -- 186,000
226,000 22/08/94 -- -- 226,000
22,000 11/04/95 -- -- 22,000
35,000 15/04/96 -- -- 35,000
16,000 09/09/96 -- -- 16,000
59,000 02/04/97 -- 59,000 --
172,500 02/04/97 -- 172,500 --
215,000 08/09/97 -- 215,000 --
**6,400 25/06/93 -- -- 6,400
W J Laule* 40,164 26,893 24,268 -- 14/09/93 82,500 -- 82,500
80,000 22/08/94 -- -- 80,000
51,000 11/04/95 -- -- 51,000
62,000 15/04/96 -- -- 62,000
23,500 02/04/97 -- 23,500 --
80,000 08/09/97 -- 80,000 --
M D Angle* 16,837 9,500 -- 222,000 02/04/97 -- 222,000 --
52,500 08/09/97 -- 52,500 --
G 0 Aronson* 7,270 2,868 -- 72,000 02/04/97 -- 72,000 --
61,800 08/09/97 -- 61,800 --
**2,236 28/08/97 -- 2,236 --
Sir Nigel Broomfield -- -- -- -- -- -- -- --
Sir Colin Chandler 2,783 2,783 4,238 -- -- -- -- --
L A Edwards* 57,094 47,850 32,631 90,000 08/04/93 -- -- 90,000
45,000 22/08/94 -- -- 45,000
8,000 11/04/95 -- -- 8,000
10,000 15/04/96 -- -- 10,000
19,500 02/04/97 -- 19,500 --
71,500 08/09/97 -- 71,500 --
**6,400 25/06/93 -- -- 6,400
Lord Fanshawe 3,239 3,239 3,186 -- -- -- -- --
R J M Fisher* 65,525 59,949 38,672 -- 27/09/91 56,000 -- 56,000
-- 08/04/93 35,000 -- 35,000
33,000 19/04/94 -- -- 33,000
40,000 22/08/94 -- -- 40,000
7,000 11/04/95 -- -- 7,000
13,000 15/04/96 -- -- 13,000
47,500 09/09/96 -- -- 47,500
25,500 02/04/97 -- 25,500 --
73,600 08/09/97 -- 73,600 --
** -- 26/06/92 6,672 -- 6,672
**2,236 28/08/97 -- 2,236 --
J M Harris 3,046 3,046 2,046 -- -- -- -- --
J M Hignett 50,232 50,232 39,130 -- -- -- -- --
R Q Mueller 10,000 10,000 -- -- -- -- -- --
J W Potter* 86,139 83,204 58,767 -- 27/08/92 85,000 -- 85,000
40,000 08/04/93 -- -- 40,000
7,000 19/04/94 -- -- 7,000
7,000 19/04/94 -- -- 7,000
45,000 22/08/94 -- -- 45,000
12,000 11/04/95 -- -- 12,000
46,000 15/04/96 -- -- 46,000
6,000 09/09/96 -- -- 6,000
90,500 02/04/97 -- 90,500 --
75,000 08/09/97 -- 75,000 --
** -- 26/06/92 6,672 -- 6,672
**2,236 28/08/97 -- 2,236 --
J L Roe* 60,735 56,216 45,915 -- [ILLEGIBLE] 29,000 -- 29,000
-- 06/04/92 50,000 -- 50,000
14,000 19/04/94 -- -- 14,000
28,000 19/04/94 -- -- 28,000
30,000 22/08/94 -- -- 30,000
7,000 11/04/95 -- -- 7,000
19,000 15/04/96 -- -- 19,000
30,000 12/04/97 -- [ILLEGIBLE] --
[ILLEGIBLE] [ILLEGIBLE] -- [ILLEGIBLE] --
[ILLEGIBLE] [ILLEGIBLE] -- -- [ILLEGIBLE]
[ILLEGIBLE] [ILLEGIBLE] -- -- [ILLEGIBLE]
Market
Price at Date from
Exercise Date of which
Price Exercise Normally Expiry
Director (p) (p) Exercisable Date
Sir Christopher 270.0 551.25 27/03/94 27/03/01
Lewinton* 289.5 551.25 21/08/94 21/08/01
373.5 -- 22/08/97 22/08/04
376.5 -- 11/04/98 11/04/05
520.5 -- 15/04/99 15/04/06
551.5 -- 09/09/00 09/09/06
540.0 -- 02/04/00 02/04/07
540.0 -- 02/04/01 02/04/07
600.0 -- 08/09/01 08/09/07
269.5 -- 01/08/98 31/04/99
W J Laule* 352.5 588.25 14/09/96 14/09/03
373.5 -- 22/08/97 22/08/04
376.5 -- 11/04/98 11/04/05
520.5 -- 15/04/99 15/04/06
540.0 -- 02/04/00 02/04/07
600.0 -- 08/09/00 08/09/07
M D Angle* 540.0 -- 02/04/00 02/04/07
600.0 -- 08/09/00 08/09/07
G 0 Aronson* 540.0 -- 02/04/00 02/04/07
600.0 -- 08/09/00 08/09/07
436.0 -- 01/10/00 31/03/01
Sir Nigel Broomfield -- -- -- --
Sir Colin Chandler -- -- -- --
L A Edwards* 301.5 -- 08/04/96 08/04/03
373.5 -- 22/08/97 22/08/04
376.5 -- 11/04/98 11/04/05
520.5 -- 15/04/99 15/04/06
540.0 -- 02/04/00 02/04/07
600.0 -- 08/04/00 08/09/07
269.5 -- 01/08/98 31/01/99
Lord Fanshawe -- -- -- --
R J M Fisher* 270.0 581.0 27/09/94 27/09/01
301.5 581.0 08/04/96 08/04/03
416.5 -- 19/04/97 19/04/04
373.5 -- 22/08/97 22/08/04
376.5 -- 11/04/98 11/04/05
520.5 -- 15/04/99 15/04/06
551.5 -- 09/09/00 09/09/06
540.0 -- 02/04/00 02/04/07
600.0 -- 08/09/00 08/09/07
281.0 607.0 01/08/97 31/01/98
436.0 -- 01/10/00 31/03/01
J M Harris -- -- -- --
J M Hignett -- -- -- --
R Q Mueller -- -- -- --
J W Potter* 265.5 598.75 27/08/97 27/08/02
301.5 -- 08/04/96 08/04/03
416.5 -- 19/04/97 19/04/04
416.5 -- 19/04/99 19/04/04
373.5 -- 22/08/97 22/08/04
376.5 -- 11/04/98 11/04/05
520.5 -- 15/04/99 15/04/06
551.5 -- 09/09/00 09/09/06
540.0 -- 02/04/00 02/04/07
600.0 -- 08/09/00 08/09/07
281.0 607.0 01/08/97 31/01/98
436.0 -- 01/10/00 31/03/01
J L Roe* 226.5 613.25 10/04/93 10/04/00
314.0 613.25 06/04/97 06/04/02
416.5 -- 19/04/97 19/04/04
416.5 -- 19/04/99 19/04/04
373.5 -- 22/08/97 22/08/04
376.5 -- 11/04/98 11/04/05
520.5 -- 15/04/99 15/04/06
540.0 -- 02/04/00 02/04/07
600.0 -- 08/09/00 08/09/07
269.5 -- 01/08/98 31/01/99
339.0 -- 01/10/00 31/03/01
* Denotes Executive Director
** Denotes SAYE Options
See next page for notes relating to the above table
54 TI GROUP
NOTES TO THE SUMMARY OF TI DIRECTORS' SHARE INTERESTS
1. Mid-Market Share Price The mid-market price of TI Group shares as at 31st
December 1997 was 464p. The highest mid-market price during the year was
690.5p and the lowest price was 439.5p.
2. TI Group Employee Share Ownership Trust On 10th April 1995 the TI Group
Employee Share Ownership Trust was established. The trust is discretionary
and was created to encourage employees to hold shares in the Company.
During the year TI Group Trustees Ltd purchased 631,000 (1996, 340,000) TI
Ordinary shares 911,594 shares remained in ownership of the trust at 11th
March 1998. Under paragraph 2 of Schedule 13 of the Companies Act 1985,
each of the executive Directors of the Company is deemed to be interested
in the remaining shares.
3. Contingent Interests Each executive Director (detailed below) has notified
the Company that, for the purposes of Section 324 of the Companies Act
1985, he has a contingent interest in the following number of TI Ordinary
shares, representing the maximum aggregate number of shares to which he
could become entitled (in respect of one or more of the measurement
periods, 1995-98, 1996-99, and 1997-2000) under the three-year share
performance plan described on page 37.
Sir Christopher Lewinton 409,114 L A Edwards 195,389
W J Laule 163,660 R J M Fisher 175,683
MD Angle 54,426 J W Potter 187,088
G O Aronson 34,470 J L Roe 124,641
As explained on page 37, contingent interests under the plan do not vest
until the end of the relevant measurement period in respect to each period
it will not be known what, if any entitlement has actually accrued until
after the announcement of the Company's results for the relevant year.
4. Performance Criteria Executive share options are normally exercisable
between three and ten years from the date of grant provided that the
increase in the earnings per share of the Company (calculated in
accordance with the rules of the scheme concerned) over a period of three
years prior to exercise has exceeded the increase in the United Kingdom
Retail Price Index over a corresponding period. In the case of options
granted after 1st January 1996 the increase in earnings per share must
exceed the increase in RPI by at least 2% per annum.
5. Lapsed Options No options Lapsed during the year.
11 FIXED TANGIBLE ASSETS
Plant, Assets in
Land & Machinery & Course of
Buildings Equipment Construction Total
(Pound)m (Pound)m (Pound)m (Pound)m
-------- -------- -------- --------
The Group
Cost
At 31st December 1996 167.5 522.3 20.6 710.4
Exchange rate adjustments (3.0) (11.7) 0.1 (14.6)
New subsidiaries 0.9 4.0 -- 4.9
Capital expenditure 3.1 42.4 26.2 71.7
Disposals and adjustments (2.2) 6.7 (23.7) (19.2)
----- ----- ---- -----
At 31st December 1997 166.3 563.7 23.2 753.2
----- ----- ---- -----
Depreciation
At 31st December 1996 42.8 324.9 -- 367.7
Exchange rate adjustments (1.1) (7.4) -- (8.5)
New subsidiaries 0.2 1.2 -- 1.4
Charge for year 3.8 41.8 -- 45.6
Disposals and adjustments (0.4) (14.2) -- (14.6)
----- ----- ---- -----
At 31st December 1997 45.3 346.3 -- 391.6
----- ----- ---- -----
Net book amount 1997 121.0 217.4 23.2 361.6
===== ===== ==== =====
Net book amount 1996 124.7 197.4 20.6 342.7
----- ----- ---- -----
Freehold land and buildings included above have a cost of (pound)149.9m (1996
(pound)152.6m) and depreciation of (pound)38.5m (1996 (pound)36.6m).
Leased assets included above comprise:
[Enlarge/Download Table]
Land & buildings
--------------------------------------------- Plant,
Long Leasehold Short Leasehold Machinery & Equipment
------------------ ---------------------- -----------------------
1997 1996 1997 1997 1997 1996
(Pound)m (Pound)m (Pound)m (Pound)m (Pound)m (Pound)m
-------- -------- -------- -------- -------- --------
Cost 2.5 1.7 13.9 13.2 6.7 6.1
Depreciation (1.0) (0.9) (5.8) (5.3) (5.0) (4.4)
Net book amount 1.5 0.8 8.1 7.9 1.7 1.7
--- --- --- --- --- ---
The depreciation charge for the year for leased assets was (pound)1.5m (1996
(pound)1.5m).
TI GROUP 55
NOTES TO THE FINANCIAL STATEMENTS continued
12 INVESTMENTS
[Enlarge/Download Table]
Other
Joint Associated Participating Own
Venture Undertakings Interests Shares Total
(Pound)m (Pound)m (Pound)m (Pound)m (Pound)m
-------- -------- -------- -------- --------
The Group
Shares at valuation
At 31st December 1996 29.8 9.9 1.0 2.6 43.3
Exchange rate adjustments (1.8) (1.8) -- -- (3.6)
Additions -- -- -- 3.5 3.5
Conversion to subsidiary and disposals -- (4.8) -- (0.4) (5.2)
Movement during the year -- 0.4 -- -- 0.4
---- --- --- --- ----
At 31st December 1997 28.0 3.7 1.0 5.7 38.4
==== === === === ====
Joint venture
The Group's only joint venture is Messier-Dowty International Ltd. established
on 1st January 1995 by combining the aircraft landing gear businesses of TI
Group and Snecma of France, which each hold 50% of the ordinary share capital.
The business operates primarily in Canada, France and the UK.
For 1997 Messier-Dowty's total sales were (pound)265.6m (1996 (pound)247.2m)
including (pound)9.5m (1996 (pound)10.3m) to TI Group, depreciation was
(pound)9.3m (1996 (pound)10.7m) and profit before taxation was (pound)24.4m
(1996 (pound)18.3m). Sales by TI Group to Messier-Dowty were (pound)25.5m
(1996 (pound)25.3m).
At 31st December 1997 Messier-Dowty's consolidated summary balance sheet
comprised:
1997 1996
(Pound)m (Pound)m
-------- --------
Fixed assets 66.2 71.1
Net current assets excluding net cash 63.4 67.4
Other creditors falling due
after more than one year (23.7) (22.6)
Net borrowings (49.9) (55.6)
----- -----
Total shareholders' funds 56.0 60.3
===== =====
On 10th December 1997 it was announced that TI Group had agreed, subject to
contract, to sell its investment in Messier-Dowty to Snecma.
Associated undertakings
The principal associated Undertakings are:
Class
Country of Operation % Held of Share
John Crane Japan Inc Japan 49 Ordinary
Korea Bundy Corp South Korea 39 Ordinary
56 TI GROUP
The interest in associated undertakings is shown in the Group balance sheet at a
valuation being the proportion of net assets attributable to TI Group at the
date of acquisition, plus TI Group's share of post-acquisition losses which at
31st December 1997 amounted to (pound)0.2m (1996 earnings of (pound)2.8m).
The Group purchased a further 40% of the shares in Hua Yan Bundy Tubing Corp
(Bundy North China) in May 1997, from which time it has been accounted for as a
subsidiary. The Group sold its investment in Valti SA in January 1997.
The financial year end of John Crane Japan Inc is 31st March; the Group's share
of its results is for the calendar year using management accounts for the
unaudited period.
Sales by TI Group to its associates in 1997 amounted to (pound)2.2m (1996
(pound)2.0m). Sales by the associates to TI Group were not material to either
party in either year.
Other participating Interests
The principal other participating interest is Tube Investments of India Ltd of
which the Group holds 3% of the ordinary shares. Participating interests are all
listed companies stated at Directors' valuation with a market value at 31st
December 1997 of (pound)0.8m (1996 (pound)1.5m).
Own shares
The TI Group Employee Share Ownership Trust was established in 1995 with the
purpose of holding shares in the Company for subsequent transfer to employees
under various incentive schemes. In accordance with UITF 13 the Trust's accounts
are incorporated into the Company and Group accounts.
At 31st December 1997 the Trust held 1,079,210 shares in the Company (1996
541,611) with a market value of (pound)5.0m (1996 (pound)3.2m). Costs of
administration are included in the profit and loss account as they accrue.
The Company (Pound)m
--------
Shares In subsidiaries at cost and own shares
At 31st December 1996 1,193.0
Acquisitions 6.9
Disposals (23.7)
Exchange rate adjustments (1.8)
At 31st December 1997 1,174.4
-------
The amounts shown include the movements in own shares referred to above.
Provisions for diminution in value included in the above at 31st December 1997
amounted to (pound)65.4m (1996 (pound)65.4m). A list of the Group's principal
subsidiaries, associated undertakings and other participating interests is set
out on pages 72 and 73.
TI GROUP 57
NOTES TO THE FINANCIAL STATEMENTS continued
13 STOCKS
The Group
----------------------
1997 1996
(pound)m (pound)m
-------- --------
Raw materials and consumables 60.1 52.4
Work in progress 68.1 63.9
Finished goods and goods for resale 77.0 73.5
Payments on account (4.3) (2.8)
----- -----
200.9 187.0
===== =====
The current replacement cost of stocks does not materially exceed the
historical cost stated above.
14 DEBTORS AND PREPAYMENTS
[Enlarge/Download Table]
The Group The Company
----------------------- -----------------------
1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Amounts falling due within one year
Trade debtors 263.9 236.1 -- --
Amounts owed by Group undertakings -- -- 113.3 94.7
Amounts owed by joint ventures and associates 4.3 4.2 -- --
Other debtors 5.5 7.7 0.1 0.1
Prepayments and accrued income 22.0 24.2 2.0 1.5
Corporate taxation 9.7 5.2 6.2 --
----- ----- ----- ----
305.4 277.4 121.6 96.3
===== ===== ===== ====
Amounts falling due after more than one year
Amounts owed by Group undertakings -- -- 361.0 379.4
Prepaid pension contributions (see note 29) 81.8 76.7 -- --
Other debtors 8.4 3.4 -- --
Corporate taxation -- 0.1 -- --
Deferred taxation 29.5 28.1 -- --
----- ----- ----- ----
119.7 108.3 361.0 379.4
----- ----- ----- ----
Total debtors 425.1 385.7 482.6 475.7
===== ===== ===== ====
The deferred tax asset relates to provisions for post-retirement medical
and welfare benefit schemes, principally in the USA.
58 TI GROUP
15 CASH AND DEPOSITS
[Download Table]
The Group The Company
----------------------- -----------------------
1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Cash at bank and in hand 62.6 85.4 38.5 23.4
Short term bank deposits 306.3 213.2 221.0 176.7
----- ----- ----- -----
368.9 298.6 259.5 200.1
===== ===== ===== =====
16 CREDITORS FALLING DUE WITHIN ONE YEAR
[Enlarge/Download Table]
The Group The Company
----------------------- -----------------------
1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Bank overdrafts 20.2 10.0 134.1 14.3
Other short term borrowings 10.8 3.4 -- --
----- ----- ----- ----
Short term borrowings -- repayable on demand 31.0 13.4 134.1 14.3
Commercial paper 69.8 40.2 -- --
Current portion of loans 44.1 20.7 -- --
Finance leases 0.4 0.4 -- --
----- ----- ----- ----
Short term borrowings 145.3 74.7 134.1 14.3
===== ===== ===== ====
Trade creditors 164.5 142.5 -- --
Bills of exchange payable 5.3 6.1 -- --
Amounts owed to Group undertakings -- -- 10.4 11.6
Amounts owed to joint ventures and associates 1.5 1.3 -- --
Corporate taxation 59.4 64.3 20.8 16.4
Other taxation and social security 30.3 32.1 -- --
Other creditors 7.9 22.9 0.4 1.6
Accruals and deferred income 104.1 84.9 0.8 0.5
Proposed final dividend 51.6 46.4 51.6 46.4
----- ----- ----- ----
Other creditors 424.6 400.5 84.0 76.5
===== ===== ===== ====
Short term borrowings of subsidiaries amounting to (pound)1.5m (1996
(pound)2.0m) are secured by charges over certain of the assets of the
subsidiaries concerned.
Commercial paper is short term borrowing raised in the commercial paper market
in the USA. The paper is guaranteed by TI Group plc.
Current portion of loans includes $30m (1996 $30m) of the Group's private
placement debt (see note 18).
TI GROUP 59
NOTES TO THE FINANCIAL STATEMENTS continued
17 CREDITORS PALLING DUE AFTER MORE THAN
[Enlarge/Download Table]
The Group The Company
----------------------- -----------------------
1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Repayable wholly or partly after five years
Secured loans of overseas subsidiaries 0.2 0.2 -- --
Unsecured bank and other loans 60.8 68.7 -- --
Finance leases 0.5 0.6 -- --
Repayable wholly within five years
Secured loans of overseas subsidiaries 0.8 0.9 -- --
Unsecured bank and other loans 198.9 220.9 17.6 17.6
Finance leases 0.3 0.6 -- --
----- ----- ----- ----
Loans and other borrowings 261.5 291.9 17.6 17.6
===== ===== ===== ====
Amounts owed to Group undertakings -- -- 681.4 768.1
Corporate taxation 2.4 2.3 -- --
Other creditors 14.5 8.6 -- --
----- ----- ----- ----
Other creditors 16.9 10.9 681.4 768.1
===== ===== ===== ====
The security for loans of overseas subsidiaries, where given, mainly
comprises charges on specific assets of the subsidiaries concerned.
Amounts owed by the Company to Group undertakings are governed by loan
agreements, the majority of which expire between two and five years.
18 NET BORROWINGS
1997 1996
(pound)m (pound)m
-------- --------
Short term borrowings (note 16) (145.3) (74.7)
Loans and other borrowings falling due after more
than one year (note 17) (261.5) (291.9)
------ ------
Total borrowings (406.8) (366.6)
Cash and deposits (note 15) 368.9 298.6
------ ------
Net borrowings (37.9) (68.0)
====== ======
Maturity of borrowings
1997 1996
(pound)m (pound)m
-------- --------
Within one year 145.3 74.7
Between one and two years 48.8 32.1
Between two and five years 200.3 225.7
After five years 12.4 34.1
406.8 366.6
====== ======
Maturity dates are based on term loans and committed lending facilities.
60 TI GROUP
The Group had the following unused committed borrowing facilities:
1997 1996
(pound)m (pound)m
-------- --------
Expiring within one year 12.5 --
Expiring after one year 113.3 81.6
----- ----
125.8 81.6
===== ====
Currency and interest rate analysis of net borrowings at 31st December 1997
[Enlarge/Download Table]
Fixed
Floating Fixed interest Time
Currencies Category Total rate rate rate fixed
(pound)m (pound)m (pound)m % yrs
--------------- ----------------------------- -------- -------- -------- -------- --------
US$ US private placements (133.7) -- (133.7) 10.2 1.3
US$ US commercial paper (69.8) (69.8) -- -- --
US & Canadian $ Bank loans (53.2) (23.9) (29.3) 4.9 1.4
European Bank loans and finance leases (119.2) (75.3) (43.9) 4.6 1.4
Rest of World Bank loans (30.9) (30.9) -- -- --
------ ------ ------
Total borrowings (406.8) (199.9) (206.9)
------ ------ ------
Sterling Cash and deposits 309.4
Other Cash and deposits 59.5
------
Cash and deposits 368.9
------
Net borrowings (37.9)
======
The table above takes account of interest rate swaps and forward rate
agreements. Floating rates on borrowings based on appropriate local market
rates. Fixed rate loans are those for which the interest rate was fixed for
12 months or more as at 31st December 1997.
The Group has two US private placement debts. The first has an outstanding
principal of$120m, of which $30m is repayable in 1998, with a coupon of 8.52%;
final maturity is in 2001. The other has an outstanding principal of $100m with
a coupon of 8.853% and final maturity in 2003. Both debts are placed by TI Group
Inc with major institutional investors and are guaranteed by TI Group plc.
Canadian dollar debt includes a (pound)20m bank loan swapped into Canadian
dollars.
TI GROUP 61
NOTES TO THE FINANCIAL STATEMENTS continued
18 NET BORROWINGS continued
Currency analysis of net assets at 31st December 1997
Net Assets Excluding Total
Total Borrowings Borrowings
Currencies (pound)m (pound)m
-------- --------
Sterling 355.3 (0.6)
US and Canadian $ 273.3 (256.7)
European 122.2 (118.6)
Rest of World 48.6 (30.9)
----- ------
799.4 (406.8)
===== ======
19 FINANCIAL INSTRUMENTS
The Group's policies on financial risk management and the related use of
financial instruments are described in the financial review on pages 6 to
9.
The Group held the following categories of financial instruments at 31st
December 1997:
Book Values Fair Values
Assets/(liabilities) (pound)m (pound)m
----------- -----------
Trade debtors 268.2 268.2
Trade creditors (171.3) (171.3)
Cash and deposits 368.9 368.9
Short term borrowings (145.3) (145.3)
Loans and other borrowings falling due
after more than one year (261.5) (261.5)
Interest rate swaps and forward rate agreements -- (4.1)
------ ------
59.0 54.9
====== ======
The Group uses interest rate swaps and forward rate agreements to manage its
interest rate exposures, as described on page 9. As in previous years, interest
is charged to the profit and loss account over the lives of these instruments
and based on their contracted interest rates. To determine the fair value of
interest rate swaps and forward rate agreements for inclusion in the above
table, a calculation was made of the net gain or loss which would have arisen if
these contracts had been terminated on 31st December 1997. The value at that
date was determined by market interest rates, which fluctuate over time.
As at 31st December 1997 gains and losses on forward exchange contracts taken
out as hedges of sales and purchase transactions were not material.
62 TI GROUP
20 PROVISIONS FOR LIABILITIES AND CHARGES
[Download Table]
Pensions
and Other
Post-Retirement Deferred
Obligations Taxation Group Total
(pound)m (pound)m (pound)m
-------- -------- --------
At 31st December 1996 111.8 31.8 143.6
Exchange rate adjustments (0.3) (0.7) (1.0)
Utilised (6.0) -- (6.0)
Profit and loss account 6.7 (0.7) 6.0
----- ---- -----
At 31st December 1997 112.2 30.4 142.6
===== ==== =====
Deferred taxation
[Download Table]
1997 1996
----------------------- -----------------------
Full Full
Amount Potential Amount Potential
Provided Liability Provided Liability
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Accelerated capital allowances 27.9 31.0 20.5 22.6
Other timing differences 11.4 22.4 20.2 32.0
Unremitted overseas income 13.0 13.0 13.0 13.0
Advance corporation tax (21.9) (23.3) (21.9) (23.1)
---- ---- ---- ----
30.4 43.1 31.8 44.5
==== ==== ==== ====
Deferred taxation is calculated under the liability method using a UK tax
rate of 31% (1996 33%) and appropriate overseas rates.
In addition to UK advance corporation tax of (pound)21.9m set off against
deferred taxation above, the Group has unrecovered UK advance corporation
tax of (pound)6.1m (1996 (pound)10.2m) which is available for set off
against UK tax on future profits.
Provision has been made for potential taxation which could arise on the
remittance of retained overseas earnings only to the extent that there is
currently an intention to remit such earnings.
The deferred tax asset in respect of post-retirement obligations is
included within debtors and prepayments (note 14).
TI GROUP 63
NOTES TO THE FINANCIAL STATEMENTS continued
21 SHARE CAPITAL OF TI GROUP plc
[Download Table]
Authorised Issued
----------------------- -----------------------
1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Ordinary shares of 25p each 169.5 169.5 119.7 119.1
===== ===== ===== =====
Shares Issued during the year
During the year 197,755 Ordinary shares of 25p each were issued in lieu of
cash of (pound)1.2m (1996 (pound)8.5m) in respect of the final dividend
for the year ended 31st December 1996.
Four TI Group share option schemes and three Dowty Group share option
schemes operated during the year.
The four TI Group share option schemes were: The TI (1981) Savings-Related
Share Option Scheme and the TI Group (1994) Savings Related Share Option
Scheme (together "The SAYE Schemes") and the TI Group Executive Share
Option Scheme and The TI Group (1990) Executive Share Option Scheme
(together "The Executive Schemes"). During the year 1,705,452 Ordinary
shares of 25p each were issued following the exercise of options under
these schemes. The aggregate consideration received in respect of these
allotments was (pound)5.0m (1996 (pound)12.2m).
The three Dowty Group share option schemes - the Dowty Group Share Savings
Scheme, and the Dowty Group Share Savings Scheme (1991) (together "The
Dowty Share Savings Schemes"), and the Dowty Group Executive Share Option
Scheme continued to be governed by rules adopted by Dowty Group although
certain options granted thereunder were converted into options over TI
Group plc Ordinary shares following the acquisition of Dowty Group. During
the year 416,160 TI Group Ordinary shares were issued following the
exercise of options under these schemes. The aggregate consideration
received in respect of these allotments was (pound)0.8m (1996
(pound)0.6m).
Shares under option
At 31st December 1997 the total number of TI Group Ordinary shares under
option was 13,351,538 as follows:
[Enlarge/Download Table]
Number Option
of 25p Dates Price per
Ordinary Normally Ordinary
Scheme Date of Grant Shares Exercisable Share
--------------------------------------------- -------------- --------- ------------------------ ---------
The SAYE Schemes 15 June 1990 58,328 August 1995/January 1998 181.5p
21 June 1991 100,036 August 1996/January 1999 201.5p
26 June 1992 148,676 August 1997/January 2000 281.0p
25 June 1993 596,039 August 1998/January 2001 269.5p
24 June 1994 873,755 August 1999/January 2002 309.0p
31 August 1995 921,140 October 2000/March 2003 339.0p
29 August 1996 977,660 October 2001/March 2004 420.0p
28 August 1997 1,434,801 October 2002/March 2005 436.0p
64 TI GROUP
[Enlarge/Download Table]
Number Option
of 25p Dates Price per
Ordinary Normally Ordinary
Scheme Date of Grant Shares Exercisable Share
------------------------------------------ ----------------- --------- ----------------------------- ---------
The Executive Schemes 10 April 1990 20,000 April 1993/April 2000 226.5p
9 October 1990 361,000 October 1993/October 2000 204.0p
27 March 1991 60,000 March 1994/March 2001 270.0p
21 August 1991 62,000 August 1994/August 2001 289.5p
6 April 1992 145,000 April 1995/April 2002 314.0p
27 August 1992 91,000 August 1995/August 2002 265.5p
8 April 1993 317,000 April 1996/April 2003 301.5p
14 September 1993 104,000 September 1996/September 2003 352.5p
19 April 1994 323,000 April 1997/April 2004 416.5p
22 August 1994 829,000 August 1997/August 2004 373.5p
11 April 1995 296,000 April 1998/April 2005 376.5p
31 August 1995 301,000 August 1998/August 2005 430.5p
15 April 1996 563,000 April 1999/April 2006 520.5p
9 September 1996 546,500 September 1999/September 2006 551.5p
2 April 1997 1,405,000 April 2000/April 2007 540.0p
8 September 1997 2,470,700 September 2000/September 2007 600.0p
The Dowty Share 15 March 1991 56,693 May 1996/October 1998 255.0p
Savings Schemes 13 March 1992 117,997 May 1997/October 1999 180.0p
The Dowty Group 7 January 1988 19,198 January 1991/January 1998 337.5p
Executive Share Option 20 January 1989 6,400 January 1992/January 1999 440,625p
Scheme 18 December 1989 52,000 December 1992/December 1999 455,625p
16 July 1990 21,333 July 1993/July 2000 423.75p
4 January 1991 46,083 January 1994/January 2001 311.25p
20 December 1991 27,199 December 1994/December 2001 275.625p
22 RESERVES
[Enlarge/Download Table]
Share Capital Retained Goodwill
The Group Premium Account Reserve Earnings Written Off Total
(pound)m (pound)m (pound)m (pound)m (pound)m
-------- -------- -------- -------- --------
At 31st December 1996 52.6 596.6 596.3 (1,040.1) 205.4
Total recognised gains and losses
Profit for the financial year -- -- 150.5 -- 150.5
Exchange translation -- -- (34.5) -- (34.5)
Goodwill
Exchange translation -- -- -- 22.4 22.4
Written off in current year -- -- -- (1.3) (1.3)
Dividends -- total -- -- (76.0) -- (76.0)
Less scrip element -- -- 1.2 -- 1.2
Issues of shares for cash 5.2 -- -- -- 5.2
At 31st December 1997 57.8 596.6 637.5 (1,019.0) 272.9
==== ===== ===== ======== =====
Currency translation included within total recognised gains and losses
comprised negative movements in respect of overseas investments, inclusive
of goodwill, of (pound)36.5m (1996 (pound)130.1m) and positive movements
of (pound)2.0m (1996 (pound)27.2m) in respect of foreign currency
financing of those investments.
Earnings retained in overseas subsidiary and associated undertakings would
be subject to further tax on distribution.
TI GROUP 65
NOTES TO THE FINANCIAL STATEMENTS continued
22 RESERVES continued
[Download Table]
Share Capital Retained
The Company Premium Account Reserve Earnings Total
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
At 31st December 1996 52.6 596.6 224.0 873.2
Profit for the financial year -- -- 76.1 76.1
Dividends -- total -- -- (76.0) (76.0)
Less scrip element -- -- 1.2 1.2
Issues of shares for cash 5.2 -- -- 5.2
---- ----- ----- -----
At 31st December 1997 57.8 596.6 225.3 879.7
==== ===== ===== =====
As permitted by section 230 of the Companies Act 1985, TI Group plc has
not presented its own profit and loss account.
23 NET CASH INFLOW FROM OPERATING ACTIVITIES
[Download Table]
1997 1996
(pound)m (pound)m
-------- --------
Operating profit 218.8 201.0
Depreciation of fixed tangible assets 45.6 40.7
Operating working capital movement
----- -----
Increase in stocks (18.0) (11.1)
Increase in debtors (36.3) (8.7)
Increase in creditors 33.0 4.2
----- -----
(21.3) (15.6)
Movement in pensions and related balances (1.7) (8.0)
----- -----
Net cash inflow from operating activities 241.4 218.1
----- -----
Dividends received from joint ventures 10.4 11.4
Dividends received from associates 0.2 0.2
----- -----
Dividends received from joint ventures and associates 10.6 11.6
Capital expenditure (net) (60.0) (56.5)
----- -----
Free cash flow 192.0 173.2
===== =====
66 TI GROUP
24 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
[Download Table]
1997 1996
(pound)m (pound)m
-------- --------
Interest received 13.3 23.9
Interest paid (25.8) (27.8)
----- ----
Interest paid (net) (12.5) (3.9)
Dividends received from other participating interests -- 0.1
Dividends paid to minority interests of subsidiaries (0.8) (0.9)
----- ----
(13.3) (4.7)
===== ====
25 TAXATION CASH FLOWS
[Download Table]
1997 1996
(pound)m (pound)m
-------- --------
UK corporation tax (18.3) (12.2)
Overseas taxes (55.2) (49.3)
----- -----
(73.5) (61.5)
===== =====
Overseas taxes paid in 1997 included (pound)2.2m in respect of the 1996
exceptional disposal of the investment in Usui Bundy Tubing.
26 CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
[Download Table]
1997 1996
(pound)m (pound)m
-------- --------
Capital expenditure (61.2) (56.9)
Sale of plant, machinery and equipment 1.2 1.1
Sale of surplus properties 3.9 1.2
Sale of other participating interests -- 6.4
Purchase of own shares (3.5) (1.8)
----- -----
(59.6) (50.0)
===== =====
TI GROUP 67
20 PROVISIONS FOR LIABILITIES AND CHARGES
[Download Table]
Pensions
and Other
Post-Retirement Deferred
Obligations Taxation Group Total
(pound)m (pound)m (pound)m
-------- -------- --------
At 31st December 1996 111.8 31.8 143.6
Exchange rate adjustments (0.3) (0.7) (1.0)
Utilised (6.0) -- (6.0)
Profit and loss account 6.7 (0.7) 6.0
----- ---- -----
At 31st December 1997 112.2 30.4 142.6
===== ==== =====
Deferred taxation
[Download Table]
1997 1996
----------------------- -----------------------
Full Full
Amount Potential Amount Potential
Provided Liability Provided Liability
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Accelerated capital allowances 27.9 31.0 20.5 22.6
Other timing differences 11.4 22.4 20.2 32.0
Unremitted overseas income 13.0 13.0 13.0 13.0
Advance corporation tax (21.9) (23.3) (21.9) (23.1)
---- ---- ---- ----
30.4 43.1 31.8 44.5
==== ==== ==== ====
Deferred taxation is calculated under the liability method using a UK tax
rate of 31% (1996 33%) and appropriate overseas rates.
In addition to UK advance corporation tax of (pound)21.9m set off against
deferred taxation above, the Group has unrecovered UK advance corporation
tax of (pound)6.1m (1996 (pound)10.2m) which is available for set off
against UK tax on future profits.
Provision has been made for potential taxation which could arise on the
remittance of retained overseas earnings only to the extent that there is
currently an intention to remit such earnings.
The deferred tax asset in respect of post-retirement obligations is
included within debtors and prepayments (note 14).
TI GROUP 63
NOTES TO THE FINANCIAL STATEMENTS continued
21 SHARE CAPITAL OF TI GROUP plc
[Download Table]
Authorised Issued
----------------------- -----------------------
1997 1996 1997 1996
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Ordinary shares of 25p each 169.5 169.5 119.7 119.1
===== ===== ===== =====
Shares Issued during the year
During the year 197,755 Ordinary shares of 25p each were issued in lieu of
cash of (pound)1.2m (1996 (pound)8.5m) in respect of the final dividend
for the year ended 31st December 1996.
Four TI Group share option schemes and three Dowty Group share option
schemes operated during the year.
The four TI Group share option schemes were: The TI (1981) Savings-Related
Share Option Scheme and the TI Group (1994) Savings Related Share Option
Scheme (together "The SAYE Schemes") and the TI Group Executive Share
Option Scheme and The TI Group (1990) Executive Share Option Scheme
(together "The Executive Schemes"). During the year 1,705,452 Ordinary
shares of 25p each were issued following the exercise of options under
these schemes. The aggregate consideration received in respect of these
allotments was (pound)5.0m (1996 (pound)12.2m).
The three Dowty Group share option schemes - the Dowty Group Share Savings
Scheme, and the Dowty Group Share Savings Scheme (1991) (together "The
Dowty Share Savings Schemes"), and the Dowty Group Executive Share Option
Scheme continued to be governed by rules adopted by Dowty Group although
certain options granted thereunder were converted into options over TI
Group plc Ordinary shares following the acquisition of Dowty Group. During
the year 416,160 TI Group Ordinary shares were issued following the
exercise of options under these schemes. The aggregate consideration
received in respect of these allotments was (pound)0.8m (1996
(pound)0.6m).
Shares under option
At 31st December 1997 the total number of TI Group Ordinary shares under
option was 13,351,538 as follows:
[Enlarge/Download Table]
Number Option
of 25p Dates Price per
Ordinary Normally Ordinary
Scheme Date of Grant Shares Exercisable Share
--------------------------------------------- -------------- --------- ------------------------ ---------
The SAYE Schemes 15 June 1990 58,328 August 1995/January 1998 181.5p
21 June 1991 100,036 August 1996/January 1999 201.5p
26 June 1992 148,676 August 1997/January 2000 281.0p
25 June 1993 596,039 August 1998/January 2001 269.5p
24 June 1994 873,755 August 1999/January 2002 309.0p
31 August 1995 921,140 October 2000/March 2003 339.0p
29 August 1996 977,660 October 2001/March 2004 420.0p
28 August 1997 1,434,801 October 2002/March 2005 436.0p
64 TI GROUP
[Enlarge/Download Table]
Number Option
of 25p Dates Price per
Ordinary Normally Ordinary
Scheme Date of Grant Shares Exercisable Share
------------------------------------------ ----------------- --------- ----------------------------- ---------
The Executive Schemes 10 April 1990 20,000 April 1993/April 2000 226.5p
9 October 1990 361,000 October 1993/October 2000 204.0p
27 March 1991 60,000 March 1994/March 2001 270.0p
21 August 1991 62,000 August 1994/August 2001 289.5p
6 April 1992 145,000 April 1995/April 2002 314.0p
27 August 1992 91,000 August 1995/August 2002 265.5p
8 April 1993 317,000 April 1996/April 2003 301.5p
14 September 1993 104,000 September 1996/September 2003 352.5p
19 April 1994 323,000 April 1997/April 2004 416.5p
22 August 1994 829,000 August 1997/August 2004 373.5p
11 April 1995 296,000 April 1998/April 2005 376.5p
31 August 1995 301,000 August 1998/August 2005 430.5p
15 April 1996 563,000 April 1999/April 2006 520.5p
9 September 1996 546,500 September 1999/September 2006 551.5p
2 April 1997 1,405,000 April 2000/April 2007 540.0p
8 September 1997 2,470,700 September 2000/September 2007 600.0p
The Dowty Share 15 March 1991 56,693 May 1996/October 1998 255.0p
Savings Schemes 13 March 1992 117,997 May 1997/October 1999 180.0p
The Dowty Group 7 January 1988 19,198 January 1991/January 1998 337.5p
Executive Share Option 20 January 1989 6,400 January 1992/January 1999 440,625p
Scheme 18 December 1989 52,000 December 1992/December 1999 455,625p
16 July 1990 21,333 July 1993/July 2000 423.75p
4 January 1991 46,083 January 1994/January 2001 311.25p
20 December 1991 27,199 December 1994/December 2001 275.625p
22 RESERVES
[Enlarge/Download Table]
Share Capital Retained Goodwill
The Group Premium Account Reserve Earnings Written Off Total
(pound)m (pound)m (pound)m (pound)m (pound)m
-------- -------- -------- -------- --------
At 31st December 1996 52.6 596.6 596.3 (1,040.1) 205.4
Total recognised gains and losses
Profit for the financial year -- -- 150.5 -- 150.5
Exchange translation -- -- (34.5) -- (34.5)
Goodwill
Exchange translation -- -- -- 22.4 22.4
Written off in current year -- -- -- (1.3) (1.3)
Dividends -- total -- -- (76.0) -- (76.0)
Less scrip element -- -- 1.2 -- 1.2
Issues of shares for cash 5.2 -- -- -- 5.2
At 31st December 1997 57.8 596.6 637.5 (1,019.0) 272.9
==== ===== ===== ======== =====
Currency translation included within total recognised gains and losses
comprised negative movements in respect of overseas investments, inclusive
of goodwill, of (pound)36.5m (1996 (pound)130.1m) and positive movements
of (pound)2.0m (1996 (pound)27.2m) in respect of foreign currency
financing of those investments.
Earnings retained in overseas subsidiary and associated undertakings would
be subject to further tax on distribution.
TI GROUP 65
NOTES TO THE FINANCIAL STATEMENTS continued
22 RESERVES continued
[Download Table]
Share Capital Retained
The Company Premium Account Reserve Earnings Total
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
At 31st December 1996 52.6 596.6 224.0 873.2
Profit for the financial year -- -- 76.1 76.1
Dividends -- total -- -- (76.0) (76.0)
Less scrip element -- -- 1.2 1.2
Issues of shares for cash 5.2 -- -- 5.2
---- ----- ----- -----
At 31st December 1997 57.8 596.6 225.3 879.7
==== ===== ===== =====
As permitted by section 230 of the Companies Act 1985, TI Group plc has
not presented its own profit and loss account.
23 NET CASH INFLOW FROM OPERATING ACTIVITIES
[Download Table]
1997 1996
(pound)m (pound)m
-------- --------
Operating profit 218.8 201.0
Depreciation of fixed tangible assets 45.6 40.7
Operating working capital movement
----- -----
Increase in stocks (18.0) (11.1)
Increase in debtors (36.3) (8.7)
Increase in creditors 33.0 4.2
----- -----
(21.3) (15.6)
Movement in pensions and related balances (1.7) (8.0)
----- -----
Net cash inflow from operating activities 241.4 218.1
----- -----
Dividends received from joint ventures 10.4 11.4
Dividends received from associates 0.2 0.2
----- -----
Dividends received from joint ventures and associates 10.6 11.6
Capital expenditure (net) (60.0) (56.5)
----- -----
Free cash flow 192.0 173.2
===== =====
66 TI GROUP
24 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
[Download Table]
1997 1996
(pound)m (pound)m
-------- --------
Interest received 13.3 23.9
Interest paid (25.8) (27.8)
----- ----
Interest paid (net) (12.5) (3.9)
Dividends received from other participating interests -- 0.1
Dividends paid to minority interests of subsidiaries (0.8) (0.9)
----- ----
(13.3) (4.7)
===== ====
25 TAXATION CASH FLOWS
[Download Table]
1997 1996
(pound)m (pound)m
-------- --------
UK corporation tax (18.3) (12.2)
Overseas taxes (55.2) (49.3)
----- -----
(73.5) (61.5)
===== =====
Overseas taxes paid in 1997 included (pound)2.2m in respect of the 1996
exceptional disposal of the investment in Usui Bundy Tubing.
26 CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
[Download Table]
1997 1996
(pound)m (pound)m
-------- --------
Capital expenditure (61.2) (56.9)
Sale of plant, machinery and equipment 1.2 1.1
Sale of surplus properties 3.9 1.2
Sale of other participating interests -- 6.4
Purchase of own shares (3.5) (1.8)
----- -----
(59.6) (50.0)
===== =====
TI GROUP 67
NOTES TO THE FINANCIAL STATEMENTS continued
27 ACQUISITIONS AND DISPOSALS
[Enlarge/Download Table]
1997 1998
(pound)m (pound)m
-------- --------
Acquisitions of subsidiaries (14.7) (226.8)
Net cash acquired with new subsidiaries (1.9) 7.4
Purchase of interests in associated undertakings -- (3.2)
-------- --------
Cash flows arising from acquisitions (16.6) (222.6)
Disposals of businesses -- 47.2
Disposal of interest in associated undertaking 2.9 --
-------- --------
(13.7) (175.4)
======== ========
Net assets acquired and disposed of
1997 1996
--------------------------- ---------------------------
Acquisitions Disposals Acquisitions Disposals
(pound)m (pound)m (pound)m (pound)m
-------- -------- -------- --------
Fixed tangible assets 3.5 -- 46.6 (15.2)
Investments (1.9) (2.9) 2.4 --
Stocks 0.8 -- 16.1 (14.5)
Debtors 3.0 -- 28.4 (14.4)
Creditors 10.0 -- (43.9) 16.5
Pensions and other post--retirement obligations -- -- (6.1) --
Deferred taxation -- -- (4.5) --
Minority interests (0.7) -- 5.9 --
-------- -------- -------- --------
14.7 (2.9) 44.9 (27.6)
Exceptional profit on disposals -- -- -- (19.6)
Goodwill written off 1.9 -- 175.7 --
-------- -------- -------- --------
16.6 (2.9) 220.6 (47.2)
======== ======== ======== ========
Satisfied by
Cash (paid)/received (14.7) 2.9 (230.0) 47.2
(Short term borrowings)/cash acquired (1.9) -- 7.4 --
-------- -------- -------- --------
Total cash flows (16.6) 2.9 (222.6) 47.2
Short term deposits acquired -- -- 11.9 --
Loans acquired -- (9.9) --
-------- -------- -------- --------
Total movement in net debt (16.6) 2.9 (220.6) 47.2
======== ======== ======== ========
Cash flows arising from acquisitions in 1997 included (pound)8.4m deferred
consideration in respect of Bundy Brazil Refrigeration, acquired in 1996.
68 TI GROUP
28 NET DEBT
[Enlarge/Download Table]
Exchange
Other Rate
1996 Cash Flows Acquisitions Movements Adjustments 1997
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
-------- ---------- ------------ --------- ----------- --------
Cash at bank and in hand 85.4 (23.1) 1.4 -- (1.1) 62.6
Short term borrowings --
repayable on demand (13.4) (14.6) (3.3) -- 0.3 (31.0)
-------- -------- -------- -------- -------- --------
Cash 72.0 (37.7) (1.9) -- (0.8) 31.6
Short term bank deposits 213.2 94.0 -- -- (0.9) 306.3
Debt due within one year (61.3) (20.1) -- (32.0) (0.9) (114.3)
Debt due after one year (291.9) (6.2) -- 32.0 4.6 (261.5)
-------- -------- -------- -------- -------- --------
Net debt (68.0) 30.0 (1.9) -- 2.0 (37.9)
======== ======== ======== ======== ======== ========
Other movements comprise finance leases and transfers between categories
of debt, principally $30m of private placement.
Management of liquid resources shown in the cash flow statement comprises
movements in short term bank deposits, which have maturity dates of up to
one year.
29 PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The Group operates a number of pension schemes, the majority being defined
benefit arrangements the assets of which are held independently of the
Group's finances. Gross pension costs of (pound)21.5m (1996 (pound)20.9m)
included (pound)10.7m (1996 (pound)11.8m) for overseas schemes. These
costs were offset by a credit of (pound)4.1m (1996 (pound)4.8m) in respect
of a net actuarial surplus in the TI Group pension schemes. At 31st
December 1997 there was a balance included within debtors and prepayments
(note 14) in respect of pensions of (pound)81.8m (1996 (pound)76.7m) and a
provision for post-retirement healthcare benefits of (pound)81.3m (1996
(pound)77.4m) was included within provisions for liabilities and charges
(note 20).
UK Pension Schemes
The Group's 13K pension schemes are normally valued by independent
actuaries at not more than three-yearly intervals. The valuation methods
used and assumptions made by the actuaries take into account the differing
membership profiles and benefit promises of the schemes.
The Group's principal UK pension scheme is the TI Group Pension Scheme,
the assets of which are held in a separate trustee-administered fund. The
latest actuarial valuation was carried out as at 31st May 1996 using the
projected unit method for current members and allocating sufficient assets
for former members and pensioners to cover the cost of purchasing their
benefits in the insurance market.
TI GROUP 69
NOTES TO THE FINANCIAL STATEMENTS continued
29 PENSIONS AND OTHER POST-RETIREMENT BENEFITS continued
The principal actuarial assumptions used for current members for
accounting and funding purposes were:
Long term annual rate of return on investments 9.5%
Annual dividend increases 5.0%
Average annual increase in pensionable salaries
(inclusive of promotion and merit increases) 7.5%
Average annual increase in pensions in payment 4.5% to 5.0%
The actuarial value of the assets of the schemes on this basis was
sufficient to cover 117% of the benefits that had accrued to members after
allowing for expected future increases in pensionable pay.
At the date of the valuations, actuarial surpluses amounted to /131m and
the market value of the assets was (pound)955m. As in previous years, for
accounting purposes actuarial surpluses are spread forward over the
average remaining service lives of employees as a level amount each year
('the mortgage method').
Overseas Pension Schemes
The main overseas schemes are in the USA. The assets of these schemes are
held in separate trustee-administered funds. The latest actuarial
valuation of the majority of the US schemes was carried out by independent
actuaries as at 1st January 1997 using the projected unit method. The
principal actuarial assumptions adopted for the main US schemes were that
the long term annual rate of return on investments would be 9.0% to 10.0%
and the average annual increase in pensionable salaries would be 4.5% to
5.5%. The combined actuarial value of the assets of these schemes was
sufficient to cover 88% of the benefits that had accrued to members after
allowing for expected future increases in pensionable salaries. The market
value of the assets of these schemes as at the date of the actuarial
valuation was (pound)111m.
Other Post-Retirement Benefits
The Group operates a number of unfunded post-retirement medical and
welfare benefit schemes principally in the USA. The method of accounting
for these is similar to that used for defined benefit pension schemes. The
US arrangements were actuarially valued as at 1st January 1996; the
principal actuarial assumptions were that the long term increase in health
costs would be 5.0% and a discount rate of 7.5%. The cost of these
benefits charged to the profit and loss account in 1997 was (pound)4.9m
(1996 (pound)4.7m); cash payments made in the year were (pound)3.5m (1996
(pound)3.7m).
30 COMMITMENTS
[Download Table]
Land and Plant and
Buildings Machinery
(pound)m (pound)m
--------- ---------
At 31st December 1997 there were annual commitments under
non-cancellable operating leases which expire as follows:
Within one year 2.2 1.9
Between one and five years 4.3 4.6
After five years 5.9 0.1
--------- --------
12.4 6.6
========= ========
Contracts placed against capital expenditure sanctioned by the Board and
not provided for in these accounts amounted to (pound)14.3m (1996 (pound)
14.0m).
70 TI GROUP
31 CONTINGENT LIABILITIES
At 31st December 1997 the Group had contingent liabilities, in respect of
bank and other guarantees and other matters arising in the ordinary course
of business, from which it is anticipated that no material liabilities
will arise. In addition, the Company has given guarantees which amount to
(pound)350.7m (1996 (pound)322.1m) on borrowings by subsidiary
undertakings, represented mainly by unsecured bank and other loans.
The present status of litigation involving Dowty Woodville Polymer is
described on page 9.
32 RELATED PARTY TRANSACTIONS
On 30th January 1997 TI International Holdings Ltd sold its 20% investment
in Valti SA (France) to Vallourec SA, which owned the balance of the
shares, for FFR26.5m.
On 31st May 1997 Bundy Tubing Co (Australia) Pty Ltd acquired 40% of the
equity in Hua Yan Bundy Tubing Co Ltd (Bundy North China) from its joint
venture partner, Hua Yan Special Steel Technology Development Corporation,
for CNY23.8m, taking the Group's holding to 90%.
TI Group provides administration services to Messier-Dowty, including
office premises and a computer accounting system. Messier-Dowty provides
sales and technical services to TI Group customers, the costs of which are
charged to TI Group. In addition TI Group provides repair and overhaul
services to Messier-Dowty customers. The charges for all of these services
are on arms-length, fair value bases and are not material individually or
in total to either company.
33 POST BALANCE SHEET EVENTS
On 3rd February 1998 TI Group acquired Safematic Oy of Finland, a supplier
of sealing and lubrication systems to the global pulp and paper industry,
for (pound)17m initial cash consideration, with additional payments to be
made over the next three years dependent upon operating performance.
Also on 3rd February 1998 TI Group acquired 30% of Lips United BV of the
Netherlands, a supplier of advanced marine propulsion systems, for
(pound)6.6m cash based on the value of shareholders' funds at 31st
December 1996. The agreement provides TI with an option, exercisable until
30th June 1998, to purchase the remainder of Lips. The payment on
exercising the option will be based on a multiple of forecast profits for
the business.
On 6th February 1998 TI Group sold Thermal Processing Group Ltd to
Bodycote International plc for (pound)18.5m cash including debt assumed of
(pound)3.4m.
On 25th February 1998 TI Group acquired the Sealol marine seal product
line from EG&G Inc of the USA for $4.2m in cash. The business supplies
marine seals predominantly to the US Navy's submarine fleet.
The following transactions were announced in 1997, subject to contract
and/or regulatory approval in 1998:
a. The disposal of TI's landing gear interests to Snecma for an
aggregate gross consideration of (pound)207.5m before adjustment for
the net debt in Messier-Dowty. TI's landing gear interests consist
of its 50% stake in Messier-Dowry and its 100% owned landing gear
repair and overhaul business.
b. The acquisition of the Sealol Industrial Division of EG&G Inc for
$100m, and the sale of John Crane Belfab to EG&G for $45m, to be
settled in cash. Sealol is a manufacturer of mechanical seals
particularly for the high temperature segment of the petroleum and
chemical industries in the USA.
TI GROUP 71
PRINCIPAL SUBSIDIARIES, ASSOCIATED UNDERTAKINGS
AND OTHER PARTICIPATING INTERESTS
AS AT 31ST DECEMBER 1997
--------------------------------------------------------------------------------
JOHN CRANE GROUP
Americas
John Crane Inc USA
Dowty O Rings North America Inc USA
Dowty Palmer-Chenard Inc USA
Forsheda Pipe Seal Corp USA
Forsheda Shaft Seal Corp USA
John Crane Belfab USA
John Crane Caribe Ltd USA
John Crane Lemco USA
John Crane Marine USA USA
Dowty Silcofab Canada Canada
John Crane Canada Inc Canada
John Crane Argentina SA Argentina
John Crane Brasil Brazil
John Crane Colombia SA Colombia
Industrias John Crane de Mexico SA de CV
Mexico
John Crane Venezuela CA Venezuela
Europe
John Crane UK Ltd UK
Deep Sea Seals Ltd UK
Dowty Seals Ltd UK
Dowty Woodville Polymer Ltd UK
Forsheda Ltd UK
Lapmaster International Ltd UK
John Crane Belgium SA Belgium
John Crane Sigma as Czech Republic
Forsheda A/S Denmark
Cyclam SA France
Forsheda SA France
John Crane France SA France
Dowty Seals GmbH Germany
Forsheda Stefa GmbH Germany
John Crane GmbH Germany
Dowty Polypac SpA Italy
John Crane Italia SpA Italy
Sealing Parts SpA (75%) Italy
Stefa Srl Italy
Dowty (Malta) Ltd Malta
Dowty Tecmold Ltd Malta
FINT BV Netherlands
John Crane Holland BV Netherlands
John Crane Marine - LIPS VOF (66.67%)
Netherlands
Stefa BV Netherlands
Forsheda AS Noway
Forsheda SA Spain
John Crane Iberica SA Spain
Forsheda AB Sweden
John Crane Sverige AB Sweden
Skega Seals AB Sweden
Forsheda AG Switzerland
John Crane (Switzerland) AG Switzerland
Asia Pacific and Africa
John Crane Singapore Pty Ltd Singapore
John Crane Australia Pty Ltd Australia
John Crane Tianjin Ltd (67%) China
Forsheda Concrete Seals Asia Co Ltd (60%)
Hong Kong
John Crane Engineered Sealing Systems Ltd (85%)
India
PT John Crane Indonesia (70%) Indonesia
Japan Marine Technologies Ltd (50.14%) Japan
*John Crane Japan Inc (49%) Japan
Chuwac Engineering Pte Ltd (50.14%) Singapore
John Crane Pty Ltd South Africa
John Crane (Korea) Co Ltd South Korea
John Crane Taiwan Inc Taiwan
BUNDY GROUP
Americas
Bundy Corporation USA
Huron Products USA
Titeflex Corporation USA
Bundy of Canada Canada
Titeflex Canada Ltd Canada
Bundy Argentina SA Argentina
Bundy Brazil Brazil
Bundy Colombia SA Colombia
Bundy Mexico SA Mexico
Bundy Venezolana CA Venezuela
72 TI GROUP
--------------------------------------------------------------------------------
Europe
Bundy UK Ltd UK
Bundy SA Belgium
Bundy Danmark A/S Denmark
Bundy SNC France
Titeflex Europe SA France
Bundy GmbH Germany
Technoflow Tube-Systems GmbH Germany
Bundy Kft Hungary
Bundy SpA Italy
Bundy SA Spain
Technoflow Iberica SA Spain
Bundy AB Sweden
Asia Pacific and Africa
Bundy Tubing Co (Australia) Pty Ltd Australia
Foshan Hua Nan Bundy Tubing Co Ltd (80%)
China
Hua Yan Bundy Tubing Corp (90%) China
Wuhan Bundy Fluid Systems Co Ltd (75%) China
Bundy India Ltd (71%) India
Bundy Japan Ltd Japan
Bundy Tubing (New Zealand) Ltd New Zealand
Bundy South Africa South Africa
Bundy Systems Ltd South Korea
*Korea Bundy Corp (39%) South Korea
Smaller Engineering Companies
VARI-FORM Inc Canada
Cambridge Vacuum Engineering Ltd UK
Lewis & Saunders Inc USA
DOWTY GROUP
Americas
oMessier-Dowty Inc Canada
Dowty Aerospace Aviation Services Sterling -
Dowty Aerospace Corp Inc USA
Dowty Aerospace Yakima -
Dowty Decoto Inc USA
Dowty Aerospace Los Angeles -
Hydraulic Units Inc USA
King Fifth Wheel Co USA
NCI Inc USA
Tru-Form Inc USA
Valley Manufacturing Corp USA
Ebtec Corporation USA
Europe
Dowty Aerospace Propellers
Dowty Aerospace Hydraulics
Dowty Aerospace Aviation Services Gloucester -
Divisions of Dowty Aerospace
Gloucester Ltd UK
Dowty Aerospace Wolverhampton -
Dowty Boulton Paul Ltd UK
@ Messier-Dowty International Ltd (50%) UK
o Messier-Dowty Ltd UK
o Messier-Dowty SA France
Iloman Engineering Ltd Isle of Man
TI Reynolds Rings Ltd UK
Thermal Processing Group Ltd UK
Asia Pacific
Dowty Aerospace Aviation Services Pte Ltd
Singapore
PARENT and OTHER
TI Corporate Services Ltd UK
Dowty Group PLC UK
TI International Holdings Ltd UK
TI & Dowty Pensions Ltd UK
TI Holdings (Netherlands) BV Netherlands
TI Group Inc USA
+ Tube Investments of India Ltd (3%) India
@ joint venture
o subsidiary of Messier-Dowty International Ltd
* associated undertaking
+ other participating interest
All companies are wholly-owned directly or indirectly by TI Group plc unless
otherwise stated, and are incorporated and operate principally in the country
indicated. The voting rights in respect of each subsidiary are in the same
proportion as the shares held. In order to avoid particulars of excessive length
the lists on pages 56 and 57 and above exclude a number of small subsidiaries,
associates and other participating interests whose contribution to the profits
and assets of the Group is not material.
The auditors of TI Group plc, Price Waterhouse, audit all the subsidiaries in
the Group.
TI GROUP 73
GROUP FINANCIAL HISTORY
[Enlarge/Download Table]
---------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
TURNOVER - BY SEGMENT
John Crane (pound)m 448 491 546 593 655
Bundy (pound)m 571 630 718 718 740
Dowty (pound)m 304 299 439 446 475
------ ------ ------ ------ ------
Continuing operations (pound)m 1,323 1,420 1,703 1,757 1,870
Discontinued operations (pound)m 70 -- -- -- --
------ ------ ------ ------ ------
(pound)m 1,393 1,420 1,703 1,757 1,870
====== ====== ====== ====== ======
TURNOVER - GEOGRAPHICAL DESTINATION
UK % 21 16 15 13 13
Continental Europe % 27 29 33 30 30
North America % 40 43 40 43 43
Rest of World % 12 12 12 14 14
====== ====== ====== ====== ======
PROFIT AND LOSS ACCOUNT SUMMARY
Profit before interest (pre-exceptionals) (pound)m 138.3 160.6 194.8 219.7 237.0
Interest (pound)m (13.1) (12.8) (13.2) (8.6) (14.5)
Profit before tax* (pound)m 125.2 153.0 184.8 232.2 220.6
Profit before tax (pre-exceptionals) (pound)m 125.2 147.8 181.6 211.1 222.5
Earnings per share* p 18.1 22.5 26.5 34.1 31.6
Earnings per share (pre-exceptionals) p 18.1 21.4 25.8 30.0 32.0
Dividends per share p 11.25 12.0 13.1 14.5 15.9
====== ====== ====== ====== ======
BALANCE SHEET SUMMARY
Shareholders' funds - gross (pound)m 1,259 1,289 1,372 1,376 1,423
Goodwill written off (pound)m (959) (933) (953) (1,040) (1,019)
Shareholders' funds - net (pound)m 300 356 419 336 404
Net cash/(debt) (pound)m (182) (85) 10 (68) (38)
====== ====== ====== ====== ======
CASH FLOW
Free cash flow (pound)m 97 156 179 173 192
Interest, tax and dividends (pound)m (88) (96) (111) (121) (156)
------ ------ ------ ------ ------
Net cash flow (pound)m 9 60 68 52 36
Acquisitions, disposals, share issues
and translation (pound)m 42 37 27 (130) (6)
------ ------ ------ ------ ------
Movement in net cash/(debt) (pound)m 51 97 95 (78) 30
====== ====== ====== ====== ======
KEY RATIOS
Operating margin % 9.9 11.3 11.4 12.5 12.7
Interest cover (pre-exceptionals) times 10.6 12.5 14.8 25.5 16.3
Gearing, TI gross shareholders' funds % 14.5 6.6 nil 5.0 2.7
Gearing, TI net shareholders' funds % 62.8 24.7 nil 21.0 9.7
Dividend cover (pre-exceptionals) times 1.6 1.8 2.0 2.1 2.0
====== ====== ====== ====== ======
* Profit before tax and earnings per share are on an FRS 3 basis
74 TI GROUP
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the seventy-eighth Annual General Meeting of TI
Group plc will be held at Glaziers Hall, 9 Montague Close, London Bridge, London
SE1 9DD on Thursday 14th May 1998 at 12 noon for the following purposes:
1 To receive and adopt the Company's financial statements for the year ended
31st December 1997 and the Reports of the Directors and of the Auditors.
2 To declare a final dividend on the Ordinary shares.
3 To re-elect Directors.
4 To re-appoint the Auditors and to authorise the Directors to fix their
remuneration.
As special business to consider and, if thought fit, to pass the following
resolutions of which resolutions 5 and 7 will be proposed as Ordinary
Resolutions and resolutions 6 and 8 as Special Resolutions.
5 That approval be and is hereby given to the exercise by the Directors of
the power conferred upon them by Article 134 of the Articles of
Association of the Company and that such approval shall relate to any
dividend or dividends paid or declared before the conclusion of the Annual
General Meeting to be held in the year 2003.
6 That in accordance with Article 10 of its Articles of Association and the
Companies Act 1985, the Company is generally and unconditionally
authorised to make market purchases (within the meaning of section 163 of
the Companies Act 1985) of Ordinary shares of 25p each in the capital of
the Company ("Ordinary shares") on such terms and in such manner as the
Directors of the Company may from time to time determine provided that:
a. the maximum number of Ordinary shares that may be purchased pursuant to
this authority is 47,800,000;
b. the maximum price which may be paid for an Ordinary share purchased
pursuant to this authority is an amount equal to 105% of the average of
the middle market quotation of the Company's Ordinary shares as derived
from the London Stock Exchange Daily Official List for the five business
days immediately preceding the day on which that share is purchased and
the minimum price which may be paid is 25p per Ordinary share (in each
case exclusive of expenses and advance corporation tax (if any) payable by
the Company); and
c. this authority will expire on 13th August 1999 or if earlier at the
conclusion of the Annual General Meeting of the Company to be held in 1999
unless renewed before that time, but the Company may make a contract to
purchase its Ordinary shares under this authority before its expiry which
will or may be executed wholly or partly after the expiry of this
authority, and may make a purchase of Ordinary shares in pursuance of any
such contract.
7 That subject to and in accordance with Article 17 of the Company's
Articles of Association the Directors be authorised to allot relevant
securities of up to a maximum nominal amount (pound)39,8000,000 such
authority to expire on 13th May 2003 and all previous authorities under
section 80 of the Companies Act 1985 be revoked.
TI GROUP 75
NOTICE OF ANNUAL GENERAL MEETING continued
8 That subject to and in accordance with Article 18 of the Company's
Articles of Association the Directors be empowered to allot equity
securities for cash and that, for the purposes of the limitation of the
said power referred to in paragraph (b) of Article 18, the nominal amount
therein mentioned shall be (pound)5,900,000; and this power shall expire
on 13th May 2003.
By order of the Board
DAVID P LILLYCROP
Secretary
8th April 1998
The Company, pursuant to Regulation 34 of the Uncertificated Securities
Regulations 1995, specifies that only those shareholders registered in the
register of members of the Company as at 6.00 pm on 12th May 1998 shall be
entitled to attend or vote at the Annual General Meeting in respect of the
number of shares registered in their name at that time. Changes to entries on
the relevant Register of Securities after 6.00 pm on 12th May 1998 shall be
disregarded in determining the rights of any person to attend or vote at the
meeting.
A member entitled to attend and vote may appoint one or more proxies to attend
and vote instead of him. A proxy need not also be a member.
To be effective, proxy forms must be delivered to the Company's Registrars,
Lloyds Bank Registrars, 54 Pershore Road South, Kings Norton, Birmingham B30 1BR
not later than 12 noon on Tuesday 12th May 1998.
Copies of the following documents will be available for inspection at the
registered office and at the offices of Allen & Overy, One New Change, London
EC4M 9QQ during usual business hours until the date of the meeting and at
Glaziers Hall, London from 11.45 am until the conclusion of the meeting on
Thursday 14th May 1998:
a. Directors' contracts of service.
b. The Memorandum and Articles of Association of the Company.
Registered Office: 50 Curzon Street, London W1Y 7PN
Registered Number: 156641 England
76 TI GROUP
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GROUP ADDRESSES, REGISTRARS AND ADR DEPOSITARY
HEAD OFFICE
TI Group plc
Lambourn Court
Abingdon
Oxon OX14 1UH
REGISTERED OFFICE
TI Group plc
50 Curzon Street
London W1Y 7PN
REGISTERED NUBMER
156641 England
REGISTRARS
Lloyds Bank Registrars
54 Pershore Road South
Kings Norton
Birmingham B30 3EP
US ADR DEPOSITARY
Citibank, N.A.
111 Wall Street
New York NY 10043
USA
FINANCIAL CALENDAR
PUBLICATION OF RESULTS
Unaudited interim statement for half year to 30th June July
Preliminary announcement of results for year to 31st December March
Report and financial statements for year to 31st December April
DIVIDENDS ON ORDINARY SHARES
Interim dividend October (announced July)
Final dividend May (announced March)
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