REG - Melrose Industries - Final Results <Origin Href="QuoteRef">MRON.L</Origin> - Part 3
02/03/2017 07:06
- Part 3: For the preceding part double click ID:nRSB2916Yb
-
Ergonomics 24.4 -
Nortek central (2.0) -
Nortek total 86.3 -
Central - corporate (1) (14.2) (13.7)
Underlying operating profit 4 104.1 24.8
Items not affecting underlying operating profit 4 (165.7) (20.0)
Operating (loss)/profit 4 (61.6) 4.8
Finance costs (9.5) (45.6)
Finance income 1.8 10.1
Loss before tax (69.3) (30.7)
Tax 5 30.3 14.4
Profit for the year from discontinued operations - 1,424.3
(Loss)/profit for the year (39.0) 1,408.0
(1) Includes £nil (2015: £1.0 million) of costs relating to divisional Long Term Incentive Plans.
Total assets Total liabilities
31 December 31 December 31 December 31 December
2016£m 2015£m 2016£m 2015£m
Continuing operations
Energy 549.2 496.9 97.8 103.7
Air Management 1,630.0 - 558.2 -
Security & Smart Technology 690.0 - 158.5 -
Ergonomics 756.5 - 144.6 -
Nortek central 5.3 - (31.0) (1) -
Nortek total 3,081.8 - 830.3 -
Central - corporate 76.6 2,491.9 616.7 39.7
Total continuing operations 3,707.6 2,988.8 1,544.8 143.4
Discontinued operations - - - -
Total 3,707.6 2,988.8 1,544.8 143.4
(1) IAS 12 requires the set off of deferred tax assets and liabilities in the same tax jurisdiction. The £31.0 million
negative balance within Nortek central liabilities represents £85.5 million of Nortek central deferred tax assets which
have been treated as negative liabilities to represent the required offset, and £54.5 million of other Nortek central
liabilities.
Capital expenditure(1) Depreciation(1)
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016£m 2015£m 2016£m 2015£m
Continuing operations
Energy 3.6 16.8 9.0 7.5
Air Management 10.3 - 6.4 -
Security & Smart Technology 1.8 - 1.0 -
Ergonomics 1.1 - 1.0 -
Nortek Central 0.1 - 0.5 -
Nortek total 13.3 - 8.9 -
Central - corporate - - 0.2 0.6
Total continuing operations 16.9 16.8 18.1 8.1
Discontinued operations - 39.9 - 11.9
Total 16.9 56.7 18.1 20.0
(1) Including computer software and development costs.
Geographical information
The Group operates in various geographical areas around the world. The Group's country of domicile is the UK and the
Group's revenues and non-current assets in Europe and North America are also considered to be material.
The Group's revenue from external customers and information about its segment assets (non-current assets excluding
interests in joint ventures, deferred tax assets, derivative financial assets and non-current trade and other receivables)
by geographical location are detailed below:
Revenue(1) from external customers Non-current assets
Year ended Year ended 31 December 31 December
31 December 31 December 2016£m 2015£m
2016£m 2015£m
Continuing operations
UK 88.9 83.2 183.3 189.3
Europe 82.3 66.3 181.4 146.9
North America 638.8 57.4 2,537.8 23.6
Other 79.3 54.2 36.4 26.1
Total continuing operations 889.3 261.1 2,938.9 385.9
Discontinued operations - 1,109.8 - -
Total 889.3 1,370.9 2,938.9 385.9
(1) Revenue is presented by destination.
4. Reconciliation between profit and underlying profit
As described in note 1, underlying profit/(loss) is the alternative performance measure used by the Board to monitor the
underlying trading performance of the Group. A reconciliation between the statutory (loss)/profit and underlying profit for
2015 and 2016 is shown below:
Continuing operations Notes Year ended31 December 2016£m Year ended31 December 2015£m
Operating (loss)/profit (61.6) 4.8
Restructuring costs a 51.4 7.6
Acquisition and disposal costs b 38.7 0.3
Amortisation of intangible assets c 36.3 8.1
Removal of one-off uplift in value of inventory d 18.2 -
Melrose equity-settled compensation scheme e 22.8 4.0
Release of fair value provision f (1.7) -
Total adjustments to operating (loss)/profit(1) 165.7 20.0
Underlying operating profit 104.1 24.8
(1) Of the adjustments to operating (loss)/profit, £18.2 million (2015: £nil) relating to the sale of inventory revalued
in business combinations
has been charged to cost of sales, with the balance of £147.5 million (2015: £20.0 million) included within net operating
expenses.
a. Restructuring costs in the year ended 31 December 2016 include £31.8 million relating to the closure of the Nortek
head office and £13.5 million relating to the restructuring of certain Nortek businesses. Within the Brush business, £6.1
million (2015: £5.9 million) was incurred to align the cost base with the reduced revenue. In addition, in 2015, £1.7
million of restructuring costs related to the introduction of a new holding company for the Group, along with the costs of
returning capital to shareholders. These items are excluded from underlying results due to their size and non-trading
nature.
b. Acquisition and disposal costs relate primarily to the acquisition of Nortek in the year. These items are excluded
from underlying results due to their size and non-trading nature.
c. The amortisation of intangible assets acquired in business combinations are excluded from underlying results due to
their non-trading nature.
d. Finished goods and work in progress which are present in a business when acquired are required to be uplifted in
value to closer to their selling price. As a result, in the early months following an acquisition, reduced profits are made
as the inventory is sold. This one-off effect is excluded from underlying results due to its size and non-recurring
nature.
e. The charge for the Melrose incentive scheme, including its associated employer's tax charge, is excluded from
underlying results due to its size and volatility.
f. The release of a fair value provision is excluded from underlying profit because it was previously booked as a fair
value item on the acquisition of FKI.
Continuing operations Note Year ended Year ended31 December 2015£m
31 December
2016
£m
Loss before tax (69.3) (30.7)
Adjustments to operating (loss)/profit per above 165.7 20.0
Accelerated future year charges following repayment of debt g - 13.1
Adjustments to loss before tax 165.7 33.1
Underlying profit before tax 96.4 2.4
g. Following the disposal of Elster in 2015, all existing bank facilities at that time were repaid and all unamortised
bank fees were written off because of their size and non-trading nature.
Continuing operations Notes Year ended Year ended31 December 2015£m
31 December
2016
£m
Loss for the year (39.0) (16.3)
Adjustments to loss before tax per above 165.7 33.1
Incremental deferred tax asset recognition on UK losses h (10.4) (14.5)
Tax effect of adjustments to underlying profit before tax 5 (45.9) (3.7)
Adjustments to loss for the year 109.4 14.9
Underlying profit/(loss) for the year 70.4 (1.4)
h. Relating to the recognition of deferred tax assets on UK tax losses which are now considered accessible following
acquisition and disposal activities. This is excluded from underlying results due to its size, volatility and non-trading
nature.
5. Tax
Continuing operations Discontinued operations Total
Analysis of charge/(credit) in year: Year ended 31 December Year ended Year ended Year ended Year ended Year ended
2016 31 December 31 December 31 December 31 December 31 December
£m 2015 2016 2015 2016 2015
£m £m £m £m £m
Current tax 3.0 2.9 - 46.5 3.0 49.4
Deferred tax (33.3) (17.3) - 2.8 (33.3) (14.5)
Total income tax (credit)/charge (30.3) (14.4) - 49.3 (30.3) 34.9
The total income tax credit in respect of continuing operations of £30.3 million (2015: £14.4 million) includes a tax
credit classified as non-underlying tax of £10.4 million (2015: £14.5 million), being the recognition of additional tax
losses now considered accessible following acquisition and disposal activities, and a tax credit in respect of the items
described as non-underlying in note 4 of £45.9 million (2015: £3.7 million). The tax credit on non-underlying items
comprises £18.2 million (2015: £0.4 million) in respect of restructuring costs, £3.9 million (2015: £nil) in respect of
acquisition and disposal costs, £12.8 million (2015: £2.1 million) in respect of amortisation of intangible assets, £6.8
million (2015: £nil) in respect of the required uplift in the value of inventory acquired with Nortek, £4.5 million (2015:
£0.8 million) in respect of the Melrose equity-settled compensation scheme charge and a charge of £0.3 million (2015:
credit of £0.4 million) in respect of other items.
A further change to the main rate of UK corporation tax was enacted in the Finance Act 2016. The UK corporation tax rate
will reduce to 19% from 1 April 2017 with a further reduction to 17% from 1 April 2020. The impact of the future rate
changes, which have been reflected within these financial statements, have reduced the deferred tax asset by £0.4 million.
Changes to the UK loss utilisation and interest deduction rules have been proposed and will take effect on 1 April 2017.
These changes have not yet been substantively enacted, so the effect of these changes has not been recognised within these
financial statements. The impact is likely to result in an increase in the deferred tax asset of £17.0 million, due to the
increased flexibility over the utilisation of losses expected to crystallise after March 2017.
The tax (credit)/charge for the year for both continuing and discontinued operations can be reconciled to the (loss)/profit
per the Income Statement as follows:
Year ended Year ended
31 December 31 December
2016£m 2015£m
(Loss)/profit on ordinary activities before tax:
Continuing operations (69.3) (30.7)
Discontinued operations - 217.8
(69.3) 187.1
Tax on (loss)/profit on ordinary activities at weighted average rate 40.82% (2015: 31.54%) (28.3) 59.0
Tax effect of:
Disallowable expenses within underlying items 1.6 2.2
Disallowable items in respect of acquisition related costs 7.3 -
Temporary differences not recognised in deferred tax 2.7 (4.3)
Tax credits, withholding taxes and other rate differences (0.2) (1.3)
Prior year tax adjustments (3.0) (4.6)
Tax credit classified as non-underlying (note 4) (10.4) (16.1)
Total tax (credit)/charge for the year (30.3) 34.9
The reconciliation has been performed at a blended Group tax rate of 40.82% (2015: 31.54%) which represents the weighted
average of the tax rates applying to profits and losses in the jurisdictions in which those results arose.
In addition to the amount charged to the Income Statement, a tax credit of £2.1 million (2015: charge of £7.0 million) has
been recognised directly in the Consolidated Statement of Comprehensive Income. This represents a tax charge of £3.3
million (2015: £6.0 million) in respect of retirement benefit obligations, a tax charge of £1.1 million (2015: £0.4
million) in respect of movements on cash flow hedges, a tax credit of £1.3 million (2015: charge of £0.6 million) in
respect of tax charged on foreign exchange gains and a tax credit of £5.2 million (2015: £nil) in respect of share based
payments.
6. Dividends
Year ended Year ended
31 December 31 December
2016 2015
£m £m
Final dividend for the year ended 31 December 2014 paid of 5.3p (1.0)p(1) - 52.7
Interim dividend for the year ended 31 December 2015 paid of 2.8p (0.5)p(1) - 27.9
Final dividend for the year ended 31 December 2015 paid of 2.6p (0.5)p(1) 3.8 -
Interim dividend for the year ended 31 December 2016 paid of 1.4p (0.3)p(1) 2.0 -
5.8 80.6
(1) Adjusted to include the effects of the Rights Issue (note 7).
Proposed final dividend for the year ended 31 December 2016 of 1.9p per share (2015: 0.5p per share(1)) totalling £35.8
million (2015: £3.8 million).
The final dividend of 1.9p was proposed by the Board on 2 March 2017 and, in accordance with IAS 10: "Events after the
reporting period", has not been included as a liability in these financial statements.
7. Earnings per share
Earnings attributable to owners of the parent Year ended31 December 2016£m Year ended
31 December 2015£m
(Loss)/profit for the purposes of earnings per share (39.0) 1,407.1
Less: profit for the year from discontinued operations - (1,423.4)
Earnings for basis of earnings per share from continuing operations (39.0) (16.3)
Year ended31 December 2016 Year ended
31 December 2015
Number Number
Weighted average number of Ordinary Shares for the purposes of basic earnings per share including the effects of the Rights Issue(1) (million) 1,499.3 5,336.6
Further shares for the purposes of diluted earnings per share including the effects of the Rights Issue(1) (million) 89.8 109.8
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share (million) 1,589.1 5,446.4
(1) On 24 August 2016, a 12 for 1, fully underwritten, Rights Issue was completed by Melrose Industries PLC and
subsequently 1,741.6 million new
ordinary shares were issued raising £1,654.5 million to part fund the acquisition of the Nortek Group. In accordance with
IAS 33, a bonus factor
associated with the issue of the new share capital of 18.8491% has been applied to the number of ordinary shares in issue
prior to 24 August
2016 (including comparative periods presented) for the purposes of earnings per share calculations.
On 20 February 2015 the number of Ordinary Shares in issue was consolidated in a ratio of 13 for 14, which reduced the
number of Ordinary Shares in issue from 1,071.8 million to 995.2 million.
On 28 January 2016 the number of Ordinary Shares in issue was consolidated in a ratio of 7 for 48, which reduced the number
of Ordinary Shares in issue from 995.2 million to 145.1 million.
Earnings per share Year ended31 December 2016pence Year ended
31 December 2015pence
Basic earnings per share
From continuing and discontinued operations (2.6) 26.4
From continuing operations (2.6) (0.3)
From discontinued operations - 26.7
Diluted earnings per share
From continuing and discontinued operations (2.6) 25.8
From continuing operations (2.6) (0.3)
From discontinued operations - 26.1
Underlying earnings Note Year ended 31 December 2016£m Year ended 31 December 2015£m
Underlying earnings for the basis of underlying earnings per share from continuing operations 4 70.4 (1.4)
Underlying earnings per share
Year ended 31 December 2016pence Year ended 31 December 2015pence
Underlying basic earnings per share - continuing 4.7p Nil p
Underlying diluted earnings per share - continuing 4.4p Nil p
8. Acquisition of businesses, goodwill and other intangible assets
Acquisition of businesses
On 31 August 2016 the Group acquired 100 per cent of the issued share capital and obtained control of Nortek Inc.
("Nortek") for cash consideration of £1,093.1 million.
Nortek is a leading diversified global manufacturer of innovative air management, security, home automation and ergonomic
and productivity solutions (note 3).
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table
below. Fair values are provisional as of 31 December 2016 and are based on the information held to date. Should additional
information come to light that would require adjustment to the fair values recognised in the table below, such adjustments
would be recorded if material.
Fair value£m
Nortek
Property, plant and equipment 143.3
Intangible assets, computer software and development costs 868.4
Interests in joint ventures 3.0
Inventories 255.6
Trade and other receivables 301.5
Cash and cash equivalents 9.4
Trade and other payables (360.4)
Provisions (209.7)
Deferred tax (163.7)
Retirement benefit obligations (42.2)
Current tax (9.4)
Interest-bearing loans and borrowings (1,065.9)
Net liabilities (270.1)
Total consideration 1,093.1
Goodwill 1,363.2
Amounts recycled to goodwill 39.5
Total goodwill 1,402.7
Total consideration satisfied by:
Cash consideration 1,093.1
Acquisition related costs charged through the income statement amount to £38.7 million (note 4).
The fair value of financial assets include gross trade and other receivables of £318.3 million. The best estimate at
acquisition date of the contractual cash flows not to be collected is £16.8 million.
Amounts recycled to goodwill of £39.5 million relates to the impact of the Group's hedging strategy to fix the cash cost of
the consideration at the date of the acquisition announcement. The difference between the cash cost based on the exchange
rate on the date of completion and the exchange rate entered into to hedge the transaction, representing the effective
element of the hedge, has been recycled to goodwill.
Nortek contributed £642.9 million to revenue and £86.3 million to underlying operating profit for the four month period
between the date of acquisition and the Balance Sheet date.
If the acquisition of Nortek had been completed on the first day of the financial year, Group revenues would have been
approximately £2,077 million and Group underlying operating profit would have been approximately £196 million.
The goodwill arising on acquisition of Nortek is attributable to the anticipated profitability and cash flows arising from
the businesses acquired, the assembled workforce, technical expertise, knowhow, market share and geographical advantages
afforded to the Group, which the Group expects to realise through a combination of revised strategic direction, operational
improvements and investment. None of the goodwill is expected to be deductible for income tax purposes.
Contingent liabilities acquired in respect of warranty obligations of £7.6 million and legal claims of £15.2 million have
been recognised within provisions, none of which were utilised in the period. The majority of expenditure is expected to be
incurred over the next five years.
Goodwill acquired in business combinations has been allocated to the businesses, each of which comprises several
cash-generating units, as follows:
31 December 31 December
2016 2015
£m £m
Continuing operations
Energy 212.9 198.1
Air Management 697.2 -
Security & Smart Technology 347.2 -
Ergonomics 448.7 -
Nortek total 1,493.1 -
Total continuing operations 1,706.0 198.1
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be
impaired. Value in use calculations are used to determine the recoverable amount of goodwill allocated to each group of
cash-generating units ("CGUs") which use the latest approved forecasts extrapolated to perpetuity using growth rates shown
below, and which do not exceed the long-term growth rate for the relevant market. Based on impairment testing completed at
the year end, no impairment was identified. The basis of these impairment tests and the key assumptions are set out in the
table below:
31 December 2016
Group of CGUs Basis of valuation Carrying value of goodwill£m Pre-tax discount rates(1) Period of forecast Key assumptions applied in the forecast cash flow projections(2) Long-term growth rates(3)
Energy Value in use 212.9 11.0% 5 years Revenue growth, operating margins 2.2%
Air Management Value in use 697.2 12.8% 4 years Revenue growth, operating margins 3.0%
Security & Smart Technology Value in use 347.2 12.7% 4 years Revenue growth, operating margins 3.0%
Ergonomics Value in use 448.7 12.6% 4 years Revenue growth, operating margins 3.0%
31 December 2015
Group of CGUs Basis of valuation Carrying value of goodwill£m Pre-tax discount rate(1) Period of forecast Key assumptions applied in the forecast cash flow projections(2) Long-term growth rate(3)
Energy Value in use 198.1 11.1% 3 years Revenue growth, operating margins 2.3%
(1)Pre-tax risk adjusted discount rates
Cash flows are discounted using a pre-tax discount rate specific to each group of CGUs. Discount rates reflect the current
market assessments of the time value of money and are based on the estimated cost of capital of each CGU. In determining
the cost of equity, the Capital Asset Pricing Model (CAPM) has been used. Under CAPM, the cost of equity is determined by
adding a risk premium to the risk free rate to reflect the additional risk associated with investing outside of lending to
a country. The risk free rate for the Energy group of CGUs is based on the cost of UK Government bonds, whilst the risk
free rate for the Air Management, Security & Smart Technology and Ergonomics groups of CGUs are based on the cost of US
Government bonds. The premium is based on an industry adjustment ("Beta") to the expected return of the equity market above
the risk free return. The relative risk adjustment reflects the risk inherent in each group of CGUs relative to all other
sectors and geographies on average.
(2)Assumptions applied in financial forecasts
The Group prepares cash flow forecasts derived from financial budgets and medium-term forecasts. The key assumptions used
in forecasting pre-tax cash flows relate to future budgeted revenue and operating margins likely to be achieved and the
likely rates of long-term growth by market sector. Underlying factors in determining the values assigned to each key
assumption are shown below:
Revenue growth and operating margins:
Revenue growth assumptions in the forecast period are based on financial budgets and medium-term forecasts by management,
taking into account industry growth rates and management's historical experience in the context of wider industry and
economic conditions. Projected sales are built up with reference to markets and product categories. They incorporate past
performance, historical growth rates, projections of developments in key markets, secured orders and orders likely to be
achieved in the short to medium-term given trends in the relevant market sector.
Operating margins have been forecast based on historical levels achieved considering the likely impact of changing economic
environments and competitive landscapes on volumes and revenues and the impact of management actions on costs. Projected
margins reflect the impact of all initiated projects to improve operational efficiency and leverage scale. The projections
do not include the impact of future restructuring projects to which the Group is not yet committed. Forecasts for other
operating costs are based on inflation forecasts and supply and demand factors.
Brush is a supplier of turbogenerators for the power generation, industrial, Oil & Gas and offshore sectors and a leading
supplier of switchgear, transformers and other power infrastructure equipment. The key drivers for revenues and operating
margins are i) original equipment investments in the global power market, both new capacity (mainly emerging markets) and
replacement capacity (mainly in mature markets) ii) growth in service requirements of a growing installed base and iii) new
product introduction. Independent forecasts of growth in these power generation markets have been used to derive revenue
growth assumptions. Forecasts for other operating costs are based on inflation forecasts and supply and demand factors.
Nortek is a diversified global manufacturer of innovative air management, security, home automation and ergonomic and
productivity solutions.
Air Management is a leading provider of residential indoor air quality improvement solutions, home comfort and convenience
products and heating, ventilation and air conditioning equipment for both residential and commercial markets. The key
drivers for revenue and operating margins are the levels of residential remodelling and replacement activity and the levels
of residential and non-residential new construction in the markets in which Air Management operates. New residential and
non-residential construction activity and, to a lesser extent, residential remodelling and replacement activity are
affected by seasonality and cyclical factors such as interest rates, credit availability, inflation, consumer spending,
employment levels and other macroeconomic factors.
Security & Smart Technology is a leading developer and manufacturer of security, home automation and access control
technologies for residential and commercial markets' service providers. The key driver for revenue and operating margins is
global demand for security and home automation products. Consumer spending, employment levels, regulation, technological
advancements and the evolution of the traditional security market towards home automation and other macroeconomic factors
influence demand for these products.
The Ergonomics segment includes Ergotron, one of the world's largest manufacturers of computer ergonomics equipment.
Ergotron provides a wide variety of solutions to healthcare, education, corporate office and home applications. The key
driver for revenue and operating margins is demand for technology and wellness products in the markets in which Ergotron
operates. Seasonal factors, public authority spending, corporate and consumer spending, employment levels, the public
awareness of wellness, regulation, technological advancements and other macroeconomic factors influence demand for these
products.
(3)Long-term growth rates
Long-term growth rates are based on long-term forecasts for growth in the sectors and geography in which the CGU operates.
Long-term growth rates are determined using a blend of publicly available historical data and a long-term growth rate
forecast and further take into account the international presence and the markets in which each business operates.
Energy group of CGUs - Brush China
The goodwill related to the Energy group of CGUs is tested for impairment by comparing the carrying amount of the Energy
group against recoverable amounts of the Energy CGUs. As disclosed within note 2, determination of the Brush China
recoverable amount involved management judgement on highly uncertain matters, particularly with respect to the level of
demand for generators in the Chinese market, the successful resolution of current customer discussions, and therefore the
timing and quantity of forecast unit sales, as well as long term growth rates and discount factors. The value in use model
prepared for Brush China was prepared using cash flow projections to the end of the life of the Brush China factory, was
discounted at a pre-tax discount rate of 11.7% and used sale price and cost inflation data from available market sources.
Sensitivity analysis
The forecasts, prepared using a methodology required by IAS 36: "Impairment of assets", show headroom of £95.4 million
above the carrying amount for the Energy group of CGUs. In accordance with IAS 36 a sensitivity analysis has been
undertaken and a reasonably possible increase in the discount rate from 11.0% to 12.8% would reduce headroom to £nil. A
reasonably possible decrease in revenue in 2017 of 19% from 2016 revenue of £246.4 million (on a constant currency basis)
would also reduce headroom to £nil. The recoverable amounts of the Air Management, Security & Smart Technology, and
Ergonomics groups of CGUs are higher than the recent acquisition date fair values of these groups of CGUs, and as a result,
no sensitivity analysis has been disclosed.
9. Provisions
Surplus leaseholdproperty costs£m Environmental and legal costs£m Warranty relatedcosts £m Product liability£m Employee related£m Other£m Total£m
At 1 January 2016 5.0 16.8 2.8 - - 5.4 30.0
Acquisition of businesses 10.2 49.0 76.3 37.8 11.3 25.1 209.7
Utilised (1.9) (4.8) (7.9) (1.9) (16.0) (29.6) (62.1)
Net charge to operating profit(1) 5.3 2.3 6.4 4.4 12.9 54.3 85.6
Transfer from accruals - - 2.5 - - 0.3 2.8
Unwind of discount 0.1 0.1 - - - - 0.2
Exchange differences 1.0 3.0 4.9 2.2 0.7 1.6 13.4
At 31 December 2016 19.7 66.4 85.0 42.5 8.9 57.1 279.6
Current 4.9 32.6 33.3 11.5 5.4 50.4 138.1
Non-current 14.8 33.8 51.7 31.0 3.5 6.7 141.5
19.7 66.4 85.0 42.5 8.9 57.1 279.6
(1) Includes £61.4 million of restructuring charges and other non-underlying items and £24.2 million charged through
underlying operating profit.
The provision for surplus leasehold property costs represents the estimated net payments payable over the term of these
leases together with any dilapidation costs. This is expected to result in cash expenditure over the next one to eight
years.
Environmental and legal costs provisions relate to the estimated remediation costs of pollution, soil and groundwater
contamination at certain sites and estimated future costs and settlements in relation to legal claims. Due to their nature,
it is not possible to predict precisely when these provisions will be utilised.
The provision for warranty related costs represents the best estimate of the expenditure required to settle the Group's
obligations, based on past experiences. Warranty terms are, on average, between one and five years.
The employee related provision relates to the estimated cost of the Group's health insurance and workers compensation
plans. The product liability provision relates to the estimated cost of future product and general liabilities claims. Due
to their nature it is not possible to predict precisely when these provisions will be utilised.
Other provisions relate to costs that will be incurred in respect of restructuring programmes, usually resulting in cash
spend within one year. In addition other provisions include long term incentive plans for divisional senior management and
the employer tax on equity-settled incentive schemes which are expected to result in cash expenditure over the next five
years.
Where appropriate, provisions have been discounted using a discount rate of 3% (31 December 2015: 3%).
10. Issued capital and reserves
Share Capital 31 December 2016 31 December2015£m
£m
Allotted, called-up and fully paid
1,886,746,589 (31 December 2015: 995,206,966) Ordinary Shares of 48/7p each (31 December 2015: 1p each) 129.4 10.0
129.4 10.0
On 27 January 2016 the Court approved a proposal to return £2,388.5 million to shareholders.
In conjunction with this Return of Capital, on 28 January 2016 the number of Ordinary Shares in issue was consolidated in a
ratio of 7 for 48 in order to maintain comparability of the Company's share price before and after the Return of Capital.
On 28 January 2016 the number of Ordinary Shares in issue became 145,134,353 each with a nominal value of 48/7 pence.
On 24 August 2016 a 12 for 1, fully underwritten, Rights Issue was completed by Melrose Industries PLC and 1,741,612,236
Ordinary Shares were issued raising £1,654.5 million to part fund the acquisition of Nortek. This resulted in an increase
to nominal Share Capital of £119.4 million and an increase to the share premium account, after deducting associated costs
of £42.5 million, of £1,492.6 million.
Translation reserve
The Translation reserve contains exchange differences on the translation of subsidiaries with a functional currency other
than Sterling and exchange gains or losses on the translation of liabilities that hedge the Company's net investment in
foreign subsidiaries.
Hedging reserve
The Hedging reserve represents the cumulative fair value gains and losses on derivative financial instruments for which
cash flow hedge accounting has been applied.
Merger reserve and Other reserves
The Merger reserve represents the excess of fair value over nominal value of shares issued in consideration for the
acquisition of subsidiaries. Other reserves comprise accumulated adjustments in respect of Group reconstructions.
11. Cash flow statement
Year ended 31 December 2016£m Year ended 31 December2015£m
Reconciliation of underlying operating profit to cash generated by continuing operations
Underlying operating profit from continuing operations 104.1 24.8
Adjustments for:
Depreciation of property, plant and equipment 15.9 7.6
Amortisation of computer software and development costs 2.2 0.5
Restructuring costs paid and movements in provisions (37.6) (32.8)
Defined benefit pension contributions paid (10.5) (5.1)
Decrease/(increase) in inventories
- More to follow, for following part double click ID:nRSB2916YdRecent news on Melrose Industries
See all newsREG - Melrose Industries - Transaction in Own Shares
AnnouncementREG - Melrose Industries - Notification of Transactions of PDMR
AnnouncementREG - Melrose Industries - TR-1: Standard Form-Notification of Major Holdings
AnnouncementREG - Melrose Industries - Transaction in Own Shares
AnnouncementREG - Melrose Industries - Director Declaration - 2nd March 2026
Announcement