Audited Results For Year Ended 31 December 2015

RNS Number : 8699Q

Melrose Industries PLC

03 March 2016

3 March 2016

MELROSE INDUSTRIES PLC

AUDITED RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2015

Melrose Industries PLC today announces its audited results, which are reported under IFRS, for the year ended 31 December 2015.

Highlights

§ Sale of Elster to Honeywell completed on 29 December 2015 for £3.3 billion, a multiple of 3.1x 2014 revenue and 14.3x 2014 headline¹ EBITDA² with a subsequent capital return of £2.4 billion made to shareholders

§ On 16 March 2015, following the sale of Bridon, £200.4 million was returned to shareholders

§ Brush is performing broadly in line with expectations in a tough market

§ Headline¹ operating profit³ of £20.8 million (2014: £47.7 million). IFRS profit for the year of £1,408.0 million⁴ (2014: £194.7 million)

§ The Board has proposed a final dividend of 2.6p per share (2014: 5.3p) rebased following the Elster disposal to reflect the resulting size of the Group

§ Melrose has created £2.8 billion of total shareholder value since its inception in 2003

§ For a shareholder who invested £1 in Melrose in 2005 on its first deal (acquiring McKechnie and Dynacast) and who then participated in all following deals, a net £9 of cash returns⁵ have been received in addition to still having more than £1 invested in Melrose today

^1.Before exceptional costs, exceptional income and intangible asset amortisation

^2.Operating profit before depreciation and amortisation

^3.Continuing operations only

^4.Includes continuing and discontinued operations and a profit on the disposal of Elster of £1,256.3 million

^5.Assuming every fund raising and capital return was participated in since the first deal, together with
dividends paid, an extra £6 would have been invested and £15 received, net £9

Christopher Miller, Chairman of Melrose Industries PLC, today said:

'Having successfully sold Bridon and Elster, we have more than doubled the value of shareholders' equity in both investments and returned £2.6 billion in cash to shareholders. This has been an exciting 12 months for Melrose and one that yet again demonstrated the ability of the team to create significant value for investors through our 'buy, improve, sell' model.

"We remain focused on our search for an acquisition opportunity that will put this proven formula to work once again and will further increase the £4.3 billion in cash that we have already returned to investors since our first acquisition in 2005. With valuations looking increasingly attractive, we are confident in our ability to find the right deal at the right price and we look forward to inviting investors to participate in this next project in due course."

An Analysts' meeting will be held today at 11.15 am at Investec, 2 Gresham Street, London EC2V 7QP

Enquiries:

Montfort Communications:

Charlotte McMullen/Sophie Arnold +44 (0) 20 3514 0897

CHAIRMAN'S STATEMENT

I am pleased to report our 13th set of annual results since flotation in 2003.

RESULTS FOR THE GROUP

2015 has been a highly successful year for Melrose and represents another milestone in our proven "buy, improve, sell" strategy. In March, £200.4 million was returned to shareholders following the sale of Bridon in November 2014. In December, we completed the sale of the Elster business to Honeywell International Inc. for a cash consideration of £3.3 billion and, at the same time, divested the related and certain unrelated pension obligations. Further details on this transaction are set out in the Chief Executive's review.

The presentation of this year's results has been dominated by the Elster disposal, which contributed over three quarters of the revenue of the Group in 2014 and, up to the date of disposal, had contributed £1,107.4 million to revenue during 2015.

Melrose's remaining business, Brush, has faced a challenging year. Revenue from continuing businesses for the year was £261.1 million (2014: £324.3 million) and headline operating profit (before exceptional costs, exceptional income and intangible asset amortisation) was £20.8 million (2014: £47.7 million).

Further details of these results are contained in the Finance Director's review.

As ever, I would like to thank all our employees for their efforts in helping to produce this outstanding performance.

DIVIDEND

Following the sale of Elster and the subsequent £2.4 billion capital return, shareholders have received £4.3 billion of payments over the lifetime of Melrose, comfortably exceeding the £2 billion that they have invested. These payments to shareholders have come largely from significant gains on selling companies, but also from a progressive annual dividend policy.

The Board recognises that the Group has a different shape, owning one business and carrying no debt and that prior to any new acquisition it is appropriate to rebase the annual dividend per share to reflect the current size and shape of the Group.

The Board proposes to pay a final dividend of 2.6p per share (2014: 5.3p). This will be paid on 16 May 2016 to those shareholders on the register at 8 April 2016, subject to approval at the AGM on 11 May 2016.

BOARD MATTERS

Succession planning is critical to maintaining the effectiveness and quality of the Melrose Board and it remains an area of focus for 2016. Perry Crosthwaite will be retiring from the Board at the conclusion of this year's Annual General Meeting. Perry has held a non-executive position on the Melrose Board since 2005 and his advice and extensive financial experience have been invaluable to Melrose; we wish him every success in the future. Perry will be replaced as senior non-executive Director by John Grant, who will also continue to hold the position of Chairman of the Audit Committee. A search is underway for a new non-executive Director and an appointment is expected to be made during the year.

STRATEGY

Since Melrose's flotation in 2003 and the introduction of our "buy, improve, sell" strategy, we have seen many changes in economic and stock market conditions. Nevertheless, through all this, returns to shareholders have been extremely good. We continue to see businesses which are candidates for our management and investment methods and we are confident we will identify a suitable opportunity in due course. In the meantime, we will continue to focus on developing our existing business, Brush.

OUTLOOK

The world economy remains uncertain. Across the manufacturing sector this uncertainty is leading to reduced business investment. Brush is not immune to these economic challenges. However, for the reasons set out in the Chief Executive's review, we believe that Brush is well positioned to capitalise on new business opportunities and to benefit from any improvement in market conditions.

The search actively continues for businesses which meet our investment criteria. The Board is looking forward to another successful chapter in the Group's history and, in due course, to invite shareholders to invest in the next project. Recent conditions in the global equity markets have only confirmed your Board's view that 2016 could be an exciting year for Melrose and we are confident that a suitable acquisition will be identified, bringing with it another opportunity to create substantial value for shareholders.

Christopher Miller

Chairman

3 March 2016

CHIEF EXECUTIVE'S REVIEW

Melrose continues its "buy, improve, sell" strategy of acquiring high quality manufacturing businesses with the potential for significant development and improvement under Melrose management, undertaking operational improvements, realising the value in such businesses at the appropriate time and returning the value to shareholders.

Following Elster's disposal, the Group now consists of Brush, the last remaining business from the FKI acquisition. The search for new businesses which meet Melrose's investment criteria is a key objective in 2016, together with the continued improvement of its existing business.

DISPOSALS DURING THE YEAR

2015 marks yet another successful year for Melrose. Following an announcement in July 2015, Melrose completed the £3.3 billion disposal of the Elster business to Honeywell International Inc. in December. This represented a return of 2.3 times shareholders' investment, which is a 33% equity rate of return per annum in the three years since acquiring Elster for an enterprise value of £1.8 billion.

In addition, Honeywell International Inc. assumed Melrose's FKI UK and McKechnie UK defined benefit pension plans, as well as the Elster-related pension obligations. These comprised the majority of the Group's pension plans prior to the disposal.

Following the sale, and in accordance with our strategy, we announced our intention to return approximately £2.4 billion to shareholders in February 2016. Including this return and since being first listed on AIM in 2003, Melrose has returned approximately £4.3 billion in cash to shareholders.

BRUSH

Brush Turbogenerators ("Turbogenerators") is the world's largest independent manufacturer of electricity generating equipment for the power generation, industrial, oil & gas and offshore sectors.

2015

2014

Constant currency growth

Total revenue

£261.1m

£324.3m

-17%

Headline operating profit

£38.5m

£65.0m

-38%

Despite a challenging year with difficult end-market conditions, actions taken in 2015 are expected to result in a better performance in the medium-term. Investment also continues in product development, exploring new routes to market, with particular focus on Aftermarket, servicing and larger air-cooled generators. Driving efficiency and maintaining a firm control on costs will remain a focus for the future.

Action was instigated during the first half of 2015 to reduce the manufacturing cost base in line with the decline in sales. These actions were substantially concluded during the second half of the year.

During the course of the year, factory headcount was reduced by around 10% and opportunities were taken to improve capabilities across many areas of the business. During the second half of the year attention was also given to reducing overheads although there was no material financial impact in 2015. As a result of these actions, Brush finished the year as a stronger business and is better equipped to deal with the challenging market conditions.

The £30 million capital investment in a green field generator manufacturing plant near Shanghai, China, was completed during 2015, with operations commencing in March 2015. The new 14,400m² purpose-built facility will produce 2 pole variants of Brush's leading 24 MVA to 150 MVA turbogenerators. Despite the Chinese Government's commitment to switch from coal to gas-fired power generation, the move in favour of gas has been slower than anticipated. As a result, the development of this business is between 18 months and two years behind original projections.

The Aftermarket business also had a challenging first half of 2015, particularly in North America. It did, however, finish the year strongly. Significant investment has been made in increasing and improving the sales resource to underpin both the new-build and Aftermarket sales revenue. This is particularly important for Brush, to aid development in new sectors of the market in a challenging environment. The investment in a rotor balance facility in Pittsburgh, US, nears completion and it is anticipated that the facility will be available for use in early 2016. This will further enhance Brush's North American Aftermarket business.

Switchgear revenue was lower this year than in 2014, mainly due to a greater proportion of large "direct current" projects, which are more susceptible to order placement delays than the standard Switchgear products.

The Transformer business had a much improved year, recovering from the previous Ofgem cycle and with sales finishing well ahead of 2014. Following its launch in 2015, the 132 kV range is gaining traction, with good potential for the future.

OUTLOOK

Whilst it is anticipated the end-market for Brush will remain challenging in 2016, we believe that focus on new product development and continued operational improvements will mean that Brush is well positioned in the marketplace to take advantage of new opportunities and any uplift in the market.

As a result of current market conditions and more attractive valuations, your Board believes that there could be some exciting acquisition opportunities for Melrose in 2016 and we are confident in our ability to find a deal that will create significant value for shareholders.

Simon Peckham

Chief Executive

3 March 2016

FINANCE DIRECTOR'S REVIEW

The presentation of the results this year is impacted by the disposal of the Elster division. Elster contributed over three quarters of the revenue and headline operating profit of the Group in 2014, and, in accordance with IFRS 5, is shown as discontinued in these accounts.

GROUP TRADING RESULTS FOR THE YEAR

The revenue and headline operating profit in continuing operations consist only of the Brush business and Melrose central costs. However, in accordance with IFRS 5, the finance charges shown in continuing operations include the interest on the debt which was used to finance the Elster Group.

As a consequence, below operating profit, the statutory results are not fully reflective of the underlying performance of the continuing Group and consequently on the face of the Income Statement the term headline has only been used where suitable. However exceptional charges within finance costs and tax are disclosed within the notes to the Financial Statements.

The term 'headline' describes operating profit calculated before exceptional items and intangible asset amortisation.

For continuing operations the split of revenue, headline operating profit and headline operating profit margin for 2015 and 2014 was as follows:

	2015 Revenue	2015 Headline operating profit/ (loss)	2015 Headline operating profit margin	2014 Revenue	2014 Headline operating profit/ (loss)	2014 Headline operating profit margin
	£m	£m	%	£m	£m	%
Brush	261.1	38.5	14.7	324.3	65.0	20.0
Central - corporate	-	(12.7)	n/a	-	(11.9)	n/a
Central - LTIPs⁽¹⁾	-	(5.0)	n/a	-	(5.4)	n/a
Continuing Group	261.1	20.8	8.0	324.3	47.7	14.7

⁽¹⁾ Long Term Incentive Plans

The performance of Brush is discussed in detail in the Chief Executive's review.

Central costs comprise £12.7 million (2014: £11.9 million) of Melrose corporate costs and a Long Term Incentive Plan ("LTIP") accrual of £5.0 million (2014: £5.4 million). This LTIP accrual includes £4.0 million in respect of the Melrose share-based Incentive Plan (2014: £4.0 million) and a net charge of £1.0 million (2014: £1.4 million) for the cash-based Brush management incentive plan.

After exceptional costs, exceptional income and intangible asset amortisation, the continuing Group operating profit was £4.8 million (2014: £37.0 million) and the loss before tax was £30.7 million (2014: profit of £12.5 million).

DISPOSAL OF ELSTER

On 29 December 2015 Melrose completed the disposal of Elster to Honeywell International Inc. ("Honeywell") for cash consideration of £3.3 billion, on a cash free and debt free basis. In addition to the Elster defined benefit pension plans, Honeywell assumed the Group's FKI UK and McKechnie UK defined benefit pension plans which together had combined gross liabilities of £848.7 million and a net IAS 19 deficit of £111.9 million at the date of disposal. The profit on the disposal in the year was £1,256.3 million.

Elster contributed £1,107.4 million to revenue and achieved an operating profit after exceptional items and intangible asset amortisation of £229.4 million in 2015.

Elster was an extremely successful investment for Melrose. Since it was acquired in August 2012 the enterprise value increased from £1.8 billion to £3.3 billion, and the equity value increased by 2.3 times.

NEW GROUP HOLDING COMPANY, RETURNS OF CAPITAL AND NUMBER OF SHARES

In line with the Group strategy, a large part of the proceeds of recent disposals have been returned to shareholders.

On 16 March 2015, following the sale of Bridon, £200.4 million was returned to shareholders. This return was made via a redeemable share scheme alongside a 13 for 14 share consolidation which reduced the number of Ordinary Shares by 7%, from 1,071.8 million to 995.2 million.

Later in the year, to enable a significant amount of the Elster disposal proceeds to be returned to shareholders promptly and efficiently, a corporate reorganisation was performed whereby a new holding company was introduced to the Melrose Group.

Shareholder approval for the introduction of the new holding company was received on 29 October 2015 followed by a Scheme of Arrangement being sanctioned by the High Court of England and Wales on 18 November 2015. The Scheme of Arrangement became effective on 19 November 2015 following which Melrose Industries PLC became the new holding company.

A proportion of the merger reserve, created on inception of this new holding company, was capitalised on 26 January 2016 to create B Shares to assist the Group in returning £2,388 million (equivalent to 240 pence per ordinary share) to shareholders. Alongside this Return of Capital, a 7 for 48 share consolidation was performed which reduced the number of shares by 85%, from 995.2 million to 145.1 million. The diluted number of shares at this date was 165.8 million.

Following this latest Return of Capital, Melrose has returned approximately £4.3 billion in cash to shareholders and created net shareholder value of approximately £2.8 billion including shareholders' existing investment in Melrose.

FINANCE COSTS AND INCOME

The continuing net finance costs in 2015 were £35.5 million (2014: £24.5 million).

Included within this charge was £17.8 million (2014: £18.5 million) of interest on external debt, overdrafts and cash balances. This included interest on the external debt used to finance the acquisition of Elster and an exceptional £0.7 million charge relating to the early close out of interest rate swap arrangements following the repayment of all external debt facilities.

In addition, a £15.9 million (2014: £4.0 million) charge relating to the amortisation of banking fees was incurred in 2015. This included an exceptional charge of £12.4 million relating to the acceleration of future year's charges following the sale of Elster and the repayment of all external debt facilities on 29 December 2015.

Also included in net finance costs is a net interest cost on net pension liabilities of £1.6 million (2014: £1.4 million) and a charge for the unwinding of discounts on long term provisions of £0.2 million (2014: £0.6 million).

TAX

The tax credit on continuing items for the year was £14.4 million (2014: a charge of £4.3 million).

The main reason for the tax credit arising on continuing items in the year was an exceptional tax credit of £14.5 million related to the recognition during the year of deferred tax assets on additional UK tax losses. As a result of the sale of Elster, future UK taxable profits of the Group are expected to arise in companies where losses are brought forward. In addition a tax credit of £0.8 million on exceptional operating costs and a £2.1 million tax credit on intangible asset amortisation were incurred.

The overall tax rate, after exceptional items, intangible asset amortisation and discontinued operations is 18.7% (2014: 31.6%). This is lower than the weighted average statutory tax rate of 31.5% (2014: 28.5%) primarily because of the additional deferred tax asset recognition.

The total gross tax losses within the continuing Group are shown below:

Tax losses	Recognised £m	Unrecognised £m	Total £m
UK	114.8	65.6	180.4
Rest of World	-	3.6	3.6
Total 2015	114.8	69.2	184.0
Total 2014	40.9	142.7	183.6

No significant taxes are expected to arise as a result of the Elster disposal.

Cash taxes of £2.8 million (2014: £3.4 million) were paid by continuing Group operations and £51.2 million (2014: £35.9 million) was paid by discontinued operations.

The deferred tax liability in respect of intangible assets of £13.7 million (2014: £259.8 million) is not expected to represent a future cash tax payment of the business and will unwind as the intangible assets are amortised.

EXCEPTIONAL OPERATING COSTS AND AMORTISATION OF INTANGIBLE ASSETS

During the year exceptional operating costs of £7.9 million (2014: £7.5 million) were incurred of which £5.9 million were in respect of a restructuring programme across the Brush business to align the cost base with the reduced revenue. A further £1.7 million related to the costs of the corporate reorganisation whereby a new holding company was introduced to the Group, along with costs incurred returning capital to shareholders. The remaining charge of £0.3 million was in respect of acquisition and disposal related activities.

The charge for amortisation of intangible assets, in continuing operations, in the year was £8.1 million (2014: £8.6 million).

EARNINGS PER SHARE ("EPS")

In accordance with IAS 33, two sets of basic and diluted EPS numbers are disclosed on the face of the Income Statement, one for continuing operations and one that includes discontinued operations. The diluted EPS for continuing operations in the year was a loss of 1.6p (2014: gain of 0.7p), whereas including discontinued operations, and thereby including the performance and the profit on the disposal of Elster, was a gain of 137.1p (2014: 17.5p). These are calculated after exceptional costs, exceptional income and amortisation of intangible assets.

Given the significant change in the size of the Group post the sale of Elster and following the share consolidation in January 2016 the best measure of underlying performance is based on the following 2015 proforma:

	Proforma Income Statement 2015 £m
Revenue
Brush	261.1
Headline operating profit
Brush	38.5
Central costs and LTIPs	(17.7)
Continuing Group	20.8
Interest	(1.8)
Profit before tax	19.0
Tax	(5.7)
Profit after tax	13.3
Number of shares in issue (following the share consolidation)	145.1
Proforma EPS	9.2p
Diluted number of shares	165.8
Proforma Diluted EPS	8.0p

This proforma Income Statement uses the continuing Group results, excluding net external bank interest charges now that the Group is in a relatively small net cash position, and an estimated continuing Group tax rate of 30%.

CASH GENERATION AND MANAGEMENT

The Group moved from net debt to a cash position in the year, summarised as follows:

Movement in net (debt)/cash	£m
Opening net debt	(501.3)
Cash flow from trading (after all costs including tax)	(14.6)
Net cash flow from disposals	3,262.5
Amount paid to shareholders (Return of Capital and dividends)	(281.0)
Foreign exchange and other non-cash movements	(14.2)
Closing net cash	2,451.4

The net cash position of the Group at 31 December 2015 was prior to returning any Elster disposal proceeds to shareholders. The proforma cash position of the Group after this return, and following contributions paid early to the Brush UK Pension Plan of £8.8 million, would have been £54.1 million. This is considered to be a better reflection of the ongoing cash position of the continuing Group.

ASSETS AND LIABILITIES

The summary Melrose Group assets and liabilities are shown below:

	2015 £m	2014 £m
Fixed assets (tangible, intangible and goodwill)	385.9	2,600.7
Net working capital	53.4	106.4
Retirement benefit obligations	(17.2)	(218.5)
Provisions	(30.0)	(172.8)
Deferred tax and current tax	2.2	(247.4)
Other⁽¹⁾	(0.3)	6.6
Total	394.0	2,075.0

⁽¹⁾ Includes interests in joint ventures and derivative financial instruments

These assets and liabilities are funded by:

	2015 £m	2014 £m
Cash/(debt)	2,451.4	(501.3)
Equity	(2,845.4)	(1,573.7)
Total	(394.0)	(2,075.0)

The assets and liabilities of the Group have changed significantly during 2015 following the disposal of Elster. The Group has sold £1.9 billion of net assets during the year, repaid net debt and moved into a net cash position of £2.5 billion. The cash position has decreased by £2.4 billion following the Return of Capital in February 2016.

GOODWILL, INTANGIBLE ASSETS AND IMPAIRMENT REVIEW

The total value of goodwill as at 31 December 2015 was £198.1 million (31 December 2014: £1,516.7 million) and intangible assets was £73.7 million (31 December 2014: £859.8 million). These balances reduced significantly in the year following the disposal of Elster.

The remaining goodwill and intangible assets relate to Brush and have been tested for impairment as at 31 December 2015. The Board is comfortable that no impairment is required.

PROVISIONS

Total provisions as at 31 December 2015 were £30.0 million (31 December 2014: £172.8 million). The largest movement in the year was the transfer of £86.4 million of Elster related provisions to liabilities held for sale at 30 June 2015. These provisions were subsequently disposed of on 29 December 2015.

The following table details the movement in provisions in the year:

	Total £m
At 31 December 2014	172.8
Cash spent on the utilisation of provisions	(51.7)
Net charge to headline operating profit	2.0
Charge to exceptional items	5.9
Net release to discontinued operations	(9.2)
Transfer to held for sale	(86.4)
Other (including foreign exchange)	(3.4)
At 31 December 2015	30.0

The net charge to continuing headline operating profit in the period was £2.0 million which included the Brush LTIP charge along with normal net warranty expenses in the year.

The charge to exceptional items of £5.9 million related to the restructuring programme performed across the Brush business.

Other movements on provisions in the year relate to the net effect of the unwind of discounting on long term provisions and the relevant foreign exchange impact.

PENSIONS

On 29 December 2015 Honeywell assumed all Elster related pension plans, along with the FKI UK and the McKechnie UK Pension Plans. Taken together these pension plans had gross liabilities of £848.7 million, gross assets of £736.8 million and a net deficit of £111.9 million at the date of disposal and therefore represented 87% of the previous Melrose defined benefit pension deficit.

Two defined benefit pension plans remain in the Group, namely the Brush Group (2013) Pension Plan and the Brush Aftermarket North America, Inc. Group Pension Plan (formerly the FKI US Pension Plan). These plans are closed both to new members and current members' future service.

The Brush Group (2013) Pension Plan had a net IAS 19 accounting surplus as at 31 December 2015 of £1.4 million (31 December 2014: deficit of £28.4 million). This plan had assets of £197.1 million (31 December 2014: £197.4 million) and liabilities of £195.7 million at 31 December 2015 (31 December 2014: £225.8 million). The Brush Aftermarket North America, Inc. Group Pension Plan had a net IAS 19 accounting deficit as at 31 December 2015 of £18.6 million (31 December 2014: £18.7 million). This plan had assets of £146.4 million (31 December 2014: £176.5 million) and liabilities of £165.0 million at 31 December 2015 (31 December 2014: £195.2 million). During the year lump sums were offered to all terminated vested participants with deferred benefits in the Brush US Pension Plan. Approximately 40% of those offered accepted, resulting in a reduction in gross liabilities of £20.0 million, and a benefit of £2.2 million to the overall pension charge for the year, shown within central costs.

The values of the two remaining plans were updated at 31 December 2015 by independent actuaries to reflect the latest key assumptions. A summary of the assumptions used are shown below:

2015

2014

Discount rate

3.7

4.1

3.5

3.9

Inflation (RPI)

3.0

n/a

3.1

n/a

Based on the mortality assumptions used in the Brush UK plan, a male aged 65 in 2015 is expected to live for a further 21.4 years (31 December 2014: 21.6 years) whilst a woman aged 65 would live a further 23.6 years (31 December 2014: 23.8 years).

For the Brush US plan a male aged 65 in 2015 is expected to live for a further 20.3 years (31 December 2014: 21.1 years) whilst a woman aged 65 would live a further 22.3 years (31 December 2014: 23.3 years).

The average lifetime of a member in the Brush plans is expected to increase by 1.6 years (8%) for a male and 1.8 years (8%) for a female aged 65 in 2035.

It is noted that a 0.1 percentage point decrease in the discount rate would increase the pension liabilities of the Group by £5.1 million, or 1%, and a 0.1 percentage point increase to inflation would increase the liabilities by £3.0 million, or 1%. Furthermore, an increase by one year in the expected life of a 65 year old member would increase the pension liabilities on these plans by £11.1 million, or 3%.

Following agreement with the Brush Group (2013) Pension Plan Trustees, the Group has contributed £8.8 million early to the Brush UK Plan in the year ending 31 December 2016 which has increased the surplus by this amount. Consequently no contributions to the Plan are expected to be made in the year ending 31 December 2017. Annual contributions to the Brush US Plan are approximately £0.1 million per annum.

RISK MANAGEMENT

The financial risks the Group faces have been considered and policies have been implemented to best deal with each risk. The most significant financial risks are considered to be liquidity risk, finance cost risk, exchange rate risk, contract and warranty risk and commodity cost risk. These are discussed in turn below.

Liquidity risk management

Following the receipt of the Elster disposal proceeds the Group's external financing facilities were repaid such that the Group had no external debt at 31 December 2015 and the net cash position of the Group was £2,451.4 million compared to a net debt position of £501.3 million a year earlier.

The Sterling multi-currency revolving credit facility was reduced to £200 million and remained undrawn at the year end. The Sterling term loan, along with the Euro and US Dollar denominated revolving credit facilities were cancelled.

The reduced banking facility continues to have two financial covenants, a net debt to headline EBITDA covenant (debt cover covenant) and an interest cover covenant, both of which are tested half yearly at June and December. The first of these covenants is set at a maximum 3.5x leverage for each of the half yearly measurement dates for the remainder of the term. At 31 December 2015 the Group was in a net cash position and therefore the debt cover covenant test was not relevant. The interest cover covenant is set at 4.0x or higher throughout the life of the facility and was 15.3x at 31 December 2015, affording significant headroom.

In addition to the £200 million banking facility, there are a number of uncommitted overdraft, guarantee and borrowing facilities made available to the Group. These uncommitted facilities are lightly used.

The combination of having a positive cash position and the size of the reduced committed bank facility allows the Directors to conclude that the Group has sufficient access to liquidity for its current needs.

The Board considers carefully its counterparty risk with banks when deciding where to place the cash on deposit held within the Melrose Group. At 31 December 2015, £2,425 million of the Group's cash balance was held in AAA rated Sterling denominated money market funds and the balance of the cash was held with banks with strong credit ratings.

Finance cost risk management

The interest rates that the Group were exposed to during the year were variable and linked to interbank rates of interest plus a margin determined by reference to the Group's debt cover ratio. Previously, when the Group had net debt, it was appropriate that financial instruments were entered into to protect against movement in interest rates. Now that the Group has net cash this protection is not necessary and the interest rate swaps were closed out prior to the year end.

Exchange rate risk management

The Group trades in various countries around the world and is exposed to many different foreign currencies. The Group therefore carries an exchange rate risk that can be categorised into three types, transaction, translation and disposal related risk as described below. The Board policy is designed to protect against the majority of the cash risks but not the non-cash risks.

The most common exchange rate risk is the transaction risk the Group takes when it invoices a sale in a different currency to the one in which its cost of sale is incurred. This is addressed by taking out forward cover against approximately 60% to 80% of the anticipated cash flows over the following twelve months, placed on a rolling quarterly basis and for 100% of each material contract. This does not eliminate the cash risk but does bring some certainty to it.

Exchange rates used in the year

US Dollar	Twelve month average rate	Closing rate
2015	1.53	1.47
2014	1.65	1.56
Euro
2015	1.38	1.36
2014	1.24	1.29
Czech Koruna
2015	37.6	36.6
2014	34.2	35.7

The translation rate risk, being the effect on the results in the year due to the translation movement of exchange rates from one year to the next is shown below. The table illustrates the translation movement in revenue and headline operating profit if the 2014 average exchange rates had been used to calculate the 2015 results rather than the 2015 average exchange rates.

The translation difference in 2015	£m
Revenue decrease	7.2
Headline operating profit decrease	1.7

For reference, in respect of the continuing Group, an indication of the short term exchange rate risk, which shows both translation exchange risk and unhedged transaction exchange rate risk, is as follows:

Sensitivity of profit to translation and unhedged transaction exchange risk	Increase in headline operating profit £m
For every 10 cent strengthening of the US Dollar against Sterling	0.6
For every 10 cent strengthening of the Euro against Sterling	0.1
For every 10 per cent strengthening of the Czech Koruna against Sterling	1.4

The long term exchange rate risk, which ignores any hedging instruments, is as follows:

Sensitivity of profit to translation and full transaction exchange rate risk	Increase/(decrease) in headline operating profit £m
For every 10 cent strengthening of the US Dollar against Sterling	2.7
For every 10 cent strengthening of the Euro against Sterling	(0.5)
For every 10 per cent strengthening of the Czech Koruna against Sterling	1.4

No specific exchange instruments are used to protect against the translation risk because it is a non-cash risk to the Group. However, when the Group has net debt, the hedge of having a multi-currency debt facility funding these foreign currency trading units protects against some of the Balance Sheet and banking covenant translation risk.

Lastly, and potentially the most significant exchange risk that the Group has, arises when a business that is predominantly based in a foreign currency is sold. The proceeds for those businesses may be received in a foreign currency and therefore an exchange risk might arise if foreign currency proceeds are converted back to Sterling, for instance to pay a dividend to shareholders. Protection against this risk is considered on a case-by-case basis.

Contract and warranty risk management

The financial risks connected with contracts and warranties, which include the consideration of warranty terms, duration and any other commercial or legal terms are considered carefully by Melrose before being entered into.

Commodity cost risk management

As Melrose can own engineering businesses across various sectors the cumulative expenditure on commodities is important. The Group addresses the risk of base commodity costs increasing by, wherever possible, passing on the cost increases to customers or by having suitable purchase agreements with its suppliers which sometimes fixes the price over some months into the future. These risks are minimised through sourcing policies (including the use of multiple sources, where possible) and procurement contracts where prices are agreed for up to one year to limit exposure to price volatility.

GOING CONCERN

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report section of the Annual Report. In addition, the consolidated financial statements, and in particular notes 19 and 24, include details of the Group's borrowing facilities and hedging activities along with the processes for managing its exposures to credit risk, capital risk, liquidity risk, interest risk, foreign currency risk and commodity cost risk.

The Group has adequate financial resources and has a consistent cash generation record, and as a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Geoffrey Martin

Group Finance Director

3 March 2016

Consolidated Income Statement

	Notes	Year ended 31 December 2015 £m	Restated⁽¹⁾ year ended 31 December 2014 £m
Continuing operations
Revenue	2	261.1	324.3
Cost of sales		(179.0)	(216.6)

Gross profit		82.1	107.7

Headline⁽²⁾ operating expenses		(61.6)	(61.1)
Share of headline⁽²⁾ results of joint ventures		0.3	1.1
Intangible asset amortisation		(8.1)	(8.6)
Exceptional operating costs	3	(7.9)	(7.5)
Exceptional operating income	3	-	5.4

Total net operating expenses		(77.3)	(70.7)


Operating profit		4.8	37.0

Headline⁽²⁾ operating profit	2	20.8	47.7

Finance costs⁽³⁾		(45.6)	(38.7)
Finance income		10.1	14.2


(Loss)/profit before tax		(30.7)	12.5


Tax⁽⁴⁾	4	14.4	(4.3)


(Loss)/profit for the year from continuing operations		(16.3)	8.2


Discontinued operations
Profit for the year from discontinued operations	5	1,424.3	186.5

Profit for the year		1,408.0	194.7


Attributable to:
Owners of the parent		1,407.1	193.9
Non-controlling interests		0.9	0.8

		1,408.0	194.7


Earnings per share
From continuing operations
- Basic	7	(1.6)	0.8
- Diluted	7	(1.6)	0.7

From continuing and discontinued operations
- Basic	7	139.9	17.8
- Diluted	7	137.1	17.5

⁽¹⁾ Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5). ⁽²⁾ Before exceptional costs, exceptional income and intangible asset amortisation. ⁽³⁾ Includes exceptional finance costs of £13.1 million (2014: £nil) in respect of accelerated future year charges following the repayment of all external debt facilities. ⁽⁴⁾ Includes an exceptional tax credit of £14.5 million (2014: £nil), a tax credit on exceptional items of £0.8 million (2014: charge of £0.7 million) and a tax credit on intangible asset amortisation of £2.1 million (2014: £1.6 million).

Consolidated Statement of Comprehensive Income

	Notes	Year ended 31 December 2015 £m	Year ended 31 December 2014 £m

Profit for the year		1,408.0	194.7

Items that will not be reclassified subsequently to the Income Statement:
Net remeasurement gain/(loss) on retirement benefit obligations	9	57.5	(35.5)
Income tax (charge)/credit relating to items that will not be reclassified	4	(6.0)	8.7

		51.5	(26.8)
Items that may be reclassified subsequently to the Income Statement:
Currency translation on net investments		(30.8)	(93.2)
Currency translation on non-controlling interests		0.2	-
Transfer to Income Statement from equity of cumulative translation differences on disposal of foreign operations	5	123.7	(7.6)
Losses on cash flow hedges		(2.8)	(11.9)
Transfer to Income Statement on cash flow hedges		3.7	5.6
Income tax charge relating to items that may be reclassified	4	(1.0)	-

		93.0	(107.1)


Other comprehensive income/(expense) after tax		144.5	(133.9)


Total comprehensive income for the year		1,552.5	60.8


Attributable to:
Owners of the parent		1,551.4	60.0
Non-controlling interests		1.1	0.8

		1,552.5	60.8

Consolidated Statement of Cash Flows

	Notes	Year ended 31 December 2015 £m	Restated⁽¹⁾ year ended 31 December 2014 £m
Net cash used in operating activities from continuing operations	11	(57.8)	(10.5)
Net cash from operating activities from discontinued operations	11	89.2	127.0

Net cash from operating activities		31.4	116.5

Investing activities
Disposal of businesses		3,381.0	374.8
Disposal costs		(25.6)	(8.5)
Net cash disposed	5	(93.5)	(14.6)
Purchase of property, plant and equipment		(17.4)	(29.8)
Purchase of computer software and development costs		(0.3)	(0.4)
Dividends received from joint ventures		0.3	1.2
Interest received		10.1	14.2
Net cash from investing activities from continuing operations		3,254.6	336.9
Net cash used in investing activities from discontinued operations	11	(38.7)	(126.1)

Net cash from investing activities		3,215.9	210.8

Financing activities
Return of Capital		(200.4)	(595.3)
Movement in borrowings		(595.1)	226.1
Costs of amending borrowing facilities		-	(3.6)
Dividends paid	6	(80.6)	(83.6)
Net cash used in financing activities from continuing operations		(876.1)	(456.4)
Net cash used in financing activities from discontinued operations	11	-	-

Net cash used in financing activities		(876.1)	(456.4)


Net increase/(decrease) in cash and cash equivalents		2,371.2	(129.1)
Cash and cash equivalents at the beginning of the year	11	70.5	200.4
Effect of foreign exchange rate changes	11	9.7	(0.8)

Cash and cash equivalents at the end of the year	11	2,451.4	70.5

⁽¹⁾ Restated to include the cash flows of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

As at 31 December 2015, the Group had net cash of £2,451.4 million (31 December 2014: net debt of £501.3 million). A reconciliation of the movement in net debt is shown in note 11.

Consolidated Balance Sheet

	Notes	31 December 2015 £m	Restated⁽¹⁾ 31 December 2014 £m
Non-current assets
Goodwill and other intangible assets		273.0	2,401.1
Property, plant and equipment		112.9	199.6
Interests in joint ventures		-	11.8
Deferred tax assets		25.7	68.7
Derivative financial assets		-	1.2
Trade and other receivables		1.1	3.3

		412.7	2,685.7
Current assets
Inventories		55.6	166.5
Trade and other receivables		67.9	257.5
Derivative financial assets		1.2	3.9
Cash and cash equivalents		2,451.4	70.5

		2,576.1	498.4


Total assets	2	2,988.8	3,184.1


Current liabilities
Trade and other payables		71.2	320.5
Interest-bearing loans and borrowings		-	0.9
Derivative financial liabilities		1.5	10.1
Current tax liabilities		3.3	48.8
Provisions	8	12.0	71.7

		88.0	452.0


Net current assets		2,488.1	46.4


Non-current liabilities
Trade and other payables		-	0.4
Interest-bearing loans and borrowings		-	570.9
Derivative financial liabilities		-	0.2
Deferred tax liabilities		20.2	267.3
Retirement benefit obligations	9	17.2	218.5
Provisions	8	18.0	101.1

		55.4	1,158.4


Total liabilities	2	143.4	1,610.4


Net assets		2,845.4	1,573.7


Equity
Issued share capital	10	10.0	263.8
Merger reserve		2,500.9	2,500.9
Other reserves		(2,329.9)	(2,329.9)
Hedging reserve		-	(0.5)
Translation reserve		(37.8)	(130.7)
Retained earnings		2,702.2	1,267.5

Equity attributable to owners of the parent		2,845.4	1,571.1
Non-controlling interests		-	2.6

Total equity		2,845.4	1,573.7

⁽¹⁾ Restated to reflect the completion of the acquisition accounting of Eclipse (note 1). Also, in accordance with IFRS 3, the prior year Issued share

capital, Merger reserve, Capital redemption reserve and Other reserves balances have been restated to reflect the nominal share capital and

reserves position of the new parent company as if it had been the holding company during both periods presented. The overall impact on net

equity is £nil (note 1).

The financial statements were approved and authorised for issue by the Board of Directors on 3 March 2016 and were signed on its behalf by:

……………………………………………… ……………………………………………

Geoffrey Martin Simon Peckham

Group Finance Director Chief Executive

Consolidated Statement of Changes in Equity

	Issued share capital £m		Merger reserve £m	Other reserves £m	Hedging reserve £m	Translation reserve £m	Retained earnings £m	Equity attributable to owners of the parent £m	Non-controlling interests £m	Total equity £m

At 1 January 2014 (as previously reported)		1.3	1,190.6	(757.1)	5.8	(29.9)	1,775.3	2,186.0	1.9	2,187.9
Restatement for the effects of the new parent company⁽¹⁾		262.5	1,310.3	(1,572.8)	-	-	-	-	-	-
At 1 January 2014 restated⁽¹⁾		263.8	2,500.9	(2,329.9)	5.8	(29.9)	1,775.3	2,186.0	1.9	2,187.9

Profit for the year	-		-	-	-	-	193.9	193.9	0.8	194.7
Other comprehensive expense		-	-	-	(6.3)	(100.8)	(26.8)	(133.9)	-	(133.9)

Total comprehensive (expense)/income		-	-	-	(6.3)	(100.8)	167.1	60.0	0.8	60.8

Return of Capital		-	-	-	-	-	(595.3)	(595.3)	-	(595.3)
Dividends paid	-		-	-	-	-	(83.6)	(83.6)	(0.4)	(84.0)
Credit to equity for equity- settled share-based payments	-		-	-	-	-	4.0	4.0	-	4.0
Acquisition of non-controlling interests		-	-	-	-	-	-	-	0.3	0.3

At 31 December 2014 restated⁽¹⁾		263.8	2,500.9	(2,329.9)	(0.5)	(130.7)	1,267.5	1,571.1	2.6	1,573.7

Profit for the year	-		-	-	-	-	1,407.1	1,407.1	0.9	1,408.0
Other comprehensive income		-	-	-	0.5	92.9	50.9	144.3	0.2	144.5

Total comprehensive income		-	-	-	0.5	92.9	1,458.0	1,551.4	1.1	1,552.5

Return of Capital	-		-	-	-	-	(200.4)	(200.4)	-	(200.4)
Dividends paid	-		-	-	-	-	(80.6)	(80.6)	(0.4)	(81.0)
Capital reduction	(253.8)		-	-	-	-	253.8	-	-	-
Credit to equity for equity- settled share-based payments	-		-	-	-	-	4.0	4.0	-	4.0
Purchase of non-controlling interests		-	-	-	-	-	(0.1)	(0.1)	(1.4)	(1.5)
Disposal of non-controlling interests		-	-	-	-	-	-	-	(1.9)	(1.9)

At 31 December 2015	10.0		2,500.9	(2,329.9)	-	(37.8)	2,702.2	2,845.4	-	2,845.4

⁽¹⁾In accordance with IFRS 3, the prior year Issued share capital, Merger reserve, Capital redemption reserve and Other reserves balances have been restated to reflect the nominal share capital and reserves position of the new parent company as if it had been the holding company during both periods presented. The overall impact on net equity is £nil (note 1).

Notes to the financial statements

1. Corporate information

The financial information included within this preliminary announcement does not constitute the Company's statutory financial statements for the years ended 31 December 2015 or 31 December 2014 within the meaning of s435 of the Companies Act 2006, but is derived from those financial statements. Statutory financial statements for the year ended 31 December 2014 have been delivered to the Registrar of Companies and those for the year ended 31 December 2015 will be delivered to the Registrar of Companies during April 2016. The auditor has reported on those financial statements; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006.

Following shareholder approval on 29 October 2015, a Scheme of Arrangement was sanctioned by the High Court of England and Wales on 18 November 2015, pursuant to which a new listed company was introduced for the Melrose Group of companies. The Scheme of Arrangement became effective on 19 November 2015 and New Melrose Industries PLC (subsequently renamed Melrose Industries PLC on 19 November 2015) became the new holding company of Melrose Industries PLC (subsequently renamed Melrose Holdings Limited on 19 November 2015) and its subsidiaries.

The Scheme of Arrangement resulting in New Melrose Industries PLC becoming the new holding company for the Group has been accounted for in these consolidated financial statements as a reverse asset acquisition using the principles of reverse acquisition accounting set out in IFRS 3: "Business combinations".

As a consequence of applying reverse acquisition accounting principles, the consolidated results of Melrose Industries PLC ("the Group") for the year ended 31 December 2015 comprise the results of Melrose Holdings Limited and its subsidiaries for the year ended 31 December 2015 consolidated with those of New Melrose Industries PLC from 19 November 2015. The comparative figures for the Group are those of the Group headed by Melrose Holdings Limited for the year ended 31 December 2014 except for the presentation of the Issued share capital, Merger reserve, Capital redemption reserve and Other reserves balances which have been restated to reflect the reserves position of the Group as if New Melrose Industries PLC had been the parent company during both periods presented.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRSs"), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs during April 2016.

The Group has adopted a number of standards and amendments which became mandatory during the current financial year. These changes have had no significant impact on the Group's financial statements. The accounting policies followed are the same as those detailed within the 2014 Annual Report which are available on the Group's website www.melroseplc.net.

During the year, the Group completed its review of the assets and liabilities acquired following the acquisition of Eclipse, Inc. ("Eclipse") by the Gas segment on 31 October 2014. As a result, the Group recorded its final adjustments to the opening balance sheet of Eclipse. In accordance with IFRS 3: "Business combinations" the Balance Sheet at 31 December 2014 has been restated to reflect these adjustments which decreased provisions by £4.2 million and decreased the goodwill arising on the acquisition of Eclipse from £64.6 million to £60.4 million.

On 29 December 2015, the Group completed the disposal of the Elster businesses ("Elster") to Honeywell International Inc. ("Honeywell"). At the interim reporting date the disposal was highly probable and in accordance with IFRS 5: "Non-current assets held for sale and discontinued operations", the assets and liabilities of Elster were classified as held for sale in the Balance Sheet at 30 June 2015 and subsequently disposed on 29 December 2015.

Elster comprised the Gas, Electricity and Water segments along with their associated central costs. In addition, the "Elster disposal group" also contained the Elster divisional long term incentive plans, the FKI UK defined benefit pension plan and the McKechnie UK defined benefit pension plan, all of which have been shown as discontinued operations in these financial statements.

On 18 December 2015 the Prelok business, previously included in the Energy segment, was disposed. Prelok is shown as a discontinued operation in these financial statements.

The Board of Directors approved the preliminary announcement on 3 March 2016.

2. Segment information

Segment information is presented in accordance with IFRS 8: "Operating segments" which requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reported to the Group's Board in order to allocate resources to the segments and assess their performance. Following the disposal of Elster, as described in note 1, the Group's only remaining reportable operating segment under IFRS 8 is the Energy segment which includes the Brush business, a specialist supplier of energy industrial products to the global market.

In addition, there are two central cost centres which are also separately reported to the Board. The central corporate cost centre which contains the Melrose Group head office costs and the central long term incentive plan ("LTIP") cost centre which contains the costs associated with the five year Melrose Incentive Plan (granted on 11 April 2012) and the divisional management LTIPs that relate to the Energy segment.

The discontinued segment comprises the Bridon and Prelok businesses along with the Elster disposal group (note 1) in 2014 and the Prelok business and the Elster disposal group (note 1) in 2015.

All continuing revenue in these financial statements relates to the Energy segment.

Transfer prices between business units are set on an arm's length basis in a manner similar to transactions with third parties.

Included in revenue arising from the Energy segment are revenues of approximately £67.0 million (2014: £88.2 million) which arose from sales to the Group's largest customer. No other single customer contributed 10% or more to the Group's revenue in either 2014 or 2015.

The Group's geographical segments are determined by the location of the Group's non-current assets and, for revenue, the location of external customers. Inter-segment sales are not material and have not been disclosed.

The following tables present the results and certain asset and liability information regarding the Group's operating segment and central cost centres for the year ended 31 December 2015 and the comparative year. Note 3 gives details of exceptional operating costs and income.

Segment results

	Segment results
	Notes	Year ended 31 December 2015 £m	Restated⁽¹⁾ year ended 31 December 2014 £m
Continuing operations
Energy headline⁽²⁾ operating profit		38.5	65.0
Central - corporate		(12.7)	(11.9)
Central - LTIPs⁽³⁾		(5.0)	(5.4)

Headline⁽²⁾ operating profit		20.8	47.7

Intangible asset amortisation		(8.1)	(8.6)
Exceptional operating costs	3	(7.9)	(7.5)
Exceptional operating income	3	-	5.4

Operating profit		4.8	37.0

Finance costs		(45.6)	(38.7)
Finance income		10.1	14.2

(Loss)/profit before tax		(30.7)	12.5
Tax	4	14.4	(4.3)
Profit for the year from discontinued operations	5	1,424.3	186.5

Profit for the year		1,408.0	194.7

⁽¹⁾Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

⁽²⁾As defined on the Income Statement.

⁽³⁾Long Term Incentive Plans.

	Total assets		Total liabilities
	31 December 2015 £m	Restated⁽¹⁾ 31 December 2014 £m	31 December 2015 £m	Restated⁽¹⁾ 31 December 2014 £m
Continuing operations
Energy	496.9	501.9	103.7	136.1
Central - corporate	2,491.9	96.5	37.7	649.7
Central - LTIPs⁽²⁾	-	-	2.0	11.0

Total continuing operations	2,988.8	598.4	143.4	796.8

Discontinued operations	-	2,585.7	-	813.6

Total	2,988.8	3,184.1	143.4	1,610.4

⁽¹⁾ Restated to include the total assets and total liabilities of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5) and to reflect the completion of the acquisition accounting of Eclipse (note 1).

⁽²⁾ Long Term Incentive Plans.

	Capital expenditure⁽¹⁾		Depreciation⁽¹⁾
	Year ended 31 December 2015 £m	Restated⁽²⁾ year ended 31 December 2014 £m	Year ended 31 December 2015 £m	Restated⁽²⁾ year ended 31 December 2014 £m
Continuing operations
Energy	16.8	30.1	7.5	6.2
Central - corporate	-	0.2	0.6	0.9

Total continuing operations	16.8	30.3	8.1	7.1

Discontinued operations	39.9	36.0	11.9	31.5

Total	56.7	66.3	20.0	38.6

⁽¹⁾Including computer software and development costs.

⁽²⁾Restated to include the capital expenditure⁽¹⁾ and depreciation⁽¹⁾ of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

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 31 December 2015 £m	Restated⁽²⁾ year ended 31 December 2014 £m	31 December 2015 £m	Restated⁽³⁾ 31 December 2014 £m
Continuing operations
UK	83.2	83.6	189.3	194.9
Europe	66.3	84.5	146.9	156.4
North America	57.4	91.7	23.6	19.1
Other	54.2	64.5	26.1	21.2

Total continuing operations	261.1	324.3	385.9	391.6

Discontinued operations	1,109.8	1,261.2	-	2,209.1

Total	1,370.9	1,585.5	385.9	2,600.7

⁽¹⁾Revenue is presented by destination.

⁽²⁾Restated to include the revenue of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

⁽³⁾Restated to include the non-current assets of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5) and to reflect the completion of the acquisition accounting of Eclipse (note 1).

3. Exceptional operating costs and income

Exceptional costs	Year ended 31 December 2015 £m	Restated⁽¹⁾ year ended 31 December 2014 £m
Continuing operations
Restructuring costs	7.6	6.1
Acquisition and disposal costs	0.3	1.4

Total exceptional costs	7.9	7.5

⁽¹⁾Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

During 2015 the continuing Group incurred £7.6 million (2014: £6.1 million) of restructuring costs. Within the Brush business £5.9 million was incurred, primarily in respect of headcount reductions to align the cost base with the business' reduced revenue. In addition, £1.7 million of restructuring costs were incurred in relation to the corporate reorganisation to introduce a new holding company to the Group (note 1), along with the costs associated with returning capital to shareholders. The charge for restructuring in 2014 related mainly to the set-up of the new Brush China factory.

The Group also incurred £0.3 million (2014: £1.4 million) of expenses on acquisition and disposal related activities during the year.

Exceptional income	Year ended 31 December 2015 £m	Year ended 31 December 2014 £m
Continuing operations
Release of surplus leasehold property cost provision	-	5.4

Total exceptional income	-	5.4

During 2014 a historical onerous lease dispute was successfully resolved for less than expected resulting in the release of £5.4 million from provisions as exceptional income.

4. Tax

		Continuing operations		Discontinued operations		Total
Analysis of charge/(credit) in year:	Year ended 31 December 2015 £m		Restated⁽¹⁾ year ended 31 December 2014 £m	Year ended 31 December 2015 £m	Restated⁽¹⁾ year ended31 December 2014 £m	Year ended 31 December 2015 £m	Year ended 31 December 2014 £m
Current tax		2.9	4.6	46.5	46.2	49.4	50.8
Deferred tax		(17.3)	(0.3)	2.8	(5.3)	(14.5)	(5.6)

Total income tax (credit)/charge		(14.4)	4.3	49.3	40.9	34.9	45.2

⁽¹⁾ Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

The tax credit from continuing operations for the year ended 31 December 2015 includes an exceptional tax credit of £14.5 million relating to the recognition of tax assets previously not considered recoverable (2014: £nil), a tax credit on exceptional costs of £0.8 million (2014: charge of £0.7 million) and a tax credit on intangible asset amortisation of £2.1 million (2014: £1.6 million).

Changes to the main rate of UK corporation tax were announced in the Finance (No. 2) Act 2015 which was substantively enacted in 2015. The UK corporation tax rate is set to reduce to 19% from 1 April 2017 and reduce further to 18% from 1 April 2020. The impact of the future rate changes has been to decrease the closing deferred tax asset by £1.7 million.

The charge for the year can be reconciled to the (loss)/profit per the Income Statement as follows:

	Year ended 31 December 2015 £m	Restated⁽¹⁾ year ended 31 December 2014 £m
(Loss)/profit on ordinary activities before tax:
Continuing operations	(30.7)	12.5
Discontinued operations (note 5)	217.8	130.5

	187.1	143.0


Tax on profit on ordinary activities at weighted average rate 31.54% (2014: 28.49%)	59.0	40.7

Tax effect of:
Net permanent differences/non-deductible items	2.2	1.3
Temporary differences not recognised in deferred tax	(4.3)	3.7
Tax credits, withholding taxes and other rate differences	(1.3)	(1.5)
Prior year tax adjustments	(4.6)	(2.9)
Exceptional tax (credit)/charge	(16.1)	3.9

Total tax charge for the year	34.9	45.2

⁽¹⁾ Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

The reconciliation has been performed at a blended Group tax rate of 31.54% (2014: 28.49%) which represents the weighted average of the tax rates applying to profits in the jurisdictions in which those profits arose.

In addition to the amount charged to the Income Statement, a tax charge of £7.0 million (2014: credit of £8.7 million) has been recognised directly in the Consolidated Statement of Comprehensive Income. This represents a tax charge of £6.0 million (2014: credit of £8.7 million) in respect of retirement benefit obligations, a tax charge of £0.4 million (2014: £nil) in respect of movements on cash flow hedges and a tax charge of £0.6 million (2014: £nil) in respect of tax charged on foreign exchange gains.

5. Discontinued operations

Disposal of businesses

On 29 December 2015, the Group completed the sale of the Elster disposal group (note 1) for cash consideration of £3,380.8 million. The costs charged to the Income Statement during the year associated with the disposal were £25.6 million. The profit on disposal was £1,256.3 million after the recycling of cumulative translation differences of £123.8 million.

On 18 December 2015, the smaller Prelok business, previously shown within the Energy segment, was disposed of for a loss of £0.5 million.

Discontinued operations in 2014 also contain the results and cash flows of the Bridon business, which was disposed of on 12 November 2014.

As described in note 1, the comparative information in these financial statements has been restated to include the results and cash flows of the Elster disposal group and the Prelok business within discontinued operations and exclude them from continuing operations.

Financial performance of discontinued operations:

	Year ended 31 December 2015 £m	Restated⁽¹⁾ year ended 31 December 2014 £m
Revenue	1,109.8	1,261.2
Operating costs	(886.7)	(1,121.3)

Operating profit	223.1	139.9
Net finance costs	(5.3)	(9.4)

Profit before tax	217.8	130.5
Tax	(49.3)	(40.9)

Profit after tax	168.5	89.6
Cumulative translation differences recycled on disposals	(123.7)	7.6
Gain on disposal of net assets of discontinued operations	1,379.5	89.3

Profit for the year from discontinued operations	1,424.3	186.5


Attributable to:
Owners of the parent	1,423.4	185.7
Non-controlling interests	0.9	0.8

	1,424.3	186.5

⁽¹⁾ Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations.

Revenue from discontinued operations comprises £753.5 million in relation to Gas (2014: £687.0 million), £228.6 million in relation to Electricity (2014: £215.7 million), £125.3 million in relation to Water (2014: £147.5 million), £2.4 million in relation to Prelok (2014: £3.0 million) and £nil in relation to Bridon (2014: £208.0 million).

Operating profit from discontinued operations is stated after amortisation of intangible assets of £23.5 million (2014: £52.4 million), after restructuring costs of £15.8 million (2014: £26.3 million) and after acquisition, disposal related and one off costs of £7.3 million (2014: £2.3 million). Operating profit from discontinued operations also includes the release of £26.0 million (2014: £nil) of items previously booked as fair value adjustments following the successful resolution of certain warranty and legal issues inherited with the acquisition of Elster.

Operating profit by business comprises £180.0 million profit in relation to Gas (2014: £106.7 million), £18.1 million profit in relation to Electricity (2014: £12.2 million), £16.5 million profit in relation to Water (2014: £16.1 million), £14.8 million profit in relation to Elster central (2014: loss of £2.1 million), £0.3 million profit in relation to Prelok (2014: £0.1 million), £nil in relation to Bridon (2014: £14.5 million) and a £6.6 million loss in relation to discontinued corporate costs (2014: £7.6 million).

The major classes of assets and liabilities disposed of during the year were as follows:

	£m
Goodwill and other intangible assets	2,076.8
Property, plant and equipment	106.6
Interests in joint ventures	11.1
Inventories	116.9
Trade and other receivables	207.8
Cash and cash equivalents	93.5

Total assets	2,612.7

Trade and other payables	212.3
Loans and borrowings	0.6
Non-controlling interests	1.9
Derivative financial liabilities	0.1
Retirement benefit obligations	111.9
Provisions	75.7
Tax and deferred tax	234.5

Total liabilities	637.0

Net assets	1,975.7
Cash consideration net of costs⁽¹⁾	3,355.2
Cumulative translation difference recycled on disposals	(123.7)

Profit on disposal of businesses	1,255.8


Net cash inflow arising on disposal:
Consideration received in cash and cash equivalents net of costs⁽¹⁾	3,355.2
Less: cash and cash equivalents disposed of	(93.5)

	3,261.7

⁽¹⁾ Net of £25.8 million of disposal costs.

6. Dividends

	Year ended 31 December 2015 £m	Year ended 31 December 2014 £m
Final dividend for the year ended 31 December 2013 paid of 5.0p	-	53.6
Interim dividend for the year ended 31 December 2014 paid of 2.8p	-	30.0
Final dividend for the year ended 31 December 2014 paid of 5.3p	52.7	-
Interim dividend for the year ended 31 December 2015 paid of 2.8p	27.9	-

	80.6	83.6

Proposed final dividend for the year ended 31 December 2015 of 2.6p per share (2014: 5.3p per share) totalling £3.8 million (2014: £52.7 million).

The final dividend of 2.6p was proposed by the Board on 3 March 2016 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 ended 31 December 2015 £m	Restated⁽¹⁾ year ended 31 December 2014 £m
Profit for the purposes of earnings per share	1,407.1	193.9
Less: profit for the year from discontinued operations (note 5)	(1,423.4)	(185.7)

Earnings for basis of earnings per share from continuing operations	(16.3)	8.2

⁽¹⁾ Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

	Year ended 31 December 2015	Year ended 31 December 2014
	Number	Number
Weighted average number of Ordinary Shares for the purposes of basic earnings per share (million)	1,005.9	1,092.0
Further shares for the purposes of diluted earnings per share (million)	20.7	13.7

Weighted average number of Ordinary Shares for the purposes of diluted earnings per share (million)	1,026.6	1,105.7

On 7 February 2014 the number of Ordinary Shares was consolidated in a ratio of 11 for 13, which reduced the number of Ordinary Shares in issue from 1,266.6 million to 1,071.8 million.

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.

Earnings per share	Year ended 31 December 2015 pence	Restated⁽¹⁾ year ended 31 December 2014 pence
Basic earnings per share
From continuing and discontinued operations	139.9	17.8
From continuing operations	(1.6)	0.8
From discontinued operations	141.5	17.0

Diluted earnings per share
From continuing and discontinued operations	137.1	17.5
From continuing operations	(1.6)	0.7
From discontinued operations	138.7	16.8

⁽¹⁾ Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

8. Provisions

	Surplus leasehold property costs £m		Environmental and legal costs £m	Incentive plan related £m	Warranty related costs £m	Other £m	Total £m
At 1 January 2015 restated⁽¹⁾		11.0	51.0	26.6	50.8	33.4	172.8
Utilised	(2.7)		(4.7)	(10.0)	(11.5)	(22.8)	(51.7)
Net charge to continuing headline⁽²⁾ operating profit	-		-	1.0	0.8	0.2	2.0
Charge to exceptional items	-		-	-	-	5.9	5.9
Net release to discontinued operating profit⁽³⁾	(3.0)		(16.0)	7.9	(6.3)	8.2	(9.2)
Unwind of discount	0.1		0.1	0.5	-	-	0.7
Exchange differences	0.1		(0.8)	-	(1.9)	(1.5)	(4.1)
Transfer to held for sale⁽⁴⁾	(0.5)		(12.8)	(24.0)	(29.1)	(20.0)	(86.4)

At 31 December 2015	5.0		16.8	2.0	2.8	3.4	30.0


Current	2.5		4.7	-	2.0	2.8	12.0
Non-current	2.5		12.1	2.0	0.8	0.6	18.0

	5.0		16.8	2.0	2.8	3.4	30.0

⁽¹⁾ Restated to reflect the completion of the acquisition accounting of Eclipse (note 1).

⁽²⁾ As defined on the Income Statement.

⁽³⁾ Net of a £15.5 million charge and a £24.7 million release prior to being transferred to liabilities held for sale at 30 June 2015.

⁽⁴⁾Transferred to liabilities held for sale at 30 June 2015 in accordance with IFRS 5, subsequently disposed on 29 December 2015.

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 four 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.

Incentive plan related provisions are in respect of long term incentive plans for divisional senior management, expected to result in cash expenditure in the next four years.

The provision for warranty related costs represents the best estimate of the expenditure required to settle the Group's obligations. Warranty terms are, on average, between one and five years.

Other provisions relate primarily to costs that will be incurred in respect of restructuring programmes, usually resulting in cash spend within one year.

Where appropriate, provisions have been discounted using a discount rate of 3% (31 December 2014: 3%).

9. Retirement benefit obligations

Defined benefit plans

The Group sponsors defined benefit plans for qualifying employees of certain subsidiaries. The funded defined benefit plans are administered by a separate fund that is legally separated from the Group. The trustees of the funds are required by law to act in the interest of the fund and of all relevant stakeholders in the plans. The trustees of the pension funds are responsible for the investment policy with regard to the assets of the fund.

On 29 December 2015, Honeywell International Inc. assumed ownership of the Elster defined benefit pension plans, along with the FKI UK Pension Plan and the McKechnie UK Pension Plan. The remaining defined benefit pension plans in the Group at 31 December 2015 were:

§ The Brush Group (2013) ("Brush UK") Pension Plan, which is defined benefit in type and is a funded plan. The plan is closed to new members and the accrual of future benefits for existing members.

§ The Brush Aftermarket North America, Inc. ("Brush US") Group Pension Plan (formerly the FKI US Pension Plan) which is defined benefit in type and is a funded plan. The plan is closed to new members and the accrual of future benefits for existing members. During the year certain vested participants accepted lump sum offers resulting in an adjustment to past service cost of £2.2 million.

The cost of the Group's defined benefit plans are determined in accordance with IAS 19 (revised): "Employee benefits" using the advice of independent professionally qualified actuaries on the basis of formal actuarial valuations and using the projected unit credit method. In line with normal practice, these valuations are undertaken triennially in the UK and annually in the US.

The valuation of the Brush UK Pension Plan was based on a full actuarial valuation as of 31 December 2013, updated at 31 December 2015 by independent actuaries. The Brush US Pension Plan valuation was based on a full actuarial valuation as of 31 December 2014, updated at 31 December 2015 by independent actuaries.

The Group contributed £5.1 million (2014: £5.0 million) to the continuing defined benefit pension plans in the year ended 31 December 2015.

Following agreement with the Brush Group (2013) Pension Plan Trustees, the Group has contributed £8.8 million early to the Brush UK Pension Plan in the year ending 31 December 2016. No contributions are expected to be made in the year ending 31 December 2017. The Group expects to contribute approximately £0.1 million to the Brush US Pension Plan in the year ending 31 December 2016.

Actuarial assumptions

The major assumptions used by the actuaries in calculating the Group's pension liabilities are as set out below:

	31 December 2015		31 December 2014
	Brush UK Plan % p.a.	Brush US Plan % p.a.	Brush UK Plan % p.a.	Brush US Plan % p.a.
Rate of increase in salaries	n/a	n/a	n/a	n/a
Rate of increase in pensions in payment	3.0	n/a	3.0	n/a
Discount rate	3.7	4.1	3.5	3.9
RPI inflation assumption	3.0	n/a	3.1	n/a
CPI inflation assumption	1.9	n/a	2.1	n/a

Mortality

Brush UK Pension Plan

Mortality assumptions for the Brush UK Pension Plan, as at 31 December 2015 were based on the Self Administered Pension Scheme ("SAPS") "S1" base tables with a scaling factor of 110%, which reflected the results of a mortality analysis carried out on the plan's membership. Future improvements are in line with the Continuous Mortality Investigation ("CMI") improvement model with a long-term rate of improvement of 1.25% p.a. for both males and females.

The assumptions were that a member currently aged 65 will live on average for a further 21.4 years (31 December 2014: 21.6 years) if they are male and for a further 23.6 years (31 December 2014: 23.8 years) if they are female. For a member who retires in 2035 at age 65, the assumptions were that they will live for a further 23.0 years (31 December 2014: 23.2 years) after retirement if they are male and for a further 25.5 years (31 December 2014: 25.7 years) after retirement if they are female.

The mortality assumptions were consistent with those adopted for the full valuation as at 31 December 2013.

Brush US Pension Plan

The mortality assumptions adopted as at 31 December 2015 were set to reflect the Group's best estimate view of life expectancies of members of the pension arrangement. Each assumption reflected the characteristics of the membership of the Brush US Pension Plan.

The assumptions were that a member currently aged 65 will live on average for a further 20.3 years (31 December 2014: 21.1 years) if they are male and for a further 22.3 years (31 December 2014: 23.3 years) if they are female. For a member who retires in 2035 at age 65, the assumptions were that they will live for a further 22.0 years (31 December 2014: 22.8 years) after retirement if they are male and for a further 23.9 years (31 December 2014: 24.9 years) after retirement if they are female.

The mortality assumptions were consistent with those adopted for the full valuation as at 31 December 2014.

Balance Sheet disclosures

The amount recognised in the Balance Sheet arising from net liabilities in respect of defined benefit plans was as follows:

	31 December 2015 £m	31 December 2014 £m

Present value of funded defined benefit obligations	(360.7)	(1,231.0)
Fair value of plan assets	343.5	1,125.2

Funded status	(17.2)	(105.8)
Present value of unfunded defined benefit obligations	-	(112.7)

Net liabilities	(17.2)	(218.5)

The plan liabilities and assets at 31 December 2015 were split by plan as follows:

	Brush UK Plan £m	Brush US Plan £m	Total £m
Plan liabilities	(195.7)	(165.0)	(360.7)
Plan assets	197.1	146.4	343.5

Net assets/(liabilities)	1.4	(18.6)	(17.2)

The major categories and fair values of plan assets at the end of the reporting period for each category were as follows:

	31 December	31 December
	2015	2014
	£m	£m
Equities	129.2	380.7
Government bonds	80.1	315.2
Corporate bonds	122.2	337.9
Property	5.7	21.8
Insurance contracts	-	11.9
Other	6.3	57.7

Total	343.5	1,125.2

The assets were well diversified and the majority of plan assets had quoted prices in active markets. All government bonds were issued by reputable governments and were generally AA rated or higher. Interest rate and inflation rate swaps were also employed to complement the role of fixed and index-linked bond holdings for liability risk management.

The trustees continually review whether the chosen investment strategy is appropriate with a view to providing the pension benefits and to ensure appropriate matching of risk and return profiles. The main strategic policies included maintaining an appropriate asset mix, managing interest rate sensitivity and maintaining an appropriate equity buffer. Investment results were regularly reviewed.

There was no self investment (other than in relevant tracker funds) either in the Group's own financial instruments or property or other assets used by the Group.

Movements in the present value of defined benefit obligations during the year:

	Year ended 31 December 2015	Year ended 31 December 2014
	£m	£m
At beginning of year	1,343.7	1,290.1
Acquisition of businesses	-	4.6
Disposal of businesses	-	(68.4)
Current service cost	1.0	2.2
Past service cost	(2.2)	(3.5)
Interest cost on obligations	29.4	55.0
Terminations	(2.6)	(4.3)
Remeasurement (gains)/losses - demographic	(19.2)	14.4
Remeasurement (gains)/losses - financial	(39.8)	151.6
Remeasurement gains - experience	(7.2)	(29.7)
Benefits paid out of plan assets	(56.1)	(71.8)
Benefits paid out of Group assets for unfunded plans	(4.8)	(4.4)
Currency translation differences	0.9	7.9
Transfer to held for sale⁽¹⁾	(882.4)	-

At end of year	360.7	1,343.7

⁽¹⁾Transferred to liabilities held for sale at 30 June 2015 in accordance with IFRS 5, subsequently disposed on 29 December 2015.

The defined benefit plan liabilities were nil% (31 December 2014: 5%) in respect of active plan participants, 53% (31 December 2014: 41%) in respect of deferred plan participants and 47% (31 December 2014: 54%) in respect of pensioners.

The weighted average duration of the defined benefit plan liabilities at 31 December 2015 was 15.0 years (31 December 2014: 15.5 years).

Movements in the fair value of plan assets during the year:

	Year ended 31 December 2015	Year ended 31 December 2014
	£m	£m
At beginning of year	1,125.2	1,070.8
Disposal of businesses	-	(64.8)
Interest income on plan assets	25.7	46.8
Return on plan assets, excluding interest income	(24.4)	100.8
Contributions	15.4	34.8
Benefits paid out of plan assets	(56.1)	(71.8)
Plan administrative costs	(2.2)	(3.6)
Currency translation differences	8.5	12.2
Transfer to held for sale⁽¹⁾	(748.6)	-

At end of year	343.5	1,125.2

⁽¹⁾Transferred to liabilities held for sale at 30 June 2015 in accordance with IFRS 5, subsequently disposed on 29 December 2015.

The actual return on plan assets was a gain of £1.3 million (2014: £147.6 million).

Income Statement disclosures

Amounts recognised in the Income Statement in respect of these defined benefit plans were as follows:

	Year ended 31 December 2015	Restated⁽¹⁾ year ended 31 December 2014
	£m	£m
Continuing operations
Included within headline⁽²⁾ operating profit:
- past service cost	(2.2)	(3.5)
- plan administrative costs	1.3	1.1
Included within net finance costs:
- interest cost on deferred benefit obligations	14.5	16.9
- interest income on plan assets	(12.9)	(15.5)

Discontinued operations
Included within operating profit:
- current service cost	2.2	2.2
- past service cost	(0.1)	-
- plan administrative expenses	2.7	2.5
- terminations	(2.6)	(4.3)
Included within net finance costs:
- interest cost on deferred benefit obligations	30.0	38.1
- interest income on plan assets	(26.3)	(31.3)

⁽¹⁾ Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

⁽²⁾ As defined on the Income Statement.

Statement of Comprehensive Income disclosures

Amounts recognised in the Statement of Comprehensive Income in respect of these defined benefit plans were as follows:

	Year ended 31 December 2015	Year ended 31 December 2014
	£m	£m
Return on plan assets, excluding amounts included in net interest expense	(38.2)	100.8
Actuarial gains/(losses) arising from changes in demographic assumptions	31.9	(14.4)
Actuarial gains/(losses) arising from changes in financial assumptions	48.7	(151.6)
Actuarial gains arising from experience adjustments	15.1	29.7
Net remeasurement gain/(loss) on retirement benefit obligations	57.5	(35.5)

Risks and sensitivities

The defined benefit plans expose the Group to actuarial risks, such as longevity risk, currency risk, salary risk, interest rate risk and market (investment) risk. The Group is not exposed to any unusual, entity specific or plan specific risks.

A sensitivity analysis on the principal assumptions used to measure the plan liabilities at the year end was as follows:

	Change in assumption	Decrease/ (increase) to plan liabilities £m	Increase/ (decrease) to profit before tax £m
Discount rate	Increase by 0.10%	5.0	0.2
	Decrease by 0.10%	(5.1)	(0.2)
Inflation assumption⁽¹⁾	Increase by 0.10%	(3.0)	n/a
	Decrease by 0.10%	1.3	n/a
Assumed life expectancy at age 65 (rate of mortality)	Increase by 1 year	(11.1)	n/a
	Decrease by 1 year	11.0	n/a

⁽¹⁾ The inflation sensitivity encompasses the impact on pension increases, where applicable.

The sensitivity analysis above was determined based on reasonable possible changes to the respective assumptions, while holding all other assumptions constant. There has been no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.

The sensitivities were based on the relevant assumptions and membership profile as at 31 December 2015 and were applied to the obligations at the end of the reporting period. Whilst the analysis does not take account of the full distribution of cash flows expected, it does provide an approximation to the sensitivity of the assumptions shown. Extrapolation of these results beyond the sensitivity figures shown may not be appropriate and the sensitivity analysis presented may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

10. Issued capital and reserves

Share Capital	31 December 2015 £m	Restated⁽¹⁾ 31 December 2014 £m
Allotted, called-up and fully paid
995,206,966 (31 December 2014: 995,206,966) Ordinary Shares of 1p each (31 December 2014: 26.5p each)	10.0	263.8

	10.0	263.8

The rights of each class of share are described in the Directors' report.

On 20 February 2015 at a General meeting of the Company, shareholders approved a resolution to return £200.4 million to shareholders.

In conjunction with this Return of Capital, on 20 February 2015 the number of Ordinary Shares in issue was consolidated in a ratio of 13 for 14 in order to maintain comparability of the Company's share price before and after the Return of Capital. On 20 February 2015 the number of Ordinary Shares in issue became 995,206,966 each with a nominal value of 7/55 pence.

On 19 November 2015, a Scheme of Arrangement approved by the High Court of England and Wales became effective and resulted in New Melrose Industries PLC (subsequently renamed Melrose Industries PLC on 19 November 2015) becoming the new holding company of Melrose Industries PLC (subsequently renamed Melrose Holdings Limited on 19 November 2015) and its subsidiaries. The arrangement resulted in the issue of 1 new 26.5 pence New Melrose Industries PLC Ordinary Share for each 7/55 pence Melrose Industries PLC Ordinary Share. New Melrose Industries PLC consequently issued 995,206,966 Ordinary Shares with a total nominal value of £263.8 million.

As explained in note 1, Ordinary Share Capital for the year ended 31 December 2014 has been restated to reflect the nominal value of the Ordinary Shares of New Melrose Industries PLC at the date of which New Melrose Industries PLC became the new holding company. The nominal value of each Ordinary Share in issue at 31 December 2014 has therefore been restated from 7/55 pence to 26.5 pence and the number of shares in issue has been restated from 1,071,761,339 to 995,206,966.

On 23 November 2015, the nominal value of each Ordinary Share of New Melrose Industries PLC was reduced from 26.5 pence to 1 penny and resulted in a transfer of £253.8 million to Retained earnings.

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 2015 £m	Restated⁽¹⁾ year ended 31 December 2014 £m
Reconciliation of headline⁽²⁾ operating profit to cash generated by continuing operations
Headline⁽²⁾ operating profit from continuing operations	20.8	47.7
Adjustments for:
Depreciation of property, plant and equipment	7.6	6.5
Amortisation of computer software and development costs	0.5	0.6
Restructuring costs paid and movements in provisions	(28.8)	(4.6)
Defined benefit pension contributions paid	(5.1)	(5.0)
(Increase)/decrease in inventories	(9.9)	4.6
Decrease/(increase) in receivables	10.8	(7.3)
Decrease in payables	(12.3)	(12.9)
Tax paid	(2.8)	(3.4)
Interest paid	(38.6)	(36.7)

Net cash used in operating activities from continuing operations	(57.8)	(10.5)

⁽¹⁾ Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

⁽²⁾ As defined on the Income Statement.

Cash flow from discontinued operations	Year ended 31 December 2015 £m	Restated⁽¹⁾ year ended 31 December 2014 £m
Cash generated from discontinued operations	172.9	201.6
Defined benefit pension contributions paid	(30.1)	(34.2)
Tax paid	(51.2)	(35.9)
Interest paid	(1.6)	(2.2)
Acquisition costs	(0.8)	(2.3)

Net cash from operating activities from discontinued operations	89.2	127.0


Purchase of property, plant and equipment	(26.0)	(28.4)
Proceeds from disposal of property, plant and equipment	1.7	3.9
Purchase of computer software and development costs	(15.5)	(7.7)
Cash acquired on acquisition of subsidiaries	-	1.5
Acquisition of subsidiaries and non-controlling interests	-	(97.6)
Purchase of non-controlling interests	(1.5)	-
Dividends received from joint ventures	2.2	2.1
Dividends paid to non-controlling interests	(0.4)	(0.4)
Interest received	0.8	0.5

Net cash used in investing activities from discontinued operations	(38.7)	(126.1)


Net cash used in financing activities from discontinued operations	-	-

⁽¹⁾ Restated to include the results of the Elster disposal group (note 1) and Prelok within discontinued operations (note 5).

Net debt reconciliation

	31 December 2014	Cash flow	Disposals	Other non-cash movements	Foreign exchange difference	31 December 2015
	£m	£m	£m	£m	£m	£m
Cash	70.5	(890.7)	3,261.9	-	9.7	2,451.4
Debt due within one year	(0.9)	0.3	0.6	-	-	-
Debt due after one year	(570.9)	594.8	-	(15.9)	(8.0)	-

Net (debt)/cash	(501.3)	(295.6)	3,262.5	(15.9)	1.7	2,451.4

12. Post Balance Sheet events

At a General Meeting of New Melrose Industries PLC (subsequently renamed Melrose Industries PLC on 19 November 2015) held on 2 October 2015 and a General Meeting of Melrose Industries PLC (subsequently renamed Melrose Holdings Limited on 19 November 2015) held on 29 October 2015, shareholders approved a Return of Capital of between £2.0 billion and £2.5 billion following the completion of the disposal of Elster. On 29 December 2015 the Company announced that the Return of Capital would be 240 pence per Ordinary Share totalling £2,388.5 million.

'B' shares with a total value of £2,388.5 million were created on 26 January 2016 resulting in a corresponding reduction in the Merger reserve. The 'B' shares were cancelled on 27 January 2016 and capital return payments representing the nominal value of the 'B' shares (240 pence each) were made to shareholders on 5 February 2016.

Alongside the capital return, 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 capital return. On 28 January 2016 the number of Ordinary Shares in issue became 145,134,353 each with a nominal value of 48/7 pence.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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