Charter plc Annual Report 2001 - Investis Digitalfiles.investis.com/charter/pdfs/ar01.pdf · Charter plc Annual Report 2001 Specialised engineering Sales £56.5m Operating profit

Annual Report 2001

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Charter plc7 Hobart Place London SW1W 0HH

Telephone +44 (0)20 7838 7000Facsimile +44 (0)20 7259 5112

www.charterplc.com

Contents

Financial highlights 1

Group overview 2

Chairman and Chief Executive’s statement 5

Operating review - Welding and cutting products 8

Operating review - Air and gas handling 10

Operating review - Specialised engineering 12

Financial review 13

Financial record 14

Board of directors 15

Corporate governance 16

Auditors’ report 19

Directors’ report 20

Remuneration report 21

Consolidated profit and loss account 24

Consolidated balance sheet 25

Consolidated cash flow statement 26

Statement of total recognised gains and losses 27

Reconciliation of movements in shareholders’ funds 27

Company balance sheet 28

Notes to the accounts 29

Shareholder information 48

Principal interests in group undertakings 49

Notice of meeting 51

WELDING

CUTTING AIR GAS

LEADERS EXCELLENCE

SERVICETECHNOLOGY

Designed byRomanus Odiwe Design

Printed byFraser Hamilton Associates Limited

The paper used for this report is

produced only using wood pulp

originating from managed sustainable

plantations. The pulp is chlorine-free and

purchased only from suppliers which

comply with European ISO standards.

The paper is also acid-free, recyclable

and bio-degradable

The group’s core activities are concerned with welding

and cutting and air and gas handling. Its businesses

are world market leaders providing excellence in

technology and service.

Financial highlightsyear ended 31 December 2001

1

Charter plc Annual Report 2001

■ Turnover up by 3% to £961.8 million.

■ Underlying operating profit for 2001, before exceptional items andamortisation of goodwill, of £37.2 million (2000: £47.8 million).

■ Underlying operating profit for the second half of 2001 of £23.1 million,64% up on the first half.

■ Initiatives taken to restructure the group’s activities, close loss-makingbusinesses and reduce the ongoing cost base.

2000 2001

1st half 2nd half Total 1st half 2nd half Total£m £m £m £m £m £m

Turnover

Welding and cutting products 312.5 319.9 632.4 323.0 298.5 621.5

Air and gas handling 119.1 137.6 256.7 128.4 155.4 283.8

Specialised engineering 20.0 24.9 44.9 26.2 30.3 56.5

451.6 482.4 934.0 477.6 484.2 961.8

Operating profit


Air and gas handling 6.2 6.9 13.1 (1.9) 9.1 7.2

Specialised engineering (2.5) 0.9 (1.6) (0.2) 3.1 2.9

Operating businesses 31.1 24.3 55.4 18.7 27.1 45.8

Central operations (3.6) (4.0) (7.6) (4.6) (4.0) (8.6)

Underlying operating profit 27.5 20.3 47.8 14.1 23.1 37.2

Amortisation of goodwill (0.5) (0.5) (1.0) (0.6) (0.5) (1.1)

27.0 19.8 46.8 13.5 22.6 36.1

Operating exceptional items (2.8) (34.7)

Operating profit on continuing operations 44.0 1.4

Non-operating exceptional items 6.6 (7.8)

Net Interest (16.4) (13.9)

Profit/(loss) on ordinary activities before taxation 34.2 (20.3)

Group overview2


Welding and cutting products

Sales £621.5m

Operating profit £35.7m

Operating margin 5.7%

Employees 7,306

Overview

Esab is the world leader in welding products

and advanced cutting systems. The

company has a product and geographical

spread that is unrivalled and occupies a

leading position in the majority of the world’s

major markets.

Key products

Welding consumables 65%

Welding equipment 26%

Cutting systems 9%

Esab has a leading position in technologies

such as cored wire welding, aluminium

welding, friction stir welding, inverter-based

welding equipment and advanced cutting

systems.

Major markets

The company serves customers across a

broad range of industries including

shipbuilding, transport and off-road,

offshore, power, process and construction.

Manufacturing

Europe: Czech Republic;

Germany; Hungary;

Italy; Netherlands;

Poland; Sweden; UK

North America: Mexico; US

South America: Brazil; Argentina

Rest of World: China; India; Indonesia;

Malaysia; Russia; South

Korea; Thailand

Growth prospects

Welding remains the principal means by

which pieces of metal are joined and its use

is expected to increase with levels of

economic activity. Esab expects to improve

market share in those product and

geographic areas in which it has a leading

market position.


3

Air and gas handling

Sales £283.8m



Employees 3,240

Overview

Howden is the world’s largest and longest

established manufacturer of air and gas

handling equipment. The company has

unrivalled experience of air and gas

handling technology, a comprehensive

product portfolio and a pattern of global

operations that is unparalleled.

Key products

Howden is a world leader in fan, heat

exchanger and compressor technology.

Ancillary equipment includes gas cleaning

equipment, electronic controls and

instrumentation, dampers and pumps.

Major markets

Howden serves a broad range of industries,

including power generation, steel, cement,

mining, construction (tunnels; heating

ventilation and air-conditioning – HVAC),

petrochemical, process and transportation.

Manufacturing

Europe: Denmark; France; Germany;

Netherlands; Spain; UK

North America: Mexico; US

Rest of World: China; Malaysia;

South Africa

Growth prospects

Howden expects to continue to build its

position of global market leadership following

the fundamental restructuring of the

business.

Group Overview continued4


Specialised engineering

Sales £56.5m



Employees 367

Overview

Specialised Engineering comprises the US

Aerospace and Defence and Food

Equipment businesses and the Hong Kong

based drilling business HD Engineering, all

acquired by Charter in 1997 as part of

Howden Group PLC.

Aerospace and defence

Howden Defense Systems Inc. comprises

Howden Airdynamics, Western Design

Howden, and Bauer Howden. Products

include fans, compressors, integrated

cooling systems, pumps, ammunition

handling systems and test equipment for

customers in the defence, civil aerospace

and other industrial markets.

Food equipment

Following the sale of the Solbern business in

February 2002, Howden Food Equipment,

Inc. comprises Demaco which produces

pasta manufacturing machinery.

Drilling

Hong Kong based HD Engineering is a

manufacturer of geotechnical engineering

crawler drills and other equipment including

grout pumps and tools for pile boring.

Chairman and Chief Executive’s statement 5


Whilst the group’s underlying operating profit,before exceptional items and amortisation ofgoodwill, for the year ended 31 December2001 of £37.2 million was down on last year,second half underlying operating profit was£23.1 million, 64% up on the first half. The Airand Gas Handling (“Howden”) andSpecialised Engineering divisions, both ofwhich reported operating losses in the firsthalf, successfully generated profits sufficient inthe second half for both divisions to record anunderlying operating profit for the full year. TheWelding and Cutting business (“Esab”), whichgenerated operating profits of £35.7 million,improved its performance in Europe and Asiabut experienced difficult trading conditions,particularly in the second half, in its keymarkets in North America where alreadyfragile business confidence was dentedfurther by the terrorist attacks in September.

Following the group wide strategic andoperational reviews initiated in 2001 toimprove future profitability and cash flow, itwas decided to close a number of plants inboth Esab and Howden to remove excessmanufacturing capacity. The headquarters ofEsab at Atlanta in the USA has been closedand the management of Esab hascommenced rationalising parts of the supplychain and reorganising its European salescompanies. The functions at Charter’s headoffice in London have been subjected to acomprehensive reassessment to improveboth efficiency and cost effectiveness.Financial controls are being furtherstrengthened across the group.

Inevitably these initiatives to streamline thegroup have resulted in significant exceptionalcosts in 2001. Although far more modest inscale, further limited exceptional costs areanticipated in 2002 which will include thecompletion of the reorganisation of Esab’sEuropean sales companies. Theserestructuring initiatives will increasinglybenefit profits in 2002 and future years.

Group resultsIn the year ended 31 December 2001turnover from continuing businessesincreased by 3.0% to £961.8 million. Theunderlying operating profit, beforeexceptional items and amortisation ofgoodwill, for the year was £37.2 million (2000:£47.8 million). After amortisation of goodwillof £1.1 million (2000: £1.0 million) and anordinary interest charge of £18.3 million(2000: £16.4 million), profit before tax before

exceptional items was £17.8 million (2000:£30.4 million).

After charging £42.5 million of exceptionalcosts (2000: exceptional profit of £3.8 million)and an exceptional gain of £4.4 million (2000:nil) on the termination of certain interest rateswap agreements, the group’s loss onordinary activities before tax amounted to£20.3 million (2000: profit of £34.2 million).

The group’s ordinary tax charge was £5.0million (2000: £7.9 million). The exceptionaltax charge of £6.1 million (2000: nil) includesan amount in respect of prior yeartransactions, currently under discussion withlocal tax authorities. The loss for the financialyear, after charging minority interests of £1.4million (2000: £5.7 million), was £32.8 million(2000: profit of £20.6 million).

Underlying earnings per share amounted to12.3 pence (2000: 18.9 pence) of which 9.2pence was earned in the second half.

Cash flow and borrowingsThe cash inflow from operating activities inthe second half of the year was £37.3 millionwhereas there had been an outflow of £5.7million in the first half making a total cashinflow for the ended 31 December 2001 of£31.6 million (2000: £44.5 million). Capitalexpenditure fell to £17.2 million from £21.8million in 2000.

Over the year net debt rose slightly by £4.3million to £214.1 million at 31 December2001. However, net debt has been reducedby £24.8 million since 30 June 2001 andborrowings are targeted to be reducedfurther in 2002. Subsequent to the year endthe group’s multi-currency syndicated bankfacilities of £150 million (2000: £175 million)were renewed.

Retirement benefitsAt 31 December 2001, the group’s balancesheet reflected a provision of £33.7 million inrespect of unfunded pension liabilities. UnderFRS 17 the group would have been requiredto make provision for the lesser net pensionliability of £22.5 million. If the provisionrequired by FRS17 had been incorporated inthe consolidated balance sheet at 31December 2001, net assets would haveincreased by £11.2 million.

In addition the group’s estimated futureoverseas medical costs of £32.9 million areprovided for in full in the group’s balancesheet.

DividendsIn view of the policy adopted in March 2001to set dividends in the light of earnings and

David Gawler cash flow, the Board has decided not todeclare a dividend for the year ended 31December 2001.

Operating reviewUnderlying operating profit for the year was£37.2 million of which £14.1 million wasearned in the first half and £23.1 million inthe second half.

Welding and cutting productsFor the year ended 31 December 2001,Esab’s turnover was £621.5 million (2000:£632.4 million) and underlying operatingprofits were £35.7 million (2000: £43.9 million).

During 2001 Esab experienced significantregional variations in its markets and fromdiffering fortunes in the industry sectors itserves. The European welding businesses,which account for just over half of Esab’sturnover, produced an excellent performancewith sales and underlying operating profitsup 5% and 15% respectively. The Europeanbusinesses benefited from strong demand,particularly in sectors such as shipyards andwind turbines, offset in part by sectors withlower demand.

Esab’s Asian region doubled its operatingprofits over the prior year as a result of anexcellent performance by Esab SeAH, thegroup’s 50% associate, which is an importantsupplier to the shipbuilding industry andother key sectors in South Korea.

By contrast, the results of both the Northand South American regions, whichtogether generate some 40% of Esab’ssales of welding products, suffered fromthe deteriorating economic environment inthese markets. In North America, therecessionary trading conditions, whichprevailed for much of the year, wereexacerbated by the 11 September terroristattacks. The South American businessesendured the near collapse of theArgentinean economy and the resultantrepercussions in Brazil and otherneighbouring countries. In the Americas,several key customers postponed majorcapital projects or sought significant pricereductions. As a result of thesecircumstances, in the North and SouthAmerican regions, sales overall declined by8% and operating profits were half of thoseachieved in 2000.

In Esab’s relatively small cutting systemsbusiness, overall sales declined by some10% and operating profits fell to a quarter ofthat achieved in 2000. Demand for cuttingequipment from shipyards and certain other

Chairman and Chief Executive’s statement continued6


sectors held up well in Europe, but was lowerin North America.

The group structure of Esab and itsmanagement have been reorganised toenhance operational efficiencies andcustomer focus. The challenge for the yearahead is to generate profitable sales growthand, in this regard, the nature and timing ofa recovery in the markets in the Americas willbe significant.

Air and gas handlingAt Howden, turnover for the year increasedby 10.6% to £283.8 million. Underlyingoperating profits for the second half of 2001were £9.1 million, which reflects a substantialimprovement, over the first half loss of £1.9million. The total underlying operating profitfor the year was £7.2 million (2000: £13.1million).

Approximately half of Howden’s global salesare to the power generation industry. In NorthAmerica, where environmental controllegislation requires power stations to reducenitrogen oxide emissions, the use of aselective catalytic reduction (“SCR”) processto reduce emissions results in a requirementfor upgraded fans and air pre-heaters.Accordingly, during the year, this sectorcontinued to show significant growth in termsof sales of custom engineered equipment.However, profits were affected by a costoverrun on a major project in the UnitedStates. Operating procedures have now beenstrengthened to reduce the risk of similar costoverruns arising in the future. The results forthe year also suffered from the deferment ofprofitable planned repairs and maintenancework in the United States power industry. Themedium to long term outlook for the powersector is also encouraging given that anumber of new coal-fired power stations arebeing planned in the United States as the gassupply infrastructure reaches capacity. Thisshould benefit Howden given an increase inthe requirement for fans, air pre-heaters andgas to gas heat exchangers.

The general industrial market has beenaffected by the slow down in the worldeconomy and Howden’s markets in Europe,South Africa and North America remain weakand flat. The commercial HVAC (heating,ventilation and air-conditioning) market in theUnited States declined following general layoffs as the economy faltered. The outturn forthe year also recognised the losses incurredat the new commercial fan facility in SouthCarolina, that was commissioned towards theend of 1999.

VSH Systems, which served the tunnel andmetro ventilation markets outside France, andHowden’s commercial HVAC business inAustralia incurred operating losses for theyear totalling £2.7 million. The closure of thesebusinesses was announced in August 2001and largely accomplished by the year end.

In the North American power sector, the repairand maintenance market was showing signsof recovery in the second half and theprospects in the new build markets in the

medium term are encouraging. Howden’sorder book at 31 December 2001 increased to£124 million (2000: £116 million), 7% ahead oflast year. It is envisaged that profit generationin 2002 is expected to be weighted moreheavily towards the second half.

Specialised engineeringTurnover for the year increased by 25.8% to£56.5 million and the division successfullyreturned to profitability with full year underlyingoperating profits for 2001 of £2.9 million (2000:loss of £1.6 million) of which £3.1 million wereearned in the second half compared with aloss in the first half of £0.2 million.

As envisaged at the time of the interimreport, the North American aerospace anddefence businesses, which account for 60%of this division’s turnover, returned to overallprofitability following the successful resolutionof contractual problems which had besetcertain design and build programmes atWestern Design in recent years.

Market conditions were depressed for muchof the year for the two food equipmentmanufacturing businesses, both of which arebased in the United States, but improved inthe last quarter. One of these companies,Solbern, was sold to its management on 21February 2002.

HD Engineering in Hong Kong improved itsoperating profits despite weakening marketconditions.

Specialised engineering’s order book totalled£35 million at the year end, reflecting anincrease of 30% over the previous year.

Central costsCentral costs amounted to £8.6 million in2001 compared with £7.6 million in 2000.However the costs in 2000 were afteroffsetting some £1.4 million of one-off creditsin respect of investment income and therelease of a provision. In 2001, expenditurewas incurred on a major upgrade of theworldwide management information system,which will be completed in 2002.

Central costs are expected to fall by £2million in 2002 following the restructuring ofthe group’s head office in London.

Exceptional costsExceptional costs totalled £42.5 million ofwhich £32.1 million arose from restructuringcosts, £2.6 million from litigation and warrantycosts and the balance of £7.8 million fromdiscontinued and discontinuing operations.

Welding and cutting productsDuring the year the exceptional costs ofrestructuring Esab totalled £24.8 million.Specific restructuring steps taken include:

■ The global headquarters of Esab atAtlanta in the United States was closed inAugust 2001 and management responsibilitytransferred to Europe.

■ An ongoing reorganisation of salescompanies has been initiated together with arationalisation of the supply chain and theintroduction of an integrated planningprocess across Europe. This entails the


7

merger of sales offices, the consolidation inCentral Europe of six local warehouses intoone regional distribution centre and theimplementation of a daily pan-Europeantransport network. The completion of thisreorganisation will result in further limitedexceptional costs in 2002.

■ Esab’s European capacity for themanufacture of flux cored wire is beingrationalised and phased closures wereannounced last year at Utrecht in Hollandand at Waltham Cross in the United Kingdom.Production of flux cored wire is beingtransferred from these two plants to Vamberkin the Czech Republic to achieve greater costefficiencies and to locate production nearerto the growing markets in Eastern Europe.This will be implemented over a two to threeyear period.

■ The plant at Chascamous in Argentina andpart of the facility at Mesero in Italy havebeen closed. Plant closures have beenannounced at Niagara Falls in North Americaand at the equipment manufacturing factoryin Thailand and these closures will beaccomplished during the first half of 2002.

■ Other initiatives include the relocation of themanufacture of certain types of weldingequipment from Sweden and North America toPoland, Brazil and Mexico in order to benefitfrom proximity to markets and lower costs.

These measures resulted in a head countreduction at Esab of some 300 in the year,with a further reduction of just over 100 tofollow in 2002. These restructuring initiativeswill increasingly benefit profits in 2002 andfuture years.

Air and gas handlingDuring the year the exceptional costs ofrestructuring Howden totalled £4.7 million.Specific restructuring steps taken include:

■ The plant at Cambridge, Ontario inCanada was closed in September 2001 aftera six-week strike and production wastransferred, without interruption, to otherplants in North America.

■ Two businesses which had incurred lossesfor a number of years, VSH tunnel and metrosystems in Holland and the Australiancommercial HVAC business in Sydney, wereclosed. Future business in the tunnel systemssector will be undertaken by the VoithHowden operation in Germany.

These measures and other restructuringinitiatives involved a head count reduction atHowden of 250 in the year and are expectedto result in improved profits in 2002.

The full year’s exceptional charge of £2.6million for litigation and warranty costs hasbeen reduced from £4.2 million as reportedat the half year following the settlement of aclaim.

Central operationsDuring the year, the group’s corporate headoffice in London has been reorganisedresulting in restructuring costs of £2.6million. As explained in the interim report,this exceptional item principally related to thedeparture of former executive directors.

Discontinued operationsLosses on discontinued and discontinuingoperations totalled £7.8 million, the principalitem of which is a provision of £4.1 millionarising on the disposal of Solbern. Thebalance relates to costs incurred in respectof businesses closed or sold in prior years.

The provision of £4.1 million on the disposalof Solbern is in respect of the diminution inthe value of goodwill on its acquisition,previously written off to reserves. This chargeto the profit and loss account has no overalleffect on shareholders’ funds.

BoardDavid Eilbeck, who joined the group in 1992as chief accountant, was appointed FinanceDirector on 30 June 2001 in succession toNigel Robson who resigned as a director.

Neil Johnson and Martin Taylor are retiring asnon-executive directors at the conclusion ofthe forthcoming annual general meeting to beheld on 24 April 2002 and I should like to thankthem for their contribution over many years.

James Bruce, Michael Foster and HomiMullan joined the board as non-executivedirectors on 14 December 2001. It isproposed that, following the annual generalmeeting Homi Mullan will succeed MartinTaylor as Deputy Chairman and seniorindependent non-executive director.

The new non-executive directors, togetherwith John Neill, will individually andcollectively bring a broad range ofinternational, financial and commercialexpertise to Charter and I am sure that theircounsel and experience will prove invaluable.

ProspectsProgress has been made in rebuilding thenecessary confidence in our businesses andsecuring the trust of our customers. I amconfident that the initiatives taken inrestructuring the group’s activities, closingloss-making businesses and reducing theongoing cost base will provide a more stableplatform for profitable growth and enhancedcash flow in the future. The prospects for2002 will, to an extent, be dependent on theprevailing economic climate, particularly inthe Americas, but on balance further steadyprogress should be made in the year ahead.

David GawlerChairman & Chief Executive4 March 2002


8 Operating review - Welding and cutting products

Market overviewWelding and cutting markets were mixed in2001. For the first six months Europeanmarkets were relatively robust whilst theNorth American economy was alreadyslowing down, partly as a result of thecollapse of many high technology stocks andthe consequent effect on underlyingconfidence. The detrimental effect onconfidence of the terrorist attacks of 11September damaged the already fragileconditions, which prevailed in our markets, inparticular in the USA. Latin America hasbeen depressed by the continuing crisis inArgentina, where a combination of socialand political unrest, default on governmentdebt, devaluation of the peso and a liquiditycrisis in the banking system has brought theeconomy close to a standstill. The globalslowdown led to a number of our customerspostponing capital projects, which in turnreduced the demand for welding equipment.However, the effects of the downturn havebeen mitigated to a degree by the full orderbooks at shipyards, the growth of the powerindustry and the growing demand for fluxcored wire in welding applications.

In response to these challenging marketconditions, greater emphasis has beenplaced on serving customers within thestrategic industry segments such asshipbuilding, power generation, automotiveand pipelines, and in emerging markets.Esab has leading market positions in theCzech Republic, Poland and Hungary andproduction of both equipment and flux coredwire is being increased in these lower costlocations. New welding products for keystrategic industry segments dominated theEsab stand at the Essen Fair (picturedbelow), the principal trade fair for theindustry held every four years. Innovativeproducts such as the MarathonPac and theAristo modular-built welding system attractedinterest and two friction stir weldingmachines were showcased.

The demand for ships has been resilient andmost shipyards have strong order books forseveral years. In the shipbuilding segment acomplete range of fabrication capabilities is

offered to customers, from plate preparationusing oxy-fuel, plasma or laser cutting towelded assembly. Esab has a strongpresence in some of the Korean yards and isa leading supplier to most Europeanshipyards. High quality consumables andequipment have been developed for highintegrity applications and innovative turnkeysolutions are being developed. Esab worksto achieve productivity improvements aspartners with customers such as AlsthomChantiers De L’Atlantique, where Esab hassupplied several wide dimension plasmamachines, as well as high quality flux coredwire. At other yards, the use of duplex steels,the special needs of LPG tanker constructionand narrow gap welding has beenaddressed by using relevant, technologicallyinnovative products.

The power generation segment is a growingbusiness. Renewable energy sources such as

sunlight, water and wind have been givenadditional impetus since the adoption of theKyoto Protocols. One of the fastest growingareas in power generation is wind energy.The wind towers used in this sub-segmentare cutting and weld intensive. State of theart cutting systems and integrated weldinglines consisting of different automatedstations and innovative consumables haveenabled high productivity levels to beachieved.

The growth in these segments and some ofthe emerging markets substantially offset thedecline in some other areas. A newmanagement team was put in place duringthe year to accelerate the rate of changefrom both a market and internal operatingperspective. Actions were taken torestructure the business and the Atlantaoffice was closed. Other measures weretaken to attack the cost base; sales companyactivities were consolidated from a local to asub-regional basis in the Nordic and CentralEuropean areas, reducing head count and

High qualityweldingelectrodes


9

the next two years and the windmill sectorstill continues to be strong, whereas othersectors such as automotive were soft. Salesheld up in the Nordic region but traditionalWestern European markets have continued todecline and in Eastern Europe, the Polisheconomy has also been weak. However,sales to emerging markets have grown, inparticular in Russia, where electrodes aremanufactured at ESAB-Svel (pictured above).Resources have been invested in bringingthe plant up to modern standards andapproval from various Russian certificationauthorities has been achieved, which meansthat Esab is an authorised supplier ofelectrodes to the growing oil and gasbusiness. There are currently three salesoffices in Russia with plans to expand thenetwork further.

North AmericaThe contraction in North Americanmanufacturing during the year is welldocumented. A number of customerspostponed investment plans or soughtsignificant price reductions. This led tointense price competition, which fed throughto lower margins. The equipment and cuttingbusinesses were more seriously affected byproject postponements, although demand forconsumables held up relatively well.

Esab continued to win business from powerplants and the shipyard segment remainedrelatively strong, whilst demand forinfrastructure projects was stable. However,demand from railcar and truck manufacturewas depressed and general fabrication wasalso weak. Following the terrorist attacks therewas a significant reduction in order levels,which were already lower than the previousyear. Demand for aluminium welding materialswas much weaker than during 2000, partly asa result of the reduced levels of automotivemanufacturing in North America and partly asa result of lower sales to Asian markets. Theequipment business has shed some non-coreactivities and is now focused on plasma.Significant restructuring of the NorthAmerican operations is in progress to improvethe results of this region.

generating other cost savings. It is plannedto extend this in 2002. The process ofrationalising the supply chain was alsocommenced during the year. An integratedplanning process has been introducedacross the European region. Therationalisation of distribution in Europe is alsoin process. This involves the consolidation ofsix local warehouses into one regionaldistribution centre in Central Europe and theimplementation of a daily pan-Europeantransport network.

In addition, a rationalisation of manufacturingcapacity is in progress, which combines thereduction of excess capacity and the transferof some operations to locations nearer thecustomer or to a lower cost base. During theyear a plant at Chascamous in Argentina anda part of the facility in Mesero, Italy wereclosed down. In addition plant closures wereannounced at Niagara Falls in North Americaand at the Thailand equipment factory, bothof which will be completed during the firsthalf of the year. As a result of the flux-coredwire manufacturing rationalisation, closureswere also announced at Utrecht in Hollandand Waltham Cross in the United Kingdom,both of which manufacture flux cored wire.Production of flux-cored wire is beingtransferred from these two plants to Vamberkin the Czech Republic and this represents asignificant step in our restructuring plan.Assembly of some types of weldingequipment is also being moved to Polandand Mexico, from Sweden and NorthAmerica respectively.

The closures involved head count reductionstotalling some 300 employees during theyear with over 100 more to follow in 2002.The plant closures and the otherrestructuring initiatives will increasinglybenefit profits in 2002 and future years.

Results overviewTurnover for the year decreased by 1.7% to£621.5 million (2000: £632.4 million) andoperating profit before exceptional items fell to£35.7 million (2000: £43.9 million). All majorproduct areas suffered from weaker thananticipated demand but the impact of thepostponement of capital projects bycustomers particularly affected the equipmentand cutting sectors. In addition to the majorrestructuring initiatives described above, theproduct range is being rationalised andgreater focus is being placed on servingcustomers in strategic segments.

EuropeEconomic conditions were mixed inEuropean welding markets. In terms ofproducts, demand for flux-cored wirecontinued to grow. In the strategicsegments, shipyard order books are full for

Latin AmericaThe Brazilian market was affected by acombination of domestic monetarytightening, a strong dollar exchange rate andthe energy crisis, which reduced industrialproduction. The continuing political andeconomic crisis in Argentina, one of Brazil’smajor trading partners, depressed demandfurther. Eutectic continued to perform welland demand for flux-cored wire was one ofthe few areas of growth. A new managementteam has been put in place in Brazil andcapacity has been reduced in Argentina.

AsiaMarket conditions varied widely between themarkets within the Asian region. China wasthe only economy to experience stronggrowth, while Singapore and Japan went intorecession in the second half of the year. Ingeneral the South Eastern Asian economiesall struggled. Indonesia had serious politicalproblems, which were aggravated by theanti-Western reaction following the war inAfghanistan, whilst the Philippines, Malaysiaand Thailand were all affected by banking orcorruption crises. Continuing demand fromthe Korean shipyards is one of the fewcauses for optimism in the region and thesignificant contribution from our 50%associate ESAB SeAH, more than doubledoperating profit.

CuttingDemand for cutting machines in Europe heldup during the year, largely as a result oforders form shipyards. The market wasdepressed in North America, where sales ofsmaller machines were much lower than theprevious year. There were some significantcontract wins in the defence industry andsome major laser machine sales, but overalldemand fell and headcount had to bereduced. This sector of the business remainsunder review. Turnover fell by 10%, whilstoperating profit was less than a quarter oflast year’s result.

OutlookEsab has emerged from a challenging yearwith a number of key initiatives in progress.The senior management team has beenstrengthened and is focused on delivering animproved financial and operatingperformance. Development of high potentialindividuals is also being given greater priority.Product development and the supply chainare being rationalised. The newmanagement team is clearly focused onimproved service delivery to customers inkey segments and on crystallising theanticipated benefits of the majorrestructuring programme now in place.


10 Operating review - Air and gas handling

Market overviewDuring the year three key featurescharacterised the air and gas handlingmarket. The power segment, served by theGlobal Power and Americas businesses,continued to show significant growth in salesof custom engineered equipment driven byenvironmental legislation. However, delays toplanned maintenance in the US powerindustry saw a decline in the more profitableaftermarket (maintenance and repairs)business. In addition economic uncertainty inthe US led to a collapse of the UScommercial (heating, ventilation and air-conditioning: “HVAC”) segment.

The growth in the power market was drivenby environmental control legislation in NorthAmerica, which requires power stations toreduce nitrogen oxide emissions. The use ofa selective catalytic reduction (“SCR”)process to reduce emissions results in arequirement for upgraded fans and airpreheaters. The market has grownsignificantly since SCR was first introducedand bookings for retrofit SCR equipment hasincreased substantially.

The power aftermarket was less buoyant.Severe capacity shortages in North America,particularly on the West Coast, resulted indelays or cancellation of “outages” forplanned maintenance. Aftermarket activitywas particularly depressed in the first half ofthe year but recovered towards the end ofthe year.

Looking ahead, the medium to long termprospects for new build are encouraging. Forthe first time in decades, the US is planninga significant number of new coal-fired powerstations as the gas supply infrastructurereaches capacity.

Elsewhere in the world, the European powermarket remained depressed but capacityincreases and requirements for improved

environmental control are starting to emergein China as the Chinese economy growshelped in part by the award of the 2008Olympics to Beijing.

The general industrial market, which accountsfor the balance of turnover, has been affectedby the slow-down in the world economy andHowden’s markets in Europe, South Africaand North America remain generally weakand flat. However, the commercial (HVAC)market in the US declined sharply as theeconomy faltered, a situation aggravated bythe terrorist attacks in September.

Order intake levels increased by 18% overthe previous year mainly driven by the powermarket and by securing several flagshipcontracts, notably the Plabutsch tunnelrefurbishment project in Austria and theHendrina power station filtration order inSouth Africa. Orders in hand at 31 December2001 were £124 million compared with £116million at 31 December 2000.

Action was taken during the year to reducemanufacturing capacity and close loss-making businesses. The Cambridge, Ontarioplant in Canada was closed following a six-week strike over labour contract negotiationsand production has been successfullytransferred to other plants in North America.In addition, two consistently loss-makingbusinesses, VSH tunnel and metro systems inHolland and the Australian commercialbusiness in Sydney, were closed. Thisrestructuring resulted in a head countreduction of some 200 employees.

Results overviewTurnover for the year increased by 10.6% to£283.8 million but underlying operating profitbefore exceptional items fell to £7.2 millioncompared with £13.1 million in the previousyear. The current year’s result was affectedby significant cost overruns on a majorturnkey project for Global Power in the US,stock and work-in-progress write-offs and thefull recognition of losses from the commercialfan facility in South Carolina. With regard tothe cost overruns, pre-contract technicalaudit and contract execution procedureshave now been strengthened to reduce therisk of similar losses occurring in the future.

These set backs contributed to the markeddown turn in profitability in the first half of theyear but the underlying operating profit forthe second half improved significantly at £9.1million, compared with £6.9 million for thecorresponding period in the previous year, onsales up 12.9% at £155.4 million. Cash flowin the second half also improved significantlydue to tighter working capital management.

Computer generateddesign for a centrifugal fan


11

PowerThe power division serves the global powermarket with the exception of the NorthAmerican market for centrifugal fans andaftermarket, which is served directly byHowden Americas. The business benefitedfrom the growth in SCR projects in the USand a resurgence of activity in China. Capitalinvestment has taken place in severaloperations within the division to increasecapacity and reduce costs and the benefitsof prior year investments are now beingrecognised. In particular, the Belfastoperation re-sited last year has performedstrongly and its new Esab profile-cuttingmachine is pictured bottom left.

North AmericaThe increase in turnover of HowdenAmericas was due to the first full year ofshipments for the Boston Artery tunnelventilation project. Underlying sales werestatic, the increase in retrofit SCRapplications being offset by lower demandfor aftermarket and commercial products.This change in sales mix, together with prioryear stock and work-in-progress adjustmentsand the full recognition of losses from thecommercial fan facility in South Carolina,resulted in reduced operating profit.

Action was taken during the year to reducemanufacturing capacity by closing theCambridge plant in Canada with the loss ofaround 50 jobs. However, excess capacityremains an issue at the new standard fansfacility in South Carolina with volumessignificantly lower than expected due to thedeterioration of the US commercial market.

A major project to improve businessprocesses in Howden Americas, coveringorder entry through to invoicing, wascommenced during the year and is expectedto be complete by mid 2002.

SystemsThe poor performance of VSH Systems,which served the global tunnel and metroventilation market outside of France, was forthe second year running a major contributingfactor to the deteriorating profitability of thedivision. The decision to close this businesswas announced in August 2001 and waslargely completed by the year end. However,

operating losses for the year were £1.5million. Responsibility for the more profitableEuropean projects, including the Plabutschorder in Austria, have been transferred toVoith Howden in Germany, which became100% owned with effect from 15 February2002. An example of a tunnel ventilationinstallation is shown in the picture on theright.

The Mont Blanc tunnel contract won last year,which is now 90% complete, is beingexecuted by Howden’s French subsidiary,Clima Neu Tunnel.

European IndustrialThis division comprises the industrial fansand packaged compressor businesses.Although demand for compressors in thepetrochemical sector strengthened, marketconditions for industrial fans remainedgenerally weak. The improvement inoperating profits reflects the benefits fromthe restructuring action taken last year andthe continued drive to reduce overheads.

AustraliaThe commercial market in Australia hasexperienced a significant decline for the pasttwo years resulting in severe under-utilisationof the factory in Blacktown, Sydney. Thedecision to close the factory was announcedin August 2001 and completed by the year-end with a loss of around 100 jobs. Theoperating loss for the year was £1.2 million. Aresidual operation will remain in Australia,focusing primarily on the power andindustrial markets.

South AfricaThe South African economy continued to bedepressed, with growing concerns about thelevel of unemployment and crime, the AIDSepidemic and the chronic instability inZimbabwe reducing GDP growth to almosthalf the expected rate. Notwithstanding this,turnover of the 54% owned Howden Africa,increased by 13%, after adjusting for the16%fall in value of the Rand. The pumpsbusiness recovered to a break-even positionafter incurring significant losses in theprevious year, but a write-off of obsoletepump stock contributed to an overallreduction in operating profit.


12 Operating review - Specialised engineering

Market overviewThe financial year 2001 marked the return toprofitability of the US Defence division,following the resolution of problems whichhad beset two major design and buildprogrammes in the Western Design business.Western Design is currently developing theammunition handling system for the US JointStrike Fighter (pictured below). Airdynamics,the California based pump, fan andcompressor business, continued tostrengthen its market position supplyingcomponents for use in applications such asthe Bell-Boeing Helicopter V22/D609(pictured left).

The two food equipment businessesexperienced mixed fortunes. Conditions weredepressed for the major part of the year inthe pasta machine market, but they improved

significantly in the final quarter to leaveDemaco well placed for a successful 2002.

The sale of Solbern to its management teamwas completed on 21 February 2002 for aninitial cash consideration of £1.8m. Itdelivered an operating profit of £0.7m in2001.

HD Engineering the Hong Kong baseddrilling business continues to perform welldespite deteriorating local market conditions.

Results overviewTurnover for the year in the specialisedengineering division increased by 25.8 % to£56.5 million, with operating profit of £2.9million (2000: operating loss of £1.6 million).

Second half turnover was £30.3 million withoperating profit of £3.1m representing areturn to historical levels of profitability.

Financial review 13


ResultsTotal group sales for the year increased from£934.0 million to £961.8 million and operatingprofits after operating exceptional items fellfrom £44.0 million to £1.4 million. Continuingbusiness sales were 3.0 per cent higher at£961.8 million and operating profitsexcluding goodwill amortisation andoperating exceptional items declined by 22.2per cent to £37.2 million.

Net underlying interest payable rose to £18.3million (2000: £16.4 million). This interest costwas covered 2.0 times (2000: 2.9 times) byprofit before interest, goodwill amortisationand exceptional items.

The Chairman and Chief Executive, in hisstatement on pages 5 to 7, has explained thebackground and nature of the exceptionalitems of the year.

The loss before taxation of £20.3 million(2000: profit £34.2 million) includes operatingexceptional items of £34.7 million (2000:exceptional bid costs of £2.8 million),goodwill amortisation of £1.1 million (2000:£1.0 million), net non-operating exceptionallosses of £7.8 million (2000: profits £6.6million) and an exceptional interest gain onthe termination of swaps contracts of£4.4 million (2000: £ nil).

The effective underlying tax rate on profitbefore exceptional items was 28 per cent(2000: 26 per cent). In addition there was anexceptional tax charge relating to prior years’UK corporation tax liabilities of £6.1 million.

The net minority interest was £1.4 million(2000: £5.7 million).

Underlying earnings per share beforegoodwill amortisation and exceptional itemsdeclined from 18.9 pence to 12.3 pence.

New accounting standardsThe group has adopted the new accountingstandards FRS 18 Accounting Policies andFRS 19 Deferred Tax, neither of which hashad a significant effect on the accounts.

The phased transitional disclosures requiredby FRS 17 Retirement Benefits are includedin note 9(ii) to the accounts. Had the newaccounting standard been adopted in fullthis year, shareholders’ funds in theconsolidated balance sheet would have been£11.2 million higher.

DividendsAs explained by the Chairman and Chief

Executive, in his statement on pages 5 to 7,the board has not declared a dividend for theyear (2000: 8.0 pence total).

Shareholders’ fundsShareholders’ funds decreased in the year toa negative £8.3 million from a positive £24.6million, of which the retained loss for the yearwas £32.8 million.

The negative balance on shareholder’s fundsof £8.3 million in the consolidated balancesheet is after a cumulative goodwill write offof £634.4 million that remains written off. Theparent company has substantial net assetswith shareholders’ funds of £210.3 million.

Cash flowOperating cash flow was £31.6 million (2000:£44.5 million). Net debt as at 31 December2001 can be summarised as follows:

2001 2000

£m £m

Cash and deposits 47.6 63.1

Short term debt (113.3) (124.1)

Long term debt (148.4) (148.8)

(214.1) (209.8)

Treasury ManagementCharter’s central treasury department isresponsible for ensuring the availability andflexibility of funding arrangements in order tomeet the ongoing requirements of the group.In addition, it is responsible for managing theinterest rate risks, liquidity risks and balancesheet foreign exchange translation risks ofthe group. Foreign exchange transactionexposures are generally managed directly byoperating subsidiaries within strict guidelinesand controls established by their divisionalmanagement and overseen by grouptreasury. It is the group’s policy not to hedgeprofit and loss account translation exposure.

Interest rate riskThe group finances its operations through amix of retained profits and borrowings.Borrowings are made in the desiredcurrencies at both fixed and floating rates ofinterest. It is the group’s objective tominimise the cost of borrowings whilstretaining the flexibility of fundingopportunities. The group uses a combinationof interest rate swaps, interest rate caps andcollars and forward rate agreements togenerate the desired interest profile and tomanage the group’s exposure to interest ratefluctuations. During November 2001,

following a review of the general market levelof interest rates relative to those of the group,a number of interest rate swaps wereterminated generating an exceptional gain of£4.4 million. As at 31 December 2001, thegroup had net debt of £214.1 million ofwhich £151.4 million (70.7 per cent) wasfixed and a further £51.1 million (23.9 percent) was covered by interest rate caps andcollars. The remaining £11.6 million (5.4 percent) remained floating. The actual split offixed and floating rate debt as at 31December 2001 is in line with the group’sobjectives and apart from the effect of theinterest rate swaps terminated in November,is not materially different from the averageposition during the year.

Currency risksThe group has significant investments inoverseas operations. As a result, the group’sbalance sheet can be significantly affectedby movements in exchange rates. The groupseeks to mitigate the effects of structuralcurrency exposures by borrowing in thefunctional currencies of its main operatingunits and by using forward foreign exchangecontracts to match the currency of some ofits other borrowings to functional currencies.Generally speaking, between 70-80 per centof the balance sheet is hedged. Inmanaging its currency exposures, the groupaims to maintain a low cost of borrowingswhile substantially hedging against currencydepreciation.

Liquidity managementTogether with the management of interestrate and balance sheet translation risks, thegroup’s objective is to achieve a balancebetween continuity and flexibility of fundingby maintaining a range of maturities on itsborrowings and deposits. As at 31December 2001, the long term financeavailable to the group was £141 million ofPrivate Placement Loan Notes. Subsequentto the year end multi-currency syndicatedbank facilities of £150 million were arrangedwith six banks to replace the facilities of £175million that were expiring.

Further details of the group’s treasurymanagement are given in note 27 to theaccounts on pages 45 to 47.

David Eilbeck

David EilbeckFinance Director4 March 2002

Financial record14


2001 2000 1999 1998 1997£m £m £m £m £m

Turnover

Continuing operations 961.8 934.0 896.9 975.2 907.8

Discontinued operations - - 189.5 238.1 206.4

961.8 934.0 1,086.4 1,213.3 1,114.2

Profit

Operating profit

Continuing operations 1.4 44.0 61.9 83.5 84.3

Discontinued operations - - 21.5 23.9 23.9

1.4 44.0 83.4 107.4 108.2

Non-operating exceptional items

Continuing operations (4.1) 10.7 - (30.0) -

Discontinued operations (3.7) (4.1) 40.0 - -

Net interest (13.9) (16.4) (25.3) (27.0) (17.3)

(Loss)/profit on ordinary activities before taxation (20.3) 34.2 98.1 50.4 90.9

(Loss)/profit on ordinary activities after taxation (31.4) 26.3 84.2 30.0 66.4

(Loss)/profit for the financial year (32.8) 20.6 79.7 20.5 55.5

Dividends - (7.5) (18.8) (29.9) (30.3)

Retained (loss)/profit for the financial year (32.8) 13.1 60.9 (9.4) 25.2

Balance sheet

Intangible fixed assets - goodwill 19.8 20.9 21.4 17.5 -

Tangible fixed assets 154.5 167.2 171.5 208.6 206.8

Fixed asset investments - associated undertakings 24.6 22.6 19.4 21.8 17.3

Net current assets excluding net debt 168.8 176.5 150.1 184.9 168.7

Long term creditors and provisions (137.8) (122.3) (128.2) (172.2) (130.9)

Operating net assets 229.9 264.9 234.2 260.6 261.9

Net debt (214.1) (209.8) (193.5) (357.1) (319.8)

15.8 55.1 40.7 (96.5) (57.9)

Shareholders’ funds - equity interests (8.3) 24.6 13.8 (132.4) (93.2)

Minority interests - equity interests 24.1 30.5 26.9 35.9 35.3

15.8 55.1 40.7 (96.5) (57.9)

Basic earnings per share - headline (34.8)p 21.9p 84.6p 21.3p 59.3p

Basic earnings per share - underlying 12.3p 18.9p 43.1p 52.7p 62.8p

Dividends per share Nil 8.0p 20.0p 31.5p 31.5p

Dividend cover - underlying N/A 2.4 2.2 1.7 2.0

Board of directors 15


Neil Johnson OBEIndependent Non-executive Director,Funding & Audit, Remuneration and NominationsCommittees (52)

He joined Charter as a director in 1994. Hewas formerly Director-General of theEngineering Employers Federation and ChiefExecutive of RAC. He is Chairman ofMotability Finance Limited, Hornby Plc andCybit Holdings Plc, and a non-executivedirector of Tenon Group.

Homi MullanIndependent Non-executive Director,Funding & Audit, Remuneration and NominationsCommittees (54)

He joined Charter as a director in December2001. He is Vice Chairman, InvestmentBanking, at JP Morgan and a non-executivedirector of Ascot Underwriting Limited.

Martin Taylor CBEIndependent Non-executive Deputy Chairman,Chairman of Funding & Audit, Remuneration andNominations Committees and Senior IndependentNon-executive Director (67)

He joined Charter as a director in 1995 andwas formerly Vice Chairman of Hanson. Heis a director of Millennium Chemicals Inc.

David GawlerChairman and Chief Executive (62)

He joined Charter as a non-executivedirector in December 2000, became anexecutive director on 15 March 2001 andChairman and Chief Executive on 25 April2001. He was formerly Chief Executive ofSemara Holdings. He is a director ofLionheart.

David Eilbeck

Finance Director (44)

He joined Charter in 1992 as Group ChiefAccountant, became a director on 25 April2001 and Finance Director on 30 June 2001.

The Hon. James BruceIndependent Non-executive Director, Funding & Audit, Remuneration and Nominations Committees (53)

He joined Charter as a director in December2001. He is non-executive director of YesTelevision and Cadogan Group.

Michael FosterIndependent Non-executive Director,Funding & Audit, Remuneration and NominationsCommittees (48)

He joined Charter as a director in December2001. He is Executive Director, UKOperations, at RMC Group.

John Neill CBEIndependent Non-executive Director, Funding &Audit, Remuneration and Nominations Committees(54)

He joined Charter as a director in 1994. Heis Group Chief Executive of the UnipartGroup of companies and a director of theBank of England.

Corporate governance16


This statement outlines how the Companycontinues to apply the principles of corporategovernance to its activities.

The board and its committeesThe board conducts itself in such a way as togive an appropriate lead to the whole group.Through the culture that has been developedin the group the board’s lead focuses onintegrity, personal responsibility and thecreation of shareholder value.

The board currently comprises eightdirectors, two of whom are executive and sixof whom are independent and non-executive.In choosing directors the Company looks forindividuals who provide a wealth of businessexperience, strong personal skills andindependence of thought and perspective.

The board meets no fewer than six times ayear and operates under agreed terms ofreference, which delegate certain powers toboard committees. The terms of reference forboth the board and the committees areupdated as and when new situations,requirements or practices emerge. Themembers and Chairmen of the committeesare shown on page 15. The committees arecomposed of non-executive directors only,although the executive directors are invited toattend parts of the Funding & AuditCommittee meetings.

The Nominations Committee meets as andwhen required to consider proposals for theappointment of new directors. The suitabilityof candidates is assessed and a formalproposal then put to the board. Before anomination is formally made, each directorwould have an opportunity to meet thecandidate. One third of the directors submitthemselves for re-election each year.

The Remuneration Committee is responsiblefor ensuring the remuneration packages ofthe executive directors are appropriate toattract, motivate and retain high calibreindividuals. Executive directors’ remunerationpackages are set having reviewedcompetitors’ levels and industry norms,collected by independent parties. TheRemuneration Report on pages 21 to 23contains more detailed information on theremuneration of directors.

The Funding & Audit Committee’s terms ofreference include the duties set out in theCombined Code. The committee monitors theadequacy and effectiveness of the internalfinancial controls and reviews the interim andannual financial statements beforesubmission to the board to ensure theypresent a balanced and understandableassessment of the group’s position andprospects. The committee also makesrecommendations to the board regarding theauditors and their terms of appointment. Thiscommittee meets at least three times a yearand reports to the board.

The Company’s auditors attend all meetingsof the Funding & Audit Committee and have

direct access to the members at any time.The non-executive directors may takeindependent professional advice on anymatter relating to the Company at theCompany’s expense. In advance of bothboard and committee meetings eachdirector receives detailed papers on thematters to be considered, enabling them torequest further clarification or additionalinformation.

Relations with shareholdersThe Company has a policy of maintaining anactive dialogue with institutional shareholdersthrough individual meetings. Communicationswith private shareholders are conductedthrough the annual report, presentations atthe annual general meeting and theCompany’s internet site that inter alia gives afull description of the group’s businessoperations.

Compliance with the Combined CodeThroughout the year ended 31 December2001 the Company has been in compliancewith the provisions set out in Section 1 of theCombined Code on Corporate Governanceappended to the Financial Services AuthorityListing Rules except for:

■ A.2.1 The posts of Chairman and ChiefExecutive are held by Mr Gawler. Thisposition was ratified by shareholders atthe annual general meeting held in theyear. In addition there is a strong andindependent non-executive element onthe board with a recognised seniormember other than the Chairman andChief Executive to whom concerns canbe conveyed.

■ B.1.7 The notice period for executivedirectors is two years as explained in theRemuneration Report on page 22.

■ B.1.10 The executive directors’ servicecontracts contain predeterminedunmitigated clauses as noted in theRemuneration Report on page 22.

■ C.2.1 The level of proxies lodged oneach resolution proposed at the annualgeneral meeting are not announced as amatter of course at the meeting, but areavailable on request from the Secretary(see the notice of meeting on pages 51and 52).

Internal controlThe board of directors has overallresponsibility for the group's system ofinternal control and the Funding & AuditCommittee has been delegated formalresponsibility for reviewing the effectivenessof the system of internal control.

The processes to manage the key risks to thesuccess of the group are reviewed andimproved as necessary. The board has putin place an organisational structure withclearly defined lines of responsibility anddelegation of authority and there are also


17

established procedures for monitoring thegroup's businesses. While the operationalcontrol of the group is decentralised andresponsibility is delegated, the operations aresubject to the overall group internal controlframework. This, by its nature, can provideonly reasonable but not absolute assuranceagainst material misstatement or loss.

The key procedures that have beenestablished and that are designed to provideeffective internal control are:

Assessment of business riskA system of risk assessment andidentification and evaluation of controls isembedded within the managementprocesses throughout the group. Strategicrisks and opportunities arising from changesin the group's business environment areregularly reviewed by the executive directorsand discussed by the board. Risks relating tokey activities within the operating units and athead office are assessed on a continuousbasis. Summary reports are made to theoperating divisions and head office asappropriate.

Control environmentThe board sets overall policy for the groupand delegates the authority to implement thatpolicy to its operating divisions and operatingunits. A well defined organisational structurewith clear operating procedures, lines ofresponsibility and delegated authority hasbeen established within the group. In terms ofthe group approval framework, there areprocedures for appraisal, review andauthorisation of investments and capitalexpenditure.

Information and communicationThe group's operating procedures include acomprehensive system for reporting financialand non-financial information to the board,including:

■ The preparation and review of annualbudgets which are approved by theboard.

■ A review of the businesses at eachboard meeting, focusing on any newrisks arising (for example, those relatingto proposed major investments and keychanges in the markets).

■ Regular meetings of the executivedirectors with divisional management.

Control proceduresDetailed operational procedures aredeveloped for each of the group's keyactivities that embody key controls. Theimplications of changes in law andregulations are taken into account withinthese procedures. Procedures areestablished to safeguard the group's assetsand to ensure that all financial transactionsare properly recorded. Accounting policiesand practices are widely disseminatedthroughout the group.

Monitoring processThere are clear procedures for monitoring thesystem of internal controls. The significantcomponents of these are:

■ Each year, the managing director andfinance director of each operating unitand operating division are required toreview internal controls and to return aself certification internal controlquestionnaire to the group certifyingcompliance with group policies andprocedures and confirming theeffectiveness of internal control systems.

■ The management of each operatingdivision regularly review the riskassessments and controls over theserisks for their division. Head office reviewthe work of divisional management andin turn report to the Funding & AuditCommittee.

■ The Funding & Audit Committee hasspecific responsibility for assessing theeffectiveness of internal controls andmonitors the process of assessing theinternal controls across the group onbehalf of the board.

■ The Funding & Audit Committee reviewsthe process by which risks are identifiedand assessed and the effectiveness ofcontrols over these risks are assessedby operating units, divisionalmanagement and head office.

■ The Funding & Audit Committee reviewsthe effectiveness of financial internalcontrol. This involves the review of thecomprehensive planning and budgetingsystem, with the annual budget beingapproved by the board. Monthly resultsare reported against budget and revisedforecasts for the full accounting periodare prepared regularly as necessary.The results of the annual self-certification internal controlquestionnaire process are reviewed bythe Funding & Audit Committee and,where potential problems are identified,appropriate actions are taken. Anyreports by the external auditors are alsoconsidered.

The board confirms it has carried out areview of the effectiveness of the group'ssystem of internal controls described abovefor the financial year and up to the date ofthis report in accordance with the guidanceset out in Internal Control: Guidance forDirectors on the Combined Code (theTurnbull guidance). The review encompassedoperational, financial and compliance controlsas well as risk management. The processused included the following elements:

■ As part of their ongoing reviews of thebusinesses the executive directors andhead office reviewed the effectiveness ofstrategic, operational and compliance

Corporate governance continued18


internal controls and risk management.As appropriate this involved consideringany reports on key risk areas(concentrating on significant changes inthe risk profile) and controls, formulationof actions, policies and procedures tocontrol risks and reviewing the actionsbeing taken on problem areasidentified.

■ The board considered reports from theFunding & Audit Committee and theexecutive directors on these areasduring the year and, at the time ofapproving the annual report andaccounts, considered a summary of theassessments of the effectiveness of thekey risks and controls identified thatwas prepared on behalf of theexecutive directors.

Statement of directors’ responsibilitiesCompany law requires the directors toprepare accounts for each financial periodwhich give a true and fair view of the state ofaffairs of the Company and the group and ofthe profit or loss of the group for that period.In preparing those accounts, the directorsare required to:

■ select suitable accounting policies andthen apply them consistently;

■ make judgements and estimates thatare reasonable and prudent;

■ state whether applicable accounting

standards have been followed, subjectto any material departures disclosedand explained in the accounts;

■ prepare the accounts on the goingconcern basis unless it is inappropriateto presume that the group will continuein business.

The directors are responsible for keeping

proper accounting records which disclose

with reasonable accuracy at any time the

financial position of the Company and the

group and to enable them to ensure that the

accounts comply with the Companies Act

1985. They are also responsible for

safeguarding the assets of the Company and

hence for taking reasonable steps for the

prevention and detection of fraud and other

irregularities.

The directors have reviewed the effectiveness

of the system of internal controls over the

maintenance and integrity of the Charter plc

website. Legislation in the UK governing the

preparation and dissemination of financial

statements may differ from legislation in other

jurisdictions.

Going concern and current liquidityAfter 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 accounts.

Auditors’ report 19


Independent auditors’ report to themembers of Charter plcWe have audited the accounts whichcomprise the Consolidated Profit and LossAccount, the Balance Sheets, theConsolidated Cash Flow Statement, theStatement of Total Recognised Gains andLosses, the Reconciliation of Movements inShareholders’ Funds and the related Notesand the disclosures in the RemunerationReport relating to directors’ remunerationspecified for our review by the FinancialServices Authority.

Respective responsibilities of directorsand auditorsThe directors’ responsibilities for preparingthe annual report and the accounts inaccordance with applicable United Kingdomlaw and accounting standards are set out inthe statement of directors’ responsibilities.

Our responsibility is to audit the accounts inaccordance with relevant legal and regulatoryrequirements and United Kingdom AuditingStandards issued by the Auditing PracticesBoard and the Listing Rules of the FinancialServices Authority.

We report to you our opinion as to whetherthe accounts give a true and fair view andare properly prepared in accordance with theCompanies Act 1985. We also report to youif, in our opinion, the directors’ report is notconsistent with the accounts, if the companyhas not kept proper accounting records, ifwe have not received all the information andexplanations we require for our audit, or ifinformation specified by law or the ListingRules regarding directors’ remuneration andtransactions is not disclosed.

We read the other information contained inthe annual report and consider theimplications for our report if we becomeaware of any apparent misstatements ormaterial inconsistencies with the accounts.The other information comprises theDirectors’ Report, the Chairman and ChiefExecutive’s Statement, the OperatingReviews, the Financial Review, the CorporateGovernance Statement and the RemunerationReport.

We review whether the CorporateGovernance statement reflects the

Company’s compliance with the sevenprovisions of the Combined Code specifiedfor our review by the Listing Rules, and wereport if it does not. We are not required toconsider whether the board’s statements oninternal control cover all risks and controls, orto form an opinion on the effectiveness of theCompany’s or group’s corporate governanceprocedures or its risk and controlprocedures.

Basis of audit opinionWe conducted our audit in accordance withauditing standards issued by the AuditingPractices Board. An audit includesexamination, on a test basis, of evidencerelevant to the amounts and disclosures inthe accounts. It also includes an assessmentof the significant estimates and judgementsmade by the directors in the preparation ofthe accounts, and of whether the accountingpolicies are appropriate to the company’scircumstances, consistently applied andadequately disclosed.

We planned and performed our audit so as toobtain all the information and explanationswhich we considered necessary in order toprovide us with sufficient evidence to givereasonable assurance that the accounts arefree from material misstatement, whethercaused by fraud or other irregularity or error.In forming our opinion we also evaluated theoverall adequacy of the presentation ofinformation in the accounts.

OpinionIn our opinion the accounts give a true andfair view of the state of affairs of theCompany and the group at 31 December2001 and of the loss and cash flows of thegroup for the year then ended and have beenproperly prepared in accordance with theCompanies Act 1985.

PricewaterhouseCoopersChartered Accountants and Registered AuditorsLondon4 March 2002

Directors’ report20


Activities and review of operationsThe Chairman and Chief Executive’sstatement on pages 5 to 7, the Operatingreviews on pages 8 to 12 and Financialreview on page 13 outline the activities andoperations of the group.

DividendsThe directors have not declared a dividend forthe year. Total dividends in the comparativeperiod were 8.0 pence per share.

DirectorsA list of the directors appears on page 15and their interests in the shares of theCompany are shown on page 23.

Following his initial appointment on 25 April2001, Mr Eilbeck offers himself for re-election (see resolution 2 in the notice ofmeeting on pages 51 and 52).

Following their initial appointments on 14December 2001, The Hon. James Bruce,Mr Foster and Mr Mullan offer themselves forre-election (resolution 2).

Mr Johnson and Mr Taylor retire by rotationbut do not offer themselves for re-election.

During the year the following directorsresigned: Mr Allen on 25 April 2001;Mr Herbert on 25 April 2001; Mr Robson on30 June 2001 and Mr Smith on 31 August2001.

No director had any interest in any contractwith the companies in the group at any timeduring the period, other than servicecontracts. Information covering directors’remuneration, interests in shares andinterests in share options is included in theRemuneration Report on pages 21 to 23.

Authority to allot shares anddisapplication of pre-emption rightsThe articles of association of the Companyplace unissued shares generally at thedisposal of the directors but, under theprovisions of the Companies Act 1985,directors cannot allot any new shares untilthey have shareholders’ authority to do so.Whilst they have no present intention ofutilising such authority (other than withrespect to the issue of shares upon theexercise of share options), your directorswish to renew, for a further year, the generalauthority granted to them on 25 April 2001.Approval of shareholders will be sought atthe annual general meeting by the passing ofan Ordinary Resolution (resolution 4)whereby your directors will be authorised toallot authorised but unissued ordinary sharesof the Company, up to a total of 12,849,882shares representing approximately 13.6 percent of the issued share capital. This newauthority will expire at the 2003 annualgeneral meeting.

Shareholders are being invited, subject tothe aforementioned resolution beingapproved, to authorise the directors to allot

equity securities in respect of rights issues orotherwise for cash other than to existingshareholders up to an amount equal to 5 percent of the issued share capital of theCompany at 31 December 2001 (namely inrespect of 4,707,451 shares), the levelpermitted by the current guidelines of theinvestment committees of the Association ofBritish Insurers and the National Associationof Pension Funds. A resolution to this effect(resolution 5), which will be proposed as aSpecial Resolution, is set out in the notice ofmeeting. This authority will expire at the 2003annual general meeting or, if earlier, 24 July2003.

Authority to purchase own sharesYour directors wish to renew, until the earlier ofthe 2003 annual general meeting or 24 July2003, the authority to the directors to allow theCompany to purchase its own ordinary shareson a recognised investment exchange andresolution 6 set out in the notice of meetingseeks this. The authority is restricted to9,400,000 ordinary shares which is less than10 per cent of the current issued sharecapital. The resolution also sets the maximumand minimum prices at which the shares maybe bought. Purchases will only be made if thedirectors expect them to result in an increasein the Company’s earnings per share andconsider them in the best interests ofshareholders generally. Any shares purchasedin this way will be cancelled and the number ofshares in issue will be accordingly reduced. Itis not the Company’s current intention to offerto purchase in the market for any particularperiod.

The directors intend to seek renewal of thispower at subsequent annual generalmeetings.

EmployeesThe group’s policy is to encourage effectivecommunication and consultation betweenemployees and management. Subsidiaryundertakings develop their own consultativeand communication procedures as part oftheir employment practices.

The Company and its subsidiaryundertakings give full consideration toapplications for employment made bydisabled people, having regard to theiraptitudes and abilities. Should employeesbecome disabled during employment theywould be considered for any necessaryretraining and available work within theircapabilities. For the purposes of training,career development and promotion, disabledemployees are treated in the same way asother employees.

Creditor payment policyThe group’s creditor payment policy observesthe local practice in the countries in which itoperates – standard payment terms in each

country may also be varied by negotiationwith individual suppliers. It is the group’spolicy to settle in accordance with agreedterms. The Company had no trade creditorsat the year end.

Charitable and political contributionsDuring the year the group made charitablecontributions of £0.2 million. No politicalcontributions were made during the year.

Research and developmentThe companies in the group continue toplace strong emphasis on research anddevelopment to meet the changing needs ofthe markets they serve. Research anddevelopment expenditure totalled £12.7million for the year and has been charged tothe profit and loss account for the year.

Substantial shareholdingsAs at 4 March 2002, the Company has beennotified of the following non-beneficialinterests in its ordinary shares: UBS AssetManagement Limited 16.9 per cent; FidelityInternational Limited 10.4 per cent; SterlingInvestment Group Limited 9.4 per cent;J O Hambro Capital Management 7.3 percent and Active Value Fund ManagersLimited 3.2 per cent.

The EnvironmentGroup companies are encouraged to adopta responsible approach to environmentalmanagement. Esab and Howden have issuedenvironmental policy statements.

Esab’s strong commitment to sustainabledevelopment and its program for continualimprovements has resulted in significantreductions in energy use and wastegeneration. Esab now has five plants ISO14001 certified and has set a target for allplants to be certifiable by 2005. Esab hasalso received international recognition for itsreport “ESAB – our path to sustainabledevelopment”.

AuditorsA resolution to reappointPricewaterhouseCoopers as auditors tothe Company and authorise the board to fixtheir remuneration will be proposed at theannual general meeting.

By order of the boardA R Yapp Secretary4 March 2002

Registered office

7 Hobart PlaceLondon SW1W 0HH

Registered in EnglandNumber 2794949

Remuneration report 21


The Company aims to attract, motivate andretain high calibre executives by ensuringtheir rewards are competitive and linked toboth individual and business performance.Directors’ remuneration is reviewed each yearto ensure it is supportive of the Company’sbusiness objectives and the creation ofshareholder value. The Company compliesfully with Section 12.43A of the FinancialServices Authority’s Listing Rules.

Directors’ remuneration

Salary & FeesFour executive directors have waived theirdirectors’ fees from a subsidiary undertaking.Fees waived by these directors during theyear amounted to £1,409 (2000: two directors- £1,200).

BenefitsThe principal benefits provided to anexecutive director are a fully expensed car ora cash supplement and medical insurance forthe director and his immediate dependants.

Annual profit related incentive schemeThe Remuneration Committee setsperformance targets, both personal andcorporate, for each of the executive directors.The corporate targets were based on shareprice improvement and the level of earningsbefore interest and tax. The bonus, which is acash payment, is payable on a sliding scalebeing 0 - 100 per cent of base salary. Nopayments were made for the year (2000: nopayments were made).

After his appointment as a director Mr Eilbeckreceived a payment of £10,000 in respect ofan earlier bonus scheme. This payment hasnot been included in the table of directors’emoluments as it did not relate to his serviceas a director.

Incentive plansAt the last annual general meeting of theCompany held on 25 April 2001, an incentiveplan was approved for Mr Gawler. The awardwill vest on 30 September 2003 or, if earlier,the participant’s cessation of employment incertain permitted circumstances or on achange of control or other major corporatereorganisation of the Company.

The gross amount of the total paymentpayable in cash, will be calculated inaccordance with the formula £1 x ((V-200) x60V) where V is a number, being the lesser ofthe number of pence in the “Relevant SharePrice” and 500.

For these purposes the “Relevant SharePrice” is generally based on an averageshare price in the 30 day period immediatelyfollowing the date the award vests or, in the

event of a change of control, the price pershare of the relevant offer or, in the case ofsome other major corporate reorganisation,any amount of value per share which isreturned to shareholders taken together withthe average share price in the subsequent 30day period. In addition, the value per shareof any equity subscriptions made by theCompany’s shareholders during the term ofthe plan will be deducted from the RelevantShare Price for the purposes of calculatingthe payment to be made on vesting of theaward.

On 29 June 2001 Mr Eilbeck was awarded anincentive plan with the same terms as for MrGawler above, with the exception that thepotential benefits are a third of the level thatapply to Mr Gawler. This will be put forwardfor shareholder approval at the forthcomingannual general meeting (see resolution 7 inthe notice of meeting on pages 51 and 52).

PensionsMr Eilbeck is a member of the Company’sInland Revenue approved pension schemeproviding pension benefits of one-thirtieth ofsalary for each year of service. Having leftthe Company Mr Robson is in receipt of apension from the scheme and Mr Smith has adeferred pension entitlement. The scheme iscurrently in surplus and no companycontributions are being paid. All theforementioned are subject to the cap onpensionable earnings and, to the extent thatthe approved scheme is unable to providepension on their earnings in excess of theInland Revenue earnings cap, a fundedunapproved scheme has been established tomake good the shortfall. Because of the taxrules which apply to the unapprovedscheme, pensions payable from this schemeare fully commutable into cash lump sumsand part of the benefit is payableimmediately as a pension related payment.The aggregate of benefit from the approvedscheme, benefit from the unapprovedscheme and the pension related payment isequivalent to a pension of one-thirtieth ofuncapped salary for each year of serviceand details of benefits given below areexpressed in terms of equivalent uncappedfinal salary pensions.

Both Mr Robson and Mr Smith left theCompany during the year. The figures shownbelow are based on their actual benefits onleaving service.

Mr Gawler is not a member of the company’spension scheme. Since becoming anexecutive director a contribution of £125,000per annum is paid to him in lieu of a pensionentitlement and is included in his emolumentson page 22. This contribution level isreviewable annually.

Remuneration report continued22


Directors’ pensionsIncrease to Transfer value Total accrued

accrued annual of increase annual pensionpension during the year over the year at 31 December 2001

D M Eilbeck £16,400 £164,000 £52,300

N E Robson £18,200 £808,000 £162,100

N W R Smith £1,800 £28,000 £93,000

(i) In respect of Mr Eilbeck and Mr Smith the pension entitlement shown in the final column is that which would be paid annually onnormal retirement based on service to the end of the year 2001 or the date of leaving service if earlier. Mr Robson retired on 1December 2001 having resigned as a director on 30 June 2001. The pension shown in the final column is his actual pensionentitlement at the date of his retirement. Unapproved benefits and pension related payments are included at their equivalent grosspension level for all directors.

(ii) The increase in accrued pension during the year excludes any increase for inflation.

(iii) The transfer value has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11 andincludes the pension related payment relating to benefit accrued over the year.

(iv) Mr Robson retired from service with the group on 1 December 2001 and has since been in receipt of an annual pension of £59,458from the approved scheme. In addition, he received a lump sum from the unapproved scheme of £1,368,000 in respect of hisunapproved benefits. He is also entitled to an additional lump sum and pension related payment from Charter to cover theadditional cost of purchasing an annuity from an insurance company. This payment has been deferred until 2002 and will beapproximately £490,000. These payments have been included in the amounts shown in the above table.

Directors’ emolumentsPayment Compensation

Salary in lieu of for loss of Total Total& Fees Benefits pension office* 2001 2000

Executive: £000 £000 £000 £000 £000 £000

D Gawler (executive from 15 March 2001 and

Chairman from 25 April 2001) 368 13 99 - 480 -

D M Eilbeck (appointed 25 April 2001) 150 9 - - 159 -

N E Robson (resigned 30 June 2001) 165 10 - 145 320 325

N W R Smith (resigned 31 August 2001) 289 22 - 1,161 1,472 449

972 54 99 1,306 2,431 774

Non-executive:

J W Herbert (Chairman to resignation on 25 April 2001) 80 - - - 80 250

P W Allen (resigned 25 April 2001) 11 - - - 11 35

J H M Bruce (appointed 14 December 2001) 2 - - - 2 -

M G Foster (appointed 14 December 2001) 2 - - - 2 -

D Gawler (to 15 March 2001) 6 - - - 6 1

N A Johnson 32 - - - 32 32

H P R Mullan (appointed 14 December 2001) 2 - - - 2 -

J M Neill 32 - - - 32 32

M G Taylor 57 - - - 57 57

224 - - - 224 407

*J W Herbert has retained his awards under the Equity Partnership Plan as shown in the table on page 23.

Aggregate emoluments as defined in the Companies Act, that is excluding compensation for loss of office, was £1,349,000 (2000:£1,181,000).

The Company believes that it is in shareholders’ interests to attract, motivate and retain high calibre executives and that two yearcontracts are important in this regard. Therefore, the executive directors each have two year rolling contracts with predeterminedunmitigated clauses.


23

Equity Partnership PlanThe Equity Partnership Plan (the “Equity Partnership”) was approved by shareholders in 1997. Its objective is to strengthen the linkbetween executive rewards and the creation of value for shareholders. Under the Equity Partnership, selected executives may receive twotypes of incentive awards (“Bonus Shares” and “Performance Shares”) which, respectively, reflect the focus on medium and long termperformance.

The Equity Partnership has not operated since 1999. Details of the options granted in prior years in respect of the Equity Partnership awardsare included in the table of options shown below.

Employee Share Ownership TrustTo facilitate the operation of the Equity Partnership, the Company established the Charter Employee Share Ownership Trust (the “Trust”)for the purpose (amongst other things) of acquiring and holding shares in the Company to satisfy awards made under the EquityPartnership. The funds to acquire the shares in the Company necessary to satisfy awards made under the Equity Partnership will becontributed from the group companies to the trustees of the Trust. Shares will be acquired by the Trust either by purchase from a thirdparty or subscription (at par or greater), at such time prior to release as shall be determined by the Company and the trustees.

Share options and interests in sharesPrior to his appointment as a director Mr Eilbeck was granted the options and awards under the Equity Partnership Plan disclosed in thetable below. Options were granted at the current market price and are normally exerciseable between three and ten years after the grant.The exercise of options is subject to the achievement of a performance target. The current target is that the growth in earnings per sharemust exceed the increase in the retail price index by one and a half per cent over a consecutive period of three years.

The interests of directors in shares and share options of the Company, all of which are beneficial interests, are as follows:

Shares Options01.01.01 Number of share options exercise Options

or date of Shares Date of price per exerciseableappointment 31.12.01 appointment Granted Exercised 31.12.01 share between

D M Eilbeck 3,475 1,368 7,909 7,909 828p 15.05.98 14.05.05

3,052 3,052 Nil p* 01.01.00 02.11.04

5,245 5,245 Nil p* 24.03.01 23.03.05

7,646 7,646 Nil p* 30.03.02 29.03.06

23,852 23,852

J H M Bruce - -

M G Foster - -

D Gawler - -

N A Johnson 18,794 18,794

H P R Mullan - -

J M Neill 2,732 -

M G Taylor 875 -

J W Herbert - former director 53,265 Nil p* 01.01.00 02.11.04

80,787 Nil p* 24.03.01 23.03.05

134,052

*The exercise prices of these awards made under the Equity Partnership Plan are 831.2p, 710.5p and 376p. They will, however, be fundedby a cash bonus payable at the date of exercise of the options and therefore the effective cost to the director is nil. The share price on 31December 2000 was 172.5p and on 31 December 2001 was 126.0p. The high price for the year was 242.5p and the low 98.5p.

There was no change in the interests of current directors between 31 December 2001 and 1 March 2002, being within one month prior tothe date of the notice of the annual general meeting.

Consolidated profit and loss accountyear ended 31 December 2001

24


Before Exceptionalexceptional items items Total

2001 2001 2001 2000Note £m £m £m £m

2&3 Turnover

Continuing operations 961.8 - 961.8 934.0

Operating profit

Continuing operations - excluding associated undertakingsDiscontinued operations -and operating exceptional items 29.9 - 29.9 40.3

Discontinued operations - operating exceptional items - (34.7) (34.7) (2.8)

3 Discontinued operations - group operating profit/(loss) 29.9 (34.7) (4.8) 37.5

Discontinued operations - associated undertakings 6.2 - 6.2 6.5

Discontinued operations - total operating profit/(loss) 36.1 (34.7) 1.4 44.0

4 Non-operating exceptional items

Continuing operations - net profit on fixed asset disposals - - - 14.7

Continuing operations - losses on termination of operations - - - (4.0)

Discontinuing operations - goodwill provision on discontinuingDiscontinuing operations - operation - (4.1) (4.1) -

Discontinued operations - losses on termination of operationsin prior years - (3.7) (3.7) (4.1)

Profit/(loss) on ordinary activities before interest 36.1 (42.5) (6.4) 50.6

5 Net interest - excluding associated undertakings andNet interest - exceptional gain on swaps contracts (18.0) - (18.0) (15.9)

Net interest - associated undertakings (0.3) - (0.3) (0.5)

Net interest - exceptional gain on swaps contracts - 4.4 4.4 -

2 Profit/(loss) on ordinary activities before taxation 17.8 (38.1) (20.3) 34.2

6 Tax on profit/(loss) on ordinary activities (5.0) (6.1) (11.1) (7.9)

Profit/(loss) on ordinary activities after taxation 12.8 (44.2) (31.4) 26.3

25 Minority interests - equity (2.3) 0.9 (1.4) (5.7)

Profit/(loss) for the financial year 10.5 (43.3) (32.8) 20.6

10 Dividends - equity - - - (7.5)

24 Retained profit/(loss) for the financial year 10.5 (43.3) (32.8) 13.1

11 Earnings per share - basic

Headline (34.8)p 21.9p

Underlying 12.3p 18.9p

Earnings per share - fully diluted

Headline (34.8)p 21.9p

Underlying 12.3p 18.9p

The notes on pages 29 to 47 form part of these accounts.

Consolidated balance sheet31 December 2001

25


2001 2001 2000 2000Note £m £m £m £m

Fixed assets

12 Intangible fixed assets - goodwill 19.8 20.9

13 Tangible fixed assets 154.5 167.2

14 Fixed asset investments - associated undertakings 24.6 22.6

198.9 210.7

Current assets

15 Stocks 129.5 135.4

16 Debtors 254.5 261.0

17 Cash at bank and in hand 47.6 63.1

431.6 459.5

Creditors: amounts falling duewithin one year

18 Creditors (215.2) (219.9)

19 Short term borrowings (113.3) (124.1)

(328.5) (344.0)

Net current assets 103.1 115.5

Total assets less current liabilities 302.0 326.2

Creditors: amounts falling due after more than one year

Other long term creditors (0.7) (1.2)

19 Long term borrowings (148.4) (148.8)

20 Provisions for liabilities and charges (137.1) (121.1)

15.8 55.1

Capital and reserves

23 Called up share capital 1.9 1.9

24 Share premium account 5.9 5.9

24 Profit and loss account (16.1) 16.8

Shareholders’ funds - equity interests (8.3) 24.6

25 Minority interests - equity interests 24.1 30.5

15.8 55.1

Approved by the board of directors on 4 March 2002D Gawler Director D M Eilbeck Director


Consolidated cash flow statementyear ended 31 December 2001

26


2001 2001 2000 2000Note £m £m £m £m

26(i) Cash flow from operating activities 31.6 44.5

Exceptional bid costs paid (0.2) (2.6)

Dividends received from associated undertakings 2.2 0.7

Returns on investments and servicing of finance

Benefit on unwinding of swaps 4.4 -

Interest received 4.0 7.0

Interest paid (21.2) (21.8)

Interest element of finance lease rental payments (0.8) (0.9)

Dividends paid to minority interests (2.6) (3.0)

(16.2) (18.7)

Taxation paid (7.7) (8.5)

Capital expenditure and financial investment

Purchase of tangible fixed assets (17.2) (21.8)

Sale of tangible fixed assets 4.9 24.6

(12.3) 2.8

Acquisitions and disposals

Sale of subsidiary undertakings - net proceeds (0.7) 0.5

Purchase of subsidiary undertakings (0.1) (10.8)

Net cash/debt acquired with/disposed of withsubsidiary undertakings - 0.1

(0.8) (10.2)

Equity dividends paid

Dividends paid to shareholders (0.9) (16.5)

Cash outflow before management ofliquid resources and financing (4.3) (8.5)

Management of liquid resources

(Decrease)/increase in other cash at bank andin hand not included above (10.3) 50.0

Financing

Issue of share capital - 0.1

(Decrease)/increase in short term borrowingsother than those repayable on demand (17.6) 18.7

Increase/(decrease) in long term borrowings 0.4 (138.7)

Capital element of finance lease rental payments (1.7) (1.4)

(18.9) (121.3)

Decrease in cash in the financial year (33.5) (79.8)


Statement of total recognised gains and lossesyear ended 31 December 2001

27


2001 2000£m £m

(Loss)/profit for the financial year - excluding associated undertakings (37.5) 16.4

Profit for the finanr - associated undertakings 4.7 4.2

Net effect of translation of currencies (4.2) (2.3)

Total recognised gains and losses (37.0) 18.3

2001 2000£m £m

(Loss)/profit for the financial year (32.8) 20.6

Dividends - (7.5)

(32.8) 13.1

Other recognised gains and losses (4.2) (2.3)

Goodwill provision on discontinuing operation 4.1 -

Net (reduction in)/addition to shareholders’ funds (32.9) 10.8

Opening shareholders’ funds 24.6 13.8

Closing shareholders’ funds (8.3) 24.6


Reconciliation of movements in shareholders’ fundsyear ended 31 December 2001

Company balance sheet31 December 2001

28


2001 2001 2000 2000Note £m £m £m £m

Fixed assets

14 Investment in subsidiary undertakings 1,009.1 1,009.1

Current assets

Corporation tax recoverable 46.3 30.6

Cash at bank and in hand 15.9 0.3

62.2 30.9

Creditors: amounts falling duewithin one year

Proposed final dividend - (0.9)

19 (iii) Amount due to subsidiary undertakings (861.0) (796.5)

(861.0) (797.4)

Net current liabilities (798.8) (766.5)

210.3 242.6

Capital and reserves

23 Called up share capital 1.9 1.9

24 Share premium account 5.9 5.9

24 Profit and loss account 202.5 234.8

Shareholders’ funds - equity interests 210.3 242.6

Approved by the board of directors on 4 March 2002D Gawler Director D M Eilbeck Director


Notes to the accounts 29


1 Principal group accounting policies

Basis of accountingThe accounts are prepared in accordance with the historical cost convention and with applicable accounting standards in the UnitedKingdom.

FRS 18 Accounting Policies became mandatory for years ending on or after 22 June 2001. The directors have reviewed the group’s existingpolicies and consider they are already consistent with this new standard.

Basis of consolidationThe consolidated accounts include the Company and all its subsidiary and associated undertakings to the extent of the group’s interestin those undertakings. The group’s share of profits less losses of associated undertakings is included in the consolidated profit and lossaccount, and the group’s share of their net assets is included in the consolidated balance sheet.

The results of subsidiary or associated undertakings acquired or disposed of during the year are included in the consolidated profit andloss account from the date of their acquisition or up to the date of their disposal. The premium or discount between the purchaseconsideration and the fair value of the separable net assets acquired is included in the balance sheet as a fixed asset and is amortisedon a straight line basis over its useful economic life, a period not exceeding twenty years. The amounts in respect of acquisitions in periodsprior to 1 January 1998 remain written off against reserves (see note 24 (iii)).

Treasury policiesForeign currencies

Foreign currency assets and liabilities are translated into Sterling at the rates of exchange on the balance sheet date or at the forwardcontract rate. Profit and loss items are translated into Sterling at the average rates of exchange during the year.

Translation differences on intra-group currency loans and on foreign currency borrowings, to the extent that they are used to finance orprovide a hedge against group equity investments, are taken directly to reserves together with the exchange difference on the carryingamount of the related investments. All other translation differences are taken to the profit and loss account.

Interest rate transactions

Interest rate swaps and option agreements are used to manage the interest basis of borrowings. Interest receipts and payments underthese agreements are accrued so as to match the net income or cost with the related finance expenses. No amounts are recognised inrespect of future periods. Where such instruments are terminated the crystalised gain or loss is recognised in the year of termination.

TurnoverTurnover comprises the invoiced value of sales and the value of work executed during the year for long term contracting. Turnover excludessales taxes.

Fixed asset investmentsFixed asset investments are included at cost less provision for any permanent diminution in value.

DepreciationFixed assets are written off evenly over their expected useful lives.

Depreciation is normally provided as follows:

Freehold buildings - 2 per cent per annum

Leasehold buildings - the period of the lease or 2 per cent per annum for leases in excess of 50 years

Plant, motor vehicles, - 10 to 33 per cent per annumfurniture and fittings

Technical development expenditureExpenditure on research and development, patents, and trademarks is written off when incurred.

Deferred taxationOn 7 December 2000 the Accounting Standards Board issued FRS 19 Deferred Tax. In accordance with FRS 19 deferred taxation isprovided on the incremental liability approach in respect of timing differences giving rise to a liability. Deferred taxation assets arerecognised to the extent that it is regarded as more likely than not that they will be recovered. No changes to prior year numbers werenecessary as a result of adopting FRS 19.

Notes to the accounts continued30


1 Principal group accounting policies (continued)

Stocks and work in progressStocks and work in progress are valued at the lower of cost and net realisable value. Cost includes expenditure which is incurred in thenormal course of business in bringing the product or service to its present location and condition. Net realisable value is the estimatedselling price less all costs to be incurred. Contract work in progress is valued at cost, less foreseeable losses and progress paymentsreceived and receivable.

Finance and operating leasesCosts in respect of operating leases are charged on a straight line basis over the lease term. Leasing agreements which transfer to thegroup substantially all the benefits and risks of ownership of an asset are treated as if the asset had been purchased outright. The assetsare included in fixed assets and the capital element of the leasing commitments is shown as obligations under finance leases. The leaserentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations andthe interest element is charged against profit so as to give a constant periodic rate of charge on the remaining balance outstanding ateach accounting period. Assets held under finance leases are depreciated over the shorter of the lease terms and the useful lives ofequivalent owned assets.

Post retirement benefitsThe cost of providing pensions and other post retirement benefits is charged against profits. Pension surpluses and deficits are allocatedon a straight line basis over the expected remaining service lives of current employees.

In those instances where an accounting surplus is not expected to be used in the foreseeable future, the profit and loss account creditarising from interest or variations is restricted to the amount of the regular cost.

Differences between the amounts included in the profit and loss account and payments made to the pension schemes are treated asassets or liabilities in the balance sheet. The post retirement medical costs liability is included in provisions in the balance sheet.

FRS 17 Retirement benefitsOn 30 November 2000 the Accounting Standards Board issued FRS 17 Retirement Benefits. FRS 17 will not be mandatory for the groupuntil the year ended 31 December 2003. The FRS has an extended transitional period during which certain disclosures will be required inthe notes to the financial statements. The group has included these phased transitional disclosures for the year ended 31 December 2001in note 9.

Employee share schemesThe cost of awards to employees that take the form of shares or rights to shares (whether conditional or otherwise) is recognised on astraight line basis over the period to which the employee’s performance relates. The amount recognised is the difference between:

(i) either the fair value of the shares at the date the award is made to participants in the scheme; or where purchases of shares havebeen made by an ESOP trust at fair value and reflected in the Company’s balance sheet in accordance with UITF Abstract 13 or havebeen revalued, the book value of the shares that are available for the award; and

(ii) the amount of consideration, if any, that the participant may be required to pay for the shares.

Where the award is subject to performance criteria, the amount recognised is based on a reasonable expectation of the extent that theperformance criteria will be met. Where there are no performance criteria, the cost of the award is recognised over the period to the datewhen the employee becomes unconditionally entitled to the shares. The credit entry of this charge is taken to shareholders’ funds.


31

2 Turnover, profit and operating assetsOperating Operating

Turnover Profit assets Turnover Profit assets2001 2001 2001 2000 2000 2000

Classes of business £m £m £m £m £m £m


Air and gas handling 283.8 7.2 77.7 256.7 13.1 78.2

Specialised engineering 56.5 2.9 15.0 44.9 (1.6) 19.2

961.8 45.8 271.9 934.0 55.4 293.5

Goodwill - Welding and cutting products - (1.1) 19.8 - (1.0) 20.9

Other assets and central operations - (8.6) (61.8) - (7.6) (49.5)

961.8 36.1 229.9 934.0 46.8 264.9

Operating exceptional items


– restructuring costs - (24.8) - - - -


– restructuring costs - (4.7) - - - -

– litigation and warranty costs - (2.6) - - - -

Central restructuring costs - (2.6) - - - -

Bid costs - - - - (2.8) -

Continuing operations 961.8 1.4 229.9 934.0 44.0 264.9

Geographical area by country of operation

United Kingdom 99.9 (8.3) (7.3) 94.9 (6.6) (4.3)

Rest of Europe 398.0 31.3 76.8 375.6 29.4 83.6

North America 363.8 4.5 73.3 378.2 15.9 87.6

Rest of World 172.5 9.7 67.3 167.1 9.1 77.1

1,034.2 37.2 210.1 1,015.8 47.8 244.0

Goodwill - (1.1) 19.8 - (1.0) 20.9

Inter-area eliminations (72.4) - - (81.8) - -

Operating exceptional items

United Kingdom - (10.3) - - (2.8) -

Rest of Europe - (17.7) - - - -

North America - (2.2) - - - -

Rest of World - (4.5) - - - -

Continuing operations 961.8 1.4 229.9 934.0 44.0 264.9

Non-operating exceptional items (7.8) - 6.6 -

Net interest and net debt (13.9) (214.1) (16.4) (209.8)

(Loss)/profit on ordinary activities before taxation (20.3) 34.2

Net assets 15.8 55.1

Turnover Turnover2001 2000

Geographical area by country of destination £m £m

United Kingdom 56.0 58.4

Rest of Europe 339.1 323.3

North America 349.7 336.7

Rest of World 217.0 215.6

Continuing operations 961.8 934.0



3 Group operating profit/(loss)Before Exceptional

exceptional items items Total2001 2001 2001 2000

£m £m £m £m

Turnover 961.8 - 961.8 934.0

Cost of sales (700.3) (19.5) (719.8) (673.1)

Gross profit 261.5 (19.5) 242.0 260.9

Net operating expenses

Selling and distribution costs (131.8) (1.8) (133.6) (129.4)

Research and development expenditure (12.7) - (12.7) (7.6)

Administration costs (87.1) (13.4) (100.5) (84.2)

Exceptional bid costs - - - (2.8)

(231.6) (15.2) (246.8) (224.0)

Dividends and other income - - - 0.6

(231.6) (15.2) (246.8) (223.4)

Group operating profit/(loss) 29.9 (34.7) (4.8) 37.5

Fees in respect of services provided by the auditors were: statutory audit of the group £1.4 million (2000: £1.4 million) and other servicesto the Company and its United Kingdom subsidiaries £0.7 million (2000: £0.3 million). Included above are operating lease rentals for plantand machinery of £1.8 million (2000: £2.5 million) and for other leases of £2.9 million (2000: £2.2 million), depreciation of £21.5 million(2000: £21.2 million) and amortisation of goodwill of £1.1 million (2000: £1.0 million). Amounts invoiced to associated undertakings for theyear were £2.9 million (2000: £3.5 million) and amounts invoiced from them were £7.1 million (2000: £9.3 million). At the year end amountsdue from associated undertakings were £1.2 million (2000: £0.9 million) and due to them were £1.0 million (2000: £1.6 million).

4 Non-operating exceptional items2001 2000

£m £m

Continuing operations

Goodwill provision on discontinuing operation (note (i)) (4.1) -

Profit on sale of property - 16.3

Provision for loss on disposal of property - (1.6)

Provision relating to a discontinuing business - (4.0)

Discontinued operations

Losses on termination of operations in prior years (3.7) (4.1)

(7.8) 6.6

(i) On 21 February 2002 the Company completed the sale of Solbern, its US can and jar filling machinery operation, to its management.The initial consideration of $2.7 million was satisfied wholly in cash on completion. Based on the agreed net assets at the date of sale,there will be an adjustment to the initial consideration and this is not expected to be material. The net assets sold are estimated to havebeen $2.1 million. Goodwill previously written off directly to reserves on the acquisition of this business amounted to £4.5 million. Takingthis into account the directors were of the opinion that a provision for diminution in value of goodwill of £4.1 million should be made. Thisdebit to the profit and loss account for the period has no overall effect on shareholders’ funds. Solbern’s turnover for 2001 was £4.2 million(2000: £2.9 million) and operating profits were £0.7 million (2000: £0.1 million).

(ii) There is expected to be no tax attributable to and there is no minority interest in the non-operating exceptional items of either period.

5 Net interest - excluding associated undertakings2001 2000

£m £m

Receivable 5.4 5.8

Bank loans and overdrafts (22.6) (20.8)

Finance leases (0.8) (0.9)

(18.0) (15.9)

During November 2001 following a review of the general market level of interest rates relative to those of the group, a number of interestrate swaps were terminated generating an exceptional gain of £4.4 million.


33

6 Tax on profit on ordinary activities2001 2000

£m £m

United Kingdom:

Corporation tax at 30 per cent (2000: 30 per cent) 9.6 3.2

Adjustments in respect of previous years 7.9 4.6

17.5 7.8

Double taxation relief (9.0) (3.1)

8.5 4.7

Deferred taxation 0.1 1.4

8.6 6.1

Overseas:

Taxation 6.5 5.8

Adjustments in respect of previous years (4.5) (5.3)

Deferred taxation (0.7) (0.5)

9.9 6.1

Associated undertakings 1.2 1.8

11.1 7.9

The exceptional tax charge of £6.1 million (2000: £nil) includes an amount in respect of prior year transactions currently underdiscussion with local tax authorities.

Factors affecting the tax charge for the year

The tax assessed for the year is higher than the standard rate of corporation tax in the UK (30%). The differences are explained below:

2001 2000£m £m

(Loss)/profit on ordinary activities before taxation (20.3) 34.2

(Loss)/profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (6.1) 10.3

Effects of:

Expenses not deductible for tax purposes (primarily exceptional items) 15.2 6.0

Non-taxable income - (8.3)

Other taxes (primarily US State taxes) 4.3 2.0

Double taxation relief (9.0) (3.1)

Movement on deferred tax not recognised 20.3 17.0

Effect of lower overseas tax rates (17.0) (15.3)

Adjustments to tax charge in respect of previous periods 3.4 (0.7)

Current tax charge for the year 11.1 7.9

7 Employees - including executive directors2001 2000

£m £m

Aggregate amounts payable:

Wages and salaries 227.8 216.4

Social security costs 30.2 32.2

Other pension costs (see note 9) 12.3 11.7

270.3 260.3



7 Employees - including executive directors (continued)Restated

Number Number

Average number of persons employed by the group:

Welding and cutting products 7,306 7,553

Air and gas handling (note (i)) 3,240 3,191

Specialised engineering 367 334

Corporate 25 32

10,938 11,110

(i) In last year’s annual report the average number of persons employed by Air and gas handling was incorrectly stated as being2,886. This has been corrected in the table above.

(ii) At the year end the number of employees was 10,745 (2000: 11,119).

8 Directors’ remuneration

Information covering directors’ remuneration, interests in shares and interests in share options is included in the Remuneration Reporton pages 21 to 23.

9 Post retirement benefits

(i) SSAP 24 Accounting for pension costs

The major pension schemes operated by the group are in the United Kingdom and are of the defined benefit type, the assets of whichare held in trustee administered funds. With the exception of fair value provisions established on acquisitions and included in note 20,pension costs for employees of overseas subsidiaries are provided for in accordance with local requirements and practices.

2001 2000£m £m

United Kingdom pension charge:

Regular charge 4.0 4.0

Variation credit - -

Interest (0.8) (0.7)

Net charge 3.2 3.3

Overseas pension charge 9.1 8.4

Group pension charge 12.3 11.7

Post retirement medical costs - United States 0.4 0.9

The valuation for the United Kingdom pension schemes and the balance sheet provision for United States post retirement medical costsliabilities are assessed by professionally qualified independent actuaries using the projected unit actuarial method. The results of themost recent valuations were:

OverseasPension medical costs

schemes liabilities

Dates of last valuations or review April 2000 and March 2001 December 2001

Market value of investments £433.4 million

Market value of assets as a percentage of accrued service liabilities, allowing for expected future increases in earnings 110%

Main assumptions:

Return on investments above general earnings inflation 1.0%

Return on investments above annual pension increases

– post retirement benefits 1.3% - 3.3%

– pre-retirement benefits 1.3% - 4.3%

Medical costs liabilities - inflation rate 4.6%


35

9 Post retirement benefits (continued)

(ii) FRS 17 Retirement Benefits

UK schemesThe valuation used for FRS 17 disclosures has been based on the most recent actuarial valuations at 31 March 2001 and updated byqualified independent actuaries to take account of the requirements of FRS 17 in order to assess the liabilities of the schemes at 31December 2001. Scheme assets are stated at their market value at 31 December 2001.

Overseas schemesThe group operates a number of defined benefit schemes for employees of its overseas businesses. Full actuarial valuations of theseschemes have been carried out within the last three years and results have been updated to 31 December 2001 by qualifiedindependent actuaries.

The financial assumptions used to calculate scheme liabilities under FRS 17 are:UK Overseas

Valuation method Projected unit Projected unit

Discount rate 5.8% 7.0%

Inflation rate 2.5% 3.1%

Increase to deferred benefits during deferment 2.7% 2.0%

Increases to pensions in payment 2.7% 2.0%

Salary increases 4.1% 3.8%

Medical costs liabilities - inflation rate - 4.6%

The assets in the schemes and the expected rates of return (weighted averages) were:

Long-term rate of return Value at 31 December 2001expected at UK schemes UK scheme Overseas Total pension Overseas medical Total

31 December 2001 in surplus in deficit schemes schemes costs liabilities schemesUK Overseas £m £m £m £m £m £m

Equities 8.0% 9.0% 194.8 53.7 49.7 298.2 - 298.2

Bonds 5.1% 6.5% 121.1 19.9 35.2 176.2 - 176.2

Other 4.5% 6.2% 7.2 2.5 4.9 14.6 - 14.6

Total market value of assets 323.1 76.1 89.8 489.0 - 489.0

Present value of liabilities (291.2) (93.7) (126.6) (511.5) (32.9) (544.4)

Surplus / (deficit) 31.9 (17.6) (36.8) (22.5) (32.9) (55.4)

Related deferred tax liability - - - - - -

Net pension asset/(liability) 31.9 (17.6) (36.8) (22.5) (32.9) (55.4)

Provision already carried on the consolidated balance sheet - - 33.7 33.7 32.9 66.6

Net pension asset/(liability) not reflected on the consolidated balance sheet 31.9 (17.6) (3.1) 11.2 - 11.2

If the above amounts had been recognised in the accounts, the group’s net assets and profit and loss reserve at 31 December 2001would be as follows:

2001Group

£m

Net assets

Net assets excluding pension assets/(liabilities) 82.4

Pension assets 31.9

Pension liabilities (87.3)

Net assets including net pension liability 27.0

Reserves

Profit and loss reserve excluding net pension liability 50.5

Net pension liability (55.4)

Profit and loss reserve (4.9)



10 Dividends paid and proposed2001 2000

£m £m

Interim dividend of nil p (2000: 7.0p) per share - 6.6

Final dividend of nil p (2000: 1.0p) per share - 0.9

- 7.5

11 Earnings per share

Basic headline earnings per share is calculated on losses of £32.8 million (2000 earnings: £20.6 million) and onan average of 94,149,000 (2000: 94,142,000) shares.

Underlying earnings per share is also shown calculated by reference to earnings before the amortisation ofgoodwill and exceptional items, as adjusted for attributable tax and minority interests. The directors consider thatthis gives a useful additional indication of underlying performance.

Fully diluted earnings per share adjusts the average number of shares in the basic calculation for nil (2000: nil)dilutive potential shares deriving from share options.

Fully FullyBasic Basic diluted diluted2001 2000 2001 2000

Pence Pence Pence Pence

Earnings per share - headline (34.8) 21.9 (34.8) 21.9

Amortisation of goodwill 1.1 1.1 1.1 1.1

Exceptional items 46.0 (4.1) 46.0 (4.1)

Earnings per share - underlying 12.3 18.9 12.3 18.9

12 Intangible fixed assets - goodwillNet book

Cost Amortisation value£m £m £m

At 31 December 2000 23.0 (2.1) 20.9

Amortisation for the year - (1.1) (1.1)

At 31 December 2001 23.0 (3.2) 19.8


37

13 Tangible fixed assetsPlant Total

Land and furniture tangiblebuildings and fittings fixed assets

£m £m £m

Cost:

At 31 December 2000 100.5 168.1 268.6

Currency realignment (2.4) (3.7) (6.1)

Additions 1.7 15.8 17.5

Disposals (6.1) (6.9) (13.0)

At 31 December 2001 93.7 173.3 267.0

Depreciation:

At 31 December 2000 17.7 83.7 101.4

Currency realignment (0.1) (1.7) (1.8)

Charge to profit and loss account 2.8 18.7 21.5

Disposals (2.6) (6.0) (8.6)

At 31 December 2001 17.8 94.7 112.5

Net book value:

At 31 December 2001 75.9 78.6 154.5

At 31 December 2000 82.8 84.4 167.2

Plant, furnitureLand and buildings and fittings

(i) Fixed assets include the following in respect of 2001 2000 2001 2000assets held under finance leases: £m £m £m £m

Net book value at the year end 0.7 0.9 0.3 0.6

Depreciation charge for the year 0.2 0.2 0.2 0.3

(ii) The net book value of the group’s land and buildings includes £3.6 million (2000: £3.6 million) for longleasehold properties and £8.0 million (2000: £8.0 million) for short leasehold properties.

(iii) Committed capital expenditure of subsidiary undertakings at the year end was £1.0 million (2000: £3.5 million).

14 Fixed asset investmentsGroup investment Company

in associated investment inundertakings subsidiary

- unlisted undertakings£m £m

At 31 December 2000 22.6 1,009.1

Currency realignment (0.9) -

Group’s share of net profits retained 2.9 -

At 31 December 2001 24.6 1,009.1

(i) There is no goodwill included in the carrying value of associated undertakings.

(ii) Principal interests in group undertakings are shown on pages 49 and 50.

(iii) Loans due by the Company to subsidiary undertakings, which are interest free, amounted to £861 million.



15 Stocks

2001 2000At cost: £m £m

Short term contract work in progress 10.0 7.3

Deduct: Progress payments received and receivable (4.5) (3.7)

Short term contract balances 5.5 3.6

Long term contract work in progress 4.9 0.7

Deduct: Progress payments received and receivable (3.9) (0.4)

Long term contract balances 1.0 0.3

Contract balances 6.5 3.9

Raw materials, components and consumable stores 39.2 39.5

Work in progress 19.1 19.7

Finished goods 64.7 72.3

129.5 135.4

16 Debtors2001 2000

£m £m

Amounts falling due within one year:

Trade debtors 209.5 203.3

Long term contracts 9.4 12.5

Other debtors 20.1 26.4

Prepayments and accrued income 8.3 7.1

247.3 249.3

Amounts falling due after more than one year:

Trade debtors 0.4 0.3

Long term contracts - 0.5

Other debtors (note 20(v)) 4.1 4.6

Prepayments and accrued income including ACT recoverable 2.7 6.3

7.2 11.7

254.5 261.0

17 Cash at bank and in hand

Cash at bank and in hand includes deposits of £17.0 million (2000: £6.7 million) that are not repayable on demandas defined by FRS 1 Cash Flow Statements (Revised).

18 Creditors: amounts falling due within one year2001 2000

£m £m

Trade creditors 97.2 106.5

Payments received on account 7.5 3.6

Other creditors 36.8 35.8

Corporation tax 27.7 26.8

Social security and other taxation 9.2 9.4

Accruals and deferred income 36.8 36.9

Dividends payable - 0.9

215.2 219.9


39

19 Borrowings2001 2000

£m £m

Short term:

Loan notes 3.4 21.9

Bank loans and overdrafts - secured 0.8 0.4

Bank loans and overdrafts - unsecured 108.5 100.4

Obligations under finance leases 0.6 1.4

113.3 124.1

Long term:

6.73% 2002 loan notes of US$2.0 million - 1.4

6.78% 2004 loan notes of US$72.3 million 49.5 48.5

7.24% 2005 loan notes of US$9.0 million (2000: US$12.0 million) 6.2 8.0




Bank loans - unsecured 0.8 -

Obligations under finance leases 6.3 7.0

148.4 148.8

Total borrowings 261.7 272.9

(i) Subsequent to 31 December 2001 multi-currency syndicated bank facilities with six banks totalling £150 millionwere arranged and are available up to July 2003.

(ii) Repayments of long term borrowings are due as follows:Other Finance

borrowings leases Total£m £m £m

Between one and two years 2.1 - 2.1

Between two and five years 57.0 0.9 57.9

Over five years otherwise than by instalments 83.0 5.4 88.4

142.1 6.3 148.4

(iii) Parent company balance sheet:

Loans due by the Company to subsidiary undertakings are interest free and are repayable on demand.



20 Provisions for liabilities and chargesDisposal and Post

Deferred reorganisation retirementtaxation costs benefits Other Total

£m £m £m £m £m

At 31 December 2000 - 27.9 72.2 21.0 121.1

Utilised - (6.9) (5.3) (7.6) (19.8)

Provided - 23.7 6.5 8.5 38.7

Released - - - (0.2) (0.2)

Currency realignment - (0.5) (2.3) 0.1 (2.7)

At 31 December 2001 - 44.2 71.1 21.8 137.1

Deferred taxation amounts are set out below:Provision Full Provision Full

made potential made potential2001 2001 2000 2000

£m £m £m £m

Excess of the book value of assets, includingfinance leases qualifying for taxation allowances,over their written down value for taxation purposes 2.5 2.0 2.3 1.3

Held over capital gains - 10.0 - -

Relief for future costs (2.9) (16.0) (2.5) (35.2)

Losses carried forward - (98.8) - (49.6)

Other timing differences 0.4 0.5 0.2 0.7

- (102.3) - (82.8)

(i) Disposal and reorganisation costs include a £20.3 million fair value provision in respect of a guarantee given for a disposed businessand reorganisation costs relating to continuing operations. The guarantee relates to financing facilities that are due to expire in June2002. The majority of the reorganisation costs will be utilised over the next twelve to twenty four months.

(ii) Post retirement benefits include obligations for both pensions and medical costs. These are expected to be utilised over a period ofnot less than ten years and are expected to be replaced by comparable amounts as they are utilised.

(iii) Other provisions include amounts in respect of legal costs and claims, deferred acquisition payments, warranty liabilities andenvironmental costs. Due to their nature it is not possible to predict precisely when these provisions will be utilised, but it is anticipatedthat this will be over the short to medium term.

(iv) At the year end £27.8 million (2000: £28.4 million) of fair value provisions remained unutilised, of which £20.3 million is as noted in(i) above.

(v) Other debtors (note 16) includes £3.2 million (2000: £2.6 million) of deferred taxation losses carried forward.

21 Acquisitions

The consideration in respect of acquisitions of the year was £0.1 million and the fair value of net assets acquired was £0.1 million resultingin goodwill of £nil million.


41

22 Commitments and contingencies

The group had annual commitments under operating leases expiring as follows:

Land and Land andbuildings Other buildings Other

2001 2001 2000 2000£m £m £m £m

Within one year 1.0 0.9 2.4 1.1

Two to five years 1.5 1.0 5.5 1.2

After five years 0.9 0.1 5.3 -

3.4 2.0 13.2 2.3

Group Group Company Company2001 2000 2001 2000

£m £m £m £m

Guarantees and other obligations 20.3 1.0 297.4 314.1

In addition the group has contingent liabilities entered into in the normal course of business from which no liability is expected to arise.

The Company’s guarantees primarily relate to subsidiary undertakings’ borrowings.

Charter, together with certain of its wholly-owned subsidiaries, has been named as defendant in a number of asbestos-related actionsin the United States on the basis that it is allegedly liable for the acts of a former subsidiary Cape PLC. Charter contests the existenceof any such liability. The issue went to trial in three cases involving the Company’s principal subsidiary, Charter Consolidated P.L.C.,and other wholly-owned subsidiaries, between 1985 and 1987. In the first of these cases, tried in Pennsylvania, after an adverse lowercourt decision the appeal court gave judgement in the Charter defendants’ favour. In the second case, in New Jersey, judgement wasalso given for the Charter defendants. The third case, in South Carolina, was dismissed for lack of subject matter jurisdiction, withouta decision having been rendered on the issue. During recent years, Charter and/or certain of its subsidiaries have been served in anumber of cases in Mississippi and a few other states. Charter is seeking dismissals in these pending cases. Upon advice of counsel,Charter has settled some of the cases brought in Mississippi and will continue to pursue dismissals in the remainder. The directorshave received legal advice that Charter and its wholly-owned subsidiaries should be able to continue to defend successfully the actionsbrought against them, but that uncertainty must exist as to the eventual outcome of the trial of any particular action. It is not practicableto estimate in any particular case the amount of damages which might ensue if liability were imposed on Charter or any of its wholly-owned subsidiaries. The litigation is reviewed each year and, based on that review and legal advice, the directors believe that theaggregate of any such liability is unlikely to have a material effect on Charter’s financial position. In these circumstances, the directorshave concluded that it is not appropriate to make any provision in respect of such actions.

23 Share capital2001 2000

Ordinary Ordinaryshares of 2001 shares of 2000

2p each £ 2p each £

Authorised: 109,500,000 2,190,000 109,500,000 2,190,000

Issued:

Fully paid shares 94,149,021 1,882,980 94,149,021 1,882,980

No shares of 2p each were allotted during the year. During the year options were granted over 1,493,428 shares. At 31 December 200171 participants held options over 2,452,756 shares; these options are exercisable during various periods up to 29 March 2011 at pricesranging from 177p to 920.6p.

Included in the above, under the terms of the group’s Equity Partnership Plan, approved by shareholders in 1997, are deferred rightsto acquire shares. At 31 December 2001 9 participants held rights over 233,796 shares. The earliest dates of vesting for these awardswill in normal circumstances be 31 December 2003 and then only on the achievement of specific targets and objectives. The exerciseprice of these awards will be funded by a cash bonus payable at the date of exercise and therefore the effective cost to the allotteewill be nil.

Prior to its acquisition by the Company, Howden Group PLC operated share savings schemes for employees. These schemes allowedeligible employees to save limited fixed monthly amounts over a five year period and then to subscribe for shares at an option price. Onthe acquisition of Howden Group PLC by the Company, these pre-existing entitlements were transferred into options to purchase theCompany’s shares. At the year end there were entitlements over 48,341 shares. No further entitlements will be granted under theseschemes.



24 ReservesShare Profit

premium and lossaccount account Total

Group £m £m £m

At 31 December 2000 5.9 16.8 22.7

Retained loss for the financial year - (32.8) (32.8)

Net effect of translation of currencies - (4.2) (4.2)

Goodwill provision on discontinuing operation - 4.1 4.1

At 31 December 2001 5.9 (16.1) (10.2)

Share Profitpremium and lossaccount account Total

Company £m £m £m

At 31 December 2000 5.9 234.8 240.7

Retained loss for the financial year - (32.3) (32.3)

At 31 December 2001 5.9 202.5 208.4

(i) In the event of certain overseas subsidiary and associated undertakings distributing reserves or profits, anadditional liability to United Kingdom and overseas taxation would arise.

(ii) Included in the net effect of translation of currencies is a credit of £0.2 million (2000: debit £7.9 million) inrelation to net foreign currency borrowings.

(iii) Acquisition goodwill of £634.4 million has been dealt with through reserves up to 31 December 2001(2000: £638.5 million).

(iv) Under the provisions of the Companies Act 1985, a separate profit and loss account for the Company is notpresented. The Company’s reconciliation of movements in shareholders’ funds was as follows:

2001 2000£m £m

Loss for the financial year (32.3) (42.2)

Dividends for the financial year - (7.5)

(32.3) (49.7)

Opening shareholders’ funds 242.6 292.3

Closing shareholders’ funds 210.3 242.6


43

25 Minority interests - equity interests2001 2000

£m £m

At 31 December 2000 30.5 26.9

Share of profit for the financial year 1.4 5.7

Dividends payable (2.2) (3.0)

Acquisitions and disposals - 0.2

Net effect of translation of currencies (5.6) 0.7

At 31 December 2001 24.1 30.5

26 Cash flow statement

(i) Cash flow from operating activities:

2001 2000£m £m

Operating (loss)/profit - excluding associated undertakings (4.8) 40.3

Depreciation 21.5 21.2

Goodwill amortisation 1.1 1.0

Profit on sale of fixed assets (0.3) -

Exceptional Items

Current year charge - restructuring 32.1 -

Current year charge - litigation and warranty 2.6 -

Restructuring costs spend (12.4) -

Litigation costs spend (1.6) -

Change in stock 1.0 1.3

Change in debtors (4.5) (6.7)

Change in creditors 0.9 (0.2)

Other movement in provisions (4.0) (12.4)

31.6 44.5

(ii) Reconciliation of net cash flow to movement in net debt:

2001 2000£m £m

Decrease in cash in the year (33.5) (79.8)

Cash outflow from debt and lease financing 18.9 121.4

Cash outflow/(inflow) from liquid resources 10.3 (50.0)

Change in net debt resulting from cash flows (4.3) (8.4)

Loans and finance leases acquired/disposed of withdisposals and acquisitions - 0.1

New finance leases (0.2) (0.1)

Exchange adjustments 0.2 (7.9)

Movement in net debt in the year (4.3) (16.3)

Opening balance of net debt (209.8) (193.5)

Closing balance of net debt (214.1) (209.8)



26 Cash flow statement (continued)

(iii) Analysis of net debt movements:

OtherOpening Cash Disposals/ non-cash Exchange Closingbalance flow Acquisitions changes adjustment balance

£m £m £m £m £m £m

Cash - gross 56.4 (22.1) - - (3.7) 30.6

Short term borrowings (100.8) (11.4) - - 2.9 (109.3)

Cash - net (44.4) (33.5) - - (0.8) (78.7)

Other cash at bank and in hand 6.7 10.3 - - - 17.0

Other short term debt (21.9) 17.6 - - 0.9 (3.4)

Long term debt (141.8) (0.4) - - 0.1 (142.1)

Finance leases (8.4) 1.7 - (0.2) - (6.9)

Total (209.8) (4.3) - (0.2) 0.2 (214.1)

(iv) Acquisitions and disposals of subsidiary undertakings:

2001 2000£m £m

Fixed assets including investments 0.1 1.6

Net debt - 0.1

Minority interest - (0.2)

0.1 1.5

Goodwill - on acquisitions - 0.5

0.1 2.0

Satisfied by:

Net cash paid - acquisitions of the year (0.1) (1.2)

Contribution of assets - acquisitions of the year - (0.8)

(0.1) (2.0)


45

27 Financial instruments

The following disclosure forms part of the treasury management notes in the Financial review on page 13.

Interest rate risk profile of financial assets and liabilities

All short term debtors and creditors have been excluded from the disclosures. The interest rate risk profile of financial liabilities of thegroup as at 31 December 2001 was:

Fixed rate analysis

Semi-fixed rate Fixed rate Financial WeightedFloating rate hedged hedged liabilities on Weighted average period

financial financial financial which no average for whichTotal liabilities liabilities liabilities interest is paid interest rate rate is fixed

2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000Currencies £m £m £m £m £m £m £m £m £m £m % % Years Years

Euro (39.9) (66.0) 1.8 (22.8) (40.5) (41.6) (1.2) (1.6) - - 4.85 4.85 8.01 9.01

East European - (0.3) - (0.3) - - - - - - - - - -

Other European (1.5) (8.2) (1.5) (8.2) - - - - - - - - - -

North American (152.3) (170.8) 7.9 (64.3) (10.6) (10.9) (149.6) (95.6) - - 7.04 7.08 4.7 4.16

South American (0.8) - (0.8) - - - - - - - - - - -

Asian (5.7) (26.6) (5.7) (26.6) - - - - - - - - - -

South African (0.7) - (0.7) - - - - - - - - - - -

Total currency (200.9) (271.9) 1.0 (122.2) (51.1) (52.5) (150.8) (97.2) - - 4.72 4.24

Sterling (60.8) (1.0) (60.2) - - - (0.6) (1.0) - - 6.50 8.08 2.92 1.07

Total group (261.7) (272.9) (59.2) (122.2) (51.1) (52.5) (151.4) (98.2) - - 4.72 4.20

The floating rate financial liabilities principally comprise bank borrowings bearing interest at rates fixed in advance for periods ranging fromone month to six months by reference to the appropriate Libor equivalent.

The semi-fixed rate hedging principally comprises interest rate caps which were set at between 3-4 per cent above the rates prevailing atthe time that the caps were entered into to provide an absolute ceiling for interest costs.

The fixed rate hedging principally comprises US Dollar Private Placement Loan Notes which the group had outstanding at the year end.

The following table shows the interest rate risk profile of financial assets held by the group at the year end. The financial assets shownprincipally comprise cash and short term deposits required for working capital purposes.

Floating rateTotal financial assets

2001 2000 2001 2000Currencies £m £m £m £m

Euro 25.3 15.6 25.3 15.6

East European 2.8 5.3 2.8 5.3

Other European 1.2 6.2 1.2 6.2

North American 9.3 15.8 9.3 15.8

South American 1.7 2.0 1.7 2.0

Asian 3.2 6.3 3.2 6.3

South African 0.3 3.2 0.3 3.2

Total currency 43.8 54.4 43.8 54.4

Sterling 3.8 8.7 3.8 8.7

Total group 47.6 63.1 47.6 63.1



27 Financial instruments (continued)

Currency exposures

The group’s objectives in managing the currency exposures arising from its net investments overseas are to maintain a low cost ofborrowings while substantially hedging against currency depreciation. Gains and losses arising from these structural currency exposuresare recognised in the statement of total recognised gains and losses.

The table below shows the group’s currency exposures at the year end:

Net foreign currency monetary assets/(liabilities)

East Other North South SouthFunctional Sterling Euro European European American American Asian African Totalcurrency of 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000group operation £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m

Sterling - - 2.6 3.4 - - - 0.1 0.5 0.4 - - 0.1 0.2 - 0.3 3.2 4.4

Euro 0.1 0.4 - - - - 0.1 - 0.9 0.5 - - - - - - 1.1 0.9

East European - 0.2 (0.4) 0.7 - - 0.1 0.2 0.1 - - - - - - - (0.2) 1.1

Other European - - - 0.3 - 0.1 - - 1.5 0.8 - - - - - - 1.5 1.2

North American - - - - - - - - - - - - - - - - - -

South American - - - - - - - - (0.3) 1.4 - - - - - - (0.3) 1.4

Asian - 0.1 0.1 0.3 - - - 0.3 0.6 1.4 - - - - - - 0.7 2.1

South African 0.2 0.2 0.3 0.2 - - - - 0.2 0.2 - - - - - - 0.7 0.6

Total 0.3 0.9 2.6 4.9 - 0.1 0.2 0.6 3.5 4.7 - - 0.1 0.2 - 0.3 6.7 11.7

The table below shows the group’s balance sheet hedging at the year end:Benefit/(cost)

of coveringBalance sheet unhedged

exposures Hedged Unhedged per annum Sensitivity2001 2000 2001 2000 2001 2000 2001 2000 2001 2000

£m £m £m £m £m £m £m £m £m £m

Euro 50.7 57.0 47.5 49.6 3.2 7.4 - (0.1) 2.4 2.5

East European 37.4 33.2 - - 37.4 33.2 (1.0) (1.5) (0.1) (0.2)

Other European 14.7 18.0 17.0 17.9 (2.3) 0.1 - - 0.9 0.9

North American 69.3 76.9 87.7 79.3 (18.4) (2.4) (0.5) (0.1) 4.4 4.5

South American 30.3 27.7 0.3 11.5 30.0 16.2 (2.2) (1.2) (0.1) -

Asian 32.9 35.2 11.3 18.9 21.6 16.3 (1.0) (0.6) 0.5 1.1

South African 3.3 5.4 0.4 - 2.9 5.4 (0.2) (0.3) - (0.2)

Total currency 238.6 253.4 164.2 177.2 74.4 76.2 (4.9) (3.8) 8.0 8.6

* Debt and equity employed, net of minority interests.

** Financed with local functional currency borrowings.

*** Sensitivity of total net debt to a 5 per cent exchange movement.

Borrowing facilities

The group has various borrowing facilities available to it, analysed as follows and excluding finance leases.

2001 2000Total committed borrowing facilities £m £m

Expiring in one year or less 176.6 371.9

Expiring in more than one year but not more than two years 2.1 3.4

Expiring in more than two years 139.2 138.4

Total 317.9 513.7

Committed facility undrawn at the year end

Expiring in one year or less 76.5 259.8

Expiring in more than one year but not more than two years - -

* ** ***


47

27 Financial instruments (continued)

Fair values of financial assets and financial liabilities

Set out below is a comparison by category of book values and fair values of all the group’s financial assets andfinancial liabilities at the year end.

Book value Fair value2001 2000 2001 2000

Primary financial instruments held or issued to finance the group’s operations £m £m £m £m

Short term borrowings and current portion of long term borrowings (113.3) (124.1) (113.3) (124.1)

Long term borrowings (148.4) (148.8) (154.9) (149.0)

Cash deposits 47.6 63.1 47.6 63.1

Other financial liabilities - - - -

Derivative financial instruments held to manage the interest rate and currency profile

Interest rate swaps and similar instruments - - - 2.3

Interest rate caps and collars - - (0.1) (0.1)

Forward foreign currency contracts 0.1 - 0.1 0.8

Derivative financial instruments held or issued to hedge the currency exposure on expected future sales

Forward foreign currency contracts - - 0.5 (0.8)

The fair values of the interest rate caps and collars and foreign exchange contracts have been based on pricesavailable from the markets on which the instruments involved are traded. All other fair values shown above havebeen calculated by discounting cash flows at prevailing interest rates. The fair value of short term deposits andborrowings approximates to the carrying amount because of the short maturity of these instruments.

Hedges

As explained in the Financial review on page 13, the group’s policy is to hedge the following exposures:

■ Interest rate risk - using interest rate swaps, caps and collars and forward rate agreements.

■ Balance sheet translation risk - using forward foreign exchange contracts and borrowings in functionalcurrencies.

Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged isitself recognised. Unrecognised gains and losses on instruments used for hedging, and the movements therein,are as follows:

Total netGains (Losses) gains/(losses)

2001 2000 2001 2000 2001 2000£m £m £m £m £m £m

Gains and losses arising in and before the year that were not recognised in the year - 2.3 (6.7) (0.3) (6.7) 2.0

Unrecognised gains and losses on hedges atthe year end - 2.3 (6.7) (0.3) (6.7) 2.0

Of which:

Gains and losses expected to be recognised in the next year - 0.3 (0.1) - (0.1) 0.3

Gains and losses expected to be recognised in subsequent years - 2.0 (6.6) (0.3) (6.6) 1.7

Market price risk

The group monitors the interest rate risks to which it is exposed primarily through a process of sensitivity analysis.This involves estimating the effect on profit before tax of a range of possible changes in interest rates. On the basisof the group’s analysis, it is estimated that a rise of one percentage point in the principal interest rates to which thegroup is exposed would reduce profit before tax by approximately £1.2 million (2000: £1.3 million) and the effect ofa rise of three percentage points would reduce profit before tax by approximately £3.7 million (2000: £3.8 million).

Shareholder information48


Internet

Internet users will be able to view this report, together with other information about Charter plc at the Company’sweb site www.charterplc.com

Calendar

Annual general meeting Wednesday 24 April 2002

Interim dividend announcement and half yearly report Wednesday 4 September 2002

Expected date of interim dividend payment Monday 4 November 2002

Capital gains tax

For capital gains tax purposes, the deemed market price of the Company’s shares on 6 April 1965, adjusted forthe effect of restructuring the group in 1979 and the rights issue in 1994, was:

Registered shares 66.00p

Shares represented byrenounceable letters of allotment 66.83p

Share warrants to bearer 66.42p

For capital gains tax purposes the deemed market value of the Company’s registered and bearer shares on31 March 1982 was 205.73p.

For capital gains tax purposes the deemed market value of the scrip dividend allotments were:

Scrip alternative:

- to 1994 final dividend 890.00p

- to 1995 interim dividend 829.00p


- to 1996 interim dividend 788.50p


Registered office

7 Hobart PlaceLondon SW1W 0HHTelephone +44 (0)20 7838 7000Facsimile +44 (0)20 7259 5112

Registered in EnglandNumber 2794949

Registrars

Computershare Investor Services PLCPO Box 82The PavilionsBridgwater RoadBristolBS99 7NH

Shareholder enquiries: Telephone 0870 702 0000

If you are a shareholder you may check your holding on the Computershare Services web site atwww.computershare.com

Principal interests in group undertakings 49


Subsidiary undertakingsGroup

interest inCountry of equity capital

incorporation (per cent) Nature of business


EuropeEsab AB Sweden 100 Welding consumables

and equipment

Esab Cutting Systems GmbH Germany 100 Oxy-fuel, plasma, laserand water jet cutting

North AmericaThe Esab Group Inc. USA 100 Welding consumables

and equipmentSouth AmericaEsab SA Industria e Comercio Brazil 38 Welding consumables

and equipment

Conarco Alambres y Soldaduras S.A. Argentina 38 Welding consumablesand equipment

Asia PacificEsab Asia/Pacific Pte Ltd Singapore 100 Welding consumables

and equipment


EuropeHowden Power Ltd Northern Ireland 100 Industrial and utility fans

and heat exchangers

Howden Sirocco SA France 100 Industrial fans

Burton Corblin SA France 100 Compressors

Ventilatoren Sirocco Howden BV Netherlands 100 Industrial fans andventilation systems

Turbowerke Meissen Howden GmbH Germany 100 Industrial fans

Voith Howden GmbH Germany 100 Industrial and utility fans

Howden Power A/S Denmark 100 Industrial and utility fans

Howden Talleres Sanchez Luengo SA Spain 100 Heat exchangers

North AmericaHowden Buffalo Inc USA 100 Industrial and utility fans

Asia Pacific

Howden Hua Engineering Co Limited China 70 Industrial and utility fansand heat exchangers

South AfricaHowden African Holdings Limited South Africa 54 Industrial and utility fans,

heat exchangers, gas cleaning equipment, pumps

and cooling systems

Principal Interests in Group Undertakings continued50


Subsidiary undertakings continued

Groupinterest in

Country of equity capitalincorporation (per cent) Nature of business

Specialised engineering

North AmericaHowden Food Equipment Inc USA 100 Pasta making machinery

Howden Airdynamics Inc USA 100 Military fans, pumps,compressors and motors

Western Design Howden Inc USA 100 Ammunition handlingsystems, cooling systems

and military environmentalcontrol systems

Bauer Howden Inc USA 100 Aircraft supportequipment

Asia Pacific

HD Engineering Limited Hong Kong 100 Drilling machines,components and

accessories

Associated undertakings

Howden Compressors Limited Scotland 49 Screw compressors

GCE Gas Control Equipment AB Sweden 50 Gas control equipment

ESAB SeAH Corp. South Korea 50 Welding consumables

ESAB India Ltd India 38 Welding consumablesand equipment

I/S Susa Denmark 50 Property partnership

Notes1 The group’s controlling interests in Esab SA Industria e Comercio and Conarco Alambres y Soldaduras S.A. are

held by intermediate holding companies in which the group has voting control.2 Each of the associated undertakings has only one class of capital.3 The principal country of operation is the same as the country of incorporation.4 The group’s interest in the equity capital of Voith Howden GmbH increased from 75 per cent to 100 per cent

with effect from 15 February 2002.5 The group undertakings above are all held by subsidiary undertakings of the Company. A full list of group

undertakings will be annexed to the Company’s next annual return.6 Esab Cutting Systems GmbH was formerly known as Esab Hancock GmbH.7 Howden Power Ltd was formerly known as Howden Sirocco Ltd.8 Howden Power A/S was formerly known as Howden Variax A/S.9 Howden Buffalo Inc was formerly known as The Howden Fan Company Inc. The New Philadelphia Fan Co. has

been merged into Howden Buffalo Inc.10 ESAB SeAH Corp. was formerly known as Alloy Rods Korea Corp.

Notice of meeting 51


Notice is hereby given that the ninth annual general meeting of members of Charter plc will be held at the offices of ABN AMRO,250 Bishopsgate, London EC2M 4AA on Wednesday 24 April 2002 at 11.30 a.m. for the following purposes:

1 To receive and consider the accounts and the report of the directors for the year ended 31 December 2001.

2 To reappoint each of the following as directors following their initial appointments:

(a) The Hon. James H M Bruce

(b) Mr D M Eilbeck

(c) Mr M G Foster

(d) Mr H P R Mullan

Messrs Johnson and Taylor will retire by rotation and will not be seeking reappointment.

3 To reappoint PricewaterhouseCoopers as auditors and authorise the board to fix their remuneration.

4 To consider the following resolution, which will be proposed as an Ordinary Resolution:

“THAT the directors be and they are hereby generally and unconditionally authorised to exercise all powers of the Company toallot relevant securities (within the meaning of Section 80 of the Companies Act 1985) up to an aggregate nominal amount of£256,998, PROVIDED THAT this authority shall expire at the conclusion of the next annual general meeting of the Company afterthe passing of this resolution save that the Company may before such expiry make an offer or agreement which would or mightrequire relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of suchan offer or agreement as if the authority conferred hereby had not expired.”

5 To consider the following resolution, which will be proposed as a Special Resolution:

“THAT, subject to the passing of the previous resolution, the directors be and they are hereby empowered pursuant to Section95 of the Companies Act 1985 to allot equity securities (within the meaning of Section 94 of the said Act) for cash pursuant tothe authority conferred by the previous resolution as if sub-section (1) of Section 89 of the said Act did not apply to any suchallotment, PROVIDED THAT this power shall be limited:

(a) to the allotment of equity securities in connection with a rights issue in favour of shareholders where the equity securitiesrespectively attributable to the interests of all shareholders are proportionate (as nearly as may be) to the respectivenumbers of shares held by them (subject to such exclusions or other arrangements as the directors may deem necessaryor expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of, anyregulatory body or any stock exchange in any territory or otherwise howsoever); and

(b) to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal valueof £94,149

and shall expire upon the renewal of this power or, if earlier, at the conclusion of the next annual general meeting of theCompany after the passing of this resolution or, if earlier, 24 July 2003 save that the Company may before such expiry make anoffer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allotequity securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired.”

6 To consider the following resolution, which will be proposed as a Special Resolution:

“That the Company be and is hereby authorised, pursuant to Section 166 of the Companies Act 1985 to make market purchases(within the meaning of Section 163 of the Companies Act 1985) of up to an aggregate of 9,400,000 Ordinary Shares of 2p eachof the Company in such manner as the directors may from to time to time determine, at a price (exclusive of expenses) which is:

(a) not less than 2p per share; and

(b) not more than 5 per cent above the arithmetical average of the middle market quotations of ordinary shares of 2p each ofthe Company (as derived from the Daily Official List of the London Stock Exchange) for the five business days immediatelypreceding any such purchase;

and that the authority conferred by this resolution shall expire upon the renewal of this power at or, if earlier, at the conclusionof, the next annual general meeting of the Company after the passing of this resolution or, if earlier, 24 July 2003 save that theCompany may before the resolution expires make a contract of purchase which will or may be executed wholly or partlythereafter, and a purchase of shares may be made in pursuance of any such contract.”

7 To consider the following resolution, which will be proposed as an Ordinary Resolution:

“THAT the Charter (DME) Incentive Plan, a summary of the Rules of which is set out in the Appendix to the notice of meeting,be and is hereby approved and the directors be and they are hereby authorised to do all acts and things necessary to establishand carry it into effect.”

A member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll, to vote instead ofhim. A proxy need not be a member of the Company. A form of proxy accompanies this notice.

By order of the board Registered officeA R Yapp Secretary 7 Hobart Place20 March 2002 London SW1W 0HH

Notice of meeting continued52


Notes

1 To have the right to attend and vote at the annual general meeting you must hold ordinary shares in the Company and your namemust be entered on the share register of the Company at least 48 hours before the meeting.

2 Forms of proxy must reach the Company’s registrars, Computershare Investor Services PLC, PO Box 1075, The Pavilions,Bridgwater Road, Bristol, BS99 3ZZ, not less than 48 hours before the meeting.

3 Holders of share warrants to bearer who wish to attend in person or by proxy or to vote at the meeting must comply with therelevant conditions governing share warrants to bearer.

4 Copies of directors’ service contracts will be available for inspection by members at the registered office of the Company duringnormal business hours on any working day (Saturdays and Bank Holidays excepted) from the date of this notice and will, on theday of the annual general meeting, be available for inspection at the offices of ABN AMRO, 250 Bishopsgate, London EC2M 4AA,from 11.15 a.m. until the conclusion of the meeting.

5 Refreshments will be available at the venue from 11.00 a.m.

6 The voting results on the resolutions proposed will be available on request from the Secretary at the Company’s registered office.

AppendixSummary of the Main Provisions of the Charter (DME) Incentive Plan

1. Eligibility

David Eilbeck is the only director or employee of the Company who is entitled to participate in the Plan.

2. Grant of Awards

An award representing a contingent right to receive a cash payment will be made within 42 days of the date when the Plan isadopted. The award is personal to the participant and his personal representatives and may not be transferred. No paymentwill be required for the grant of the award and the award is not pensionable.

3. Circumstances in which Awards vest

The award will vest on 30 September, 2003 or, if earlier, the participant’s cessation of employment in certain permittedcircumstances (e.g. injury, ill-health, redundancy, death, or other circumstances approved by the Remuneration Committee in itsabsolute discretion) or on a change of control or other major corporate reorganisation of the Company.

In the event of the participant ceasing to be employed other than for a permitted reason or any purported transfer of his awardthe award shall immediately lapse unless the Remuneration Committee decides otherwise.

4. Payment on vesting

On vesting the participant becomes entitled to an amount in Pounds Sterling. Payment will be made immediately in full if vestingis the result of a change of control or the participant’s cessation of employment for a permitted reason. If vesting occurs forany other reason (including a major corporate reorganisation of the Company), payment will, except in certain permittedcircumstances, be made as to one-half on vesting and as to the balance on the first anniversary thereof as long as theparticipant remains an employee at that time. The gross amount of the total payment will be calculated in accordance with thefollowing formula

£ 1 x ((V - 200) x 20V)

where V is a number, being the lesser of the number of pence in the “Relevant Share Price” and 500.

For these purposes the “Relevant Share Price” is generally based on an average share price in the 30 day period immediatelyfollowing the date the award vests or, in the event of a change of control, the price per share of the relevant offer or, in the caseof some other major corporate reorganisation, any amount of value per share which is returned to shareholders taken togetherwith the average share price in the subsequent 30 day period.

In addition, the value per share of any equity subscriptions made by the Company’s shareholders during the term of the plan willbe deducted from the Relevant Share Price for the purposes of calculating the payment to be made on vesting of the award.

5. Variation of Capital

In the event of any variation of the share capital of the Company including a consolidation, a sub-division or rights issue, theRemuneration Committee may make such adjustment to the terms of the award (including as to the definition of Relevant SharePrice and the formula described in paragraph 4 above) as it considers appropriate (and are confirmed by the Company’sauditors as being reasonable in their opinion).

6. Amendment

The Remuneration Committee may suspend, amend or alter the Plan at any time but no action may impair or adversely affect therights of the participant without the participant’s consent and no alteration (except for minor amendments to benefit theadministration of the Plan, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control orregulatory treatment for the participants in the Plan, the Company or any member of its group) shall be made to benefit theparticipant without the prior approval of the Company in general meeting.

Copies of the Charter (DME) Incentive Plan will be available for inspection at the Company’s registered office during normal businesshours from the date of despatch of the notice of meeting up to the date of and during the annual general meeting, and at the place ofthe meeting from 15 minutes prior to the start of the meeting until the close of the meeting.

Documents

Charter plc Annual Report 2001 - Investis Digitalfiles.investis.com/charter/pdfs/ar01.pdf · Charter plc Annual Report 2001 Specialised engineering Sales £56.5m Operating profit