Financial overview

in million pounds	FY2006	FY2005	Rate of change	Remarks
Consolidated Income Statement (selected)
Revenue	3,124.6	2,948.4	6.0%	-
Profit from operations	295.9	297.9	(0.6%)
Industrial & Automotive (I&A)
I&A revenue	2,163.6	2,064.6	4.8%	(1)
Profit from operations	240.8	244.6	(1.5%)

(1)
Power Transmission
Sales and margins in Power Transmission were ahead in the year, driven by good performances in Europe, Asia and South America with successful product introductions and geographic expansion. North America experienced weak sales into the automotive OE market due to the severe cutbacks at the Detroit Three OE manufacturers.
Stackpole's performance was affected by the lower North American OE volumes and by higher raw material costs from the sharp increases in the cost of certain base metals.

Fluid Power
Fluid Power saw higher sales driven by strength in the European industrial markets and the full year contribution from the Eifeler Maschinenbau (EMB) business acquired in July 2005. There was good progress in India and South East Asia, with double-digit growth led by new awards and expansion into new industry segments. In North America, sales of hydraulic OE softened during the second half of the year with the major construction OE manufacturers slowing their order rate.

Fluid Systems
The Fluid Systems businesses experienced a combination of weaker automotive OE volumes in North America due to lower customer demand, deferred revenues due to the delay in the TREAD Act, and rising raw material prices.
At Schrader Electronics, the significant ramp-up in production that started in September 2006 has continued successfully during the final quarter of the year, with production volumes now double the level seen at the start of the year. The business won a key new vehicle award during the year to supply its latest "snap-in" technology starting in 2009 and also won its first award of a remote tyre pressure monitoring system motorcycle contract with BMW.

Other Industrial & Automotive
In Other Industrial & Automotive, the Dexter Axle business experienced a difficult market environment with pricing pressure and some competition from offshore components imported from Asia

Dearborn Mid-West saw increased sales in the year, with good volumes from its higher-margin bulk handling business. The mix of work changed as awards on the automotive side of the business were impacted by the difficulties at the Detroit Three.

Plews showed an improved performance during the year, benefiting from some product initiatives that were implemented in 2005.

Ideal continued to look to expand its business in high growth regions with the opening of a new facility at Suzhou, in China. Ideal was impacted by the sharp increases in the price of certain base metals, particularly nickel.

Acquisitions
(1)In July 2006, the Company acquired a 60% interest in Gates Winhere LLC, which, through a wholly-owned subsidiary, acquired the business and assets of a water pump manufacturer in China for 4.7 million pounds in cash.

(2) On 4 August 2006, the Group completed the acquisition of 100% of ENZED Fleximak Ltd (Fleximak) for 15.0 million pounds in cash. Fleximak is a supplier of engineering, fabrication, testing and service operations for flexible fluid transfer products in the Arabian Gulf region.

Contracts
- In May 2006, Schrader Electronics entered agreement with Pirelli for the development and marketing of a system that for the first time is positioned directly inside the tyre and is capable of reading the tyre identification data as well as its temperature and pressure. The heart of the system consists of a miniaturized sensor that has no need of a battery thanks to its capacity to generate its own energy. The system, produced ad hoc for original equipment applications, is particularly suitable for Run Flat tyre as it permits optimal management of the parameters relating to driving on the flat tyre following a puncture. The sensor developed by Pirelli and Schrader Electronics is also an economic and technologically advanced alternative to the onboard direct electronic Tyre Pressure Monitoring Systems (TPMS) currently available on the market.

- In July 2006, Schrader Electronics won a new high volume business contract to supply remote tyre pressure monitoring system (RTPMS) to BMW Motorcycles. For Schrader Electronics, this motorcycle system marks the latest addition to the company's RTPMS product line. The contract provides for the supply of tyre pressure monitoring systems to twenty-five percent of BMW motorcycles starting at the end of 2006.

- In August 2006, Schrader Electronics was selected by Ford Motor Company to supply its snap-in technology for future vehicle platforms in North America. Schrader developed TPMS sensor technology that integrates pressure sensing electronics with a rubber "snap-in" tire valve. The patented technology provides significant benefits to car manufacturers due to its ease and speed of assembly to wheel rims.

- In January 2007, Schrader Electronics announced a major new order for TPMS from one of the world's largest car manufacturers, with prestigious brands in Europe and North America. The order includes Schrader's new snap-in valve sensor and wireless auto-location technology, which will be fitted to 100% of the customer's vehicle for model years 2009 to 2011 inclusive.

Geographic expansion
In China, the Power Transmission business saw sales grow strongly due to new business awards with automotive customers such as Chery and Brilliance and also in Korea with Hyundai, which became its biggest customer in the region during the year.

In India, the Fluid Power business enjoyed strong sales growth in line with the market and in Power Transmission, construction started on a new facility in Chennai where there is significant quotation activity with local customers.

Sales in Asia of Power Transmission and Fluid Power products now represent approximately 17% of total sales.

The Group's expenditure on research and development

New Product development
At Stackpole, the product launches for variable vane technology oil pumps and carrier systems for the new six-speed transmission programmes continue to be on track and new business development has progressed well, with Gates being awarded an important first contract for variable vane oil pumps in Europe, using Stackpole technology. Stackpole has also started a development programme with a Korean OE manufacturer.

At Schrader Electronics, the development of the latest "snap-in" valve sensor and Wireless Auto Location technology has secured the award of around 90 million pounds of new business with a major OE manufacturer in Europe and North America. Schrader's RTPMS technology will be fitted to 100% of this particular customer's vehicles for model years 2009 to 2011 inclusive.

Power transmission business
The Company opened a new 56,000 square foot facility at Suzhou, Chima. In the Industrial& Automotive group, the number of facilities based in low cost regions now represents around a third of the total facilities.

The Company opened a sales office in Russia in 2006 to assist with future expansion plans.

Construction started on a new facility in Chennai.