(CHTR.L) Charter International PLC Buy/Sell

associates and joint ventures
Tax charge before taxation on adjustments above 22.7 38.5
Adjusted effective tax rate(i) 18.5% 18.4%

(i)The impact of excluding acquisition costs and the net financing costs attributable to retirement benefit obligations from the calculation of the adjusted effective tax rate for 2008 is not significant and therefore the adjusted effective tax rate has not been restated.

The adjusted effective tax rate for the year is 18.5%. The Group continues to benefit from profits being generated in relatively low tax jurisdictions, such as China and Eastern Europe, together with the recognition and utilisation of previously unrecognised tax losses. The adjusted effective tax rate is likely to remain at approximately the same level in the medium term.

Currency

Charter's results are sensitive to movements in exchange rates. The translation impact of exchange rate movements on segmental sales and operating profits before exceptional items in 2009 is set out overleaf:

2009 Underlying movement 2008 Currency 2008
at constant Translated fluctuations
exchange at 2009 exchange
rates rates
£m £m £m £m £m

Sales
ESAB 1,031.4 (348.8) 1,380.2 120.4 1,259.8
Howden 627.8 (80.6) 708.4 81.2 627.2
Total 1,659.2 (429.4) 2,088.6 201.6 1,887.0

Operating profit (before exceptional items)
ESAB 64.5 (96.4) 160.9 12.3 148.6
Howden 70.5 (13.7) 84.2 11.1 73.1
Central operations (12.2) 0.2 (12.4) - (12.4)
Total 122.8 (109.9) 232.7 23.4 209.3

Currency movements had a favourable impact on the 2009 results, increasing sales and operating profits by 10.7 percent and 11.2 per cent respectively, compared with the prior year. However, this is only the translation impact of currency movements. It excludes the impact of currency movements on transactions when products are manufactured in one currency zone and sold in another. The transaction impact of currency movements is difficult to quantify but the overall impact on the 2009 results is not considered significant.

Trading results and cash flow of overseas operations have been converted into sterling at average rates of exchange whereas the balance sheets were converted at year-end rates. The most significant rates for the group were as follows:

Rates of exchange to £1 At 31 December 2009 Average rate for At 31 December 2008 Average rate for

US Dollar 1.61 1.56 1.44 1.85
Euro 1.13 1.12 1.03 1.26
Chinese Renminbi 11.02 10.65 9.81 12.9
Brazilian Real 2.82 3.12 3.35 3.34
Czech Koruna 29.72 29.70 27.77 31.64
Polish Zloty 4.62 4.84 4.26 4.42

Balance sheet

The following table shows a summary of the balance sheet:

£m £m
Non current assets (excluding retirement benefits assets) 547.2 529.0
Inventories 238.5 292.0
Trade and other receivables 426.5 573.2
Trade and other payables (378.8) (512.2)
Other (23.7) (55.7)
Working capital 262.5 297.3
Net retirement benefit obligations (162.2) (139.3)
Provisions (73.9) (74.9)
Other long-term liabilities (33.2) (45.6)
Net cash 50.9 51.8
591.3 618.3
Equity shareholders' funds 549.9 578.3
Minority interests 41.4 40.0
591.3 618.3

During the year, total equity shareholders' funds decreased by £28.4 million to £549.9 million (2008: £578.3 million).

The principal components of this decrease were the profit for the year attributable to Charter shareholders of £63.5 million and net after tax gains on cash flow and net investment hedges of £13.7 million, offset by net after tax actuarial losses on retirement benefit obligations of £37.0 million, net translation exchange losses of £33.8 million and dividends paid of £35.0 million.

As at 31 December 2009, the total equity attributable to minority interests increased by £1.4 million to £41.4 million (2008: £40.0 million), reflecting profit attributable to minority interests of £11.3million, offset by net translation losses of £3.0 million and dividends payable of £6.9 million. The significant minority interests are the 30 per cent interest in Howden Hua Engineering Co Limited, the 45 per cent interest in Howden Africa Holdings Limited and the 44 per cent interest in ESAB India.

Working capital has reduced by £34.8 million to £262.5 million, a decrease of 11.7 per cent. Included within trade and other receivables are amounts receivable under construction contracts of £41.9 million (2008: £71.9 million). Included within trade and other payables are amounts payable under construction contracts of £45.5 million (2008: £115.7 million). The net liability in respect of construction contracts has therefore reduced by £40.2 million in the year, £12.4 million in ESAB and £27.8 million in Howden. The reduction in Howden reflects a lower level of payments on account from customers due to lower order intake. Excluding construction contracts, working capital has reduced by 21.0 per cent.

Retirement benefit obligations

As shown in the table below, the net obligation in respect of pensions and other post-retirement benefits increased by £22.9 million in the year to £162.2 million.

£m £m
Fair value of plan assets 549.4 517.6
Present value of funded and unfunded defined benefit (709.6) (656.6)

obligations
(160.2) (139.0)
Unrecognised past service costs 0.1 0.2
Surplus not recoverable (2.1) (0.5)
Net liability recognised on the balance sheet (162.2) (139.3)

The £22.9 million increase in the net retirement benefit obligation comprises asset returns of £61.2 million, contributions of £20.0 million and net exchange gains of £9.3 million, offset by interest on liabilities of £37.8 million, actuarial losses of £71.8 million, principally due to lower discount rates and higher inflation rates, and other adjustments of £3.8 million.

A detailed breakdown of the movement is provided below:
Pension
Unrecognised obligation
Pension past service -net liability Post
obligation costs and recognised in employment

Income statement charge

(losses)/gains
Contributions paid 18.6 - 18.6 1.4 20.0

At 31 December 2009 (140.7) (2.0) (142.7) (19.5) (162.2)

A breakdown of the charge to operating profit of £2.1 million (2008: £2.2 million) in respect of defined benefit pension schemes and overseas medical schemes is set out below. In addition, £7.4 million (2008: £7.4 million) was charged against operating profit in respect of defined contribution pension schemes.

£m £m

Defined benefit pension schemes and overseas medical schemes:
Current Current service cost (1.9) (1.9)
Past service cost (0.1) (0.1)
Losses on settlement and curtailment (0.1) (0.2)
(2.1) (2.2)
Defined contribution pension schemes (7.4) (7.4)
(9.5) (9.6)

Provisions

At 31 December 2009, provisions were £73.9 million (2008: £74.9 million). Of this amount, £30.6 million (2008: £35.5 million) was in respect of legal and environmental claims and disputes. Of the remainder, £7.9 million (2008: £6.1 million) was in respect of disposals and restructuring, £30.5 million (2008: £28.0 million) was in respect of warranty and product liability, and £4.9 million (2008: £5.3 million) was in respect of other items.

Cash flow

During the year, the net cash of £51.8 million at 31 December 2008 reduced by £0.9 million to £50.9 million at 31 December 2009. Cash flows during the year are summarised below.

£m £m
Operating profit before exceptional 122.8 209.3

items
Exceptional items (26.8) (8.3)
Operating profit 96.0 201.0
Depreciation and impairment 28.3 21.7
Amortisation and impairment 9.0 5.2
Charge for share based incentives 1.0 0.9
Loss on disposal of business 0.5 -
(Profit)/loss on sale of property, (0.1) 0.2

plant and equipment
Decrease/(increase) in inventories 37.7 (57.4)
Decrease/(increase) in receivables 132.1 (28.1)
(Decrease)/increase in payables (119.1) 29.8
Movement in working capital 50.7 (55.7)
Movement in provisions 4.0 2.2
Movement in net retirement benefit (17.9) (16.0)

obligations
Cash flow from operations 171.5 159.5
Capital expenditure (60.0) (66.5)
Capitalised development costs (5.7) (4.4)
Acquisitions (2.6) (39.4)
Investment in associates and joint (1.9) -

ventures
(70.2) (110.3)
Disposals 1.3 -
Sale of property, plant and equipment 0.9 1.7
(68.0) (108.6)
Dividends from associates and joint 4.3 1.6

ventures
Net financing expense (0.5) (2.0)
Cash settlement of US dollar and euro (13.7) -

net investment hedges
Dividends paid to minority interests (6.9) (4.3)
Dividends paid to equity shareholders (35.0) (31.7)
Tax paid (46.0) (49.7)
Share issue costs 0.3 (1.6)
Purchase of treasury shares (0.2) (0.2)
Net cash flow 5.8 (37.0)
New finance leases (1.3) (0.4)
Movement in interest payable accrual - (0.1)
Foreign exchange adjustments (5.4) 1.1
Decrease in net cash (0.9) (36.4)
Opening net cash 51.8 88.2
Closing net cash 50.9 51.8

Cash flow from operations generated £171.5 million (2008: £159.5 million), an increase of 7.5 per cent over the previous year. This represents cash conversion after exceptional items of 178.6 per cent compared with 79.4 per cent in 2008.

Free cash flow for the year was £64.5 million compared with £40.2 million in 2008, and reflects a significant investment of £64.8 million (2008: £69.2 million) on capital expenditure and development costs, net of disposal proceeds.

£m £m
Cash flow from operations 171.5 159.5
Net financing expense (0.5) (2.0)
Tax paid (46.0) (49.7)
Net cash flow from operating activities 125.0 107.8
Net capital expenditure (including software and (64.8) (69.2)

development costs)
Dividends from associates and joint ventures 4.3 1.6
Free cash flow 64.5 40.2
Property, plant and equipment additions 52.1 57.3
Depreciation 26.2 20.9
Ratio 2.0 2.7

Capital expenditure on property, plant and equipment of £52.1 million exceeded depreciation by £25.9 million (2008: £36.4 million). Capital expenditure reflects the acquisition of an existing ESAB manufacturing plant in North America for £9.5 million, which was previously leased, together with the continued investment in new manufacturing facilities, new equipment and new computer systems in both businesses.

Cash and borrowings

As at 31 December 2009, cash balances were £75.6 million (2008: £95.7 million), of which the majority was held overseas for local working capital purposes or pending dividend payments. Of the cash held overseas, £3.2 million (2008: £4.1 million) is retained as cash collateral in connection with certain local trading practices or banking facilities. The credit status of institutions where cash is held is kept under review with credit limits being set and monitored accordingly.

As at 31 December 2009, gross borrowings were £24.7 million (2008: £43.9 million).

Going concern

At 31 December 2009, in addition to net cash balances of £50.9 million, the Group had undrawn centrally held committed borrowing facilities of £170 million, which are due to expire (unless otherwise extended or renewed) between 2011 and 2013. All facilities are unsecured. Whilst these facilities have certain financial and other covenants, the financial strength of the Charter Group means that the covenants attaching to these facilities are not expected to prevent the full utilisation of the facilities if required.

In addition, various other members of the Charter Group have uncommitted and committed bank facilities in place, some of which are secured, to meet local funding requirements.

At 31 December 2009, the Group had £257.5 million of uncommitted bonding facilities, of which £113.8 million were provided by its principal bankers. Bonds and guarantees totalling £131.2 million had been issued under these facilities.

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

In reaching this conclusion, the Directors have considered carefully the risks to the Group's trading performance and cash flows as a result of the current global economic and financial environment. The Directors have also had regard to the Group's operating plan and budget for 2010 and have considered the principal risks to which the Group is exposed, including those summarised below.

The Directors monitor the expected outturn for the full year on an ongoing basis both in terms of profit and cash and appropriate mitigating action would be taken if it became apparent that there was a risk that the Group might miss its previous forecasts.

Contingent liabilities

Details of contingent liabilities are set out in Note 13 to the consolidated financial statements.

Significant accounting policies

The financial statements have been prepared in accordance with IFRS and the accounting policies set out in note 1. Applying accounting policies requires the use of certain judgements, assumptions and estimates. The following accounting policies have been identified as being the most significant and where there is most risk of a material adjustment to the carrying value of the Group's assets and liabilities within the next financial year.

§ goodwill impairment

§ construction contracts

§ deferred tax

§ warranty and legal liabilities

§ retirement benefits

Principal risks and uncertainties

Charter, both directly and through ESAB and Howden, is exposed to a wide variety of markets and geographies and seeks to manage the risks and uncertainties that arise from this. In certain instances, and where it is cost-effective to do so, exposures can be transferred to third parties, for example through insurance or through currency hedging.

The principal risks and uncertainties faced by Charter, and the ways in which they are being managed, are set out below.

Economic recession

Many regions in which Charter companies operate entered recession in the second half of 2008 and remained in recession during 2009; these regions include in particular Europe and North America, which together account for well over half of Charter's total revenue. The consumption of steel, which is a key macro-economic indicator of demand for ESAB products, saw unprecedented falls in 2009 across all major economic regions (apart from China).

Whilst there are presently a number of leading economic indicators that suggest that the world economy is through its low point and starting to recover, it remains unclear how strong and sustained any recovery will be.

ESAB experienced a sharp reduction in the demand for its products in late 2008 and 2009. In response, it took significant steps to reduce output and manned capacity. Whilst it believes that these steps were appropriate in the light of prevailing levels of demand, there can be no certainty that additional steps will not be required and that additional exceptional costs will not be incurred.

In 2009, Howden's revenue was broadly in line with that achieved in 2008. However, during the year, order intake was down markedly and in response Howden implemented measures to reduce headcount in anticipation of lower sales of new equipment. These measures are considered to be appropriate in the light of expected levels of demand for its products, but any further fall in the level of order intake could require additional steps to be taken which is likely to involve additional exceptional charges. During 2009, Howden experienced only limited order cancellations and deferrals, but it is possible that the incidence of cancellations may increase in 2010; whilst Howden's position is protected by a number of measures, including customer deposits which Howden could use to offset any costs or losses incurred as a consequence of a cancellation, there could still be a detrimental impact on Howden's business should the incidence of cancellations increase.

Financing

During the final quarter of 2008, there was a significant reduction across most regions in the availability of banking facilities and other forms of financing, and availability remained generally weak throughout 2009. The direct impact on Charter was limited, as Charter had previously negotiated sufficient committed bank facilities for its requirements.

In the light of the prevailing financial conditions, Charter reviewed certain aspects of the ways in which it conducts its business, including the credit-worthiness of customers which was continuously monitored and, where necessary, changes were made to the way in which Charter companies conducted business with them.

If economic recession and weak conditions in financial markets remain, there may also be disruption to supplies of goods and services to Charter companies. Additional steps have been taken to monitor the financial condition and performance of suppliers and to mitigate any risk of failure by identifying alternative suppliers where possible.

The reduced availability of financing facilities may also have the effect of causing the power station, refinery or major construction projects with which Howden is involved to be delayed or cancelled. To date, it is not believed that this had a significant impact on Howden's business, but it may become a factor in the future if financial conditions remain volatile.

Actions of competitors

ESAB and Howden both operate in competitive markets and are exposed to market behaviour such as aggressive pricing by a competitor seeking to enter a new market, or to maintain or grow sales in a weakening market.

As set out in the business review, both businesses have established strong market positions through measures such as technological leadership, strong brands and through providing cost effective solutions to their customers' needs. Throughout the economic downturn, both ESAB and Howden have maintained capital expenditure at levels well in excess of depreciation and continued to invest in research and development, product innovation and customer service. These measures are considered the most effective means to prevent competitors from gaining market share at the expense of ESAB or Howden.

Competitor action may result initially in reductions in profit, although these are more likely to be specific to particular product areas or geographies. To date, there has been no evidence of widespread price-cutting by competitors of either ESAB or Howden, although there remains the possibility that this might happen in the future, especially if market conditions do not improve.

Foreign exchange: transaction risk

Transaction risk arises from product being manufactured in one currency zone and sold in another.

In ESAB, manufacturing tends to be relatively close to the end-user, which naturally reduces currency exposures. The principal transactional exposures arising within ESAB do so on account of the manufacture of product in Central Europe and Sweden which is exported to the euro-zone and other parts of Europe and elsewhere. ESAB's general policy is not to hedge currency exposures unless they relate to a significant specific contract. In 2009, ESAB benefitted from transactional gains resulting from the depreciation of most Central European currencies against the euro and most other currencies, which partly offset the downward pressure on margins caused by lower volumes passing through the factories.

In relation to Howden, exposure is principally in relation to the US dollar, the euro and the Chinese renimbi. Howden substantially covers forward its committed trading exposures.

Foreign exchange: translation risk

Translation risk arises from the profits and net assets of non-sterling businesses being translated into a sterling value which depends upon the exchange rate.

Charter's operations in the UK are limited and principally comprise Howden's manufacturing operations in Scotland and Northern Ireland and various managerial and administrative functions in London. Customers in the UK account for less than 5 per cent of Charter's revenue. The largest profit translation exposures are in relation to the US dollar and the euro. Generally, it is Charter's policy not to hedge profit translation exposures; this may give rise to unexpected fluctuations in Charter's reported profit.

The Company has significant investments in operations outside the UK; as a result, movements in exchange rates can significantly affect the consolidated balance sheet. In 2009, exchange translation losses reduced equity shareholders' funds by £33.8 million. In certain circumstances, currency borrowings, forward foreign exchange contracts or other derivatives may be used to hedge balance sheet exposures. Gains and losses arising on such hedges are recognised as required under IFRS in the consolidated statement of changes in equity until the items being hedged have impacted the income statement. During 2009, Charter paid £13.7 million in respect of the cash settlement of US dollar and euro net investment hedges.

Certain liabilities are denominated in foreign currencies. These include working capital items, which naturally offset corresponding working capital assets, and retirement benefit obligations. Charter does not have any meaningful amounts of debt denominated in foreign currencies. Movements in exchange rates can cause the sterling values of these liabilities to fluctuate.

Litigation

Charter, ESAB and Howden are subject to litigation in the ordinary course of their business; further details are contained in Note 13.

Pension risk

There are various post retirement benefit schemes in place within Charter, ESAB and Howden.

The assets held by the various schemes are invested by the trustees primarily in equities and bonds. During 2009, the values of equities have recovered a proportion of the falls suffered during 2008. The liabilities of each scheme are subject to movements in variables such as corporate bond yields, changes in life expectancy and forecasts of future rates of inflation. The net liability which appears on Charter's balance sheet relating to overseas schemes is also subject to movements in exchange rates; the depreciation of sterling against the US dollar and against European currencies in general contributed to the increase in the net liability which took place during 2009 and may reoccur in the future.

The level of cash contributions by the Company to the schemes are determined through periodic negotiations between the pension trustees and the Company, and also potentially to changes in legislation. To date, increases in the level of cash contributions has been relatively modest, but uplifts may be larger in the future.

Raw material prices

Most products manufactured by ESAB and Howden contain steel or other metals whose prices are generally determined on world markets but subject to regional differences.

Prices can fluctuate significantly. After significant increases in the prices of various commodities, including steel, during the first three quarters of 2008, prices generally eased during the first half of 2009 and generally stabilised in the second half of the year. During this time, ESAB was able to protect itself against price fluctuations through forward purchase contracts and by increasing its stocks of raw materials. Historically, ESAB has generally been able to pass through the higher steel prices to its customers, although any future increases in raw material prices may lead to pressure on its margins.

Howden may also make use of forward purchase contracts to lock in margin. In times of raw material price inflation, it has the opportunity to include cost price accelerator clauses in its sale contracts.

Pandemics

In the light of recent worldwide concerns about swine flu and other pandemics, Charter businesses around the world have put in place a series of measures to monitor the health of employees and to prevent the spread of disease; these include programmes to alert employees to the dangers of swine flu and steps which can be taken to prevent it spreading. Despite these measures, a worldwide pandemic could severely disrupt Charter's businesses, the markets in which they operate and the financial system generally.

Internal controls

Charter has in place a system of internal controls covering its own activities and those of ESAB and Howden. These controls are essential for the effective management of such geographically diverse businesses.

The Company's Audit Committee has been delegated formal responsibility for reviewing the effectiveness of the system of internal control. A failure of the system of internal controls could have a material impact on the Company.

For the year ended 31 December 2009 £m £m

Note
Continuing operations
3 Revenue 1,659.2 1,887.0
Cost of sales (1,206.5) (1,353.2)
Gross profit 452.7 533.8
Selling and distribution costs (191.6) (182.7)
Administrative expenses (165.1) (150.1)
3 Operating profit 96.0 201.0
Analysed as:
Operating profit before exceptional items, 125.6 211.2
acquisition costs, amortisation and
impairment of acquired intangibles and
goodwill
7 Acquisition costs (0.3) -
7 Amortisation and impairment of acquired (2.5) (1.9)
intangibles and goodwill
Operating profit before exceptional items 122.8 209.3
5 Exceptional items - restructuring (26.3) (6.2)
Exceptional items - loss on disposal of (0.5) -
business
Exceptional items - change in holding - (2.1)
company
96.0 201.0
4 Net financing charge - retirement benefit (7.7) (0.7)
obligations
4 Other financing charge before losses on (7.6) (6.8)
retranslation of intercompany loan
balances
4 Other financing income before gains on 4.5 5.6
retranslation of intercompany loan
balances
4 Net gains/(losses) on retranslation of 4.0 (4.6)
intercompany loan balances
4 Net financing charge (6.8) (6.5)
3 Share of post tax profits of associates 3.5 3.2
and joint ventures
Profit before tax 92.7 197.7
6 Taxation charge on underlying profits (22.7) (38.5)
6 Taxation on exceptional items 4.2 1.5
6 Taxation on amortisation and impairment of 0.7 0.4
acquired intangibles and goodwill
6 Taxation on net financing charge - 1.1 -
retirement benefit obligations
6 Taxation on net gains/(losses) on (1.2) (2.4)
retranslation of intercompany loan
balances
6 Taxation charge (17.9) (39.0)
Profit for the year 74.8 158.7
Attributable to:

For the year ended 31 December 2009 £m £m
Profit for the year 74.8 158.7

Other comprehensive income and expenditure
Exchange translation (36.8) 124.6
Exchange translation - transfer to income statement on disposal (0.9) -
Actuarial losses on retirement benefit obligations (42.2) (54.0)
Tax on actuarial losses on retirement benefit obligations 5.2 8.1
Change in fair value of outstanding cash flow hedges 2.7 (9.1)
Net transfer to income statement - hedges 7.9 (2.4)
Net investment hedges 5.7 (27.3)
Net deferred income tax movement for the year - hedges (2.6) 2.8
Total other comprehensive income and expenditure (61.0) 42.7
Total comprehensive income for the year 13.8 201.4

Total comprehensive income attributable to:

For the year ended 31 December

Attributable to owners of the Company
Share capital Share premium Retained earnings Other reserves Total Minority interests Total equity
£m £m £m £m £m £m £m
At 1 January 2008 3.3 646.4 296.9 (520.2) 426.4 27.6 454.0

Comprehensive income
Profit for the year - - 150.2 - 150.2 8.5 158.7

Other comprehensive income and expenditure
Exchange translation - - - 116.3 116.3 8.3 124.6
Actuarial losses on retirement - - (53.9) - (53.9) (0.1) (54.0)

benefit obligations
Tax on actuarial losses on - - 8.1 - 8.1 - 8.1

retirement benefit obligations
Change in fair value of - - - (9.1) (9.1) - (9.1)

outstanding cash flow hedges
Net transfer to income - - - (2.4) (2.4) - (2.4)

statement - hedges
Net investment hedges - - - (27.3) (27.3) - (27.3)
Net deferred income tax - - - 2.8 2.8 - 2.8

movement for the year - hedges
Total other comprehensive - - (45.8) 80.3 34.5 8.2 42.7

income and expenditure
Total comprehensive income for - - 104.4 80.3 184.7 16.7 201.4

the year
Capital reorganisation - share - - (1.6) - (1.6) - (1.6)

issue costs
Capital reorganisation - - (646.6) 646.6 - - - -

reduction in capital
Purchase of treasury shares - - (0.2) - (0.2) - (0.2)

(note 16)
Share-based payments - charge - - 0.9 - 0.9 - 0.9

for year
Share-based payments - - - (0.2) - (0.2) - (0.2)

attributable tax
Share-based payments - shares - 0.2 (0.2) - - - -

issued
Dividends paid - - (31.7) - (31.7) (4.3) (36.0)
At 31 December 2008 3.3 - 1,014.9 (439.9) 578.3 40.0 618.3
At 1 January 2009 3.3 - 1,014.9 (439.9) 578.3 40.0 618.3

Comprehensive income
Profit for the year - - 63.5 - 63.5 11.3 74.8

Other comprehensive income and expenditure
Exchange translation - - - (33.8) (33.8) (3.0) (36.8)
Exchange translation - - - - (0.9) (0.9) - (0.9)

transfer to income statement on disposal
Actuarial losses on retirement - - (42.2) - (42.2) - (42.2)

benefit obligations
Tax on actuarial losses on - - 5.2 - 5.2 - 5.2

retirement benefit obligations
Change in fair value of - - - 2.7 2.7 - 2.7

outstanding cash flow hedges
Net transfer to income - - - 7.9 7.9 - 7.9

statement - hedges
Net investment hedges - - - 5.7 5.7 - 5.7
Net deferred income tax - - - (2.6) (2.6) - (2.6)

movement for the year - hedges
Total other comprehensive - - (37.0) (21.0) (58.0) (3.0) (61.0)

income and expenditure
Total comprehensive income for - - 26.5 (21.0) 5.5 8.3 13.8

the year
Purchase of treasury shares - - (0.2) - (0.2) - (0.2)

(note 16)
Share-based payments - charge - - 1.0 - 1.0 - 1.0

for year
Share-based payments - shares - 0.8 (0.5) - 0.3 - 0.3

issued
Dividends paid - - (35.0) - (35.0) (6.9) (41.9)
At 31 December 2009 3.3 0.8 1,006.7 (460.9) 549.9 41.4 591.3

At 31 December 2009 As restated

Note £m £m
Non-current assets
8 Intangible assets 139.1 136.0
8 Property, plant and equipment 280.2 275.0
Investments in associates and joint ventures 18.0 17.7
9 Retirement benefit assets 15.9 35.1
Deferred income tax assets 88.5 69.7
Trade and other receivables 21.3 30.5
Derivative financial instruments 0.1 0.1
563.1 564.1
Current assets
Inventories 238.5 292.0
Trade and other receivables 426.5 573.2
Derivative financial instruments 1.7 2.4
Current income tax receivables 10.0 6.0
10 Cash and cash deposits 75.6 95.7
752.3 969.3
Total assets 1,315.4 1,533.4
Current liabilities
Borrowings (19.8) (37.2)
Trade and other payables (378.8) (512.2)
Derivative financial instruments (2.0) (32.0)
Current income tax liabilities (33.4) (32.1)
12 Provisions for other liabilities and charges (52.3) (48.2)
(486.3) (661.7)
Non-current liabilities
Borrowings (4.9) (6.7)
Deferred income tax liabilities (29.7) (35.1)
9 Retirement benefit obligations (178.1) (174.4)
12 Provisions for other liabilities and charges (21.6) (26.7)
Derivative financial instruments (0.5) (2.8)
Other payables (3.0) (7.7)
(237.8) (253.4)
Total liabilities (724.1) (915.1)
Net assets 591.3 618.3
Equity
Ordinary share capital 3.3 3.3
Share premium 0.8 -
Retained earnings 1,006.7 1,014.9
Other reserves (460.9) (439.9)
Total equity shareholders' funds 549.9 578.3
Minority interests 41.4 40.0
Total equity 591.3 618.3

For the year ended 31 December 2009 £m £m

Note
Cash flow from operating activities
11 Cash generated from operations 171.5 159.5
Interest received 4.3 4.5
Interest paid (4.8) (6.5)
Taxation paid (46.0) (49.7)
Net cash flow from operating activities 125.0 107.8
Cash flow from investing activities
Purchase of subsidiary undertakings, net of cash (2.6) (39.4)
acquired
Investment in associates and joint ventures (1.9) -
14 Disposal of subsidiary undertaking 1.3 -
Expenditure on development costs (5.7) (4.4)
Purchase of property, plant and equipment and (60.0) (66.5)
computer software
Sale of property, plant and equipment and computer 0.9 1.7
software
Dividends received from associates and joint 4.3 1.6
ventures
Net cash flow from investing activities (63.7) (107.0)
Cash flow from financing activities
Increase in short-term borrowings (other than those - 3.8
repayable on demand)
Decrease in short-term borrowings (other than those (2.4) (2.4)
repayable on demand)
Increase in long-term borrowings - 13.2
Decrease in long-term borrowings (1.3) (9.0)
Repayment of capital element of finance leases (0.7) (0.8)
Cash (outflow)/inflow from debt and lease financing (4.4) 4.8
(Increase)/decrease in cash on deposit (4.0) 0.8
Cash settlement of net investment hedges (13.7) -
Dividends paid to equity shareholders of the (35.0) (31.7)
Company
Dividends paid to minority interests (6.9) (4.3)
Issue of ordinary share capital 0.3 -
Share issue costs - (1.6)
Purchase of treasury shares (0.2) (0.2)
Net cash flow from financing activities (63.9) (32.2)
Net decrease in cash, cash equivalents and bank (2.6) (31.4)
overdrafts
Cash, cash equivalents and bank overdrafts at 61.4 89.8
beginning of the year
Currency variations on cash, cash equivalents and (5.7) 3.0
bank overdrafts
10 Cash, cash equivalents and bank overdrafts at end 53.1 61.4
of the year

£m £m
Net movement in cash, cash equivalents and bank (8.3) (28.4)
overdrafts
Cash outflow/(inflow) from debt and lease financing 4.4 (4.8)
Increase/(decrease) in cash on deposit 4.0 (0.8)
Change in net cash resulting from cash flows 0.1 (34.0)
New finance leases (1.3) (0.4)
Movement in interest accrual - (0.1)
Currency variations on borrowings and cash deposits 0.3 (1.9)
Movement in net cash in the year (0.9) (36.4)
Opening net cash 51.8 88.2
Closing net cash 50.9 51.8
Gross borrowings (24.7) (43.9)
Cash at bank and in hand (including cash on 75.6 95.7
deposit)
Closing net cash 50.9 51.8

NOTES

1 Basis of preparation

The financial results set out in this announcement are unaudited. Audited accounts will be published following clarification of matters that the Company has recently discovered relating to the possibility that irregular payments may have been made in connection with an attempt to obtain business by an overseas Howden subsidiary in an emerging market. The Company has immediately commenced an investigation to determine the nature and extent of the issue and the financial results set out herein may be adjusted in the audited accounts of the Company to reflect the findings of that investigation. Accordingly, the Company's auditors are not at this stage in a position to approve these financial results or to finalise the audit and these results do not constitute a preliminary statement of the Company's annual results.

The unaudited consolidated financial statements of Charter International plc have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as endorsed by the European Union (EU) and implemented in the United Kingdom (UK) and in compliance with the Companies (Jersey) Law 1991. Although Charter International plc is incorporated and registered in Jersey under the Jersey Companies Law, the consolidated financial statements include disclosures sufficient to comply with those parts of the UK Companies Act 2006 applicable to companies reporting under IFRS.

Acquisition accounting adjustments have been finalised in relation to the acquisition of Aeolus Industria e Comercio Ltda by Howden on 22 August 2008. The comparative information for 2008 has been restated in accordance with IFRS 3 'Business combinations'. The impact of this restatement is to increase goodwill and deferred income tax liabilities by £2.6 million. The impact on the 2008 income statement is not significant. In addition, income tax receivable of £6.0 million as at 31 December 2008 that was previously netted off within "Income tax liabilities" has been included as "Current income tax receivables" and the comparative information for 2008 has been restated accordingly.

The consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the year ended 31 December 2009 and the consolidated balance sheet at 31 December 2009 herein do not constitute statutory accounts and are unaudited. Statutory accounts for the year ended 31 December 2008 were approved by the Board of Directors on 26 February 2009 and have been delivered to the Jersey Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Article 111(2) or Article 111(5) of the Companies (Jersey) Law 1991 concerning accounting records or failure to obtain necessary information and explanations.

2 Accounting polices

The accounting policies applied are consistent with those adopted and disclosed in the annual financial statements for the year ended 31 December 2008 with the exception of the adoption of IAS 1 (revised), IAS 23 (revised), IFRS 8, IFRS 2 (amendment) and IFRS 7 (amendment) as explained below.

Adjusted earnings per share are calculated after certain adjustments to basic earnings per share so as to help provide a better indication of the Group's underlying business performance. Previously, amortisation and impairment of acquired intangibles and goodwill, exceptional items and exchange gains and losses on retranslation of intercompany loans, including attributable tax and minority interests, were excluded in calculating adjusted earnings per share.

For 2009, acquisition costs and the non-cash net financing costs attributable to retirement benefit obligations have also been excluded in calculating adjusted earnings per share as these amounts do not relate to underlying business performance. The impact of excluding acquisition costs and the net financing costs attributable to retirement benefit obligations from adjusted earnings per share for 2008 is not significant and therefore these amounts have not been restated.

The preparation of financial statements requires the Group to make estimates, judgements and assumptions that may affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Actual results may differ significantly from these estimates, the effect of which is recognised in the period in which the facts that give rise to the revision become known.

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2009:

IAS 1 (revised) 'Presentation of financial statements'. The revised standard requires owner changes in equity such as dividends and issue of share capital to be shown in a separate statement. Other items of income and expenditure are required to be included in a statement of comprehensive income comprising either a single statement or two statements: an income statement and a statement of comprehensive income. The Group has elected to follow the latter approach and present two statements.

IAS 23 (revised) 'Borrowing costs'. Borrowing costs directly attributable to expenditure on a qualifying asset where expenditure in relation to that asset commenced after 1 January 2009 are included in the cost of that asset. There has been no impact on the Group's financial statements as a consequence of adopting the revised standard.

IFRS 8 'Operating segments'. IFRS 8 replaces IAS 14 'Segment Reporting'. It requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes to the chief operating decision-maker. There have been no changes to the reportable segments presented following the adoption of IFRS 8.

IFRS 2 (amendment), 'Share-based payment' (effective 1 January 2009) deals with vesting conditions and cancellations. It clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. These features would need to be included in the grant date fair value for transactions with employees and others providing similar services; they would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. All cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group has adopted IFRS 2 (amendment) from 1 January 2009. The amendment does not have a material impact on the Group's financial statements.

IFRS 7 'Financial instruments - Disclosures' (amendment) - effective 1 January 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The change in accounting policy only results in additional disclosures, there is no other impact.

3 Segment analysis

The Group is organised into two principal businesses: ESAB (welding, cutting and automation) and Howden (air and gas handling). For the purposes of IFRS 8 ' Operating segments', ESAB is split into two segments: (i) welding; and (ii) cutting and automation. Inter-segmental revenue is not significant. Amounts included under the heading 'Other' comprises Central operations.

The following is an analysis of the revenue, results and assets analysed by segment:
Welding Cutting and Welding, cutting and Air and gas handling Other Total
automation automation
£m £m £m £m £m £m

Year ended 31 December 2009
Total revenue 846.7 184.7 1,031.4 627.8 - 1,659.2
Segment result (before 54.7 9.8 64.5 70.5 (12.2) 122.8

exceptional items)
Exceptional items - (18.0) (6.3) (24.3) (2.0) - (26.3)

restructuring
Exceptional items - loss on - (0.5) (0.5) - - (0.5)

disposal of business
Operating profit 36.7 3.0 39.7 68.5 (12.2) 96.0
Share of post tax profits of 3.5 - 3.5 - - 3.5

associates and joint ventures
40.2 3.0 43.2 68.5 (12.2) 99.5
Net financing charge (6.8)
Profit before tax 92.7
Tax (17.9)
Profit for the year 74.8
Minority interests (11.3)
Profit attributable to equity 63.5

shareholders
Investments in associates and 17.0 - 17.0 0.8 0.2 18.0

joint ventures
Other segment assets 629.3 124.2 753.5 421.9 23.5 1,198.9
Segment assets 646.3 124.2 770.5 422.7 23.7 1,216.9

Year ended 31 December 2008
Total revenue 1,042.2 217.6 1,259.8 627.2 - 1,887.0
Segment result (before 122.7 25.9 148.6 73.1 (12.4) 209.3

exceptional items)
Exceptional items - (5.6) (0.6) (6.2) - - (6.2)

restructuring
Exceptional items - change in - - - - (2.1) (2.1)

holding company
Operating profit 117.1 25.3 142.4 73.1 (14.5) 201.0
Share of post tax profits of 3.1 - 3.1 0.1 - 3.2

associates and joint ventures
120.2 25.3 145.5 73.2 (14.5) 204.2
Net financing charge (6.5)
Profit before tax 197.7
Tax (39.0)
Profit for the year 158.7
Minority interests (8.5)
Profit attributable to equity 150.2

shareholders
Investments in associates and 16.5 - 16.5 1.0 0.2 17.7

joint ventures
Other segment assets(i) 745.0 181.4 926.4 467.5 46.1 1,440.0
Segment assets 761.5 181.4 942.9 468.5 46.3 1,457.7

Reportable segment assets are reconciled to total assets as follows:
As restated
Year ended 31.12.09 Year ended 31.12.08
£m £m
Segment assets(i) 1,216.9 1,457.7
Deferred income tax 88.5 69.7
Current income tax receivables 10.0 6.0
Total assets 1,315.4 1,533.4

(i)The comparative information for 2008 has been restated following the finalisation of acquisition accounting adjustments as explained in note 1. The impact of this restatement is to increase goodwill included in the air and gas handling segment assets by £2.6 million.

4 Net financing charge

£m £m

Net financing charge - retirement benefit obligations:
Interest on schemes' liabilities (37.8) (37.3)
Expected return on schemes' assets 30.1 36.6
(7.7) (0.7)
Interest payable on bank borrowings (1.8) (3.7)
Interest payable on bank borrowings - fees (0.7) (0.8)
(2.5) (4.5)
Interest payable on other loans (0.1) (0.8)
Interest payable on finance leases (0.1) (0.1)
Fair value losses on derivative financial instruments (1.5) (1.0)
Exchange losses on cash and borrowings (1.1) -
Other (2.0) -
Unwinding of discount on provisions (note 12) (0.3) (0.4)
Other financing charge before exchange losses on retranslation (7.6) (6.8)

of intercompany loan balances
Interest income on bank accounts and deposits 1.9 3.3
Interest income on financial assets not held at fair value 0.2 0.4
Fair value gains on derivative financial instruments 0.1 1.2
Other 2.3 0.7
Other financing income before exchange gains on retranslation 4.5 5.6

of intercompany loan balances
Net financing charge before exchange gains/(losses) on (10.8) (1.9)

intercompany loan balances
Net exchange gains/(losses) on retranslation of intercompany 4.0 (4.6)

loan balances
Net financing charge (6.8) (6.5)
5 Exceptional items

To help provide a better indication of the Group's underlying business performance, items which are both material and non-recurring are presented as exceptional items.

The following items have been classified as exceptional:

£m £m

Restructuring costs
Headcount reductions 13.8 5.4
Impairment of intangibles and property, plant and equipment 3.5 0.8
Impairment of inventory 4.8 -
Impairment of receivables 0.9 -
Other restructuring costs 3.3 -
26.3 6.2

Loss on disposal of business (note 14)
Loss on disposal before exchange gains transferred from reserves 1.4 -
Exchange gains transferred from reserves (0.9) -
0.5 -
Change in holding company - 2.1
26.8 8.3

A tax credit of £4.2 million (2008: £1.5 million) is attributable to the exceptional items. There is no minority interest attributable to the exceptional items in any of the periods presented.

6 Taxation charge

£m £m
Tax charge on underlying profits 22.7 38.5
Taxation on exceptional items (4.2) (1.5)
Taxation on amortisation and impairment of acquired (0.7) (0.4)

intangibles and goodwill
Taxation on net financing charge - retirement benefit (1.1) -

obligations
Taxation on retranslation of intercompany loan balances 1.2 2.4
Taxation charge 17.9 39.0

£m £m
Profit before tax 92.7 197.7

Add/(deduct) adjustments

Exceptional items 26.8 8.3
Acquisition costs 0.3 note (i)
Amortisation of acquired intangibles and goodwill 2.5 1.9
Net financing charge - retirement benefit obligations 7.7 note (i)
Retranslation of intercompany loan balances (4.0) 4.6
Share of post tax profits of associates and joint (3.5) (3.2)

ventures(i)
122.5 209.3
Tax charge before taxation on adjustments above 22.7 38.5
Adjusted effective tax rate(ii) 18.5% 18.4%
(i) The share of post tax profits of associates and joint ventures included in the income statement is after a tax charge of £1.2 million (2008: £1.1 million).

(ii) The impact of excluding acquisition costs and the net financing costs attributable to retirement benefit obligations from the adjusted effective tax rate for 2008 is not significant and therefore these amounts have not been restated.

7 Earnings per share

Basic earnings per share is calculated on an average of 166.8 million shares (2008: 166.7 million shares).

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of 0.7 million (2008: 0.2 million) dilutive potential ordinary shares. The Group has two classes of dilutive potential ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year and the potentially issuable shares under the Group's long-term incentive plans.

Adjusted earnings per share are calculated after certain adjustments to basic earnings per share so as to help provide a better indication of the Group's underlying business performance. Previously, amortisation and impairment of acquired intangibles and goodwill, exceptional items and exchange gains and losses on retranslation of intercompany loans, including attributable tax and minority interests, were excluded in calculating adjusted earnings per share as set out in the table below.

For 2009, acquisition costs and the non-cash net financing costs attributable to retirement benefit obligations have also been excluded in calculating adjusted earnings per share as these amounts do not relate to underlying business performance. The impact of excluding acquisition costs and the net financing costs attributable to retirement benefit obligations from adjusted earnings per share for 2008 is not significant and therefore these amounts have not been restated.

It should be noted that the term 'adjusted' is not defined under IFRS and may not therefore be comparable with similarly titled profit measures reported by other companies. It is not intended to be a substitute for, or be superior to, IFRS measures of profit.

Per share Total earnings

pence pence £m £m

Basic earnings per share
Profit attributable to equity shareholders 38.1 90.1 63.5 150.2

of the Company Items not relating to underlying business performance
Exceptional items 16.0 5.0 26.8 8.3
Amortisation and impairment of acquired 1.5 1.1 2.5 1.9

intangibles and goodwill
Acquisition costs 0.2 note (i) 0.3 note (i)
Net financing charge - retirement benefit 4.6 note (i) 7.7 note (i)

obligations
Retranslation of intercompany loan balances (2.4) 2.8 (4.0) 4.6
Taxation on items not relating to (2.9) 0.3 (4.8) 0.5

underlying business performance
Minority share of items not relating to (0.1) (0.1) (0.2) (0.2)

underlying business performance
Adjusted basic earnings attributable to 55.0 99.2 91.8 165.3

equity shareholders of the Company

Per share Total earnings

pence pence £m £m

Fully diluted earnings per share
Profit attributable to equity shareholders 37.9 90.0 63.5 150.2

of the Company Items not relating to underlying business performance
Exceptional items 16.0 5.0 26.8 8.3
Amortisation and impairment of acquired 1.5 1.1 2.5 1.9

intangibles and goodwill
Acquisition costs 0.2 note (i) 0.3 note (i)
Net financing charge - retirement benefit 4.6 note (i) 7.7 note (i)

obligations
Retranslation of intercompany loan balances (2.4) 2.7 (4.0) 4.6
Taxation on items not relating to (2.9) 0.3 (4.8) 0.5

underlying business performance
Minority share of items not relating to (0.1) (0.1) (0.2) (0.2)

underlying business performance
Adjusted diluted earnings attributable to 54.8 99.0 91.8 165.3

equity shareholders of the Company

(i) The impact of excluding acquisition costs and the net financing costs attributable to retirement benefit obligations from adjusted earnings per share for 2008 is not significant and therefore these amounts have not been restated.

8 Property, plant and equipment and intangible assets

The movement on the net book amount is set out below:

Property, plant and equipment Intangible assets
As restated

£m £m £m £m
Opening net book amount 275.0 182.7 136.0 80.2
Exchange adjustments (17.3) 52.2 0.5 12.2
Additions 52.1 57.3 1.8 3.0
Acquisitions - 6.5 - 36.6
Disposal of business (0.5) - - -
Internally generated - - 10.8 9.8
Disposals (0.8) (2.0) (0.4) (0.1)
Depreciation and amortisation (26.2) (20.9) (8.2) (5.4)
Impairment (2.1) (0.8) (1.4) (0.3)
Closing net book amount 280.2 275.0 139.1 136.0
Committed capital expenditure 11.0 17.5 0.1 0.8

not provided for

(i) The comparative information for 2008 has been restated following the finalisation of acquisition accounting adjustments as explained in note 1. The impact of this restatement is to increase goodwill on acquisition by £3.0 million and to decrease exchange adjustments by £0.4 million resulting in an increase of £2.6 million at 31 December 2008.

9 Retirement benefit obligations

The valuation of United Kingdom and overseas defined benefit pension schemes and the liability for United States post employment medical costs are assessed by professionally qualified independent actuaries using the projected unit credit method. All actuarial gains and losses are recognised immediately directly in equity.

(i) The movement on the net retirement benefit asset/(obligation) is set out below:

£m £m
Opening balance (139.3) (76.6)
Exchange adjustments 9.1 (24.0)
Income statement charge - operating profit (2.1) (2.2)
Income statement charge - financing charge (note 4) (7.7) (0.7)
Taken to equity - actuarial losses (42.2) (54.0)
Contributions paid 20.0 18.2
Closing balance (162.2) (139.3)

Included in the balance sheet as follows:
Non-current assets 15.9 35.1
Non-current liabilities (178.1) (174.4)
(162.2) (139.3)

(ii) The position at 31 December 2009 and 31 December 2008 is set out below:

31 December 2009
UK pension schemes Overseas pension Total pension Overseas medical costs Total
schemes schemes liability
£m £m £m £m £m
Present value of funded (495.5) (147.8) (643.3) - (643.3)

obligations
Fair value of plan assets 436.9 112.5 549.4 - 549.4
(58.6) (35.3) (93.9) - (93.9)
Present value of unfunded - (46.8) (46.8) (19.5) (66.3)

obligations
Unrecognised past service - 0.1 0.1 - 0.1

costs
Surplus not recoverable - (2.1) (2.1) - (2.1)
Net liability recognised in (58.6) (84.1) (142.7) (19.5) (162.2)

the balance sheet

31 December 2008
UK pension schemes Overseas pension Total pension Overseas medical costs Total
schemes schemes liability
£m £m £m £m £m
Present value of funded (424.6) (160.3) (584.9) - (584.9)

obligations
Fair value of plan assets 399.5 118.1 517.6 - 517.6
(25.1) (42.2) (67.3) - (67.3)
Present value of unfunded - (50.2) (50.2) (21.5) (71.7)

obligations
Unrecognised past service - 0.2 0.2 - 0.2

costs
Surplus not recoverable - (0.5) (0.5) - (0.5)
Net liability recognised in (25.1) (92.7) (117.8) (21.5) (139.3)

the balance sheet

(iii) The principal actuarial assumptions used were as follows:

31 December 2009 31 December 2008
UK Overseas UK Overseas
Discount rate 5.70% 5.60% 6.30% 5.60%
Inflation rate 3.60% 2.80% 2.60% 2.60%
Expected return on plan assets - 8.00% 9.10% 7.50% 8.80%

equities
Expected return on plan assets - 4.90% 5.30% 4.50% 5.60%

bonds
Expected return on plan assets - 7.50% 7.00%

property
Expected return on plan assets - 4.25% 5.60% 3.00% 5.15%

other
Expected return on plan assets - 6.20% 7.20% 5.70% 7.00%

total
Future salary increases 4.60% 4.00% 3.60% 3.45%
Future pension increases 3.55% 2.30% 2.80% 1.95%
Medical costs inflation (ultimate 5.00% 5.00%

rate)

The mortality assumptions for the UK schemes are based on either the PA92 or PA00 standard mortality tables after retirement with allowance for future mortality improvements and scheme specific factors. Based on the rates used, a member currently aged 45 who retires at age 60 will live on average for a further 27 years (2008: 27 years) after retirement if they are male and for a further 30 years (2008: 30 years) after retirement if they are female. A retired member currently aged 60 is assumed to live on average for a further 26 years (2008: 26 years) if they are male and for a further 29 years (2008: 29 years) if they are female.

The overseas schemes are principally in the United States. The mortality assumptions for the United States schemes have been derived from the RP-2000 table with allowance for future mortality improvements. Based on the rates used, a member currently aged 45 who retires at age 60 will live on average for a further 24 years (2008: 24 years) after retirement if they are male and for a further 26 years (2008: 26 years) after retirement if they are female. A retired member currently aged 60 is assumed to live on average for a further 23 years (2008: 23 years) if they are male and for a further 25 years (2008: 25 years) if they are female. Mortality assumptions for schemes in Sweden and Germany have been derived from the FFFS 2007 tables and the Heubeck 2005 G tables respectively.

(iv) The amounts included in operating profit in the income statement are analysed as follows:

£m £m

Defined benefit schemes and overseas medical costs
Current service cost (1.9) (1.9)
Past service cost (0.1) (0.1)
Losses on settlement and curtailment (0.1) (0.2)

Defined benefit schemes and overseas medical costs (2.1) (2.2)
Defined contribution schemes (7.4) (7.4)
(9.5) (9.6)
10 Cash and cash deposits

£m £m
Cash at bank and on hand 65.5 76.1
Short-term bank deposits 0.6 13.8
Bank deposits with original maturity of more than three 9.5 5.8

months and balances held as cash collateral
Cash and cash deposits in the balance sheet 75.6 95.7
Less: Bank deposits with original maturity of more than three (9.5) (5.8)

months and balances held as cash collateral
Less: Bank overdrafts (13.0) (28.5)
Cash, cash equivalents and bank overdrafts in the statement 53.1 61.4

of cash flows

For the purposes of the cash flow statement, cash, cash equivalents and bank overdrafts includes bank overdrafts repayable on demand and excludes bank deposits with an agreed maturity of more than three months.

Cash and cash deposits in the balance sheet includes balances of £3.2 million (2008: £4.1 million) held as cash collateral in connection with certain local trading practices or banking facilities.

11 Cash generated from operations

£m £m
Operating profit 96.0 201.0
Depreciation and impairment of property plant and equipment 28.3 21.7
Amortisation and impairment of intangible assets 9.6 5.7
Amortisation of government grants (0.6) (0.5)
Charge for share-based payments 1.0 0.9
Loss on disposal of business 0.5 -
(Profit)/loss on sale of property, plant and equipment (0.1) 0.2
Decrease/(increase) in inventories 37.7 (57.4)
Decrease/(increase) in receivables 132.1 (28.1)
(Decrease)/increase in payables (119.1) 29.8
Movements in provisions 4.0 2.2
Movements in net retirement benefit obligations (17.9) (16.0)
171.5 159.5

12 Provisions for other liabilities and charges

Disposal and Warranty and product Legal and Other Total
restructuring liability environ-mental
£m £m £m £m £m
At 1 January 2009 6.1 28.0 35.5 5.3 74.9
Exchange adjustments (0.5) (1.9) (2.8) (0.1) (5.3)
Amounts provided 18.1 24.2 8.6 1.1 52.0
Amounts released (1.2) (11.2) (2.2) (0.3) (14.9)
Utilised in the year (14.6) (8.6) (8.8) (1.1) (33.1)
Unwinding of discount - - 0.3 - 0.3
At 31 December 2009 7.9 30.5 30.6 4.9 73.9

£m £m

Analysed as:
Current 52.3 48.2
Non-current 21.6 26.7
73.9 74.9

(i) Disposal and restructuring costs include £7.3 million (2008: £6.1 million) in respect of employee severance costs, of which £6.6 million (2008: £6.1 million) is in the welding, cutting and automation business and £0.7 million (2008: £nil) is in the air and gas handling business, and £0.6 million (2008: £nil) in respect of other closure costs in the welding, cutting and automation business. This is expected to result in cash expenditure in the next one to two years. The effect of discounting these provisions is not material.

(ii) Warranty and product liability provisions relate to continuing businesses and are expected to be utilised over a period of one to two years dependent on the warranty period provided but will also be replaced by comparable amounts as they are utilised. The effect of discounting these provisions is not material.

(iii) Provision has been made for the probable exposure arising from legal and environmental claims and disputes, both existing and threatened, in some cases arising from warranties given on disposal of businesses. Provisions have been made representing the best estimate of the outcome of the claims including costs before taking account of insurance recoveries. Where the outcome of a claim is uncertain the legal costs of defence have been provided for to the extent that they are reliably measurable. Where appropriate, insurance recoveries are recognised in 'receivables'. At 31 December 2009, these receivables amounted to £7.9 million (2008: £10.0 million). If the effect of discounting is material, provisions are determined by discounting the expected value of future cash flows at a pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Due to their nature, it is not possible to predict precisely when these provisions will be utilised though most are expected to be utilised over the short to medium term with utilisation in the next year expected to be in the region of £12 million (2008: £13 million) before taking account of insurance recoveries.

(iv) Other provisions include various amounts which are not individually material. Due to their nature it is not possible to predict precisely when these provisions will be utilised but utilisation in the next year is expected to be in the region of £2 million (2008: £1 million to £2 million).

13 Contingent liabilities

(i) Central operations

Since about 1985, certain subsidiaries of Charter, including Charter Limited (formerly Charter plc) and Charter Consolidated P.L.C., and certain of their wholly owned subsidiaries have been named as defendants (the "defendants") in asbestos-related actions in the United States. These lawsuits have alleged that the defendants were liable for the acts of Cape PLC, a former partly owned subsidiary of Charter Limited. Between 1985 and 1987, the issue was tried in several matters, each of which was resolved in the defendants' favour either at trial or on appeal. In subsequent years, the defendants have continued to be named in asbestos-related lawsuits. The defendants have contested these actions and, in most cases, have obtained dismissals. The defendants have settled some of the cases brought in Mississippi. Currently, the only pending cases against the defendants in which they have received service of process are in Mississippi, which cases are dormant and are not actively being pursued by plaintiffs. The Directors have received legal advice that the defendants and their wholly owned subsidiaries should be able to continue to defend successfully the actions brought against them, but that uncertainty must exist as to the eventual outcome of the trial of any particular action. It is not practicable to estimate in any particular case the amount of damages which might ensue if liability were imposed on any of the defendants. The defence costs and other expenses charged against Charter's operating profits in 2009 were negligible. The litigation is reviewed each year and, based on that review and legal advice, the Directors believe that the aggregate of any such liability is unlikely to have a material effect on Charter's financial position. In these circumstances, the Directors have concluded that it is not appropriate to make provision for any liability in respect of such actions.

(ii) Air and gas handling

Howden Buffalo Inc., an indirect subsidiary of Charter, has been named as a defendant in a number of asbestos-related actions in the United States. On the advice of counsel, Howden Buffalo is vigorously defending all the cases that have been filed against it. Over the past few years, Howden Buffalo has sought and received dismissals in 11,116 cases and has, on the advice of counsel, settled 406 cases. These cases were typically settled for nuisance value amounts, much less than the cost of defending the cases at trial. Howden Buffalo has received legal advice indicating that it should be able to continue to defend successfully the actions that are brought. At this time, it is not practical to estimate the amount of any potential damages or to provide details of the current stage of proceedings in particular cases, as the majority of cases do not specify the amount of damages sought and the cases are at varying stages in the litigation process. However, legal fees associated with the defence of these claims and the cost of the settlements have been covered, in substantial part, by applicable insurance. The Directors believe, based on legal advice, that the majority of asbestos-related lawsuits against Howden Buffalo, including those resulting from the historical operations of a predecessor of Howden Buffalo known as Buffalo Forge Company, will continue to be covered, in substantial part, by applicable insurance. The situation is reviewed regularly and based on the most recent review and legal advice obtained by Howden Buffalo, the Directors believe that the aggregate of any potential liability is unlikely to have a material effect on Charter's financial position.

(iii) Welding

The ESAB Group Inc. ('EGI'), an indirect subsidiary of Charter, has been named as a defendant in a number of lawsuits in state and federal courts in the United States alleging personal injuries from exposure to manganese in the fumes of welding consumables. Other current and former manufacturers of welding consumables have also been named as defendants as well as various other defendants such as distributors, trade associations and others. The claimants seek compensatory and, in some cases, punitive damages for unspecified amounts. A multi-district litigation proceeding has been established to consolidate and co-ordinate pre-trial proceedings in the federal court cases.

A summary of recent cases tried to jury verdict in which EGI was a defendant are set out below:

Date of verdict Court Nature of verdict Number of claimants Compensatory damages Punitive damages Number of defendants Post trial motions
US$m US$m sharing award or appeal in
progress
December 2007 Federal Plaintiff 1 20.5 - 4 Yes
March 2008 Federal Plaintiff 1 0.7 1.7 (i) 3 Yes
March 2008 State Defendants 4 - - - Yes
November 2008 State Plaintiff 1 1.9 - 2 Yes
November 2008 Federal Defendants 1 - - - No
February 2009 State Defendants 1 - - - Yes
August 2009 State Defendants 1 - - - No
October 2009 Federal Plaintiff 1 0.8 5.0 (ii) 4 Yes
(i) EGI's share is US$0.75 million
(ii) EGI's share is US$1.75 million

EGI was also a defendant in a number of other state court cases set for trial in 2009. However, all of those cases were either dismissed or postponed.

With the exception of the punitive damage award, if upheld on appeal, EGI's share of the adverse verdicts rendered in December 2007, March and November 2008, and October 2009 should be covered in substantial part by insurance. EGI, together with its co-defendants, is appealing all of the plaintiffs' verdicts noted above. There is, however, no guarantee that an appeal of an adverse verdict will be successful.

There are 8 manganese trials scheduled for the balance of 2010, although it is not anticipated that they will all proceed to trial as scheduled. Additional trials could also be scheduled.

Over the last 18 years, the Welding Industry Defense group, which was established to represent a number of the welding company defendants, including EGI, in this and other litigation, has succeeded in obtaining defence verdicts in the vast majority of cases in which one or more of its members have been named as a defendant.

Whilst litigation is notoriously uncertain and the risk of an adverse jury verdict in any trial exists, having considered the advice of EGI's counsel in the United States, the Directors believe that EGI has meritorious defences to these claims, most of which should be covered in whole or in part by insurance. EGI, in conjunction with other current and former US manufacturers of welding consumables, is defending these claims vigorously. EGI's defence costs, net of insurance recoveries, are estimated to be of the order of US$18.2 million, which is reflected in EGI's balance sheet at 31 December 2009. In view of the foregoing and, in particular, the legal advice received in the United States, the Directors do not consider that such claims will have a material adverse effect on Charter's financial position.

EGI has also been named as a defendant in a small number of lawsuits in Massachusetts and Pennsylvania in which claimants allege asbestos induced personal injuries. The claimants seek compensatory and, in some cases, punitive damages for unspecified amounts from EGI, other welding consumable manufacturers and other defendants who manufactured a variety of asbestos products. EGI has no asbestos cases listed for trial in 2010. EGI has been dismissed prior to trial in the previous cases in which it was named as a defendant. Upon the advice of counsel, the Directors believe that EGI has meritorious defences to these claims and EGI intends vigorously to defend these lawsuits, which should be covered in whole or in part by insurance. In addition, the majority of defence costs are being borne by EGI's insurers.

(iv) Other

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

14 Acquisitions and disposals

During the year ended 31 December 2009, the Group made no acquisitions of subsidiaries. Costs of £0.3 million in relation to a potential acquisition have been charged to the income statement. As explained in note 1, acquisition accounting adjustments have been finalised in relation to the acquisition of Aeolus Industria e Comercio Ltda by Howden on 22 August 2008 and the 2008 comparatives have been restated accordingly (see note 8). During the year ended 31 December 2009, no adjustments have been made to the estimated fair value of the net assets of the other businesses acquired in 2008.

On 13 May 2009, ESAB completed the disposal of HD Engineering Limited, a manufacturer of drilling equipment, consumables and accessories, with net assets of £3.1 million for a cash consideration, net of disposal costs, of £1.7 million resulting in a loss of £1.4 million. Cumulative exchange translation gains previously taken directly to equity of £0.9 million have been recycled through the income statement following this disposal. The cash inflow of £1.3 million, included in the cash flow statement, comprises the net cash consideration of £1.7 million less cash disposed of £0.4 million.

15 Dividends

A dividend of 14.0 pence per share for the year ended 31 December 2008, totalling £23.4 million, was paid on 5 May 2009 and an interim dividend of 7.0 pence per share for 2009, totalling £11.7 million, was paid on 9 September 2009.

The Board is proposing to declare a second interim dividend of 14.5 pence per share in respect of the year ended 31 December 2009. It is anticipated that the dividend will be paid on 7 May 2010 to holders of ordinary shares registered on 16 April 2010. This dividend, totalling £24.2 million, has not been included as a liability as at 31 December 2009.

A dividend of 12.0 pence per share for the year ended 31 December 2007, totalling £20.0 million, was paid on 23 May 2008 and an interim dividend of 7.0 pence per share for 2008, totalling £11.7 million, was paid on 10 October 2008.

Income Access Share arrangements have been put in place to enable shareholders in the Company to elect to receive their dividends from a UK source (the 'IAS election'). All elections remain in force indefinitely unless revoked. Unless shareholders make an IAS election, dividends will be received from an Irish source and will be taxed accordingly.

The Charter Employee Trust has waived its entitlement to receive dividends on its holding of 74,120 ordinary shares in the Company.

16 Share capital

In 2009, 149,089 ordinary shares were issued for consideration of £324,999 on the vesting of awards under the MF Long-Term Incentive Plan and 54,497 (2008: 52,439) ordinary shares were issued for nil consideration on the vesting of awards under the Charter 2005 Long-Term Incentive Plan.

In connection with the Deferred Bonus Plan (details of which were disclosed in the 2008 annual report), during the year the Group acquired 44,502 (2008: 29,618) of its own shares with an aggregate nominal value of £890.04 (2008: £592.36) through purchases on the London Stock Exchange by the Charter Employee Trust. The consideration paid of £0.2 million (2008: £0.2 million) has been deducted from retained earnings. At 31 December 2009 the Charter Employee Trust held 74,120 (2008: 29,618) ordinary shares with a market value of £0.5 million (2008: £0.1 million).

This information is provided by RNS The company news service from the London Stock Exchange

FR LIFFEFAIALII