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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

OR

OR

OR

FOR THE FISCAL YEAR ENDED DECEMBER 29, 2007

COMMISSION FILE NUMBER: 0-17140

Tomkins plc

(Exact name of Registrant as specified in its charter)

England

(Jurisdiction of incorporation or organization)

East Putney House, 84 Upper Richmond Road

London SW15 2ST, United Kingdom

(Address of principal executive offices)

Contact details of Company Contact Person:

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act

None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

None.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by a check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:    Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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In this annual report (the “Annual Report”) on Form 20-F for the fiscal year ended December 29, 2007 (“fiscal 2007”), all references to “Tomkins”, the “Tomkins Group”, the “Group”, the “Company”, “we”, “us” and “our” include Tomkins plc and its consolidated subsidiaries, unless the context otherwise requires.

The consolidated financial statements of Tomkins plc appearing in this Annual Report are presented in pounds sterling (“£”) and are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

In this Annual Report, references to “US dollars”, “$” and “cents” are to United States currency, references to “pounds sterling”, “£”, “pence” and “p” are to British currency, references to “Canadian dollars” are to Canadian currency, and “Euros” are to the currency of certain member states of the European Union.

Certain terms and acronyms used in this document are defined in the glossary on page 84.

Special Note Regarding Forward-Looking Statements

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including assumptions, anticipations, expectations and forecasts concerning the Company’s future business plans, products, services, financial results, performance, future events and information relevant to our business, industries and operating environments. When used in this document, the words “anticipate”, “believe”, “estimate”, “assume”, “could”, “should”, “expect” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current views of management with respect to future events and are subject to certain risks, uncertainties and assumptions. The forward-looking statements contained herein represent a good-faith assessment of our future performance for which we believe there is a reasonable basis. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, adverse changes or uncertainties in general economic conditions in the markets we serve, regulatory developments adverse to us or difficulties we may face in maintaining necessary licenses or other governmental approvals, changes in the competitive position or introduction of new competitors or new competitive products, lack of acceptance of new products or services by the Company’s targeted customers, changes in business strategy, any management level or large-scale employee turnover, any major disruption in production at our key facilities, adverse changes in foreign exchange rates, and acts of terrorism or war, and other risks described in Item 3D “Key Information – Risk factors”. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected.

These forward-looking statements represent our view only as of the date they are made, and we disclaim any obligation to update forward-looking statements contained herein, except as may be otherwise required by law.

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PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

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Item 3. Key Information

A. Selected financial data

The selected financial data set out below as at and for fiscal 2007, fiscal 2006, fiscal 2005 and fiscal 2004 has been derived from the Group’s audited consolidated financial statements prepared in accordance with IFRS. The selected financial data set forth below should be read in conjunction with, and is qualified in its entirety by reference to, such consolidated financial statements and notes thereto and Item 5 “Operating and Financial Review and Prospects”.

The Group adopted IFRS with a transition date of January 4, 2004. Accordingly the Group’s consolidated balance sheet as at January 3, 2004 and January 1, 2005 and its consolidated income statement and consolidated cash flow statement for fiscal 2003 that were originally reported in accordance with UK GAAP were restated in accordance with IFRS. However, the Group was not required to restate its consolidated financial statements for periods ended before January 4, 2004 in accordance with IFRS and is therefore unable to provide in the tables below selected financial data for fiscal 2003 prepared in accordance with IFRS.

Consolidated income statement data

Consolidated balance sheet data

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Discontinued operations

During fiscal 2006, the Group classified Trico as a discontinued operation. The sale of Trico was completed on June 29, 2007.

Management intended that Tridon, a manufacturer of automotive indicator lights, would be included within the Trico sale and it was therefore included within discontinued operations in fiscal 2006. However, Tridon has been retained by the Group and no longer meets the conditions to be classified as held for sale. Accordingly, the Group’s consolidated income statements for fiscal 2006, fiscal 2005 and fiscal 2004 have been re-presented to reflect the re-classification of Tridon to continuing operations in fiscal 2007. During fiscal 2006, Tridon’s revenue was £9.2 million (fiscal 2005: £14.9 million; fiscal 2004: £16.1 million) and it incurred an operating loss of £0.1 million (fiscal 2005: operating profit of £3.6 million; fiscal 2004: operating profit of £4.0 million).

Acquisitions and disposals

Acquisitions and disposals during the three most recent fiscal years are detailed in “Principal acquisitions, disposals, and capital expenditures” under Item 4A “History and development of the Company”.

Foreign exchange rates

The Noon Buying Rate between the US dollar and pound sterling on the Convenience Date was $1.9965 per one pound sterling. The table below sets out the high and low Noon Buying Rate for pound sterling for each month during the previous six months:

The annual average US dollar/pound sterling exchange rates for each fiscal period for which selected financial data has been presented above, are set out in the table below. The rates have been calculated as the average of the month-end Noon Buying Rates for each month during each respective fiscal year.

Dividends

The Company has paid cash dividends on its Ordinary Shares in respect of every fiscal year since being first listed on the LSE in 1950.

Dividends are paid to shareholders as of record dates that are fixed after consultation between the Company and the LSE. For fiscal 2007, an interim dividend was declared by the Board in August 2007 and was paid in November 2007. A final dividend was recommended by the Board following the end of fiscal 2007 and will, subject to approval by the shareholders at the Company’s annual general meeting on May 1, 2008, be paid on May 15, 2008 to shareholders on the register on April 18, 2008.

The table below sets forth the amounts of interim, final and total dividends paid in respect of each fiscal year indicated.

The Company expects to continue to pay dividends in the future. The total amounts of future dividends will be determined by the Board and will depend on the Company’s results of operations, cash flow, financial and economic conditions and other factors. Management expects dividend payments to follow the same pattern in future years and anticipates the weighting of these payments to be approximately 40 percent for the interim dividend and 60 percent for the final dividend. Cash dividends are currently paid by the Company in pounds sterling, and fluctuations in the exchange rate between pounds sterling and US dollars will affect the US dollar amounts received by holders of ADRs upon conversion by the Depositary of such dividends. Moreover, fluctuations in the exchange rates between the pound sterling and the US dollar will affect the US dollar equivalents of the pound sterling price of the Ordinary Shares on the LSE and, as a result, are likely to affect the market prices of the ADSs which are quoted in US dollars.

Subject to the consent of the High Court of Justice in England and Wales, the Company’s Ordinary Shares will be re-denominated in US dollars and future dividends will be declared and paid in US dollars although, unless they elect otherwise, UK shareholders would continue to receive dividends in pounds sterling. It is expected that re-denomination will take place before declaration of the interim dividend for fiscal 2008 in August 2008. The Company’s Ordinary Shares will remain listed on the LSE, where they will continue to be quoted in pounds sterling. The Company will remain listed on the NYSE, where its ADRs will continue to be quoted in US dollars. The Company will continue to have its headquarters in the United Kingdom.

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B. Capitalization and indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

D. Risk factors

The Group operates globally in varied markets and is affected by a number of risks inherent in its activities, not all of which are within its control. This section highlights specific areas where we are particularly sensitive to business risk. Our financial condition or results of operations could be materially adversely affected by any of these risks. Additional risks not currently known to us, or risks that we currently regard as immaterial, could also have a material adverse effect on our financial condition and/or the results of operations.

The Group has categorized its risks as those relating to:

The principal risks and uncertainties faced by the Group are set out below.

1. Risks relating to the markets within which the Group operates

There are a number of risks in the markets in which the Group operates which could have a material adverse effect on the Group’s business, financial condition or results of operations:

(a) Cyclical nature of markets

Operating in global markets subjects the Group to risks associated with changes in global economic conditions. The current economic malaise driven by the state of US credit markets may spread globally, dampen demand, increase price pressure, reduce margins and accelerate customer consolidation. These pricing pressures and declining demand risks are particularly acute in our housing, commercial construction and automotive markets, where demand is ultimately affected by consumer spending and consumer preferences. Trends in these markets can be difficult to predict. In fiscal 2007, approximately 21 percent of the Group’s sales were to the automotive OE market. Because the production volumes of automotive OEMs depend on general economic conditions and consumer spending levels, automotive production and sales can be highly cyclical. The volume of automotive production in the United States, the Group’s principal geographic segment, has fluctuated, sometimes significantly, from year to year, and such fluctuations give rise to fluctuations in the demand for the Group’s products.

In fiscal 2007, 22.1 percent of the Group’s sales were to the residential and non-residential construction markets in North America, predominantly the United States. The construction industry in the United States was depressed throughout 2007 and is expected to continue facing challenges in 2008 with the NAHB forecasting that housing starts in 2008 will be down approximately 20 percent in the United States from their 2007 level of 1.4 million. The timing of a recovery in the US residential housing market now seems unlikely to occur until 2009, with this end-market showing greater weakness in the first quarter than commentators had predicted.

(b) Loss of market share by US vehicle manufacturers

In recent years, the Detroit Three have seen a decline in their market share for vehicle sales, particularly in North America, with Asian automobile manufacturers increasing their market share. The automotive industry is characterized by overcapacity and fierce competition. In North America it is also affected by significant pension and healthcare liabilities. In fiscal 2007, the Group derived 10 percent of its worldwide sales from the Detroit Three and therefore if this trend of market share loss by the North American manufacturers continues and the Group’s share of business with other vehicle manufacturers does not increase, it may result in lost market share, lower sales and/or lower profitability.

(c) Improvement in vehicle component life

The greater quality, performance and reliability of the components that the Group manufactures improves service life which could reduce demand for the products the Group sells through the aftermarket business segment.

(d) Regulatory environment

The Group is subject to a variety of environmental regulations in the industries in which it operates, particularly relating to waste water discharges, air emissions, solid waste management and hazardous chemical disposal. The Group may not at all times be in complete compliance with all of these regulations, and it may incur material costs to comply with, or liabilities in connection with, these regulations.

(e) Operations in foreign and emerging markets

The Group operates in a number of geographic regions of the world, including emerging markets, and approximately 41 percent of its sales originate outside the United States. Operations in foreign and emerging markets may subject the Group to the risks inherent in operating in such markets, such as economic and political instability, other disruption of markets, restrictive laws and actions of certain governments, difficulty in obtaining distribution and logistical resources, potential adverse tax consequences and inability to effectively protect intellectual property rights. If we are unable to manage successfully the risks inherent in our international activities, our business, financial condition and results of operations could be materially and adversely affected.

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2. Risks relating to the competitive position of the Group and its businesses

There are a number of risks to the Group’s competitive position that could have a material adverse effect on its business, financial condition or results of operations.

(a) Industry consolidation may result in more powerful competitors and fewer customers

Some of the Group’s customers and some of its competitors in a number of markets, particularly in the automotive aftermarket, and to a lesser extent in the markets of the Air Systems Components segment, are consolidating to achieve greater scale or market share. Such changes could affect the negotiating leverage of the Group’s customers and their relationship with the Group. As the Group’s customers become larger and more concentrated, they could exert pricing pressure on all suppliers, including the Group, which may materially and adversely affect the Group’s margins.

(b) Significance of revenues generated from the Detroit Three

Approximately 10 percent of the Industrial & Automotive business group’s sales in fiscal 2007 came from direct sales to the Detroit Three. These customers have strong purchasing power as a result of high market concentration and the Group’s reliance on them subjects it to potential pressures on its sale prices that may reduce the Group’s profitability.

(c) Price reductions by customers

It is normal practice for customers to seek reductions in their costs from their suppliers over the duration of any committed supply arrangement. To meet such requests for price reductions whilst maintaining profit margins, the Company has had to achieve corresponding cost savings in the business by strategic sourcing of raw materials and by improving production and manufacturing efficiencies. The Group may be unable to achieve such cost reductions in the future, which could result in lower margins or the loss of customers.

(d) Increased competition from low-cost producers

The Group increasingly faces competition from low-cost sources in the developing economies of the world, which may lead to loss of market share and/or reduced margins.

(e) Increasing raw material and energy costs

Steel, aluminum, oil based resins and energy are a significant part of the Group’s costs. If costs of these raw materials and energy increase, the Group may be unable to sustain margins if it is unable to pass such increases on to its customers. Fiscal 2007 saw no softening of the challenging cost environment for raw materials that has existed for the past three years.

(f) Reliance on certain raw materials and suppliers of key components

The Group’s businesses compete globally for certain raw materials, energy and other key components. Disruptions due to the lack of availability of raw material and energy supplies, particularly as a result of rising demand from rapidly-developing economies, may adversely affect our ability to service our customers and may erode our margins.

(g) Dependence on strong relationships with manufacturers’ representatives, distributors and wholesalers

A significant portion of our sales, particularly in the Power Transmission segment and Building Products business group, is made through manufacturers’ representatives, distributors and wholesalers. A deterioration in the relationships with manufacturers’ representatives, distributors and wholesalers or a change in the Group’s products’ distribution channels could materially and adversely affect the Group’s sales.

(h) Inherent supply chain risks

The Group operates in highly competitive markets and the failure to deliver products within acceptable timeframes could have an adverse effect on the business. Customer driven reductions in lead times, carrier consolidation, reduced capacity from driver shortages, fuel availability/cost and longer supply chains concomitant with sourcing from low-cost countries may all impact service levels resulting in loss of customers or missed opportunities. Additionally, short lead time horizons in many of our businesses exposed to the US consumer can impair forecasting accuracy. This may result in the inability to predict abrupt changes in our US driven end markets.

(i) Product liability claims due to the nature of the Group’s products

The nature of the Group’s products means that we face an inherent risk of product liability claims, including claims for injury, property damage or consequential loss. Fewer suppliers due to vendor consolidation and a less qualified offshore supplier base increase the likelihood of receiving defective components for our products, increasing the risk of product failure and resultant liability claims.

(j) Technological changes

The markets for the Group’s products and services are characterized by evolving industry standards and changing technology which may lead to commoditization of its products, allowing for low switching costs and increased pricing pressures, which could result in loss of customers and reduced margins. Continual development of advanced technologies for new products and product enhancements is an important way in which the Group maintains acceptable pricing levels. If the Group’s core products are displaced or made obsolete, the Group may lose customers, which would have an adverse effect on its results of operations.

(k) Dependence on investment and divestment decisions

The Group is involved in activities and plans relating to restructuring, rationalization, investments and acquisitions. These represent important steps in the expansion of our businesses into attractive markets and improvement in their competitive position. If the Group were to make inappropriate investment and divestment decisions or fail to implement major projects, such as systems development, product development or plant closures, there may be destruction of value, returns below expectations and/or business interruption.

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(l) Dependence on human resources strategy

If the Group is unable to timely identify, attract and retain excellent non-management, management and executive talent, it may not be able to effectively implement its business strategy, or it may experience delays in the development of, or face difficulty in selling, its products and services.

(m) Dependence on the continued operation of the Group’s manufacturing facilities

While the Group is not heavily dependent on any single manufacturing facility, major disruptions at a number of the Group’s manufacturing facilities, due to labor unrest, natural disasters or mechanical failure of the Group’s facilities, could result in significant interruption of the Group’s business and potential loss of customers and sales.

(n) Capacity, reliability and security of the Group’s computer hardware, software and telecommunications infrastructure

The Group currently secures its networks by means of back up, hardware, virus protection and other measures, but any systems interruption could lead to a reduction in performance or loss of services. The Group’s systems are vulnerable to damage or interruption caused by human error, network failure, natural disasters, sabotage, computer viruses and similar disruptive events. A breach of network security could result in a loss of customers and reduced revenues.

(o) Intellectual property rights

The Group’s proprietary technology is protected by patents and trade secrets which could be at risk if:

(p) Work stoppages or other labor issues at our facilities or at our customers’ facilities

Some of the Group’s employees are members of labor unions. While the Group considers its relations with its employees and labor unions to be good, if the Group is unable to maintain these relations, there may be disputes and work stoppages that could affect production of the Group’s products. Some of the Group’s customers, particularly in the automotive industry, have highly unionized workforces and have been involved in major disputes in the past. If any of our customers experiences a work stoppage, that customer may halt or limit the purchase of the Group’s products which could, in turn, force the Group to shut down its own production facilities supplying these products.

3. Financial Risks

Certain financial risks could have a material adverse effect on the Group’s business, financial condition or results of operations.

(a) Pension plans

The Group operates defined benefit pension plans, the majority of which are in the United States and the United Kingdom. The defined benefit schemes were in deficit by £60.7 million as at December 29, 2007. Deterioration in the market value of the assets held by these plans or a reduction in long-term interest rates could lead to an increase in the deficit or give rise to an additional funding requirement.

(b) Health care and workers’ compensation

Healthcare and workers’ compensation are provided by certain subsidiaries to current and former employees in the United States. Healthcare costs in the United States are increasing at a faster rate than general cost inflation and these cost increases have to be absorbed by the business. In fiscal 2007, the medical cost inflation rate relating to the Group’s plans was 7.1 percent.

(c) The Group is subject to multiple tax jurisdictions

The Group operates within multiple tax jurisdictions and is subject to audit in those jurisdictions. These audits can involve complex issues, which may require an extended period of time for resolution. Although provision has been made for such issues, the ultimate resolution may result in additional tax charges and cash outflows.

(d) Funding growth

The Group may require capital to expand its business, implement its strategic initiatives and remain competitive. At present, the Group’s established sources of funding are through equity, corporate bond markets (through the EMTN Program), bank debt and cash flow from operations. Management believes that the sources of funding currently available will be sufficient to fund the Group’s operations. If management’s plans or assumptions regarding the funding requirements change, the Group may need to seek other sources of financing, such as additional lines of credit with commercial banks or vendors or public financing, or to renegotiate existing bank facilities. It is possible that additional funding may not be available on commercially acceptable terms or at all.

(e) Bondholders’ rights

The Group has an EMTN Program under which it has £400 million in principal bonds outstanding and it may issue bonds in the future. The Group’s bondholders have the right to require the Group to redeem its outstanding bonds, at par, in the event of a change of control of the Company and also in the event that the Group’s credit rating falls below investment grade as a result of the Group making either acquisitions or disposals that comprise more than 25 percent of the Group’s operating profit in a twelve calendar month period. The Group may not have sufficient funds to repurchase such notes as required.

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(f) Fluctuations in currency exchange rates

The Group has manufacturing facilities in, and sells products to customers in, many countries worldwide. The principal currencies in which the Group trades are US dollars, Canadian dollars, Euros and pounds sterling. Currency exchange movements can give rise to the following risks:

4. Risks related to the securities market and ownership of ADSs

Holders of ADSs may be restricted in their ability to exercise voting rights

Holders of ADSs will generally have the right under the deposit agreement to instruct the Depositary for the ADSs to exercise their voting rights for the registered shares represented by ADSs. At management’s request, the Depositary will mail to holders of ADSs any notice of any shareholders’ meeting received from the Company together with information explaining how to instruct the Depositary to exercise the voting rights of the securities represented by ADSs. If the Depositary receives voting instructions for a holder of ADSs on a timely basis, it is obligated to endeavor to vote the securities representing the holder’s ADSs in accordance with those voting instructions. The ability of the Depositary to carry out voting instructions, however, may be limited by practical limitations, such as time zone differences and delays in mailing.

ADS holders may be unable to participate in rights offerings and similar transactions in the future

US securities laws may restrict the ability of US persons who hold ADSs to participate in certain rights offerings or share or warrant dividend alternatives which the Company may undertake in the future in the event that the Company does not register such offerings under the US securities laws and is unable to rely on an exemption from registration under these laws. If the Company issues any securities of this nature in the future, it may issue such securities to the Depositary, which may sell those securities for the benefit of the holders of the ADSs. However, the Depositary is not obligated to do so. Management cannot offer any assurance as to the value, if any, the Depositary would receive upon the sale of those securities or if it would sell the securities at all.

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Item 4. Information on the Company

A. History and development of the Company

General

The Company was incorporated in England in 1925, converted from a private company into a public company in March 1950 and re-registered as a public limited company in February 1982. The Company’s Ordinary Shares are listed on the LSE and have been listed on the NYSE in the form of ADSs evidenced by ADRs since February 1995. Prior to listing on the NYSE, the ADSs had been quoted on the Nasdaq National Market since November 1988. The Company is registered in England and Wales No. 203531 and operates under English law. The Company’s registered office is East Putney House, 84 Upper Richmond Road, London SW15 2ST, United Kingdom (Telephone: +44 (0) 20 8871 4544) and its website is www.tomkins.co.uk.

The Company is the ultimate parent of a large number of subsidiaries that are organized in two business groups:

Industrial & Automotive manufactures a wide range of systems and components for car, truck and industrial equipment manufacturing markets, and industrial and automotive aftermarkets throughout the world. During fiscal 2007, Industrial & Automotive operated through five business segments: Power Transmission, Fluid Power, Wiper Systems, Fluid Systems and Other Industrial & Automotive. Trico, which constituted the Wiper Systems business segment, was classified as a discontinued operation during fiscal 2006 and was sold on June 29, 2007.

Building Products is comprised of two business segments: Air Systems Components and Other Building Products. Air Systems Components supplies the industrial and residential HVAC market mainly in North America. Other Building Products manufactures a variety of products for the building and construction industries mainly in North America.

The Group is geographically diverse, operating 142 manufacturing facilities and 55 distribution centers in 24 different countries across the Americas, Europe, Asia, and Australia.

The Industrial & Automotive business group operates in all 24 countries in which the Group operates, while the Building Products business group is located in the United States, Canada, Mexico, the United Kingdom, India and Thailand. Overall, 63 percent of sales in fiscal 2007 was derived from the United States, 16 percent from Europe, and 21 percent from the rest of the world.

Group sales in fiscal 2007 were to the following end markets:

History

The Company was founded in 1925 as F.H. Tomkins Buckle Company Limited, a small British manufacturer of buckles and fasteners, which it remained until the 1980s. In the late 1980s, the Company made a number of acquisitions of engineering companies in both the United Kingdom and the United States. In 1992, the Group diversified into food manufacturing, with the acquisition of Ranks Hovis McDougall plc in the United Kingdom.

In fiscal 1996, the Group established the Industrial & Automotive business group with the acquisition of The Gates Corporation.

Between 1997 and 2007, management embarked on a program of disposing of non-core businesses and enhanced its remaining core businesses through a number of bolt-on acquisitions. In the early 2000s, the Group disposed of its Food Manufacturing and Professional, Garden and Leisure Products business groups and became focused on its two remaining business groups: Industrial & Automotive and Building Products. The Industrial & Automotive business group acquired Stant Corporation (1997), ACD Tridon (1999) and Stackpole (2003), and disposed of Trico (2007). The Building Products business group acquired Hart & Cooley (1999) and Selkirk (2006) and disposed of Lasco Fittings (2007).

Principal acquisitions, disposals, and capital expenditures

This section should be read in conjunction with Item 5 “Operating and Financial Review and Prospects” and with Notes 43 and 44 to the Group’s consolidated financial statements.

Acquisitions and disposals

Fiscal 2007

In fiscal 2007, the Industrial & Automotive business group increased its interest in Schrader Engineered Products (Kunshan) Co Ltd, a manufacturer of valves and fittings, from 60 percent to 100 percent, and it also acquired Swindon Silicon Systems Ltd, a UK company that designs, develops and supplies integrated circuits.

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During fiscal 2007, the Industrial & Automotive business group sold Dearborn, a manufacturer of automotive assembly lines and materials handling equipment and Tridon’s indicator and side object detection businesses. The Building Products business group sold the business and assets of Lasco Fittings Inc., a manufacturer of injection moulded fittings. Also during fiscal 2007, the Group completed the sale of Trico, which constituted the Group’s discontinued Wiper Systems segment.

Fiscal 2006

In fiscal 2006, the Industrial & Automotive business group acquired a 60 percent interest in Gates Winhere (which, through a wholly-owned subsidiary, acquired the business and assets of a water pump manufacturer in China) and a 100 percent interest in ENZED Fleximak Ltd, a supplier of engineering, fabrication, testing and service operations for flexible fluid transfer products in the Arabian Gulf region. The Building Products business group acquired Selkirk Americas L.P., a manufacturer of chimney, venting and air distribution products, Eastern Sheet Metal, a manufacturer of commercial HVAC systems and Heat-Fab Inc, a US-based manufacturer of high efficiency residential and commercial venting systems. The Group also acquired a 20 percent interest in e-business and logistics services provider, CoLinx LLC, which paved the way for the launch of an online store for industrial power transmission products in January 2007.

No businesses were sold in fiscal 2006.

Fiscal 2005

In fiscal 2005, the Industrial & Automotive business group acquired L.E. Technologies, a recreational vehicle frame manufacturer and EMB, a manufacturer of high-performance hydraulic tube fittings, adapters and accessories. The Building Products business group acquired Milcor Inc, a multi-brand manufacturer of building products and NRG Industries Inc., a multi brand manufacturer of commercial building accessories.

In fiscal 2005, the Industrial & Automotive business group sold Unified Industries, Inc, the Air Springs division and the business and assets of the North American Curved Hose business. The Building Products business group sold the business and assets of Gutter Helmet, part of the Hart & Cooley residential construction business.

Disposals in each of the above fiscal years were executed as part of management’s program to dispose of all non-core businesses.

Capital expenditure

Due to the diverse nature of the business, there is no individual item of capital expenditure that has had a material impact on the position of the Company and no individually significant capital expenditure project that is currently in progress.

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B. Business overview

Segment analysis

The segment information presented below is prepared in accordance with IFRS.

The Group determines its reportable segments based on the structure of the internal financial reports that are used by senior management for decision-making purposes and its primary segment reporting format is by business segment. The Group is organized for management reporting purposes into two principal business groups: Industrial & Automotive and Building Products.

During fiscal 2007, Industrial & Automotive operated through five business segments: Power Transmission, Fluid Power, Wiper Systems, Fluid Systems and Other Industrial & Automotive. Trico, which constituted the Wiper Systems business segment, was classified as a discontinued operation during fiscal 2006 and was sold on June 29, 2007.

Building Products is comprised of two business segments: Air Systems Components and Other Building Products.

Additional segmental information is provided in Note 4 to the Group’s consolidated financial statements.

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Reconciliation of the total segment result to operating profit:

Industrial & Automotive

The Industrial & Automotive business group has corporate offices in the United States and Canada. It supplies industrial and automotive parts, components and systems, serving a wide variety of industries, including the industrial and automotive OE and replacement markets, transportation, energy and natural resources and agricultural markets.

The Industrial & Automotive business group operates 79 manufacturing facilities and 46 distribution centers in 24 countries. It has businesses in North America, Europe, Asia, South America, Australia and the Middle East, with more than half of the manufacturing facilities located in North America and Mexico. European operations include 16 manufacturing facilities and the Asian businesses operate 13 facilities, seven of which are in China.

The Industrial & Automotive business group employed on average 21,296 people around the world in fiscal 2007. Its products are sold directly to industrial and automotive OEMs and, through a network of approximately 150,000 distributors worldwide, to the industrial and automotive replacement markets.

Power Transmission

Brands

Power Transmission produces a comprehensive global product line ranging from automotive synchronous belt and accessory belt drive systems to heavy-duty industrial belt drives. A variety of process and material technologies are used to design, manufacture, market, and distribute complete power transmission systems to both OEM and replacement markets. Power Transmission is globally integrated to standardize product and process technology, maximizing resource utilization. The segment supports and supplies customers globally through regional management in the Americas, Europe and Asia.

Gates is the world’s largest manufacturer of power transmission belts for problem-solving applications, with manufacturing and research facilities in 20 countries. Its products are sold directly to industrial and automotive OEMs and through a global network of dealers.

Gates Mectrol was acquired by the business group in December 2004 and currently employs more than 180 people operating manufacturing and sales facilities in the United States, Germany and Mexico.

Stackpole is a Canadian-based manufacturer of powertrain components, systems and assemblies primarily for use in automotive engines and transmissions. The company has more than 1,500 employees at six operating facilities in Canada and the United Kingdom.

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Fluid Power

Brands
Products		Gates Automotive:		Moulded hoses, curved radiator hoses, coolant hoses, fuel line and oil system hoses, air and defroster system hoses, vacuum line hose and tubing
		Gates Industrial:		Hoses for handling oil, water, air, grease sprays, paraffin waxes, salt solutions and an assortment of chemicals

The Fluid Power segment is a manufacturer of engineered hose, fittings and accessories for hydraulic power transmission systems used in both mobile and stationary industrial equipment, focusing primarily on the petroleum, chemical and food/beverage sectors. The segment also produces a wide range of products used in engine cooling, power steering, braking and fuel system applications. The development of next-generation products is focused on evolving the existing product line into a full port-to-port sub-system capable of providing systems and design concepts that reduce leaks, warranty and assembly labor costs.

The segment serves customers in North America, South America, Europe and Asia. The fiscal 2005 acquisition of German-based EMB, a manufacturer of hydraulic tube connection systems for a variety of applications, has resulted in an expanded product range and geographic presence in Eastern Europe and Asia.

Fluid Systems

The Fluid Systems segment is a designer, manufacturer and distributor of a broad range of automotive fluid conveyance and fluid management components and modules. Applications include fuel delivery, emission control, engine management, braking, power steering, coolant, air conditioning and windshield washing. Products are sold primarily for use as original equipment by manufacturers of cars and trucks and in the automotive replacement market as repair parts and accessories. Fluid Systems’ products are also sold in wholesale and retail automotive parts and distribution outlets in North America, Europe and Latin America including the service departments of OEM dealers.

Through Schrader Electronics, the Fluid Systems segment is the technology leader in RTPMS, a driver information and passenger security system that is economically and ergonomically integrated into vehicle electronic information systems. Stant Manufacturing designs, manufactures and markets a variety of valves and fuel, oil and radiator closure caps. Standard-Thomson is a manufacturer of engine thermostats used in automotive cooling systems. Schrader-Bridgeport International provides a wide range of tire valve, hardware and specialty valve products worldwide.

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Other Industrial & Automotive

Brands

Other brands include: LubriMatic, Tru-Flate, Tridon,

Other Industrial & Automotive includes the trailer axles, materials handling and aftermarket businesses.

Dexter Axle and the Dexter Chassis Group produce and market their products primarily in the United States directly to OEMs and through distributors. The product line is focused on the general utility, recreational vehicle, highway trailer and manufactured housing markets.

Dearborn designs, fabricates and installs various conveyor systems for the automotive, industrial and utilities industries. During fiscal 2006, Dearborn was classified as held for sale, and its sale was completed on November 23, 2007.

The aftermarket business integrates the manufacture, marketing, sales and distribution of products destined for both the aftermarket and OE markets, under a variety of brands. Ideal is a designer and clamp manufacturer based in the United States, with additional operations in Mexico and China. Also based in the United States, Plews-Edelmann is a designer, manufacturer and distributor of a broad range of automotive parts and tools that are sold worldwide.

Building Products

The Building Products business group manufactures a range of products for residential and commercial buildings, supplying both the new-build and refurbishment sectors. Its product portfolio comprises air systems components (manufacturing a wide range of components for the HVAC markets, principally in North America), bathware (manufacturing a range of baths, shower cubicles and luxury whirlpools for the North American residential market), and doors and windows (manufacturing uPVC doors and windows for the residential and manufactured housing markets in North America).

The Building Products business group operates 63 manufacturing facilities and nine distribution centers in six countries. 59 of the manufacturing facilities are in the United States, Mexico and Canada, with two in the United Kingdom and one in Thailand and India, respectively. The distribution centers are all based in Canada and the United States.

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Air Systems Components

Brands

Air Systems Components designs and manufactures products for industrial, commercial and residential applications that are primarily sold in the United States, Canada, Mexico and the United Kingdom. Slightly less than half of the segment’s sales pass through manufacturers’ representatives and approximately 35 percent are sold through wholesalers, principally in the residential market. The balance of sales is direct to OEMs, national accounts and retail customers.

Air Systems designs and manufactures a range of air system products for industrial, institutional and commercial applications. These products are sold primarily to manufacturers’ representatives for resale to contractors. Hart & Cooley and Selkirk supply the residential and light commercial markets in the United States, Canada and Mexico, marketing their products primarily through wholesale distributors and retail customers.

Ruskin produces and markets commercial and industrial air system components that are sold directly to manufacturers of HVAC equipment and to contractors and commercial users principally through manufacturers’ representatives. Ruskin Air Management, a United Kingdom business, markets its products principally in the United Kingdom and continental Europe.

Other Building Products

Brands

Lasco Bathware manufactures one quarter of all baths in the United States as well as an extensive range of luxury whirlpools. It operates from nine facilities across the United States with national distribution to home centers and wholesalers. Products are also sold directly to builders who use the company installation services. Aquatic Industries, a division of Lasco Bathware, produces up-market acrylic whirlpools, principally for the dealer/distributor market in the United States and also supplies standard and customized products for hotel and resort developments internationally.

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Lasco Fittings manufactures plastic fittings used in irrigation, water works, swimming pools and spas, for commercial and industrial applications as well as for residential plumbing. Lasco Fittings was classified as held for sale during fiscal 2006, and was sold on February 23, 2007.

Philips Products is based in the United States and produces windows, doors and venting products for the residential, manufactured housing, recreational vehicle and specialty trailer markets. Its products are manufactured in seven plants across the United States and are sold primarily through distributors to builders in the new housing and refurbishment sectors. The business has received Florida/coastal state building code and hurricane approvals for its current residential vinyl window products allowing for growth in these regional coastal markets.

Raw Materials and Energy Supplies

The Group purchases a broad range of raw materials, components and products from around the world in connection with its activities. The ability of the Group’s suppliers to meet performance and quality specifications and delivery schedules is important to its operations, but the Company is not dependent on any single source of supply for critical materials. The energy and materials required for the Group’s manufacturing operations tend to be readily available, however, basic raw materials such as steel, aluminum, nickel, polymers and resins can be subject to significant fluctuations in price.

Generally, the Group has secured sales price increases that have enabled it to pass on the increased cost of raw materials to its customers. The ability to procure lower-cost materials and to re-source materials used in our products is an ongoing priority, particularly with the challenging cost environment for raw materials that has existed for the past three years. We have established functions in both China and India to source low-cost materials for businesses across the Group and the Group engages in multiple-source and geographically diverse procurement policies, strategic customer pricing reviews and expanded geographic diversity in buying.

Seasonality

Industrial & Automotive

Sales to Automotive OEMs do not tend to exhibit seasonal patterns. Sales into the aftermarket are generally stronger during the winter months reflecting higher levels of demand for replacement parts for vehicles during this period. Sales to Industrial OEMs are strongest from October to April for outdoor power equipment and from February to June for agricultural equipment.

In the Fluid Power OEM segment, moderate seasonality is primarily driven by consumer demand and crop-related seasonal activities. Production of construction equipment declines in the summer months followed by a resurgence of activity in the late fall, early winter and spring. Farm equipment production levels are driven by purchases prior to the relevant planting and harvesting seasons. The remaining markets served by the Fluid Power segment do not exhibit significant seasonal patterns.

Building Products

Sales to the construction industry generally slow down in November and December before the Thanksgiving, Christmas and New Year holiday season and are generally stronger in the spring and summer months. Sales can also be affected regionally by severe weather. Heating product sales are more concentrated in the fall and cooling product sales in the spring.

Patents and Trademarks

Management believes that the Group’s operations are not dependent to any significant degree upon any single or series of related patents or licenses, or any single commercial or financial contract. Management also believes that the Group’s operations are not dependent upon any single trademark or trade name, although trademarks and trade names are identified with a number of the Group’s products and services and are of importance in the sale and marketing of such products and services.

Governmental Regulation

The Company’s subsidiaries are regulated by governmental authorities in a number of countries. Many of the products produced by the Company’s subsidiaries are subject to governmental regulation regarding their production (including environmental regulations), sale, advertising, safety, labeling and raw materials. Management believes that the Company’s subsidiaries have taken sufficient measures to comply with applicable local, federal and/or national regulations.

Some of the regulations applicable to the Company’s subsidiaries include regulations that would allow local, national or federal authorities to mandate product recalls, or provide for the seizure of products, as well as other sanctions. Management believes that the controls implemented by subsidiaries minimize the risk of the occurrence of such events and that such risks do not pose a material threat to the Company. It is standard practice for contracts with OEMs to limit compensation arising from product recalls to direct costs (recall notification and replacement). Warranty limitations and exclusions are printed on all customer-facing material.

The Company maintains worldwide insurance coverage for product liability claims and believes that its level of insurance coverage is adequate.

The Company’s subsidiaries are subject to regulation under various and changing federal, state and local laws and regulations relating to the environment and to employee health and safety. These environmental laws and regulations govern the generation, storage, transportation, disposal and emission of various substances. Permits are required for operation of certain businesses carried out by the Company’s subsidiaries (particularly air emission permits) and these permits are subject to renewal, modification and, in certain circumstances, revocation. Management believes that the Company’s subsidiaries are in substantial compliance with laws and regulations that could allow regulatory authorities to compel (or seek reimbursement for) clean-up of environmental contamination at its subsidiary-owned sites and at facilities where its waste is stored or disposed of.

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C. Organizational structure

The Company is the parent of a large number of subsidiaries that are organized into two principal business groups managed through a Corporate Center. The Group’s organizational structure is as follows:

A list of the Company’s principal subsidiaries, including their name, country of incorporation and the Group’s ownership interest, is set forth in Exhibit 8.1.

D. Property, plant and equipment

The Group’s principal executive offices are located in London, England. The Group’s plants, warehouses and offices are located in various countries throughout the world, with a large proportion in North America. The Group owns many of these properties and continues to improve and replace properties when considered appropriate to meet the needs of its individual operations. There are no individually significant properties that were under-utilized during fiscal 2007.

The net book value as at December 29, 2007 of the Group’s property, plant and equipment was £709.7 million, of which £6.3 million related to assets held under finance leases. The table below provides an analysis of the geographic spread of the Group’s total property, plant and equipment. As at December 29, 2007, the Group operated 142 manufacturing facilities and 63 sales offices or distribution centers in 24 countries across the Americas, Europe, Asia, and Australia. With the exception of assets held under finance leases with a carrying amount of £6.3 million, which are secured by a lessor’s charge over the leased assets, there were no encumbrances over the Group’s property, plant and equipment as at December 29, 2007.

Included in “Rest of the World” in the table above are assets with a net book value of £147.3 million and £31.9 million located in Canada and China respectively.

Due to the diverse nature of the business, management believes that there is no individual fixed asset at December 29, 2007, the loss of which would have a material impact on the position of the Group as a whole. Similarly there are no plans to construct, expand or improve facilities that would, on completion or cancellation, significantly affect the Group’s operations.

Item 4A. Unresolved Staff Comments

None.

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Item 5. Operating and Financial Review and Prospects

A. Operating results

Basis of preparation

The Group’s consolidated financial statements set out on pages F-2 to F-62 of this document are prepared in accordance with IFRS. Selected financial data, also prepared in accordance with IFRS, is set forth in Item 3A “Selected Financial Data”.

The operating and financial review presented below refers to adjusted operating profit. This is a non-GAAP measure used by management and the Board for the purposes of making decisions about allocating resources within the Group and assessing the performance of each segment.

Reconciliations are provided below for the Group and each business group of segment result to operating profit (both GAAP measures) and of operating profit to adjusted operating profit.

Additional segment information is provided in Note 4 to the Group’s consolidated financial statements.

Fiscal 2007 results compared with fiscal 2006 results

Group overview

The diversity of the Group, particularly as it has grown in new markets around the world, gives the Group both strength and resilience. This diversity enabled the Group to maintain a strong operating profit margin in fiscal 2007, despite the challenging end markets. Highlights in fiscal 2007 included:

Reconciliation of segment result to adjusted operating profit

Sales were £2,941.9 million for fiscal 2007, a decrease of £191.9 million (6.1 percent) from sales of £3,133.8 million for fiscal 2006. Cost of sales dropped from £2,272.0 million in fiscal 2006 (representing 72.5 percent of sales) to £2,141.5 million for fiscal 2007 (representing 72.8 percent of sales). Distribution and administration expenses decreased by 5.3 percent to £539.7 million in fiscal 2007 from £570.2 million in fiscal 2006, representing 18.3 percent of sales for fiscal 2007 and 18.2 percent of sales for fiscal 2006.

Adjusted operating profit was £264.7 million (fiscal 2006: £295.8 million), reflecting the economic weakness across a number of the Group’s markets. This translated into a 0.4 percent decrease in the Group’s operating margin from 9.4 percent in fiscal 2006 to 9.0 percent in fiscal 2007.

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Restructuring initiatives

Management has undertaken various restructuring activities to streamline operations, consolidate and take advantage of available capacity and resources, and ultimately to achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize the Group’s businesses and to relocate manufacturing operations to lower cost markets. During fiscal 2007 there was a gain of £31.9 million from restructuring initiatives compared with a loss of £9.9 million in fiscal 2006. Restructuring initiatives comprise restructuring costs and gains/losses on disposals and exits of businesses.

Restructuring costs

In fiscal 2007, the restructuring costs of £13.8 million principally related to the rationalization of production facilities within the Lasco Bathware and Philips Products businesses in the United States (£2.4 million), the outsourcing of information technology services (£2.7 million), and the initiatives within the Fluid Power and Air Systems Components segments that began in fiscal 2006 (£7.4 million). The fiscal 2006 restructuring costs were lower at £13.0 million, and included the transfer of the activities of Fluid Power’s facility at St. Neots in the United Kingdom to a new facility in the Czech Republic, the closure of Air Systems Components’ Holland, Michigan facility and the cost-saving initiatives within Stackpole and the Air Systems Components segment that began in fiscal 2005.

On May 3, 2007, management announced that Stackpole was to be integrated into the Gates group to enable the Group to further exploit the available synergies from the combined technologies, products and market positions of Gates and Stackpole and leverage the global reach of the Gates business. As part of this restructuring, during the second quarter of fiscal 2007 management carried out an assessment of the carrying value of certain assets of the Stackpole business, taking into account the outlook for its markets and customers. This assessment, as well as the normal year end strategic assessment of the Group’s businesses, supported the existing carrying values of the business based on projected cash flows. Further information on the carrying value of the Stackpole business as at December 29, 2007 can be found under “Critical Accounting Estimates – Impairment of non-current assets” below.

Gains/losses on disposals and exit of businesses

In fiscal 2007, the Group recognized gains on disposals and exit of businesses of £45.7 million, including a gain of £32.6 million on the disposal of Lasco Fittings Inc., a gain of £6.7 million on the disposal of Dearborn and a loss of £1.3 million on the disposal of Tridon’s indicator and side object detection businesses. Also during fiscal 2007, the Group recognized a gain of £7.7 million on the disposal of corporate property. In fiscal 2006, the Group recognized a gain of £3.1 million on the sale of property, plant and equipment relating to businesses sold in previous years.

Net finance costs

Net interest expense for fiscal 2007 was £27.6 million compared with £37.8 million in fiscal 2006. This movement of £10.2 million was driven by lower levels of debt during fiscal 2007, conversion or redemption of all outstanding Preference Shares, and a higher expected return on defined benefit plan assets during fiscal 2007.

Other finance expense largely represents fair value gains and losses arising on financial instruments held by the Company to hedge its translational exposures where either the economic hedging relationship does not qualify for hedge accounting or to the extent that there is deemed to be ineffectiveness in a qualifying hedging relationship. The expense has increased from £0.7 million in fiscal 2006 to £2.8 million in fiscal 2007, due primarily to movements in foreign currency markets.

Income tax expense

The tax charge attributable to continuing operations of £69.9 million for 2007 (fiscal 2006: £35.8 million) represents an effective tax rate of 26.6 percent (fiscal 2006: 14.6 percent) applied to profit before tax from continuing operations of £262.6 million (fiscal 2006: 244.7 million).

During fiscal 2007, the effective tax rate was impacted by non-recurring tax benefits of £12.9 million. Prior to these adjustments the total tax charge for fiscal 2007 would have been £82.8 million representing an effective tax rate of 31.5 percent applied to profit before tax from continuing operations.

In fiscal 2006 the effective tax rate was impacted by the release of provisions for uncertain tax positions of £50.6 million. This followed the successful resolution of outstanding tax issues in the United States, the change in certain tax laws and the change in views on the likely outcome of challenges of the various tax authorities. In addition during fiscal 2006 there were other non-recurring tax charges of £7.2 million included in arriving at the overall charge for the Group. Prior to these adjustments the total tax charge for fiscal 2006 would have been £79.2 million representing an effective tax rate of 32.4 percent applied to profit before tax from continuing operations.

The Group recognizes provisions in respect of uncertain tax positions where additional current tax may become payable in future periods following the audit by the tax authorities of previously filed tax returns. Provisions for uncertain tax positions are based upon management’s assessment of the likely outcome of issues associated with assumed permanent differences, interest that may be applied to temporary differences and the possible disallowance of tax credits and penalties. As at December 29, 2007, the Group holds a provision for uncertain tax positions amounting to £33.9 million. This provision is reviewed regularly and adjusted to reflect events such as the expiry of limitation periods for assessing tax, administrative guidance given by the tax authorities and court decisions.

Discontinued operations

The loss from discontinued operations in fiscal 2007 was £33.3 million, compared with a loss of £11.6 million in fiscal 2006. In fiscal 2006, the loss from discontinued operations included an impairment loss of £26.6 million on assets classified as held for sale of which £5.7 million related to goodwill, and £20.9 million related to property, plant and equipment. In fiscal 2007, an impairment loss of £17.2 million was included in the loss on disposal of discontinued operations, forming part of the £29.8 million loss recognized on the sale of Trico in June 2007. The Group recognized a total loss on disposal of discontinued operations of £32.6 million in fiscal 2007 (after a tax charge of £4.0 million) and a loss of £2.1 million (after a tax benefit of £20.4 million) in fiscal 2006.

Minority interest

Minority interest in the profit for the period was £12.5 million in fiscal 2007, compared with £11.2 million for fiscal 2006. Minority interests in the Company’s subsidiaries are set forth in Note 40 to the Group’s consolidated financial statements.

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Profit for the period

The Group’s fiscal 2007 profit for the period attributable to equity shareholders was £146.9 million, representing a 21.1 percent decrease from the fiscal 2006 profit of £186.1 million. This decrease is primarily attributable to the £29.8 million loss on the disposal of Trico and a higher tax charge resulting from a reduction of £30.5 million in non-recurring tax benefits compared to fiscal 2006. These losses were partially offset by an £8.1 million reduction in the net interest charge (due to lower levels of bank borrowings and the redemption of the Preference Shares in July 2007) and a £9.8 million increase in operating profit.

The improvement in operating profit resulted from a £42.6 million increase in gains on disposals and on the exit of businesses (including a gain of £32.6 million on the sale of Lasco Fittings in February 2007) and savings of £30.5 million in distribution and administrative costs (driven by a focus on cost management and lower sales volumes). These gains were offset by a £61.4 million decline in gross profit tracking the drop in sales volumes.

Dividends of £122.0 were paid to ordinary shareholders during fiscal 2007, compared with £115.3 million in fiscal 2006.

Goodwill impairment tests were completed as at December 29, 2007 and December 30, 2006. There was no impairment recognized at either date on continuing operations.

Details of the acquisitions and disposals during fiscal 2007, fiscal 2006 and fiscal 2005 are set forth in the “Principal acquisitions, disposals and capital expenditures” section of Item 4A “History and development of the Company”.

Outlook

The outlook for fiscal 2008 for a number of the Group’s end markets, particularly in North America, remains challenging. CSM auto database expects North American automotive production for 2008 to be approximately 14.4 million units, which is below the 2007 production level of 15.0 million units. Given uncertainty in credit markets, the US residential construction market will continue to be challenging. NAHB is forecasting this market to be down by approximately 20 percent in 2008 compared to 2007. Management does not anticipate that this market will recover prior to 2009. The management team continues to be focused on protecting profitability and generating cash through tightening costs, headcount adjustments and reducing capital expenditure where appropriate. The acceleration of our performance improvement initiatives are expected to help us to significantly improve our cost base over a three-year period. In addition, the Group is focused on driving growth, through expansion in emerging markets and through product development.

Segment overview

Industrial & Automotive

Reconciliation of segment result to adjusted operating profit

Analysis by segment

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Overview

During fiscal 2007, the Industrial & Automotive business group was characterized by challenging North American automotive OE and recreational vehicle markets, strong industrial growth, continuing expansion of operations into India and China, and the completion of the strategic bolt-on acquisition of Swindon Silicon Systems.

Sales and adjusted profit from operations for fiscal 2007 were down by 0.8 percent and 1.0 percent, respectively, compared to fiscal 2006. Underlying sales increased by 4.8 percent due principally to higher volumes, particularly in emerging markets, and sales growth from the Schrader Electronics business. Underlying adjusted profit from operations increased by 4.0 percent driven by the increase in underlying sales. This solid underlying performance was offset by the impact of exchange rates, leading to the operating margin being maintained at 11.1 percent in fiscal 2007.

Global automotive production, which is a useful indicator of the automotive OE market, increased by around 3.0 percent in fiscal 2007 compared to fiscal 2006 according to CSM auto database. Production growth in Europe was positive and there was continued strong growth in Latin America and other emerging markets, including China and India, which grew by 19.1 percent and 13.1 percent respectively, per CSM auto database. As these emerging markets grow, the Group’s exposure to the Detroit Three is steadily declining with North American sales to these customers now standing at approximately 7 percent of Group sales, and total worldwide sales at approximately 10 percent of Group sales.

Technology drove record levels of business awards in the automotive OE segment (which represented 27.9 percent of business group sales in fiscal 2007). Schrader Electronics’ tire pressure monitoring systems, Gates/Stackpole’s variable vane technology for oil pumps and Gates’ new hybrid technology all address safety and environmental concerns.

The global automotive aftermarket (which represented 27.4 percent of business group sales in fiscal 2007) showed steady growth in fiscal 2007, despite its susceptibility to factors such as stock rebalancing, consumer sentiment, disposable income and the price of fuel. The Group’s automotive aftermarket in North America and Europe outperformed the market with new products, new distribution and promotional efforts focused on educating professional installers. Efforts in Asia continued to increase with the pace of the market.

In fiscal 2007, the industrial OE market (which represented 23.8 percent of business group sales in fiscal 2007) continued to show good year-on-year growth in all regions. Global agricultural markets and domestic durable goods led to industrial OE sales growth for power transmission and fluid power products. The oilfield, mining and agricultural markets showed good growth, especially outside of North America.

The industrial aftermarket (which represented 18.0 percent of business group sales in fiscal 2007) performed strongly in fiscal 2007 following the strength of the OE market. Increases in energy production, mining and oilfield operations generated growth for this market.

Sales from the manufactured housing/recreational vehicles businesses comprise 2.8 percent of the business group’s sales in fiscal 2007. Wholesale shipments of all towable recreational vehicles declined by 10.9 percent in fiscal 2007, and manufactured home shipments fell by 18.5 percent in the United States in fiscal 2007. These decreases were driven by falling consumer confidence and a weaker residential housing market which suppressed the demand for manufactured housing, particularly the high volume multi-section manufactured homes.

As a business group, lean process implementation continued to drive manufacturing efficiencies, material cost reductions and increased output in facilities. Internal successes led to initiatives with key customers to further eliminate waste in shipping and product handling. The business group also continued its focus on innovative technology development.

Industrial & Automotive grew in geographic product reach and extended its manufacturing and distribution capability. In Eastern Europe, where market growth has been double digit, a sales office was added in Moscow to respond to increased market demand. Activities in India, the Middle East and South Africa continued to focus on building local presence and developing staff to support growth. In markets where oilfield and mining operations are strong, such as in Australia, the Gulf Area and Canada, the business group grew through Heavy-duty belt and oilfield hose products supporting these industries. Gates Winhere is expanding its manufacturing capacity by constructing a new plant in Yantai, China.

The business group acquired Swindon Silicon Systems, thereby accelerating Schrader’s product development capability based on ASIC technology with a view to expanding the product offering into new industrial applications. Subsequent to the end of fiscal 2007, the business group acquired A.E. Hydraulic (Pte) Ltd., a Singapore-based provider of hydraulic and industrial hose solutions and services for the oil exploration industry in Asia.

The Industrial & Automotive business group plans to continue to expand and leverage its diverse global position and strong brands by focusing on customer service, delivery of new products, geographic expansion and entering new, undeveloped market segments. Strategic initiatives will promote solutions in the areas of mass transit, energy savings and environment. The priority for fiscal 2008 is to grow the industrial business with products and services adjacent to its core processes and product offering and expand its reach in emerging markets.

In fiscal 2007, 18.9 percent of Industrial & Automotive sales came from products launched in the past five years.

Power Transmission

Power Transmission experienced strong underlying growth in sales of £61.6 million during fiscal 2007. The underlying movement in adjusted operating profit was a decrease of £1.0 million, largely due to the sales growth being offset by the weakness in the North American automotive OE market and higher raw material costs. During fiscal 2007, record automotive OE programs of $186 million were concluded, with 70 percent of these programs being outside of North America.

Power Transmission launched Poly Chain® GT® Carbon™ belts in the industrial markets. Demand for improved fuel economy and reduced emissions propelled Electro-Mechanical Drive™ technology and spurred numerous automotive application projects in Asia.

During fiscal 2007, the segment opened a new manufacturing facility in Chennai, India and expanded hose production in Chandigarh, India. In Suzhou, China, investment was made to increase capacity at the clamp manufacturing facility. Investment in other geographic regions includes Aachen, Germany; Glade Springs, Virginia; and Springfield, Tennessee. The integration of Stackpole into Gates is progressing well with Stackpole returning to profitability in fiscal 2007.

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Fluid Power

Fluid Power, which serves primarily the industrial OE and replacement markets, produced good results in most of its geographic markets. Underlying growth in adjusted operating profit was £1.5 million, driven by a 3.3 percent growth in underlying sales. Fluid Power capitalized on the strong growth of many of its end markets including agriculture, oil and gas and mining. The relocation of manufacturing from the St. Neots facility in the United Kingdom to Karvina in the Czech Republic is expected to be completed in fiscal 2008 and is expected to position Fluid Power for improved performance and a stronger competitive position in Europe. In order to support the high-growth hydraulic market in India, the segment increased the manufacturing capacity at its facility in Chandigarh, India and established a manufacturing capacity in China in order to grow its business in Asia.

The Quick-lok® family of products has attracted customer interest due to the leak-preventing technology and consequent warranty cost reductions for customers. New awards with revenue of approximately £8 million were launched in fiscal 2007 in both North America and Europe.

Fluid Power engineers continued to drive innovation through hose connector interface technology that provides customers with added product safety, reliability and core product enhancements such as the new Xtreme™ Heat hose. New operations in India are well positioned to manufacture belt and tensioner products as well as hoses for local markets.

In March 2008, the segment acquired A.E. Hydraulic (Pte) Ltd., a Singapore-based provider of hydraulic and industrial hose solutions and services for the oil exploration industry in Asia. This acquisition builds on the Fleximak business and is expected to enable Gates to accelerate its market expansion into the high-growth oil and gas exploration market.

Fluid Systems

Fluid Systems had a strong year primarily due to the successful ramp-up of RTPMS at Schrader Electronics as the US legislative mandate for RTPMS on new vehicles became effective. Sales volumes for the Schrader Electronics business doubled during fiscal 2007, driving an increase in the segment’s operating margin from 4.5 percent in fiscal 2006 to 9.3 percent in fiscal 2007. Underlying growth in adjusted operating profit was £16.3 million, from a base of £10.3 million in fiscal 2006. Outside of North America, momentum grows for similar mandatory use of RTPMS, particularly in Europe where there is a major focus on lowering CO₂ emissions and improving safety. Several European vehicle manufacturers are adopting RTPMS as an option. Sales of RTPMS retrofit kits to the aftermarket started to come through in the second quarter of fiscal 2007 and the business saw good growth over the balance of the year.

During fiscal 2007, the business had contract wins for its snap-in RTPMS with several major OEMs. It also pioneered new fuel sensing technology, which detects fuel level and type, and signed its first contract with a major German OEM. During the fourth quarter, Schrader Electronics acquired UK-based Swindon Silicon Systems, which designs, develops and supplies integrated circuits. This acquisition will provide a technology platform for new applications.

Opportunities for growth are expected to continue, especially as alternative fuel use increases. Schrader Electronics anticipates further growth from its snap-in applications and remains the first and only supplier of this technology.

Other Industrial & Automotive

Other Industrial & Automotive includes the Dexter Axle, Plews, Gates Fleximak, Gates Winhere and Ideal businesses. Gates Fleximak and the Gates Winhere water pump businesses, which were acquired in fiscal 2006, made positive contributions in fiscal 2007 and demonstrate the successful expansion of the Gates platform into new markets in fiscal 2007. The water pump line drove significant growth for the business group’s automotive aftermarket, with product implementation at NAPA, one of North America’s largest automotive distributors, and the first water pump awards in Australia and Canada. The Ideal Clamp business continues to expand its small but growing presence in Europe and China.

These improvements during fiscal 2007 were offset by volume losses in the Dexter Axle and Dexter Chassis businesses, driven by weaker volumes in the manufactured housing and recreational vehicle markets. The segment’s underlying sales and adjusted operating profit decreased by 6.9 percent and 15.6 percent respectively.

Dearborn, a manufacturer of automotive assembly lines and materials handling equipment, was identified as a non-core business during fiscal 2006 and was sold in November 2007.

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Building Products

Reconciliation of segment result to adjusted operating profit

Analysis by segment