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Monday 06 September, 2004


Interim Results

06 September 2004

6 September 2004

IMI plc 2004 First Half Results

IMI plc, the major international engineering group, today announced its interim
results for the six months ended 30 June 2004.

                                                2004        2003   % change

Sales                                           £801m       £780m         +2.7

Results before goodwill amortisation

   Profit before tax                           £74.4m      £65.9m*       +12.9

   Adjusted earnings per share                  13.9p       12.4p*       +12.1

Profit before tax                              £64.1m      £56.4m        +13.7

Earnings per share                              11.0p        9.7p        +13.4

Dividend                                         6.3p        6.0p         +5.0

Net borrowings                                £152.5m     £199.1m

Gearing                                           27%         37%

Interest cover before goodwill amortisation       17x         13x

* 2003 restated to include rationalisation costs of £2.4m previously shown

                  • Solid growth in sales and orders

                  • Margins improving

                  • Strong earnings growth

                  • Dividend increased


I am pleased to be able to report that the results for the first six months of
2004 further demonstrate the progress we have made in developing our business. A
steady improvement in end markets combined with the benefits arising from the
more customer focused approach has enabled us to report interim profit before
tax and goodwill amortisation of £74.4m, an increase of nearly 13% over last
year. This increase has been achieved despite the negative impact of exchange
rates and increased raw material costs.

All businesses produced organic sales growth except Severe Service where sales
were lower than last year as a result of scheduled shipment timing. Overall on a
like for like basis Group sales increased by 6% and order intake increased by
around 8%.

Our strategy of investing in new product development and key account activity is
continuing to build momentum with leading customers in our chosen markets. The
acquisition of Fluid Automation Systems (FAS) in July, although relatively small
with annual sales of around £20m, fits well with this strategy. FAS adds key
technology and close customer relationships in targeted market sectors within
our Fluid Power business.

Artform, our recent acquisition in Merchandising Systems, performed well in the
period contributing £16m to sales and £2.7m to operating profit.

Cash flow before dividend payments was again positive despite the normal
seasonal working capital outflow. Our balance sheet remains strong with
borrowings of £152m (June 2003: £199m; December 2003: £136m) and gearing at 27%.


For the past three years during the period of restructuring we maintained our
dividend. The Board recognises that the dividend is an important element in
total shareholder return and considers that dividend growth should accompany
earnings growth and sound cash management. I am pleased to report that the Board
has decided to increase the interim dividend by 5% to 6.3p (2003: 6.0p).


On Friday 3 September, the European Commission announced the imposition of a
fine of €44.98m on IMI in relation to its former copper tube business, which was
sold in 2002. We await the details of the decision following which we will be in
a position to make an assessment on a possible appeal. Pending receipt of this
information the Board considers it is inappropriate to make a provision in the
interim results. The situation regarding the copper plumbing fittings enquiry is
unchanged, and it is unlikely that any decision will be made before the second
half of 2005.


Sales in continuing businesses were £801m compared to £775m last year.
Businesses acquired in 2003 contributed £18m from the additional months and the
impact of exchange rates on translation reduced sales by £35m.

Reported operating profit (before goodwill amortisation) was £79.2m compared to
£71.6m last year, an increase of 10.6%. Rationalisation costs charged in
arriving at operating profit were £2.3m (2003: £2.4m). Exchange rates on
translation reduced operating profit by £3m and it is estimated that the net
impact of increased raw material prices reduced operating profit by around £4m.

Interest cost at £4.8m (2003: £5.7m) was covered 17 times (2003: 13 times).

Profit before tax (and goodwill amortisation) increased 12.9% to £74.4m (2003:
£65.9m). After goodwill amortisation, profit before tax increased 13.7% to
£64.1m (2003: £56.4m). At constant exchange rates, profit before tax and
goodwill amortisation and profit before tax increased by 18% and 19%

The effective tax rate for the year on profit before goodwill amortisation is
expected to be 33%, the same level as for the year 2003.

Adjusted earnings per share (excluding goodwill amortisation) at 13.9p (2003:
12.4p) increased by 12.1% and earnings per share at 11.0p (2003: 9.7p) increased
by 13.4%.

The interim dividend of 6.3p (2003: 6.0p) costing £22.3m (2003: £21.2m) will be
paid on 22 October 2004.


The following is a review of our business areas for the six months to 30 June
2004. Comparisons are against the first half of 2003 and relate to continuing
operations. Operating profit is stated before goodwill amortisation and 2003
comparatives have been restated to include rationalisation costs previously
shown separately.


Sales:            £367m (2003: £362m)
Operating Profit: £40.2m (2003: £34.7m)

Severe Service

After adjusting for the impact of exchange rates, sales in our Severe Service
valves business were around 5% lower than the first half of last year. This
largely reflects the profile of customer requirements for shipment dates
especially in respect of new valve projects. Underlying activity remains healthy
with order intake running around 10% higher than in 2003 and a high proportion
of the order book scheduled for delivery beyond 2004. Valve order growth is
continuing to come from new construction power outside the US, particularly in
Asia, and from a still buoyant gas market. Customer service orders remain
strong. Actions to ensure that the operational efficiencies keep pace with the
growth are making good progress. Although reported operating profit of £7.7m
(2003: £8.1m) was lower as a result of the lower shipments, margins have

Fluid Power

Volumes in Fluid Power have continued the momentum seen in 2003 and overall
volumes for the first half were around 8% higher than the same period last year.
This growth is coming from both an improvement in end markets and market share
gains in our key targeted sectors which were around 15% ahead of last year.
Geographically, the US and Asian markets were particularly strong; the UK and
Germany began to show some signs of improvement but elsewhere in Europe the
markets remained subdued.

Transfer of production to our lower cost operations is accelerating and savings
from the restructuring are showing through. Cost reduction measures continue and
rationalisation costs of £1.7m (2003: £1.9m) have been charged in the first

Operating profit has increased by 34% to £20.8m (2003: £15.5m) and margins
improved to 9.7% (2003: 7.6%).

Indoor Climate

The recovery seen in the second half of 2003 continued into 2004 with sales of
both thermostatic radiator valves (TRV) and balancing valves ahead of last year.
TRV sales in the German market maintained their gradual recovery; sales of
balancing valves have increased in most of the European markets and sales
generally in Eastern Europe continued to show strong growth. Rising metal prices
continued to place pressure on margins however, and selling price increases
announced for implementation in July have brought forward some shipments into
June. The impact of raw material costs and the US$ exchange rate on transactions
has reduced profit by around £1m. Nevertheless, profit increased by 5% to £11.7m
(2003: £11.1m).


Sales:            £234m (2003: £222m)
Operating Profit: £22.5m (2003: £18.7m)

Beverage Dispense

Our Beverage Dispense business is showing encouraging signs in both underlying
market demand and improving operational efficiencies. Overall volumes were
around 3% ahead of last year. A strengthening economy and improved restaurant
traffic in the US provided the impetus for increased brand owner and food
service sector business. We continue to benefit from recent new products with
the Lipton iced tea dispenser again showing good growth. In Europe the pick up
in demand in the second half of last year moderately increased. Volumes of beer
dispensers in the UK were lower, as expected, after two very good years of
growth. Asia is showing good demand in most areas. Operational performance at
our Mexican facility is now closer to planned levels and further product
transfer will be made in coming months. A strong focus on achieving material
cost savings could not mitigate the impact of increased steel prices which
reduced profit by almost £1m. Translation of US profit reduced reported results
by around £0.8m. Despite this operating profits improved 5% to £13.0m (2003:
£12.4m) and margins improved to 9.2% (2003: 8.3%).

Merchandising Systems

The strong performance of our Merchandising Systems business in the second half
of 2003 continued into 2004. Trading remained encouraging with several large
orders shipped. Activity in our traditional Cannon business continues to grow
but margins are being impacted by the significant increase in steel prices.
Display Technologies is ahead of last year with good volumes in both the
beverage and bulk food display systems. DCI had another very good period with
custom Point of Purchase sales and the automotive sector prominent. First half
sales were somewhat flattered by the Scion (Toyota) programme where significant
shipments planned for third quarter of the year were brought forward into June
by customer requirements. Artform, acquired in October 2003, traded well and has
contributed £16m sales and £2.7m operating profit for the period.

Excluding Artform, reported operating profits increased by 8% despite the impact
of raw material prices and the adverse effect of the US$ on translated profits.
Including Artform operating profit was £9.5m (2003: £6.3m).


Sales:            £200m (2003: £191m)
Operating Profit: £16.5m (2003: £18.2m)

Volumes in the core Building Products business of Polypipe were around 5% ahead
of last year and order books remain healthy reflecting continued good UK demand
for building materials. Elsewhere in Polypipe the picture is still patchy with
Doors and Windows and Leisure Products suffering reduced demand, the European
operations winning new business and new product launches in Civils going well.
The major pressure on the Polypipe businesses is raw material prices and in
particular PVC. The average price of PVC in the first half of 2004 was 25%
higher than in the first half of 2003. Operational management are taking action
to mitigate the impact on margins but inevitably operating profits have suffered
and at £16.5m were some 9% lower than last year.


Raw material price inflation is continuing to impact costs and margins. The
positive trend in underlying demand, however, should underpin progress in the
second half.

                                                       GROUP PROFIT AND LOSS ACCOUNT

                                          6 months to 30 June             6 months to 30 June     Year to 31 December
                                                2004                             2003                      2003
                                   Before                                    Before                     Before
                                 goodwill       Goodwill                   goodwill                   goodwill
                             amortisation   amortisation   Total       amortisation   Total       amortisation   Total
                                                                          restated*                  restated*
                       Notes          £m             £m      £m                 £m      £m                 £m      £m
Turnover                1
Total continuing
operations                           801                    801                775     775               1565    1565
Discontinued operations                -                      -                  5       5                  8       8
Total turnover                       801                    801                780     780               1573    1573
Operating profit        1
Total continuing
operations                          79.2         (10.3)    68.9               71.6    62.1              147.8   128.1
Discontinued operations                -             -        -                  -       -                  -       -

Profit before interest              79.2         (10.3)    68.9               71.6    62.1              147.8   128.1
Net interest payable                (4.8)                  (4.8)              (5.7)   (5.7)             (10.9)  (10.9)

Profit on ordinary activites
before taxation                     74.4         (10.3)    64.1               65.9    56.4              136.9   117.2
Tax on profit            2         (24.5)                 (24.5)             (21.7)  (21.7)             (45.2)  (45.2)
Profit on ordinary activites
after taxation                      49.9         (10.3)    39.6               44.2    34.7               91.7    72.0
Equity minority interests           (0.8)                  (0.8)              (0.5)   (0.5)              (1.0)   (1.0)

Profit for the period               49.1         (10.3)    38.8               43.7    34.2               90.7    71.0
                              ---------------------------                 ----------                 ----------
Dividends paid and 
proposed                 3                                 (22.3)                     (21.2)                     (54.8)
                                                         ---------                   ---------                 ---------
Transfer to reserves                                        16.5                       13.0                       16.2
                                                         ---------                   ---------                 ---------
Adjusted earnings 
per share               4         13.9p                                      12.4p                      25.7p
Earnings per share      4                                  11.0p                       9.7p                      20.1p
Diluted earnings per
share                   4                                  10.9p                       9.7p                      20.1p

* 2003 restated to include rationalisation costs of £2.4m for the six months and £5.7m for the twelve months previously 
  shown separately

                              GROUP BALANCE SHEET
                                              30 June   30 June    31 December
                                                 2004       2003          2003
                                                   £m         £m            £m
Fixed assets
Intangible assets                               306.7      304.8         317.9
Tangible assets                                 280.4      309.9         292.6
                                                587.1      614.7         610.5
Current assets
Stocks                                          251.9      263.3         243.3
Debtors                                         362.5      334.2         304.4
Investments                                       8.3        8.2           8.2
Cash and deposits                                87.7       70.7          81.3
                                                710.4      676.4         637.2
amounts falling due within one year
Borrowings and finance leases                   (98.8)     (78.9)        (76.7)
Other creditors                                (394.5)    (381.3)       (379.6)
                                               (493.3)    (460.2)       (456.3)
Net current assets                              217.1      216.2         180.9
Total assets less current liabilities           804.2      830.9         791.4

amounts falling due after more than one year
Borrowings and finance leases                  (141.4)    (190.9)       (140.9)
Other creditors                                 (29.0)     (27.8)        (31.4)
                                               (170.4)    (218.7)       (172.3)
Provisions for liabilities and charges          (71.3)     (72.3)        (76.1)
Net assets                                      562.5      539.9         543.0

Capital and reserves
Called up share capital                          88.5       88.2          88.3
Share premium account                           138.3      135.2         136.5
Revaluation reserve                               1.0        1.0           1.0
Other reserves                                    1.6        1.6           1.6
Profit and loss account                         329.0      310.6         312.0
Equity shareholders' funds                      558.4      536.6         539.4

Minority interests                                4.1        3.3           3.6

                                                562.5      539.9         543.0

                        GROUP CASH FLOW STATEMENT
                                          6 months to   6 months to       Year to 
                                              30 June       30 June   31 December
                                                 2004          2003          2003
                                                   £m            £m            £m
Reconciliation of operating profit to net
cash inflow from operating activities
    Operating profit                             68.9          62.1         128.1
    Depreciation/amortisation                    39.0          41.5          85.8
    Stocks (increase)/decrease                  (13.0)          1.2          20.9
    Debtors (increase)/decrease                 (61.8)        (35.4)          2.7
    Creditors and provisions increase /
    (decrease)                                   27.8           3.2          (6.5)
Net cash inflow from operating activities        60.9          72.6         231.0


Net cash inflow from operating activities        60.9          72.6         231.0
Return on investments and servicing of finance   (4.8)         (6.1)        (11.8)
Taxation                                        (28.0)        (12.2)        (41.5)
Capital expenditure and financial investment    (20.0)        (23.5)        (36.0)
Acquisitions and disposals                       (1.4)        (14.9)        (56.0)
Equity dividends paid                           (33.6)        (33.5)        (54.7)
Cash flow before use of liquid resources 
and financing                                   (26.9)        (17.6)         31.0
Management of liquid resources                  (26.6)         (9.4)          4.5
    Issue of ordinary shares                      2.0           1.2           2.5
    Increase/(decrease) in borrowings            28.9          21.8         (35.1)
                                                 30.9          23.0         (32.6)
(Decrease)/increase in cash in the period       (22.6)         (4.0)          2.9

Reconciliation of net cash to movement
in net borrowings
    (Decrease)/increase in cash in the period   (22.6)         (4.0)          2.9   
    Cash (inflow)/outflow from borrowings       (28.9)        (21.8)         35.1
    Cash outflow/(inflow) from movement in       
    liquid resources                             26.6           9.4          (4.5)
    Change in borrowings resulting from         
    cash flows                                  (24.9)        (16.4)         33.5
    Currency translation differences              8.7          (9.2)          3.7
    Movement in net borrowings in the period    (16.2)        (25.6)         37.2
    Net borrowings at start of period          (136.3)       (173.5)       (173.5)
    Net borrowings at end of period            (152.5)       (199.1)       (136.3)


                                    6 months        6 months           Year to
                                  to 30 June      to 30 June       31 December
                                        2004            2003              2003
                                          £m              £m                £m

Profit for the period                   38.8            34.2              71.0
Currency translation differences         0.5            (5.4)             (7.2)
Total recognised gains and losses
for the period                          39.3            28.8              63.8


There is no material difference between the profit before taxation and the
retained profit for each period as shown in the Group profit and loss account
and their historical cost equivalent.


                                        6 months       6 months       Year to
                                      to 30 June     to 30 June   31 December
                                            2004           2003          2003
                                              £m             £m            £m

Profit for the period                       38.8           34.2          71.0
Dividends                                  (22.3)         (21.2)        (54.8)
                                            16.5           13.0          16.2
Other recognised gains and losses
relating to the period                       0.5           (5.4)         (7.3)
New ordinary share capital issued            2.0            1.1           2.6
Net increase in shareholders' funds
for the period                              19.0            8.7          11.5
Shareholders' funds at start of period     539.4          527.9         527.9
Shareholders' funds at end of period       558.4          536.6         539.4


1.  Segmental Analysis
                                               Turnover                     Operating Profit        Operating Assets
                                     6 mths     6 mths     Year     6 mths    6 mths       Year  6 mths   6 mths   Year
                                         to         to       to         to        to         to      to       to     to
                                         30         30       31         30        30         31      30       30     31
                                       June       June      Dec       June      June        Dec    June     June    Dec
                                       2004       2003     2003       2004      2003       2003    2004     2003   2003
                                         £m         £m       £m         £m        £m         £m      £m       £m     £m

 (i)  by activity:     

      before goodwill amortisation                                         restated*  restated*    
      Fluid Controls                    367        362      747       40.2      34.7       75.1     221       237   210 

      Severe Service                     71         80      168        7.7       8.1       20.3      33        29    34 
      Fluid Power                       214        205      410       20.8      15.5       31.0     147       171   145
      Indoor Climate                     82         77      169       11.7      11.1       23.8      41        37    31 
      Retail Dispense                   234        222      448       22.5      18.7       39.7     103       123   105
      Beverage Dispense                 142        149      278       13.0      12.4       21.5      67        95    74 
      Merchandising Systems              92         73      170        9.5       6.3       18.2      36        28    31
      Building Products                 200        191      370       16.5      18.2       33.0     146       142   125
      Total continuing operations       801        775     1565       79.2      71.6      147.8     470       502   440
* 2003 restated to include rationalisation costs previously shown separately 

      after goodwill amortisation

      Fluid Controls                                                  38.8      33.3       72.2
      Severe Service                                                   7.3       7.3       19.5 
      Fluid Power                                                     20.4      15.5       30.1
      Indoor Climate                                                  11.1      10.5       22.6
      Retail Dispense                                                 20.4      17.6       36.9
      Beverage Dispense                                               12.9      12.4       21.2  
      Merchandising Systems                                            7.5       5.2       15.7
      Building Products                                                9.7      11.2       19.0
      Total continuing operations                                     68.9      62.1      128.1
(ii)  by geographical origin:

      after goodwill amortisation
       UK                              257        234         464     13.1      15.6       27.0      163     148    152
       Rest of Europe                  265        258         531     32.2      29.7       60.6      176     199    161
       The Americas                    246        254         510     20.0      14.6       34.9      116     138    114
       Asia/Pacific                     33         29          60      3.6       2.2        5.6       15      17     13
      Total continuing operations      801        775        1565     68.9      62.1      128.1      470     502    440
(iii) turnover by geographical destination:
                                    6 mths     6 mths        Year
                                        to         to          to
                                        30         30          31
                                      June       June         Dec
                                      2004       2003        2003
                                        £m         £m          £m
      UK                               231        217         424
      Germany                           94         90         185
      Rest of Europe                   182        169         345
      USA                              217        222         447
      Asia/Pacific                      50         45         101
      Rest of World                     27         32          63
      Total continuing operations      801        775        1565

   Amounts shown for discontinued operations in 2003 relate to the air-conditioning
   business which was sold in November 2003. This business was previously reported
   within Building Products and UK.

2. Taxation

   The effective tax rate for the year on profit before goodwill amortisation and
   exceptional items is expected to be around 33% (year 2003: 33%).

3. Dividends

   The Directors have declared an interim dividend for the current year of 6.3p per
   share (2003: 6.0p) which will be paid on 22 October 2004 to shareholders on the
   register on 17 September 2004.

4. Earnings per share

   The weighted average number of shares in issue during the period was 353.6m,
   356.1m diluted for the effect of outstanding share options (six months to 30
   June 2003: 352.4m, 353.2m diluted). Earnings per share have been calculated on
   earnings of £38.8m (2003: £34.2m).

   The Directors consider that adjusted earnings per share figures, using earnings
   as calculated below, give a more meaningful indication of the underlying

                                      6 months to   6 months to       Year to
                                     30 June 2004  30 June 2003   31 Dec 2003
                                               £m            £m            £m
Profit for the period                        38.8          34.2          71.0
Goodwill amortisation                        10.3           9.5          19.7
Earnings for adjusted EPS                    49.1          43.7          90.7

   Rationalisation is now included as a normal operating cost whereas it was
   previously excluded from adjusted earnings per share. 2003 figures have been
   restated accordingly.

5. Exchange rates

   The profit and loss accounts of overseas subsidiaries are translated into
   sterling at average rates of exchange for the period, balance sheets are
   translated at period end rates. The main currencies are:

                          Average period rates            Balance sheet rates
                    ------------------------------     -------------------------
                    6 months to 30 June      Year      30 June   30 June  31 Dec
                       2004        2003      2003         2004     2003     2003
                      -----       -----     ------      ------   ------   ------ 
Euro                   1.48        1.46      1.44         1.49     1.44     1.42
US Dollar              1.82        1.61      1.64         1.81     1.65     1.79

6. European Commission enquiry

   The European Commission is investigating allegations of anti-competitive
   behaviour among certain manufacturers of copper tube and copper fittings.
   Notwithstanding IMI's disposals of its copper tube and copper fittings
   businesses, it retains responsibility in relation to the European Commission's
   investigations in respect of those businesses.

   On Friday 3 September, the European Commission announced a fine of €44.98m on
   IMI in relation to its former copper tube business. Until the details of the
   decision are received the Company is not in a position to make an assessment on
   a possible appeal. The situation regarding the copper plumbing fittings enquiry
   is unchanged, and it is unlikely that any decision will be made before the
   second half of 2005. At this date it is not possible to make a reliable estimate
   of the liability in either case and no provision has been made in the interim

7. Financial information

   This interim statement has been reviewed by the Group's auditors having regard
   to the bulletin Review of interim financial information, issued by the Auditing
   Practices Board. A copy of their unqualified review opinion is attached.

   The comparative figures for the year ended 31 December 2003 are not the
   Company's statutory accounts for that financial year. Those accounts have been
   reported on by the Company's auditors and delivered to the Registrar of
   Companies. The report of the auditors was unqualified and did not contain a
   statement under Section 237(2) or (3) of the Companies Act 1985.

   The Interim Report will be posted to shareholders on 10 September 2004 and will
   be available from the same date at the Company's registered office, Lakeside,
   Solihull Parkway, Birmingham Business Park, Birmingham, B37 7XZ.


   Our next trading update will be issued on 17 December 2004.

Enquiries to:

Graham Truscott - Communications Director - Tel: 0121 717 3712

Press release available on the internet at

Issued by:
Nick Oborne - Weber Shandwick Square Mile  - Tel: 0207 067 0700

Independent review report by KPMG Audit Plc to IMI plc


We have been engaged by the Company to review the financial information set out
on pages 6 to 12 and we have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.

This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company for
our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual accounts except where they are to be changed in the next annual
accounts in which case any changes, and the reasons for them, are to be

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of interim financial information issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.

European Commission enquiry

In arriving at our review conclusion, we have considered the appropriateness of
disclosures made in note 6 to the Interim Report regarding the contingent
liabilities of the Group concerning the European Commission's investigation into
allegations of anti-competitive behaviour among certain manufacturers of copper
tube. In view of the significance of these uncertainties, we consider that they
should be drawn to your attention but our review conclusion is not qualified in
this respect.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.

KPMG Audit Plc
Chartered Accountants

6 September 2004

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