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IMI PLC (IMI)

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Monday 05 September, 2005

IMI PLC

Interim Results

IMI PLC
05 September 2005


5 September 2005

IMI plc 2005 First Half Results

IMI plc, the major international engineering group, today announced its interim
results for the six months ended 30 June 2005.

                                          2005          2004          % change
Continuing businesses:
Sales                                     £641m         £604m             +6.1
Operating profit *                       £72.1m        £62.9m            +14.6

Total:
Sales                                     £824m         £801m             +2.9
Operating profit *                       £87.1m        £79.1m            +10.1

Total profit before tax *                £82.4m        £77.1m             +6.9

Adjusted earnings per share **            16.0p         14.2p            +12.7

Exceptional loss on disposal/closure    (£98.0m)            -

Basic (loss)/earnings per share          (12.0p)        14.1p

Basic earnings per share - continuing 
 businesses                               12.1p         11.0p            +10.0

Dividend                                  6.65p          6.3p             +5.6

* before intangible amortisation and exceptional items
** before change in fair value of financial instruments, intangible amortisation
and exceptional items

Norman Askew, Chairman, of IMI commented:

'I am pleased to report that continuing businesses maintained their steady
progress with operating profit increasing by around 15%. The sale of the
Polypipe businesses, also announced today, continues the Group's strategic
development under the leadership of Martin Lamb.

'We remain confident that our continuing businesses in Fluid Controls and Retail
Dispense are capable of delivering attractive long term growth.'


CHAIRMAN'S STATEMENT

In my first statement as Chairman, I am pleased to report that continuing
businesses maintained their steady progress with operating profit increasing by
around 15%. The sale of the Polypipe businesses, completed on 2 September 2005,
continues the Group's strategic development under the leadership of Martin Lamb.
This strengthens further our balance sheet capacity and we will continue to
review our capital management programme together with our declared intention of
growing our continuing businesses both organically and through acquisition.

In February, we added to our Fluid Power business by acquiring US based Syron
Engineering and we continue to pursue a number of acquisition targets which fit
our strategic objectives.

By the end of June we had spent £33.6m through the on-market share buy-back
programme and we will look to purchase further shares into treasury as
appropriate.

In line with its policy of linking dividend growth to growth in adjusted
earnings, the Board has decided to increase the interim dividend by 5.6% to
6.65p (2004: 6.3p).

Sale of Polypipe

The Polypipe businesses previously included under Building Products have been
sold to a leading New York based private equity investment fund, Castle Harlan
Partners IV L.P. The proceeds of the transaction are worth up to £293m
comprising £219m payable in cash immediately on completion, a further £39m
vendor loan note and a contingent consideration of £35m based on performance
targets for the three years ending 31 December 2007.

The results of the Polypipe businesses for the six months to June 30 are
included in these interim results under discontinued businesses. The annual
results for 2005 will include the results of the Polypipe businesses for the
eight months to 31 August 2005.

The book value of the goodwill and operating assets at the date of sale is
expected to be £335-340m and the loss on sale has been estimated at £90m and
shown as an exceptional item. In arriving at this estimate, the contingent
consideration has not been recognised.

The Polypipe Doors and Windows division has been closed at a cost of around £8m
which is also shown as an exceptional item.

Results summary

The results have been prepared under International Financial Reporting Standards
('IFRS') and the 2004 comparatives have been restated. Following the
announcement of the sale of Polypipe, the results have been analysed between
continuing and discontinued operations.

The impact of exchange rate movements on sales and profit for the period was not
material.

Sales from continuing businesses at £641m were 6% ahead of last year including
£18m from acquisitions. Operating profit from continuing businesses before
intangible amortisation was £72.1m, nearly 15% ahead, including £2.2m from
acquisitions. Profit after intangible amortisation at £70.2m was 13% ahead.

Discontinued businesses comprised a full six months trading of the Polypipe
businesses except for the Doors and Windows division which was closed during the
period. Sales at £183m and operating profit (before exceptional items) at £15.0m
were both around 7% lower than last year.

Total operating profit before goodwill amortisation and exceptional items was
£87.1m compared to £79.1m, an increase of 10%.

Interest costs on net borrowings were similar to last year and were covered 18
times. Other net financial costs, comprising the impact of pension fund
financing under IAS 19 and the change in fair value of financial instruments
under IAS 39, had the effect of increasing the net financing costs from £2.0m
for the same period in 2004 to £4.7m.

Total profit before tax, intangible amortisation and exceptional items was
£82.4m (2004: £77.1m), an increase of 7%. Total profit before tax and
exceptional items was £80.5m (2004: £76.3m).

The effective tax rate for the year on profit before intangible amortisation and
exceptional items is 32% compared to 33% in 2004.

Adjusted earnings per share (excluding the change in the fair value of financial
instruments, intangible amortisation and exceptional items) is 16.0p compared to
14.2p, an increase of 12.7%. The impact of exceptional items results in a basic
loss per share of 12.0p (2004: 14.1p earnings).

Cash flow

Operating cash flow for the first half reflects the normal seasonal working
capital outflow of around £49m (2004: £47m). Operating cash flow generated by
discontinued businesses was £9m (2004: £2m). Payment of the EU fine in respect
of the copper plumbing tube enquiry (£31m), acquisitions (£19m) and dividends
(£36m), absorbed £86m and £34m was used to buy back shares. As a result, total
cash outflow for the period was £100m.

Balance sheet

Closing net debt was £196m (June 2004: £159m), an increase of £120m from the
start of the year including a £9m adverse impact caused by currency movements,
mainly from a stronger US dollar. The debt to EBITDA ratio at the end of June
was 0.8.

Total shareholders' equity reduced by £103m from the start of the year, largely
as a result of the exceptional items and the share buy back. Balance sheet
gearing was 43%.

Outlook

Trading in the second half is expected to follow the same pattern as the first
half with the US and Asian markets remaining robust and European end-markets
subdued. Despite our concern about European markets, we expect to deliver
further progress in the second half. We remain confident that our continuing
businesses in Fluid Controls and Retail Dispense are capable of delivering
attractive long term growth.


OPERATIONS REVIEW

The following is a review of our business areas for the six months to 30 June
2005. Comparisons are against the first half of 2004. Operating profit is stated
before intangible amortisation and arrived at on the basis of IFRS. The
comparative figures for 2004 have been restated where necessary.

Severe Service

Our Severe Service business continues to benefit from buoyant power and oil and
gas markets. Although flattered by a comparatively weak 2004 shipment
performance, sales and operating profit increased respectively by 19% to £88m
(2004: £74m) and 25% to £10.0m (2004: £8.0m). Our current growth is being driven
by winning new valve projects and this is reflected in the run rate of order
intake which is some 15%-20% ahead of this time last year. The Asian and Middle
East markets are particularly strong at present with planned new construction
and production activity increasing. Our flexible approach to exploiting market
demand means more of our resources are currently focused on these opportunities
and, although still healthy, our customer service business is showing
comparatively modest growth. While oil and natural gas prices continue at high
levels we expect demand for new valve projects to remain strong.


Fluid Power

The first half performance in Fluid Power maintained the encouraging momentum
shown throughout last year. The success of our sector strategy continues and
with the US and Asian markets remaining strong, we were able to achieve organic
growth of 5% despite generally weak European end markets. Syron, acquired in
February 2005, and FAS both performed well and between them contributed sales of
£18m and operating profit of £2.2m. Total sales at £243m (2004: £214m) and
operating profit at £28.7m (2004: £20.6m) were respectively around 14% and 39%
ahead of last year. The global truck sector has been very strong for us in the
US, UK and Germany and the presence of FAS has already strengthened our position
in the medical sector. We are very encouraged by the success of the new products
launched over the last year or so and this will continue to be a focus of our
attention. Work also continues on ensuring that the manufacturing and
engineering resource is properly aligned for the future needs of the business.

Indoor Climate

Overall volumes in Indoor Climate were flat with some modest growth in balancing
valves and markets outside our core European heartland offset by lower
thermostatic radiator valves (TRVs) in Germany. Sales were £83m (2004: £82m) and
operating profit slightly lower than last year at £11.3m (2004: £11.8m). The
recovery seen in sales of TRVs in the first half of 2004 was short lived and
sales in the first half of 2005 are around 4% lower than last year. The German
construction market remains weak with no sign of any improvement in the short
term. We are enjoying some success in extending our balancing valve concept to
selected markets with good momentum building in Eastern Europe, US and Middle
East. We continue to win good UK project opportunities.

Beverage Dispense

In Beverage Dispense the US enjoyed another period of steady growth. Despite the
anticipated slowdown in spend by one of our major customers, our brand owner and
foodservice business performed well, helped by increased same store restaurant
traffic leading to further releases of capital. Cornelius had the honour to be
recognised by YUM! Brands as its 'Global Equipment Supplier of the Year'. In
Europe, sales of carbonated soft drinks dispense equipment continued to slow
while Asia Pacific recorded strong growth across the whole of the region. As
expected, the beer market in Europe remained weak with little sign of any short
term recovery. The UK beer market, following a period of decline, has recently
been more encouraging. Eastern Europe continues to offer promise and we are
developing our capability to access directly the growing Ukraine and Russian
markets with specifically designed and locally made products. Operational
efficiencies and low cost sourcing continue to make progress. Sales for the
period were £141m (2004: £142m) and operating profit £14.0m (2004: £13.1m) an
increase of 7%.

Merchandising Systems

The strong performance of our Merchandising Systems business in the first half
of 2004, which benefited from the shipment of some large projects, was always
going to be difficult to match. With the US automotive sector in particular
affected by the absence of the Scion (Toyota) project, sales at £86m (2004:
£92m) were 7% lower and operating profit at £8.1m (2004: £9.4m) 14% lower. With
less project based sales expected in 2005 as a whole, underlying automotive
sector activity will be centred around the traditional new model launches in the
Autumn. Aided by customer product launches in Europe, sales in the cosmetics
sector were ahead of last year and our visi-slide merchandising concept
continues to do well in the beverage sector. In grocery, bulk food display
systems and front end merchandising units achieved good results and there was
some further growth in our traditional Cannon display carts. The input cost
increases seen in the last eighteen months have now been largely mitigated by
reductions in our US cost base and lower cost sourcing initiatives.

Polypipe

The markets for the Polypipe businesses were generally weaker than 2004 although
the pricing environment improved. With its market position deteriorating the
Doors and Windows division was closed. Polypipe achieved operating profit of
£15.0m (2004: £16.2m).


                     CONSOLIDATED INTERIM INCOME STATEMENT

                          6 months to 30 June 2005           6 months to 30 June 2004         Year to 31 December 2004
                             Before                                    Before                      Before
                        exceptional   Exceptional                 exceptional                 exceptional
                          items and     items and                   items and                   items and
                         intangible    intangible                  intangible                  intangible
                       amortisation  amortisation        Total   amortisation        Total   amortisation         Total
                        (unaudited)   (unaudited)  (unaudited)    (unaudited)  (unaudited)    (unaudited)   (unaudited)
               Notes             £m            £m           £m             £m           £m             £m            £m
                      --------------------------------------------------------------------------------------------------
Revenue
Continuing
 operations      2              641                        641            604          604           1239          1239
Discontinued
 operations      3              183                        183            197          197            372           372
                      ----------------------------------------  --------------------------  ---------------------------
Total revenue                   824                        824            801          801           1611          1611
                      ----------------------------------------  --------------------------  ---------------------------
Operating
 profit/(loss)

Continuing
 operations      2             72.1          (1.9)        70.2           62.9         62.1          137.2         131.4
Discontinued
 operations      3             15.0             -         15.0           16.2         16.2           27.2          27.2
                      ----------------------------------------  --------------------------  ---------------------------
Total
 operating
 profit/(loss)                 87.1          (1.9)        85.2           79.1         78.3          164.4         158.6
Estimated loss
 on disposal &
 closure costs   3                -         (98.0)       (98.0)             -            -              -             -
European
 Commission
 enquiry        10                -             -            -              -            -              -         (33.1)
                      ----------------------------------------  --------------------------  ---------------------------
Profit/(loss)
 before
 financing costs               87.1         (99.9)       (12.8)          79.1         78.3          164.4         125.5
                      ----------------------------------------  --------------------------  ---------------------------
Net interest                   (4.8)            -         (4.8)          (4.8)        (4.8)          (9.2)         (9.2)
Other
 financial income               3.0             -          3.0            2.8          2.8            5.9           5.9
Other
 financial 
 expenses                      (2.9)            -         (2.9)             -            -              -             -
                      ----------------------------------------  --------------------------  ---------------------------
Net financing 
 costs           4             (4.7)            -         (4.7)          (2.0)        (2.0)          (3.3)         (3.3)
                      ----------------------------------------  --------------------------  ---------------------------
Profit/(loss)
 before tax 
                      ----------------------------------------  --------------------------  ---------------------------
Continuing
 businesses                    67.4          (1.9)        65.5           60.9         60.1          133.9         128.1
Discontinued
 businesses                    15.0         (98.0)       (83.0)          16.2         16.2           27.2          (5.9)
                      ----------------------------------------  --------------------------  ---------------------------
Total
 profit/(loss)
 before tax                    82.4         (99.9)       (17.5)          77.1         76.3          161.1         122.2
Income tax
expense          5            (26.4)          3.1        (23.3)         (25.9)       (25.6)         (54.5)        (52.9)
                      ----------------------------------------  --------------------------  ---------------------------
Profit/(loss)
for the period
                      ----------------------------------------  --------------------------  ---------------------------
Continuing
 businesses                    45.6          (1.3)        44.3           40.1         39.6           88.1          83.9
                      ----------------------------------------  --------------------------  ---------------------------
Discontinued      
 businesses       3            10.4         (95.5)       (85.1)          11.1         11.1           18.5         (14.6)
                      ----------------------------------------  --------------------------  ---------------------------
Total
 profit/(loss)
 for the period                56.0         (96.8)       (40.8)          51.2         50.7          106.6          69.3
                      ----------------------------------------  --------------------------  ---------------------------
Attributable to:
Equity holders
 of the parent                                           (42.3)                       49.9                         67.5
Minority interest                                          1.5                         0.8                          1.8
                                                       -------                     -------                      -------
Total
 profit/(loss) 
 for the period                                          (40.8)                       50.7                         69.3
                                                       -------                     -------                      -------

Earnings per share
Basic earnings
 per share        7                                     (12.0p)                      14.1p                         19.1p
Continuing
 businesses                                              12.1p                       11.0p                         23.2p
Adjusted
 earnings 
 per share        7                                      16.0p                       14.2p                         29.5p
Continuing
 businesses                                              13.1p                       11.1p                         24.3p
Diluted
 earnings per
 share            7                                     (11.9p)                      14.0p                         18.9p

                              CONSOLIDATED INTERIM
                                 BALANCE SHEET

                                                    2005                                   2004
                                                 30 June              30 June            31 Dec
                                             (unaudited)          (unaudited)       (unaudited)
                                                      £m                   £m                £m
                                            ---------------------------------------------------

Assets
     Property, plant and equipment                 185.6                280.4             279.7
     Intangible assets                             172.9                324.4             333.4
     Deferred tax assets                            55.8                 63.3              61.7
                                            ---------------------------------------------------
  Total non-current assets                         414.3                668.1             674.8
                                            ---------------------------------------------------

     Inventories                                   203.7                251.9             248.1
     Trade and other receivables                   285.0                364.9             307.7
     Investments                                     8.6                  8.3               8.0
     Cash and cash equivalents                      84.1                 87.7             120.7
     Disposal group assets                         
      classified as held for sale                  300.2                    -                 -
                                            ---------------------------------------------------
  Total current assets                             881.6                712.8             684.5
                                            ---------------------------------------------------

  Total assets                                    1295.9               1380.9            1359.3
                                            ---------------------------------------------------

Liabilities
     Bank overdraft                                 (3.3)               (16.7)             (5.3)
     Interest-bearing loans and borrowings         (62.2)               (82.1)            (55.2)
     Trade and other payables                     (303.8)              (376.9)           (364.3)
     Exceptional payables - EC fine                    -                    -             (31.3)
     Disposal group liabilities           
      classified as held for sale                  (59.7)                   -                 - 
                                            ---------------------------------------------------
  Total current liabilities                       (429.0)              (475.7)           (456.1)
                                            ---------------------------------------------------

     Interest-bearing loans and borrowings        (214.1)              (147.7)           (135.9)
     Employee benefits                            (130.0)              (133.6)           (131.4)
     Other payables                                (24.7)               (29.0)            (28.4)
     Provisions                                    (34.2)               (31.5)            (41.3)
     Deferred tax liabilities                       (8.4)                (7.1)             (8.3)
                                            ---------------------------------------------------
  Total non-current liabilities                   (411.4)              (348.9)           (345.3)
                                            ---------------------------------------------------

  Total liabilities                               (840.4)              (824.6)           (801.4)
                                            ---------------------------------------------------

Net assets                                         455.5                556.3             557.9
                                            ---------------------------------------------------

Equity
     Issued capital                                 89.2                 88.5              88.7
     Share premium                                 145.1                138.3             139.9
     Treasury shares                               (33.6)                   -                 -
     Reserves                                        1.6                  1.6               1.6
     Retained earnings                             248.4                323.8             323.7
                                            ---------------------------------------------------
  Total equity attributable to   
   equity holders of the parent                    450.7                552.2             553.9

Minority interest                                    4.8                  4.1               4.0
                                            ---------------------------------------------------
Total equity                                       455.5                556.3             557.9
                                            ---------------------------------------------------



                  CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

                                             6 months to        6 months to            Year to
                                                 30 June            30 June             31 Dec
                                                    2005               2004               2004
                                             (unaudited)        (unaudited)        (unaudited)
                                                      £m                 £m                 £m
                                            --------------------------------------------------

Cash generated from the operations (Note 8)         67.4               62.2              239.4
Interest paid                                       (9.7)              (9.1)             (17.4)
Income taxes paid                                  (25.6)             (28.0)             (52.3)
                                            --------------------------------------------------
Net cash from operating activities                  32.1               25.1              169.7
                                            --------------------------------------------------

EC fine                                            (31.3)                 -                  -
                                            --------------------------------------------------

Cash flows from investment activities
Proceeds from sale of plant equipment &
 property                                            2.6                1.5                4.0
(Purchase of)/proceeds from sale of 
 investments                                           -               (0.2)               0.2
Interest received                                    4.9                4.3                8.2
Acquisition of subsidiary, net of cash
 acquired                                          (18.8)              (1.4)             (20.9)
Acquisition of property, plant and 
 equipment                                         (21.4)             (21.3)             (50.8)
Development expenditure                             (3.3)              (1.3)              (2.8)
                                            --------------------------------------------------
Net cash from investing activities                 (36.0)             (18.4)             (62.1)
                                            --------------------------------------------------

Cash flows from financing activities
Proceeds from the issue of share capital             5.8                2.0                3.8
Purchase of own shares                             (33.6)                 -                  -
Drawdown/(repayment) of borrowings                  75.6               28.9               (9.8)
Dividends paid to minorities                        (0.9)              (0.3)              (1.3)
Dividends paid                                     (36.2)             (33.6)             (55.9)
                                            --------------------------------------------------
Net cash from financing activities                  10.7               (3.0)             (63.2)
                                            --------------------------------------------------

Net (decrease)/increase in cash and 
 cash equivalents                                  (24.5)               3.7               44.4
Cash and cash equivalents at start of
 period                                            115.4               66.9               66.9
Effect of exchange rate fluctuations 
 on cash held                                        0.4                0.4                4.1
                                            --------------------------------------------------
Cash and cash equivalents at end of
 period                                             91.3               71.0              115.4
                                            --------------------------------------------------

Reconciliation of net cash to 
 movement in netborrowings

Net(decrease)/increase in cash and 
 cash equivalents                                  (24.5)               3.7               44.4
(Drawdown)/repayment of borrowings                 (75.6)             (28.9)               9.8
                                            --------------------------------------------------
Cash (outflow)/inflow                             (100.1)             (25.2)              54.2
Currency translation differences                    (9.2)              10.8               14.5
                                            --------------------------------------------------
Movement in net borrowings in 
 the period                                       (109.3)             (14.4)              68.7
Disposal group assets classified as 
 held for sale                                     (10.5)                 -                  -
Net borrowings at the start of 
 the period                                        (75.7)            (144.4)            (144.4)
                                            --------------------------------------------------
Net borrowings at the end of period               (195.5)            (158.8)             (75.7)
                                            --------------------------------------------------


                         CONSOLIDATED INTERIM STATEMENT
                        OF RECOGNISED INCOME AND EXPENSE

                                            6 months to         6 months to            Year to
                                           30 June 2005        30 June 2004        31 Dec 2004
                                            (unaudited)         (unaudited)        (unaudited)
                                                     £m                  £m                 £m
                                            --------------------------------------------------

Foreign exchange translation differences            0.2                   -                2.3
Actuarial (losses)/gains on defined
 benefit plans (net of deferred tax)               (2.3)                0.4                3.9
Net gain/(loss) on hedge of net investment 
 in foreign subsidiaries                            3.9                (2.3)              (4.5)
                                            --------------------------------------------------

Income and expense recognised directly in
 equity                                             1.8                (1.9)               1.7

(Loss)/profit for the period                      (40.8)               50.7               69.3
                                            --------------------------------------------------
Total recognised income and expense for 
 the period                                       (39.0)               48.8               71.0
                                            --------------------------------------------------

Attributable to:
  Equity holders of the parent                    (40.5)               48.0               69.2
  Minority interest                                 1.5                 0.8                1.8
                                            --------------------------------------------------
Total recognised income and expense for 
 the period                                       (39.0)               48.8               71.0
----------------------------------------------------------------------------------------------

                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                                           6 months to          6 months to            Year to
                                          30 June 2005         30 June 2004        31 Dec 2004
                                           (unaudited)          (unaudited)        (unaudited)
                                                    £m                   £m                 £m
                                            --------------------------------------------------

Shareholders' equity at start of period          553.9                535.1              535.1

Total recognised income and expense for 
 the period                                      (40.5)                48.0               69.2

Dividends                                        (36.2)               (33.6)             (55.9)
Share based payments (net of deferred tax)         1.3                  0.7                1.7 
Issue of ordinary shares net of costs              5.8                  2.0                3.8
Purchase of own shares into treasury             (33.6)                   -                  -
                                            --------------------------------------------------
                                                 (62.7)               (30.9)             (50.4)
                                            --------------------------------------------------

Shareholders' equity at
end of period                                    450.7                552.2              553.9
                                            --------------------------------------------------


NOTES TO THE INTERIM FINANCIAL STATEMENTS

1.  Basis of preparation

    EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated
    financial statements of the Group, for the year ending 31 December 2005, be
    prepared in accordance with International Financial Reporting Standards (IFRS)
    adopted for use in the EU ('adopted IFRS').

    The transition date for the application of IFRS is 1 January 2004. The
    comparative figures for 30 June 2004 and 31 December 2004 have been restated to
    reflect the transition to IFRS and reconciliations of profit and equity from UK
    GAAP to IFRS are presented in Appendix 2, as well as a reconciliation of equity
    at 1 January 2004.

    This interim financial information has been prepared on the basis of the
    recognition and measurement requirements of IFRS in issue that either are
    endorsed by the EU and effective (or available for early adoption) or are
    expected to be endorsed and effective (or available for early adoption) at 31
    December 2005, the Group's first annual reporting date at which it is required
    to use adopted IFRS.

    Based on these IFRS the directors have made assumptions about the accounting
    policies expected to be applied when the first annual IFRS financial statements
    are prepared for the year ending 31 December 2005. In particular, the directors
    have assumed that the EU will endorse the amendment to IAS19 'Employee Benefits
    - Actuarial Gains and Losses, Group Plans and Disclosures' issued in December
    2004 electing to present actuarial gains and losses arising on defined benefit
    pension schemes in the Statement of Recognised Income and Expense.
    
    However, the adopted IFRS that will be effective (or available for early
    adoption) in the annual financial statements for the year ending 31 December
    2005 are still subject to change and to additional interpretations and therefore
    cannot be determined with certainty. Accordingly, the accounting policies for
    that annual period will be determined finally only when the annual financial
    statements are prepared for the year ending 31 December 2005.

    The accounting policies used in the preparation of these financial statements
    under IFRS are provided in Appendix 1. As permitted, these interim financial
    statements have been prepared in accordance with the UK listing rules and not in
    accordance with IAS34 'Interim Financial Reporting'.

    The comparative figures for the year ended 31 December 2004 are not the
    Company's statutory accounts for that financial year. Those accounts, which were
    prepared under UK GAAP, 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 statements under S237(2) or (3) of the Companies
    Act 1985. A reconciliation has been provided in Appendix 2.
    
    The consolidated interim financial statements were authorised by the Board for
    issuance on 5 September 2005.

    When preparing the Group's IFRS balance sheet at 1 January 2004, the date of
    transition, the following optional exemptions from full retrospective
    application of IFRS accounting policies have been adopted:

        a) Business combinations - the provisions of IFRS 3 'Business Combinations' have
           been applied prospectively from 1 January 2004. As a result;

        • goodwill recognised as an asset under UK GAAP as at 31 December 2003 has
          not been revised retrospectively to identify and extract intangible assets
          to berecognised separate from goodwill. The carrying amount of goodwill
          brought forward in the opening IFRS balance sheet is that recorded under UK
          GAAP; and

        • goodwill written-off directly to reserves under UK GAAP will not be
          taken into account in determining any gain or loss on the disposal of
          acquired businesses on or after 31 December 2003.

        b) Employee benefits - the accumulated actuarial gains and losses in respect of
           employee defined benefit plans have been recognised in full through reserves.

    In addition, the Group has chosen to restate comparative information with
    respect to IAS32 'Financial Instruments: Disclosure and Presentation', IAS39
    'Financial Instruments: Recognition and Measurement' as allowed under IFRS1
    'First-time Adoption of IFRS' applied and IFRS2 'Share Based Payment' to share
    options granted on or after 7 November 2002.


2.  Segmental analysis

    Segment reporting

    Segment information is presented in the consolidated interim financial
    statements in respect of the Group's business segments, which are the primary
    basis of segment reporting. The business segment reporting format reflects the
    Group's management and internal reporting structure.

                                    Revenue                       Operating Profit
                           --------------------------        --------------------------
                            6 mths    6 mths     Year         6 mths    6 mths     Year
                                to        to       to             to        to       to
                           30 June   30 June   31 Dec        30 June   30 June   31 Dec
                              2005      2004     2004           2005      2004     2004
                                £m        £m       £m             £m        £m       £m
                           --------------------------        --------------------------

before exceptional items and intangible amortisation
Fluid Controls                 414       370      784           50.0      40.4     90.3

---------------------------------------------------------------------------------------
Severe Service                  88        74      177           10.0       8.0     22.5
Fluid Power                    243       214      439           28.7      20.6     43.5
Indoor Climate                  83        82      168           11.3      11.8     24.3
---------------------------------------------------------------------------------------

Retail Dispense                227       234      455           22.1      22.5     46.9

---------------------------------------------------------------------------------------
Beverage
Dispense                       141       142      267           14.0      13.1     24.9
Merchandising Systems           86        92      188            8.1       9.4     22.0
---------------------------------------------------------------------------------------

Total continuing operations    641       604     1239           72.1      62.9    137.2
---------------------------------------------------------------------------------------

after intangible amortisation
Fluid Controls                                                  48.5      40.0     85.2

---------------------------------------------------------------------------------------
Severe Service                                                   9.9       8.0     22.4
Fluid Power                                                     27.5      20.4     38.9
Indoor Climate                                                  11.1      11.6     23.9
---------------------------------------------------------------------------------------

Retail Dispense                                                 21.7      22.1     46.2

---------------------------------------------------------------------------------------
Beverage Dispense                                               13.6      12.7     24.2
Merchandising Systems                                            8.1       9.4     22.0
---------------------------------------------------------------------------------------

Total continuing operations                                     70.2      62.1    131.4
                                                             --------------------------

The results in respect of discontinued operations are set out in note 3.


    Acquisitions of subsidiaries

    Of the reported increase in revenue and operating profit of continuing
    operations (before exceptional items and intangible amortisation), £18m and
    £2.2m revenue and operating profit respectively result from the 2005 acquisition
    of Syron Engineering and Manufacturing LLC (Fluid Power), together with the
    extra months from the 2004 acquisition of Fluid Automotive Systems (Fluid Power).


3.  Discontinued operations

    Discontinued operations comprise the Polypipe businesses previously reported in
    Building Products. The sale of Polypipe excluding Doors and Windows which has
    been closed, was completed on 2 September 2005.

    The sale and profits from discontinued operations were as follows:

                                 6 months to 30     6 months to 30    Year to 31 Dec
                                      June 2005          June 2004              2004
                                £m         £m         £m      £m        £m      £m
                             ------------------     ---------------   --------------

Revenue                                   183                197               372
                                        -------             ------            ------

Operating profit              15.0                  16.2              27.2
Less tax                      (4.6)                 (5.1)             (8.7)
                             -------               -------            ------
                                         10.4               11.1              18.5
Estimated loss on disposal   (90.0)
Closure costs                 (8.0)
                             -------
                             (98.0)
Less tax                       2.5
                             -------
                                        (95.5)                 -                 -
                                        -------            -------           -------
                                        (85.1)              11.1              18.5
                                        -------            -------

EC fine relating to copper 
 tube businesses sold in 2002                                                 (33.1)
                                                                             -------
                                                                             (14.6)
                                                                             -------

During the six months to 30 June 2005 the discontinued operations had cash inflows 
of £9m (2004: £2m).


4. Net financing costs
                                         6 months to 30    6 months to       Year to
                                              June 2005   30 June 2004   31 Dec 2004
                                                     £m             £m            £m
                                        --------------------------------------------
Interest income                                     3.5            3.2           6.0
Interest expense                                   (8.3)          (8.0)        (15.2)
Interest charge impact of IAS19                     3.0            2.5           5.1
Change in fair values of financial
 instruments under IAS39                           (2.9)           0.3           0.8
                                        --------------------------------------------
                                                   (4.7)          (2.0)         (3.3)
                                        --------------------------------------------

5.  Taxation

    The interim taxation charge of 32% is calculated by applying the directors' best
    estimate of the annual tax rate to the taxable profit for the period (six months
    ended 30 June 2004: 33%) in respect of profit before exceptional items. The
    estimated tax relief on exceptional items is £2.5m.

6.  Dividends

    The directors have declared an interim dividend for the current year of 6.65p
    per share (2004: 6.3p) which will be paid on 21 October 2005 to shareholders on
    the register on 14 September 2005. In accordance with IAS10 'Events after the
    Balance Sheet Date', this interim dividend has not been reflected in the interim
    accounts.


7.  Earnings per share

    The weighted average number of shares in issue during the period, net of shares
    purchased by the company and held as treasury shares, was 352.9m, 355.7m diluted
    for the effect of outstanding share options (six months to 30 June 2004: 353.6m,
    356.1m diluted). Basic earnings per share have been calculated on losses of
    £42.3m, (2004: earnings of £49.9m).

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

Total                                       6 months to  6 months to 30    Year to 31 
                                           30 June 2005       June 2004       Dec 2004
                                                     £m              £m             £m
                                           -------------------------------------------
(Loss)/profit for the period attributable
 to equity holders of the parent                  (42.3)           49.9           67.5

Charges/(credits) included in profit for
 the period:
Change in fair value of financial
 instruments                                        2.9            (0.3)          (0.8)
Intangible amortisation                             1.9             0.8            5.8
Exceptional items                                  98.0               -           33.1
Taxation on charges/(credits) included in
 profit for the period                             (4.0)           (0.2)          (1.3)
                                           -------------------------------------------
Earnings for adjusted EPS                          56.5            50.2          104.3
                                           -------------------------------------------

From continuing operations                  6 months to  6 months to 30     Year to 31
                                           30 June 2005       June 2004       Dec 2004

                                                     £m              £m             £m
                                           -------------------------------------------
Profit for the period                              44.3            39.6           83.9
Minority interest                                  (1.5)           (0.8)          (1.8)
Charges/(credits) included in profit for 
 the period:
Change in fair value of financial
 instruments                                        2.9            (0.3)          (0.8)
Intangible amortisation                             1.9             0.8            5.8
Taxation on charges/(credits) included in
 profit for the period                             (1.5)           (0.2)          (1.3)
                                           -------------------------------------------
Earnings for adjusted EPS                          46.1            39.1           85.8
                                           -------------------------------------------


From discontinued operations                6 months to  6 months to 30     Year to 31
                                           30 June 2005       June 2004       Dec 2004
                                                     £m              £m             £m
                                           -------------------------------------------
(Loss)/profit for the period from
 discontinued businesses                          (85.1)           11.1          (14.6)

Exceptional items after income tax
 expense                                           95.5               -           33.1
                                           -------------------------------------------
Earnings for adjusted EPS                          10.4            11.1           18.5
                                           -------------------------------------------

Weighted average number of shares                 352.9           353.6          354.0
                                           -------------------------------------------



8. Reconciliation of cash generated from the operations

                                        6 months to         6 months to        Year to
                                            30 June             30 June         31 Dec
                                               2005                2004           2004
                                        (unaudited)         (unaudited)    (unaudited)
                                                 £m                  £m             £m
                                        ----------------------------------------------
Cash flows from operating activities
(Loss)/profit for the
period                                        (40.8)               50.7           69.3
Adjustments for:
           Depreciation                        27.2                28.7           58.3
           Amortisation                         1.9                 0.8            5.8
Estimated loss on disposal & closure costs     98.0                   -              -
EU fine                                           -                   -           33.1
Financing income                               (6.5)               (6.0)         (11.9)
Financing expense                              11.2                 8.0           15.2
Employee benefit charge                         1.0                 0.8            1.6
Equity-settled share-based payment expenses     1.0                 0.6            1.4
Income tax expense                             23.3                25.6           52.9
                                        ----------------------------------------------
Operating profit before changes in working
 capital and provisions                       116.3               109.2          225.7

(Increase)/decrease in trade and other
 receivables                                  (46.4)              (61.8)           0.2
Decrease/(increase) in inventories              1.9               (13.0)          (4.7)
Increase in trade and
 other payables                                 5.0                35.1           17.9
(Decrease)/increase in provisions and 
 employee benefits                             (9.4)               (7.3)           0.3
                                        ----------------------------------------------
Cash generated from the operations             67.4                62.2          239.4
                                        ----------------------------------------------

9.  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
                         2005     2004      2004              2005      2004     2004
                ---------------------------------------------------------------------
Euro                     1.46     1.48      1.47              1.48      1.49     1.41
US Dollar                1.87     1.82      1.83              1.79      1.81     1.92

10.  European Commission enquiry

    In September 2004, the European Commission announced the imposition of a fine of
    €44.98m on IMI in connection with its former copper tube business sold in 2002.
    Pending the outcome of an appeal made in January 2005, the full amount of the
    fine together with associated costs was provided and shown as an exceptional
    item of £33.1m at 31 December 2004. The fine was paid in February 2005.

    The European Commission is investigating allegations of anti-competitive
    behaviour among certain manufacturers of copper fittings. Notwithstanding IMI's
    disposal of its Copper Fittings businesses in 2002, it retains responsibility in
    relation to the European Commission's investigations in respect of those
    businesses. A Statement of Objections is expected to be issued by the Commission
    during 2005. It is not possible to give any reliable estimate of the likely
    level of fine.


11. 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 Interim Report will be posted to shareholders on 12 September 2005 and will
    be available from the same date at the Company's registered office, Lakeside,
    Solihull Parkway, Birmingham Business Park, Birmingham, B37 7XZ.

NEXT TRADING ANNOUNCEMENT

Our next trading update will be issued on 16 December 2005.


Enquiries to:

Graham Truscott - Communications Director -                   Tel: 0121 717 3710

Press release available on the Internet at www.imiplc.com

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


Independent review report by KPMG Audit Plc to IMI plc

Introduction

We have been engaged by the Company to review the financial information set out
on pages 6 to 15 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 financial statements except where any changes and the reason
for them are disclosed.

As disclosed in note 1 to the financial information, the next annual financial
statements of the Group will be prepared in accordance with IFRS adopted for use
in the European Union. The accounting policies that have been adopted in
preparing the financial information are consistent with those that the directors
currently intend to use in the next annual financial statements. There is,
however, a possibility that the directors may determine some changes to these
policies are necessary, when preparing the full annual financial statements for
the first time in accordance with these IFRS adopted for use by the European
Union.

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.

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 2005.


KPMG Audit Plc
Chartered Accountants
Birmingham

5 September 2005


                                                                      Appendix 1

Significant accounting policies

IMI plc (the 'Company') is a company domiciled in the United Kingdom. The
consolidated financial statements of the Company for the six months ended 30
June 2005 comprise the Company and its subsidiaries (together referred to as the
'Group').

    a)  Basis of accounting

        The financial statements are presented in pounds sterling, rounded to the
        nearest hundred thousand. They are prepared on the historical cost basis except
        that the following assets and liabilities are stated at their fair value:
        derivative financial instruments, financial instruments held for trading,
        financial instruments classified as available for sale and assets and
        liabilities identified as hedged items.

        Non-current assets and disposal groups held for sale are stated at the lower of
        carrying amount and fair value less costs to sell.

        The accounting policies have been applied consistently throughout the Group for
        the purposes of these consolidated financial statements.

    b)  Basis of consolidation

        i)  Subsidiaries

            Subsidiaries are those entities controlled by the Company. The financial
            statements of subsidiaries are included in the consolidated financial statements
            from the date that control commences until the date that control ceases.

        ii) Transactions eliminated on consolidation

            Intragroup balances and transactions, and any unrealised gains arising from
            intragroup transactions, are eliminated in preparing the consolidated financial
            statements.

    c)  Foreign currencies

        i)  Foreign currency transactions

            Monetary assets and liabilities denominated in foreign currencies have been
            translated into sterling at the rates of exchange ruling at the balance sheet
            date. The profit and loss accounts of overseas subsidiary undertakings are
            translated at the appropriate average rate of exchange for the year and the
            adjustment to year end rates is taken directly to reserves. Differences arising
            on revenue transactions in the year are reflected in profit before taxation.
            Non-monetary assets and liabilities denominated in foreign currencies that are
            stated at fair value are translated to sterling at foreign exchange rates ruling
            at the dates the values were determined.

        ii) Net investment in foreign operations

            Exchange differences arising on the retranslation of the opening net assets of
            foreign subsidiaries, foreign currency loans used for overseas investment and
            transactions executed solely for the purpose of hedging foreign currency assets
            exposure are taken directly to reserves.

            Any differences that have arisen since 1 January 2004, the date of transition to
            IFRS, are presented as a separate component of equity.

    d)  Financial instruments and fair value hedging

        Financial instruments are recorded initially at fair value. Subsequent
        measurement depends on the designation of the instrument, as follows:

        • Investments (other than fixed deposits) and short term investments
          (other than fixed deposits) are normally designated as available for sale.
          Where the exposure to a change in fair value of such an asset is
          substantially offset by the exposure to a change in the fair value of
          derivatives, the asset is generally classified as 'fair value through profit
          or loss'.

       • Fixed deposits, comprising principally funds held with banks and other
         financial institutions, and short term borrowings and overdrafts are
         classified as loans and receivables and held at amortised cost.

       • Derivatives, comprising interest rate swaps, foreign exchange contracts
         and options and embedded derivatives, are classified as held for trading.

       • Long term loans are generally held at amortised cost. Where the long
         term loan is hedged, generally by an interest rate swap, and the hedge is
         regarded as effective, the carrying value of the long term loan is adjusted
         for changes in fair value.

        Changes in the fair value of financial instruments are dealt with as follows:

       • For available for sale assets, exchange losses and impairments are taken
         to the income statement. All other changes in fair value are taken to
         reserves. On disposal of the related asset, the accumulated changes in fair
         value recorded in reserves are included in the gain or loss recorded in the
         income statement.

       • For long term loans effectively hedged, assets at fair value through
         profit or loss and assets held for trading, all changes in fair value are
         recognised in the income statement.

    e)  Other hedging

        i)  Cash flow hedge

            The effective portion of changes in the fair value of derivatives that are
            designated and qualify as cash flow hedges is recognised in equity. The gain or
            loss relating to the ineffective portion is recognised immediately in the income
            statement.

            Amounts accumulated in equity are recycled in the income statement in the
            periods when the hedged item will affect profit or loss (for instance when the
            forecast sale that is hedged takes place). However, when the forecast
            transaction that is hedged results in the recognition of a non-financial asset
            (for example, inventory), or a liability, the gains and losses previously
            deferred in equity are transferred from equity and included in the initial
            measurement of the cost of the asset or liability.

            When a hedging instrument expires or is sold, or when a hedge no longer meets
            the criteria for hedge accounting, any cumulative gain or loss existing in
            equity at that time remains in equity and is recognised when the forecast
            transaction is ultimately recognised in the income statement. When a forecast
            transaction is no longer expected to occur, the cumulative gain or loss that was
            reported in equity is immediately transferred to the income statement.

        ii) Hedge of monetary assets and liabilities

            Where a derivative financial instrument is used to economically hedge the
            foreign exchange exposure of a recognised monetary asset or liability, no hedge
            accounting is applied and any gain or loss on the hedging instrument is
            recognised in the income statement.

        iii) Hedge of net investment in foreign operation

            Where a foreign currency liability or derivative financial instrument hedges a
            net investment in a foreign operation, foreign exchange differences arising on
            translation of the liability or derivative financial instrument are recognised
            directly in equity.

    f)  Intangible assets

        i)  Goodwill

            Goodwill arising on acquisitions from 1 January 2004 is recognised as an
            intangible asset at the date of acquisition. The asset recognised is measured as
            the excess of the consideration paid over the fair value of the net assets
            acquired and associated costs. On an ongoing basis the goodwill is measured at
            cost less impairment losses (see accounting policy on 'Impairment'). Fair value
            adjustments are always considered to be provisional at the first balance sheet
            date after acquisition to allow the maximum time to elapse for management to
            make a reliable estimate.
    
            Under the Group's previous accounting policies, which were consistent with UK
            GAAP, goodwill on acquisitions prior to 1 January 1998 was deducted from
            reserves in the year of acquisition. In accordance with IFRS3 'Business
            Combinations' such goodwill continues as a deduction from reserves and is not
            recognised in the income statement in the event of disposal of the
            cash-generating unit to which it relates.
    
            Goodwill arising on acquisitions after 1 January 1998 was previously capitalised
            as an intangible asset and amortised on a straight-line basis over a maximum 20
            years. The un-amortised goodwill under UK GAAP at 31 December 2003 became the
            opening goodwill under the Group's transition to IFRS on 1 January 2004.
    
        ii) Research and development
    
            Expenditure on research activities, undertaken with the prospect of gaining new
            scientific or technical knowledge and understanding, is recognised in the income
            statement as an expense as incurred.

            Expenditure on development activities, whereby research findings are applied to
            a plan or design for the production of new or substantially improved products
            and processes, is capitalised if, and only if, the product or process is
            technically and commercially feasible and the Group has sufficient resources to
            complete development. The expenditure capitalised includes the cost of
            materials, direct labour and an appropriate proportion of overheads. Other
            development expenditure is recognised in the income statement as an expense as
            incurred. Capitalised development expenditure is stated at cost less accumulated
            amortisation (see below) and impairment losses (see accounting policy on
            'Impairment').

        iii) Other intangible assets

            Other intangible assets that are acquired by the Group are stated at cost less
            accumulated amortisation (see below) and impairment losses (see accounting
            policy on 'Impairment'). Expenditure on internally generated goodwill and brands
            is recognised in the income statement as an expense as incurred.

            Amortisation of intangible assets other than goodwill

            Amortisation is charged to the income statement on a straight-line basis (unless
            such a basis gives a significant distortion to anticipated benefit) over the
            estimated useful lives of intangible assets. Amortisation commences from the
            date the intangible asset becomes available for use. The estimated maximum
            useful lives are as follows:

            •  Capitalised development costs         5 years
            •  Patents                               Life of initial patent grant

    g)  Property, plant and equipment

        Freehold land and assets in the course of construction are not depreciated.

        Items of property, plant and equipment are stated at cost less accumulated
        depreciation (see below) and impairment losses (see accounting policy on
        'Impairment').

        Where an item of property, plant and equipment comprises major components having
        different useful lives, they are accounted for as separate items of property,
        plant and equipment.

        Depreciation is calculated so as to write off the cost to residual values over
        the period of their estimated useful lives within the following ranges:

        • Freehold buildings 25 to 50 years
        • Leasehold land and buildings Period of lease
        • Plant and machinery 3-20 years

    h)  Leased assets

        Leases in terms of which the Group assumes substantially all the risks and
        rewards of ownership are classified as finance leases. Plant and equipment
        acquired by way of finance lease is stated at an amount equal to the lower of
        its fair value and the present value of the minimum lease payments at inception
        of the lease, less accumulated depreciation (see above) and impairment losses
        (see accounting policy on 'Impairment').

        Payments made under operating leases are recognised in the income statement on a
        straight-line basis over the term of the lease. Lease incentives received are
        recognised in the income statement as an integral part of the total lease
        expense. The majority of leasing transactions entered into by the Group are
        operating leases.

        i)  Trade and other receivables

            Trade and other receivables are stated at their cost less impairment losses (see
            accounting policy on 'Impairment').

    j)  Inventories

        Inventories are valued at the lower of cost and net realisable value. In respect
        of work in progress and finished goods, cost includes all direct costs of
        production and the appropriate proportion of production overheads.

    k)  Long term contracts

        Long term contracts are stated at cost plus profit recognised to date (see
        accounting policy on 'Revenue') less a provision for foreseeable losses and less
        progress billings. Cost includes all expenditure related directly to specific
        projects and an allocation of fixed and variable overheads incurred in the
        Group's contract activities based on normal operating capacity.

    l)  Cash and cash equivalents

        Cash and cash equivalents comprise cash balances and call deposits. Bank
        overdrafts that are repayable on demand and form an integral part of the Group's
        cash management are included as a component of cash and cash equivalents for the
        purpose of the statement of cash flows.

    m)  Impairment

        The carrying values of the Group's assets other than inventories (see accounting
        policy 'Inventories') and deferred tax assets (see accounting policy 'Income
        tax'), are reviewed at each balance sheet date to determine whether there is any
        indication of impairment. If any such indication exists, the asset's recoverable
        amount is estimated. For intangible assets that are not yet available for use,
        the recoverable amount is estimated at each balance sheet date. An impairment
        loss is recognised whenever the carrying amount of an asset or its
        cash-generating unit exceeds its recoverable amount. Impairment losses are
        recognised in the income statement.

        Goodwill was tested for impairment at 1 January 2004, the date of transition to
        IFRS.

        i)  Calculation of recoverable amount

            The recoverable amount of the Group's receivables is calculated as the present
            value of expected future cash flows, discounted at the original effective
            interest rate inherent in the asset. Receivables with a short duration are not
            discounted.

            The recoverable amount of other assets is the greater of their net selling price
            and value in use. In assessing value in use, the estimated future cash flows
            generated by the asset are discounted to their present value using a pre-tax
            discount rate that reflects current market assessments of the time value of
            money and the risks specific to the asset. For an asset that does not generate
            largely independent cash inflows, the recoverable amount is determined for the
            cash-generating unit to which the asset belongs.

        ii) Reversals of impairment

            As required by IAS 36 'Impairment of Assets', any impairment loss of goodwill is
            non-reversible. In respect of other assets, an impairment loss is reversed if
            there has been a change in the estimates used to determine the recoverable
            amount.

            An impairment loss is reversed only to the extent that the asset's carrying
            amount does not exceed the carrying amount that would have been determined, net
            of depreciation or amortisation, if no impairment loss had been recognised.

    n)  Dividends

        Dividends are recognised as a liability in the period in which they are
        declared.

    o)  Employee benefits

        i)  Defined contribution pension plans

            Obligations for contributions to defined contribution pension plans are
            recognised as an expense in the income statement as incurred.

        ii) Defined benefit pension plans

            Obligations under defined benefit plans are measured at discounted present value
            whilst plan assets are recorded at fair value. The operating and financing costs
            of such plans are recognised separately in the income statement; service costs
            are spread systematically over the lives of employees and financing costs are
            recognised in the periods in which they arise. Actuarial gains and losses are
            recognised immediately in the statement of recognised income and expense.

        iii) Long-term service benefits

            The Group's net obligation in respect of long-term service benefits, other than
            pension plans, is the amount of future benefit that employees have earned in
            return for their service in the current and prior periods. The obligation is
            calculated using the projected unit credit method and is discounted to its
            present value and the fair value of any related assets is deducted. The discount
            rate is the yield at balance sheet date on high quality bonds of the appropriate
            currency that have maturity dates approximating the terms of the Group's
            obligations.

        iv) Equity and equity-related compensation benefits

            The Group operates an Executive Share Option Scheme and a SAYE Share Option
            Scheme. For options granted on or after 7 November 2002, the fair value of the
            employee services received in exchange for the grant of the options is
            recognised as an expense each year. The total amount to be expensed over the
            vesting period is determined by reference to the fair value of the options
            granted, excluding the impact of any non-market vesting conditions (for example,
            profitability and sales growth targets). Non-market vesting conditions are
            included in assumptions about the number of options that are expected to become
            exercisable. The fair value of the options is determined based on the
            Black-Scholes option-pricing model.

            At each balance sheet date, the Group revises its estimates of the number of
            options that are expected to become exercisable. It recognises the impact of the
            revision of original estimates, if any, in the income statement, and a
            corresponding adjustment to equity over the remaining vesting period.

            The proceeds received net of any directly attributable transaction costs are
            credited to share capital (nominal value) and share premium when the options are
            exercised.

    p)  Provisions

        Provisions are recognised when: the Group has a present legal or constructive
        obligation as a result of past events; it is more likely than not that an
        outflow of resources will be required to settle the obligation; and the amount
        can be reliably estimated. Provisions are valued at management's best estimate
        of the expenditure required to settle the present obligation at the balance
        sheet date.
    
        A provision for restructuring is recognised when the Group has approved a
        detailed and formal restructuring plan, and the restructuring has either
        commenced or has been announced publicly.

    q)  Trade and other payables

        Trade and other payables are stated at their cost.

    r)  Revenue

        i)  Goods sold

            Revenue from the sale of goods is recognised in the income statement when the
            significant risks and rewards of ownership have been transferred to the buyer.
            No revenue is recognised if there are significant uncertainties regarding
            recovery of the consideration due, associated costs, or the possible return of
            goods.

        ii) Long term contracts

            Income and profits on long term contracts are recognised in proportion to the
            value of work done on the contract after making an estimate of costs to complete
            and risks associated with the contract. Full provision is made for any losses in
            the year in which they are first foreseen.

    s)  Net financing costs
    
        Net financing costs comprise interest payable on borrowings calculated using the
        effective interest rate method, interest receivable on funds invested, assumed
        returns on assets less interest on liabilities on employee benefit plans and
        gains and losses on hedging instruments that are recognised in the income
        statement (see accounting policy on 'Hedging').

        Interest income is recognised in the income statement as it accrues, taking into
        account the effective yield on the asset. Dividend income is recognised in the
        income statement on the date that the dividend is declared.

        The interest expense component of finance lease payments is recognised in the
        income statement using the effective interest rate method.

    t)  Income tax

        The charge for taxation is based on the profits for the year and takes into
        account taxation deferred because of temporary differences between the treatment
        of certain items for taxation and for accounting purposes. Full provision is
        made for the tax effects of these differences. No provision is made for
        unremitted earnings of foreign subsidiaries where there is no commitment to
        remit such earnings. Similarly, no provision is made for temporary differences
        relating to investments in subsidiaries since realisation of such differences
        can be controlled and is not probable in the foreseeable future.

        A deferred tax asset is recognised only to the extent that it is probable that
        future taxable profits will be available against which the asset can be
        utilised. Deferred tax assets are reduced to the extent that it is no longer
        probable that the related tax benefit will be realised.

    u)  Non current assets held for sale and discontinued operations

        On initial classification as held for sale, non-current disposal groups are
        recognised at the lower of carrying amount and fair value less costs to sell.
        Impairment losses on initial classification as held for sale are included in
        profit or loss, even for assets measured at fair value, as are gains and losses
        on subsequent re-measurement.

        A discontinued operation is a component of the Group's business that represents
        a separate major line of business.

        Classification as a discontinued operation occurs upon disposal or when the
        operation meets the criteria to be classified as held for sale, if earlier.


                                                                    Appendix 2.1

--------------------------------------------------------------------------------------------
                                                   January 2004 opening balance sheet impact

                                                    Non current       
                                                         assets       Other       Net assets
--------------------------------------------------------------------------------------------
                                                             £m          £m               £m

January 2004 opening balance sheet under UK GAAP          610.5       (67.5)           543.0
--------------------------------------------------------------------------------------------
                                                       
IFRS2       Share-based        Tax relating to          
            payment            expensing of  
            employee           share
                               options over period
                               between grant and
                               vesting.                                 0.2              0.2
--------------------------------------------------------------------------------------------
IAS19       Employee           Recognition of                      
            benefits           pension deficits
                               less associated
                               deferred tax.                          (76.5)           (76.5)
--------------------------------------------------------------------------------------------
IAS32/39    Financial          Movements arising         
            instruments        from recording             
                               financial
                               instruments and
                               derivatives at fair
                               value.                                  (1.2)            (1.2)
--------------------------------------------------------------------------------------------
IAS10       Events after       Proposed final                          
            the balance        dividend no longer                      33.6             33.6
--------------------------------------------------------------------------------------------
IAS38       Intangible         Capitalisation of         
            assets             certain development     
                               costs.                        6.9       (2.5)             4.4
--------------------------------------------------------------------------------------------
IAS12       Income tax         Classification of      
                               deferred tax assets,      
                               including additional
                               deferred tax assets
                               on goodwill and the
                               pension deficit.             63.5      (28.3)            35.2
--------------------------------------------------------------------------------------------
January 2004 opening balance sheet under IFRS              680.9     (142.2)           538.7
--------------------------------------------------------------------------------------------
Opening adjustments carried forward under IFRS              70.4      (74.7)            (4.3)
--------------------------------------------------------------------------------------------



                                                                    Appendix 2.2

--------------------------------------------------------------------------------------------
                                                  June 2004 6 months earnings impact

                                                                                Total profit
                                                                                     for the
                                                       EBIT*     PBT *       PBT      period
--------------------------------------------------------------------------------------------
                                                          £m        £m        £m          £m

2004 Reported profit under UK GAAP                      79.2      74.4      64.1        39.6
--------------------------------------------------------------------------------------------
IFRS2        Share-based    Expensing of    
             payment        employee share 
                            options over
                            period between
                            grant and
                            vesting.                    (0.6)     (0.6)     (0.6)       (0.4)
--------------------------------------------------------------------------------------------
IAS19        Employee       Classification of 
             benefits       pension cost    
                            between operating
                            cost and finance
                            income.                     (0.8)      1.7       1.7         1.1
--------------------------------------------------------------------------------------------
IFRS3        Business       Goodwill no  
             combinations   longer    
                            amortised.                                      10.3         9.9
--------------------------------------------------------------------------------------------
IAS32/39     Financial      Movements arising  
             instruments    from recording  
                            financial
                            instruments and
                            derivatives at
                            fair value.                            0.3       0.3         0.2
--------------------------------------------------------------------------------------------
IAS38        Intangible     Effect of    
             assets         capitalisation   
                            and amortisation
                            of certain
                            development
                            costs.                       1.3       1.3       0.5         0.3
--------------------------------------------------------------------------------------------
2004 profitunder IFRS                                   79.1      77.1      76.3        50.7
--------------------------------------------------------------------------------------------

* Before exceptional items and intangible amortisation.


                                                                    Appendix 2.3

--------------------------------------------------------------------------------------------
                                                      June 2004 closing balance sheet impact

                                                    Non current   
                                                         assets        Other      Net assets
--------------------------------------------------------------------------------------------
                                                             £m           £m              £m

2004 Reported balance sheet under UK GAAP                 587.1        (24.6)          562.5

Opening Balance Sheet adjustment                           70.4        (74.7)           (4.3)
--------------------------------------------------------------------------------------------
IFRS2       Share-based    Tax relating to       
            payment        expensing of employee  
                           share options over
                           period between grant
                           and vesting.                     0.3                          0.3
--------------------------------------------------------------------------------------------
IAS19       Employee       Recognition of pension   
            benefits       deficits less          
                           associated deferred
                           tax.                            (0.3)         1.8             1.5
--------------------------------------------------------------------------------------------
IFRS3       Business       Goodwill no longer  
            combinations   amortised.                       9.9                          9.9
--------------------------------------------------------------------------------------------
IAS32/39    Financial      Movements arising from
            instruments    recording financial   
                           instruments and
                           derivatives at fair
                           value.                           0.9         (3.0)           (2.1)
--------------------------------------------------------------------------------------------
IAS10       Events after   Proposed final   
            the balance    dividend no longer    
            sheet date     being recognised.                           (11.3)          (11.3)
--------------------------------------------------------------------------------------------
IAS38       Intangible     Capitalisation of 
            assets         certain development  
                           costs.                           0.4                          0.4
--------------------------------------------------------------------------------------------
IAS12       Income tax     Classification of 
                           deferred tax assets,  
                           including additional
                           deferred tax assets on
                           goodwill and the
                           pension deficit.                (0.6)                        (0.6)
--------------------------------------------------------------------------------------------
2004 Reported Balance Sheet under IFRS                    668.1       (111.8)          556.3
--------------------------------------------------------------------------------------------

The difference between the movement in net assets (decrease of £6.2m) and the
movement in retained profit (increase of £11.1m) reflects the items booked
directly to reserves, principally actuarial experience gains and losses arising
on pension schemes.



                                                                    Appendix 2.4

--------------------------------------------------------------------------------------------
                                          December 2004 full year earnings impact

                                                                                       Total
                                                        *         *               profit for
                                                      PBT      EBIT      PBT      the period
--------------------------------------------------------------------------------------------
                                                       £m        £m       £m              £m

2004 Reported profit under UK GAAP                  164.6     155.4    100.7            49.3
--------------------------------------------------------------------------------------------
IFRS2       Share-based    Expensing of     
            payment        employee share    
                           options over
                           period between
                           grant and
                           vesting.                  (1.4)     (1.4)    (1.4)           (1.0)
--------------------------------------------------------------------------------------------
IAS19       Employee       Classification of 
            benefits       pension cost    
                           between operating
                           cost and finance
                           income.                   (1.6)      3.5      3.5             2.4
--------------------------------------------------------------------------------------------
IFRS3       Business       Goodwill no          
            combinations   longer    
                           amortised.                                   21.6            20.8
--------------------------------------------------------------------------------------------
                           Other intangible  
                           asset       
                           amortisation re
                           2004
                           acquisition.                                 (4.2)           (3.1)
--------------------------------------------------------------------------------------------
IAS32/39    Financial      Movements arising  
            instruments    from recording  
                           financial
                           instruments and
                           derivatives at
                           fair value.                          0.8      0.8             0.5
--------------------------------------------------------------------------------------------
IAS38       Intangible     Net effect of 
            assets         capitalisation 
                           less amortisation
                           of certain
                           development
                           costs.                     2.8       2.8      1.2             0.8
--------------------------------------------------------------------------------------------
IAS12       Income tax     Tax effect of 
                           foreign exchange 
                           gains on deferred
                           tax asset                                                    (0.4)
--------------------------------------------------------------------------------------------
2004 profitunder IFRS                               164.4     161.1    122.2            69.3
--------------------------------------------------------------------------------------------


* Before exceptional items and intangible amortisation.



                                                                    Appendix 2.5

--------------------------------------------------------------------------------------------
                                           December 2004 closing balance sheet impact

                                                 Non current    
                                                      assets         Other        Net Assets
--------------------------------------------------------------------------------------------
                                                          £m            £m                £m

2004 Reported balance sheet under UK GAAP              586.0         (47.8)            538.2

Opening Balance Sheet adjustment                        70.4         (74.7)             (4.3)
--------------------------------------------------------------------------------------------
IFRS2       Share-based    Tax relating to      
            payment        expensing of    
                           employee share
                           options over period
                           between grant and
                           vesting.                      0.7                             0.7
--------------------------------------------------------------------------------------------
IAS19       Employee       Recognition of 
            benefits       pension deficits  
                           less associated
                           deferred tax.                (1.0)          7.3               6.3
--------------------------------------------------------------------------------------------
IFRS3       Business       Goodwill no longer      
            combinations   amortised.                   20.8                            20.8
--------------------------------------------------------------------------------------------
                           Other intangible
                           asset amortisation  
                           re 2004
                           acquisition.                 (3.1)                           (3.1)
--------------------------------------------------------------------------------------------
IAS32/39    Financial      Movements arising 
            instruments    from recording     
                           financial
                           instruments and
                           derivatives at fair
                           value.                        1.7          (5.7)             (4.0)
--------------------------------------------------------------------------------------------
IAS10       Events after   Proposed final     
            the balance    dividend no longer  
            sheet date     being recognised.                           2.6               2.6
--------------------------------------------------------------------------------------------
IAS38       Intangible     Capitalisation of 
            assets         certain development 
                           costs.                        0.7                             0.7
--------------------------------------------------------------------------------------------
IAS12       Income tax     Classification of 
                           deferred tax    
                           assets, including
                           additional deferred
                           tax assets on
                           goodwill and the
                           pension deficit.              (1.4)          1.4
--------------------------------------------------------------------------------------------
2004 Reported balance sheet under IFRS                  674.8        (116.9)           557.9
--------------------------------------------------------------------------------------------
Opening adjustments carried forward under IFRS           88.8         (69.1)            19.7
--------------------------------------------------------------------------------------------

The difference between the movement in net assets (increase of £19.7m) and the
movement in retained profit (increase of £20.0m) reflects the items booked
directly to reserves, principally actuarial experience gains and losses arising
on pension schemes.






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