Final Results

IMI PLC 07 March 2005 7 March 2005 IMI plc Preliminary Results IMI plc, the major international engineering group, today announced its preliminary results for the year ended 31 December 2004. 2004 2003 Sales £1611m £1573m Results before goodwill amortisation and exceptional items Operating profit from continuing businesses £164.6m £147.8m * Profit before tax £155.4m £136.9m * Adjusted earnings per share 28.9p 25.7p * Exceptional items £33.1m - Profit before tax £100.7m £117.2m Earnings per share 13.4p 20.1p Borrowings £69.0m £136.3m Gearing 13% 25% Dividend per share 16.5p 15.5p * 2003 restated to include rationalisation costs of £5.7m, previously shown separately. • Increased operating profit • Strong cash generation continued • Increased dividend CHAIRMAN'S STATEMENT I am very pleased to be able to report on another year of solid progress, with profit before tax, goodwill amortisation and exceptional items at £155.4m being the highest ever made by the Group, and adjusted earnings per share up 12%. Most of our businesses achieved organic growth in the year. All, with the exception of Building Products, achieved increased operating profits. Cash generation remained a strong focus and we once again enjoyed very healthy interest cover and further reduced our borrowings. Order intake continued to maintain the momentum we saw in the first half of 2004 and on a like for like basis increased by around 7% for the year as a whole. The interim dividend was increased by 5% to 6.3p and the Board is recommending that the final dividend be increased by 7.4% from 9.5p to 10.2p. This makes the total dividend for the year 16.5p, an increase of 6.5% over the 15.5p paid in respect of 2003. The total dividend is covered 1.7 times (2003: 1.7 times) based on adjusted earnings and absorbs £58.5m, a cash cover of 2.2 times (2003: 2.6 times). In addition to increasing the dividend, as part of the ongoing capital management of the Group, the Board has decided to undertake an on-market share buy-back programme. The timing and amount of the buy-back will be managed according to the ongoing capital needs of the Group including acquisitions. The authority for an on-market buy-back already exists and we will be asking for this authority to be renewed at the annual general meeting in May. We have clear criteria, both strategic and financial, for assessing acquisitions and continue to evaluate targeted opportunities within our chosen business areas. In July 2004 we acquired the Swiss based Fluid Automation Systems (FAS) and in February 2005 we acquired the US based Syron Engineering and Manufacturing (Syron). Both these businesses add key technology and close customer relationships in our targeted market sectors within our Fluid Power business and have combined annual sales of around £35m. In recent months we have received a number of enquiries from parties interested in acquiring Polypipe. As a result, the Board has provided certain confidential information to interested parties. The Board is committed to delivering value from the Polypipe businesses and the potential proceeds from any possible sale will be weighed against the value which the Board believes can be delivered from continuing to own and run the business. Results summary Sales for the year at £1611m compared with £1573m in 2003. The adverse impact of exchange rates on translation of reported sales was £68m, and after adjusting for the effect of acquisitions of £36m, like for like sales were around 5% higher than last year. Reported operating profit (before goodwill amortisation) was £164.6m, an increase of 11.4% over last year. Rationalisation costs charged in arriving at operating profit were £5.3m (2003: £5.7m). Profit before tax, goodwill amortisation and exceptional items increased 13.5% to £155.4m (2003: £136.9m). At constant exchange rates the increase was 19%. Interest costs for the year were reduced to £9.2m (2003: £10.9m) as a result of lower borrowings. Interest was covered 18 times (2003: 14 times) based on operating profit before goodwill amortisation. 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 the appeal made in January 2005, the full amount of the fine, together with associated costs, has been provided in the Financial Statements and is shown as an exceptional item of £33.1m. The copper plumbing fittings enquiry is still at an early stage, with a decision on any fine unlikely to be made by the Commission before the second half of 2005. It is not possible to give any reliable estimate of the likely level of fine and therefore it is noted as a contingent liability in the Financial Statements. The effective tax rate for the year on profit before goodwill amortisation and exceptional items is 33%, the same rate as 2003. Adjusted earnings per share (excluding goodwill amortisation and exceptional items) increased by 12% from 25.7p to 28.9p. Following another year of working capital efficiency improvements, operating cash conversion was 115% of operating profit resulting in operating cash flow of £190m (2003: £196m). Free cash flow before dividends and corporate activity was £127m (2003: £142m). Net borrowings reduced to £69m (2003: £136m) giving balance sheet gearing of 13% (2003: 25%) and a net debt to EBITDA ratio of 0.3. Since the year end we have paid the EU fine of €44.98m (£32m) and acquired Syron at a cost of £18m. Board changes Lance Browne joined the Board as an independent non-executive director on 1 January 2005 and I am pleased to report that with effect from 8 March 2005 Kevin Beeston will also join the Board as an independent non-executive director. Outlook 2004 has seen us successfully continue on the path we set out three years ago and our financial performance reflects the progress we have made to date. Whilst there are still some concerns that mainland Europe remains subdued, the underlying momentum in our businesses overall is encouraging. We remain intent on delivering top line growth and continuing the steady upwards progression of operating margins in recent years. CHIEF EXECUTIVE'S REVIEW We can look back on 2004 with satisfaction, with all five of our platform businesses recording improvements in profit. In general, the businesses dealt well with the twin effects of materials inflation and a stronger pound, leaving reported pre-tax profits (before goodwill amortisation and exceptional items) some 14% ahead of last year. Cashflow was again strong, leaving the year-end balance sheet lightly geared, with net debt of less than £70m, as compared to over £400m just four years ago. Each of our platform businesses now has a clear and established strategic framework in which to move forward, developed progressively over the last few years. Within each of those strategic frameworks, sustainable profitable growth is the primary objective. The principal drivers of growth for all our businesses are the same: - acceleration of our key account focus and capability, adopting a carefully targeted approach to the selection of our customer partners, and assembling highly talented teams of people to promote double-digit revenue growth with these partners; - delivering a step change in the creative competence of our organisation, investing in techniques to acquire improved customer and market insight, and upgrading our capacity to convert that insight into commercial solutions through a larger engineering resource; - seizing the initiative in respect of the fast-growing markets of Asia and Eastern Europe, expanding our local resource and investment and recruiting highly talented people from these territories throughout our business (in 2004, 25% of our graduate intake was of Chinese origin); and - accelerating our efforts to secure strategic bolt-on acquisitions in our chosen areas. These four growth imperatives are understood by all the senior management in IMI, and are increasingly becoming embedded throughout our organisation. We continually look for talent to accelerate our capabilities in these areas and a number of new appointments were made during the year. The recent non-executive director appointments to the Board support our growth imperatives. Lance Browne is based in Shanghai and brings with him great knowledge of China; Kevin Beeston's experience will be invaluable in our efforts to expand our after-market and service capability. Our search for a new chairman and another non-executive director is on-going. Going into 2005, the US and Asian economies remain buoyant whilst concerns grow over the outlook for European economies. Inflationary pressures around materials and energy costs are unlikely to subside, at least in the near term, requiring continued diligence by our management in both securing price increases of our own and mitigating the impact through increased sourcing of materials in the Far East and cost reduction programmes. We have built a strong platform over the last few years and management is now firmly engaged on the growth agenda. Whilst prevailing economic conditions will inevitably play a part, we are well placed to deliver sustainable growth over the long term. OPERATIONS REVIEW The following is a review of our business areas for the year. Operating profit is stated before goodwill amortisation. Severe Service Sales £169m (2003: £168m) Operating profit £21.5m (2003: £20.3m) In our Severe Service business, in a year when additional investment in specialist sales engineers was held back to allow operational efficiencies to keep pace with the growth, 2004 still saw another year of solid growth in plant level sales and new construction projects. The running rate for order intake was over 10% higher than 2003 with much of the growth coming from Asia where we are winning a good share of new projects and benefiting from an established installed base. We also continue to see increased activity in the oil and gas sector where CCI is the recognised authority on severe service valve applications for LNG (liquified natural gas). With the US new construction power market still soft, we are focusing more of our resources on these growth areas. The profile of our order book is currently more weighted to new valve projects than in the recent past and contains significant orders for shipment dates beyond 2005. Our customer service business remains very healthy. As reported in our interim statement, shipments in the first half were 5% lower than the first half of 2003 but this was reversed with a strong finish to the year resulting in shipments being 6% ahead for the year as a whole. Margins are also ahead of last year and should continue to improve in 2005 in another year of consolidating on past investment spend. Fluid Power Sales £439m (2003: £410m) Operating profit £44.3m (2003: £31.0m) A strong performance in the year from our Fluid Power business saw operating profit considerably increased over last year. Volumes overall were over 8% ahead, driven by organic growth of around 6% in the underlying markets and 16% in our target sectors. The commercial vehicles sector was particularly strong. The US, which represents around a quarter of sales, had a buoyant year and was able to respond to the increased volume demand through a strong operational performance from our Mexican facility. The UK and Germany both benefited from the introduction of new valve products to support key accounts within the targeted sectors. Mainland European sales in general, however, showed only modest growth and disappointed towards the end of the year. Sales into the Asia Pacific region continue to be encouraging. We were very pleased to be able to complete the acquisition of FAS in July which contributed £1m operating profit on sales of £10m. We are already seeing the benefit of having a greater range of miniature solenoid valves and increased capabilities in the important medical sector. Our specialist end-of-arm tooling business, serving the in-plant automotive sector, had a successful year and the acquisition of Syron in February 2005 extends its reach into transfer press tooling. We continue to drive cost reduction measures and spent a further £2.7m on rationalisation during the year. Our new facility in Brno, Czech Republic is thriving and to date has met all approval standards and efficiency targets. Also in Brno, we have established a technical centre working on new product developments. Indoor Climate Sales £168m (2003: £169m) Operating profit £24.2m (2003: £23.8m) Our Indoor Climate business produced a resilient performance, increasing operating profit despite another challenging year in its major European markets and price pressure on raw materials. Overall, volumes were similar to last year with growth in Eastern Europe, UK and Asia offsetting a small decline in the traditional European markets. The small first half improvement in TRV sales in the German market was not sustained, leaving sales for the year as a whole unchanged. However, it was pleasing to see that in a nationwide survey of installers, Heimeier was recognised as being the number one brand for service and support. The pattern of demand for balancing valves is patchy across Europe and the weak US dollar is holding back sales to the US. In the UK, however, our high performance balancing valves are winning market share in PFI financed projects. We continue to invest in our Eastern European infrastructure and opened new facilities in Russia during the year. We now have 175 people in our Eastern European operations which grew sales by 15% in 2004. We also continue to invest in China, where the considerable construction programme offers great potential. Although not substantial yet, we are beginning to see increased sales. Beverage Dispense Sales £267m (2003: £278m) Operating profit £24.4m (2003: £21.5m) Our Beverage Dispense business performed well throughout the year in the US with encouraging underlying demand and operational efficiencies continuing a strong improvement. Consumer confidence appears to be growing, as evidenced by increasing restaurant traffic enabling operators to report same store sales gains. This backdrop has provided the impetus for good demand in our food service sector and brand owner business, although this has been tempered by a recent slowdown with one of our major soft drinks customers. We continue to achieve successes with our sales of non-carbonated dispense equipment, with juice, frozen offerings and Lipton iced tea again showing good growth. Our Mexican manufacturing facility made a much improved contribution with efficiencies at target levels and our US operations reaping the benefit of ongoing efficiency programmes. In mainland Europe, we achieved modest growth in the year in both soft drinks and beer dispense although the second half of the year was slower. Encouraging sales both in Eastern Europe and of our small but growing water dispense equipment in Germany, helped offset lower volumes in our traditional beer dispense markets. In the UK, sales into the soft drinks dispense market were up on last year. In beer dispense we had benefited in 2002 and 2003 from a shift into extra cold programmes and two years of heavy brand owner promotional spend. Consequently, volumes in 2004 showed a marked decline. In Asia, although sales were ahead of last year, we still lack critical mass and will be looking to increase our investment particularly in respect of a growing food service sector opportunity. We have recently moved our regional headquarters to Shanghai. Merchandising Systems Sales £188m (2003: £170m) Operating profit £22.2m (2003: £18.2m) Merchandising Systems continues to make progress, with organic growth of nearly 5% building on the very good 10% growth delivered in 2003. Helped by a full year's contribution from Artform, we are able to report operating profit £4m ahead of last year despite the adverse impact of around £5m from exchange rates and raw material costs. Our traditional Cannon business was affected by raw materials costs as steel prices were driven up by as much as 75%. This was mitigated more in the second half by pricing and increased Far East sourcing of other materials. Underlying demand, however, was encouraging and quotation activity increased further towards the end of the year. Particularly encouraging was our first time entry into the growing US DIY sector. Display Technologies repeated its success in beverage and bulk display systems and grew its international sales further. It continues to develop a focused key account and key sector strategy. Although lower than the very successful 2003 in which a number of large contracts were shipped, DCI had another very good year with the first half benefiting from the Toyota Scion programme and customer Point of Purchase sales again increasing. The automotive sector continues to be a significant contributor to DCI but several other key sectors are being targeted which lend themselves to DCI's creative knowledge-based solutions. Artform completed a very good first full year with sales 5% ahead of that achieved prior to acquisition and with maintained margins. Cosmetics remain the major proportion of sales with the leading European brand owners the key customers. We are still in the early stages of development of our category management business model and have a number of pilot programmes running with selected accounts. Building Products Sales £380m (2003: £370m) Operating profit £28.0m (2003: £33.0m) In Polypipe, although overall volumes slowed a little in the second half, the market, particularly for our core pipes business, remains generally positive. Price increases were successfully implemented in the second half of the year, mitigating the impact of raw material costs and restoring some of the margin erosion seen earlier. New product introductions continue and offer good growth opportunities. Losses in the Doors and Windows division and difficult conditions in Bathroom and Kitchens and Leisure contributed significantly to the reduction in profit in the year. Action has been taken to arrest the decline in these businesses. The small European pipes businesses continue to improve, producing increased profits. The underlying strength of Polypipe's main business remains solid and this, together with the management changes made during 2004, should provide for a recovery in performance in 2005. GROUP PROFIT AND LOSS ACCOUNT for the year ended 31 December 2004 Before Before goodwill goodwill amortisation and Goodwill Exceptional amortisation and Goodwill exceptionals amortisation items Total exceptionals (i) amortisation Total 2004 2004 2004 2004 2003 2003 2003 Notes £m £m £m £m £m £m £m ----------------------------------------------------------- ------------------------------------------ Turnover 1 Continuing operations 1611 1611 1565 1565 Discontinued operations - - 8 8 ----------------------------------------------------------- ------------------------------------------ Total turnover 1611 1611 1573 1573 ----------------------------------------------------------- ------------------------------------------ Operating profit 1 Total continuing operations 164.6 (21.6) - 143.0 147.8 (19.7) 128.1 Discontinued - - - - - - - operations ----------------------------------------------------------- ------------------------------------------ Operating profit 164.6 (21.6) - 143.0 147.8 (19.7) 128.1 European Commission enquiry (ii) 2 (33.1) (33.1) - ----------------------------------------------------------- ------------------------------------------ Profit before interest 164.6 (21.6) (33.1) 109.9 147.8 (19.7) 128.1 Net interest payable (9.2) (9.2) (10.9) (10.9) ----------------------------------------------------------- ------------------------------------------ Profit on ordinary activities before taxation 155.4 (21.6) (33.1) 100.7 136.9 (19.7) 117.2 Tax on profit on ordinary activities 3 (51.4) - - (51.4) (45.2) - (45.2) ----------------------------------------------------------- ------------------------------------------ Profit on ordinary activities after taxation 104.0 (21.6) (33.1) 49.3 91.7 (19.7) 72.0 Equity minority interests (1.8) (1.8) (1.0) (1.0) ----------------------------------------------------------- ------------------------------------------ Profit for the financial year 102.2 (21.6) (33.1) 47.5 90.7 (19.7) 71.0 ----------------------------------------------------------- ------------------------------------------ Dividends paid and proposed 4 (58.5) (54.8) ----------------------------------------------------------- ------------------------------------------ Transfer (from)/to reserves (11.0) 16.2 ----------------------------------------------------------- ------------------------------------------ Adjusted earnings per share 5 28.9p 25.7p (i) Earnings per share 5 13.4p 20.1p Diluted earnings per share 5 13.3p 20.1p (i) 2003 restated to include rationalisation costs of £5.7m previously shown separately. (ii) relating to businesses sold in 2002. GROUP BALANCE SHEET at 31 December 2004 2004 2003 £m £m -------------------- Fixed assets Intangible assets 306.3 317.9 Tangible assets 279.7 292.6 -------------------- 586.0 610.5 -------------------- Current assets Stocks 248.1 243.3 Debtors 304.0 304.4 Investments 8.0 8.2 Cash and deposits 120.7 81.3 -------------------- 680.8 637.2 Creditors: amounts falling due within one year -------------------- Borrowings and finance leases (60.5) (76.7) Other creditors (423.5) (379.6) -------------------- (484.0) (456.3) -------------------- Net current assets 196.8 180.9 -------------------- Total assets less current liabilities 782.8 791.4 Creditors: amounts falling due after more than one year -------------------- Borrowings and finance leases (129.2) (140.9) Other creditors (28.4) (31.4) -------------------- (157.6) (172.3) Provisions for liabilities and charges (87.0) (76.1) -------------------- Net Assets 538.2 543.0 -------------------- Capital and reserves Called up share capital 88.7 88.3 Share premium account 139.9 136.5 Revaluation reserve 1.0 1.0 Other reserves 1.6 1.6 Profit and loss account 303.0 312.0 -------------------- Equity shareholders' funds 534.2 539.4 -------------------- Minority interest 4.0 3.6 -------------------- 538.2 543.0 -------------------- GROUP CASH FLOW STATEMENT for the year ended 31 December 2004 2004 2003 £m £m £m £m -------- -------- ------- -------- Reconciliation of operating profit to net cash inflow from operating activities Operating profit 143.0 128.1 Depreciation & goodwill amortisation 79.9 85.8 Stocks (increase)/decrease (4.7) 20.9 Debtors decrease 0.2 2.7 Creditors and provisions increase/ 18.2 (6.5) (decrease) -------- -------- Net cash inflow from operating 236.6 231.0 activities -------- -------- GROUP CASH FLOW STATEMENT Net cash inflow from operating activities 236.6 231.0 Return on investments and servicing of finance (10.5) (11.8) Taxation (52.3) (41.5) Capital expenditure and financial investment (46.6) (36.0) Acquisitions and disposals (20.9) (56.0) Equity dividends paid (55.9) (54.7) -------- -------- Cash flow before use of liquid resources & financing 50.4 31.0 Management of liquid resources 3.6 4.5 Financing Issue of ordinary shares 3.8 2.5 Decrease in borrowings (9.8) (35.1) -------- ------- (6.0) (32.6) -------- -------- Increase in cash in the year 48.0 2.9 -------- -------- Reconciliation of net cash to movement in net borrowings Increase in cash in the year 48.0 2.9 Cash used to repay borrowings 9.8 35.1 Cash inflow from movement in liquid (3.6) (4.5) resources -------- ------- Change in borrowings resulting from cash flows 54.2 33.5 Currency translation differences 13.1 3.7 -------- -------- Movement in net borrowings in the year 67.3 37.2 Net borrowings at 1 January (136.3) (173.5) -------- -------- Net borrowings at 31 December (69.0) (136.3) -------- -------- RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS for the year ended 31 December 2004 2004 2003 £m £m ----------------- Profit for the financial year 47.5 71.0 Dividends (58.5) (54.8) ----------------- (11.0) 16.2 Other recognised gains and losses relating to the financial year 2.0 (7.3) New ordinary share capital issued 3.8 2.6 ----------------- Net (decrease)/increase in shareholders' funds for the year (5.2) 11.5 Shareholders' funds at 1 January 539.4 527.9 ----------------- Shareholders' funds at 31 December 534.2 539.4 NOTES RELATING TO THE FINANCIAL STATEMENTS 1. Segmental analysis Operating profit before goodwill Operating Turnover amortisation Operating profit assets 2004 2003 2004 2003 2004 2003 2004 2003 £m £m £m £m £m £m £m £m ------------- ------------------- --------------- ------------- BY ACTIVITY restated * Fluid Controls 776 747 90.0 75.1 86.2 72.2 198 210 ------------------------------------------------------------------------------------------------------- Severe 169 168 21.5 20.3 20.8 19.5 29 34 Service Fluid Power 439 410 44.3 31.0 42.9 30.1 141 145 Indoor Climate 168 169 24.2 23.8 22.5 22.6 28 31 ------------------------------------------------------------------------------------------------------- Retail Dispense 455 448 46.6 39.7 42.4 36.9 94 105 ------------------------------------------------------------------------------------------------------- Beverage Dispense 267 278 24.4 21.5 24.1 21.2 67 74 Merchandising Systems 188 170 22.2 18.2 18.3 15.7 27 31 ------------------------------------------------------------------------------------------------------- Building Products 380 370 28.0 33.0 14.4 19.0 141 125 ------------------------------------------------------------------------------------------------------- Total continuing operations 1611 1565 164.6 147.8 143.0 128.1 433 440 ------------------------------------------------------------------------------------------------------- * Restated to include rationalisation costs previously shown separately. BY GEOGRAPHICAL ORIGIN UK 497 464 28.4 27.0 165 152 Rest of Europe 553 531 66.7 60.6 157 161 The Americas 492 510 38.1 34.9 96 114 Asia/Pacific 69 60 9.8 5.6 15 13 ------------ ------------- ------------ Total continuing operations 1611 1565 143.0 128.1 433 440 ------------------------------------ ----------------------------------- TURNOVER BY GEOGRAPHICAL DESTINATION 2004 2003 £m £m ------------- UK 447 424 Germany 194 185 Rest of Europe 368 345 USA 431 447 Asia/Pacific 107 101 Rest of World 64 63 ------------- Total continuing 1611 1565 operations ------------- Acquisitions Acquisitions in the period were not sufficiently material to warrant separate disclosure on the face of the profit and loss account. Of the reported increase in turnover and operating profit of continuing operations (before goodwill amortisation), £36m and £5m respectively result from the 2004 acquisition of Fluid Automation Systems (Fluid Power) together with the extra months from the 2003 acquisitions of Artform International Limited (Merchandising Systems), Commtech Group (Indoor Climate) and Fluid Kinetics (Severe Service). Discontinued operations Amounts shown for discontinued operations in 2003 relate to the air-conditioning business which was sold in November 2003 and previously reported within Building Products and UK. 2. Exceptional items 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, has been provided and is shown as an exceptional item of £33.1m. The fine was paid in February 2005. 3. Taxation The tax rate on profit before goodwill amortisation and exceptional items is 33%, the same rate as in 2003. 4. Dividend The Directors recommend a final dividend of 10.2p per share (2003: 9.5p) payable on 27 May 2005 to shareholders on the register at close of business on 15 April 2005, which will absorb £36.2m (2003: £33.6m). Together with the interim dividend of 6.3p per share paid on 22 October 2004, this makes a total distribution of 16.5p per share (2003: 15.5p per share). 5. Earnings per ordinary share The weighted average number of shares in issue during the year was 354.0m, 356.5m diluted for the effect of outstanding share options (2003: 352.8m, 353.7m diluted). Earnings per share have been calculated on earnings of £47.5m (2003: £71.0m). The Directors consider that adjusted earnings per share figures, using earnings as calculated below, give a more meaningful indication of the underlying performance. 2004 2003 £m £m --------------- Profit for the period 47.5 71.0 Goodwill amortisation 21.6 19.7 Exceptional items (after tax) 33.1 - --------------- Earnings for adjusted EPS 102.2 90.7 --------------- Rationalisation is now included as a normal operating cost whereas it was previously excluded from adjusted earnings per share. 2003 figures have been restated accordingly. 6. Pensions The next triennial actuarial valuation of the principal UK pension fund will be carried out at 31 March 2005. For the year ended 31 December 2004, the Group has continued to account for pension costs under SSAP24: 'Pension Costs'. The pension cost charged to the profit and loss account is calculated by an independent actuary in such a way as to spread the cost of pensions over the remaining service life of employees in membership. Adoption of FRS17: 'Retirement Benefits' would have required the inclusion of an additional net pension liability of £100m, which after tax of £29m would result in a decrease in net assets of £71m. The impact on the published results of fully adopting FRS17 in 2004 is as follows: Published FRS17 £m £m Balance Sheet Net Assets 538 467 Shareholder funds 534 463 Gearing 13% 15% Profit & Loss Account * Pension cost (18) (19) Finance income - 5 ----------------- Net cost (18) (14) Profit before interest 164.6 163.6 Finance costs (9.2) (4.2) Profit before tax 155.4 159.4 * Before goodwill amortisation and exceptional items. 7. Exchange Rates The profit and loss accounts of overseas operations are translated into sterling at average rates of exchange for the year, balance sheets are translated at year end rates. The most significant currencies are the US Dollar and the Euro - the relevant rates of exchange were: Average Rates Balance Sheet Rates 2004 2003 2004 2003 -------------- ------------------- Euro 1.47 1.44 1.41 1.42 US Dollar 1.83 1.64 1.92 1.79 8. International Financial Reporting Standards The Group, in line with other European Union (EU) listed groups, is required to prepare its financial statements for 2005 (including comparative information for 2004) under EU-adopted International Financial Reporting Standards (IFRS). The impact of these changes on IMI's reported profits is expected to be minimal. An un-audited pro-forma full year 2004 profit and loss account and balance sheet will be included in the Company's 2004 Annual Report. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2003 or 2004 but is derived from those accounts. Statutory accounts for 2003 have been delivered to the Registrar of Companies, and those for 2004 will be delivered following the Company's Annual General Meeting. The auditor has reported on those accounts, its reports were unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The Company's 2004 Annual Report and notice of the forthcoming Annual General Meeting will be posted to shareholders on 6 April 2005. - ends - Enquiries to: Graham Truscott - Corporate Communications - Tel: 0121 717 3712 Press release available on the internet at www.imiplc.com Issued by: Nick Oborne - Weber Shandwick Square Mile - Tel: 020 7067 0700 This information is provided by RNS The company news service from the London Stock Exchange

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