The year’s results
Click here to see the Group profit and loss account. Group profit before tax and exceptional items amounted to £152.2 million (1997: £146.5 million) and profit before taxation amounted to £167.0 million (1997: £148.9 million).

Earnings applicable to shareholders of IMI plc amounted to £117.0 million (1997: £108.6 million).

Dividends
The Directors recommend a final dividend at the rate of 9.1p per share on the ordinary share capital payable on 17 May 1999 to shareholders on the register at the close of business on 12 April 1999. Together with the interim dividend of 5.7p per share paid on 19 October 1998 as a foreign income dividend, this final dividend brings the total distribution for the year to 14.8p per share (1997: 14.0p per share).

Shareholders’ funds
Shareholders’ funds increased from £325.4 million to £409.5 million at 31 December 1998.

Principal activities
In 1998 the Group’s businesses were organised into the following main classes: Hydronic Controls, Drinks Dispense, Fluid Power and Energy Controls. Subsidiary companies operating within these classes of business are listed with a description of their main activities in Subsidiary Undertakings. The turnover, profit and capital employed attributable to each of these classes of business are shown in Note 1.

Review of activities
The activities of the Group in 1998, together with indications of likely future developments, are reviewed in their corresponding section (Hydronic Controls, Drinks Dispense, Fluid Power & Energy Controls). Details of acquisitions and disposals are given in notes 1 to 3.

Research and development
Expenditure on research and development in the year was £19.1 million compared with £16.1 million in 1997.

Capital expenditure
Expenditure on fixed assets was £54.4 million compared with £56.6 million in 1997.

Land and buildings
The Directors are of the opinion that on an existing use basis the aggregate market value of the Group’s interests in land and buildings is substantially in excess of their net book value.

Share capital
During the year 1,494,905 new ordinary shares were issued under employee share schemes.
The Company has been notified of the following substantial interests in the issued share capital of the Company as follows:

Employment policies
The Group continues to support employee involvement at all levels in the organisation. Formal joint consultative machinery is operated in all except the smallest units where it is strongly encouraged on an informal basis. During 1998 consultative arrangements, including formal committees and team briefings, were used to consider and discuss employees’ views, to develop understanding of business aims, to increase awareness of financial and economic factors affecting performance, and to improve effectiveness. A summary of this Annual Report is produced for employees and copies of the full Annual Report are available to all.

A profit sharing scheme covering most UK employees, which includes the opportunity to take the Company’s shares, has operated for many years. A savings-related share option scheme available to all UK employees has operated successfully since 1984 and an Executive Share
Option Scheme, available to selected senior executives, including Executive Directors, has operated since 1985.

The Group requires its operating units to train and develop employees at all levels and a wide range of business-related training is offered.

It is Group policy to promote equal opportunities in employment consistent with the requirements of the countries in which the Group operates. The policy extends to employees and applicants for employment and requires companies in the Group to seek to eliminate discrimination and communicate and promote the policy to employees at all levels. Chief executives of operating units have responsibility for complying with the policy and at the individual level each employee is required to participate in the policy.

Every effort is made to ensure that applications for employment from disabled persons are fully and fairly considered, and that disabled employees have equal opportunity in training and promotion.

As a matter of long-standing policy, where appropriate, all employees who become disabled have been given suitable training for employment within the Group or elsewhere. The Group also supports charities for assisting disabled people into work.

Health, safety and environment
It is Group policy to maintain healthy and safe working conditions and to operate in a responsible manner with regard to the environment. Chief executives have personal responsibility for implementing these policies in relation to the units under their control. An internal audit of the Group’s health, safety and environmental performance is undertaken annually and reviewed in detail by the Executive Directors. In addition a Health and Safety Forum is held in order to establish and promote best practice across the Group. TA Hydronics has joined Heimeier and Woeste in achieving certification to the very demanding Environmental Management Standard ISO14001. In addition other operating units are well advanced in their applications for accreditation.

Policy and practice on the payment of trade creditors
Operating businesses are responsible for making their suppliers aware of the terms of payment and agreeing such terms with their suppliers for each business transaction. It is Group policy that payments to suppliers are made in accordance with these terms. The Company is not a trading entity.

Donations
£405,000 was given during 1998 for community and similar purposes, including £345,000 for charitable purposes. The Group donates not only to selected major charities such as Opportunities for People with Disabilities, Birmingham Children’s Hospital, Princess Royal Trust for Carers and the Lord’s Taverners but also to smaller charitable organisations operating in communities where the Group has a presence. In the arts, IMI is a founder patron sponsor of the CBSO, a sponsor of the Birmingham Royal Ballet and supports numerous community arts groups. £25,000 was given during 1998 to the Conservative Party.

Directors
The Directors whose names appear on the Board of Directors page were Directors throughout the year. Under the Articles, Mr I A N McIntosh, Mr G J Allen and Mr N C Paul retire by rotation and are recommended for re-election. Biographical details of each of them appear in the Board of Directors page.

Mr McIntosh is a non-Executive Director and does not have a service contract; he is a member of the Audit Committee and of the Appointments and Salaries Committee. Mr Allen and Mr Paul are Executive Directors and have service contracts which may be terminated by either party on two years’ notice.

Directors’ interests
The interests, of the persons (including the interests of their families) who were Directors at the end of the year, in the share and loan capital of the Company, and their interests in the Company’s share option schemes are shown in Corporate Governance.

Special business at the Annual General Meeting
The Directors consider it advisable to seek a renewal of the power to make rights issues in the most practical manner and to make limited issues of shares for cash without first offering them to existing shareholders on a pro-rata basis. Special Resolution B1 as set out in the notice of meeting, will, if approved, authorise the Directors to make rights issues up to the whole amount of the unissued share capital of the Company, and otherwise to issue for cash shares up to a nominal value of £4,377,000, which represents just under 5 per cent of the total ordinary share capital in issue as at 8 March 1999.

Authority for the Company to purchase its own shares will also be sought at the forthcoming Annual General Meeting. Special Resolution B2 as set out in the notice of meeting, will, if approved, grant power to effect market purchases of up to 35,000,000 ordinary shares, which represents just under 10 per cent of the total ordinary share capital in issue, at a price not exceeding 105% of the average middle market price over the five business days immediately preceding the day of purchase. The Directors believe it would be advantageous to have the flexibility this authority will provide although they have no present intention to exercise it and would only do so if satisfied that any purchase is in the interests of shareholders and will result in an increase in earnings per share.

The powers to be granted under these two special resolutions would expire 15 months after they are passed or, if earlier, at the conclusion of the Annual General Meeting of the Company to be held in 2000.

Auditor
Resolutions for the re-appointment of KPMG Audit Plc as auditor of the Company and to authorise the Board to fix the auditor’s remuneration are to be proposed at the forthcoming Annual General Meeting.

By order of the Board

J O’Shea, Secretary
8 March 1999