The year started strongly with good progress in Europe and the US. There was a reduction in demand during the second quarter from the US automotive industry which continued throughout the second half of the year. An improving performance from Herion and first time contribution from KIP Inc. helped to reduce the impact of the significant market weakness at ISI Norgren and fall in UK activity to leave 1998 profit ahead of last year’s record level.

We achieved an improvement overall in Continental Europe although demand slowed during the second half. We also saw the expected downturn in UK demand during the second half but the market appeared to stabilise towards the end of the year. There were a number of successes with end-user focused initiatives including aftermarket projects with leading international confectionery and paper manufacturers.

The continued focus of dedicated sales teams enabled Fluid Power to grow sales significantly to original equipment manufacturers in a number of important market sectors. Particular progress has been made with commercial vehicles, automotive manufacturing plant and printing machines.

We were pleased with the success of Herion which was earnings enhancing during its first year. Sales and operating profit were increased from pre-acquisition levels to Ł138 million and Ł8.5 million respectively before rationalisation costs of Ł2.3 million.


Corrosion resistant cylinders produced at IMI Norgren, Germany for use in the food industry and aggressive environmental conditions.


	ISI Norgren components and automated systems are used extensively at Jaguar's plant in Castle Bromwich, England, for the production of their new S-Type.

Cost reductions allowed us to record a higher return on sales in the second half. As our rationalisation exercise continues we expect to make further progress in raising the level of profitability.

At ISI Norgren, there was lower US demand for automated press lines and handling systems offset by gains in lower margin export business. In components however there was increased price competition and a marked decline in sales as investment in plant for future new vehicle programmes reduced. KIP, acquired in mid-June, made Ł0.8 million profit (before goodwill amortisation) during the second half on sales of Ł6 million. Elsewhere in the US we finished comfortably ahead of last year’s performance with continued progress in commercial vehicle applications. Although the trading position in Brazil was difficult, we produced satisfactory results in Mexico and Canada.


Herion's process, proportional and press safety valves are now integrated into Norgren's extended valve range.

In the Pacific region there was a continuing recessionary effect, particularly in Singapore. In Japan we were successful in securing increased sales into the heavy vehicle industry and we significantly expanded our distributor representation in China. Sales in Australia increased through market share gains and we are encouraged by the potential for further growth through the Herion valve range.

IMI Norgren filtration equipment will help the smooth running of the New South Wales rail fleet during the 2000 Olympics in Sydney.

During the year we put particular emphasis on developing integrated product solutions which successfully combined Herion valve technology and ISI systems expertise.

Our strategy for Fluid Power continues to centre upon leveraging the benefits from the leading international market position we have established through organic growth and acquisition. We have a worldwide distribution and service network which is second to none and an enviable product offering from the supply of pneumatic cylinders and valves to the design and build of complete handling systems. This gives us the global technical and service capability to secure business from leading original equipment manufacturers and to provide full service solutions to meet the growing needs of international end-users in the long term.