IMI plc Interim Results 2014 & Strategic Review Update

IMI plc Interim Results 2014 & Strategic Review Update 1 August 2014

Agenda Operational review: Mark Selway Chief Executive Financial review Douglas Hurt Finance Director Strategic review update Mark Selway Q&A IMI Executive Team (Formerly Severe Service) (Formerly Fluid Power) (Formerly Indoor Climate)

Highlights Revenue 809m Up 3% 1 Adjusted profit before tax 2 126.8m Down 5% Operating margins 2 17.0% Down 60bps Cash generation 98.6m Down 21% Earnings per share 2 34.9p Up 10% Dividend per share 13.6p Up 6% Results broadly in line with expectations Business review completed New accelerated growth strategy in place New unified IMI branding being rolled out 1. Movements are shown on a constant currency basis 2. Restructuring charges of 1.5m have not been treated as exceptional. In 2013 H1 restructuring charges of 1.8m were treated as exceptional.

Operational Review: IMI Critical Engineering (Formerly Severe Service) H1 FX Organic H1 m 2014 2013 Revenue 315 (16) 9 322 Organic growth % +3-3 Operating profit 50.8 (2.6) 4.4 49.0 Operating margin % 16.1 15.2 Good order input in Fossil Power sector Started shipments of record HIPPS order secured last year in Middle East Expect to deliver revenue, profit and margin growth in H2 and full year New Houston manufacturing site due to open in H2 2014 2014 H1 order intake 330m Down 12% organically Oil & Gas down 33% 64m Fossil Power up 9% 50m Nuclear down 37% 23m Petrochemical down 13% 31m Aftermarket down 1% 128m Other up 2% 34m Revenue by geography 6% 9% Western Europe 21% North America Emerging Markets 17% UK RoW 47%

Operational Review: IMI Precision Engineering (Formerly Fluid Power) H1 FX Organic H1 m 2014 2013 Revenue 355 (21) 13 363 Organic growth % +4-5 Operating profit 63.0 (3.7) (2.7) 69.4 Operating margin % 17.7 19.1 Good growth in Industrial Automation, Food & Beverage and Rail Expect good organic revenue growth in H2 with margins higher than in H1 2014 IVAC integrated valve and actuator control for Industrial Automation 2014 H1 Revenue 355m up 4% organically Revenue by geography 18% 7% 4% Western Europe North America 24% Industrial Automation up 5% 165m Commercial Vehicles up 3% 82m Oil & Gas down 6% 37m Food & Beverage up 9% 36m Life Sciences down 2% 23m Rail up 35% 12m 47% Emerging Markets UK RoW

Operational Review: IMI Hydronic Engineering (Formerly Indoor Climate) H1 FXOrganic H1 m 2014 2013 Revenue 139 (8) 1 146 Organic growth % +1-1 Operating profit 23.4 (1.0) (3.3) 27.7 Operating margin % 16.8 19.0 Launched 7 new products in the first half including TA Compact Completed withdrawal from 20 low margin emerging markets Expect organic revenue growth in H2 with improved margins but below H2 2013 TA-Compact P 2014 H1 Revenue 139m Up 1% organically Heimeier up 1% 46m TA down 2% 56m Pneumatex up 6% 19m Other up 2% 18m Revenue by geography 2% 1% Western Europe 17% North America 5% Emerging Markets UK RoW 75%

Outlook Current strength of sterling expected to provide significant translational headwind in H2 impacting revenues and profits by approximately 6% On a constant currency basis: Expect to deliver an improved rate of organic growth in H2 Margins slightly lower than in 2013 reflecting increased investment for accelerated growth: branding operational improvement IT systems new product development Aim to progressively self-fund organic growth

Financial review Douglas Hurt Finance Director

Revenue continuing operations m H1 2014 Translation Organic* H1 2013 Critical Engineering 315 (16) 9 322 Precision Engineering 355 (21) 13 363 Hydronic Engineering 139 (8) 1 146 Group 809 (45) 23 831 % Change on H1 2013-3% -6% +3% *Given their lack of materiality we have not separated out the results of AFP and NPSL which were acquired by Precision Engineering during 2013 from the organic column

Operating profit m H1 2014 Translation Organic H1 2013 Critical Engineering 50.8 (2.6) 4.4 49.0 Precision Engineering 63.0 (3.7) (2.7) 69.4 Hydronic Engineering 23.4 (1.0) (3.3) 27.7 Group 137.2 (7.3) (1.6) 146.1 % change on 2013 H1-6% -5% -1% Operating margin 17.0% 17.6%

Income statement m H1 2014 H1 2013 Operating profit 137.2 146.1 Restructuring costs - not exceptional (1.5) - Net interest expense (7.3) (8.2) Net pension finance charge (1.6) (4.0) Profit before tax and exceptional items 126.8 133.9 IAS39 adjustment (0.2) (2.4) Restructuring costs - exceptional - (1.8) Impairment charges (11.9) - Other acquisition/disposal costs (0.4) - Acquired intangible amortisation (8.5) (12.3) Profit before tax 105.8 117.4 Taxation (21.4) (26.8) Profit from continuing operations after tax 84.4 90.6 Profit from discontinued operations (net of tax) 477.6 22.2 Total profit for the half year 562.0 112.8

Operating cash flow summary m H1 2014 H1 2013 Continuing businesses 155.0 160.4 Discontinued businesses - 36.4 EBITDA* 155.0 196.8 Inventory (39.5) (39.5) Debtors (26.2) (27.1) Creditors 20.5 15.0 Working capital (45.2) (51.6) Capital expenditure (22.9) (20.2) Provisions and employee benefits (12.5) (6.3) Asset sales/other 2.3 5.7 Operating cash flow 76.7 124.4 Interest and derivatives 15.9 (23.0) Tax (27.7) (21.3) Cash generation 64.9 80.1 * After restructuring costs and the reversal of the profit on disposal of the Retail Dispense businesses

Net cash flow summary m H1 2014 H1 2013 Cash generation 64.9 80.1 Special pension contributions (53.2) - Cash flow before corporate activity 11.7 80.1 Corporate activity: Disposals 662.6 - Dividend to minority / others (2.2) (2.2) Shareholder activity: Return of cash (620.3) - Dividends (60.6) (66.0) Employee share trust net purchases (30.4) (0.9) Share buyback programme - (68.1) Net cash flow (39.2) (57.1) Opening net borrowings (199.4) (143.8) Foreign exchange revaluation 6.8 (10.8) Closing net borrowings (231.8) (211.7)

Balance sheet m Jun Jun 2014 2013 Shareholders' funds 425 667 Net debt 232 212 Gearing 55% 32% Continuing businesses: EBITDA 155 160 Interest costs 7.3 8.2 Net debt / EBITDA* 0.7x 0.7x EBITDA / interest 21x 20x * Based on rolling 12 month position

Pensions m Jun 2014 Dec 2013 Jun 2013 UK O'seas Total UK O'seas Total UK O'seas Total Assets 1,233 145 1,378 1,147 147 1,294 1,107 144 1,251 Liabilities (1,243) (240) (1,483) (1,210) (242) (1,452) (1,182) (252) (1,434) Accounting deficit (10) (95) (105) (63) (95) (158) (75) (108) (183) UK deficit reduced to 10m mainly due to additional cash contribution of 53.2m in January 2014 following disposal of the Retail Dispense businesses Overseas deficit unchanged over the first half

Foreign exchange sensitivities 2013 and 2014 H1 2014 H1 2013 Change Average rates Euro 1.22 1.18-3% US$ 1.67 1.54-8% Closing rates Euro 1.25 1.17-7% US$ 1.71 1.53-12% Ready reckoner for translation impact of movement in FX rates on 2014 FY performance Sensitivity to +/- 1 cent move in: Revenue Operating Profit US $ +/- 2.0m +/- 0.4m Impact on H1 2014: Revenue -6% Operating profit -5% Euro +/- 6.0m +/- 1.0m Projection for FY2014*: Revenue - 6% Operating profit - 6% *Compares impact on 2013 results of using average year to date rates and current exchange rates (as at 28 July 2014) projected to the end of the year versus average exchange rates for 2013

Strategic Review Mark Selway Chief Executive

Strategic work streams completed Reviewed existing competencies and opportunities 1. 2. 3. 4. Markets Customers Products Peers Competition Manufacturing operations Product development Systems and controls Collaboration Synergies Economies of scale Brand Investment for growth Acquisitions

First impressions remain valid Focused specialist flow control business Skilled and committed people Market-leading engineering expertise Strong long-term relationships with world-class customers Value based pricing Strong balance sheet

Key challenges identified New capital investment required IT systems (56 different unaligned systems) Facilities Increased investment needed in product development Complex organisational structure Lack of acquisition integration No standardisation of processes across Group Under utilisation of manufacturing capacity

Strategic Review Key Findings

Ability to compete Market Attractiveness IMI Critical Engineering (Formerly Severe Service) Market and positioning IMI plc Interim Results Presentation Power Oil & Gas Petrochemical & Metals Actuation 2013 Revenue* ( m) 277 186 156 37 Market size ( m) 1,343 3,108 1,152 1,080 Market growth (value) pa 9% 7% 3% 5% Cyclicality Medium Medium High Medium Aftermarket potential High High High Low ROS (best practice) 25% 24% 16% 25% Leadership Potential Leader Potential Potential Challenging Share (est. global value) 21% 6% 14% 3% Position (share) 1/2 6 2 5 Share trend Steady Growing Growing Steady Competitive advantage Technology Installed base Installed base Technology Installed base Technology In-house sales ROS (IMI 2013) Low teens Best practice Best practice Best practice * 2013 included other revenue of 60m Almost 7bn addressable market Attractive growth markets Leadership position in power and potential to achieve in other key sectors Barriers to entry provide excellent opportunity in high margin aftermarket

% Score IMI plc Interim Critical Results Presentation Engineering Lean assessments 60 Original Score Improvement target All major sites benchmarking complete 50 40 Lean divisional team in place 30 Average divisional score 26% 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Site 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 % Rate of Improvement No of sites 49 39 33 59 48 69 52 34 60 57 56 40 45 89 70 70 97 137 69 164 200 6 month Improvement Target Score 43% > 60% rate of improvement World Class by 2018

IMI Critical Engineering Focus and grow IMI plc Interim Results Presentation 1. 2. 3. 4. Capitalise on attractive growth in existing markets Invest to support growth markets Enhance systems and processes Acquisitions to support growth Our goal is 6-8% organic CAGR over 5 years New larger sites in Houston and Korea being built (c. 15m) Planned new Z&J site in Germany (c. 14m) Investigate additional service locations to support aftermarket New product development Project execution benchmarking ERP implementation underway at IMI CCI (c. 10m) Add strategically aligned bolt-ons Extend into adjacent markets including subsea Expand product portfolio - semisevere and configured valves

Ability to compete Market Attractiveness IMI Precision Engineering (Formerly Fluid Power) Market and positioning IMI plc Interim Results Presentation Industrial Automation Commercial Vehicle Oil & Gas Life Sciences 2013 Revenue ( m) 423 165 85 50 Market size ( m) 9,174 1,478 1,365 1,516 Market growth (value)pa 4% 4% 6% 5% Cyclicality Medium/High High Medium Low ROS (best practice) 24% 16% 25% 22% Leadership Potential Challenging Challenging Potential Challenging Share (est global value) 5% 11% 6% 3% Position (share) 3 4 6 7 Share trend Declining Steady Increasing Increasing Competitive advantage Brand and installed base Emissions technology Technology Micro and syringe pump technology ROS (IMI 2013) Upper quartile Best practice Best Practice Best practice 14bn addressable market opportunity Challenging competitive environment Best in class returns but falling market shares Significant potential in Industrial Automation Ieading brand high margins from aftermarket

% Score IMI Precision Engineering Lean assessments 65 55 45 35 25 15 Original Score Improvement target All major sites benchmarking complete Lean divisional team in place Average divisional score 32% 6 month Improvement Target Score 45% 5-5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Site 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 No of sites Rate of Improvement % 16 12 24 33 43 51 41 32 32 27 31 60 44 46 54 47 56 66 61 41 50 57 49 54 52 49 83 116 53 > 40% rate of improvement World Class by 2018

IMI Precision Engineering Supply chain complexity UK Customer IMI Factory IMI Marketing Company European Distribution Centre Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 UK customer sends order to EDC via UK marketing company EDC places same order to UK factory UK factory makes product and ships to EDC EDC ships product to UK customer UK company invoices UK customer at external selling price EDC invoices UK company at transfer price

IMI plc Interim Precision Results Presentation Engineering Standard costing Standard costing is most suited to organisations with repetitive assembly work Precision Engineering is introducing standard costing to understand which sectors and products incur what overhead recoveries and returns. Standard costs are calculated for each product based on material, labour and overhead costs Direct Costs Indirect Costs Commercial Vehicle Material Costs Labour Costs Life Sciences Material Costs Labour Costs How are factory overheads allocated? Industrial Automation Material Costs??? Labour Costs

IMI Precision Engineering Fix, focus and grow IMI plc Interim Results Presentation 1. 2. 3. 4. 5. Fix the basics in the next two years Grow emerging market local manufacturing content Increase plant utilisation Revitalise industrial automation and grow organically Future opportunity for larger acquisitions to accelerate growth Simplify organisational structure Introduce standard costing to improve competitiveness and profit visibility Significantly improve operational performance Address supply chain complexity Our goal is growth in line with GDP in years 1 and 2 and CAGR of 6 8% thereafter

Ability to compete Market Attractiveness IMI Hydronic Engineering (Formerly Indoor Climate) Market and positioning IMI plc Interim Results Presentation Balancing IMI TA IMI Heimeier IMI Pneumatex Control Thermostatic Control Pressurisation Water Quality 2013 Revenue ( m) 131 26 101 34 13 Market size ( m) 563 733 538 396 156 Market growth (value)pa 4% 6% 5% 5% 5% Cyclicality Low Medium Low Low Low ROS (best practice) 20% 17% 25% 22% 28% Leadership Potential Leader Challenging Leader in Northern Europe Challenging Share (est global value) 23% 4% 19% 9% 8% Position (share) 1 <5 2 3 3 Potential Share trend Steady Growing Steady Declining Declining Competitive advantage Customer loyalty Technology leader Customer loyalty and brand Swiss-made quality Technology leader 2bn addressable market opportunity Low cyclicality due to resilience of refurbishment markets Leadership position in core North European markets Best in class returns but falling market shares ROS (IMI 2013) Best practice Medium Best practice Best practice Best practice

% Score IMI Hydronic Engineering Lean assessments 80 70 60 50 40 Original Score Improvement target All major sites benchmarking complete Lean divisional team in place Average divisional score 36% 30 20 10 0 1 2 3 4 5 6 7 8 9 Site 1 2 3 4 5 6 7 8 9 Rate of Improvement % No of sites 22 14 16 23 33 34 55 79 38 6 month Improvement Target Score 55% > 45% rate of improvement World Class by 2018

IMI Hydronic Engineering Focus and grow IMI plc Interim Results Presentation 1. 2. 3. 4. Capitalise on European leadership position Increase new product development Optimise organisational structure Acquisitions Our goal is >5.0% organic CAGR over 5 years 14 new products launched in last 12 months Double investment in NPD over next 5 years Introduce core processes Implement new ERP system (c. 10m) Review Swiss Principal structure Potential bolt-on acquisitions to target North America

IMI plc Interim Hydronic Results Presentation Engineering New product pipeline 2008 to 2012 2014 2014 2013 2015 H1 H2 5 new products launched 7 new products launched 7 new products launched 5 new product launches planned 7+ new product launches planned Potable water valves (US) TA-FUS1ON A-Exact Vento Eco Efficient TA-FUS1ON-US Multilux 4A Multibox MINI TA-SCOPE light Equaliser TA-Compact T TA-Compact P TA-Pilot Zeparo Cyclone Compresso Connect TA-Compact P

What does this all mean?

Low Market Attractiveness High IMI plc Interim Results Presentation Well positioned in attractive markets Oil & Gas - CE Best in class = c. 1bn market size Oil & Gas - PE Power Attractive high growth markets with good competitive positions Life Sciences Commercial Vehicle Industrial Automation Control Water Quality TRV Balancing Petrochemical Large attractive markets with self-help opportunities to grow competitiveness Water Pressure Actuation Maximise potential Highly attractive niche markets with strong competitive positions Low Competitive Position High

Significant opportunity to improve competitiveness Average lean scores by division Worldclass >85% Level Production Material Control Total Productive Maintenance Quick Changeover Cultural Awareness Visual Management & Housekeeping Continuous Improvement Standardised Work Flexible Operations Significant excess installed capacity Increased efficiencies will improve competitiveness Supply chain efficiencies will improve working capital utilisation Ambition to put basics right in 2014 and achieve world class levels by 2018 Error Proofing

New brand and divisional names Unifies brand globally across the Group

New brand and divisional names Unifies brand globally across the Group

Global intranet to improve performance The Global Intranet Core process reporting Lean benchmark Launched to plan in June 2014 Promotes best practice and overall performance Benchmarks all core processes including Lean

Cultural change and employee engagement IMI Way enhanced to cover all core values, behaviours, processes and procedures

Cultural change and employee engagement Core messages & strategy presented at the Group and Divisional Conferences 94% employee engagement New simpler management and employee incentive schemes developed Clearly aligned to strategy (2015 rollout)

Acquisition road map Focus on bolt-on, product in-fill, semisevere and configured Fix and focus and then target more significant acquisitions (e.g. non-core businesses of large multi-nationals) Consider opportunities to strengthen position in North America

Broadening the acquisition universe Potential to double addressable market Leverage existing positions in attractive end markets i.e. Oil & Gas Non valve related products and businesses Geographies North America Europe Latin America Asia Market dynamics Growth rate >5% pa Customer intimacy Aftermarket >30% Products Criticality of application Predictable aftermarket Barriers to entry

Financial discipline continues Group to continue to focus on strong cash generation Capital allocation priorities: reinvest for organic growth progressive dividend policy acquisitions to supplement organic growth return excess capital to shareholders Maintain balance sheet efficiency and flexibility

Financial metrics Key ambition is to double operating profits over 5 years Metric Revenue Growth Margins Net debt Objective Execute on organic growth programmes. Supplement organic with targeted acquisitions Progressively fund self-help initiatives while maintaining margins at current levels Maintain strong and efficient balance sheet Net Debt/EBITDA 2.0x through cycle R&D Progressively increase from c.3% of revenues in 2013 to 4-5% Capex Acquisitions Dividends Progressively increase to c. 2x depreciation Target ROIC > WACC within 3 years Grow dividend progressively

Strategic summary A mixture of self help and targeted investment 4. Maintain financial discipline 1. Improve operational performance to fund growth and maintain margin 3. Expand addressable market opportunity via effective integration of selected acquisitions 2. Capitalise on significant organic growth opportunities in carefully targeted end markets

Strategy execution Year 0 2014 Year 1 2015 Year 2 2016 Year 3 2017 Year 4 2018 Year 5 2019 The hard work begins Increased investment Benefits starting to show Nearly firing on all cylinders Up to full speed Double operating profits Organic initiatives Assess our markets and drivers for growth Benchmark performance and plan for improvement Invest in products and capital for growth Foundations established and benchmark improvements evident Sorting the basics in Precision Engineering complexities and structure Accelerated growth evident in results Working capital benefits visible in results Emerging markets ready for local full technology supply Growth outruns peers in every division Benchmark performance nearing world class standards Precision supply chain and capacity issues resolved Ambitions for growth fully realised Achievement of world class performance evident in results All divisions in attractive, high growth markets Supported by value enhancing acquisitions

Summary H1 2014 broadly in line with expectations Strategic review completed New accelerated growth strategy in place Opportunities are substantial Ambition to double operating profits over 5 years

Q&A The Executive Team