BTR Interim Results and Strategic Update Announcement.

LONDON--(BUSINESS WIRE)--September 11, 1977--BTR plc (OTC: BTRUY) Strategy Update

- Initial phase of focused growth strategy, announced in September 1996, on track - restructuring and growth programs well underway and divestment program of 2.3 billion pounds of 1995 sales nearly completed.

- BTR embarking on next phase of strategy to accelerate transformation to a focused engineering group from a diversified industrial group.

- Divestment of non engineering businesses representing 2.8 billion pounds of 1996 sales. Majority of these disposals expected to be completed by the end of 1998.

- Divestment proceeds will be invested in the Engineering Group through acquisitions and capital investment, and a significant proportion will be returned to shareholders.

Interim Highlights

- Continuing sales, at constant exchange rates up 5%.

- Continuing profit before interest and tax 608 million pounds (1996: 626m pounds at constant exchange rates), down 18 million pounds (3%).

- Interim dividend 4.0p (1996: 4.0p) paid as a Foreign Income Dividend.

- As predicted in May Trading Update, profit performance impacted by the strength of sterling and difficult conditions in certain markets.

- Profit performance for the BTR Group as a whole is expected to show improvement in the second half of this year over the first half.

Ian Strachan, Chief Executive of BTR plc, said:

"Since announcing our strategy a year ago, we have restructured the group, begun to shift from concentrating on short term profit plans to market driven growth, and substantially completed the disposal program of 2.3 billion pounds of 1995 sales.

"We are now moving to the next phase to accelerate the transformation of BTR to an engineering group from a diversified industrial group. With the proceeds from the divestment program, we will re-invest in our Engineering Group and return a significant proportion to shareholders. I believe this focus will ensure that growth is re-established and value is delivered more quickly to shareholders.

"In the short term, we expect the BTR Group as a whole to show improvement in the second half of this year over the first half.

"I am determined that BTR, as it settles into its new shape, will grow its earnings over time at least as fast as the market generally and deliver significantly higher returns."

BTR FOCUSING FOR GROWTH - THE NEXT PHASE Summary

BTR is embarking on the second phase of its strategy to focus for growth. The group is accelerating its transformation to a focused engineering group from a diversified industrial.

In September 1996, we set for ourselves the considerable task of transforming a large diversified company into a market led, focused, manufacturing and engineering group. As we indicated, this complex transformation will take time, and we are making progress:

- We have spent nearly 90 million pounds on restructuring with over 50 projects currently active. Benefits will start to come through in 1998.

- In 1997, 15 acquisitions and joint ventures have been completed - many in emerging markets - generating more than 350 million pounds in annual sales.

- In 1997, capital expenditure has increased to 7.5% of sales from 7.1%, and much of it directed into technology related areas.

- Operations have been organized into coherent, integrated businesses, incentives realigned and over 500 managers are involved in a major change program to deliver profitable growth.

In conclusion, we are on the right track with many objectives achieved, but a change of this magnitude is not a short term undertaking.

In the second phase, BTR will focus on its higher return Engineering Group. The Group will comprise four businesses: Automotive, Control Systems (formerly Process Control), Power Drives and Specialist Engineering.

Non-engineering businesses, accounting for 36% of continuing 1996 sales, are to be divested and the majority of this program should be completed by the end of 1998. With the proceeds of this divestment program, BTR intends to invest in the global and technology leadership positions of the Engineering Group and a significant proportion will be returned to shareholders. BTR intends to realign its capital structure to recognize the earnings base of the more focused Group.

BTR - A Focused Engineering Group

BTR's Engineering Group represents the more dynamic businesses with greater growth prospects and higher returns on capital. These businesses have leading positions in their respective sectors.

In 1996, the Engineering Group accounted for 4.9 billion pounds of 1996 sales and 847 million pounds of profit.

1996 Sales 1996 Profits

(in pounds) Automotive 1,467m 146m Control Systems 1,244m 228m Power Drives 1,037m 240m Specialist Engineering 1,129m 233m Engineering Group 4,877m 847m

BTR believes that the Engineering Group will also enhance shareholder value through sharing technology and manufacturing skills, and serving common customers. With the divestment of the non-engineering businesses and the release of financial resources, management will be able to develop the four engineering businesses more efficiently through organic growth, acquisition, joint ventures and capital investment.

Divestment Programs

The divestment program of low-growth, low-return businesses, announced in September 1996, is 90% complete. BTR has sold approximately 2.0 billion pounds of 1995 sales for total proceeds of 1.5 billion pounds for a 75% ratio of proceeds to sales (80% on a beneficial basis).

In this second phase, BTR will divest its non-engineering businesses, Packaging and Materials, Building Products and Polymeric Products, which represent 2.8 billion pounds of 1996 sales. These businesses, though attractive in their own right, have few synergies with the Engineering Group and are mostly regional businesses. BTR believes these businesses will have more value to others.

The key objective of the divestment program is to maximize shareholder value, and the Group is confident there are interested buyers for these businesses. However, BTR will consider other alternatives if these could ultimately achieve higher value. The majority of the divestment program is expected to be completed by the end of 1998.

Divestment Proceeds

The proceeds of the second phase divestment program will be deployed in two ways. First, BTR intends to re-invest into the higher returns engineering businesses through acquisitions and capital expenditure. Second, BTR intends to utilize a significant amount of the proceeds in returning value to shareholders. This will be effected either by way of share repurchase or such other method of returning value as is appropriate at the time, having regard to tax and other relevant considerations, including any required shareholder approvals.

BTR intends to move towards a capital structure that reflects the earnings profile of the Engineering Group going forward, whilst maintaining sufficient flexibility to respond to attractive acquisition opportunities as they arise.

Interim Results

Profit and Loss account summary (Pounds in Millions)

30 June 1997 30 June 1996(a) 30 June 1996(a)

Restated at '97

exchange rates

Continuing Sales 3,919 3,728 4,057 Continuing PBIT 608 626 669 PBT pre Corporate Exceptionals 534 566 605 Earnings 370 400 426 Interest Cover 7.8x 6.1x 6.2x Fully Diluted Earnings Per Share  9.0p 9.8p 10.4p Dividend Per Share(b) 4.0p 4.0p 4.0p

(a) Excluding Exceptional Provisions (b) Basic payable as FID

As predicted in the May Trading Update, underlying sales in the first half of 1997 showed an increase over the same period in 1996, whilst operating profits reduced somewhat. The critical factor affecting the comparison of the first half of 1997 to the same period in 1996 is currency translation. This adversely affects sales by 329 million pounds and operating profit by 43 million pounds. In order to present appropriately the underlying performance, the first half of 1996 has been restated to 1997 exchange rates. At constant exchange rates, sales increased by 191 million pounds (5%). Operating profit at 608 million pounds is 18 million pounds down on the same period in 1996 and includes approximately 11 million pounds adverse trading impact from the strength of sterling. An operational performance review follows.

Operational Review - Engineering Group Automotive

Pounds in Millions June 1997 June 1996 June 1996 % Change

Restated Actual on Restated

Sales 704 686 749 3% Profit 69 70 76 (1%)

In overall terms, difficult trading conditions in Australia offset positive performances in the Sealing Systems and Anti-Vibration businesses. Australian vehicle production fell by more than 10%, and BTR has a high content per vehicle on this drivetrain system business. Automotive in South America had a difficult first half, however, solid vehicle demand will improve trading in the second half of the year. BTR was awarded US$60 million of new platform business in May and June which will start to benefit the Group in 1998. In Australia, the winning of a substantial automatic transmission contract for Ssang Yong will provide continuing annual sales of US$60m over a five year period. Production is scheduled to begin later this year.

The Anti-Vibration Systems businesses experienced strong growth in sales and profits in the USA and growth in the UK and in Germany following the reorganization of operations there. These factors, together with the second half 1996 acquisition of BTR AVS Wuxi in China, resulted in growth in both sales and profits.

The Sealing Systems businesses also delivered a strong increase in sales and profits over last year. The prospect of short term sales growth in Sealing Systems is further underpinned by development of new platforms, including those for the VW Passat, the Chrysler Grand Cherokee, the Lincoln Town Car, the Ford Expedition and the Ford large pickup.

Control Systems

Pounds in Millions June 1997 June 1996 June 1996 % Change

Restated Actual on Restated

Sales 639 558 623 15% Profit 107 101 109 6%

Overall, Control Systems experienced reasonable growth in the US, with Meters and Batteries groups showing increases in both sales and profits. In Europe, economic conditions in Germany and the strength of sterling in the UK have impacted trading, although Valves and Batteries are starting to see a pick-up in their German export business. Restructuring at VHB (Germany) continues, with further redundancies announced, capital invested and business redesign programs implemented.

Acquisitions in the first half; Pollux Meters (Europe), Huada (China) and Worcester (Brazil), contributed 52 million pounds of sales and 5 million pounds profits. In Batteries, the purchases of Huada and, in July, Microlite (Brazil) highlight the increasing presence in the fast-growing emerging markets. In Meters, the integration of Pollux is going well and will enable the Group to capitalize on increasing metering activity in continental Europe. The recent acquisition of Limitorque for the Valve group has enhanced the actuator capability enabling the offering of a complete package of pneumatic and electric control equipment systems.

Power Drives

Pounds in Millions June 1997 June 1996 June 1996 % Change

Restated Actual on Restated

Sales 517 498 543 4% Profit 108 107 113 1%

Growth has been good in the USA, whilst markets in Germany and Australia have remained weak. Rexnord and Fasco Motors showed increases in sales and profits over last year, but Brook Hansen's performance was adversely impacted by the strong pound, offsetting the benefits of acquiring Parvex and the winning of some impressive orders. German operations remained weak, but efficiency and performance will improve following the major reorganization planned for the Power Drives group.

Power Drives is realising the synergies that exist across the group; Brook Hansen is benefiting from Rexnord's distribution network in the USA, whilst a unified approach to purchasing and product development encompasses programs for the development of global products. The technical center in the US, which serves all of Power Drives, has been expanded to 70,000 sq ft, staffed by 50 technicians with state of the art computerised testing and materials analysis facilities.

Power Drives has made seven small acquisitions to date in 1997 with annualized sales of over 90 million pounds (11 million pounds in the period to June). The acquisitions have included new motor technology, improved market position and extended product ranges as well as creating a platform to enter South East Asia. The India venture announced in 1996, established to produce high technology motors for the export market at a rate of 120,000 motors per year, is progressing well, with start-up ahead of schedule in October this year.

Specialist Engineering

Pounds in Millions June 1997 June 1996 June 1996 % Change

Restated Actual on Restated

Sales 580 511 552 14% Profit 109 104 110 5%

Order books across the group are strong, and show significant increases over 1996.

A strong performance by Aerospace in both sales and profits has been further evidenced by an increase in its order book of 27%. Paper Technology showed growth in sales and profits, despite weak markets generally, and has increased market share. BTR Environmental was launched as a unified business in April 1997 after completing a two year integration process; orders are strong and above 1996 levels, although performance has been impacted by economic conditions in continental Europe. Rail group purchased Burco, a distributor of signalling equipment in the USA, contributing 9 million pounds sales and marginal profits in the first half. There has been growth in Rail group sales, however profit was somewhat lower than 1996. Nylex Malaysia is well positioned in South East Asia and China in Switchgear and plastic products; medium term growth prospects remain good, notwithstanding the current economic turbulence in the Asian region.

Operational Review - Non-Engineering Packaging and Materials

Pounds in Millions June 1997 June 1996 June 1996 % Change

Restated Actual on Restated

Sales 684 697 739 (2%) Profit 124 135 143 (8%)

Packaging showed a mixed performance. Glass in Australia is still strongly profitable but growth is flat; there was reasonable profit growth in glass in the UK and Asia, as the investment in capital and technology continues to pay off. Plastic packaging in Australia has had a difficult year in terms of sales, but shows a rebound in profits from 1996. Reported sales in North America are heavily affected by the pass-through of falling resin prices. However, the margin has continued to improve and North America has had a strong underlying profit performance over 1996, although cold, wet weather in the US Mid-West in May and June affected demand. The new ventures in Brazil and Saudi Arabia are doing well.

Laminates has shown a significant decline in profits over 1996 in Australia and North America. The Australian business was affected by lower demand due to the downturn in the building cycle. In North America, although sales performance has been strong, competitive pricing pressures have continued to affect the business. In addition, production and service inefficiencies, exacerbated by a difficult and poorly executed reorganization, have depressed the reported profits. These issues are being addressed: the Laminates Group senior management has been changed; and the head office is being moved from Australia back to the US, closer to the operations. UK and Asia have had good performances; France experienced higher raw material prices recently, but this is expected to be a short term problem.

Building Products

Pounds in Millions June 1997 June 1996 June 1996 % Change

Restated Actual on Restated

Sales 383 360 391 6% Profit 51 56 60 (9%)

Strong demand in the US has significantly increased sales from MBCI, although competitive pressures and bad weather have impacted profit performance, along with increased revenue investment in sales and marketing. However, MBCI is well-positioned for future growth and expansion. Australian businesses, which have been affected by the depressed building sector, are showing signs of improvement, and finished the half year ahead of 1996 in sales, although profit is down.

Polymeric Products

Pounds in Millions June 1997 June 1996 June 1996 % Change

Restated Actual on Restated

Sales 281 287 314 (2%) Profit 35 43 46 (19%)

A downturn in the European market, influenced by difficult trading conditions in Germany, has affected the performance of the European operations. However, the order book suggests that the bottom of this down cycle has been reached. In the UK, the market has become increasingly competitive due to the strength of sterling. Whilst showing growth in demand, the South African businesses have experienced reduced profits due to import competition.

Outlook

In the short term, it is expected the BTR Group as a whole will show an improvement in performance in the second half of this year over the first half.

Disposals

Disposals to date in 1997 include Mirrlees Blackstone, Allsteel, BTR's stake in Corby Power, Serck Heat Transfer, Dunlopillo UK and Dunloplan. The sales and profits of these and other divested businesses are included in discontinued operations, and the 1996 comparatives have been restated accordingly. To date, around 90% of the original Disposal Group established in September 1996 has been divested.

Finance Costs, Interest Cover and Gearing

The finance charge for the first six months was 79m pounds (1996: 116m pounds). This reduction reflects the proceeds from the divestment program, warrant conversion proceeds and cash flow improvements. Interest cover based on operating profits before exceptionals was 7.8 times compared to 6.2 times at 30 June 1996. The group's gearing at 30 June 1997 stood at 98%, compared with 118% at 30 June 1996.

Capital Expenditure and Acquisitions

Gross capital expenditure of 309m pounds represents 1.6 times depreciation (1996: 352m pounds, 1.6 times) and 7.5% of sales (1996: 7.1%).

In the first six months of 1997, acquisitions contributed 72 million pounds of sales and 7 million pounds of profit. The largest acquisition was Pollux Meters (Europe) which represented over 60% of the acquired sales.

Dividend Payment and BTR "A" Shares

The interim dividend of 4.0p per Ordinary share will be payable as a Foreign Income Dividend on 28 November 1997 to BTR plc shareholders on the register at 26 September 1997.

Announced proposed changes to Australian tax law mean that fully franked dividends cannot be paid to the holders of the BTR "A" shares; therefore in accordance with the rights attaching to the BTR "A" shares, the holders of BTR "A" shares will receive:-

(i) a dividend of A 0.35 per BTR "A" share representing 1/25 of the value of the dividend paid on the BTR Ordinary shares; and

(ii) A 14.57 by way of distribution from the BTR Australia Trust.

The sum of the above amounts is the Australian dollar equivalent of the cash dividend payable on each of the BTR Ordinary shares, enhanced by 10% and grossed up to compensate for the absence of franking credits. The total payment will represent gross assessable income for Australian tax purposes of A 14.92 per BTR "A" share.

BTR has been advised that recently announced changes to Australian and UK tax law in relation to dividends may entitle BTR to convert all outstanding "A" shares into BTR Ordinary shares under the terms attaching to the "A" shares. The Board is considering this matter but no steps to trigger conversion will, in any event, be taken by the Board prior to the payment of the interim dividend.

BTR GROUP 1997 INTERIM RESULTS (Unaudited)

Pounds in Millions June June 1996(a) June June December

1997 restated at June 1996(a) 1996 1996(a)

1997 average As Reported

exchange rates

Sales Continuing Operations  - Ongoing 3,847 3,728 4,057 4,057 8,023 - Acquisitions 72

3,919 3,728 4,057 4,057 8,023 Discontinued Operations 201 859 896 896 1,508

4,120 4,587 4,953 4,953 9,531 Operating Costs  less other income (3,507) (3,910) (4,232) (4,457) (8,059)

Operating Profit Continuing Operations - Ongoing 601 626 669 444 1,391 - Acquisitions 7

608 626 669 444 1,391 Discontinued Operations 5 51 52 52 81

613 677 721 496 1,472

Corporate Exceptionals Costs of closure within continuing operations - (4) (4) (128) (4) Profit/(Loss) on disposal/closure of discontinued operations 16 45 45 (228) 68 Profit on sale of fixed asset investments - 2 2 2 6 Reorganization provisions in respect of acquisitions (10) (22) (22) (22) (27) Profit Before Interest and Taxation 619 698 742 120 1,515 Finance Costs (79) (111) (116) (116) (214) Profit Before Taxation 540 587 626 4 1,301 Taxation (162) (175) (187) (27) (389) Profit/(Loss) after Taxation 378 412 439 (23) 912 Minority Interests (including non equity interests) (8) (12) (13) (13) (19) Earnings 370 400 426 (36) 893 Earnings per share - basic 9.1p 10.0p 10.7p (0.9)p 22.3p - fully diluted  9.0p 9.8p 10.4p (0.1)p 21.7p Dividend per share - basic dividend (payable as FID) 4.0p - - 4.0p(b) 9.6p(b) Average number of shares (millions) - basic 4,088 3,981 3,981 3,981 4,010 - fully diluted 4,397 4,392 4,392 4,392 4,396 Earnings (Pounds in million)

- basic 370 400 426 (36) 893

- fully diluted 395 431 457 (5) 953

Profit on disposals of 16 million pounds (1996, excluding exceptional provisions, 45 million pounds during the half year and 68 million pounds for the full year) includes a goodwill write-off of 39 million pounds (35 million pounds for the half year and 75 million pounds for the full year in 1996).

(a) Before 1996 exceptional provisions

(b) In June 1996 and December 1996 the basic FID dividend was enhanced to an amount of 5.0p and 12.0p respectively.

BTR GROUP SUPPLEMENTARY ANALYSIS (Unaudited) (Pounds in Millions)

Consolidated Sales Profit before Exceptional Provisions,

interest and tax

30 30 June 30 31 30 30 June 30 31

June 1996 June Dec June 1996 June December

1997 restated 1996 1996 1997 restated 1996 1996

at June at June

1997 1997

average average

exchange exchange

rates rates Business Groups Automotive 704 686 749 1,467 69 70 76 146 Control Systems 639 558 623 1,244 107 101 109 228 Power Drives 517 498 543 1,037 108 107 113 240 Specialist Engineering 580 511 552 1,129 109 104 110 233 Engineering Group 2,440 2,253 2,467 4,877 393 382 408 847

Packaging and Materials 684 697 739 1,455 124 135 143 315 Building Products 383 360 391 783 51 56 60 122 Polymeric Products 281 287 314 611 35 43 46 89 Disposal Group 131 131 146 297 5 10 12 18 Corporate Activities 201 859 896 1,508 11 72 73 124

4,120 4,587 4,953 9,531 619 698 742 1,515

Geographic Analysis

United Kingdom 671 668 668 1,255 120 123 123 290 Other Europe 654 601 723 1,412 70 62 73 144 The Americas1,499 1,400 1,511 2,971 281 291 309 596 Australasia806 798 866 1,751 98 106 114 276 Asia 195 170 179 432 28 28 31 57 Africa 94 91 110 202 11 16 19 28 Corporate Activities201 859 896 1,508 11 72 73 124

4,120 4,587 4,953 9,531 619 698 742 1,515

The Corporate Activities sector includes the pre-disposal trading results of discontinued operations of 5 million pounds, the profit on disposal of discontinued operations of 16 million pounds (net of goodwill of 39 million pounds) and reorganization provisions in respect of acquisitions charged to the profit and loss account of 10 million pounds.

Exceptional operating costs of 225 million pounds in 1996 were charged by Business Group as follows: Automotive 43 million pounds; Power Drives 53 million pounds; Control Systems 31 million pounds; Specialist Engineering 27 million pounds; Packaging and Materials 54 million pounds; Building Products 2 million pounds and Polymeric Products 15 million pounds.

BTR GROUP STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES (Unaudited)

Consolidated Pounds in Millions

30 June 1997 30 June 1996 31 December 1996

Profit for the financial year before exceptional provisions 370 426 893 Exceptional Provisions - (462) (462) Profit for the financial year 370 (36) 431 Exchange Movements (37) (27) (255)

333 (63) 176

BTR GROUP SUMMARIZED CONSOLIDATED BALANCE SHEET (Unaudited)

Pounds in Millions 30 June 1997 30 June 1996 31 December 1996

CAPITAL EMPLOYED Fixed Assets Tangible Assets  3,442 4,381 3,810 Investments 163 183 152

3,605 4,564 3,962

Current assets, liabilities and provisions Inventories 1,277 1,539 1,297 Debtors and current assets 2,248 2,434 2,098 Creditors and other current liabilities (1,771) (2,172) (2,036) Provisions for liabilities and charges (497) (880) (595)

1,257 921 764

4,862 5,485 4,726

FINANCED BY: BTR Shareholder's interests Called up Share capital 1,009 984 1,006 Reserves 1,269 1,111 1,253

2,278 2,095 2,259 Minority interests 178 420 367

Total equity interests 2,456 2,515 2,626

Net Debt Long term 1,070 1,622 1,143 Short term (net) 1,336 1,348 957

2,406 2,970 2,100

4,862 5,485 4,726

Gearing 98% 118% 80%

US$ period end rate to 1 pound 1.66 1.55 1.71 AUS$ period end rate to 1 pound 2.22 1.97 2.16 US$ average rate to 1 pound 1.64 1.53 1.57 AUS$ average rate to 1 pound 2.13 1.98 2.01

The results for the period have been translated into sterling at the appropriate average rates. The balance sheet has been translated at period end rates.

The financial information for the year ended 31 December 1996 is derived from the full accounts for that year, which received an unqualified report from the auditors and which have been filed with the Registrar of Companies.

BTR GROUP SUMMARIZED CONSOLIDATED CASHFLOW STATEMENT (Unaudited)

Pounds in Millions 30 June 1997 30 June 1996 31 December 1996

Net cash inflow from operating activities (see below) 562 689 1,621 Returns on investments and servicing of finance (76) (115) (217) Taxation (177) (217) (429)

Capital Expenditure Purchase of tangible fixed assets (net) (309) (349) (692) Sale of tangible fixed assets 23 31 52 Acquisitions and disposals Purchase of investments (net) (7) (4) (13) Disposal of investments 6 3 16 Purchase of minority interest - (16) (23)

Acquisition of subsidiary undertakings (net of cash acquired) (207) (114) (148)

Disposal of subsidiary undertakings (net of cash divested) 145 360 777 Equity dividends paid - BTR plc (287) (355) (555) Equity dividends paid - Minorities (3) (12) (25)

Net cash (outflow)/inflow before use of liquid resources and financing (330) (99) 364 Management of liquid resources 5 289 385 Financing - Issue of shares 9 86 286

Financing - Increase/ (decrease) of debt 371 (565) (1,086) Other - (2) 1 Increase/(Decrease) in cash in the period 55 (291) (50)

Cash comprises cash in hand, deposits repayable on demand and overdrafts. In overall terms the Group's net borrowing position at 30 June 1997, which includes loan finance and loans receivable is 2,406 million pounds (2,100 million pounds as at 31 December 1996).

The June 1996 cash flow has been restated in accordance with the new format prescribed by FRS1 (Revised).

CASH INFLOW FROM OPERATING ACTIVITIES

Profit before exceptional items, interest and tax 619 742 1,515 Depreciation charge 199 225 437

Profits of associates less dividends received (7) (11) (17) Movement in trade working capital (178) (140) (92)

Movement in other working capital (18) (46) (10) Movement in provisions (38) (34) (138) Loss on disposal of fixed assets 1 - - Profit on disposal of discontinued operations (16) (47) (74) Net cash inflow from operating activities 562 689 1,621

CONTACT: BTR plc:

Ian Strachan, Chief Executive, 0171 821 3712

Kathleen O'Donovan, Finance Director, 0171 821 3800

David Robbie, BTR, 0171 821 3862

Victoria Sabin, Brunswick/BTR, 0171 404 5959/0171 821 3712

or

Gavin Anderson & Company:

Marisa Jacobs, 212-373-0200