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IMI PLC (IMI)

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Monday 10 September, 2001

IMI PLC

Interim Results

IMI PLC
10 September 2001



10 September 2001





IMI plc presents its Strategy and First Half Results




Gary Allen, Chairman commented:


'The Board has completed its strategy review and formulated plans to reshape
the Group. This will involve concentrating on operations representing around
65% of current sales. We are repositioning these businesses, with target
markets more closely defined, a heavy emphasis on the development of large
global customers, and a major redistribution in assets and resources away from
high cost manufacturing into high value, knowledge-based, systems engineering
and service provision.'




                                                              2001      2000
Sales                                                         £847m     £813m

Results before restructuring & rationalisation *
                                                             
    Operating profit                                         £82.6m    £91.1m

                                                             
    Profit after interest                                    £68.6m    £77.7m

                                                              
    Adjusted earnings per share                               14.5p     15.0p

Profit before tax                                            £68.4m    £66.4m
Earnings per share                                            15.2p     12.2p
Operating cash flow                                          £49.3m    £18.0m
Dividend per share                                            6.0p      6.0p



* Before goodwill amortisation and exceptional items



                             CHAIRMAN'S STATEMENT






In my first statement as Chairman I am pleased to report that the new
management structure put into effect at the beginning of the year has enabled
sound progress to be made in tackling the operational and strategic challenges
facing the Group.




OVERVIEW


The strategy review announced earlier in the year has been completed and the
repositioning of IMI is now well underway.


The financial results for the six months to 30 June 2001 are in line with our
expectations at the time of issuing the trading update on 3 July.


A strong cash performance produced operating cash flow of £49m (2000: £18m)
which helped improve free cash flow by £36m over the first half of last year.


The interim dividend will be unchanged at 6.0p.




STRATEGY

The Board has completed its strategy review and formulated plans to reshape
the Group. This will involve concentrating on operations representing around
65% of current sales. We are repositioning these businesses, with target
markets more closely defined, a heavy emphasis on the development of large
global customers, and a major redistribution in assets and resources away from
high cost manufacturing into high value, knowledge-based, systems engineering
and service provision.

These businesses will be grouped as follows:


                        Fluid Controls      The provision of advanced flow
                        control systems serving the following industry segments:



                      - Pneumatics systems, with a special emphasis on large
                        global customers in niche, high growth industry
                        segments.


                      - Control valves and related systems in the management
                        of fluids in severe service applications for the power
                        generation, oil & gas, and petrochemical industries.


                      - Control systems for the regulation of climatic
                        conditions in large commercial buildings.


                        Current businesses comprise Fluid Power (Norgren),
                        Severe Service (CCI) and Indoor Climate (TA/Heimeier),
                        with combined sales of approximately £700m.







                        Retail Dispense     The provision of innovative
                        merchandising, dispense, and data management systems
                        for the world's leading consumer brands companies.


                        Current businesses are Beverage Dispense (Cornelius)
                        and Point of Purchase (Cannon) with combined sales of
                        approximately £400m.


These businesses share the same characteristics, enjoying leadership positions
in niche, but global, markets and benefit from strong fundamentals in terms of
market growth, added value and the potential for differentiation through
technology or service. Opportunities for further growth through acquisition
are considerable.

The £60m restructuring charge announced in March will be primarily directed at
delivering improvements in these businesses. In the first half of the year £
10.2m of the £11.8m expenditure on restructuring and rationalisation costs was
in these areas.


The remaining parts of the Group comprise sound businesses. Current market
positions will be robustly managed, with selective investment and cost
reduction measures where value can be enhanced. Disposals will be made over
time consistent with realising maximum shareholder value.


The acquisitions of BTG (Severe Service Valves) and Display Technologies
(Point of Purchase) and the disposal of most of the smaller Energy Controls
businesses, together with the restructuring to date, are the first steps in
implementing this strategy.


We believe that the combination of niche, market-leading businesses, sharing a
distinctive competence in the development of large global customers, will
deliver both the growth and consistency required to maximise shareholder
value.




RESULTS SUMMARY


Reported sales at £847m were 4% higher than last year but after adjusting for
acquisitions, disposals and exchange rates, sales were 1.5% lower. Operating
profit before restructuring and rationalisation costs and goodwill
amortisation was around 9% lower at £82.6m (2000: £91.1m).


Restructuring and rationalisation costs charged against profit in the first
half were £11.8m (2000: £5.0m).

The effective rate of tax for 2001 on profit before goodwill amortisation and
exceptional items, is expected to be 25%. The underlying rate of tax is around
32%.


Adjusted earnings per share (before restructuring and rationalisation costs,
goodwill amortisation and exceptional items), were 14.5p (2000: 15.0p revised
to exclude rationalisation costs). Basic earnings per share were 15.2p (2000:
12.2p).


Borrowings at the end of June were £414m with gearing at 81% (June 2000: 100%;
December 2000: 84%). Interest cover for the six months based on operating
profit before exceptional items and goodwill amortisation was 5 times.






OPERATIONAL REVIEW


The first half of 2001 proved to be every bit as challenging as expected as
the economic climate in the US deteriorated. Towards the end of the second
quarter European confidence began to wane. Faced with these difficult
conditions we responded with early cost reduction measures and tight
expenditure controls. Nevertheless, reduced volumes and pricing pressures
meant lower profits than last year.


Those of our businesses with exposure to the German construction market,
principally Heimeier thermostatic radiator valves and copper tube & fittings,
were faced with a further 20% reduction in demand during the first half.


Polypipe Building Products succeeded in holding on to volume and started to
rebuild margins through a combination of price increases and raw material cost
reductions. The other Polypipe businesses experienced difficult trading
conditions and work continues to improve profitability.


Cornelius, our Beverage Dispense business, successfully countered the slowdown
in the US food service market with market share gains and a strong
contribution from recently introduced new products. This together with
European volumes ahead of last year, excellent progress in UK beer business
and a lower cost base enabled Cornelius to produce a solid first half
performance.


Cannon sales were ahead of last year with a strong performance from the
mainstream POP (Point of Purchase) business. The integration of Display
Technologies purchased in June is going well.


The US slowdown had its biggest impact in Fluid Power where sales to the
automotive and commercial vehicle sectors were lower by up to 40% and general
industrial sales fell by around 15%. Despite these market conditions, strong
operational improvements at Norgren Automotive (ISI) produced better results.
UK demand continued to be subdued. Mainland Europe was ahead of last year but
there are signs that the second half will be weaker.


Strong demand continues in the power generation, oil and gas markets providing
good opportunities for our Severe Service business. We continued to invest in
sales and engineering resource to provide the platform for future growth and
although first half margins as a result are a little lower, we are confident
this business will have a good second half.




OUTLOOK


In the short term, the challenging trading environment in North America and,
more recently, Europe is likely to continue. A strong performance in Beverage
Dispense and Severe Service, together with management actions already taken,
will lessen the impact of a deteriorating position in the European
construction and fluid power markets.


In the longer term, the fundamentals surrounding our chosen segments look very
encouraging, and we are confident that the strategic actions we are taking
will deliver attractive returns.














                        GROUP PROFIT AND LOSS ACCOUNT

--------------------------------------------------------------------------------
                                                          6 months to

                                                         30 June 2001
                                                --------------------------------

                                                      Before
                                                 exceptional  Exceptional
                                                     items &      items &
                                                    goodwill     goodwill
                                                amortisation amortisation Total
                                          Notes           £m           £m    £m
                                          --------------------------------------
Turnover                                    1
Continuing operations                                    814                814
Acquisitions                                              11                 11
                                          --------------------------------------
Total continuing operations                              825                825
Discontinued operations                                   22                 22
                                          --------------------------------------
Total turnover                                           847                847
                                          --------------------------------------
Operating profit                            1
                                                --------------------------------
Continuing operations before                            80.4               80.4
goodwill amortisation and
rationalisation/restructuring

Acquisitions                                             1.0                1.0
                                                --------------------------------
Total continuing operations                             81.4               81.4

Rationalisation/restructuring                         (11.8)              (11.8)

Goodwill amortisation                                               (8.0)  (8.0)

Discontinued operations                                  1.2                1.2
                                                --------------------------------
Operating profit                                        70.8        (8.0)  62.8
Exceptional items

Profit on disposal of                       1                        19.6  19.6
discontinued operations

Profit on disposal of property                                                -
                                                --------------------------------
Profit before interest                                  70.8         11.6  82.4
Net interest payable                                  (14.0)              (14.0)
                                          --------------------------------------
Profit before taxation                                  56.8         11.6  68.4
Tax on profit                               2         (14.2)              (14.2)
Tax on exceptional profit                                           (0.5) (0.5)
                                          --------------------------------------
Profit after taxation                                   42.6         11.1  53.7
Equity minority interests                              (0.4)              (0.4)
                                          --------------------------------------
Profit for the period                                   42.2         11.1  53.3
                                          --------------------------------------
Dividends paid and proposed                 3                             (21.1)
                                                                          ------
Transfer to reserves                                                       32.2
                                                                          ------
Earnings per share                          4                             15.2p
Diluted earnings per share                  4                             15.2p
Adjusted earnings per share                 4                             14.5p



                --------------------------------------------------------------
                                       6 months to                Year to

                                       30 June 2000           31 December 2000

                                          Before                   Before
                                     exceptional              exceptional
                                         items &                  items &
                                        goodwill                 goodwill
                                    amortisation Total       amortisation Total
                              Notes           £m    £m                 £m    £m
                              --------------------------     -------------------
Turnover                        1
Continuing operations                        782   782               1556  1556
Acquisitions                                   -     -                  -     -
                              --------------------------     -------------------
Total continuing operations                  782   782               1556  1556
Discontinued operations                       31    31                 59    59
                              --------------------------     -------------------
Total turnover                               813   813               1615  1615
                              --------------------------     -------------------
Operating profit                1
                              --------------------------     -------------------
Continuing operations before                88.3  88.3              176.6 176.6
goodwill amortisation and
rationalisation/restructuring

Acquisitions                                   -     -                  -     -
                              --------------------------     -------------------
Total continuing operations                 88.3  88.3              176.6 176.6
Rationalisation/restructuring              (5.0) (5.0)              (6.6) (6.6)
Goodwill amortisation                            (6.3)                    (15.2)
Discontinued operations                      2.8   2.8                6.3   6.3
                              --------------------------     -------------------
Operating profit                            86.1  79.8              176.3 161.1
Exceptional items
Profit on disposal of           1                    -                      0.5
discontinued operations
Profit on disposal of                                -                     10.0
property
                              --------------------------     -------------------
Profit before interest                      86.1  79.8              176.3 171.6
Net interest payable                      (13.4) (13.4)            (28.0)(28.0)
                              --------------------------     -------------------
Profit before taxation                      72.7  66.4              148.3 143.6
Tax on profit                   2         (23.3) (23.3)            (47.4) (47.4)
Tax on exceptional profit                                                 (0.9)
                              --------------------------     -------------------
Profit after taxation                       49.4  43.1              100.9  95.3
Equity minority interests                  (0.3) (0.3)              (0.3) (0.3)
                              --------------------------     -------------------
Profit for the period                       49.1  42.8              100.6  95.0
                                 ---------------             --------------
Dividends paid and proposed     3                (21.1)                   (54.5)
                                               ---------                --------
Transfer to reserves                              21.7                     40.5
                                               ---------                --------
Earnings per share              4                12.2p                    27.1p
Diluted earnings per share      4                12.2p                    27.0p
Adjusted earnings per share     4                15.0p                    29.9p





                             GROUP BALANCE SHEET

--------------------------------------------------------------------------------
                                   30 June     30 June  31 December
                                      2001        2000         2000
                                        £m          £m           £m
                                     -------------------------------------------
Fixed assets
Intangible assets                    306.6       246.1       286.4
Tangible assets                      374.6       392.2       386.9
                                     -------------------------------------------
                                     681.2       638.3       673.3
                                     -------------------------------------------
Current assets
Stocks                               328.4       317.1       325.4
Debtors                              380.9       383.6       332.7
Investments                          2.1         2.0         4.4
Cash and deposits                    59.0        39.4        50.4
                                     -------------------------------------------
                                     770.4       742.1       712.9
Creditors:
amounts falling due within one
year
Borrowings and finance leases        (123.5)     (87.6)      (100.0)
Other creditors                      (354.1)     (337.0)     (335.5)
                                     -------------------------------------------
Net current assets                   292.8       317.5       277.4
                                     -------------------------------------------
Total assets less current            974.0       955.8       950.7
liabilities

Creditors:
amounts falling due after more
than one year
Borrowings and finance leases        (349.8)     (406.1)     (353.4)
Other creditors                      (36.3)      (30.9)      (37.6)
Provisions for liabilities and       (72.9)      (62.7)      (81.7)
charges
                                     -------------------------------------------
Net assets                           515.0       456.1       478.0
                                     -------------------------------------------

Capital and reserves
Called up share capital              87.9        87.8        87.9
Share premium account                132.3       131.6       132.1
Revaluation reserve                  1.0         1.0         1.0
Other reserves                       1.6         1.6         1.6
Profit and loss account              289.4       234.1       255.4
                                     -------------------------------------------
Equity shareholders' funds           512.2       456.1       478.0
                                     -------------------------------------------

Minority interests                   2.8         -           -

                                     -------------------------------------------
                                     515.0       456.1       478.0
                                     -------------------------------------------





                          GROUP CASH FLOW STATEMENT

--------------------------------------------------------------------------------
                                     6 months to    6 months to        Year to
                                         30 June        30 June    31 December
                                            2001           2000           2000
                                              £m             £m             £m
                                     -------------------------------------------
Reconciliation of operating
profit to net cash
inflow from operating
activities
      Operating profit                      62.8           79.8          161.1
      Depreciation/amortisation             42.1           41.1           84.4
      Stocks (increase)/decrease          (12.2)         (22.3)         (21.2)
      Debtors (increase)/decrease         (42.0)         (73.9)         (13.3)
      Creditors and provisions              22.9           25.9         (10.4)
      increase/(decrease)
                                     -------------------------------------------
Net cash inflow from operating              73.6           50.6          200.6
activities
                                     -------------------------------------------
CASH FLOW STATEMENT

Net cash inflow from operating              73.6           50.6          200.6
activities
Return on investments and                 (14.1)         (12.4)         (28.5)
servicing of finance
Taxation                                  (14.3)         (21.4)         (38.3)
Capital expenditure and                   (24.3)         (28.5)         (47.4)
financial investment
Acquisitions and disposals                   8.1          (8.7)         (23.4)
Equity dividends paid                     (33.4)         (32.7)         (53.8)
                                     -------------------------------------------
Cash flow before use of liquid             (4.4)         (53.1)            9.2
resources and financing
Management of liquid resources             (4.3)          (1.1)          (5.4)
Financing
      Issue of ordinary shares               0.2            0.9            1.5
      Increase / (decrease) in              21.8           34.2         (19.4)
      borrowings
                                     -------------------------------------------
                                            22.0           35.1         (17.9)
                                     -------------------------------------------

Increase/(decrease) in cash in              13.3         (19.1)         (14.1)
the period
                                     -------------------------------------------

Reconciliation of net cash to
movement
in net borrowings
      Increase/(decrease) in cash in        13.3         (19.1)         (14.1)
      the period
      Cash (inflow) / outflow from        (21.8)         (34.2)           19.4
      borrowings
      Cash outflow from movement in          4.3            1.1            5.4
      liquid resources
                                     -------------------------------------------
      Change in borrowings resulting       (4.2)         (52.2)           10.7
      from cash flows
      Borrowings assumed with                  -          (0.8)          (5.5)
      acquisitions
      Loan notes issued as part of             -              -          (9.7)
      acquisition
      Currency translation                 (7.1)         (13.3)         (10.5)
      differences
                                     -------------------------------------------
      Movement in net borrowings in       (11.3)         (66.3)         (15.0)
      the period
      Net borrowings at start of         (403.0)        (388.0)        (388.0)
      period
                                     -------------------------------------------
      Net borrowings at end of           (414.3)        (454.3)        (403.0)
      period
                                     -------------------------------------------





             STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES

--------------------------------------------------------------------------------
                                        6 months       6 months         Year to
                                      to 30 June     to 30 June     31 December
                                            2001           2000            2000
                                              £m             £m              £m
                                  ----------------------------------------------

Profit for the period                       53.3           42.8            95.0
Currency translation differences           (3.9)            4.4             6.6
                                  ----------------------------------------------
Total recognised gains and losses           49.4           47.2           101.6
for the period
                                  ----------------------------------------------







                   GROUP HISTORICAL COST PROFITS AND LOSSES

--------------------------------------------------------------------------------

There is no material difference between the profit before taxation and the
retained profit for each period as shown in the Group profit and loss account
and their historical cost equivalent.







           RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS

--------------------------------------------------------------------------------
                                                   6 months 6 months   Year to
                                                      to 30    to 30        31
                                                       June     June  December
                                                       2001     2000      2000
                                                         £m       £m        £m
                                                   -----------------------------

Profit for the period                                  53.3     42.8      95.0
Dividends                                            (21.1)   (21.1)    (54.5)
                                                   -----------------------------
                                                       32.2     21.7      40.5
Previously written off goodwill taken through           5.7        -       0.4
profit & loss account in arriving at the profit
for the period
Other recognised gains and losses relating to the     (3.9)      4.4       6.6
period
Contribution to the QUEST                                 -        -     (0.1)
New ordinary share capital issued                       0.2      0.9       1.5
                                                   -----------------------------
Net increase in shareholders' funds for the period     34.2     27.0      48.9
Shareholders' funds at start of period                478.0    429.1     429.1
                                                   -----------------------------
Shareholders' funds at end of period                  512.2    456.1     478.0
                                                   -----------------------------





                  NOTES TO THE INTERIM FINANCIAL STATEMENTS
1.    Segmental
      Analysis
                            Turnover                       Operating Profit
                 -------------------------------       -------------------------
                    6 mths      6 mths      Year         6 mths   6 mths   Year
                        to          to        to             to       to     to
                   30 June     30 June    31 Dec        30 June  30 June 31 Dec
                      2001        2000      2000           2001     2000   2000
                        £m          £m        £m             £m       £m     £m
                 -------------------------------       -------------------------
 
(i)   by
      activity:

      before goodwill amortisation and
      rationalisation/restructuring
      Hydronic         357         338       667           37.0     42.9   83.0
      Controls
      Drinks           189         176       340           19.4     17.1   34.6
      Dispense
      Fluid            219         221       444           19.4     23.7   46.6
      Power
      Energy            60          47       105            5.6      4.6   12.4
      Controls
                 -------------------------------       -------------------------
 
      Continuing       825         782      1556           81.4     88.3  176.6
      operations
                 -------------------------------       -------------------------

      after goodwill amortisation and
      rationalisation/restructuring
      Hydronic                                             28.4     36.0   67.6
      Controls
      Drinks                                               17.2     15.5   32.6
      Dispense
      Fluid                                                10.5     20.9   42.2
      Power
      Energy                                                5.5      4.6   12.4
      Controls
                                                       -------------------------
      Continuing                                           61.6     77.0  154.8
      operations
                                                       -------------------------


                                                       Operating Assets
                                               ---------------------------------
                                                         6 mths            Year
                                                    to                to     to
                                               30 June           30 June 31 Dec
                                                  2001              2000   2000
                                                    £m                £m     £m
(i)   by activity:                             ---------------------------------

      before goodwill amortisation and
      rationalisation/restructuring
      Hydronic Controls                            306               338    301
      Drinks Dispense                              146               133    116
      Fluid Power                                  216               227    222
      Energy Controls                               32                18     21
                                               ---------------------------------
      Continuing operations                        700               716    660
                                               ---------------------------------
(ii)  by
      geographical
      origin:

      after goodwill amortisation and rationalisation/restructuring

      UK              299      280        546         23.4      29.3       52.4
      Rest of         279      266        531         22.6      26.6       58.9
      Europe
      The Americas    222      212        431         14.3      19.4       41.1
      Asia/Pacific     25       24         48          1.3       1.7        2.4
                   --------------------------         --------------------------
      Continuing      825      782       1556         61.6      77.0      154.8
      operations
                   --------------------------         --------------------------






(ii)  by geographical origin:

      after goodwill amortisation and
      rationalisation/restructuring
      UK                                              286       334       284
      Rest of Europe                                  226       219       211
      The Americas                                    173       149       150
      Asia/Pacific                                     15        14        15
                                                    --------------------------
      Continuing operations                           700       716       660
                                                    --------------------------






(iii)   turnover by geographical destination:

                                           6 mths           6 mths         Year
                                               to               to           to
                                          30 June          30 June       31 Dec
                                             2001             2000         2000
                                               £m               £m           £m
                                    -------------------------------------------
        UK                                    258              239          462
        Germany                                99              103          199
        Rest of Europe                        200              187          376
        USA                                   197              188          376
        Asia                                   31               29           64
        Rest of World                          40               36           79
                                    -------------------------------------------
        Continuing operations                 825              782         1556
                                     ------------------------------------------

 1. Segmental Analysis (continued)


        Acquisitions

        BTG is reported within Energy Controls from its acquisition in
        February 2001 and Display Technologies within Drinks Dispense from its
        acquisition in June 2001.

Discontinued operations


        The amounts shown for discontinued operations comprise the turnover
        and operating profits of Fittings Australia sold in November 2000,
        previously reported within Hydronic Controls and Asia/Pacific together
        with a number of valve companies sold in June 2001 which were
        previously reported in Energy Controls and located in the UK, France
        and US.




        2.     Taxation


             The underlying tax rate on profit before goodwill amortisation
        and exceptional items is around 32%, the same as last year. However,
        the effective rate of tax for 2001 is expected to be 25%, reflecting
        the benefit derived from the repatriation of overseas earnings from
        prior years.




        3.     Dividends


             The Directors have declared an interim dividend for the current
        year of 6.0p per share (six months to 30 June 2000: 6.0p) which will
        be paid on 22 October 2001 to shareholders on the register on 19
        September 2001.




        4.     Earnings per share



        The weighted average number of shares in issue during the period was
        351.4m, 351.6m diluted for the effect of outstanding share options
        (six months to 30 June 2000: 350.9m, 350.9m diluted). Earnings per
        share have been calculated on earnings of £53.3m, (six months to 30
        June 2000: £42.8m). The Directors consider that adjusted earnings per
        share figures, using earnings as calculated below, give a more
        meaningful indication of the underlying performance.




                                     6 months to     6 months to        Year to

                                    30 June 2001    30 June 2000    31 Dec 2000
                                              £m              £m             £m
                                 -----------------------------------------------
Profit for the period                       53.3            42.8           95.0
Goodwill amortisation                        8.0             6.3           15.2
Exceptional items (after tax)             (19.1)               -          (9.6)
Rationalisation/restructuring                8.9             3.4            4.5
(after tax)
                                 -----------------------------------------------
Earnings for adjusted EPS                   51.1            52.5          105.1
                                 -----------------------------------------------




        5.     Exchange rates


             The profit and loss accounts of overseas subsidiaries are
        translated into sterling at average rates of exchange for the period,
        balance sheets are translated at period end rates. The main currencies
        are:

                    Average period rates                  Balance sheet rates
               -------------------------------       ---------------------------
                 June      June        Dec           30 June   30 June    31 Dec

                 2001      2000       2000             2001      2000      2000
                ------     -----     ------          -------    ------    ------

                 
        Euro     1.60      1.63       1.64             1.66      1.58      1.59

                 
        US
        Dollar   1.44      1.57       1.52             1.41      1.51      1.49






        6.     Financial information


        This interim statement has been reviewed by the Group's auditors
        having regard to the bulletin Review of Interim Financial Information,
        issued by the Auditing Practices Board. A copy of their unqualified
        review opinion is attached.


        The comparative figures for the year ended 31 December 2000 are not
        the Company's statutory accounts for that financial year. Those
        accounts have been reported on by the Company's auditors and delivered
        to the Registrar of Companies. The report of the auditors was
        unqualified and did not contain a statement under Section 237(2) or
        (3) of the Companies Act 1985.


        The Interim Report will be posted to shareholders on 13 September 2001
        and will be available from the same date at the Company's registered
        office, Kynoch Works, Witton, Birmingham, B6 7BA.





NEXT TRADING ANNOUNCEMENT


Our next trading update will be issued on 18 December 2001.



Enquiries to:

Martin Lamb      -     Chief Executive              -     Tel: 020 7329 0096

Trevor Slack     -     Finance Director             -     Tel: 020 7329 0096

Gerard Whelan    -     Corporate Communications     -     Tel: 020 7329 0096



Press release available on the Internet at www.imi.plc.uk

Issued by:

Ben Padovan      -     Weber Shandwick Worldwide    -     Tel: 020 7329 0096





Independent review report by KPMG Audit Plc to IMI plc



Introduction

We have been instructed by the company to review the financial information set
out on pages 5 to 11 and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.




Directors' responsibilities


The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Listing
Rules of the Financial Services Authority require that the accounting policies
and presentation applied to the interim figures should be consistent with
those applied in preparing the preceding annual accounts except where they are
to be changed in the next annual accounts in which case any changes, and the
reasons for them, are to be disclosed.




Review work performed


We conducted our review in accordance with guidance contained in Bulletin 1999
/4: Review of Interim Financial Information issued by the Auditing Practices
Board. A review consists principally of making enquiries of group management
and applying analytical procedures to the financial information and underlying
financial data and, based thereon, assessing whether the accounting policies
and presentation have been consistently applied unless otherwise disclosed. A
review is substantially less in scope than an audit performed in accordance
with Auditing Standards and therefore provides a lower level of assurance than
an audit. Accordingly we do not express an audit opinion on the financial
information.




Review conclusion


On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2001.








KPMG Audit Plc

Chartered Accountants

Birmingham

10 September 2001