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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Imi Plc | LSE:IMI | London | Ordinary Share | GB00BGLP8L22 | ORD 28 4/7P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 35.00 | 1.98% | 1,800.00 | 1,802.00 | 1,803.00 | 1,821.00 | 1,772.00 | 1,780.00 | 430,725 | 16:35:11 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Manufacturing Industries,nec | 2.2B | 237.3M | 0.9076 | 19.85 | 4.71B |
From Apr 2019 to Apr 2024
TIDMIMI
RNS Number : 3666M
IMI PLC
28 July 2017
28 July 2017
Interim results, six months ended 30 June 2017
Hot Features
Premium
Reported(1) Statutory
Continuing 2017 2016 Change Organic(3) 2017 2016 Change
operations: H1 H1 H1 H1
Revenue GBP846m GBP759m +11% 0% GBP848m GBP763m +11%
Operating
profit GBP106m GBP96m +11% -3% GBP94m GBP80m +18%
Operating
margin 12.5% 12.6% -10bps
Profit before
tax GBP98m GBP86m +13% GBP89m GBP70m +26%
Basic EPS(1) 28.4p 24.4p +16% 27.2p 19.4p +40%
Operating
cash flow(2) GBP86m GBP85m +1%
Dividend
per share 14.2p 14.0p +1.4%
Net debt GBP318m GBP334m
(1) Excluding the effect of items reported as exceptional
in the income statement.
(2) Operating cash flow, as described in note 9
to the financial statements.
(3) Change shown after adjusting for exchange rates
and excluding the impact of acquisitions and disposals.
Key Points
-- Results slightly ahead of expectations -- Further good progress against 5-year strategic plan -- Re-organisation plans proceeding to time and budget -- Good cash flow with continued focus on working capital -- Favourable currency impact on revenues and profits expected in the full year -- Proposed 1.4% increase in interim dividend
Mark Selway, Chief Executive, commented:
"The improved trading environment experienced in some of our most important markets in the first quarter has continued for the first half of the year. Most encouragingly, progress with our ongoing operational improvements and strategic self-help initiatives has maintained an impressive pace and our market positions continue to improve. Our focus remains resolute on building both competitive advantage and shareholder value by delivering great products and continuously improving our customer offering."
"While we continue to face some specific market headwinds in the remainder of 2017, particularly in Critical Engineering, full year results will reflect our normal second half bias and the benefits from ongoing reorganisation activities. In the remainder of the year, organic revenue is still expected to be below last year, principally driven by order phasing in Critical Engineering. However, second half margins will show a modest improvement compared with the same period in 2016, supported by both rationalisation savings and improved market conditions in Precision Engineering."
"Based on current market conditions, we expect full year 2017 results will be modestly above current market expectations."
Enquiries to:
Tel: +44 (0)121
John Dean IMI 717 3712
Suzanne Bartch / Gayden Metcalfe Teneo Blue Rubicon Tel: +44 (0)203
757 9239
A live webcast of the analyst meeting taking place today at 8:30am (BST) will be available on the investor page of the Group's website: www.imiplc.com. The Group plans to release its next Interim Management Statement on 9 November 2017.
Results overview
Results for the first half of the year were slightly ahead of expectations with good progress continuing to be made against the five-year strategic plan. Increased momentum was evident across our various strategic growth initiatives and the Group's ambitious re-organisation plans continued to deliver to plan and budget.
On a reported basis, revenues of GBP846m (2016: GBP759m) were 11% higher and included the impact of favourable exchange rate movements of GBP85m. Group revenues on an organic basis were flat when compared with the same period in 2016. Segmental operating profit of GBP106m (2016: GBP96m) was 11% higher on a reported basis. Excluding the favourable impact of exchange rate movements of GBP14m, segmental operating profit on an organic basis was 3% lower than the comparable period in 2016.
The Group's segmental operating margin at 12.5% (2016: 12.6%) reflects improved revenues in Precision and restructuring benefits across all three divisions, which were offset by the absence of GBP4.2m profit in 2016 from property disposals.
Operating cash flow was marginally stronger at GBP86m (2016: GBP85m) and included the benefits of improved inventory management and consistently good debtor management. Including a favourable currency impact of GBP9m, Net Debt was GBP318m (2016: GBP334m) resulting in a net debt to EBITDA ratio of 1.1x.
The pre-exceptional tax charge was GBP21m (2016: GBP19m) giving an effective tax rate of 21%.
The resulting adjusted basic earnings per share were 16% higher at 28.4p (2016: 24.4p).
Dividend
Reflecting continued confidence in the Group's prospects, the Board is recommending that the interim dividend be increased by 1.4% to 14.2p (2016: 14.0p). This will be paid on 15 September 2017 to shareholders on the register at the close of business on 11 August 2017.
Outlook
While we continue to face some specific market headwinds in the remainder of 2017, particularly in Critical Engineering, full year results will reflect our normal second half bias and the benefits from ongoing reorganisation activities. In the remainder of the year, organic revenue is still expected to be below last year, principally driven by order phasing in Critical Engineering. However, second half margins will show a modest improvement compared with the same period in 2016, supported by both rationalisation savings and improved market conditions in Precision Engineering.
Based on current market conditions, we expect full year 2017 results will be modestly above current market expectations.
If average exchange rates in the first two weeks of July (US$1.29 and EUR1.13) remain constant for the balance of the year, revenue and segmental operating profit would both be enhanced by c.6%, in the full year versus 2016.
Divisional review
The following review relates to our continuing businesses: IMI Critical Engineering, IMI Precision Engineering and IMI Hydronic Engineering and compares their performance during the half year ended 30 June 2017 with the same period in 2016.
For ease of comparison, references to organic numbers are on an organic constant currency basis and therefore exclude the impact of foreign exchange movements and the results of disposals and acquisitions. To assist in meaningful comparisons, the comparative 2016 results are re-stated.
IMI Critical Engineering
IMI Critical Engineering is a world-leading provider of flow control solutions that enable vital energy and process industries to operate safely, cleanly, reliably and more efficiently. Our products control the flow of steam, gas and liquids in harsh environments and are designed to withstand temperature and pressure extremes as well as intensely abrasive or corrosive cyclical operations.
2017 H1 2016 H1
Organic:
Order intake GBP350m GBP314m
Revenue GBP308m GBP318m
Operating GBP34.4m GBP35.8m
profit
Operating
margin 11.2% 11.3%
Market review
In line with previous outlook statements, Critical Engineering's most significant markets continue to be challenging with sustained lower oil prices and ongoing lack of investment across a number of key sectors impacting orders and pricing across the industry. Nonetheless, Critical Engineering's most important markets continue to offer significant medium to longer-term opportunity.
Performance
On an organic basis, order intake at GBP350m was 11% higher when compared to the same period last year (2016: GBP314m).
New Construction orders of GBP185m (2016: GBP163m) were 14% higher and reflected beneficial phasing with Petrochemical growing strongly in the period following good orders for Gas Processing and Refinery projects in China and North America. Oil & Gas was 5% lower with good progress in Upstream, Midstream and Downstream segments being offset by lower LNG activity and an absence of significant HIPPS orders in the period. Fossil Power orders were GBP2m lower while Nuclear was up GBP7m, reflecting a good contract win in China.
Aftermarket orders were 9% higher at GBP164m (2016: GBP151m) with good growth in LNG resulting in Oil & Gas Aftermarket being GBP15m higher than the first half of last year. Fossil Power Aftermarket was down 3% when compared with the first half of 2016 while both Nuclear and Petrochemical showed good growth in the period.
Reported revenue of GBP308m (2016: GBP285m) was up 8% and, after adjusting for the benefit of exchange rate movements of GBP33m, organic revenues were 3% lower. On an organic basis, segmental operating profit of GBP34m (2016: GBP36m) resulted in similar margins to the prior period at 11.2% (2016: 10.8%). Margins continue to be impacted by order phasing, lower overhead recovery and the timing of restructuring.
Strategic progress
The division's success in relation to Value Engineering and Cost Optimisation has continued and helped the business secure GBP69m of new business in the first half of the year. In addition, the division's new product development initiatives have resulted in the award of new business in attractive adjacent markets while helping to mitigate selling price pressure in New Construction sales. The order book at GBP552m was flat when compared to the same point in 2016, with 1.7% lower margins due to ongoing selling price pressure and mix.
Critical Engineering also achieved a number of important operational milestones, including the on time and on budget implementation of the IFS ERP system into Singapore and Malaysia, with a further two plants planned to go live in the final quarter of this year. The division also continued to make substantial progress in improving its operational performance and achieved a mid-year lean audit score of 68%, compared with 60% this time last year. The benefits of lean will become far more evident as the market recovers and a more fully utilised factory loading is achieved.
Outlook
In the second half of the year, organic revenue is still expected to be weaker than the second half of last year. Full year margins are expected to show a modest improvement on 2016 - and a significant improvement on the first half of this year - due to the benefits of the division's reorganisation activities and phasing of the order backlog.
IMI Precision Engineering
IMI Precision Engineering specialises in the design and manufacture of motion and fluid control technologies where precision, speed and reliability are essential to the processes in which they are involved.
2017 H1 2016
H1
Organic:
Revenue GBP388m GBP379m
Operating GBP61.2m GBP63.0m*
profit
Operating 15.8% 16.6%*
margin
* 2016 results included a GBP4.2m gain on property disposals.
Market review
While the 2017 global economic outlook has improved when compared with 2016, it remains somewhat mixed, with continued uncertainties in some of our markets. However, Industrial Automation has continued its globally positive market environment with particularly strong progress in China. In addition, the Commercial Vehicle markets in North America and Europe delivered higher truck build volumes than initially forecast at the start of the year.
Performance
Reported revenue of GBP388m (2016: GBP341m) increased 14% on the same period in 2016 and after adjusting for the benefit of positive exchange rate movements of GBP38m, organic revenue was up 2%. Sales from Industrial Automation and Commercial Vehicle, which together represent almost 80% (GBP308m) of Precision revenues, grew 2.6% in the first half of 2017.
Industrial Automation revenue of GBP215m was up 3%. The general portion of Industrial Automation, which represents around 50% of the sector total, was up 5% compared with the first half of 2016 with declines in North America being offset by good growth in other regions. Norgren Express was broadly flat.
Commercial Vehicle overall sales of GBP93m were 1% higher with a 4% decline in Europe due to previously announced contract completions being more than offset by growth in the Americas and Asia. Elsewhere, Energy was lower by 4% compared with the first half of 2016 reflecting ongoing difficulties in Oil & Gas. Life Sciences was also down 1% when compared with the first half of last year with an expectation of recovery in the second half of this year.
On a reported basis, segmental operating profit of GBP61m (2016: GBP57m) was 7% higher and after excluding the impact of a GBP6m exchange rate benefit was 3% lower on an organic basis. While underlying margins, excluding the GBP4.2m of property gains in 2016 improved, reported margins were lower at 15.8% compared with 16.7% in the same period in 2016.
Strategic progress
The 2017 Hannover Fair featured the first major launch of new platform products that IMI Precision Engineering has delivered to the market for many years. These innovative new products have been well received by customers and increased competitiveness in our largest market segment.
The successful implementation of Precision Engineering's JD Edwards ERP system on time and on budget in the Americas represented a further important milestone. The application of lean continued to contribute to productivity improvements and lower scrap costs and the division's average lean score further improved to 67% from its first, benchmark score of 33%.
In addition, excellent progress continues to be made on the division's Janus project which is progressing to plan and budget. Insourcing of machining work is running ahead of target having increased utilisation to 66% from 50%, at the start of 2017.
The restructure into sector based verticals and consolidation into a single unified structure was successfully implemented in Europe and the anticipated benefits, including overhead duplication reductions, are starting to accrue.
The supply chain organisation is now fully resourced and executive leadership is now on board in North America and Europe. The painstaking task of standardising core business processes and improving the accuracy of core business data will progressively yield all the benefits which our new ERP system promises.
The total cost of Project Janus will be GBP12m, GBP9m of which will be in 2017. Total savings of GBP12m are targeted, of which c.GBP5m is still expected in 2017.
Outlook
In the second half, on a constant currency basis, organic revenues and margins are expected to improve when compared with the second half of last year reflecting the benefits of ongoing cost reduction and improved market conditions. Full year revenue is expected to reflect similar growth to the first half of the year with margins consistent with 2016.
IMI Hydronic Engineering
IMI Hydronic Engineering is a leading provider of technologies that deliver energy efficient water-based heating and cooling systems for the residential and commercial building sectors.
2017 H1 2016
H1
Organic:
Revenue GBP150m GBP147m
Operating GBP23.9m GBP24.0m
profit
Operating
margin 15.9% 16.3%
Market review
Hydronic Engineering's most important markets include the European residential and commercial construction, which have shown some modest improvement over recent months. The construction markets in Europe, which represent almost 80% of Hydronic revenue, grew c.1% in the first half of 2017.
Performance
Reported revenue of GBP150m (2016: GBP133m) was up 13% on the same period in 2016. After adjusting for the impact of positive exchange rate movements of GBP14m, organic revenue was up 2%. Sales from the three core businesses, which account for 90% of the total, were also 2% higher and included GBP33m of new product revenues.
Hydronic in Asia, whilst modest in absolute terms, did deliver a GBP1.5m increase in revenues, including 32% growth in China as well as stronger performances in Australia and Singapore.
Segmental operating profit of GBP24m (2016: GBP21m) was 12% higher on a reported basis and, after adjusting for GBP2.6m of exchange rate benefit, organic operating profits were flat compared with the same period in 2016. Operating margins at 15.9% (2016: 16.1%) were impacted by continued investment for growth and increases in raw material cost, which are expected to be progressively recovered in the second half of the year.
Strategic progress
The division's product development programme continues to deliver with 47 great new products introduced in the last three and a half years. Around 22% of the division's first half revenues were generated by these products.
The division's over-the-counter strategy continued to gain traction with new distributor orders increasing in the first half of the year. Operational performance improved further across all Hydronic Engineering sites, with the average lean score increasing to 77% against 73% at the same point in 2016.
The successful launch of the division's new global ERP system in Slovenia, Hungary, Croatia and Romania was a further significant achievement with additional roll-outs scheduled in 12 sales offices in the second half of the year.
Outlook
In the second half, on a constant currency basis, we expect revenue growth to show some improvement when compared to the first half of the year. Margins are expected to improve when compared to the second half of last year, despite the increased costs associated with our investments for growth.
Board changes
Isobel Sharp has been appointed as Chairman-elect of the Audit Committee, succeeding Ross McInnes who is stepping down from the Board to concentrate on his other activities.
Following an orderly transition of the Audit Committee responsibilities, Isobel will succeed Ross as Chairman of the Audit Committee on 1 October 2017. Ross joined the Board on 1 October 2014 and has decided not to extend his term after his initial three-year appointment expires on 30 September 2017. Isobel joined the Board and the Audit Committee on 1 September 2015 and has extensive audit, accounting and corporate governance experience.
The Board would like to thank Ross for the significant and diligent contribution he has made as Chairman of the Audit Committee and as a member of the Board, and wishes him well for the future.
Financial review
Reported revenues of GBP846m were up 11% (2016: GBP759m) and statutory revenues were up 11% to GBP848m (2016: GBP763m). After adjusting for favourable exchange rate movements, organic revenues were flat when compared with the same period in the previous year. Segmental operating profit was GBP106m, an 11% increase on the prior period (2016: GBP96m). On an organic basis operating profit was down 3%. Group segmental operating margin was 10 basis points lower at 12.5% (2016: 12.6%), whilst statutory operating profit was up 18% at GBP94m (2016: GBP80m).
Net interest costs on borrowings were GBP7m (2016: GBP9m) and were covered 20 times by earnings before interest, tax, depreciation and amortisation (EBITDA) on continuing operations of GBP129m (2016: GBP115m). The IAS19 pension net financing expense was GBP1m (2016: GBP1m income). The total net financing costs were GBP7m (2016: GBP8m). Profit before tax and exceptional items was GBP98m, an increase of 13% (2016: GBP86m).
The effective tax rate on profit before exceptional items for 2017 is 21%, which has reduced from 22% in the first half of 2016.
Exceptional items
Restructuring costs of GBP1m were incurred but not treated as exceptional (2016: GBP1m). Exceptional restructuring costs were GBP14m (2016: GBP10m), primarily relating to the restructuring of our European operations in Critical Engineering and Precision Engineering.
On 31 January 2017, GBP430m of UK pension liabilities covered by insurance policies were permanently transferred to the underlying insurance companies through a formal buy-out transaction, which resulted in the asset and corresponding obligation being permanently removed from the Group's balance sheet. An exceptional gain of GBP6m was recognised in the first half of 2017. This gain is offset by GBP2m of fees incurred to complete the project.
On 31 March 2017, the Group settled its remaining liabilities in relation to one of its pension plans in the USA. This resulted in a further exceptional gain of GBP2m being recognised in the 6 months to 30 June 2017.
Following a restructuring exercise relating to one of our Swiss schemes the Group realised a curtailment gain of GBP5m.
Amortisation of acquired intangibles was GBP10m (2016: GBP10m). The only other exceptional items affecting continuing businesses were the reversal of net economic hedge contract losses of GBP2m (2016: losses of GBP3m) and net exceptional financial instrument gains of GBP2m (2016: losses of GBP2m).
After these exceptional items, statutory profit before tax was GBP89m (2016: GBP70m). The total profit for the period after taxation was GBP74m (2016: GBP54m) and, after non-controlling interests, the profit attributable to the equity shareholders of the Company was GBP74m (2016: GBP53m).
Earnings per share
The average number of shares in issue during both periods was 271m, resulting in basic earnings per share of 27.2p (2016: 19.4p) and diluted earnings per share of 27.0p (2016: 19.4p).
Foreign exchange
The impacts of translation on the reported growth of first half revenues and segmental operating profits were increases of GBP85m (11%) and GBP14m (12%) respectively. The most significant foreign currencies for the Group remain the Euro and the US Dollar and the relevant rates of exchange for the period and at the period end are shown in note 13 to this report.
If the average exchange rates in first two weeks of July (US$1.29 and EUR1.13) remained constant for the remainder of the year, it would positively impact both revenues and segmental operating profit by around 6%.
Cash flow
Operating cash flow(1) was flat at GBP86m. This included a working capital outflow of GBP20m against an outflow of GBP6m in the comparable period. Trade and other receivables increased by GBP13m, inventories increased by GBP21m and trade and other payables increased by GBP14m. Capital expenditure amounted to GBP27m and was 1.1 times the depreciation and amortisation charge for the period of GBP24m.
The other major cash outflows in the period were GBP20m of tax, GBP23m of derivatives and dividends of GBP67m. The total cash outflow for the period was GBP45m, compared with an outflow of GBP57m in the first half of the previous year.
Balance sheet
The balance sheet remains strong with the ratio of net debt to the last twelve months' EBITDA (before exceptional items) being 1.1 at the end of June 2017 (December 2016: 1.0). Net debt increased during the period to GBP318m (December 2016: GBP283m) due to the cash outflow highlighted above partially offset by GBP9m of translation benefit due to the strengthening of sterling during the period.
The Group maintains an appropriate mixture of cash and short, medium and long-term debt arrangements which provide sufficient headroom for both ongoing activities and acquisitions. Total committed bank loan facilities available to the Group at 30 June 2017 were GBP301m (December 2016: GBP301m) of which GBPnil were drawn (December 2016: GBPnil).
The IAS19 net pension deficit was GBP61m which compares to a deficit of GBP25m at 30 June 2016 and a deficit of GBP80m at 31 December 2016. Of this amount, a surplus of GBP18m (31 December 2016: GBP24m) related to the UK Funds is the most significant of the Group's defined benefit schemes. The deficit relating to the overseas schemes decreased to GBP79m (31 December 2016: GBP104m).
Shareholders' equity at the end of June was GBP581m, an increase of GBP38m since the end of last year, which includes the attributable profit for the period of GBP74m, an after-tax actuarial gain on the defined benefit pension plans of GBP10m, a benefit of GBP21m following the derecognition of the Group's interest in the IMI Scottish Limited Partnership, adverse exchange differences of GBP4m and the 2016 final dividend of GBP67m paid in May.
(1) Before exceptional items, as defined in note 9
Other regulatory information
Going concern
The Group has considerable financial resources together with long-standing relationships with a number of customers, suppliers and funding providers across different geographic areas and industries. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is able to operate within the level of its current bank facilities without needing to renew facilities expiring in the next 12 months. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the uncertainties inherent in the current economic outlook.
After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Financial Report.
Principal risks and uncertainties
The Group has a risk management structure and internal controls in place which are designed to identify, manage and mitigate business risk.
In common with all businesses, IMI faces a number of risks and uncertainties which could have a material impact on the Group's long-term performance.
On pages 40 to 43 of its 2016 Annual Report (a copy of which is available on IMI's website: www.imiplc.com), the Company sets out what the directors regarded as being the principal risks and uncertainties facing the Group and which could have a material impact on the Group's long-term performance. These risks include an increase in macro-economic instability; major project implementation; product quality; acquisition risk; regulatory breach; supply chain; cyber security; competitive markets; and new product development. These risks remain valid and have the potential to impact the Group during the remainder of the second half of 2017. The impact of the economic and end-market environments in which the Group's businesses operate are considered in the divisional review and outlook sections of this Interim Financial Report above, together with an indication of whether management is aware of any likely change in this situation.
Cautionary statement
This Interim Financial Report contains forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this announcement and the Company undertakes no obligation to update these forward-looking statements. Nothing in this Interim Financial Report should be construed as a profit forecast.
Responsibility statement of the directors in respect of the Interim Financial Report
We confirm that to the best of our knowledge:
-- the condensed set of interim financial statements has been prepared in accordance with IAS34 'Interim Financial Reporting' as adopted by the EU;
-- the Interim Financial Report includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year;
-- there were no related party transactions or changes in the related party transactions described in the 2016 Annual Report that materially affected the Group's results or financial position during the six months ended 30 June 2017.
The directors of IMI plc are listed in the IMI Annual Report for the year ended 31 December 2016.
Approved by the Board of IMI plc and signed on its behalf by:
Mark Selway
Chief Executive
27 July 2017
INDEPENT REVIEW REPORT TO IMI plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in
the half-yearly financial report for the six months ended 30 June 2017 which comprises a Condensed
Consolidated Interim Income Statement, a Condensed Consolidated Interim Statement of Comprehensive
Income, a Condensed Consolidated Interim Balance Sheet, a Condensed Consolidated Interim Statement
of Changes in Equity, a Condensed Consolidated Interim Statement of Cash Flows and the related
explanatory notes 1 to 15. We have read the other information contained in the half yearly
financial report and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the half-yearly financial report in accordance
with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance
with IFRSs as adopted by the European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in accordance with International Accounting
Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial
statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK
and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review
of interim financial information consists of making enquiries, primarily of persons responsible
for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International
Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the
condensed set of financial statements in the half-yearly financial report for the six months
ended 30 June 2017 is not prepared, in all material respects, in accordance with International
Accounting Standard 34 "Interim Financial Reporting", as adopted by the European Union and
the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Birmingham
27 July 2017
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT
6 months to 6 months to
30 June 2017 30 June 2016 Year to
Notes (unaudited) (unaudited) 31 Dec 2016
Except- Except- Except-
ional ional ional
Reported items Statutory Reported items Statutory Reported items Statutory
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----- -------- ------- --------- -------- ------- --------- -------- ------- ---------
Revenue 2 846 2 848 759 4 763 1,649 8 1,657
Segmental operating
profit 2 106.1 106.1 95.6 95.6 227.7 227.7
Reversal of net
economic hedge
contract losses 2.3 2.3 2.8 2.8 5.6 5.6
Restructuring costs (1.3) (13.8) (15.1) (1.3) (9.7) (11.0) (3.5) (18.8) (22.3)
Gains on special
pension events 10.7 10.7 2.5 2.5 2.8 2.8
Acquired intangible
amortisation (9.6) (9.6) (9.8) (9.8) (20.5) (20.5)
Impairment Losses - - - - (5.0) (5.0)
Operating profit 2 104.8 (10.4) 94.4 94.3 (14.2) 80.1 224.2 (35.9) 188.3
Financial income 3 3.0 6.4 9.4 2.1 8.0 10.1 4.5 12.6 17.1
Financial expense 3 (9.6) (4.9) (14.5) (10.9) (9.8) (20.7) (21.8) (19.4) (41.2)
Net finance
(expense)/income
relating
to defined
benefit pension
schemes 3 (0.7) (0.7) 0.6 0.6 1.1 1.1
Net financial
(expense)/income 3 (7.3) 1.5 (5.8) (8.2) (1.8) (10.0) (16.2) (6.8) (23.0)
Profit before tax 97.5 (8.9) 88.6 86.1 (16.0) 70.1 208.0 (42.7) 165.3
Taxation 4 (20.5) 5.7 (14.8) (18.9) 2.5 (16.4) (43.7) 11.6 (32.1)
Total profit for the
period 77.0 (3.2) 73.8 67.2 (13.5) 53.7 164.3 (31.1) 133.2
Attributable to:
Owners of the
parent 77.0 73.8 66.1 52.6 161.9 130.8
Non-controlling
interests - - 1.1 1.1 2.4 2.4
Profit for the period 77.0 73.8 67.2 53.7 164.3 133.2
Earnings per share 6
Basic - from profit for the
period 28.4p 27.2p 24.4p 19.4p 59.8p 48.3p
Diluted - from profit for the
period 28.2p 27.0p 24.3p 19.4p 59.4p 48.0p
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE
INCOME
6 months 6 months
to to
30 June 30 June
2017 2016 Year to
31 Dec
(unaudited) (unaudited) 2016
GBPm GBPm GBPm GBPm GBPm GBPm
------- ----- ------ ------ ------ ------
Profit for the period 73.8 53.7 133.2
Other comprehensive income/(expense)
Items that may be reclassified
to profit and loss:
Change in fair value of effective
net investment hedge derivatives 5.6 (12.7) (2.8)
Exchange differences on translation
of foreign operations net of
hedge settlements and funding
revaluations (10.0) 39.8 39.4
Fair value (loss)/gain on available
for sale financial assets (0.2) 0.7 -
Related tax effect on items
that may subsequently be reclassified
to profit and loss (0.8) 5.6 0.6
------- ------ ------
(5.4) 33.4 37.2
Items that will not subsequently
be reclassified to profit and
loss:
Re-measurement gain/(loss)
on defined benefit plans 12.1 (23.4) (78.2)
Related taxation effect in
current period (2.4) 5.3 15.3
Effect of rate change on previously
recognised items - - (2.5)
9.7 (18.1) (65.4)
Other comprehensive income
for the period, net of tax 4.3 15.3 (28.2)
Total comprehensive income
for the period, net of tax 78.1 69.0 105.0
Attributable to:
Owners of the parent 78.1 67.9 102.6
Non-controlling interests - 1.1 2.4
Total comprehensive income
for the period, net of tax 78.1 69.0 105.0
CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
30 June 30 June 31 Dec
2017 2016 2016
(unaudited) (unaudited)
Notes GBPm GBPm GBPm
----- ----------- ----------- ---------
Assets
Intangible assets 515.9 512.1 521.2
Property, plant and equipment 265.5 259.5 266.2
Employee benefit assets 12 54.6 84.9 57.8
Deferred tax assets 21.1 22.2 22.8
Other receivables 4.2 6.1 5.7
Total non-current assets 861.3 884.8 873.7
Inventories 277.7 285.1 255.2
Trade and other receivables 411.0 383.0 400.5
Other current financial
assets 5.2 6.6 2.9
Current tax 3.9 3.4 7.1
Investments 19.5 29.6 29.9
Cash and cash equivalents 34.0 73.6 79.7
Total current assets 751.3 781.3 775.3
Total assets 1,612.6 1,666.1 1,649.0
Liabilities
Bank overdraft (7.3) (23.7) (12.2)
Interest-bearing loans
and borrowings (124.5) (57.9) (6.8)
Provisions (18.4) (24.6) (19.9)
Current tax (50.9) (41.3) (62.8)
Trade and other payables (425.5) (379.9) (407.9)
Other current financial
liabilities (3.2) (22.3) (13.5)
Total current liabilities (629.8) (549.7) (523.1)
Interest-bearing loans
and borrowings (220.3) (325.8) (343.3)
Employee benefit obligations 12 (115.5) (109.8) (137.6)
Provisions (21.0) (19.6) (19.1)
Deferred tax liabilities (37.1) (51.6) (32.0)
Other payables (7.5) (26.2) (10.7)
Total non-current liabilities (401.4) (533.0) (542.7)
Total liabilities (1,031.2) (1,082.7) (1,065.8)
Net assets 581.4 583.4 583.2
Equity
Share capital 11 81.8 81.8 81.8
Share premium 12.1 11.8 12.1
Other reserves 208.3 209.4 213.6
Retained earnings 278.5 238.7 235.7
Equity attributable to
owners of the parent 580.7 541.7 543.2
Non-controlling interests 7 0.7 41.7 40.0
Total equity 581.4 583.4 583.2
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES
IN EQUITY
Share Capital Total
Share premium redemption Hedging Translation Retained parent Non-controlling Total
capital account reserve reserve reserve earnings equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- ----------- -------- ----------- --------- ------- --------------- -------
As at 1 January
2017 81.8 12.1 174.4 (1.6) 40.8 235.7 543.2 40.0 583.2
Profit for the
period 73.8 73.8 - 73.8
Other
comprehensive
income 4.5 (9.8) 9.6 4.3 4.3
Total
comprehensive
income 4.5 (9.8) 83.4 78.1 - 78.1
Dividends paid
on ordinary
shares (67.0) (67.0) (67.0)
Share-based
payments
(net
of tax) 4.0 4.0 4.0
Shares issued
for employee
share scheme
trust 1.1 1.1 1.1
Derecognition
of interest in
IMI Scottish
Limited
Partnership 21.3 21.3 (39.3) (18.0)
As at 30 June
2017 81.8 12.1 174.4 2.9 31.0 278.5 580.7 0.7 581.4
As at 1 January
2016 81.8 11.8 174.4 0.6 1.4 276.1 546.1 42.8 588.9
Profit for the
period 52.6 52.6 1.1 53.7
Other
comprehensive
income (10.2) 43.2 (17.7) 15.3 - 15.3
Total
comprehensive
income (10.2) 43.2 34.9 67.9 1.1 69.0
Dividends paid
on ordinary
shares (66.3) (66.3) (66.3)
Share-based
payments
(net
of tax) 2.0 2.0 2.0
Shares acquired
by employee
share scheme
trust (8.0) (8.0) (8.0)
Income earned
by partnership (2.2) (2.2)
As at 30 June
2016 81.8 11.8 174.4 (9.6) 44.6 238.7 541.7 41.7 583.4
As at 1 January
2016 81.8 11.8 174.4 0.6 1.4 276.1 546.1 42.8 588.9
Profit for the
year 130.8 130.8 2.4 133.2
Other
comprehensive
income (2.2) 39.4 (65.4) (28.2) - (28.2)
Total
comprehensive
income (2.2) 39.4 65.4 102.6 2.4 105.0
Issue of share
capital - 0.3 0.3 0.3
Dividends paid
on ordinary
shares (104.2) (104.2) (0.8) (105.0)
Share-based
payments
(net
of tax) 5.8 5.8 5.8
Shares acquired
by employee
share scheme
trust (7.4) (7.4) (7.4)
Income earned
by partnership (4.4) (4.4)
As at 31
December
2016 81.8 12.1 174.4 (1.6) 40.8 235.7 543.2 40.0 583.2
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
6 months 6 months Year to
to to
30 June 30 June 31 Dec
2017 2016 2016
(unaudited) (unaudited)
GBPm GBPm GBPm
------------ ------------ -------
Cash flows from operating activities
Operating profit for the period 94.4 80.1 188.3
Adjustments for:
Depreciation and amortisation 33.8 30.6 66.3
Impairment of property, plant
and equipment and intangible
assets 0.2 - 8.0
Gain on special pension events (10.7) (2.5) (2.8)
Loss/(profit) on sale of property,
plant and equipment 0.2 (3.9) (1.6)
Equity-settled share-based
payment expense 4.1 2.4 5.8
(Increase)/decrease in inventories (21.1) (18.9) 17.5
(Increase)/decrease in trade
and other receivables (12.8) 10.8 6.8
Increase in trade and other
payables 14.0 2.5 5.5
Decrease in provisions and
employee benefits (0.4) (1.7) (8.6)
Cash generated from the operations 101.7 99.4 285.2
Income taxes paid (20.2) (13.4) (31.7)
------------ ------------ -------
81.5 86.0 253.5
Additional pension scheme funding - (1.9) (1.9)
Net cash from operating activities 81.5 84.1 251.6
------------ ------------ -------
Cash flows from investing activities
Interest received 3.0 2.1 4.5
Proceeds from sale of property,
plant and equipment 0.5 4.7 6.8
Purchase of investments (1.8) - (0.4)
Settlement of transactional
derivatives (2.4) (2.1) (2.4)
Settlement of currency derivatives
hedging balance sheet (20.8) (27.9) (41.8)
Acquisition of property, plant
and equipment and non-acquired
intangibles (27.3) (30.5) (70.9)
Net cash from investing activities (48.8) (53.7) (104.2)
------------ ------------ -------
Cash flows from financing activities
Interest paid (9.4) (10.9) (21.8)
Payment to non-controlling
interest (2.2) (2.2) (4.4)
Shares issued by/(acquired
for) employee share scheme
trust 1.1 (8.0) (7.4)
Proceeds from the issue of
share capital for employee
share schemes - - 0.3
Net drawdown/(repayment) of
borrowings 3.3 (0.8) (54.6)
Dividends paid to equity shareholders
and non-controlling interest (67.0) (66.3) (105.0)
Net cash from financing activities (74.2) (88.2) (192.9)
------------ ------------ -------
Net decrease in cash and cash
equivalents (41.5) (57.8) (45.5)
Cash and cash equivalents at
the start of the period 67.5 107.8 107.8
Effect of exchange rate fluctuations
on cash held 0.7 (0.1) 5.2
Cash and cash equivalents at
the end of the period* 26.7 49.9 67.5
------------ ------------ -------
* Net of bank overdrafts of GBP7.3m (31 December 2016:
GBP12.2m; 30 June 2016: GBP23.7m).
Reconciliation of net (decrease)/increase in cash to
movement in net debt appears in note 9.
NOTES TO THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
1. Significant accounting policies
Basis of preparation
This condensed set of financial statements has been prepared in accordance with IAS34 'Interim Financial Reporting' as adopted by the EU. The Group's annual financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU.
The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of at least 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in the preparation of the condensed financial statements.
This Interim Financial Report is unaudited, but has been reviewed by the Company's auditor having regard to the International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board. A copy of their unqualified review opinion is attached.
The comparative figures for the financial year ended 31 December 2016 are derived from the Company's statutory accounts for that financial year as defined in section 435 of the Companies Act 2006. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
This Interim Financial Report has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to IMI plc and its subsidiaries when viewed as a whole.
Accounting policies
As required by the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority, this condensed set of financial statements has been prepared applying the same accounting policies and computation methods that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2016, other than to reflect changes expected to be applied in the subsequent annual financial statements. Noted below are the amended International Financial Reporting Standards which became effective for the Group as of 1 January 2017, none of which has any impact on this Interim Financial Report:
-- IFRS 12 'Disclosure of Interests in Other Entities' -- IAS 7 'Statement of Cash Flows' -- IAS 12 'Income Taxes'
Issued Accounting Standards which are not effective for the six months to 30 June 2017
The Group has updated its assessment of the impact that IFRS 15 'Revenue from Contracts with Customers' will have on the financial statements at the effective date of 1 January 2018. It is considered that the adoption of this standard will not have significant impact on the financial statements.
The Group's assessment of the impact that IFRS 9 'Financial Instruments' and IFRS 16 'Leases' will have, at the effective dates of 1 January 2018 and 1 January 2019 respectively, remains consistent with that which was previously reported in the 2016 Annual Report and Accounts.
2. Segmental information
Segmental information is presented in the consolidated financial statements for each of the Group's operating segments. The operating segment reporting format reflects the Group's management and internal reporting structures and represents the information that was presented to the chief operating decision-maker, being the Executive Committee. Each of the Group's three divisions has a number of key brands across its main markets and operational locations. For the purposes of reportable segmental information, operating segments are aggregated into the Group's three divisions, as the nature of the products, production processes and types of customer are similar within each division. Inter-segment revenue is insignificant.
IMI Critical Engineering
IMI Critical Engineering is a world-leading provider of critical flow control solutions that enable vital energy and process industries to operate safely, cleanly, reliably and more efficiently.
IMI Precision Engineering
IMI Precision Engineering specialises in developing motion and fluid control technologies for applications where precision, speed and reliability are essential.
IMI Hydronic Engineering
IMI Hydronic Engineering designs and manufactures technologies which deliver optimal and energy efficient heating and cooling systems to the residential and commercial building sectors.
Performance is measured based on reported segmental operating profit which is defined in the table below.
Businesses enter into forward currency and metal contracts to provide economic hedges against the impact on profitability of swings in rates and values in accordance with the Group's policy to minimise the risk of volatility in revenues, costs and margins. Segmental operating profits are therefore charged/credited with the impact of these contracts. In accordance with IAS 39, these contracts do not meet the requirements for hedge accounting and gains and losses are reversed out of reported revenue and operating profit and are recorded in net financial income and expense for the purposes of the consolidated income statement.
Alternative Performance Measures
To facilitate a more meaningful review of performance, certain alternative performance measures ('APMs') have been included within this announcement. These APMs are used by the Executive Committee to monitor and manage the performance of the Group in order to ensure that decisions taken align with its long-term interests. These APMs exclude exceptional and other items in order to reflect the underlying performance of the Group. Movements in reported revenue and segmental operating profit are given on an organic basis (see definition below) so that performance is not distorted by acquisitions, disposals and movements in exchange rates.
APM Definition
------------------- -------------------------------------------
Reported revenue These measures all exclude exceptional
items.
Reported profit
before tax
Reported earnings
per share
------------------- -------------------------------------------
Reported segmental These measures exclude exceptional
operating profit items, reported restructuring costs
and margin and gains and losses on disposal
of subsidiaries.
------------------- -------------------------------------------
Organic growth Movements are after adjusting for
exceptional items and the impact
of acquisitions, disposals and movements
in exchange rates.
------------------- -------------------------------------------
Operating cash Operating cash flow is cash generated
flow from the operations as shown in the
statement of cash flows less cash
spent on property, plant and equipment,
non-acquired intangible assets and
investments; plus cash received from
the sale of property, plant and equipment
and the sale of investments, after
adjusting for the cash impact of
exceptional items.
------------------- -------------------------------------------
Operating Operating
Revenue profit margin
6 6 6 6 6 6
months months Year months months Year months months Year
to to to to to to to to to
30 30 31 30 30 31 30 30 31
June June Dec June June Dec June June Dec
2017 2016 2016 2017 2016 2016 2017 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm % % %
-------- -------- ------ -------- -------- ------- -------- -------- ------
Continuing operations
IMI Critical Engineering 308 285 651 34.4 30.7 81.8 11.2% 10.8% 12.6%
IMI Precision
Engineering 388 341 708 61.2 57.1 118.5 15.8% 16.7% 16.7%
IMI Hydronic Engineering 150 133 290 23.9 21.4 51.9 15.9% 16.1% 17.9%
Corporate costs (13.4) (13.6) (24.5)
-------- -------- ------ -------- -------- ------- -------- -------- ------
Total reported
revenue/ segmental
operating profit
and margin 846 759 1,649 106.1 95.6 227.7 12.5% 12.6% 13.8%
Restructuring costs
(non-exceptional) (1.3) (1.3) (3.5)
Total reported
revenue/
operating profit
and margin
(before exceptional
items) 846 759 1,649 104.8 94.3 224.2 12.4% 12.4% 13.6%
Reversal of net
economic hedge
gains 2 4 8 2.3 2.8 5.6
Restructuring costs (13.8) (9.7) (18.8)
Gains on special
pension events 10.7 2.5 2.8
Impairment losses - - (5.0)
Acquired intangible
amortisation (9.6) (9.8) (20.5)
-------- -------- ------ -------- -------- ------- -------- -------- ------
Statutory
revenue/operating
profit 848 763 1,657 94.4 80.1 188.3
Net financial expense (5.8) (10.0) (23.0)
-------- -------- ------ -------- -------- ------- -------- -------- ------
Statutory profit
before tax from
continuing operations 88.6 70.1 165.3
The following table illustrates how revenue and operating
profit have been impacted by movements in foreign
exchange and disposals.
6 months to 30
6 months to 30 June 2017 June 2016
--------------------------------------- ---------------------------------
As reported Organic Reported Organic As reported Movement Organic
growth growth in foreign
Reported revenue (%) (%) exchange
IMI Critical
Engineering 308 308 8% -3% 285 33 318
IMI Precision
Engineering 388 388 14% 2% 341 38 379
IMI Hydronic
Engineering 150 150 13% 2% 133 14 147
----------- ------- -------- ------- ----------- ----------- -------
Total 846 846 11% 0% 759 85 844
----------- ------- -------- ------- ----------- ----------- -------
Segmental operating
profit
IMI Critical
Engineering 34.4 34.4 12% -4% 30.7 5.1 35.8
IMI Precision
Engineering 61.2 61.2 7% -3% 57.1 5.9 63.0
IMI Hydronic
Engineering 23.9 23.9 12% 0% 21.4 2.6 24.0
Corporate
costs (13.4) (13.4) (13.6) - (13.6)
----------- ------- -------- ------- ----------- ----------- -------
Total 106.1 106.1 11% -3% 95.6 13.6 109.2
----------- ------- -------- ------- ----------- ----------- -------
Segmental
operating
profit margin
(%) 12.5% 12.5% 12.6% 12.9%
Restructuring costs*
6 months 6 months Year
to 30 to 30 to 31
June June Dec
2017 2016 2016
GBPm GBPm GBPm
--------- ----------------- ----------
Total Group 15.1 11.0 22.3
--------- ----------------- ----------
IMI Critical Engineering 7.3 10.2 19.7
IMI Precision Engineering 4.5 0.8 2.6
IMI Hydronic Engineering 3.3 - -
---------------------------------------------------------- --------- ----------------- ----------
* Restructuring costs include both exceptional and
non-exceptional items. The exceptional costs for the
six months to 30 June 2017 are GBP7.3m relating to
IMI Critical Engineering, GBP3.2m relating to Precision
Engineering and GBP3.3m relating to Hydronic Engineering.
The exceptional costs for the six months to 30 June
2016 were GBP9.7m relating to IMI Critical Engineering.
There were exceptional costs of GBP18.8m for the year
ended 31 December 2016, GBP18.1m relating to IMI Critical
Engineering.
Balance sheet
Assets Liabilities
30 30 31 30 30 31
June June December June June December
2017 2016 2016 2017 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- -------- -------- --------- ------- -------- ----------
IMI Critical
Engineering 737.6 763.7 752.6 220.1 227.8 230.9
IMI Precision
Engineering 506.1 470.5 482.0 126.2 102.1 103.2
IMI Hydronic
Engineering 222.0 202.8 204.1 64.8 60.4 63.2
--------------------- ---------------- -------- -------- --------- ------- -------- ----------
1,465.7 1,437.0 1,438.7 411.1 390.3 397.3
Corporate items 13.8 15.4 11.5 48.9 67.2 55.8
Employee benefits 54.6 84.9 57.8 115.5 109.8 137.6
Investments 19.5 29.6 29.9 - - -
Net debt items 34.0 73.6 79.7 352.1 407.4 362.3
Net taxation
and others 25.0 25.6 31.4 103.6 108.0 112.8
-------- -------- --------- ------- -------- ----------
Total reported in the
Group balance sheet 1,612.6 1,666.1 1,649.0 1,031.2 1,082.7 1,065.8
-------- -------- --------- ------- -------- ----------
3. Net financial expense
6 months to 6 months to 30 June
30 June 2017 2016 Year to 31 Dec 2016
Recognised in the Financial Financial Financial
income statement Interest instruments Total Interest instruments Total Interest instruments Total
-------- ------------ ------ -------- ------------ ------ -------- ------------ ------
Interest income
on bank deposits 3.0 3.0 2.1 2.1 4.5 4.5
Financial
instruments
at fair value
through profit or
loss:
Other economic
hedges
- current period
trading - - 0.1 0.1 5.6 5.6
- future period
transactions 6.4 6.4 7.9 7.9 7.0 7.0
-------- ------------ ------ -------- ------------ ------ -------- ------------ ------
Financial income 3.0 6.4 9.4 2.1 8.0 10.1 4.5 12.6 17.1
-------- ------------ ------ -------- ------------ ------ -------- ------------ ------
Interest expense
on
interest-bearing
loans and
borrowings (9.6) (9.6) (10.9) (10.9) (21.8) (21.8)
Financial
instruments
at fair value
through profit or
loss:
Other economic
hedges
- current period
trading (2.3) (2.3) (1.8) (1.8) (7.5) (7.5)
- future period
transactions (2.6) (2.6) (7.9) (7.9) (11.9) (11.9)
-------- ------------ ------ -------- ------------ ------ -------- ------------ ------
Financial expense (9.6) (4.9) (14.5) (10.9) (9.7) (20.6) (21.8) (19.4) (41.2)
-------- ------------ ------ -------- ------------ ------ -------- ------------ ------
Net finance
(expense)/income
relating to
defined benefit
pension schemes (0.7) (0.7) 0.6 0.6 1.1 1.1
Net financial
expense (7.3) 1.5 (5.8) (8.2) (1.7) (9.9) (16.2) (6.8) (23.0)
-------- ------------ ------ -------- ------------ ------ -------- ------------ ------
Included in financial instruments are current period
trading gains and losses on economically effective transactions
which for management reporting purposes (see note 2)
are included in segmental revenue and operating profit.
For statutory purposes, these are required to be shown
within net financial income and expense. Gains or losses
on economic hedges for future period transactions are
in respect of financial instruments held by the Group
to provide stability of future trading cash flows.
4. Taxation
The tax charge before exceptional items is GBP20.5m which equates to an effective tax rate of 21.0% compared to 22.0% for the comparative six month period in the prior year and 21.0% for the year ended 31 December 2016.
As IMI's head office and parent company is domiciled in the UK, the Group references its effective tax rate to the UK corporation tax rate, despite only a small proportion of the Group's business being in the UK. The average weighted rate of corporation tax in the UK for the year ended 31 December 2017 is 19.25% (year ended 31 December 2016: 20.0%). The Group's effective tax rate remains slightly above the UK tax rate due to the Group's substantial overseas profits being taxed at higher rates.
5. Exceptional items
Exceptional items are disclosed separately on the face
of the income statement and added back in arriving at
reported earnings when items are sufficiently large,
volatile or one-off in nature to assist the reader of
the financial statements to gain a better understanding
of the Group's underlying trading performance. The effect
of the items added back to reported earnings is disclosed
in note 6. The following items are considered to be exceptional
in these Interim Financial Statements:
6 months 6 months Year
to to to
30 June 30 June 31 Dec
Key 2017 2016 2016
--------- ------------------- ------------------- ----------------
Recognised in arriving at operating
profit from continuing operations
Reversal of net economic hedge contract
gains (a) 2.3 2.8 5.6
Restructuring costs (b) (13.8) (9.7) (18.8)
Gains on special pension events (c) 10.7 2.5 2.8
Impairment losses (d) - - (5.0)
Acquired intangible amortisation (e) (9.6) (9.8) (20.5)
Recognised in financial income/(expense)
Financial income (a) 6.4 8.0 12.6
Financial expense (a) (4.9) (9.8) (19.4)
(a) For segmental reporting purposes, changes in the fair
value of economic hedges which are not designated hedges
for accounting purposes, together with the gains and
losses on their settlements, are included in the segmental
revenues and operating profit of the relevant business
segment. The operating exceptional item reverses the
effect of this treatment. The financing exceptional
items reflect the change in value or settlement of
these contracts with the financial institutions with
whom they were transacted.
(b) Exceptional restructuring costs of GBP13.8m were incurred
in the six months to 30 June 2017. This includes the
restructure of the Switzerland Controls & Nuclear business
in Critical Engineering (GBP3.4m), the restructure
of our European business in Precision Engineering (GBP3.2m)
and a Global Restructuring Programme within Hydronic
Engineering (GBP3.3m). A further GBP3.9m was incurred
within Critical Engineering due to right sizing (GBP3.2m)
and the finalisation of 2016 production transfers and
closures (GBP0.7m).
Restructuring costs arising in the first half of GBP1.3m
have been charged below segmental operating profit
and included in the reported operating profit as, based
on their quantum, they do not meet our definition of
exceptional items.
(c) On 31 January 2017, GBP430m of UK pension liabilities
covered by insurance policies were permanently transferred
to the underlying insurance companies through a formal
buy-out transaction, which resulted in the pension
asset and corresponding defined benefit obligation
being permanently removed from the Group's balance
sheet. An exceptional gain of GBP5.8m has been recognised
in the first half of 2017. This gain is offset by GBP1.9m
of fees incurred to complete the project.
On 31 March 2017, the Group settled its remaining liabilities
in relation to one of its pension plans in the USA.
This resulted in a further exceptional gain of GBP2.3m
being recognised in the 6 months to 30 June 2017.
Following a restructuring exercise relating to one
of our Swiss schemes the Group realised a curtailment
gain of GBP4.5m.
In the first half of 2016, the gains related to a conversion
to a non-inflation linked pension for certain members
of our UK Funds (GBP2.1m) and a curtailment gain of
GBP0.4m following the continuation of the restructuring
exercise in Switzerland.
(d) An exceptional impairment charge of GBP5.0m was recorded
against the goodwill associated with the Stainless
Steel Fasteners CGU in the IMI Critical Engineering
division in the year to 31 December 2016.
(e) The acquired intangible amortisation charge in the
six months to 30 June 2017 was GBP9.6m (six months
to 30 June 2016: GBP9.8m).
The tax effects of the above items are included in the
exceptional column of the income statement.
6. Earnings per ordinary share
Basic and diluted earnings per share have been calculated
on earnings attributable to owners of the parent as set
out below. Both of these measures are also presented
on a reported basis to assist the reader of the financial
statements to get a better understanding of the underlying
performance of the Group.
30 June 30 June 31 Dec
2017 2016 2016
Key million million million
-------- -------- -------
Weighted average number of shares
for the purpose of basic earnings
per share A 271.2 270.9 270.8
Dilutive effect of employee share
options 2.0 0.9 1.8
Weighted average number of shares
for the purpose of diluted earnings
per share B 273.2 271.8 272.6
-------- -------- -------
6 months 6 months Year
to 30 to 30 to 31
June June Dec
2017 2016 2016
GBPm GBPm GBPm
-------- -------- -------
Statutory profit for the period 73.8 53.7 133.2
Non-controlling interests - (1.1) (2.4)
Statutory profit for the period attributable
to owners of the parent C 73.8 52.6 130.8
Total exceptional charges included
in profit for the period before tax 8.9 16.0 42.7
Total exceptional credits included
in taxation (5.7) (2.5) (11.6)
Earnings for reported EPS D 77.0 66.1 161.9
-------- -------- -------
Statutory EPS measures
Statutory basic EPS C/A 27.2p 19.4p 48.3p
Statutory diluted EPS C/B 27.0p 19.4p 48.0p
Reported EPS measures
Reported basic EPS D/A 28.4p 24.4p 59.8p
Reported diluted EPS D/B 28.2p 24.3p 59.4p
----------------------------------------------- ---- -------- -------- -------
7. Non-controlling
interests
6 months to 6 months to Year to 31
30 June 2017 30 June 2016 Dec 2016
Shanghai Shanghai Shanghai
CCI SLP Total CCI SLP Total CCI SLP Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Opening non-controlling
interests 0.9 39.1 40.0 2.1 40.7 42.8 2.1 40.7 42.8
Profit for the period
attributable
to non-controlling
interests (0.2) 0.2 - (0.3) 1.4 1.1 (0.4) 2.8 2.4
Dividends paid to
non-controlling interests - - - - - - (0.8) - (0.8)
Income earned by partnership - - - - (2.2) (2.2) - (4.4) (4.4)
Derecognition of SLP - (39.3) (39.3) - - - - - -
Movement in non-controlling
interest (0.2) (39.1) (39.3) (0.3) (0.8) (1.1) (1.2) (1.6) (2.8)
Closing non-controlling
interests 0.7 - 0.7 1.8 39.9 41.7 0.9 39.1 40.0
The non-controlling interest denoted Shanghai CCI in the above table represents the 30% ownership interest in the ordinary shares of Shanghai CCI Power Control Equipment Co Limited held by Shanghai Power Station Auxiliary Equipment Works Co Limited.
The non-controlling interest denoted SLP related to an interest in the IMI Scottish Limited Partnership, which is held jointly by two pension funds, IMI 2014 Deferred Fund and IMI 2014 Pensioner Fund (together 'The Funds'). The interest in the SLP provides the Funds with a conditional entitlement to receive income of GBP4.4m per annum, unless the Group has not paid a dividend in the prior year or the Funds were fully funded. The terms of this conditional entitlement were altered on 31 January 2017 as part of the formal buy-out transaction, resulting in the SLP and its associated non-controlling interest being derecognised from the Group's balance sheet from that date.
8. Dividend
The final dividend relating to the year ended 31 December 2016 of 24.7p per share (2015: 24.5p) was paid in May 2017 amounting to GBP67.0m (2016: GBP66.3m).
In addition, the directors have declared an interim dividend for the current year of 14.2p per share (2016: 14.0p) amounting to GBP38.5m (2016: GBP37.9m), which will be paid on 15 September 2017 to shareholders on the register on 11 August 2017. In accordance with IAS10 'Events after the Balance Sheet Date' this interim dividend has not been reflected in these Interim Financial Statements
9. Cash flow reconciliation
Reconciliation of net (decrease)/increase
in cash to movement in net debt
6 months 6 months Year
to 30 to 30 to 31
June June Dec
2017 2016 2016
GBPm GBPm GBPm
-------- -------- -------
Net decrease in cash and cash equivalents* (41.5) (57.8) (45.5)
Net (drawdown)/repayment of borrowings (3.3) 0.8 54.6
Increase in net debt* (44.8) (57.0) 9.1
Currency translation differences 9.3 (39.9) (54.8)
Movement in net debt in the period (35.5) (96.9) (45.7)
Net debt at the start of the period (282.6) (236.9) (236.9)
Net debt at the end of the period (318.1) (333.8) (282.6)
-------- -------- -------
* Excluding foreign exchange.
Reconciliation of EBITDA to movement
in net debt
6 months 6 months Year
to 30 to 30 to 31
June June Dec
2017 2016 2016
GBPm GBPm GBPm
-------- -------- -------
EBITDA* from continuing operations 129.0 115.1 273.0
Working capital movements (19.9) (5.6) 29.8
Capital expenditure (27.3) (30.5) (70.9)
Provisions and employee benefit movements** (1.5) (0.5) (2.2)
Other 5.3 6.0 16.2
Operating cash flow (pre-exceptional
items)*** 85.6 84.5 245.9
-------- -------- -------
Exceptional items**** (12.5) (10.9) (25.2)
Operating cash flow (post-exceptional
items) 73.1 73.6 220.7
-------- -------- -------
Tax paid (20.2) (13.4) (31.7)
Interest and derivatives (29.6) (38.8) (61.5)
Cash generation 23.3 21.4 127.5
-------- -------- -------
Additional pension scheme funding - (1.9) (1.9)
Free cash flow before corporate activity 23.3 19.5 125.6
-------- -------- -------
Dividends paid to equity shareholders
and non-controlling interest (67.0) (66.3) (105.0)
Payment to non-controlling interest (2.2) (2.2) (4.4)
Net issue issue/(purchase) of own
shares 1.1 (8.0) (7.1)
Net cash flow (excluding debt movements) (44.8) (57.0) 9.1
-------- -------- -------
* Reported earnings before net financial expense (GBP5.8m),
tax (GBP14.8m), depreciation (GBP19.1m) and amortisation
(GBP14.7m).
** Movement in provisions and employee benefits as
per the interim statement of cash flows (GBP0.4m),
adjusted for the increase in exceptional restructuring
provisions (GBP1.1m).
*** Operating cash flow (pre-exceptional items) is
the cash generated from the operations shown in the
statement of cash flows less cash spent acquiring property,
plant and equipment, non-acquired intangible assets
and investments; plus cash received from the sale of
property, plant and equipment and the sale of investments,
after adjusting for the cash impact of exceptional
items. This measure best reflects the underlying operating
cash flows of the Group.
**** Cash impact of exceptional items, including an
outflow relating to restructuring costs of GBP12.5m.
10. Fair value hierarchy
Set out below is an overview of the Group's financial
instruments held at fair value.
30 June 2017 31 December 2016
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----- ----- ----- ----- ----- ------ ----- ------
Financial assets
measured
at fair value
Equity instruments* 9.2 9.2 21.2 21.2
Cash and cash equivalents 34.0 34.0 79.7 79.7
Foreign currency
forward contracts 5.2 5.2 2.9 2.9
----- ----- ----- ----- ----- ------ ----- ------
43.2 5.2 - 48.4 100.9 2.9 - 103.8
----- ----- ----- ----- ----- ------ ----- ------
Financial liabilities
measured
at fair value
Foreign currency
forward contracts (3.2) (3.2) (13.5) (13.5)
----- ----- ----- ----- ----- ------ ----- ------
- (3.2) - (3.2) - (13.5) - (13.5)
----- ----- ----- ----- ----- ------ ----- ------
* Equity instruments relate to investments in funds
in order to satisfy long-term benefit arrangements.
Level 1 - quoted prices in active markets for identical
assets/liabilities
Level 2 - significant other observable inputs
Level 3 - unobservable inputs
Valuation techniques for level 2 inputs
Derivative assets and liabilities of GBP5.2m and GBP3.2m
respectively are valued by level 2 techniques. The
valuations are derived from discounted contractual
cash flows using observable, and directly relevant,
market interest rates and foreign exchange rates from
market data providers.
The fair values of all financial assets and liabilities
in the balance sheet as at 30 June 2017, 31 December
2016 and 30 June 2016 are materially equivalent to
their carrying values with the exception of the US
private placement fixed rate loans, for which the carrying
values are set out below:
Carrying
value Fair value
GBPm GBPm
30 June 2017 335.4 349.8
31 December 2016 342.8 360.1
30 June 2016 382.0 408.9
11. Share capital
Ordinary
shares of
28 4/7p each
Number Value
(m) (GBPm)
------- --------
In issue at the start and end of the period 286.2 81.8
------- --------
12. Employee benefits
The net defined benefit pension liability at 30 June 2017 was GBP60.9m (31 December 2016: liability of GBP79.8m). The UK surplus in the Funds decreased to GBP18.2m (31 December 2016: GBP23.6m). The decrease is primarily as a result of the adverse impact of actuarial assumptions, the derecognition of the SLP, as detailed in note 7, and changes in the associated mortality assumptions. The UK Funds are currently undergoing an annual actuarial valuation for the year ended 31 March 2017. This will be finalised in the second half of the year and, where relevant, factored into the IAS19 valuation as at 31 December 2017.
The net deficit in respect of the total overseas obligations decreased to GBP79.1m (31 December 2016: GBP103.4m) due to the movement in the discount rate, the settlement of the US SERP scheme and a curtailment gain realised following the restructure of one of our Swiss schemes.
13. Exchange rates
The income and cash flow statements of overseas operations are translated into sterling at the average rates of exchange for the period, balance sheets are translated at period end rates. The most significant currencies for the Group are the euro and the US dollar for which the relevant rates of exchange were:
Income statement
and cash flow Balance sheet
average rates rates as at
6 months 6 months Year
to 30 to 30 to 31
June June Dec 30 June 30 June 31 Dec
2017 2016 2016 2017 2016 2016
-------- -------- ------ ------- ------- ------
Euro 1.16 1.28 1.22 1.14 1.20 1.17
US dollar 1.26 1.43 1.36 1.30 1.32 1.23
14. Property, plant and equipment and intangible assets
Capital expenditure on property, plant and equipment in the period was GBP17.0m. This included GBP16.5m in respect of plant and equipment (including those under construction), and GBP0.5m in respect of land and buildings.
Capital expenditure on non-acquired intangible assets in the period was GBP10.3m. This included GBP2.4m in respect of capitalised development costs and GBP7.9m in respect of other non-acquired intangible assets (including those under construction).
15. Financial information
Definitions
This announcement may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and operating margins, market trends and our product pipeline are forward-looking statements. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward-looking statement which could cause actual results to differ materially from those currently anticipated. Any forward-looking statement is made in good faith and based on information available to IMI plc as of the date of the preparation of this announcement. All written or oral forward-looking statements attributable to IMI plc are qualified by this caution. IMI plc does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in IMI plc's expectations. Nothing in this preliminary announcement should be construed as a profit forecast.
References to EPS, unless otherwise stated, relate to reported basic EPS i.e. after adjustment for the per share after tax impact of exceptional items in note 5. The directors' commentary discusses these alternative performance measures to remove the effects of items of both income and expense which are sufficiently large, volatile or one-off in nature, to assist the reader of the financial statements to get a better understanding of the underlying performance of the Group.
Notes to editors
IMI plc, the specialist engineering company, designs, manufactures and services highly engineered products that control the precise movement of fluids. Its innovative technologies, built around valves and actuators, enable vital processes to operate safely, cleanly, efficiently and cost effectively. The Group works with industrial customers across a range of high growth sectors, including energy, transportation and infrastructure, all of which are benefiting from the impact of long-term global trends including climate change, urbanisation, resource scarcity and an ageing population. IMI employs some 11,000 people, has manufacturing facilities in more than 20 countries and operates a global service network. The Company is listed on the London Stock Exchange. Further information is available at www.imiplc.com.
IMI plc is registered in England No. 714275. Its legal entity identifier ('LEI') number is 2138002W9Q21PF751R30.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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