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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| -38.00 | -2.18% | 1,702.00 | 1,702.00 | 1,703.00 | 1,752.00 | 1,702.00 | 1,740.00 | 9,471 | 08:34:51 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Manufacturing Industries,nec | 2.2B | 237.3M | 0.9076 | 19.17 | 4.55B |
From Apr 2019 to Apr 2024
TIDMIMI
RNS Number : 2282W
IMI PLC
31 July 2018
31 July 2018
Interim results, six months ended 30 June 2018
Hot Features
Premium
Adjusted(1) Statutory
2018 H1 2017 H1 Change Organic(3) 2018 H1 2017 H1 Change
Revenue GBP915m GBP846m +8% +6% GBP914m GBP848m +8%
Operating profit GBP120m GBP106m +13% +13% GBP101m GBP94m +7%
Operating margin 13.1% 12.5% +60bps
Profit before
tax GBP113m GBP98m +16% GBP93m GBP89m +5%
Basic EPS 32.9p 28.4p +16% 27.4p 27.2p +1%
Operating cash
flow(2) GBP68m GBP86m -21%
Dividend per
share 14.6p 14.2p +3%
Net debt GBP459m GBP318m
(1) Excluding the effect of adjusting items as reported in the
income statement and defined in note 2.
(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
-- Organic revenue 6% higher -- Organic operating profit 13% higher -- Statutory operating profit 7% higher -- Adjusted basic EPS increased 16% -- Proposed 3% increase in interim dividend -- Bimba integration proceeding well
Mark Selway, Chief Executive, commented:
"The recent positive momentum in some of our most important markets continued through the first half of the year. Critical Engineering delivered increased revenues, profits and margins through a combination of rationalisation benefits and Value Engineering. Precision Engineering generated good sales and margin growth, with strong profit drop through, while Hydronic Engineering has largely completed the changes necessary to deliver substantially improved margins in the second half of the year."
"The trading outlook for the Group remains positive and in the second half of 2018 we expect organic revenue and profits to show good improvement compared to the same period in 2017. The improved results will be supported by market growth in Precision Engineering, rationalisation benefits in Critical Engineering and a stronger performance from Hydronic Engineering."
"Based on current market conditions, we anticipate full year 2018 results will be slightly ahead of current market expectations."
Enquiries to:
John Dean IMI Tel: +44 (0)121 717 3712 Suzanne Bartch / Gayden Teneo Blue Rubicon Tel: +44 (0)203 757 9239 Metcalfe
A live webcast of the analyst meeting taking place today at 9:45am (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 8 November 2018.
Results overview
Results for the first half of the year were ahead of expectations with good progress in Critical Engineering and Precision Engineering, and the ongoing execution of changes necessary to deliver substantially improved second half results in Hydronic Engineering.
Adjusted revenues of GBP915m (2017: GBP846m) were 8% higher and included a GBP40m first-time, five month contribution from Bimba, which was partially offset by GBP17m of adverse exchange rate movements. Organic revenues were 6% higher when compared with the same period in 2017.
Segmental operating profit of GBP120m (2017: GBP106m) was 13% higher on an adjusted basis. Excluding the profits of GBP4m from Bimba and adverse exchange rate movements of GBP4m, segmental operating profit on an organic basis was also 13% higher than the comparable period in 2017. The Group's first half segmental operating margin improved to 13.1% (2017: 12.5%).
Operating cash flow was lower at GBP68m (2017: GBP86m) reflecting higher working capital to support growth in Precision Engineering and comparatively higher advanced payments received by Critical Engineering in 2017. Including the payment for the acquisition of Bimba of GBP138m and an unfavourable currency impact of GBP9m, Net Debt of GBP459m (2017: GBP318m) resulted in a net debt to EBITDA ratio of 1.5x (2017: 0.9x).
The adjusted tax charge was GBP24m (2017: GBP21m), giving an effective tax rate of 21%.
The resulting adjusted basic earnings per share was 16% higher at 32.9p (2017: 28.4p).
Dividend
Reflecting continued confidence in the Group's prospects, the Board is recommending that the interim dividend be increased by 3% to 14.6p (2017: 14.2p) which will be paid on 14 September 2018 to shareholders on the register at the close of business on 10 August 2018.
Outlook
The trading outlook for the Group remains positive and in the second half of 2018 we expect organic revenue and profits to show good improvement compared to the same period in 2017. The improved results will be supported by market growth in Precision Engineering, rationalisation benefits in Critical Engineering and a stronger performance from Hydronic Engineering.
Based on current market conditions, we anticipate full year 2018 results will be slightly ahead of current market expectations.
If the exchange rates on 16 July (US$1.32 and EUR1.13) remained constant for the remainder of the year, revenue and segmental operating profit would reduce by c.2% in the full year when compared to 2017.
Divisional review
The following review relates to our continuing businesses and compares performance on an adjusted basis during the half year ended 30 June 2018 with the same period in 2017. References to organic growth are on a constant currency basis and exclude disposals and acquisitions.
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.
2018 H1 2017 H1
Order intake GBP297m GBP350m
Revenue GBP319m GBP308m
Operating profit GBP36.0m GBP34.4m
Operating margin 11.3% 11.2%
Performance
As expected, IMI Critical Engineering's organic order intake at GBP297m was 12% lower than the first half of 2017, due primarily to the timing of the large gas processing orders won in the first half of 2017. The first half benefited from GBP78m of Value Engineering orders. Current quote activity, combined with continued high win rates, provides confidence that much of the first half order input decline will be recovered in the second half of the year.
On an organic basis, New Construction orders of GBP133m were 26% lower largely reflecting the exceptional level of Petrochemical orders secured in the first half of 2017. Aftermarket orders of GBP164m were 3% higher with the benefit of increased Upgrade and Field Service orders offsetting lower LNG Parts orders which benefited from commissioning spares volumes in the first half of 2017.
Organic revenues of GBP319m were 6% higher than the first half of 2017 with New Construction up 9% reflecting increased Petrochemical and Upstream Oil sales which offset declines in Fossil Power and LNG. Aftermarket sales were 4% higher with marginally improved spares sales and solid progress in upgrade work across most of our sectors.
Adjusted segmental operating profit of GBP36m was 5% higher with increased volumes, rationalisation benefits and Value Engineering all contributing to the result. Operating margins improved slightly to 11.3% (2017: 11.2%).
When compared to the same point in 2017 the order book of GBP482m, while 11% lower, comprises higher margin business due to a combination of improved Aftermarket pricing and favourable product mix.
Strategic progress
The realignment of Critical Engineering's global footprint is now largely complete and has successfully delivered year on year rationalisation benefits. The division now has world-class manufacturing facilities underpinned by Lean and Value Engineering practices, in the heart of the high growth markets of the future. Critical Engineering's competitiveness has also been dramatically improved and its product range extended into adjacent critical application markets. Today the division is ideally placed to capitalise as markets improve.
Outlook
In the second half, organic revenues are expected to show modest improvement when compared to the second half of 2017. The benefits of restructuring and phasing of the order backlog will deliver improved profits and margins in the second half of the year.
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.
2018 H1 2017 H1
Revenue GBP449m GBP388m
Operating profit GBP75.0m GBP61.2m
Operating margin 16.7% 15.8%
Performance
Precision Engineering performed strongly in the first half of 2018 with higher revenues, profits and margins when compared to the first half of 2017. End markets remain generally positive across all regions and verticals, providing increased confidence for further progress in the second half of 2018.
Adjusted revenue of GBP449m was 16% higher than the first half of 2017 and included the benefit of the GBP40m first-time, five month contribution from Bimba offset by adverse exchange rate movements of GBP10m. Excluding these adjustments organic revenue was 8% higher.
On an organic basis, Industrial Automation revenue of GBP220m was 6% higher with good progress in North America and Asia and continued growth in Europe. Commercial Vehicle sales of GBP98m were 9% higher with particularly strong markets in the United States and Asia combining with continued good markets in Europe. Energy grew by 13%, Life Sciences grew by 12% and revenues in Rail were 19% higher.
Adjusted segmental operating profit of GBP75m was 23% higher than the first half of 2017 and included the first-time, five month contribution from Bimba of GBP4m, which was partially offset by adverse exchange rate movements of GBP2m. Organic profit was 19% higher and adjusted operating margins were 16.7% compared to 15.8% in the same period in 2017.
Strategic progress
While current focus is solidly placed on capturing an increasing share of today's buoyant markets, Precision Engineering continued to progress successfully its strategic agenda.
New Product Development continues at pace with an expanding pipeline of great new products enhancing the division's competitive position in all of its markets and sectors. Furthermore, the division's operating units have responded well to increasing market demands and continue to make good progress in their application of Lean.
The division successfully completed the acquisition of Bimba in February 2018 and remains excited about the benefits it will bring to Precision Engineering's position in the Industrial Automation market in North America. The detailed integration plan is in its final stages and we remain confident that the synergy benefits reflected in the original acquisition case are deliverable.
Outlook
On an organic basis, revenues, profits and margins are expected to improve when compared with the second half of 2017. Full year revenue growth is expected to be good although slightly lower than that achieved in the first half, reflecting the comparatively stronger second half of last year. Full year margins are expected to be slightly ahead of last year.
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.
2018 H1 2017 H1
Revenue GBP147m GBP150m
Operating profit GBP22.2m GBP23.9m
Operating margin 15.1% 15.9%
Performance
As outlined in the 2017 full year update, Hydronic Engineering's first half 2018 revenues and margins were expected to be impacted by the actions taken to reduce the cost base and improve margins in the second half of the year. A combination of successful negotiations with key partners, a further reduction in the overhead cost base and price increases provide a solid platform for significantly improved margins in the second half of the year.
Organic revenue of GBP147m (2017: GBP149m) was 1% lower than the same period in 2017. Sales of TA balancing and control increased 2.5% with stronger sales in North America, Switzerland and the UK underpinning much of the growth.
Sales of Heimeier thermostatic control products reduced 7.5% reflecting the phasing of distributor orders while negotiations were in progress. In Europe, sales of Pneumatex pressurisation and water quality products increased 4.3% due to the success of increased technical support in our most important markets. First half revenues included GBP32m, or 22%, generated from products introduced in the last 4 years.
Adjusted segmental operating profit of GBP22m (2017: GBP24m) was 7% lower and, after adjusting for GBP1.0m of adverse exchange rate movements, organic operating profits were 3% lower than the same period in 2017. Operating margins at 15.1% (2017: 15.9%) were impacted by lower revenues and increases in raw material costs which will be recovered through revised pricing in the second half of the year.
Strategic progress
Hydronic Engineering management moved decisively to address the disappointing performance in the final quarter of 2017. Commercial agreements have been reviewed, price increases implemented and a further GBP1.9m of restructuring completed to reduce the cost base and close a loss-making service business in Sweden.
In conjunction with the actions taken to improve short-term performance, a further review is being undertaken to establish the division's future market prospects and to exploit opportunities for growth. The market-leading operational platform built over the past few years, combined with a proven ability to develop world-leading products, provides a strong foundation for the future development of the division.
Outlook
In the second half, on an organic basis, we expect our self-help initiatives to deliver significantly improved profits from modestly higher revenues, when compared to the same period in 2017.
Financial review
Adjusted revenues of GBP915m were up 8% (2017: GBP846m) and statutory revenues were up 8% to GBP914m (2017: GBP848m). After adjusting for adverse exchange rate movements and acquisitions and disposals, organic revenues were up 6% when compared with the same period in the previous year. Segmental operating profit was GBP120m, a 13% increase on the prior period (2017: GBP106m). On an organic basis operating profit was up 13%. Group segmental operating margin was 60 basis points higher at 13.1% (2017: 12.5%), whilst statutory operating profit was up 7% at GBP101m (2017: GBP94m).
Adjusted net interest costs on borrowings were GBP5.9m (2017: GBP6.6m) and were covered 24.7 times by earnings before interest, tax, depreciation and amortisation (EBITDA) on continuing operations of GBP146m (2017: GBP129m). The IAS19 pension net financing expense was GBP0.7m (2017: GBP0.7m expense). The total adjusted net financing costs were GBP6.6m (2017: GBP7.3m). Profit before tax and adjusting items was GBP113m, an increase of 16% (2017: GBP98m).
The effective tax rate on profit before adjusting items for 2018 is 21%, which is consistent with the rate applicable in the first half of 2017.
Adjusting items
Restructuring costs of GBP0.3m were incurred but not treated as adjusting (2017: GBP1m). Adjusting restructuring costs were GBP5m (2017: GBP14m), primarily relating to the restructuring of our European operations in Critical Engineering and Hydronic Engineering.
The impact of amortisation of acquired intangibles and other acquisition items was GBP18m (2017: GBP10m). Additional adjusting items affecting continuing businesses were gains on special pension events of GBP4m (2017: GBP11m), a gain arising from historical disposals of GBP1m (2017: GBPnil), the reversal of net economic hedge contract gains of GBP1m, (2017: losses of GBP2m) and net adjusting financial instrument losses of GBP2m (2017: gains of GBP2m).
After these adjusting items, statutory profit before tax was GBP93m (2017: GBP89m). The total statutory profit for the period after taxation was GBP74m (2017: GBP74m) which was all attributable to the equity shareholders.
Earnings per share
The average number of shares in issue during both periods was 271m, resulting in adjusted basic earnings per share of 32.9p (2017: 28.4p) and adjusted diluted earnings per share of 32.9p (2017: 28.2p). Statutory basic earnings per share was 27.4p (2017: 27.2p) and statutory diluted earnings per share was 27.3p (2017: 27.0p).
Foreign exchange
The impacts of translation on the reported growth of first half revenues and segmental operating profits were decreases of GBP17m (-2%) and GBP4m (-4%) 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 14 to this report.
If the exchange rates on 16 July (US$1.32 and EUR1.13) remained constant for the remainder of the year, it would adversely impact both revenues and segmental operating profit by around 2%.
Cash flow
Adjusted operating cash flow reduced to GBP68m. Trade and other receivables increased by GBP15m, inventories increased by GBP38m and trade and other payables decreased by GBP7m. Capital expenditure amounted to GBP23m and was 0.9 times the depreciation and amortisation charge for the period of GBP26m.
The other major cash outflows in the period were the Bimba acquisition of GBP138m, GBP19m of tax, and dividends of GBP68m. The total cash outflow for the period was GBP33m, compared with an outflow of GBP42m 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 adjusting items) being 1.5 at the end of June 2018 (December 2017: 0.9). Net debt increased during the period to GBP459m (December 2017: GBP265m) due largely to the acquisition of Bimba and the dividend payment in 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 2018 were GBP275m (December 2017: GBP302m) of which GBP49m were drawn (December 2017: GBPnil).
The IAS19 net pension deficit was GBP50m which compares to a deficit of GBP61m at 30 June 2017 and a deficit of GBP78m at 31 December 2017. Of this amount, a surplus of GBP28m (31 December 2017: GBP2m) 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 GBP78m (31 December 2017: GBP80m).
Shareholders' equity at the end of June was GBP620m, an increase of GBP13m 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 GBP17m, adverse exchange differences of GBP8m and the 2017 final dividend of GBP68m paid in May.
Other regulatory information
Audit tender
The Audit Committee undertook a competitive audit tender in 2018 to take effect for the 2019 statutory audit. In May 2018, three firms presented to a panel led by the Audit Chair and included members of the Audit Committee and IMI management. Following a review of all proposals, the Audit Committee recommended to the Board that EY should be retained as the external auditor of the Group from 2019 subject to approval at the Annual General Meeting. This was agreed by the Board in July 2018.
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 46 to 49 of its 2017 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 2018. 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.
Safe harbour 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. All written or oral forward-looking statements attributable to IMI plc are qualified by this caution. 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; and
-- there were no related party transactions or changes in the related party transactions described in the 2017 Annual Report that materially affected the Group's results or financial position during the six months ended 30 June 2018.
The directors of IMI plc are listed on the IMI plc website (www.imiplc.com).
Approved by the Board of IMI plc and signed on its behalf by:
Mark Selway
Chief Executive
30 July 2018
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 2138002W9Q21PF
INDEPENT REVIEW REPORT TO IMI plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the six months ended 30 June 2018 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 16. We have read the other information contained in the interim 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 2410 (UK and Ireland) "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 interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim 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 interim 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 interim financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland), "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 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 interim financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 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
30 July 2018
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT
6 months to 6 months to
30 June 2018 30 June 2017 Year to
Notes (unaudited) (unaudited) 31 Dec 2017
Adjusting Adjusting Adjusting
Adjusted items Statutory Adjusted items Statutory Adjusted items Statutory
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- --------- --------- -------- --------- ----------- -------- --------- -----------
Revenue 2 915 (1) 914 846 2 848 1,751 1,751
Segmental operating
profit 2 120.0 120.0 106.1 106.1 240.9 240.9
Reversal of net
economic
hedge contract
(gains)/losses 5 (1.1) (1.1) 2.3 2.3 (0.9) (0.9)
Restructuring costs 5 (0.3) (4.5) (4.8) (1.3) (13.8) (15.1) (1.7) (34.6) (36.3)
Gains on special
pension
events 5 3.8 3.8 10.7 10.7 10.8 10.8
Acquired intangible
amortisation and
other
acquisition items 5 (17.5) (17.5) (9.6) (9.6) (19.5) (19.5)
Gain/(loss) on
disposal
of subsidiaries 5 0.6 0.6 - - (2.3) (2.3)
Operating profit 2 119.7 (18.7) 101.0 104.8 (10.4) 94.4 239.2 (46.5) 192.7
Financial income 3 3.1 13.1 16.2 3.0 6.4 9.4 5.5 12.5 18.0
Financial expense 3 (9.0) (14.6) (23.6) (9.6) (4.9) (14.5) (19.8) (9.2) (29.0)
Net finance expense
relating to defined
benefit pension
schemes 3 (0.7) (0.7) (0.7) (0.7) (0.8) (0.8)
Net financial
(expense)/income 3 (6.6) (1.5) (8.1) (7.3) 1.5 (5.8) (15.1) 3.3 (11.8)
Profit before tax 113.1 (20.2) 92.9 97.5 (8.9) 88.6 224.1 (43.2) 180.9
Taxation 4 (23.8) 5.1 (18.7) (20.5) 5.7 (14.8) (47.1) 11.5 (35.6)
Profit from
continuing
operations after tax 89.3 (15.1) 74.2 77.0 (3.2) 73.8 177.0 (31.7) 145.3
Profit from
discontinued
operations after
tax 7 - - 16.9 16.9
Total profit for the
period 89.3 (15.1) 74.2 77.0 (3.2) 73.8 177.0 (14.8) 162.2
Attributable to:
Owners of the parent 89.3 74.2 77.0 73.8 176.9 162.1
Non-controlling
interests - - - - 0.1 0.1
Profit for the period 89.3 74.2 77.0 73.8 177.0 162.2
Earnings per share 6
Basic - from profit
for the period 27.4p 27.2p 59.8p
Diluted - from profit
for the period 27.3p 27.0p 59.7p
Basic - from
continuing
operations 27.4p 27.2p 53.6p
Diluted - from
continuing
operations 27.3p 27.0p 53.5p
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
6 months to 6 months to
30 June 2018 30 June 2017 Year to
(unaudited) (unaudited) 31 Dec 2017
GBPm GBPm GBPm GBPm GBPm GBPm
------------ --------- ----------- ------------ --------- ---------
Profit for the period 74.2 73.8 162.2
Items that may be reclassified to profit
and loss:
Change in fair value of effective net
investment hedge derivatives 0.6 5.6 3.4
Exchange differences on translation of
foreign operations net of
hedge settlements and funding revaluations (8.0) (10.0) (11.0)
Fair value loss on available for sale
financial assets (0.2) (0.2)
Related tax effect on items that may
subsequently be reclassified
to profit and loss (0.1) (0.8) (0.6)
------------ ----------- ---------
(7.5) (5.4) (8.4)
Items that will not subsequently be reclassified
to profit and loss:
Re-measurement gain/(loss) on defined
benefit plans 20.2 12.1 (12.3)
Fair value loss on equity instruments
not held for trading (3.8) - -
Related taxation effect in current period (3.2) (2.4) 1.7
Effect of rate change on previously recognised
items - - (0.3)
13.2 9.7 (10.9)
Other comprehensive income for the period,
net of tax 5.7 4.3 (19.3)
Total comprehensive income/(expense)
for the period, net of tax 79.9 78.1 142.9
Attributable to:
Owners of the parent 79.9 78.1 142.8
Non-controlling interests - - 0.1
Total comprehensive income for the period,
net of tax 79.9 78.1 142.9
CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
30 June 2018 30 June 2017 31 Dec 2017
(unaudited) (unaudited)
Notes GBPm GBPm GBPm
----- ------------ ------------ -----------
Assets
Intangible assets 603.4 515.9 509.0
Property, plant and equipment 285.7 265.5 270.4
Employee benefit assets 13 29.2 54.6 5.7
Deferred tax assets 19.7 21.1 20.9
Other receivables 2.8 4.2 4.2
Total non-current assets 940.8 861.3 810.2
Inventories 307.3 277.7 251.3
Trade and other receivables 449.8 411.0 418.8
Other current financial assets 1.5 5.2 4.1
Current tax 6.4 3.9 8.3
Investments 10.0 19.5 13.8
Cash and cash equivalents 106.4 34.0 98.6
Total current assets 881.4 751.3 794.9
Total assets 1,822.2 1,612.6 1,605.1
Liabilities
Bank overdraft (73.1) (7.3) (31.0)
Interest-bearing loans and borrowings 10 (48.7) (124.5) (113.8)
Provisions (10.3) (18.4) (19.2)
Current tax (64.9) (50.9) (61.0)
Trade and other payables (427.0) (425.5) (416.5)
Other current financial liabilities (6.0) (3.2) (3.9)
Total current liabilities (630.0) (629.8) (645.4)
Interest-bearing loans and borrowings 10 (443.6) (220.3) (219.0)
Employee benefit obligations 13 (79.3) (115.5) (83.6)
Provisions (19.8) (21.0) (15.4)
Deferred tax liabilities (27.3) (37.1) (27.7)
Other payables (1.9) (7.5) (6.6)
Total non-current liabilities (571.9) (401.4) (352.3)
Total liabilities (1,201.9) (1,031.2) (997.7)
Net assets 620.3 581.4 607.4
Equity
Share capital 12 81.8 81.8 81.8
Share premium 12.8 12.1 12.7
Other reserves 197.7 208.3 205.2
Retained earnings 328.0 278.5 307.7
Equity attributable to owners
of the parent 620.3 580.7 607.4
Non-controlling interests 0.7 -
Total equity 620.3 581.4 607.4
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
2018 81.8 12.7 174.4 1.0 29.8 307.7 607.4 - 607.4
Profit for the
period 74.2 74.2 74.2
Other
comprehensive
income 0.5 (8.0) 13.2 5.7 5.7
Total
comprehensive
income 0.5 (8.0) 87.4 79.9 - 79.9
Issue of share
capital - 0.1 0.1 0.1
Dividends paid
on ordinary
shares (68.3) (68.3) (68.3)
Share-based
payments
(net
of tax) 3.8 3.8 3.8
Shares acquired
for
employee
share scheme
trust (2.6) (2.6) (2.6)
As at 30 June
2018 81.8 12.8 174.4 1.5 21.8 328.0 620.3 - 620.3
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
Issue of share
capital - - - -
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
by 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
2017 81.8 12.1 174.4 (1.6) 40.8 235.7 543.2 40.0 583.2
Profit for the
year 162.1 162.1 0.1 162.2
Other
comprehensive
income 2.6 (11.0) (10.9) (19.3) (19.3)
Total
comprehensive
income 2.6 (11.0) 151.2 142.8 0.1 142.9
Issue of share
capital - 0.6 0.6 0.6
Dividends paid
on ordinary
shares (105.5) (105.5) (105.5)
Share-based
payments
(net
of tax) 8.0 8.0 8.0
Shares acquired
by
employee
share scheme
trust (2.7) (2.7) (2.7)
Derecognition
of interest
in
IMI Scottish
Limited
Partnership 21.3 21.3 (39.3) (18.0)
Derecognition
of interest
in IMI CCI
SPEC (0.3) (0.3) (0.8) (1.1)
As at 31
December 2017 81.8 12.7 174.4 1.0 29.8 307.7 607.4 - 607.4
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
6 months to 6 months to Year to
30 June 2018 30 June 2017 31 Dec 2017
(unaudited) (unaudited)
GBPm GBPm GBPm
------------- ------------- ------------
Cash flows from operating activities
Operating profit for the period from
continued operations 101.0 94.4 192.7
Operating profit for the period from
discontinued operations 2.2
Adjustments for:
Depreciation and amortisation 40.2 33.8 65.8
Impairment of property, plant and equipment
and intangible assets - 0.2 3.3
(Gain)/loss on disposal of subsidiaries (0.6) - 1.7
Other acquisition items 3.5 - -
Gain on special pension events (3.8) (10.7) (10.8)
(Loss)/profit on sale of property, plant
and equipment (0.2) 0.2 1.5
Equity-settled share-based payment expense 4.4 4.1 8.0
(Increase)/decrease in inventories (37.9) (21.1) 3.9
Increase in trade and other receivables (15.4) (12.8) (26.5)
(Decrease)/increase in trade and other
payables (6.8) 14.0 22.4
Decrease in provisions and employee
benefits (9.8) (0.4) (7.0)
Cash generated from the operations 74.6 101.7 257.2
Income taxes paid (19.4) (20.2) (39.8)
------------- ------------- ------------
55.2 81.5 217.4
Additional pension scheme funding -
UK and overseas (3.5) - (3.3)
Net cash from operating activities 51.7 81.5 214.1
------------- ------------- ------------
Cash flows from investing activities
Interest received 3.1 3.0 5.5
Proceeds from sale of property, plant
and equipment 1.9 0.5 0.5
Net (purchase)/sale of investments - (1.8) 0.8
Settlement of transactional derivatives (1.1) (2.4) (0.9)
Settlement of currency derivatives hedging
balance sheet (1.8) (20.8) (18.3)
Acquisitions of subsidiaries net of
cash (137.6) - -
Acquisition of property, plant and equipment
and non-acquired intangibles (22.5) (27.3) (69.8)
Net cash from investing activities (158.0) (48.8) (82.2)
------------- ------------- ------------
Cash flows from financing activities
Interest paid (9.0) (9.4) (19.8)
Payment to non-controlling interest - (2.2) (2.2)
Shares (acquired for)/issued by employee
share scheme trust (2.6) 1.1 (2.7)
Proceeds from the issue of share capital
for employee share schemes 0.1 - 0.6
Net drawdown/(repayment) of borrowings 153.0 3.3 (2.1)
Dividends paid to equity shareholders
and non-controlling interest (68.3) (67.0) (105.5)
Net cash from financing activities 73.2 (74.2) (131.7)
------------- ------------- ------------
Net (decrease)/increase in cash and
cash equivalents (33.1) (41.5) 0.2
Cash and cash equivalents at the start
of the period 67.6 67.5 67.5
Effect of exchange rate fluctuations
on cash held (1.2) 0.7 (0.1)
Cash and cash equivalents at the end
of the period* 33.3 26.7 67.6
------------- ------------- ------------
* Net of bank overdrafts of GBP73.1m (31 December 2017: GBP31.0m; 30
June 2017: GBP7.3m).
The 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 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 2017 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 2017, other than to reflect changes expected to be applied in the subsequent annual financial statements. Noted below are the amended and new International Financial Reporting Standards which became effective for the Group as of 1 January 2018, none of which has a material impact on this Interim Financial Report:
-- IFRS 1 'First Time Adoption of International Financial Reporting Standards' -- IFRS 2 'Share Based Payment' -- IAS 28 'Investments in Associates' -- IAS 40 'Investment Property' -- IFRIC 22 'Foreign Currency Transactions and Advance Consideration'
The impact of the new International Financial Reporting Standards effective for the Group as of 1 January 2018 is set out below:
-- IFRS 9 'Financial Instruments' - an election was made to recognise movement in the fair value of the investments historically held at amortised cost in other comprehensive income. At the date of adoption, 1 January 2018, judgment was applied in determining that the difference between the historical amortised cost and the fair value was immaterial. The effect of adopting the remainder of this standard was not material and no further accounting policies have been amended following the adoption of the standard.
-- IFRS 15 'Revenue from Contracts with Customers' - this standard was adopted from the date of initial application - 1 January 2018. The five step model for revenue recognition has been applied to each significant revenue stream for each operating segment and no significant impact on the financial statements following adoption of the standard has been identified.
Issued Accounting Standards which are not effective for the six months to 30 June 2018
The Group's assessment of the impact that IFRS 16 'Leases' will have, at the effective date of 1 January 2019, remains consistent with that which was previously reported in the 2017 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 the design and manufacture of motion and fluid control technologies 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 adjusted 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 IFRS 9, these contracts do not meet the requirements for hedge accounting and gains and losses are reversed out of adjusted 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. Movements in adjusted 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 Reconciliation to statutory
measure
Adjusted revenue These measures are reported See income statement
to management and do not reflect
Adjusted profit the impact of items included
before tax in note 5.
Adjusted earnings
per share
----------------------------------- -----------------------------------
Adjusted segmental These measures are reported See income statement and segmental
operating to management and do not reflect reporting in note 2
profit and the impact of items included
margin in note 5 and non-adjusting
restructuring costs.
----------------------------------- -----------------------------------
Organic growth This measure removes the impact See segmental reporting in
of adjusting items, acquisitions, note 2
disposals and movements in
exchange rates.
----------------------------------- -----------------------------------
Adjusted operating This measure reflects cash See note 9
cash flow generated from operations
as shown in the statement
of cash flows less cash spent
on property, plant and equipment,
non-acquired intangibles assets
and investments; plus cash
received from the sale of
property, plant and equipment
and the sale of investments.
This measure also excludes
the cash impact of adjusting
items.
----------------------------------- -----------------------------------
Revenue Operating profit Operating margin
6 months 6 months Year 6 months 6 months Year 6 months 6 months Year
to 30 to 30 to 31 to 30 to 30 to 31 to 30 to 30 to 31
June June Dec June June Dec June June Dec
2018 2017 2017 2018 2017 2017 2018 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm % % %
-------- -------- ------ -------- -------- ------ -------- -------- ------
Continuing operations
IMI Critical Engineering 319 308 648 36.0 34.4 84.0 11.3% 11.2% 13.0%
IMI Precision Engineering 449 388 791 75.0 61.2 133.5 16.7% 15.8% 16.9%
IMI Hydronic Engineering 147 150 312 22.2 23.9 49.7 15.1% 15.9% 15.9%
Corporate costs (13.2) (13.4) (26.3)
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total adjusted revenue/
segmental
operating profit and margin 915 846 1,751 120.0 106.1 240.9 13.1% 12.5% 13.8%
Restructuring costs
(non-adjusting) (0.3) (1.3) (1.7)
Total adjusted revenue/
operating
profit and
-------- -------- ------ -------- -------- ------ -------- -------- ------
margin 915 846 1,751 119.7 104.8 239.2 13.1% 12.4% 13.7%
Reversal of net economic
hedge
(gains)/losses (1) 2 - (1.1) 2.3 (0.9)
Restructuring costs (4.5) (13.8) (34.6)
Gains on special pension
events 3.8 10.7 10.8
Acquired intangible
amortisation
and other acquisition items (17.5) (9.6) (19.5)
Gain/(loss) on disposal of
subsidiaries 0.6 - (2.3)
-------- -------- ------ -------- -------- ------ -------- -------- ------
Statutory revenue/operating
profit 914 848 1,751 101.0 94.4 192.7
Net financial expense (8.1) (5.8) (11.8)
-------- -------- ------ -------- -------- ------ -------- -------- ------
Statutory profit before tax
from
continuing operations 92.9 88.6 180.9
-------- -------- ------ -------- -------- ------ -------- -------- ------
The following table illustrates how revenue and operating profit have
been impacted by movements in foreign exchange and disposals.
6 months to 30 June 2018 6 months to 30 June 2017
-------------------------------------------------- -------------------------------------------
Movement
Adjusted Organic in
Adjusted As growth growth As foreign Acquisitions
revenue adjusted Acquisitions Organic (%) (%) adjusted exchange & Disposals Organic
IMI Critical
Engineering 319 - 319 4% 6% 308 (6) (2) 300
IMI
Precision
Engineering 449 (40) 409 16% 8% 388 (10) - 378
IMI Hydronic
Engineering 147 - 147 -2% -1% 150 (1) - 149
-------- ------------ ------- -------- ------- -------- -------- ------------ -------
Total 915 (40) 875 8% 6% 846 (17) (2) 827
-------- ------------ ------- -------- ------- -------- -------- ------------ -------
Segmental operating
profit
IMI Critical
Engineering 36.0 - 36.0 5% 7% 34.4 (1.1) 0.4 33.7
IMI
Precision
Engineering 75.0 (4.2) 70.8 23% 19% 61.2 (1.8) 59.4
IMI Hydronic
Engineering 22.2 - 22.2 -7% -3% 23.9 (1.0) 22.9
Corporate
costs (13.2) - (13.2) (13.4) (13.4)
-------- ------------ ------- -------- ------- -------- -------- ------------ -------
Total 120.0 (4.2) 115.8 13% 13% 106.1 (3.9) 0.4 102.6
-------- ------------ ------- -------- ------- -------- -------- ------------ -------
Segmental
operating
profit
margin
(%) 13.1% 13.2% 12.5% 12.4%
Restructuring costs*
6 months 6 months Year
to to to
30 June 30 June 31 Dec
2018 2017 2017
GBPm GBPm GBPm
--------- -------- ------------------
Total Group 4.8 15.1 36.3
--------- -------- ------------------
IMI Critical Engineering 2.5 7.3 27.7
IMI Precision Engineering 0.4 4.5 5.6
IMI Hydronic Engineering 1.9 3.3 3.0
---------------------------------------------------------- --------- -------- ------------------
* Restructuring costs include both adjusting and non-adjusting
items. The adjusting costs for the six months to 30 June 2018
are GBP2.5m relating to IMI Critical Engineering, GBP0.1m relating
to IMI Precision Engineering and GBP1.9m relating to IMI Hydronic
Engineering.
The adjusting costs for the six months to 30 June 2017 are GBP7.3m
relating to IMI Critical Engineering, GBP3.2m relating to IMI
Precision Engineering and GBP3.3m relating to IMI Hydronic Engineering.
There were adjusting costs of GBP34.6m for the year ended 31
December 2017, GBP27.4m relating to IMI Critical Engineering,
GBP4.2m relating to IMI Precision Engineering and GBP3.0m relating
to IMI Hydronic Engineering.
The Group's revenue streams are disaggregated in the table below:
H1 2018 H1 2017
Revenue Revenue
Sector GBPm GBPm
-------------------------------------------------------- -------- ----------------------------
New Construction 172 161
Aftermarket 147 147
-------------------------------------------------------- -------- ----------------------------
Critical Engineering 319 308
-------------------------------------------------------- -------- ----------------------------
Industrial Automation 257 215
Commercial Vehicle 98 93
Energy 36 32
Life Sciences 37 31
Rail 21 17
-------------------------------------------------------- -------- ----------------------------
Precision Engineering 449 388
-------------------------------------------------------- -------- ----------------------------
TA 73 72
Heimeier 46 50
Pneumatex 19 19
Other 9 9
-------------------------------------------------------- -------- ----------------------------
Hydronic Engineering 147 150
-------------------------------------------------------- -------- ----------------------------
Total adjusted
Revenue 915 846
-------------------------------------------------------- -------- ----------------------------
Balance sheet
Assets Liabilities
30 30 31 30 30 31
June June December June June December
2018 2017 2017 2018 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
--- ------ ------------------- -------- ----------- ------- -------- -----------
IMI Critical
Engineering 744.1 737.6 744.8 216.3 220.1 225.4
IMI Precision
Engineering 666.5 506.1 491.7 136.2 126.2 126.4
IMI Hydronic
Engineering 226.1 222.0 207.8 69.2 64.8 64.7
--------------- ------ ------------------- -------- ----------- ------- -------- -----------
1,636.7 1,465.7 1,444.3 421.7 411.1 416.5
Corporate items 13.8 13.8 15.9 41.1 48.9 45.9
Employee
benefits 29.2 54.6 5.7 79.3 115.5 83.6
Investments 10.0 19.5 13.8 - - -
Net debt items 106.4 34.0 98.6 565.4 352.1 363.8
Net taxation
and
others 26.1 25.0 26.8 94.4 103.6 87.9
------------------- -------- ----------- ------- -------- -----------
Total reported in the Group
balance sheet 1,822.2 1,612.6 1,605.1 1,201.9 1,031.2 997.7
------------------- -------- ----------- ------- -------- -----------
3. Net financial expense
6 months to 30
June 6 months to 30 Year to 31 Dec
2018 June 2017 2017
Recognised in the
income Financial Financial Financial
statement Interest instruments Total Interest instruments Total Interest instruments Total
---------- ----------- ------ -------- ----------- ------- -------- ----------- ------
Interest income on
bank
deposits 3.1 3.1 3.0 3.0 5.5 5.5
Financial instruments
at fair value
through profit or
loss:
Other economic hedges
(note 5)
- current period
trading 8.6 8.6 - - 6.9 6.9
- future period
transactions 4.5 4.5 6.4 6.4 5.6 5.6
---------- ----------- ------ -------- ----------- ------- -------- ----------- ------
Financial income 3.1 13.1 16.2 3.0 6.4 9.4 5.5 12.5 18.0
---------- ----------- ------ -------- ----------- ------- -------- ----------- ------
Interest expense on
interest-bearing
loans and borrowings (9.0) (9.0) (9.6) (9.6) (19.8) (19.8)
Financial instruments
at fair value
through profit or
loss:
Other economic hedges
(note 5)
- current period
trading (7.3) (7.3) (2.3) (2.3) (6.8) (6.8)
- future period
transactions (7.3) (7.3) (2.6) (2.6) (2.4) (2.4)
---------- ----------- ------ -------- ----------- ------- -------- ----------- ------
Financial expense (9.0) (14.6) (23.6) (9.6) (4.9) (14.5) (19.8) (9.2) (29.0)
---------- ----------- ------ -------- ----------- ------- -------- ----------- ------
Net finance expense
relating
to
defined benefit
pension
schemes (0.7) (0.7) (0.7) (0.7) (0.8) (0.8)
Net financial expense (6.6) (1.5) (8.1) (7.3) 1.5 (5.8) (15.1) 3.3 (11.8)
---------- ----------- ------ -------- ----------- ------- -------- ----------- ------
Included in financial instruments are current period trading gains and
losses on economically effective settled 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 adjusting items is GBP23.8m which equates to an effective tax rate of 21.0% compared to 21.0% for the comparative six month period in the prior year and 21.0% for the year ended 31 December 2017.
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 2018 is 19.00% (year ended 31 December 2017: 19.25%). The Group's effective tax rate remains slightly above the UK tax rate due to the Group's overseas profits being taxed at higher rates.
5. Adjusting items
The adjusting items category in the income statement includes those items
which are removed from statutory measures to provide insight as to the
performance of the Group. They include restructuring costs, special pension
events, gains and losses on disposals of subsidiaries, impairment losses,
the reversal of gains/losses on economic hedges, acquisition costs, acquired
intangible amortisation and the release of fair value uplifts recognised
following acquisitions. The effect of the items added back to adjusted
earnings is disclosed in note 6. The following items have been classified
as adjusting in these interim Financial Statements:
6 months 6 months
to to Year to
30 June 30 June 31 Dec
Key 2018 2017 2017
---------- ------------------------ ------------------------ --------------------
Recognised in arriving at
operating profit from
continuing operations
Reversal of net economic hedge
contract (gains)/losses (a) (1.1) 2.3 (0.9)
Restructuring costs (b) (4.5) (13.8) (34.6)
Gains on special pension
events (c) 3.8 10.7 10.8
Acquired intangible
amortisation and other
acquisition
items (d) (17.5) (9.6) (19.5)
Gain/(loss) of disposal of
subsidiaries (e) 0.6 - (2.3)
Recognised in net financial
expense
Financial income (a) 13.1 6.4 12.5
Financial expense (a) (14.6) (4.9) (9.2)
(a) For segmental reporting purposes, changes in the fair value of economic
hedges which are not designated as hedges for accounting purposes, together
with the gains and losses on their settlement, are included in the adjusted
revenues and operating profit of the relevant business segment. The
adjusting items at the operating level reverse this treatment. The financing
adjusting items reflect the change in value or settlement of these contracts
with the financial institutions with whom they were transacted.
(b) Adjusting restructuring costs of GBP4.5m were incurred in the six months
to 30 June 2018. This includes GBP2.5m incurred within Critical Engineering
due to right sizing, the continued restructure of our European business
in Precision Engineering (GBP0.1m) and the Global Restructuring Programme
within Hydronic Engineering (GBP1.9m).
Restructuring costs arising in the first half of GBP0.3m have been charged
below segmental operating profit and included in the adjusted operating
profit as these relate to discreet ongoing restructuring activity, which
are not part of a larger programme, and do not meet our definition of
adjusting items.
(c) During 2018, a number of further de-risking exercises, including the
conversion of certain pension benefits to non-inflation linked, occur
in the UK which resulted in net gains of GBP1.4m. Regulatory changes
and the completion of a buy out in Switzerland resulted in gains totaling
GBP2.4m.
(d) The acquired intangible amortisation charge in the six months to 30
June 2018 was GBP14.0m (six months to 30 June 2017: GBP9.6m). The charge
has increased in the six months to 30 June 2018 as the amortisation
of the intangible assets recognised on the acquisition of Bimba commenced
during 2018. Also included is a release of the fair value uplift to
inventory, recognized as part of the Bimba acquisition accounting in
accordance with IFRS 3 'Business Combinations', was GBP3.5m (six months
to 30 June 2017: nil).
(e) No subsidiaries have been disposed of in the six months to 30 June 2018.
A gain of GBP0.6m has been recognised following the expiry of an indemnity
provided on a historical disposal. In 2017, the Group disposed of Stainless
Steel Fasteners Limited resulting in a loss of GBP2.3m.
The tax effects of the above items are included in the adjusted 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 an adjusted basis to assist the reader of the financial statements
to get a better understanding of the adjusted performance of the Group.
30 June 30 June 31 Dec
2018 2017 2017
Key million million million
--------- -------- -------
Weighted average number of shares for the purpose
of basic earnings per share A 271.1 271.2 271.1
Dilutive effect of employee share options 0.5 2.0 0.5
Weighted average number of shares for the purpose
of diluted earnings per share B 271.6 273.2 271.6
--------- -------- -------
6 months 6 months Year
to 30 to 30 to 31
June June Dec
2018 2017 2017
GBPm GBPm GBPm
--------- -------- -------
Statutory profit for the period 74.2 73.8 162.2
Non-controlling interests - - (0.1)
Statutory profit for the period attributable
to owners of the parent C 74.2 73.8 162.1
Statutory profit from discontinued operations,
net of tax - - (16.9)
--------- -------- -------
Continuing statutory profit attributable to owners
of the parent D 74.2 73.8 145.2
Total adjusting items charges included in profit
for the period before tax 20.2 8.9 43.2
Total adjusting items credits included in taxation (5.1) (5.7) (11.5)
Earnings for adjusted EPS E 89.3 77.0 176.9
--------- -------- -------
Statutory EPS measures
Statutory basic EPS C/A 27.4p 27.2p 59.8p
Statutory diluted EPS C/B 27.3p 27.0p 59.7p
Statutory basic continuing EPS D/A 27.4p 27.2p 53.6p
Statutory diluted continuing EPS D/B 27.3p 27.0p 53.5p
Adjusted EPS measures
Adjusted basic EPS E/A 32.9p 28.4p 65.3p
Adjusted diluted EPS E/B 32.9p 28.2p 65.1p
--------------------------------------------------------- ----- --------- -------- -------
7. Discontinued operations
No gain or loss was made from discontinued operations in the six months to 30 June 2018, A pre-tax gain of GBP2.2m and post tax gain of GBP16.9m was recognised in 2017 following the finalisation of a number of matters relating to historical discontinued operations.
8. Dividend
The final dividend relating to the year ended 31 December 2017 of 25.2p per share (2016: 24.7p) was paid in May 2018 amounting to GBP68.3m (2017: GBP67.0m).
In addition, the directors have declared an interim dividend for the current year of 14.6p per share (2017: 14.2p) amounting to GBP39.6m (2017: GBP38.5m), which will be paid on 14 September 2018 to shareholders on the register on 10 August 2018. 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 June to 30 June to 31 Dec
2018 2017 2017
GBPm GBPm GBPm
------------ ----------- ----------
Net (decrease)/increase in cash and cash
equivalents* (33.1) (41.5) 0.2
Net (drawdown)/repayment of borrowings (153.0) (3.3) 2.1
Increase in net debt* (186.1) (44.8) 2.3
Cash acquired 0.8 - -
Currency translation differences (8.5) 9.3 15.1
Movement in net debt in the period (193.8) (35.5) 17.4
Net debt at the start of the period (265.2) (282.6) (282.6)
Net debt at the end of the period (459.0) (318.1) (265.2)
------------ ----------- ----------
* Excluding foreign exchange.
Reconciliation of EBITDA to movement in
net debt
6 months 6 months Year
to 30 June to 30 June to 31 Dec
2018 2017 2017
GBPm GBPm GBPm
------------ ----------- ----------
EBITDA* from continuing operations 145.9 129.0 287.5
Working capital movements (60.1) (19.9) (0.2)
Capital and development expenditure (22.5) (27.3) (69.8)
Provisions and employee benefit movements** (0.8) (1.5) (10.4)
Other 5.5 5.3 10.8
Adjusted operating cash flow*** 68.0 85.6 217.9
------------ ----------- ----------
Adjusting items**** (13.1) (12.5) (29.2)
Operating cash flow 54.9 73.1 188.7
------------ ----------- ----------
Tax paid (19.4) (20.2) (39.8)
Interest and derivatives (8.8) (29.6) (33.5)
Cash generation 26.7 23.3 115.4
------------ ----------- ----------
Additional pension scheme funding (3.5) - (3.3)
Free cash flow before corporate activity 23.2 23.3 112.1
------------ ----------- ----------
Dividends paid to equity shareholders and
non-controlling interest (68.3) (67.0) (105.5)
Acquisition of subsidiaries (138.4) - -
Payment to non-controlling interest - (2.2) (2.2)
Net (purchase)/issue of own shares (2.6) 1.1 (2.1)
Net cash flow (excluding debt movements) (186.1) (44.8) 2.3
------------ ----------- ----------
* Adjusted profit after tax (GBP89.3m), before interest (GBP6.6m), tax
(GBP23.8m), depreciation (GBP21.1m) and amortisation (GBP5.1m)
** Movement in provisions and employee benefits as per the interim statement
of cash flows (GBP9.8m), adjusted for the decrease in adjusting restructuring
provisions (GBP9.0m).
*** Adjusted operating cash flow 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, excluding the cash impact of adjusting items.
This measure best reflects the operating cash flows of the Group.
**** Cash impact of adjusting items.
10. Interest Bearing Loans and Borrowings
On 21 February 2018, the Group repaid unsecured loan notes of GBP111.1m and agreed new unsecured loan notes totalling GBP70.8m. The new loan notes have a ten-year term and an effective interest rate of 1.53%.
On 31 January 2018, following the acquisition of Bimba Manufacturing Company, the Group repaid GBP15.8m of unsecured loans held by the entity prior to acquisition. On 5 April 2018, the Group entered in to new unsecured loan notes for GBP88.7m and GBP53.2m which have terms of 8 and 9 years respectively. These new loan notes have effective interest rates of 3.86% and 3.92% respectively. The new loan notes were used to repay the short term borrowings used to fund the acquisition of Bimba Manufacturing Company.
11. Fair value hierarchy
Set out below is an overview of the Group's financial instruments held
at fair value.
30 June 2018 31 December 2017
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* 3.2 3.2 3.2 3.2
Investments 10.0 10.0 -
Cash and cash equivalents 106.4 106.4 98.6 98.6
Foreign currency forward
contracts 1.5 1.5 4.1 4.1
----- ----- --------- -------- -------------- ----- ------- -------
109.6 11.5 - 121.1 101.8 4.1 - 105.9
----- ----- --------- -------- -------------- ----- ------- -------
Financial liabilities
measured
at fair value
Foreign currency forward
contracts (6.0) (6.0) (3.9) (3.9)
----- ----- --------- -------- -------------- ----- ------- -------
- (6.0) - (6.0) - (3.9) - (3.9)
----- ----- --------- -------- -------------- ----- ------- -------
* 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 GBP1.5m and GBP6.0m 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 2018, 31 December 2017 and 30 June 2017 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 2018 423.1 427.5
31 December 2017 329.0 336.6
30 June 2017 335.4 349.8
12. 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
-------------- -------
13. Employee benefits
The net defined benefit pension liability at 30 June 2018 was GBP50.1m (31 December 2017: liability of GBP77.9m). The UK net surplus in the Funds increased to GBP27.5m (31 December 2017: GBP1.6m). The increase is primarily as a result of the favourable impact of actuarial assumptions and changes in the associated demographic assumptions. The UK Funds are currently undergoing a triennial actuarial valuation for the year ended 31 March 2018. This will be finalised in the second half of the year and, where relevant, factored into the IAS19 valuation as at 31 December 2018.
The net deficit in respect of the total overseas obligations decreased to GBP77.6m (31 December 2017: GBP79.5m) due to the increases in the discount rates and the special pension events described in note 5.
14. 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 June to 30 June to 31 Dec 30 June 30 June 31 Dec
2018 2017 2017 2018 2017 2017
----------- ----------- ---------- ------- ------- ------
Euro 1.14 1.16 1.14 1.13 1.14 1.13
US dollar 1.37 1.26 1.29 1.32 1.30 1.35
15. Property, plant and equipment and intangible assets
Capital expenditure on property, plant and equipment in the period was GBP12.3m. This included GBP11.8m 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 GBP10.2m. This included GBP2.5m in respect of capitalised development costs and GBP7.7m in respect of other non-acquired intangible assets (including those under construction).
16. Acquisitions
On 31 January 2018, the Group acquired 100% of the share capital, and associated voting rights of Bimba Manufacturing Company (Bimba) and its subsidiaries for cash consideration of GBP138.4m. Bimba is a market leading manufacturer of pneumatic, hydronic and electric motion solutions based in North America.
This acquisition has been accounted for as a business combination. The provisional fair value amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below:
Fair value
at
31 January
2018
GBPm
--------------------------------- ------------
Intangible assets 57.6
Property, plant and equipment 18.8
Inventories 24.3
Trade and other receivables 9.3
Cash and cash equivalents 0.8
Trade and other payables (12.0)
Provisions (1.4)
---------------------------------- ------------
Total identifiable net assets 97.4
---------------------------------- ------------
Goodwill arising on acquisition 41.0
---------------------------------- ------------ Total purchase consideration 138.4 ---------------------------------- ------------
The goodwill recognised above includes certain intangible assets that cannot be separately identified and measured due to their nature. This includes control over the acquired business, the skills and experience of the assembled workforce, the increase in scale, synergies and the future growth opportunities that the businesses provide to the Group's operations. The goodwill and all intangible assets recognised are amortisable for tax purposes. Acquisition costs of GBP2.0m were recognised in the income statement in 2017.
The adjusted revenue and adjusted operating profit included in the consolidated income statement for the six months to 30 June 2018 contributed by Bimba were GBP40.3m and GBP4.2m respectively. There is no difference between adjusted and statutory revenue and operating profit for Bimba.
If the acquisitions had taken place on 1 January 2018 they would have contributed adjusted revenue of GBP49.0m and adjusted operating profit of GBP4.5m to the Group results.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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