Final Results
IMI PLC
08 March 2004
8 March 2004
IMI plc Preliminary Results
IMI plc, the major international engineering group, today announced its
preliminary results for the year ended 31 December 2003.
2003 2002
Sales £1573m £1612m
Results before rationalisation & restructuring costs *
Operating profit from continuing businesses £153.5m £145.6m
Profit before tax £142.6m £131.5m
Adjusted earnings per share 26.8p 25.0p
Interest cover 14x 9x
Rationalisation & restructuring costs £5.7m £32.2m
Profit before tax £117.2m £74.3m
Earnings per share 20.1p 15.7p
Borrowings £136.3m £173.5m
Gearing 25% 33%
* Before goodwill amortisation and exceptional items
• Improving volumes
• Increased profit and earnings
• Strong cash generation and balance sheet
CHAIRMAN'S STATEMENT
In my report to shareholders this time last year, I said that although we
expected 2003 to present a challenge, we were looking to build on the solid
foundation we had been laying across the Group. Our interim results confirmed
that we were making good progress and our final results for the year to 31
December 2003 further demonstrate the underlying strength of our businesses. It
is pleasing to be able to report improved profit and earnings and another year
of substantial cash generation underpinning our strong balance sheet.
Our businesses provide a spread of risk in both geographical and end markets. In
2003 this proved to be beneficial in respect of both operating activities and
currency movements.
After a first half where volumes were similar to last year, the second half was
some 5% higher leaving year on year volumes on a like for like basis around 3%
ahead. Good organic growth was shown in Severe Service, Fluid Power and
Merchandising Systems with more modest growth in Indoor Climate and Building
Products. Underlying volumes in Beverage Dispense were flat.
Our recent acquisitions performed well with a full year of DCI Marketing and a
fourth quarter contribution from Artform helping to produce a very encouraging
result in Merchandising Systems. STI and Fluid Kinetics are now established
within Severe Service and Commtech's results in Indoor Climate were on track.
Once again, all our businesses generated excellent cash with further reductions
in working capital producing operating cash ahead of operating profit for the
third year running.
With the weakening in the US $ largely offset by the strengthening of the Euro,
the impact from translation on reported sales, profit and cash flow in 2003 was
not material.
The Board is recommending the payment of an unchanged final dividend of 9.5p
making a total of 15.5p (2002: 15.5p) for the year. It was the Board's intention
at the outset to maintain the dividend during the three year programme of
restructuring and repositioning: our strong cash performance has meant that our
cash cover has been more than adequate throughout.
Results summary
Group sales at £1573m compare with £1612m reported last year. Sales of
continuing businesses at £1565m (2002: £1453m) included £68m from acquisitions.
Profit before tax, rationalisation costs, goodwill amortisation and exceptional
items increased by 8.4% to £142.6m (2002: £131.5m) and by 12.7% after adjusting
for the £5m SSAP24 pension credit in 2002 no longer applicable.
Rationalisation costs for the year at £5.7m were at a more normal level compared
to the significant restructuring costs of £32.2m last year and £44.6m in 2001.
The resulting profit before goodwill amortisation, exceptional items and tax was
£136.9m (2002: £99.3m) and profit before tax at £117.2m (£74.3m) was some 58%
ahead of last year.
The effective tax charge for the year is 33% (2002: 32%). Adjusted earnings per
share increased by 7% to 26.8p (2002: 25.0p) and basic earnings per share
increased by 28% to 20.1p (2002: 15.7p).
Net operating cash flow was £196m (2002: £220m) and free cash flow before
dividends and corporate activity was £142m (2002: £189m). Dividends cost £55m, a
cash cover of 2.6 times. Acquisitions during the year, comprising Artform
(Merchandising Systems), Commtech (Indoor Climate) and Fluid Kinetics (Severe
Service), absorbed £62m. In October we sold our small air-conditioning business
for around its net asset value of £2m.
Interest cost for the year was reduced to £10.9m (2002: £16.7m) largely as a
result of reduced borrowings. Interest was covered 14 times (2002: 9 times)
based on operating profit before rationalisation and goodwill amortisation.
Net cash flow of £33.5m and a small currency translation benefit meant net
borrowings were reduced to £136m (2002: £173m) giving balance sheet gearing of
25% (2002: 33%).
European Commission enquiry
I have reported to shareholders previously that the European Commission is
investigating allegations of anti-competitive behaviour among certain
manufacturers of copper tube and copper fittings. Notwithstanding IMI's disposal
of its Copper Tube and Copper Fittings businesses in 2002, it retains
responsibility in relation to the European Commission's investigations in
respect of those businesses. In September 2003 IMI received a Statement of
Objections in respect of copper plumbing tube and this investigation is expected
to result in a fine during the next six months. The copper fittings
investigation is at an earlier stage, with a Statement of Objections expected
within the next twelve months and a decision on any fine unlikely to be made by
the Commission before the second half of 2005. It is not possible to give any
reliable estimate of the likely level of fines in either case.
Management changes
In December we announced that Barry Pointon, having served on the Board for nine
years, has decided to retire at the end of March. In the past three years Barry
has played a key role in IMI's corporate activity and the move to lower cost
manufacturing, and I thank him for his 22 years' service to the Group.
At the same time, we announced two new Executive Director appointments with
effect from 1 March: David Nicholas responsible for Fluid Controls and Wayne
Whitney responsible for Retail Dispense. These changes strengthen the executive
team and will, in due course, enable Martin Lamb to focus more of his time on
the strategic development of the Group.
Outlook
In our Trading Update in December we reported that there were signs of a modest
improvement in some of our markets. This trend has continued. The improving
external economic conditions and the internal advances we have achieved in our
businesses provide a sound platform for us to make further progress.
CHIEF EXECUTIVE'S REVIEW
Most of the operational restructuring associated with the repositioning we
embarked on three years ago has now been concluded. Rationalisation costs this
year of less than £6m compare to £32m last year and have now returned to the
levels I would normally associate with ongoing cost reduction activity.
Our five platform businesses, within the two fields of Fluid Controls and Retail
Dispense, are now firmly established with leading positions in clearly defined
global niche markets. Their focus is on providing innovative technical solutions
for a highly targeted number of large, global customers, wherever possible
distancing themselves from commodity offerings for which price is the only basis
of competition.
Delivering the right degree of focus on innovative technical solutions has
required a fairly substantial upgrade in both the quality and number of people
in our customer facing and engineering functions. Investment in these areas has
been accelerating for each of the last three years. Our IMI Academy, for the
training and development of top quality key account managers, now has well over
150 fully qualified members, and our investment in product development has
increased 50% over the last three years. Encouragingly, the number of new
products in the pipeline and the quality and depth of key customer relationships
is beginning to build momentum.
These additional investments have been financed through a significant
restructuring of our cost base. During the year we developed further our six low
cost operations in Mexico, The Czech Republic and China, which now employ over
1400 people and generate nearly 25% of our Group manufacturing requirements. The
recent establishment of a global procurement resource in Shanghai is already
delivering savings and we plan to build on this significantly in 2004. The
ongoing process of business simplification has released another 300 overhead
positions from the Group during the year. Collectively these initiatives have
reduced our operating cost base by around £18m per annum compared to the
position three years ago.
Our continued focus on working capital has delivered another strong cashflow
performance, with gearing now reduced to 25%. We are pleased with the businesses
acquired during the year, Artform, Commtech and Fluid Kinetics for a combined
sum of £62m and continue our active pursuit of suitable acquisitions.
Looking ahead, our focus has moved away from operational restructuring to
delivering growth. Central to that delivery is an acceleration of our key
account activity, expansion of our new product programme, and a greater
commitment to the fast-growing economies of China and Eastern Europe.
The changes to the Board referred to by the Chairman will assist this process,
allowing me more time to focus on organic growth initiatives as well as the
strategic development of the Group.
As we enter 2004, prospects for global economies seem brighter than they were
twelve months ago. Whilst this is certainly encouraging, it is too early to say
whether this optimism will flow through into a sustainable increase in activity.
Competitive pressures remain intense, particularly in respect of some of our
older product lines, with price competition and rising raw materials costs
continuing to squeeze margins. The sharp weakening of the dollar, if maintained,
will inevitably impact 2004 reported sterling profits.
Notwithstanding these pressures, I believe IMI is well placed to make further
progress in the year ahead, building on the very solid improvement generated in
each of the last two years.
OPERATIONS REVIEW
In this review of our businesses, operating profit is stated before
rationalisation, reorganisation costs and goodwill amortisation.
Severe Service
Our Severe Service valves business achieved another year of strong organic
growth with sales and order intake around 13% higher than 2002. Much of the
growth is from the oil and gas market where CCI continues to be the leader in
valve applications for LNG (Liquified Natural Gas) receiving and storage
terminals. Strong growth is also coming from Asia, in particular the Chinese
power market. Although new construction power in the US declined, this was
offset by gains in customer service orders. We continue to benefit generally
from plant level upgrades and replacing competitor valves.
Investment in specialist sales engineers over the last three years has fuelled
much of the growth in sales. We intend to reduce the rate of investment in the
short term to enable margin enhancement to come through. In addition it is
necessary to ensure that operational efficiencies keep pace with the growth. As
a result, we expect the rate of top-line growth will be slower over the next
couple of years.
Our recent investment to increase production has resulted in around 10% of our
manufacturing capacity being located in Mexico and Czech Republic.
Fluid Kinetics, purchased in 2003, although impacted by the weaker US power
market, brings added technology in noise reduction. The synergy benefits from
the acquisition of STI in 2002 are showing through with STI actuation technology
now used on 80% of all new Drag valve shipments.
Sales and operating profit for the year were respectively £20m and £3.0m higher
than last year.
Fluid Power
Following a first half increase of 12%, sales in our key target sectors
continued to grow and ended the year 13% ahead of 2002. Sales to the commercial
vehicles and medical sectors were particularly encouraging. Overall volumes
elsewhere were up 3% with Asia Pacific significantly ahead. Order books at the
end of the year were around 5% higher than December 2002.
New product development is gaining momentum and the change-out from general
sales to more market focused key account managers is continuing. Operational
efficiencies at the Mexican and Czech Republic facilities are improving and more
capacity will be transferred during 2004. The heavy expenditure associated with
the restructuring is now behind us but future rationalisation will arise from
ongoing cost reduction and efficiency measures.
Margins have improved each half year for the last two years and as business
across our major trading regions improves, the reduced cost base should enable
us to further enhance profitability.
Sales and operating profit for the year were, respectively, £31m and £10.7m
higher than last year.
Indoor Climate
After a subdued first half, activity in our Indoor Climate business recovered a
little, leaving volumes overall for the year marginally ahead of last year.
Balancing valve sales were around 3% higher despite a reduction in the US, which
was affected by a combination of the impact of a reorganisation of the sales
channel and the strengthening of the Euro against the US $. Thermostatic
radiator valve volumes into the German market strengthened in the second half,
offering some encouragement that the long-term decline is coming to an end.
Sales of Indoor Climate products in Eastern Europe remain strong and, although
still small, we have increased our presence in the growing Chinese market and
have already succeeded in winning a number of projects.
The acquisition of Commtech in February 2003 has provided impetus to our drive
into the service and commissioning business which in turn will pull through
sales of Indoor Climate products. Commtech contributed sales of £22m and profit
of £1.2m.
Excluding Commtech, sales were £147m, operating profit £22.6m and operating
margins 15.4%.
Beverage Dispense
Beverage Dispense had a challenging year. Underlying end markets were difficult
and operationally the need was to consolidate after the heavy programme of
product and process transfers effected in the last two years. In the US, the
food service sector weakened further as a result of declining consumer traffic
but our soft drinks brand owner business strengthened. This was largely as a
result of recent new product introductions and we enjoyed particular success
this year with our Lipton Tea product. Our US on-line parts distribution
business, BEVCORe, continued its progress and we are confident that this
business model has considerable potential. In Europe the first half was
generally soft across all regions although demand picked up in the second half.
Again, new products helped with a successful launch into the cooled water
business in Germany. In the UK, beer dispenser sales were steady although there
are some signs of a slowdown following two good years of growth. After
eliminating the impact of the one-off contract in 2002 for frozen carbonated
equipment, overall volumes for the year were similar to last year although
second half volumes were around 3% lower.
Further cost reduction measures are in process and we have closed our facility
in Corby in the UK and recently announced the closure of another of our US
manufacturing facilities. The benefits of the very significant changes we have
made, particularly within the US and the move to Mexico, are beginning to
materialise. We expect that the initial operational issues at our Reynosa
facility will have been resolved by mid 2004. We are already seeing the benefits
of consolidation in our working capital with significant inventory reductions
now showing through.
Sales and operating profit for the year were, respectively, £34m and £6.4m lower
than last year.
Merchandising Systems
A good performance in Merchandising Systems was helped by a full year's
contribution from DCI and by the acquisition of Artform in October.
The increased level of enquiry activity seen in the first half of the year
continued and is now being reflected in sales. Our traditional Cannon business
is showing increasing momentum and improvements in key account relationships
have played a significant part in producing a very good order book going into
2004. Display Technologies has enjoyed particular success with its bulk bin food
systems.
DCI had an outstanding first full year with volumes significantly ahead of the
previous calendar year. General custom PoP sales were strong and an excellent
automotive sector performance was boosted by the Scion (Toyota) programme.
Artform's results since acquisition were in line with our expectations.
Cost reductions continue to be achieved with the emphasis on investment being
placed on customer facing activities. Some outsourcing of components to China
has already been implemented and there is scope for further margin enhancement
over time.
Sales of £170m and operating profit of £18.2m for the year included £44m and
£3.9m for the additional months of DCI and Artform.
Building Products
In the core Building Products business of Polypipe, volumes were ahead of last
year largely as a result of a strong UK housing market and good growth in
underfloor heating systems. Raw material prices have increased regularly during
the year creating pressure on margins.
Elsewhere in Polypipe the picture is mixed. The small European businesses are
now stable following organisation changes but further rationalisation measures
may have to be taken in some of the UK businesses.
Despite margin pressures, Polypipe as a whole produced a very creditable
performance and cash generation was again excellent, with further working
capital reductions producing operating cash in excess of operating profit.
Sales and operating profit for the year were, respectively, £370m (2002: £355m)
and £33.0m (2002: £33.1m).
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2003
Before Rational- Before Rational-
rationalisation, isation & rationalisation, isation &
goodwill and goodwill goodwill and goodwill Exceptional
exceptionals amortisation Total exceptionals amortisation items Total
2003 2003 2003 2002 2002 2002 2002
Notes £m £m £m £m £m £m £m
------------------------------------------------------------------------------------------
Turnover 1
Continuing operations 1565 1565 1453 1453
Discontinued operations 8 8 159 159
------------------------------------------------------------------------------------------
Total turnover 1573 1573 1612 1612
------------------------------------------------------------------------------------------
Operating profit 1
Continuing operations before
rationalisation and restructuring 153.5 (19.7) 133.8 145.6 (18.0) 127.6
Rationalisation/restructuring (5.7) (5.7) (31.0) (31.0)
Total continuing operations 153.5 (25.4) 128.1 145.6 (49.0) 96.6
Discontinued operations - - - 2.6 (1.2) 1.4
------------------------------------------------------------------------------------------
Operating profit 153.5 (25.4) 128.1 148.2 (50.2) 98.0
Profit on disposal of
discontinued operations 2 - 4.0 4.0
Provision for loss on
closure of a business 2 - (30.7) (30.7)
Profit on disposal of property - 19.7 19.7
------------------------------------------------------------------------------------------
Profit before interest 153.5 (25.4) 128.1 148.2 (50.2) (7.0) 91.0
Net interest payable (10.9) (10.9) (16.7) (16.7)
------------------------------------------------------------------------------------------
Profit on ordinary activities
before taxation 142.6 (25.4) 117.2 131.5 (50.2) (7.0) 74.3
Tax on profit 3 (47.1) 1.9 (45.2) (42.1) 10.3 14.2 (17.6)
------------------------------------------------------------------------------------------
Profit on ordinary activities
after taxation 95.5 (23.5) 72.0 89.4 (39.9) 7.2 56.7
Equity minority interests (1.0) (1.0) (1.3) (1.3)
------------------------------------------------------------------------------------------
Profit for the financial year 94.5 (23.5) 71.0 88.1 (39.9) 7.2 55.4
--------------------------------- ----------------------------------
Dividends paid and proposed 4 (54.8) (54.6)
---------- --------
Transfer to reserves 16.2 0.8
---------- --------
Adjusted earnings per share 5 26.8p 25.0p
Earnings per share 5 20.1p 15.7p
Diluted earnings per share 5 20.1p 15.7p
GROUP BALANCE SHEET
at 31 December 2003
---------------------------------------------------
2003 2002
£m £m
-----------------------------
Fixed assets
Intangible assets 317.9 302.5
Tangible assets 292.6 313.4
-----------------------------
610.5 615.9
-----------------------------
Current assets
Stocks 243.3 262.0
Debtors 304.4 305.5
Investments 8.2 8.2
Cash and deposits 81.3 74.3
-----------------------------
637.2 650.0
Creditors:
amounts falling due within one year
-----------------------------
Borrowings and finance leases (76.7) (65.1)
Other creditors (379.6) (380.2)
-----------------------------
(456.3) (445.3)
-----------------------------
Net current assets 180.9 204.7
-----------------------------
Total assets less current liabilities 791.4 820.6
Creditors:
amounts falling due after more than one year
-----------------------------
Borrowings and finance leases (140.9) (182.7)
Other creditors (31.4) (25.9)
-----------------------------
(172.3) (208.6)
Provisions for liabilities and charges (76.1) (81.0)
-----------------------------
Net Assets 543.0 531.0
=============================
Capital and reserves
Called up share capital 88.3 88.1
Share premium account 136.5 134.1
Revaluation reserve 1.0 1.0
Other reserves 1.6 1.6
Profit and loss account 312.0 303.1
-----------------------------
Equity shareholders' funds 539.4 527.9
-----------------------------
Minority interest 3.6 3.1
-----------------------------
543.0 531.0
=============================
GROUP CASH FLOW STATEMENT
for the year ended 31 December 2003
---------------------------------------------------
2003 2002
£m £m £m £m
-------- -------- -------- --------
Reconciliation of operating profit to
net cash inflow from operating activities
Operating profit 128.1 98.0
Depreciation & goodwill 85.8 89.3
amortisation
Stocks decrease 20.9 16.8
Debtors decrease/(increase) 2.7 (0.6)
Creditors and provisions (decrease)/ (6.5) 26.8
increase -------- --------
Net cash inflow from operating 231.0 230.3
activities -------- --------
GROUP CASH FLOW STATEMENT
Net cash inflow from operating activities 231.0 230.3
Return on investments and servicing of finance (11.8) (16.7)
Taxation (41.5) (13.8)
Capital expenditure and financial investment (36.0) (11.3)
Acquisitions and disposals (56.0) 26.3
Equity dividends paid (54.7) (54.5)
-------- --------
Cash flow before use of liquid resources &
financing 31.0 160.3
Management of liquid resources 4.5 (3.3)
Financing
Issue of ordinary shares 2.5 1.8
Decrease in borrowings (35.1) (141.5)
-------- --------
(32.6) (139.7)
-------- --------
Increase in cash in the year 2.9 17.3
======== ========
Reconciliation of net cash to movement
in net borrowings
Increase in cash in the year 2.9 17.3
Cash used to repay borrowings 35.1 141.5
Cash (inflow)/outflow from movement
in liquid resources (4.5) 3.3
-------- --------
Change in borrowings resulting from
cash flows 33.5 162.1
Currency translation differences 3.7 9.7
-------- --------
Movement in net borrowings in the year 37.2 171.8
Net borrowings at 1 January (173.5) (345.3)
-------- --------
Net borrowings at 31 December (136.3) (173.5)
======== ========
RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
for the year ended 31 December 2003
-------------------------------------------------------------
2003 2002
£m £m
-----------------------
Profit for the financial year 71.0 55.4
Dividends (54.8) (54.6)
-----------------------
16.2 0.8
Other recognised gains and losses relating to the
financial year (7.3) 1.2
New ordinary share capital issued 2.6 1.9
Previously acquired goodwill taken through the profit and loss
account in arriving at the profit for the financial year - 33.3
-----------------------
Net increase in shareholders' funds for the year 11.5 37.2
Shareholders' funds at 1 January 527.9 490.7
-----------------------
Shareholders' funds at 31 December 539.4 527.9
--------------------------------------------------------------------------------
NOTES RELATING TO THE FINANCIAL STATEMENTS
1. Segmental Analysis
Operating profit
before goodwill
amortisation Operating
Turnover & rationalisation Operating profit assets
2003 2002 2003 2002 2003 2002 2003 2002
£m £m £m £m £m £m £m £m
------- ------- ------- ------- ------- ------- ------ -------
BY ACTIVITY
Fluid Controls 747 661 80.1 65.2 72.2 46.7 210 221
Severe Service 168 148 20.3 17.3 19.5 16.8 34 48
Fluid Power 410 379 36.0 25.3 30.1 9.8 145 154
Indoor Climate 169 134 23.8 22.6 22.6 20.1 31 19
Retail Dispense 448 437 40.4 42.3 36.9 26.5 105 109
Beverage Dispense 278 312 22.2 28.6 21.2 14.4 74 82
Merchandising
Systems 170 125 18.2 13.7 15.7 12.1 31 27
Building Products 370 355 33.0 33.1 19.0 18.4 125 141
------- ------- ------- ------- ------- ------- ------ -------
1565 1453 153.5 140.6 128.1 91.6 440 471
SSAP24 pension
credit (note 6) - 5.0 - 5.0 - -
------- ------- ------- ------- ------- ------- ------ -------
Total continuing
operations 1565 1453 153.5 145.6 128.1 96.6 440 471
------- ------- ------- ------- ------- ------- ------ -------
BY GEOGRAPHICAL ORIGIN
UK 464 426 42.2 39.4 27.0 20.7 152 157
Rest of Europe 531 470 62.5 52.7 60.6 40.8 161 171
The Americas 510 501 43.2 42.5 34.9 24.5 114 129
Asia/Pacific 60 56 5.6 6.0 5.6 5.6 13 14
------- ------- ------- ------- ------- ------- ------ -------
1565 1453 153.5 140.6 128.1 91.6 440 471
SSAP24 pension
credit (note 6) - 5.0 - 5.0 - -
------- ------- ------- ------- ------- ------- ------ -------
Total continuing
operations 1565 1453 153.5 145.6 128.1 96.6 440 471
------- ------- ------- ------- ------- ------- ------ -------
TURNOVER BY GEOGRAPHICAL DESTINATION
2003 2002
£m £m
------- -------
UK 424 387
Germany 185 162
Rest of Europe 345 308
USA 447 438
Asia/Pacific 101 97
Rest of World 63 61
------- -------
Total continuing
operations 1565 1453
------- -------
1. Segmental analysis (continued)
Acquisitions
Acquisitions in the period were not sufficiently material to warrant separate
discolosure on the face of the Profit and Loss Account. Of the reported increase
in turnover and operating profit of continuing operations (before goodwill
amortisation), £68m and £5.4m respectively result from the 2003 acquisitions of
Artform International (Merchandising Systems), Commtech Group (Indoor Climate)
and Fluid Kinetics (Severe Service) together with the extra months from the 2002
acquisitions of DCI Marketing (Merchandising Systems) and STI (Severe Service).
Discontinued operations
Amounts shown for discontinued operations relate to our air-conditioning
business, which was sold in November 2003. This business was previously reported
within Building Products and UK.
Comparatives for 2002 comprise the turnover and operating profits of the
businesses sold (Eley shotgun cartridge, Copper Fittings and Copper Tube) and
closed (ISI Systems).
2. Exceptional items
There were no exceptional items in 2003. In 2002, profit on disposal of
discontinued operations arose from the disposals of the Copper Fittings, Copper
Tube and Eley shotgun cartridge businesses.
The 2002 provision for loss on closure of a business related to the closure of
the ISI Systems business.
3. Taxation
The tax rate on profit before goodwill amortisation and exceptional items is
around 33%, compared with 32% in 2002.
4. Dividend
The Directors recommend a final dividend of 9.5p per share (2002: 9.5p) payable
on 25 May 2004 to shareholders on the register at close of business on 13 April
2004, which will absorb £33.6m (2002: £33.5m). Together with the interim
dividend of 6.0p per share paid on 20 October 2003, this makes a total
distribution of 15.5p per share (2002: 15.5p per share).
5. Earnings per ordinary share
The weighted average number of shares in issue during the year was 352.8m,
353.7m diluted for the effect of outstanding share options (2002: 351.8m, 352.7m
diluted). Earnings per share have been calculated on earnings of £71.0m (2002:
£55.4m). The Directors consider that adjusted earnings per share figures, using
earnings as calculated below, give a more meaningful indication of the
underlying performance.
2003 2002
£m £m
----------- -----------
Profit for the period 71.0 55.4
Goodwill amortisation 19.7 18.0
Exceptional items (after tax) - (7.2)
Rationalisation/restructuring (after tax) 3.8 21.9
----------- -----------
Earnings for adjusted EPS 94.5 88.1
----------- -----------
6. Pensions
The triennial actuarial valuation of the principal UK pension fund was carried
out at 31 March 2002. At that date there was an actuarial surplus of £51m. In
view of the deterioration of financial markets it was decided that funding
reviews will be carried out annually. The 31 March 2003 review saw the expected
deterioration in the funding position reducing the surplus to £4m. As a result
the cash contribution to the pension fund was increased to the full pension cost
with effect from 1 April 2003.
For the year ended 31 December 2003, the Group has continued to account for
pension costs under SSAP24: Pension Costs. The pension cost charged to the
profit and loss account is calculated by an independent actuary in such a way as
to spread the cost of pensions over the remaining service life of employees in
membership. No net benefit was taken to the profit and loss account from
amortising surpluses less deficits on pension schemes in 2003 (2002: £5m).
Adoption of FRS17: Retirement Benefits would have required the inclusion of an
additional net pension liability of £108m, which after tax of £32m would result
in a decrease in net assets of £76m. The impact on the published results of
fully adopting FRS17 in 2003 is as follows:
Published FRS17
£m £m
Balance Sheet
Net assets 543 467
Shareholder funds 539 463
Gearing 25% 29%
Profit & Loss Account *
Pension cost (15) (16)
Finance income - 2
Net cost (15) (14)
Profit before interest 153.5 152.5
Finance costs (10.9) (8.9)
Profit before tax 142.6 143.6
* Before rationalisation, goodwill amortisation and exceptional items.
7. Exchange Rates
The profit and loss accounts of overseas operations are translated into sterling
at average rates of exchange for the year, balance sheets are translated at year
end rates. The most significant currencies are the US Dollar and the Euro - the
relevant rates of exchange were:
Average Rates Balance Sheet Rates
2003 2002 2003 2002
----------------- -----------------------
Euro 1.44 1.59 1.42 1.53
US Dollar 1.64 1.51 1.79 1.61
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2002 or 2003 but is derived
from those accounts. Statutory accounts for 2002 have been delivered to the
Registrar of Companies, and those for 2003 will be delivered following the
Company's Annual General Meeting. The auditor has reported on those accounts,
its reports were unqualified and did not contain a statement under section 237
(2) or (3) of the Companies Act 1985.
The Company's 2003 Annual Report and notice of the forthcoming Annual General
Meeting will be posted to shareholders on 7 April 2004.
- ends -
Enquiries to:
Graham Truscott - Corporate Communications - Tel: 0121 717 3712
Press release available on the internet at www.imiplc.com
Issued by:
Nick Oborne - Weber Shandwick Square Mile - Tel: 020 7067 0700
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