Final Results - Year Ended 31 December 1999
IMI PLC
6 March 2000
IMI plc Preliminary Results
IMI plc, the major international engineering group, today announced its
preliminary results for the year ended 31 December 1999.
1999 1998
Sales £1502m £1455m
Results before goodwill amortisation and exceptional
items:
Profit before interest £160.8m £158.2m
Profit before tax £145.0m £152.6m
Adjusted earnings per share 28.0p 30.5p
Dividend per share 15.1p 14.8p
Interest cover (times) 10 28
Operating cash flow £176.0m £149.0m
- Excellent performance from Polypipe
- Strong cash generation
- Improving order books
In his Chairman's Statement, Sir Eric Pountain comments
Results and Dividend for 1999
In the interim statement I reported that there were signs that confidence was
returning to many of our major market sectors and I am pleased to say that in
the second half of the year that trend has continued. This puts the Group
overall in a more favourable trading position than at this time last year.
After taking into account seasonal factors, three of our four business areas
had stronger trading in the second half of the year than in the first.
Sales for the year increased to £1,502 million (1998: £1,455 million) and
profit before exceptional items, interest and goodwill amortisation was £160.8
million (1998: £158.2 million). Interest costs were £15.8 million (1998: £5.6
million). Profit before tax, exceptional items and goodwill amortisation was
£145.0 million (1998: £152.6 million).
The tax charge on profit before exceptional items and goodwill amortisation
was 32 per cent (1998: 30 per cent, underlying rate around 33 per cent after
adjusting for the benefit from the foreign income dividend).
Adjusted earnings per share were 28.0p (1998: 30.5p).
The results of Polypipe have been included from the effective acquisition date
of 19 May 1999. Since that date Polypipe made an operating profit of £23.3
million on sales of £191 million and after taking into account interest
charges on the acquisition cost, it is estimated that, prior to goodwill
amortisation of £7.4 million, this acquisition added £10.0 million to profit
before tax and 1.9p to adjusted earnings per share.
Exceptional items of £13.1 million comprise £19.1 million in respect of the
costs for the complete closure of the copper smelting business and the Drinks
Dispense Brazilian operation, offset by a profit of £6 million on the disposal
of Marston's aerospace businesses.
Balance sheet gearing at the year-end was 90 per cent compared with 102 per
cent at the interim stage and interest was covered 10 times by profit before
exceptional items and goodwill amortisation.
The Board recommends an increased final dividend of 9.3p, making the total
dividend for the year 15.1p (1998: 14.8p). Excluding exceptional items and
goodwill amortisation the dividend is covered 1.8 times (1998: 2.0 times).
Strategy
Our major strategic move of the year was the acquisition of Polypipe plc for
£350 million, including fees and expenses. Polypipe, our largest acquisition,
offers a very wide range of plastic products to the building industry and is
the UK market leader in plastic above and below ground drainage products. Its
complementary plastics technology and materials expertise give Hydronic
Controls the capability needed to drive the development of new systems and
products for plumbing and heating applications throughout Europe. In the
seven and a half months since acquisition Polypipe made an excellent
contribution to the Group's results and it continues to trade strongly.
The disposal of the Marston aerospace businesses in March for nearly £17
million brought the total proceeds from our programme of divestment of non-
core activities over the last two years to over £90 million.
We have a continuous process of subjecting all our businesses to efficiency
and cost analysis and during the year we spent in excess of £13 million (1998:
£9 million) on cost reduction and rationalisation measures. However, in the
case of both the copper smelting operation and the Drinks Dispense
manufacturing activity in Brazil, it was evident that we could no longer
justify continuing these businesses.
Since the year-end we have made some small in-fill acquisitions in Hydronic
Controls and Drinks Dispense for a total consideration of £5 million.
Outlook
As the year progressed the economic environment improved and we continued our
drive to enhance both efficiency and market positions. Economic indicators are
pointing to a much improved environment in Europe and the US is maintaining
its growth.
We said in September that orders for the Group as a whole were improving and
that there were growing signs of confidence returning to many of our major
market sectors. We are pleased to be able to say that this continues to be
the case.
The Chief Executive, Gary Allen, comments
When we announced our interim results we were able to report on an improving
situation and, with the exception of Drinks Dispense, we were encouraged to
see a more favourable trading environment across most of our sectoral and
geographic markets in the second half. Whilst pricing pressures continue, the
benefits from sustained capital and revenue investment in improved efficiency
should show rewards in enhanced margins.
Cash flow from operations continued to be strong in 1999, with free cash flow
of £77 million after the expenditure of £64 million on fixed capital.
The acquisition of Polypipe had a significant impact on our results for the
year and operating profit before goodwill amortisation in continuing
operations at £165.0 million (including £23.3 million from Polypipe) was ahead
of the previous year (£159.5 million).
Polypipe has highly efficient manufacturing operations. The excellent quality
of its very broad product range underpins Polypipe's leading market positions
for plastic products in drainage and other construction applications in the
UK. New product initiatives in the hydronics field are particularly
encouraging. In addition to the growth opportunities in the UK, Polypipe
offers potential for growth across Europe through IMI's comprehensive pan-
European distribution network in Hydronic Controls.
The following is an overview of our four business areas where comparisons with
the previous year's turnover and profit relate to continuing operations.
Hydronic Controls
Sales and operating profit before goodwill amortisation were £543 million and
£76.9 million respectively, including the results of Polypipe since
acquisition. Operating profit excluding Polypipe was £53.6 million (1998:
£66.0 million) and sales were £352 million (1998: £389 million). The lower
volumes seen in the first half of the year began to recover in the second half
with some easing of the pressure on prices towards the year-end. The
strengthening of the construction sector in Germany and, in later months, the
UK, was particularly welcome. In Eastern Europe we again achieved excellent
growth as we continued to expand our activities which now span twelve
countries.
Combining our selling and distribution operations in Scandanavia and Germany
resulted in market share gains for both thermostatic radiator and balancing
valves. In addition, the closer integration of our operations has improved
management focus and enhanced our scope for cost reduction initiatives.
Drinks Dispense
Sales were £353 million, down £12 million on the previous year, with much of
the shortfall due to reduced expenditure by one of our major soft drinks
customers and sluggish demand in emerging markets. Continuing efficiency
improvements reduced the impact on operating profit before goodwill
amortisation which was lower at £34.6 million (1998: £38.8 million).
We again proved the value of our approach to global account management by
increasing market share with leading quick service restaurants and soft drinks
customers. However, these successes did not enable us to overcome the
downturn in demand. We continued to upgrade our manufacturing capabilities,
closing down older facilities in both the UK and US, and establishing new
state-of-the-art facilities in Chicago (US) and Brighouse (UK). Our operation
in Brazil was closed at the end of the year. Strong sales and further
improvements in operational efficiency enabled Cannon to continue its
successful record of growth in sales and profit.
Fluid Power
Sales were £435 million (1998: £464 million) and operating profit before
goodwill amortisation reduced by £1.7 million to £38.1 million (1998: £39.8
million) after charging £8.1 million incurred in the integration of Herion and
other rationalisation measures. Our operations in the US made further
progress, particularly in commercial vehicle applications and in the global
automotive assembly market. European markets remained highly competitive but
we saw improving demand during the second six months of the year in some of
our key sectors.
Our investment in improving efficiency and reducing costs brought
significantly higher profit in the second half and will continue to enhance
performance.
Energy Controls
We achieved a 3 per cent increase in operating profit before goodwill
amortisation, which was up from £14.9 million to £15.4 million on sales of
£139 million (1998: £137 million). This profit improvement was the result of
hard won gains in the difficult power, oil and gas sectors and the benefits of
cost reduction measures. With major projects expected to come back on stream
as the Far East recovers, we look forward to making further progress.
Delivering Growth
We constantly review our operations to focus on growth businesses and to exit
from activities where we think the resources can be better deployed or where
we consider the returns are unacceptable. In 1999 this process resulted in;
the acquisition of Polypipe, investment in e-commerce to improve customer
service and open new routes to market, the sale of Marston aerospace and the
closure of copper smelting.
We are more than ever convinced that this combination of sustained investment
in our core activities and unremitting attention to reducing costs is the
right approach to today's competitive global markets.
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 31 December 1999
----------------------------------------------------------------------------
Before
exceptional
items &
goodwill Goodwill Exceptional
amortisation amortisation Items Total
1999 1999 1999 1999
Notes £m £m £m £m
------------------------------------------------------
Turnover 1
Continuing operations 1272.6 1272.6
Acquisitions 197.4 197.4
------------------------------------------------------
Total continuing
operations 1470.0 1470.0
Discontinued
operations 31.8 31.8
------------------------------------------------------
Total turnover 1501.8 1501.8
------------------------------------------------------
Operating profit 1
-----------------------------------------------
Continuing operations 141.4 (1.2) 140.2
Acquisitions 23.6 (7.6) 16.0
-----------------------------------------------
Total continuing
operations 165.0 (8.8) 156.2
Discontinued
operations (4.2) (4.2)
-----------------------------------------------
Operating profit 160.8 (8.8) 152.0
Profit on disposal of
discontinued
operations 2 6.0 6.0
Provision for losses
on closure of
businesses 2 (19.1) (19.1)
------------------------------------------------------
Profit before
interest 160.8 (8.8) (13.1) 138.9
Net interest payable (15.8) (15.8)
------------------------------------------------------
Profit on ordinary
activities before
taxation 145.0 (8.8) (13.1) 123.1
Tax on profit 3 (46.5) 3.2 (43.3)
------------------------------------------------------
Profit on ordinary
activities after
taxation 98.5 (8.8) (9.9) 79.8
Equity minority
interests (0.5) (0.5)
------------------------------------------------------
Profit for the
financial year 98.0 (8.8) (9.9) 79.3
------------------------------------------------------
Dividends paid and
proposed 4 (53.0)
-------
Transfer to reserves 26.3
-------
Earnings per share 5 22.6p
Diluted earnings per
share 5 22.6p
Adjusted earnings per
share 5 28.0p
----------------------------------------------------------------------------
Before
exceptional
items &
goodwill Goodwill Exceptional
amortisation amortisation items Total
1998 1998 1998 1998
Notes £m £m £m £ m
------------------------------------------------------
Turnover 1
Continuing operations 1354.9 1354.9
Acquisitions - -
------------------------------------------------------
Total continuing
operations 1354.9 1354.9
Discontinued
operations 99.7 99.7
------------------------------------------------------
Total turnover 1454.6 1454.6
------------------------------------------------------
Operating profit 1
-----------------------------------------------
Continuing operations 159.5 (0.4) 159.1
Acquisitions - -
-----------------------------------------------
Total continuing
operations 159.5 (0.4) 159.1
Discontinued
operations (1.3) (1.3)
-----------------------------------------------
Operating profit 158.2 (0.4) 157.8
Profit on disposal of
discontinued
operations 2 14.8 14.8
Provision for losses
on closure of
businesses 2
-----------------------------------------------
Profit before
interest 158.2 (0.4) 14.8 172.6
Net interest payable (5.6) (5.6)
-----------------------------------------------
Profit on ordinary
activities before
taxation 152.6 (0.4) 14.8 167.0
Tax on profit 3 (45.7) (4.0) (49.7)
-----------------------------------------------
Profit on ordinary
activities after
taxation 106.9 (0.4) 10.8 117.3
Equity minority
interests (0.3) (0.3)
-----------------------------------------------
Profit for the
financial year 106.6 (0.4) 10.8 117.0
--------------------------------------
Dividends paid and
proposed 4 (51.9)
-------
Transfer to reserves 65.1
-------
Earnings per share 5 33.5p
Diluted earnings per
share 5 33.4p
Adjusted earnings per
share 5 30.5p
GROUP BALANCE SHEET
at 31 December 1999
1999 1998
£m £m
--------------------------
Fixed assets
Intangible assets 246.0 20.1
Tangible assets 392.2 312.5
--------------------------
638.2 332.6
--------------------------
Current assets
Stocks 289.1 252.2
Debtors 301.1 238.1
Investments 3.8 12.6
Cash and deposits 46.4 47.0
--------------------------
640.4 549.9
Creditors:
amounts falling due within one year
Borrowings and finance leases (101.3) (43.9)
Other creditors (314.5) (260.5)
--------------------------
Net current assets 224.6 245.5
--------------------------
Total assets less current liabilities 862.8 578.1
Creditors:
amounts falling due after more than one year
Borrowings and finance leases (333.1) (88.9)
Other creditors (31.0) (26.2)
Provisions for liabilities and charges (69.6) (53.5)
--------------------------
Net assets 429.1 409.5
--------------------------
Capital and reserves
Called up share capital 87.7 87.5
Share premium account 130.8 129.2
Revaluation reserve 1.0 1.0
Other reserves 1.6 1.6
Profit and loss account 208.0 190.2
--------------------------
Equity shareholders' funds 429.1 409.5
--------------------------
GROUP CASH FLOW STATEMENT
for the year ended 31 December 1999
-----------------------------------------------------------------------------
1999 1998
£m £m £m £m
---------------------------------
Reconciliation of operating profit to net
cash inflow from operating activities
Operating profit 152.0 157.8
Depreciation & goodwill amortisation 78.7 55.1
Stocks decrease 3.6 6.4
Debtors decrease 0.7 27.1
Creditors and provisions decrease (13.8) (45.6)
Exceptional items - (3.3)
------- -------
Net cash inflow from operating
activities 221.2 197.5
------- -------
GROUP CASH FLOW STATEMENT
Net cash inflow from operating activities 221.2 197.5
Return on investments and servicing of
finance (16.2) (5.7)
Taxation (30.9) (43.1)
Capital expenditure and financial
investment (45.2) (48.5)
Acquisitions and disposals (268.2) 49.9
Equity dividends paid (52.2) (50.0)
------- -------
Cash flow before use of liquid resources
& financing (191.5) 100.1
Management of liquid resources 8.2 7.9
Financing
Issue of ordinary shares 1.8 4.2
Increase/(decrease) in borrowings 205.8 (127.7)
------- -------
207.6 (123.5)
------- -------
Increase/(decrease) in cash in the year 24.3 (15.5)
------- -------
Reconciliation of net cash to movement in
net borrowings
Increase/(decrease) in cash in the
year 24.3 (15.5)
Cash (inflow)/outflow from borrowings (205.8) 127.7
Cash inflow from decrease in liquid
resources (8.2) (7.9)
------- -------
Change in borrowings resulting from
cash flows (189.7) 104.3
Borrowings assumed with acquisitions (53.6) -
Loan notes issued as part of
acquisition (63.0) -
Currency translation differences 4.1 (1.0)
------- -------
Movement in net borrowings in the
year (302.2) 103.3
Net borrowings at 1 January (85.8) (189.1)
------- -------
Net borrowings at 31 December (388.0) (85.8)
------- -------
RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
for the year ended 31 December 1999
1999 1998
£m £m
Profit for the financial year 79.3 117.0
Dividends (53.0) (51.9)
--------------------
26.3 65.1
Other recognised gains and losses relating to the
financial year (8.5) (0.5)
New ordinary share capital issued 1.8 4.2
Goodwill arising on 1997 acquisitions deducted from
reserves - (4.5)
Previously acquired goodwill taken through the
profit and loss
account in arriving at the profit for the
financial year - 19.8
--------------------
Net increase in shareholders' funds for the year 19.6 84.1
Shareholders' funds at 1 January 409.5 325.4
--------------------
Shareholders' funds at 31 December 429.1 409.5
--------------------------------------------------------------------------
NOTES RELATING TO THE FINANCIAL STATEMENTS
1 Segmental analysis
-------------------------------------
Operating profit
before goodwill
Turnover amortisation
1999 1998 1999 1998
£m £m £m £m
----------------- ------------------
BY ACTIVITY
Hydronic Controls
Continuing operations 352 389 53.6 66.0
Acquisitions 191 - 23.3 -
----------------- ------------------
Hydronic Controls total 543 389 76.9 66.0
----------------- ------------------
Drinks Dispense
Continuing operations 347 365 34.3 38.8
Acquisitions 6 - 0.3 -
----------------- ------------------
Drinks Dispense total 353 365 34.6 38.8
----------------- ------------------
Fluid Power 435 464 38.1 39.8
----------------- ------------------
Energy Controls 139 137 15.4 14.9
----------------- ------------------
Total continuing operations 1470 1355 165.0 159.5
----------------- ------------------
BY GEOGRAPHICAL ORIGIN
UK 445 328 56.5 43.1
Rest of Europe 531 545 55.0 64.8
The Americas 435 425 50.2 49.9
Asia/Pacific 59 57 3.3 1.7
----------------- ------------------
Total continuing operations 1470 1355 165.0 159.5
TURNOVER BY GEOGRAPHICAL DESTINATION
1999 1998
£m £m
----------------
UK 374 254
Germany 220 236
Rest of Europe 353 351
USA 373 356
Asia 55 62
Rest of World 95 96
-----------------
Total continuing operations 1470 1355
---------------------------------------------------------------------------
1 Segmental analysis
---------------------------------------
Operating profit Net assets
1999 1998 1999 1998
£m £m £m £m
------------------- -----------------
BY ACTIVITY
Hydronic Controls
Continuing operations 53.6 66.0
Acquisitions 15.9 -
------------------- -----------------
Hydronic Controls total 69.5 66.0 306 140
------------------- -----------------
Drinks Dispense
Continuing operations 34.2 38.8
Acquisitions 0.1 -
------------------- -----------------
Drinks Dispense total 34.3 38.8 108 118
------------------- -----------------
Fluid Power 37.2 39.4 211 220
------------------- -----------------
Energy Controls 15.2 14.9 36 34
------------------- -----------------
Total continuing operations 156.2 159.1 661 512
---------------------------------------------------------------------------
BY GEOGRAPHICAL ORIGIN
UK 49.1 43.1 296 146
Rest of Europe 54.8 64.8 201 202
The Americas 49.0 49.5 142 142
Asia/Pacific 3.3 1.7 22 22
------------------- ----------------
Total continuing operations 156.2 159.1 661 512
---------------------------------------------------------------------------
1. Segmental analysis (continued)
Acquisitions
Polypipe is reported within Hydronic Controls from its acquisition in May
1999 and Melrose Displays in Drinks Dispense since its acquisition in
January 1999.
1998 comparatives for Fluid Power include sales of £21m (mainly in
Germany) and profits of £0.7m in respect of 1997 relating to the
acquisition of Herion.
Discontinued operations
The amounts shown for discontinued operations comprise the turnover and
operating profits of the IMI Refiners smelting operation (Hydronic
Controls, UK), the Drinks Dispense operation in Brazil and the Marston
aerospace businesses, previously reported within Energy Controls and
located in the UK. 1998 figures also include a number of engineering
businesses disposed of in that year.
2. Exceptional items
Profit on disposal of discontinued operations comprises the surplus
arising on the sale of the Marston aerospace businesses. The profit in
1998 represents the surplus arising on the sale of a number of
engineering businesses disposed of in that year.
Provision for losses on closure of businesses comprises £16.0m for the
complete cessation of copper smelting and £3.1m for closing the Drinks
Dispense Brazilian operation.
3. Taxation
Current UK corporation tax has been provided at the average rate for the
year of 30% (1998: 31%). Deferred tax has been provided at the closing
year end rate of 30% (1998: 30%). The charge for UK corporation tax has
been reduced by double taxation relief of £1.3m (1998: £1.6m). A credit
of £1.2m (1998: charge of £0.6m) is included in respect of deferred
taxation. UK corporation tax includes a credit of nil (1998: £3.5m) for
advance corporation tax.
4. Dividend
The Directors recommend a final dividend of 9.3p per share (1998: 9.1p)
payable on 26 May 2000 to shareholders on the register at close of
business on 14 April 2000, which will absorb £32.7m (1998: £31.9m).
Together with the interim dividend of 5.8p per share paid on 18 October
1999, this makes a total distribution of 15.1p per share (1998: 14.8p per
share).
5. Earnings per ordinary share
The weighted average number of shares in issue during the year was
350.5m, 350.7m diluted for the effect of outstanding share options (1998:
349.5m, 350.7m diluted). Earnings per share have been calculated on
earnings of £79.3m (1998: £117.0m) and adjusted earnings per share have
been calculated on earnings of £98.0m (1998: £106.6m) being the profit
for the year before exceptional items and goodwill amortisation.
Adjusted earnings per share have been shown because the Directors
consider that they give a more meaningful indication of the underlying
performance.
6. Exchange Rates
The profit and loss accounts of overseas subsidiaries 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 relative rates of exchange were:
Average Rates Balance Sheet Rates
1999 1998 1999 1998
------------------- ---------------------
Euro * 1.52 1.49 1.61 1.42
US Dollar 1.62 1.66 1.61 1.66
* 1998 comparatives for the Euro have been derived from the equivalent
Deutschemark rate.
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 1998 or 1999 but is derived
from those accounts. Statutory accounts for 1998 have been delivered to the
Registrar of Companies, and those for 1999 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 1999 Annual Report and Accounts including the notice of the
forthcoming Annual General Meeting will be posted to shareholders on 6 April
2000.
Enquiries to:
Gary Allen - Chief Executive - Tel: 0171 329 0096
Nick Paul - Deputy Chief Executive - Tel: 0171 329 0096
Trevor Slack - Finance Director - Tel: 0171 329 0096
Gerard Whelan - Corporate Communications - Tel: 0171 329 0096
Nigel Gilpin - Controller - Tel: 0121 356 4848
Press release available on the Internet at www.imi.plc.uk
Issued by:
Ben Padovan - Shandwick International - Tel: 0171 329 0096
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