Interim Results
IMI PLC
6 September 1999
IMI plc Interim Results 1999
IMI plc, the major international engineering group, today announced its
interim results for the half year ended 30 June 1999.
1999 1998
Sales £706m £767m
Results before goodwill
amortisation and exceptional
items:
Profit before interest £71.0m £77.2m
Profit before tax £67.4m £73.5m
Adjusted earnings per share 12.7p 14.7p
Dividend per share 5.8p 5.7p
Interest cover (times) 20 21
Gearing 102% 42%
* First half results affected by fall in market demand and expenditure on
cost reduction.
* Excellent contribution from newly acquired Polypipe.
* Strategic and operational actions will enhance future prospects.
Interim Results 1999
Chairman's Statement
As anticipated, the results for the first half were affected by the fall in
market demand seen in the latter months of 1998, and also by expenditure of
£10.2 million (1998: £4.8 million) on cost reduction measures. However, this
was partly offset by an excellent contribution from newly acquired Polypipe.
Sales for the six months were £706 million (1998: £767 million) and profit
before exceptional items, interest and goodwill amortisation was £71.0 million
(1998: £77.2 million). Interest costs were £3.6 million (1998: £3.7 million).
Profit before exceptional items, goodwill amortisation and tax was £67.4
million (1998: £73.5 million).
The tax charge on profit before exceptional items and goodwill amortisation is
34% (1998: 30%, underlying rate 33% after adjusting for benefit from Foreign
Income Dividends).
Adjusted earnings per share was 12.7p (1998: 14.7p).
Since the date of acquisition Polypipe made an operating profit of £9.2
million on sales of £51 million. After taking into account interest charges
on the acquisition cost, it is estimated that Polypipe, prior to goodwill
amortisation of £1.5 million, added £7.0 million to profit before tax and 1.3p
to earnings per share.
Disposal of the Marston aerospace businesses resulted in an exceptional profit
of £6 million.
Balance sheet gearing at 30 June 1999 was 102% and interest cover, excluding
exceptional profits, was 20 times.
The Board has decided to increase the interim dividend to 5.8p (1998: 5.7p).
Trading Review
The comments that follow relate to continuing operations and compare
performance with the first half of 1998.
Hydronic Controls
The contribution from Polypipe in the six weeks between acquisition and the
end of June was encouraging. Excluding Polypipe, Hydronic Controls sales were
down £35 million to £184 million (1998: £219 million). This was the result of
the lower copper price, market weakness and the closure of the Wolverhampton
Metal business at the end of 1998. Results from our German operations were
affected by lower volumes in the early months of the year but improved late in
the period, by which time the UK market was also showing welcome signs of
recovery. TA Hydronics continued to grow its balancing valve products,
especially in Scandinavia. We also continued with the successful rapid
expansion of our Eastern European operations. The reduction in sales volume,
pricing pressure and increasing losses in the copper smelting activity
resulted in operating profit, excluding Polypipe, £4.1 million lower at £22.5
million (1998: £26.6 million). Efforts across the businesses to cut costs and
preserve margins are proving effective.
Drinks Dispense
Sales and operating profit were £192 million (1998: £196 million) and £20.2
million (1998: £21.4 million) respectively. General weakness in Western Europe
and Asia, together with a slowdown in activity with one of our major soft
drinks customers, particularly towards the end of the second quarter, reduced
sales by 2% and will continue to impact in the second half of the year. Market
reaction to a number of new product releases has, however, been positive which
augers well for medium term prospects. Melrose Displays, acquired in
January, is settling in well with Cannon's successful point of purchase
equipment business.
Fluid Power
Operating profit was £13.3 million (1998: £20.7 million) after planned
rationalisation costs of £6.5 million (1998: £1.8 million). At £214 million,
(1998: £244 million) sales were lower than last year's strong performance as
the weakness in market demand experienced in the later months of 1998
continued. This affected sales to the North American automotive assembly
market, but increased incoming orders provide a good platform for the second
half. The rest of North America proved fairly robust and we made further
useful progress in the commercial vehicle market. Volumes continued at second
half 1998 levels in the UK but declined in Continental Europe, particularly in
Germany. Price competition intensified throughout Europe. The integration of
Herion and other rationalisation measures continued throughout the Group
leading to a lower operating cost base and to a 10% reduction in the
workforce. Encouragingly, the order book improved as the year progressed.
Energy Controls
Sales were £59 million (1998: £65 million) and operating profit £5.2 million
(1998: £6.0 million). CCI increased sales of severe service valves in the USA
but this was more than offset by lower sales in the Asia Pacific region
following the low order intake in the second half of 1998. Nuclear Components
made good progress but Mecafrance and Safety Systems experienced reduced
demand. Eley sporting ammunition improved profit on lower sales. Prospects
in Energy Controls for the second half are encouraging.
Strategic Development
We were delighted with the outcome of our recommended bid for Polypipe, which
was launched on 15 April 1999 and declared unconditional on 19 May 1999. The
total cost of the acquisition, including fees and expenses of both IMI and
Polypipe, was £350 million.
This, our largest acquisition to date, further advanced our strategy of adding
new products, materials and market opportunities to our own impressive
portfolio. The integration of Polypipe's operations will be achieved without
significant rationalisation costs and we continue to be encouraged by the
opportunities for development which the combined businesses present.
In March we disposed of the Marston aerospace businesses for £16.6 million.
After a strategic review of the smelting business of IMI Refiners we have
concluded that the current unacceptable results are unlikely to improve
materially. Consequently, we are proposing, subject to consultation, to close
the smelting operation at an exceptional cost of around £20 million (estimated
cash impact £10 million).
Outlook
Orders for the Group as a whole are now improving and there are growing signs
of confidence returning to many of our major market sectors. We continue to
implement cost reduction measures to lower our cost base. The strategic and
operational actions we have taken will enhance future prospects.
GROUP PROFIT AND LOSS ACCOUNT
---------------------------------------------------------------------
Before
exceptional
items and
goodwill Goodwill Exceptional
amortisation amortisation items
Notes £m £m £m
---------------------------------------------
Turnover 1
Continuing operations 646
Acquisitions 54
---------------------------------------------
Total continuing
operations 700
Discontinued
operations 6
--------------------------------------------
Total turnover 706
---------------------------------------------
Operating profit
-------------------------------------
Continuing operations 1 61.1 (0.4)
Acquisitions 9.3 (1.6)
-------------------------------------
Total continuing
operations 70.4 (2.0)
Discontinued
operations 0.6
--------------------------------------
Operating profit 71.0 (2.0)
Net interest payable (3.6)
---------------------------------------------
Profit before
exceptional items and
taxation 67.4 (2.0)
Profit on disposal of
discontinued
operations 2 6.0
---------------------------------------------
Profit before taxation 67.4 (2.0) 6.0
Tax on profit 3 (22.9) - (2.0)
---------------------------------------------
Profit after taxation 44.5 (2.0) 4.0
Equity minority
interests -
---------------------------------------------
Profit for the period 44.5 (2.0) 4.0
---------------------------------------------
Dividends paid and
proposed 4
Transfer to reserves
Earnings per share 5
Diluted earnings per
share 5
Adjusted earnings per
share 5
------------------------------------------------------------------------------
6 months to 6 months to Year to
30 June 30 June 31 December
1999 1998 1998
Total Total Total
Notes £m £m £m
--------------------------------------------
Turnover 1
Continuing operations 646 724 1402
Acquisitions 54 - -
-------------------------------------------
Total continuing
operations 700 724 1402
Discontinued operations 6 43 53
-------------------------------------------
Total turnover 706 767 1455
-------------------------------------------
Operating profit 1
--------------------------------------
Continuing operations 60.7 74.7 154.3
Acquisitions 7.7 - -
--------------------------------------
Total continuing
operations 68.4 74.7 154.3
Discontinued operations 0.6 2.5 3.5
--------------------------------------
Operating profit 69.0 77.2 157.8
Net interest payable (3.6) (3.7) (5.6)
--------------------------------------------
Profit before
exceptional items and
taxation 65.4 73.5 152.2
Profit on disposal of
discontinued operations 2 6.0 14.8 14.8
--------------------------------------------
Profit before taxation 71.4 88.3 167.0
Tax on profit 3 (24.9) (26.1) (49.7)
-------------------------------------------
Profit after taxation 46.5 62.2 117.3
Equity minority
interests - - (0.3)
-------------------------------------------
Profit for the period 46.5 62.2 117.0
Dividends paid and
proposed 4 (20.3) (20.0) (51.9)
-------------------------------------
Transfer to reserves 26.2 42.2 65.1
-------------------------------------
Earnings per share 5 13.3p 17.8p 33.5p
Diluted earnings per
share 5 13.3p 17.7p 33.4p
Adjusted earnings per
share 5 12.7p 14.7p 30.5p
GROUP BALANCE SHEET
--------------------------------------------------------------------------
30 June 30 June 31 December
1999 1998 1998
Notes £m £m £m
--------------------------------------------
Fixed assets
Tangible assets 410.8 306.6 312.5
Goodwill 6 251.5 17.5 20.1
-------------------------------------
662.3 324.1 332.6
-------------------------------------
Current assets
Stocks 295.5 256.7 252.2
Debtors 334.7 296.0 238.1
Investments 4.8 12.6 12.6
Cash and deposits 77.9 48.4 47.0
-------------------------------------
712.9 613.7 549.9
Creditors:
amounts falling due within
one year
Borrowings and finance
leases (113.1) (36.8) (43.9)
Other creditors (338.2) (268.2) (260.5)
-------------------------------------
Net current assets 261.6 308.7 245.5
-------------------------------------
Total assets less current
liabilities 923.9 632.8 578.1
Creditors:
amounts falling due after
more than one year
Borrowings and finance
leases (411.4) (172.7) (88.9)
Other creditors (25.9) (27.9) (26.2)
Provisions for liabilities
and charges 7 (50.1) (45.4) (53.5)
-------------------------------------
Net assets 436.5 386.8 409.5
-------------------------------------
-------------------------------------
Capital and reserves
Called up share capital 87.6 87.5 87.5
Share premium account 129.9 128.2 129.2
Revaluation reserve 1.0 1.0 1.0
Other reserves 1.6 1.6 1.6
Profit and loss account 216.4 168.5 190.2
-------------------------------------
Equity shareholders' funds 436.5 386.8 409.5
-------------------------------------
-------------------------------------
GROUP CASH FLOW STATEMENT
---------------------------------------------------------------------------
6 months to 6 months to Year to
30 June 30 June 31 December
1999 1998 1998
Notes £m £m £m
-------------------------------------------
Reconciliation of operating
profit to net cash
inflow from operating
activities
Operating profit 69.0 77.2 157.8
Depreciation/amortisation 30.0 26.2 55.1
Stocks decrease/(increase) 1.9 (9.3) 6.4
Debtors (increase)/decrease (38.3) (57.5) 27.1
Creditors and provisions
increase/(decrease) 5.5 4.8 (45.6)
Exceptional items - (2.1) (3.3)
--------------------------------------------
Net cash inflow from
operating activities 8 68.1 39.3 197.5
--------------------------------------------
--------------------------------------------
CASH FLOW STATEMENT
Net cash inflow from
operating activities 68.1 39.3 197.5
Return on investments and
servicing of finance 8 (3.2) (3.9) (5.7)
Taxation (18.2) (18.0) (43.1)
Capital expenditure and
financial investment (12.8) (19.3) (48.5)
Acquisitions and disposals 8 (319.0) 55.6 49.9
Equity dividends paid (31.9) (30.0) (50.0)
--------------------------------------------
Cash flow before use of
liquid resources and (317.0) 23.7 100.1
financing
Management of liquid
resources 1.4 (3.7) 7.9
Financing
Issue of ordinary shares 0.8 3.1 4.2
Increase/(decrease) in
borrowings 8 361.7 (24.7) (127.7)
--------------------------------------------
362.5 (21.6) (123.5)
--------------------------------------------
Increase/(decrease) in cash
in the period 46.9 (1.6) (15.5)
--------------------------------------------
--------------------------------------------
Reconciliation of net cash to
movement
in net borrowings
Increase/(decrease) in cash
in the period 46.9 (1.6) (15.5)
Cash (inflow)/outflow from
borrowings (361.7) 24.7 127.7
Cash (inflow)/outflow from
movement in liquid resources (1.4) 3.7 (7.9)
--------------------------------------------
Change in borrowings
resulting from cash flows (316.2) 26.8 104.3
Borrowings assumed with
acquisitions (49.0) (3.3) -
Currency translation
differences 4.4 4.5 (1.0)
--------------------------------------------
Movement in net borrowings
in the period (360.8) 28.0 103.3
Net borrowings at start of
period (85.8) (189.1) (189.1)
--------------------------------------------
Net borrowings at end of
period (446.6) (161.1) (85.8)
--------------------------------------------
--------------------------------------------
STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES
---------------------------------------------------------------------------
6 months 6 months Year to
to 30 June to 30 June 31 December
1999 1998 1998
£m £m £m
------------------------------------
Profit for the period 46.5 62.2 117.0
Currency translation differences - (3.7) (0.2)
------------------------------------
Total recognised gains and losses
for the period 46.5 58.5 116.8
------------------------------------
GROUP HISTORICAL COST PROFITS AND LOSSES
---------------------------------------------------------------------------
There is no material difference between the profit before taxation and the
retained profit for each period
as shown in the Group profit and loss account and their historical cost
equivalent.
RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
---------------------------------------------------------------------------
6 months 6 months Year to
to 30 June to 30 June 31 December
1999 1998 1998
£m £m £m
------------------------------------
Profit for the period 46.5 62.2 117.0
Dividends (20.3) (20.0) (51.9)
------------------------------------
26.2 42.2 65.1
Other recognised gains and losses
relating to the period - (3.7) (0.2)
Contributions to the Quest - - (0.3)
New ordinary share capital issued 0.8 3.1 4.2
Goodwill on acquisitions made during
prior periods - - (4.5)
Purchased goodwill on businesses
sold - 19.8 19.8
------------------------------------
Net increase in shareholders' funds
for the period 27.0 61.4 84.1
Shareholders' funds at start of
period 409.5 325.4 325.4
------------------------------------
Shareholders' funds at end of period 436.5 386.8 409.5
------------------------------------
------------------------------------
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. Segmental Analysis
Turnover Operating Profit
----------------------- ---------------------
6 mths 6 mths Year 6 mths 6 mths Year
to to to to to to
30 June 30 June 31 Dec 30 June 30 June 31 Dec
1999 1998 1998 1999 1998 1998
£m £m £m £m £m £m
------------------------ -----------------------
(i) by class of
business:
Hydronic
Controls 235 219 431 31.7 26.6 61.5
Drinks Dispense 192 196 370 20.2 21.4 38.5
Fluid Power 214 244 464 13.3 20.7 39.8
Energy Controls 59 65 137 5.2 6.0 14.9
------------------------ -----------------------
Continuing
operations 700 724 1402 70.4 74.7 154.7
------------------------ -----------------------
(ii) by geographical
origin:
UK 208 195 370 21.7 18.8 38.6
Rest of Europe 245 280 545 23.2 30.1 64.8
The Americas 217 219 430 24.4 25.5 49.6
Asia/Pacific 30 30 57 1.1 0.3 1.7
----------------------- -----------------------
Continuing
operations 700 724 1402 70.4 74.7 154.7
------------------------ -----------------------
turnover by
(iii) geographical
destination:
UK 161 151
Germany 103 133
Rest of Europe 176 176
USA 187 183
Asia 26 30
Rest of World 47 51
---------------
Continuing
operations 700 724
---------------
1. Segmental
Analysis
Operating Assets
-------------------------
30 June 30 June 31 Dec
1999 1998 1998
£m £m £m
-------------------------
(i) by class of
business:
Hydronic
Controls 320 159 148
Drinks Dispense 139 135 121
Fluid Power 200 257 220
Energy Controls 58 36 34
-------------------------
Continuing
operations 717 587 523
-------------------------
(ii) by geographical
origin:
UK 310 170 154
Rest of Europe 227 223 202
The Americas 156 173 145
Asia/Pacific 24 21 22
-------------------------
Continuing
operations 717 587 523
--------------------------
Acquisitions
Acquisitions comprise sales of £51m and operating profit of £9.2 m in respect
of Polypipe and sales of £3m and profit of £0.1m in respect of Melrose
Displays.
Polypipe is reported within Hydronic Controls from its acquisition in May 1999
and Melrose Displays in Drinks Dispense since its acquisition in January 1999.
Profits are stated before goodwill amortisation of £1.6m.
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 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 of £6m relates to the sale
of the Marston aerospace businesses. The profit in 1998 comprises the
surplus arising on the sale of a number of engineering businesses
disposed of in that year.
3. Taxation
The effective tax rate on the profit before exceptional items and
goodwill amortisation is 34% (year 1998: 30%, underlying rate 33% after
adjusting for the benefit from Foreign Income Dividends).
4. Dividends
The Directors have declared an interim dividend for the current year of
5.8p per share (six months to 30 June 1998: 5.7p) which will be paid on
18 October 1999 to shareholders on the register on 17 September 1999.
5. Earnings per share
The weighted average number of shares in issue during the period was
350.3m, 350.5m diluted for the effect of outstanding share options (six
months to 30 June 1998: 349.0m, 351.4m diluted). Earnings per share have
been calculated on earnings of £46.5m, (six months to 30 June 1998:
£62.2m) and adjusted earnings per share on earnings of £44.5m (six months
to 30 June 1998: £51.4m). Adjusted earnings per share figures exclude
goodwill amortisation and exceptional items and have been shown because
the Directors consider that they give a more meaningful indication of the
underlying performance.
6. Goodwill
Goodwill on businesses acquired in the first half of 1999 was £230m in
respect of Polypipe and £3m in respect of other acquisitions. An
assessment of the fair value of Polypipe assets has not yet been made.
This will be finalised during the second half of the year.
7. Provisions for liabilities and charges
To comply with the recently published Financial Reporting Standard
('FRS') 12 Provisions, Contingent Liabilities and Contingent Assets, a
new policy has been adopted by the Group and is applied for the first
time in this Interim Report. Adoption of the standard has had no
material impact on any reported figures.
8. Cash flow
Of the £68.1m net cash inflow from operating activities, £20.4m was
contributed by Polypipe and of the £3.2m servicing of finance charge,
£2.2m resulted from the acquisition of Polypipe.
Acquisitions and disposals outflow represents £330.5m relating to
Polypipe and £5.1m relating to Melrose less £16.6m received from the
disposal of the Marston aerospace businesses. A further £12m outflow in
relation to Polypipe occurred in July 1999.
The acquisition of Polypipe was funded by increased borrowings.
9. Exchange rates
The profit and loss accounts of overseas subsidiaries are translated into
sterling at average rates of exchange for the period, balance sheets are
translated at period end rates. The main currencies are:
Average period rates Balance sheet rates
--------------------- ---------------------------
June June Dec 30 June 30 June 31 Dec
1999 1998 1998 1999 1998 1998
------ ------ ------ ------- ------- ---------
Deutschemark 2.91 2.98 2.92 2.99 3.01 2.77
US Dollar 1.62 1.65 1.66 1.58 1.67 1.66
10. Year 2000
The Group continues to monitor progress against detailed Year 2000 action
plans. Most business critical systems are now compliant and those minor
issues remaining will be resolved well before the end of the year.
11. Financial information
This interim statement has been reviewed by the Group's auditors having
regard to the bulletin Review of Interim Financial Information, issued by
the Auditing Practices Board. A copy of their unqualified review opinion
is attached.
The comparative figures for the year ended 31 December 1998 are not the
Company's statutory accounts for that financial year. Those accounts
have been reported on by the Company's auditors and delivered to the
Registrar of Companies. The report of the auditors was unqualified and
did not contain a statement under Section 237(2) or (3) of the Companies
Act 1985.
The Interim Report will be posted to shareholders on 9 September 1999 and
will be available from the same date at the Company's registered office,
Kynoch Works, Witton, Birmingham, B6 7BA.
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
Independent review report by KPMG Audit Plc to IMI plc
Introduction
We have been instructed by the company to review the financial
information set out on pages 3 to 9 and we have read the other
information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
Directors' responsibilities
The interim report, including the financial information contained
therein, is the responsibility of, and has been approved by, the
directors. The Listing Rules of the London Stock Exchange require that
the accounting policies and presentation applied to the interim figures
should be consistent with those applied in preparing the preceding annual
accounts except where they are to be changed in the next annual accounts
in which case any changes, and the reasons for them, are to be disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4: Review of interim financial information issued by the Auditing
Practices Board. A review consists principally of making enquiries of
group management and applying analytical procedures to the financial
information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been consistently
applied unless otherwise disclosed. A review is substantially less in
scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly
we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for the six
months ended 30 June 1999.
KPMG Audit Plc
Chartered Accountants
Birmingham
Friday, 22nd November 2024
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