Interim Results

IMI PLC 09 September 2002 9 September 2002 IMI plc presents its First Half Results IMI plc, the major international engineering group, today announced its interim results for the six months ended 30 June 2002. 2002 2001 Sales Â£826m Â£847m Results before rationalisation & restructuring * Profit before tax Â£66.0m Â£68.6m Adjusted earnings per share 12.5p 14.5p Rationalisation & restructuring Â£14.1m Â£11.8m Net borrowings Â£329m Â£414m Gearing 65% 81% Interest cover before rationalisation & restructuring * 8x 6x * Before goodwill amortisation and exceptional items - Solid progress with strategic initiatives - Another strong cash performance - Interim dividend maintained at 6.0p CHAIRMAN'S STATEMENT New products and market share gains limited volume reduction to around 2% compared to the first half of last year. Market conditions generally remain subdued. We have pressed ahead with our restructuring measures and investment programme. We have made solid progress with the transfer of manufacturing activities to Mexico and China and are on target for our new plants in the Czech Republic to be fully operational early next year. Overhead reduction is being achieved as we continue with the streamlining of our businesses. Resources in technology, customer relationship management and e-commerce, particularly our beverage aftermarket initiative (Bevcore), have all been increased. The drive to reshape the Group is continuing. Earlier this year we announced the sale of the Eley shotgun cartridge business and the acquisition of STI in our Severe Service business. In August we completed the sale of the Copper Fittings business for Â£65m and acquired DCI Marketing in our Merchandising Systems business for Â£43m. Since January 2001 we have realised Â£120m from the sale of businesses and spent Â£90m on acquisitions. Cash generation remains sharply in focus and it is pleasing to report another strong performance with operating cash flow after restructuring increasing to Â£60m, compared to Â£48m in the first half of last year. Free cash flow before dividend was Â£50m (2001: Â£21m). When we embarked on our repositioning of IMI it was our intention to maintain dividends throughout the period of restructuring. The interim dividend is being maintained at 6.0p at a cost of Â£21m. Results Summary Reported sales at Â£826m compare with Â£847m last year. After adjusting for acquisitions and first half disposals, organic sales were Â£15m (2%) lower. Operating profit before restructuring costs was Â£75.5m (2001: Â£82.6m) after revenue investments of Â£9m (2001: Â£1m). The interest charge at Â£9.5m was Â£4.5m lower, leaving profit before rationalisation and restructuring costs, goodwill amortisation and exceptional items down 4% at Â£66m (2001: Â£68.6m). Rationalisation and restructuring costs charged against profit were Â£14.1m (2001: Â£11.8m), resulting in profit before tax, goodwill amortisation and exceptional items of Â£51.9m (2001: Â£56.8m). For 2002 the effective rate of tax on profit before goodwill amortisation and exceptional items, is expected to be 32%. The 2001 tax charge benefited from overseas tax credits on profit distributions and the effective rate was 25%, with the underlying rate the same as this year at 32%. Adjusted earnings per share (before rationalisation and restructuring costs, goodwill amortisation and exceptional items) were 12.5p (2001: 14.5p). It is estimated that the first half 2001 adjusted earnings per share benefited by 1.3p from the reduction in the tax charge. Borrowings at the end of June were Â£329m, a reduction of Â£16m from the end of December 2001 and Â£85m from the end of June last year. Gearing was 65% (June 2001: 81%; December 2001: 70%). Interest cover for the six months based on operating profit before rationalisation and restructuring costs was 8 times (2001: 6 times) and after rationalisation and restructuring costs, 6.5 times (2001: 5 times). OPERATIONS REVIEW Fluid Controls Our Severe Service valves business continued its record of growth with another increase in sales and profit. Strong new valve shipments and a growing order intake underpin our decision to continue the investment in specialist sales engineers and capacity expansion. The new facility in Tijuana, Mexico is coming on stream and STI of Italy, purchased earlier in the year, has been integrated fully. Fluid Power volumes remain disappointing, around 9% lower than the first half of last year. This included a difficult second quarter at our automotive tooling subsidiary, ISI. The momentum behind the cost reduction initiatives is gathering pace with a good start to manufacturing in Mexico and simplification of the infrastructure leading to reductions in headcount. The pace will accelerate in the second half and the new facility in the Czech Republic is expected to be fully operational early in 2003. Indoor Climate, as expected, suffered lower volumes in Germany but the impact on profit was restricted by cost saving initiatives. Implementation of the downsizing of the German operations is continuing and benefits will materialise in the second half. Balancing valve volumes generally are about level with last year. We again added to our European commissioning capability with the purchase of a small French service company in June. Retail Dispense Beverage Dispense sales in the US included the roll out of the major order for new frozen carbonated beverage equipment received late last year, most of which was shipped in the first half of this year. The benefit of this order has more than absorbed the expected costs arising from the closure of two US plants and transfers to Mexico and China, and the investment cost of establishing Bevcore . Underlying volumes were generally around 3% ahead of last year. Merchandising Systems continued to see low levels of demand with some customers' advertising and promotional spend remaining on hold since the events of 11 September 2001. We are confident that this market will see strong long term growth and were pleased to secure the acquisition of DCI Marketing in early August. With this addition, the pro forma annual sales of our Merchandising Systems business are around $250m, up from $100m in 2000. Building Products In Building Products, the pipe businesses within Polypipe performed well despite upward pressure on PVC prices. Elsewhere in Polypipe the results were mixed. Copper Tube had a difficult period with a rising copper price putting pressure on margins. Our Copper Fittings business, which was sold in August, had a solid six months trading performance. Outlook We are not anticipating any improvement in general market conditions in the near term. As a result of our restructuring and rationalisation, however, the Group is better equipped to manage in difficult trading environments, and we remain confident of reporting progress for the year as a whole. GROUP PROFIT AND LOSS ACCOUNT 6 months to 30 June 2002 Restructuring, Before goodwill restructuring, amortisation goodwill and & exceptional exceptionals items Total Notes Â£m Â£m Â£m _______________________________________________ Turnover Continuing operations 1 784 784 Discontinued operations 42 42 _______________________________________________ Total turnover 826 826 _______________________________________________ Operating profit 1 _______________________________________________ Continuing operations before rationalisation and restructuring 71.7 71.7 Rationalisation/restructuring (14.1) (14.1) Goodwill amortisation (8.4) (8.4) _______________________________________________ Total continuing operations 71.7 (22.5) 49.2 Discontinued operations 3.8 3.8 _______________________________________________ Operating profit 75.5 (22.5) 53.0 Exceptional items Profit on disposal of discontinued operations 1.0 1.0 Profit on disposal of property 2.5 2.5 _______________________________________________ Profit before interest 75.5 (19.0) 56.5 Net interest payable (9.5) (9.5) _______________________________________________ Profit on ordinary activities before taxation 66.0 (19.0) 47.0 Tax on profit 2 (21.1) 5.1 (16.0) _______________________________________________ Profit on ordinary activities 44.9 (13.9) 31.0 after taxation Equity minority interests (0.9) (0.9) _______________________________________________ Profit for the financial year 44.0 (13.9) 30.1 _______________________________________ Dividends paid and proposed 3 (21.1) ________ Transfer to reserves 9.0 ________ Adjusted earnings per share 4 12.5p Earnings per share 4 8.5p Diluted earnings per share 4 8.5p GROUP PROFIT AND LOSS ACCOUNT Continued Six months to Year to 30 June 2001 31 December 2001 Before Before restructuring, restructuring, goodwill and goodwill and exceptionals Total exceptionals Total Â£m Â£m Â£m Â£m _______________________________________________ Turnover Continuing operations 1 778 778 1526 1526 Discontinued operations 69 69 116 116 _______________________________________________ Total turnover 847 847 1642 1642 _______________________________________________ Operating profit 1 _______________________________________________ Continuing operations before rationalisation and restructuring 77.9 77.9 139.9 139.9 Rationalisation/restructuring (11.1) (39.2) Goodwill amortisation (8.0) (16.4) _______________________________________________ Total continuing operations 77.9 58.8 139.9 84.3 Discontinued operations 4.7 4.0 11.5 6.1 _______________________________________________ Operating profit 82.6 62.8 151.4 90.4 Exceptional items Profit on disposal of discontinued operations 19.6 20.3 Profit on disposal of property 1.0 _______________________________________________ Profit before interest 82.6 82.4 151.4 111.7 Net interest payable (14.0) (14.0) (25.3) (25.3) _______________________________________________ Profit on ordinary activities before taxation 68.6 68.4 126.1 86.4 Tax on profit 2 (17.1) (14.7) (31.6) (21.2) _______________________________________________ Profit on ordinary activities after taxation 51.5 53.7 94.5 65.2 Equity minority interests (0.4) (0.4) (0.7) (0.7) _______________________________________________ Profit for the financial year 51.1 53.3 93.8 64.5 ________ ________ Dividends paid and proposed 3 (21.1) (54.5) _______ ________ Transfer to reserves 32.2 10.0 _______ ________ Adjusted earnings per share 4 14.5p 26.7p Earnings per share 4 15.2p 18.3p Diluted earnings per share 4 15.2p 18.3p GROUP BALANCE SHEET 30 June 30 June 31 December 2002 2001 2001 restated Â£m Â£m Â£m _______________________________ Fixed assets Intangible assets 291.1 306.6 298.0 Tangible assets 361.7 374.6 373.0 _______________________________ 652.8 681.2 671.0 Current assets _______________________________ Stocks 313.5 328.4 312.2 Debtors 342.0 380.9 311.1 Investments 8.0 2.1 7.7 Cash and deposits 67.9 59.0 58.2 _______________________________ 731.4 770.4 689.2 Creditors: amounts falling due within one year Borrowings and finance leases (149.3) (123.5) (141.5) Other creditors (348.0) (344.6) (330.6) _______________________________ Net current assets 234.1 302.3 217.1 _______________________________ Total assets less current liabilities 886.9 983.5 888.1 Creditors: amounts falling due after more than one year Borrowings and finance leases (248.0) (349.8) (262.0) Other creditors (22.9) (29.9) (24.3) Provisions for liabilities and charges (109.7) (90.7) (108.5) _______________________________ Net assets 506.3 513.1 493.3 =============================== Capital and reserves Called up share capital 87.9 87.9 87.9 Share premium account 133.0 132.3 132.4 Revaluation reserve 1.0 1.0 1.0 Other reserves 1.6 1.6 1.6 Profit and loss account 279.7 287.5 267.8 _______________________________ Equity shareholders' funds 503.2 510.3 490.7 _______________________________ Minority interests 3.1 2.8 2.6 _______________________________ 506.3 513.1 493.3 =============================== GROUP CASH FLOW STATEMENT 6 months to 6 months to Year to 30 June 30 June 31 December 2002 2001 2001 Â£m Â£m Â£m _______________________________ Reconciliation of operating profit to net cash inflow from operating activities Operating profit 53.0 62.8 90.4 Depreciation/amortisation 44.0 42.1 87.1 Stocks decrease/(increase) 0.9 (12.2) 1.8 Debtors (increase)/decrease (35.4) (42.0) 37.7 Creditors and provisions increase 17.7 22.9 3.7 ________________________________ Net cash inflow from operating activities 80.2 73.6 220.7 ________________________________ CASH FLOW STATEMENT Net cash inflow from operating activities 80.2 73.6 220.7 Return on investments and servicing of finance (11.4) (14.1) (25.8) Taxation (0.2) (14.3) (27.0) Capital expenditure and financial investment (19.1) (24.3) (60.4) Acquisitions and disposals (2.5) 8.1 6.5 Equity dividends paid (33.4) (33.4) (54.5) _________________________________ Cash flow before use of liquid resources and financing 13.6 (4.4) 59.5 Management of liquid resources (15.8) (4.3) 2.5 Financing Issue of ordinary shares 0.7 0.2 0.3 Increase/(decrease) in borrowings 2.4 21.8 (44.2) ________________________________ 3.1 22.0 (43.9) ________________________________ Increase in cash in the period 0.9 13.3 18.1 ================================ Reconciliation of net cash to movement in net borrowings Increase in cash in the period 0.9 13.3 18.1 Cash (inflow)/outflow from borrowings (2.4) (21.8) 44.2 Cash outflow/(inflow) from movement in liquid resources 15.8 4.3 (2.5) ________________________________ Change in borrowings resulting from cash flows 14.3 (4.2) 59.8 Cash assumed with acquisitions 0.6 - - Currency translation differences 1.0 (7.1) (2.1) ________________________________ Movement in net borrowings in the period 15.9 (11.3) 57.7 Net borrowings at start of period (345.3) (403.0) (403.0) ________________________________ Net borrowings at end of period (329.4) (414.3) (345.3) ================================ STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES 6 months 6 months Year to to 30 June to 30 June 31 December 2002 2001 2001 Â£m Â£m Â£m ________________________________ Profit for the period 30.1 53.3 64.5 Currency translation differences 2.9 (3.9) (1.5) Total recognised gains and losses ________________________________ for the period 33.0 49.4 63.0 Prior year adjustment from adoption ====================== of FRS19: Deferred tax (1.9) ___________ 61.1 =========== 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 2002 2001 2001 restated Â£m Â£m Â£m ________________________________ Profit for the period 30.1 53.3 64.5 Dividends (21.1) (21.1) (54.5) ________________________________ 9.0 32.2 10.0 Previously written off goodwill taken through profit & loss account in arriving at the profit for the period - 5.7 5.8 Other recognised gains and losses relating to the period 2.9 (3.9) (1.5) New ordinary share capital issued 0.6 0.2 0.3 _______________________________ Net increase in shareholders' funds for the period 12.5 34.2 14.6 Shareholders' funds at start of period 490.7 476.1 476.1 _______________________________ Shareholders' funds at end of period 503.2 510.3 490.7 =============================== NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. Segmental Analysis Turnover Operating Profit Operating Assets __________________ ____________________ __________________ 6 mths 6 mths Year 6 mths 6 mths Year 6 mths 6 mths Year to to to to to to to to to 30 30 31 30 30 31 30 30 31 June June Dec June June Dec June June Dec 2002 2001 2001 2002 2001 2001 2002 2001 2001 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m ___________________ ____________________ __________________ (i) by activity: before goodwill amortisation and rationalisation/restructuring Fluid Controls 328 342 682 29.3 36.2 64.9 265 283 246 ____________________________________________ ____________________ _________________ Severe Service 69 55 132 7.4 5.4 13.8 32 22 29 Fluid Power 196 219 416 11.9 19.4 29.0 194 216 189 Indoor Climate 63 68 134 10.0 11.4 22.1 39 45 28 ____________________________________________ ____________________ _________________ Retail Dispense 223 189 382 22.6 19.4 37.2 130 146 125 ____________________________________________ ____________________ _________________ Beverage Dispense 174 148 291 17.7 14.4 27.2 109 125 99 Merchandising Systems 49 41 91 4.9 5.0 10.0 21 21 26 ____________________________________________ ____________________ _________________ Building Products 233 247 462 19.8 22.3 37.8 187 223 205 _________________ ____________________ _________________ Total continuing operations 784 778 1526 71.7 77.9 139.9 582 652 576 _________________ ____________________ _________________ after goodwill amortisation and rationalisation/restructuring Fluid Controls 23.4 26.8 34.3 __________________________________________________________________ Severe Service 7.2 5.3 13.5 Fluid Power 7.3 10.5 3.4 Indoor Climate 8.9 11.0 17.4 __________________________________________________________________ Retail Dispense 14.7 17.2 27.7 __________________________________________________________________ Beverage Dispense 10.4 12.4 18.5 Merchandising Systems 4.3 4.8 9.2 __________________________________________________________________ Building Products 11.1 14.8 22.3 ___________________ Total continuing operations 49.2 58.8 84.3 ___________________ (ii) by geographical origin: after goodwill amortisation and rationalisation/restructuring UK 256 269 503 15.5 20.1 24.7 209 256 223 Rest of Europe 241 262 505 20.4 23.1 28.8 209 208 180 The Americas 258 222 467 11.2 14.3 28.0 150 173 160 Asia/Pacific 29 25 51 2.1 1.3 2.8 14 15 13 ________________ __________________ __________________ Total continuing operations 784 778 1526 49.2 58.8 84.3 582 652 576 ________________ __________________ __________________ (iii) turnover by geographical destination: 6 mths 6 mths Year to to to 30 June 30 June 31 Dec 2002 2001 2001 Â£m Â£m Â£m ______________________ UK 222 233 432 Germany 82 92 180 Rest of Europe 172 187 356 USA 232 196 401 Asia 44 30 76 Rest of World 32 40 81 Total continuing _____________________ operations 784 778 1526 _____________________ 1. Segmental Analysis (continued) Discontinued operations The amounts shown for discontinued operations comprise the turnover and operating profits for the copper fittings businesses sold in August 2002 and the Eley shotgun cartridge business sold in February 2002. Both businesses were previously reported in Building Products and UK and Rest of Europe. 2001 comparatives also include a number of valve companies sold in June 2001 which were located in the UK, France and US. Rationalisation/restructuring Rationalisation/restructuring charge is analysed as follows: 6 months to 6 months to Year to 30 Jun 2002 30 Jun 2002 31 Dec 2001 Â£m Â£m Â£m _______________________________ Shown as rationalisation/restructuring of continuing operations 14.1 11.1 39.2 Included within discontinued operations - 0.7 5.4 Total rationalisation/restructuring _______________________________ charge 14.1 11.8 44.6 _______________________________ 2. Taxation The tax rate on profit before goodwill amortisation and exceptional items is around 32%, the same as the underlying rate last year. The actual rate in 2001 was 25%, resulting from repatriation of overseas earnings from prior years. Comparative figures have been restated where necessary following the adoption of FRS19: Deferred tax as at 31 December 2001. 3. Dividends The Directors have declared an interim dividend for the current year of 6.0p per share (six months to 30 June 2001: 6.0p) which will be paid on 21 October 2002 to shareholders on the register on 20 September 2002. 4. Earnings per share The weighted average number of shares in issue during the period was 351.6m, 352.9m diluted for the effect of outstanding share options (six months to 30 June 2001: 351.4m, 351.6m diluted). Earnings per share have been calculated on earnings of Â£ 30.1m, (six months to 30 June 2001: Â£53.3m). The Directors consider that adjusted earnings per share figures, using earnings as calculated below, give a more meaningful indication of the underlying performance. 6 months to 6 months to Year to 30 Jun 2002 30 Jun 2002 31 Dec 2001 Â£m Â£m Â£m ____________________________________ Profit for the period 30.1 53.3 64.5 Goodwill amortisation 8.4 8.0 16.4 Exceptional items (after tax) (4.1) (19.1) (20.5) Rationalisation/restructuring (after tax) 9.6 8.9 33.4 ____________________________________ Earnings for adjusted EPS 44.0 51.1 93.8 ____________________________________ 5. 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 Balance sheet ________________ _________________ rates rates June June Dec 30 June 30 June 31 Dec 2002 2001 2001 2002 2001 2001 ____ ____ ____ ____ ____ ____ Euro 1.61 1.60 1.61 1.54 1.66 1.63 US Dollar 1.45 1.44 1.44 1.52 1.41 1.46 6. 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 2001 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 12 September 2002 and will be available from the same date at the Company's registered office, Kynoch Works, Witton, Birmingham, B6 7BA. NEXT TRADING ANNOUNCEMENT Our next trading update will be issued on Wednesday 18 December 2002. Enquiries to: Graham Truscott - Communications Director - Tel: 0121 332 2330 Press release available on the Internet at www.imiplc.com Issued by: Ben Padovan - Weber Shandwick Square Mile - Tel: 020 7950 2800 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 5 to 11 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 Directors are responsible for preparing the Interim Report in accordance with the Listing Rules of the Financial Services Authority which 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 2002. KPMG Audit Plc Chartered Accountants Birmingham 9 September 2002 This information is provided by RNS The company news service from the London Stock Exchange

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