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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