Final Results

RNS Number : 0604I

IMI PLC

04 March 2010

 



4 March 2010

IMI plc Preliminary Results

IMI plc, the international engineering business, today announced its preliminary results for the year ended 31 December 2009.

	2009		2008		% change
Revenue	£1,792m		£1,901m		-6%
Segmental operating profit	£234.2m		£266.3m		-12%
Segmental operating margin	13.1%		14.0%
Adjusted profit before tax1	£211.7m		£254.7m		-17%
As reported:
Operating profit	£201.0m		£209.8m		-4%
Profit before tax	£186.2m		£176.0m		+6%
Adjusted earnings per share2	45.8p		54.1p		-15%
Basic earnings per share	40.8p		35.4p		+15%
Restructuring costs	£34.9m		£19.6m
Net borrowings	£172m		£299m		-42%
Final dividend	13.2p		12.7p		+4%
Total dividend for year	21.2p		20.7p		+2%

Norman Askew, Chairman of IMI commented:

"Retention of Group operating margins in excess of 13%, despite a 16% organic reduction in revenues, is a measure of the underlying quality and differentiated positions of many of IMI's businesses today, and underlines the value of the strategic repositioning we have undertaken in the years since the last global downturn.  With strong cash momentum, and a more stable outlook, a resumption of progressive dividends is deemed appropriate and, accordingly, the final dividend has been increased by 4%.

We are not anticipating any sharp recovery in the global economy and with later cycle and earlier cycle businesses within the Group broadly balanced, volumes in 2010 are not expected to be materially ahead of 2009.  However, a lower cost base, with further benefits expected to arise from our ongoing transfer of manufacturing to lower cost economies, should enable us to build on the good progress made to date.  In addition, our strong balance sheet and healthy cash generation leave us well placed to exploit further opportunities as they arise."

1     before exceptional items (restructuring, investigation costs and fines, acquired intangible amortisation and impairment and financial instruments excluding the reversal of economic hedge contract losses) totalling £25.5m (2008: £78.7m)

2    before the after tax cost of exceptional items totalling £15.7m (2008: £59.7m)

CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT

The global economic downturn presented the Group with extremely difficult market conditions in 2009.  Our businesses responded quickly, taking early and comprehensive action towards minimising the impact on profits of lower revenues, and maximising cash generation to help secure a significant reduction in net debt.  Retention of Group operating margins in excess of 13%, despite a 16% organic reduction in revenues, is a measure of the underlying quality and differentiated positions of many of IMI's businesses today, and underlines the value of the strategic repositioning we have undertaken in the years since the last global downturn.  These strong market positions, coupled with a reduced cost base and a low level of debt, leave the Group well positioned to benefit from any future improvement in economic conditions.

Performance in 2009

Having experienced sharp falls in demand towards the end of 2008 and early in 2009, most of our markets then stabilised at reduced levels. Overall, at constant exchange rates, segmental revenues and operating profit fell by 16% and 22% respectively.  We successfully contained the impact of lower revenues on profit to only 19% of that revenue reduction.  This enabled us to deliver a segmental operating margin of 13.1% for the year, close to the 14.0% achieved in 2008.  Operating margins in the second half, which are traditionally stronger than in the first half of the year, were 15.3% (2008 H2: 14.8%). 

Adjusted earnings per share fell by 15% from 54.1p to 45.8p.  The Board is recommending a final dividend of 13.2p, a 4% increase on last year (2008: 12.7p).  This makes the total dividend for the year 21.2p (2008: 20.7p) and exceeds our core objective of maintaining the dividend through the economic downturn. 

Within Fluid Controls, both Severe Service and Indoor Climate, which are later cycle businesses, achieved record operating profits. Sales in Fluid Power, which is very exposed to discretionary capital expenditure, dropped sharply in the first half before stabilising thereafter.  Overall, on a constant currency basis, Fluid Controls sales fell 15%.  Operating margins also fell slightly from 15.7% to 14.7% reflecting a strong margin improvement in Severe Service and Indoor Climate offset by a sharp fall in margins in Fluid Power.  Operating margins for Fluid Controls rose to 17.1% in the second half (2008 H2: 16.4%) helped by a significant recovery in Fluid Power margins.

In our Retail Dispense businesses, sales were down 20% on a constant currency basis.  Both Beverage Dispense and Merchandising faced sharply lower activity levels as the downturn took hold.  However both businesses managed to contain costs in a difficult trading environment and operating margins were held to 8.5% (2008: 9.6%). 

The Group's overall resilience in the face of the most severe recession in a generation is a reflection of its repositioning over the last few years to focus on niche end markets and higher added value products.  It is also a result of the swift and effective management actions taken in response to the downturn. In particular, management efforts right across the Group were focused on four key areas:

1.   Resource allocation:

We focused our efforts on allocating engineering and sales resources in favour of those end markets and customers which we expected to be more resilient. This helped to generate a number of new projects in areas such as energy, infrastructure, rail and life sciences.  Opportunities also arose from new legislation particularly in the areas of sustainability, environmental compliance and energy efficiency. 

2.   Capacity alignment:

We took immediate and early actions to align capacity to lower demand.  We released 17% of the workforce from the peak in 2008 (around 2,600 people).  We used short time working arrangements extensively across the Group, and accessed government support schemes for this wherever it was available.  As markets have stabilised and in some cases improved we benefitted from the flexibility of increasing the hours worked for some of these employees. 

3.   Product margins:

We were able during the year not only to defend our selling prices in most areas but also where appropriate to increase prices such that overall selling prices in the year were up around 1.5% versus last year.  We achieved this through the differentiated nature of our products and by partnering with our customers to remove cost elsewhere in the supply chain.  At the same time we were successful in realising the benefits of lower material costs and leveraging our low cost sourcing arrangements in Asia, Eastern Europe and Mexico. 

4.   Cash optimisation:

Our profit to cash conversion ratio for the year was 139% compared to 98% last year.  This is a significant improvement and, assisted by a foreign exchange revaluation of £44m, delivered a step change reduction in net debt of £127m from £299m at the end of 2008 to £172m at the end of 2009.  This encouraging performance benefited from a reduction in inventories of 19% (on a constant currency basis) and debtor days reducing by 6. 

We also made good progress this year on the well defined operational strategies for each of our businesses.  We continued to accelerate our investment in emerging markets where the proportion of Group sales rose to 20% (2008: 19%). We maintained our investment in new product development during the year, maintaining the percentage of revenues derived from new products launched in the last 3 years at 14%.  Notable successes during the period included our Indoor Climate business developing a high performance, differential pressure control valve for demanding conditions in large cooling systems and district heating applications and an integrated pneumatic system designed by our Fluid Power business to control gas in anaesthesia ventilators. 

In the light of the difficult economic conditions, we decided, alongside the essential right sizing initiatives required, to bring forward our plans to increase the percentage of manufacturing undertaken in low cost economies.  A new facility was opened in Shanghai for our Fluid Power business, and we made rapid progress on two new facilities for our Severe Service business, one in Brno (Czech Republic), the other near Chennai (India), both of which will be largely operational by the end of 2010.  As a result, we expect the percentage of manufacturing undertaken by the Group in low cost economies to increase from current levels of around 35% to around 50% within the next 2 to 3 years.  The 2009 exceptional charge of these restructuring initiatives, including both rightsizing and transfer to low cost economies, was £35m.  The shift to low cost production is expected to improve annual margins by an additional 100 - 150 basis points over the next 3 years.

The IMI Way

During 2009 we also prioritised the Group-wide implementation of our code of responsible business, "the IMI Way", which targets the very highest standards of ethical business and compliance.  This code was translated into over 25 languages and rolled out to all employees worldwide.  We completed face to face training with all 13,000 employees and have reinforced the messages with subsequent web-based training tools. 

One of the four responsible business priorities within the IMI Way is the health and safety of our employees.  Management and employees have materially improved our performance in this area this year.  In many sites they have embraced a major culture change under the "Safety First, Safety Always" slogan.  We have also initiated the regular sharing of best practice ideas between sites across the Group.  Our key performance indicator improved from 0.47 accidents per 100,000 hours in 2008 to 0.27 in 2009, a 43% improvement and significantly ahead of the three year target we set ourselves at the end of 2008. 

Focus for 2010

In 2010 we will continue to focus on the key areas of cost control, pricing and cash generation.  However, we will also make sure that the Group is well positioned to take advantage of growth opportunities as our end markets move into a recovery phase.  This will be achieved through developing our long term strategic aims:

·     We will enhance our core management skills for engineering advantage and key account management across the Group.  Gaining customer insight is key to developing differentiated added value products for them.

·     We will continue to progress our current restructuring programme to move a greater proportion of our global manufacturing to lower cost economies.  We will ensure that we retain the flexibility to respond to a stronger than expected recovery while at the same time retaining contingency plans for any adverse market developments. 

·     We will seek to take advantage of our strong balance sheet to look for acquisition opportunities.  At the same time, we will seek to enhance our organic growth by investing in new sectors and products and, in particular, by building a bigger market position in the key emerging markets, notably China, where growth opportunities are likely to be strongest. 

Outlook

Compared to 12 months ago, general business conditions are more stable, and visibility has improved.  Customers are talking with a little more confidence about their medium-term investment plans, and we have returned to former levels of engagement in respect of new product and new project opportunities.

Whilst we have seen a return to more normal growth patterns for emerging markets, we are not anticipating any sharp recovery in the global economy generally.  With later cycle and earlier cycle businesses within the Group broadly balanced, volumes in 2010 are not expected to be materially ahead of 2009.  A lower cost base, however, with further benefits expected to arise from our ongoing transfer of manufacturing to lower cost economies, should enable us to build on the good progress made to date.  In addition, our strong balance sheet and healthy cash generation leave us well placed to exploit further opportunities as they arise. 

FINANCIAL AND OPERATIONS REVIEW

With effect from 1 January 2009, the Group has implemented IAS1 (Revised) 'Presentation Statements', IAS23 (Revised) 'Borrowing Costs' and IFRIC13 'Customer Loyalty Programmes'.  Except for certain presentational changes, including the introduction of a 'Group Statement of Changes in Equity' as a primary financial statement, the adoption of these standards has had no material impact on the financial statements and there has been no requirement to restate prior year comparatives. 

In all other respects, these financial statements have been prepared on a consistent basis using the accounting policies set out in the IMI Annual Report and Financial Statements for the year ended 31 December 2008. 

Results summary

Revenues decreased by 6% to £1,792m (2008: £1,901m).  After adjusting for exchange rate benefit of £233m the organic revenue decline was 16%.  The average Euro and US dollar rates were respectively 11% and 15% stronger than in 2008. 

Segmental operating profit was £234.2m, a decrease of 12% on last year.  At constant exchange rates segmental operating profit fell by 22%.  Segmental operating margin was 13.1% compared to 14.0% last year and includes the benefit of £6.3m pension curtailment gains in the year. Operating profit was £201.0m (2008: £209.8m), after restructuring costs of £34.9m, acquired intangible amortisation of £7.2m and reversing net economic hedge contract losses of £8.9m.

Interest costs on net borrowings were £18.5m (2008: £16.1m).  After the pension fund financing charge (IAS19) of £4.0m (2008: £3.8m credit), income from investments of £nil (2008: £0.7m) and adding the gain on derivatives (IAS39) of £7.7m (2008: £22.2m loss), the net financing costs were £14.8m (2008: £33.8m).

Profit before tax was £186.2m (2008: £176.0m).  The effective tax rate for the Group before exceptional items was lower at 30% (2008: 31%).

Adjusted earnings per share (excluding the after tax cost of exceptional items) was 45.8p (2008: 54.1p), a decrease of 15%.  The basic earnings per share was up 15% at 40.8p (2008: 35.4p).

Exchange rates

The movement in average exchange rates between 2008 and 2009 resulted in our reported 2009 revenue and segmental operating profit being 12% and 13% higher respectively.  If current exchange rates of US$1.49 and €1.11 had been applied to our 2009 results, it is estimated that revenue and segmental operating profit would have been 4% and 5% higher respectively. 

Cash flow

The net cash inflow from operating activities was £236m, compared to £220m last year.  Capital expenditure on property, plant and equipment amounted to £37m (2008: £48m) and was 0.8 times depreciation (2008: 1.1 times).  Major cash outflows in the year included tax of £53m, and dividends of £66m.  The Group acquired the remaining 19.1% minority interest in Display Technologies in January 2009 for a cash consideration of £18m.  The Group also paid a fine of $18m in August 2009 as part of the settlement reached with the US Department of Justice in respect of the CCI investigation.  The total cash inflow for the year was £82m compared to £68m in 2008. 

Balance sheet

The balance sheet remains strong and net debt fell sharply during the year.  Closing net debt was down 42% at £172m (2008: £299m), with the reduction due to the cash inflow during the year and a translation benefit of £44m on the revaluation of the Group's foreign currency debt. The ratio of net debt to the EBITDA was 0.7 times at the end of the year. 

During the year the Group successfully issued $175m of US loan notes in July 2009 with maturities extending to 2019.  The proceeds from these loan note issues were used to refinance $65m of maturing US loan notes, with the balance being used to reduce existing bank debt, thereby freeing up additional banking facilities to maintain our considerable headroom.   Consequently, total loan facilities available to the Group at the year end were £530m of which £253m were drawn. 

The IAS19 pension net deficit was revalued to £258m which compares to the deficits of £281m at June 2009 and £137m at December 2008.  The increase in the deficit over the year related principally to the UK defined benefit pension scheme and resulted mainly from a reduction in the real discount rate used from 3.7% to 2.0%, reflecting general changes in yields on AA corporate bond indices and the assumed rate of price inflation.  A recovery plan was agreed with the pension fund Trustee last year that requires additional cash contributions of £16.8m to be paid in the second half of each year.  The next actuarial valuation is due as at March 2011.  The Group and the Trustee entered into consultation with the members of the IMI Pension Fund on 3 March 2010 concerning a proposal to close the UK scheme to future accrual with effect from 30 September 2010. 

Shareholders' equity at the end of December was £400m, a reduction of £52m since the end of 2008, which includes the attributable profit for the year of £130m, less an after-tax actuarial loss on the defined benefit pension plans of £109m and the 2008 final and 2009 interim dividends totalling £66m.

Operations review

The following review of our business areas for the year ended 31 December 2009 compares the performance of our operations, as reported under IFRS8: 'Operating Segments', with the year ended 31 December 2008 and on a constant currency, 'organic', basis.  This section also comments on current market conditions in each of our businesses.

Severe Service

Revenue                      £512m    (2008: £443m)

Operating profit           £101.4m (2008: £81.3m)

Operating margin        19.8%     (2008: 18.4%)

Following a strong first half which benefited from operational initiatives to shorten lead times and reduce the order backlog, second half revenues as expected were 5% lower than last year, reducing overall organic growth for the year to 3%.

New construction orders reduced by around 20% during the year, with a sharp slowdown in both fossil power and oil & gas projects partially offset by a number of significant new orders in the nuclear power sector, including our largest ever order for £55m in a project for EDF.  Customer service orders however increased by almost 30%, reflecting continued buoyancy in the aftermarket supported by a focus on upgrades of existing valve installations.  Overall order intake for the year was down 7% on an underlying basis (after adjusting for the net impact of the CCI investigation, which resulted in a deferral of around £20m of orders from the second half of 2007 into the first half of 2008).

Quotation activity for new construction projects in the oil & gas sector has been improving for several months, and this is now beginning to be reflected in order intake which should support a pick-up in shipments towards the end of 2010 or early 2011.  Quotation activity within new construction projects in the fossil power sector has only recently started to improve, suggesting that any recovery in orders for this market will be delayed a further six months or so.  Activity within both the nuclear and aftermarket sectors remains buoyant.

Operating margins in the full year improved to 19.8% from 18.4% in 2008, reflecting a healthy aftermarket sales mix and further improvements in operational efficiencies.  As expected, following the industry slowdown a number of the recently secured orders in the oil & gas sector were subjected to increased pricing pressure, albeit this should be more than offset by further transfer of production to newly established facilities in Brno, Czech Republic, and Chennai, India, both of which are expected to be operational by the end of 2010.

Fluid Power

Revenue                      £520m    (2008: £666m)

Operating profit           £32.8m   (2008: £91.3m)

Operating margin        6.3%       (2008: 13.7%)

Following the sharp decline in Fluid Power volumes experienced at the end of 2008, activity continued to deteriorate throughout much of the first half, leaving first half revenues down 36% on the prior year.  Volumes stabilised in Q3, and began to show some recovery in the last few weeks of 2009, with Asia rebounding quite strongly, and some encouraging signs of improvement in the US (albeit we remain cautious on the extent to which this improvement in the US has been caused by a slowdown or cessation in destocking by distributors and original equipment manufacturers (OEMs)).  European markets are off their lows but demand, generally, remains subdued.  Second half revenues were 24% lower than last year, resulting in a revenue decline for the year as a whole of 31%.

Despite this difficult market background we continued to invest in our sector strategy where we seek to provide bespoke engineered solutions which add value for our major customers in niche markets.  The sector business represented approximately 39% of Fluid Power's revenue in 2009.  We have now appointed global sector heads for commercial vehicles, rail, life sciences, in-plant automotive and oil, chemical and gas.  As previously highlighted in earlier announcements, certain of these sectors were significantly impacted by the global recession with commercial vehicles and in-plant automotive particularly hard hit.  Other sectors, including life sciences, rail and oil, chemical and gas were more resilient with lower levels of decline. 

The remainder of the Fluid Power business is split between standard pneumatics products for OEMs and the maintenance, refurbishment and overhaul (MRO) market.  As expected, the MRO aftermarket business, where we made good progress with our Norgen Express online solution, proved more resilient than the OEM market.

We took early and significant actions to reduce the cost base and protect profitability through a combination of redundancies and the widespread use of short time working arrangements.  At the year-end, approximately 800 Fluid Power employees remained on reduced working hours.  The benefit of these actions was evident in the second half when margins recovered to 9.6% from 2.9% in the first half on broadly similar volumes.  Overall operating margins for the year as a whole were 6.3%. 

Following on from the opening of the new manufacturing facility and technical centre in Shanghai, China, the business is currently implementing further restructuring to move production lines from the US and Western Europe to China and our other existing low cost facilities in the Czech Republic and Mexico.  All of the actions taken in 2009, combined with the focused management actions for 2010, should lead to a further margin improvement in the year ahead. 

Indoor Climate

Revenue                      £292m    (2008: £281m)

Operating profit           £60.7m   (2008: £45.2m)

Operating margin        20.8%     (2008: 16.1%)

In Indoor Climate, revenue showed an organic decline of 4% over the year.   The business continued to enjoy reasonably resilient demand levels in the second half particularly during the important heating season of September to November. The Heimeier thermostatic radiator valve business, which is mainly focused on refurbishment markets, showed pleasing growth, supported by new energy efficiency legislation in Germany which continued to stimulate additional demand.  Our TA balancing valve products are more exposed to new commercial construction markets which became more challenging as the year progressed, although our focus on more resilient end markets, including hospitals, schools, and other government-backed infrastructure projects proved successful. We continued to invest in our seminar programmes, training around 45,000 installers, specifiers, and building consultants in hydronic balancing and the critical role it plays in making buildings more energy efficient.  This helped to improve further penetration of our balancing valves on new projects. 

Pneumatex, the water conditioning business acquired in 2007, grew strongly throughout the year.  In December 2009, the Group exercised its option to acquire the remaining 30% minority interest in Pneumatex for a consideration expected to be around £12m. 

Operating profit for Indoor Climate increased by 34% to £60.7m.  The operating margin showed a strong progression on last year, rising from 16.1% to 20.8%.  Second half operating margins of 24.3% (2008: 18.0%) benefited from a combination of lower overheads and sharply lower material costs.      

Indoor Climate is exposed to a later cycle than some of our other businesses and the private sector commercial new construction market, around 20% of the business, is expected to continue to be challenging in 2010.  However, the refurbishment market, which accounts for around 60% of sales, is forecast to remain resilient, benefiting from the drive towards greater energy efficiency in both residential and commercial properties.  Increasing endorsement of new energy efficiency legislation by governments throughout many parts of Europe should help to stimulate further demand. 

Beverage Dispense

Revenue                      £297m    (2008: £305m)

Operating profit           £21.1m   (2008: £27.6m)

Operating margin        7.1%       (2008: 9.0%)

The overall organic revenue decline for the year was 15%, reflecting an improved position in the second half where the organic decline reduced to around 7%.  This was due to weaker comparators in the second half of 2008 and a good end to the year when we saw increased demand particularly from the North American soft drink bottlers as well as a better than expected performance in Asia and Europe.  The UK beer market remained challenging throughout the year with the decline in on-trade beer volumes continuing and major brewers reluctant to engage in significant new investment.  3Wire, our North American parts business, showed greater resilience during the year, with volumes down by just 9%. 

The 2009 operating profit margin was 7.1%, a slight improvement on the first half. This reflects the significant cost reduction programmes implemented across the business, a robust defence of selling prices, and an improved contribution from new products. 

The successful development of new products is vital to improving margin performance over time, particularly in the growing health and indulgence sector which includes water, smoothies, juices, dairy and frozen beverages.  We are making progress in this respect with new dispensing equipment such as Viper, our frozen carbonated beverage dispenser, increasing its market penetration over the year.  We are also developing new, more energy efficient cooling equipment which resonates well with the increasing demand from major customers for products which help them to reduce their carbon footprint.   We will continue to focus increased investment on these higher added value, higher margin opportunities, whilst managing a gradual withdrawal from some of the older, lower margin commodity product lines with limited differentiation.

Merchandising

Revenue                      £164m    (2008: £202m)

Operating profit           £18.2m   (2008: £20.9m)

Operating margin       11.1%      (2008: 10.3%)

The organic decline in revenue for the year was 29%.  As expected, second half revenues were significantly lower than last year with the automotive business sharply down and 2008 comparables impacted by the large £25m US grocery chain order, much of which shipped in the third quarter. 

A number of our end-market sectors were challenging.  Automotive was down 33% for the full year reflecting the major challenges facing the US automotive industry in 2009 which resulted in a significant reduction in the number of dealerships.  The cosmetics, beverage, and consumer electronics sectors proved more resilient but, collectively, were still down over 15% on last year.

During the year we acquired the remaining 19.1% minority interest in Display Technologies for approximately £18m in accordance with the terms of the original purchase agreement. 

The full-year operating margin at Merchandising was 11.1%, an improvement on the 10.3% achieved last year.  The business acted swiftly to reduce costs in response to lower activity levels and also benefited from lower steel prices.  The second half operating margin of 14.0% was particularly strong, despite the sharp fall in activity levels. This was due to a better mix of sales towards higher margin activity and the benefit of cost savings implemented in the first half.  As in the case of Beverage Dispense, we continued to prioritise higher margin, more differentiated product opportunities, whilst staging a gradual exit from older, morecommoditisedproduct lines.  Whilst this process will inevitably dampen top line growth it will continue to support margin progression, and an improvement in the underlying quality of the business.

CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2009
		Notes	2009				2008
			Before				Before
			exceptional	Exceptional			exceptional	Exceptional
			items	items	Total		items	items	Total
			£m	£m	£m		£m	£m	£m
Revenue		2	1,785	7	1,792		1,897	4	1,901
Segmental operating profit		2	234.2		234.2		266.3		266.3
Restructuring costs				(34.9)	(34.9)			(19.6)	(19.6)
Severe Service investigation costs and fines				-	-			(26.3)	(26.3)
Acquired intangible amortisation and impairment				(7.2)	(7.2)			(13.2)	(13.2)
Reversal of economic hedge contract losses		2		8.9	8.9			2.6	2.6
Operating profit		2	234.2	(33.2)	201.0		266.3	(56.5)	209.8
Financial income		4	64.4	37.2	101.6		82.5	3.1	85.6
Financial expense		4	(86.9)	(29.5)	(116.4)		(94.1)	(25.3)	(119.4)
Net financial expense		4	(22.5)	7.7	(14.8)		(11.6)	(22.2)	(33.8)
Profit before tax			211.7	(25.5)	186.2		254.7	(78.7)	176.0
Taxation		5	(63.6)	9.8	(53.8)		(79.0)	19.0	(60.0)
Profit for the year			148.1	(15.7)	132.4		175.7	(59.7)	116.0
Attributable to:
Owners of the parent					130.2				112.9
Non-controlling interests					2.2				3.1
Profit for the year					132.4				116.0
Earnings per share		6
Basic					40.8p				35.4p
Diluted					40.6p				35.1p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2009
			2009		2008
			£m		£m
Profit for the year			132.4		116.0
Other comprehensive income
Effective portion of change in fair value of net investment hedges			13.3		(5.3)
Income tax effect			(3.7)		1.5
			9.6		(3.8)
Fair value gain on available for sale financial assets			1.2		-
Exchange differences on translation of foreign operations			(28.1)		73.4
Income tax effect			3.0		(2.2)
			(25.1)		71.2
Actuarial loss on defined benefit plans			(153.3)		(77.4)
Income tax effect			44.0		22.2
			(109.3)		(55.2)
Other comprehensive income for the year, net of tax			(123.6)		12.2
Total comprehensive income for the year, net of tax			8.8		128.2
Attributable to:
Owners of the parent			7.0		122.9
Non-controlling interests			1.8		5.3
Total comprehensive income for the year, net of tax			8.8		128.2

CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2009
		2009	2008
		£m	£m
Assets
Intangible assets		386.4	399.8
Property, plant and equipment		233.0	266.4
Employee benefit assets		0.6	2.4
Deferred tax assets		89.6	54.7
Total non-current assets		709.6	723.3
Inventories		249.9	333.5
Trade and other receivables		311.4	392.0
Other current financial assets		16.9	16.5
Current tax		4.2	4.7
Investments		17.7	17.8
Cash and cash equivalents		81.0	123.9
Total current assets		681.1	888.4
Total assets		1,390.7	1,611.7
Liabilities
Bank overdraft		(5.3)	(4.6)
Interest-bearing loans and borrowings		(1.2)	(46.5)
Provisions		(22.4)	(29.4)
Current tax		(25.8)	(26.6)
Trade and other payables		(340.6)	(415.4)
Other current financial liabilities		(4.0)	(32.8)
Total current liabilities		(399.3)	(555.3)
Interest-bearing loans and borrowings		(246.9)	(371.5)
Employee benefit obligations		(258.1)	(139.5)
Provisions		(44.5)	(36.5)
Deferred tax liabilities		(15.0)	(16.9)
Other payables		(24.9)	(30.3)
Total non-current liabilities		(589.4)	(594.7)
Total liabilities		(988.7)	(1,150.0)
Net assets		402.0	461.7
Equity
Share capital		84.9	84.7
Share premium		166.6	165.1
Other reserves		56.4	71.1
Retained earnings		91.9	131.5
Equity attributable to owners of the parent		399.8	452.4
Non-controlling interests		2.2	9.3
Total equity		402.0	461.7

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2009
		Share capital	Share premium account	Capital redemption reserve	Hedging reserve	Translation reserve	Retained earnings	Total parent equity	Non-controlling interests	Total equity
		£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2008		84.6	163.3	7.9	1.6	(2.7)	151.8	406.5	6.4	412.9
Profit for the year							112.9	112.9	3.1	116.0
Other comprehensive income					(3.8)	68.1	(54.3)	10.0	2.2	12.2
Total comprehensive income					(3.8)	68.1	58.6	122.9	5.3	128.2
Issue of share capital		0.1	1.8					1.9		1.9
Dividends paid							(66.2)	(66.2)	(2.4)	(68.6)
Share based payments (net of tax)							4.0	4.0		4.0
Shares held in trust for employee share schemes							(1.9)	(1.9)		(1.9)
Acquisition of treasury shares							(14.8)	(14.8)		(14.8)
At 31 December 2008		84.7	165.1	7.9	(2.2)	65.4	131.5	452.4	9.3	461.7
Changes in equity in 2009
Profit for the year							130.2	130.2	2.2	132.4
Other comprehensive income					9.6	(24.3)	(108.5)	(123.2)	(0.4)	(123.6)
Total comprehensive income					9.6	(24.3)	21.7	7.0	1.8	8.8
Issue of share capital		0.2	1.5					1.7		1.7
Dividends paid							(66.0)	(66.0)	(1.6)	(67.6)
Cancellation of unclaimed dividends							0.2	0.2		0.2
Share based payments (net of tax)							4.8	4.8		4.8
Shares held in trust for employee share schemes							(0.3)	(0.3)		(0.3)
Acquisition of non-controlling interests									(7.3)	(7.3)
At 31 December 2009		84.9	166.6	7.9	7.4	41.1	91.9	399.8	2.2	402.0

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2009
				2009	2008
Cash flows from operating activities					restated *
				£m	£m
	Profit for the year			132.4	116.0
	Adjustments for:
	Depreciation			48.7	43.1
	Amortisation and impairment			12.8	16.4
	Gain on sale of property, plant and equipment			-	(0.2)
	Financial income			(101.6)	(85.6)
	Financial expense			116.4	119.4
	Equity-settled share-based payment expenses			4.1	3.9
	Income tax expense			53.8	60.0
	Decrease in trade and other receivables			48.0	20.0
	Decrease/(Increase) in inventories			57.5	(9.2)
	Decrease in trade and other payables			(44.8)	(7.2)
	Increase in provisions and employee benefits			(8.4)	14.4
Cash generated from the operations				318.9	291.0
	Income taxes paid			(52.6)	(54.4)
				266.3	236.6
	CCI investigation costs and fine			(13.5)	-
	Additional pension scheme funding			(16.8)	(16.8)
Net cash from operating activities				236.0	219.8
Cash flows from investing activities
	Interest received			3.7	12.4
	Proceeds from sale of property, plant and  equipment			1.8	3.1
	Sale of investments			0.5	0.1
	Purchase of investments			(1.0)	(0.8)
	Settlement of derivatives			(7.5)	(2.4)
	Income from investments			-	0.7
	Acquisitions of controlling and non-controlling interests			(19.4)	-
	Acquisition of property, plant and equipment			(37.3)	(47.6)
	Capitalised development expenditure			(4.9)	(5.1)
Net cash from investing activities				(64.1)	(39.6)
Cash flows from financing activities
	Interest paid			(23.5)	(29.0)
	Purchase of own shares			(0.3)	(16.7)
	Proceeds from the issue of share capital for employee share schemes			1.7	1.9
	Net repayment of borrowings			(125.2)	(45.5)
	Dividends paid to minority interest			(1.6)	(2.4)
	Dividends paid to equity shareholders			(66.0)	(66.2)
Net cash from financing activities				(214.9)	(157.9)
Net (decrease)/increase in cash and cash equivalents				(43.0)	22.3
Cash and cash equivalents at start of the year				119.3	77.4
Effect of exchange rate fluctuations on cash held				(0.6)	19.6
Cash and cash equivalents at the end of the year **				75.7	119.3
*  Restated to show separately cash flow derivatives from operating to investing activities
**  Net of bank overdrafts
Reconciliation of net cash to movement in net borrowings appears in note 8.

NOTES RELATING TO THE FINANCIAL STATEMENTS
1.	Reclassifications
	To assist the user of the accounts, the consolidated income statement has been presented in a columnar format with exceptional items shown on the face of the statement. The 2008 comparative consolidated income statement has been reclassified on a comparable basis.  There is no change to total revenue, operating profit, profit before tax, earnings per share or net assets as a result of this reclassification.  There is no change in the value or nature of items, reported on the face of the statement other than the amount described as "profit before tax before restructuring, investigation costs and fines, acquired intangible amortisation and impairment, other income and financial instruments excluding economic hedge contract gains and losses" is now described as "profit before tax and exceptional items".
2.	Segmental analysis
	The Group in 2008 adopted IFRS8 'Operating Segments'.  Segmental information is presented in the consolidated financial statements for each of the Group's primary operating segments.  The operating segment reporting format reflects the Group's management and internal reporting structures.
	Information regarding the operations of each reporting segment is included below.  Performance is measured based on segmental operating profit before restructuring, Severe Service investigation costs and fines and acquired intangible amortisation and impairment.  Segmental operating profit is also reported to the Chief Executive as if economic currency and metals hedges were effective for financial reporting purposes.  Businesses enter into forward currency and metal contracts to provide economic hedges against the impact on profitability of swings in rates and values in accordance with the Group's policy to minimise the risk of volatility in revenues, costs and margins.  Segmental operating profits are therefore charged/credited with the impact of these contracts.  In accordance with IAS39, these contracts do not meet the technical provisions required for hedge accounting and gains and losses are reversed out of segmental profit and are recorded in net financial income and expense for the purposes of the statutory consolidated income statement.
						Segmental				Segmental operating				Segmental operating
						revenue *				profit *				margin *
						2009	2008			2009		2008		2009		2008
	BY SEGMENT					£m	£m			£m		£m		%		%
	Fluid Controls					1,324	1,390			194.9		217.8		14.7		15.7
		Severe Service				512	443			101.4		81.3		19.8		18.4
		Fluid Power				520	666			32.8		91.3		6.3		13.7
		Indoor Climate				292	281			60.7		45.2		20.8		16.1
	Retail Dispense					461	507			39.3		48.5		8.5		9.6
		Beverage Dispense				297	305			21.1		27.6		7.1		9.0
		Merchandising				164	202			18.2		20.9		11.1		10.3
	Segmental result					1,785	1,897			234.2		266.3		13.1		14.0
	*  before exceptional items
	Reconciliation of reported segmental revenue and operating profit
							Revenue					Operating profit
							2009	2008				2009	2008
							£m	£m				£m	£m
	Segmental result						1,785	1,897				234.2	266.3
	Restructuring costs											(34.9)	(19.6)
	Severe Service investigation costs and fines											-	(26.3)
	Acquired intangible amortisation and impairment											(7.2)	(13.2)
	Reversal of economic hedge contract losses						7	4				8.9	2.6
	Total						1,792	1,901				201.0	209.8

	REVENUE BY GEOGRAPHICAL DESTINATION
					2009	2008
					£m	£m
	UK				132	183
	Germany				234	266
	Rest of Europe				524	533
	USA				491	517
	Asia/Pacific				278	249
	Rest of World				126	149
	Total segmental revenue				1,785	1,897
	Reversal of economic hedge contract losses				7	4
					1,792	1,901

3.         Acquisitions

3.1       Controlling interests

On 17 December 2009 the company acquired assets of NASS Parts and Service for a consideration of £1.4m.  The fair value of the net assets acquired was £0.4m resulting in a goodwill of £1m.  The result of this acquisition will be reported within Beverage Dispense, however there was no impact on the 2009 results.  Had NASS Parts and Service been acquired at the beginning of the year Group revenue would have been £3m higher and the impact on profit before tax would not have been material.  There were no acquisitions in 2008.

3.2       Non-controlling interests

On 1 January 2009 the 19.1% non-controlling interest in Display Technologies LLC, part of the Merchandising group, was acquired by the Group under the terms of the original purchase agreement.  At that date the net assets of the company were £6.3m.  Based on the contracted pricing mechanism the cash consideration paid was £18.1m, resulting in goodwill of £16.9m.  Display Technologies LLC was originally acquired in June 2001. 

In December 2009 the Group exercised its option to purchase the remaining 30% non-controlling interest in Pneumatex AG, the controlling interest in which was originally acquired on 28 December 2007.  The exercise of the purchase option in December was unconditional and the whole controlling interest accordingly passed to IMI at that date.  It is expected that this acquisition will be finalised in the first half of 2010.  The consideration of £12.2m is accrued at 31 December 2009 resulting in goodwill of £6.1m.

4.         Net financial income and expense

				2009						2008
						Sub	Financial					Sub	Financial
				Interest	Other	total	instruments	Total		Interest	Other	total	instruments	Total
				£m	£m	£m	£m	£m		£m	£m	£m	£m	£m
Recognised in the income statement
Interest income on bank deposits				3.7		3.7		3.7		10.2		10.2		10.2
Financial instruments at fair value through profit or loss:
Designated hedges							2.0	2.0					3.1	3.1
Other economic hedges     - current year trading							11.6	11.6					-	-
- future year transactions							23.6	23.6					-	-
Income from investments					-	-		-			0.7	0.7		0.7
Expected return on defined benefit pension plan assets					60.7	60.7		60.7			71.6	71.6		71.6
Financial income				3.7	60.7	64.4	37.2	101.6		10.2	72.3	82.5	3.1	85.6
Interest expense on financial liabilities measured at
amortised cost				(22.2)		(22.2)		(22.2)		(26.3)		(26.3)		(26.3)
Financial instruments at fair value through profit or loss:
Designated hedges							(1.9)	(1.9)					(3.2)	(3.2)
Other economic hedges	- current year trading						(20.1)	(20.1)					(2.6)	(2.6)
	- future year transactions						(7.5)	(7.5)					(17.2)	(17.2)
Impairment of available for sale financial assets							-	-					(2.3)	(2.3)
Financial cost of defined benefit pension scheme liabilities					(64.7)	(64.7)		(64.7)			(67.8)	(67.8)		(67.8)
Financial expense				(22.2)	(64.7)	(86.9)	(29.5)	(116.4)		(26.3)	(67.8)	(94.1)	(25.3)	(119.4)
Net financial (expense)/income				(18.5)	(4.0)	(22.5)	7.7	(14.8)		(16.1)	4.5	(11.6)	(22.2)	(33.8)

5.         Taxation

            The effective tax rate on profit before tax, excluding exceptional items is 30% (2008: 31%).

6.         Earnings per ordinary share

The weighted average number of shares in issue during the year, net of shares purchased by the Company and held as treasury shares or to satisfy share option vesting, was 318.8m, 321.0m diluted for the effect of outstanding share options (2008: 319.3m, 321.6m diluted).  Basic and diluted earnings per share have been calculated on earnings of £130.2m (2008: £112.9m).

The directors consider that adjusted earnings per share figures, using earnings as calculated below, give a more meaningful indication of the underlying performance because either the quantum, the one off nature, or volatility of these items would otherwise distort the underlying performance.

	2009		2008
	£m		£m
Profit for the year	132.4		116.0
Non-controlling interests	(2.2)		(3.1)
	130.2		112.9
Charges/(credits) included in profit for the year:
Restructuring costs	34.9		19.6
Severe Service investigation costs and fines	-		26.3
Acquired intangible amortisation and impairment	7.2		13.2
Financial instruments excluding economic hedge contract gains
and losses	(16.6)		19.6
	155.7		191.6
Taxation on charges/(credits) included in profit before tax	(9.8)		(19.0)
Earnings for adjusted EPS	145.9		172.6
Weighted average number of shares	318.8m		319.3m
Adjusted EPS	45.8p		54.1p
Diluted adjusted EPS	45.5p		53.7p

7.         Dividend

The directors recommend a final dividend of 13.2p per share (2008: 12.7p) payable on 24 May 2010 to shareholders on the register at close of business on 16 April 2010, which will absorb around £42m (2008: £40m).  Together with the interim dividend of 8.0p per share paid on 16 October 2009, this makes a total distribution of 21.2p per share (2008: 20.7p per share).   In accordance with IAS10 'Events after the Balance Sheet date', this final proposed dividend has not been reflected in the 31 December 2009 balance sheet.

8.         Cash flow reconciliations

Reconciliation of net cash to movement in net borrowings

	2009	2008
	£m	£m
Net (decrease)/increase in cash and cash equivalents	(43.0)	22.3
Repayment of borrowings	125.2	45.5
Cash inflow	82.2	67.8
Currency translation differences	44.1	(133.4)
Movement in net borrowings in the year	126.3	(65.6)
Net borrowings at the start of the year	(298.7)	(233.1)
Net borrowings at the end of the year	(172.4)	(298.7)

9.         Exchange rates

The income statements of overseas operations are translated into sterling at average rates of exchange for the year, balance sheets are translated at year end rates.  The most significant currencies are the Euro and the US Dollar - the relevant rates of exchange were:

			Average Rates			Balance Sheet Rates
			2009	2008			2009	2008
Euro			1.12	1.26			1.13	1.03
US Dollar			1.57	1.85			1.61	1.44

10.        Contingencies

Following completion of the European Commission investigations into allegations of anti-competitive behaviour in the EU among certain manufacturers of copper tube and copper fittings, the Company has paid fines of £31.3m in February 2005 and £32.8m in January 2007.  Both of these fines are the subject of ongoing appeals.  In preparing the financial statements, the directors have not anticipated the outcome of either appeal due to the inherent uncertainty of such processes.

11.        Financial information

The preliminary statement of results was approved by the Board on 3 March 2010.  The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2009 or 2008 but is derived from the 2009 accounts.  Statutory accounts for 2008 have been delivered to the registrar of companies and those for 2009 will be delivered in due course.  The former auditor, KPMG Audit plc reported on the 2008 accounts.  The current auditor, Ernst & Young LLP has reported on the 2009 accounts.  Their reports were (i) unqualified, (ii) did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying its reports and (iii) did not contain statements under section S498(2) or S498(3) of the Companies Act  2006.

This announcement contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group.  By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of the preparation of this announcement and the Company undertakes no obligation to update these forward-looking statements.  Nothing in this preliminary announcement should be construed as a profit forecast.

This preliminary statement has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to IMI plc and its subsidiaries when viewed as a whole.

References in the commentary to segmental operating profit, operating margins and profit before tax, unless otherwise stated, relate to reported numbers after adjustment for exceptional items.  Segmental operating profit is reported as if economic currency and metals hedges were effective for financial reporting purposes.  Business segments enter into forward currency and metal contracts to provide economic hedges against the impact on profitability of swings in rates and values in accordance with the Group's policy to minimise the risk of volatility in revenues, costs and margins.  Business segmental operating profits are therefore charged/credited with the impact of those settled contracts.  In accordance with IAS39 'Financial Instruments: Recognition and Measurement', these contracts do not meet the technical provisions required for hedge accounting and gains and losses are reversed out of segmental profit and are recorded in net financial income and expense for the purposes of the statutory consolidated income statement.  References to EPS, unless otherwise stated, relate to reported EPS adjusted for the per share after tax impact of exceptional items.  The directors consider that the quantum, one off nature or volatility of these adjustments can distort the underlying performance of the Group and for this reason the commentary discusses these adjusted amounts. 

References to organic growth are to like for like or underlying growth and exclude the impact of exchange rate translation and acquisitions or disposals that are included in headline reported growth figures.  The organic growth is derived from excluding any contribution from acquired companies to revenues or profits in the current period until the first anniversary of their acquisition.  It also excludes the contribution to revenues or profits in both the current and comparative period from any business that has been disposed of or sold.  This adjusted growth in revenues or profits will then be compared to the adjusted prior period after its re-translation at the average exchange rates of the current period to provide the organic growth rate.

Cash Conversion is the ratio of Operating Cash Flow to Segmental Operating Profit after Restructuring Costs.  Operating Cash Flow is the Cash Generated from the Operations shown in the Consolidated Statement of Cash Flows less cash spent acquiring Property, Plant and Equipment, Development Expenditure and the Purchase of Investments plus cash received from the sale of Property, Plant and Equipment, the sale of Investments, and Income from investments.

The Company's 2009 Annual Report and notice of the forthcoming Annual General Meeting will be posted to shareholders on 1 April 2010.

-   ends   -

Enquiries to:

Will Shaw                      -           Corporate Communications                     -           Tel:  [phone]

Press release available on the internet at www.imiplc.com

Issued by:

Nick Oborne                  -           Weber Shandwick Financial                    -           Tel:  [phone]

 

END

 

 

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