Interim Results 2000

IMI PLC 4 September 2000 IMI plc Interim Results 2000 2000 1999 Sales £813m £706m Results before goodwill amortisation and exceptional items: Profit before interest £86.1m £71.0m Profit before tax £72.7m £67.4m Adjusted earnings per share 14.0p 12.7p Dividend per share 6.0p 5.8p - Sales increased 15% - Profit before goodwill and exceptional items increased 8% - Adjusted earnings per share increased 10% CHAIRMAN'S STATEMENT IMI today reports a stronger first half performance with both sales and profit before goodwill amortisation ahead of last year. Sales at £813m were 15% higher and profit before goodwill amortisation and exceptional items at £72.7m was 8% higher. These figures include £120m sales and £1.6m profit in respect of the additional months' contribution from the Polypipe businesses acquired in May 1999. The tax charge on profit before goodwill amortisation and exceptional items was 32%, the same rate as for the whole of last year. Adjusted earnings per share at 14.0p, was 10% ahead of the same period last year. Balance sheet gearing at 30 June was 100% (1999: 102%) increasing from the December 1999 gearing of 90% mainly as a result of the seasonal increase in working capital. Interest cover for the six months based on operating profit before goodwill amortisation was 6 times. The Board has decided to increase the interim dividend by 3.4% to 6.0p. Trading Review Operating profit before goodwill amortisation at £86.1m (1999: £71.0m) was 21% higher than last year including £10.5m from the additional months' contribution from Polypipe. Excluding this contribution, operating profit was 6.5% ahead. The further weakening of the Euro helped to stimulate growth in many of our continental European markets although it has resulted in increased pressure on our UK manufacturing businesses. Raw material costs, particularly within the Polypipe businesses, have increased considerably and although it is expected that the majority of these cost increases will be recovered, there is a time-lag which has resulted in a reduction in margins in the first half of the year. We continued to drive efficiency in our manufacturing operations resulting in rationalisation costs of £5.0m (1999: £9.6m). We have introduced a number of new products and increased our expenditure on the development of innovative products and services, logistics, key account and sales channel management. The comments that follow relate to continuing operations and compare performance with the first half of 1999. Hydronic Controls In copper tube and fittings volumes were up on last year. Pricing pressure continued throughout the period although margins improved from the low point of last year. Heimeier and TA, our Indoor Climate Control businesses, maintained their excellent profit performance and enhanced their commissioning and balancing capability. In plastics, operating profit of the Polypipe businesses for the six months was £19.7m compared with £24.2m for the same period last year. Volumes improved with new products gaining strength. However, profit reduced due to polymer costs which on average increased by 60% over the same period of 1999 and were not fully recovered in selling prices. We continue to market aggressively our products in Eastern Europe where overall sales were up 14%. Drinks Dispense Sales for the period were 8% lower than in 1999 reflecting the expected reduced expenditure by our major soft drinks customers and further uncertainty in the brewing industry. The weak demand in soft drinks affected most geographic markets including the US. However, good progress continued to be made with quick service restaurants and the success of new product launches is increasing our market penetration. In response to lower demand, further cost reduction measures were implemented and we are well placed to benefit when activity levels improve. Our Cannon business maintained its excellent record, benefiting from strong sales of Point of Purchase equipment and encouraging demand for distribution carts. It ended the period with a strong order book. Fluid Power Fluid Power operations across Europe enjoyed improved trading conditions with volumes ahead of last year. Although the UK softened towards the end of the period, mainland Europe continued to improve and remains strong. Many of the industry sectors we serve, such as commercial vehicles and textiles, are seeing export growth helped by the weakness of the Euro. In the US the margins in the automotive sector came under pressure; the commercial vehicle sector slowed but our sales to the general industrial market, helped by market share gains, remained strong. We continued our cost reduction projects and initiated new advanced techniques to enhance process and product reliability and performance. We made significant progress with on- line technical service and internet trading. Investment in our market sector programme continued and helped in securing a number of major contracts for delivery commencing in 2001. Energy Controls Energy Controls achieved better results with volumes up 15%. Demand for severe service valves in both power generation and oil and gas improved. Order books are healthy and provide a good platform for the balance of the year and 2001. Safety Systems, Eley sporting ammunition and Nuclear components produced satisfactory results and Mecafrance increased sales and profit in Europe and the US. Strategic Development The closures of copper smelting and the Drinks Dispense operation in Brazil are proceeding to plan and the costs are expected to be within budget. During the first half we spent around £6m on a number of small in-fill businesses in Hydronic Controls and Drinks Dispense. In August we announced the acquisition of Robimatic for a consideration of up to £19m and Flow Design Inc for a consideration of £14m. Robimatic is the UK market leader in the packaging and distribution of plumbing products and will in particular broaden the range of Polypipe products channelled into the DIY and merchant sectors. Flow Design Inc is the US market leader in automatic flow control devices for heating, air-conditioning and ventilation. This addition to our Indoor Climate Control businesses provides us with an important entry into the world's largest balancing valve market. Outlook Current order intake is running ahead of last year except in Drinks Dispense. The UK and the US are showing some signs of softness but with mainland European demand still strong prospects for the second half remain satisfactory. We will continue to take costs out of our businesses and to take advantage of our market positions to improve financial performance. GROUP PROFIT AND LOSS ACCOUNT ------------------------------------------ 6 months to 30 June 2000 ----------------------------------- Before goodwill Goodwill amortisation amortisation Total Notes £m £m £m ------------------------------------------ Turnover 1 Continuing operations 813 813 Discontinued operations - - ------------------------------------------ Total turnover 813 813 ------------------------------------------ Operating profit 1 ---------------------------------- Continuing operations 86.1 (6.3) 79.8 Discontinued operations - - ---------------------------------- Operating profit 86.1 (6.3) 79.8 Net interest payable (13.4) (13.4) ------------------------------------------ Profit before exceptional items and taxation 72.7 (6.3) 66.4 Profit on disposal of discontinued operations 2 - Provision for losses on closure of businesses 2 - ------------------------------------------ Profit before taxation 72.7 (6.3) 66.4 Tax on profit 3 (23.3) - (23.3) ------------------------------------------ Profit after taxation 49.4 (6.3) 43.1 Equity minority interests (0.3) (0.3) ------------------------------------------ Profit for the period 49.1 (6.3) 42.8 --------------------------------- Dividends paid and proposed 4 (21.1) ------- Transfer to reserves 21.7 ------- Earnings per share 5 12.2p Diluted earnings per share 5 12.2p Adjusted earnings per share 5 14.0p ---------------------------------------------------------- 6 months to Year to 30 June 1999 31 December 1999 -------------------- -------------------- Before Before exceptional exceptional items & items & goodwill goodwill amortisation Total amortisation Total Notes £m £m £m £m --------------------------- ------------------- Turnover 1 Continuing operations 688 688 1470 1470 Discontinued operations 18 18 32 32 --------------------------- -------------------- Total turnover 706 706 1502 1502 --------------------------- -------------------- Operating profit 1 -------------------- -------------------- Continuing operations 73.8 71.8 165.0 156.2 Discontinued operations (2.8) (2.8) (4.2) (4.2) -------------------- -------------------- Operating profit 71.0 69.0 160.8 152.0 Net interest payable (3.6) (3.6) (15.8) (15.8) --------------------------- -------------------- Profit before exceptional items and taxation 67.4 65.4 145.0 136.2 Profit on disposal of discontinued operations 2 6.0 6.0 Provision for losses on closure of businesses 2 - (19.1) --------------------------- -------------------- Profit before taxation 67.4 71.4 145.0 123.1 Tax on profit 3 (22.9) (24.9) (46.5) (43.3) --------------------------- -------------------- Profit after taxation 44.5 46.5 98.5 79.8 Equity minority interests - - (0.5) (0.5) --------------------------- -------------------- Profit for the period 44.5 46.5 98.0 79.3 ------------ ------------ Dividends paid and proposed 4 (20.3) (53.0) ------ ------ Transfer to reserves 26.2 26.3 ------ ------ Earnings per share 5 13.3p 22.6p Diluted earnings per share 5 13.3p 22.6p Adjusted earnings per share 5 12.7p 28.0p GROUP BALANCE SHEET ---------------------------------------------------------------------- 30 June 30 June 31 December 2000 1999 1999 £m £m £m ------------------------------------- Fixed assets Intangible assets 246.1 251.5 246.0 Tangible assets 392.2 410.8 392.2 ------------------------------------- 638.3 662.3 638.2 ------------------------------------- Current assets Stocks 317.1 295.5 289.1 Debtors 383.6 334.7 301.1 Investments 2.0 4.8 3.8 Cash and deposits 39.4 77.9 46.4 ------------------------------------- 742.1 712.9 640.4 Creditors: amounts falling due within one year Borrowings and finance leases (87.6) (113.1) (101.3) Other creditors (337.0) (338.2) (314.5) ------------------------------------- Net current assets 317.5 261.6 224.6 ------------------------------------- Total assets less current liabilities 955.8 923.9 862.8 Creditors: amounts falling due after more than one year Borrowings and finance leases (406.1) (411.4) (333.1) Other creditors (30.9) (25.9) (31.0) Provisions for liabilities and charges (62.7) (50.1) (69.6) ------------------------------------- Net assets 456.1 436.5 429.1 ------------------------------------- Capital and reserves Called up share capital 87.8 87.6 87.7 Share premium account 131.6 129.9 130.8 Revaluation reserve 1.0 1.0 1.0 Other reserves 1.6 1.6 1.6 Profit and loss account 234.1 216.4 208.0 ------------------------------------- Equity shareholders' funds 456.1 436.5 429.1 ------------------------------------- GROUP CASH FLOW STATEMENT ---------------------------------------------------------------------- 6 months 6 months Year to to to 30 June 30 June 31 December 2000 1999 1999 £m £m £m ------------------------------ Reconciliation of operating profit to net cash inflow from operating activities Operating profit 79.8 69.0 152.0 Depreciation/amortisation 41.1 30.0 78.7 Stocks (increase)/decrease (22.3) 1.9 3.6 Debtors (increase)/decrease (73.9) (38.3) 0.7 Creditors and provisions increase/(decrease) 25.9 5.5 (13.8) Exceptional items (4.1) - - ------------------------------ Net cash inflow from operating activities 46.5 68.1 221.2 ------------------------------ CASH FLOW STATEMENT Net cash inflow from operating activities 46.5 68.1 221.2 Return on investments and servicing of finance (12.4) (3.2) (16.2) Taxation (21.4) (18.2) (30.9) Capital expenditure and financial investment (28.5) (12.8) (45.2) Acquisitions and disposals (4.6) (319.0) (268.2) Equity dividends paid (32.7) (31.9) (52.2) ------------------------------ Cash flow before use of liquid resources and financing (53.1) (317.0) (191.5) Management of liquid resources (1.1) 1.4 8.2 Financing Issue of ordinary shares 0.9 0.8 1.8 Increase in borrowings 34.2 361.7 205.8 ------------------------------ 35.1 362.5 207.6 ------------------------------ (Decrease)/increase in cash in the period (19.1) 46.9 24.3 ------------------------------ Reconciliation of net cash to movement in net borrowings (Decrease)/increase in cash in the period (19.1) 46.9 24.3 Cash inflow from borrowings (34.2) (361.7) (205.8) Cash outflow/(inflow) from movement in liquid resources 1.1 (1.4) (8.2) ------------------------------ Change in borrowings resulting from cash flows (52.2) (316.2) (189.7) Borrowings assumed with acquisitions (0.8) (49.0) (53.6) Loan notes issued as part of acquisition - - (63.0) Currency translation differences (13.3) 4.4 4.1 ------------------------------ Movement in net borrowings in the period (66.3) (360.8) (302.2) Net borrowings at start of period (388.0) (85.8) (85.8) ------------------------------ Net borrowings at end of period (454.3) (446.6) (388.0) ------------------------------ STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES ---------------------------------------------------------------------- 6 months 6 months Year to to 30 June to 30 June 31 December 2000 1999 1999 £m £m £m ----------------------------------- Profit for the period 42.8 46.5 79.3 Currency translation differences 4.4 - (8.4) ----------------------------------- Total recognised gains and losses for the period 47.2 46.5 70.9 ----------------------------------- 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 to 30 31 June June December 2000 1999 1999 £m £m £m ----------------------------- Profit for the period 42.8 46.5 79.3 Dividends (21.1) (20.3) (53.0) ----------------------------- 21.7 26.2 26.3 Other recognised gains and losses relating to the period 4.4 - (8.5) New ordinary share capital issued 0.9 0.8 1.8 ----------------------------- Net increase in shareholders' funds for the period 27.0 27.0 19.6 Shareholders' funds at start of period 429.1 409.5 409.5 ----------------------------- Shareholders' funds at end of period 456.1 436.5 429.1 ----------------------------- NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. Segmental Analysis Turnover 6 mths 6 mths Year to to to 30 June 30 June 31 Dec 2000 1999 1999 £m £m £m ----------------------------- (i) by activity: before goodwill amortisation Hydronic Controls 346 224 543 Drinks Dispense 176 191 353 Fluid Power 221 214 435 Energy Controls 70 59 139 ----------------------------- Continuing operations 813 688 1470 ----------------------------- (ii) by geographical origin: before goodwill amortisation UK 288 197 445 Rest of Europe 270 245 531 The Americas 223 216 435 Asia/Pacific 32 30 59 ----------------------------- Continuing operations 813 688 1470 ----------------------------- (iii) turnover by geographical destination: 6 mths 6 mths Year to to to 30 June 30 June 31 Dec 2000 1999 1999 £m £m £m ------------------------------- UK 243 152 374 Germany 105 103 220 Rest of Europe 191 174 353 USA 198 187 373 Asia 31 26 55 Rest of World 45 46 95 ------------------------------- Continuing operations 813 688 1470 ------------------------------- 1. Segmental Analysis Operating Profit ------------------------------- 6 mths 6 mths Year to to to 30 June 30 June 31 Dec 2000 1999 1999 £m £m £m ------------------------------- (i) by activity: before goodwill amortisation Hydronic Controls 42.3 34.7 76.9 Drinks Dispense 15.7 20.6 34.6 Fluid Power 21.4 13.3 38.1 Energy Controls 6.7 5.2 15.4 ------------------------------- Continuing operations 86.1 73.8 165.0 ------------------------------- after goodwill amortisation Hydronic Controls 36.7 33.3 69.5 Drinks Dispense 15.5 20.5 34.3 Fluid Power 20.9 12.8 37.2 Energy Controls 6.7 5.2 15.2 ------------------------------- Continuing operations 79.8 71.8 156.2 ------------------------------- (ii) by geographical origin: before goodwill amortisation UK 35.7 24.7 56.5 Rest of Europe 27.4 23.2 55.0 The Americas 20.6 24.8 50.2 Asia/Pacific 2.4 1.1 3.3 ------------------------------- Continuing operations 86.1 73.8 165.0 ------------------------------- after goodwill amortisation UK 30.1 23.2 49.1 Rest of Europe 27.4 23.2 54.8 The Americas 19.9 24.3 49.0 Asia/Pacific 2.4 1.1 3.3 ------------------------------- Continuing operations 79.8 71.8 156.2 ------------------------------- 1. Segmental Analysis Operating Assets ------------------------------- 6 mths 6 mths Year to to to 30 June 30 June 31 Dec 2000 1999 1999 £m £m £m ------------------------------- (i) by activity: before goodwill amortisation Hydronic Controls 345 310 306 Drinks Dispense 133 136 108 Fluid Power 227 200 211 Energy Controls 39 58 36 ------------------------------- Continuing operations 744 704 661 ------------------------------- (ii) by geographical origin: before goodwill amortisation UK 339 300 296 Rest of Europe 223 227 201 The Americas 161 153 142 Asia/Pacific 21 24 22 ------------------------------- Continuing operations 744 704 661 ------------------------------- 1. Segmental Analysis Hydronic Controls for 2000 include a full 6 months' results from Polypipe (mainly UK); 1999 included results from the date of acquisition (19 May) to period end. 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. 2. Exceptional items In 1999 the profit on disposal of discontinued operations comprises the surplus arising on the sale of the Marston aerospace businesses. In 1999 the 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 The effective tax rate on the profit before exceptional items and goodwill amortisation is 32% (year 1999: 32%). 4. Dividends The Directors have declared an interim dividend for the current year of 6.0p per share (six months to 30 June 1999: 5.8p) which will be paid on 16 October 2000 to shareholders on the register on 15 September 2000. 5. Earnings per share The weighted average number of shares in issue during the period was 350.9m, 350.9m diluted for the effect of outstanding share options (six months to 30 June 1999: 350.3m, 350.5m diluted). Earnings per share have been calculated on earnings of £42.8m, (six months to 30 June 1999: £46.5m) and adjusted earnings per share on earnings of £49.1m (six months to 30 June 1999: £44.5m). Adjusted earnings per share figures exclude goodwill amortisation and exceptional items and have been shown because the Directors consider that they give a more meaningful indication of the underlying performance. 6. Exchange rates The profit and loss accounts of overseas subsidiaries are translated into sterling at average rates of exchange for the period, balance sheets are translated at period end rates. The main currencies are: Average period rates Balance sheet rates -------------------- --------------------- June June Dec 30 June 30 June 31 Dec 2000 1999 1999 200 1999 1999 ----- ----- ----- ----- ----- ----- Euro 1.63 1.49 1.52 1.58 1.53 1.61 US Dollar 1.57 1.62 1.62 1.51 1.58 1.61 7. 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 1999 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 7 September 2000 and will be available from the same date at the Company's registered office, Kynoch Works, Witton, Birmingham, B6 7BA. Enquiries to: Gary Allen - Chief Executive - Tel: 020 7329 0096 Nick Paul - Deputy Chief Executive - Tel: 020 7329 0096 Trevor Slack - Finance Director - Tel: 020 7329 0096 Gerard Whelan - Corporate Communications - Tel: 020 7329 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: 020 7329 0096

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