Information  X 
Enter a valid email address


  Print      Mail a friend

Tuesday 18 December, 2001


Trading Update

18 December 2001

18 December 2001

                                TRADING UPDATE

As notified in the interim results announcement issued on 10 September, IMI
plc is today issuing a trading update in advance of the preliminary results
announcement for the twelve months ending 31 December 2001, due to be
published in March 2002.


In our interim report we said that the trading environment in the second half
of the year would be challenging. Since then economic conditions have
deteriorated, with the events of 11 September prolonging the downturn in the
US, and European markets continuing the decline first noted in June.

Against this economic backdrop, our businesses have responded well, with new
products offsetting some of the market weakness, and cost reductions
implemented throughout the course of the year mitigating some of the margin
impact. Volumes in the second half are expected to be around 5% down on last
year. Profit before rationalisation costs, goodwill amortisation, exceptional
items and tax for the full year should be around £125m, in line with market

Having concluded and reported on the outcome of our strategic review in
September, we are pleased to say that execution is making good progress.

In our platform businesses in Fluid Controls and Retail Dispense, our focus
has been on the restructuring programmes required to achieve the significant
repositioning announced. We still expect the cost of this repositioning to be
around £60m spread over two years. As previously indicated, the cost in 2001
will be around £40m.

Our other businesses, following the disposal of the smaller companies
previously in Energy Controls, are now largely in the field of Building
Products. Our focus is on the active management of these businesses, looking
to enhance value ahead of disposal. Each of these businesses is performing
well in the current economic conditions, producing good profits and cash. We
have identified specific opportunities to reduce further the cost base,
yielding a cash pay-back of less than 18 months. We are pressing ahead with
these plans at a cost of around £10m, of which £5m will be committed this year
and the balance next year.

With strong internal cash generation financing the restructuring programme we
are not dependent on disposal proceeds and will continue to manage the
disposals agenda in a manner and timeframe consistent with optimising
shareholder returns.

Taking advantage of current long term interest rates, we have refinanced $100m
of short term debt with borrowings maturing in 2009. This, together with
another period of strong operating cash flow has further strengthened the
balance sheet.

With regard to the introduction of FRS17 (Retirement Benefits) the Group
operates a number of pension plans throughout the world, both defined benefit
and defined contribution schemes. The major defined benefit scheme, which is
in the UK, is expected to be in surplus at the end of December 2001.


Fluid Controls

Our Severe Service valves business continues to perform well, maintaining its
15% year on year volume growth from the first half. With the long term
prospects for the power generation sector of our market still healthy, and
with increasing success in convincing plant operators to upgrade to higher
technology valve solutions, we are now beginning to

see reward from our continuing programme of investment in specialist sales and
engineering personnel.

Fluid Power remains the most exposed of our businesses to cyclical downturns
in the capital equipment markets. Volumes in the US showed no recovery in the
second half, remaining 20% down over the prior year, whilst volumes in Europe
declined markedly, down nearly 10%, having been ahead for most of the first
half. Excellent progress in our sector initiatives offset some of the general
market disappointment, and, as part of the restructuring programme announced
in March 2001, nearly 20% of our overhead is being cut by the release of 600
employees. Whilst still operating in a difficult market, our automotive
tooling subsidiary, ISI, continued to recover and recorded its first
profitable quarter for some time.

Indoor Climate volumes for the second half are around 10% lower than last
year, with continuing weakness in the German construction market and slowing
demand in the rest of Europe. Despite the volume reduction margins remain

Retail Dispense

A strong performance in Beverage Dispense was interrupted in September by a
dramatic reduction in restaurant traffic in the US. Although the sales lost
will not be recovered, the underlying trading pattern returned by mid-October.
Further evidence of the success of our new product investment programmes was
provided in the second half with the award of a £25m contract for the supply
of a sophisticated new frozen drinks dispenser to a leading US convenience
store chain. This programme will run throughout next year. Closure of two of
our major factories in the US was announced and the transfer of production to
a new facility in Mexico came onstream in October. At the same time we doubled
output from our existing facility in China. We expect over 35% of the US
capacity to have been moved to Mexico and China by the middle of next year.

Our Point of Purchase (PoP) business suffered the most from the affects of 11
September, with major retailers and brand owners cutting promotions
expenditure in response to concerns over the outlook for consumer spending in
the US. Scheduled merchandising programmes were affected with many being
postponed into the new year, resulting in the first reversal in PoP volumes in
nearly ten years. We are now beginning to see signs of programme releases,
with retailers recognising that PoP expenditure, with its immediate and direct
impact on impulse sales, is particularly cost-effective given a limited
advertising budget.

Building Products

Polypipe volumes recovered the first half shortfall, with access to major road
and agricultural programmes back to normal after the difficulties of poor
weather and foot & mouth earlier in the year. The pipes business, the largest
single part of Polypipe, continued to perform well, registering a strong
performance in both profits and cash. Downsizing and a plant closure was
required in the small European businesses, which continued to struggle.

Copper tube and fittings held up well in the UK, but volumes and margins in
Europe suffered with the German market, in particular, continuing to
disappoint. We have recently announced a proposal for the major restructuring
of the copper fittings business which will see the closure of our German
manufacturing plant, some capacity relocation to Hungary, and increased focus
on higher margin sales.


We are not anticipating any improvement in general market conditions for some
time and we enter 2002 with a cost base geared accordingly. We are making
excellent progress with the repositioning of our platform businesses and are
confident that they will generate considerably higher growth in the longer

                                   - Ends -

For further information contact:

IMI plc
Graham Truscott, Communications Director               Tel: 0121 332 2220

Weber Shandwick Square Mile
Ben Padovan / Peter Corbin                             Tel: 020 7329 0096