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IMI PLC (IMI)

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Monday 03 September, 2007

IMI PLC

Interim Results

IMI PLC
03 September 2007


3 September 2007
 

IMI plc 2007 First Half Results

IMI plc, the international engineering group, today announced its interim
results for the six months ended 30 June 2007.

 
                                           2007         2006       % change
                                                                           
Revenue                                   £781m        £732m             +7
Operating profit *                       £95.6m       £85.9m            +11
Profit before tax *                      £95.5m       £88.1m             +8
Adjusted earnings per share **            19.2p        16.9p            +14
Basic earnings per share                  15.4p        14.5p             +6
                                                                           
Restructuring costs                      £10.9m        £7.7m                                                       
                                                                           
Dividend                                   7.5p         7.0p             +7
                                                                           
* before restructuring costs and intangible amortisation.                  
** before restructuring costs, change in fair value of financial           
instruments and intangible amortisation.                                   

 

Norman Askew, Chairman of IMI, commented:

'This is a strong set of results with an organic revenue growth, excluding the
impact of exchange rates and acquisitions, of 8%. End markets remain broadly
positive and we are benefiting from our cumulative investments of recent years
in new products and emerging markets. We remain confident of further progress in
the remainder of this year.'



2007 INTERIM REVIEW


Introduction

In the first half of 2007 IMI has seen encouraging momentum with an organic
revenue growth of 8%. Operating profits, including the contribution from
acquisitions, increased by 11%, and 17% on a constant currency basis. The
operating margin for the period was 12.2%, against 11.7% in the first half of
2006.

We completed the acquisition of Kloehn at the end of June, which strengthens our
presence within the medical sector of our Fluid Power business. We are now half
way through our three year £60m restructuring programme and remain on track to
deliver the expected margin improvements. The on-market share buy back programme
is also proceeding, which together with our acquisitions activity, will raise
net debt levels to between £400m and £500m over the next few years.

The Board has decided to increase the interim dividend by 7.1% to 7.5p (2006:
7.0p).

Results summary


Revenues increased 7% to £781m, which includes a contribution of £27m from
acquisitions. Sterling was about 10% stronger against the US Dollar than in the
first half of 2006 and exchange rate movements have depressed our reported
revenue growth by 5 percentage points and our profits growth by 6 points.
Operating profit before restructuring costs and intangible amortisation was
£95.6m, an increase of 11% on the prior period. Acquisitions contributed £5.1m
to these profits.

Interest costs on net borrowings were £5.6m and were covered 15 times. The IAS
19 pension financing credit was £5.3m and the change in fair value of financial
instruments under IAS39 was a credit of £0.2m. The total net financing cost was
£0.1m, compared to a credit of £2.2m in 2006.

Profit before tax, restructuring costs and intangible amortisation was £95.5m,
an increase of 8% on the prior period and 14% on a constant currency basis.
Restructuring costs were £10.9m and relate to announcements made to transfer
more production from the US, UK, and Switzerland to lower cost economies in
Mexico, The Czech Republic and China. Intangible amortisation was £7.8m and
predominantly relates to acquired intangibles. Profit before tax was £76.8m, an
increase of 2%.

The estimated effective tax rate for 2007 is 31%, which compares to the rate of
32% applied for the first half of 2006.

Adjusted earnings per share, which excludes restructuring costs, intangible
amortisation and the change in fair value of financial instruments, was 19.2p,
compared to 16.9p, an increase of 14%. Basic earnings per share was 15.4p, up 6%
on the prior period's 14.5p.


Cash flow

The operating cash flow was £49m (2006: £34m). Tax (£18m), the settlement of the
European Commission fine levied in respect of a former plumbing fittings
business which was sold in 2002 (£33m), acquisitions (£35m), dividends (£39m)
and share buy backs (£41m) absorbed £166m. The total cash outflow for the period
was £118m.


Balance sheet

Closing net debt was £192m (June 2006: £130m). The debt to annualised EBITDA
ratio at the end of June was 0.92.

Shareholders' equity at the end of June was £445m, an increase of £33m since the
end of last year, which includes the profit for the period (£51m) less the 2006
final dividend (£39m) paid in May, share buy backs (£41m) and an actuarial gain
net of tax on the defined benefit pension plans of £54m.


Severe Service investigation

As announced on 16 August, the company has initiated an independent
investigation into possible irregular payments associated with certain trading
contracts entered into by its Severe Service business, which may be in breach of
the law and the Company's policies and practices. At this early stage, it is not
possible to estimate the amount of possible fines and other liabilities
associated with this investigation and, as such, no provision has been made in
these accounts. The investigation is not expected to have a material impact on
trading for 2007. There will be costs associated with the investigation itself
and it is difficult to give a precise estimate of these costs at this early
stage. Our provisional estimates are currently of the order of £5m, the bulk of
which will be incurred in the second half of 2007.

 
Operations review

The following review of our business areas for the six months to 30 June 2007
compares the performance of our operations with the six month period to 30 June
2006. Operating profit is stated before restructuring costs and intangible
amortisation.


Severe Service

Revenues in the first half were up 34% to £171m (2006: £128m) and operating
profit rose 60% to £26.1m (2006: £16.3m).


Both our power and oil and gas markets remain buoyant and we have seen strong
order growth in the Americas. The planned rebalancing of our 2007 shipment
profile to lessen the weighting towards the second half resulted in an organic
revenue growth of 24%. Order intake grew at about 15% in the period. The Truflo
business acquired in April 2006 continues to perform well, particularly in
supplying highly engineered valves for Liquefied Natural Gas plants.

The Severe Service operating profit margin was 15.3% benefiting from the strong
first half volume growth and compares to the prior period margin of 12.7%.

 
Fluid Power

Revenues in the first half were in line with last year at £282m (2006: £281m) as
was operating profit at £35.7m (2006: £35.7m).

The organic growth in revenues was 2%. Our sector business selling customised
power train and chassis and cab controls to North American truck manufacturers
was down broadly in line with that market by nearly 40%. The organic growth in
the remainder of our Fluid Power business was between 5% and 6%. The European
commercial vehicle business, together with our other target sectors, is
maintaining strong momentum. Our non-sector business has enjoyed good growth in
Continental Europe while the US market has softened.

The operating profit margin was unchanged from the prior period at 12.7%. The
restructuring programme within Fluid Power is now at its peak with the transfer
of production from the US Denver site to Mexico nearing completion and transfers
from one UK and one Swiss site to The Czech Republic well underway. This
programme has involved some parallel production that has held back the margin
development.


Indoor Climate

Revenues in the first half were up 10% to £97m (2006: £88m) and operating profit
rose 15% to £14.0m (2006: £12.2m).

Organic revenue growth was 12% in the period. Price increases to recover sharply
higher metal costs have contributed about one half of this organic revenue
growth. The balancing valve business demonstrated good volume growth in all
geographies with a useful contribution from new products. Our thermostatic
radiator valve business has shown some good growth in Eastern Europe but there
has been a marked slowdown in the German market which has moderated the overall
progress in this segment of our business.

The operating profit margin was 14.4% compared with 13.9% in the prior period.

 
Beverage Dispense

Revenues in the first half were £147m (2006: £147m) and operating profit
declined by 14% to £11.4m (2006: £13.2m).

Organic revenue growth was 7%, reflecting particularly strong shipments in June.
There was a strong performance in Continental Europe and Asian markets. The US
market was more mixed with some return to previous buying patterns within the
Quick Service restaurant sector offset by a general slowdown in the convenience
sector. The UK market remains challenging.

The operating profit margin was 7.8%. However, adjusting for the £2m financial
impact of the flood of our UK Sheffield site in late June, the underlying margin
was about 9%, in line with that of the prior period. Closures of a US and a UK
site were announced in early 2007 and their restructuring continues alongside an
expansion of our facility in Tianjin, China.


Merchandising Systems

Revenues in the first half were £84m (2006: £88m) with operating profit at £8.4m
broadly flat compared to last year.

As about 80% of this business is in North America the weaker US dollar impacted
reported revenues; the underlying organic revenue growth was 4%. The cosmetics
and grocery sectors saw good growth and there was some improvement in the
automotive sector while the food and beverage sector was more mixed. The order
book benefited from a number of major contract wins during the period, with
shipments scheduled for the back end of 2007 into 2008.

The operating profit margin was 10%, up slightly on the 9.7% from the
corresponding period last year. The margin development was held back somewhat by
the impact of higher metal costs on certain of the older product lines.


Outlook

The oil, gas and power markets for Severe Service remain buoyant, as do the
Continental European and Asian markets for our Fluid Power business, while the
general fluid and motion control market in the US is more subdued. The balancing
valve business within Indoor Climate continues to see good prospects in Europe,
Middle East and Asia, although the German radiator valve market is clearly
weakening. The Beverage Dispense business should continue to make progress but
shipment growth may slow a little in the second half. The order book within
Merchandising is building and includes some new orders for our US cosmetics
business. While metal prices remain volatile and other cost pressures persist,
margin benefits from our restructuring programme should come through later this
year. We do not, at this stage, expect the Severe Service investigation to have
a material impact on trading for 2007 albeit there will be costs associated with
the investigation itself. Overall, we remain confident of continued progress in
the remainder of the year.

 

                                                                                                                  

                                                                             

                     CONSOLIDATED INTERIM INCOME STATEMENT                      

 
                                          Notes     6 months to   6 months to       Year to
                                                   30 June 2007  30 June 2006   31 Dec 2006
                                                    (unaudited)   (unaudited)              
                                                             £m            £m            £m
                                                  __________________________________________                          
Revenue                                   1,2               781           732         1,505
                                                  __________________________________________                          
Operating profit before restructuring                                                    
costs and intangible amortisation                          95.6          85.9         191.8
Restructuring costs                                       (10.9)         (7.7)        (19.7)
Intangible amortisation                                    (7.8)         (5.1)        (17.0)
                                                  __________________________________________                     
Operating profit                          1,2              76.9          73.1         155.1
                                                                                           
Financial income                            3              40.0          39.6          73.8
Financial expense                           3             (40.1)        (37.4)        (70.7)
                                                  __________________________________________                       
Net financial (expense)/income              3              (0.1)          2.2           3.1
                                                                                           
Profit before tax          
____________________________________________________________________________________________                      
Before restructuring costs and intangible                  
amortisation                                               95.5          88.1         194.9                    
Restructuring costs                                       (10.9)         (7.7)        (19.7)
Intangible amortisation                                    (7.8)         (5.1)        (17.0)
____________________________________________________________________________________________
Total                                                      76.8          75.3         158.2
                                                                                           
Taxation                                    4                                              
____________________________________________________________________________________________ 
UK taxation                                                (2.6)         (2.6)         (6.5)
Overseas taxation                                         (21.3)        (21.5)        (42.5)
____________________________________________________________________________________________ 
Total                                                     (23.9)        (24.1)        (49.0)
                                                                                           
Profit of continuing businesses after                      
tax                                                        52.9          51.2         109.2                       
                                                                                           
Loss from discontinued operations (net      
of tax)                                     5                 -             -         (33.5)                         
                                                  __________________________________________                      
Total profit for the period                                52.9          51.2          75.7
                                                  __________________________________________                 
Attributable to:                                                                           
Equity shareholders of the Company                         51.3          49.5          72.7
Minority interest                                           1.6           1.7           3.0
                                                  __________________________________________                           
Total profit for the period                                52.9          51.2          75.7
                                                  __________________________________________                         
Earnings per share                          6                                              
Basic earnings per share                                  15.4p         14.5p         21.4p
Diluted earnings per share                                15.3p         14.4p         21.3p
Basic earnings per share (continuing                      
businesses)                                               15.4p         14.5p         31.3p                          
Diluted earnings per share (continuing                    
businesses)                                               15.3p         14.4p         31.1p                         

 



                           CONSOLIDATED BALANCE SHEET                           

                                                                                
                                                      30 June       30 June     31 Dec
                                                         2007          2006       2006
                                                  (unaudited)   (unaudited)           
                                                           £m            £m         £m
                                                  _____________________________________                        
Assets                                                                                
      Intangible assets                                 317.9         286.6      286.8
      Property, plant and equipment                     188.0         189.7      190.3
      Deferred tax assets                                32.9          61.0       55.8
                                                  _____________________________________                               
Total non-current assets                                538.8         537.3      532.9
                                                  _____________________________________                              
      Inventories                                       244.1         220.9      217.4
      Trade and other receivables                       324.1         300.6      295.2
      Current tax                                         8.8          19.4        8.7
      Investments                                        15.4          14.0       15.0
      Cash and cash equivalents                          83.0         114.2      107.2
                                                  _____________________________________                             
Total current assets                                    675.4         669.1      643.5
                                                  _____________________________________                             
Total assets                                          1,214.2       1,206.4    1,176.4
                                                  _____________________________________                             
Liabilities                                                                           
      Bank overdraft                                     (5.8)         (2.2)      (3.6)
      Interest-bearing loans and borrowings             (33.0)        (17.0)     (43.3)
      Provisions for liabilities and charges             11.1)            -       (6.2)
      Current tax                                       (19.3)        (25.1)     (18.2)
      European Commission fine                              -             -      (33.5)
      Trade and other payables                         (348.0)       (295.5)    (322.0)
                                                  _____________________________________                              
Total current liabilities                              (417.2)       (339.8)    (426.8)
                                                  _____________________________________                               
      Interest-bearing loans and borrowings            (235.7)       (225.4)    (140.7)
      Employee benefits                                 (40.5)       (134.9)    (120.6)
      Provisions for liabilities and charges            (33.6)        (40.3)     (34.3)
      Deferred tax liabilities                          (19.6)         (8.3)     (15.5)
      Other payables                                    (20.0)        (22.6)     (21.9)
                                                  _____________________________________            
Total non-current liabilities                          (349.4)       (431.5)    (333.0)
                                                  _____________________________________                          
                                                                                      
Total liabilities                                      (766.6)       (771.3)    (759.8)
                                                  _____________________________________                             
Net assets                                              447.6         435.1      416.6
                                                  _____________________________________                             
Equity                                                                                
      Share capital                                      90.7          90.1       90.3
      Share premium                                     160.6         153.6      155.2
      Other reserves                                     (0.1)          3.1       (0.4)
      Retained earnings                                 194.1         184.7      167.6
                                                  _____________________________________        
Total equity attributable to equity shareholders        445.3         431.5      412.7
   of the Company                                                                     
Minority interest                                         2.3           3.6        3.9
                                                  _____________________________________                               
Total equity                                            447.6         435.1      416.6
                                                  _____________________________________               

                                                                                



                  CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS                  
                                         6 months to 6 months to     Year to
Cash flows from operating activities         30 June     30 June 31 Dec 2006
                                                2007        2006            
                                         (unaudited) (unaudited)            
                                                  £m          £m          £m
                                       ______________________________________                     
   Profit for the period                        52.9        51.2        75.7       
   Adjustments for:                                                         
   Depreciation                                 18.9        19.6        38.7       
   Amortisation                                  7.8         5.1        17.0       
   Loss from discontinued operations                      
   (net of tax)                                    -           -        33.5                         
   Gain on sale of property, plant and                   
   equipment                                       -           -        (2.0)                         
   Financial income                            (40.0)      (39.6)      (73.8)     
   Financial expense                            40.1        37.4        70.7       
   Equity-settled share-based payment                    
   expenses                                      1.1         1.4         2.9                           
   Income tax expense                           23.9        24.1        49.0       
   Increase in inventories                     (27.4)      (12.5)      (14.8)     
   Increase in trade and other                      
   receivables                                 (32.3)      (32.4)      (30.9)                             
   Increase/(decrease) in trade and                    
   other payables                               24.6       (10.7)       19.0                            
   Increase in provisions and employee                   
   benefits                                      2.4         7.8         1.3                           
                                       ______________________________________               
Cash generated from the operations              72.0        51.4       186.3      
   Income taxes paid                           (17.8)      (21.0)      (40.0) 
                                       ______________________________________             
                                                54.2        30.4       146.3      
   European Commission fine                    (32.8)          -           -
   Additional pension scheme funding               -           -       (15.6)  
                                       ______________________________________                 
Net cash from operating activities              21.4        30.4       130.7      
                                       ______________________________________                                     
Cash flows from investing activities                                        
   Interest received                             3.0         4.6         8.4        
   Proceeds from sale of property, plant               
   and equipment                                 1.2         5.4         7.7                             
   Sale of investments                             -           -         0.1        
   Purchase of investments                      (0.9)       (1.4)       (2.6)      
   Acquisition of subsidiaries, net of             
   cash acquired                               (34.8)     (117.1)     (118.4)                             
   Redemption of vendor loan note re                      
   Polypipe                                        -        35.9        35.9                         
   Acquisition of property, plant and              
   equipment                                   (20.8)      (18.3)      (39.7)                             
   Capitalised development expenditure          (2.1)       (3.2)       (4.4)  
                                       ______________________________________      
Net cash from investing activities             (54.4)      (94.1)     (113.0)    
                                       ______________________________________                                     
Cash flows from financing activities                                        
   Interest paid                                (8.4)       (7.7)      (17.0)     
   Purchase of own shares                      (41.4)      (26.4)      (42.4)     
   Proceeds from the issue of share                      
   capital for employee share schemes            5.8         4.7         6.5                           
   Drawdown of borrowings                       91.7        61.6         7.4        
   Dividends paid to minority interest          (1.9)       (1.4)       (2.1)      
   Dividends paid                              (39.2)      (37.1)      (60.7) 
                                       ______________________________________                 
Net cash from financing activities               6.6        (6.3)     (108.3)    
                                       ______________________________________                                     
Net decrease in cash and cash                       
equivalents                                    (26.4)      (70.0)      (90.6)                             
Cash and cash equivalents at start of                
period                                         103.6       182.0       182.0                             
Effect of exchange rate fluctuations on                  
cash held                                          -           -        12.2                          
                                       ______________________________________                                
Cash and cash equivalents at end of                  
period                                          77.2       112.0       103.6                     
                                       ______________________________________                                       


                             CONSOLIDATED STATEMENT                           
                        OF RECOGNISED INCOME AND EXPENSE                        

                                                                                                                  
                                                                                
                                                      6 months to    6 months to       Year to
                                                     30 June 2007   30 June 2006   31 Dec 2006
                                                      (unaudited)    (unaudited)              
                                                               £m             £m            £m                    
                                                    ___________________________________________    
                                                                                              
Foreign exchange translation differences                      1.0           (2.9)         (9.6)
Actuarial gains on defined benefit plans (net of tax)        54.1           25.4          23.3
Effective portion of change in fair value of net             
investment hedges (net of tax)                               (0.7)          (1.3)          1.9                       
                                                    ___________________________________________                       
Income and expense recognised directly in equity             54.4           21.2          15.6
Profit for the period                                        52.9           51.2          75.7
                                                    ___________________________________________                      
Total recognised income and expense for the period          107.3           72.4          91.3
                                                    ___________________________________________                       
Attributable to:                                                                              
   Equity shareholders of the Company                       105.7           70.7          88.3
   Minority interest                                          1.6            1.7           3.0
                                                    ___________________________________________                      
Total recognised income and expense for the period          107.3           72.4          91.3

                                                                                
                                                                                                                

               RECONCILIATION OF CHANGES IN SHAREHOLDERS' EQUITY                

                                                                                                                 
                                                                                
                                                       6 months to    6 months to        Year to
                                                      30 June 2007   30 June 2006    31 Dec 2006
                                                       (unaudited)    (unaudited)               
                                                                £m             £m             £m
                                                     ____________________________________________                 
Shareholders' equity at start of the period                  412.7          417.6          417.6    
                                                                                                
Total recognised income and expense for the period           105.7           70.7           88.3     
                                                                                                
Dividends paid                                               (39.2)         (37.1)         (60.7)   
Share based payments (net of tax)                              1.7            2.0            3.4      
Issue of ordinary shares net of costs                          5.8            4.7            6.5      
Purchase of own shares                                       (41.4)         (26.4)         (42.4)  
                                                     ____________________________________________                 
                                                             (73.1)         (56.8)         (93.2)   
                                                     ____________________________________________                  
Shareholders' equity at end of the period                    445.3          431.5          412.7    
                                                     ____________________________________________                    
                                                                                


                                                                               

                   NOTES TO THE INTERIM FINANCIAL STATEMENTS                    

 
1. Segmental analysis
 

Segmental information is presented in the consolidated interim financial
statements in respect of the Group's continuing business segments, which are the
primary basis of segment reporting. The business segment reporting format
reflects the Group's management and internal reporting structures. Inter-segment
revenue is insignificant.

The Group comprises the following main business segments and activities:

Severe Service
Design, manufacture, supply and service of high performance critical control
valves and associated equipment for power generation plants, oil & gas producers
and other process industries.


Fluid Power
Design, manufacture and supply of motion and fluid control systems, principally
pneumatic devices, for original equipment manufacturers in commercial vehicle,
medical, print, packaging and other industries.


Indoor Climate
Design, manufacture and supply of indoor climate control systems, principally
balancing valves for large commercial buildings and thermostatic radiator valves
for residential buildings.


Beverage Dispense
Design, manufacture and supply of still and carbonated beverage dispense systems
and associated merchandising equipment for brand owners and retailers.


Merchandising Systems
Design, manufacture and supply of point of purchase display systems for brand
owners and retailers.

 
                                  Revenue                        Operating Profit     
                       ______________________________      ______________________________                        
                         6 months  6 months     Year        6 months  6 months      Year
                               to        to       to              to        to        to
                          30 June   30 June   31 Dec         30 June   30 June    31 Dec
                             2007      2006     2006            2007      2006      2006
                               £m        £m       £m              £m        £m        £m
                       ______________________________      ______________________________    
                                                       
Before restructuring costs and intangible amortisation                                                            
                                                                                        
Fluid Controls                550       497    1,043            75.8      64.2     147.0
_________________________________________________________________________________________
Severe Service                171       128      300            26.1      16.3      45.1
Fluid Power                   282       281      557            35.7      35.7      72.4
Indoor Climate                 97        88      186            14.0      12.2      29.5
_________________________________________________________________________________________
Retail Dispense               231       235      462            19.8      21.7      44.8
_________________________________________________________________________________________
Beverage Dispense             147       147      282            11.4      13.2      25.4
Merchandising Systems          84        88      180             8.4       8.5      19.4
_________________________________________________________________________________________
Segment result                781       732    1,505            95.6      85.9     191.8
_________________________________________________________________________________________
                                                                                        
After restructuring costs and intangible amortisation                                                         
                                                                                        
Fluid Controls                                                  60.4      53.3     116.6
_________________________________________________________________________________________
Severe Service                                                  21.1      13.2      33.4
Fluid Power                                                     25.5      28.5      55.9
Indoor Climate                                                  13.8      11.6      27.3
_________________________________________________________________________________________
Retail Dispense                                                 16.5      19.8      38.5
_________________________________________________________________________________________
Beverage Dispense                                                8.6      11.8      22.0
Merchandising Systems                                            7.9       8.0      16.5
_________________________________________________________________________________________
Segment result                                                  76.9      73.1     155.1
Net financial (expense)                                         (0.1)      2.2       3.1
/income                                                                                 
Taxation                                                       (23.9)    (24.1)    (49.0)
                                                           ______________________________                     
Profit of continuing operations after tax                       52.9      51.2     109.2
                                                           ______________________________                             


2. Acquisitions of subsidiaries

Of the reported increase in revenue and operating profit of continuing
operations (before restructuring costs and intangible amortisation), £27m of
revenue and £5.1m of profit result from acquisitions. These comprise the 2006
acquisitions.

The acquisition of Kloehn Company Limited was completed on Friday 29 June 2007
and has no effect on the trading results for this period.

 
3. Financial income and expense

 

 
                            6 months to 30 June      6 months to 30 June         Year to 31 Dec                     
                                    2007                     2006                     2006         
                           Interest  Other  Total     Interest  Other  Total   Interest  Other  Total
                                 £m     £m     £m           £m     £m     £m         £m     £m     £m
                         _________________________   _________________________  _________________________           
     Interest income            3.0           3.0          3.3           3.3        5.5           5.5   
     Gain on remeasurement                                                                         
     of financial                                                                                  
     instruments                       2.4    2.4                 5.1    5.1               5.3    5.3   
     Expected return on                                                                            
     defined                                                                                       
     benefit pension                   
     plan assets                      34.6   34.6                31.2   31.2              63.0   63.0               
                         _________________________   _________________________  _________________________             
     Financial income           3.0   37.0   40.0          3.3   36.3   39.6        5.5   68.3   73.8  
                         _________________________   _________________________  _________________________             
     Interest expense          (8.6)         (8.6)        (6.4)         (6.4)     (13.0)        (13.0)
     Loss on remeasurement                                                                         
     of financial                                                                                  
     instruments                      (2.2)  (2.2)               (4.2)  (4.2)             (3.0)  (3.0) 
     Finance cost of                                                                               
     defined benefit                                                                               
     pension scheme                  
     liabilities                     (29.3) (29.3)              (26.8) (26.8)            (54.7) (54.7)
                         _________________________   _________________________  _________________________          
     Financial expense         (8.6) (31.5) (40.1)        (6.4) (31.0) (37.4)     (13.0) (57.7) (70.7)
                         _________________________   _________________________  _________________________ 
                         _________________________   _________________________  _________________________            
     Net financial               
     (expense)/income          (5.6)   5.5   (0.1)        (3.1)   5.3    2.2       (7.5)  10.6    3.1               
                         _________________________   _________________________  _________________________             
 

4. Taxation

The interim taxation charge of 31% is calculated by applying the directors' best
estimate of the annual tax rate to the taxable profit for the period (six months
ended 30 June 2006: 32%) in respect of profit before tax.


5. Discontinued operations

There were no businesses discontinued during the period.

In September 2006, the European Commission announced the imposition of a fine of
€48.3m on IMI in relation to its former copper fittings business, which was sold
in 2002. Pending the outcome of an appeal, the full amount of the fine together
with associated costs was provided and reported in the 2006 annual income
statement as a loss on discontinued operations (net of tax). The fine was paid
in January 2007.
 

6. Earnings per share

The weighted average number of shares in issue during the period, net of shares
purchased by the Company and held as treasury shares or to satisfy share option
vesting was 333.9m, 334.6m diluted for the effect of outstanding share options
(six months to 30 June 2006: 341.1m, 343.2m diluted). Basic and diluted earnings
per share have been calculated on profit of £51.3m (2006: profit of £49.5m).

The directors consider that adjusted earnings per share figures, using earnings
as calculated below, give a more meaningful indication of the underlying
performance.

 
                                         6 months to       6 months to       Year to
                                        30 June 2007      30 June 2006   31 Dec 2006
                                                  £m                £m            £m
                                       ______________________________________________                            
                                       
Profit for the period after tax                 52.9              51.2         109.2   
Minority interest                               (1.6)             (1.7)         (3.0)   
Charges/(credits) included in profit                                      
for the period:                                                           
Change in fair value of financial                 
instruments                                     (0.2)             (0.9)         (2.3)                           
Intangible amortisation                          7.8               5.1          17.0    
Restructuring costs                             10.9               7.7          19.7    
Taxation on charges/(credits) included                                    
in profit                                                                 
before tax                                      (5.7)             (3.8)        (10.7) 
                                       ______________________________________________                               
Earnings for adjusted EPS                       64.1              57.6         129.9   
                                       ______________________________________________                                   
Weighted average number of shares             333.9m            341.1m        339.3m
                                       ______________________________________________                                   
Adjusted EPS                                   19.2p             16.9p         38.3p
                                       ______________________________________________                                 
  

7. Dividends

The directors have declared an interim dividend for the current year of 7.5p per
share (2006: 7.0p) which will be paid on 19 October 2007 to shareholders on the
register on 14 September 2007. In accordance with IAS10 'Events after the
Balance Sheet Date', this interim dividend has not been reflected in the interim
accounts.



8. Reconciliation of cash generated from the operations

 
                                              6 months to   6 months to   Year to
                                                  30 June       30 June    31 Dec
                                                     2007          2006      2006
                                              (unaudited)   (unaudited)          
                                                       £m            £m        £m
                                              _____________________________________                                    
(a)  Reconciliation of operating cash flow                                       
                                                                                 
     Cash generated from the operations              72.0          51.4     186.3  
     Sale of property, plant and equipment            1.2           5.4       7.7    
     Purchase of investments                         (0.9)         (1.4)     (2.5)  
     Acquisition of property, plant and              
     equipment                                      (20.8)        (18.3)    (39.7)                             
     Capitalised development expenditure             (2.1)         (3.2)     (4.4)  
                                              _____________________________________                                   
     Operating cash flow from continuing              
     businesses                                      49.4          33.9     147.4
                                              _____________________________________    
                                                                                                                
                                                                                 
(b)  Reconciliation of net cash to movement in net                               
     borrowings                                                                  
                                                                                 
     Net decrease in cash and cash                   
     equivalents                                    (26.4)        (70.0)    (90.6)                             
     Drawdown of borrowings                         (91.7)        (61.6)     (7.4)  
                                              _____________________________________                            
     Cash outflow                                  (118.1)       (131.6)    (98.0) 
     Currency translation differences                 7.0          11.8      28.2 
                                              _____________________________________                                   
     Movement in net borrowings in the period      (111.1)       (119.8)    (69.8) 
     Net borrowings at the start of the             
     period                                         (80.4)        (10.6)    (10.6) 
                                              _____________________________________                                   
     Net borrowings at the end of the period       (191.5)       (130.4)    (80.4) 
                                              _____________________________________                   
  

9. 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  
            ____________________________________________________________
               6 months to 30 June     Year     30 June 30 June  31 Dec
                   2007       2006     2006        2007    2006    2006
            ____________________________________________________________
                                                                      
Euro               1.48       1.46     1.47        1.49    1.45    1.48
US Dollar          1.97       1.79     1.85        2.01    1.85    1.96

 
10. Contingent liability

On 16 August 2007 the Company reported that it had initiated an investigation
into possible irregular payments associated with certain trading contracts
entered into by its Severe Service business, which may be in breach of the law
and the Company's policies and practices. The Company has made appropriate
proactive notifications to the relevant authorities and will co-operate fully
with any enquiry from those authorities relating to this matter. It is too early
to be able to estimate the amount of possible fines and other liabilities
associated with this investigation and, as such, no provision has been made in
these accounts.



11. Financial information

This interim financial information has been prepared using the accounting
policies and presentation that were applied in the preparation of the Company's
published consolidated financial statements for the year ended 31 December 2006.

This interim statement has been reviewed by the Company'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 financial year ended 31 December 2006 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 (i) unqualified, (ii) did not include
a reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) 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 14 September 2007 and will
be available from the same date at the Company's registered office, Lakeside,
Solihull Parkway, Birmingham Business Park, Birmingham, B37 7XZ.

 

NEXT TRADING ANNOUNCEMENT

Our next trading update will be issued on 19 December 2007.

 


Enquiries to:

Graham Truscott    -     Communications Director      -       Tel: 0121 717 3712

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

 
Issued by:
Nick Oborne        -     Weber Shandwick Financial     -      Tel: 020 7067 0700

 

 

 

Independent review report by KPMG Audit Plc to IMI plc

We have been instructed by the Company to review the financial information for
the six months ended 30 June 2007 which comprises the consolidated income
statement, consolidated balance sheet, consolidated statement of cash flows,
consolidated statement of recognised income and expense and related notes set
out on pages 7 to 15. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.


This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company for
our review work, for this report, or for the conclusions we have reached.


Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual financial statements except
where any changes, and the reasons for them, are disclosed.

 

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of Interim Financial Information issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of Group management and applying analytical procedures to the financial
information and underlying financial data and, based thereon, assessing whether
the accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Statements on Auditing (UK and Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.


Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.


KPMG Audit Plc
Chartered Accountants
2 Cornwall Street
Birmingham
B3 2DL


3 September 2007



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