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IMI PLC (IMI)

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Wednesday 04 March, 2009

IMI PLC

Preliminary Results

RNS Number : 2699O
IMI PLC
04 March 2009
 







4 March 2009

                            

IMI plc Preliminary Results


IMI plc, the international engineering business, today announced its preliminary results for the year ended 31 December 2008



2008


2007


% change







    Revenue

£1,901m


£1,599m


+19







    Segmental operating profit

£266.3m


£207.8m


+28

    Adjusted profit before tax*

£254.7m


£205.5m


+24







    As reported:






        Operating profit

£209.8m


£171.7m


+22

        Profit before tax

£176.0m


£171.0m


+3







    Adjusted earnings per share **

54.1p


41.9p


+29

    Basic earnings per share

35.4p


35.4p









    Restructuring costs

£19.6m


£22.0m


-11







    Total dividend for year

20.7p


20.2p


+2







*      before restructuring, investigation costs and finesacquired intangible amortisation and impairment, other
       inco
me and financial instruments excluding economic hedge contract gains and losses totalling £78.7m (2007:
       £3
4.5m)

**    before the after tax cost of restructuring, investigation costs and fines, acquired intangible amortisation and
       impairment
, other income and financial instruments excluding economic hedge contract gains and losses 
       costs
 totalling £59.7m (2007: £23.5m)

   


Norman Askew, Chairman of IMI commented:


'This is a good set of results with most of the businesses contributing positively to another period of solid organic growth.  As the global economic slowdown has taken hold over the last few months trading conditions have deteriorated sharply across parts of the group.  However, the Group retains a healthy balance sheet and good cash generation. The repositioning of the Group over the last few years with a focus on higher added value products and more resilient end markets, together with lower operating costs resulting from our restructuring programme will help the Group to face the challenges in 2009.


  CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT


We are pleased to report another good set of results for the Group in 2008, with encouraging progress in most areas of the business.  However the global economic downturn presents the Group with significant challenges in 2009 and beyond.  Consequently we are taking early and decisive actions to position the Group to meet these challenges and mitigate against the financial impact.  


Performance in 2008

In 2008 revenue, operating profit, operating margin and adjusted earnings per share again all showed significant progress over the prior year.  Organic sales growth for the Group as a whole was 5%.  Segmental operating profit increased by 28% and the segmental operating margin improved from 13.0% to 14.0%.  


Adjusted earnings per share increased by 29% to 54.1p. The Board is recommending a final dividend of 12.7p, maintained at last year's level.  We recognise the importance of the dividend to our shareholders but at the same time need to be mindful of the more challenging markets that we face in 2009.  This makes the total dividend for the year 20.7p, an increase of 2% over last year's 20.2p.  Maintenance of the dividend will be a core objective through the economic downturn.


During 2008 we made further good progress against our well defined operational strategies in each of our businesses.  We made further investment in emerging markets during the year where our businesses continued to grow with revenues up by 19%.  We have now completed our 3 year restructuring programme to move a greater proportion of our manufacturing capacity to low cost economies, and the benefits are being delivered as expected.  We continue to build on our new product development capabilities and the percentage of revenues derived from new products launched in the prior three years was 14%.  New product introductions during 2008 included: the launch of new Drag wellhead gas production chokes in our Severe Service business, aimed at developing share in the upstream gas marketseveral new valve systems in the important life sciences sector by Norgren, our Fluid Power business; and 'Viper', a frozen beverage dispenser with high performance output and the ability to serve a broader range than traditional equipment.


Our Fluid Controls businesses again delivered strong results, with organic sales growth of 5% and an increase in operating margins from 14.4% t15.7%.  The Severe Service, Fluid Power and Indoor Climate businesses all performed well benefitting from relatively buoyant end markets particularly in the first half. 


Organic sales for the year in our Retail Dispense businesses grew by 3and the operating margin was maintained at 9.6%.  Merchandising performed well benefitting from strong shipments in the second half to a major US supermarket company.  Under the terms of the original purchase agreement we acquired the remaining 19.1% minority interest in Display Technologies in January 2009. Based on the contracted pricing mechanism the cash consideration is expected to be around £20m.  Beverage Dispense after a satisfactory first six months faced more challenging market conditions in the second half.  


Focus for 2009

The Group highlighted in its interim management statement in November 2008 that it had seen some evidence of a slow down in certain of its markets since the summer as a result of the global economic downturn. This included the in-plant automotive and European commercial vehicle sectors in Fluid Power and the demand from major soft drinks bottlers in both North America and Europe in Beverage Dispense.  

 Since late November trading conditions have deteriorated across many of our end markets. Sectors such as automotive and commercial vehicles have suffered a sharp contraction, as has investment in factory automation as businesses seek to reign back capital expenditure in the face of balance sheet concerns and poor forward visibility. Construction markets, particularly within the once fast growing regions of Eastern Europe and Dubai, have also contracted sharply, as access to credit has evaporated.  


Whilst pockets of resilience do exist, with energy markets remaining buoyant for our Severe Service business; increased Government investment in infrastructure providing new opportunities for our Fluid Power and Indoor Climate businesses; and the consumer focus on value and comfort purchases presenting new project opportunities for both the Beverage Dispense and Merchandising businesses; the prevailing picture is one of significant retrenchment. For the three months to the end of February, like for like revenues for the Group are around 15% lower than the equivalent period last year, reflecting sharply lower activity in the Fluid Power business, down nearly 30% on last year, partly offset by continued growth in Severe Service.


We took significant and decisive management action early to respond to these challenges, and this has been and continues to be focused in four key areas:


1.  Resource Allocation:

We are focusing our resources on sectors providing greater resilience such as energy, infrastructure, life sciences, and value retailing, as well as sectors benefitting from increased legislation such as energy efficiency. Opportunities affording certainty and speed are receiving the highest priority. 

 

2. Capacity Alignment:

We have taken rapid action to right size the business to the lower activity levels, with 10% of the global workforce having been released since December, and short-time working arrangements having been implemented wherever practicable. Further releases are planned over the next few weeks and we expect to be fully reconciled to the current levels of activity by the end of June. As part of this sizing initiative we have also taken the opportunity to bring forward some of our longer range plans to transfer more of our manufacturing capacity from North America and Europe to the lower cost areas of China, Czech Republic and India. The combination of these two activities will incur rationalisation costs of around £25m in 2009, and £10m in 2010.  The savings arising from the right sizing initiatives will be around £15m in 2009, with an additional £10m per year savings generated from the moves to lower cost operating environments from 2011 onwards.


3. Product Margins:

We are firmly focused on product margins, robustly defending our pricing and value positions around a product portfolio which is well differentiated and highly customised, whilst at the same time extracting maximum benefit from a sharp fall in commodity prices over the last few months. Coupled with an austere approach to wage and salary inflation, with wage freezes for large parts of our organization, we expect these various initiatives to cushion the profit impact of lower revenues in 2009 by at least £30m.


4. Cash Optimisation:

We are focused on our balance sheet, and the implementation of even tighter controls around cash conversion which have always been a key feature of our business. We anticipate cash conversion for 2009 in excess of 90% which, coupled with lower capex this year, will ensure we retain a strong balance sheet

  

Outlook

As a result of the global economic downturn many of our end markets are extremely challenging.  

However, we have taken decisive management actions to right size the business for the current lower activity levels.  


The Group retains a healthy balance sheet and good cash generation. The repositioning of the Group over the last few years with a focus on higher added value products and more resilient end markets, together with lower operating costs resulting from our restructuring programme will help the Group to face the challenges in 2009. In the longer term as economic conditions improve we will be well placed with strengthened market positions, a lower cost base and the ability to scale up capacity quickly to respond to growth opportunities.  



FINANCIAL AND OPERATIONS REVIEW


Results summary

The Group has elected to adopt IFRS8 'Operating Segments' early and presents the segmental financials in accordance with this new standard. As referred to in note 1, the amortisation of internal development costs is now included in segmental operating profit.  Other accounting policies are consistent with those applied for the year ended 31 December 2007.  

 

Revenue increased 19% to £1,901m (2007: £1,599m), which includes £37m from 2007 acquisitions. Organic growth was 5% and exchange rate movements contributed £179m helped by the appreciation of both the Euro and US Dollar versus Sterling.   


Segmental operating profit was £266.3m, an increase of 28%.  Acquisitions contributed £4.1m and exchange rate translation accounted for a further £27.0m of the increase. The remaining organic operating profit growth was 11.7%.  Segmental operating margin improved from 13.0% last year to 14.0%. Operating profit was £209.8m (2007: £171.7m)after restructuring costs of £19.6m, a provision for the Severe Service investigation costs and fines of £26.3m, acquired intangible amortisation and impairment of £13.2m but before economic hedge contract gains and losses of £2.6m. 


Interest costs on net borrowings were £16.1m (2007: £12.8m). After offsetting the pension fund financing credit (IAS19) of £3.8m (2007: £10.5m), gains from investments of £0.7m (2007: Nil) and adding the loss on financial instruments (IAS39) of £22.2m (2007: £1.6m gain), the net financing costs were £33.8m (2007: £0.7m). The majority of the IAS39 loss is a non-cash accounting adjustment required under IAS39 for financial instruments that the Group holds to provide stability of future trading cash flows and does not reflect the underlying trading performance of the Group.  


Profit before tax on continuing businesses was up 3% at £176.0m (2007: £171.0m). The effective tax rate for the Group before the tax impact of Severe Service investigation costs and fines was unchanged from 2007 at 31%.


Adjusted earnings per share on continuing businesses (excluding the after tax cost of restructuring, investigation costs and finesacquired intangible amortisation and impairment, other income and financial instruments excluding economic hedge contract gains and losses) was 54.1p (2007: 41.9p), an increase of 29%. The basic earnings per share was unchanged at 35.4p (2007: 35.4p).

  

Exchange rates

The movement in average exchange rates between 2007 and 2008 resulted in our reported 2008 revenue and segmental operating profit being 11% and 13% higher respectively. The Euro and US Dollar both strengthened significantly particularly in the second half of the year. If current exchange rates of US$1.44 and €1.13 had been applied to our 2008 results, it is estimated that both revenue and segmental profit would have been approximately 15% higher.  


Cash flow

The net cash from operating activities was £217m, compared to £120m last year. Capital expenditure on property, plant and equipment amounted to £48m (2007: £50m) and was 1.1 times depreciation (2007: 1.4 times). The major cash outflows in the year were tax of £54m, dividends of £66m and the purchase of own shares of £17m including £2m for shares held in trust for employee share schemes. The total cash inflow for the year was £68m compared with an outflow of £140m in 2007.  


Balance sheet

Net assets at 31 December 2008 were £462m an increase of £49m. Movements in the year mainly comprise of profit for the year of £116m, income and expense net of tax recognised directly in equity of £12m (including foreign currency translation of £73m, actuarial losses of £77m and tax of £22m), dividend of £66m and the purchase of the company's own shares of £17m.   Intangible assets at 31 December 2008 were £400m net of an impairment of £6m in the goodwill attributable to Commtech, an Indoor Climate business. Property, plant and equipment totalled £266m and current assets less current liabilities were £333m.


The net pension fund deficit under IAS19 at 31 December 2008 was £137m, a £74m increase on the prior year mainly due to a reduction in the value of the pension assets offset somewhat by a reduction in the discounted value of the UK liabilities and the additional £17m contribution made in the year.  The Group completed the triennial actuarial valuation of the UK defined benefit pension plan, which is the largest such plan within the Group, as at 31 March 2008. This valuation resulted in a funding deficit of £118m. A recovery plan has been agreed with the pension fund trustee that requires additional cash contributions from the company of £16.8m each year until July 2016. The first of these additional contributions was made in December 2008. The funding position will be reviewed again no later than as at March 2011.


Closing net debt was £299m.  The devaluation of Sterling versus other exchange rates during the year resulted in an upwards revaluation in net debt by £133m.  


Severe Service investigation

We expect to reach final agreement in the near future on a settlement with the US Department of Justice in respect of certain irregular payments by our US subsidiary Control Components Inc (CCI) that violated the US Foreign Corrupt Practices Act. An investigation has also been completed into possible incidental breaches of US trade law by CCI. Legal costs incurred in 2008, together with a provision for the expected fines and certain related legal costs, totalling £26.3m has been separately disclosed in the 2008 accounts due to its one off nature and quantum  We will also have to deal with a number of collateral issues in other jurisdictions outside the US.  

  

Board and management changes

David Nicholas, Executive Director, has confirmed that he plans to retire in December this year at age 60, stepping down from the Board on 1 September.  With the onset of more difficult trading conditions, the company has decided to make a number of management changes with immediate effect. Roy Twite, Executive Director, is appointed President of the Fluid Power business, taking full responsibility for day to day activities. During his career with IMI, Roy has held a number of senior management positions in Fluid Power and this experience will be invaluable in leading the business through the current challenging markets. David Nicholas retains his responsibility for the Indoor Climate business and in addition now leads the Group Supply and Mergers & Acquisitions teams. The Severe Service, Beverage Dispense and Merchandising businesses now report directly to Martin Lamb, Chief Executive. 




Operations review


The following review of our business areas for the year ended 31 December 2008 compares the performance of our operations, as reported under IFRS8 'Operating Segments', with the year ended 31 December 2007. This section also comments on current market conditions in each of our businesses.



Severe Service

 

Revenue
£443m
(2007: £362m)
Operating profit
£81.3m
(2007: £55.9m)
Operating margin
18.4%  
(2007: 15.4%)

 

The Severe Service business continued to trade very well through the year with revenues up 22% and organic revenue growth, excluding exchange rate movements, at 9%.  The second half performance was particularly strong with organic revenue growth of 15%. As previously indicated routes to market are now fully reopened following the disruption caused by the CCI investigation and order intake progressed well during the year.  


Project activity in the oil and gas and power markets remained healthy during the year. In power all three major regions of Americas, Europe/Middle East and Asia showed improvements in order intake. Interest in new nuclear applications is continuing to grow and we made good progress in securing the required industry certifications.  Nuclear sales performance was broadly flat but with a strong improvement in margins which helped to improve the overall operating margin for Severe Service to 18.4% from 15.4% last year.  


The outlook for the Severe Service business remains positive although an extended period of lower oil prices could impact future order intake.  Whilst we have not seen any significant project deferrals or cancellations, we have seen some recent slowing of order intake in the North American power market and lower activity levels in Japan.  



Fluid Power

 

Revenue
£666m
(2007: £571m)
Operating profit
£91.3m
(2007: £75.4m)
Operating margin
13.7%  
(2007: 13.2%)

 

Overall organic revenue growth in Fluid Power was 3% for the full year. However this represented a small decline in the second half after organic growth of 7% in the first half with November and December being particularly difficult.  


Our sector business targets niche markets with major customers in the commercial vehicle, in-plant automotive, life science, rail, print, packaging and PET/beverage markets.  After a strong first half, the sector business suffered a significant reversal late in the year, with the in-plant automotive, European commercial vehicles, and print markets sharply lower. Performance in the rail, packaging and life science sectors mitigated to a degree, containing the year on year second half organic revenue decline to 5%, and leaving the sector business as a whole recording a 2% organic revenue growth for the full year.


The remainder of the Fluid Power business provides general pneumatic and fluid control solutions for a broad range of industrial users. Overall revenue in this area showed organic growth of 3%. This reflected a weaker second half, particularly in Western Europe and North America, after a strong first half performance.  Germany and Asia Pacific continued to grow in the second half.  


Operating margins overall for the year increased from 13.2% to 13.7%. As anticipated most Fluid Power markets have continued to be extremely challenging at the start of 2009. Since the onset of the economic downturn in the autumn the Fluid Power business has moved quickly to reduce costs to help mitigate the impact of lower volumes.  This has included a 13headcount reduction from peak levels in 2008, as well as aggressive procurement initiatives and other cost saving measures.  



Indoor Climate

 

Revenue
£281m
(2007: £207m)
Operating profit
£45.2m
(2007: £32.5m)
Operating margin
16.1%  
(2007: 15.7%)

 

The Indoor Climate organic revenue growth was 6%.  This represents a consistent strong performance throughout most of the year and is a reflection of both volume gains and the successful implementation of price increases across the business.  However certain markets did slow in November and December.  


Sales of balancing valves maintained momentum in Western European construction markets for most of the year, although the market became more challenging in the last quarter as the new construction sector slowed sharply. Heimeier, our thermostatic valve business, performed well in Germany benefiting from increased refurbishment activity helped by recent legislation in respect of energy efficiency.  


Pneumatex continued to perform well in the second half of 2008. Integration of the business is progressing and the Indoor Climate Group is successfully using its existing sales infrastructure to broaden the geographic presence of the Pneumatex range of water conditioning equipment.  


Operating profit for Indoor Climate increased by 39% to £45.2m.  The operating margin increased from 15.7% to 16.1% with stronger margins being delivered in the second half, in part as a result of the anticipated seasonality of the Pneumatex business.  


2009 is expected to be challenging as the commercial construction market continues to weaken in most geographies. However the business should benefit from a shift in focus towards Government infrastructure projects, further growth of Pneumatex products in new markets and the fact that the thermostatic radiator valve business is more dependent on replacement and maintenance activity which continues to hold up reasonably well. The business has also taken actions to lower costs by reducing headcount and by seeking to benefit from lower materials costs.  



Beverage Dispense

 

Revenue
£305m 
(2007: £285m)
Operating profit
£27.6m
(2007: £24.8m)
Operating margin
9.0%    
(2007: 8.7%)

 

The organic revenue decline for the year was 1% in Beverage Dispense. This reflected particularly difficult market conditions in the second half as expected after a satisfactory performance in the first half.  


As previously reported the Beverage Dispense business experienced a sharp reduction in demand from the major soft drinks bottlers in North America. Second half revenues were down 6% on an organic basis on the corresponding period last year. The UK beer market continued to be very challenging with the capital budgets of major brewers being further tightened.  Revenue in our UK business, which is focused on this market, declined by over 20% in the year.  Sales in Asia Pacific benefited from a significant rollout for a fast food chain in Australia. 


Our new product agenda continues to make good progress with several new launches addressing the changes in consumer tastes as well as the demand for more energy efficient equipment. We remain confident of the medium term opportunities in the heath and indulgence drinks categories such as water, juices, dairy, smoothies and frozen drinks.  


Operating profit for the year was £27.6m, an increase of 11% from 2007, representing a small increase in operating margin to 9.0%.  Markets continue to be challenging in most areas and, accordingly, we are actively reducing the cost base through headcount reductions and further procurement and operating savings.  



Merchandising 


Revenue
£202m
(2007: £174m)
Operating profit
£20.9m
(2007: £19.2m)
Operating margin
10.3%
(2007: 11.0%)


The organic growth for the year was 11% with stronger growth in the second half of 12% than in the first half. Revenues in the second half benefited from strong shipments to a major US supermarket chain. The strongest sector performance in 2008 was in consumer electronics which made excellent progress over 2007 levels. The food and cosmetics sectors maintained good momentum for most of the year although there was some weakness evident in the last quarter.  The automotive sector was significantly below last year's levels.


The operating margin was 10.3%, slightly down from 11.0% last year. As previously reported in the Interim Results margins were impacted in the first half by the rapid increase in steel costs.  Second half operating margins recovered to 11.9% as a result of management actions to improve the supply chain and to consolidate manufacturing with the closure of a factory in California.  


The general economic environment means that the market in 2009 is challenging, particularly in sectors such as automotive. However there are other sectors such as cosmetics, value retailers and grocery where there continue to be good opportunities to win new business.  

  

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2008







Notes


2008

2007


1



restated




£m 

£m 

Revenue 

2


1,901

1,599




 

 

Segmental operating profit

2

 

266.3 

207.8 

Restructuring costs



(19.6)

(22.0)

Severe Service investigation costs and fines



(26.3)

(4.9)

Acquired intangible amortisation and impairment



(13.2)

(10.9)

Other income

4


 - 

1.7 

Economic hedge contract gains and losses

 

 

2.6 

 - 

Operating profit

2


209.8 

171.7 






Financial income

6


85.6 

81.1 

Financial expense

6


(119.4)

(81.8)

Net financial expense

6


(33.8)

(0.7)






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



254.7 

205.5

Restructuring costs



(19.6)

(22.0)

Severe Service investigation costs and fines



(26.3)

(4.9)

Acquired intangible amortisation and impairment



(13.2)

(10.9)

Other income



 - 

1.7 

Financial instruments excluding economic hedge contract gains and losses



(19.6)

1.6 

Total

 

 

176.0 

171.0 






Taxation

7




UK taxation

 

 

(12.9)

(10.5)

Overseas taxation

 

 

(47.1)

(42.5)

Total



(60.0)

(53.0)






Profit of continuing operations after tax



116.0 

118.0 






Gain from discontinued operations (net of tax)

5


 - 

1.9 

Total profit for the year

 

 

116.0 

119.9 






Attributable to:





Equity shareholders of the Company



112.9 

117.0 

Minority interest



3.1 

2.9 

Total profit for the year

 

 

116.0 

119.9 






Earnings per share

8




Basic earnings per share



35.4p

35.4p

Diluted earnings per share



35.1p

35.3p






Basic earnings per share (continuing operations)



35.4p

34.8p

Diluted earnings per share (continuing operations)



35.1p

34.7p


  

CONSOLIDATED BALANCE SHEET

at 31 December 2008





2008 

2007 





£m 

£m 

Assets



Intangible assets

399.8 

314.7 

Property, plant and equipment

266.4 

207.9 

Employee benefit assets

2.4 

1.3 

Deferred tax assets

54.7 

37.2 

Total non-current assets

723.3 

561.1 




Inventories

333.5 

252.0 

Trade and other receivables

408.5 

332.6 

Current tax

4.7 

1.9 

Investments

17.8 

14.4 

Cash and cash equivalents

123.9 

106.5 

Total current assets

888.4 

707.4 

Total assets

1,611.7 

1,268.5 




Liabilities



Bank overdraft

(4.6)

(29.1)

Interest-bearing loans and borrowings

(46.5)

(5.0)

Provisions

(29.4)

(6.9)

Current tax

(26.6)

(21.0)

Trade and other payables

(448.2)

(350.0)

Total current liabilities

(555.3)

(412.0)




Interest-bearing loans and borrowings

(371.5)

(305.5)

Employee benefit obligations

(139.5)

(64.9)

Provisions

(36.5)

(34.0)

Deferred tax liabilities

(16.9)

(18.8)

Other payables

(30.3)

(20.4)

Total non-current liabilities

(594.7)

(443.6)

Total liabilities

 (1,150.0)

(855.6)

Net assets

461.7 

412.9 




Equity



Share capital

84.7 

84.6 

Share premium

165.1 

163.3 

Other reserves

71.1 

6.8 

Retained earnings

131.5 

151.8 




Total equity attributable to equity shareholders 



  of the Company

452.4 

406.5 

Minority interest 

9.3 

6.4 

Total equity

461.7 

412.9 


 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2008









2008 

2007 

Cash flows from operating activities






£m 

£m 


Profit for the year

116.0 

119.9 


Adjustments for:




  Depreciation

43.1 

35.9 


  Amortisation and impairment

16.4 

13.9 


Profit from discontinued operations (net of tax)

 - 

(1.9)


Other income - disposal of business

 - 

(1.7)


Gain on sale of property, plant and equipment

(0.2)

(0.1)


Financial income

(85.6)

(81.1)


Financial expense

119.4 

81.8 


Equity-settled share-based payment expenses

3.9 

3.1 


Income tax expense

60.0 

53.0 


Decrease/(increase) in trade and other receivables

17.6 

(12.6)


Increase in inventories

(9.2)

(18.6)


(Decrease)/increase in trade and other payables

(7.2)

20.5 


Increase/(decrease) in provisions and employee benefits

14.4 

(6.6)

Cash generated from the operations

288.6 

205.5 


Income taxes paid

(54.4)

(37.1)




234.2 

168.4 


Additional pension scheme funding

(16.8)

(15.6)


European Commission fine

 - 

(32.8)

Net cash from operating activities

217.4 

120.0 






Cash flows from investing activities




Interest received

12.4 

7.2 


Proceeds from sale of property, plant and equipment 

3.1 

8.3 


  (including £1m from discontinued operations in 2007)




Sale of investments

0.1 

0.1 


Purchase of investments

(0.8)

(1.2)


Income from investments

0.7 

 - 


Acquisition of subsidiaries (net of cash acquired)

 - 

(52.2)


Disposal of businesses (net of cash disposed)

 - 

2.0 


Acquisition of property, plant and equipment

(47.6)

(49.9)


Capitalised development expenditure

(5.1)

(3.2)

Net cash from investing activities

(37.2)

(88.9)






Cash flows from financing activities




Interest paid

(29.0)

(19.9)


Purchase of own shares

(16.7)

(93.3)


Proceeds from the issue of share capital for employee share schemes

1.9 

8.7 


(Repayment)/drawdown of borrowings

(45.5)

110.7 


Dividends paid to minority interest

(2.4)

(2.4)


Dividends paid to equity shareholders

(66.2)

(63.9)

Net cash from financing activities

(157.9)

(60.1)






Net increase/(decrease) in cash and cash equivalents

22.3 

(29.0)

Cash and cash equivalents at start of the year

77.4 

103.6 

Effect of exchange rate fluctuations on cash held

19.6 

2.8 

Cash and cash equivalents at end of the year *

119.3 

77.4 

* Net of bank overdrafts








Notes to the cash flow appear in note 10



  

CONSOLIDATED STATEMENT
OF RECOGNISED INCOME AND EXPENSE
 
for the year ended 31 December 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note
2008
2007
 
 
 
 
1
 
restated
 
 
 
 
 
£m
£m
 
 
 
 
 
 
 
 
Foreign currency translation differences
 
73.4
(2.5)
 
Actuarial (losses)/gains on defined benefit plans
 
(77.4)
35.2
 
Change in fair value of other financial assets
 
 -
4.2
 
Effective portion of change in fair value of net investment hedges
 
(5.3)
(3.3)
 
Income tax on income and expense recognised directly in equity
 
21.5
(11.2)
 
 
 
 
 
 
 
 
Income and expense net of tax recognised directly in equity
 
12.2
22.4
 
 
 
 
 
 
 
 
Profit for the year
 
116.0
119.9
 
 
 
 
 
 
 
 
Total recognised income and expense for the year
 
128.2
142.3
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
Equity shareholders of the Company
 
122.9
139.4
 
 
Minority interest
 
5.3
2.9
 
Total recognised income and expense for the year
 
128.2
142.3
 





  

NOTES RELATING TO THE FINANCIAL STATEMENTS

 

       1. Restatement 


The directors present adjusted profit before tax (excluding restructuring, investigation costs and fines, acquired intangible amortisation and impairment, other income and financial instruments excluding economic hedge contract gains and losses) to give a more meaningful indication of the Group's underlying performance because either the quantum, the one-off nature, or volatility of the excluded items would otherwise distort underlying performance.  


In prior years the amortisation of internal development costs had also been excluded in the calculation of adjusted profit before tax. Due to the importance of development to the Group, and in line with developing practice, development cost amortisation is no longer excluded from adjusted profit before tax. Reported adjusted profit before tax is £3.2m lower in the year (2007: £3.0m) for this item.  Additionally due to the volatility of movement in financial instruments, as these instruments are held to provide stability of future trading cashflows and do not therefore reflect the underlying trading performance of the Group, gains and losses on financial instruments excluding economic hedge contracts have also been excluded from adjusted profit before tax. Reported adjusted profit before tax is £19.6m higher in the year (2007: £1.6m lower) adjusted for this item.


The statement of recognised income and expense shows items gross of tax with tax on these items disclosed separately. 2007 comparatives have been restated accordingly.

 

       2. Segmental analysis


The Group has adopted IFRS8 'Operating Segments' in these accounts. Segmental information is presented in the consolidated financial statements for each of the Group's continuing 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, acquired intangible amortisation and impairment and other income. Segmental operating profit is also reported as if economic currency and metals hedges were effective for financial reporting purposes. This measure gives a more meaningful indication of the underlying performance of the segments because either the quantum, the one-off nature, or volatility of these items would otherwise distort underlying trading performance. 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 these settled contracts. In accordance with IAS39, these contracts do not meet the technical provisions required for hedge accounting and gains and losses are recorded in financial income and net expense.


 







Segmental


Segmental operating






Revenue


profit







2008

2007


2008


2007












restated


   

By segment



£m

£m


£m

 

£m



Fluid Controls



1,390

1,140


217.8 


163.8 




Severe Service

 

 

443

362

 

81.3 

 

55.9 




Fluid Power



666

571


91.3 


75.4 




Indoor Climate

 

 

281

207

 

45.2 

 

32.5 



Retail Dispense



507

459


48.5 


44.0 




Beverage Dispense

 

 

305

285

 

27.6 

 

24.8 




Merchandising 

 

 

202

174

 

20.9 

 

19.2 



Segmental result



1,897

1,599

 

266.3 

 

207.8 















Reconciliation of reported segmental revenues and operating profits




















Revenue



Operating profit








2008

2007



2008

2007








£m

£m



£m

£m



Segmental result




1,897 

  1,599 



266.3 

207.8 



Restructuring costs








(19.6)

(22.0)



Severe Service investigation costs and fines





(26.3)

(4.9)



Acquired intangible amortisation and impairment





(13.2)

(10.9)



Other income








 - 

1.7 



Economic hedge contract gains and losses

 - 



2.6 

 - 



Total




1,901 

1,599 



209.8 

171.7 
















Revenue by geographical destination


























2008 

2007 












£m 

£m 








UK



183

188








Germany



266

209








Rest of Europe



533

423








USA



517

460








Asia/Pacific



249

202








Rest of World



149

117








Total continuing operations



1,897

1,599








Economic hedge contract gains and losses

4

 - 








Total



  1,901

  1,599 








  

       3. Acquisitions


There were no acquisitions during the year. The 2007 acquisitions of Pneumatex AG and Kloehn Company Limited contributed £37m of additional revenue and £4.1m of additional operating profit in 2008.

 

       4. Other income


There was no other income for the year. In 2007 the Company sold its interest in Imagine, a Hong Kong based merchandising business, realising a profit of £1.7m.

 

       5. Discontinued operations

 

There were no operations discontinued in the year. In 2007 the Group made a profit of £1.9m (net of tax) and realised cash of £1.0m on the disposal of land once occupied by the previously discontinued business of IMI Refiners. There is no impact from discontinued operations on earnings per share in the year. The impact of discontinued operations on both basic and diluted EPS for the year to 31 December 2007 was 0.6p.

 


       6. Net financial income and expense

 






2008

2007






Financial




Financial







Interest

instruments

Other

Total

Interest

instruments

Other

Total



£m

£m

£m

£m

£m

£m

£m

£m

Recognised in the income statement


 

 

 

 

 

 

 

 

Interest income on bank deposits



10.2 



10.2 

7.4 



7.4 

Financial instruments at fair value through profit or loss:








 

  Designated 

  hedges

 

 

 

 

3.1 

 

3.1 

 

0.8 

 

0.8 

  Other economic  
  hedges  - future year 
  transactions




 - 


3.3 


3.3 

Income from investments






0.7 

0.7 



 - 

 - 

Expected return on defined benefit pension plan assets



71.6 

71.6 



69.6 

69.6 

Financial income




10.2 

3.1 

72.3 

85.6 

7.4 

4.1 

69.6 

81.1 













Interest expense on financial liabilities measured at amortised cost 



(26.3)




(26.3)


(20.2)




(20.2)

 






 



Financial instruments at fair value through profit or loss:




 




 

  Designated
  hedges





(3.2)


(3.2)


(0.9)


(0.9)

  Other  
  economic
  hedges

- current

  year  
  trading



(2.6)


(2.6)


 - 


 - 


- future year  
  transactions


(17.2)


(17.2)


(1.6)


(1.6)

  Impairment of  
  available 
for sale 
  financial assets



(2.3)


(2.3)


 - 


 - 

Financial cost of defined benefit

pension scheme liabilities


 

 

(67.8)

(67.8)



(59.1)

(59.1)

Financial expense




(26.3)

(25.3)

(67.8)

(119.4)

(20.2)

(2.5)

(59.1)

(81.8)













Net financial (expense)/income



(16.1)

(22.2)

4.5 

(33.8)

(12.8)

1.6 

10.5 

(0.7)


























Included in financial instruments are current year trading gains and losses on economically effective transactions which for management reporting purposes (see note 2) are included in segmental operating profit. For statutory purposes these are required to be shown within net financial income and expense above. Gains or losses for future year transactions are in respect of financial instruments held by the Group to provide stability of future trading cash flows.

  

       7. Taxation


The effective tax rate on profit before tax, excluding the impact of Severe Service investigation costs and fines, is 31% (2007: 31%), comprising tax of £62.8m on pre tax profit before Severe Service investigation costs and fines of £202.3m.

 

        8. 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 319.3m, 321.6m diluted for the effect of outstanding share options (2007: 330.7m, 331.8m diluted). Basic earnings per share have been calculated on earnings of £112.9m, (2007: £117.0m) and the equivalent ratios apply for continuing operations (2007: £115.1m before gain from earnings of discontinued operations (net of tax)).

 

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 the volatility of these items would otherwise distort the underlying performance.



From continuing operations

2008

2007



restated


£m

£m

Total profit for the year

116.0 

118.0 

Minority interest

(3.1)

(2.9)


112.9 

115.1 

Charges/(credits) included in profit for the year:



  Restructuring costs

19.6 

22.0 

  Severe Service investigation costs and fines

26.3 

4.9 

  Acquired intangible amortisation and impairment

13.2 

10.9 

  Other income

 - 

(1.7)

  Financial instruments excluding economic hedge contract gains and losses

19.6 

(1.6)

  Taxation on charges/(credits) included in profit before tax

(19.0)

(11.0)

Earnings for adjusted EPS

172.6 

138.6 

Weighted average number of shares

319.3m

330.7m

Adjusted EPS

54.1p

41.9p




Diluted adjusted EPS

53.7p

41.8p


       9. Dividend


The directors recommend a final dividend of 12.7p per share (2007: 12.7p) payable on 22 May 2009 to shareholders on the register at close of business on 14 April 2009, which will absorb around £40m (2007: £41m). Together with the interim dividend of 8.0p per share paid on 17 October 2008, this makes a total distribution of 20.7p per share (2007: 20.2p per share). In accordance with IAS10 'Events after the Balance Sheet date', this final proposed dividend has not been reflected in the 31 December 2008 balance sheet.


  

      10. Reconciliation of net cash to movement in net borrowings


 
2008
2007
 
£m
£m
Net increase/(decrease) in cash and cash equivalents
22.3
(29.0)
Repayment/(drawdown) of borrowings
45.5
(110.7)
Cash inflow/(outflow)
67.8
(139.7)
Currency translation differences
(133.4)
(13.0)
Movement in net borrowings in the year
(65.6)
(152.7)
Net borrowings at the start of the year
(233.1)
(80.4)
Net borrowings at the end of the year
(298.7)
(233.1)


      11. 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




2008

2007



2008

2007


Euro


1.26

1.46



1.03

1.36


US Dollar


1.85

2.00



1.44

1.99




The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2008 or 2007 but is derived from the 2008 accounts. Statutory accounts for 2007 have been delivered to the registrar of companies and those for 2008 will be delivered in due course. The auditor has reported on those accounts; its 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 237(2) or (3) of the Companies Act 1985.


The Company's 2008 Annual Report and notice of the forthcoming Annual General Meeting will be posted to shareholders on 2 April 2009. 



- ends -


Enquiries to:


Will Shaw
Corporate Communications
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






This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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