22 April 2010
("IMI" or "the Group")
Interim Management Statement
IMI's outlook for the first half of 2010 has materially improved since its preliminary results announcement on 4 March and accordingly it has brought forward to today its Interim Management Statement, which now covers the period from 1 January to 21 April 2010.
Current trading and Outlook
Higher than anticipated volumes in Fluid Power, together with strong margin progression compared to the first half last year, both within Fluid Power and across most of the other business platforms, are expected to deliver earnings per share for the first half, before exceptional items, in the region of 27p-29p (2009 H1: 18.5p) with segmental operating margins of around 15% (2009 H1: 10.9%). Overall revenues, which are broadly flat in the first quarter on a constant currency basis, are likely to finish the first half 3-4% ahead of last year, with a 25% growth in Fluid Power more than offsetting the expected 11-13% reduction in the later cycle Severe Service business.
Whilst forward visibility is improving, and our customers continue to talk more positively about future investment programmes, macroeconomic conditions remain uncertain, and we remain cautious as to the extent to which this improved momentum can be maintained in the second half. There is more certainty around margin improvement which is underpinned by a strong programme of cost reduction initiatives, including further transfers of manufacturing to low cost economies. The results from these programmes to date have been most encouraging.
As anticipated, shipments have been impacted by the lower order intake witnessed in the middle of last year, and we expect first half revenues to be down around 11 - 13% on last year on a constant currency basis. The higher quotation activity in oil and gas referred to in the preliminary results is, however, now being reflected in orders, which should support an improved position in the second half, and a return to year on year growth in 2011. First half margins will be impacted by the lower volumes, albeit this has been cushioned to a degree by a number of cost reduction initiatives. Our new advanced manufacturing facility in the Czech Republic is now operational, and its sister facility, currently under construction in India, is expected to open by the end of the year.
As highlighted above, we have continued to see improving momentum in our Fluid Power business, with first half revenues now expected to be around 25% up on last year. There is increasing evidence that most of the current demand has stemmed from improved end market demand, as opposed to changes in inventory positions, although customers remain naturally cautious as to medium term sustainability. Within the sectors, the commercial vehicles market has witnessed a strong bounce back from the depressed position last year, and growth year to date in our life sciences business has been most encouraging. We remain extremely focused on delivering a strong profits drop through on any increase in volumes, with much of the increased demand being met from expanded low cost manufacturing facilities in China, Czech Republic and Mexico. As a result, first half margins are expected to be materially ahead of last year, approaching the previous peak levels of around 14% experienced in 2008.
The increasing demand for more energy efficient buildings and related legislation is continuing to benefit our Indoor Climate business. The later cycle nature of the business means that revenues, on a constant currency basis, year to date are down around 5%. The cumulative impact, however, of a number of cost saving initiatives implemented throughout the course of last year mean that first half margins are expected to show a significant improvement over the first half of last year. We are investing in more customer seminars in North America and China this year to strengthen our position in these attractive long term growth markets.
Volumes in our Beverage Dispense business are broadly flat year to date reflecting an improvement in demand offset by the impact of our decision to gradually withdraw from some older, lower margin, commodity product lines. This improvement in product mix, together with the benefit from a number of cost initiatives implemented last year, should see a significant uplift in first half margins compared to last year. We are making good progress with our new products including Viper, our frozen beverage dispenser, and our new energy-efficient coolers. 3Wire, our North American parts business, is also performing well.
As expected, Merchandising revenues are likely to be down around 10% on a constant currency basis in the first half compared to the first half of 2009. As with Beverage Dispense this partly reflects our decision to prioritise higher margin, more differentiated product and project opportunities, whilst staging a gradual exit from older, more commoditised product lines. As a result we are anticipating a material improvement in margins over the first half of last year despite the lower volumes.
Financial position and exchange rates
At the end of March 2010 the Group's net debt was £168m compared to £327m at the end of March 2009 and £172m at the year end.
If average exchange rates ruling in the first three months of 2010 had been applied to our 2009 full year results it is estimated that both revenue and segmental operating profit would have been around 2% higher.
IMI will announce its interim results for the period ending 30 June 2010 on 26 August 2010.
Will Shaw Tel: 0121 717 3712
Nick Oborne Tel: 020 7067 0700