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Thursday 06 March, 2014

IMI PLC

Preliminary Results

RNS Number : 6364B
IMI PLC
06 March 2014
 



For a printer friendly copy of this announcement please click on the link below to open a PDF version of this announcement:

 

http://www.rns-pdf.londonstockexchange.com/rns/6364B_-2014-3-5.pdf

 

 

6 March 2014

 

IMI plc

Preliminary results, year ended 31 December 2013

 


Adjusted1


Statutory

Continuing operations2:

2013

2012

Change


2013

2012

Change

Revenue

£1,744m

£1,696m

+3%


£1,743m

£1,694m

+3%

Operating profit

£321.6m

£300.1m

+7%


£270.5m

£249.4m

+8%

Operating margin

18.4%

17.7%

+70bps





Profit before tax

£297.7m

£274.8m

+8%


£249.3m

£229.9m

+8%

Basic EPS

72.6p

64.7p

+12%


60.4p

53.9p

+12%

Dividend per share

35.3p

32.5p

+9%





Operating cash flow

£344.9m

£297.5m

+16%





Net debt

£199m

£144m






 

1.          Excluding the effect of items reported as exceptional in the Income Statement.

2.          All items are shown on a continuing operations basis except dividend per share, operating cash flow and net debt.

 

Highlights

·      Revenue up 3% to £1,744m

·      Adjusted earnings per share up 12% to 72.6p

·      Operating cash flow up 16% to £345m

·      Recommended a 9% increase in the full year dividend

·      Successful transition to new Chief Executive

·      Disposal of Beverage Dispense and Merchandising businesses

·      £620m of cash being returned to shareholders

·      IMI now a focused specialist flow control business

 

Roberto Quarta, Chairman, commented:

"During 2013 we made significant progress in terms of our financial and strategic agendas.  The Group delivered another strong set of results and, following the disposal of the Beverage Dispense and Merchandising divisions, IMI is now a specialist flow control company concentrated on industrial end markets."

 

Mark Selway, Chief Executive, added:

"As IMI moves into the next phase of its development I have initiated a review of all parts of the Group.  While this review work is ongoing, positive early findings are already emerging.  These findings, together with IMI's inherent strengths, including its robust balance sheet, indicate that the Group is well positioned to exploit a range of growth opportunities over the medium term.  

 

"Looking at the year ahead: in 2014, based on current market conditions and excluding the adverse impact of exchange rates, we expect the Group to deliver modest organic revenue growth in the first half with margins slightly lower than in the first half of last year and an improved overall performance in the year."

 

A live webcast of the analyst meeting taking place today at 8:45am (GMT) will be available on the investor page of the Group's website:  www.imiplc.com. The Group plans to release its Interim Management Statement on 8 May 2014 and its Interim Results on 1 August 2014. 

 

Enquiries to:

Will Shaw

IMI

Tel: +44 (0)121 717 3712

Suzanne Bartch / Robert Morgan

StockWell Communications

Tel: +44 (0)20 7240 2486

 

RESULTS OVERVIEW

 

2013 was a year of significant progress on a number of fronts.  We continued to deliver positive results for our shareholders and, during the course of the year, reshaped our business through the disposal of the Beverage Dispense and Merchandising divisions which completed on 1 January 2014. 

 

On a continuing basis, excluding the Beverage Dispense and Merchandising divisions, reported revenues were £1,743m, up 1% on an organic basis (2012: £1,694m).  Segmental operating profits grew 7% to £321.6m (2012: £300.1m), and operating margins improved from 17.7% to 18.4%.  Adjusted basic earnings per share increased 12% to 72.6p (2012: 64.7p). 

 

The Severe Service division delivered a strong performance with organic revenue growing 8% to £394m in the second half (2012 H2: £360m) and 3% to £716m for the full year (2012: £686m).  In the year orders were up 12% with good momentum in the Petrochemical sector and we were awarded a record single order in Oil & Gas.  Operating margins improved from 14.0% in 2012 to 16.3% in 2013 with a significant uplift to 17.2% in the second half.   While Fluid Power revenues at £723m were down 1% on an organic basis for the full year (2012: £717m), momentum improved in the second half when organic revenues increased 3% to £360m (2012 H2: £344m).  Operating margins were slightly down at 19.4% (2012: 19.8%).  Indoor Climate saw a return to growth in the second half with organic revenues up 2% to £159m (2012 H2: £151m) and increasing 1% for the full year to £305m (2012: £293m).  Operating margins were slightly ahead of last year at 21.1% (2012: 21.0%). 

 

The Beverage Dispense and Merchandising divisions delivered mixed results during the year. Merchandising performed strongly but the Beverage Dispense business saw a decline in revenues.  The segmental operating profit from these discontinued businesses increased 11% to £81.0m (2012: £72.9m) and the operating margin increased to 15.9% (2012: 14.7%).  

 

Dividend

Given the strong overall results the Board is recommending that the final dividend be increased by 9% to 22.5p (2012: 20.7p).  This makes a total dividend for the year of 35.3p, an increase of 9% over last year's 32.5p. 

 

Strategic developments

In March 2013 we announced that we were exploring options to divest the majority of our Merchandising business. During this process we received an unsolicited offer from The Marmon Group, a Berkshire Hathaway company, for both our Beverage Dispense business and our Merchandising business for an enterprise value of $1,100m (£690m). 

 

We successfully concluded this transaction in early January 2014 and, in line with our capital allocation policy and the Board's commitment to maintain an efficient balance sheet, £620m of cash is being returned to shareholders.   An additional cash contribution of £70m is being made to the IMI UK Pension Fund (the 'Fund') to support the on-going strategy to reduce the Fund's volatility risk and move towards self-sufficiency funding levels over the next few years. 

 

During the year, the Group bought back £164m of shares in the share repurchase programme that was announced in March 2013.  This programme was introduced to ensure that net debt was maintained at an efficient level.  At the end of 2013 the Group's net debt was £199m, with the ratio of net debt to continuing EBITDA at 0.6 times.  A further programme of share buy backs is not proposed for the time being.   

 

Board changes

As previously announced Mark Selway joined the IMI Board on 1 October 2013 as Chief Executive designate following the announcement of Martin Lamb's retirement from the Company after 33 years.  After a three month transition period, Martin stepped down as Chief Executive on 31 December 2013 and will retire from the Board at the Annual General Meeting in May, 2014. Mark was appointed Chief Executive with effect from 1 January 2014.

 

Outlook

As IMI moves into the next phase of its development a review of all parts of the Group has been initiated.  While this review work is ongoing, positive early findings are already emerging.  These findings, together with IMI's inherent strengths, including its robust balance sheet, indicate that the Group is well positioned to exploit a range of growth opportunities over the medium term.  

 

Looking at the year ahead: in 2014, based on current market conditions and excluding the adverse impact of exchange rates, we expect the Group to deliver modest organic revenue growth in the first half with margins slightly lower than in the first half of last year and an improved overall performance in the year. 

 

CHIEF EXECUTIVE'S REVIEW

 

A strong foundation

As the refocused IMI business enters the next phase of its development, which coincides with my appointment as Chief Executive and the fresh perspective I bring, now is the ideal time to undertake a review of all parts of the Group.  The purpose of this review is to ensure we have the plans and strategy in place to enable us to outperform in our chosen markets, deliver sustainable accelerated top and bottom line growth and build long-term shareholder value.

We have many strengths: we have a committed workforce, great engineering expertise and deep end market knowledge. We also have strong long-term relationships with world-class customers across all of our businesses and, by providing these customers with products and technologies that deliver tangible benefits, we have successfully deployed a value-based pricing strategy.

Furthermore, the Group has some excellent financial characteristics: a disciplined approach to financial performance and a balance sheet that is in excellent shape which provides both headroom and flexibility to support a range of organic and acquisitive growth opportunities.

My objective as Chief Executive is to build on this strong foundation to ensure that the Group harnesses and delivers its full potential.

 

Assessing full potential

The review, which I initiated shortly after my arrival, is currently underway and is covering every IMI company.  It is primarily being undertaken by our employees, in order to secure maximum buy-in and garner their enthusiasm for the future direction of the Group, with input from a small number of expert consultants.  It includes a number of key work streams as follows:

-     A review of our existing markets, customers, products, peers and competition.  The findings of this work will ensure that as the Group moves forward, we fully leverage our geographic, product and process strengths;

-     An assessment of the Group's current capabilities with particular emphasis on our  manufacturing operations, product development processes,  operating systems and controls;

-     An assessment of how we can improve collaboration and  exploit synergies and economies of scale across the whole of IMI regardless of geographic or divisional boundaries; and

-     A process to identify where future investment could be best deployed, both within our existing businesses and through strategically complementary acquisitions focused on delivering growth and attractive returns to shareholders.

 

Assessing full potential - early findings

While the review is not yet complete, it is appropriate to highlight some of its early findings:-

-     Operational performance:  to date we have undertaken a sample assessment of major manufacturing plants across a spread of geographies in the Group's three divisions.  These assessments which include product development processes, operational performance and operating systems, have been benchmarked against both best-in-class world standards and best current IMI practice. Findings based on this sample benchmarking exercise indicate that there are significant opportunities to improve the Group's operational performance which will  result in improved efficiencies and better working capital utilisation;

-     Collaboration:  until this year, throughout its history IMI has operated as a diverse engineering group with significant autonomy provided to each of the underlying businesses. Given this structure there has been limited incentive for inter-divisional collaboration. Our more focused portfolio now provides an opportunity to improve how our businesses work together.  A project to develop greater collaboration amongst our talented group of engineers has already been initiated and has identified considerable opportunities for synergies and economies of scale which promise to enhance the competitiveness of many of our companies;

-     Product development: the Group's competitive advantage and leading position at the forefront of flow control technology is reliant on the continued development of the existing product portfolio and an innovative new product pipeline.  Investment in new products will be a key priority, as will  focusing on those  products and technologies which deliver sustainable competitive advantage; and

-     Customer alignment: the Group has strong long-term customer relationships with many of the world's leading companies. The competitive dynamics of the industries we serve demand a continued focus on the value and benefits we bring to these customers including responsiveness to market demand and geographical alignment in terms of manufacturing.

 

Building on the Group's inherent strengths, the positive early findings emerging from the review indicate that the Group is well placed to exploit a range of growth opportunities over the medium term.

The review is planned to be completed around the time of the Group's 2014 interim results at which time we expect to share the key findings and provide an update on the Group's future direction. 

 

DIVISIONAL REVIEW

 

The following review relates to our continuing businesses: Severe Service, Fluid Power and Indoor Climate.  It compares their performance, as reported under IFRS8: Operating Segments, during the year ended 31 December 2013 with their performance in the year ended 31 December 2012. The results of the Beverage Dispense and Merchandising divisions, which were sold on 1 January 2014, are set out in note 2 to the financial statements.  References to organic growth are on a constant currency basis and exclude the results of acquisitions during the period for which there is no comparator.  This section also comments on current market conditions and the outlook for each of our continuing businesses.

 

SEVERE SERVICE

IMI Severe Service designs and manufactures highly engineered valves, actuators and controls which are able to withstand extremes of temperature and pressure and intensely abrasive and corrosive cyclical operations.

 

Revenue

£716m

(2012: £686m)

Operating profit

£116.8m

(2012: £96.3m)

Operating margin

16.3%

(2012: 14.0%)

 

Performance

The full year order intake at £741.7m was up 12% year-on-year (2012: £660.1m). A number of our end markets performed particularly well, including Oil & Gas, where orders were up 27% and we were successful in winning one of the largest ever orders in our history, which was for a high integrity pressure protection system (HIPPS) for installation on a gas field in the Middle East. In the Petrochemical sector, orders were up 11%. Fossil Power orders were also up 16% on the prior year, with good growth in China, India and Korea. Nuclear orders were up 19%, despite the on-going difficult market conditions following the Fukushima incident, as more safety upgrade projects become available. Orders to support the aftermarket were up 9%.  While the majority of our markets saw good bookings momentum in 2013, order intake in Iron & Steel was down 49% reflecting the on-going challenges in that market. 

Revenues increased 3% to £716m on an organic basis (2012: £686m) and operating profit grew 21% to £116.8m (2012: £96.3m). This strong profit growth reflects the impact of careful project selection and efficiency improvements achieved in our manufacturing processes and supply chain.  As a result, margins increased to 16.3% from 14.0% in 2012. 

 

Key Achievements

·      Winning the HIPPS  order for a gas field in the Middle East, one of the largest single orders in Severe Service's history

·      Increasing Fossil Power orders by 16% by targeting the growth regions of China, India and Korea

·      Achieving an increase in global Petrochemical orders of 11%, helped by securing a number of orders in the US where opportunities have increased as a result of shale oil and gas activity

·      Shipping 84 large bespoke valves, from our Zimmermann & Jansen business in Germany to a Catofin petrochemical project in Houston, US

·      Improving significantly the operational performance of our Brno manufacturing facility and our supply chain management

·      Bringing to market  two new product ranges: highly engineered ball valves for Oil & Gas applications and quarter turn actuators

 

Outlook

The substantial opening order book combined with good operating performance and the effect of the large HIPPS order is expected to deliver good revenue growth on an organic basis in both the first half and the full year. Full year margins are expected to show continued progress on last year with first half margins slightly ahead of the first half last year despite increased investment in growth initiatives.

 

FLUID POWER

Fluid Power specialises in the design and manufacture of pneumatic and other flow control technologies for applications where precision, speed and reliability are essential.




Revenue

£723m

(2012: £717m)

Operating profit

£140.5m

(2012: £142.3m)

Operating margin

19.4%

(2012: 19.8%)

 

Performance

Fluid Power markets improved in the second half of 2013, with revenues growing 3% on an organic basis to £360m (2012 H2: £344m), following a more challenging first half of the year.  Overall revenues for the full year were £723m (2012: £717m), a 1% rise on a reported basis and a 1% decline on an organic basis. 

 

Our sector business, which focuses on providing highly engineered solutions to leading original equipment manufacturers operating in global niche markets, was flat on an organic basis. Following a soft first half, our Commercial Vehicle sector grew 1% in the second half with our European truck business up 18%, benefiting from some pre-buy before the introduction of Euro VI engines in 2014.  In contrast, the North American truck market continued to be challenging throughout the year and as a result, overall, Commercial Vehicle revenues were down 3% for the year.  We saw good revenue growth in the Energy sector, up 7%, and in the Rail sector, up 11% while the Food & Beverage sector was flat and Life Sciences lower.    

 

During the year we acquired two small technology companies to support our sector strategy.  In August we acquired Analytical Flow Products (AFP), which has an innovative range of chromatography valves which will enhance our capabilities in the Life Science and Energy sectors, and in October we acquired Nano-Porous Solutions Ltd (NPSL), a UK based company which has patented technology for high performance air dryers for the Rail sector. 

 

The industrial automation business was down 3% on an organic basis with Europe lower, North America flat, Asia Pacific slightly up and good growth in Latin America. 

 

Operating profit was £140.5m (2012:  £142.3m) and operating margins at 19.4% (2012: 19.8%) were slightly down reflecting the lower level of sales. 

 

Key Achievements

·      Growing revenues in the Energy sector by 7% and in the Rail sector by 11%

·      Good progress on two major new product initiatives:  high performance dryers for Rail and waste heat recovery systems for Commercial Vehicles

·      Continued investment in Norgren Express, our market leading internet, phone and catalogue-based aftermarket solution

·      Acquiring Analytical Flow Products and Nano-Porous Solutions Ltd  to enhance our sector strategy

 

Outlook

The Purchasing Managers Indices (PMIs), which are typically a good lead indicator for the Fluid Power business, suggest improving prospects in the general industrial sector.   In the Commercial Vehicle sector growth in the first half will be impacted by the Euro V pre-buy in Europe last year and the ending of a large contract in North America.  Based on this market environment and current order trends we expect modest organic revenue growth in the first half with margins broadly similar to the first half last year.

 

INDOOR CLIMATE



Indoor Climate is the leading global provider of technologies that deliver operational and energy efficient water-based heating and cooling systems inside buildings. 

 

Revenue

£305m

(2012: £293m)

Operating profit

£64.3m

(2012: £61.5m)

Operating margin

21.1%

(2012: 21.0%)

 

Performance

Revenues of £305m were up 1% on an organic basis (2012: £293m) and 4% higher on a reported basis. Growth in Europe of 4% was partially offset by declines in the emerging markets (including China where a number of construction projects delayed into 2014) and in our automatic balancing valve business in North America.  Since the year-end we have scaled back our interest in a number of the smaller, less profitable emerging markets to focus our efforts on those markets, such as China, Brazil and Russia, where we see the best opportunities for future growth. 

Operating profit at £64.3m increased 5% (2012: £61.5m) driven by efficiency improvements in our operations and more cost effective procurement activities. Operating margins of 21.1% increased marginally when compared to last year (2012: 21.0%). 

 

Key Achievements

·     Bringing to market nine new products including a complete new range of pressure independent balancing and control valves, branded TA-FUS1ON, and a  new technology for automatic thermostatic control, the A-Exact

·     Filing four new patents, significantly enhancing the new product pipeline

·     Achieving good sales growth in the key German market

·     Continuing to win flagship projects around the world, including two high value state of the art multi-building hospital developments in Belgium and Sweden

Outlook

We expect the European construction market to stabilise in 2014 in both residential and non-residential buildings with some countries, including Germany, growing while others continue to weaken.  During the first half of 2014 the benefit from new product launches in the core European markets is expected to largely offset the impact of the Group's decision to scale back our interest in a number of smaller lower margin emerging markets.  Consequently, Indoor Climate's first half revenues in 2014 are expected to be broadly flat on an organic basis.  Operating margins in the first half are expected to be lower compared to the first half of 2013 reflecting additional costs relating to the new product launches and the emerging market exits.  In the second half of the year operating margins are expected to return to more normal levels.

 

FINANCIAL REVIEW

 

Results summary

Reported revenues increased by 3% to £1,743m (2012 restated: £1,694m).  After adjusting for an exchange rate impact of £31m and the contribution from acquisitions, the organic revenue increase was 1%. Segmental operating profit was £321.6m, compared to £300.1m (restated) in 2012.  At constant exchange rates and excluding acquisitions segmental operating profit rose by 6%.  The segmental operating margin was 18.4% (2012 restated: 17.7%).

 

Operating profit was £270.5m (2012 restated: £249.4m) after the deduction of exceptional items. Restructuring costs in the year reduced to £14.2m (2012 restated: £18.9m) following the completion of a number of projects, with the 2013 spend principally comprising a German site closure in our Fluid Power business and strategic cost reduction exercises in our Indoor Climate and Severe Service businesses.

 

Acquired intangible amortisation decreased to £21.9m (2012: £29.6m) because the first-year charge relating to AFP and NPSL was considerably lower than the first year charges for Remosa and InterAtiva in 2012. Pre-closing costs associated with the disposal of the Retail Dispense businesses amounted to £8.0m and, due to their one-off nature, have been disclosed as exceptional in accordance with our policy. Other acquisition-related costs were £1.9m (2012: £6.3m).

 

Continuing interest costs on net borrowings were £16.0m (2012 restated: £17.5m). These were covered 21 times (2012 restated: 18 times) by continuing earnings before interest, tax, depreciation and amortisation of £329m (2012 restated: £318m).The net pension financing charge under IAS19 was £7.9m (2012 restated: £7.8m). In 2014, this charge is expected to decrease to about £3.3m. A net gain arose on the revaluation of financial instruments and derivatives under IAS39 of £2.7m (2012: £5.8m) principally reflecting movements in exchange rates during the year on forward foreign exchange contracts.

 

Basic EPS increased 5% to 71.0p (2012 restated: 67.9p) and diluted EPS was 70.1p (2012 restated: 67.0p). The Board considers that a more meaningful indication of the underlying performance of the Group is provided by earnings before charging/(crediting) exceptional items after tax. On this basis the adjusted EPS from continuing operations was 72.6p, an increase of 12% over last year's 64.7p (as restated). Post tax return on invested capital (ROIC) was 19.6% compared to 18.9% as restated in 2012.

 

Exchange rates

The movement in average exchange rates between 2012 and 2013 resulted in our reported 2013 segmental revenue and segmental operating profit each being 2% higher as the average Euro and US Dollar rates against Sterling were 4% and 2% stronger, respectively. If the average exchange rates to the end of February 2014 of US$1.65 and €1.21 had been applied to our 2013 results, it is estimated that segmental revenue and segmental operating profit would have both been 4% lower.

 

Dividend

The Board has recommended a final dividend in respect of 2013 of 22.5p (2012: 20.7p) per share, an increase of 9% over the 2012 final dividend. This makes the total dividend for 2013 35.3p (2012: 32.5p). The cost of the final dividend is expected to be £60.7m (2012: £66.1m) leading to a total dividend cost of £100.9m (2012: £103.6m) in respect of the year ended 31 December 2013. Dividend cover based on adjusted earnings for the continuing businesses is 2.1 times (2012 restated: 2.0 times).

 

Disposal of Retail Dispense businesses and discontinued operations

As noted earlier in this announcement, on 1 January 2014 our Retail Dispense businesses were sold to the Marmon Group ("Marmon"), a Berkshire Hathaway company, for cash consideration of $1,100m  (£666.7m at year-end rates), subject to adjustments for working capital, cash and debt in the business at completion. The transaction was priced in US dollars, but the return of capital from these proceeds was announced in sterling, which exposed the Group to the risk of movements in the sterling to US dollar exchange rate, from the date of exchange of contracts in October 2013. This exposure was hedged using a deal-contingent forward exchange contract.

 

The Retail Dispense businesses represent a "major class of business" for the Group and because this disposal was considered to be highly probable prior to the end of the accounting period, these businesses have been classified as discontinued operations. Accordingly, the results of these businesses have been reported in one line, net of tax, below profit after tax in the Income Statement. Comparatives have been restated on the same basis and a full analysis of the results of these discontinued operations is given in note 3. The effect of this restatement on 2012's adjusted earnings per share is a reduction of 15.0p from 79.7p (as restated for IAS19 revised - see below) to 64.7p.

 

Restatement for adoption of IAS19

The consolidated financial statements as at 31 December 2012 have been restated to take account of the adoption of IAS19: Employee Benefits (revised 2011). The principal impact on the Group has been that the return on plan assets included in the income statement is now based on the discount rate applied to the liabilities. Prior to this revision, the plan assets' expected return was included in the income statement.

 

The effect of this restatement on 2012's adjusted earnings per share was a reduction of 4.6p from 84.3p to 79.7p. As noted above, the effect of the restatement of 2012's results for discontinued operations reduced adjusted EPS by a further 15.0p to result in a restated adjusted EPS of 64.7p for 2012.

 

Acquisitions

On 22 August the Group completed the acquisition of Analytical Flow Products ("AFP") for initial consideration of £2.2m and potential future payments of up to £32.4m based on future performance. On 29 October the Group completed the acquisition of Nano-Porous Solutions Limited ("NPSL") for initial consideration of £5.4m and potential future payments of up to £2.4m based on revenue in 2016.

 

Cash flow

The net cash inflow from operating activities was £319m, compared to £211m last year, which included a working capital outflow of £26m (2012: £31m), as receivables increased due to a strong sales performance towards the end of the year and payables reduced due to the timings of payments to suppliers. Cash spent on property, plant and equipment and other non-acquired intangibles in the year was £53m (2012: £47m) which was equivalent to 1.2 times (2012: 1.0 times) depreciation and amortisation thereon. Other major cash outflows in the year included dividends of £106m and share buybacks of £164m.The Group made additional contributions of £34m into the UK pension fund including 2013's £17m payment in line with the agreed funding recovery plan, as well as the advancement of the equivalent July 2014 payment. A net drawdown of £51m from current facilities was made and the total cash outflow for the year was £56m (2012: £25m).

 

Balance Sheet

During the year, it became clear that the value of the assets and liabilities of the Retail Dispense businesses were expected to be recovered through their sale, rather than from their continuing use.  Therefore these were classified as assets and liabilities held for sale and are shown separately in current assets and liabilities on the balance sheet. These assets and liabilities amounted to, respectively £289.4m and £77.3m as at 31 December 2013.

 

Net debt (including net cash of £26.5m shown as held for sale) at the year-end was £199m compared to £144m at the end of the previous year. The ratio of year-end net debt to continuing EBITDA was 0.6 times.

 

The value of the Group's intangible assets decreased to £430m at 31 December 2013 (2012: £545m) principally as a result of the transfer of the net book value of intangible assets relating to Retail Dispense of £117.5m to assets held for sale during the year. Additions to intangible assets in the normal course of business and from the two acquisitions in the year broadly offset the continuing amortisation charge, foreign exchange movements and the disposals (excluding transfers to 'held for sale').

 

The net book value of the Group's investment in property, plant and equipment at 31 December 2013 was £223m (2012: £245m) after transfers to assets held for sale of £23.5m. Capital expenditure on PPE of £44.3m (2012: £39.1m) represented 117% (2012:  95%) of depreciation of £37.9m (2012: £41.3m). 

 

Taxation

The effective tax rate for the Group before exceptional items reduced to 22% (2012 restated: 24%) as a result of further business reorganisation, a strong focus on claiming Government-approved tax incentives around the world and the reduction in the UK corporation tax rate. In addition, an exceptional tax credit of £9.8m (2012 restated: £10.4m) arose in connection with continuing business restructuring and other exceptional costs. The total tax charge for the year on continuing operations was therefore £55.7m (2012 restated: £55.6m) and continuing profit after tax was £193.6m (2012 restated: £174.3m). Taxes of £41.7m (2012: £102.9m) were paid in the year.  

 

Pensions

The net liability for defined benefit obligations at 31 December 2013 was £158m (2012: £232m). In addition £1m relating to the ten schemes divested as part of the Retail Dispense disposal is included in liabilities held for sale.

 

The UK fund deficit was £63m as at 31 December 2013 (2012: £111m) and constituted 83% (2012: 82%) of the total defined benefit liabilities and 89% (2012: 89%) of the total defined benefit assets. The decrease in the deficit in the UK fund in 2013 principally arose from strong asset returns in the year supplemented by additional cash contributions of £33.6m. This was offset by an increase in liabilities as the impact of an increased inflation assumption of 0.5% exceeded the reduction resulting from the 0.2% increase in the discount rate.

 

The deficit in the overseas funds as at 31 December 2013 was £95m (2012: £121m). The principal reason for the decrease was an increase in the discount rates used to determine the liabilities, however funded plans experienced strong asset returns and a number of plans saw returns in excess of the current service and financing costs.

 

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013





















Notes

2013


2012 (restated)




Before

except-

ional

items

Except-

ional

items

Total


Before

except-

ional

items

Except-

ional

items

Total




£m

£m

£m


£m

£m

£m











Revenue

2

1,744

(1)

1,743


1,696

(2)

1,694




















Segmental operating profit

2

321.6


321.6


300.1


300.1

Reversal of net economic hedge contract










gains

2, 9


(5.1)

(5.1)



(6.8)

(6.8)

Net credit on special pension events

9




10.9

10.9

Restructuring costs

9


(14.2)

(14.2)



(18.9)

(18.9)

Preparatory costs for sale of Retail










Dispense businesses



(8.0)

(8.0)



Acquired intangible amortisation

9


(21.9)

(21.9)



(29.6)

(29.6)

Other acquisition-related costs

5, 9


(1.9)

(1.9)



(6.3)

(6.3)










Operating profit

2

321.6

(51.1)

270.5


300.1

(50.7)

249.4










Financial income

6

4.2

20.2

24.4


3.5

13.9

17.4

Financial expense

6

(20.2)

(17.5)

(37.7)


(21.0)

(8.1)

(29.1)

Net finance charge relating to defined










benefit pension schemes

6

(7.9)


(7.9)


(7.8)


(7.8)










Net financial (expense)/income

6

(23.9)

2.7

(21.2)


(25.3)

5.8

(19.5)




















Profit before tax


297.7

(48.4)

249.3


274.8

(44.9)

229.9

Taxation

7

(65.5)

9.8

(55.7)


(66.0)

10.4

(55.6)











Profit from continuing operations after tax


232.2

(38.6)

193.6


208.8

(34.5)

174.3

Profit from discontinued operations, net of tax

7


33.4

33.4



44.7

44.7





















Total profit for the year


232.2

(5.2)

227.0


208.8

10.2

219.0





















Attributable to:










Owners of the parent




223.9




215.9


Non-controlling interests




3.1




3.1











Profit for the year




227.0




219.0



















Earnings per share

8









Basic - from profit for the year




71.0p




67.9p


Diluted - from profit for the year




70.1p




67.0p












Basic - from continuing operations




60.4p




53.9p


Diluted - from continuing operations




59.6p




53.2p












Basic - from adjusted profit for the year




72.6p




64.7p


Diluted - from adjusted profit for the year




71.7p




63.9p



 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013












Restated (Note 1)



2013


2012 



£m

£m


£m

£m








Profit for the year


227.0



219.0







Other comprehensive income/(expense) that may be recycled to profit and loss





Change in fair value of effective net investment hedge derivatives

3.4



1.3


Related taxation effect

(0.7)



(0.3)


Exchange differences on translation of foreign operations net of hedge






    settlements and funding revaluations

(16.9)



(14.1)


Related taxation effect

1.0



(0.1)


Fair value gain on deal contingent forward relating to disposal proceeds

14.2




Related taxation effect

(3.0)




Fair value (loss)/gain on available for sale financial assets

(0.5)



0.2


Related taxation effect

0.2



(0.1)




(2.3)



(13.1)



(2.3)



(13.1)

Other comprehensive income/(expense) that will not be recycled to profit and loss





Re-measurement gain/(loss) on defined benefit plans

41.4



(56.0)


Related taxation effect in current year

(11.4)



12.7


Effect of taxation rate change on previously recognised items

(9.9)



(5.6)




20.1



(48.9)

Other comprehensive income/(expense) for the year, net of taxation


17.8



(62.0)

Total comprehensive income for the year, net of taxation


244.8



157.0

Attributable to:






   Owners of the parent


241.7



153.9

   Non-controlling interests


3.1



3.1















Total comprehensive income for the year, net of taxation


244.8



157.0



 

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2013





2013

2012


£m

£m

Assets



Intangible assets

430.3

544.5

Property, plant and equipment

222.8

245.3

Employee benefit assets

0.3

Deferred tax assets

43.9

65.6

Other receivables

6.3

6.0

Other financial assets

0.2

1.8




Total non-current assets

703.8

863.2







Inventories

245.5

301.3

Trade and other receivables

345.3

407.3

Other current financial assets

22.2

6.3

Current tax

3.4

23.1

Investments

20.2

20.4

Cash and cash equivalents

71.7

102.8




Total current assets

708.3

861.2




Assets in disposal group held for sale

289.4







Total assets

1,701.5

1,724.4







Liabilities



Bank overdraft

(7.9)

(6.3)

Interest-bearing loans and borrowings

(80.8)

(3.1)

Provisions

(20.1)

(19.3)

Current tax

(18.4)

(7.4)

Trade and other payables

(355.6)

(430.1)

Other current financial liabilities

(3.1)

(2.7)




Total current liabilities

(485.9)

(468.9)







Liabilities associated with disposal group held for sale

(77.3)







Interest-bearing loans and borrowings

(208.9)

(237.2)

Employee benefit obligations

(158.2)

(232.2)

Provisions

(18.8)

(19.8)

Deferred tax liabilities

(34.3)

(36.7)

Other payables

(70.6)

(46.1)




Total non-current liabilities

(490.8)

(572.0)







Total liabilities

(1,054.0)

(1,040.9)







Net assets

647.5

683.5




Equity



Share capital

85.3

85.2

Share premium

171.8

170.3

Other reserves

43.6

45.6

Retained earnings

300.2

334.4







Equity attributable to owners of the parent

600.9

635.5

Non-controlling interests

46.6

48.0







Total equity

647.5

683.5



 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

































Restated

Restated


Restated









(Note 1)

(Note 1)


(Note 1)




Share capital

Share premium account

Capital redemption reserve

Hedging reserve

Translation reserve

Retained earnings

Total

parent equity

Non-controlling interests

Total

equity




£m

£m

£m

£m

£m

£m

£m

£m

£m













As at 1 January 2012

85.0

169.3

7.9

4.1

46.8

251.7

564.8

49.4

614.2












Profit for the year







215.9

215.9

3.1

219.0

Other comprehensive income





1.0

(14.2)

(48.8)

(62.0)

(62.0)













Total comprehensive income





1.0

(14.2)

167.1

153.9

3.1

157.0












Issue of share capital


0.2

1.0





1.2


1.2

Dividends paid







(97.8)

(97.8)

(0.1)

(97.9)

Share-based payments (net of tax)






16.0

16.0


16.0

Shares acquired for:











employee share scheme trust







(2.6)

(2.6)


(2.6)

Income earned by partnership









(4.4)

(4.4)













As at 31 December 2012


85.2

170.3

7.9

5.1

32.6

334.4

635.5

48.0

683.5













Changes in equity in 2013






















Profit for the year







223.9

223.9

3.1

227.0

Other comprehensive income





13.9

(15.9)

19.8

17.8

17.8













Total comprehensive income





13.9

(15.9)

243.7

241.7

3.1

244.8













Issue of share capital


0.1

1.5





1.6


1.6

Dividends paid







(106.2)

(106.2)

(0.1)

(106.3)

Share-based payments (net of tax)






16.8

16.8


16.8

Shares acquired for:












employee share scheme trust






(24.2)

(24.2)


(24.2)


share buyback programme






(164.3)

(164.3)


(164.3)

Income earned by partnership









(4.4)

(4.4)













As at 31 December 2013


85.3

171.8

7.9

19.0

16.7

300.2

600.9

46.6

647.5















 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013




Restated



2013

2012 



£m

£m

Cash flows from operating activities



Operating profit for the year from continuing operations

270.5

249.4

Operating profit for the year from discontinued operations

73.0

68.5

Adjustments for:



    Depreciation

37.9

41.3

    Impairment/(reversal) of impairment of PPE and intangible assets

1.3

0.7

    Amortisation

28.4

34.0

Loss on sale of property, plant and equipment

0.8

2.0

Equity-settled share-based payment expense

11.2

10.1

Decrease in inventories

1.4

29.4

Increase in trade and other receivables

(10.0)

(19.4)

Decrease in trade and other payables

(17.0)

(40.6)

Decrease in provisions and employee benefits

(1.2)

(31.9)





Cash generated from the operations

396.3

343.5

Income taxes paid

(41.7)

(102.9)





354.6

240.6

CCI investigation costs

(2.8)

Additional pension scheme funding - UK

(33.6)

(16.8)

Additional pension scheme funding - Overseas

(1.7)

Pension transfer incentive payments

(9.6)




Net cash from operating activities

319.3

211.4





Cash flows from investing activities



Interest received

4.4

3.7

Proceeds from sale of property, plant and equipment

2.3

1.7

Sale of investments

0.1

0.6

Purchase of investments

(0.4)

(1.4)

Settlement of transactional derivatives

3.8

5.5

Settlement of currency derivatives hedging balance sheet

(6.0)

8.4

Acquisitions of controlling interests

(7.8)

(83.1)

Acquisition of property, plant and equipment

(44.3)

(39.1)

Capitalised non-acquired intangibles

(9.1)

(7.8)




Net cash from investing activities

(57.0)

(111.5)





Cash flows from financing activities



Interest paid

(20.4)

(21.4)

Payment to non-controlling interest

(4.4)

(4.4)

Shares acquired for employee share scheme trust

(24.2)

(2.6)

Share buyback programme including acquisition expenses

(164.3)

Proceeds from the issue of share capital for employee share schemes

1.6

1.2

Net drawdown/(repayment) of borrowings

51.0

(25.1)

Dividend paid to non-controlling interest

(0.1)

(0.1)

Dividends paid to equity shareholders

(106.2)

(97.8)




Net cash from financing activities

(267.0)

(150.2)





Net decrease in cash and cash equivalents

(4.7)

(50.3)

Cash and cash equivalents at the start of the year

96.5

147.5

Effect of exchange rate fluctuations on cash held

(1.5)

(0.7)




Cash and cash equivalents at the end of the year*

90.3

96.5





* Net of bank overdrafts of £9.6m (2012: £6.3m) of which £1.7m (2012:£nil) is included in liabilities held for sale and including £28.2m (2012:£nil) cash and cash equivalents presented in assets held for sale.





Reconciliation of net cash to movement in net borrowings appears in note 12.

 

NOTES RELATING TO THE FINANCIAL STATEMENTS

 

1.  Restatements and changes in accounting estimates

Restatement in respect of the treatment of the Retail Dispense businesses as discontinued operations

 

Because the sale of the Retail Dispense businesses, which completed on 1 January 2014, represents the disposal of a "major class of business" for the Group and because this disposal was considered to be highly probable from a point prior to the end of the accounting period, these businesses have been classified as discontinued operations in accordance with IFRS5 'Non-current assets held for sale and discontinued operations'. Accordingly, the results of these businesses are now reported in one line, net of tax, below profit after tax and the comparative figures have been restated. A full analysis of the financial effect of this restatement is given in note 3.

 

IFRS5 also requires that the assets and liabilities associated with these discontinued operations should be shown in separate lines in current assets and liabilities in the Balance Sheet, but that the prior year information is not restated to be shown on a similar basis.

 

Restatement in respect of IAS19 'Employee Benefits (Revised 2011)'

The consolidated balance sheet as at 31 December 2012 has been restated for the adoption of IAS19 'Employee Benefits' (revised 2011). IAS19 as revised includes a number of amendments to the accounting for defined benefit plans, but the principal impact on the Group is that the return on plan assets recognised in the income statement is now based on the discount rate applied to the liabilities. Prior to the revision, the expected return on assets was recognised through the income statement.

 

The retrospective impact on the Group for the 2012 full year comparatives was a decrease in the net financing credit of £19.2m and an associated reduction in the tax charge of £4.5m. The equivalent credits and associated taxation impacts to these income statement charges have been recognised in other comprehensive income, consequently there was no overall net balance sheet effect. The principal impact of the other amendments to IAS19 for the Group relate to the new disclosure requirements, which have been included in note 11.

 

2.  Segmental analysis

 

Segmental information is presented in the consolidated financial statements for each of the Group's operating segments.  The operating segment reporting format reflects the Group's management and internal reporting structures and represents the information that is presented to the chief operating decision-maker, being the Executive Committee.  Inter-segment revenue is insignificant. The Group comprises the following five operating segments and activities, but as discussed earlier in these financial statements, the Retail Dispense businesses were disposed of on 1 January 2014, subsequent to the year-end, and consequently their results are shown as discontinued operations in the Income Statement, while their assets and liabilities are presented as held for sale in the Balance Sheet.

 

Fluid Controls - continuing operations

 

Severe Service

The Severe Service division is a world leading provider of highly-engineered flow control solutions for critical applications that are able to withstand temperature and pressure extremes and intensely abrasive and corrosive cyclical operations.

 

Fluid Power

The Fluid Power division specialises in developing motion and fluid control technologies for applications where precision, speed and reliability are essential.

 

Indoor Climate

The Indoor Climate division designs and manufactures technologies which deliver optimal and energy efficient heating and cooling systems inside buildings.

 

Retail Dispense - discontinued operations

 

Beverage Dispense

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

 

Merchandising

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

 

Performance is measured based on segmental operating profit which is the profit reported by the business, stated before exceptional items including the reversal of economic hedge contract gains and losses, the net credit on special pension events, restructuring costs, costs associated with the disposal of the Retail Dispense business, acquired intangible amortisation and other acquisition-related costs. 

 

Businesses 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.  Segmental operating profits are therefore charged/credited with the impact of these contracts.  In accordance with IAS39, these contracts do not meet the technical provisions required for hedge accounting and gains and losses are reversed out of segmental profit and are recorded in net financial income and expense for the purposes of the consolidated income statement.

 

The following table illustrates how the results for the segments reconcile to the overall results reported in the Income Statement.


Revenue

 

Operating profit

Operating Margin


2013 

2012 

2013 

2012 

2013 

2012 


£m

£m

£m

£m

£m

£m

Fluid controls - continuing operations







    Severe Service

 716 

 686 

116.8 

96.3 

16.3%

14.0%

    Fluid Power

 723 

 717 

140.5 

142.3 

19.4%

19.8%

    Indoor Climate

 305 

 293 

64.3 

61.5 

21.1%

21.0%

Total continuing segmental revenue/operating profit

 1,744 

 1,696 

321.6 

300.1 

18.4%

17.7%

Reversal of net economic hedge contract gains

 (1)

 (2)

(5.1)

(6.8)



Net credit on special pension events



10.9 



Restructuring costs



(14.2)

(18.9)



Costs associated with disposal of the Retail Dispense business



(8.0)



Acquired intangible amortisation



(21.9)

(29.6)



Other acquisition-related costs



(1.9)

(6.3)



Total revenue/operating profit reported

 1,743 

 1,694 

 270.5 

 249.4 



Net financial expense



(21.2)

(19.5)



Profit before tax



249.3 

229.9 










Retail Dispense - discontinued operations







   Beverage Dispense

 337 

 349 

51.2 

53.5 

15.2%

15.3%

   Merchandising

 174 

 147 

29.8 

19.4 

17.1%

13.2%

Total discontinued segmental revenue/operating profit

511 

496 

81.0 

72.9 

15.9%

14.7%








Total group segmental revenue/operating profit

 2,255 

 2,192 

402.6 

373.0 

17.9%

17.0%

 


2013 

2012 


Continuing



Continuing




Segmental

Discontinued


Segmental

Discontinued



Revenue

Operations

Total

Revenue

Operations

Total


£m

£m

£m

£m

£m

£m

UK

104 

38 

142 

101 

42 

143 

Germany

247 

23 

270 

268 

14 

282 

Other Western Europe

439 

30 

469 

426 

39 

465 

Western Europe

686 

53 

739 

694 

53 

747 

USA

314 

346 

660 

277 

312 

589 

Canada

24 

31 

29 

11 

40 

North America

338 

353 

691 

306 

323 

629 

Emerging Markets

504 

60 

564 

462 

67 

529 

Rest of World

112 

119 

133 

11 

144 

Total segmental revenue

1,744 

511 

2,255 

1,696 

496 

2,192 

Reversal of economic hedge contract gains

 (1)

 - 

 (1)

 (2)

 - 

 (2)

Total

1,743 

511 

2,254 

 1,694 

496 

2,190 








 

3.  Discontinued operations

 

In addition to a charge of £5.0m relating to other discontinued operations, the results of the Retail Dispense businesses for the year are presented below:



restated


2013

2012


£m

£m

Revenue

511

496

Depreciation

(3.9)

(6.0)

Amortisation

(1.3)

(1.7)

Other operating expenses

(424.8)

(415.4)

Segmental operating profit

81.0

72.9

Restructuring costs

(3.0)

(4.4)

Operating profit

78.0

68.5

Financial income

0.2

0.2

Financial expense

(0.4)

(0.4)

Net finance credit related to defined benefit pension schemes

(0.4)

(0.4)

Profit before tax

77.4

67.9

Taxation

(39.0)

(23.2)

Profit after tax

38.4

44.7




The major classes of assets and liabilities of the Retail Dispense operations classified as held for sale as at 31 December 2013 are as follows:






2013



£m

Segmental assets



Intangible assets


114.1

Property, plant and equipment


25.1

Inventories


50.8

Trade and other receivables


67.1

Total segmental assets


257.1




Non-segmental assets



Current tax


0.2

Deferred tax


3.8

Cash and cash equivalents


28.2

Investments


0.1

Total assets classified as held for sale


289.4




Segmental liabilities



Trade and other payables


(56.2)

Provisions


(5.4)

Total segmental liabilities


(61.6)




Non-segmental liabilities



Current tax


(3.2)

Deferred tax


(10.0)

Bank overdraft


(1.7)

Employee benefit obligations


(0.8)

Total liabilities associated with assets classified as held for sale


(77.3)




Net assets directly associated with disposal group


212.1

 

4.  Post balance sheet events

 

The Group disposed of its Retail Dispense Operations on 1 January 2014, subsequent to the year-end.

 

The proceeds of the disposal were $1,100m, adjusted for net debt in the business at the date of disposal and a customary completion accounts mechanism. These proceeds were hedged using a deal contingent forward exchange contract to protect the Group from adverse movements in the sterling/dollar exchange rate between exchange of contract on 15 October 2013 and completion on 1 January 2014. After deducting transaction costs, the Retail Dispense net assets, taxation and after recycling the cumulative historical exchange gain on the assets disposed, we estimate that the profit on disposal of this business to be recorded in 2014 will be in the region of £475m.

 

Return of Cash and share consolidation

As envisaged in the announcement of the disposal of the Retail Dispense businesses, we are returning cash of about £620m to shareholders via a "B and C share scheme", which was approved in the general meeting in February 2014.

 

The B and C Share Scheme was accompanied by a seven for eight share consolidation, which is a commonly used arrangement to ensure that the Group's share price after the return of cash is broadly equivalent to the share price prior to the return of capital, which ensures that targets and prices in the Group's various share-based remuneration schemes remain appropriate.

 

The return of Cash will reduce retained earnings in the 2014 Balance Sheet by about £620m.

 

5.  Acquisitions

 

Analytical Flow Products ("AFP")

AFP is the trade name for Mécanique Analytique Inc, a Canadian product development company specialising in the Fluid Power Life Science and Energy sectors. The Group acquired AFP on 21 August 2013 for initial cash consideration of £2.2m (CA$3.7m). Further amounts may be payable based on the business's performance in the three to five years following the acquisition, which (including a bonus payable to one employee) have a range of £14.2m to £32.4m (CA$25m to CA$57m at year-end exchange rates).

 

Nano-Porous Solutions Limited ("NPSL")

The acquisition of NPSL completed on 29 October 2013. NPSL is a UK company based in Newcastle specialising in products that increase the efficiency of the removal of moisture from compressed air systems, particularly in Fluid Power's Rail Sector. Consideration for the acquisition comprised £5.4m payable on completion and an earn-out arrangement based on the business's performance in the 2016 calendar year, capped at £2.4m.

 

6.  Net financial income and expense

 


2013


2012


Interest

Financial

Instru-

ments

Total


(restated) Interest

Financial

Instru-

ments

(restated) Total

Recognised in the income statement

£m

£m

£m


£m

£m

£m

Interest income on bank deposits

4.2 


4.2 


3.5 


3.5 

Financial instruments at fair value








     through profit or loss:








     Designated hedges


1.3 

1.3 



1.0 

1.0 

     Other economic hedges








     - current year trading


12.9 

12.9 



10.2 

10.2 

     - future year transactions


6.0 

6.0 



2.7 

2.7 









Financial income

4.2 

20.2 

24.4 


3.5 

13.9 

17.4 









Interest expense on interest-bearing loans and borrowings

(20.2)


(20.2)


(21.0)


(21.0)

Financial instruments at fair value








     through profit or loss:








     Designated hedges


(1.3)

(1.3)



(1.0)

(1.0)

     Other economic hedges








     - current year trading


(9.4)

(9.4)



(4.5)

(4.5)

     - future year transactions


(6.8)

(6.8)



(2.6)

(2.6)









Financial expense

(20.2)

(17.5)

(37.7)


(21.0)

(8.1)

(29.1)









Net finance charge relating to defined benefit








    pension schemes

(7.9)


(7.9)


(7.8)


(7.8)









Net financial (expense)/income

(23.9)

2.7 

(21.2)


(25.3)

5.8 

(19.5)

 

Included in financial instruments are current year trading gains and losses on economically effective transactions which for management reporting purposes are included in segmental operating profit (see note 2).  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 for the Group before exceptional items reduced to 22% (2012 restated: 24%) as a result of further business reorganisation, a strong focus on claiming Government-approved tax incentives around the world and the reduction in the UK corporation tax rate.  In addition, exceptional tax relief of £9.8m (2012 restated: £10.4m) arose in connection with business restructuring and other exceptional costs.  The total tax charge for the year on continuing operations was therefore £55.7m (2012 restated: £55.6m) and continuing profit after tax was £193.6m (2012 restated: £174.3m).  Taxes of £41.7m (2012: £102.9m) were paid in the year.  IMI seeks to manage its tax affairs wholly within the company's core tax principles of compliance, fairness, value and transparency, in accordance with the IMI Way.

 

8.  Earnings per ordinary share

 

Earnings per ordinary share



2013

2012


Key

million

million

Weighted average number of shares for the purpose of basic earnings per share

A

315.5

317.8

Dilutive effect of employee share options


4.0

4.3

Weighted average number of shares for the purpose of diluted earnings per share

B

319.5

322.1







£m

£m

Profit for the period (2012: as previously reported)


227.0

233.7

Non-controlling interests


(3.1)

(3.1)





Profit for the period attributable to owners of the parent (2012: as previously reported)

C

223.9

230.6

Restatement of net finance credit relating to defined benefit schemes*


(19.2)

Related taxation effect*


4.5





Profit for the period attributable to owners of the parent (2012: restated)

D

223.9

215.9

Profits from discontinued operations, net of tax


(33.4)

(44.7)





Continuing profit for the period attributable to owners of the parent (2012: as restated)

E

190.5

171.2

Total exceptional charges/(credits) included in profit before tax


48.4

44.9

Total exceptional charges/(credits) included in taxation


(9.8)

(10.4)





Earnings for adjusted EPS (2012: restated)

F

229.1

205.7

Profit for the period attributable to owners of the parent as previously reported



230.6





Total exceptional charges/(credits) included in profit before tax as previously reported**



49.3

Total exceptional charges/(credits) included in taxation as previously reported**



(11.9)





Earnings for adjusted EPS (as previously reported)

G


268.0





* The impact on basic and diluted measures of EPS for the revisions to IAS19 was 4.6p.

** The restatement in exceptional charges for 2012 relates to £4.4m restructuring costs and related tax of £1.5m in the Retail Dispense businesses in 2012 which are now treated as discontinued operations (see note 3).

EPS measures



Restated

Basic EPS

D/A

71.0p

67.9p

Diluted EPS

D/B

70.1p

67.0p





Basic continuing EPS

E/A

60.4p

53.9p

Diluted continuing EPS

E/B

59.6p

53.2p





Adjusted EPS measures




Adjusted basic continuing EPS

F/A

72.6p

64.7p

Adjusted diluted continuing EPS

F/B

71.7p

63.9p





EPS measures as previously reported:


Reported

Basic EPS

C/A


72.6p

Diluted EPS

C/B


71.6p





Adjusted basic EPS

G/A


84.3p

Adjusted diluted EPS

G/B


83.2p



 

Pro forma adjusted earnings per share





The note below shows the adjusted earnings per share measures we would have presented for 2013 and 2012, had the sale of the Retail Dispense businesses, and their subsequent treatment as discontinued operations, not taken place. The figures shown for 2012 include the restatement of the net financial expense for IAS19 (revised) and the cessation of depreciation and amortisation in 2013 from the date these businesses became held for sale.







2013 

2012 


Key

million

million

Weighted average number of shares for the purpose of basic earnings per share

A

315.5 

317.8 

Dilutive effect of employee share options


4.0 

4.3 

Weighted average number of shares for the purpose of diluted earnings per share

B

319.5 

322.1 







£m

£m

Total continuing and discontinued segmental operating profit


402.6 

373.0 

Continuing pre-exceptional net financial expense


(23.9)

(25.3)

Discontinued net financial expense


(0.6)

(0.6)

Total continuing and discontinued pre-exceptional profit before tax


378.1 

347.1 

Taxation at 24.0% (2012: 26.1%)


(90.7)

(90.7)

Adjusted continuing and discontinued profit for the year


287.4 

256.4 

Non-controlling interests


(3.1)

(3.1)

Adjusted continuing and discontinued profit attributable to the owners of the parent

H

284.3 

253.3 









Pro forma EPS measures had the Retail Dispense businesses not been treated as discontinued operations









Pro forma adjusted basic EPS

H/A

90.1p

79.7p

Pro forma adjusted diluted EPS

H/B

89.0p

78.6p





Discontinued earnings per share

Basic discontinued earnings per share were 10.6p (2012: 14.1p). Diluted discontinued earnings per share were 10.5p (2012: 13.9p).

 

9.  Exceptional items

The following items are considered to be exceptional in these financial statements.

 

Reversal of net economic hedge contract gains:

For segmental reporting purposes, changes in the fair value of economic hedges which are not designated as hedges for accounting purposes, together with the gains and losses on their settlements, are included in the segmental revenues and operating profit of the relevant business segment. The exceptional item at the operating level reverses this treatment. The financing exceptional items reflect the change in value or settlement of these contracts with the financial institutions with whom they were transacted. The former amounted to a charge of £5.1m (2012: £6.8m) and the latter amounted to a credit of £2.7m (2012: £5.8m). The £2.7m credit reported in 2013 includes a charge of £3.0m for the cost of the deal-contingent element of the forward contract hedging the proceeds of the disposal of the Retail Dispense businesses.

Restructuring costs and acquired intangible amortisation:

The restructuring costs of £14.2m (2012 restated: £18.9m) arising in the year principally comprise a German site closure in our Fluid Power business and strategic cost reduction exercises in our Indoor Climate and Severe Service businesses.  Acquired intangible amortisation decreased to £21.9m (2012: £29.6m).

 

Costs associated with the disposal of our retail dispense operations:

Costs associated with the disposal of our retail dispense operations amounted to £8.0m and principally represented costs payable to the legal and financial advisors assisting with the origination and completion of the transaction.

 

Other acquisition-related costs:

Other acquisition-related costs comprise the following:

 

- The accrual of £0.1m and £0.9m for additional consideration payable to the vendors of respectively, the NPSL and AFP acquisitions, which are discussed in detail in note 5. 

 

- Acquisition costs of £0.6m and £0.3m respectively in relation to these acquisitions.

 

Net credit on special pension events:

In 2012, the net credit on special pension events of £10.9m comprised:

 

- A £9.0m past service credit arising on a pension increase exchange exercise relating to the UK pension scheme.

 

- A £3.2m past service credit in two of our Swiss schemes, resulting from a change in these schemes' rules during the year.

 

- A £1.3m cost arising in Japan relating to the exit of a state-sponsored scheme during the year.

 

Taxation

The tax effects of the above items are included in the exceptional column of the income statement. In addition, in 2013, exceptional tax charges of £14.7m have been incurred in association with the pre-sale restructuring of certain of the Retail Dispense businesses sold and included in discontinued operations.

 

10.  Dividend

 

The directors recommend a final dividend of 22.5p per share (2012: 20.7p) payable on 19 May 2014 to shareholders on the register at close of business on 11 April 2014, which will absorb around £60.7m (2012: £66.1m) cash.  Together with the interim dividend of 12.8p per share paid on 11 October 2013, this makes a total distribution of 35.3p per share (2012: 32.5p per share).  In accordance with IAS10 'Events after the Balance Sheet date', this final proposed dividend has not been reflected in the 31 December 2013 balance sheet.

 

11.  Employee Benefits

 

The Group has 74 (2012: 79) defined benefit obligations in operation as at 31 December 2013. Ten of these schemes were divested with the Retail Dispense businesses on 1 January 2014. The Group recognises there is a funding and investment risk inherent within defined benefit arrangements and seeks to continue its programme of closing overseas defined benefit plans where they are neither mandatory nor an operational necessity and providing in their place appropriate defined contribution arrangements.

 

The net liability for defined benefit obligations at 31 December 2013 was £158m (2012: £232m). In addition £1m relating to the ten schemes divested as part of the Retail Dispense disposal is included in liabilities held for sale.

 

The overall deficit is split between the IMI Pension Fund in the UK ('the Fund') which has been closed to future accrual since 31 December 2010, and overseas schemes. The UK fund deficit was £63m as at 31 December 2013 (2012: £111m) and constituted 83% (2012: 82%) of the total defined benefit liabilities and 89% (2012: 89%) of the total defined benefit assets. The decrease in the deficit in the UK fund in 2013 principally arose from strong asset returns in the year supplemented by additional cash contributions of £33.6m. This was offset by an increase in liabilities as the impact of an increase in the inflation assumption of 0.5% exceeded the reduction resulting from the 0.2% increase in the discount rate.

 

The last formal triennial actuarial valuation of the Fund was carried out as at 31 March 2011 and the next will be conducted as at 31 March 2014. The statement of funding principles agreed with the Trustee during the 2011 valuation resulted in an actuarial deficit of £120m whereupon it was agreed to pay contributions of £16.8m each July from 2012 to 2016 inclusive as part of the recovery plan to close the deficit by 2016. The 2014 payment under this plan was accelerated into December 2013. Following the disposal of the Retail Dispense businesses, the Company is making a further one-off payment of £70m into the UK Fund in two tranches in 2014, the first of which, £53.2m, was made in January 2014. The Group continues to explore various options with the Trustee to reduce further the funding and investment risk in respect of the Fund.

 

The deficit in the overseas funds as at 31 December 2013 was £95m (2012: £121m). The principal reason for the decrease was an increase in the discount rates used to determine the liabilities, however funded plans experienced strong asset returns and a number of plans saw returns in excess of the current service and financing costs.

 



UK

Overseas

Total



£m

£m

£m

Net defined benefit obligation as at 1 January 2013

(110.6)

(121.6)

(232.2)

Movement recognised in:





Income statement

(4.3)

(11.0)

(15.3)


Other comprehensive income

18.2

21.7

39.9


Cash flow statement

33.6

15.3

48.9

Other movements

0.8

0.8

Net defined benefit obligation as at 31 December 2013

(63.1)

(94.8)

(157.9)

 

12.  Cash flow reconciliation






Reconciliation of net cash to movement in net borrowings







2013 

2012 


£m

£m

Net decrease in cash and cash equivalents excluding foreign exchange

(4.7)

(50.3)

Net (drawdown)/repayment of borrowings

(51.0)

25.1

Increase in net debt before acquisitions and foreign exchange

(55.7)

(25.2)

Debt acquired

(2.5)

(20.8)

Currency translation differences

2.6

10.4

Movement in net borrowings in the year

(55.6)

(35.6)

Net borrowings at the start of the year

(143.8)

(108.2)

Net borrowings at the end of the year

(199.4)

(143.8)

 

13. Contingent liabilities

 

As described in last year's accounts, in May 2012 companies belonging to a British builders' merchant served damages claims against IMI plc and others relating to alleged financial losses incurred in the UK as a result of anti-competitive behaviour undertaken by a number of manufacturers of copper plumbing tubes and copper plumbing fittings. An investigation by the European Commission was commenced in 2001 and found cartel activity for which it imposed fines in 2004 (tubes) and 2006 (fittings). IMI plc disposed of its former copper plumbing tubes and fittings businesses in 2002.  There are separate tubes and fittings cases in the English High Court. IMI is defending both claims robustly and has brought in all other appropriate parties as contributors. At the year-end, the Directors recorded their best estimate of any settlement in respect of the cases. However, due to the stage of the ongoing negotiation and the potential impact on the outcome of the claim, the amount provided is not disclosed.

 

14.  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




2013 

2012 


2013 

2012 



Euro

1.18 

1.23 


1.20 

1.23 



US Dollar

1.56 

1.59 


1.65 

1.62 










The movement in average exchange rates between 2012 and 2013 resulted in our reported 2013 segmental revenue and segmental operating profit each being 2% higher as the average Euro and US Dollar rates against Sterling were 4% and 2% stronger, respectively.  If the average exchange rates to the end of February 2014 of US$1.65 and €1.21 had been applied to our 2013 results, it is estimated that segmental revenue and segmental operating profit would have both been 4% lower.

 

15.  Financial information

 

The preliminary statement of results was approved by the Board on 5 March 2014.  The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2013 or 2012 but is derived from the 2013 accounts.  Statutory accounts for 2012 have been delivered to the registrar of companies and those for 2013 will be delivered in due course.  Ernst & Young LLP has reported on both the 2012 and 2013 accounts.  Their 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 S498(2) or S498(3) of the Companies Act  2006.

 

This announcement contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group.  By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of the preparation of this announcement and the Company undertakes no obligation to update these forward-looking statements.  Nothing in this preliminary announcement should be construed as a profit forecast.

 

This preliminary statement has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to IMI plc and its subsidiaries when viewed as a whole.

 

References in the commentary to segmental operating profit, operating margins and profit before tax, unless otherwise stated, relate to reported numbers after adjustment for exceptional items.  Segmental operating profit is reported as if economic currency and metals hedges were effective for financial reporting purposes.  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 those settled contracts.  In accordance with IAS39 'Financial Instruments: Recognition and Measurement', these contracts do not meet the technical provisions required for hedge accounting and gains and losses are reversed out of segmental profit and are recorded in net financial income and expense for the purposes of the statutory consolidated income statement.  References to EPS, unless otherwise stated, relate to reported EPS adjusted for the per share after-tax impact of exceptional items.  The directors consider that the quantum, one-off nature or volatility of these adjustments can distort the underlying performance of the Group and for this reason the commentary discusses these adjusted amounts. 

 

References to organic growth are to like-for-like or underlying growth and exclude the impact of exchange rate translation and acquisitions or disposals that are included in headline reported growth figures.  The organic growth is derived from excluding any contribution from acquired companies to revenues or profits in the current period until the first anniversary of their acquisition.  It also excludes the contribution to revenues or profits in both the current and comparative period from any business that has been disposed of or sold.  This adjusted growth in revenues or profits will then be compared to the adjusted prior period after its re-translation at the average exchange rates of the current period to provide the organic growth rate.

 

The Company's 2013 Annual Report and notice of the forthcoming Annual General Meeting will be posted to shareholders on 1 April 2014.

 


This information is provided by RNS
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