TIDMIMI
RNS Number : 7365X
IMI PLC
24 February 2017
24 February 2017
Preliminary results, year ended 31 December 2016
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Reported(1) Statutory
Continuing 2016 2015 Change Organic(4) 2016 2015 Change
operations:
Revenue GBP1,649m GBP1,557m +6% -5% GBP1,657m GBP1,567m +6%
Operating
profit GBP228m GBP239m -5% -17% GBP188m GBP186m +1%
Operating
margin 13.8% 15.4% -160bps -200bps
Profit before
tax GBP208m GBP219m -5% GBP165m GBP163m +1%
Basic EPS(2) 59.8p 62.2p -4% 48.3p 47.2p +2%
Operating
cash flow(3) GBP246m GBP232m +6%
Dividend
per share 38.7p 38.4p +1%
Net debt GBP283m GBP237m
(1) Excluding the effect of items reported as exceptional
in the income statement.
(2) Statutory amounts for Basic EPS include both
continuing and discontinued operations.
(3) Operating cash flow, as described in note 9
to the financial statements.
(4) Change shown after adjusting for exchange rates
and excluding the impact of acquisitions and disposals.
Key points
-- Significant progress on strategic initiatives
-- Results in-line with market expectations
-- Strong operating cash flow of GBP246m
-- Recommending a 1% increase in the full year dividend
-- De-risking of global pension liabilities with UK remaining in surplus
Lord Smith of Kelvin, Chairman, commented:
"Despite difficult market conditions our results for 2016 were
in-line with expectations and the Group continued to deliver
against our ambitious strategic objectives."
"The combination of necessary management actions to address the
current market difficulties and the continued progress in the
execution of our strategy underpin our plans to enhance customer
relationships, grow our market shares and further improve working
capital. The Group's balance sheet is strong and our operations are
inherently cash generative which provides the headroom to invest in
organic development and appropriate acquisition opportunities as
they arise."
Mark Selway, Chief Executive, added:
"2016 was another year of important progress for IMI. As well as
continuing to improve both our operational performance and our
customer offering, we have acted decisively to ensure our cost-base
continues to support our growth ambitions while also protecting
near-term performance."
"Based on current market conditions, we expect organic revenues
in the first half of 2017 to reflect a similar percentage reduction
to the first half of 2016, with margins slightly lower than the
first half of last year. Results for the full year are expected to
include a second half bias reflecting the timing of restructuring
benefits and normal trading seasonality."
Enquiries to:
Tel: +44 (0)121
John Dean IMI 717 3712
Suzanne Bartch / Gayden Metcalfe Teneo Blue Rubicon Tel: +44 (0)203
757 9239
A live webcast of the analyst meeting taking place today at
08:30am (GMT) will be available on the investor page of the Group's
website: www.imiplc.com. The Group plans to release its next
Interim Management Statement on 4 May 2017.
Results overview
2016 was a year of significant progress for the Group with
results in-line with market expectations despite continuing
headwinds in a number of our key markets. Our various initiatives
have further improved operational performance, and on-going
investment in great new products and customer solutions has
enhanced our market competitiveness.
Reported Group revenues were 6% higher at GBP1,649m (2015:
GBP1,557m). Excluding favourable exchange rate movements and
disposals, Group revenues on an organic basis were 5% lower due to
continuing difficult end markets. Reported segmental operating
profit was 5% lower at GBP228m (2015: GBP239m). Excluding the
impact of favourable exchange rate movements and disposals,
segmental operating profit was 17% lower on an organic basis
reflecting lower volumes and continued investments, partially
offset by the benefits of restructuring. The Group's operating
margin was 13.8% (2015: 15.4%) and reported earnings per share were
4% lower at 59.8p (2015: 62.2p). Operating cash flow of GBP246m
(2015: GBP232m) reflected the benefits of the Group's lean
initiatives which underpinned working capital improvements in the
year.
Net Debt of GBP283m (2015: GBP237m) was impacted by adverse
currency of GBP97m and resulted in a Net Debt to EBITDA ratio of
1.0x against 0.9x at the end of 2015.
Dividend
Reflecting continued confidence in the Group's prospects, the
Board is recommending a final dividend increase of 1% to 24.7p
(2015: 24.5p) making a total dividend for the year of 38.7p, an
increase of 1% over last year's 38.4p.
Outlook
Based on current market conditions, we expect organic revenues
in the first half of 2017 to reflect a similar percentage reduction
to the first half of 2016, with margins slightly lower than the
first half of last year. Results for the full year are expected to
include a second half bias reflecting the timing of restructuring
benefits and normal trading seasonality.
Trading environment
Trading conditions in many of our geographies and markets
remained difficult throughout 2016. The cautious industrial
investment environment continued to impact new order opportunities
as customers tightened spending in the face of economic and
political uncertainty.
The Oil & Gas market, which represents almost a third of
Critical Engineering's revenues, continued to be impacted by
falling investment, including a significant reduction in liquid
natural gas (LNG) projects. The Power generation sector was
impacted by lower operational spending reflecting delays,
particularly in North America, where power providers have extended
the time between planned outages.
While European and Asia Pacific truck markets remained
resilient, the US heavy truck market declined significantly which
impacted revenues in Precision Engineering. Industrial Automation
markets globally were broadly flat with some signs of recovery in
Europe and North America in the final quarter of the year.
In Hydronic Engineering, European construction markets remained
subdued with warmer weather impacting the heating season. In
addition, North America and China experienced some project
delays.
Cost reduction initiatives
In response to the protracted deterioration in several of our
most important markets, the Group has undertaken a number of
restructuring activities that will continue into 2017. These
actions include the sale or closure of eight lower growth, higher
cost Critical Engineering sites and the reduction of operating
costs across the entire Group.
In Precision Engineering, in-line with our strategy to simplify
the business and ensure that we have the most efficient platform
for future growth, the division undertook an extensive review of
its operational footprint. The review - named Project Janus - is
now being split into two phases. The implementation of Phase 1 has
already begun and involves those projects that can be executed
quickly and with the least disruption to our business. This
includes a structured programme of cost reductions, insourcing to
increase machining capacity utilisation, simplification of the
organisational structure and further leverage of our low cost
European manufacturing operations. A second phase is contingent on
market conditions and anticipates potentially substantial and more
complex changes, particularly in areas such as Commercial Vehicle,
where significant new project quotation activity exists. All of
these actions will help to protect operating margins and improve
our competitive position in what remains an uncertain market
environment.
In Hydronic Engineering, the subdued environment in key European
markets, combined with greater efficiencies resulting from the IT
and operational improvements, have provided the basis to reduce
operating costs, which will be evident in the division's activities
in 2017.
Divisional review
The following review relates to our continuing businesses and
compares performance during the year ended 31 December 2016 with
the year ended 31 December 2015. References to organic growth are
on a constant currency basis and exclude disposals and
acquisitions.
IMI Critical Engineering
IMI Critical Engineering is a world-leading provider of flow
control solutions that enable vital energy and process industries
to operate safely, cleanly, reliably and more efficiently. Our
products control the flow of steam, gas and liquids in harsh
environments and are designed to withstand temperature and pressure
extremes as well as intensely abrasive or corrosive cyclical
operations.
Revenue GBP651m (2015: GBP631m)
Operating profit GBP81.8m (2015: GBP93.1m)
Operating margin 12.6% (2015: 14.8%)
Performance
Full year order intake at GBP614m (2015: GBP619m) was 11% lower
on an organic basis, after adjusting for disposals and exchange
rate movements. In the second half, order intake was 7% below the
same period in 2015. In the year, as predicted, new construction
Oil & Gas intake was 13% lower resulting from reduced LNG
orders, following the peak in new project activity in 2015.
Significant improvements were evident in both midstream, where a
large Kazakhstan order was booked in the year, and in HIPPS, where
a GBP15m order was booked in the second half. New construction
Fossil Power orders were 23% lower due to reduced activity levels,
particularly in the Middle East and Asia. Significant orders were
also awarded in Petrochemical where full year order input was 2%
higher, including a strong performance in the first half of the
year.
Aftermarket orders were 6% lower when compared to 2015 with a
return to 2015 levels in the second half of the year. In the full
year, Oil & Gas was 11% lower reflecting reduced parts activity
in the upstream sector which offset good growth in our downstream
activities. Lower levels of spend, particularly in North America,
resulted in a 13% reduction in Fossil Power while Nuclear
Aftermarket increased 36%, reflecting a substantial Korean order in
the fourth quarter.
After adjusting for GBP77m of exchange rate benefit and GBP6m
from prior year disposals, revenues of GBP651m (2015: GBP631m) were
7% lower on an organic basis and 3% higher on a reported basis.
Segmental operating profit of GBP82m (2015: GBP93m) was 12% lower
on a reported basis and 24% lower on an organic basis. Reflecting
the impact of lower volumes, margins were 12.6% against 14.8% in
2015.
The division's Value Engineering initiative continued to have a
significant positive impact and contributed to GBP80m of new
bookings in an increasingly competitive market environment. Value
Engineering and improved project management activities helped
deliver a year-end order book of GBP486m at broadly equivalent
margins to the prior year. Lean scores also improved significantly
to 62% against 56% at year-end 2015.
Key Achievements
-- Value Engineering initiative helped to secure GBP80m of new orders
-- Introduced 23 new products
-- Rationalisation programme delivered on-time and on-budget with GBP12m profit benefit
-- On-time and on-budget ERP implementation at four sites
-- Increased average lean score to 62%
-- Successful consolidation of three sites into new world-class facility in China
-- Sale of loss-making Italian service business
Outlook
Based on the current order book and market outlook, we expect
first half organic revenues to reflect a similar percentage
reduction to the first half of 2016 with margins broadly similar to
the first half of last year. Results for the full year are expected
to include a second half bias reflecting the timing of
restructuring benefits and normal trading seasonality.
IMI Precision Engineering
IMI Precision Engineering specialises in the design and
manufacture of motion and fluid control technologies where
precision, speed and reliability are essential to the processes in
which they are involved.
Revenue GBP708m (2015: GBP662m)
Operating profit GBP118.5m (2015: GBP117.7m)
Operating margin 16.7% (2015: 17.8%)
Performance
After adjusting for GBP72m of exchange rate benefit and GBP1m
from prior year disposals, revenues of GBP708m (2015: GBP662m) were
3% lower on an organic basis and 7% higher on a reported basis.
Industrial Automation revenues were 1% lower principally driven by
a small decline in Europe which offset broadly equivalent revenues
in the balance of our core markets. The revenue profile in the year
included a 5% pick-up in the final quarter providing early
indications of a potential, so far unconfirmed, improvement in the
sector.
In the year, Commercial Vehicle sales were 9% lower reflecting a
22% decline in North America due to lower truck production in that
region. European Commercial Vehicle revenues were broadly
consistent with the prior year whilst Asia improved. Energy sales
continued to be impacted by lower investment and were 7% lower than
2015 while Life Sciences and Rail were broadly equivalent to
2015.
Segmental operating profit of GBP119m (2015: GBP118m) was 1%
higher on a reported basis and, after adjusting for GBP13m of
exchange rate benefit and disposals, 10% lower on an organic basis.
Operating margins of 16.7% compared to 17.8% in 2015 and reflected
the impact of lower overhead recoveries following weaker market
conditions and investment to support long-term growth.
Our detailed review of the Industrial Automation market and its
various sub-sectors confirmed that we have excellent market
positions with a valuable installed base and high margin
aftermarket and identified those sub-sectors and products that
would provide us with the greatest opportunity for growth. In
response, the division has embarked on a significant programme of
new product development with the first of our great new products
due to launch in the first half of 2017. This review also formed
the basis for a structured programme of reorganisation, including
Janus, to capitalise on the most significant opportunities.
The successful implementation of lean throughout the division
has continued to make excellent progress with the score increasing
to 66% against 59% at the 2015 year-end. The impact of lean was
clearly evident in the results with improved productivity, a 22%
reduction in scrap costs and a seven day improvement in inventory
days in the year.
Key Achievements
-- Successfully developed first new platform products for launch in 2017
-- Improved operational performance resulted in new Commercial Vehicle opportunities
-- Launched innovative IMI Norgren Express App
-- 22% reduction in scrap costs
-- Seven day improvement in inventory turns
-- Janus Phase 1 now being implemented
Outlook
The global industrial outlook remains mixed albeit with some
leading indicators and improved fourth quarter sales providing a
more positive backdrop for Industrial Automation in the year ahead.
We remain cautious given the considerable economic, political and
industry uncertainty that remains across many markets and
geographies. We expect European heavy truck and North American
Class 8 volumes to soften in 2017 which, when combined with the
conclusion of GBP13m of Commercial Vehicle contracts, will result
in lower revenues in the year ahead.
Based on current market conditions, we expect first half organic
revenues to be slightly lower than the first half of 2016.
Excluding the GBP4m benefit from 2016 property disposals, margins
will be comparable to the first half of last year. While markets
remain uncertain, the benefits of further restructuring activities
and new product launches are expected to deliver broadly equivalent
margins for the full year.
IMI Hydronic Engineering
IMI Hydronic Engineering is a leading provider of technologies
that deliver operational and energy efficient water-based heating
and cooling systems for the residential and commercial building
sectors.
Revenue GBP290m (2015: GBP264m)
Operating profit GBP51.9m (2015: GBP51.8m)
Operating margin 17.9% (2015: 19.6%)
Performance
Revenues on a reported basis of GBP290m (2015: GBP264m) were 10%
higher than 2015 and after adjusting for GBP30m of exchange rate
benefit, were 1% lower on an organic basis. While warmer weather
impacted the heating season in the division's largest European
markets, revenues in that region were marginally higher than the
previous year. Due to project delays, sales in China were
significantly reduced in the first half before recovering with
positive momentum in the final quarter of the year. North American
sales reflected an overall increase of 6% in the year.
Segmental operating profit of GBP52m (2015: GBP52m) was
equivalent on a reported basis and, after adjusting for GBP6m of
exchange rate benefit, 10% lower on an organic basis. As expected,
operating margins showed a second half seasonal improvement to
19.4% while full year margins at 17.9% (2015: 19.6%) were lower
than the prior year reflecting the impact of lower volumes and the
on-going investment in great new products and operational
excellence.
New products launched in the last three years continued to have
an important, positive impact on the results and generated GBP55m
of sales in the year. Included in the 2016 product launches were a
number of products specifically targeted at the development of the
division's over-the-counter sales strategy, which resulted in two
significant new agreements being signed in Europe. These
agreements, while having relatively modest impact on the 2016
results, are expected to underpin increased trading in future
years. The previously announced entry into the actuator market,
with TA-Slider, has received an excellent market reception and 2017
plans include further product launches.
The division's lean score continued to improve and increased to
76% against 72% at year-end 2015. In the year, Hydronic
Engineering's Polish operations, the Group's highest lean scoring
plant, successfully launched the division's standard J D Edwards
ERP system. This system is now providing increased efficiencies and
forms the foundations for future ERP roll-outs across the division.
Also in 2016, the division's largest manufacturing plant, in
Germany, undertook a total refurbishment of its foundry facilities
resulting in a significant reduction in scrap and work in
progress.
Key Achievements
-- 19% of revenue from products launched in the last three years
-- Two substantial over-the-counter sales contracts signed
-- Successful Product Development momentum building sustainable competitive advantage
-- Refurbishment of foundry in Germany significantly reduces scrap
-- Lean score increased to 76%
Outlook
While the European construction markets are forecast to remain
subdued, the success of new products and over-the-counter sales are
expected to result in organic revenue growth in the year, albeit
weighted to the second half. Operating margins are also expected to
show their normal second half improvement and will include the
benefits of restructuring.
Good strategic progress
It is particularly rewarding to report a further year of
successful execution of our strategy. Key achievements, including a
significant and positive cultural shift with a passion for
continuous improvement, improved operational performance and
success in our endeavours to add high quality products across all
three divisions, have all contributed to our results in 2016. We
move forward with confidence that we will achieve world-class
performance by 2019, as envisaged in our original 2014 plan. Our
objective to double operating profit by that point also remains our
goal, although achieving that will clearly rely upon a more
favourable market environment, and will almost certainly be reached
beyond the original 2019 timescale.
Improving our operational performance
Improving operational performance is fundamental to our
objective of creating competitive advantage and remains a key part
of our strategic growth plan. During the year the efficiency of our
operations improved significantly.
Our operational improvements are assessed twice yearly using an
industry recognised lean benchmarking methodology. During 2016, the
Group's average lean score has continued to improve, and ended the
year at 66% against 59% at the same point in 2015. As a result of
more efficient operations, scrap rates continued to improve,
on-time-delivery and inventory management both made good progress
and the benefits were evident in the Group's working capital in the
year. This improved productivity and operational performance
provides an important foundation to underpin our increased
competitiveness and responsiveness to customers.
Readying our businesses for growth
In the past two years, we have invested heavily in new systems
and processes which are essential to the Group's sustainable
competitive advantage. During 2016 new integrated IT systems, that
make day-to-day operations more cost and time efficient, were
successfully installed on-time and on-budget in Critical
Engineering's plants in Sweden, Japan, India and Korea, two of
Precision Engineering's US operations, Hydronic Engineering's
Polish plant and at its headquarters in Switzerland. In 2017,
Critical Engineering will roll out an additional six sites in the
US and Asia, Precision Engineering will complete their remaining
sites in the US, and Hydronic Engineering will largely complete the
vast majority of their factories and sales offices.
In addition to much needed IT investment, our focus also extends
to embedding disciplined and efficient processes, including New
Product Development, competitor product tear-downs and the
application of Value Engineering. These processes underpin the
sustainability of continuous improvement and ensure that investment
ultimately delivers an earlier and greater return. Much has been
achieved to simplify the way our businesses operate.
New product portfolios
Our focus on New Product Development gained significant momentum
during the year and as a result we have expanded our portfolio of
great new products which enhance the competitiveness of the Group.
The Group's advanced product quality planning process (APQP) and
competitor product tear-downs have resulted in the development of
an industry-leading range of platform products in Precision
Engineering which represent the first significant investment for
more than 10 years.
During the year, Hydronic Engineering maintained its development
pipeline and launched 13 new products while Critical Engineering
introduced a significant number of enhanced products. All three
divisions have ambitious plans to continue their product
development strategies in 2017 and beyond.
Compelling customer solutions
During the year, Critical Engineering developed an aggressive
Value Engineering programme to enhance its competitiveness. Despite
challenging market conditions, Value Engineering helped to deliver
new orders totalling GBP80m at historic margin levels while
providing, on average, a 15% cost reduction for customers. In
addition, Value Engineering has opened up a number of new product
markets where we are now able to offer our world-class valve
technologies, providing an additional basis for profitable
growth.
Revised go-to-market strategies
In our Precision Engineering division, following the work
undertaken in 2015 to identify the markets that offer the greatest
growth potential, the division's US and European operations have
been reorganised around key industry verticals of Industrial
Automation, Commercial Vehicle, Life Sciences and Energy. This new
structure delivers sector marketing strategies that address
distinct customer requirements, target specific market
opportunities and build stronger customer relationships. In
November, Precision Engineering launched an innovative IMI Norgren
Express App which enables customers, using their smartphones, to
identify, locate and purchase replacement parts quickly and
easily.
Business development
Alongside our organic growth initiatives, targeted acquisitions
that meet our clearly defined and disciplined criteria remain a
core part of our strategy. While market conditions have reduced the
pipeline of opportunities, we continue to refine our targets,
enhance our integration processes and make our underlying
businesses stronger, all of which will facilitate the success of
any future developments.
Financial review
Results Summary
Reported revenue increased by 6% to GBP1,649m (2015: GBP1,557m).
After adjusting for a favourable exchange rate impact of GBP179m
and the contribution from acquisitions and disposals, organic
revenue decreased by 5% reflecting difficult market conditions,
particularly in Critical Engineering which continues to be impacted
by lower oil prices and a decline in outage and maintenance
activity in the power sector.
Segmental operating profit of GBP228m (2015: GBP239m) decreased
by 5% on a reported basis and by 17% at constant exchange rates and
excluding acquisitions and disposals. The segmental operating
margin was 13.8% (2015: 15.4%). Statutory operating profit was
GBP188m (2015: GBP186m) after the deduction of exceptional items
which are discussed in more detail below.
Continuing net interest costs on net borrowings were GBP17m
(2015: GBP18m) reflecting the repayment of US$75m of borrowings in
July 2016. These were covered 16 times (2015: 15 times) by
continuing earnings before interest, tax, depreciation,
amortisation and exceptional items of GBP273m (2015: GBP275m). The
net pension financing income under IAS19 was GBP1.1m (2015:
GBP0.2m).
Reported profit before taxation was GBP208m (2015: GBP219m), a
reduction of 5% on the prior year.
Exceptional Items and Discontinued Operations
Reversal of net economic hedge contract losses
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 reported revenues and operating profit of the
relevant business segment. The exceptional item at the operating
profit level reverses this treatment and the loss of GBP6m (2015:
GBP8m).
Restructuring costs
Restructuring costs treated as exceptional in 2016 of GBP19m
(2015: GBP27m) are as a result of a number of significant
restructuring projects across the Group, in particular within
Critical Engineering and Precision Engineering. Restructuring costs
of GBP4m (2015: GBP2m) that arose from normal recurring cost
reduction exercises have not been treated as exceptional.
Pensions
During the year, following the conversion to a non-inflation
linked pension for certain members of our UK Funds, an exceptional
net gain of GBP6.1m was realised. In addition, following further
restructuring exercises in Switzerland, a curtailment gain of
GBP1.4m was recognised. These exceptional gains were partially
offset by an exceptional loss of GBP4.7m relating to the
distribution of pension assets to members from our previously
overfunded Swiss schemes.
Impairment and acquired intangible amortisation
The Group recorded an exceptional impairment charge of GBP5m
(2015: GBPnil) against the goodwill associated with the Stainless
Steel Fasteners ('SSF') CGU in the IMI Critical Engineering
division. Acquired intangible amortisation reduced GBP12m to
GBP21m, following the full amortisation in 2015 of the order book
acquired from Bopp & Reuther.
Financing costs
A net charge arose on the revaluation of financial instruments
and derivatives under IAS39 of GBP7m (2015: GBP5m) principally
reflecting movements in exchange rates during the year on forward
foreign exchange contracts.
Taxation
An exceptional tax credit of GBP12m (2015: GBP9m) arose in
connection with business restructuring and other exceptional
items.
Taxation
The effective tax rate for the Group before exceptional items
reduced to 21% (2015: 22%). The total reported tax charge for the
year on continuing operations was GBP44m (2015: GBP48m) and
continuing reported profit after tax was GBP164m (2015: GBP171m).
The Group seeks to manage its tax affairs within its core tax
principles of compliance, fairness, value and transparency, in
accordance with the Group's Tax Policy.
Earnings per Share
The Board considers that a more meaningful indication of the
underlying performance of the Group is provided by reported
earnings per share. Details of this calculation are given in note
5. Reported EPS was 59.8p, a decrease of 4% over last year's 62.2p.
Statutory basic EPS was up 2% to 48.3p (2015: 47.2p) and statutory
diluted EPS was up 3% to 48.0p (2015: 46.8p).
Foreign Exchange
The movement in average exchange rates between 2015 and 2016
resulted in our reported 2016 revenue being 11% higher and
segmental operating profit being 13% higher as the average euro and
US dollar rates against sterling were 12% and 11% stronger,
respectively.
If the exchange rates as at 6th February 2017 of US$1.25 and
EUR1.16 were projected for the full year and applied to our 2016
results, it is estimated that reported revenue would have been 6%
higher and segmental operating profit would have been approximately
7% higher.
Cash Flow
The operating cash flow (pre-exceptional items) was GBP246m
(2015: GBP232m). After GBP25m (2015: GBP10m) of cash outflow from
exceptional items, operating cash flow (post-exceptional items) was
GBP221m (2015: GBP223m), which represents a conversion rate of
total Group segmental operating profit after restructuring costs
into operating cash flow of 107% (2015: 106%).
Net working capital balances reduced GBP30m (2015: GBP18m)
during the year. Inventory reduced GBP18m (2015: GBP4m increase)
due to reductions in Critical Engineering and Precision
Engineering. The Group's receivables reduced GBP7m (2015: GBP29m)
as a result of reductions in revenue and increased efforts across
the Group to improve the collection of receivables. Payables
increased by GBP6m (2015: GBP7m decrease) due to payment timing and
proactive supplier term management across each of the
divisions.
Cash spent on property, plant and equipment and other
non-acquired intangibles in the year was GBP71m (2015: GBP71m)
which was equivalent to 1.5 times (2015: 1.9 times) depreciation
and amortisation (excluding acquired intangible amortisation) for
the year of GBP46m (2015: GBP38m). Continuing research and
development spend including capitalised intangible development
costs of GBP8m (2015: GBP5m) totalled GBP57m (2015: GBP52m).
In 2016 the Group paid tax of GBP32m (2015: GBP36m) which was
73% (2015: 75%) of the reported tax charge for the year and
reflects the timing of estimated tax payments on account.
Dividends paid to shareholders and non-controlling interests
totalled GBP105m (2015: GBP103m) and there was a cash outflow of
GBP7m (2015: GBP3m inflow) for net share purchases to satisfy
employee share options. The total net cash inflow (excluding debt
movements) was GBP9m (2015: outflow of GBP22m).
Balance Sheet
Net debt at the year-end was GBP283m compared to GBP237m at the
end of the previous year, largely reflecting the impact of sterling
depreciation on the Group's euro and US dollar denominated debt.
Net debt is composed of a cash balance of GBP80m (2015: GBP114m), a
bank overdraft of GBP12m (2015: GBP6m) and interest-bearing loans
and borrowings of GBP350m (2015: GBP345m).
The year-end net debt to EBITDA ratio was 1.0 times (2015: 0.9
times) based on continuing EBITDA before exceptional items.
Following the repayment of US$75m during the year, at the end of
2016 loan notes totalled GBP343m (2015: GBP341m), with a weighted
average maturity of 4.3 years (2015: 4.6 years) and other loans
including bank overdrafts totalled GBP20m (2015: GBP10m). Total
committed bank loan facilities available to the Group at the
year-end were GBP301m (2015: GBP294m), of which GBPnil (2015:
GBPnil) was drawn.
The value of the Group's intangible assets increased to GBP521m
at 31 December 2016 (2015: GBP457m). The increase was due to
exchange gains of GBP75m (2015: GBP9m loss) and additions to
intangible assets of GBP24m (2015: GBP20m), partially offset by an
amortisation charge for the year of GBP29m (2015: GBP38m) and
impairment of GBP6m (2015: GBPnil).
The net book value of the Group's property, plant and equipment
('PPE') at 31 December 2016 was GBP266m (2015: GBP231m). Capital
expenditure on PPE amounted to GBP47m (2015: GBP51m), with
significant capital expenditure related to investment in Critical
Engineering's manufacturing facilities in Germany and China and a
new layout to improve the flow and productivity of Precision
Engineering's operation in the Czech Republic.
Pensions
The net deficit for defined benefit obligations at 31 December
2016 was GBP80m (2015: GBP4m surplus). The UK fund surplus at 31
December 2016 was GBP24m (2015: GBP89m) and constituted 88% (2015:
88%) of the total defined benefit liabilities and 94% (2015: 95%)
of the total defined benefit assets. The reduction in the UK
surplus in 2016 principally arose from actuarial losses related to
movements in the discount rate and actions taken during the year to
further de-risk the position.
The deficit in overseas funds as at 31 December 2016 was GBP103m
(2015: GBP84m). The increase predominantly relates to adverse
exchange movements of GBP15m during the year.
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2016
Notes 2016 2015
Except- Except-
ional ional
Reported items Statutory Reported items Statutory
GBPm GBPm GBPm GBPm GBPm GBPm
----- -------- ------- --------- -------- ------- ---------
Revenue 1 1,649 8 1,657 1,557 10 1,567
Segmental operating
profit 1 227.7 227.7 239.4 239.4
Reversal of net economic
hedge contract
losses 6 5.6 5.6 7.6 7.6
Restructuring costs 6 (3.5) (18.8) (22.3) (2.1) (27.1) (29.2)
Gains on special pension
events 6 2.8 2.8 9.1 9.1
Impairment losses 6 (5.0) (5.0) - -
Acquired intangible
amortisation 6 (20.5) (20.5) (32.2) (32.2)
Loss on disposal of
subsidiaries - - (0.4) (8.4) (8.8)
Operating profit 1 224.2 (35.9) 188.3 236.9 (51.0) 185.9
Financial income 3 4.5 12.6 17.1 3.2 20.9 24.1
Financial expense 3 (21.8) (19.4) (41.2) (21.6) (25.9) (47.5)
Net financial income
relating to defined
benefit pension schemes 3 1.1 1.1 0.2 0.2
Net financial expense (16.2) (6.8) (23.0) (18.2) (5.0) (23.2)
Profit before tax 208.0 (42.7) 165.3 218.7 (56.0) 162.7
Taxation 4 (43.7) 11.6 (32.1) (48.1) 8.7 (39.4)
Profit from continuing
operations after tax 164.3 (31.1) 133.2 170.6 (47.3) 123.3
Profit from discontinued
operations after tax 2 - - 6.7 6.7
Total profit for the
year 164.3 (31.1) 133.2 170.6 (40.6) 130.0
Attributable to:
Owners of the parent 161.9 130.8 168.2 127.6
Non-controlling interests 2.4 2.4 2.4 2.4
Profit for the year 164.3 133.2 170.6 130.0
Earnings per share 5
Basic - from profit
for the year 59.8p 48.3p 62.2p 47.2p
Diluted - from profit
for the year 59.4p 48.0p 61.7p 46.8p
Basic - from continuing
operations 59.8p 48.3p 62.2p 44.7p
Diluted - from continuing
operations 59.4p 48.0p 61.7p 44.4p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2016
2016 2015
GBPm GBPm GBPm GBPm
------ ------ ------ ------
Profit for the year 133.2 130.0
------ ------
Items reclassified to profit and loss
in the year
Foreign exchange loss reclassified
to income statement on
disposal of operations - 2.0
- 2.0
Items that may be reclassified to profit
and loss
Change in fair value of effective
net investment hedge derivatives (2.8) (11.0)
Exchange differences on translation
of foreign operations net of hedge
settlements and funding revaluations 39.4 2.9
Fair value loss on available for
sale financial assets - (1.7)
Related tax effect on items that
may subsequently be reclassified
to profit and loss 0.6 (1.6)
------ ------
37.2 (11.4)
Items that will not subsequently
be reclassified to profit and loss
Re-measurement (loss)/gain on defined
benefit plans (78.2) 27.8
Related taxation effect in current
year 15.3 (5.6)
Taxation in relation to restructure
of UK Pension Fund - 0.5
Effect of taxation rate change
on previously recognised items (2.5) (5.1)
------ ------
(65.4) 17.6
Other comprehensive (expense)/income
for the year, net of taxation (28.2) 8.2
------ ------
Total comprehensive income for
the year, net of taxation 105.0 138.2
------ ------
Attributable to:
Owners of the parent 102.6 135.8
Non-controlling interests 2.4 2.4
Total comprehensive income for
the year, net of taxation 105.0 138.2
------ ------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2016
Share Capital Total
Share premium redemption Hedging Translation Retained parent Non-controlling Total
capital account reserve reserve reserve earnings equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- -------- ---------- -------- ----------- -------- ------- --------------- -------
As at 1 January
2015 81.7 10.8 174.4 10.7 (0.4) 232.1 509.3 44.8 554.1
Profit for the
year 127.6 127.6 2.4 130.0
Other
comprehensive
income/(expense) (10.1) 1.8 16.5 8.2 8.2
Total
comprehensive
income/(expense) (10.1) 1.8 144.1 135.8 2.4 138.2
Issue of share
capital 0.1 1.0 1.1 1.1
Dividends paid (102.5) (102.5) - (102.5)
Share-based
payments
(net of tax) 0.1 0.1 0.1
Shares issued
by:
employee share
scheme trust 2.3 2.3 2.3
Income earned
by partnership (4.4) (4.4)
As at 31 December
2015 81.8 11.8 174.4 0.6 1.4 276.1 546.1 42.8 588.9
Changes in equity
in 2016
Profit for the
year 130.8 130.8 2.4 133.2
Other
comprehensive
income/(expense) (2.2) 39.4 (65.4) (28.2) - (28.2)
Total
comprehensive
income/(expense) (2.2) 39.4 65.4 102.6 2.4 105.0
Issue of share
capital - 0.3 0.3 0.3
Dividends paid (104.2) (104.2) (0.8) (105.0)
Share-based
payments
(net of tax) 5.8 5.8 5.8
Shares acquired
for:
employee share
scheme trust (7.4) (7.4) (7.4)
Income earned
by partnership (4.4) (4.4)
As at 31 December
2016 81.8 12.1 174.4 (1.6) 40.8 235.7 543.2 40.0 583.2
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2016
2016 2015
GBPm GBPm
--------- -------
Assets
Intangible assets 521.2 457.2
Property, plant and equipment 266.2 230.8
Employee benefit assets 57.8 88.7
Deferred tax assets 22.8 19.8
Other receivables 5.7 4.6
Total non-current assets 873.7 801.1
Inventories 255.2 233.3
Trade and other receivables 400.5 351.4
Other current financial assets 2.9 2.8
Current tax 7.1 10.4
Investments 29.9 27.0
Cash and cash equivalents 79.7 114.2
--------- -------
Total current assets 775.3 739.1
--------- -------
Total assets 1,649.0 1,540.2
Liabilities
Bank overdraft (12.2) (6.4)
Interest-bearing loans and borrowings (6.8) (54.1)
Provisions (19.9) (25.1)
Current tax (62.8) (44.6)
Trade and other payables (407.9) (342.1)
Other current financial liabilities (13.5) (8.9)
--------- -------
Total current liabilities (523.1) (481.2)
Interest-bearing loans and borrowings (343.3) (290.6)
Employee benefit obligations (137.6) (84.3)
Provisions (19.1) (17.5)
Deferred tax liabilities (32.0) (53.5)
Other payables (10.7) (24.2)
--------- -------
Total non-current liabilities (542.7) (470.1)
Total liabilities (1,065.8) (951.3)
Net assets 583.2 588.9
--------- -------
Equity
Share capital 81.8 81.8
Share premium 12.1 11.8
Other reserves 213.6 176.4
Retained earnings 235.7 276.1
Equity attributable to owners of the
parent 543.2 546.1
Non-controlling interests 40.0 42.8
Total equity 583.2 588.9
--------- -------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2016
2016 2015
GBPm GBPm
------- -------
Cash flows from operating activities
Operating profit for the year from
continuing operations 188.3 185.9
Operating profit for the year from
discontinued operations - 0.9
Adjustments for:
Depreciation and amortisation 66.3 70.4
Impairment of property, plant and
equipment and intangible assets 8.0 6.9
Loss on disposal of subsidiaries - 8.8
Gain on special pension events (2.8) (9.1)
Profit on sale of property, plant and
equipment (1.6) (6.9)
Equity-settled share-based payment
expense 5.8 1.1
Decrease/(increase) in inventories 17.5 (3.5)
Decrease in trade and other receivables 6.8 29.2
Increase/(decrease) in trade and other
payables 5.5 (7.3)
(Decrease)/increase in provisions and
employee benefits (8.6) 5.6
Cash generated from the operations 285.2 282.0
Income taxes paid (31.7) (36.2)
Cash generated from the operations
after tax 253.5 245.8
Additional pension scheme funding -
UK and overseas (1.9) (2.9)
Net cash from operating activities 251.6 242.9
Cash flows from investing activities
Interest received 4.5 3.2
Proceeds from sale of property, plant
and equipment 6.8 12.0
Purchase of investments (0.4) (0.8)
Settlement of transactional derivatives (2.4) (5.0)
Settlement of currency derivatives
hedging balance sheet (41.8) 29.0
Acquisitions of subsidiaries net of
cash - (106.2)
Acquisition of property, plant and
equipment and non-acquired intangibles (70.9) (70.6)
Proceeds from disposal of subsidiaries
net of cash - 0.6
Net cash from investing activities (104.2) (137.8)
Cash flows from financing activities
Interest paid (21.8) (21.6)
Payment to non-controlling interest (4.4) (4.4)
Shares (acquired for)/issued by employee
share scheme trust (7.4) 2.3
Proceeds from the issue of share capital
for employee share schemes 0.3 1.1
Net (repayment)/drawdown of borrowings (54.6) 107.9
Dividends paid to equity shareholders
and non-controlling interest (105.0) (102.5)
Net cash from financing activities (192.9) (17.2)
Net (decrease)/increase in cash and
cash equivalents (45.5) 87.9
Cash and cash equivalents at the start
of the year 107.8 20.8
Effect of exchange rate fluctuations
on cash held 5.2 (0.9)
Cash and cash equivalents at the end
of the year* 67.5 107.8
------- -------
* Net of bank overdrafts of GBP12.2m (2015: GBP6.4m).
Reconciliation of net cash to movement in net borrowings
appears in note 9.
NOTES RELATING TO THE FINANCIAL STATEMENTS
1. Segmental information
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 was presented to the chief operating decision-maker, being the
Executive Committee. Each of the Group's three divisions has a
number of key brands across its main markets and operational
locations. For the purposes of reportable segmental information,
operating segments are aggregated into the Group's three divisions,
as the nature of the products, production processes and types of
customer are similar within each division. Inter-segment revenue is
insignificant.
IMI Critical Engineering
IMI Critical Engineering is a world-leading provider of critical
flow control solutions that enable vital energy and process
industries to operate safely, cleanly, reliably and more
efficiently.
IMI Precision Engineering
IMI Precision Engineering specialises in developing motion and
fluid control technologies for applications where precision, speed
and reliability are essential.
IMI Hydronic Engineering
IMI Hydronic Engineering designs and manufactures technologies
which deliver optimal and energy efficient heating and cooling
systems to the residential and commercial building sectors.
Performance is measured based on segmental operating profit
which is defined in the table below.
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 requirements for hedge accounting and
gains and losses are reversed out of reported revenue and operating
profit and are recorded in net financial income and expense for the
purposes of the consolidated income statement.
Alternative Performance Measures
To facilitate a more meaningful review of performance, certain
alternative performance measures ('APMs') have been included within
this announcement. These APMs are used by the Executive Committee
to monitor and manage the performance of the Group in order to
ensure that decisions taken align with its long-term interests.
These APMs exclude exceptional and other items in order to best
reflect the underlying performance of the Group. Movements in
reported revenue and segmental operating profit are given on an
organic basis (see definition below) so that performance is not
distorted by acquisitions, disposals and movements in exchange
rates.
APM Definition
------------------- ------------------------------------------
Reported revenue These measures all exclude exceptional
items.
Reported profit
before tax
Reported earnings
per share
------------------- ------------------------------------------
Reported segmental These measures exclude exceptional
operating profit items, underlying restructuring costs
and margin and underlying gains and losses on
disposal of subsidiaries.
------------------- ------------------------------------------
Organic growth Movements are after adjusting for
exceptional items and the impact
of acquisitions, disposals and movements
in exchange rates.
------------------- ------------------------------------------
Operating cash Operating cash flow is cash generated
flow from the operations as shown in the
statement of cash flows less cash
spent acquiring property, plant and
equipment, non-acquired intangible
assets and investments; plus cash
received from the sale of property,
plant and equipment and the sale
of investments, after adjusting for
the cash impact of exceptional items.
------------------- ------------------------------------------
The following table illustrates how the results for
the segments reconcile to the overall results reported
in the income statement.
Operating Operating
Revenue profit margin
2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm % %
------ ------ ------ ------ ----- -----
Continuing operations
IMI Critical Engineering 651 631 81.8 93.1 12.6% 14.8%
IMI Precision Engineering 708 662 118.5 117.7 16.7% 17.8%
IMI Hydronic Engineering 290 264 51.9 51.8 17.9% 19.6%
Corporate costs (24.5) (23.2)
------ ------ ------ ------ ----- -----
Total reported revenue/
segmental 1,649 1,557 227.7 239.4 13.8% 15.4%
----- -----
operating profit and
margin
Restructuring costs
(non-exceptional) (3.5) (2.1)
Loss on disposal of subsidiaries
(non-exceptional) - (0.4)
------ ------ ------ ------ ----- -----
Total reported revenue/
operating profit and
margin 1,649 1,557 224.2 236.9 13.6% 15.2%
----- -----
Reversal of net economic hedge
contract losses/(gains) 8 10 5.6 7.6
Restructuring costs (18.8) (27.1)
Gains on special pension
events 2.8 9.1
Impairment losses (5.0) -
Acquired intangible
amortisation (20.5) (32.2)
Loss on disposal of
subsidiaries - (8.4)
Statutory revenue/operating
profit 1,657 1,567 188.3 185.9
------ ------
Net financial expense (23.0) (23.2)
------ ------
Statutory profit before
tax from continuing
operations 165.3 162.7
------ ------
The following table illustrates how revenue and
operating profit have been impacted by movements
in foreign exchange, acquisitions and disposals.
Year ended 31 December Year ended 31 December
2015 2016
------------------------------------------ -------------------------------------
As Movement Disposals Organic As Organic Reported Organic
reported in foreign reported growth growth
Reported revenue exchange (%) (%)
IMI Critical
Engineering 631 77 (6) 702 651 651 3% -7%
IMI Precision
Engineering 662 72 (1) 733 708 708 7% -3%
IMI Hydronic
Engineering 264 30 - 294 290 290 10% -1%
--------- ----------- --------- ------- --------- ------- -------- -------
Total 1,557 179 (7) 1,729 1,649 1,649 6% -5%
--------- ----------- --------- ------- --------- ------- -------- -------
Segmental operating
profit
IMI Critical
Engineering 93.1 14.4 0.1 107.6 81.8 81.8 -12% -24%
IMI Precision
Engineering 117.7 12.6 1.1 131.4 118.5 118.5 1% -10%
IMI Hydronic
Engineering 51.8 5.6 - 57.4 51.9 51.9 0% -10%
Corporate
costs (23.2) - - (23.2) (24.5) (24.5)
--------- ----------- --------- ------- --------- ------- -------- -------
Total 239.4 32.6 1.2 273.2 227.7 227.7 -5% -17%
--------- ----------- --------- ------- --------- ------- -------- -------
Segmental
operating
profit margin
(%) 15.4% 15.8% 13.8% 13.8%
The following table shows a geographical analysis
of how the Group's revenue is derived by destination.
2016 2015
Revenue Revenue
GBPm GBPm
------- -------
UK 75 90
Germany 240 219
Other Western Europe 390 344
------- -------
Western Europe 630 563
USA 327 311
Canada 17 23
------- -------
North America 344 334
Emerging Markets 520 505
Rest of World 80 65
------- -------
Total reported revenue 1,649 1,557
Reversal of economic hedge contract losses 8 10
------- -------
Total statutory revenue 1,657 1,567
------- -------
2. Discontinued operations
There has been no profit or loss from discontinued operations in
2016.
The prior year comparative includes a pre-tax and post-tax gain
of GBP4.4m as a result of the finalisation of a number of matters
relating to the disposal of the Retail Dispense businesses as well
as a pre-tax gain of GBP0.9m and post-tax gain of GBP2.3m relating
to other discontinued operations.
3. Net financial income and expense
2016 2015
Financial Financial
Instru- Instru-
Interest ments Total Interest ments Total
Recognised in the income
statement GBPm GBPm GBPm GBPm GBPm GBPm
-------- --------- ------ -------- --------- ------
Interest income on bank
deposits 4.5 4.5 3.2 3.2
Financial instruments at
fair value
through profit or loss:
Other economic hedges
- current year trading 5.6 5.6 14.5 14.5
- future year transactions 7.0 7.0 6.4 6.4
Financial income 4.5 12.6 17.1 3.2 20.9 24.1
-------- --------- ------ -------- --------- ------
Interest expense on interest-bearing
loans and borrowings (21.8) (21.8) (21.6) (21.6)
Financial instruments at
fair value
through profit or loss:
Other economic hedges
- current year trading (7.5) (7.5) (16.8) (16.8)
- future year transactions (11.9) (11.9) (9.1) (9.1)
Financial expense (21.8) (19.4) (41.2) (21.6) (25.9) (47.5)
-------- --------- ------ -------- --------- ------
Net finance income relating
to defined benefit
pension schemes 1.1 1.1 0.2 0.2
Net financial expense (16.2) (6.8) (23.0) (18.2) (5.0) (23.2)
-------- --------- ------ -------- --------- ------
Included in financial instruments are current year trading gains
and losses on economically effective transactions which for
management reporting purposes are included in reported revenue and
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.
4. Taxation
The effective tax rate for the Group before exceptional items
was 21% (2015: 22%). In addition, an exceptional tax credit of
GBP12m (2015: GBP9m) arose in connection with business
restructuring and other exceptional costs. The total reported tax
charge for the year on continuing operations was GBP44m (2015:
GBP48m) and reported profit after tax was GBP164m (2015: GBP171m).
Taxes of GBP32m (2015: GBP36m) 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 Group's Code of Conduct.
5. Earnings per ordinary share
2016 2015
Key million million
------- -------
Weighted average number of shares for the
purpose of basic earnings per share A 270.8 270.6
Dilutive effect of employee share options 1.8 1.9
Weighted average number of shares for the
purpose of diluted earnings per share B 272.6 272.5
------- -------
GBPm GBPm
------- -------
Statutory profit for the year 133.2 130.0
Non-controlling interests (2.4) (2.4)
Statutory profit for the year attributable
to owners of the parent C 130.8 127.6
Statutory profit from discontinued operations,
net of tax - (6.7)
Continuing statutory profit for the year
attributable to owners of the parent D 130.8 120.9
Total exceptional charges included in profit
before tax 42.7 56.0
Total exceptional credits included in taxation (11.6) (8.7)
Earnings for reported EPS E 161.9 168.2
------- -------
Statutory EPS measures
Statutory basic EPS C/A 48.3p 47.2p
Statutory diluted EPS C/B 48.0p 46.8p
Statutory basic continuing EPS D/A 48.3p 44.7p
Statutory diluted continuing EPS D/B 48.0p 44.4p
Reported EPS measures
Reported basic EPS E/A 59.8p 62.2p
Reported diluted EPS E/B 59.4p 61.7p
----------------------------------------------- ---- ------- -------
Discontinued earnings per share
Statutory basic discontinued earnings per share were
nil (2015: 2.5p). Statutory diluted discontinued earnings
per share were nil (2015: 2.4p).
6. Exceptional items
Reversal of net economic hedge contract losses/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 settlement,
are included in the reported revenues and operating profit of the
relevant business segment. The exceptional items at the operating
level reverse 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 comprised a reversal of a loss of GBP5.6m (2015: reversal of
a loss of GBP7.6m) and the latter amounted to a loss of GBP6.8m
(2015: loss of GBP5.0m).
Restructuring costs
The restructuring costs treated as exceptional in 2016 of
GBP18.8m (2015: GBP27.1m) are as a result of a number of
significant restructuring projects across the Group, predominantly
in Critical Engineering. These include GBP7.6m relating to the
closure of one of our Critical Engineering sites in Germany,
GBP1.7m from the closure of one of our Critical Engineering sites
in Italy, GBP3.2m for the continuing European restructuring
exercise commenced in 2015 and GBP5.6m from the restructuring of
our Swedish business.
Exceptional restructuring costs in 2015 included GBP9.6m
relating to a large European restructuring exercise across each of
the divisions and GBP9.3m in relation to the restructuring of our
Switzerland business. GBP3.6m was also incurred in relation to the
closure of two of our Petrochemical sites in Italy and Germany,
GBP1.7m in relation to the closure of our Canadian Nuclear business
and GBP1.1m as part of Critical Engineering's localisation plan in
China.
Other restructuring costs of GBP3.5m (2015: GBP2.1m) are not
included in the measure of segment operating profit reported to the
Executive Committee. These costs have been charged below segmental
operating profit and included in reported operating profit as,
based on their quantum, they do not meet our definition of
exceptional items.
Pensions
During 2016, following the conversion to a non-inflation linked
pension for certain members of our UK Funds, an exceptional net
gain of GBP6.1m was realised. In addition, following further
restructuring exercises in Switzerland, a curtailment gain of
GBP1.4m was recognised. These exceptional gains were partially
offset by an exceptional loss of GBP4.7m relating to the
distribution of pension assets to members from our previously
overfunded Swiss schemes. Gains on special pension events in the
UK, US and Switzerland of GBP9.1m were recognised in 2015.
Impairment losses and acquired intangible amortisation
Following completion of the Group's annual impairment review, an
exceptional impairment charge of GBP5m (2015: nil) was recorded
against the goodwill associated with the Stainless Steel Fasteners
('SSF') CGU in the IMI Critical Engineering division. Acquired
intangible amortisation decreased to GBP21m (2015: GBP32m)
following the full amortisation in 2015 of the order book acquired
from Bopp & Reuther.
Taxation
An exceptional tax credit of GBP12m (2015: GBP9m) arose in
connection with business restructuring and other exceptional
items.
7. Dividend
The directors recommend a final dividend of 24.7p per share
(2015: 24.5p) payable on 19 May 2017 to shareholders on the
register at close of business on 7 April 2017, which will cost
about GBP67.0m (2015: GBP66.4m). Together with the interim dividend
of 14.0p per share paid in September 2016, this makes a total
distribution of 38.7p per share (2015: 38.4p per share). In
accordance with IAS10 'Events after the Balance Sheet date', this
final proposed dividend has not been reflected in the 31 December
2016 balance sheet
8. Employee Benefits
The Group has 63 (2015: 63) defined benefit obligations in
operation as at 31 December 2016. 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 deficit for defined benefit obligations at 31 December
2016 was GBP80m (2015: GBP4m surplus). The UK surplus was GBP24m
(2015: GBP89m) and constituted 88% (2015: 88%) of the total defined
benefit liabilities and 94% (2015: 95%) of the total defined
benefit assets. The deficit in the overseas funds as at 31 December
2016 was GBP103m (2015: GBP84m).
UK Overseas Total
GBPm GBPm GBPm
------ -------- ------
Net defined benefit surplus/(obligation)
as at 1 January 2016 88.7 (84.3) 4.4
Movement recognised in:
Income statement 10.9 (12.4) (1.5)
Other comprehensive income (76.1) (16.9) (93.0)
Cash flow statement 0.1 10.2 10.3
Net defined benefit surplus/(obligation)
as at 31 December 2016 23.6 (103.4) (79.8)
------ -------- ------
9. Cash flow and net debt reconciliation
Reconciliation of net cash to movement in
net borrowings
2016 2015
GBPm GBPm
------- -------
Net (decrease)/increase in cash and cash
equivalents excluding foreign exchange and
net cash
disposed/acquired (45.5) 85.7
Net repayment/(drawdown) of borrowings 54.6 (107.9)
------- -------
Decrease/(increase) in net debt before acquisitions,
disposals and foreign exchange 9.1 (22.2)
Net cash disposed - (0.8)
Net debt acquired - (5.6)
Currency translation differences (54.8) (8.3)
------- -------
Movement in net borrowings in the year (45.7) (36.9)
Net borrowings at the start of the year (236.9) (200.0)
------- -------
Net borrowings at the end of the year (282.6) (236.9)
------- -------
Movement in net debt
2016 2015
GBPm GBPm
------- -------
EBITDA* from continuing operations 273.0 275.1
Working capital movements 29.8 18.4
Capital and development expenditure (70.9) (70.6)
Loss on disposal of subsidiaries - 0.4
Provisions and employee benefit movements** (2.2) (4.1)
Other 16.2 13.0
------- -------
Operating cash flow (pre-exceptional items)*** 245.9 232.2
Exceptional items**** (25.2) (9.6)
------- -------
Operating cash flow (post-exceptional items) 220.7 222.6
Tax paid (31.7) (36.2)
Interest and derivatives (61.5) 5.6
------- -------
Cash generation 127.5 192.0
Additional pension scheme funding (1.9) (2.9)
------- -------
Free cash flow before corporate activity 125.6 189.1
Acquisitions (before net cash acquired) - (109.2)
Dividends paid to equity shareholders and
non-controlling interest (105.0) (102.5)
Proceeds from disposal of subsidiaries - 1.4
Payment to non-controlling interest (4.4) (4.4)
Net (purchase)/issue of own shares (7.1) 3.4
------- -------
Net cash flow (excluding debt movements) 9.1 (22.2)
Opening net debt (236.9) (200.0)
Net cash disposed - (0.8)
Net debt acquired - (5.6)
Foreign exchange translation (54.8) (8.3)
------- -------
Closing net debt (282.6) (236.9)
------- -------
* Reported earnings before interest (GBP16.2m), tax
(GBP43.7m), depreciation (GBP37.8m), amortisation (GBP8.0m)
and impairment (GBP3.0m).
** Movement in provisions and employee benefits as
per the statement of cash flows (GBP8.6m), adjusted
for the decrease in exceptional restructuring provisions
(GBP3.1m) and the decrease in provisions relating to
discontinued operations (GBP3.3m).
*** Operating cash flow (pre-exceptional items) is
the cash generated from the operations shown in the
statement of cash flows less cash spent acquiring property,
plant and equipment, non-acquired intangible assets
and investments; plus cash received from the sale of
property, plant and equipment and the sale of investments,
after adjusting for the cash impact of exceptional
items. This measure best reflects the underlying operating
cash flows of the Group.
**** Cash impact of exceptional items, including an
outflow relating to restructuring costs of GBP21.9m
and a cash outflow of GBP3.3m in relation to discontinued
operations.
10. 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
2016 2015 2016 2015
---------- --------- ---------- ---------
Euro 1.22 1.38 1.17 1.36
US Dollar 1.36 1.53 1.23 1.47
The movement in average exchange rates between 2015
and 2016 resulted in our reported 2016 revenue being
11% higher and segmental operating profit being 13%
higher as the average euro and US dollar rates against
sterling were 12% and 11% stronger, respectively.
If the exchange rates as at 6th February 2017 of US$1.25
and EUR1.16 were projected for the full year and applied
to our 2016 results, it is estimated that reported
revenue would have been 6% higher and segmental operating
profit would have been approximately 7% higher.
11. Financial information
The preliminary statement of results was approved by the Board
on 23 February 2017. The financial information set out above does
not constitute the Company's statutory accounts for the years ended
31 December 2016 or 2015 but is derived from the 2016 accounts,
which are prepared on the same basis as the 2015 accounts.
Statutory accounts for 2015 have been delivered to the registrar of
companies and those for 2016 will be delivered in due course. Ernst
& Young LLP has reported on both the 2015 and 2016 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 may contain forward-looking statements that
may or may not prove accurate. For example, statements regarding
expected revenue growth and operating margins, market trends and
our product pipeline are forward-looking statements. It is believed
that the expectations reflected in these statements are reasonable
but they may be affected by a number of risks and uncertainties
that are inherent in any forward-looking statement which could
cause actual results to differ materially from those currently
anticipated. Any forward-looking statement is made in good faith
and based on information available to IMI plc as of the date of the
preparation of this announcement. All written or oral
forward-looking statements attributable to IMI plc are qualified by
this caution. IMI plc does not undertake any obligation to update
or revise any forward-looking statement to reflect any change in
circumstances or in IMI plc's expectations. 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 revenue, segmental operating
profit and segmental operating margins, unless otherwise stated,
relate to amounts on a reported basis before exceptional items as
noted on the face of the consolidated income statement.
References to EPS, unless otherwise stated, relate to reported
basic EPS i.e. after adjustment for the per share after tax impact
of exceptional items in note 5. The directors' commentary discusses
these alternative performance measures to remove the effects of
items of both income and expense which are sufficiently large,
volatile or one-off in nature, to assist the reader of the
financial statements to get a better understanding of the
underlying performance of the Group.
References to organic growth exclude the impact of exchange rate
translation and acquisitions or disposals that are included in
reported growth figures. The organic growth is derived from
excluding any contribution from acquired businesses 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. These organic revenues or
profits will then be compared to the organic revenue or profits for
the prior period after their re-translation at the current period
average exchange rates to provide the organic growth rate. The
impact on revenue and segmental operating profit of movements in
foreign exchange, acquisitions and disposals is set out in note
1.
IMI plc is registered in England No. 714275. Its legal entity
identifier ('LEI') number is 2138002W9Q21PF751R30.
The Company's 2016 Annual Report and notice of the forthcoming
Annual General Meeting will be posted to shareholders on 24 March
2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR VXLFLDLFXBBK
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February 24, 2017 02:00 ET (07:00 GMT)
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