IMI plc (“IMI” or “the Group”)
Interim Management Statement
IMI, the global engineering group, issues the following Interim Management Statement, which covers the period from 1 July to 15 November 2012.
Current trading and outlook
Overall trading in the second half is in line with management expectations as communicated at the time of our Interim Financial Report in August. On an organic basis, after adjusting for acquisitions and exchange rate movements, revenues for the four months to the end of October are 3% ahead of last year and 4% ahead for the 10 months year to date. On a reported basis, revenues are 5% and 6% ahead respectively.
Shipments in our Severe Service business have remained strong with revenues on an organic basis 15% ahead of last year in the four months to October and 16% ahead year to date. Second half bookings momentum is similar to the first half, around 4% down on last year, impacted by lower activity in the nuclear sector and reduced bookings for new construction fossil power projects in China and India as we continue to exercise greater selectivity on project bids.
As communicated in the Interim results, we expect margins in the second half to be at similar levels to the first half. Margins in the order book have continued to improve as the backlog of lower margin projects secured in earlier periods is shipped, and is replaced by new projects with margins closer to historic norms. This improved mix in the order book, coupled with ongoing improvements in productivity at the Brno manufacturing facility in the Czech Republic underpin our expectation of a healthy improvement in margins as we progress through next year.
As anticipated, Fluid Power volumes have weakened in the second half, with revenues for the four months to the end of October down 4% on an organic basis compared to the same period last year and 2% down year to date. The principal contributor to this decline has been the commercial vehicle sector, most notably in the US, with revenues down 8% for the four months to the end of October. Elsewhere the sector business remains resilient, with sales into the oil & gas sector in particular continuing to show good momentum. In the non sector business, activity levels in the US and Asia Pacific have continued at similar levels to the first half, whilst European volumes have weakened by a further 3%.
On margins we continue to demonstrate good underlying momentum, with value engineering and supplier rationalisation initiatives delivering a healthy contribution to cost reduction. We expect second half margins to be similar to first half levels despite the lower levels of activity.
Indoor Climate volumes have held up well despite a difficult European construction environment with revenues on an organic basis up 2% over last year for the four months to the end of October, and up 1% year to date. We have seen a return to more normal trading patterns as we enter the important heating season in Europe, following the anomaly last year arising from unseasonably warm autumn weather. We are continuing our investments in sales and engineering to drive long term growth outside our core European markets, and to take advantage of the positive market trends on energy efficiency. As previously indicated we expect Indoor Climate margins to exhibit their normal seasonal improvements in the second half.
Activity levels in Beverage Dispense are higher than anticipated at the time of the Interims, with strong demand for a number of new products in Asia and improving momentum in the US. Despite exiting a significant low margin contract in the UK at the end of June, revenues on an organic basis for the four months to the end of October are flat on last year, compared to a 1% reduction in the first half. Margins in the second half are expected to show further progress over last year as the product mix continues to improve, supported by higher sales of new products at better margins and continued exits from lower margin, more commoditised product lines.
Merchandising revenues on an organic basis are up 6% over last year for the four months to October, and up 10% year to date following a particularly strong first half. We continue to see good growth in our North American automotive business and in our European cosmetics business where we are starting to benefit from two large multi-year contracts secured in the first half. We expect operating margins to show the normal seasonal improvement in the second half and for full year margins to be similar to last year.
The Group retains a strong balance sheet. Year end net debt is expected to be £150m to £170m following a seasonally stronger second half cash performance.
IMI will issue its preliminary results announcement in respect of the year ending 31 December 2012 on 7 March 2013.
Will Shaw Tel: 0121 717 3712
Rollo Head / Charlie Chichester Tel: 020 7251 3801
This Interim Management Statement contains forward-looking statements which are made in good faith based on the information available at the time of its approval. 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.
Notes to editors:
IMI is a global engineering group focused on the precise control and movement of fluids in critical applications. It works with leading international companies in over 50 countries to deliver innovative engineering solutions, built around valves and actuators, to address global trends such as climate change, resource scarcity, urbanisation and an ageing population. Its shares are listed on the London Stock Exchange and it is a member of the FTSE100. Further information is available at www.imiplc.com.