IMI plc 2017 Preliminary Results reports/Presentations...5 IMI plc 2017 Preliminary Results £m...

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IMI plc2017 Preliminary Results

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IMI plc 2017 Preliminary Results

Agenda

► Highlights Lord Smith of Kelvin – Chairman

► Financial review Daniel Shook – Finance Director

► Operational review Mark Selway – Chief Executive

► Q&A IMI Executive Team

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Highlights

► Results in-line with expectations► Good progress on strategic initiatives ► Good operating cash flow and further pensions de-risking► Acquisition of Bimba

1. On an organic constant currency basis (OCC)2. Excluding adjusting items

Revenue

£1,751m Flat% 1

Segmental operating profit

£240.9m Down 1%1

Segmental operating margin

13.8% Flat

Operating cash flow2

£218m Down 11%

Adjusted earnings per share

65.3p Up 9%

Dividend per share

39.4p Up 2%

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Financial reviewDaniel Shook – Finance Director

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£m

RevenueIMI Critical Engineering 648 (3) 645 0% -6% 651 40 (5) 686 IMI Precision Engineering 791 - 791 12% 5% 708 42 - 750 IMI Hydronic Engineering 312 - 312 8% 1% 290 18 - 308 Total 1,751 (3) 1,748 6% 0% 1,649 100 (5) 1,744

Segmental operating profitIMI Critical Engineering 84.0 0.6 84.6 3% -5% 81.8 6.3 0.5 88.6 IMI Precision Engineering 133.5 - 133.5 13% 7% 118.5 6.7 - 125.2 IMI Hydronic Engineering 49.7 - 49.7 -4% -9% 51.9 2.7 - 54.6 Corporate costs (26.3) (26.3) (24.5) (24.5)Total 240.9 0.6 241.5 6% -1% 227.7 15.7 0.5 243.9

Segmental operating profit margin (%) 13.8% 13.8% 13.8% 14.0%

Year to 31 December 2017 Year to 31 December 2016

AdjustedReported

growth (%)

Organic growth

(%)Adjusted Foreign

exchange Disposals OrganicDisposals Organic

Organic revenue and operating profit

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Income statement

► Net interest expense of £14m lower following repayment of US$75m of private placement debt in July 2016

► Restructuring costs of £35m primarily in Critical Engineering including closure of Belgian manufacturing plant

► Continued de-risking of pension schemes realises £11m of gains

£m 2017 2016

Segmental operating profit 240.9 227.7 Restructuring costs - adjusted (1.7) (3.5)Net interest expense (14.3) (17.3)Net pension finance (expense)/income (0.8) 1.1 Adjusted Profit Before Tax 224.1 208.0 IAS39 adjustment 2.4 (1.2)Restructuring costs - adjusting item (34.6) (18.8)Impairment losses - (5.0)Loss on disposal of subsidiaries (2.3) -Gains on special pension events 10.8 2.8 Acquired intangible amortisation and acquisition costs (19.5) (20.5)Profit before tax 180.9 165.3 Taxation (35.6) (32.1)Profit from continuing operations after tax 145.3 133.2 Profit from discontinued operations (net of tax) 16.9 -Total profit for the year 162.2 133.2

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Operating cash flow

► Good operating cash flow► Continued improved inventory

management in Critical Engineering and Precision Engineering

► Capital expenditure to depreciation and amortisation at 1.5x

£m 2017 2016

EBITDA (from continuing operations) 288 273

Inventory 4 18 Debtors (26) 7 Creditors 22 5 Working capital - 30

Capital expenditure (70) (71)Provisions and employee benefits (10) (2)Asset sales/other 10 16 Adjusted Operating cash flow 218 246

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Net cash flow

► Adjusting items include £25m of restructuring spend, primarily in Critical Engineering

► Interest and derivatives positively impacted by Sterling strengthening in H2

► Net employee benefit trust share purchases of £2m

► Net debt adverse currency translation impact of £4m

£m 2017 2016Adjusted Operating cash flow 218 246 Adjusting items (29) (25)Statutory Operating cash flow 189 221 Tax paid (40) (32)Interest (14) (17)Derivatives (20) (44)Cash generation 115 128 Special pension contributions (3) (2)(Acquisitions)/disposals - -Dividend and minority (108) (110)Employee trust (purchases)/issues (2) (7)Net cash flow 2 9

Opening net debt (283) (237)Net debt disposed/ acquired - -Foreign exchange 16 (55)Closing net debt (265) (283)

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Balance sheet

► Lower net debt of £265m despite adverse currency movement

► Weighted average debt maturity of 3.5 years, 98% at fixed rates

► Reduced Net Debt / EBITDA before Bimba, 0.9x

► Pro Forma Net Debt / EBITDA including Bimba, 1.3x

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Pensions

► UK insurance buy-out of £429m of liabilities completed in January 2017 with further UK buy-out planned

► UK scheme remains in surplus while we continue to de-risk the position

► Proactive management of schemes in the US and Switzerland

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Foreign exchange

Sensitivity to +/- 1 cent move in: Revenue Operating Profit

Euro +/- £6.8m +/- £0.9m

US dollar +/- £3.3m +/- £0.6m

*Compares the impact of projecting January average exchange rates (US$1.38 and €1.13) for the full year and applying to our 2017 results.

Ready reckoner for translation impact of movement in FX rates on 2017 FY performance

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Operational ReviewMark Selway - Chief Executive

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Strategy execution timeline“Nearly firing on all cylinders”

✓

Year 0:The hard work begins

2014

✓

Year 1:Increased investment

2015

✓

Year 2:Benefits starting to show

2016

Year 3:Nearly firing on all cylinders

2017

Year 4:Up to full speed

2018

Ambition:Double operating profits

✓

► Assess our markets and drivers for growth

► Benchmark performance and plan for improvement

► Invest in products and capital for growth

► Foundations established and benchmark improvements evident

► Sorting the basics in Precision Engineering complexities and structure

► Accelerated growth evident in results

► Working capital benefits visible in results

► Emerging markets ready for local full technology supply

► Growth outruns peers in every division

► Benchmark performance nearing world-class standards

► Precision supply chain and capacity issues resolved

► Ambitions for growth fully realised

► Achievement of world-class performance evident in results

► All divisions in attractive, high growth markets

Supported by value enhancing acquisitions

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IMI plc 2017 Preliminary ResultsIMI plc 2017 Preliminary Results

IMI Critical Engineering

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13%

18%

58%

3%8%

Western EuropeNorth AmericaEmerging MarketsUKRoW

IMI Critical EngineeringOperational Review

Revenue

£648mOperating profit

£84mOperating margin %

13.0%Number of employees

3,500

Controlvalves

Butterflyvalves

Actuation

Ballvalves

Slidevalves

FCCvalves

Order input 2017

£658mAftermarket

£321mOil & Gas

£128mPower

£88mPetrochemical

£73mNuclear Power

£16mOther

£32m

Our performance in 2017

Revenue split by geography

► Year-end order book of £515m and margins in-line with the end of 2016

► Value Engineering delivers £139m new orders

► Aftermarket up 1%, with second half good growth in LNG

► Order intake increases 2% with strong Petrochemical bookings

► Improved margins supported by £23m cost-cutting benefits

Up 2%*

Up 1%*

Down 11%*

Up 53%*

Up 101%*

Up 5%*

Flat

Up 3%

£m 2017 FX Disp Organic 2016

Revenue 648 40 (2) (41) 651

Organic growth % -6%

Operating profit 84.0 6.3 (0.1) (4.0) 81.8

Operating margin % 13.0 12.6

Down 11%*

Up 40bps

*Organic growth

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IMI Critical EngineeringKey sectors

Oil & Gas improving with continued uncertainty in Power

Power Generation Oil & Gas Petrochemical

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IMI Critical EngineeringInvesting for growth

The difference 2013 to 2018 100 Value Engineering workshops held.

£140 million of new orders generated as a

result in 2017.

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IMI Critical EngineeringRestructure programme

Consolidated or sold 13 plants

People increased by 15%in the East

People decreased by 16%in the West

IMI CCI SriCity75% Lean Score

IMI Critical Engineering China 72% Lean Score

IMI CCI Korea 82% Lean Score2014 to 2017

Total cost (£m) Total annualisedbenefit (£m)

66.8 55.3

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IMI Critical EngineeringLean assessment

24

38

5662

70

01020304050607080

First 2014 2015 2016 2017

Lean Percentage (%)

70% Lean score up 46 percentage points from first assessment

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IMI Critical EngineeringStrategic checklist

Value Engineering process secures £139m of new orders

Rationalisation programme delivers £23m of benefits

Average Lean score increased to 70%

ERP now live in 10 Critical sites

Agreement to close loss making Belgian site

✓✓✓✓✓

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IMI Critical EngineeringOutlook

► Based on the current order book and market outlook, we expect first half organic revenues to reflect a slight improvement with broadly flat margins when compared to 2017

► Results for the full year are expected to include the benefits of restructuring and the normal second half bias

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IMI Precision Engineering

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43%

26%

21%

6%

4%

Western EuropeNorth AmericaEmerging MarketsUKRoW *Organic growth

Industrial Automation

£440mCommercial Vehicle

£183mEnergy

£67mLife Sciences

£64mRail

£37m

Pneumatic valves

Fluid control valves

Pneumatic actuators

Air preparation

Product Photo

Product Photo

Product Photo

Product Photo

Product PhotoPneumatic fittings

Electric actuators

Pinch Valves

Vacuum products

IMI Precision EngineeringOperational Review

► Industrial Automation increases 5%, with 3% growth in North America, 5% in Europe, and 15% in Asia

► Commercial Vehicle sales up 7% despite £13m contract completions

► Successful launch of first new platform products in 2017

► Restructuring benefits ahead of plan

Up 5%*

Up 7%*

Up 6%*

Up 15%*

Revenue


£133.5mOperating margin %


5,300

Up 12%

Up 13%

Our performance in 2017£m 2017 FX Organic 2016

Revenue 791 42 41 708

Organic growth % +5%

Operating profit 133.5 6.7 8.3 118.5


Revenue split by geography Down 1%*Up 20bps

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IMI Precision EngineeringKey sectors

Americas: Sales growth +5%

Europe:Sales growth +4%

APAC:Sales growth +14%

VerticalOrganisationStructure

IndustrialAutomation

CommercialVehicle

Energy Life Sciences Rail

Largest verticals showing favourable trends

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IMI Precision EngineeringFix. Focus.

New Product Development

Leadership indigital marketing

VerticalOrganisationStructure

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IMI Precision EngineeringAn exciting pipeline of great new products

► New product processes embedded across IMI Precision Engineering

► 33 projects in the process

► Significant 5 year sales potential

Fast-Track Batting AverageManagementProcess

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IMI Precision EngineeringFix. Focus.

Project JanusNew Indian Factory

► Simplification of global footprint

► Utilisation in the year increases to c.70%

► Delivered £7.4m of benefit in 2017

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IMI Precision EngineeringLean assessment

33

4759

66 70

01020304050607080

First 2014 2015 2016 2017

Lean Percentage (%)


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IMI Precision Engineering & BimbaBimba acquisition

Noida, IND

Querétaro MEX

Alpen, GERFellbach GERBad Oeynhausen, GERMerklingen, GER

Shanghai, CN

Sao Paulo, BR

LittletonBrookville

UKFradley Bristol, Leeds & Poole

Las Vegas

SeattleGeneva, CH

Brno, CZ

Singapore

Melbourne, Aus

ChicagoMinneapolis

Concord, CA

Tijuana, MEX

PennsylvaniaMassachusetts

Doubles Industrial Automation presence in North America

Opens access to market leading distributor network

Enhances product portfolio Creates cross-selling

opportunities across North American markets

Application of Lean will enhance performance and grow margins

Combined Americas IA Market Position

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IMI Precision EngineeringStrategic checklist

New Product Development delivers first new platform products for 10 years

Restructured Americas into sector facing verticals with improved customer focus

Successful ERP implementation in US operations

Average Lean score increased to 70%

Project Janus delivers ahead of plan

Acquisition of Bimba

✓✓✓✓

✓✓

31


IMI Precision EngineeringOutlook

► Based on current market conditions, we expect first half organic revenues and profits to show good improvement when compared to the first half of 2017

► The benefits of new product launches and improved market conditions are expected to deliver improved results for the full year

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IMI Hydronic Engineering

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► Higher revenue in core European markets

► 23% of revenue delivered from new products

► Lean score improves to 78%

► Phil Clifton appointed as Interim Managing Director 72%

6%

19%

2% 1%

Western EuropeNorth AmericaEmerging MarketsUKRoW *Organic growth

IMI Hydronic EngineeringOperational Review

Revenue


£49.7mOperating margin %


1,800

TA

£147mHeimeier

£104mPneumatex

£41mOther

£20m

Up 2%*

Up 2%*

Down 3%*

Down 2%*

Up 8%

Down 4%

£m 2017 FX Organic 2016

Revenue 312 18 4 290

Organic growth % +1%

Operating profit 49.7 2.7 (4.9) 51.9


Manualbalancing

ControlValves &Actuators

ThermostaticControls

Pressurization& Water Quality

Our performance in 2017

Revenue split by geography

Down 2%

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IMI Hydronic EngineeringKey markets

Hydronic Balancing Hydronic Conditioning Thermostatic Controls

Modest growth in key markets

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IMI Hydronic EngineeringFix. Focus.

World-class NPD

JD Edwards ERP system

13 new products launched in the year. A total of £73m, or 23% of the division’s 2017 sales, from new products

Now live in two manufacturing businesses and 13 sales offices

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IMI Hydronic EngineeringLean assessment

37

5972 76 78

0

20

40

60

80

100

First 2014 2015 2016 2017

Lean Percentage (%)


37


IMI Hydronic EngineeringStrategic checklist

56 new products launched in last four years, accounting for 23% revenues

Leading the way with Lean, divisional score increased to 78%

ERP now provides proven standard for roll-out to balance of division

New leadership to review performance and opportunities for growth

✓✓✓✓

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IMI Hydronic EngineeringOutlook

► In the European construction markets the modest level of growth experienced in 2017 is forecast to continue

► Organic revenue is expected to grow in the first half of 2018 with margins broadly similar to the first half of last year

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Group outlook► In the first half of 2018 we expect organic revenues to be higher than the

same period in 2017 with margins reflecting a modest improvement, supported by both rationalisation savings and improved market conditions in IMI Precision Engineering

► Results for the full year will also reflect our normal second-half bias

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Q&A

This document 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 statement. 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.

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