IMI plc 2018 Preliminary Results · 2019-12-23 · IMI plc 2018 Preliminary Results Organic revenue...

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IMI plc2018 Preliminary Results

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IMI plc 2018 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 ahead of expectations► Continued progress on strategic initiatives ► Good operating cash flow and further pensions de-risking► Integration of Bimba on track

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

Revenue

£1,907m Up 5%1

Segmental operating profit

£266.3m Up 9%1

Segmental operating margin

14.0% Up 20bps

Operating cash flow2

£222m Up 2%

Adjusted earnings per share

73.2p Up 12%

Dividend per share

40.6p Up 3%

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Financial reviewDaniel Shook – Finance Director

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Organic revenue and operating profit

£m

RevenueIMI Critical Engineering 682 - 682 5% 7% 648 (6) (3) 639 IMI Precision Engineering 916 (88) 828 16% 6% 791 (10) - 781 IMI Hydronic Engineering 309 - 309 -1% 0% 312 (3) - 309 Total 1,907 (88) 1,819 9% 5% 1,751 (19) (3) 1,729

Segmental operating profitIMI Critical Engineering 88.3 - 88.3 5% 6% 84.0 (1.3) 0.6 83.3 IMI Precision Engineering 153.2 (6.7) 146.5 15% 11% 133.5 (1.5) - 132.0 IMI Hydronic Engineering 52.0 - 52.0 5% 6% 49.7 (0.5) - 49.2 Corporate costs (27.2) (27.2) (26.3) (26.3)Total 266.3 (6.7) 259.6 11% 9% 240.9 (3.3) 0.6 238.2

Segmental operating profit margin (%) 14.0% 14.3% 13.8% 13.8%

Year to 31 December 2018 Year to 31 December 2017

AdjustedAdjusted

growth (%)

Organic growth

(%)Adjusted Foreign

exchange Disposals OrganicAcquisitions Organic

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Income statement

► Net interest expense of £13m lower following refinancing of legacy loans

► Restructuring costs of £12m primarily in Critical Engineering including full closure of Belgian manufacturing plant

► Continued de-risking of pension schemes realises £7m of gains

£m 2018 2017

Segmental operating profit 266.3 240.9 Restructuring costs - underlying (0.8) (1.7)Net interest expense (12.9) (14.3)Net pension finance (expense)/income (1.4) (0.8)Adjusted Profit Before Tax 251.2 224.1 IFRS 9 adjustment (2.5) 2.4 Restructuring costs - adjusting item (12.4) (34.6)Impairment losses (2.0) -Loss on disposal of subsidiaries 0.6 (2.3)Gains on special pension events 6.8 10.8 Gain on property disposal 3.2 -Indirect taxes on reorganisation (3.2) -Acquired intangible amortisation/other acquisition items (28.8) (19.5)Profit before tax 212.9 180.9 Taxation (43.5) (35.6)Profit from continuing operations after tax 169.4 145.3

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Operating cash flow

► Good operating cash flow► Lower inventory and debtor days► Creditors impacted by lower

Critical advance payments► Capital expenditure to

depreciation and amortisation at 1.1x

£m 2018 2017

EBITDA (from continuing operations) 320 288

Inventory 5 4 Debtors (8) (26) Creditors (47) 22 Working capital (50) -

Capital expenditure (58) (70)Provisions and employee benefits 2 (10)Asset sales/other 8 10 Adjusted Operating cash flow 222 218

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Net cash flow

£m 2018 2017Adjusted Operating cash flow 222 218 Adjusting items (9) (29)Statutory Operating cash flow 213 189 Interest (13) (14)Derivatives (18) (20)Tax paid (41) (40)Cash generation 141 115 Special pension contributions (10) (3)(Acquisitions)/disposals (123) -Dividend and minority (108) (108)Employee trust (purchases)/issues (5) (2)Net cash flow (105) 2

Opening net debt (265) (283)Net debt disposed/acquired (15) -Foreign exchange (20) 16 Closing net debt (405) (265)

► Adjusting items include £21m of restructuring spend, offset by £12m of property disposals

► Bimba acquired for £138m► Net debt includes adverse

currency impact of £38m

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Balance sheet

► Net debt of £405m following the Bimba acquisition

► Weighted average debt maturity of 6.2 years, 98% at fixed rates

► Net Debt / EBITDA at 1.3x provides further headroom

Dec Dec£m 2018 2017

Shareholders' funds 666 607 Net debt 405 265 Gearing 61% 44%

EBITDA* 320 288 Interest costs (excluding IAS19) 12.9 14.3

Net debt / EBITDA* 1.3x 0.9xEBITDA* / interest 25x 20x

* Before adjusting items

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Pensions

► UK insurance buy-out of £409m of liabilities completed in November

► UK scheme remains in surplus► Overseas deficit largely

unchanged and mostly reflect unfunded schemes

Dec Dec£m 2018 2017

Total Position: Liabilities (596) (1,080) Assets 544 1,002 Deficit (52) (78)

UK Schemes: Liabilities (445) (917) Assets 473 919 Surplus 28 2

Overseas Schemes: Liabilities (151) (163) Assets 71 83 Deficit (80) (80)

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Lease Accounting Changes (IFRS 16) –from 1 January 2019

► Segmental operating profit increases by £1.5m, offset by higher finance expense

► Minimal impact to profit before tax► Internal rent recharges also removed

as no longer required► Minimal impact to financial ratios

IFRS 16 Notional Rent

Critical Engineering 88.3 0.7 1.0 90.0 Precision Engineering 153.2 0.6 1.5 155.3 Hydronic Engineering 52.0 0.1 0.8 52.9 Corporate costs (27.2) 0.1 (3.3) (30.4)Segmental Operating Profit 266.3 1.5 0.0 267.8 Adjusted EBITDA 320.1 32.5 352.6

Statutory net financial expense (18.7) (2.1) (20.8)Statutory profit before tax 212.9 (0.6) 212.3

Property, Plant and Equipment 284.4 113.2 397.6 Net debt (404.5) (113.2) (517.7)

Net debt/EBITDA 1.3 0.2 1.5 Ratios

Proforma 2018

Balance Sheet

£m 2018Impact from

Income Statement

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Foreign exchange

*Compares the impact of projecting January average exchange rates (US$1.30 and €1.14) for the full year and applying to our 2018 results.

Ready reckoner for translation impact on 2018 FY performance

2018 2017 Change

Average ratesEuro 1.13 1.14 1%US dollar 1.33 1.29 -3%

Dec Dec Change2018 2017

Closing ratesEuro 1.11 1.13 2%US dollar 1.28 1.35 5%

Impact on 2018: Revenue -1%Operating Profit -1%

Projection for FY2019*: Revenue 0%Operating Profit 0%

Sensitivity to +/-

RevenueOperating

Profit1 cent move in:

Euro +/-£7.0m +/-£0.9m

US dollar +/-£2.7m +/-£0.5m

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Operational ReviewMark Selway - Chief Executive

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IMI plc 2018 Preliminary ResultsIMI plc 2018 Preliminary Results

IMI Critical Engineering

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17%

18%

54%

5%6%

Western EuropeNorth AmericaEmerging MarketsUKRoW

IMI Critical EngineeringOperational review

Revenue

£682mOperating profit

£88.3mOperating margin %

13.0%Number of employees

3,200

Controlvalves

Butterflyvalves

Actuation

Ballvalves

Slidevalves

FCCvalves

Order input 2018

£652mAftermarket

£350mOil & Gas

£97mPower

£64mPetrochemical

£82mNuclear Power

£4mOther

£55m

Our performance in 2018

Revenue split by geography

Up 5%

£m 2018 FX Disp Organic 2017

Revenue 682 (6) (3) 43 648

Organic growth % 7%

Operating profit 88.3 (1.3) 0.6 5.0 84.0

Operating margin % 13.0% 13.0%

Up 5%

Flat

Flat

Up 91%*

Up 7%*

Up 11%*

Down 77%*

Down 26%*

Down 24%*► Revenue and profit growth in the

year► Value Engineering delivered £180m

new orders► Aftermarket up 11% through focus

on upgrades► Year-end order book lower with

margins slightly higher

*Organic growth

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Oil & Gas improving with continued uncertainty in Power

Power Generation Oil & Gas Petrochemical Aftermarket

IMI Critical EngineeringKey markets

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IMI Critical EngineeringOptimising operations

Value Engineering secured 60% of New Construction orders and helped gain access to adjacent markets.

74% Divisional Lean score, up 50 points from first assessment.

1. Geographic footprintfor growth

Repositioning has placed the business at the centre of future markets.

People increased by 15% in the East

People decreased by 16% in the West

3. Value Engineeringaccesses untapped markets

2. Rationalisation deliveringtangible benefits

4. Lean improvingcompetitive advantage

Rationalisation has generated c.£60m of annualised benefit, with £12m delivered in 2018.

2015 2016 2017 2018

£8m(3%)

£80m(25%)

£180m(60%)

VAVE (% Proportion of NC Orders)

2014 2015 2016 2017 2018

Cum

ulat

ive

bene

fit £

m

24%

38%

56%62%

70% 74%

0%10%20%30%40%50%60%70%80%

First 2014 2015 2016 2017 2018

£60m

£20m

£40m

£60m

£80m

£100m£139m(41%)

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IMI Critical EngineeringStrategic checklist

Revenue and profits growth despite continued difficult markets

Value Engineering process secures £180m of new orders

Rationalisation programme delivers £12m of benefits

Average Lean score increased to 74%

ERP now live in 14 Critical sites

Extending restructuring to European Power activities

✓✓✓✓✓✓

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IMI Critical EngineeringOutlook

► Based on current order book phasing and the comparatively large Petrochemical deliveries in early 2018, we expect first half organic revenues and profits to be lower when compared to 2018.

► Results for the full year are expected to reflect a more favourable second half phasing and the benefits from restructuring.

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IMI Precision Engineering

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38%

33%

19%

6%4%


Industrial Automation

£525mCommercial Vehicle

£196mEnergy

£77mLife Sciences

£77mRail

£41m

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

Up 5%*

Up 7%*

Up 6%*

Up 15%*

Revenue




6,100

Up 16%

Up 15%


Revenue split by geography Down 1%*Down 20bps

Up 2%*

Up 8%*

Up 12%*

Up 14%*

£m 2018 FX Acq Organic 2017

Revenue 916 (10) 88 47 791

Organic growth % 6%

Operating profit 153.2 (1.5) 6.7 14.5 133.5


Up 16%*► Growth across all regions and

verticals

► Industrial Automation slowed in H2

► Commercial Vehicle sales up 8% despite contract completions

► New product launches extend across all verticals

► Bimba integration progressing to plan

*Organic growth

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IMI Precision EngineeringKey sectors

IndustrialAutomation

CommercialVehicle

Energy Life Sciences Rail

Improving markets and foundation building over recent years, translating into improved competitive dynamics and stronger revenues

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IMI Precision EngineeringCreating tangible value

1. Fixed and focused

3. Low cost manufacturing plants

2. New Product Development

4. Lean improvingperformance

Digital marketing has become a competitive lever in Precision Engineering’s toolbox.

New product launches represent 12% of 2018 revenues.

Visible contribution to operational performance.

New India plant opened on time and on budget, with zero LTAs.

Mexico

Czech Republic

India

China

33%

47%59%

66% 70% 75%

0%10%20%30%40%50%60%70%80%

First 2014 2015 2016 2017 2018

VerticalOrganisationStructure

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Bimba integrationCombined market potential

► Bimba contributed £88m of sales and £6.7m of operating profit to Precision’s full year results in its maiden 11 months

► We remain confident that the synergy benefits are in line with acquisition assumptions

Extends product range, no overlap

Doubles presence in Industrial Automation in North America

First year integration delivered to plan

✓

+

Pittsburgh

Seattle

Littleton

Las Vegas

Queretaro

✓✓ Louisville

Detroit

Farmington

Minneapolis

Concord

Chicago

Tijuana

Boston

Brookville

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IMI Precision EngineeringStrategic checklist

Delivering growth in revenues and profits and like for like margins

Top line growth in all regions and verticals

New Product launches provides a vitality rate of 12%

New India plant up and running on time and on budget

Successful advancement of Bimba integration plan

✓✓✓✓✓

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IMI Precision EngineeringOutlook

► The industrial outlook has become more volatile with leading indicators pointing to continued but slower growth in the Industrial Automation and the Commercial Vehicle markets in 2019.

► Based on current market conditions, we expect first half organic revenues to be slightly higher, with broadly flat margins, when compared to the first half of 2018. The benefits of new product launches and operational improvements are expected to support improved results for the full year.

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IMI Hydronic Engineering

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Up 5%

70%7%

19%

3% 1%


IMI Hydronic EngineeringOperational review

Revenue




1,800

TA

£151mHeimeier

£98mPneumatex

£43mOther

£17m

Up 4%*

Down 6%*

Up 5%*

Down 6%*

£m 2018 FX Organic 2017

Revenue 309 (3) 312

Organic growth % 0%

Operating profit 52.0 (0.5) 2.8 49.7


Manualbalancing

ControlValves &Actuators

ThermostaticControls

Pressurisation& Water Quality


Revenue split by geography

Down 1%

Up 90bps

Down 6%*

Down 6%*

Up 5%*

Up 4%*

► Successful reset of business towards margin delivery

► Good growth in TA and Pneumatex products

► North America sales up 19%

► 22% of sales from new products

► Phil Clifton confirmed as MD

*Organic growth

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IMI Hydronic EngineeringKey markets

Hydronic Balancing Hydronic Conditioning Thermostatic Controls

A reinvigorated business,increasing margins in the the second half

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IMI Hydronic EngineeringDecisive action

4. Continual improvementwith Lean

Operations continue to improve, from a very strong base.

Focused on fewer, high value new product development opportunities. New products 22% of revenue.

3. Higher value New Product Development

2. Reducing complexity and lowering cost base

£3m restructuring costs incurred which included the closure of loss-making service business in Sweden.

Sales (£m)

Operating margin (£m)

Top 6 markets: 67% profit

Prices adjusted to ensure commodity and cost increases were recovered.

1. Commercial relationships rebalanced

37%

59%72% 76% 78% 78%

0%

20%

40%

60%

80%

100%

First 2014 2015 2016 2017 2018

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IMI Hydronic EngineeringStrategic checklist

Delivered profit and margin improvement despite first half restructuring

New products launched in the last four years accounting for 22% revenues

Leading the way with Lean, divisional score at 78%

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

New leadership delivered on margin commitment

✓✓✓✓✓

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IMI Hydronic EngineeringOutlook

► Based on current market conditions organic revenue is expected to grow in the first half of 2019 with margins slightly improved when compared to the first half of last year.

► Results for the full year are expected to reflect the benefits of our 2018 restructuring and our normal second half bias.

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Summary

► 2018 delivered improved revenues, profits, margins, cash and earnings per share

► Critical delivered good financial progress, despite tough market conditions► Precision delivered growth in revenues, profits and like for like margins► Hydronic successfully undertook the commercial, operational and

restructuring actions necessary to deliver a significantly improved second half to the year

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Group outlook► In the first half of 2019 we expect organic revenues to be lower than the same period in

2018 due to the phasing of Critical Engineering’s order book and slowing market demand in the Industrial Automation sector in Precision Engineering.

► Margins are expected to be broadly similar, supported by our operational initiatives and an improved performance from Hydronic Engineering.

► Results for the full year will also reflect the benefits of restructuring and our normal second-half bias.

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Q&A

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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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IMI plc 2018 Preliminary Results · 2019-12-23 · IMI plc 2018 Preliminary Results Organic revenue...

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