REG - IMI PLC - Interim Financial Report

Thu Aug 23, 2012 2:00am EDT

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RNS Number : 6025K
IMI PLC
23 August 2012
 



 

23 August 2012

 

IMI plc Interim Financial Report

IMI plc, the global engineering group, today announces its interim results for the six months ended 30 June 2012.

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Six months ended

30 June



Continuing operations:

2012


2011


change

     Revenue

£1,090m


£1,032m


+6%







     Segmental operating profit1

£180.9m


£176.4m


+3%

     Segmental operating margin

16.6%


17.0%



     Adjusted profit before tax2

£177.7m


£171.3m


+4%







     As reported:






          Operating profit

£155.1m


£148.3m


+5%

          Profit before tax

£154.4m


£144.3m


+7%







     Adjusted basic earnings per share3

40.4p


37.9p


+7%

     Basic earnings per share

34.5p


31.9p


+8%







     Interim dividend

11.8p


11.0p


+7%

 

 

Roberto Quarta, Chairman of IMI commented:

 

"The Group has delivered a good set of results in the first half of the year with organic revenue growth of 5%, underlying earnings growth of 7% and a dividend increase of 7%.  Whilst the pace of revenue growth is likely to slow in the second half, given in particular the weakening economic conditions in Europe, we still expect to make further progress in the remainder of the year.      

 

Notwithstanding the macroeconomic uncertainty, we continue to make good progress with the strategic development of the Group, with increased investment in new products and emerging markets, and ongoing utilisation of a strong balance sheet in securing further value-enhancing acquisitions."

 

 

1     before exceptional items (restructuring, acquired intangible amortisation, other acquisition-related costs, past service credit - UK pension scheme, and the reversal of net economic hedge contract gains) totalling £25.8m (2011: £28.1m).

2     before exceptional items (restructuring, acquired intangible amortisation, other acquisition-related costs, past service credit - UK pension scheme and financial instruments) totalling £23.3m (2011: £27.0m) and including economic hedge contract gains and losses totalling £1.7m (2011: £0.8m).

3   before the after tax net cost of exceptional items totalling £18.6m (2011: £19.0m).

INTERIM FINANCIAL REPORT

 

 

Overview

 

In the first half of the year Group reported revenues grew by 6% reflecting good growth in both our Severe Service and Merchandising businesses with the rest of the Group trading at broadly similar levels to last year.  On an organic basis, after adjusting for the Severe Service acquisitions and for exchange rate movements, revenues were up 5%.  Segmental operating profit was £180.9m, an increase of 3% on both a reported and organic basis.   Adjusted basic earnings per share increased by 7% to 40.4p.  The Board has decided to increase the interim dividend by 7% to 11.8p (2011: 11.0p). 

 

Macroeconomic conditions remain uncertain with many key leading indicators including PMIs weakening in most geographies over the last few months.  Notwithstanding this background, the Group has performed well in the first half delivering higher revenues, profits and earnings.  We continue to monitor demand levels in our end-markets closely and have contingency plans in place to defend margins should activity levels weaken from current levels.  

 

Our medium-term expectations are for ongoing macroeconomic volatility and limited economic growth in mature western markets.  Against this backdrop we expect to deliver continued growth through prioritised investment in new products geared to sustainable long-term and favourable structural trends such as climate change and urbanisation, and accelerated investment in higher growth emerging markets.  Funding for such investments will be self-generated through a continuing programme of efficiency improvements and supply chain cost reductions.  We are on track to invest an additional £15m in support of these growth plans in the current financial year.  Over the next 4-5 years we would expect these initiatives to deliver growth comfortably in excess of global GDP, whilst making a positive contribution to our long-term strategic aim to increase the proportion of activities undertaken in our strategic sweetspot.

 

We have a strong balance sheet, and continue to focus on value-enhancing acquisitions in our targeted fields of operation.  During the first half we were pleased to complete the acquisitions of Remosa and InterAtiva in our Severe Service business.  These companies, which have significantly strengthened our isolation valve capabilities, are well positioned both within our strategic sweetspot and in the emerging markets, most notably South America. 

 

Outlook

 

The Group has delivered a good set of results in the first half of the year with organic revenue growth of 5%, underlying earnings growth of 7% and a dividend increase of 7%.  Whilst the pace of revenue growth is likely to slow in the second half, given in particular the weakening economic conditions in Europe, we still expect to make further progress in the remainder of the year.     

 

Notwithstanding the macroeconomic uncertainty, we continue to make good progress with the strategic development of the Group, with increased investment in new products and emerging markets, and ongoing utilisation of a strong balance sheet in securing further value-enhancing acquisitions.

 

Operational review

 

The following review of our business areas for the six months to 30 June 2012 compares the performance of our operations with the six month period to 30 June 2011.  This section also comments on the current market conditions in each of our businesses.

 

Severe Service

 



2012

2011



Segmental Revenue

£326m

£258m



Segmental Operating Profit

£45.5m

£41.3m



Segmental Operating Margin

14.0%

16.0%


 

Severe Service generated strong shipments in the first half, with revenues up 17% on an organic basis, after adjusting for movements in exchange rates and acquisitions.  On a reported basis, including the acquisitions of TH Jansen, Remosa and InterAtiva, revenues were up 26% at £326m.  We saw good growth in shipments in the Fossil Power, Nuclear, Petrochemical, Iron & Steel sectors and also in the aftermarket.  Oil & Gas activity, centred mainly in LNG, remained high albeit at similar levels to the first half last year. 

 

Order intake was again ahead of shipments in the first half. Excluding the recent acquisitions, it was 3% lower than in the first half of last year.  The order book rose approximately 2% during the half. 

 

Operating margins of 14.0% declined from the 2011 second half margin of 15.2%, reflecting higher shipments of lower priced orders secured in prior years, a less advantageous sales mix, and higher than expected costs associated with our Brno manufacturing facility where high factory loading has hindered the implementation of productivity improvement initiatives.

 

Second half shipments are expected to show continued good growth.  Margins are unlikely to show any significant improvement over the first half as we work through the remaining lower margin projects in the order book.  Margins in the order book have improved during the first half and are expected to show further improvement as the year progresses, as low margin projects are shipped and new orders are secured at better prices.  This, coupled with anticipated second half productivity improvements in Brno, support an expectation for a healthy recovery in margins next year.

 

 

      Fluid Power

 



2012

2011



Segmental Revenue

£373m

£387m



Segmental Operating Profit

£75.0m

£74.6m



Segmental Operating Margin

20.1%

19.3%


           

Against a very strong comparator, Fluid Power volumes have held up well with revenues down 1% on an organic basis and 4% on a reported basis compared to the first half of last year.  As expected, the geographical performance has been more variable, with growth in both the Americas and Asia being offset by a weakening market in Europe. 

 

During the half we have continued to focus on growing the sector business, where we are engineering bespoke pneumatic and fluid control solutions for key OEM customers.  Overall, the sector business grew by 2% on an organic basis and now represents around 46% of Fluid Power's revenue.  The Commercial Vehicle sector was up 5% with strong growth in North America, up over 15%, and Asia offsetting Europe, where revenues were down almost 10%.  Whilst the Energy sector also performed well, up 7%, the Life Sciences, Rail and Food & Beverage sectors were all down in the period.  The non-sector Fluid Power business was down around 4% mainly reflecting the weaker trading conditions in central and southern Europe.

 

During the half we continued to focus on margin performance through a number of ongoing initiatives including product mix, further moves to lower cost manufacturing sites, value engineering and supplier rationalisation.  This delivered a further improvement in operating margins which were 20.1% compared to 19.3% in the first half of 2011. 

 

We continue to monitor our end-markets closely and maintain a regular dialogue with our major customers around the world.   In recent weeks we have seen some slowdown in industrial demand in a number of geographies, notably Europe. We have also noted a weakening in US truck demand. Based on our latest customer insight and current order trends, we expect second half revenues on an organic basis to be slightly lower than the equivalent period last year.

 

Indoor Climate

 



2012

2011



Segmental Revenue

£142m

£150m



Segmental Operating Profit

£27.1m

£30.2m



Segmental Operating Margin

19.1%

20.1%


 

Indoor Climate revenues were flat on an organic basis during the first half.  Refurbishment activity, which currently represents over two thirds of our business, has remained fairly resilient, whilst the new construction market in Europe remained very subdued.  On a reported basis revenues were down 5% reflecting the translational impact of the weaker Euro. 

 

During the period we continued to increase our investment in seminars, hydronic control demonstration centres and hydronic sales engineers to drive long-term growth outside of our core European markets, notably in Asia and the Americas. 

 

Operating margins were lower at 19.1% compared to 20.1% in the first half of 2011.  This reflects the ongoing investments for growth and some costs associated with a business reorganisation which will increase the effectiveness of the Group's management by centralising key functions in one location. We expect to see margins improve in the second half as the business benefits from seasonally higher volumes. 

 

Looking forward, economic data points to a further weakening in European construction markets which will in turn put some pressure on volumes although our investments in emerging markets are beginning to generate a higher number of project enquiries and orders.  The traditional heating season between September and November, which was disappointing in 2011, will again be important and, based on current trends and projections, we would expect to see revenues in the second half, on an organic basis, slightly ahead of last year.

 

 

Beverage Dispense

 



2012

2011



Segmental Revenue

£160m

£161m



Segmental Operating Profit

£21.6m

£20.0m



Segmental Operating Margin

13.5%

12.4%


 

First half revenues in Beverage Dispense were down 1% on an organic basis and flat on a reported basis.  During the half, revenues in North America were at a similar level to last year, and we saw good growth in Latin America and China.  Europe remains more challenging with the UK market particularly difficult.  3Wire, our parts business, has continued to win new national foodservice accounts in North America.

 

We remain focused on improving the quality of the overall sales mix in the business, accelerating the growth of higher margin new products in areas such as health and wellness, and continuing to exit commoditised low margin product lines.  During the first half, these low margin exits reduced revenues by around 1%.  This will increase to around 3% in the second half as we exit a particularly low margin contract in the UK.  We expect our programme of planned low margin exits to be largely completed by the end of this year, bringing to a close a three year programme which has resulted in an exit from around 10% of the product portfolio.  These initiatives have continued to improve the underlying quality of the business, with first half margins of 13.5% up from 12.4% in the first half of last year, and below 10% three years ago. 

 

Underlying volumes in the second half are likely to be slightly lower than last year with European markets in particular remaining challenging.  There continue to be several new product development opportunities which have the potential to accelerate growth and drive further margin improvement over the medium term.

 

 

Merchandising

 



2012

2011



Segmental Revenue

£90m

£79m



Segmental Operating Profit

£11.7m

£10.3m



Segmental Operating Margin

13.0%

13.0%


 

Merchandising revenues were up 12% on an organic basis and 14% on a reported basis compared to the first half of last year.  This positive performance reflects good activity levels in the US, notably in the automotive sector where dealerships continue to invest in our solutions for their showrooms, and in our European cosmetics business, where we have recently won a number of important contracts with major cosmetics brands which will be delivered over the next three years. 

 

We remain focused on improving the quality of this business by placing significant emphasis on retail science and using this to target higher margin project opportunities where we can add more value for customers.  Operating profits in the first half were up 14% at £11.7m.  Margins were constant at 13.0%.

 

We expect Merchandising to continue to make good progress in the second half.

 

 

Financial Review

 

Segmental revenues increased by 5% to £1,091m (2011: £1,035m).  After adjusting for the acquisition of TH Jansen at the end of last year, the acquisitions of Remosa and InterAtiva in February of this year, and for exchange rate movements, organic revenues were also up 5%. Segmental operating profit was £180.9m, a 3% increase on the prior period (2011: £176.4m).  At constant exchange rates segmental operating profit increased by 5%, 2 percentage points of which came from acquisitions.  The segmental operating margin was 16.6%, down from 17.0% in the first half last year.  Reported operating profit was up 5% at £155.1m (2011: £148.3m).

 

Net interest costs, before interest cost capitalised, of £8.5m (2011: £8.3m) were covered 23 times by earnings before interest, tax, depreciation and amortisation (EBITDA) of £195m (2011: £187m).  The IAS19 pension net financing credit was £5.3m (2011: £3.1m).  The net IAS39 credit of £2.5m (2011: £1.1m) reflects the increase in the value of outstanding derivatives offset by net settlement costs during the period.  The total net financing costs were £0.7m (2011: £4.0m). Adjusted profit before tax (before exceptional items) was £177.7m, an increase of 4% (2011: £171.3m).

 

Restructuring costs were £13.5m (2011: £9.9m), reflecting ongoing costs associated with the moves to lower cost manufacturing centres in our Severe Service business (which have been higher than expected) in addition to the closure of one of our Merchandising sites.  Restructuring costs for the full year are now expected to be around £25m. Amortisation of acquired intangibles was £16.4m (2011: £17.4m). Other acquisition-related costs of £3.2m were incurred, £2.2m relating to due diligence and similar costs, and £1.0m relating to the accrual for earn-out payments. As a consequence of the Group's pension liability management initiatives, the results for the period benefited from a £9.0m past service credit on the UK pension scheme.

 

After these exceptional items, the reversal of net economic hedge contract gains of £1.7m (2011: £0.8m) and net exceptional financial instrument gains of £2.5m (2011: £1.1m), reported profit before tax was up 7% at £154.4m (2011: £144.3m). 

 

The estimated effective tax rate on profit before exceptional items for 2012 reduced to 27%, which compares to an effective rate of 29% for the first half of 2011 and 28% for the full year in 2011.  The total profit for the period after taxation was £111.1m and, after non-controlling interests, the profit attributable to the equity shareholders of the Company was £109.5m.  The average number of shares in issue during the period was 317.3m, resulting in basic earnings per share of 34.5p, up 8% (2011: 31.9p).  Diluted earnings per share were 33.9p, also up 8% on the 31.4p in the prior period. Adjusted basic earnings per share from continuing operations were 40.4p, compared to 37.9p in the first half of 2011, an increase of 7%.

 

Foreign Exchange

 

The impacts of translation on the reported growth of first half revenues and segmental operating profits were respectively reductions of £18m (2%) and £4.4m (2%).The most important foreign currencies for the Group remain the Euro and the US Dollar and the relevant rates of exchange for the period and at the period end are shown in note 10 to this report.

 

If the exchange rates at 16 August (US$1.57 and €1.28) remained constant for the remainder of the year, the full year growth rates would be 3% lower for revenues and 4% lower for segmental operating profit.

 

Cash flow

 

The cash inflow generated from the operations was £89.5m, compared to £116.4m in the corresponding period last year. This included a working capital outflow of £92.6m against an outflow of £64.4m in the prior period.  Trade and other receivables increased by £43.0m, there was an increase in inventories of £23.8m and a decrease in trade and other payables of £25.8m.  Capital expenditure on property, plant and equipment amounted to £18.3m and was 0.9 times the depreciation charge for the period of £21.1m.  The other major cash outflows in the period were £43.3m of tax, dividends of £60.0m, and £83.1m relating to the acquisitions made, financed by the drawdown of borrowings of £94.4m in the period. The total cash outflow for the period was £136.1m, compared with an outflow £32.5m in the first half of the previous year.

 

Balance sheet

 

The balance sheet remains strong with the ratio of net debt to the last twelve months' EBITDA being 0.7 at the end of June (December 2011: 0.3). Net debt increased during the period to £266m (December 2011: £108m) as a consequence of the acquisitions made, the other cash outflows highlighted above and £21m of borrowings acquired as part of the acquisitions.

 

The Group maintains an appropriate mixture of cash and short, medium and long-term debt arrangements which provide sufficient headroom for both ongoing activities and appropriate acquisitions.  Total committed bank loan facilities available to the Group at 30 June 2012 were £225m (December 2011: £250m) of which £99m were drawn (December 2011: £nil). 

 

Shareholders' equity at the end of June was £578.1m, an increase of £13.3m since the end of last year, which includes the attributable profit for the period of £109.5m, less an after-tax actuarial loss on the defined benefit pension plans of £19.4m, shares acquired of £9.6m and the 2011 final dividend of £60.0m paid in May.

 

Pensions update

 

The IAS19 net pension deficit was £208m which compares to the deficits of £188m at June 2011 and £204m at December 2011.  Of this amount, £95m (31 December 2011: £102m) related to the UK Fund which is the most significant of the Group's defined benefit obligations.  The decrease in the UK defined benefit obligation principally comprised the £9.0m past service credit resulting from the pension increase exchange exercise and net finance income of £6.7m offset by a loss from changes in actuarial assumptions of £9m. The deficit relating to the overseas obligations rose by £11m in the six month period, principally as a result of falls in the discount rates applied.

 

Board Changes

 

The Group has issued a separate announcement today setting out a number of changes in the Board composition and responsibilities.  In summary, Carl-Peter Forster and Phil Bentley are appointed as non-executive directors with effect from 1 October 2012.  Kevin Beeston will be retiring as a non-executive director of the Group on 30 September 2012 after seven years on the Board.  Ian Whiting, executive director, has stepped down from the Board with effect from today.  Ian's current responsibilities for M&A and the emerging markets will be assumed by Martin Lamb and those for Group procurement will be assumed by Roy Twite. 

 

Going concern

 

The Group has considerable financial resources together with long-standing relationships with a number of customers, suppliers and funding providers across different geographic areas and industries.  The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is able to operate within the level of its current bank facilities without needing to renew facilities expiring in the next 12 months.  As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the uncertainties inherent in the current economic outlook.  Additionally, as part of the Group's normal ongoing funding review, the Group has subsequent to 30 June 2012 concluded £49m of additional three year bank facilities.

 

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the interim financial report.

 

Principal Risks and Uncertainties

 

The Group has in place a risk management structure and internal controls which are designed to identify, manage and mitigate business risk.

 

In common with all businesses, IMI faces a number of risks and uncertainties which could have a material impact on the Group's long-term performance.

 

On pages 34 to 35 of its 2011 Annual Report (a copy of which is available at IMI's website at www.imiplc.com), the Company sets out what the Directors regarded as being the principal risks and uncertainties facing the Group and which could have a material impact on the Group's long-term performance.  These risks include: the Eurozone uncertainties (although the Group's revenues are principally derived from Northern and Central Europe); other changes in the economic and market environment; legal and regulatory; health, safety and environmental; pension funding; products and technology; key customers; supply chain; competitive markets; M&A activity; talent acquisition and retention; and major change projects.  These risks remain valid and have the potential to impact the Group during the remainder of the second half of 2012.  The impact of the economic and end-market environments in which the Group's businesses operate are considered in the operations review and outlook sections of this Interim Management Report above, together with an indication if management is aware of any likely change in this situation.

 

Cautionary Statement

 

This Interim Financial Report 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.

 

Responsibility statement of the directors in respect of the Interim Financial Report

 

We confirm that to the best of our knowledge: 

·         the condensed set of interim financial statements has been prepared in accordance with IAS34 ‘Interim Financial Reporting’ as adopted by the EU;
·         the Interim Financial Report includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year;
·         there were no related party transactions or changes in the related party transactions described in the 2011 Annual Report that materially affected the Group’s results or financial position during the six months ended 30 June 2012.

 

The Directors of IMI plc are listed in the IMI Annual Report for the year ended 31 December 2011 with the exception of the Board changes referenced above. 

 Approved by the Board of IMI plc and signed on its behalf by:

 

 

Roberto Quarta

Chairman

22 August 2012


INDEPENDENT REVIEW REPORT TO IMI plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the Condensed Consolidated Interim Income Statement, the Condensed Consolidated Interim Statement of Comprehensive Income, the Condensed Consolidated Interim Balance Sheet, the Condensed Consolidated Interim Statement of Changes in Equity, the Condensed Consolidated Interim Statement of Cash Flows and notes 1 to 13.  We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

As disclosed in note 13, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

 

Ernst & Young LLP

Birmingham

22 August 2012

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

































Notes

6 months to

30 June 2012

(unaudited)


6 months to

30 June 2011

(unaudited)


Year to

31 Dec 2011

 






Before

except-

ional

items

Except-

ional

items

Total


Before

except-

ional

items

Except-

ional

items

Total


Before

except-

ional

items

Except-

ional

items

Total






£m

£m

£m


£m

£m

£m


£m

£m

£m

















Revenue


2


1,091 

(1)

1,090 


1,035 

(3)

1,032 


2,135 

(4)

2,131 

































Segmental operating profit


2


180.9 


180.9 


176.4 


176.4 


374.1 


374.1 

Reversal of net economic
















 hedge contract gains





(1.7)

(1.7)



(0.8)

(0.8)



(4.1)

(4.1)

Past service credit
















- UK pension scheme





9.0 

9.0 





Restructuring costs





(13.5)

(13.5)



(9.9)

(9.9)



(23.5)

(23.5)

Acquired intangible                          amortisation





(16.4)

(16.4)



(17.4)

(17.4)



(32.3)

(32.3)

Other acquisition-related costs


3



(3.2)

(3.2)





















Operating profit


2


180.9 

(25.8)

155.1 


176.4 

(28.1)

148.3 


374.1 

(59.9)

314.2 

















Financial income


4


2.0 

5.5 

7.5 


1.2 

12.9 

14.1 


3.3 

13.9 

17.2 

Financial expense


4


(10.5)

(3.0)

(13.5)


(9.4)

(11.8)

(21.2)


(20.2)

(16.0)

(36.2)

Net finance income relating to
















defined benefit pension
















schemes


4


5.3 


5.3 


3.1 


3.1 


6.2 


6.2 

















Net financial (expense)/income


4


(3.2)

2.5 

(0.7)


(5.1)

1.1 

(4.0)


(10.7)

(2.1)

(12.8)

































Profit before tax




177.7 

(23.3)

154.4 


171.3 

(27.0)

144.3 


363.4 

(62.0)

301.4 

Taxation


5


(48.0)

4.7 

(43.3)


(49.7)

8.0 

(41.7)


(101.8)

4.1 

(97.7)

















Total profit for the period




129.7 

(18.6)

111.1 


121.6 

(19.0)

102.6 


261.6 

(57.9)

203.7 

































Attributable to:
















Owners of the parent






109.5 




100.9 




200.4 


Non-controlling interests






1.6 




1.7 




3.3 

















Profit for the period






111.1 




102.6 




203.7 

















































Earnings per share


6














Basic




34.5p




31.9p




63.2p


Diluted




33.9p




31.4p




62.1p


CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME











Restated

Restated


6 months to

30 June 2012

(unaudited)

6 months to

30 June 2011

(unaudited)

Year to

31 Dec 2011

 


£m

£m

£m

£m

£m

£m








Profit for the period


111.1 


102.6 


203.7 















Other comprehensive (loss)/income














Change in fair value of effective net investment hedge derivatives

(1.4)


(2.0)


1.9 


Related tax effect

0.3 


0.5 


(0.5)


Exchange differences on translation of foreign operations net of







    hedge settlements and funding revaluations

(13.2)


6.8 


(9.7)


Related tax effect

(0.3)


(0.3)


0.1 











(14.6)


5.0 


(8.2)








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

(0.2)


1.0 


1.2 


Related tax effect

0.1 


(0.4)


(0.5)




(0.1)


0.6 


0.7 








Actuarial (loss)/gain on defined benefit plans

(23.0)


7.6 


(84.8)


Related tax effect

3.6 


(4.2)


16.2 











(19.4)


3.4 


(68.6)















Other comprehensive (loss)/income for the period, net of tax


(34.1)


9.0 


(76.1)















Total comprehensive income for the period, net of tax


77.0 


111.6 


127.6 















Attributable to:







   Owners of the parent


75.4 


110.0 


123.9 

   Non-controlling interests


1.6 


1.6 


3.7 








Total comprehensive income for the period, net of tax


77.0 


111.6 


127.6 









CONDENSED CONSOLIDATED INTERIM BALANCE SHEET







Restated

Restated


30 June 2012

30 June 2011

31 Dec 2011


(unaudited)

(unaudited)



£m

£m

£m

Assets




Intangible assets

562.8 

510.0 

498.1 

Property, plant and equipment

250.9 

247.0 

248.3 

Employee benefit assets

1.3 

1.4 

1.9 

Deferred tax assets

73.4 

55.2 

75.7 

Other receivables

4.3 

4.9 

5.5 

Other financial assets

3.8 

6.5 

4.9 





Total non-current assets

896.5 

825.0 

834.4 









Inventories

354.7 

329.9 

323.6 

Trade and other receivables

435.9 

408.2 

387.2 

Other current financial assets

6.3 

8.2 

7.2 

Current tax

9.5 

5.1 

12.1 

Investments

20.1 

19.6 

20.4 

Cash and cash equivalents

101.9 

84.5 

147.9 





Total current assets

928.4 

855.5 

898.4 





Total assets

1,824.9 

1,680.5 

1,732.8 









Liabilities




Bank overdraft

(4.6)

(0.4)

Interest-bearing loans and borrowings

(22.4)

(1.0)

(13.3)

Provisions

(22.9)

(8.3)

(21.6)

Current tax

(25.2)

(39.4)

(31.4)

Trade and other payables

(457.8)

(457.4)

(484.1)

Other current financial liabilities

(5.4)

(7.9)

(7.1)





Total current liabilities

(533.7)

(518.6)

(557.9)









Interest-bearing loans and borrowings

(345.3)

(246.6)

(242.4)

Employee benefit obligations

(209.7)

(188.9)

(205.7)

Provisions

(25.1)

(45.2)

(33.2)

Deferred tax liabilities

(48.1)

(20.7)

(39.6)

Other payables

(36.1)

(29.6)

(39.8)





Total non-current liabilities

(664.3)

(531.0)

(560.7)





Total liabilities

(1,198.0)

(1,049.6)

(1,118.6)





Net assets

626.9 

630.9 

614.2 









Equity




Share capital

85.1 

85.0 

85.0 

Share premium

169.4 

168.9 

169.3 

Other reserves

44.2 

72.5 

58.8 

Retained earnings

279.4 

255.1 

251.7 









Equity attributable to owners of the parent

578.1 

581.5 

564.8 

Non-controlling interests

48.8 

49.4 

49.4 





Total equity

626.9 

630.9 

614.2 






CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY














Share capital

Share premium account

Capital redemption reserve

Hedging reserve

Translation reserve

Retained earnings

Total

parent equity

Non-controlling interests

Total

equity







Restated

Restated

















As at 1 January 2012

85.0 

169.3 

7.9 

4.1 

46.8 

251.7 

564.8 

49.4 

614.2 












Profit for the period






109.5 

109.5 

1.6 

111.1 

Other comprehensive income




(1.1)

(13.5)

(19.5)

(34.1)

(34.1)












Total comprehensive income




(1.1)

(13.5)

90.0 

75.4 

1.6 

77.0 












Issue of share capital

0.1 

0.1 





0.2 


0.2 

Dividends paid






(60.0)

(60.0)


(60.0)

Share based payments (net











of tax)






7.3 

7.3 


7.3 

Shares acquired for employee











share scheme trust






(9.6)

(9.6)


(9.6)

Income earned by partnership








(2.2)

(2.2)












At 30 June 2012

85.1 

169.4 

7.9 

3.0 

33.3 

279.4 

578.1 

48.8 

626.9 


































As at 1 January 2011

85.0 

168.1 

7.9 

2.7 

56.8 

205.2 

525.7 

50.1 

575.8 












Profit for the period






100.9 

100.9 

1.7 

102.6 

Other comprehensive income




(1.5)

6.6 

4.0 

9.1 

(0.1)

9.0 












Total comprehensive income




(1.5)

6.6 

104.9 

110.0 

1.6 

111.6 












Issue of share capital


-

0.8 





0.8 


0.8 

Dividends paid






(53.9)

(53.9)


(53.9)

Share based payments (net











of tax)






6.8 

6.8 


6.8 

Shares acquired for employee











share scheme trust






(7.9)

(7.9)


(7.9)

Income earned by partnership








(2.3)

(2.3)












As at 30 June 2011

85.0 

168.9 

7.9 

1.2 

63.4 

255.1 

581.5 

49.4 

630.9 


































As at 1 January 2011

85.0 

168.1 

7.9 

2.7 

56.8 

205.2 

525.7 

50.1 

575.8 












Profit for the year






200.4 

200.4 

3.3 

203.7 

Other comprehensive income




1.4 

(10.0)

(67.9)

(76.5)

0.4 

(76.1)












Total comprehensive income




1.4 

(10.0)

132.5 

123.9 

3.7 

127.6 












Issue of share capital

1.2 





1.2 


1.2 

Dividends paid






(88.8)

(88.8)


(88.8)

Share based payments (net











of tax)






10.6 

10.6 


10.6 

Shares acquired for employee











share scheme trust






(7.8)

(7.8)


(7.8)

Income earned by partnership








(4.4)

(4.4)












At 31 December 2011

85.0 

169.3 

7.9 

4.1 

46.8 

251.7 

564.8 

49.4 

614.2 
























CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS










6 months to

30 June 2012

(unaudited)

6 months to

30 June 2011

(unaudited)

Year to

31 Dec 2011

 


£m

£m

£m

Cash flows from operating activities




Profit for the period from continuing operations

111.1 

102.6 

203.7 

Adjustments for:




    Depreciation

21.1 

21.6 

43.6 

    Reversal of impairment of property, plant and equipment

(2.5)

(2.5)

    Amortisation

18.3 

19.8 

36.4 

Loss on sale of property, plant and equipment

0.2 

Financial income

(7.5)

(14.1)

(17.2)

Financial expense

13.5 

21.2 

36.2 

Net finance income relating to defined benefit pension schemes

(5.3)

(3.1)

(6.2)

Equity-settled share-based payment expenses

4.9 

4.1 

8.9 

Income tax expense

43.3 

41.7 

97.7 

Increase in trade and other receivables

(43.0)

(51.0)

(45.1)

Increase in inventories

(23.8)

(31.9)

(35.7)

(Decrease)/increase in trade and other payables

(25.8)

18.5 

67.8 

Decrease in provisions and employee benefits

(17.3)

(10.5)

(25.3)





Cash generated from the operations

89.5 

116.4 

362.5 

Income taxes paid

(43.3)

(40.6)

(90.9)


46.2 

75.8 

271.6 

CCI investigation costs

(1.6)

(1.2)

(2.1)

Additional pension scheme funding

(52.9)

Pension transfer incentive payments

(9.6)





Net cash from operating activities

35.0 

74.6 

216.6 

Cash flows from investing activities




Interest received

0.7 

1.2 

3.3 

Proceeds from sale of property, plant and equipment

0.3 

0.5 

2.8 

Sale of investments

0.7 

1.2 

1.1 

Purchase of investments

(1.1)

(0.8)

(0.7)

Settlement of transactional derivatives

0.8 

2.9 

3.0 

Settlement of currency derivatives hedging balance sheet

11.7 

(21.5)

5.6 

Acquisitions of controlling interests

(83.1)

3.6 

(8.9)

Acquisition of property, plant and equipment

(18.3)

(19.0)

(52.1)

Capitalised non-acquired intangibles

(2.0)

(2.4)

(6.8)





Net cash from investing activities

(90.3)

(34.3)

(52.7)

Cash flows from financing activities




Interest paid

(9.1)

(9.5)

(20.2)

Payment to non-controlling interest

(2.2)

(2.3)

(4.4)

Purchase of own shares

(9.6)

(7.9)

(7.8)

Proceeds from the issue of share capital for employee

    share schemes

0.1 

0.8 

1.2 

Net drawdown/(repayment) of borrowings

94.4 

(12.2)

(16.0)

Dividends paid to equity shareholders

(60.0)

(53.9)

(88.8)





Net cash from financing activities

13.6 

(85.0)

(136.0)





Net (decrease)/increase in cash and cash equivalents

(41.7)

(44.7)

27.9 

Cash and cash equivalents at the start of the year

147.5 

120.4 

120.4 

Effect of exchange rate fluctuations on cash held

(3.9)

4.2 

(0.8)





Cash and cash equivalents at the end of the period *

101.9 

79.9 

147.5 





* Net of bank overdrafts




Reconciliation of net cash to movement in net debt appears in note 8.

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED

INTERIM FINANCIAL STATEMENTS

 

 

1.  Restatement of comparatives and change in accounting estimate

 

Restatement relating to TH Jansen Armaturen GmbH (THJ) acquisition

 

The goodwill on acquisition of THJ has been finalised, resulting in the 2011 year-end balance sheet being restated.  Further details of these changes are disclosed in note 3.2.

 

Restatement relating to taxation on items included in other comprehensive income

 

The allocation of taxation to items of other comprehensive income in the period has been corrected in the period following a review of these balances. The net effect on reserves and total comprehensive income for the period, net of tax, is £nil in each of the comparative periods and the opening balance sheet as at 1 January 2011.

 

In the 2011 full year comparatives the income tax effect on exchange differences on translation of foreign operations net of hedge settlements and funding revaluations has been restated from a £0.3m credit to a £0.1m credit, the income tax effect on the fair value gain on available for sale financial assets has been restated from £nil to a £0.5m charge and the income tax effect on the actuarial loss has been restated from a £15.5m credit to a £16.2m credit. This change also resulted in a decrease of £0.2m in the translation reserve and a corresponding increase in retained earnings.

 

In the 2011 first half comparatives the income tax effect on exchange differences on translation of foreign operations net of hedge settlements and funding revaluations has been restated from a £1.4m charge to a £0.3m charge, the income tax effect on the fair value gain on available for sale financial assets has been restated from £nil to a £0.4m charge and the income tax effect on the actuarial gain has been restated from a £3.5m charge to a £4.2m charge. This change also resulted in an increase of £1.1m in the translation reserve and a corresponding decrease in retained earnings.

 

Change of accounting estimate for the amortisation of customer relationships

 

During the period, the Group amended its estimate for the phasing of the future consumption of the economic benefits associated with its customer relationships, by changing the amortisation of these assets to a sum of digits approach from a straight-line approach. This change was made because the Group's historical experience with recent acquisitions has been that the economic benefits of these assets are demonstrably consumed to a greater extent in the periods more directly following the acquisition.

 

The effect of this change of accounting estimate on the period was to increase the amortisation charge relating to acquisition intangibles by £5.0m. The increase in relation to the full-year is estimated to be £10.5m. The effect on further future periods is impracticable to estimate as it is likely to be affected by the future acquisition strategy and to a lesser extent, the effect of movements in exchange rates.

 

 

2.  Segmental information

 

Segmental information is presented in the condensed consolidated interim financial statements for each of the Group's operating segments.  The operating segment reporting format reflects the Group's management and internal reporting structures.  Inter-segment revenue is insignificant.    

 

The Group continues to include the following five operating segments and activities:       

 

Fluid Controls                                                                                                                                                     

Severe Service

Design, manufacture, supply and service of high performance critical control and isolation valves and associated equipment for power generation plants, oil and gas producers, petrochemical and iron and steel plants and other process industries.

Fluid Power

Design, manufacture and supply of motion and fluid control systems, principally pneumatic devices, for original equipment manufacturers in commercial vehicle, life science, process, rail, food and beverage, and other industries.

Indoor Climate

Design, manufacture and supply of indoor climate control systems, principally balancing valves and water conditioning and pressurisation equipment for large commercial buildings and thermostatic radiator valves for residential buildings.

 

Retail Dispense

Beverage Dispense

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

Merchandising

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

 

As disclosed in note 3, the InterAtiva and Remosa acquisitions were completed during the period and TH Jansen was acquired on 17 October 2011. Their results are included in the Severe Service segment from the date of acquisition.

 

Information regarding the operations of each reporting segment is included below.  Performance is measured based on segmental operating profit which is the profit reported by the business, stated before exceptional items including the reversal of economic hedge contract gains and losses, the past service credit - UK pension scheme, restructuring, acquired intangible amortisation and acquisition-related costs.  Businesses enter into forward currency and metal contracts to provide economic hedges against the impact on profitability of swings in rates and values in accordance with the Group's policy to minimise the risk of volatility in revenues, costs and margins.  Segmental operating profits are therefore charged/credited with the impact of these contracts.  In accordance with IAS39, these contracts do not meet the technical provisions required for hedge accounting and gains and losses are reversed out of segmental profit and are recorded in net financial income and expense for the purposes of the condensed consolidated interim income statement.

 

 

 



Segmental


Segmental


Segmental



revenue


operating profit


operating margin



6 months

to 30 June

2012

6 months

to 30 June

2011

Year

to 31 Dec

2011


6 months

to 30 June

2012

6 months

to 30 June

2011

Year

to 31 Dec

2011


6 months

to 30 June

2012

6 months

to 30 June

2011

Year

to 31 Dec

2011


£m

£m

£m


£m

£m

£m


%

%

%

Fluid Controls

841 

795 

1,649 


147.6 

146.1 

307.6 


17.6 

18.4 

18.7 


Severe Service

326 

258 

572 


45.5 

41.3 

88.9 


14.0 

16.0 

15.5 


Fluid Power

373 

387 

767 


75.0 

74.6 

150.5 


20.1 

19.3 

19.6 


Indoor Climate

142 

150 

310 


27.1 

30.2 

68.2 


19.1 

20.1 

22.0 

Retail Dispense

250 

240 

486 


33.3 

30.3 

66.5 


13.3 

12.6 

13.7 


Beverage Dispense

160 

161 

317 


21.6 

20.0 

41.1 


13.5 

12.4 

13.0 


Merchandising

90 

79 

169 


11.7 

10.3 

25.4 


13.0 

13.0 

15.0 

Segmental result

1,091 

1,035 

2,135 


180.9 

176.4 

374.1 


16.6 

17.0 

17.5 

 

 



Segmental



Restructuring costs



6 months

to 30 June

2012

6 months

to 30 June

2011

Year

to 31 Dec

2011


£m

£m

£m

Fluid Controls

 10.2 

 8.4 

 21.4 


Severe Service

 8.4 

 5.2 

 11.9 


Fluid Power

 0.5 

 0.6 

 5.5 


Indoor Climate

 1.3 

 2.6 

 4.0 

Retail Dispense

 3.3 

 1.5 

 2.1 


Beverage Dispense

 1.0 

 1.5 

 2.1 


Merchandising

 2.3 

 - 

 - 

Segmental result

 13.5 

 9.9 

 23.5 

 

 

Reconciliation of reported segmental revenue and operating profit







Revenue


Profit







6 months

to 30 June

2012

6 months

to 30 June

2011

Year

to 31 Dec

2011


6 months

to 30 June

2012

6 months

to 30 June

2011

Year

to 31 Dec

2011








Segmental result


 1,091 

 1,035 

 2,135 


180.9 

176.4 

374.1 

Reversal of economic hedge contract gains


 (1)

 (3)

 (4)


(1.7)

(0.8)

(4.1)

Past service cost - UK pension scheme






9.0 

Restructuring costs






(13.5)

(9.9)

(23.5)

Acquired intangible amortisation






(16.4)

(17.4)

(32.3)

Other acquisition-related costs






(3.2)

Total revenue/operating profit reported


 1,090 

 1,032 

 2,131 


155.1 

148.3 

314.2 














Net financial expense






(0.7)

(4.0)

(12.8)














Profit before tax - continuing operations






154.4 

144.3 

301.4 

 

 

As a consequence of the InterAtiva and Remosa acquisitions disclosed in Note 3, the segmental assets of the Severe Service segment have increased in the 6 months to 30 June 2012. The following table compares these segment assets with those reported at 31 December 2011 and provides a reconciliation to total assets reported in the Group balance sheet.








Total Assets












6 months

to 30 June

2012

Year

to 31 Dec

2011
























£m

£m

Fluid Controls










1,326.6 

1,183.4 


Severe Service










719.6 

595.5 


Fluid Power










436.1 

436.0 


Indoor Climate










170.9 

151.9 

Retail Dispense










284.3 

283.4 


Beverage Dispense










137.2 

137.3 


Merchandising










147.1 

146.1 

Total Segmental assets










1,610.9 

1,466.8 


Corporate items










7.8 

8.0 


Employee benefits










1.3 

1.9 


Investments










20.1 

20.4 


Cash and cash equivalents










101.9 

147.9 


Net taxation and others










82.9 

87.8 

Total assets reported in the Group balance sheet








1,824.9 

1,732.8 

 

 

 

3.  Acquisitions

 

 

3.1 Acquisitions in the period

 

Remosa

 

On 16 February 2012, the Group acquired the entire share capital of Remosa SpA and related companies (collectively Remosa), a leading engineering business specialising in the manufacture and service of valves and related flow control products for severe applications in the downstream petrochemical sector, for an enterprise value of £83.1m (€100m), being cash consideration of £68.4m and debt assumed of approximately £14.7m. 

 

Remosa joined IMI's Severe Service division and is highly complementary with Zimmermann & Jansen, which IMI acquired at the end of 2010, strengthening the Group's presence in the downstream petrochemical market.    The use of IMI's global sales and aftermarket infrastructure is expected to improve Remosa's geographic penetration, notably in North America, and develop its aftermarket offering.  Remosa already has a strong presence in emerging markets, including South America and Asia, with over 50% of sales coming from those markets. 

 

Segmental revenue of £14m and segmental operating profit of £2.3m for the period since acquisition has been reported for Remosa within the Severe Service Segment.

 

InterAtiva

 

On 17 February 2012, the Group acquired the entire share capital of Grupo InterAtiva (InterAtiva), a Brazilian isolation valve business, from its founding partners. Founded in 1992 by Wilson Gabriel and Mauro Bilbao, InterAtiva was privately owned and designs, assembles and distributes isolation valves to various end-markets including oil and gas, sugar and ethanol production, and water treatment.  All of the 2011 sales were in the fast-growing South American markets. 

 

InterAtiva joined IMI's Severe Service division and actively engages with major engineering, procurement and construction firms and also with the major oil and gas companies in Brazil.  With an experienced management team, and capacity for final assembly, it represents a strong platform for IMI's existing severe service isolation valve brands, including Orton and TruFlo Rona, to enter this market. 

 

Initial cash consideration of £22.0m was paid and further payment arrangements ranging from £nil to £17.7m may be paid on a deferred basis dependent upon the achievement of targets for earnings before interest, tax, depreciation and amortisation for the three years ending 31 December 2014.

 

Because these contingent payments might be forfeited in some of the instances in which the vendors' post-acquisition employment contracts may be terminated, in accordance with IFRS3, the whole of the amount accrued to date for their payment has been expensed to the income statement. In order to provide a clearer understanding of the underlying performance of the business, these costs, which amount to £1.0m in the period to 30 June 2012, are separately disclosed within other acquisition-related costs in the income statement, together with the £2.2m transaction costs discussed below.

 

Segmental revenue of £6m and segmental operating profit of £1.0m for the period since acquisition has been reported for InterAtiva within the Severe Service Segment.

 

Disclosures for both Remosa and InterAtiva

 

Assuming that the acquisitions of Remosa and InterAtiva had both been completed on 1 January 2012, it is estimated that the Group segmental revenue and segmental operating profit would have been £1,098m and £182m respectively.

 

The methodologies for arriving at the fair values of assets acquired, intangible asset values and residual goodwill are described in the accounting policies in note 1 to the 2011 Annual Report.  The amounts are considered to be provisional as at 30 June 2012. The provisional aggregate goodwill of £46.4m recognised on the two acquisitions principally relates to skills present within the assembled workforce, customer service capability and the synergies available to the combined business from its geographical and sector presence.

 

The fair value adjustments consist of the harmonisation with Group IFRS compliant accounting policies, the recognition of intangible assets (non-contractual customer relationships, order book and patents) and adjustments to move the carrying value of the identifiable net assets from cost to fair value.

 

Transaction costs of £2.2m have been expensed in administrative expenses in 2012 and are included as exceptional charges within other acquisition-related costs together with the remuneration payment of £1.0m discussed above in accordance with the policy disclosed for exceptional costs in the 2011 Annual Report.

 

A further £1.7m was included in administrative costs in the prior year, but this amount was not included in exceptional costs in the 2011 Annual Report, because at 31 December 2011, the successful outcome of the acquisitions had not been determined. 

 

 

 

 






As the initial accounting is not yet complete, the fair values of the assets acquired and liabilities assumed are provisional and are summarised below:


Remosa

InterAtiva


Total


£m

£m


£m

Customer relationships

 35.0 

 9.7 


 44.7 

Order book

 3.3 

 0.7 


 4.0 

Patents and licences

 0.2 

 - 


 0.2 

Property, plant and equipment

 10.8 

 0.9 


 11.7 

Inventories

 11.3 

 5.1 


 16.4 

Trade and other receivables

 11.8 

 2.2 


 14.0 

Cash and short-term deposits

 6.1 

 - 


 6.1 

Bank overdraft

 - 

 (0.1)


 (0.1)

Interest-bearing liabilities

 (20.8)

 - 


 (20.8)

Trade and other payables

 (11.6)

 (2.5)


 (14.1)

Taxation balances

 (14.4)

 (2.7)


 (17.1)

Retirement benefit obligations

 (1.3)

 - 


 (1.3)

Other assets

 0.3 

 - 


 0.3 

Total identifiable net assets

 30.7 

 13.3 


 44.0 

Goodwill arising on acquisition*

 37.7 

 8.7 


 46.4 

Total purchase consideration

 68.4 

 22.0 


 90.4 






Cash flows from the acquisition of controlling interests are shown below:






Remosa

InterAtiva

THJ

Total


£m

£m

£m

£m

Cash consideration

68.4 

 22.0 

 - 

90.4 

(Cash)/overdraft acquired

 (6.1)

 0.1 

 - 

 (6.0)

Net cash paid on 2012 acquisitions

 62.3 

 22.1 

 - 

 84.4 

Finalisation of consideration on acquisition of THJ

 - 

 - 

 (1.3)

 (1.3)

Acquisition of controlling interests in the cash flow statement

 62.3 

 22.1 

 (1.3)

 83.1 

Transaction costs (included in cash flows from operating activities)

 0.9 

1.3 

 - 

 2.2 

Total cash flow on acquisition of controlling interests

 63.2 

 23.4 

 (1.3)

 85.3 






* The goodwill arising on the Remosa acquisition is not tax deductible. The goodwill arising on the InterAtiva acquisition, in addition to the contingent consideration amounts payable to the vendors described earlier in this note, may be tax deductible in the future.

 

Remosa trade and other receivables of £11.8m are stated net of a provision for bad debts of £0.3m. InterAtiva trade and other receivables of £2.2m are stated net of a provision for bad debts of £0.7m.  The net amounts are all expected to be collected within 12 months.

 

 

3.2 Acquisitions in the previous period

 

On 17 October 2011 the Group acquired THJ for total purchase consideration of £9.0m, net of a £2.2m receivable from the vendor for amounts to be finalised in the completion accounts. Total identifiable net assets were £7.7m, resulting in goodwill of £1.3m. These amounts were deemed provisional at 31 December 2011. During the first half of 2012, these provisional amounts were finalised, resulting in a £0.9m reduction in the receivable due from the vendor, a final cash inflow of £1.3m and an increase to goodwill of £0.9m. The 2011 balance sheet has been restated accordingly.

 

 

 

4.  Net financial income and expense



6 months to 30 June 2012


6 months to 30 June 2011

Recognised in the income statement

Interest

Financial

instruments

Total


Interest

Financial

instruments

Total










Interest income on bank deposits

2.0 


2.0 


1.2 


1.2 

Financial instruments at fair value through









profit or loss:









Designated hedges


0.6 

0.6 



0.3 

0.3 


Other economic hedges









- current period trading


2.7 

2.7 



8.0 

8.0 


- future period transactions


2.2 

2.2 



4.6 

4.6 

Financial income

2.0 

5.5 

7.5 


1.2 

12.9 

14.1 










Interest expense on interest-bearing









loans and borrowings

(10.5)


(10.5)


(9.5)


(9.5)

Interest cost capitalised



0.1 


0.1 

Financial instruments at fair value through









profit or loss:









Designated hedges


(0.6)

(0.6)



(0.3)

(0.3)


Other economic hedges









- current period trading


(0.5)

(0.5)



(8.9)

(8.9)


- future period transactions


(1.9)

(1.9)



(2.6)

(2.6)

Financial expense

(10.5)

(3.0)

(13.5)


(9.4)

(11.8)

(21.2)










Net finance income relating to









defined benefit pension schemes

5.3 


5.3 


3.1 


3.1 










Net financial (expense)/income

(3.2)

2.5 

(0.7)


(5.1)

1.1 

(4.0)
















Year to 31 Dec 2011

Recognised in the income statement





Interest

Financial

instruments

Total










Interest income on bank deposits





3.3 


3.3 

Financial instruments at fair value through









profit or loss:









Designated hedges






0.7 

0.7 


Other economic hedges









- current year trading






8.1 

8.1 

 

- future year transactions






5.1 

5.1 

Financial income





3.3 

13.9 

17.2 










Interest expense on interest-bearing








loans and borrowings





(20.4)


(20.4)

Interest cost capitalised





0.2 


0.2 

Financial instruments at fair value through









profit or loss:









Designated hedges






(0.8)

(0.8)


Other economic hedges









- current year trading






(9.0)

(9.0)


- future year transactions






(6.2)

(6.2)

Financial expense





(20.2)

(16.0)

(36.2)










Net finance income relating to









defined benefit pension schemes





6.2 


6.2 










Net financial expense





(10.7)

(2.1)

(12.8)










Included in financial instruments are current year trading gains and losses on economically effective transactions which for management reporting purposes (see note 2) are included in segmental operating profit.  For statutory purposes these are required to be shown within net financial income and expense.  Gains or losses on economic hedges for future year transactions are in respect of financial instruments held by the Group to provide stability of future trading cash flows.

5.  Taxation

 

The tax charge before exceptional items is £48.0m which equates to an effective tax rate of 27% compared to 29% for the comparative 6 month period in the prior year.

 

The tax rate before exceptional items includes the reduction in the UK Corporation tax rate to 24% from 1 April 2012.  This rate change was substantially enacted prior to the interim balance sheet date and the resulting impact on the Group's deferred tax position is therefore recognised at this date.

 

Additional changes to the main rate of UK Corporation tax are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014.  These changes had not been substantively enacted at the balance sheet date and consequently are not included in these condensed financial statements.

 

6.  Earnings per ordinary share






30 June

30 June

31 Dec



2012 

2011 

2011 



million

million

million






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

317.3 

316.2 

317.0 






Dilutive effect of employee share options

5.5 

5.4 

5.5 






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

322.8 

321.6 

322.5 

 

Basic and diluted earnings per share have been calculated on earnings of £109.5m (2011: £100.9m).

 

The directors consider that adjusted earnings per share figures, using earnings as calculated below, give a more meaningful indication of the underlying performance because either the quantum, the one-off nature, or volatility of these items would otherwise distort the underlying performance.

 




6 months

to 30 June

2012

6 months

to 30 June

2011

Year

to 31 Dec

2011


£m

£m

£m







Profit for the period from continuing operations

111.1 

102.6 

203.7 

Non-controlling interests

(1.6)

(1.7)

(3.3)










109.5 

100.9 

200.4 

Exceptional charges/(credits) included in profit for the period:





Financial instruments excluding economic hedge contract gains and losses

(0.8)

(0.3)

6.2 


Past service credit - UK pension scheme

(9.0)


Restructuring costs

13.5 

9.9 

23.5 


Acquired intangible amortisation

16.4 

17.4 

32.3 


Other acquisition-related costs

3.2 










132.8 

127.9 

262.4 


Taxation on charges/(credits) included in profit before tax

(4.7)

(8.0)

(4.1)







Earnings for adjusted EPS

128.1 

119.9 

258.3 







Adjusted basic EPS

40.4p

37.9p

81.5p







Diluted adjusted EPS

39.7p

37.3p

80.1p

 

7.  Dividend

 

The final dividend relating to the year ended 31 December 2011 of 19.0p per share was paid in May 2012 absorbing £60.0m (2011: £53.9m).

 

In addition, the directors have declared an interim dividend for the current year of 11.8p per share (2011: 11.0p) which will be paid on 12 October 2012 to shareholders on the register on 7 September 2012.  In accordance with IAS10 'Events after the Balance Sheet Date' this interim dividend has not been reflected in the condensed interim financial statements.

8.  Cash flow reconciliations





Reconciliation of net cash to movement in net debt






6 months

to 30 June

2012

6 months

to 30 June

2011

Year

to 31 Dec

2011


£m

£m

£m





Net (decrease)/increase in cash and cash equivalents

(41.7)

(44.7)

27.9 

(Drawdown)/Repayment of borrowings

(94.4)

12.2 

16.0 





Cash (outflow)/inflow

(136.1)

(32.5)

43.9 

Borrowings acquired

(20.8)

(2.5)

Currency translation differences

(0.7)

10.2 

(4.2)





Movement in net debt in the period

(157.6)

(22.3)

37.2 

Net debt at the start of the period

(108.2)

(145.4)

(145.4)





Net debt at the end of the period

(265.8)

(167.7)

(108.2)





Total currency effect on the net debt movement including currency balance sheet derivatives settlements

11.0 

(11.3)

1.4 

9. Employee Benefits

 

The net defined pension liability at 30 June 2012 was £208.4m (31 December 2011: £203.8m). The UK deficit represents £94.9m of this amount (31 December 2011: £101.5m). The principal movements in the UK scheme comprise the past service credit of £9.0m in relation to the pension increase exchange, a net financing credit of £6.7m and the change in actuarial assumptions adding £9m to the liability (both the UK discount rate and inflation assumptions have fallen by 20 basis points).

 

The net deficit in respect of the total overseas obligations increased by £11.2m to £113.5m (31 December 2011: £102.3m), principally due to falls in the discount rates.

 

Pension transfer incentive payments of £9.6m were reported as a cash outflow in the cash flow statement for the period. This amount relates to the payment of the cash incentive to members to accept transfer value payments from the Fund accrued in the Balance Sheet as at 31 December 2011.

 

The International Accounting Standards Board has issued numerous amendments to IAS19, one of which will affect the basis by which the Group apportions finance income between the income statement and other comprehensive income from 1 January 2013. Had this change been effective for 2012 we estimate that the financing cost for the half-year would have increased by around £9.5m.

10.  Exchange rates

 

The income and cash flow statements of overseas operations are translated into sterling at average rates of exchange for the period, balance sheets are translated at period end rates.  The most significant currencies are the Euro and the US Dollar for which the relevant rates of exchange were:

 



Income statement and cash flow

average rates


Balance sheet

rates as at



6 months

to 30 June

2012

6 months

to 30 June

2011

Year

to 31 Dec

2011


30 June

2012

30 June

2011

31 Dec

2011










Euro


1.22 

1.15 

1.15 


1.24 

1.11 

1.20 

US Dollar


1.58 

1.62 

1.60 


1.57 

1.61 

1.55 

11. Property, plant and equipment

 

Capital expenditure of £18.3m in the period includes £16.8m in respect of plant and equipment, and £1.5m in respect of land and buildings.

12. Contingent liability

 

In May 2012 companies belonging to a British builders' merchant served damages claims against IMI plc and others relating to alleged financial losses incurred in the UK as a result of anti-competitive behaviour undertaken by a number of manufacturers of copper plumbing tubes and copper plumbing fittings. An investigation by the European Commission was commenced in 2001 and found cartel activity for which it imposed fines in 2004 (tubes) and 2006 (fittings). IMI plc disposed of its former copper plumbing tubes and fittings businesses in 2002.  There are separate tubes and fittings cases in the English High Court and, whilst both are at a very early stage, IMI intends to defend both claims robustly and to bring in all other appropriate parties as contributors. It is not possible for IMI to assess properly whether any losses can be established by the claimant and, if so, the potential quantum or timing of such losses and if necessary, the contributions recoverable from other parties, including IMI's former tubes and fittings subsidiaries.

13.  Financial information

 

This condensed set of financial statements has been prepared in accordance with IAS34 'Interim Financial Reporting' as adopted by the EU. The Group's annual financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU.

 

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of at least 12 months from the date of this report.  Accordingly, they continue to adopt the going concern basis in the preparation of the condensed financial statements.

 

As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements has been prepared applying the same accounting policies and computation methods that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2011. The method by which customer relationships are amortised has been revised during the period and this change of accounting estimate is described in Note 1. In accordance with amended IAS 34 the Group can confirm that there are no significant  changes in the business or economic circumstances that affect the fair value of financial assets or financial liabilities, no transfers between the levels in the hierarchy used to measure the financial assets and liabilities carried at fair value, neither have there been any changes in the classification of financial assets as a result of a change to their purpose of use.

 

This Interim Financial Report is unaudited, but has been reviewed by the Company's auditor having regard to the International Standard on Review Engagements (UK and Ireland) 2410 'Review of Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board.  A copy of their unqualified review opinion is attached. 

 

The comparative figures for the financial year ended 31 December 2011 are not the Company's statutory accounts for that financial year as defined in section 435 of the Companies Act 2006. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

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

 

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

 

References in the commentary to segmental operating profit, operating margins and profit before tax, unless otherwise stated, relate to reported numbers after adjustment for the past service credit - UK pension scheme, restructuring, acquired intangible amortisation, other acquisition-related costs and financial instruments excluding economic hedge contract gains and losses. Segmental operating profit is reported as if economic currency and metals hedges were effective for financial reporting purposes.  Business segments enter into forward currency and metal contracts to provide economic hedges against the impact on profitability of swings in rates and values in accordance with the Group's policy to minimise the risk of volatility in revenues, costs and margins.  Business segmental operating profits are therefore charged/credited with the impact of those contracts.  In accordance with IAS39 'Financial Instruments: Recognition and Measurement', these contracts do not meet the technical provisions required for hedge accounting and gains and losses are recorded in net financial income and expense. References to EPS, unless otherwise stated, relate to reported EPS from continuing operations adjusted for the per share after tax impact of the past service credit - UK pension scheme, restructuring, acquired intangible amortisation, other acquisition-related costs and financial instruments excluding economic hedge contract gains and losses. The directors consider that the quantum, one-off nature or volatility of these adjustments can distort the underlying performance of the Group and for this reason the commentary discusses these adjusted amounts. 

  

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

 

NEXT ANNOUNCEMENT

IMI expects to release its next interim management statement on 16 November 2012.

 

ENQUIRIES TO:

Will Shaw                                                 Investor Relations Director              Tel: +44 (0)121 717 3712

Rollo Head / Charles Chichester       RLM Finsbury                                       Tel: +44 (0)207 251 3801

The press release, presentation and video webcast will be available on the corporate website at www.imiplc.com.

 

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.

 


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