CORRECTED-UPDATE 1-Engineer IMI expects lower margin in first half of 2014

Thu Mar 6, 2014 8:11am EST

(Corrects paragraph 8 to say IMI's indoor climate unit, not IMI, is exiting low-margin emerging markets)

By Aashika Jain

March 6 (Reuters) - British engineer IMI Plc said it expects margins to fall slightly in the first half of 2014 due to costs associated with the company exiting some markets and product launches.

The company also said it expects a strengthening pound to hurt earnings by 4 percent, based on the average exchange rate in the first two months of the year.

The pound has gained 1.8 percent against the dollar this year.

Shares in IMI fell as much as 6 percent in early trading on Thursday, becoming the top percentage loser on the FTSE 100 .

IMI forecast lower first-half operating margins at its indoor climate business, which makes equipment to manage building climate and energy. The company said it expects margins to recover in the second half.

Product launches and costs related to exiting 20 countries would have a 3 million pound ($5.02 million) impact, IMI Chief Executive Mark Selway told Reuters.

Selway, who joined IMI in January from Weir Group Plc , also said acquisitions would be important as IMI focuses more on its core markets.

IMI's indoor climate unit is planning to exit low-margin emerging markets such as Vietnam, Slovakia and Ukraine.

The company's adjusted pretax profit for the year ended Dec. 31 rose 8 percent to 321.6 million pounds. Revenue increased 3 percent to 1.7 billion pounds.

Operating margins rose to 18.4 percent from 17.7 percent. However, margins fell marginally at the company's largest business Fluid Power, which makes fluid control components.

The company said it would pay a dividend of 22.5 pence, up from 20.7 pence last year.

Shares in the Birmingham-headquartered company were trading down 5.4 percent at 1464 pence at 0856 GMT on the London Stock Exchange. They have risen by about 26 percent in the year up to Wednesday's close. ($1 = 0.60 British Pounds) (Reporting by Aashika Jain in Bangalore; Editing by Gopakumar Warrier)