30 July 2021

 

Accelerating business performance includes early impact of transformational Growth Hub

On track for sustainable, profitable growth and Group margins of 18% - 20%

Purpose and ESG agenda unlocking opportunities and motivation across the Group

 

Interim results, six months ended 30 June 2021

	Adjusted1					Statutory
	H1 2021	H1 2020	Change	Organic3	H1 2021		H1 2020	Change
Revenue	£907m	£867m	+5%	+8%	£907m		£867m	+5%
Operating profit	£142m	£121m	+17%	+24%	£123m		£102m	+21%
Operating margin	15.7%	14.0%	+170bps		13.6%		11.8%	+180bps
Profit before tax	£137m	£116m	+18%		£123m		£94m	+31%
Basic EPS	39.9p	33.6p	+19%		31.3p		27.3p	+15%
Operating cash flow2	£111m	£107m	+4%
Interim dividend per share	7.9p	7.5p	+5%
Net debt	£339m	£420m

 

^{1 Excluding the effect of adjusting items as reported in the income statement. See note 2 for definitions of alternative performance measures.}

^{2 Adjusted operating cash flow, as described in note 11 to the financial statements.}

^{3 After adjusting for exchange rates (see note 3).}

Key points

§ 8% organic sales growth, 24% organic adjusted operating profit growth

§ Adjusted operating margin improved by 170bps in first half

§ Increased revenue, profits and margins across all three divisions

§ Growth Hub and Sprint Teams transforming our culture and delivering early orders

§ £101m delivered to shareholders via dividends and buybacks

§ Interim dividend increased by 5%

§ FY 2021 guidance increased to adjusted EPS of 85p to 90p, including buyback impact

 

Roy Twite, Chief Executive, said:

"We continue to make excellent progress with our strategy to increase customer intimacy, drive market-led innovation and reduce complexity. The Growth Hub and Sprint Teams are well embedded in each division and driving an important cultural change across the organisation as IMI focuses on growth.  There are around 30 teams developing solutions to acute customer problems, with several already advancing into business scale-up phase. We remain on track to deliver our long-term ambition of sustainable profitable growth and Group margins of 18% to 20%."

Based on the strong first half result and current market conditions we now expect 2021 full year adjusted EPS to be in the range of 85p to 90p.  This guidance reflects our expected average share position in 2021 of approximately 268 million shares, resulting from the ongoing share buyback.

 

Enquiries to:

John Dean	IMI	Tel: +44 (0)121 717 3712
Stephen Malthouse	Headland PR	Tel: +44 (0)7734 956 201

A live webcast of the analyst meeting taking place today at 08:30am (BST) will be available on the investor page of the Group's website:  www.imiplc.com. The Group plans to release its next Interim Management Statement on 4 November 2021.

Results overview

Certain alternative performance measures ('APMs') have been included within this Interim Financial Report. These APMs are used by the Executive Committee to monitor and manage the performance of the Group, in order to ensure that decisions taken align with its long-term interests. Movements in revenue and adjusted operating profit are given on an organic basis (see definition in note 2) so that performance is not distorted by acquisitions, disposals and movements in exchange rates. A table summarising the reconciliation of adjusted measures to statutory measures is included in note 3.

	H1 2021	H1 2020	Change	Organic vs H1 2020*	H1 2019	Organic vs H1 2019*
Group revenue	£907m	£867m	+5%	+8%	£910m	+2%
Adjusted operating profit*	£142m	£121m	+17%	+24%	£118m	+22%
Adjusted operating margin*	15.7%	14.0%	+170bps		13.0%
Statutory profit before tax	£123m	£94m	+31%
Adjusted Basic EPS*	39.9p	33.6p	+19%		32.1p
Statutory Basic EPS	31.3p	27.3p	+15%		28.4p
Adjusted operating cash flow*	£111m	£107m	+4%		£101m
Net Debt*	£339m	£420m			£516m
Net Debt to adjusted EBITDA*	0.9x	1.2x			1.5x

^{*See note 2 for definitions of alternative performance measures and the references to reconciliations of these measures.}

 

Given the significant impact on business performance due to the pandemic in 2020, the results include comparative figures for H1 2019 and organic growth compared to H1 2021. A reconciliation is provided in note 3.

 

IMI is benefitting from positive market conditions within key business segments including Industrial Automation, Commercial Vehicle and Construction. New products are playing an increasing role in the Group's growth, with our Growth Hub and Sprint Teams well embedded across the Group.

 

Like most industrials, IMI is seeing supply chain constraints for certain components and raw material cost inflation. These are being managed well, minimising any impact on service levels to our customers. Where necessary, we continue to pass-through input cost increases to maintain margin progression.

 

Dividend

The Board is recommending a 2021 interim dividend of 7.9p per share (2020: 7.5p per share). Payment will be made on 17 September 2021 to shareholders on the register at the close of business on 13 August 2021.

Outlook

 

Based on the strong first half results and current market conditions we now expect 2021 full year adjusted EPS to be in the range of 85p to 90p.  This guidance includes an accretion of c.1% due to our expected average share position in 2021 of approximately 268 million shares, resulting from the ongoing share buyback (2020 average shares: 271.4m).

 

Strategic progress

Our strategy to accelerate business performance and drive sustainable, profitable growth continues to gain traction across our business. That strategy includes a change in culture and mindset - acting as one business and driving value through identifying and solving acute customer problems at pace. We continue to balance our efforts on Value Today - delivering improved returns through greater customer intimacy, operational efficiency, and complexity reduction; and on Value Tomorrow - investing in our future growth through market-led innovation. We have increased our resources for Business Development and our Growth Hub projects to the point where we now have over 30 Sprint Teams up and running across the Group.

 

Along with investments into our future growth, IMI continues to identify and execute on opportunities to drive more efficient operations.  The following provides a summary of progress on our restructuring programmes:

 

£m	H1 2021	2021*	Future years*
Restructuring charge (including impairment losses)
IMI Precision - Previously Announced	(3)	(34)	(18)
IMI Precision - Additional Initiatives	(1)	(7)	(41)
IMI Precision Engineering	(4)	(41)	(59)
IMI Critical Engineering	(1)	(8)	(6)
IMI Hydronic Engineering	(2)	(3)	(1)
Total charge	(7)	(52)	(66)
Cash impact	(21)	(42)	(91)
£m	H1 2021	2021*	Future years*
Benefits
IMI Precision - Previously Announced	3	5	9
IMI Precision - Additional Initiatives	-	2	23
IMI Precision Engineering	3	7	32
IMI Critical Engineering	7	12	6
IMI Hydronic Engineering	2	3	1
Total benefits	12	22	39

^{*Future looking forecast information.}

All three divisions advanced their programmes contributing £12m of benefits in the first half. 
The Group is on track to deliver £22m for the full year.  The table now includes additional initiatives within IMI Precision, which include further footprint optimisation, as well as additional SG&A efficiency opportunities.  These new projects are expected to provide a cash payback within 2 years. The cash impact represents cash spend from restructuring and includes spend from previously announced projects.

Environmental, Social & Governance (ESG)

Our purpose, [Breakthrough Engineering for a better world], continues to drive our actions and create real energy across our organisation.  Many of IMI's solutions support the safety, sustainability, and productivity of our customers' products and operations, and often directly contribute to the delivery of their carbon reduction targets. When considering investments, we ensure impacts on IMI's overall ESG positioning is a prime consideration.

Similarly, we are developing clear plans to reduce the environmental impact of our facilities and operations, and all divisions are progressing actions in 2021 that will contribute to our goal of halving our factory CO₂ intensity by 2030.

Our Inclusion and Diversity activities are helping us build a more dynamic and innovative organisation.  In May we launched a new group-wide communications platform that enables all employees to share activity and collaborate across the Group.  The platform is both accelerating business initiatives by identifying and leveraging previously untapped resource and expertise, as well as supporting IMI's core value of One big team.

More information about our ESG credentials and initiatives, including our policies and practices, can be found on our website: www.imiplc.com.

Coronavirus update

Although in some economies Coronavirus-related pressures are thankfully easing, IMI continues to be vigilant across its operations. The protection of our employees, our operations and our broader communities, wherever in the world they may be, remains an absolute priority. The Coronavirus response team continues to support employee welfare and help mitigate disruption in our supply chains. We continue to keep particularly close to our customers, to support them as they incur challenges brought on by the pandemic.

 

Share buyback progress

The programme to buyback IMI shares to an approximate value of £200m has made good progress. As at the end of June, we had successfully purchased 3.6 million shares, at a cost of £60.5m.

Board changes

After nine years on the Board, Carl-Peter Forster will be stepping down as a non-executive director of IMI plc at the end of August 2021. Carl-Peter is the senior independent non-executive director and chair of the Remuneration Committee. Please see separate announcement, also issued on 30 July 2021, for further details. 

 

Divisional results review

The following review relates to our continuing businesses' performance on an adjusted basis for the six months ended 30 June 2021 when compared to the same period in 2020 and 2019. References to organic growth are on a constant currency basis and exclude disposals and acquisitions, see note 3 for a reconciliation of these measures.

 

IMI Precision Engineering

 

IMI Precision Engineering specialises in the design and manufacture of motion and fluid control technologies where precision, speed and reliability are essential to the processes in which they are involved. IMI Precision Engineering operates across three principal business units: Motion Control, Fluid Technologies and Commercial Vehicles. Further details on that segmentation, and comparison with the 2020 first half report, are available in note 3.

 

	H1 2021	H1 2020	Change	Organic vs 2020*	H1 2019	Organic vs 2019*
Revenue	£440m	£430m	+2%	+7%	£463m	-1%
Adjusted operating profit*	£76.6m	£72.9m	+5%	+10%	£74.8m	+5%
Adjusted operating margin*	17.4%	17.0%	+40bps		16.2%

^{*See note 2 for definitions of alternative performance measures and the references to reconciliations of these measures.}

 

2021 H1 performance

IMI Precision's core end markets are providing excellent new opportunities for growth. The division has advanced its Growth Hub activities, creating real energy across the organisation. All late-stage projects have protective IP in place or under review, with some now achieving early orders.  Highlights will be shared at the upcoming Capital Markets Event in September.

 

Regarding first half performance, the division delivered strong organic revenue growth of 7% as recovering key markets more than offset the reduction in Life Sciences as a result of the 2020 ventilator component sales surge.  Higher sales in both Motion Control, up 9%, and Commercial Vehicles, up 50%, reflected strong end market demand in each market. Sales within Fluid Technologies were 12% lower driven by the ventilator impact within Life Sciences.  Excluding the ventilator surge impact, Fluid Technologies sales grew 3% versus the prior year.  After including a foreign exchange headwind of 4%, adjusted revenue was also ahead by 2%, when compared with the same period last year.

 

Adjusted operating margin in the division improved in the period by 40 basis points to 17.4%. 

 

Outlook

Based on strong first half results and current market conditions, IMI Precision Engineering 2021 organic revenues and margins are expected to be higher than in 2020.

 

IMI Critical Engineering

 

IMI Critical Engineering is a world-leading provider of flow control solutions that enable vital energy and process industries to operate safely, cleanly, reliably and more efficiently. Our products control the flow of steam, gas and liquids in harsh environments and are designed to withstand temperature and pressure extremes as well as intensely abrasive or corrosive cyclical operations. Further details on IMI Critical Engineering market segmentation, and comparison with the 2020 first half, are available in note 3 of this statement.

 

	H1 2021	H1 2020	Change	Organic vs 2020*	H1 2019	Organic vs 2019*
Order intake	£331m	£330m	0%	+4%	£358m	-8%
Closing order book	£537m	£546m	-2%		£538m
Revenue	£297m	£293m	+1%	+5%	£294m	+1%
Adjusted operating profit*	£42.9m	£35.1m	+22%	+31%	£33.2m	+30%
Adjusted operating margin*	14.4%	12.0%	+240bps		11.3%

^{*See note 2 for definitions of alternative performance measures and the references to reconciliations of these measures.}

 

2021 H1 performance

As highlighted at the June Capital Markets Event, IMI Critical Engineering is advancing its strategy and deploying Growth Hub to develop successfully new markets where its expertise can support sustainable future growth.  The division's Growth Hub and Sprint Teams are already providing a significant impact to the divisional results.

 

Organic order input for the first half of 2021 was 4% higher than the first half of 2020 and reflected continued growth within the Aftermarket business which grew 9%.  Supporting this was the division's continued success in upgrading existing valves, which grew 13%, as well as spare parts orders, up 8%.  New Construction orders were down 2%, with lower LNG orders being partially offset by good growth in the Refining & Petrochemical segment. The overall order book at the end of the period was 2% lower versus June 2020 due to the currency headwind.  Orderbook margins are also higher, reflecting the continuing favourable mix shift.

 

First half organic revenues were 5% higher than in the same period last year and 1% higher on an adjusted basis. Aftermarket organic sales were 4% higher than in the first half of 2020, where softer Oil & Gas and Marine sales were offset by strong performances in Gas Power and Nuclear markets, including Upgrades. New Construction organic sales grew 6% compared with the same period last year, reflecting stronger sales in LNG and Gas Power offsetting some phasing-related weakness in Petrochemical and Marine sector sales.

 

Organic adjusted operating profit was 31% higher than the first half of 2020, an excellent result reflecting the hard work the division has done to maximise the aftermarket opportunity and optimise its operating footprint for the future.  Adjusted operating margin for the half year was 14.4%, which was 240 basis points higher than the prior year (H1 2020: 12.0%).

 

The 20%-30% of IMI Critical revenues previously announced as under review continue to demonstrate progress on the requirement to boost long-term margin and growth potential. These businesses will continue to be assessed against their ability to contribute to IMI Critical's long-term strategic and financial ambitions.

 

Outlook

Based on the division's order book and current market conditions, we expect IMI Critical Engineering 2021 organic revenues and margins to be higher when compared to 2020.

 

IMI Hydronic Engineering

 

IMI Hydronic Engineering is a leading provider of technologies that deliver energy efficient water-based heating and cooling systems for the residential and commercial building sectors. 

 

	H1 2021	H1 2020	Change	Organic vs 2020*	H1 2019	Organic vs 2019*
Revenue	£170m	£144m	+18%	+20%	£153m	+13%
Adjusted operating profit	£34.2m	£24.6m	+39%	+40%	£25.5m	+33%
Adjusted operating margin	20.1%	17.1%	+300bps		16.7%

^{*See note 2 for definitions of alternative performance measures and the references to reconciliations of these measures.}

 

2021 H1 performance

 

IMI Hydronic Engineering's Growth Hub activities are enabling the division to develop even stronger customer intimacy within its core markets, unlocking new business opportunities. This, combined with its already strong brand and product position, as well as the global imperative to reduce energy consumption in buildings, is providing an excellent backdrop for the division to deliver sustained growth.

 

Revenues for the first half were 20% higher on an organic basis when compared to the same period in the prior year.  While the prior year activity was significantly impacted by the pandemic, this still reflects a strong performance, particularly within the division's core European geographies.  New products supported growth in the first half, with very good orders secured for control and actuation products.  Our new digitally enabled TA-Smart valve, a product being accelerated through Growth Hub, has successfully launched and been well received by the market.

 

Adjusted operating profit increased 40% on an organic basis versus the prior year, reflective of the quality of the business growth as well as continued delivery of key efficiency initiatives. The adjusted operating margin has improved to 20.1% in the first half, versus 17.1% in the first half of 2020.

 

Outlook

Given the excellent first half results and current market conditions, IMI Hydronic Engineering's 2021 organic revenues are expected to be strongly ahead, with margins also higher, when compared to 2020.

 

 

Financial review

Revenue of £907m was up 5% (2020: £867m). Organic revenues were up 8% when compared with the same period in the previous year, after adjusting for adverse exchange rate movements. Adjusted operating profit was £142m, a 17% increase on the prior period (2020: £121m). On an organic basis, operating profit increased by £27m or 24%. Group adjusted operating margin was 170bps higher at 15.7% (2020: 14.0%) and statutory operating profit was 21% higher at £123m (2020: £102m).

Adjusted net interest costs on borrowings were £5.7m (2020: £5.5m) and were covered 33 times by adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of £186m (2020: £167m). The IAS19 pension net financial income was £0.3m (2020: £0.1m income). The total adjusted net financial expense was £5.4m (2020: £5.4m). Profit before tax and adjusting items was £137m, an increase of 18% (2020: £116m).

The adjusted effective tax rate on profit for 2021 is 21%, which is consistent with the rate applicable in the first half of 2020 (21%).

Statutory profit before tax was £123m (2020: £94m). The total statutory profit for the period after taxation was £85m (2020: £74m).

Adjusting items

Restructuring costs were £7m (2020: £10m), primarily relating to the finalisation of projects initiated in 2020, which included the restructuring of our European business and site closures in the Americas in IMI Precision Engineering, the right sizing of IMI Critical Engineering and a site closure and the consolidation of distribution within IMI Hydronic Engineering.

The impact of amortisation of acquired intangibles was £7m (2020: £9m). The reversal of net economic hedge contract gains and losses was £nil (2020: gains of £3m).

The positive tax effect of the above adjusting items amounts to £3.4m (2020: £4.7m). The UK Government announced an increase in the corporation tax rate from 19% to 25% resulting in a charge of £18.0m, which was partially offset by a £5.2m gain following the resolution of a tax authority audit.

Earnings per share

The average number of shares in issue during the period was 271m (2020: 271m), resulting in adjusted basic earnings per share of 39.9p (2020: 33.6p). Statutory basic earnings per share was 31.3p (2020: 27.3p) and statutory diluted earnings per share was 31.2p (2020: 27.3p).

Foreign exchange

The impacts of translation on the reported growth of first half revenues and adjusted operating profits was a decrease of £30m and decrease of £6m, respectively. The most significant 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 13 to this report.

 

If the exchange rates on 23 July (US$1.37 and €1.17) remained constant for the remainder of the year, it would adversely impact revenues by 4% and adjusted operating profit by 5% in the full year when compared to 2020.

Cash flow

Cash generated from operations increased to £128m (2020: £119m).

 

Adjusted operating cash flow (see definition in note 2) increased to £111m (2020: £107m). Trade and other receivables increased by £52m, inventories increased by £34m and trade and other payables increased by £45m. Capital expenditure amounted to £22m (2020: £21m) and was 0.8 times the depreciation and amortisation charge for the period of £29m which excludes depreciation from the IFRS 16 right of use assets of £14m.

The other major cash outflows in the period were dividends of £41m, a £21m outflow for adjusting items related to the Group's restructuring programme, £61m related to the share buyback programme and £28m of tax. The total cash outflow for the period, excluding the impact of foreign exchange was £19m, compared with an inflow of £33m in the first half of the previous year. Current year cash flows were also improved by a cash inflow of £27m of derivative settlements.

A reconciliation of adjusted measures to statutory measures is included in note 11.

 

Balance sheet

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 acquisitions. Total undrawn committed bank loan facilities available to the Group at 30 June 2021 were £300m (December 2020: £300m).

 

The ratio of net debt to the last twelve months' EBITDA (before adjusting items) is a funding covenant that is currently limited to 3.0x, and was 0.9x at the end of June 2021 (December 2020: 0.8x).

 

Trade and other receivables have increased by £36m (10%) at 30 June 2021 (December 2020: £379m) and inventories have increased by £25m (8%) at 30 June 2021 (December 2020: £293m).

 

The IAS19 net pension surplus was £27m which compares to a surplus of £2m at 30 June 2020 and a deficit of £22m at 31 December 2020. This amount included a surplus of £103m (December 2020: £69m) relating to the UK Fund which is the most significant of the Group's defined benefit schemes. The increase is a result of favourable movements in the actuarial assumptions. The deficit relating to the overseas schemes decreased to £76m (December 2020: £91m) due to increases in the discount rates.

Shareholders' equity at the end of June was £826m, an increase of £27m since the end of last year. This is largely attributable to the profit for the period of £85m; an after-tax actuarial gain on the defined benefit pension plans of £30m; a tax gain of £16m on the UK pension scheme due to the tax rate changes; the after-tax impact of the share based payments of £8m and £3m associated with the employee share scheme trust. These gains were offset by unfavourable exchange differences and related tax of £14m; dividends paid of £41m and £61m associated with the share buyback programme.

 

Other regulatory information

 

Going concern
After making enquiries, the directors have a reasonable expectation that IMI plc ('the Company') and the Group have adequate resources to continue in operational existence for the foreseeable future and for a period of at least twelve months (31 July 2022) following the approval of the Interim Financial Report. Accordingly, they continue to adopt the going concern basis. See note 1 for further information of the directors' considerations in reaching this conclusion.

The directors have considered the ongoing macroeconomic uncertainty resulting from the pandemic on the Group's financial results and financial position. The directors have assessed the viability of the Group and reviewed detailed cash flow forecast scenarios, including comparing a reverse stress test to those detailed forecasts. The directors have a reasonable expectation that the financial headroom will not be exhausted during the twelve months following the date of approval of the Interim Financial Report.

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

IMI faces a number of risks and uncertainties which could have a material impact on the Group's long-term performance. In response to the Coronavirus pandemic, we continue to remain vigilant across our operations and work closely with our customers to ensure expectations are being met. The Coronavirus response team continues to support employee welfare and help mitigate disruption in our supply chains.

On pages 58 to 63 of its 2020 Annual Report (a copy of which is available on IMI's website: 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 macro-economic instability (including global health and environmental emergencies), competitive markets, supply chain risk, major project implementation, product quality issues, acquisition risk, cyber security risks, regulatory breach and new product development. These risks remain valid and have the potential to impact the Group during the remainder of the second half of 2021. The impact of the economic and end-market environments in which the Group's businesses operate are considered in the divisional review and outlook sections of this Interim Financial Report.

Safe harbour statement
This Interim Financial Report contains 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 preparation of this announcement and the Company undertakes no obligation to update these forward-looking statements. All written or oral forward-looking statements attributable to IMI plc are qualified by this caution. Nothing in this Interim Financial Report should be construed as a profit forecast.

 

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 IAS 34 'Interim Financial Reporting' as adopted by the UK;

·      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; and

·      there were no related party transactions or changes in the related party transactions described in the 2020 Annual Report that materially affected the Group's results or financial position during the six months ended 30 June 2021.

 

The directors of IMI plc are listed on the IMI plc website (www.imiplc.com).

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

 

 

 

Roy Twite                                                          Daniel Shook                                       
Chief Executive                                                 Finance Director
29 July 2021                                                      29 July 2021

Notes to editors

IMI plc, the specialist engineering company, designs, manufactures and services highly engineered products that control the precise movement of fluids.  Its innovative technologies, built around valves and actuators, enable vital processes to operate safely, sustainably, cleanly, efficiently and cost effectively. IMI employs around 10,000 people, has manufacturing facilities in 18 countries and operates a global service network.  The Company is listed on the London Stock Exchange. Further information is available at www.imiplc.com.

 

IMI plc is registered in England No. 714275. Its legal entity identifier ('LEI') number is 2138002W9Q21PF.