IMI has many strengths which provide us with an excellent foundation on which to build the next phase of the Group’s development and growth. Today all our specialist flow control businesses are concentrated on industrial end markets. We have a strong balance sheet, which provides headroom and flexibility to support a range of both organic and acquisitive growth opportunities, great people, market-leading engineering expertise and strong long-term relationships with world-class customers.
Our strategic plan will ensure that this potential is harnessed and fully exploited to deliver sustainable accelerated top and bottom line growth. The opportunities are significant and that is reflected in our ambition to double the Group’s 2014 operating profits, while retaining our financial discipline.
Our organisation structure
How we generate revenue
Maintaining financial discipline
As we execute our strategy to deliver accelerated growth, we will continue to maintain financial discipline. Capital will be allocated to drive organic growth, maintain a progressive dividend policy in line with earnings and fund acquisitions. Whilst retaining flexibility to develop IMI's full potential, we will continue to focus on maintaining an efficient balance sheet and, in the event of us having cash in excess of the Group's current needs, we will return this excess capital to shareholders. Through the life of our five year plan we will work to maintain net debt to EBITDA of no more than two times through the cycle.
Net debt to adjusted EBITDA
2015 0.9x 2016 1.0x
Investing in Group–wide IT and infrastructure
The programme to equip our businesses with effective IT is well underway with the first sites either launched or on track to do so across all three of the Group's operating divisions. This commitment, alongside selective investment to upgrade or replace our manufacturing facilities, and our on-going initiatives, is a pre-requisite to achieving our strategic goals. IT implementations are being phased on a site by site basis to minimise risk and deliver an optimal solution. Overall capital spending is progressively increasing to closer to two times depreciation where it will remain for the first few years of the plan. During 2016 all three divisions have progressed their ERP programmes. In Critical Engineering, implementation has taken place in Japan, Sweden, India and Korea. In Precision Engineering, it has been installed in two facilities in the US and Hydronic Engineering have rolled it out at their facility in Poland and their HQ in Switzerland.
Working together as one simplified IMI
To harness the Group's full potential we remain determined to channel and maximise our scale to act as one IMI. Establishing core processes has provided a strong platform that underpins a framework for creating consistent Group–wide standards and behaviours.
Originally developed by our Precision Engineering division, the structured performance testing, tear-down and detailed analysis of competitor products is a key part of our new product development process. This tear-down procedure, which ensures that our new products will out run the competition, has now been adopted within the divisions' development processes. It is one of several disciplines that have been embraced by all three of the divisions as they share best practice.
Strategic growth priorities
Capitalising on significant organic growth opportunities
We already operate in a number of attractive end markets and we intend to focus on those that offer the greatest potential in terms of delivering top and bottom line growth. These end markets include those where we already are, or have the potential to be, in a leading position, markets where we can grow and where there are significant higher margin aftermarket opportunities.
Improving operational performance
The benefits of moving towards and achieving best in class operational performance are significant. As we improve how our businesses operate we will better utilise capacity, enhance our competitiveness, reduce working capital and generate cost savings by operating more efficiently. Our ambition is to progressively self-fund our organic growth initiatives using the benefits generated from our operational improvements.
Increased investment in product development
We are increasing our investment in product development, a key enabler of our growth plan, which is to build sustainable competitive advantage. Progressively we will increase R&D spend from around 3% of revenue in 2014 to 5% over the next few years. To ensure that we maximise the benefits of this increased investment, we are improving our product development processes and systems.
Expand addressable markets through targeted acquisitions
We plan to supplement our organic growth opportunities with targeted acquisitions capable of producing returns in excess of the Group’s weighted average cost of capital within three years. Beyond our existing business portfolio, our review has identified the potential to double the Group’s addressable market by making acquisitions in adjacent non-valve product markets.
IMI business model
Our business model is built around our core strategic priorities of capitalising on growth opportunities, operational excellence, investment in product development and targeted acquisitions. Continuous investment in these areas will deliver improved, more innovative products and services to our customers and help us increase our competitive advantage. By meeting our customers’ needs and investing in our leading market positions, we are well placed to grow profitably to the benefit of all stakeholders including our shareholders.