IMI plc Preliminary Results 2000 - 12 March 2001
IMI plc, the major international engineering group, today announced its preliminary results for the year ended 31 December 2000.
|
2000
| 1999
|
 |
| Sales |
£1615m |
£1502m |
| Results before goodwill amortisation and exceptional items: |
|
|
|
Profit before tax |
£148.3m |
£145.0m |
|
Adjusted earnings per share |
28.6p |
28.0p |
| Results after goodwill amortisation and exceptional items: |
|
|
|
Profit before tax |
£143.6m |
£123.1m |
|
Earnings per share |
27.1p |
22.6p |
| Dividend per share |
15.5p |
15.1p |
|
- Increased sales, profit and earnings per share
- Strategy review making good progress
In his Chairman's Statement, Sir Eric Pountain comments
Results and dividend for 2000
In a year when our businesses were faced with a difficult trading environment, it is pleasing to be able to report increased sales, profit and earnings per share.
Sales at £1,615m (1999: £1,502m) were up 7.5% and profit before goodwill amortisation and exceptional items at £148.3m (1999: £145.0m) was up 2.3%. Acquisitions contributed £136m sales and £2.2m profit before goodwill amortisation. This includes £120m sales and £1.6m profit in respect of the additional months contribution from the Polypipe businesses acquired in May 1999. The tax charge on profit before goodwill amortisation and exceptional items was 32%, the same rate as the previous year, and adjusted earnings per share 28.6p (1999: 28.0p), up 2.1%.
Goodwill amortisation increased to £15.2m (1999: £8.8m) largely as a result of the inclusion of Polypipe for a full year. Exceptional items of £10.5m profit resulted mainly from property sales and compared with a £13.1m net loss last year arising from the sale and closure of businesses. Including these items, profit before tax increased by 17% and earnings per share by 20%.
Net borrowings at the end of the year were £403m (1999: £388m) and balance sheet gearing was 84% compared with 100% at 30 June 2000 and 90% at the end of 1999. Interest cover based on operating profit before goodwill amortisation and exceptional items was 6 times (1999: 10 times). Operating cash flow was £154m (1999: £176m) and free cash flow after financing and dividends amounted to £33m (1999: £77m).
The Board is recommending an increased final dividend of 9.5p (1999:9.3p) making a total dividend for the year of 15.5p (1999:15.1p), up 2.6%. Excluding goodwill amortisation and exceptional items the total dividend is covered 1.8 times (1999:1.8 times).
During the year we spent £40m on acquiring businesses including Robimatic in the UK for a consideration of up to £19m and Flow Design in the US for a consideration of £14m. Since the year end we have completed the acquisition of BTG based in Sweden for a consideration of £16m.
The closures of copper smelting and the Drinks Dispense operation in Brazil are largely complete and within budget; in December we sold our Australian copper fittings business for £9m.
As previously announced, I will be retiring from the Board at the forthcoming Annual General Meeting. I have been proud to serve as Chairman of IMI since 1989 but I feel it is now time to step down. I am delighted that Gary Allen will succeed me as Chairman after fifteen years as Chief Executive. During this period IMI has been developed from a predominantly UK metals business to a global engineered products company focused on market requirements. Martin Lamb, our new Chief Executive, will take IMI through its next stage of development.
Martin Lamb, comments
As Chief Executive of IMI my aim is to develop those businesses which offer the strongest prospects for growth. This will involve changes to the present composition of the Group and in the short term, some major operational restructuring. I am committed to realising our full potential in driving shareholder value.
We are currently engaged in a detailed review of our businesses and future plans for the Group. This strategy review is making good progress. We have established clear criteria by which to judge our businesses and their potential for profitable growth both organic and by acquisition. We have a number of businesses which in our view already fit these criteria well. Some have great potential but will require significant restructuring. Some will not meet the requirements.
Whilst the review is not yet complete, it is already clear we will incur restructuring costs of around £40m this year. The anticipated payback for the majority of programmes is two years. Up to half of the benefits arising will be reinvested on a continuing basis in product and market development designed to accelerate long term growth.
I would like to express my thanks for the significant contribution of our Chairman, Sir Eric Pountain, who will step down at the Annual General Meeting in May, and of Gary Allen who replaces him as Non-executive Chairman. I look forward to continuing my relationship with Gary in his new role. I inherit an excellent base from which to take IMI forward.
Year 2000 results
For the year 2000 we are able to report sales and profit ahead of the previous year although the second half profit was lower. In the interim results we referred to our businesses having to cope with a number of sector specific challenges. In Hydronic Controls, operating profit from the Polypipe businesses was £7m lower than the full year 1999 largely as a result of the sharp rise in raw material costs; Drinks Dispense continued to suffer from a depressed beverage market although cost reductions improved profit in the second half; in Fluid Power the improvement in Europe was partially offset by the slowdown in the US automotive sector, particularly in the second half; Energy Controls responded well to increased demand throughout the year. A more detailed review of our four business areas for the year 2000 is given later.
Outlook
Current trading continues to be challenging. A deteriorating position in the US, which represents 25% of our sales, is being offset by continued strength in a number of our European markets. Whilst the position may change, there is no immediate sign of the slowing US economy impacting prospects elsewhere.
The following is an overview of our four business areas where comparisons with the previous year's turnover and profit relate to continuing operations.
HYDRONIC CONTROLS
Sales and operating profit before goodwill amortisation were £667m (1999: £528m) and £81.4m (1999: £75.5m), including acquisitions during the year and a full year's contribution from Polypipe acquired in May 1999.
Overall market demand was generally stronger during the year except in Germany where, contrary to industry expectations, construction activity declined. In the UK, the second half was affected by poor weather.
Raw material costs, notably copper and polymers, rose considerably during the year and only showed signs of abating towards the end of the year. These increases could not be fully recovered in selling prices resulting in margin reductions in some areas. Polypipe was significantly affected with profits well down on the excellent results of the full year for 1999.
Copper tube and fittings maintained profit due to further cost reductions and the success of new products. In August we acquired Robimatic, the UK leader in the packaging and distribution of plumbing products channelled into the DIY and merchant sectors.
Heimeier and TA, our indoor climate businesses, continued to maintain their excellent profit performance and we again added to our balancing valve commissioning and servicing capabilities in Europe. In August we acquired Flow Design Inc of Dallas which provides us with greater access to the large US market and adds automatic balancing valve technology to our range of products and services.
Our eastern European activities selling the Hydronic Controls' products continued to show good growth.
DRINKS DISPENSE
Sales and operating profit before goodwill amortisation were £340m (1999: £353m) and £33.0m (1999: £34.6m).
The declining sales trend of last year continued with reductions in spend from our major soft drinks customers, a slowdown in the quick service restaurant sector following two years of heavy expenditure, and uncertainty in the brewing industry. This decline flattened out in the second half, and margins improved considerably as a result of a cost reduction programme implemented in the early part of the year.
Our major soft drinks customers have needed to re-evaluate their long-term product strategies, with mounting evidence of fundamental shifts in consumer taste leading to a slowdown in carbonated beverages, for so many years the mainstay of volume growth. Health drinks, mineral waters, fruit-based products and iced tea/coffee products are fast becoming the standard bearers for growth, with local brands geared to local cultural needs increasingly being an important factor.
We are well positioned for this shift in emphasis with an innovative design capability well suited to the new product demands and a global infrastructure geared to providing our customers with specialist local support. This extension of our product portfolio has attracted a number of significant new customers.
Cannon again delivered a strong performance, continuing its long track record of profitable
growth. The point of purchase equipment business was particularly strong with many of the world's leading consumer goods companies increasingly alert to the benefits of creative display solutions.
FLUID POWER
Sales and operating profit before goodwill amortisation were £444m (1999: £435m) and £43.1m (1999: £38.1m).
Although UK demand was flat, in mainland Europe overall trading conditions were strong throughout the year with export led growth in our major markets. In particular, we made good progress in the commercial vehicle and packaging sectors and we continued to grow in the European automotive market where we gained significant new car programme orders.
Demand in the US was mixed. The general industrial market remained strong until towards the end of the year; commercial vehicles and automotive suffered from declining activity which became even more pronounced in the fourth quarter and further cost reduction measures have been implemented.
We accelerated our investment in design centres and customer support teams, providing tailored solutions for leading original equipment manufacturing customers in key industrial markets. We are experiencing good growth from these initiatives and expect to build further on this success.
The year saw a significant increase in our e-commerce investment with internet trading set up in the US, UK and some parts of mainland Europe. This will be further extended in 2001 and is complemented by our 24 hour on-line service which provides technical support and advice for customers around the world.
ENERGY CONTROLS
Sales and operating profit before goodwill amortisation were £152m (1999: £139m) and £17.6m (1999: £15.4m).
We continued to grow our severe service valve business. Strong market growth in power generation and the recovery of the oil and gas industries brought increasing demand for the advanced technology solutions we are able to offer. The power generation market is growing at a fast pace and the power shortages that are affecting regions of the United States continue to prompt high demand for the construction of new power plants and the upgrading of existing plants to obtain improved performance. Demand is similarly expected to remain high in the expanding Asian and European markets. The acquisition of BTG in February 2001 will further enhance our position in these markets, particularly in northern and eastern Europe.
There was a significant increase in demand in the oil and gas market. Liquid natural gas plants, where we enjoy a strong market position, are growing as the major source of gas around the world. Investment in our global sales network continued and we have been particularly pleased with the resulting successes in winning business in Asia.
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