Imi Plc · LSE:IMI
Imi — H1 2009 Earnings Presentation
44 slides from Imi's earnings presentation, Aug 27, 2009
Slide 1: Interim results presentation
Interim results presentation 27 August 2009 1
Slide 2: Martin Lamb
Martin Lamb 2
Slide 3: Agenda
Agenda • Results overview Martin Lamb • Business Review - Severe Service / Retail Dispense Martin Lamb - Fluid Power Roy Twite - Indoor Climate / Group supply David Nicholas • Financial review Douglas Hurt • Outlook Martin Lamb • Questions and answers 3
Slide 4: Results overview
Results overview • Revenue £900m -1% - Organic revenue decline -17% • Segmental operating profit £97.4m -19% - Organic operating profit decline -32% - Profits drop through 24% - Segmental operating margin 11% • Adjusted earnings per share* 18.5p -24% • Net borrowings £264m - Cash conversion 85% • In
Slide 5: Management priorities in 2009
Management priorities in 2009 • Resource Allocation • Capacity Alignment • Product Margins • Cash Optimisation 5
Slide 6: 1. Resource allocation
1. Resource allocation • Skew sales and engineering resource in favour of more resilient end markets • Increased focus on customer responsible business agenda and initiatives - Energy efficiency - Sustainability • Prioritise low risk / quick wins - Value engineering - Customer share gains 6
Slide 7: 1. Resource allocation
1. Resource allocation • Areas of focus Severe Service: aftermarket, nuclear, emerging markets Fluid Power: life sciences, rail, process (oil, chemical & gas) Indoor Climate: infrastructure, renovation, energy efficiency Beverage Dispense: energy efficiency, sustainability, aftermarket, health & ind
Slide 8: 2. Capacity alignment
2. Capacity alignment • Right sizing to current business levels • Headcount reduction of 2,500 since June 2008 - Fluid Power: -1,250 -18% - Indoor Climate: -200 -10% - Beverage Dispense: -750 -27% - Merchandising: -300 -23% • 3,700 employees on short time working arrangements - Large majority in Flu
Slide 9: 2. Capacity alignment
2. Capacity alignment • Accelerating longer term restructuring opportunities - Progressing Severe Service expansion in Czech Republic / India - New Norgren facility opened in Shanghai - Expanded Cornelius facility in Tianjin • Rationalisation spend in 2009 forecast to be £30m - £17.5m charged in H1
Slide 10: 3. Product margins
3. Product margins • Overall increase in selling prices in H1 - Overall average increase of 1-2% - Differentiated products / customer value • Material cost savings delivered - Significant metals cost reduction vs H1 2008 - Average material cost reduction 5% - Commodity prices have risen from lows •
Slide 11: 4. Cash optimisation
4. Cash optimisation • Cash conversion of 85% in H1 (2008 H1: 58%) • Working capital – continuing to make good progress on inventory reductions • Capital expenditure priorities - New product development - Low cost manufacturing expansion - Health and safety 11
Slide 12: 5. The IMI Way
5. The IMI Way • Launched The IMI Way in Spring 2009 - Code of Responsible Business - Sets out the common values that unify and guide us and best capture the “IMI Way” of doing business - IMI Hotline for non compliance • Translated into over 25 languages • Face to face training for all employees wor
Slide 13: Severe Service
Severe Service £m H1 H1 Year 2009 2008 change 2008 Revenue 252 191 +32% 443 Organic growth % +11 +3 +9 Operating profit 47.9 31.8 +51% 81.3 Operating margin % 19.0 16.6 18.4 • Strong shipments in H1 - Aftermarket sales up around 11% - Operating initiatives to reduce backlog • Order intake* 5% down o
Slide 14: Beverage Dispense
Beverage Dispense £m H1 H1 Year 2009 2008 change 2008 Revenue 154 157 -2% 305 Organic growth % -20 +3 -1 Operating profit 10.5 14.3 -27% 27.6 Operating margin % 6.8 9.1 9.0 • Very challenging markets in H1 particularly in North America and UK. European markets showing greater resilience • Demand has
Slide 15: Merchandising
Merchandising £m H1 H1 Year 2009 2008 change 2008 Revenue 87 89 -2% 202 Organic growth % -22 +9 +11 Operating profit 7.4 7.4 +0% 20.9 Operating margin % 8.5 8.3 10.3 • Automotive significantly down, albeit credit exposure well managed • Food & Beverage, and Cosmetics, more resilient • H1 margins ben
Slide 16: Roy Twite
Roy Twite 16
Slide 17: Fluid Power
Fluid Power £m H1 H1 Year 2009 2008 change 2008 Revenue 255 339 -25% 666 Organic growth % -36 +7 +3 Operating profit 7.4 48.2 -85% 91.3 Operating margin % 2.9 14.2 13.7 • Markets stabilising after sharp fall • Commercial vehicle and in-plant automotive worst hit • Rapid management action taken • Sig
Slide 18: Fluid Power
Fluid Power • Reinforcing Engineering Advantage Strategy • Focused on more resilient sectors • Significant cost reductions implemented - Further reduction in headcount - Short-time working arrangements - Procurement initiatives accelerated 18
Slide 19: David Nicholas
David Nicholas 19
Slide 20: Indoor Climate
Indoor Climate £m H1 H1 Year 2009 2008 change 2008 Revenue 142 135 +5% 281 Organic growth % -4 +7 +6 Operating profit 24.2 18.9 +28% 45.2 Operating margin % 17.0 14.0 16.1 • Significant margin improvement resulting from lower material costs and efficiency gains • Renovation markets resilient, partic
Slide 21: IMI Group Supply initiatives
IMI Group Supply initiatives • Materials savings of £15m delivered in H1 - On track to achieve £30m for full year • Savings of circa 5% of spend mainly from purchased components • Extensive capabilities now in China, Eastern Europe, India & Mexico • Supplier risk reviews and mitigating actions taken
Slide 22: Douglas Hurt
Douglas Hurt 22
Slide 23: Results overview
Results overview £m H1 H1 % 2009 2008 change Segmental revenue at comparable rates 890 1077 -17% IAS 39 10 - Exchange impact (166) Revenue as published 900 911 -1% 23
Slide 24: Results overview
Results overview £m H1 H1 % 2009 2008 change Segmental operating profit 97.4 120.6 -19% Interest (8.9) (8.3) Net (financing cost)/return on pension plan (2.1) 1.9 IAS39 1.2 1.3 Net financing (costs) (9.8) (5.1) Less IAS39 credit (1.2) (1.3) Profit before tax* 86.4 114.2 -24% * Before restructuring,
Slide 25: Results overview
Results overview £m H1 H1 2009 2008 change Profit before tax * 86.4 114.2 -24% Restructuring costs (17.5) (5.6) Investigation costs - (2.7) Acquired intangible amortisation (3.7) (3.5) Financial instruments excluding economic hedge contracts 14.5 1.3 Profit before tax 79.7 103.7 -23% Taxation (24.7)
Slide 26: Operating cash flow summary
Operating cash flow summary £m H1 H1 H2 Year 2009 2008 2008 2008 EBITDA 119 134 135 269 Working capital (18) (38) 42 4 Capital expenditure (20) (27) (26) (53) Asset sales/other (5) (6) 27 21 Operating cash flow 76 63 178 241 Interest and derivatives (21) (8) (11) (19) Tax (26) (24) (30) (54) Cash ge
Slide 27: Net cash flow summary
Net cash flow summary £m H1 H1 H2 Year 2009 2008 2008 2008 Cash flow before corporate activity 29 31 120 151 Corporate activity: Acquisitions (19) - - - Dividend to minority/others (2) (2) - (2) Shareholder activity: Dividends (40) (41) (25) (66) Share buyback/issues - (13) (2) (15) Net cash flow (3
Slide 28: Balance sheet
Balance sheet £m June June Dec 2009 2008 2008 Net debt (£m) 264 275 299 EBITDA (£m) 119 134 269 Interest costs 8.9 8.3 16.1 12 month rolling*: Net debt/EBITDA 1.0x 1.1x 1.1x EBITDA/interest 15.2x 16.3x 16.7x * Debt covenants are based on 12 month pro forma analysis for EBITDA and interest comprising
Slide 29: Debt summary
Debt summary £m Jun Jun Dec 2009 2008 2008 Bilateral bank facilities 420 270 370 US loan notes 170 141 200 Other drawn uncommitted facilities 7 11 7 Total funding available 597 422 577 Average maturity (years) 2.9 4.3 3.5 Drawn at period end 376 382 423 Undrawn at period end 221 40 154 Cash balance
Slide 30: Maturity of facilities and term debt
Maturity of facilities and term debt £m June July 2009 2009* 2009 161 61 2010 50 50 2011 155 125 2012 113 113 2013 0 0 2014 18 18 2015 & beyond 100 206 Total 597 573 Average maturity on drawn facilities (years) 3.8yrs 5.9yrs * Following issuance of $175m of loan notes in July 2009 and cancellation o
Slide 31: Severe Service investigation
Severe Service investigation • Settlement agreed with the US Department of Justice (DoJ) - $18.2m fine (paid in August and covered by 2008 provision) - Compliance monitor to be appointed • CCI continues to deal with a number of related collateral issues - Activities related to possible non-complianc
Slide 32: Pensions – IAS 19
Pensions – IAS 19 £m Jun Jun Dec 2009 2008 2008 Assets 915 1,033 957 Liabilities (1,196) (1,162) (1,094) Deficit (281) (129) (137) • Deficit impacted by changes in assumptions on UK scheme: - Increase in assumed rate of price inflation to 3.5% - Discount rate has reduced to 6.2% reflecting changes i
Slide 33: In summary
In summary • Robust first half performance in difficult conditions • Continued focus on cash generation in H2 • Strong balance sheet with new long term debt facilities agreed 33
Slide 34: Martin Lamb
Martin Lamb 34
Slide 35: Reflections on downturn
Reflections on downturn Increased resilience through: • Increased focus on energy and infrastructure • Increased focus on emerging markets • Greater proportion of revenue from bespoke engineered products • Increased operational flexibility through low cost procurement and manufacturing • Reduced fix
Slide 36: Longer term implications
Longer term implications • Greater pricing resilience, higher added value • Higher percentage of low cost manufacturing • Increased profits drop through on upturn 36
Slide 37: Outlook
Outlook • Fluid Power and Retail Dispense markets stabilised • Severe Service and Indoor Climate are later cycle and may exhibit some modest slowdown in H2 • Cost reduction initiatives proving highly successful and should accelerate in H2 • Cash conversion expected in excess of 100% for full year •
Slide 38: Interim results presentation
Interim results presentation 27 August 2009 38
Slide 39: Exchange rates
Exchange rates 2009 2008 Change Average rates Euro 1.12 1.29 +13% US$ 1.50 1.98 +24% Closing rates Euro 1.17 1.26 +7% US$ 1.65 1.99 +17% Impact on H1 2009: Revenue +18% Segmental operating profit +18% Estimated impact on FY*: Revenue +11% Segmental operating profit +12% * Based on average exchange r
Slide 40: H1 Sales
H1 Sales By Geography: By end market: ROW Truck 5% Retail 4% Emerging Auto 9% Markets 3% 19% Energy Draught 28% Dispense W. Europe 17% 39% N. America 29% Capital Construction Equipment 16% UK 23% 8% 40
Slide 41: Sales bridge
Sales bridge £m H1 Translation Organic H1 2008 2009 Severe Service 191 35 26 252 Fluid Power 339 59 (143) 255 Indoor Climate 135 14 (7) 142 Beverage Dispense 157 36 (39) 154 Merchandising 89 22 (24) 87 Segmental revenue 911 166 (187) 890 IAS39 adjustment 10 Group revenue 900 41
Slide 42: Profits bridge
Profits bridge £m H1 Translation Organic H1 2008 2009 Severe Service 31.8 5.2 10.9 47.9 Fluid Power 48.2 8.0 (48.8) 7.4 Indoor Climate 18.9 2.4 2.9 24.2 Beverage Dispense 14.3 4.1 (7.9) 10.5 Merchandising 7.4 2.0 (2.0) 7.4 Segmental operating profit 120.6 21.7 (44.9) 97.4 42
Slide 43: H1 Restructuring – by business
H1 Restructuring – by business £m 2009 H1 Severe Service 1.3 Fluid Power 9.4 Indoor Climate 1.6 Total Fluid Controls 12.3 Beverage Dispense 4.6 Merchandising 0.6 Total Retail Dispense 5.2 Total Group 17.5 43
Slide 44: Restructuring - costs / benefits
Restructuring - costs / benefits £m 2006 2007 2008 2009 2010 2011 2006 LCM Plan Annual costs 20 22 18 Cumulative benefits 2 8 18 26 2009 LCM Plan Annual costs 10 10 Cumulative benefits 5 10 2009 Capacity Alignment Annual costs 20 Cumulative benefits 25 44