Imi Plc · LSE:IMI
Imi — H1 2011 Earnings Presentation
46 slides from Imi's earnings presentation, Aug 25, 2011
Slide 1: Interim results presentation
Interim results presentation 25 August 2011
Slide 2: Martin Lamb
Martin Lamb
Slide 3: Key messages
Key messages • Current trading positive - Strong first half - Weakening macroeconomic indicators noted - Current order trends mostly positive • Margin resilience embedded - Well established forward momentum - Full range of options in event of downturn • Long term development plan on track - Driving
Slide 4: Agenda
Agenda • Financial Review Douglas Hurt • Business Review Ian Whiting Sean Toomes Roy Twite • Current trends and outlook Martin Lamb • Questions and answers 4
Slide 5: Douglas Hurt
Douglas Hurt
Slide 6: Results overview
Results overview £m 2011 H1 2010 H1 change % Revenue 1,032 925 +12% organic revenue growth +8% Segmental operating profit 176.4 145.6 +21% Segmental operating margins 17.0% 15.7% Adjusted basic eps 37.9p 29.8p +27% Interim dividend 11.0p 9.0p +22% 6
Slide 7: Return on capital
Return on capital Post tax return on invested capital* 24.0% 20.2% 20.0% 20.0% 17.4% 15.9% 16.0% 14.4% 14.8% 13.7% 12.0% 10.8% 8.4% 8.6% WACC = 8% 7.5% 8.0% 7.0% 4.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 2011 H1** H1** * Segmental operating profit after tax divided by the average i
Slide 8: Margin improvement
Margin improvement 20.0% 16.7% 17.0% 15.7% 15.0% 14.0% 12.7% 13.0% 13.1% 12.2% 10.5% 9.8% 10.0% 9.2% 7.7% 5.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 H1 2010 2011 H1 • Further good margin improvement in H1 2011 • Improved product mix - New products - Continued exits from low margin produc
Slide 9: Results overview
Results overview H1 H1 £m 2011 2010 change Segmental operating profit 176.4 145.6 +21% Interest (8.2) (8.3) Net pension finance income/(expense) 3.1 (0.9) Profit before tax before exceptional items 171.3 136.4 +26% Restructuring costs (9.9) (3.3) Acquired intangible amortisation (17.4) (3.6) IAS39 a
Slide 10: Operating cash flow summary
Operating cash flow summary £m H1 H1 H2 Year 2011 2010 2010 2010 EBITDA* 187 168 201 369 Working capital (64) (27) 60 33 Capital expenditure (21) (21) (30) (51) Employee benefit movement (3) - (21) (21) Asset sales/other (3) (2) 7 5 Operating cash flow 96 118 217 335 Interest and derivatives (5) (3)
Slide 11: Net cash flow summary
Net cash flow summary £m H1 H1 H2 Year 2011 2010 2010 2010 Cash flow before corporate activity 49 39 164 203 Corporate activity: Acquisitions 3 (14) (116) (130) Polypipe earnout recovery - - 8 8 Investment by pension fund - 49 - 49 Payment to non-controlling interest (2) - - - Dividend to minority/o
Slide 12: Balance sheet
Balance sheet £m June June Dec 2011 2010 2010 Shareholders' funds 582 365 526 Net debt (£m) 168 157 145 Gearing 29% 43% 28% EBITDA (£m) 187 168 369 Interest costs 8.2 8.4 15.3 Net debt/EBITDA* 0.4 0.5 0.4 EBITDA/interest* 25.7 17.3 24.1 * Debt covenants are based on 12 month pro forma analysis for E
Slide 13: Pensions – IAS 19
Pensions – IAS 19 £m Jun Jun Dec 2011 2010 2010 Assets 1,134 1,031 1,115 Liabilities (1,322) (1,360) (1,314) Deficit (188) (329) (199) • Small reduction in IAS19 deficit since beginning of year • Next triennial actuarial valuation of the IMI pension fund in the UK taking place as at 31 March 2011 •
Slide 14: Results overview
Results overview • Strong first half results • Organic growth 8% • Segmental operating margin up 130 basis points • Adjusted basic EPS 37.9p, up 27% • Interim dividend 11p, up 22% • Strong balance sheet 14
Slide 15: Ian Whiting
Ian Whiting
Slide 16: Severe Service
Severe Service £m H1 H1 Year 2011 2010 change 2010 Revenue 258 217 +19% 452 Organic growth % -1 -15 -14 Operating profit 41.3 38.4 +8% 78.4 Operating margin % 16.0 17.7 17.3 • H1 revenue broadly flat, on an organic basis - Improved shipments in Q2 • As expected, H1 margins impacted by an unfavourabl
Slide 17: Severe Service
Severe Service Orders % Change Backlog* Orders** Increased quotation activity. Expect good order Fossil Power +13% (1%) intake pick up in H2 on weaker comparative Oil & Gas +15% (2%) Large LNG orders taken in H1 2010 Some deferments in orders following Japanese Nuclear +16% (9%) nuclear incident Aft
Slide 18: Sean Toomes
Sean Toomes
Slide 19: Indoor Climate
Indoor Climate £m H1 H1 Year 2011 2010 change 2010 Revenue 150 142 +6% 296 Organic growth % +3 -1 +2 Operating profit 30.2 30.8 -2% 70.3 Operating margin % 20.1 21.7 23.8 • Continued focus on energy efficiency • New commercial construction market remains subdued • Increased investments in seminars,
Slide 20: Indoor Climate
Indoor Climate • Renovation activity to make buildings more energy efficient continues to prove resilient • Increased investment to drive “pull model” - Seminar attendees up 27% in H1 to over 44,000 - Increased number of hydronic control demonstration centres in emerging markets - 44 new Hydronic sa
Slide 21: Roy Twite
Roy Twite
Slide 22: Fluid Power
Fluid Power £m H1 H1 Year 2011 2010 change 2010 Revenue 387 333 +16% 685 Organic growth % +16 +31 +31 Operating profit 74.6 49.8 +50% 113.7 Operating margin % 19.3 15.0 16.6 • Continued revenue momentum with organic growth of 16% in H1 • Good growth in sector business up 18% in H1 - Commercial vehic
Slide 23: Fluid Power
Fluid Power • Overall sectors now represent 42% of total revenues • Further strong progress on margin improvement - Further moves to low cost manufacturing - Other product margin initiatives including increased focus on value engineering and supplier rationalisation • Some pockets of weakness (South
Slide 24: Beverage Dispense
Beverage Dispense £m H1 H1 Year 2011 2010 change 2010 Revenue 161 159 +1% 315 Organic growth % +5 +3 +5 Operating profit 20.0 16.9 +18% 32.0 Operating margin % 12.4 10.6 10.2 • Good organic growth in H1 - Strong revenue momentum in North America - UK market remains difficult • Further good progress
Slide 25: Merchandising
Merchandising £m H1 H1 Year 2011 2010 change 2010 Revenue 79 76 +4% 169 Organic growth % +10 -12 +2 Operating profit 10.3 9.7 +6% 25.3 Operating margin % 13.0 12.8 15.0 • Strong organic revenue growth of 10% - Good growth in automotive and beverage sectors • Prioritisation of higher margin, differen
Slide 26: Martin Lamb
Martin Lamb
Slide 27: Key topics
Key topics • Current trading & visibility • Margin resilience • Strategic development 27
Slide 28: Current trends
Current trends • PMI / ISM / OECD forward indicators weakening • Some pockets of weakness emerging − Nuclear impacted post Fukushima − Temporary slowdown in Beverage in China − Lower industrial demand (Fluid Power) in UK and southern Europe • But plenty of positives − General industrial demand (Flui
Slide 29: Fluid Power order intake
Fluid Power 6 week MA Order Intake Week 53, 2010 Week 26, 2011 Week 32, 2011 £m change LY £m change LY £m change LY Americas 4.6 +22% 4.3 +15% 4.2 +6% Europe 8.7 +30% 9.7 +8% 9.0 +10% Asia Pacific 1.3 +28% 1.6 +21% 1.5 -3% Group 14.7 +27% 15.6 +11% 14.6 +8% Comments • Caution: July / August order pa
Slide 30: Visibility
Visibility Forward order cover (weeks) Dec „08 Dec „10 Aug „11 Comments (week 32) Severe Service 35 31 40 Improved momentum weaker H1 shipments Fluid Power 5 7 7 Improved momentum Memo: Sector % 37% 41% 42% Higher sector % (longer contracts) Indoor Climate 3 3 3 Improved momentum offset by higher %
Slide 31: Margin resilience
Margin resilience A. Incremental volume (fixed cost absorption) Less: Investments for growth (new product development, sales resource) + B. Benefits from winning the Inflation Equation + C. Benefits from improved product and business mix + D. Cost savings arising from operation restructuring = Margi
Slide 32: Margin resilience
Margin resilience 20.0% 16.7% 17.0% 15.7% 15.0% 14.0% 12.7% 13.0% 13.1% 12.2% 10.5% 9.8% 10.0% 9.2% 7.7% 5.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 H1 2010 2011 H1 32
Slide 33: Margin resilience: Incremental volume
Margin resilience A. Incremental Volume • Increased investment in new products • Increasing exposure to attractive end markets (for growth & resilience) clean energy, energy efficiency, emissions control, health & life sciences • Accelerated investment in high growth emerging markets 135 new Key Acc
Slide 34: Margin resilience: Winning the Inflation Equation
Margin resilience B. Winning the “Inflation Equation” Improved pricing + Benefits arising from supply chain initiatives Less: material cost inflation + Labour productivity improvements Less: wage & salary inflation = Inflation Equation 5 year track record: 300 bps improvement (cumulative) 34
Slide 35: Margin resilience: Winning the Inflation Equation
Margin resilience B. Winning the “Inflation Equation” (i) Optimised pricing • No 1 market position in target niches • 70% revenue bespoke, engineered to order, or highly differentiated (NB <10% in 2001) • Strong Key Account Management disciplines (focus on value not cost) • Pricing specialists and d
Slide 36: Margin resilience: Improving business and product mix
Margin resilience C. Improving the business and product mix • Exit older, lower margin and undifferentiated products in unfavoured segments (10% revenue exits 2010 – 2012) • Ensure all new products attain upper quartile product margins 36
Slide 37: Margin resilience: Operational restructuring
Margin resilience D. Operational restructuring • Plans to drive LCM to 55% on track • Limited fixed or permanent additions in mature western markets post 2009 downturn − Volume increases met through temporary additions − Capacity expanded in low cost economies • Detailed contingency plans in place t
Slide 38: Strategic convergence
Strategic convergence Market Characteristics Fluid Technologies & core competencies * Market leadership in Global niches Precision flow control in critical applicatio + Blue chip clients supported by + Valves World Class Key Account Mgmt + Actuators + Customised solutions delivered through * Control
Slide 39: Strategic convergence
Strategic convergence 1. Organic convergence • Continued exit from older lower margin and undifferentiated products in non sweetspot territory • Increased investment in Key Account Management and Engineering in key target markets 39
Slide 40: Strategic convergence
Strategic convergence 1. Organic convergence • Continued exit from older lower margin and undifferentiated products in non sweetspot territory • Increase investment in Key Account Management and Engineering in key target markets 2. Inorganic convergence • Significant expansion M&A revenue • Pipeline
Slide 41: Summary and outlook
Summary and outlook • Good results in H1 2011 • Macroeconomic indicators weakening but current order trends mostly positive • Margin resilience a core strength - Well established program to deliver further improvements - Full range of options to protect profitability in the event of significant mark
Slide 42: Additional Information
Additional Information
Slide 43: H1 Sales
H1 Sales By Geography: By end market: Truck Retail 7% Auto 7% 2% Energy Draught 27% Dispense 16% Environmental Capital Control Equipment 14% 27% 43
Slide 44: Exchange rates
Exchange rates 2011 2010 Change Average rates Euro 1.15 1.15 +0% US$ 1.62 1.52 -7% Closing rates Euro 1.11 1.22 +9% US$ 1.61 1.50 -7% Translational impact on H1 2011: Revenue 0% Segmental operating profit +1% Estimated translational impact on FY*: Revenue +1% Segmental operating profit +2% * Based o
Slide 45: Sales bridge
Sales bridge H1 Acquisitions / H1 £m 2010 Translation Disposals Organic 2011 2011 Severe Service 217 4 39 (2) 258 Fluid Power 333 - - 54 387 Indoor Climate 142 3 - 5 150 Beverage Dispense 159 (6) - 8 161 Merchandising 76 (4) - 7 79 Segmental revenue 927 (3) 39 72 1,035 IAS39 adjustment (2) (3) Group
Slide 46: Profits bridge
Profits bridge £m H1 Translation Acquisitions / Organic H1 2010 disposals 2011 Severe Service 38.4 1.5 6.2 (4.8) 41.3 Fluid Power 49.8 0.7 24.1 74.6 Indoor Climate 30.8 1.2 (1.8) 30.2 Beverage Dispense 16.9 (0.9) 4.0 20.0 Merchandising 9.7 (0.5) 1.1 10.3 Segmental operating profit 145.6 2.0 6.2 22.6