IMI plc · LSE:IMI
IMI — H1 2010 Earnings Presentation
45 slides from IMI's earnings presentation, Aug 26, 2010
Slide 1: Interim results presentation 26 August 2010
Interim results presentation 26 August g 2010
Slide 2: Martin Lamb
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Slide 3: Agenda
Agenda • Results Overview Martin Lamb • Financial Review Douglas Hurt • Business Review - Severe Service Ian Whiting - Fluid Power Roy Twite - Indoor Climate Sean Toomes g Dispense - Beverage p Martin Lamb - Merchandising • Summary and Outlook Martin Lamb • Questions and Answers 1
Slide 4: Results overview
Results overview • Revenue £925m +3% - Organic growth +4% • Segmental operating profit £145.6m +49% • Segmental operating margin 15.7% • Adjusted earnings per share* share 29 8p 29.8p +61% • Net borrowings £157m - Cash conversion 86% - Net debt / EBITDA 0.5x • Interim dividend 9.0p +13% 13% * Before
Slide 5: Trends snapshot
Trends snapshot 2009 2010 % Change (Organic) Q1 Q2 Q3 Q4 Q1 Q2 H1 Sales (12%) (21%) (19%) (11%) +1% +7% +4% Orders (19%) (30%) (22%) +3% +4% +19% +11% • Return to strong growth in emerging economies • Sharp bounce back in depressed cyclicals (automotive, truck, machine tools) • Later cycle markets (
Slide 6: Management focus in 2010
Management focus in 2010 • Focus commercial and engineering resource on key di drivers ffor growth th • Deliver incremental and sustainable margin improvement - Smart pricing initiatives - Selective withdrawal from low margin product lines - Timely execution of low cost manufacturing transfers - Exp
Slide 7: Segmental operating margins
Segmental operating margins 2008 2009 2010 H1 H2 FY H1 H2 FY H1 Severe Service 16.6% 19.6% 18.4% 19.0% 20.6% 19.8% 17.7% Fluid Power 14.2% 13.2% 13.7% 2.9% 9.6% 6.3% 15.0% Indoor Climate 14 0% 14.0% 18 0% 18.0% 16 1% 16.1% 17 0% 17.0% 24 3% 24.3% 20 8% 20.8% 21 7% 21.7% Fluid Controls 14.9% 16.4% 15
Slide 8: Continued margin progression
Continued margin progression Margin development since 2000 17.5% 15 7% 15.7% 15.3% 14.8% 14.0% 12.7% 13.0% 13.2% 13.1% 12.2% 12.5% 5% 10.9% 10.5% 9.8% 9.2% 9.2% 7 7% 7.7% 7.5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2008 2008 2009 2009 2009 2010 H1 H2 FY H1 H2 FY H1 6
Slide 9: Creating value for shareholders
Creating value for shareholders Post tax return on invested capital since 2001 16.0% 15.2% 14.2% 12.0% 12.2% 12.0% 10.8% 11.0% 11.0% 9.3% 8.6% 8.0% 7.0% 6.8% WACC = 8% 4.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2009 FY 2010 H1 7
Slide 10: Douglas Hurt
Douglas Hurt
Slide 11: Results overview
Results overview £m H1 H1 2010 2009 change Segmental revenue at comparable rates 927 893 +4% IAS 39 (2) 10 Exchange impact (3) Revenue as published 925 900 +3% 8
Slide 12: Results overview
Results overview £m H1 H1 2010 2009 change Segmental operating profit 145 6 145.6 97 4 97.4 +49% Net interest and other income (8.3) (8.9) Net (financing cost)/return on pension plan (0.9) (2.1) IAS39 6.1 1.2 Net financing (costs) (3.1) (9.8) Less IAS39 credit (6 1) (6.1) (1 2) (1.2) Profit before t
Slide 13: Results overview
Results overview £m H1 H1 2010 2009 change Profit before tax * 136.4 86.4 +58% Restructuring costs (3.3) (17.5) Acquired intangible amortisation (3.6) (3.7) Financial instruments excluding g economic hedge contracts 4.0 14.5 Profit before tax 133.5 79.7 +68% Taxation (39 5) (39.5) (24 7) (24.7) Prof
Slide 14: Operating cash flow summary
Operating p g cash flow summary y £m H1 H1 H2 Year 2010 2009 2009 2009 EBITDA* 168 119 143 262 g capital Working p ((27)) ((18)) 79 61 Capital expenditure (21) (20) (22) (42) Asset sales/other (2) (5) 2 (3) Operating cash flow 118 76 202 278 Interest and derivatives (3) (21) (6) (27) Tax (29) (26) (
Slide 15: Net cash flow summary
Net cash flow summary y £m H1 H1 H2 Year 2010 2009 2009 2009 Cash flow before corporate activity 39 29 139 168 Corporate activity: Acquisitions (14) (19) - (19) Special purpose vehicle 49 - - - y Dividend to minority/others - ((2)) - ((2)) Shareholder activity: Dividends (42) (40) (26) (66) Share bu
Slide 16: Balance sheet
Balance sheet £m June June Dec 2010 2009 2009 Net debt (£m) 157 264 172 EBITDA (£m) 168 119 263 Interest costs 85 8.5 8.9 18.5 12 month rolling*: N d Net debt/EBITDA b /EBITDA 0.5x 0 5 1.0x 1 0 0.7x 0 7 EBITDA/interest 17.3x 15.2x 14.2x * Debt covenants are based on 12 month pro forma analysis for E
Slide 17: Pensions – IAS 19
Pensions – IAS 19 £m Jun Jun Dec 2010 2009 2009 Assets 1,031 915 1,043 Liabilities (1,360) (1,196) (1,301) Deficit (329) (281) (258) • IAS19 deficit increase results principally from reduction in AA corporate bond yields and from weaker equity returns • Next triennial actuarial valuation to take pla
Slide 18: Pensions risk management
Pensions risk management • Closure of UK pension fund to future accrual confirmed with effect from 31 December 2010 - Pension curtailment gain in H2 of c.£10m • F Fundd has h acquired i d ttwo b bulk lk annuity it agreements t ffor £325m to insure over 40% of total pensioner liabilities as at June 2
Slide 19: Pensions risk management
Pensions risk management Combined Co b ed eeffect ect o of tthese ese act actions: o s • Allows Company to provide additional funding over a longer period • Returns the capital that secures the funding stream to the Group after 20 years • Improvement in funding position of c.£25m (under technical pr
Slide 20: Business Review
Business Review
Slide 21: Ian Whiting
Ian Whiting
Slide 22: Severe Service
Severe Service £m H1 H1 Year 2010 2009 change 2009 Revenue 217 252 -14% 512 O Organic i growth th % -15 15 +11 +3 Operating profit 38.4 47.9 -20% 101.4 Operating margin % 17 7 17.7 19 0 19.0 19 8 19.8 • Organic revenue decline in H1 of 15% - Lower order intake in 2009 - Some shipments deferred to H2
Slide 23: Severe Service
Severe Service Order Intake H1 2010 vs H1 2009 Fossil Power (30%) Increased quotation activity slow to convert into orders Oil & Gas +70% LNG markets entering new construction cycle Nuclear +45% Very strong long term prospects; new construction moving ahead Aftermarket (10%) Modest reduction on stro
Slide 24: Roy Twite
Roy Twite
Slide 25: Fluid Power
Fluid Power £m H1 H1 Year 2010 2009 change 2009 Revenue 333 255 +31% 520 O Organic i growth th % +31 -36 36 -31 31 Operating profit 49.8 7.4 +573% 32.8 Operating margin % 15 0 15.0 29 2.9 63 6.3 • Good recovery in volumes with organic revenue growth th off 31% iin H1 • Strong profit drop-through on
Slide 26: Fluid Power
Fluid Power • Good growth in sector business up 36% in H1 - Commercial vehicles up 50% - Life Lif sciences i up 25% - Rail up 30% • Overall sectors now represent 41% of total revenues • Further F th good d progress with ith N Norgren E Express • H2 revenues expected to match H1 20
Slide 27: Sean Toomes
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Slide 28: Indoor Climate
Indoor Climate £m H1 H1 Year 2010 2009 change 2009 Revenue 142 142 +0% 292 O Organic i growth th % -1 1 -4 4 -4 4 Operating profit 30.8 24.2 +27% 60.7 Operating margin % 21 7 21.7 17 0 17.0 20 8 20.8 • First half revenues continue to be resilient - Continued focus on energy efficiency - Resilient re
Slide 29: Indoor Climate
Indoor Climate • Increasing demand for more energy efficient buildings and increasing legislation worldwide • Renovation continues to prove resilient at attractive margins • Increased investment in the well proven “pull model” • Market activity improving, H2 expected to return to growth 22
Slide 30: Martin Lamb
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Slide 31: Beverage Dispense
Beverage Dispense £m H1 H1 Year 2010 2009 h change 2009 Revenue 159 154 +3% 297 Organic growth % +3 -20 20 -15 15 Operating profit 16.9 10.5 +61% 21.1 Operating margin % 10 6 10.6 68 6.8 71 7.1 • Volumes strengthened in Q2 - Improvement in N America (bottlers & QSRs) - Buoyant Asia (especially China
Slide 32: Beverage Dispense
Beverage Dispense • New products targeted at key end market drivers - Non carbonated drinks, frozen, smoothies - Customer C t sustainability t i bilit priorities i iti ((energy and d carbon b footprint) - Emerging markets restaurant expansion • Expansion of 3Wire US parts business - Geographic Geog
Slide 33: Merchandising
Merchandising g £m H1 H1 Year 2010 2009 change g 2009 Revenue 76 87 -13% 164 Organic growth % -12 -22 -29 Operating profit 9.7 7.4 +31% 18.2 Operating margin % 12.8 8.5 11.1 • Organic revenue decline of 12% broadly in line with expectations - Lower order intake in H2 2009 - Growth in cosmetics, and
Slide 34: Merchandising
Merchandising g • Strong pipeline of new projects - Automotive showroom programmes - I Innovative ti and d flexible fl ibl ffrontt end d merchandiser h di di displays l - Next generation beverage gravity feed displays - Interactive displays • Second half revenues expected p to be significantly g y a
Slide 35: Summary and Outlook
Summary and Outlook
Slide 36: Summary
Summary • Good organic growth given mix of early and late cycle businesses • Record H1 operating profits and earnings • Margins above Group’s Group s long term target of 15% • Good cash generation and balance sheet remains strong t • Proactive approach to pensions • Interim dividend increased by 13%
Slide 37: Long term margin sustainability
Long term margin sustainability • Fundamental reshaping of the group - Leading global positions, niche markets - High % of bespoke or differentiated product - Preferred P f d supplier li status t t with ith global l b l kkey accounts t - Significant aftermarket content - Low cost manufacturing and s
Slide 38: Long term growth
Long term growth • Good exposure to attractive market segments - Clean energy (nuclear (nuclear, LNG) - Sustainability (energy efficiency, emissions control) - Health & wellness • Increasing emerging market exposure (2010: 19%) • Attractive and successful blue chip customers - Preferred supplier / i
Slide 39: Outlook
Outlook • Global macro-economic uncertainty remains but optimistic p H1 momentum will continue in H2 • Continued focus on margin improvement - Further F h transfers f to low l cost manufacturing f i - Improving sales mix (new products & low margin exits) • Strong balance sheet - Acquisitions / inves
Slide 40: Additional Information
Additional Information
Slide 41: Exchange rates
Exchange rates 2010 2009 Change Average rates Euro 1.15 1.12 -3% $ US$ 1.52 1.50 -1% Closing rates Euro 1.22 1.17 -4% 4% US$ 1.50 1.65 +9% Impact on H1 2010: Revenue +0.3% +0 3% Segmental operating profit +1.0% Estimated impact on FY*: FY : Revenue +0.4% +0 4% Segmental operating profit +0.8% * Base
Slide 42: H1 Sales
H1 Sales By Geography: By end market: Truck ROW 5% Retail 5% Emerging 9% Markets Energy 19% 25% Draught Western Dispense Europe 17% 38% Environmental North America Control 30% 15% Capital Equipment UK 29% 8% 32
Slide 43: Sales bridge
Sales bridge £m H1 Translation Organic H1 2009 2010 Severe Service 252 3 (38) 217 Fluid Power 255 - 78 333 Indoor Climate 142 1 (1) 142 Beverage Dispense 154 - 5 159 Merchandising 87 (1) (10) 76 Segmental revenue 890 3 34 927 IAS39 adjustment (2) Group p revenue 925 33
Slide 44: Profits bridge
Profits bridge £m H1 Translation Organic H1 2009 2010 Severe Service 47.9 47 9 0.8 0 8 (10.3) (10 3) 38.4 38 4 Fluid Power 7.4 0.2 42.2 49.8 Indoor Climate 24.2 0.2 6.4 30.8 Beverage Dispense 10 5 10.5 (0 1) (0.1) 65 6.5 16 9 16.9 Merchandising 7.4 (0.1) 2.4 9.7 Segmental operating profit 97.4 1.0 4
Slide 45: Restructuring - costs / benefits
Restructuring - costs / benefits 2009/10 Low Cost Manufacturing programme £m 2009 2010 2011 2012 Annual costs 35 10 - - Cumulative benefits*: Permanent 19 40 55 62 p y Temporary 16 8 - - Total 35 48 55 62 Low Cost Manufacturing 35% 50% * From base year 2008 35