IMI plc · LSE:IMI
IMI — H1 2014 Earnings Presentation
50 slides from IMI's earnings presentation, Aug 1, 2014
Slide 1: IMI plc Interim Results 2014 & Strategic Review Update
IMI plc Interim Results Presentation IMI plc Interim Results 2014 & Strategic Review Update 1 August 2014
Slide 2: Agenda
IMI plc Interim Results Presentation Agenda ‣ Operational review: Mark Selway – Chief Executive ‣ Financial review Douglas Hurt – Finance Director ‣ Strategic review update Mark Selway ‣ Q&A IMI Executive Team (Formerly Severe Service) (Formerly Fluid Power) (Formerly Indoor Climate)
Slide 3: Highlights
IMI plc Interim Results Presentation Highlights Revenue Adjusted profit before tax2 Operating margins2 £809m Up 3% 1 £126.8m Down 5% 17.0% Down 60bps Cash generation Earnings per share2 Dividend per share £98.6m Down 21% 34.9p Up 10% 13.6p Up 6% ‣ Results broadly in line with expectations ‣ Business
Slide 4: Operational Review: IMI Critical Engineering
IMI plc Interim Results Presentation Operational Review: IMI Critical Engineering (Formerly Severe Service) H1 FX Organic H1 2014 H1 order intake £m 2014 2013 £330m Down 12% organically Revenue 315 (16) 9 322 Oil & Gas down 33% £64m Fossil Power up 9% £50m Organic growth % +3 -3 Nuclear down 37% £23
Slide 5: Operational Review: IMI Precision Engineering
IMI plc Interim Results Presentation Operational Review: IMI Precision Engineering (Formerly Fluid Power) H1 FX Organic H1 2014 H1 Revenue £m 2014 2013 £355m up 4% organically Industrial Automation up 5% £165m Revenue 355 (21) 13 363 Commercial Vehicles up 3% £82m Organic growth % +4 -5 Oil & Gas do
Slide 6: Operational Review: IMI Hydronic Engineering
IMI plc Interim Results Presentation Operational Review: IMI Hydronic Engineering (Formerly Indoor Climate) H1 FX Organic H1 2014 H1 Revenue £m 2014 2013 £139m Up 1% organically Revenue 139 (8) 1 146 Heimeier up 1% £46m Organic growth % +1 -1 TA down 2% £56m Operating profit 23.4 (1.0) (3.3) 27.7 Pn
Slide 7: Outlook
IMI plc Interim Results Presentation Outlook ‣ Current strength of sterling expected to provide significant translational headwind in H2 impacting revenues and profits by approximately 6% On a constant currency basis: ‣ Expect to deliver an improved rate of organic growth in H2 ‣ Margins slightly lo
Slide 8: Financial review
IMI plc Interim Results Presentation Financial review Douglas Hurt – Finance Director
Slide 9: Revenue – continuing operations
IMI plc Interim Results Presentation Revenue – continuing operations £m H1 2014 Translation Organic* H1 2013 Critical Engineering 315 (16) 9 322 Precision Engineering 355 (21) 13 363 Hydronic Engineering 139 (8) 1 146 Group 809 (45) 23 831 % Change on H1 2013 -3% -6% +3% *Given their lack of materia
Slide 10: Operating profit
IMI plc Interim Results Presentation Operating profit £m H1 2014 Translation Organic H1 2013 Critical Engineering 50.8 (2.6) 4.4 49.0 Precision Engineering 63.0 (3.7) (2.7) 69.4 Hydronic Engineering 23.4 (1.0) (3.3) 27.7 Group 137.2 (7.3) (1.6) 146.1 % change on 2013 H1 -6% -5% -1% Operating margin
Slide 11: Income statement
IMI plc Interim Results Presentation Income statement £m H1 2014 H1 2013 Operating profit 137.2 146.1 Restructuring costs - not exceptional (1.5) - Net interest expense (7.3) (8.2) Net pension finance charge (1.6) (4.0) Profit before tax and exceptional items 126.8 133.9 IAS39 adjustment (0.2) (2.4)
Slide 12: Operating cash flow summary
IMI plc Interim Results Presentation Operating cash flow summary £m H1 2014 H1 2013 Continuing businesses 155.0 160.4 Discontinued businesses - 36.4 EBITDA* 155.0 196.8 Inventory (39.5) (39.5) Debtors (26.2) (27.1) Creditors 20.5 15.0 Working capital (45.2) (51.6) Capital expenditure (22.9) (20.2) P
Slide 13: Net cash flow summary
IMI plc Interim Results Presentation Net cash flow summary £m H1 2014 H1 2013 Cash generation 64.9 80.1 Special pension contributions (53.2) - Cash flow before corporate activity 11.7 80.1 Corporate activity: Disposals 662.6 - Dividend to minority / others (2.2) (2.2) Shareholder activity: Return of
Slide 14: Balance sheet
IMI plc Interim Results Presentation Balance sheet £m Jun Jun 2014 2013 Shareholders' funds 425 667 Net debt 232 212 Gearing 55% 32% Continuing businesses: EBITDA 155 160 Interest costs 7.3 8.2 Net debt / EBITDA* 0.7x 0.7x EBITDA / interest 21x 20x * Based on rolling 12 month position
Slide 15: Pensions
IMI plc Interim Results Presentation Pensions £m Jun 2014 Dec 2013 Jun 2013 UK O'seas Total UK O'seas Total UK O'seas Total Assets 1,233 145 1,378 1,147 147 1,294 1,107 144 1,251 Liabilities (1,243) (240) (1,483) (1,210) (242) (1,452) (1,182) (252) (1,434) Accounting deficit (10) (95) (105) (63) (95
Slide 16: Foreign exchange sensitivities 2013 and 2014
IMI plc Interim Results Presentation Foreign exchange sensitivities 2013 and 2014 H1 2014 H1 2013 Change Average rates Euro 1.22 1.18 -3% US$ 1.67 1.54 -8% Ready reckoner for translation impact of movement in FX rates on 2014 FY performance Closing rates Sensitivity to +/- 1 cent move in: Revenue Op
Slide 17: Strategic Review
IMI plc Interim Results Presentation Strategic Review Mark Selway – Chief Executive
Slide 18: Strategic work streams completed
IMI plc Interim Results Presentation Strategic work streams completed Reviewed existing competencies and opportunities 1. ✓ 2. ✓ 3. ✓ 4. ✓ Markets Manufacturing Collaboration Investment Customers operations Synergies for growth Products Product Economies of Acquisitions development scale Peers Syste
Slide 19: First impressions remain valid
IMI plc Interim Results Presentation First impressions remain valid ‣ Focused specialist flow control business ‣ Skilled and committed people ‣ Market-leading engineering expertise ‣ Strong long-term relationships with world-class customers ‣ Value based pricing ‣ Strong balance sheet
Slide 20: Key challenges identified
IMI plc Interim Results Presentation Key challenges identified ‣ New capital investment required ‣ IT systems (56 different unaligned systems) ‣ Facilities ‣ Increased investment needed in product development ‣ Complex organisational structure ‣ Lack of acquisition integration ‣ No standardisation o
Slide 21: Strategic Review Key Findings
IMI plc Interim Results Presentation Strategic Review Key Findings
Slide 22: Critical Engineering: Market and positioning
IMI plc Interim Results Presentation IMI Critical Engineering (Formerly Severe Service) Market and positioning Petrochemical & Power Oil & Gas Actuation ‣ Almost £7bn Metals 2013 Revenue* (£m) 277 186 156 37 Market Attractiveness addressable market Market size (£m) 1,343 3,108 1,152 1,080 Market gro
Slide 23: IMI Critical Engineering Lean assessments
IMI plc Interim Results Presentation IMI Critical Engineering Lean assessments Original Score Improvement target ‣ All major sites 60 benchmarking complete ‣ Lean divisional team in 50 place 40 ‣ Average divisional score % Score 30 26% 20 ‣ 6 month Improvement Target Score 43% 10 ‣ > 60% rate of 0 1
Slide 24: IMI Critical Engineering Focus and grow
IMI plc Interim Results Presentation IMI Critical Engineering Focus and grow 1. 2. 3. 4. Capitalise on Invest to support Enhance Acquisitions to attractive growth growth markets systems and support growth in existing processes markets ‣ Our goal is 6 - 8% ‣ New larger sites in ‣ New product ‣ Add st
Slide 25: Precision Engineering: Market and positioning
IMI plc Interim Results Presentation IMI Precision Engineering (Formerly Fluid Power) Market and positioning Industrial Automation Commercial Vehicle Oil & Gas Life Sciences ‣ £14bn addressable Market Attractiveness 2013 Revenue (£m) 423 165 85 50 market opportunity ‣ Challenging Market size (£m) 9,
Slide 26: IMI Precision Engineering Lean assessments
IMI Precision Engineering Lean assessments Original Score Improvement target ‣ All major sites 65 benchmarking complete 55 ‣ Lean divisional team 45 in place ‣ Average divisional 35 % Score 25 score 32% 15 ‣ 6 month Improvement Target Score 45% 5 ‣ > 40% rate of Site -5 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8
Slide 27: IMI Precision Engineering Supply chain complexity
IMI Precision Engineering Supply chain complexity UK Customer IMI Factory IMI Marketing Company European Distribution Centre Step 1 UK customer sends order to EDC via UK marketing company Step 2 EDC places same order to UK factory Step 3 UK factory makes product and ships to EDC Step 4 EDC ships pro
Slide 28: IMI Precision Engineering Standard costing
IMI plc Interim Results Presentation IMI Precision Engineering Standard costing ▸ Standard costing is most suited to organisations with repetitive assembly work ▸ Precision Engineering is introducing standard costing to understand which sectors Commercial Life Industrial and products incur what Vehi
Slide 29: IMI Precision Engineering Fix, focus and grow
IMI plc Interim Results Presentation IMI Precision Engineering Fix, focus and grow 1. 2. 3. 4. 5. Fix the basics in Grow emerging Increase plant Revitalise Future the next two market local utilisation industrial opportunity for years manufacturing automation larger content and grow acquisitions to o
Slide 30: Hydronic Engineering: Market and positioning
IMI plc Interim Results Presentation IMI Hydronic Engineering (Formerly Indoor Climate) Market and positioning IMI TA IMI Heimeier IMI Pneumatex Thermostatic ‣ £2bn addressable Balancing Control Pressurisation Water Quality Market Attractiveness Control market opportunity 2013 Revenue (£m) 131 26 10
Slide 31: IMI Hydronic Engineering Lean assessments
IMI Hydronic Engineering Lean assessments Original Score Improvement target ‣ All major sites 80 benchmarking complete 70 ‣ Lean divisional team in 60 place 50 ‣ Average divisional score 36% % Score 40 30 ‣ 6 month Improvement Target Score 55% 20 10 ‣ > 45% rate of improvement 0 1 2 3 4 5 6 7 8 9 Si
Slide 32: IMI Hydronic Engineering Focus and grow
IMI plc Interim Results Presentation IMI Hydronic Engineering Focus and grow 1. 2. 3. 4. Capitalise on Increase new Optimise Acquisitions European product organisational leadership development structure position ‣ Our goal is >5.0% ‣ 14 new products ‣ Introduce core ‣ Potential bolt-on organic CAGR
Slide 33: IMI Hydronic Engineering New product pipeline
IMI plc Interim Results Presentation IMI Hydronic Engineering New product pipeline 2008 to 2014 2014 2013 2015 2012 H1 H2 5 new products 7 new products 7 new products 5 new product 7+ new product launched launched launched launches planned launches planned ‣ Potable water ‣ TA-SCOPE light valves (US
Slide 34: What does this all mean?
IMI plc Interim Results Presentation What does this all mean?
Slide 35: Well positioned in attractive markets
IMI plc Interim Results Presentation Well positioned in attractive markets High Oil & Gas - CE Best in class = c. £1bn market size ‣ Attractive high growth markets Power Oil & Gas - PE with good competitive positions Control Market Attractiveness Industrial Life Sciences TRV Automation Balancing Wat
Slide 36: Significant opportunity to improve competitiveness
IMI plc Interim Results Presentation Significant opportunity to improve competitiveness Average lean scores by division ‣ Significant excess installed capacity Worldclass >85% Cultural Awareness ‣ Increased efficiencies will Visual Management Level Production & Housekeeping improve competitiveness ‣
Slide 37: New brand and divisional names
IMI plc Interim Results Presentation New brand and divisional names ‣ Unifies brand globally across the Group
Slide 38: New brand and divisional names
IMI plc Interim Results Presentation New brand and divisional names ‣ Unifies brand globally across the Group
Slide 39: Global intranet to improve performance
IMI plc Interim Results Presentation Global intranet to improve performance ‣ Launched to plan The Global Intranet Core process reporting Lean benchmark in June 2014 ‣ Promotes best practice and overall performance ‣ Benchmarks all core processes including Lean
Slide 40: Cultural change and employee engagement
IMI plc Interim Results Presentation Cultural change and employee engagement ‣ IMI Way enhanced to cover all core values, behaviours, processes and procedures
Slide 41: Cultural change and employee engagement
IMI plc Interim Results Presentation Cultural change and employee engagement ‣ Core messages & strategy presented at the Group and Divisional Conferences ‣ 94% employee engagement ‣ New simpler management and employee incentive schemes developed ‣ Clearly aligned to strategy (2015 rollout)
Slide 42: Acquisition road map
IMI plc Interim Results Presentation Acquisition road map ‣ Focus on bolt-on, product in-fill, semi- severe and configured ‣ Fix and focus and then target more significant acquisitions (e.g. non-core businesses of large multi-nationals) ‣ Consider opportunities to strengthen position in North Americ
Slide 43: Broadening the acquisition universe
IMI plc Interim Results Presentation Broadening the acquisition universe ‣ Potential to double addressable market ‣ Leverage existing positions in attractive end markets i.e. Oil & Gas ‣ Non valve related products and businesses Geographies Market dynamics Products ✓✓North America Growth rate >5%
Slide 44: Financial discipline continues
IMI plc Interim Results Presentation Financial discipline continues ‣ Group to continue to focus on strong cash generation ‣ Capital allocation priorities: ‣ reinvest for organic growth ‣ progressive dividend policy ‣ acquisitions to supplement organic growth ‣ return excess capital to shareholders
Slide 45: Financial metrics
IMI plc Interim Results Presentation Financial metrics Key ambition is to double operating profits over 5 years Metric Objective Revenue Growth Execute on organic growth programmes. Supplement organic with targeted acquisitions Margins Progressively fund self-help initiatives while maintaining margi
Slide 46: Strategic summary
IMI plc Interim Results Presentation Strategic summary “A mixture of self help and targeted investment” 1. Improve operational 4. Maintain financial performance to fund growth and discipline maintain margin 2. Capitalise on significant organic growth opportunities 3. Expand addressable market in car
Slide 47: Strategy execution
IMI plc Interim Results Presentation Strategy execution Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 2014 2015 2016 2017 2018 2019 ✓ “The hard work begins” “Increased investment” “Benefits starting to “Nearly firing on all “Up to full speed” “Double operating show” cylinders” profits” Organic initiativ
Slide 48: Summary
IMI plc Interim Results Presentation Summary ✓ H1 2014 broadly in line with expectations ✓ Strategic review completed ✓ New accelerated growth strategy in place ✓ Opportunities are substantial ✓ Ambition to double operating profits over 5 years
Slide 49: Q&A The Executive Team
IMI plc Interim Results Presentation Q&A The Executive Team
Slide 50: N Engineering
N Engineering GREAT the IMI Way