Imi Plc · LSE:IMI
Imi — FY2008 Earnings Presentation
42 slides from Imi's earnings presentation, March 2009
Slide 1: 2008 Results presentation
2008 Results presentation p 4M March h 2009
Slide 2: Agenda
Agenda • Introduction Norman Askew • Review of 2008 results Douglas Hurt • Sector S t performance f D id Ni David Nicholas h l Roy Twite • Focus for 2009 Martin Lamb • Quest Question o aandda answers s es 2
Slide 3: Results overview - highlights
Results overview - highlights • Revenues £1,901m up 19% - organic revenue growth up 5% • Profit before tax* £254.7m up 24% • Adjusted earnings per share** 54.1p up 29% • Full year dividend 20.7p up 2% * Before restructuring, investigation costs and fines, acquired intangible amortisation and impairm
Slide 4: Margin development
Margin g development p Segmental Operating Profit Margin 2008 2007 Severe Service 18.4% 15.4% Fluid Power 13.7% 13.2% Indoor Climate 16.1% 15.7% Beverage Dispense 9.0% 8.7% Merchandising 10 3% 10.3% 11.0% Group 14.0% 13.0% Positive influences: Increased volume New product mix Low cost manufacturing
Slide 5: New product momentum
New product momentum % revenue from products less than 3 years old 2002 2005 2007 2008 Target 4% 7% 13% 14% 15-20% 5
Slide 6: Results overview – continuing businesses
Results overview – continuing g businesses £m 2008 2007 change Segmental operating profit 266.3 207.8 +28 Interest (16.1) ( (12.8) ) Net return on pension plan 3.8 10.5 IAS39 (21.5) 1.6 Net financing (costs)/income (33.8) (0.7) Economic hedge contract costs 2.6 - Financial instruments excluding econ
Slide 7: Results overview – continuing businesses
Results overview – continuing g businesses £m % 2008 2007 change g Profit before tax * 254.7 205.5 +24 Restructuring costs (19.6) (22.0) Investigation costs & fines (26.3) (4.9) Acquired A i d iintangible t ibl amortisation ti ti & impairment (13.2) (10.9) Other income - 1.7 Financial instruments ex
Slide 8: Severe Service investigation
Severe Service investigation • Expect to reach agreement with the US Department of Justice in the near future • Fines under FCPA and incidental breaches of US trade law • Provision for costs and fines of £26.3m 8
Slide 9: Pensions – IAS 19
Pensions – IAS 19 £m 2008 2007 Assets 957 1,120 Liabilities (1,094) (1,184) Y Year end d deficit d fi it (137) (64) • At 31 March 2008 UK plan had a funding deficit of £118m • New additional cash contributions level of £16.8m per annum agreed with Trustee 9
Slide 10: Operating cash flow summary
Operating cash flow summary £m 2008 2007 Year Year Continuing businesses: EBITDA* 269 220 Working capital 1 (11) Capital expenditure (53) (53) Asset sales/other 21 4 Operating cash flow - continuing 238 160 Interest ((16)) ((13)) Tax (54) (37) Cash generation 168 110 Special pension contribution (17
Slide 11: Net cash flow summary
Net cash flow summary £ £m 2008 2007 Year Year Cash flow before corporate activity 151 61 Corporate activity: Acquisitions - (52) Disposals / discontinued - 2 Dividend to minority / others (2) (2) Shareholder activity: Dividends (66) (64) Share buyback / issues (15) (85) Net cash flow 68 (140) Openi
Slide 12: Balance sheet
Balance sheet £m Dec Dec 2008 2007 Shareholders funds 452 407 Net borrowings 299 233 Gearing 66% 57% Continuing businesses: EBITDA 269 220 0 Interest costs 16 13 Debt / EBITDA 1.1x 1.1x EBITDA / interest 16.7x 17.2x 12
Slide 13: Debt summary
Debt summary £m Dec Dec 2008 2007 Bilateral bank facilities 370 245 US S loan notes 200 119 Total 570 364 Average maturity 3.5 yrs 3.1 yrs Undrawn at year end 154 60 Cash balances 124 107 13
Slide 14: Exchange rates – 2009 tailwind
Exchange g rates – 2009 tailwind Average At 26 Feb 2008 2009 % change g Euro 1 26 1.26 1 13 1.13 10 US$ 1.85 1.44 22 Estimated impact on: Revenue + 15% Operating profit + 15% 14
Slide 15: In summary
In summary • Good results for the year • 5% organic growth • Operating margin improved to 14 14.0% 0% • Good cash generation • 2009 currency impact should be favourable • Strong balance sheet 15
Slide 16: Severe Service
Severe Service 2008 2007 £m H1 H2 Year Year Sales 191 252 443 362 g Organic g growth % +3 +15 +9 +18 Operating profit* 31.8 49.5 81.3 55.9 Operating margin %* 16.6 19.6 18.4 15.4 • Strong organic sales growth in H2 • Significant improvement in operating margins * Before investigation costs and fines
Slide 17: Severe Service
Severe Service • Good G performance f by aftermarket f business • Strong bookings in conventional power • Upstream oil and gas markets remained firm • No significant project deferrals or cancellations • New Orton factory expands capabilities • Interest in nuclear continuing to grow • Lower activityy
Slide 18: Fluid Power
Fluid Power 2008 2007 £m H1 H2 Year Year Sales 339 327 666 571 O Organic i growth th % +7 7 -2 2 +3 3 +2 2 Operating p gpprofit 48.2 43.1 91.3 75.4 Operating margin % 14.2 13.2 13.7 13.2 • Strong first half with organic growth of 7% • g Organic decline of 2%% in H2 • Certain markets saw significant
Slide 19: Fluid Power
Fluid Power • Focused on more resilient sectors – rail, rail life sciences sciences, packaging • New product growth • Significant programme of cost reduction implemented • Reduction in headcount • Short-time working arrangements • Procurement initiatives 19
Slide 20: Indoor Climate
Indoor Climate 2008 2007 £m H1 H2 Year Year Sales 135 146 281 207 Organic growth % +7 +6 +6 +7 Operating profit 18.9 26.3 45.2 32.5 Operating margin % 14.0 18.0 16.1 15.7 • Organic growth of 6% in H2 • Balancing business slowed late in H2 • German radiator valve business strong in H2 • East European
Slide 21: Indoor Climate
Indoor Climate • Increased c eased focus ocus oon infrastructure ast uctu e markets a ets - Seminars aimed at infrastructure customers - Focus on p projects j with Government financing g - Engineering support centre - Hungary • Major project wins • 2012 Olympics Main Arena • Continued investment in
Slide 22: Beverage Dispense
Beverage Dispense 2008 2007 £m H1 H2 Year Year Sales 157 148 305 285 Organic growth % +3 -6 6 -1 1 +6 Operating profit 14.3 13.3 27.6 24.8 Operating margin % 9.1 9.0 9.0 8.7 • H2 market conditions more difficult, as expected • Sharp demand reduction from US soft drinks bottlers • UK market very chal
Slide 23: Beverage Dispense
Beverage Dispense • Rapid response to reduced demand • 10% 0% headcount eadcou t reduction educt o • Focus on material cost reduction • Strong g pipeline of new products 23
Slide 24: Merchandising
Merchandising 2008 2007 £m H1 H2 Year Year Sales 89 113 202 174 Organic O ga c ggrowth o t % +9 9 +12 +11 +4 Operating profit 7.4 13.5 20.9 19.2 Operating margin % 8.3 11.9 10.3 11.0 • Positive organic sales growth • Large g supermarket p contract supported pp H2 p performance • Consumer electronics
Slide 25: Merchandising
Merchandising • Sharp margin improvement in H2 • Successful consolidation of US facilities • Effi i Efficiency improvement i t and d material t i l costt reduction d ti • 15% headcount reduction • Acquired outstanding 19.1% minority interest in Display Technologies for c.£20m in January 2009 25
Slide 26: Focus for 2009
Focus for 2009 1. General environment 2. Current activity levels 3. Management actions 4. Prospects • 2009 summary • Longer term 26
Slide 27: Macroeconomics
Macroeconomics Manufacturing PMI data by IMI: 2008 revenue by geography geography 60 RoW 55 5% Emerging UK markets 10% 50 19% 45 N. America 40 28% Western Europe 35 38% 30 25 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Poland Eurozone U.S. China Japan P
Slide 28: Sector trends
Sector trends Sector trends 2008 IMI: 2008 sector split % 60% 50% 40% 30% Energy Factory Energy 20% Infrastructure automation 23% 25% 10% 0% Retail Infrastructure Auto Soft Drinks 5% -10% 4% Construction Truck Retail -20% Truck 6% 9% A t Auto -30% Construction Factory 12% Soft drinks -40% Automation
Slide 29: Current activity levels
Current activity levels • For 3 months to the end of February like for like revenues for the Group are c.15% lower • Fluid Power down nearly 30% • Continued growth in Severe Service Severe Service Fluid Power 3 month revenue Indoor Climate (organic yoy%) +5% - +10% Beverage (5%) - (10%) Dispense Mer
Slide 30: Management actions
Management g actions 1. Resource allocation • Skew in favour of resilient sectors • Oil & gas / nuclear power • Infrastructure • Legislation g • Healthcare • Value retailing / Comfort retailing • Prioritise low risk / quick wins • Value engineering • Customer C t share h gains i 30
Slide 31: Capacity alignment
2 Capacity alignment 2. • Right g sizing g to current business levels • Direct labour flexing • Fixed cost reduction - Facility rationalisation - Restructure operating processes - Retain R t i core capabilities biliti • Accelerate longer term restructuring opportunities • Expansion China / Czech Rep
Slide 32: Product margins
3 Product margins 3. • Optimise selling prices (differentiated products / customer value) • Accelerate material cost savings • Falling commodity prices • Expanded p low cost sourcing g • Value engineering • Salary and wage restraint • Anticipated £30m benefit in 2009 32
Slide 33: Cash optimisation
4 Cash optimisation 4. • Short interval management • Cash conversion > 90% maintained • Capex reduced 33
Slide 34: 2009 summary
2009 summary • Macroeconomic and sector economies remain challenging • Decisive management actions • Pockets of resilience optimised • Leading gpproduct and market p positions • Broad sector and geographical spread • Highly cash generative businesses • Strong St balance b l sheet h t • Dividend main
Slide 35: Longer term
Longer term • Economic recovery • Strengthened market positions • Improved cost position • Balance B l sheet h t capacity it 35
Slide 36: Additional information
Additional information 36
Slide 37: Exchange rates
Exchange g rates 2008 2007 Change Average rates Euro 1.26 1.46 +14% US$ 1.85 2.00 +8% Closing rates Euro 1.03 1.36 +24% 24% US$ 1.44 1.99 +28% I Impact t on 2008: 2008 Revenue R +11% 11% Operating profit +13% 37
Slide 38: Sales and margin development
Sales and margin development 2002 2003 2004 2005 2006 2007 2008 % Sales momentum - organic growth nil +3 3 +5 5 +5 5 +4 +7 +5 5 Segmental Operating margin 9.2 9.8 10.5 12.2 12.7 13.0 14.0 38
Slide 39: Sales bridge
Sales bridge £m 2007 Translation Acquisitions / Organic 2008 (Disposals) Severe Service 362 44 37 443 Fluid Power 571 70 8 17 666 Indoor Climate 207 30 29 15 282 Beverage Dispense 285 24 (4) 305 M h di i Merchandising 174 11 (3) 20 202 Segment revenue 1,599 179 34 85 1,897 IAS39 adjustment 4 Group r
Slide 40: Profit bridge
Profit bridge £m 2007 Translation Acquisitions q / Organic g 2008 (Disposals) Severe Service 55.9 7.7 17.7 81.3 Fluid Power 75.4 9.7 1.5 4.7 91.3 Indoor Climate 32.5 5.9 2.6 4.2 45.2 Beverage Dispense 24.8 2.2 0.6 27.6 Merchandising 19.2 1.5 0.2 20.9 207.8 27.0 4.1 27.4 266.3 40
Slide 41: Group EVA record
Group EVA record • EVA 2008 £104m • Post ta tax ret return rn on in invested ested capital 17%* * Before restructuring costs 41
Slide 42: 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 15 Cumulative benefits 15 42