1st Aug 2014 11:34
LONDON (Alliance News) - Engineering business IMI PLC Friday said it has completed its business review and plans to double operating profit by 2019, even as it reported a fall in profit for the first half of this year.
The company said it has developed a five year plan to "harness its full potential to deliver sustainable accelerated growth and shareholder value."
"The opportunities are significant and that is reflected in our ambition to double the group's 2014 operating profits by 2019," IMI said in a statement.
FTSE100-listed IMI posted pretax profit of GBP105.8 million for the six months ended June 30, down from GBP133.9 million a year earlier, as revenue fell to GBP808 million from GBP832 million, partly due to the strength of sterling.
The company said revenue for its critical engineering division rose 3% on an organic basis, but fell 2% on a reported basis, reflecting the adverse impact of exchange rate movements. Revenue fell to GBP315 million from GBP322 million a year earlier. IMI said order input for the division was down 12%, as it expected, due to a strong period a year ago which included a very large HIPPS order.
Its nuclear division, part of the critical engineering unit, reported a 37% drop in orders, resulting in an exceptional impairment charge of GBP1 million being taken in the first half and the proposed closure of its manufacturing site in Birmingham. IMI said it expects to be hit by GBP10 million in restructuring costs as a result.
The company's precision engineering division also struggled, with revenue down to GBP355 million from GBP363 million a year earlier. It said North American truck revenue fell 6% as expected, reflecting the end of a large contract during 2013, while the Rest of World revenue fell 18%, impacted by lower truck production in Brazil.
IMI Hydronic Engineering saw revenue dip to GBP139 million, from GBP146 million a year earlier, with revenue in Europe flat and market conditions mixed from country to country. Additionally, the North America business continued to underperform with weather related issues impacting revenues by 13% on an organic basis.
Overall group operating margin fell 60 basis points to 17.0%, from 17.6%.
IMI said there are a number of challenges it must address it if is to deliver long-term accelerated growth.
"We need to invest in product development which will become a critical component of our growth plan to build sustainable competitive advantage," the company said.
Birmingham-based IMI said its plan for the critical engineering division will be about "focus and growth". To drive organic growth within the division, the company intends to grow its market share in both the oil and gas and the petrochemical sectors. IMI will also support growth by investing in new plants and potentially expanding the geographic footprint of the division's service network.
Conversely, IMI said it will focus on addressing its precision engineering arm's existing infrastructure, including simplifying the organisational structure, implementing robust systems and improving operational performance. To drive growth organically, the company said it will focus on growing its market share in these end markets.
For the hydronic engineering business, the company said it will improve the division's operational performance and build a pipeline of new products.
"On average our plants in this division scored 36% against our lean benchmarks and plans are already in place to improve this score by over 45% over the next six months and to achieve world class performance by 2018," IMI said.
Over the life of the five year strategic plan, IMI's goal is for an average organic growth rate of around 6% to 8% for both the critical engineering and precision businesses. The company is targeting a growth rate in excess of 5% for the hydronic business.
Looking ahead, IMI said the current strength of sterling is expected to continue to weigh in the second half, impacting both revenues and profits by around 6%. It said on a constant currency basis, it expects to deliver an improved rate of organic revenue growth in the second half.
"While our aim is to progressively self-fund our organic growth initiatives, in the second half margins are expected to be slightly lower compared to the same period last year as we invest in a number of areas to ready our business for accelerated future growth," the company said.
The company increased its interim dividend 6% to 13.6 pence from 12.8 pence.
IMI shares were quoted down 0.4% at 1,419.00 pence Friday afternoon.
By Anthony Tshibangu; [email protected]; @AnthonyAllNews
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