31st Jul 2015 12:34
LONDON (Alliance News) - FTSE 250-listed engineering company IMI PLC on Friday said its pretax profit fell in the first half due to lower revenue, as the group said it expects the same challenging market trends to continue into the second half and said it is restructuring its European nuclear manufacturing operation and its Brazilian commercial vehicle business.
IMI said pretax profit in the six months to the end of June was GBP87.1 million, down from the GBP105.8 million it posted a year earlier, as revenue fell 4.5% to GBP772 million from GBP808 million. The group said the half was characterised by tough trading conditions in a number of its key markets, but said the outcome was broadly in line with its expectations.
The fall in revenue is slightly sharper than the 4% decline it had reported for the first quarter, indicating conditions deteriorated in the second. Back in May, IMI said it expected its organic revenue and margins to be weaker in the first half due to tough market conditions, currency effects and order delays.
It said it will pay an interim dividend of 13.9 pence per share, up from 13.6p a year earlier.
"Despite continuing challenging economic and market conditions in a number of our key sectors, we delivered results broadly in line with expectations and continued to execute our strategic plan," said Mark Selway, IMI's chief executive.
"In the remainder of the year organic revenue is expected to have a comparable percentage reduction to the first half result. Second half margins, supported by improved results in Critical together with second half seasonality and new product sales in Hydronic, are expected to be broadly equivalent to the second half of 2014," Selway added.
IMI shares were down 3.0% to 1,046.00 pence Friday afternoon.
IMI said revenue in its Critical Engineering flow control business fell to GBP278 million from GBP295 million. In contrast to many engineering companies, which have been hit by a downturn in activity in the oil and gas industry, IMI said oil and gas order input in the first half continued to be strong, rising 8% on the back of large liquefied natural gas orders in the US and some significant project wins in the Middle East.
As anticipated, however, nuclear, petrochemical and fossil power orders for the division softened in the half due to slowing market conditions, particularly in China. IMI does expect an improvement in orders in the second half of the year, but organic revenue is set to show a similar slide to the first half.
Due to the poor medium-term outlook for the nuclear sector, however, IMI said the acquisition of Bopp & Reuther, the German manufacturer bought in November last year for EUR152.6 million, has provided an opportunity to consolidate its existing European nuclear manufacturing operations and base them at Bopp & Reuther's facility in Mannheim. The restructuring will mean IMI will close its Swiss nuclear manufacturing operation, on which it will book a GBP11 million cost this year. It said the move will result in annual savings of GBP3 million.
Precision Engineering, IMI's motion and fluid control technologies arm, saw revenue dip slightly to GBP342 million from GBP344 million, as strong growth in commercial vehicle, rail and life sciences sales were offset by weakness in its industrial automation, oil and gas, and food and beverage markets. Europe and North America trading was broadly flat year-on-year, but significant pressures were again seen from the struggling Brazilian and Chinese economies.
The weakness in Brazil's commercial vehicle sector has pushed IMI to cut its workforce in the country by a third, with the remaining employees working a four-day week until the market conditions improve.
IMI said revenue at its Hydronic Engineering business, which manufactures energy-efficient products such as water-based heating and cooling systems, was slightly higher, up to GBP128 million from GBP127 million, as sales of newly-launched products offset a 2% decline in the European construction market, along with currency revaluation related to products made in Switzerland and sold in European markets.
Michael Blogg, an analyst at Investec, said the restructuring programme being carried out by IMI Chief Executive Selway is happening against an increasingly difficult market backdrop in terms of end markets and exchange rate movements. But Blogg said this does not detract from the long-term good sense of the moves Selway is making.
By Sam Unsted; [email protected]; @SamUAtAlliance
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