5th Sep 2005 07:02
IMI PLC05 September 2005 5 September 2005 IMI plc 2005 First Half Results IMI plc, the major international engineering group, today announced its interimresults for the six months ended 30 June 2005. 2005 2004 % changeContinuing businesses:Sales £641m £604m +6.1Operating profit * £72.1m £62.9m +14.6 Total:Sales £824m £801m +2.9Operating profit * £87.1m £79.1m +10.1 Total profit before tax * £82.4m £77.1m +6.9 Adjusted earnings per share ** 16.0p 14.2p +12.7 Exceptional loss on disposal/closure (£98.0m) - Basic (loss)/earnings per share (12.0p) 14.1p Basic earnings per share - continuing businesses 12.1p 11.0p +10.0 Dividend 6.65p 6.3p +5.6 * before intangible amortisation and exceptional items** before change in fair value of financial instruments, intangible amortisationand exceptional items Norman Askew, Chairman, of IMI commented: "I am pleased to report that continuing businesses maintained their steadyprogress with operating profit increasing by around 15%. The sale of thePolypipe businesses, also announced today, continues the Group's strategicdevelopment under the leadership of Martin Lamb. "We remain confident that our continuing businesses in Fluid Controls and RetailDispense are capable of delivering attractive long term growth." CHAIRMAN'S STATEMENT In my first statement as Chairman, I am pleased to report that continuingbusinesses maintained their steady progress with operating profit increasing byaround 15%. The sale of the Polypipe businesses, completed on 2 September 2005,continues the Group's strategic development under the leadership of Martin Lamb.This strengthens further our balance sheet capacity and we will continue toreview our capital management programme together with our declared intention ofgrowing our continuing businesses both organically and through acquisition. In February, we added to our Fluid Power business by acquiring US based SyronEngineering and we continue to pursue a number of acquisition targets which fitour strategic objectives. By the end of June we had spent £33.6m through the on-market share buy-backprogramme and we will look to purchase further shares into treasury asappropriate. In line with its policy of linking dividend growth to growth in adjustedearnings, the Board has decided to increase the interim dividend by 5.6% to6.65p (2004: 6.3p). Sale of Polypipe The Polypipe businesses previously included under Building Products have beensold to a leading New York based private equity investment fund, Castle HarlanPartners IV L.P. The proceeds of the transaction are worth up to £293mcomprising £219m payable in cash immediately on completion, a further £39mvendor loan note and a contingent consideration of £35m based on performancetargets for the three years ending 31 December 2007. The results of the Polypipe businesses for the six months to June 30 areincluded in these interim results under discontinued businesses. The annualresults for 2005 will include the results of the Polypipe businesses for theeight months to 31 August 2005. The book value of the goodwill and operating assets at the date of sale isexpected to be £335-340m and the loss on sale has been estimated at £90m andshown as an exceptional item. In arriving at this estimate, the contingentconsideration has not been recognised. The Polypipe Doors and Windows division has been closed at a cost of around £8mwhich is also shown as an exceptional item. Results summary The results have been prepared under International Financial Reporting Standards("IFRS") and the 2004 comparatives have been restated. Following theannouncement of the sale of Polypipe, the results have been analysed betweencontinuing and discontinued operations. The impact of exchange rate movements on sales and profit for the period was notmaterial. Sales from continuing businesses at £641m were 6% ahead of last year including£18m from acquisitions. Operating profit from continuing businesses beforeintangible amortisation was £72.1m, nearly 15% ahead, including £2.2m fromacquisitions. Profit after intangible amortisation at £70.2m was 13% ahead. Discontinued businesses comprised a full six months trading of the Polypipebusinesses except for the Doors and Windows division which was closed during theperiod. Sales at £183m and operating profit (before exceptional items) at £15.0mwere both around 7% lower than last year. Total operating profit before goodwill amortisation and exceptional items was£87.1m compared to £79.1m, an increase of 10%. Interest costs on net borrowings were similar to last year and were covered 18times. Other net financial costs, comprising the impact of pension fundfinancing under IAS 19 and the change in fair value of financial instrumentsunder IAS 39, had the effect of increasing the net financing costs from £2.0mfor the same period in 2004 to £4.7m. Total profit before tax, intangible amortisation and exceptional items was£82.4m (2004: £77.1m), an increase of 7%. Total profit before tax andexceptional items was £80.5m (2004: £76.3m). The effective tax rate for the year on profit before intangible amortisation andexceptional items is 32% compared to 33% in 2004. Adjusted earnings per share (excluding the change in the fair value of financialinstruments, intangible amortisation and exceptional items) is 16.0p compared to14.2p, an increase of 12.7%. The impact of exceptional items results in a basicloss per share of 12.0p (2004: 14.1p earnings). Cash flow Operating cash flow for the first half reflects the normal seasonal workingcapital outflow of around £49m (2004: £47m). Operating cash flow generated bydiscontinued businesses was £9m (2004: £2m). Payment of the EU fine in respectof the copper plumbing tube enquiry (£31m), acquisitions (£19m) and dividends(£36m), absorbed £86m and £34m was used to buy back shares. As a result, totalcash outflow for the period was £100m. Balance sheet Closing net debt was £196m (June 2004: £159m), an increase of £120m from thestart of the year including a £9m adverse impact caused by currency movements,mainly from a stronger US dollar. The debt to EBITDA ratio at the end of Junewas 0.8. Total shareholders' equity reduced by £103m from the start of the year, largelyas a result of the exceptional items and the share buy back. Balance sheetgearing was 43%. Outlook Trading in the second half is expected to follow the same pattern as the firsthalf with the US and Asian markets remaining robust and European end-marketssubdued. Despite our concern about European markets, we expect to deliverfurther progress in the second half. We remain confident that our continuingbusinesses in Fluid Controls and Retail Dispense are capable of deliveringattractive long term growth. OPERATIONS REVIEW The following is a review of our business areas for the six months to 30 June2005. Comparisons are against the first half of 2004. Operating profit is statedbefore intangible amortisation and arrived at on the basis of IFRS. Thecomparative figures for 2004 have been restated where necessary. Severe Service Our Severe Service business continues to benefit from buoyant power and oil andgas markets. Although flattered by a comparatively weak 2004 shipmentperformance, sales and operating profit increased respectively by 19% to £88m(2004: £74m) and 25% to £10.0m (2004: £8.0m). Our current growth is being drivenby winning new valve projects and this is reflected in the run rate of orderintake which is some 15%-20% ahead of this time last year. The Asian and MiddleEast markets are particularly strong at present with planned new constructionand production activity increasing. Our flexible approach to exploiting marketdemand means more of our resources are currently focused on these opportunitiesand, although still healthy, our customer service business is showingcomparatively modest growth. While oil and natural gas prices continue at highlevels we expect demand for new valve projects to remain strong. Fluid Power The first half performance in Fluid Power maintained the encouraging momentumshown throughout last year. The success of our sector strategy continues andwith the US and Asian markets remaining strong, we were able to achieve organicgrowth of 5% despite generally weak European end markets. Syron, acquired inFebruary 2005, and FAS both performed well and between them contributed sales of£18m and operating profit of £2.2m. Total sales at £243m (2004: £214m) andoperating profit at £28.7m (2004: £20.6m) were respectively around 14% and 39%ahead of last year. The global truck sector has been very strong for us in theUS, UK and Germany and the presence of FAS has already strengthened our positionin the medical sector. We are very encouraged by the success of the new productslaunched over the last year or so and this will continue to be a focus of ourattention. Work also continues on ensuring that the manufacturing andengineering resource is properly aligned for the future needs of the business. Indoor Climate Overall volumes in Indoor Climate were flat with some modest growth in balancingvalves and markets outside our core European heartland offset by lowerthermostatic radiator valves (TRVs) in Germany. Sales were £83m (2004: £82m) andoperating profit slightly lower than last year at £11.3m (2004: £11.8m). Therecovery seen in sales of TRVs in the first half of 2004 was short lived andsales in the first half of 2005 are around 4% lower than last year. The Germanconstruction market remains weak with no sign of any improvement in the shortterm. We are enjoying some success in extending our balancing valve concept toselected markets with good momentum building in Eastern Europe, US and MiddleEast. We continue to win good UK project opportunities. Beverage Dispense In Beverage Dispense the US enjoyed another period of steady growth. Despite theanticipated slowdown in spend by one of our major customers, our brand owner andfoodservice business performed well, helped by increased same store restauranttraffic leading to further releases of capital. Cornelius had the honour to berecognised by YUM! Brands as its "Global Equipment Supplier of the Year". InEurope, sales of carbonated soft drinks dispense equipment continued to slowwhile Asia Pacific recorded strong growth across the whole of the region. Asexpected, the beer market in Europe remained weak with little sign of any shortterm recovery. The UK beer market, following a period of decline, has recentlybeen more encouraging. Eastern Europe continues to offer promise and we aredeveloping our capability to access directly the growing Ukraine and Russianmarkets with specifically designed and locally made products. Operationalefficiencies and low cost sourcing continue to make progress. Sales for theperiod were £141m (2004: £142m) and operating profit £14.0m (2004: £13.1m) anincrease of 7%. Merchandising Systems The strong performance of our Merchandising Systems business in the first halfof 2004, which benefited from the shipment of some large projects, was alwaysgoing to be difficult to match. With the US automotive sector in particularaffected by the absence of the Scion (Toyota) project, sales at £86m (2004:£92m) were 7% lower and operating profit at £8.1m (2004: £9.4m) 14% lower. Withless project based sales expected in 2005 as a whole, underlying automotivesector activity will be centred around the traditional new model launches in theAutumn. Aided by customer product launches in Europe, sales in the cosmeticssector were ahead of last year and our visi-slide merchandising conceptcontinues to do well in the beverage sector. In grocery, bulk food displaysystems and front end merchandising units achieved good results and there wassome further growth in our traditional Cannon display carts. The input costincreases seen in the last eighteen months have now been largely mitigated byreductions in our US cost base and lower cost sourcing initiatives. Polypipe The markets for the Polypipe businesses were generally weaker than 2004 althoughthe pricing environment improved. With its market position deteriorating theDoors and Windows division was closed. Polypipe achieved operating profit of£15.0m (2004: £16.2m). CONSOLIDATED INTERIM INCOME STATEMENT 6 months to 30 June 2005 6 months to 30 June 2004 Year to 31 December 2004 Before Before Before exceptional Exceptional exceptional exceptional items and items and items and items and intangible intangible intangible intangible amortisation amortisation Total amortisation Total amortisation Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Notes £m £m £m £m £m £m £m --------------------------------------------------------------------------------------------------RevenueContinuing operations 2 641 641 604 604 1239 1239Discontinued operations 3 183 183 197 197 372 372 ---------------------------------------- -------------------------- ---------------------------Total revenue 824 824 801 801 1611 1611 ---------------------------------------- -------------------------- ---------------------------Operating profit/(loss) Continuing operations 2 72.1 (1.9) 70.2 62.9 62.1 137.2 131.4Discontinued operations 3 15.0 - 15.0 16.2 16.2 27.2 27.2 ---------------------------------------- -------------------------- ---------------------------Total operating profit/(loss) 87.1 (1.9) 85.2 79.1 78.3 164.4 158.6Estimated loss on disposal & closure costs 3 - (98.0) (98.0) - - - -European Commission enquiry 10 - - - - - - (33.1) ---------------------------------------- -------------------------- ---------------------------Profit/(loss) before financing costs 87.1 (99.9) (12.8) 79.1 78.3 164.4 125.5 ---------------------------------------- -------------------------- ---------------------------Net interest (4.8) - (4.8) (4.8) (4.8) (9.2) (9.2)Other financial income 3.0 - 3.0 2.8 2.8 5.9 5.9Other financial expenses (2.9) - (2.9) - - - - ---------------------------------------- -------------------------- ---------------------------Net financing costs 4 (4.7) - (4.7) (2.0) (2.0) (3.3) (3.3) ---------------------------------------- -------------------------- ---------------------------Profit/(loss) before tax ---------------------------------------- -------------------------- ---------------------------Continuing businesses 67.4 (1.9) 65.5 60.9 60.1 133.9 128.1Discontinued businesses 15.0 (98.0) (83.0) 16.2 16.2 27.2 (5.9) ---------------------------------------- -------------------------- ---------------------------Total profit/(loss) before tax 82.4 (99.9) (17.5) 77.1 76.3 161.1 122.2Income taxexpense 5 (26.4) 3.1 (23.3) (25.9) (25.6) (54.5) (52.9) ---------------------------------------- -------------------------- ---------------------------Profit/(loss)for the period ---------------------------------------- -------------------------- ---------------------------Continuing businesses 45.6 (1.3) 44.3 40.1 39.6 88.1 83.9 ---------------------------------------- -------------------------- ---------------------------Discontinued businesses 3 10.4 (95.5) (85.1) 11.1 11.1 18.5 (14.6) ---------------------------------------- -------------------------- ---------------------------Total profit/(loss) for the period 56.0 (96.8) (40.8) 51.2 50.7 106.6 69.3 ---------------------------------------- -------------------------- ---------------------------Attributable to:Equity holders of the parent (42.3) 49.9 67.5Minority interest 1.5 0.8 1.8 ------- ------- -------Total profit/(loss) for the period (40.8) 50.7 69.3 ------- ------- ------- Earnings per shareBasic earnings per share 7 (12.0p) 14.1p 19.1pContinuing businesses 12.1p 11.0p 23.2pAdjusted earnings per share 7 16.0p 14.2p 29.5pContinuing businesses 13.1p 11.1p 24.3pDiluted earnings per share 7 (11.9p) 14.0p 18.9p CONSOLIDATED INTERIM BALANCE SHEET 2005 2004 30 June 30 June 31 Dec (unaudited) (unaudited) (unaudited) £m £m £m --------------------------------------------------- Assets Property, plant and equipment 185.6 280.4 279.7 Intangible assets 172.9 324.4 333.4 Deferred tax assets 55.8 63.3 61.7 --------------------------------------------------- Total non-current assets 414.3 668.1 674.8 --------------------------------------------------- Inventories 203.7 251.9 248.1 Trade and other receivables 285.0 364.9 307.7 Investments 8.6 8.3 8.0 Cash and cash equivalents 84.1 87.7 120.7 Disposal group assets classified as held for sale 300.2 - - --------------------------------------------------- Total current assets 881.6 712.8 684.5 --------------------------------------------------- Total assets 1295.9 1380.9 1359.3 --------------------------------------------------- Liabilities Bank overdraft (3.3) (16.7) (5.3) Interest-bearing loans and borrowings (62.2) (82.1) (55.2) Trade and other payables (303.8) (376.9) (364.3) Exceptional payables - EC fine - - (31.3) Disposal group liabilities classified as held for sale (59.7) - - --------------------------------------------------- Total current liabilities (429.0) (475.7) (456.1) --------------------------------------------------- Interest-bearing loans and borrowings (214.1) (147.7) (135.9) Employee benefits (130.0) (133.6) (131.4) Other payables (24.7) (29.0) (28.4) Provisions (34.2) (31.5) (41.3) Deferred tax liabilities (8.4) (7.1) (8.3) --------------------------------------------------- Total non-current liabilities (411.4) (348.9) (345.3) --------------------------------------------------- Total liabilities (840.4) (824.6) (801.4) --------------------------------------------------- Net assets 455.5 556.3 557.9 --------------------------------------------------- Equity Issued capital 89.2 88.5 88.7 Share premium 145.1 138.3 139.9 Treasury shares (33.6) - - Reserves 1.6 1.6 1.6 Retained earnings 248.4 323.8 323.7 --------------------------------------------------- Total equity attributable to equity holders of the parent 450.7 552.2 553.9 Minority interest 4.8 4.1 4.0 ---------------------------------------------------Total equity 455.5 556.3 557.9 --------------------------------------------------- CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS 6 months to 6 months to Year to 30 June 30 June 31 Dec 2005 2004 2004 (unaudited) (unaudited) (unaudited) £m £m £m -------------------------------------------------- Cash generated from the operations (Note 8) 67.4 62.2 239.4Interest paid (9.7) (9.1) (17.4)Income taxes paid (25.6) (28.0) (52.3) --------------------------------------------------Net cash from operating activities 32.1 25.1 169.7 -------------------------------------------------- EC fine (31.3) - - -------------------------------------------------- Cash flows from investment activitiesProceeds from sale of plant equipment & property 2.6 1.5 4.0(Purchase of)/proceeds from sale of investments - (0.2) 0.2Interest received 4.9 4.3 8.2Acquisition of subsidiary, net of cash acquired (18.8) (1.4) (20.9)Acquisition of property, plant and equipment (21.4) (21.3) (50.8)Development expenditure (3.3) (1.3) (2.8) --------------------------------------------------Net cash from investing activities (36.0) (18.4) (62.1) -------------------------------------------------- Cash flows from financing activitiesProceeds from the issue of share capital 5.8 2.0 3.8Purchase of own shares (33.6) - -Drawdown/(repayment) of borrowings 75.6 28.9 (9.8)Dividends paid to minorities (0.9) (0.3) (1.3)Dividends paid (36.2) (33.6) (55.9) --------------------------------------------------Net cash from financing activities 10.7 (3.0) (63.2) -------------------------------------------------- Net (decrease)/increase in cash and cash equivalents (24.5) 3.7 44.4Cash and cash equivalents at start of period 115.4 66.9 66.9Effect of exchange rate fluctuations on cash held 0.4 0.4 4.1 --------------------------------------------------Cash and cash equivalents at end of period 91.3 71.0 115.4 -------------------------------------------------- Reconciliation of net cash to movement in netborrowings Net(decrease)/increase in cash and cash equivalents (24.5) 3.7 44.4(Drawdown)/repayment of borrowings (75.6) (28.9) 9.8 --------------------------------------------------Cash (outflow)/inflow (100.1) (25.2) 54.2Currency translation differences (9.2) 10.8 14.5 --------------------------------------------------Movement in net borrowings in the period (109.3) (14.4) 68.7Disposal group assets classified as held for sale (10.5) - -Net borrowings at the start of the period (75.7) (144.4) (144.4) --------------------------------------------------Net borrowings at the end of period (195.5) (158.8) (75.7) -------------------------------------------------- CONSOLIDATED INTERIM STATEMENT OF RECOGNISED INCOME AND EXPENSE 6 months to 6 months to Year to 30 June 2005 30 June 2004 31 Dec 2004 (unaudited) (unaudited) (unaudited) £m £m £m -------------------------------------------------- Foreign exchange translation differences 0.2 - 2.3Actuarial (losses)/gains on defined benefit plans (net of deferred tax) (2.3) 0.4 3.9Net gain/(loss) on hedge of net investment in foreign subsidiaries 3.9 (2.3) (4.5) -------------------------------------------------- Income and expense recognised directly in equity 1.8 (1.9) 1.7 (Loss)/profit for the period (40.8) 50.7 69.3 --------------------------------------------------Total recognised income and expense for the period (39.0) 48.8 71.0 -------------------------------------------------- Attributable to: Equity holders of the parent (40.5) 48.0 69.2 Minority interest 1.5 0.8 1.8 --------------------------------------------------Total recognised income and expense for the period (39.0) 48.8 71.0---------------------------------------------------------------------------------------------- STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 6 months to 6 months to Year to 30 June 2005 30 June 2004 31 Dec 2004 (unaudited) (unaudited) (unaudited) £m £m £m -------------------------------------------------- Shareholders' equity at start of period 553.9 535.1 535.1 Total recognised income and expense for the period (40.5) 48.0 69.2 Dividends (36.2) (33.6) (55.9)Share based payments (net of deferred tax) 1.3 0.7 1.7 Issue of ordinary shares net of costs 5.8 2.0 3.8Purchase of own shares into treasury (33.6) - - -------------------------------------------------- (62.7) (30.9) (50.4) -------------------------------------------------- Shareholders' equity atend of period 450.7 552.2 553.9 -------------------------------------------------- NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated financial statements of the Group, for the year ending 31 December 2005, be prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the EU ("adopted IFRS"). The transition date for the application of IFRS is 1 January 2004. The comparative figures for 30 June 2004 and 31 December 2004 have been restated to reflect the transition to IFRS and reconciliations of profit and equity from UK GAAP to IFRS are presented in Appendix 2, as well as a reconciliation of equity at 1 January 2004. This interim financial information has been prepared on the basis of the recognition and measurement requirements of IFRS in issue that either are endorsed by the EU and effective (or available for early adoption) or are expected to be endorsed and effective (or available for early adoption) at 31 December 2005, the Group's first annual reporting date at which it is required to use adopted IFRS. Based on these IFRS the directors have made assumptions about the accounting policies expected to be applied when the first annual IFRS financial statements are prepared for the year ending 31 December 2005. In particular, the directors have assumed that the EU will endorse the amendment to IAS19 'Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures' issued in December 2004 electing to present actuarial gains and losses arising on defined benefit pension schemes in the Statement of Recognised Income and Expense. However, the adopted IFRS that will be effective (or available for early adoption) in the annual financial statements for the year ending 31 December 2005 are still subject to change and to additional interpretations and therefore cannot be determined with certainty. Accordingly, the accounting policies for that annual period will be determined finally only when the annual financial statements are prepared for the year ending 31 December 2005. The accounting policies used in the preparation of these financial statements under IFRS are provided in Appendix 1. As permitted, these interim financial statements have been prepared in accordance with the UK listing rules and not in accordance with IAS34 'Interim Financial Reporting'. The comparative figures for the year ended 31 December 2004 are not the Company's statutory accounts for that financial year. Those accounts, which were prepared under UK GAAP, have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the Auditors was unqualified and did not contain statements under S237(2) or (3) of the Companies Act 1985. A reconciliation has been provided in Appendix 2. The consolidated interim financial statements were authorised by the Board for issuance on 5 September 2005. When preparing the Group's IFRS balance sheet at 1 January 2004, the date of transition, the following optional exemptions from full retrospective application of IFRS accounting policies have been adopted: a) Business combinations - the provisions of IFRS 3 'Business Combinations' have been applied prospectively from 1 January 2004. As a result; • goodwill recognised as an asset under UK GAAP as at 31 December 2003 has not been revised retrospectively to identify and extract intangible assets to berecognised separate from goodwill. The carrying amount of goodwill brought forward in the opening IFRS balance sheet is that recorded under UK GAAP; and • goodwill written-off directly to reserves under UK GAAP will not be taken into account in determining any gain or loss on the disposal of acquired businesses on or after 31 December 2003. b) Employee benefits - the accumulated actuarial gains and losses in respect of employee defined benefit plans have been recognised in full through reserves. In addition, the Group has chosen to restate comparative information with respect to IAS32 'Financial Instruments: Disclosure and Presentation', IAS39 'Financial Instruments: Recognition and Measurement' as allowed under IFRS1 'First-time Adoption of IFRS' applied and IFRS2 'Share Based Payment' to share options granted on or after 7 November 2002. 2. Segmental analysis Segment reporting Segment information is presented in the consolidated interim financial statements in respect of the Group's business segments, which are the primary basis of segment reporting. The business segment reporting format reflects the Group's management and internal reporting structure. Revenue Operating Profit -------------------------- -------------------------- 6 mths 6 mths Year 6 mths 6 mths Year to to to to to to 30 June 30 June 31 Dec 30 June 30 June 31 Dec 2005 2004 2004 2005 2004 2004 £m £m £m £m £m £m -------------------------- -------------------------- before exceptional items and intangible amortisationFluid Controls 414 370 784 50.0 40.4 90.3 ---------------------------------------------------------------------------------------Severe Service 88 74 177 10.0 8.0 22.5Fluid Power 243 214 439 28.7 20.6 43.5Indoor Climate 83 82 168 11.3 11.8 24.3--------------------------------------------------------------------------------------- Retail Dispense 227 234 455 22.1 22.5 46.9 ---------------------------------------------------------------------------------------BeverageDispense 141 142 267 14.0 13.1 24.9Merchandising Systems 86 92 188 8.1 9.4 22.0--------------------------------------------------------------------------------------- Total continuing operations 641 604 1239 72.1 62.9 137.2--------------------------------------------------------------------------------------- after intangible amortisationFluid Controls 48.5 40.0 85.2 ---------------------------------------------------------------------------------------Severe Service 9.9 8.0 22.4Fluid Power 27.5 20.4 38.9Indoor Climate 11.1 11.6 23.9--------------------------------------------------------------------------------------- Retail Dispense 21.7 22.1 46.2 ---------------------------------------------------------------------------------------Beverage Dispense 13.6 12.7 24.2Merchandising Systems 8.1 9.4 22.0--------------------------------------------------------------------------------------- Total continuing operations 70.2 62.1 131.4 -------------------------- The results in respect of discontinued operations are set out in note 3. Acquisitions of subsidiaries Of the reported increase in revenue and operating profit of continuing operations (before exceptional items and intangible amortisation), £18m and £2.2m revenue and operating profit respectively result from the 2005 acquisition of Syron Engineering and Manufacturing LLC (Fluid Power), together with the extra months from the 2004 acquisition of Fluid Automotive Systems (Fluid Power). 3. Discontinued operations Discontinued operations comprise the Polypipe businesses previously reported in Building Products. The sale of Polypipe excluding Doors and Windows which has been closed, was completed on 2 September 2005. The sale and profits from discontinued operations were as follows: 6 months to 30 6 months to 30 Year to 31 Dec June 2005 June 2004 2004 £m £m £m £m £m £m ------------------ --------------- -------------- Revenue 183 197 372 ------- ------ ------ Operating profit 15.0 16.2 27.2Less tax (4.6) (5.1) (8.7) ------- ------- ------ 10.4 11.1 18.5Estimated loss on disposal (90.0)Closure costs (8.0) ------- (98.0)Less tax 2.5 ------- (95.5) - - ------- ------- ------- (85.1) 11.1 18.5 ------- ------- EC fine relating to copper tube businesses sold in 2002 (33.1) ------- (14.6) ------- During the six months to 30 June 2005 the discontinued operations had cash inflows of £9m (2004: £2m). 4. Net financing costs 6 months to 30 6 months to Year to June 2005 30 June 2004 31 Dec 2004 £m £m £m --------------------------------------------Interest income 3.5 3.2 6.0Interest expense (8.3) (8.0) (15.2)Interest charge impact of IAS19 3.0 2.5 5.1Change in fair values of financial instruments under IAS39 (2.9) 0.3 0.8 -------------------------------------------- (4.7) (2.0) (3.3) -------------------------------------------- 5. Taxation The interim taxation charge of 32% is calculated by applying the directors' best estimate of the annual tax rate to the taxable profit for the period (six months ended 30 June 2004: 33%) in respect of profit before exceptional items. The estimated tax relief on exceptional items is £2.5m. 6. Dividends The directors have declared an interim dividend for the current year of 6.65p per share (2004: 6.3p) which will be paid on 21 October 2005 to shareholders on the register on 14 September 2005. In accordance with IAS10 'Events after the Balance Sheet Date', this interim dividend has not been reflected in the interim accounts. 7. Earnings per share The weighted average number of shares in issue during the period, net of shares purchased by the company and held as treasury shares, was 352.9m, 355.7m diluted for the effect of outstanding share options (six months to 30 June 2004: 353.6m, 356.1m diluted). Basic earnings per share have been calculated on losses of £42.3m, (2004: earnings of £49.9m). The directors consider that adjusted earnings per share figures, using earnings as calculated below, give a more meaningful indication of the underlying performance. Total 6 months to 6 months to 30 Year to 31 30 June 2005 June 2004 Dec 2004 £m £m £m -------------------------------------------(Loss)/profit for the period attributable to equity holders of the parent (42.3) 49.9 67.5 Charges/(credits) included in profit for the period:Change in fair value of financial instruments 2.9 (0.3) (0.8)Intangible amortisation 1.9 0.8 5.8Exceptional items 98.0 - 33.1Taxation on charges/(credits) included in profit for the period (4.0) (0.2) (1.3) -------------------------------------------Earnings for adjusted EPS 56.5 50.2 104.3 ------------------------------------------- From continuing operations 6 months to 6 months to 30 Year to 31 30 June 2005 June 2004 Dec 2004 £m £m £m -------------------------------------------Profit for the period 44.3 39.6 83.9Minority interest (1.5) (0.8) (1.8)Charges/(credits) included in profit for the period:Change in fair value of financial instruments 2.9 (0.3) (0.8)Intangible amortisation 1.9 0.8 5.8Taxation on charges/(credits) included in profit for the period (1.5) (0.2) (1.3) -------------------------------------------Earnings for adjusted EPS 46.1 39.1 85.8 ------------------------------------------- From discontinued operations 6 months to 6 months to 30 Year to 31 30 June 2005 June 2004 Dec 2004 £m £m £m -------------------------------------------(Loss)/profit for the period from discontinued businesses (85.1) 11.1 (14.6) Exceptional items after income tax expense 95.5 - 33.1 -------------------------------------------Earnings for adjusted EPS 10.4 11.1 18.5 ------------------------------------------- Weighted average number of shares 352.9 353.6 354.0 ------------------------------------------- 8. Reconciliation of cash generated from the operations 6 months to 6 months to Year to 30 June 30 June 31 Dec 2005 2004 2004 (unaudited) (unaudited) (unaudited) £m £m £m ----------------------------------------------Cash flows from operating activities(Loss)/profit for theperiod (40.8) 50.7 69.3Adjustments for: Depreciation 27.2 28.7 58.3 Amortisation 1.9 0.8 5.8Estimated loss on disposal & closure costs 98.0 - -EU fine - - 33.1Financing income (6.5) (6.0) (11.9)Financing expense 11.2 8.0 15.2Employee benefit charge 1.0 0.8 1.6Equity-settled share-based payment expenses 1.0 0.6 1.4Income tax expense 23.3 25.6 52.9 ----------------------------------------------Operating profit before changes in working capital and provisions 116.3 109.2 225.7 (Increase)/decrease in trade and other receivables (46.4) (61.8) 0.2Decrease/(increase) in inventories 1.9 (13.0) (4.7)Increase in trade and other payables 5.0 35.1 17.9(Decrease)/increase in provisions and employee benefits (9.4) (7.3) 0.3 ----------------------------------------------Cash generated from the operations 67.4 62.2 239.4 ---------------------------------------------- 9. Exchange rates The profit and loss accounts of overseas subsidiaries are translated into sterling at average rates of exchange for the period, balance sheets are translated at period end rates. The main currencies are: Average period rates Balance sheet rates --------------------------------------------------------------------- 6 months to 30 June Year 30 June 30 June 31 Dec 2005 2004 2004 2005 2004 2004 ---------------------------------------------------------------------Euro 1.46 1.48 1.47 1.48 1.49 1.41US Dollar 1.87 1.82 1.83 1.79 1.81 1.92 10. European Commission enquiry In September 2004, the European Commission announced the imposition of a fine of €44.98m on IMI in connection with its former copper tube business sold in 2002. Pending the outcome of an appeal made in January 2005, the full amount of the fine together with associated costs was provided and shown as an exceptional item of £33.1m at 31 December 2004. The fine was paid in February 2005. The European Commission is investigating allegations of anti-competitive behaviour among certain manufacturers of copper fittings. Notwithstanding IMI's disposal of its Copper Fittings businesses in 2002, it retains responsibility in relation to the European Commission's investigations in respect of those businesses. A Statement of Objections is expected to be issued by the Commission during 2005. It is not possible to give any reliable estimate of the likely level of fine. 11. Financial information This interim statement has been reviewed by the Group's auditors having regard to the bulletin Review of Interim Financial Information, issued by the Auditing Practices Board. A copy of their unqualified review opinion is attached. The Interim Report will be posted to shareholders on 12 September 2005 and will be available from the same date at the Company's registered office, Lakeside, Solihull Parkway, Birmingham Business Park, Birmingham, B37 7XZ. NEXT TRADING ANNOUNCEMENT Our next trading update will be issued on 16 December 2005. Enquiries to: Graham Truscott - Communications Director - Tel: 0121 717 3710 Press release available on the Internet at www.imiplc.com Issued by:Nick Oborne - Weber Shandwick Square Mile - Tel: 0207 067 0700 Independent review report by KPMG Audit Plc to IMI plc Introduction We have been engaged by the Company to review the financial information set outon pages 6 to 15 and we have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the Company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted by law,we do not accept or assume responsibility to anyone other than the Company forour review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules which require that the accounting policies and presentation applied to theinterim figures should be consistent with those applied in preparing thepreceding annual financial statements except where any changes and the reasonfor them are disclosed. As disclosed in note 1 to the financial information, the next annual financialstatements of the Group will be prepared in accordance with IFRS adopted for usein the European Union. The accounting policies that have been adopted inpreparing the financial information are consistent with those that the directorscurrently intend to use in the next annual financial statements. There is,however, a possibility that the directors may determine some changes to thesepolicies are necessary, when preparing the full annual financial statements forthe first time in accordance with these IFRS adopted for use by the EuropeanUnion. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4: Review of Interim Financial Information issued by the Auditing PracticesBoard for use in the United Kingdom. A review consists principally of makingenquiries of Group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. KPMG Audit PlcChartered AccountantsBirmingham 5 September 2005 Appendix 1 Significant accounting policies IMI plc (the "Company") is a company domiciled in the United Kingdom. Theconsolidated financial statements of the Company for the six months ended 30June 2005 comprise the Company and its subsidiaries (together referred to as the"Group"). a) Basis of accounting The financial statements are presented in pounds sterling, rounded to the nearest hundred thousand. They are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial instruments held for trading, financial instruments classified as available for sale and assets and liabilities identified as hedged items. Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less costs to sell. The accounting policies have been applied consistently throughout the Group for the purposes of these consolidated financial statements. b) Basis of consolidation i) Subsidiaries Subsidiaries are those entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. ii) Transactions eliminated on consolidation Intragroup balances and transactions, and any unrealised gains arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. c) Foreign currencies i) Foreign currency transactionsRelated Shares:
IMI