IMI dispenses gloomy results

BIRMINGHAM-based engineering group IMI has announced a 17% fall in annual adjusted pre-tax profit combined with a 6% decrease in revenues, adding it does not expect the situation to radically improve this year.

The group, which manufactures pneumatic valves, air conditioning and beverage dispensing equipment, has also revealed a fast-tracking of its plans to switch production to low cost economies.

In a sad announcement for UK manufacturing – especially in Manufacturing Week – the Birmingham firm revealed it had plans to transfer half of its production to factories in China, India and the Czech Republic within the next two to three years.

Today’s results show that adjusted pre-tax profit declined to £211.7m last year compared with £254.7m in 2008, with revenues dropping to £1.792bn from 2008’s £1.901bn.

Norman Askew, IMI chairman, said: “”Retention of group operating margins in excess of 13%, despite a 16% organic reduction in revenues, is a measure of the underlying quality and differentiated positions of many of IMI’s businesses today, and underlines the value of the strategic repositioning we have undertaken in the years since the last global downturn.  

“With strong cash momentum, and a more stable outlook, a resumption of progressive dividends is deemed appropriate and, accordingly, the final dividend has been increased by 4%.”
 
“We are not anticipating any sharp recovery in the global economy and with later cycle and earlier cycle businesses within the Group broadly balanced, volumes in 2010 are not expected to be materially ahead of 2009,” he added.

Within its Fluid Controls division, both the Severe Service and Indoor Climate operations achieved record operating profits.

Sales in Fluid Power, which the group said is very exposed to discretionary capital expenditure, dropped sharply in the first half before stabilising.

Overall, on a constant currency basis, Fluid Controls sales fell 15%.  Operating margins also fell slightly from 15.7% to 14.7% reflecting a strong margin improvement in Severe Service and Indoor Climate offset by a sharp fall in margins in Fluid Power.  

The group’s Retail Dispense businesses struggled, with sales down 20% on a constant currency basis.  Both Beverage Dispense and Merchandising faced sharply lower activity levels as the downturn took hold.

Mr Askew said the group had also made good progress on the well defined operational strategies for each of its businesses.  

“We continued to accelerate our investment in emerging markets where the proportion of group sales rose to 20% (2008: 19%).

“We maintained our investment in new product development during the year, maintaining the percentage of revenues derived from new products launched in the last three years at 14%,” he said.

Notable successes during the period included the performance of the Indoor Climate business, the development of a differential pressure control valve for demanding conditions in large cooling systems and district heating applications, and an integrated pneumatic system designed by the Fluid Power business to control gas in anaesthesia ventilators.  
 
In the light of the difficult economic conditions, the group has opted to bring forward plans to increase the amount of manufacturing undertaken in low cost economies.  

It has opened a new facility in Shanghai for the Fluid Power business, and has made rapid progress on two new facilities in India and the Czech Republic for the Severe Service business – both of which are expected to be operational by the end of the year.

Once online, the percentage of manufacturing undertaken by the group in low cost economies is set to increase to 35% of current levels and to around 50% within the next two to three years.

The cost of restructuring initiatives and the transfer of production to the low cost economies has been placed at £35m.

In 2010, Mr Askew said the group would continue to focus on maintaining cost control, pricing and cash generation.  

“However, we will also make sure that the group is well positioned to take advantage of growth opportunities as our end markets move into a recovery phase,” he said.

This will be achieved by enhancing core management skills, continuing the group restructuring programme and making targeted acquisitions.