IMI outlook materially improves

BIRMINGHAM-based engineering group IMI said today that its outlook for the first half of 2010 had materially improved since its preliminary results announcement in March and accordingly it was bringing forward its interim management statement, which now covers the period from January 1 to April 21.  

The company said it had seen higher than anticipated volumes in its Fluid Power division, together with strong margin progression compared to the first half last year not just in FP, but across most of its operational platforms.

These are expected to deliver earnings per share for the first half, before exceptional items, in the region of 27p – 29p, which compares with 18.5p in the first half last year.

Overall revenues, which were broadly flat in the Q1 on a constant currency basis, are likely to finish the first half 3-4% ahead of last year, with a 25% growth in FP more than offsetting the expected 11-13% reduction in the later cycle Severe Service business.

However, it joined many other companies recently in saying that conditions remained uncertain and while customers were more optimistic, recovery could not be taken for granted.

“Whilst forward visibility is improving, and our customers continue to talk more positively about future investment programmes, macroeconomic conditions remain uncertain, and we remain cautious as to the extent to which this improved momentum can be maintained in the second half,” said the statement.

It continued: “There is more certainty around margin improvement which is underpinned by a strong programme of cost reduction initiatives, including further transfers of manufacturing to low cost economies.  The results from these programmes to date have been most encouraging.”

In its Severe Service division, shipments were impacted by lower order intake in the middle of last year, and as a result, first half revenues are expected to be down around 11 – 13% on last year on a constant currency basis.  

However, it said the higher quotation activity in oil and gas referred to in the preliminary results was now being reflected in orders, which supported expectations of an improved position in the second half, with a return to year on year growth in 2011.  

Margins during the first half are expected to be impacted by lower volumes, however, it said this had been cushioned by a number of cost reduction initiatives.  

“Our new advanced manufacturing facility in the Czech Republic is now operational, and its sister facility, currently under construction in India, is expected to open by the end of the year,” said the statement.

It said most of the current demand in FP had stemmed from improved end market demand, as opposed to changes in inventory positions, although customers remained cautious as to medium term sustainability.  

Within its main markets, it said the commercial vehicles sector has seen a strong bounce back from the depressed position last year, and growth year to date in the life sciences business was also encouraging.

“We remain extremely focused on delivering a strong profits drop through on any increase in volumes, with much of the increased demand being met from expanded low cost manufacturing facilities in China, Czech Republic and Mexico.  

“As a result, first half margins are expected to be materially ahead of last year, approaching the previous peak levels of around 14% experienced in 2008,” said the statement.

Improving patterns have also been seen in its Indoor Climate business, driven by the demand for more efficient buildings, while in Beverage Dispensing trading was broadly flat, reflected partly by the company’s decision to gradually withdraw from some older, lower margin, commodity product lines.

IMI will announce its interim results for the period ending June 30 on August 26.