Tough Q3 for IMI just a taste of things to come

SPECIALIST engineering group, IMI, suffered a 5% drop in revenues as a result of difficult Q3 market conditions and has forecast full year earnings are likely to be at the lower end of estimates with further cost reduction measures likely to be implemented.

On a reported basis, Q3 revenues were actually 7% down, which the Birmingham-based group said reflected the adverse foreign exchange movements, although this was partially offset by acquisitions.

In a Q3 Interim Management Statement, the group said that based on performance in the year to date and current market conditions, organic revenues and margins in the second half were likely to improve when compared with the first half of 2015.

However, it added: “Both organic revenues and margins for the full year will be lower than last year with adjusted earnings per share towards the lower end of the range of current market estimates.”

So far as its strategic agenda is concerned, the company said that despite market conditions, various initiatives to harness the group’s potential would continue to be fully supported and were progressing well.

“We remain committed to increasing investment in new product development to fuel growth, improving operational performance to enhance our competitiveness and to investing in IT and infrastructure,” it said.

It promised to update the markets further when it issued its full year results in February.

However, it has braced the market – and its employees – to expect further cutbacks.

“To ensure that the organic elements of our strategic growth plan remain on-track, and to mitigate where practical the impact of current market weakness, we are reviewing a number of cost-reduction initiatives. These cost cutting actions will benefit the near term results of the Critical Engineering and Precision Engineering divisions,” it said.

Critical Engineering organic revenues in the three months to the end of September were 8% lower compared with last year and on a reported basis were down 6%.

Orders during the period were well below the same period last year with ongoing project delays impacting the phasing of new orders.

“While the order book at the end of September remains only marginally below the same point in 2014, further project slippages could have a meaningful impact on orders for the remainder of the year,” it said.

It said 2015 organic revenues and profits would be significantly improved in the second half compared to the first half, principally reflecting the phasing of order intake last year.

“We continue to expect second half margins to reflect a good improvement over the first half of the year. However, full year margins will be lower than the prior year and broadly in-line with the movement seen in the first half of this year,” it added.

Q3 Precision Engineering organic revenues were 5% lower compared with last year and on a reported basis were down 8%.

Industrial Automation revenues improved globally with the exception of China where the group continued to see a significant year on year decline.

In the full year it said it expected lower organic revenues with margins slightly below the first half of this year.