IMI : Earnings Document

IMI plc

Press release

29 July 2022

Accelerating business performance with improving growth and margin

On track for sustainable, profitable growth and Group operating margin of 20%

Increasing momentum from purpose-led strategy and Growth Hub

Interim results, six months ended 30 June 2022

		Adjusted1			Statutory
	H1 2022	H1 2021	Change	Organic3	H1 2022	H1 2021	Change
Revenue	£972m	£907m	+7%	+3%	£972m	£907m	+7%
Operating profit	£160m	£142m	+12%	+9%	£129m	£123m	+5%
Operating margin	16.4%	15.7%	+70bps		13.3%	13.6%	-30bps
Profit before tax	£154m	£137m	+13%		£121m	£123m	-2%
Basic EPS	47.1p	39.9p	+18%		36.6p	31.3p	+17%
Operating cash flow2	£79m	£111m	-29%		£111m	£128m	-13%
Interim dividend per share	8.3p	7.9p	+5%		8.3p	7.9p	+5%
Net debt	£760m	£339m

1 Excluding the effect of adjusting items as reported in the income statement. See Note 2 for definitions of alternative performance measures.

2 Adjusted operating cash flow, as described in Note 2 to the financial statements. Statutory measure is Cash generated from operations as shown on the cash flow statement. 3 After adjusting for acquisitions, disposals and exchange rates (see Note 3).

Continued strong performance

• 7% sales growth, 13% adjusted profit before tax growth, 18% adjusted basic EPS growth
• Adjusted operating margin 70bps higher than H1 2021
• Statutory operating profit up 5%
• Statutory profit after tax up 12%
• Order book growth, £22m of Growth Hub orders, pipelines growing
• Operating cash flow impacted by higher inventory to prioritise customer service
• Bahr acquisition provides highly scalable electric actuation portfolio
• Interim dividend increased by 5%
• Group operating margin target increased to 20% through the cycle
• Continue to expect full year adjusted EPS to exceed 100p

Roy Twite, Chief Executive, said:

"We have made excellent progress with our purpose-led strategy during the first half. We are creating tremendous value for all our stakeholders by increasing customer intimacy, driving market-led innovation and reducing complexity. We continue to invest in Growth Hub and Sprint Teams, delivering £22m of orders from these projects during the first half. We completed the acquisition of Bahr Modultechnik, the electric linear automation specialist, offering the potential for great synergies with our existing businesses. We remain on track to deliver our long-term ambition of sustainable profitable growth and achieve our 20% margin target through the cycle."

"Based on the strong first half result and current market conditions we continue to expect 2022 full year adjusted EPS to exceed 100p."

Enquiries

Luke Grant	IMI	Tel: [phone]
Matt Denham	Headland PR	Tel: [phone]

A live webcast of the analyst meeting taking place today at 08:00am (BST) will be available on the investor page of the Group's website: www.imiplc.com. The Group plans to release its next Interim Management Statement on 8 November 2022.

1 Interim results 2022

IMI plc

Press release

Results overview

IMI has delivered a strong first half performance, with Group revenue growth of 7% compared to the same period last year and 3% higher organically. First half adjusted operating margin has increased by 70bps when compared to the prior period.

	£m					Adjusted1						Statutory
			H1 2022		H1 2021		Change		Organic3			H1 2022		H1 2021		Change
	Revenue
	IMI Precision Engineering2		485	412	+18%	+7%		485	412	+18%
	IMI Critical Engineering2		312	325	-4%	-3%		312	325	-4%
	IMI Hydronic Engineering		175	170	+3%	+5%		175	170	+3%
	Total		972	907	+7%	+3%		972	907	+7%
	Operating profit
	IMI Precision Engineering2		88.2	73.7	+20%	+10%		66.8	63.8	+5%
	IMI Critical Engineering2		48.8	45.8	+7%	+7%		43.5	39.2	+11%
	IMI Hydronic Engineering		35.5	34.2	+4%	+8%		35.9	31.9	+13%
	Corporate costs		(12.7)	(11.6)						(17.2)	(11.6)
	Total			159.8		142.1		+12%		+9%			129.0		123.3		+5%
	Operating margin			16.4%		15.7%		+70bps					13.3%		13.6%		-30bps

1 Excluding the effect of adjusting items as reported in the income statement. See Note 2 for definitions of alternative performance measures.

2 During H2 2021 the Energy business was transferred from IMI Precision to IMI Critical. Prior period results have been restated to be on the same basis. Please see Note 3 for further details.

3 After adjusting for exchange rates, acquisitions and disposals (see Note 2).

This strong performance reflects continued focus on our unifying purpose-led strategy [Breakthrough Engineering for a better world]. We are creating value by increasing customer intimacy, driving market-led innovation and reducing complexity. These actions have allowed us to generate strong growth in the order book and revenue as well as improving margins.

Good momentum in our Growth Hub and Sprint Teams continue to drive cultural changes through the business. We delivered £22m of orders from these projects during the first half and remain on track to deliver over £40m in 2022.

We remain confident in delivering our Group operating margin target of 20% through the cycle.

Dividend

The Board is recommending a 2022 interim dividend of 8.3p per share (2021: 7.9p per share). Payment will be made on 16 September 2022 to shareholders on the register at the close of business on 12 August 2022.

Outlook

Based on the strong first half results and current market conditions we continue to expect 2022 full year adjusted EPS will exceed 100p.

2 Interim results 2022

IMI plc

Press release

Strategic progress

Our purpose-led strategy [Breakthrough Engineering for a better world] continues to accelerate business performance, driving sustainable, profitable growth across the Group.

We are delivering Value Today - evident in our improved returns - through greater customer intimacy, operational efficiencies and complexity reduction; and Value Tomorrow by developing creative and innovative solutions to the greatest challenges our customers and society face.

We continue to invest in Business Development resource and Growth Hub projects and are seeing real, tangible benefits. We delivered £22m of orders from Growth Hub projects in the first half. Adaptas, our recent acquisition in the attractive Life Sciences sector, is performing strongly.

The acquisition of Bahr, the German electric linear motion specialist, completed in June 2022. As part of the Industrial Automation Business Unit within IMI Precision Engineering, Bahr will enable the delivery of a power agnostic offering of pneumatic and electric linear motion systems. The addition of Bahr offers the potential for significant synergies and is expected to be both margin and growth accretive to IMI Precision, delivering a financial return in excess of IMI's cost of capital by the end of year three.

Along with investments into our future growth, IMI continues to identify and execute on opportunities to drive more efficient operations. The following provides a summary of progress on our restructuring programmes:

	£m		H1 2022	2022*	Future years*
	Restructuring charge
	(including impairment losses)				(35)
	IMI Precision Engineering		(8)	(29)
	IMI Critical Engineering		-	(13)	(35)
	IMI Hydronic Engineering		-	(1)	-
	Total charge		(8)	(43)	(70)
	Cash impact		(12)	(38)	(77)
	£m		H1 2022	2022*	Future years*
	Benefits
	IMI Precision Engineering		4	6	26
	IMI Critical Engineering		3	4	13
	IMI Hydronic Engineering		-	-	1
	Total benefits		7	10	40

*Future looking forecast information.

All three divisions advanced their multi-year significant restructuring programmes, which contributed £7m of benefits in the first half. The Group is on track to deliver £10m for the full year.

This includes the previously announced £35m additional cost (£30m cash, £5m non-cash) and £13m of benefits, which will expand the programme for IMI Critical.

The forecast cash cost also reduced by £15m as a result of improved proceeds for a property sale and wider project savings.

These programmes are expected to run until 2024, although the Group will always seek and execute projects that improve its competitive position.

3 Interim results 2022

IMI plc

Press release

Divestment of Russia subsidiary

IMI strongly opposes the invasion of Ukraine. We are deeply concerned for its people and are supporting humanitarian efforts for the ongoing refugee crisis.

IMI fully supports all sanctions. On 4 March 2022 we ended all new business and international deliveries to Russia and on 27 May 2022 we completed the divestment of our Russian subsidiary to local management. See Note 15 for further details.

Russia accounted for 2% of Group revenue in 2021 and represented less than 1% of revenue for IMI Precision, 4% for IMI Critical and 2% for IMI Hydronic.

Environmental, Social & Governance (ESG)

Our purpose, [Breakthrough Engineering for a better world], continues to drive our actions and create real energy across our organisation. IMI's solutions support the safety, sustainability, and productivity of our customers' products and operations, and often directly contribute to the delivery of their carbon reduction targets. When considering investments, we ensure impacts on IMI's overall ESG positioning is a prime consideration.

IMI sees a natural link between pursuing our ESG objectives with vigour and our wider ambitions for improved growth and profitability. Many of our best growth opportunities are supporting customers in developing solutions for a zero-carbon future.

We continue to reduce the environmental impact of our facilities and operations. All divisions are progressing actions that will contribute to our goal of halving our factory CO2 intensity by 2030, and IMI is committed to achieving net zero Scope 1 and Scope 2 emissions by 2040. Supported by external expertise, we are developing our reduction plans for Scope 3 emissions.

Our Inclusion and Diversity activities are helping us build a more dynamic and innovative organisation. The female representation on the Executive Committee is currently 43% and we have met the Parker Review requirements for non-white representation on our board. Whilst we recognise there is still work to be done, the benefits of increased diversity are being felt across the organisation - employee engagement increased from 80% to 82% in our recent survey.

Ensuring all our employees feel safe at work is central to our strategy and culture and we have a continued focus on identifying and reducing workplace hazards. The number of recordable incidents reduced by 48% during the first half and whilst this is excellent progress, we remain committed to the ambition of an accident-free workplace.

More information about our ESG credentials and initiatives, including our policies and practices, can be found on our website: www.imiplc.com.

4 Interim results 2022

IMI plc

Press release

Divisional results overview

The following review relates to our continuing businesses' performance for the six months ended 30 June 2022 when compared to the same period in 2021. References to organic growth are on a constant currency basis and exclude disposals and acquisitions, see Note 3 for a reconciliation of these measures.

Segmental information - Energy Transfer

During the second half of 2021 the Energy business of IMI Precision Engineering was transferred into IMI Critical Engineering. Prior period comparatives have been re-presented to reflect this, with IMI Critical Engineering H1 2021 revenue increasing by £28m and operating profit increasing by £2.9m. The equal and opposite impact has reduced prior period results of IMI Precision Engineering.

IMI Precision Engineering

IMI Precision Engineering specialises in the design and manufacture of motion and fluid control technologies where precision, speed and reliability are essential to the processes in which they are involved. IMI Precision Engineering operates across three principal business units: Industrial Automation, Precision Fluid OEM and Transport. Further details on that segmentation, and comparison with the 2021 first half report, are available in Note 3.

	H1 2022	H1 2021**	Change	Organic
				vs 2021*
Revenue	£485m	£412m	+18%	+7%
Adjusted operating profit*	£88.2m	£73.7m	+20%	+10%
Adjusted operating margin*	18.2%	17.9%	+30bps
Statutory operating profit	£66.8m	£63.8m	+5%
Statutory operating margin	13.8%	15.5%	-170bps

*See Note 2 for definitions of alternative performance measures and the references to reconciliations of these measures. **2021 results have been restated for the impact of the Energy business transfer, please see Note 3 for further details.

Key developments

• Strong sales growth of 18%, organic growth of 7%
• Adjusted operating margin up 30bps
• Acquisition of Bahr completed, expanding electric linear motion offering
• Statutory operating profit up 5%

2022 H1 performance

IMI Precision's core end markets continue to provide excellent new opportunities for growth.

During the period, the division delivered very strong growth of 18% supported by revenue from the recent Adaptas acquisition. On an organic basis, revenue grew 7%.

Industrial Automation delivered strong organic revenue growth of 14% compared with the first half 2021, with Precision Fluid OEM ahead 5% and Transport broadly flat on the same basis. The division's proactive management of supply chains minimised customer disruptions and enabled this strong performance.

Adjusted operating margin in the division improved in the period by 30bps to 18.2%. The division continues to advance complexity reduction initiatives which will enable further improvements and support progress towards its margin targets.

Statutory operating profit increased by 5% due to the strong trading result partly offset by increased acquired intangible amortisation and other acquisition costs following the acquisitions of Adaptas and Bahr.

5 Interim results 2022