TIDMIMI
RNS Number : 0775Y
IMI PLC
27 August 2009
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27 August 2009
IMI plc 2009 First Half Results
IMI plc, the international engineering group, today issued its Interim
Management Report for the six months ended 30 June 2009.
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| | 2009 | | 2008 | | % change |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| | | | restated | 3 | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| | | | | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Revenue | GBP900m | | GBP911m | | -1% |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Segmental operating profit | GBP97.4m | | GBP120.6m | | -19% |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Adjusted profit before tax1 | GBP86.4m | | GBP114.2m | | -24% |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| As reported: | | | | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Operating profit | GBP89.5m | | GBP108.8m | | -18% |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| | | | | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Profit before tax | GBP79.7m | | GBP103.7m | | -23% |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| | | | | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Adjusted earnings per share2 | 18.5p | | 24.5p | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Basic earnings per share | 17.0p | | 22.2p | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| | | | | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Restructuring costs | GBP17.5m | | GBP5.6m | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| | | | | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Net borrowings4 | GBP264m | | GBP299m | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| | | | | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
| Dividend | 8.0p | | 8.0p | | |
+----------------------------------------------------------+-------------+---+--------------+-----+---------------+
Norman Askew, Chairman of IMI commented:
"Underlying levels of demand would appear to have stabilised following the very
sharp reductions seen in some of our businesses in the early part of the year.
Our early and comprehensive actions taken to reallocate sales and engineering
resource in support of more resilient end markets, to align capacity to lower
levels of demand, to defend group margins and to maximise cash conversion have
proved highly successful with Group operating margins remaining in double
digits.Net borrowings have reduced by GBP35m to GBP264m and the dividend has
been maintained.
We are not assuming any improvement in general economic conditions during the
second half but, as and when it materialises, we are well placed to benefit
given the restructuring already undertaken and the further expansion of our low
cost manufacturing capabilities."
______________________________________________________________________________
+-----+-----------------------------------------------------------------------------+
| 1 | before exceptional items (restructuring, investigation costs and fines, |
| | acquired intangible amortisation and impairment and financial instruments |
| | excluding economic hedge contract gains and losses) totalling GBP6.7m |
| | (2008: GBP10.5m). |
+-----+-----------------------------------------------------------------------------+
| 2 | before the after tax cost of exceptional items totalling GBP4.6m (2008: |
| | GBP7.2m). |
+-----+-----------------------------------------------------------------------------+
| 3 | restated to include "financial instruments excluding economic hedge |
| | contract gains and losses" within exceptional items. |
| | See note 12. Reported adjusted profit before tax for the period to 30 June |
| | 2008 is GBP1.3m lower. |
+-----+-----------------------------------------------------------------------------+
| 4 | net borrowings as at 30 June 2009 and comparable as at 31 December 2008. |
+-----+-----------------------------------------------------------------------------+
INTERIM REVIEW
Interim Management Report
The Directors submit their Interim Management Report ("IMR"), together with
interim condensed consolidated financial statements of the Group for the six
months ended 30 June 2009.
(Important information on the status of statements made in this report and the
definition of terms used are given in note 12)
Summary
Overall IMI's business responded well to very difficult market conditions.
Following the very sharp falls experienced early in the year, demand has
stabilised over the last few months, with organic revenues for the first half
down around 17% on last year. A strong performance from our energy related
businesses in Severe Service and Indoor Climate helped mitigate some of the
sharp fall in demand for capital equipment within the Fluid Power business in
particular.
We commented at the time of our 2008 preliminary results in March that we would
focus our management effort during this unprecedented downturn on four key
activities:
* Allocation of inevitably scarcer resources in favour of more resilient end
markets with less risk and greater returns;
* Rapid alignment of capacity to match lower levels of demand;
* A focus on product margins through a robust defence of pricing and driving down
material costs; and
* Maximisation of profit to cash conversion and maintenance of a strong balance
sheet.
We are pleased to report encouraging progress in all four areas:
* Our businesses have focused on those end markets and customers which have
previously exhibited resilience and are likely to continue doing so, and have
prioritised their engineering and sales resources accordingly, generating a
number of new potential projects. We have significantly increased our investment
in opportunities arising from new legislation, particularly in the fields of
sustainability, environmental compliance, and energy efficiency.
* We took immediate and early actions to align capacity to lower demand releasing
16% of our global workforce since June 2008 (around 2,500 people); adopting
short time working arrangements for a further 28% of our workforce (around 3,700
people); and the selective rationalisation and closure of a number of
sub-optimised or unprofitable operating units. At the same time we have invested
in a further expansion of our low cost manufacturing capabilities in China,
Czech Republic, and most recently, India, preparing them to take a larger
percentage of global production as and when demand returns.
* In defence of product margins we have adopted a robust position on selling
prices, emphasising the differentiated nature of our product offerings and
partnering closely with our customers to strip out cost elsewhere in the supply
chain, with average selling prices in the first half up around 1-2% on last
year. At the same time we have taken a rigorous approach to driving down
material costs, leveraging our low cost sourcing capabilities in Asia, Eastern
Europe and Mexico, and capitalising on sharply lower commodity prices during the
period.
Coupled with an austere approach to salaries and wage inflation, together with
benefits arising from the aforementioned capacity alignment programme, we have
contained the profit drop through impact on lower revenues to just 24%, enabling
us to maintain operating margins for the Group in double digits (10.9%).
* We converted 85% of operating profit to cash, compared with 58% last year, in
what is seasonally the weaker of the two halves for IMI from a cashflow
perspective. Inventories were reduced by 10% (on a constant currency basis) and
debtor days maintained despite the inevitable pressures for extension. With
momentum continuing to build around a number of working capital initiatives we
expect cash conversion to exceed 100% for the year as a whole, thereby building
on the GBP35m of net debt reduction achieved in the first half.
In addition to these four activities we have also prioritised the Group-wide
implementation of our Code of Responsible Business, the 'IMI Way', which targets
the very highest standards of ethical business and compliance. This code has
been rolled out to all 13,300 of our employees worldwide, translated into 25
languages, and is being accompanied by extensive face to face training.
We will continue to focus on these five key initiatives in the second half, with
further benefits set to accrue.
As a result of this solid first half performance in challenging market
conditions, and a more stable outlook for the second half, the Board has decided
to maintain the dividend at 8.0p (2008: 8.0p). As we stated in March,
maintenance of the dividend through this economic downturn remains a core
objective, and the Board is confident that this objective can be met.
Review of results
Revenues decreased by 1% to GBP900m (2008: GBP911m). After adjusting for
exchange rate benefits the organic decline was 17%. The Euro and US dollar were
respectively 15% and 32% stronger than average rates in the first half of last
year. Segmental operating profit was GBP97.4m, a 19% decrease on the prior
period (2008: GBP120.6m). At constant exchange rates segmental operating profit
fell by 32%. The segmental operating margin was 10.9%, down from 13.2% in the
first half last year. Reported operating profit was down 18% at GBP89.5m (2008:
GBP108.8m).
Interest costs on net borrowings of GBP8.9m were covered 13 times by earnings
before interest, tax, depreciation and amortisation. The IAS19 pension net
financing charge was GBP2.1m, compared to a credit of GBP1.9m in the first half
of 2008. The net IAS39 credit of GBP1.2m reflects the increase in the value of
outstanding derivatives offset by net settlement costs during the period. The
total net financing costs were GBP9.8m (2008: GBP5.1m).
Adjusted profit before tax (before restructuring, investigation costs and fines,
acquired intangible amortisation and impairment and financial instruments
excluding economic hedge contracts gains and losses totalling GBP6.7m (2008:
GBP10.5m)) was GBP86.4m, a decrease of 24%.
Restructuring costs were GBP17.5m (2008: GBP5.6m) which mainly relates to the
significant headcount reductions and other restructuring implemented as a
response to the global economic downturn. Restructuring costs for the full year
are now expected to be around GBP30m with, as previously stated, a further
GBP10m expected in 2010 to progress our low cost manufacturing plans. After
these restructuring costs, the amortisation of acquired intangibles of GBP3.7m
(2008: GBP3.5m) and financial instruments excluding economic hedge contract
gains of GBP14.5m, reported profit before tax was GBP79.7m, a decrease of 23% on
the corresponding period in 2008. Following the provision taken in 2008 no
further Severe Service investigation costs were charged in the period (2008:
GBP2.7m).
The estimated effective tax rate for 2009 is 31%, which compares to an effective
rate of 30% applied for the first half of 2008. The total profit for the period
was GBP55.0m and, after minority interests, the profit attributable to the
equity shareholders of the Company was GBP54.2m. The average number of shares in
issue during the period was 318.5m, giving a basic earnings per share of 17.0p,
down 23% on last year's 22.2p. Adjusted basic earnings per share was 18.5p,
compared to 24.5p in 2008, a decrease of 24%.
Cash flow
The net cash inflow from operating activities was GBP69m, compared to GBP64m in
the corresponding period. Capital expenditure on property, plant and equipment
amounted to GBP17m and was 0.7 times the depreciation charge for the period of
GBP23m. The major cash outflows in the period were GBP26m of tax, dividends of
GBP40m and GBP13m on restructuring. In addition the Group acquired the remaining
19.1% minority interest in Display Technologies in January 2009 for a cash
consideration of GBP19m. The total cash outflow for the period was GBP32m,
compared with an outflow in the first half of last year of GBP25m.
Balance sheet
The balance sheet remains strong and net debt fell during the period despite the
payment of the final dividend and a number of other significant cash outflows.
Closing net debt was GBP264m (June 2008: GBP275m). The ratio of net debt to the
last twelve months EBITDA was 1.0 at the end of June. Net debt was GBP35m lower
than at 31 December 2008, comprising the cash outflow during the period and a
translation benefit of GBP67m on the revaluation of the Group's foreign currency
debt.
As part of the Group's normal funding programme, two additional three year bank
facilities for GBP25m and EUR30m were finalised in the first half, bringing total
bank facilities at the end of the first half to GBP420m. The Group also
successfully issued $175m of US loan notes in July 2009 with maturities
extending to 2019. These actions have extended the average maturity of the
Group's drawn facilities to around 6 years from under 4 years. The proceeds from
these loan note issues will be used to refinance $65m of US loan notes maturing
later this year with the balance being used to reduce existing bank debt -
freeing up additional banking facilities to maintain our considerable headroom.
The IAS19 pension net deficit was revalued to GBP281m which compares to the
deficits of GBP129m at June 2008 and GBP137m at December 2008. The increase in
the deficit results mainly from an increase in the assumed rate of price
inflation and a reduction in the discount rate used reflecting general changes
in yields on AA corporate bond indices. A recovery plan was agreed with the
pension fund Trustee in 2008 that requires additional cash contributions of
GBP16.8m to be paid in the second half of each year.
Shareholders' equity at the end of June was GBP323m, a reduction of GBP129m
since the end of last year, which includes the attributable profit for the
period of GBP54m, less an after-tax actuarial loss on the defined benefit
pension plans of GBP118m and the 2008 final dividend of GBP40m paid in May.
Severe Service investigation
On 3 August 2009 IMI announced its agreement to a settlement with the US
Department of Justice (DoJ) in respect of certain irregular payments by our US
subsidiary Control Components Inc (CCI). As part of a plea agreement CCI has
paid a fine of $18.2m (which is covered by a provision in the Group's 2008
accounts) and continues to co-operate with the DoJ in its ongoing investigations
of certain former employees of CCI. CCI will also be subject to oversight by an
independent compliance monitor. Related to this same matter, CCI continues to
liaise with customers and regulatory authorities in a number of jurisdictions
outside the US, most notably in China where interest has increased following the
announcement of the plea agreement. It is likely that CCI will continue to
experience some interruption to its business in these markets but the impact is
not expected to be material. Also related to the activities of the former
management team of CCI and, as previously stated, an investigation has also been
completed into possible incidental breaches of US trade law by CCI, which,
together with legal costs, were provided for in 2008.
Operations review
The following review of our business areas for the six months to 30 June 2009
compares the performance of our operations with the six month period to 30 June
2008. This section also comments on the current market conditions in each of our
businesses.
Severe Service
Revenues in the first half were up 32% to GBP252m (2008: GBP191m) and segmental
operating profit rose 51% to GBP47.9m (2008: GBP31.8m).
Organic revenue growth was 11% for the half year, benefiting from good momentum
in the aftermarket business, and a number of operational improvements focussed
on shortening lead times and reducing order backlog.
Underlying order intake in the period (after adjusting for the impact of the CCI
investigation, which resulted in a deferral of around GBP20m of orders from the
second half of 2007 into the first half of 2008) was around 5% down on the prior
year. New construction valve orders were down around 17% reflecting a softening
in the North American and Asian power markets, with Oil and Gas markets in
Western Europe also weaker. Customer service orders, on the other hand, were up
over 25% benefitting from the additional resources directed at this activity
during the period, and bringing the share of the order intake arising from
customer service during the half to almost 40%.
Operating margins in the period were 19.0%, a significant improvement on the
16.6% recorded in the first half of last year, reflecting the benefits of higher
volumes, a healthy aftermarket sales mix, and further improvements in
operational efficiencies. The programme to expand our capacity in Brno, Czech
Republic and to build a new production facility in India is progressing well,
which will help drive further cost efficiency benefits in the future.
Second half shipments for Severe Service are expected to be broadly in line with
last year, reflecting the lower first half order intake and a drawing to a close
of our first half backlog reduction initiative. More recently we have begun to
see increased levels of tendering activity in some markets and significant focus
will be given to converting these into new orders.
Fluid Power
Revenues in the first half were down 25% to GBP255m (2008: GBP339m) reflecting
the unprecedented impact of the global recession on the capital equipment
sector. Despite this challenging environment Fluid Power remained profitable in
the first half with segmental operating profit at GBP7.4m (2008: GBP48.2m).
The organic decline in revenues was 36% as our customers in our main end markets
cut back sharply on investment in capital equipment.
The global recession impacted both our standard pneumatics business and our
sector business. Our sector business provides bespoke added value engineering
solutions to major blue chip customers in a number of niche markets including
commercial vehicles, life sciences, rail, in-plant automotive and process (oil,
chemical and gas). Of these, commercial vehicles and in-plant automotive have
been particularly hard hit. Other sectors, such as rail and life sciences, where
we continue to progress our 'Engineering Advantage' strategy, have shown much
lower levels of decline.
The remainder of the business provides pneumatic and fluid control solutions for
a broad range of industrial users. Organic sales in our standard pneumatics
business were down 34% reflecting the extremely challenging markets and in
particular the squeeze on capital equipment budgets seen worldwide.
Despite the sharp fall in activity levels this business moved quickly to reduce
costs as the recession took hold. The operating margin was 2.9%, down from 14.2%
in the first half of 2008. Since June 2008 1,250 employees have left the
business and over 50% of the workforce are on short-time working arrangements.
This preserves the core capabilities of the business and positions us for a
quick response when our end markets pick up.
In the first half we started production in our new Chinese factory, where we
will also be opening an enhanced Technical Centre later this year. This will
enable us to accelerate our 'Engineering Advantage' strategy in China and
produce more system solutions for customers locally in the region.
Whilst the outlook for the Fluid Power business remains difficult, demand has
stabilised following the sharp reduction in the early part of the year, and
efforts to focus more sales and engineering resource on more resilient end
markets are beginning to bear fruit. The actions taken during the course of the
first half to reduce costs are proving successful, and will significantly
improve second half margins on volumes which are not expected to show any
recovery in the short term. The establishment of the new facility in China,
together with the expansion of our Czech facility, will also contribute to
margin improvement once volumes do recover.
Indoor Climate
Revenues in the first half were up 5% to GBP142m (2008: GBP135m) and segmental
operating profit rose 28% to GBP24.2m (2008: GBP18.9m).
Excluding the benefit from exchange rates, revenue showed an organic decline of
4%. This encouraging performance resulted from resilience in refurbishment
markets with Heimeier, our thermostatic radiator valve business, continuing to
perform well following the introduction of new energy efficiency legislation in
Germany last year. Whilst the market for new construction of commercial
buildings has slowed, our seminars and initiatives to demonstrate the
improvements in energy efficiency and running costs from correctly balancing a
building are enabling us to improve penetration of our balancing valves on each
new project. The markets were more difficult in the UK and in Eastern Europe,
where there was a sharp drop off in new construction projects. Pneumatex, the
water conditioning business we acquired in 2007, continues to benefit from its
integration into the IMI Group and has increased penetration into new markets
and grown well in the first half.
The operating profit margin was 17.0% compared with 14.0% in the first half last
year. The business has benefited from the rapid actions taken to remove direct
and indirect costs, price increases, and lower material costs in the first half
as well as other efficiency savings.
Those parts of the Indoor Climate business more heavily dependent on private
sector new construction, around 20% of the business, are likely to witness a
significant slowdown in the second half, and into 2010, given the reduced number
of new starts over the last few months. The refurbishment market, however, is
likely to remain more resilient, and in the longer term, continuing new energy
efficiency legislation will provide further stimulus.
Beverage Dispense
Revenues in the first half were down 2% to GBP154m (2008: GBP157m) and segmental
operating profit fell 27% to GBP10.5m (2008: GBP14.3m).
Organic revenue decline was 20% reflecting the extremely challenging trading
environment in the first half. As previously highlighted demand for carbonated
soft drinks dispensing equipment deteriorated as the half progressed, with the
important North American market being particularly difficult. Whilst in previous
downturns this market has shown reasonable resilience, for much of the first
half our customers were holding back on investment in new equipment. Towards the
end of the first half we saw a levelling off in demand with some soft drinks
bottlers lifting investment in line with the normal seasonal pattern.
The UK beer industry continues to see significant declines in on-trade beer
volumes which is impacting the supply of new dispense equipment to the brewers.
Markets in continental Western Europe were more resilient but still down on the
first half of last year.
We continue to focus on our new product agenda targeting both dispensing
equipment for the health and indulgence sector and also developing more energy
efficient equipment which is becoming increasingly important to our major
customers in addressing their responsible business commitments.
The operating profit margin was 6.8% compared to 9.1% last year, reflecting
success in containing the profit impact of the sharp volume downturn through a
robust defence of selling prices and aggressive cost reduction.
The trading environment is likely to continue to be challenging in the second
half, albeit demand has stabilised in recent months.
Merchandising
Revenues in the first half were down 2% to GBP87m (2008: GBP89m) and segmental
operating profit was flat at GBP7.4m.
The 22% organic decline in revenues reflected a sharp downturn in a number of
our end market sectors, most notably automotive which was 35% down on last year.
The cosmetics, food & beverage and consumer electronics sectors showed more
resilience but, collectively were still lower than last year.
The business acted swiftly to mitigate the impact on profits of lower revenues,
quickly aligning capacity to lower demand, exiting from a number of loss making
product lines, and taking full advantage of the sharply lower steel prices
during the period. As a result first half margins improved from 8.3% last year
to 8.5%.
Despite what now appears to be a stabilisation in underlying demand, the outlook
for the second half in Merchandising is challenging. The 2008 comparables are
impacted by the large GBP25m US grocery chain order, much of which was shipped
in Q3 and the higher seasonal second half weighting of the sharply lower
automotive business. Notwithstanding this, further margin improvement over the
first half is anticipated from actions already undertaken.
Board changes
As previously announced David Nicholas, executive director, plans to retire in
December this year and will step down from the Board on 1 September. With effect
from that date responsibility for the Indoor Climate business will pass to
Martin Lamb, whilst Douglas Hurt and Roy Twite will take on respective
responsibilities for Mergers & Acquisitions and Global Procurement. The Group is
grateful to David for his energetic contribution to the Group over the last five
years and for the important role he has played in the significant development of
the Fluid Controls businesses during that time.
Outlook
Underlying levels of demand would appear to have stabilised following the very
sharp reductions seen in some of our businesses in the early part of the year.
Our early and comprehensive actions taken to reallocate sales and engineering
resource in support of more resilient end markets, to align capacity to lower
levels of demand, to defend Group margins and to maximise cash conversion have
proved highly successful with Group operating margins remaining in double
digits. Net borrowings have reduced by GBP35m to GBP264m and the dividend has
been maintained.
We are not assuming any improvement in general economic conditions during the
second half but, as and when it materialises, we are well placed to benefit
given the restructuring already undertaken and the further expansion of our low
cost manufacturing capabilities.
Risks and Uncertainties
The Group has in place a risk management structure and internal controls which
are designed to identify, manage and mitigate business risk.
In common with all businesses, IMI faces a number of risks and uncertainties
which could have a material impact on the Group's long-term performance.
On pages 40 and 41 of its 2008 Annual Report (a copy of which is available at
IMI's website at www.imiplc.com), the Company sets out what the Directors
regarded as being the principal risks and uncertainties facing the Group and
which could have a material impact on the Group's long-term performance. These
include: Economic and market environment; Key customers; Supply chain;
Competitive markets; Legal, regulatory and political risks; Financial market
risks; Talent acquisition; Compliance and internal controls; Products and
technology; Health, safety and environmental; M&A activity; and Pension funding.
These risks remain valid and have the potential to impact the Group during the
remainder of the second half of 2009. The impact of the economic and end-market
environments in which the Group's businesses operate are considered in the
operations review and outlook sections of this Interim Management Report above,
together with an indication if management is aware of any likely change in this
situation.
Responsibility statement of the directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
* the condensed set of interim financial statements has been prepared in
accordance with IAS34 'Interim Financial Reporting' as adopted by the EU;
* the Interim Management Report includes a fair review of the information required
by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the financial
year and their impact on the condensed set of financial statements; and a
description of the principal risks and uncertainties for the remaining six
months of the year;
* there were no related party transactions or changes in the related party
transactions described in the 2008 Annual Report that materially affected the
Group's results or financial position during the six months ended 30 June 2009.
The Directors of IMI plc are listed in the IMI Annual Report for the year ended
31 December 2008.
Approved by the Board of IMI plc and signed on its behalf by:
NMB Askew
Chairman
27 August 2009
INDEPENDENT REVIEW REPORT TO IMI plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June
2009 which comprises the Condensed Consolidated Interim Income Statement, the
Condensed Consolidated Interim Statement of Comprehensive Income, the Condensed
Consolidated Interim Balance Sheet, the Condensed Consolidated Interim Statement
of Changes in Equity, the Condensed Consolidated Interim Statement of Cash Flows
and the related explanatory notes. We have read the other information contained
in the half yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained
in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed
by the Independent Auditor of the Entity" issued by the Auditing Practices
Board. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our work, for this report,
or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
As disclosed in note 12, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2009 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
Ernst & Young LLP
Birmingham
27 August 2009
+--------------------------------------------+-------+--------------+--------------+-------------+
| CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT |
+------------------------------------------------------------------------------------------------+
| | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | Notes | 6 months to | 6 months to | Year to |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | | 30 June 2009 | 30 June 2008 | 31 Dec 2008 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | | (unaudited) | (unaudited) | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | 12 | | restated | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | | GBPm | GBPm | GBPm |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Revenue | 1 | 900 | 911 | 1,901 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Segmental operating profit | 1 | 97.4 | 120.6 | 266.3 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Restructuring costs | | (17.5) | (5.6) | (19.6) |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Severe Service investigation costs and | | - | (2.7) | (26.3) |
| fines | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Acquired intangible amortisation and | | (3.7) | (3.5) | (13.2) |
| impairment | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Economic hedge contract gains and losses | 12 | 13.3 | - | 2.6 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Operating profit | | 89.5 | 108.8 | 209.8 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Financial income | 3 | 52.2 | 42.3 | 85.6 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Financial expense | 3 | (62.0) | (47.4) | (119.4) |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Net financial expense | 3 | (9.8) | (5.1) | (33.8) |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Profit before tax | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Before restructuring, investigation costs | | 86.4 | 114.2 | 254.7 |
| and fines, | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| acquired intangible amortisation and | | | | |
| impairment | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| and financial instruments excluding | | | | |
| economic | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| hedge contract gains and losses | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Restructuring costs | | (17.5) | (5.6) | (19.6) |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Severe Service investigation costs and | | - | (2.7) | (26.3) |
| fines | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Acquired intangible amortisation and | | (3.7) | (3.5) | (13.2) |
| impairment | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Financial instruments excluding economic | 12 | 14.5 | 1.3 | (19.6) |
| hedge | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| contract gains and losses | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Total | | 79.7 | 103.7 | 176.0 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Taxation | 4 | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| UK taxation | | (4.0) | (6.4) | (12.9) |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Overseas taxation | | (20.7) | (24.7) | (47.1) |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Total | | (24.7) | (31.1) | (60.0) |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Profit for the period | | 55.0 | 72.6 | 116.0 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Attributable to: | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Equity shareholders of the Company | | 54.2 | 71.2 | 112.9 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Minority interest | | 0.8 | 1.4 | 3.1 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Total profit for the period | | 55.0 | 72.6 | 116.0 |
+--------------------------------------------+-------+--------------+--------------+-------------+
| | | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Earnings per share | 5 | | | |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Basic earnings per share | | 17.0p | 22.2p | 35.4p |
+--------------------------------------------+-------+--------------+--------------+-------------+
| Diluted earnings per share | | 17.0p | 22.0p | 35.1p |
+--------------------------------------------+-------+--------------+--------------+-------------+
+--+------------------------------------------------+--------------+---------------+--------------+
| CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME |
+-------------------------------------------------------------------------------------------------+
| | | | | |
+--+------------------------------------------------+--------------+---------------+--------------+
| | | 6 months to | 6 months to | Year to |
+--+------------------------------------------------+--------------+---------------+--------------+
| | | 30 June 2009 | 30 June 2008 | 31 Dec 2008 |
+--+------------------------------------------------+--------------+---------------+--------------+
| | | (unaudited) | (unaudited) | |
+--+------------------------------------------------+--------------+---------------+--------------+
| | | | restated | |
+--+------------------------------------------------+--------------+---------------+--------------+
| | | GBPm | GBPm | GBPm |
+--+------------------------------------------------+--------------+---------------+--------------+
| Profit for the period | 55.0 | 72.6 | 116.0 |
+---------------------------------------------------+--------------+---------------+--------------+
| Other comprehensive income | | | |
+---------------------------------------------------+--------------+---------------+--------------+
| Fair value loss on available for sale financial | (0.5) | - | - |
| assets | | | |
+---------------------------------------------------+--------------+---------------+--------------+
| Foreign currency translation differences | (36.6) | (6.4) | 73.4 |
+---------------------------------------------------+--------------+---------------+--------------+
| Effective portion of change in fair value of net | 9.9 | 3.2 | (5.3) |
| investment hedges | | | |
+---------------------------------------------------+--------------+---------------+--------------+
| Actuarial loss on defined benefit plans | (159.0) | (65.9) | (77.4) |
+---------------------------------------------------+--------------+---------------+--------------+
| Income tax on income recognised directly in | 41.0 | 19.2 | 21.5 |
| equity | | | |
+---------------------------------------------------+--------------+---------------+--------------+
| | | | | |
+--+------------------------------------------------+--------------+---------------+--------------+
| Other comprehensive income for the period net of | (145.2) | (49.9) | 12.2 |
| tax | | | |
+---------------------------------------------------+--------------+---------------+--------------+
| | | | | |
+--+------------------------------------------------+--------------+---------------+--------------+
| Total comprehensive income for the period | (90.2) | 22.7 | 128.2 |
+---------------------------------------------------+--------------+---------------+--------------+
| | | | | |
+--+------------------------------------------------+--------------+---------------+--------------+
| Attributable to: | | | |
+---------------------------------------------------+--------------+---------------+--------------+
| | Equity shareholders of the Company | (90.0) | 20.9 | 122.9 |
+--+------------------------------------------------+--------------+---------------+--------------+
| | Minority interest | (0.2) | 1.8 | 5.3 |
+--+------------------------------------------------+--------------+---------------+--------------+
| Total comprehensive income for the period | (90.2) | 22.7 | 128.2 |
+--+------------------------------------------------+--------------+---------------+--------------+
+--+----------------------------------------------+-------------+----------------+------------+
| CONDENSED CONSOLIDATED INTERIM BALANCE SHEET |
+---------------------------------------------------------------------------------------------+
| |
+---------------------------------------------------------------------------------------------+
| | | 30 June | 30 June | 31 Dec |
+--+----------------------------------------------+-------------+----------------+------------+
| | | 2009 | 2008 | 2008 |
+--+----------------------------------------------+-------------+----------------+------------+
| | | (unaudited) | (unaudited) | |
+--+----------------------------------------------+-------------+----------------+------------+
| | | GBPm | GBPm | GBPm |
+--+----------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| Assets | | | |
+-------------------------------------------------+-------------+----------------+------------+
| | Intangible assets | 372.5 | 306.7 | 399.8 |
+--+----------------------------------------------+-------------+----------------+------------+
| | Property, plant and equipment | 232.8 | 220.8 | 266.4 |
+--+----------------------------------------------+-------------+----------------+------------+
| | Employee benefit assets | 2.1 | 1.4 | 2.4 |
+--+----------------------------------------------+-------------+----------------+------------+
| | Deferred tax assets | 86.5 | 51.1 | 54.7 |
+--+----------------------------------------------+-------------+----------------+------------+
| Total non-current assets | 693.9 | 580.0 | 723.3 |
+-------------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| | Inventories | 265.5 | 294.6 | 333.5 |
+--+----------------------------------------------+-------------+----------------+------------+
| | Trade and other receivables | 334.8 | 382.5 | 408.5 |
+--+----------------------------------------------+-------------+----------------+------------+
| | Current tax | 4.1 | 1.9 | 4.7 |
+--+----------------------------------------------+-------------+----------------+------------+
| | Investments | 14.7 | 14.8 | 17.8 |
+--+----------------------------------------------+-------------+----------------+------------+
| | Cash and cash equivalents | 112.2 | 107.1 | 123.9 |
+--+----------------------------------------------+-------------+----------------+------------+
| Total current assets | 731.3 | 800.9 | 888.4 |
+-------------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| Total assets | 1,425.2 | 1,380.9 | 1,611.7 |
+-------------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| Liabilities | | | |
+-------------------------------------------------+-------------+----------------+------------+
| | Bank overdraft | (2.5) | (7.5) | (4.6) |
+--+----------------------------------------------+-------------+----------------+------------+
| | Interest-bearing loans and borrowings | (65.0) | (0.2) | (46.5) |
+--+----------------------------------------------+-------------+----------------+------------+
| | Provisions | (29.8) | (5.9) | (29.4) |
+--+----------------------------------------------+-------------+----------------+------------+
| | Current tax | (16.0) | (26.2) | (26.6) |
+--+----------------------------------------------+-------------+----------------+------------+
| | Trade and other payables | (316.3) | (382.4) | (448.2) |
+--+----------------------------------------------+-------------+----------------+------------+
| Total current liabilities | (429.6) | (422.2) | (555.3) |
+-------------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| | Interest-bearing loans and borrowings | (308.2) | (373.9) | (371.5) |
+--+----------------------------------------------+-------------+----------------+------------+
| | Employee benefit obligations | (283.1) | (130.7) | (139.5) |
+--+----------------------------------------------+-------------+----------------+------------+
| | Provisions | (34.3) | (33.5) | (36.5) |
+--+----------------------------------------------+-------------+----------------+------------+
| | Deferred tax liabilities | (15.6) | (18.8) | (16.9) |
+--+----------------------------------------------+-------------+----------------+------------+
| | Other payables | (25.0) | (20.5) | (30.3) |
+--+----------------------------------------------+-------------+----------------+------------+
| Total non-current liabilities | (666.2) | (577.4) | (594.7) |
+-------------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| Total liabilities | (1,095.8) | (999.6) | (1,150.0) |
+-------------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| Net assets | 329.4 | 381.3 | 461.7 |
+-------------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| Equity | | | |
+-------------------------------------------------+-------------+----------------+------------+
| | Share capital | 84.8 | 84.7 | 84.7 |
+--+----------------------------------------------+-------------+----------------+------------+
| | Other reserves | 210.5 | 167.6 | 236.2 |
+--+----------------------------------------------+-------------+----------------+------------+
| | Retained earnings | 27.9 | 122.8 | 131.5 |
+--+----------------------------------------------+-------------+----------------+------------+
| Total equity attributable to equity | 323.2 | 375.1 | 452.4 |
| shareholders | | | |
+-------------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| Minority interest | 6.2 | 6.2 | 9.3 |
+-------------------------------------------------+-------------+----------------+------------+
| | | | | |
+--+----------------------------------------------+-------------+----------------+------------+
| Total equity | 329.4 | 381.3 | 461.7 |
+--+----------------------------------------------+-------------+----------------+------------+
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| | | | | | | |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY |
+---------------------------------------------------------------------------------------------------+
| | | | | | | |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| | | | | Total | | |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| | Share | Other | Retained | parent | Minority | Total |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| | capital | reserves | earnings | equity | interest | equity |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| At 1 January 2008 | 84.6 | 170.1 | 151.8 | 406.5 | 6.4 | 412.9 |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Total recognised income and expense | | (4.1) | 25.0 | 20.9 | 1.8 | 22.7 |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Issued in the period | 0.1 | 0.9 | | 1.0 | | 1.0 |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Dividends paid | | | (40.7) | (40.7) | (2.0) | (42.7) |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Share based payments (net of tax) | | | 2.2 | 2.2 | | 2.2 |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Acquisition of treasury shares | | | (14.8) | (14.8) | | (14.8) |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| At 30 June 2008 | 84.7 | 166.9 | 123.5 | 375.1 | 6.2 | 381.3 |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| | | | | | | |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| At 1 January 2009 | 84.7 | 236.2 | 131.5 | 452.4 | 9.3 | 461.7 |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Total recognised income and expense | | (25.8) | (64.2) | (90.0) | (0.2) | (90.2) |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Issued in the period | 0.1 | 0.1 | | 0.2 | | 0.2 |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Dividends paid | | | (40.5) | (40.5) | (1.6) | (42.1) |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Minority interest acquired | | | | | (1.3) | (1.3) |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Share based payments (net of tax) | | | 1.4 | 1.4 | | 1.4 |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| Share held in trust for employee | | | (0.3) | (0.3) | | (0.3) |
| share schemes | | | | | | |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| At 30 June 2009 | 84.8 | 210.5 | 27.9 | 323.2 | 6.2 | 329.4 |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| | | | | | | |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
| The aggregate amount of goodwill arising from acquisitions prior to 1 January 2004 which |
| had been deducted from the profit and loss reserves and incorporated into the IFRS |
| transitional balance sheet as at 1 January 2004 amounted to GBP364m. |
+--------------------------------------+---------+----------+----------+--------+----------+--------+
+--+-------------------------------------------------+-------------+-------------+----------+
| CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS |
+-------------------------------------------------------------------------------------------+
| | | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| | | 6 months | 6 months | Year to |
| | | to | to | |
+--+-------------------------------------------------+-------------+-------------+----------+
| | 30 June | 30 June | 31 Dec |
| | 2009 | 2008 | 2008 |
+----------------------------------------------------+-------------+-------------+----------+
| | | (unaudited) | (unaudited) | restated |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Cash flows from operating activities | GBPm | GBPm | GBPm |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Profit for the period | 55.0 | 72.6 | 116.0 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Adjustments for: | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Depreciation | 23.4 | 20.6 | 43.1 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Amortisation and impairment | 6.1 | 4.9 | 16.4 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Gain on sale of property, plant and equipment | - | - | (0.2) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Financial income | (52.2) | (42.3) | (85.6) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Financial expense | 62.0 | 47.4 | 119.4 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Equity-settled share-based payment expenses | 1.4 | 1.8 | 3.9 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Income tax expense | 24.7 | 31.1 | 60.0 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Decrease/(increase) in inventories | 30.3 | (29.6) | (9.2) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Decrease/(increase) in trade and other | 26.3 | (34.4) | 20.0 |
| | receivables | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| | (Decrease)/increase in trade and other payables | (75.0) | 26.4 | (7.2) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | (Decrease)/increase in provisions and employee | (6.9) | (10.3) | 14.4 |
| | benefits | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| Cash generated from the operations | 95.1 | 88.2 | 291.0 |
+----------------------------------------------------+-------------+-------------+----------+
| | Income taxes paid | (26.2) | (24.3) | (54.4) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | | 68.9 | 63.9 | 236.6 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Additional pension scheme funding | - | - | (16.8) |
+--+-------------------------------------------------+-------------+-------------+----------+
| Net cash from operating activities | 68.9 | 63.9 | 219.8 |
+----------------------------------------------------+-------------+-------------+----------+
| | | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| Cash flows from investing activities | | | |
+----------------------------------------------------+-------------+-------------+----------+
| | Interest received | 1.7 | 4.7 | 12.4 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Proceeds from sale of property, plant and | 0.7 | 1.9 | 3.1 |
| | equipment | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Sale of investments | 0.2 | - | 0.1 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Purchase of investments | (0.1) | (0.2) | (0.8) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Income from investments | - | - | 0.7 |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Settlement of derivatives | (9.7) | - | (2.4) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Acquisition of minority interest | (19.0) | - | - |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Acquisition of property, plant and equipment | (17.1) | (25.3) | (47.6) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Capitalised development expenditure | (2.6) | (1.3) | (5.1) |
+--+-------------------------------------------------+-------------+-------------+----------+
| Net cash from investing activities | (45.9) | (20.2) | (39.6) |
+----------------------------------------------------+-------------+-------------+----------+
| | | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| Cash flows from financing activities | | | |
+----------------------------------------------------+-------------+-------------+----------+
| | Interest paid | (13.0) | (12.7) | (29.0) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Purchase of own shares | (0.3) | (14.6) | (16.7) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Proceeds from the issue of share capital for | 0.2 | 1.0 | 1.9 |
| | employee share schemes | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Drawdown/(repayment) of borrowings | 28.4 | 55.1 | (45.5) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Dividends paid to minority interest | (1.6) | (2.0) | (2.4) |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Dividends paid | (40.5) | (40.7) | (66.2) |
+--+-------------------------------------------------+-------------+-------------+----------+
| Net cash from financing activities | (26.8) | (13.9) | (157.9) |
+----------------------------------------------------+-------------+-------------+----------+
| | | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| Net (decrease)/increase in cash and cash | (3.8) | 29.8 | 22.3 |
| equivalents | | | |
+----------------------------------------------------+-------------+-------------+----------+
| Cash and cash equivalents at start of period | 119.3 | 77.4 | 77.4 |
+----------------------------------------------------+-------------+-------------+----------+
| Effect of exchange rate fluctuations on cash held | (5.8) | (7.6) | 19.6 |
+----------------------------------------------------+-------------+-------------+----------+
| Cash and cash equivalents at end of period * | 109.7 | 99.6 | 119.3 |
+----------------------------------------------------+-------------+-------------+----------+
| | | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| | * Net of bank overdrafts | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| | | | | |
+--+-------------------------------------------------+-------------+-------------+----------+
| | Reconciliation of net cash to movement in net borrowings appears in | |
| | note 7. | |
+--+-------------------------------------------------+-------------+-------------+----------+
+----+----+--------------------------------------------------------------------------------------+
| NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
+------------------------------------------------------------------------------------------------+
| |
+------------------------------------------------------------------------------------------------+
| 1. | Segmental analysis |
+----+-------------------------------------------------------------------------------------------+
| | |
+----+-------------------------------------------------------------------------------------------+
| | The Group includes the following five business segments and activities. The operating |
| | segments reporting format reflects the Group's management and internal reporting |
| | structures. Inter-segment revenue is insignificant: |
+----+-------------------------------------------------------------------------------------------+
| | |
+----+-------------------------------------------------------------------------------------------+
| | Fluid Controls |
+----+-------------------------------------------------------------------------------------------+
| | | Severe Service |
+----+----+--------------------------------------------------------------------------------------+
| | | Design, manufacture, supply and service of high performance critical control valves |
| | | and associated equipment for power generation plants, oil & gas producers and other |
| | | process industries. |
+----+----+--------------------------------------------------------------------------------------+
| | | Fluid Power |
+----+----+--------------------------------------------------------------------------------------+
| | | Design, manufacture and supply of motion and fluid control systems, principally |
| | | pneumatic devices, for original equipment manufacturers in commercial vehicle, |
| | | medical, print, packaging and other industries. |
+----+----+--------------------------------------------------------------------------------------+
| | | Indoor Climate |
+----+----+--------------------------------------------------------------------------------------+
| | | Design, manufacture and supply of indoor climate control systems, principally |
| | | balancing valves for large commercial buildings and thermostatic radiator valves for |
| | | residential buildings. |
+----+----+--------------------------------------------------------------------------------------+
| | Retail Dispense |
+----+-------------------------------------------------------------------------------------------+
| | | Beverage Dispense |
+----+----+--------------------------------------------------------------------------------------+
| | | Design, manufacture and supply of still and carbonated beverage dispense systems and |
| | | associated merchandising equipment for brand owners and retailers. |
+----+----+--------------------------------------------------------------------------------------+
| | | Merchandising |
+----+----+--------------------------------------------------------------------------------------+
| | | Design, manufacture and supply of point of purchase display systems for brand owners |
| | | and retailers. |
+----+----+--------------------------------------------------------------------------------------+
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | | Segmental revenue | | Segmental operating profit |
+----+----------------------------+--------------------------------+--+-------------------------------+
| | | 6 months | 6 months | Year to | | 6 months | 6 months | Year |
| | | to | to | | | to | to | to |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | | 30 June | 30 June | 31 Dec | | 30 June | 30 June | 31 Dec |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | | 2009 | 2008 | 2008 | | 2009 | 2008 | 2008 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | | GBPm | GBPm | GBPm | | GBPm | GBPm | GBPm |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | | | | | | | | |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Fluid Controls | 649 | 665 | 1,390 | | 79.5 | 98.9 | 217.8 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Severe Service | 252 | 191 | 443 | | 47.9 | 31.8 | 81.3 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Fluid Power | 255 | 339 | 666 | | 7.4 | 48.2 | 91.3 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Indoor Climate | 142 | 135 | 281 | | 24.2 | 18.9 | 45.2 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Retail Dispense | 241 | 246 | 507 | | 17.9 | 21.7 | 48.5 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Beverage Dispense | 154 | 157 | 305 | | 10.5 | 14.3 | 27.6 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Merchandising | 87 | 89 | 202 | | 7.4 | 7.4 | 20.9 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Segment result | 890 | 911 | 1,897 | | 97.4 | 120.6 | 266.3 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | |
+----+------------------------------------------------------------------------------------------------+
| | Reconciliation of reported segmental revenue and operating profit |
+----+------------------------------------------------------------------------------------------------+
| |
+-----------------------------------------------------------------------------------------------------+
| | | Revenue | | Profit |
+----+----------------------------+--------------------------------+--+-------------------------------+
| | | 6 months | 6 months | Year to | | 6 months | 6 months | Year |
| | | to | to | | | to | to | to |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | | 30 June | 30 June | 31 Dec | | 30 June | 30 June | 31 Dec |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | | 2009 | 2008 | 2008 | | 2009 | 2008 | 2008 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | | GBPm | GBPm | GBPm | | GBPm | GBPm | GBPm |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | | | | | | | | |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Segmental result | 890 | 911 | 1,897 | | 97.4 | 120.6 | 266.3 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Restructuring costs | | | | | (17.5) | (5.6) | (19.6) |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Severe Service | | | | | - | (2.7) | (26.3) |
| | investigation costs and | | | | | | | |
| | fines | | | | | | | |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Acquired intangible amortisation and | | | | (3.7) | (3.5) | (13.2) |
| | impairment | | | | | | |
+----+---------------------------------------+----------+----------+--+-----------+----------+--------+
| | Economic hedge contract | 10 | - | 4 | | 13.3 | - | 2.6 |
| | gains and losses | | | | | | | |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Total revenue/operating | 900 | 911 | 1,901 | | 89.5 | 108.8 | 209.8 |
| | profit reported | | | | | | | |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Net financial expense | | | | | (9.8) | (5.1) | (33.8) |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
| | Profit before tax | | | | | 79.7 | 103.7 | 176.0 |
+----+----------------------------+----------+----------+----------+--+-----------+----------+--------+
2. Acquisitions
On 1 January 2009 the 19.1% minority interest in Display Technologies LLC, part
of the Merchandising group was acquired by the Group under the terms of the
original purchase agreement. Based on the contracted pricing mechanism the cash
consideration paid was GBP19m, resulting in a goodwill of GBP17.8m.
In the year ended 31 December 2008 the Company had sales and operating profit of
GBP41m and GBP11.7m respectively, that were included in the segmental result of
Merchandising.
3. Financial income and expense
+-------------------------+----------+---+--+----+--------+-------------+--------+---+----+--+----------+-------------+-------+------------------+-+--+--+------------------+
| | | | | | | | | | |
+-------------------------+----------+---+--+----------------------------------------+----+-----------------------------------+--------------------+--+--+
| | | | | 6 months to 30 June 2009 | | 6 months to 30 June |
| | | | | | | 2008 |
+-------------------------+----------+---+--+---------------------------------------------+--+------------------------------------------------------------------------------+
| | | | | | Financial | | | | | Financial | | |
+-------------------------+----------+---+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| | | | | Interest | instruments | Other | Total | | Interest | instruments | Other | Total |
+-------------------------+----------+---+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Recognised in the income statement | | | | | | | | | | |
+----------------------------------------+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Interest income on bank deposits | | | 1.9 | | | 1.9 | | 3.5 | | | 3.5 |
+------------------------------------+---+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Financial instruments at fair value | | | | | | | | | |
| through profit or loss: | | | | | | | | | |
+-------------------------------------------+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Designated hedges | | | | | 1.6 | | 1.6 | | | 0.2 | | 0.2 |
+-------------------------+----------+---+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Other economic hedges - current year | | | 3.2 | | 3.2 | | | - | | - |
| transactions | | | | | | | | | | |
+----------------------------------------+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| - future year transactions | | | 15.1 | | 15.1 | | | 2.9 | | 2.9 |
+----------------------------------------+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Expected return on defined benefit | | | 30.4 | 30.4 | | | | 35.7 | 35.7 |
| pension plan assets | | | | | | | | | |
+-------------------------------------------+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Financial income | | | | 1.9 | 19.9 | 30.4 | 52.2 | | 3.5 | 3.1 | 35.7 | 42.3 |
+-------------------------+----------+---+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| | | | | | | | | | | | | |
+-------------------------+----------+---+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Interest expense on financial | | | | | | | | | | |
| liabilities measured at | | | | | | | | | | |
+----------------------------------------+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| amortised cost | | | | (10.8) | | | (10.8) | | (11.8) | | | (11.8) |
+-------------------------+----------+---+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Financial instruments at fair value | | | | | | | | | |
| through profit or loss: | | | | | | | | | |
+-------------------------------------------+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Designated hedges | | | | | (1.7) | | (1.7) | | | (0.2) | | (0.2) |
+-------------------------+----------+---+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Other economic hedges- current year | | | (14.3) | | (14.3) | | | - | | - |
| trading | | | | | | | | | | |
+----------------------------------------+--+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| - future year transactions | | (2.7) | | (2.7) | | | (1.6) | | (1.6) |
+-------------------------------------------+-------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Financial cost of defined benefit pension scheme | | (32.5) | (32.5) | | | | (33.8) | (33.8) |
| liabilities | | | | | | | | |
+---------------------------------------------------------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Financial expense | | | | (10.8) | (18.7) | (32.5) | (62.0) | | (11.8) | (1.8) | (33.8) | (47.4) |
+-------------------------+----------+---+-------+--------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| | | | | | | | | | | | | |
+-------------------------+----------+---+-------+--------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| Net financial (expense)/income | | | (8.9) | 1.2 | (2.1) | (9.8) | | (8.3) | 1.3 | 1.9 | (5.1) |
+------------------------------------+---+-------+--------+-------------+--------+--------+--+----------+-------------+--------------------------+--------------------------+
| | | | | | | | | | | | | |
+-------------------------+----------+---+--+----+--------+-------------+--------+---+----+--+----------+-------------+-------+------------------+-+--+--+------------------+
+-------------------------+---+---+--------+--+---+--+---+---+---+----------+-------------+--------+---------+
| | | | | Year to 31 Dec 2008 |
+-----------------------------+------------+--+------------------+-------------------------------------------+
| | | | | | Financial | | |
+-----------------------------+------------+--+------------------+----------+-------------+--------+---------+
| | | | | Interest | instruments | Other | Total |
+-----------------------------+------------+--+------------------+----------+-------------+--------+---------+
| Recognised in the income statement | | | | | |
+---------------------------------------------+------------------+----------+-------------+--------+---------+
| Interest income on bank deposits | | | 10.2 | | | 10.2 |
+------------------------------------------+--+------------------+----------+-------------+--------+---------+
| Financial instruments at fair value through profit or loss: | | | | |
+----------------------------------------------------------------+----------+-------------+--------+---------+
| Designated hedges | | | | | 3.1 | | 3.1 |
+-----------------------------+------------+--+------------------+----------+-------------+--------+---------+
| Income from investments | | | | | | 0.7 | 0.7 |
+-----------------------------+------------+--+------------------+----------+-------------+--------+---------+
| Expected return on defined benefit pension plan assets | | | 71.6 | 71.6 |
+----------------------------------------------------------------+----------+-------------+--------+---------+
| Financial income | | | | 10.2 | 3.1 | 72.3 | 85.6 |
+-----------------------------+------------+--+------------------+----------+-------------+--------+---------+
| | | | | | | | |
+-----------------------------+------------+--+------------------+----------+-------------+--------+---------+
| Interest expense on financial liabilities | | | | | |
| measured at | | | | | |
+---------------------------------------------+------------------+----------+-------------+--------+---------+
| amortised cost | | | | (26.3) | | | (26.3) |
+-----------------------------+------------+--+------------------+----------+-------------+--------+---------+
| Financial instruments at fair value through profit or loss: | | | | |
+----------------------------------------------------------------+----------+-------------+--------+---------+
| Designated hedges | | | | | (3.2) | | (3.2) |
+-------------------------+----------------+------+------+------------------+-------------+--------+---------+
| Other economic hedges - current year | | | (2.6) | | (2.6) |
| trading | | | | | |
+-------------------------------------------------+------+------------------+-------------+--------+---------+
| - future year transactions | | (17.2) | | (17.2) |
+-------------------------------------------------+-------------------------+-------------+--------+---------+
| Impairment of available for sale financial | | | (2.3) | | (2.3) |
| assets | | | | | |
+-------------------------------------------------+------+------------------+-------------+--------+---------+
| Financial cost of defined | | | | | | (67.8) | (67.8) |
| benefit pension scheme | | | | | | | |
| liabilities | | | | | | | |
+---------------------------------+--------+------+--+-------+--------------+----------------------+---------+
| Financial expense | | | | (26.3) | (25.3) | (67.8) | (119.4) |
+---------------------------------+--------+------+--------------+----------+-------------+--------+---------+
| | | | | | | | |
+---------------------------------+--------+------+--------------+----------+-------------+--------+---------+
| Net financial (expense)/income | | | (16.1) | (22.2) | 4.5 | (33.8) |
+------------------------------------------+------+--------------+----------+-------------+--------+---------+
| | | | | | | | |
+-----------------------------+------------+------+--------------+----------+-------------+--------+---------+
| Included in financial instruments are current year trading gains and losses on economically |
| effective transactions which for management reporting purposes (see note 12) are included |
| in segmental operating profit. For statutory purposes these are required to be shown within |
| net financial income and expense above. Gains or losses for future year transactions are in |
| respect of financial instruments held by the Group to provide stability of future trading |
| cash flows. |
| |
+-------------------------+---+---+--------+--+---+--+---+---+---+----------+-------------+--------+---------+
4.Taxation
The interim taxation charge of 31% is calculated by applying the directors' best
estimate of the annual tax rate that will be applicable to expected total annual
earnings to the taxable profit for the period (six months ended 30 June 2008:
30%) in respect of profit before tax.
5.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 or to satisfy share option
vesting was 318.5m, 319.4m diluted for the effect of outstanding share options
(six months to 30 June 2008: 320.2m, 323.4m diluted and year to 31 December 2008
319.3m and 321.6m diluted). Basic and diluted earnings per share have been
calculated on profit of GBP54.2m (2008: 6 months to 30 June, profit of GBP71.2m
and year to 31 December, profit of 112.9m).
The directors consider that adjusted earnings per share figures, using earnings
as calculated below, give a more meaningful indication of the underlying
performance because either the quantum, the one off nature, or volatility of
these items would otherwise distort the underlying performance.
+----------------------------------------+----------------+----------------+----------------+
| | 6 months to | 6 months to | Year to |
| | 30 June | 30 June | 31 Dec 2008 |
| | 2009 | 2008 | |
+----------------------------------------+----------------+----------------+----------------+
| | GBPm | GBPm | GBPm |
+----------------------------------------+----------------+----------------+----------------+
| Profit for the period | 55.0 | 72.6 | 116.0 |
+----------------------------------------+----------------+----------------+----------------+
| Minority interest | (0.8) | (1.4) | (3.1) |
+----------------------------------------+----------------+----------------+----------------+
| | 54.2 | 71.2 | 112.9 |
+----------------------------------------+----------------+----------------+----------------+
| Charges/(credits) included in profit | | | |
| for the period: | | | |
+----------------------------------------+----------------+----------------+----------------+
| Restructuring costs | 17.5 | 5.6 | 19.6 |
+----------------------------------------+----------------+----------------+----------------+
| Severe Service investigation costs and | - | 2.7 | 26.3 |
| fines | | | |
+----------------------------------------+----------------+----------------+----------------+
| Acquired intangible amortisation and | 3.7 | 3.5 | 13.2 |
| impairment | | | |
+----------------------------------------+----------------+----------------+----------------+
| Financial instruments excluding | | | |
| economic hedge | | | |
+----------------------------------------+----------------+----------------+----------------+
| contract gains and losses | (14.5) | (1.3) | 19.6 |
+----------------------------------------+----------------+----------------+----------------+
| Taxation on charges/(credits) included | (2.1) | (3.3) | (19.0) |
| in profit | | | |
+----------------------------------------+----------------+----------------+----------------+
| before tax | | | |
+----------------------------------------+----------------+----------------+----------------+
| Earnings for adjusted EPS | 58.8 | 78.4 | 172.6 |
+----------------------------------------+----------------+----------------+----------------+
| | | | |
+----------------------------------------+----------------+----------------+----------------+
| Weighted average number of shares | 318.5m | 320.2m | 319.3m |
+----------------------------------------+----------------+----------------+----------------+
| | | | |
+----------------------------------------+----------------+----------------+----------------+
| Adjusted EPS | 18.5p | 24.5p | 54.1p |
+----------------------------------------+----------------+----------------+----------------+
| | | | |
+----------------------------------------+----------------+----------------+----------------+
| Diluted adjusted EPS | 18.4p | 24.2p | 53.7p |
+----------------------------------------+----------------+----------------+----------------+
| | | | |
+----------------------------------------+----------------+----------------+----------------+
6.Dividends
A final dividend relating to year ended 31 December 2008 of 12.7p per share was
paid in May 2009 absorbing GBP40.5m (2008: GBP40.7m).
In addition, the directors have declared an interim dividend for the current
year of 8.0p per share (2008: 8.0p) which will be paid on 16 October 2009 to
shareholders on the register on 11 September 2009. In accordance with IAS10
'Events after the Balance Sheet Date', this interim dividend has not been
reflected in the interim financial statements.
7. Reconciliation of net cash to movement in net borrowings
+--+---------+-------------------------------+--------------+--+-------------+--+-------------+
| | | | 6 months to | | 6 months to | | Year to |
+--+---------+-------------------------------+--------------+--+-------------+--+-------------+
| | | | 30 June | | 30 June | | 31 Dec |
| | | | 2009 | | 2008 | | 2008 |
+--+---------+-------------------------------+--------------+--+-------------+--+-------------+
| | | | GBPm | | GBPm | | GBPm |
+--+---------+-------------------------------+--------------+--+-------------+--+-------------+
| | | | | | | | |
+--+---------+-------------------------------+--------------+--+-------------+--+-------------+
| Net (decrease)/increase in cash and cash | (3.8) | | 29.8 | | 22.3 |
| equivalents | | | | | |
+--------------------------------------------+--------------+--+-------------+--+-------------+
| (Drawdown)/repayment of borrowings | (28.4) | | (55.1) | | 45.5 |
+--------------------------------------------+--------------+--+-------------+--+-------------+
| Cash (outflow)/inflow | (32.2) | | (25.3) | | 67.8 |
+--------------------------------------------+--------------+--+-------------+--+-------------+
| Currency translation differences | 67.4 | | (16.1) | | (133.4) |
+--------------------------------------------+--------------+--+-------------+--+-------------+
| Movement in net borrowings in the period | 35.2 | | (41.4) | | (65.6) |
+--------------------------------------------+--------------+--+-------------+--+-------------+
| Net borrowings at the start of the period | (298.7) | | (233.1) | | (233.1) |
+--------------------------------------------+--------------+--+-------------+--+-------------+
| Net borrowings at the end of the period | (263.5) | | (274.5) | | (298.7) |
+--+---------+-------------------------------+--------------+--+-------------+--+-------------+
8.Exchange rates
The income statements and cash flow statements 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:
+----------+----------+----------+----------+-----+---------+---------+--------+
| |Income statement and cash flow | | Balance sheet |
+----------+--------------------------------+-----+----------------------------+
| | Average rates | | Rates as at |
+----------+--------------------------------+-----+----------------------------+
| | 6 months to 30 June | Year | | 30 June | 30 June | 31 Dec |
+----------+---------------------+----------+-----+---------+---------+--------+
| | 2009 | 2008 | 2008 | | 2009 | 2008 | 2008 |
+----------+----------+----------+----------+-----+---------+---------+--------+
| | | | | | | | |
+----------+----------+----------+----------+-----+---------+---------+--------+
| Euro | 1.12 | 1.29 | 1.26 | | 1.17 | 1.26 | 1.03 |
+----------+----------+----------+----------+-----+---------+---------+--------+
| US | 1.50 | 1.98 | 1.85 | | 1.65 | 1.99 | 1.44 |
| Dollar | | | | | | | |
+----------+----------+----------+----------+-----+---------+---------+--------+
9. Employee Benefits
+-------------------+---------+--+--------+--+--+-----------+--+------------+-----+--+--+-----------+--+-----+--+--+-----+--+--+-------+--+--+--+
| | 30 June 2009 | | 30 June 2008 | | 31 December 2008 |
+-------------------+---------------------------------------+--+------------------------------------+--+-------------------------------------+
| | UK | Overseas* | | Total | | UK | Overseas* | Total | | UK | Overseas* | Total |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| | GBPm | GBPm | | GBPm | | GBPm | GBPm | GBPm | | GBPm | GBPm | GBPm |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| Schemes in | | | | | | | | | | | | |
| surplus: | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| Fair value of | | | | | | | | | | | | |
| assets | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| (net of asset | - | 16.8 | | 16.8 | | - | 62.4 | 62.4 | | - | 19.8 | 19.8 |
| ceiling | | | | | | | | | | | | |
| restriction) | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| Present value of | | | | | | | | | | | | |
| defined | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| benefit | - | (14.7) | | (14.7) | | - | (61.0) | (61.0) | | - | (17.4) | (17.4) |
| obligation | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| Recognised | | | | | | | | | | | | |
| employee | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| benefit net | - | 2.1 | | 2.1 | | - | 1.4 | 1.4 | | - | 2.4 | 2.4 |
| assets | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| Schemes in | | | | | | | | | | | | |
| deficit | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| Fair value of | 813.6 | 84.6 | | 898.2 | | 936.0 | 35.0 | 971.0 | | 837.8 | 99.0 | 936.8 |
| assets | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| Present value of | | | | | | | | | | | | |
| defined | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| benefit | (1,014.5) | (166.8) | | (1,181.3) | | (1,002.0) | (99.7) | (1,101.7) | | (881.4) | (194.9) | (1,076.3) |
| obligations | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| Recognised | | | | | | | | | | | | |
| employee benefit | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| net obligations | (200.9) | (82.2) | | (283.1) | | (66.0) | (64.7) | (130.7) | | (43.6) | (95.9) | (139.5) |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| | | | | | | | | | | | | |
+-------------------+------------+-----------+--+-----------+--+------------+-----------+-----------+--+-----------+-----------+-------------+
| * Including some overseas unfunded schemes and non-post | | | | | |
| employment schemes. | | | | | |
+---------------------------------------------------------------------------------------+-----------+--+-----------+-----------+-------------+
| | | | | | | | | | | | | |
+-----------------------------+-----------+-----------------+--+------------------+--+-----------------+-----+--+--+-----+-----+-------------+
| The IMI Pension Fund constitutes around 86% of the total liabilities and 91% of the total assets |
| for the Group's long term employee benefit arrangements. The increase in employee benefit net |
| obligations is mainly due to an increase in the assumed rate of price inflation within the IMI |
| Pension Fund to 3.5% (31 December 2008: 2.8%) in line with the Bank of England's implied |
| inflation yield curve and a reduction in the discount rate used to value the IMI Pension Fund's |
| liabilities to 6.2% (31 December 2008: 6.5%) reflecting general changes in yield's on AA |
| corporate bond indices. |
+--------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | |
+-----------------------------+-----------+-----------------+--+------------------+--+-----------------+--------------------+----------+--+-----+
| A US defined benefit pension plan was closed to future accrual in March. A curtailment gain of |
| GBP3.5m (six months ended 30 June 2008: GBPnil) has been recognised within segmental operating |
| profit. |
+--------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | |
+-------------------+---------+--+--------+--+--+-----------+--+------------+-----+--+--+-----------+--+-----+--+--+-----+--+--+-------+--+--+--+
10. Contingencies
Following completion of the European Commission investigations into allegations
of anti-competitive behaviour in the EU among certain manufacturers of copper
tube and copper fittings, the Company has paid fines of GBP31.3m in February
2005 and GBP32.8m in January 2007. Both of these fines are the subject of
ongoing appeals. In preparing the interim statements, the directors have not
anticipated the outcome of either appeal due to the inherent uncertainty of such
processes.
Whilst provision has been made in the accounts for expected fines (see note 11)
and related legal costs in respect of the US investigations into irregular
payments by our US subsidiary Control Components Inc ("CCI") and incidental
breaches of US trade law, no provision has been made in respect of any further
amounts in respect of other possible collateral issues. At this date it is not
possible to assess the level of any fines, defense or other costs arising from
these issues and accordingly no provision has been made.
11. Post balance sheet events
In August the Company agreed to a settlement with the US Department of Justice
(DoJ) in respect of certain irregular payments by its US subsidiary Control
Components Inc (CCI). As part of the plea agreement CCI agreed to pay a fine of
$18.2 million (which was wholly covered by a provision in the Group's 2008
accounts and was paid in August 2009) and continue to co-operate with the DoJ in
its ongoing investigations of certain former employees of CCI. CCI will also be
subject to oversight by an independent compliance monitor. Certain former
employees of CCI have been indicted by the DoJ for offences related to the
investigation. No current employees of CCI or the IMI Group have been prosecuted
by the DoJ.
In July the Company raised $175 million (GBP 107m) in the US private placement
market. The notes issued consisted of two tranches with $75m being taken with a
7 year maturity and $100m at a 10 year maturity. The funds will be used to
refinance $65m of US notes maturing later this year with the balance being used
to reduce existing bank debt.
12.Financial information
This condensed set of financial statements has been prepared in accordance with
IAS34 'Interim Financial Reporting' as adopted by the EU. The Group's annual
financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the EU.
As required by the Disclosure and Transparency Rules of the Financial Services
Authority, the condensed set of financial statements has been prepared applying
the same accounting policies and computation methods that were applied in the
preparation of the Company's published consolidated financial statements for the
year ended 31 December 2008 other than the adoption of IAS1 Revised
'Presentation of Financial Statements', IAS23 Revised 'Borrowing Costs' and
Amended IFRS2 'Share-based Payment-Vesting Conditions and Cancellations' which
have been adopted as these standards will be implemented for the first time in
the year ending 31 December 2009. None of these changes had any significant
impact on the results or financial position.
This Interim Management Report is unaudited, but has been reviewed by the
Company's auditor having regard to the International Standard on Review
Engagements (UK and Ireland) 2410 Review of Financial Information Performed by
the Independent Auditor of the Entity, issued by the Auditing Practices Board
for use in the UK. A copy of their unqualified review opinion is attached.
The comparative figures for the financial year ended 31 December 2008 are not
the Company's statutory accounts for that financial year as defined in section
435 of the Companies Act 2006. Those accounts have been reported on by the
Company's auditor and delivered to the registrar of companies. The report of the
auditor was (i) unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without qualifying their
report, and (iii) did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
This announcement contains certain forward-looking statements with respect to
the operations, performance and financial condition of the Group. By their
nature, these statements involve uncertainty since future events and
circumstances can cause results and developments to differ materially from those
anticipated. The forward-looking statements reflect knowledge and information
available at the date of the preparation of this announcement and the Company
undertakes no obligation to update these forward-looking statements. Nothing in
this IMR should be construed as a profit forecast.
This IMR has been prepared for the Group as a whole and therefore gives greater
emphasis to those matters which are significant to IMI plc and its subsidiaries
when viewed as a whole.
References in the commentary to segmental operating profit, operating margins
and profit before tax, unless otherwise stated, relate to reported numbers after
adjustment for restructuring, investigation costs and fines, acquired intangible
amortisation and impairment and financial instruments excluding economic hedge
contract gains and losses. Segmental operating profit is reported as if
economic currency and metals hedges were effective for financial reporting
purposes. Business segments enter into forward currency and metal contracts to
provide economic hedges against the impact on profitability of swings in rates
and values in accordance with the Group's policy to minimize the risk of
volatility in revenues, costs and margins. Business segmental operating profits
are therefore charged/credited with the impact of those settled contracts. In
accordance with IAS39 'Financial Instruments: Recognition and Measurement',
these contracts do not meet the technical provisions required for hedge
accounting and gains and losses are recorded in net financial income and
expense. References to EPS, unless otherwise stated, relate to reported EPS
adjusted for the per share after tax impact of restructuring, investigation
costs and fines, acquired intangible amortisation and impairment and financial
instruments excluding economic hedge contract gains and losses. The directors
consider that the quantum, one off nature or volatility of these adjustments can
distort the underlying performance of the Group and for this reason the
commentary discusses these adjusted amounts. Comparative information in respect
of adjusted profit before tax for the period ended 30 June 2008 has been
restated for the impact of financial instruments excluding economic hedge
contract gains and losses. Reported adjusted profit before tax for the period to
30 June 2008 is GBP1.3m lower.
References to organic growth are to like for like or underlying growth and
exclude the impact of exchange rate translation and acquisitions or disposals
that are included in headline reported growth figures. The organic growth is
derived from excluding any contribution from acquired companies to revenues or
profits in the current period until the first anniversary of their acquisition.
It also excludes the contribution to revenues or profits in both the current and
comparative period from any business that has been disposed of or sold. This
adjusted growth in revenues or profits will then be compared to the adjusted
prior period after its re-translation at the average exchange rates of the
current period to provide the organic growth rate.
The Interim Management Report for 2009 will only be distributed electronically.
NEXT ANNOUNCEMENT
Our next interim management statement will be issued on 18 November 2009.
Enquiries to:
Will Shaw -Investor Relations Director - Tel: 0121 717 3712
Press release available on the Internet at www.imiplc.com
Issued by:
Nick Oborne - Weber Shandwick Financial - Tel: 020 7067 0700
This information is provided by RNS
The company news service from the London Stock Exchange
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