Highlights Revenue 1,649m Down 5% 1 Segmental operating profit 227.7m Down 17% 1 Segmental operating margins 13.8% Down 160bps Operating cash flow 2 246m Up 6% Reported earnings per share 59.8p Down 4% Dividend per share 38.7p Up 1% Results in-line with expectations Strategic progress continues at pace Strong operating cash flow in the year Headwinds continue in a number of markets 1. On an organic constant currency basis (OCC) 2. Excluding exceptional items 2
Financial review
Organic revenue and operating profit m Year to 31 December 2016 Year to 31 December 2015 As reported Reported growth (%) Organic growth (%) As reported Foreign exchange Disposals Organic Revenue IMI Critical Engineering 651 3% -7% 631 77 (6) 702 IMI Precision Engineering 708 7% -3% 662 72 (1) 733 IMI Hydronic Engineering 290 10% -1% 264 30-294 Total 1,649 6% -5% 1,557 179 (7) 1,729 Segmental operating profit IMI Critical Engineering 81.8-12% -24% 93.1 14.4 0.1 107.6 IMI Precision Engineering 118.5 1% -10% 117.7 12.6 1.1 131.4 IMI Hydronic Engineering 51.9 0% -10% 51.8 5.6-57.4 Corporate costs (24.5) (23.2) (23.2) Total 227.7-5% -17% 239.4 32.6 1.2 273.2 Segmental operating profit margin (%) 13.8% 15.4% 15.8% 4
Income statement m 2016 2015 Segmental operating profit 227.7 239.4 Restructuring costs - non exceptional (3.5) (2.1) Loss on disposal of subsidiaries - non exceptional - (0.4) Net interest expense (17.3) (18.4) Net pension finance income 1.1 0.2 Profit before tax and exceptional items 208.0 218.7 IAS39 adjustment (1.2) 2.6 Restructuring costs - exceptional (18.8) (27.1) Impairment losses (5.0) - Loss on disposal of subsidiaries - (8.4) Gains on special pension events 2.8 9.1 Acquired intangible amortisation (20.5) (32.2) Profit before tax 165.3 162.7 Taxation (32.1) (39.4) Profit from continuing operations after tax 133.2 123.3 Profit from discontinued operations (net of tax) - 6.7 Total profit for the year 133.2 130.0 Net interest expense of 17m lower following repayment of US$75m of private placement debt in July Exceptional restructuring costs of 19m primarily in Critical Engineering within Europe Acquired intangible amortisation of 21m reduced following the amortisation of the Bopp & Reuther acquired order book in 2015 5
Operating cash flow m 2016 2015 EBITDA (from continuing operations) 273 275 Inventory 18 (4) Debtors 7 29 Creditors 5 (7) Working capital 30 18 Operating cash flow up 6% on 2015 Favourable working capital movements versus 2015 Capital expenditure to depreciation and amortisation at 1.5x Capital expenditure (71) (71) Provisions and employee benefits (2) (4) Loss on non-exceptional disposals - 1 Asset sales/other 16 13 Operating cash flow - pre exceptional items 246 232 6
Net cash flow m 2016 2015 Operating cash flow - pre exceptional items 246 232 Exceptional items (25) (9) Operating cash flow - post exceptional items 221 223 Tax paid (32) (36) Interest and derivatives (61) 5 Cash generation 128 192 Special pension contributions (2) (3) (Acquisitions)/disposals - (108) Dividend and minority (110) (107) Employee trust (purchases)/issues (7) 3 Net cash flow 9 (23) Exceptional spend of 25m due to restructuring Interest and derivatives adversely impacted by foreign exchange Net employee benefit trust share purchases of 7m Net debt adverse currency translation impact of 55m Opening net debt (237) (200) Net debt disposed/ acquired - (6) Foreign exchange (55) (8) Closing net debt (283) (237) 7
Balance sheet Dec Dec m 2016 2015 Shareholders' funds 543 546 Net debt 283 237 Gearing 52% 43% EBITDA* 273 275 Interest costs (excluding IAS19) 17.3 18.4 Net debt of 283m includes 97m adverse currency movements Weighted average debt maturity of 4.3 years, 95% at fixed rates Net debt/ebitda at 1.0x, providing ample headroom Net debt / EBITDA* 1.0x 0.9x EBITDA* / interest 16x 15x * Before exceptional items 8
Pensions Dec Dec m 2016 2015 Total Position: Liabilities (1,590) (1,342) Assets 1,510 1,346 (Deficit)/surplus (80) 4 UK Schemes: Liabilities (1,400) (1,184) Assets 1,424 1,273 Surplus 24 89 Overseas Schemes: Liabilities (190) (158) Assets 86 73 Deficit (104) (85) Good progress managing our exposures across all geographies UK scheme remains in surplus despite adverse actuarial movements Buy-ins transacted in H1 and H2 which further de-risked the UK schemes Buy-out of c. 430m of UK liabilities, representing c.5,000 pensioners, completed in January 2017 9
Foreign exchange Average rates 2016 2015 Change Euro 1.22 1.38 12% US dollar 1.36 1.53 11% Closing rates Dec 2016 Dec 2015 Change Euro 1.17 1.36 14% US dollar 1.23 1.47 16% Ready reckoner for translation impact of movement in FX rates on 2016 FY performance Sensitivity to +/- 1 cent move in: Revenue Operating Profit Euro +/- 6.0m +/- 0.7m US dollar +/- 2.5m +/- 0.4m Impact on 2016: Revenue +11% Operating Profit +13% Projection for FY2017*: Revenue +6% Operating Profit +7% *Compares the impact of projecting the exchange rates as at 6 February (US$1.25 and 1.16) for the full year and applying to our 2016 results 10
Operational & strategic review
Strategy execution timeline 2014 2015 2016 2017 2018 Year 0: The hard work begins Year 1: Increased investment Year 2: Benefits starting to show Year 3: Nearly firing on all cylinders Year 4: Up to full speed Ambition: Double operating profits Assess our markets and drivers for growth Benchmark performance and plan for improvement Invest in products and capital for growth Foundations established and benchmark improvements evident Sorting the basics in Precision Engineering complexities and structure Accelerated growth evident in results Working capital benefits visible in results Emerging markets ready for local full technology supply Growth outruns peers in every division Benchmark performance nearing world-class standards Precision supply chain and capacity issues resolved Ambitions for growth fully realised Achievement of worldclass performance evident in results All divisions in attractive, high growth markets Supported by value enhancing acquisitions 12
IMI Critical Engineering Operational review 2016 order intake m 2016 FX Disposals Organic 2015 Revenue 651 77 (6) (51) 631 Organic growth % -7 Operating profit 81.8 14.4 0.1 (25.8) 93.1 Operating margin % 12.6 14.8 614m down 11% organically Aftermarket down 6% 299m Oil & Gas down 13% 135m Fossil Power down 23% 94m Petrochemical up 2% 45m Other down 16% 41m Year-end order book of 486m at similar margins to yearend 2015 Aftermarket decline of 6%, with flat second half Revenue by geography 4% 7% Western Europe 16% North America Fossil Power reflects reduced activities globally 22% Emerging Markets Oil & Gas decline reflects lower LNG activity 51% UK RoW 13
IMI Critical Engineering Focus and grow strategy We are focused on 3 principal sectors Our goal for the division is to deliver results that outrun all of our peers Roy Twite Power Generation Oil & Gas Petrochemical Addressable Market = 7bn 14
IMI Critical Engineering Investing for growth Continued investment in worldclass manufacturing operations and new service facilities Continued investment to realign footprint, reduce costs and build competitive advantage Austria Korea Japan IFS Sweden India Czech Republic Improving our footprint New Korean facility in 2015 Consolidation of China footprint in 2016 Upgrade to Z&J facilities, Germany The successful development of Critical Engineering s global ERP system is now being rolled out across all business units and included Korea, India, Japan and Sweden in 2016 Value Engineering helped secure 80m of orders, delivering good margins and significant cost benefits to our customers 15
IMI Critical Engineering Lean assessments 16
IMI Critical Engineering Restructuring Improve competitiveness by repositioning our footprint and lowering costs On-time delivery of restructuring projects delivers 12m of cost benefits in 2016 Recent disposals: Eley IMI Scott Z&J South Africa Disposals 2016: Italian Service business Nuclear manufacturing consolidation: Closure of IMI Components Closure and transfer of Canadian operations Closure and transfer of Swiss operations Footprint rationalisation: TH Jansen into Z&J Germany completed on-time and on budget Consolidation of three sites into new world-class facility in China 17
IMI Critical Engineering Strategic checklist Value Engineering process helps secure 80m of new orders Rationalisation programme delivers 12m of benefits Further ERP implementation in Korea, India, Japan and Sweden Average lean score increased to 62% Manufacturing footprint being re-aligned to higher growth markets 18
IMI Critical Engineering Outlook Outlook DRAFT 13 (22.2.16) Based on the current order book and market outlook, we expect first half organic revenues to reflect a similar percentage reduction to the first half of 2016 with margins broadly similar to the first half of last year Results for the full year are expected to include a second half bias reflecting the timing of restructuring benefits and normal trading seasonality 19
IMI Precision Engineering Operational review 2016 revenue m 2016 FX Disposals Organic 2015 Revenue 708 72 (1) (25) 662 Organic growth % -3 Operating profit 118.5 12.6 1.1 (12.9) 117.7 Operating margin % 16.7 17.8 708m down 3% organically Industrial Automation down 1% 396m Commercial Vehicle down 9% 161m Energy down 7% 63m Life Sciences down 1% 57m Rail up 3% 31m Industrial Automation reduces 1% with growth in North America offset by reductions in Europe and Asia Commercial Vehicle sales reflect 22% decline in North America Energy sales impacted by lower Oil & Gas activity Cautious optimism for Industrial Automation in 2017 Revenue by geography 7% 4% Western Europe North America 19% 44% Emerging Markets UK 26% RoW 20
IMI Precision Engineering Fix and focus strategy Capitalise on significant potential for accelerated growth Our goal for the division is to improve our competitiveness and build a strong platform for future growth Massimo Grassi Industrial Automation Commercial Vehicle Energy Life Sciences Addressable Market = 14bn 21
IMI Precision Engineering Fix and focus strategy Fixing the basics to improve competitiveness and build a strong platform for the future In 2016 the division delivered fundamental improvements which promise to transform our competitive dynamics Industrial Automation Market definition provides focus on opportunities for growth New product development 2017 launch of industry-leading range of platform products represents the first significant investment for more than 10 years Organisation structure US and European operations have been reorganised around key industry verticals to target specific market opportunities and build stronger customer relationships 22
IMI Precision Engineering Lean assessments 23
IMI Precision Engineering Restructuring 0.9m Traded intra region 367.1m Traded intra region 5.1m Traded intra region 29.8m Traded Europe to Americas 9.6m Traded Asia to Europe 11.2m Traded Americas to Europe 30.4m Traded Europe to Asia 5.0m Traded Americas to Asia Project Janus Phase 1 Insourcing to improve utilisation New Americas Executive team Unified European structure Leveraging low cost operations Re-organising to sector verticals Americas region complete Improved customer focus Early benefits being delivered Europe structure complete Q1 2017 Layer of management now removed Project Janus Phase 2 Customer approvals required Longer payback projects Market forces could impact returns Major Commercial Vehicle opportunity could impact plant options 24
IMI Precision Engineering Strategic checklist New Product Development provides first new platform products for 10 years Restructuring into verticals in Americas Increase to plant enhance customer focus utilisation Reorganisation of European regions in a single, unified structure Successful ERP roll out continues Average lean score increased to 66% Project Janus phase 1 now underway 25
IMI Precision Engineering Outlook Outlook DRAFT 13 (22.2.16) Based on current market conditions, we expect first half organic revenues to be slightly lower than the first half of 2016 Excluding the 4m benefit from 2016 property disposals, margins will be comparable to the first half of last year While markets remain uncertain, the benefits of further restructuring activities and new product launches are expected to deliver broadly equivalent margins for the full year 26
IMI Hydronic Engineering Operational review 2016 revenue m 2016 FX Organic 2015 Revenue 290 30 (4) 264 Organic growth % -1 Operating profit 51.9 5.6 (5.5) 51.8 Operating margin % 17.9 19.6 290m Down 1% organically TA down 3% 135m Heimeier up 4% 96m Pneumatex down 2% 40m Other down 10% 19m Higher revenue in core European markets despite warmer weather in Q4 19% of revenues delivered from new products Over-the-counter strategy extends geographic cover in Europe Divisional lean score improves to 76% Revenue by geography 6% 1% 19% 2% Western Europe North America 72% Emerging Markets UK RoW 27
IMI Hydronic Engineering Focus and grow strategy Capitalise on European leadership position Our goal for the division is to deliver 5 year compound organic growth of > 5% Peter Spencer Hydronic Balancing Hydronic Conditioning Thermostatic Controls Addressable Market = 2.5bn 28
IMI Hydronic Engineering New Product Development Supporting customers with new products, partnerships and platforms Great new products and investments in infrastructure underpin our potential for the future ERP Great new products 13 new products launched in 2016 55m revenue from products in last three years TA-Slider increases addressable market 0.5bn Over-the-counter sales 2 new European agreements New products provide access to new markets and partners New branding and point of sales marketing Divisional IT solution JD Edwards system launched in Poland and Switzerland Division-wide roll out in 2017 and 2018 New divisional website goes live 29
IMI Hydronic Engineering Lean assessments 30
IMI Hydronic Engineering Strategic checklist 43 new products launched in last three years, accounting for 19% revenues Successes in over-the-counter strategy Increase expands plant geographic reach utilisation Refurbishment of German foundry reduces scrap to world-class standards Leading the way with lean, divisional score increased to 76% ERP successfully launched in two sites with the balance of division on track for implementation over the next 18 months 31
IMI Hydronic Engineering Outlook Outlook DRAFT 13 (22.2.16) While the European construction markets are forecast to remain subdued, the success of new products and over-the-counter sales are expected to result in organic revenue growth in the year, albeit weighted to the second half Operating margins are also expected to show their normal second half improvement and will include the benefits of restructuring 32
Outlook Based on current market conditions, we expect organic revenues in the first half of 2017 to reflect a similar percentage reduction to the first half of 2016, with margins slightly lower than the first half of last year Results for the full year are expected to include a second half bias reflecting the timing of restructuring benefits and normal trading seasonality 33
This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and operating margins, market trends and our product pipeline are forward-looking statements. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forwardlooking statement which could cause actual results to differ materially from those currently anticipated. Any forward-looking statement is made in good faith and based on information available to IMI plc as of the date of the statement. All written or oral forward-looking statements attributable to IMI plc are qualified by this caution. IMI plc does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in IMI plc s expectations. 34
Engineering GREAT the IMI Way 33