imi plc interim management statement and …...imi plc 2019 interim results 1 imi plc ims and...

IMI plc 2019 Interim Results

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IMI plc IMS and Strategy Review conclusions

IMI plcInterim Management Statement and Strategy Review conclusions

Roy Twite – Chief ExecutiveDaniel Shook – Finance Director


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Key messages

► Significant steps taken to create customer driven culture, building on operational excellence► Second half profits expected to be similar to last year, despite Industrial market downturn► Good progress on immediate profitability improvement initiatives► Previously announced £35m 2019 restructuring on track to deliver £20m 2019 cost savings

and £30m annualised benefits► Further footprint optimisation programme planned for IMI Precision to deliver £35m annual

savings at a cost of c£75m. Around £20m will be charged in 2019► Completed strategic review confirms significant value creation opportunity► Acquired PBM to give IMI Critical access to attractive markets► 20% to 30% of IMI Critical’s lower margin revenue is under assessment for future fit


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Interim Management Statement – detail

£m 9 months to 30 September 2019 9 months to September 2018 Quarter 3

RevenueAdjusted

Growth (%)*

OrganicGrowth

(%)*Adjusted Foreign

ExchangeAcquisitions

/Disposals OrganicOrganicGrowth

(%)*

Revenue

IMI Precision Engineering 696 2% -2% 682 19 8 709 -4%

IMI Critical Engineering 434 -5% -7% 458 8 466 -1%

IMI Hydronic Engineering 237 4% 3% 229 1 230 2%

Total 1,367 0% -3% 1,369 28 8 1,405 -2%

Revenue (unaudited)

Exchange projection

* Organic growth after adjusting for exchange rates and excluding the impact of acquisitions and disposals.** 2019 Projected rates takes the year to date average exchange rates and projects the spot rate as at 1 November 2019 (€1.16; $1.30; CHF1.28) to the end of the year.

Average rates2018

Full Year Rates

2019 Sep YTD Av

Rates

2019Projected

Rates**Projection for FY 2019**

Euro 1.13 1.13 1.14 Revenue 0.7%US Dollar 1.33 1.27 1.28 Operating Profit 1.2%Swiss Franc 1.30 1.27 1.27


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2019 rationalisation charges

Previous Group guidance for

2019

Additional IMI Precision in

2019

Current Group guidance for

2019Estimated 2019 charge £35m £20m £55m

2019 savings £20m £1m £21m2020 savings £10m £6m £16mAnnualised savings £30m £10m £40m

► Additional IMI Precision charge in 2019 reflects first actions of £75m programme announced today

► 2019 activity largely within IMI Precision and IMI Critical► IMI Precision focused on removing complexity and footprint efficiency► IMI Critical addressing Power market declines


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Other financial updatesIFRS 16 Lease Accounting► Full year debt adjustment still expected to be c£91m► EBITDA increase of c£31m, minimal impact to Profit Before Tax► Key financial ratios largely unchanged

PBM acquisition► Transaction completed 20 September► £70m purchase price funded through existing bank lines

2019 Outlook statement unchanged from July presentationIn the second half of 2019 we continue to expect that organic revenue will experience a decline similar to that in the first half, when compared with the same period in 2018. Nonetheless, second half profits are expected to be similar to last year, supported by the business improvement initiatives.


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IMI► Three divisions with excellent fluid control engineering capabilities► Create customer-pull by solving industry problems through applications engineering► Increasing shared competencies, like digital► Common value generating processes► Strong talent development

F= PA 𝐶𝐶𝑣𝑣 =

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1𝑥𝑥𝑝𝑝1𝜌𝜌1

𝑞𝑞 = 𝐾𝐾𝐾𝐾 ∆𝑝𝑝


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Profitable growth acceleration

Progress on immediate priorities Strategic review


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Immediate priorities – recap

► Put our customers at the centre to enable a culture of sustainable growth

► Drive commercial accountability through the organisation

► Focus on attractive market segments


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Put our customers at the centre

► Significant step-up in customer engagement

► IMI Precision team upgraded and further aligned to key customer segments

► Flatter IMI Critical structure now in place

► Upgraded IMI Hydronic commercial leadership team


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Enabling a culture of sustainable growth

► Growth Accelerator and sprint teams energising our approach

► 12 teams running in H2 2019► 80 future leaders connecting with customers and creating solutions

► “Test and learn” process becoming more standard practice


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Drive commercial accountability

► Exec team reduced from 11 to 7

► Continuing reductions in HQ costs

► General Manager Boot Camps delivered

► Reporting simplified and improved


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Drive through-cycle margin and cash flow

Sales initiatives

Divisional programmes Sales Ignite Programme Maximise profitable sales in Aftermarket

Accelerate cross selling

Shared initiatives

Value pricing

Value Engineering

Material cost reduction

Lean & productivityimprovement

SG&A efficiency & complexity reduction

Margins improved in Q3 vs last year, despite volume reductions from the

downturn in industrial cycle.

Value pricing generating over twice 0.7% average price increase of last

four years.


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Focus on attractive markets

► IMI already competes in many attractive markets► PBM Valve Solutions acquisition exemplifies the strategy

► Gives IMI access to pharmaceutical and food processing markets► Will accelerate PBM’s growth through IMI Critical’s routes to market► Early signs very encouraging► Opportunities support returns in line with the business case


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Profitable growth acceleration

Progress on immediate priorities Strategic review


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Key strategy messages

1. Greater clarity on how we will win in the key target markets for each division2. Strengthened commercial emphasis3. Higher growth & margin from a “market-pull” approach to new products from Growth Accelerator4. Multi-year £75m IMI Precision restructuring programme to deliver £35m of annual cost savings5. 20% to 30% of IMI Critical’s lower margin revenue is under assessment for future fit6. Once these plans have been executed:

► IMI Precision will be a 20% margin business at the top of the cycle► IMI Critical will be a 17% to 20% margin business► IMI Hydronic will be a 20% margin business


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Focus on attractive market segments

Growth potential

Size of bubble represents revenue

Note: IMI Precision Sector businesses comprise Process Fluid Control, Life Sciences, Energy, Rail

Margins

Critical Hydronic

Precision Sector

businesses

Precision Factory

Automation

Precision Commercial

Vehicle

Criticalunder

assessment


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IMI Precision Engineering – progress

Work streams► Review market segments

► Implement European organisation, footprint plans, value pricing

Progress► Segments reviewed, focus areas identified

► Four site consolidations announced

► Value pricing initiative well underway in H2 2019

► Bimba on track to deliver acquisition case, with exciting growth potential


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IMI Precision Engineering – strategy“Create motion and fluid control solutions for customers – differentiating through applications knowledge, engineering excellence and great customer service"

► Focus on:1. Key target sectors through engineered product differentiation (~60% of IMI Precision)

2. Factory Automation through outstanding customer service (~40% of IMI Precision)► Backed by competitive, recently launched core product ranges and new valve island

3. Aftermarket and small customers effectively served through digital platform, Norgren Express

► Invest in:► Acquisitions to improve position in the target market sectors and to win in Factory Automation► New products include connected valve islands and products for the key target sectors

► Streamline:► Operational reorganisation investment of c£75m to generate significant strategic benefit as well as £35m

annualised cost savings


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Customer focused organisation

Factory AutomationEnd of Arm Tooling

Rail

EnergyLife Sciences

Process Control

SalesMarketing

NPDOperations

Manufacturing5 sites

MotionControl

FluidTechnologies

CommercialVehicle

Commercial Vehicle

MD MD MD

Manufacturing6 sites

Manufacturing1 site

SalesMarketing

NPD

SalesMarketing

NPD

SalesMarketing

NPD

IndustrialAutomation

CommercialVehicle

LifeSciences

MD MD MD

RMD

ManufacturingOperations

MD

New

AlpenGermany

LeedsUK

ParisFrance

FellbachGermany

PooleUK

Brno 1Czech Republic

MerklingenGermany

BristolUK

Brno 2Czech Republic

Bad OeynhausenGermany

FradleyUK

GenevaSwitzerland

RMD Old

SalesMarketing

NPDOperations

SalesMarketing

NPDOperations


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Productcategory

Brands

Competitors • SMC• Festo• Parker• Emerson

• Knorr-Bremse• Wabtec• Parker

• Emerson• Burkert• Festo

• Emerson• Bifold• Samson

• Hamilton• IDEX• Parker

• Wabco• Knorr-Bremse• Parker

Addressable market size

£5.3bn £0.5bn £1.4bn £0.7bn £1.1bn £1.4bn Total£10.3bn

IMI Precision sales

£382m £41m £151m £77m £78m £196m £925m(1)

How we win • Best-in-class customer service

• Applications engineering

Focus on attractive market segmentsWe will win through application engineering and product differentiation in the sector businesses, including Commercial Vehicle. In factory automation, we will differentiate through best-in-class customer service.

Motion Control Fluid Technologies CV

FactoryAutomation & End

of Arm ToolingRail Process Fluid

Control Energy Life Science

CommercialVehicle

Industrial Automation

(1) 2018 full year sales at 2018 full year exchange rates and includes £9m to represent full year results for Bimba

• Applications engineering• Product differentiation• Best-in-class customer service


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IMI Critical Engineering – progressWork streams► Review opportunity to use

engineering skills in new segments

► Realign costs to new market realities

► Review product portfolio

Progress► Most attractive adjacent segments for IMI Critical valves include Pharma,

Food Processing and Chemical► PBM Valve Solutions acquired with access to attractive market

segments including Pharma and Food Processing

► Spending £18m in 2019 to realign costs with reduced demand£10m cost savings expected in 2019, £15m full year effect


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IMI Critical Engineering – strategy“To create great value for end-user customers, to accelerate our Aftermarket growth, and move into attractive new markets.”

► Focus on:1. Increasing business in attractive growth markets like Pharma and Food Processing 2. Increasing installed base of valves in the Energy markets to drive Aftermarket growth

► Win rate maintained at 65% this year

3. Develop upgrade products and digital solutions to drive additional Aftermarket growth

► Invest in:► Acquisitions to increase access to attractive markets or accelerate Aftermarket growth► New critical valve products

► Streamline:► 20% to 30% of IMI Critical lower margin revenue is under assessment for future fit


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Simplified organisation

New

Old

APAC MEA&IOil & Gas EMEA Power

MD MD MD

DMD

IMI CCI Americas

MDIMI Truflo

Marine

MD

Control Valves

MD

IMI Orton

MD

Petrochemical

MD

IMI STI

MD

Petrochem & Isolation

MD

DMD

APAC

RMD

Americas

RMD

MEA&I

RMD

Europe

RMD

IMI Truflo Italy

MD


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Productcategory

Brands

Competitors • Emerson• GE Masoneilan• SPX Flow

• Emerson• GE Masoneilan• Trillium

• Emerson• Flowserve• Cameron

• Emerson• GE Masoneilan• KOSO

• Circor• Kubota

• Emerson• Metso• Habomin

• Brooksbank• Flowserve

• KSB• Adams


£0.9bn £0.5bn £1.2bn £0.8bn £2.2bn £0.5bn £0.3bn £0.6bn Total£7.0bn

IMI Critical Sales

£238m £41m £84m £62m £202m £16m £32m £34m £709m(1)

How we win

Marine

Focus on attractive market segmentsWe win by using our industry-leading engineering skills to solve customer problems in severe applications, generating strong Aftermarket business. Over time we will move the business further towards attractive long-term growth segments.

Power Oil & Gas

Coal & Gas Power Nuclear Upstream Midstream

(includes LNG)Downstream

(refining & petrochem)Food & Pharma Other

(1) 2018 full year sales at 2018 full year exchange rates and includes £27m of sales from PBM for 2018

Best-in-class engineering & application knowledge, and leveraging installed base


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IMI Hydronic Engineering – progress

Work streams► Explore ability to win in attractive

market adjacencies

► Supply chain review

Progress► Strength of brands and value of Hydronic College confirmed

► Outlook is for strengthening environmental legislation

► Radiant heating and control/actuation market confirmed as attractive


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IMI Hydronic Engineering – strategy“Develop our strong brands and expertise in the Hydronic circuit and create innovative solutions that save energy and improve comfort in buildings.”

► Focus on:1. Strengthening brands and customer-pull to improve margins 2. The project business, leveraging the Hydronic College 3. Moving the business into faster growth adjacent markets

► Invest in:► Acquisitions which we can rapidly grow by leveraging our strong brands and market positions► New products that further reduce energy requirements and improve temperature control

► Streamline:► Supply chain


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Strengthened commercial organisation

NEW& PROMOTED UNCHANGED

Sales & Marketing

Europe

Northern Europe

Central Europe

Western Europe

Eastern Europe

Emerging Markets China


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Productcategory

Brands

Competitors • Danfoss• Oventrop• Aalberts Industries

• Siemens• Honeywell• Belimo

• Danfoss• Oventrop• Aalberts Industries

• Uponor• Rettig• Rehau

• Reflex• Aalberts Industries• Spirotech


£0.5bn £1.2bn £0.6bn £0.4bn £0.6bn Total£3.2bn

IMI Hydronic sales £130m £33m £87m £10m £49m £309m

How we win

Focus on attractive market segmentsWe will win through further development of our strong brands and project business, as well as product differentiation in faster growing segments of the Hydronic system.

Balancing Control & Actuation Radiator Valves Radiant Systems Pressurisation& Water Quality

• Strong brand and premium products• Applications engineering through Hydronic College


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Capital allocation

► Maintain capital investment at current levels

► Improve free cash flow through profit growth and margin expansion

► Maintain progressive dividend, rebuild cover

► Continue to pursue strategically and financially attractive acquisitions► Acquisition returns must exceed IMI’s cost of capital by year three


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Key take-aways► Margins improved in the third quarter, despite Industrial & Commercial Vehicle market downturn

► Organisation re-structured to create accountability & to have much more commercial focus

► Footprint optimisation and new products combine for uplift in returns

► Target margins after strategic actions have been completed are:► 20% for IMI Precision at the top of the industrial cycle► 17% to 20% for IMI Critical► 20% for IMI Hydronic

► Customer-focus, continued investment, Lean & “market-pull“ new products create growth


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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 forward-looking 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.

imi plc interim management statement and …...imi plc 2019 interim results 1 imi plc ims and...

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