IMI signals slightly above-market expectations after Q3

Specialist engineering company IMI said progress with its strategic initiatives continued in the third quarter on Thursday, with expectations for the year slightly ahead of market estimates.

The FTSE 250 firm said in its interim management statement that economic and market conditions continued to be mixed in the three-month period to 30 September.

Organic revenues were 3% higher year-on-year and - when reflecting the benefit from foreign exchange movements - were 11% higher.

As it previously indicated, organic revenues and margins in the second half were expected to improve when compared with the first half of 2017.

Adjusted constant currency earnings per share for the full year were said to be likely to be slightly ahead of the expectations outlined at the group's 2017 interim results.

“Despite mixed market conditions, our various initiatives to harness the group's potential continue to progress well,” the board said in its statement.

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

“The business continues to successfully implement cost-reduction activities on time and on budget that support the near term financial results, whilst also supporting our long-term strategic agenda.”

In its critical engineering division, IMI said that in the nine months to September, order intake was 4% higher than the previous year.

For the third quarter, the expected 13% decline in orders included new construction and aftermarket, which were 20% and 6% lower respectively, while parts orders were 1% higher in the period.

The value of the division's order book at the end of September, at £544m, was 2% below the same point last year and included £100m of orders won through value engineering, with margins now comparable to the prior year also reflecting an improved aftermarket order book.

As IMI expected, organic revenues were 4% lower year-to-date and in the three months to the end of September were 6% lower.

On a reported basis revenues were 2% higher in the quarter.

“As detailed in the group's 2017 interim results, in the second half of the year, organic revenue is still expected to be weaker than the second half of last year,” the board said.

“Full year margins are expected to show a modest improvement on 2016 - and a significant improvement on the first half of this year - due to the benefits of the division's reorganisation activities and phasing of the order backlog.”

For the precision engineering unit, IMI said organic revenues in the three months to the end of September were 9% higher compared to the same period last year and on a reported basis were 18% higher.

Sales in industrial automation were 11% higher when compared to the third quarter of 2016, with growth reported across all three regions.

“Contrary to previous market expectations of continuing decline, commercial vehicle sales have been stronger in both Europe and North America,” the board said.

“The energy sector continued to be impacted by lower oil prices while both life sciences and rail delivered growth in the quarter.”

In the second half, on a constant currency basis, organic revenues and margins were expected to improve when compared with the second half of last year, which the board said reflected the benefits of ongoing cost reduction and improved market conditions.

Finally, in hydronic engineering, organic revenues in the three months to the end of September were 3% higher compared to the same period last year and 12% higher on a reported basis.

“Underlying conditions across our key European markets remain mixed and we continue to make good progress with new product development and operational improvements.

“Customer and market reaction to our market-leading new products continues to be positive.”

In the second half, on a constant currency basis, IMI said it expected hydronic engineering revenue growth to show “some improvement” when compared to the first half of the year.

Margins would be slightly lower than the second half of last year due to increased costs associated with the company’s investments for growth.

“As detailed in the group's 2017 interim results, IMI's financial results are being favourably impacted by the effects of exchange rate movements compared to 2016, and in particular by the weakening of sterling against the US dollar and the euro.

“At current rates, this would translate to an exchange rate tailwind for the full year of around 6% on both revenues and profits.”

IMI said it will issue its preliminary results for the year to 31 December on 2 March.