Weak sterling gives IMI a boost

Specialist engineering company IMI issued its interim management statement on Thursday, for the period from 1 July to 30 September.

The FTSE 250 firm said progress with its strategic initiatives was continuing and expectations for the year remained consistent with market estimates.

Based on current exchange rates, IMI's full year sales and profits were likely to reflect a gain from foreign currency translation of about 12%, the board said.

“During the third quarter economic and market conditions have continued to be challenging,” IMI said in the statement.

“Organic revenues were 8% lower than the same period last year and, reflecting the benefit from foreign exchange movements, were comparable on a reported basis.”

As the company had previously indicated, organic revenues and margins in the second half were expected to improve when compared with the first half of 2016 but would be lower than last year.

Adjusted constant currency earnings per share for the full year remained in-line with the expectations outlined at the group's 2016 interim results presentation, the board claimed.

“Despite difficult market conditions, our various initiatives to harness the group's potential are progressing well.

“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.”

IMI said that to mitigate - where practical - the impact of current market weakness, the board was reviewing a number of cost-reduction initiatives.

Those actions would support the near-term financial results of the critical engineering and precision engineering divisions, without compromising the company’s long-term strategic agenda, the board explained.

At its Critical Engineering division, third quarter order input was 12% below the same period last year with ongoing project delays impacting the phasing of new orders in the period.

“Lower aftermarket order input in both the Oil & Gas and Power sectors was principally driven by continuing oil price weakness and reduced outages and spares activity in Power.

“Further project slippage in the market may impact order intake and revenues through the balance of the year.”

While the value of the division's order book at the end of September, at £509m, was 6% below the same point last year margins were slightly higher, which IMI said reflected the benefits of value engineering and project mix.

“Organic revenues in the three months to the end of September were 15% lower compared with the same period last year and, on a reported basis, were down 8%.

“Revenues in the quarter reflected an 11% reduction in aftermarket activity and an 18% reduction in new construction.”

The company had previously outlined that 2016 organic revenues and profits will be significantly improved in the second half for the division, and the board continued to expect second half margins to reflect a good improvement over the first half of the year.

For the Precision Engineering arm, organic revenues in the three months to the end of September were 3% lower compared to the same period last year and on a reported basis were 4% higher.

Sales in Industrial Automation were 4% lower when compared to the third quarter of 2015, with growth in the Americas offset by softer markets in Europe and Asia.

While Commercial Vehicle sales remained comparatively good in Europe, sales in North America and Brazil continued the significant deterioration that was experienced in the first half of the year.

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, organic revenues are expected to be slightly lower than the second half of last year with margins broadly equivalent to the same period last year.”

IMI’s third division, Hydronic Engineering, saw organic revenues in the three months to the end of September that were 2% lower compared to the same period last year and 6% higher on a reported basis.

“New construction project delays were evident in China and North America and the European market has experienced a slow start to the heating season,” the board said.

“Underlying market conditions across Europe remain mixed.”

IMI was continuing to make progress with new product development and operational improvements, and it said customer and market reaction to its new products continued to be positive.

“In the second half, assuming a normal fourth quarter heating season, we expect organic revenues to be slightly lower with an associated small decline in margins when compared to the second half of last year.”

As the board detailed in its interim results, IMI's financial results were being favourably impacted by the effects of exchange rate movements compared to 2015, particularly by the weakening of sterling against the dollar and the euro.

“At current rates, this would translate to an exchange rate tailwind for the full year of around 12% on both revenues and profits.”

IMI said it will issue its preliminary results announcement for the year to 31 December, on 24 February.