IMI plc annual report 2012

ENGINEERINGADVANTAGEFINANCIAL REVIEWIn 2012 the Group’s revenues were up 3% on a reported basis. Excluding an adverse exchange impactof £63m revenues grew by 6%, the contribution from acquisitions to revenue growth was 3%, giving anorganic sales growth of 3%.AcquisitionsOn 16 February 2012, the Group acquired Remosa SpAand related companies (collectively Remosa), a leadingengineering business specialising in valves and related flowcontrol products for severe applications, for an enterprisevalue of approximately £83.1m, being cash consideration of£68.4m and net debt assumed of £14.7m. The considerationwas funded out of IMI’s existing resources and bankingfacilities. The main Remosa manufacturing facility is locatedin Sardinia. Segmental revenue of £32m and segmentaloperating profit of £5.4m for the period since acquisition hasbeen reported for Remosa within the Severe Service segment.On 17 February 2012, the Group acquired the InterAtivaGroup (InterAtiva), a Brazilian isolation valve business locatedin Sorocaba, near Sao Paolo, from its founding partnersfor an initial cash consideration of £22.0m and contingentconsideration up to a maximum of BR$55.5m (£16.7m at31 December 2012 rates) to be paid based on its performanceover the period to 31 December 2014. Consideration paidto date has been funded out of IMI’s existing resources andbanking facilities and a further £4.0m has been accrued forpayments relating to 2012 performance. Segmental revenueof £11m and segmental operating profit of £2.4m for theperiod since acquisition has been reported for InterAtivawithin the Severe Service segment.Segmental performanceThe following review of our business areas for 2012 comparesthe performance of our operations as reported under IFRS8‘Operating Segments’ with 2011. In the below analysis,revenue growth has been stated on a constant currency basis.As part of the convergence process, since the year-endwe have concluded that the majority of the Merchandisingsegment should be divested, and we are exploring optionsaccordingly. The part of the Merchandising segmentserving the beverage market, contained within our DisplayTechnologies subsidiary, presents a number of synergies withthe Beverage Dispense segment, including a shared customerbase and significant potential to develop a more compellingand high impact interface between the consumer and ourbeverage dispense equipment. Accordingly this beverageactivity has been transferred to the Beverage Dispensesegment with effect from the start of this year.In Fluid Controls, excluding both Remosa and InterAtiva’scontributions, Severe Service revenues increased by 14% inthe year reflecting strong shipments in Fossil Power, Oil &Gas and the aftermarket. Margins fell to 14.0% (2011: 15.5%)reflecting an adverse mix variance on historical contracts andcosts associated with our Brno facility in the Czech Republic.Fluid Power revenues fell 3% on an organic basis due toanticipated market weaknesses in the second half but thesector business, which is focused on the key OEMs, wasmore resilient, falling only 1% on an organic basis. The sectorbusiness now represents 46% (2011: 45%) of Fluid Powerrevenues. Operating margins remained buoyant in spite oflower volumes and improved to 19.8% from 19.6% in 2011due to the successful delivery of cost improvements throughsupplier rationalisation, value engineering and increasedproduction in lower cost regions.The Indoor Climate business performed strongly but growthin emerging markets was offset against a backdrop ofdeclining revenues in Western Europe leading to flat organicrevenues year on year. Second half margins were strongat 22.8% but full year margins fell from 22.0% to 21.0%,reflecting incremental investments for growth and additionalcosts resulting from the centralisation of this segment’s headoffice in Switzerland.In Retail Dispense, Beverage Dispense operating marginsimproved to 14.4% (2011: 13.0%) for the year in spite of adecrease in revenues of 1% on an organic basis as lowerrevenues in the UK and flat revenues in the USA were onlypartially offset by stronger performances in continentalEurope and the Asia Pacific region, particularly in China.The revenue performance in the UK was adversely impactedby the mid-year exit of one particular low-margin contract,which reduced revenue by 2% in the year but which nowconcludes this three year programme of exits.In Merchandising, organic revenues grew by 8% for the year,driven by the commencement of deliveries on two majorlong-term European cosmetics contracts and a strongperformance in our American automotive sector. Operatingmargins increased to 15.2% (2011: 15.0%).20 Group operating review