25 February 2022

 

Further strategic and operational progress made across the business

Completion of attractive Adaptas acquisition and £200m share buyback

Purpose and global environmental focus continue to unlock opportunities

 

Preliminary results, year ended 31 December 2021

	Adjusted1						Statutory
	2021	2020	Change vs 2020	Organic3 vs 2020	Organic3 vs 20194	2021		2020	Change vs 2020	Change vs 2019
Revenue	£1,866m	£1,825m	+2%	+7%	+3%	£1,866m		£1,825m	+2%	0%
Operating profit	£318m	£285m	+12%	+18%	+23%	£251m		£227m	+10%	+23%
Operating margin	17.0%	15.6%	+140bps			13.4%		12.4%	+100bps	+250bps
Profit before tax	£307m	£274m	+12%			£245m		£214m	+14%	+29%
Basic EPS	92.0p	79.7p	+15%			73.5p		62.7p	+17%	+28%
Operating cash flow2	£274m	£335m	-18%			£327m		£377m	-13%	-10%
Dividend per share	23.7p	22.5p	+5%			23.7p		22.5p	+5%
Net debt	£623m	£316m

 

^{1 Excluding the effect of adjusting items as reported in the income statement. See Note 1 for definitions of alternative performance measures.}

^{2 Adjusted operating cash flow, as described in Note 9 to the financial statements. Statutory measure is Cash generated from operations as shown on the cash flow statement.}

^{3 After adjusting for exchange rates, acquisitions and disposals (see Note 1).}

^{4 Given the significant impact on business performance due to the pandemic in 2020, the results include comparative figures for 2019 and organic growth compared to 2021. A reconciliation is provided in Note 1.}

Key points

§ Good progress towards sustainable, profitable growth and Group adjusted operating margins of 18% - 20%

§ 7% organic sales growth, 18% organic adjusted operating profit growth

§ Increased organic revenues, adjusted profits and margins in all three divisions

§ Statutory operating profit increased 10%

§ Statutory profit before tax increased 14%

§ Growth Hub and Sprint Teams delivered £23m orders, with momentum building

§ Adaptas acquisition completed in attractive Life Sciences market

§ ESG agenda gaining pace

§ Accelerated benefits and complexity reduction from restructuring supports margin improvement

 

Lord Smith of Kelvin, Chairman, commented:

"2021 has been another year of progress on many fronts, demonstrating how culture and purpose can drive fundamental change in an organisation, whilst fuelling profitable growth. Our absolute ambition is that everyone in the organisation is actively included in delivering our unifying purpose [Breakthrough Engineering for a better world] as we generate significant value for all of our stakeholders."

 

Roy Twite, Chief Executive, said:

"In 2021 we have made excellent progress with our accelerated growth strategy through increasing customer intimacy, market-led innovation and reducing complexity. The Growth Hub and Sprint Teams continue to lead important cultural change, as well as increasing orders. We also completed the acquisition of Adaptas in the attractive Life Sciences market and concluded a £200m share buyback programme. In 2022, we expect further progress towards our ambition of sustainable profitable growth and Group margins of 18% to 20%."

"Based on the strong 2021 results and current market conditions we expect 2022 full year adjusted EPS to exceed 100p."

Enquiries to:

John Dean	IMI	Tel: +44 (0)121 717 3712
Stephen Malthouse	Headland PR	Tel: +44 (0)7734 956 201

A live webcast of the analyst meeting taking place today at 08:30am (GMT) will be available on the investor page of the Group's website:  www.imiplc.com. The Group plans to release its next Interim Management Statement on 5 May 2022.
 

Results overview

During 2021 IMI delivered a strong performance, benefitting from positive market conditions within key business segments including Industrial Automation, Commercial Vehicle and Construction. New products are playing an increasing role in the Group's growth, with our Growth Hub and Sprint Teams well embedded across the Group.

 

Like most industrials, IMI has experienced supply chain constraints for certain components as well as increased inflation, creating continuing pressure for the sector and IMI. This pressure continues to be well managed, minimising the impact on service levels to our customers and protecting financial returns.

 

Dividend
 

The Board is recommending a 2021 final dividend of 15.8p per share (2020: 15.0p per share). Payment will be made on 13 May 2022 to shareholders on the register at the close of business on 8 April 2022.
 

Outlook

 

Based on current market conditions we expect 2022 full year adjusted EPS to exceed 100p.  This guidance includes the full year impact of the completed £200m share buyback on our average share position (2022 forecast: 259m average shares; 2021: 267m). Guidance assumes foreign exchange rates will create a headwind of 1% on sales and profits.

 

Strategic progress

IMI launched our purpose, [Breakthrough Engineering for a better world], in late 2019, and set out our strategy to accelerate business performance and drive sustainable, profitable growth by solving acute customer problems at pace. Our strong financial performance reflects the progress being made and the engagement created with our employees. The number of Growth Hub teams is increasing, and many initiatives are now delivering tangible results. The shift in culture necessary to deliver that Value Tomorrow ambition has been swift and effective.

 

The other key ambition of our business model - to deliver Value Today - has helped improve returns across the business through greater customer intimacy, operational efficiency, and complexity reduction, despite the pressures and market volatility of the pandemic.

 

With the acquisition of Adaptas, the Group has demonstrated IMI's commitment to using its balance sheet to good effect by moving our business further into the attractive Life Sciences market. The completion of the £200m share buyback was further confirmation of IMI's desire to maintain an efficient balance sheet.

 

Along with investments into our future growth, IMI continues to identify and execute on opportunities to drive more efficient operations.  The following provides a summary of progress on our restructuring programmes:

 

 

£m	2021	2022*	Future years*
Restructuring charge (including impairment losses)
IMI Precision Engineering	(36)	(29)	(35)
IMI Critical Engineering	(1)	(13)	-
IMI Hydronic Engineering	(3)	(1)	-
Total charge	(40)	(43)	(35)
Cash impact	(33)	(38)	(62)
£m	2021	2022*	Future years*
Benefits
IMI Precision Engineering	7	6	26
IMI Critical Engineering	15	4	-
IMI Hydronic Engineering	3	-	1
Total benefits	25	10	27

^{*Future looking forecast information.}

All divisions advanced their programmes which provided £25m of benefits in the year, exceeding the earlier reported target of £22m. The projects are expected to run until 2024. The Group will continue to seek out and execute projects to improve its competitive advantage.

Environmental, Social & Governance (ESG)

Our purpose, [Breakthrough Engineering for a better world], continues to drive our actions and create real energy across our organisation.  Many of IMI's solutions enhance the safety, sustainability, and productivity of our customers' products and operations, and often contribute directly to the delivery of their carbon reduction targets. When considering investments, we ensure the impact on IMI's overall ESG ambitions is a prime consideration.

IMI sees a natural link between pursuing our ESG objectives with vigour and our wider ambitions for improved growth and profitability.  Many of our best growth opportunities are supporting customers in developing solutions for a zero carbon future.

We continue to develop clear plans to reduce the environmental impact of our facilities and operations, and progressed actions in 2021 that will contribute to our goal of halving our CO₂ intensity by 2030. We are also committed to be net zero by 2040.

Our Inclusion and Diversity activities are helping us build a more dynamic and innovative organisation.  We launched a Group-wide communications platform in May that enables all employees to share activity and collaborate across the Group. The platform is both accelerating business initiatives by identifying and leveraging previously untapped resource and expertise, as well as supporting IMI's core value of One Big Team.

Ensuring all our employees feel safe at work is central to our strategy and culture and we have a continued focus on identifying and reducing workplace hazards. In 2021, we also introduced the IMI HSE Excellence Framework - an enhanced management system that assesses our HSE standards against areas such as distributed workforce (field service), environment (air, water, waste), leadership engagement and risk assessment.

More information about our ESG credentials and initiatives, including our policies and practices, can be found on our website: www.imiplc.com.

Coronavirus update

The protection of our employees, our operations and our broader communities, wherever in the world they may be, remains an absolute priority. The Coronavirus response team continues to support employee welfare and help mitigate disruption in our supply chains. We continue to keep particularly close to our customers, to support them as they incur challenges brought on by the pandemic.

 

Divisional results review

The following review relates to our businesses' performance for the year ended 31 December 2021 when compared to the same period in 2020 and 2019. References to organic growth are on a constant currency basis and exclude disposals and acquisitions, see Note 1 for a reconciliation of these measures.

 

Segmental information - Energy Transfer

 

During the year the Energy business of IMI Precision Engineering was transferred into IMI Critical Engineering. The resulting impact is to increase IMI Critical Engineering revenue by £63m (2020: £64m; 2019: £66m) and operating profit by £9.1m (2020: £13.3m; 2019: £13.6m) with the equal and opposite impact to reduce the results of IMI Precision Engineering. Prior year comparatives have been re-presented to reflect this.

 

IMI Precision Engineering

 

IMI Precision Engineering specialises in the design and manufacture of motion and fluid control technologies where precision, speed and reliability are essential to the processes in which they are involved. IMI Precision Engineering operates across three principal business units: Industrial Automation, Precision Fluid OEM and Transport. Further details on that segmentation, and comparison with the 2020 results are available in Note 1.

 

	2021	2020**	Change	Organic vs 2020*	2019**	Organic vs 2019*
Revenue	£836m	£813m	+3%	+7%	£841m	+4%
Adjusted operating profit*	£148.9m	£138.1m	+8%	+13%	£134.4m	+15%
Adjusted operating margin*	17.8%	17.0%	+80bps		16.0%
Statutory operating profit	£99.6m	£122.2m	-18%
Statutory operating margin	11.9%	15.0%	-310bps

^{*See Note 1 for definitions of alternative performance measures and the references to reconciliations of these measures.}

^{**2020 and 2019 results have been restated for the impact of the Energy business transfer, please see Note 1 for further details.}

 

Key achievements

§ Strong underlying sales growth, excluding ventilator surge, of 19%

§ Acquisition of Adaptas completed in attractive Life Sciences sector

§ Good early progress from Customer First and Growth Hub

 

2021 performance
 

IMI Precision's core end markets continue to provide excellent new opportunities for growth, as highlighted in the Capital Markets Event held in September.

 

During the year, the division delivered solid organic revenue growth of 7% as recovering key markets more than offset the reduction in Life Sciences revenue, following the 2020 ventilator component sales surge. If ventilator sales are excluded, the underlying growth rate was very strong at 19%. That progress was driven by gains across all three business segments: Industrial Automation, Precision Fluid OEM, and Transport. When compared with 2019, the organic revenue growth was 4%.

 

Industrial Automation revenues were up 17% compared with 2020 on an organic basis, with Transport revenues 26% ahead on the same basis. Both of these performances reflected strong recovery in their respective markets, and were supported by the division's proactive supply chain management which ensured core products remained available despite the challenges globally brought on by the pandemic. Sales within Precision Fluid OEM were down 18%, compared with 2020 with good performance in Process Control more than offset by the non-repeat of the ventilator surge in Life Sciences.

 

Adjusted operating margin in the division improved in the period by 80 basis points to 17.8%. The division continues to advance complexity reduction initiatives which will enable further improvements in customer service and support progress towards its margin targets.

 

Statutory operating profit reduced by 18% due to the restructuring programmes announced in the year to increase customer focus and reduce complexity in the division, further details are included in Note 1.

 

Outlook
 

Based on current market conditions, IMI Precision Engineering 2022 organic revenues and margins are expected to be higher than in 2021.

 

IMI Critical Engineering

 

IMI Critical Engineering is a world-leading provider of flow control solutions that enable vital energy and process industries to operate safely, reliably and more efficiently. Our products control the flow of steam, gas and liquids in harsh environments and are designed to withstand temperature and pressure extremes as well as intensely abrasive or corrosive cyclical operations. Further details on IMI Critical Engineering market segmentation, and comparison with 2020, are available in Note 1 of this statement.

 

	2021	2020**	Change	Organic vs 2020*	2019**	Organic vs 2019*
Order intake	£712m	£720m	-1%	+3%	£762m	-6%
Closing order book	£531m	£535m	-1%	+3%	£540m
Revenue	£691m	£707m	-2%	+2%	£717m	-1%
Adjusted operating profit*	£125.0m	£119.8m	+4%	+10%	£103.7m	+23%
Adjusted operating margin*	18.1%	16.9%	+120bps		14.5%
Statutory operating profit	£110.7m	£82.1m	+35%
Statutory operating margin	16.0%	11.6%	+440bps

^{*See Note 1 for definitions of alternative performance measures and the references to reconciliations of these measures.}

^{**2020 and 2019 results have been restated for the impact of the Energy business transfer, please see Note 1 for further details.}

 

Key achievements

§ Organic order intake up 3% in the full year, organic order book up 3% year on year

§ Margin increased to 18.1% supported by increased restructuring benefits

§ Growth Hub delivered £20m in orders

 

2021 performance
 

As is evidenced by the 2021 results, IMI Critical Engineering is advancing its strategy and deploying Growth Hub to access new markets where its expertise can support sustainable future growth.  The division's Growth Hub and Sprint Teams are already providing a significant impact to the divisional results and contributed £20m of orders in 2021, vs £6m in 2020.

 

Organic order intake for 2021 was 3% higher than in 2020. Aftermarket orders grew 3%, with strong growth in Oil & Gas, Refining & Petrochemical and Power offsetting a reduction within Nuclear due to the significant upgrade activity in 2020.  New Construction orders grew 4%, with good order growth in Refining & Petrochemical and Marine offsetting the expected decline in Oil & Gas and Power.

 

The closing order book at the end of the period was 3% higher when compared with 31 December 2020 on an organic basis. Orderbook margins are also higher.

 

Organic revenues were 2% higher than last year and 2% lower on an adjusted basis. Aftermarket organic sales were 11% higher than in 2020, largely due to growth in the Refining & Petrochemical and Power segments. New Construction organic sales were 7% lower compared with last year, largely due to lower Refining & Petrochemical sales. 

 

Organic adjusted operating profit was 10% higher than in 2020, another strong result reflecting the hard work the division has done to maximise the aftermarket opportunity and optimise its operating footprint for the future.  Adjusted operating margin for the year was 18.1%, which was 120 basis points higher than the prior year (2020: 16.9%).

 

Statutory operating profit increased by 35% due to the strong trading result and the non-repeat of the prior year restructuring costs.

 

Outlook
 

Based on the division's order book and current market conditions, IMI Critical Engineering 2022 organic revenues and margins are expected to be slightly higher when compared to 2021.

 

 

IMI Hydronic Engineering

 

IMI Hydronic Engineering is a leading provider of technologies that deliver energy efficient water-based heating and cooling systems for the residential and commercial building sectors. 

 

	2021	2020	Change	Organic vs 2020*	2019	Organic vs 2019*
Revenue	£339m	£305m	+11%	+15%	£315m	+10%
Adjusted operating profit	£68.1m	£55.7m	+22%	+27%	£56.7m	+21%
Adjusted operating margin	20.1%	18.3%	+180bps		18.0%
Statutory operating profit	£64.1m	£50.6m	+27%
Statutory operating margin	18.9%	16.6%	+230bps

^{*See Note 1 for definitions of alternative performance measures and the references to reconciliations of these measures.}

 

Key achievements

§ Strong organic sales growth of 15%, reflecting 10% growth vs 2019

§ Operating margins of 20.1%

§ Significant contribution from new products, including new connected products

 

2021 performance

 

With its strong brands and product positioning, as well as the global imperative to reduce energy consumption in buildings, IMI Hydronic Engineering is in a strong position to deliver sustainable, profitable growth.  The division's performance in 2021 reflects these good market conditions as well as successful delivery of key strategic projects and growth from new products.  

 

2021 revenues were 15% higher on an organic basis when compared to the prior year, and 10% ahead of 2019.  New products supported that growth, with good orders secured within control and actuation.  Sales of our digitally enabled products - including the TA-Smart valve - continue to make excellent progress.

 

Adjusted operating profit increased 27% on an organic basis versus the prior year, reflective of the quality of the business as well as continued delivery of key efficiency initiatives. The adjusted operating margin improved to 20.1%, versus 18.3% in 2020.

 

Statutory operating profit increased by 27% due to the strong performance of the business and the non-repeat of one-off restructuring costs in 2020.

 

Outlook
 

Based on current market conditions, IMI Hydronic Engineering 2022 organic revenues are expected to be higher, with margins slightly higher, when compared to 2021.

 

 

Financial review

Key highlights

 

Adjusted1

Statutory

2021

2020

Change vs 2020

Organic3 vs 2020

Organic3 vs 20194

2021

2020

Change vs 2020

Change vs 2019

Revenue

£1,866m

£1,825m

+2%

+7%

+3%

£1,866m

£1,825m

+2%

0%

Operating profit

£318m

£285m

+12%

+18%

+23%

£251m

£227m

+10%

+23%

Operating margin

17.0%

15.6%

+140bps

13.4%

12.4%

+100bps

+250bps

Profit before tax

£307m

£274m

+12%

£245m

£214m

+14%

+29%

Basic EPS

92.0p

79.7p

+15%

73.5p

62.7p

+17%

+28%

Operating cash flow2

£274m

£335m

-18%

£327m

£377m

-13%

-10%

Dividend per share

23.7p

22.5p

+5%

23.7p

22.5p

+5%

Net debt

£623m

£316m

 

^{1 Excluding the effect of adjusting items as reported in the income statement. See Note 1 for definitions of alternative performance measures.}

^{2 Adjusted operating cash flow, as described in Note 9 to the financial statements. Statutory measure is Cash generated from operations as shown on the cash flow statement.}

^{3 After adjusting for exchange rates, acquisitions and disposals (see Note 1).}

^{4 Given the significant impact on business performance due to the pandemic in 2020, the results include comparative figures for 2019 and organic growth compared to 2021. A reconciliation is provided in Note 1.}

 

Results summary

Certain alternative performance measures ('APMs') have been included within this Annual Report. These APMs are used by the Executive Committee to monitor and manage the performance of the Group, in order to ensure that decisions taken align with the Group's long-term interests. Movements in revenue and adjusted operating profit are given on an organic basis (see definition in Note 1) so that performance is not distorted by acquisitions, disposals and movements in exchange rates. A table summarising the reconciliation of adjusted measures to statutory measures is included in Note 1.

 

The Group delivered a good financial result in the year, as revenue and operating margin improved. Revenue increased by 2% to £1,866m (2020: £1,825m). The exchange rate adjustment was adverse £72m. After adjusting for £4m of sales for the last 6 months of IMI InterAtiva in 2020 that were not in the comparative period in 2021 and excluding £2m of revenue from the recent acquisition of Adaptas, organic revenue was 7% higher and reflects the recovery of economic markets as a result of the global pandemic as well as early results from Growth Hub.

 

Adjusted operating profit of £318m (2020: £285m) was 12% higher and after removing the £14m adverse impact of exchange rates and the inorganic element of the IMI InterAtiva disposal and Adaptas acquisition was higher by 18%.

 

The adjusted operating margin was 17.0% (2020: 15.6%). All three divisions grew adjusted margins in the year, supported by revenue growth, the benefits of ongoing restructuring programmes, and value-pricing initiatives.  Statutory operating profit was £251m (2020: £227m), which increased 10%.

 

Adjusted net financing costs on net borrowings of £12.1m (2020: £11.0m) was higher due to the non-repeat of a one-off tax interest benefit in 2020 and includes the impact of £2.8m (2020: £2.5m) interest cost on leases. Statutory net finance costs were £5.9m compared to £12.5m in 2020 due primarily to a favourable adjusting finance gain of £5.2m in 2021.

 

Adjusted net financing costs were covered 33 times (2020: 35 times) by adjusted earnings before interest, tax, depreciation, amortisation, impairment and adjusting items of £404m (2020: £380m) and included £28m (2020: £30m) of depreciation on our leased assets. The net pension financing income under IAS 19 was £1.0m (2020: £0.2m). 

 

Statutory profit before taxation increased 14% to £245m (2020: £214m) as the Group continued its restructuring activities to improve customer focus and long-term competitiveness. Adjusted profit before taxation was £307m (2020: £274m), which is higher by 12% compared to 2020. The total statutory profit for the period after taxation was £196m (2020: £170m).

 

Adjusting items

 

Adjusting items	2021 £m	2020 £m
Reversal of net economic hedge contract gains	(6)	(2)
Restructuring costs	(35)	(36)
Impairment losses	(5)	(2)
Loss on disposal of subsidiary	(4)	-
Acquired intangible amortisation and other acquisition items	(18)	(19)
Net financing income/(expense)	5	(2)
Tax in connection with the above adjusting items	15	13
Change in UK tax rate	(19)	-
Release of prior year provisions	17	-

 

Adjusting items that are excluded from adjusted profit before tax are listed below:

 

§ Changes in the fair value of economic hedges which are not designated as hedges for accounting purposes, together with the gains and losses on their settlements, are included in the revenue and adjusted operating profit of the relevant business segment with the net loss at £1m (2020: net loss of £4m), which is the net of the reversal of net economic hedge contract gains of £6m and the associated net financing income of £5m. The adjusting item at the operating level reverses this treatment. The net financing adjusting item reflects the change in value or settlement of these contracts with the financial institutions with whom they were transacted.

 

§ Restructuring costs of £35m (2020: £36m) were the result of a number of major restructuring projects across the Group. These include costs of £31m within IMI Precision Engineering, primarily for the closure of a factory in Europe, which is currently under consultation with the Works Council, and the Customer First project, which both simplify the structure of the division and ensures the business structure is aligned to our customer base. In IMI Critical Engineering there were costs of £1m relating to the finalisation of projects announced in 2020. In IMI Hydronic Engineering there were costs of £3m for the finalisation of the ongoing projects announced in 2020 and a new project announced in 2021 to simplify finance processes through a shared service centre in Poland. These restructuring projects are due to be completed in 2023. Restructuring provisions at the year end were £32m and primarily related to expected payments to employees. Details of 2020 projects are included in Note 6.

 

§ In 2021, the Group recorded an adjusting impairment charge of £5m (2020: £2m) associated with the restructuring programmes ongoing in IMI Precision Engineering, and £2m associated with the restructuring programmes ongoing in IMI Critical Engineering in 2020.

 

§ Acquired intangible amortisation is excluded from adjusted profits, to allow for comparability of the performance across divisions. This allows users of the financial statements to gain a clearer understanding of the performance of the business, with the impact of amortisation identified separately in line with internal reporting to management. Acquired intangible amortisation reduced to £15m (2020: £19m). Other acquisition costs of £3m primarily relates to professional fees associated with the acquisition of Adaptas in December 2021.

 

§ A gain arose on the revaluation of financial instruments and derivatives under IFRS 9 of £5m (2020: £2m loss).

 

§ The tax effect of the above items has been recognised as an adjusting item and amounts to a £15m gain (2020: £13m gain). The UK Government announced an increase in the corporation tax rate from 19% to 25%, with an effective date of April 2023, which was substantively enacted on 24 May 2021. The impact of this on the Group's deferred tax liabilities of £19m during the period has been recorded as an adjusting item. A credit of £17m due to the release of provisions in respect of exposures related to prior years which are no longer expected to arise, including the closure of open years with tax authorities, has also been recorded as an adjusting item within the income statement.

Taxation

The adjusted effective tax rate for the Group reduced to 20.0% (2020: 21.0%) and benefitted from a one-off tax credit in the year. The total adjusted tax charge for the year was £61m (2020: £58m) and the statutory effective tax rate was 19.7% (2020: 20.6%).

 

The Group seeks to manage its tax affairs within its core tax principles of compliance, fairness, value and transparency, in accordance with the Group's Tax Policy which is available on the Group's corporate website.

 

Earnings per share

The average number of shares in issue during the period was 267m (2020: 271m), resulting in adjusted basic earnings per share of 92.0p (2020: 79.7p), an increase of 15%. Statutory basic earnings per share increased by 17% at 73.5p (2020: 62.7p) and statutory diluted earnings per share increased by 17% at 73.2p (2020: 62.6p).

 

Share buyback

In 2021, we successfully completed our planned £200m share buyback with the purchase and cancellation of 11,653,829 shares. Our average shares in issue for 2021 are 267m, and in 2022 are expected to be 259m.

 

 

Cash flow 

 

Movement in net debt	2021	2020
	£m	£m
Adjusted EBITDA*	403.5	379.5
Working capital movements	(50.6)	14.6
Capital and development expenditure	(57.5)	(50.7)
Provisions and employee benefit movements**	(0.5)	8.5
Principal elements of lease payments	(30.0)	(28.7)
Other	9.0	11.3
Adjusted operating cash flow ***	273.9	334.5
Cash impact of adjusting items	(35.6)	(36.7)
Interest	(12.1)	(11.0)
Derivatives	26.4	(22.5)
Tax paid	(50.9)	(41.0)
Additional pension scheme funding	(7.0)	(7.0)
Free cash flow before corporate activity	194.7	216.3
Dividends paid to equity shareholders	(61.8)	(91.6)
Acquisition/disposal of subsidiaries	(203.8)	-
Net purchase of own shares and share buyback programme	(225.6)	(8.5)
Net cash flow (excluding debt movements)	(296.5)	116.2
Reconciliation of net cash to movement in net borrowings
Net (decrease)/increase in cash and cash equivalents excluding foreign exchange	(86.7)	98.4
Debt acquired	(1.8)	-
Net (drawdown)/repayment of borrowings excluding foreign exchange and net debt disposed/acquired	(208.0)	17.8
(Increase)/decrease in net debt before acquisitions, disposals and foreign exchange	(296.5)	116.2
Net cash/(debt) acquired	-	-
Currency translation differences	(4.5)	3.3
Movement in lease creditors	(5.6)	2.1
Movement in net borrowings in the year	(306.6)	121.6
Net borrowings at the start of the year	(316.2)	(437.8)
Net borrowings at the end of the year	(622.8)	(316.2)

 

^{*Adjusted profit after tax (£245.6m) before interest (£11.1m), tax (£61.4m), depreciation (£68.3m), amortisation (£16.2m) and impairment (£0.9m).}

^{**Movement in provisions and employee benefits as per the statement of cash flows (£1.8m) adjusted for the movement in restructuring provisions (£2.3m).}

^{***Adjusted operating cash flow is the cash generated from the operations shown in the statement of cash flows less cash spent acquiring property, plant and equipment, non-acquired intangible assets and investments; plus cash received from the sale of property, plant and equipment and the sale of investments, excluding the cash impact of adjusting items, a reconciliation is included in Note 9.}

Adjusted operating cash flow was £274m (2020: £335m). This represents a conversion rate of total Group adjusted operating profit to adjusted operating cash flow of 86% (2020: 117%). There was a £36m cash outflow from adjusting items (2020: £37m outflow) primarily related to restructuring costs.

 

Net working capital balances increased £51m due to an increase in receivables of £44m as a result of the growth and an increase in inventory of £37m to maintain service levels to customers in light of the global supply chain crisis, partly offset by an increase in payables of £31m. The decrease in 2020 of £15m was due to a decrease in receivables of £18m and an increase in payables of £6m partly offset by an increase in inventory of £9m.

 

Cash spent on property, plant and equipment and other non-acquired intangibles in the year was £58m (2020: £51m) which was equivalent to 1.0 times (2020: 0.8 times) depreciation and amortisation thereon. Capital spending in 2021 increased toward historical levels after being curtailed during the pandemic in 2020.

 

Research and development spend, including capitalised intangible development costs of £5m (2020: £7m), totalled £54m (2020: £46m) representing an increase year on year as the Group continues to support investment in Growth Hub and Sprint Teams. As this measure focuses primarily on the efforts of the engineering function, it does not fully capture the cross-functional support in Growth Hub initiatives with over 700 employees involved across the Group - a significant investment alongside our research and development spend.

 

In 2021 the Group paid cash tax of £51m (2020: £41m) which was 83% (2020: 71%) of the adjusted tax charge for the year.

 

Dividends paid to shareholders totalled £62m (2020: £92m), reflecting the Group's decision to reduce its distribution to provide a dividend earnings cover baseline of three times adjusted earnings per share, which will enable IMI to deliver more effectively on its long-term growth ambitions.

 

In addition, there was a cash outflow of £200m in relation to the share buyback programme (2020: £nil) and £26m (2020: £9m outflow) for net share purchases to satisfy employee share options.

 

Balance sheet 

Net debt at the year-end was £623m compared to £316m at the end of the previous year. The increase reflects the share buyback programme and the acquisition of Adaptas partly offset by the cash generation in the year. The net debt is composed of a cash balance of £95m (2020: £208m), a bank overdraft of £66m (2020: £74m), interest-bearing loans and borrowings of £558m (2020: £362m) and lease liabilities of £94m (2020: £88m).

 

The year-end net debt to adjusted EBITDA ratio was 1.5 times (2020: 0.8 times). At the end of 2021, loan notes totalled £353m (2020: £362m), with a weighted average maturity of 4.3 years (2020: 5.3 years) and other loans including bank overdrafts totalled £271m (2020: £74m). Total committed bank loan facilities available to the Group at the year-end were £300m (2020: £300m), of which £70m (2020: £nil) was drawn.

 

At 31 December 2021, the value of the Group's intangible assets was £768m (2020: £600m). The increase compared to the prior year is primarily due to the acquisition of Adaptas.

 

The net book value of the Group's property, plant and equipment at 31 December 2021 was £268m (2020: £266m). Capital expenditure on property, plant and equipment amounted to £46m (2020: £38m), with the main capital expenditure focused on production facility investment to support operational efficiency and growth. Including capitalised intangible assets, total capital expenditure was £58m (2020: £51m) and was 1.0 times (2020: 0.8 times) the depreciation and amortisation charge (excluding acquired intangible amortisation and lease asset depreciation) for the year of £56m (2020: £63m). 

 

The net surplus for defined benefit obligations at 31 December 2021 was £63m (2020: £22m deficit). The UK surplus was £129m (2020: £69m surplus) and constituted 77% (2020: 77%) of the total defined benefit liabilities and 88% (2020: 89%) of the total defined benefit assets. The deficit in the overseas funds as at 31 December 2021 was £66m (2020: £91m deficit).

 

Return on invested capital ('ROIC')

The Group uses ROIC as an indication of IMI's ability to deploy capital effectively. This metric is the same as that presented in 2020, however it was previously referred to as Return on Capital Employed and has been renamed to Return on Invested Capital to better describe the metric. References to capital employed have also been updated to capital invested.

 

The Group's definition is Adjusted Operating Profit after tax divided by Average Capital invested (previously referred to as Average Capital employed). Capital invested (previously referred to as capital employed) is defined as net assets adjusted to remove net debt, derivative assets/liabilities, defined pension position (net of deferred tax) and to reverse historical impairments of goodwill and amortisation of acquired intangibles. ROIC was 13.2% in 2021 (2020: 12.3%) which increased by 0.9%. The acquisition of Adaptas adversely impacted the metric by 0.7% due to its proximity to the year end with incremental capital invested, but no corresponding operating profit.

 

Return on invested capital	2021 £m	2020 £m
	£m	£m
Adjusted operating profit	318.1	284.7
Notional tax charge	(63.6)	(59.8)
Net adjusted operating profit after tax	254.5	224.9
Net assets	779.1	799.5
Adjusted for:
Net debt	622.8	316.2
Restructuring provision	31.6	30.1
Net derivative assets / liabilities	(3.7)	(6.1)
Net defined pension benefit	(62.5)	22.0
Deferred tax on employee benefits	13.9	(7.0)
Previously written-off / impaired goodwill	346.9	351.9
Acquired intangibles amortisation	311.5	311.5
Closing capital invested	2,039.6	1,818.1
Opening capital invested	1,818.1	1,832.3
Average capital invested	1,928.9	1,825.2
Return on invested capital	13.2%	12.3%

 

Acquisitions

On 20 December 2021 the Group acquired 100% of the share capital, and associated voting rights, of Adaptas Solutions (Adaptas) for cash consideration of £203.9m. Adaptas is a manufacturer of mission critical mass spectrometry subsystems and components and is based in North America with facilities in the UK, Australia and China.

 

Disposals

On 23 July 2021 the Group disposed of IMI InterAtiva for proceeds of £0.1m resulting in a loss on disposal of £3.8m.

 

Foreign exchange 

The income statements of overseas operations are translated into sterling at average rates of exchange for the year, balance sheets are translated at year end rates.  The most significant currencies are the Euro and the US dollar - the relevant rates of exchange were:

 

	Average Rates			Balance Sheet Rates
	2021	2020		2021	2020
Euro	1.16	1.13		1.19	1.12
US Dollar	1.38	1.28		1.35	1.37

 

The movement in average exchange rates between 2020 and 2021 resulted in a 4% reduction to our 2021 revenue and a 5% decrease in adjusted operating profit, with both the Euro and US Dollar weakening against Sterling.

 

If exchange rates as at 11 February 2022 of US$1.36 and €1.19 were projected for the full year and applied to our 2021 results, it is estimated that both revenue and adjusted operating profit would be 1% lower.

 

Treasury

IMI has a centralised Treasury function that provides treasury services to Group companies including funding liquidity, credit, foreign exchange, interest rate and base metal commodity management. The Group Treasury function manages financial risks in compliance with Board-approved policies.

 

Capital allocation & dividend policy

The Board determines the appropriate capital structure for the Group, specifically, how much cash is raised from shareholders (equity) and how much is borrowed from financial institutions (debt) in order to finance the Group's activities both now and in the future.

 

The Board considers the Group's capital structure and dividend policy at least twice a year ahead of announcing results in the context of its ability to continue as a going concern and deliver its business plan.

The Board is mindful that equity capital cannot be easily flexed and raising new equity would normally be likely only in the context of an acquisition. Debt can be issued and repurchased more easily, but frequent changes lead to high transaction costs and debt holders are under no obligation to accept repurchase offers.

 

At 31 December 2021, IMI plc (the company) had distributable reserves of £294m (2020: £292m).