Thursday, 7 May 2015


IMI is a global engineering group focused on the precise control and movement of fluids in critical applications and comprises five platform businesses - Severe Service, Fluid Power, Indoor Climate, Beverage Dispense & Merchandising. I have a holding in my income portfolio (epic code: IMI).

IMI released their first quarter IMS today declaring that economic and market conditions have continued to be challenging.  Consequently revenues for the quarter were 1% lower on an organic basis and on a reported basis, revenues were 4% down.
Commenting on the expected six month performance they stated that organic revenues and margins  will be lower than in the first half of 2014.  They do expect an improved performance in the second half; however, both organic revenue and margins for the full year are expected to be slightly below last year.  In March when announcing their 2014 results management stated "...we expect the Group to deliver modest organic revenue growth weighted towards the second half with margins slightly lower than in 2014..." no mention was made as to why they have changed their view.
The share price is down 4% to 1190p on the news and has drifted 14% from the level at the time of their prelim announcement.  Since Selway took over from Lamb as CEO at the beginning of 2014 the share price has fallen over 20%, as an income investor I can live with that, but what I can't live with is a consistent erosion of free cash flow.  As I commented on here last year's management of cash caused me some concern, with increased working capital and capital expenditure.  So I will be looking for an improvement in this area during 2015, otherwise dividend growth may come under pressure.

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