IMI shares sink on FX, margin guidance - UPDATE

6th Mar 2014 14:40

- Currency headwinds worse than expected, says analyst- Margins to fall in first half- Modest organic revenue growth predictedShares in IMI sunk sharply on Thursday despite annual results meeting market forecasts, after the engineering group warned about negative currency movements and falling margins in the first half of 2014.The company, which is now a specialist industrial flow control company after the disposal of its Beverage Dispense and Merchandising divisions, said that it expected "modest organic revenue growth" in the first half "when excluding the adverse impact of exchange rates".After currencies had a positive impact in 2013, the strength of sterling against the euro and dollar is expected to hurt revenues and profits by 4% this year, based on exchange rates at the end of February.Analyst Michael Blogg from Investec said that while the outlook remains positive on an underlying basis, "the currency headwind is now likely to be slightly more onerous than our previous 3.6% assumption".Revenues from continuing operations in 2013 rose 3% to £1,744m, up 1% on an organic basis, as growth in the Severe Service and Indoor Climate divisions helped offset weakness in Fluid Power.Group adjusted pre-tax profits increased by 8% to £297.7m and the total dividend was lifted 9% to 35.3p.However, while the operating margin increased from 17.7% to 18.4% in 2013, Chief Executive Mark Selway, who joined the board at the start of January, said that margins would be "slightly lower" in the first half of 2014. This is as a result of anticipated falling margins in Indoor Climate due to additional costs relating to the new product launches and the emerging market exits. Nevertheless, these are expected to return to "more normal levels" in the second half.BC