IMI Regulatory News (IMI)

26 July 2019

Interim Results, six months ended 30 June 2019

Key Points

·; First half results in-line with expectations

·; Good cash delivery

·; Precision Engineering continues to be impacted by Industrial Automation weakness

·; Full year rationalisation charges to be c.£35m with c.£30m annualised savings

·; Strong order growth and robust margins in Critical Engineering

·; Good progress on Hydronic Engineering margin improvement

·; Customer at centre of immediate improvement actions

·; Strategic review well underway

Roy Twite, Chief Executive, commented:

"Our strategic review process is focused on developing a plan to increase value for all our stakeholders. We are looking at all aspects of our business and we will report on the outcome of the review with the 2019 preliminary results. In the meantime, we have immediately implemented a number of important profitable growth initiatives to optimise our performance."

"The trading outlook for the Group remains substantially unchanged. In the second half of 2019 we continue to expect that organic revenue will experience a decline similar to that in the first half, when compared with the same period in 2018. Nonetheless, second half profits are expected to be similar to last year, supported by the business improvement initiatives pursued by each of the three divisions."

"Based on current market conditions, we anticipate full year 2019 results will be in-line with expectations."

Enquiries to:

A live webcast of the analyst meeting taking place today at 8:30am (BST) 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 7 November 2019.

Results overview

Results for the first half of the year are in-line with expectations and reflect good margin performances in Critical Engineering and Hydronic Engineering. Continued weakness in Precision Engineering's Industrial Automation markets, together with the expected revenue decline in Critical Engineering, were the principal drivers of the slight reduction in Group revenue. Cash flow for the Group was also good.

Adjusted revenues of £910m (2018: £915m) were 1% lower due to £18m lower divisional results offset by £13m favourable exchange movements. Organic revenues were 3% lower when compared with the same period in 2018.

Adjusted operating profit of £118m (2018: £120m) was 1% lower. Excluding the positive exchange rate movements of £3m and £1m of lease accounting changes, operating profit on an organic basis was 4% lower than the comparable period in 2018. Despite the revenue reduction, the Group's first half adjusted operating margin remained broadly similar to last year at 13.0% (2018: 13.1%).

Operating cash flow was higher at £101m (2018: £68m) principally reflecting improved working capital. Including a currency impact of £5m and £91m of IFRS 16 lease liabilities, Net Debt of £516m (2018: £459m) resulted in a Net Debt to EBITDA ratio of 1.5x (2018: 1.5x).

The adjusted tax charge was £23m (2018: £24m), giving an effective tax rate of 21%.

The resulting adjusted basic earnings per share was 2% lower at 32.1p (2018: 32.9p).

On 1 January 2019 the Group adopted IFRS 16 Leases which resulted in the recognition of £100m of lease assets and liabilities on the balance sheet. The new standard results in a slight improvement in the Group's adjusted operating profit, offset by higher interest expense. The like-for-like 2019 operating profits are presented in the divisional commentaries.

Strategic review update

Our strategic review process is well underway and, based on its initial findings, we are starting to develop our plan to increase value for all our stakeholders.

IMI has many strengths. We have world-class engineering expertise, strong brands and leading market positions. Over the years we have helped our customers solve some of their most complex engineering challenges. Today, as our world continues to change rapidly and the demand for cleaner, safer and more energy efficient processes continues to grow, demand for this expertise is greater than ever.

We have great people and an embedded can-do, continuous improvement culture. Over the last few years we have significantly strengthened our operational platform. In particular, we have embedded systems and disciplines across the Group that enable us to compete more effectively.

We also have strong financial foundations: our balance sheet, which we will continue to utilise in a very disciplined way, has the headroom and flexibility to support a range of growth opportunities.

Although our review process is still ongoing, it is very clear that we need to change and improve how we run our business in a number of important areas. To drive faster growth, we must become even more customer centric. All of our businesses must capitalise on the strong long-term trends that are driving demand for our products and services and focus their resources on the most attractive market segments. We will deliver better financial results from our lean and operational improvement programmes. We will also sharpen our commercial capabilities and improve our margin and cash generation performance. Continuing to make our business less complex and more efficient is a priority.

We are also reviewing the divisions' respective competitive strengths and market positions and determining how they can best support the delivery of accelerated profitable growth. By way of example, in Precision we are looking again at which Industrial Automation segments we should prioritise. In Critical, while the business has been transformed from being a predominantly fossil and nuclear power business, we need to determine how we optimise our remaining fossil power activities and how we make the most of the significant LNG market opportunity. In relation to Hydronic, our current focus is to continue to improve the margins, and over time we will examine how best to move the business into more attractive, faster growing markets.

We plan to report on the outcome of our strategic review and our plans to deliver our profitable growth ambitions with the 2019 preliminary results.

Profitable growth initiatives

In parallel with our strategic review process we are implementing a number of important initiatives to optimise our performance and drive profitable growth. In the main these initiatives are aimed at helping us get closer to customers and be more responsive to their needs. They include improving overhead efficiencies, driving accountability through all parts of the business, reducing complexity and flattening reporting structures. As a result of implementing these initiatives, we now expect rationalisation charges in 2019 to be in the region of £35m which will generate savings of c.£20m in 2019 and annualised savings of c.£30m.

Brexit

We have a broad international manufacturing footprint and less than 5% of sales in the UK. Nonetheless, as previously announced, we have developed a number of Brexit related contingency plans, including a programme of building long lead-time inventories to support customers in the event of increased border controls or delays in getting goods clearance to and from the UK.

Dividend

Reflecting continued confidence in the Group's prospects, the Board is recommending that the interim dividend be increased by 2% to 14.9p (2018: 14.6p), which will be paid on 13 September 2019 to shareholders on the register at the close of business on 9 August 2019.

Exchange rates

If the exchange rates on 12 July (US$1.25 and €1.11) remained constant for the remainder of the year, revenue and operating profit would increase by c.2% in the full year when compared to 2018.

Outlook

The trading outlook for the Group remains substantially unchanged. In the second half of 2019 we continue to expect that organic revenue will experience a decline similar to that in the first half, when compared with the same period in 2018. Nonetheless, second half profits are expected to be similar to last year, supported by the business improvement initiatives pursued by each of the three divisions. 

Based on current market conditions, we anticipate full year 2019 results will be in-line with expectations.

Divisional Review

The following review relates to our continuing businesses and compares performance on an adjusted basis during the half year ended 30 June 2019 with the same period in 2018. References to organic growth are on a constant currency basis and exclude disposals and acquisitions and lease accounting changes.

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.

Performance

In Precision Engineering, first half trading was much as we had anticipated, with organic revenues slightly lower than last year. Industrial Automation was the only segment to be weaker in the first half, when compared with the same period in 2018. Commercial Vehicle and the division's other segments all delivered increased sales.

Adjusted revenue of £463m was 3% higher than the first half of 2018 helped by positive exchange rate movements of £10m and one additional month of Bimba trading. Excluding these adjustments organic revenue was 1% lower.

On an organic basis, Industrial Automation revenue of £259m was 4% lower with Europe and the Americas both down and Asia flat. Commercial Vehicle sales of £104m were 3% higher with good markets in the United States and Asia combining with a broadly flat market in Europe. Energy grew by 7% while Life Sciences and Rail were both 3% higher.

Adjusted operating profit of £74.8m was in line with the first half of 2018. Organic profit was 4% lower and adjusted operating margins were 16.2%, compared to 16.7% in the same period in 2018. Margin was affected by both volumes and the shift in mix to Commercial Vehicle.

Outlook

Based on the global industrial outlook we still expect full year organic revenues and margins to be slightly lower than for 2018.

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, cleanly, 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.

Performance

Critical Engineering's organic order intake of £358m was 19% higher than the first half of 2018. The order book is now 10% higher than at the same point in 2018. 

On an organic basis, New Construction orders of £179m were 36% higher reflecting particular success in Petrochemical, Marine and LNG, offsetting further declines in Fossil Power. Aftermarket orders of £179m were 5% higher with Nuclear, Petrochemical and Gas Power all ahead when compared with the first half of 2018.

As expected, organic revenues of £294m were 9% lower than the first half of 2018. New Construction sales were down 28%, reflecting the expected reductions from the order book phasing. Aftermarket sales were 12% higher with Upgrades and Field Service both strongly ahead.

Adjusted operating profit of £33.2m was 8% lower, delivering operating margins in line with last year at 11.3% (2018: 11.3%), despite the reduction in revenue.

Outlook

In the full year, we continue to expect that volumes will be about 7% lower, broadly consistent with the position of the closing order book of 2018. We expect second half margins to be higher because of increased Aftermarket sales and the benefits of restructuring.

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.

Performance

Hydronic Engineering's business improvement programmes delivered well in the first half. Organic revenue of £153m (2018: £147m) was 4% higher than the same period in 2018. Sales of TA Balancing & Control increased 2%, with good growth offsetting the impact of exiting the non-core Turkish market last year. Sales of Heimeier thermostatic control products were 5% higher, while sales of Pneumatex products grew by 6%.

Adjusted operating profit of £25.5m (2018: £22.2m) was 15% higher and, after adjusting for £0.3m of favourable exchange rate movements and £0.5m of lease accounting changes, organic operating profits were 11% higher than the same period in 2018. The operating margin increased to 16.7% (2018: 15.1%).

Outlook

In the full year we expect our business improvement initiatives to deliver improved sales, profits and margins when compared to 2018.

Financial review

Adjusted revenues of £910m were down 1% (2018: £915m). After adjusting for adverse exchange rate movements and acquisitions and disposals, organic revenues were down 3% when compared with the same period in the previous year. Adjusted operating profit was £118m, a 1% decrease on the prior period (2018: £120m). On an organic basis operating profit was down 4%. Group adjusted operating margin was 10 basis points lower at 13.0% (2018: 13.1%), whilst statutory operating profit was flat at £101m (2018: £101m).

Adjusted net interest costs on borrowings were £7.8m (2018: £5.9m) and were covered 21.0 times by adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) on continuing operations of £164m (2018: £146m). The IAS19 pension net financial expense was £0.3m (2018: £0.7m expense). The total adjusted net financial expense was £8m (2018: £7m). Profit before tax and adjusting items was £110m, a decrease of 3% (2018: £113m).

The effective tax rate on profit before adjusting items for 2019 is 21%, which is consistent with the rate applicable in the first half of 2018.

Adjusting items

Restructuring costs were £13m (2018: £5m), primarily relating to the right sizing of Critical Engineering, the continued restructure of our European business and a right sizing in the Americas in Precision Engineering, the Global Restructuring Programme within Hydronic Engineering and a restructure of the HQ function within Corporate costs.

The impact of amortisation of acquired intangibles and other acquisition items was £10m (2018: £18m). Additional adjusting items affecting continuing businesses were gains on special pension events of £3m (2018: £4m), the reversal of net economic hedge contract losses of £2m, (2018: gains of £1m) and net adjusting financial instrument gains of £nil (2018: losses of £2m).

After these adjusting items, statutory profit before tax was £93m (2018: £93m). The total statutory profit for the period after taxation was £77m (2018: £74m).

Earnings per share

The average number of shares in issue during both periods was 271m, resulting in adjusted basic earnings per share of 32.1p (2018: 32.9p) and adjusted diluted earnings per share of 32.0p (2018: 32.9p). Statutory basic earnings per share was 28.4p (2018: 27.4p) and statutory diluted earnings per share was 28.3p (2018: 27.3p).

Foreign exchange

The impacts of translation on the reported growth of first half revenues and adjusted operating profits were increases of £13m (+1%) and £3m (+2%) respectively. The most significant foreign currencies for the Group remain the Euro and the US Dollar and the relevant rates of exchange for the period and at the period end are shown in note 14 to this report.

If the exchange rates on 12 July (US$1.25 and €1.11) remained constant for the remainder of the year, it would increase both revenues and adjusted operating profit by approximately 2%.

Cash flow

Adjusted operating cash flow increased to £101m. Trade and other receivables decreased by £22m, inventories increased by £44m and trade and other payables decreased by £3m. Capital expenditure amounted to £28m and was 0.9 times the depreciation and amortisation charge for the period of £30m which excludes depreciation from the IFRS 16 right of use assets of £16m.

The other major cash outflows in the period were £22m of tax, and dividends of £70m. The total cash outflow for the period was £16m, compared with an outflow of £33m in the first half of the previous year.

Balance sheet

The balance sheet remains strong with the ratio of net debt to the last twelve months' EBITDA (before adjusting items) being 1.5x at the end of June 2019 (December 2018: 1.3x) following the inclusion of £91m IFRS 16 lease liabilities. This also caused net debt to increase during the period to £516m (December 2018: £405m) due largely to the implementation of IFRS 16 and the dividend payment in the period.

The Group maintains an appropriate mixture of cash and short, medium and long-term debt arrangements which provide sufficient headroom for both ongoing activities and acquisitions. Total committed bank loan facilities available to the Group at 30 June 2019 were £300m (December 2018: £275m) of which £nil were drawn (December 2018: £49m).

The IAS19 net pension deficit was £45m which compares to a deficit of £50m at 30 June 2018 and a deficit of £52m at 31 December 2018. Of this amount, a surplus of £40m (31 December 2018: £28m) relating to the UK Funds which are the most significant of the Group's defined benefit schemes. The deficit relating to the overseas schemes increased to £85m (31 December 2018: £80m).

Shareholders' equity at the end of June was £674m, an increase of £8m since the end of last year, which includes the attributable profit for the period of £77m, an after-tax actuarial gain on the defined benefit pension plans of £1m, favourable exchange differences of £2m and the 2018 final dividend of £70m paid in May.

Other regulatory information

Going concern

The Group has considerable financial resources together with long-standing relationships with a number of customers, suppliers and funding providers across different geographic areas and industries. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is able to operate within the level of its current bank facilities without needing to renew facilities expiring in the next 12 months. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the uncertainties inherent in the current economic outlook.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Financial Report. 

Principal risks and uncertainties

The Group has a risk management structure and internal controls in place which are designed to identify, manage and mitigate business risk.

In common with all businesses, IMI faces a number of risks and uncertainties which could have a material impact on the Group's long-term performance. Our consideration of the risk posed by Brexit is set out on page 2.

On pages 46 to 49 of its 2018 Annual Report (a copy of which is available on IMI's website: www.imiplc.com), the Company sets out what the directors regarded as being the principal risks and uncertainties facing the Group and which could have a material impact on the Group's long-term performance. These risks include an increase in macro-economic instability; major project implementation; product quality; acquisition risk; regulatory breach; supply chain; cyber security; competitive markets; and new product development. These risks remain valid and have the potential to impact the Group during the remainder of the second half of 2019. The impact of the economic and end-market environments in which the Group's businesses operate are considered in the divisional review and outlook sections of this Interim Financial Report above, together with an indication of whether management is aware of any likely change in this situation.

Safe harbour statement

This Interim Financial Report contains forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this announcement and the Company undertakes no obligation to update these forward-looking statements. All written or oral forward-looking statements attributable to IMI plc are qualified by this caution. Nothing in this Interim Financial Report should be construed as a profit forecast.

Responsibility statement of the directors in respect of the Interim Financial Report

We confirm that to the best of our knowledge:

·; the condensed set of interim financial statements has been prepared in accordance with IAS34 'Interim Financial Reporting' as adopted by the EU;

·; the Interim Financial Report includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

·; there were no related party transactions or changes in the related party transactions described in the 2018 Annual Report that materially affected the Group's results or financial position during the six months ended 30 June 2019.

The directors of IMI plc are listed on the IMI plc website (www.imiplc.com).

Approved by the Board of IMI plc and signed on its behalf by:

Roy Twite

Chief Executive

25 July 2019

Notes to editors

IMI plc, the specialist engineering company, designs, manufactures and services highly engineered products that control the precise movement of fluids. Its innovative technologies, built around valves and actuators, enable vital processes to operate safely, cleanly, efficiently and cost effectively. The Group works with industrial customers across a range of high growth sectors, including energy, transportation and infrastructure, all of which are benefiting from the impact of long-term global trends including climate change, urbanisation, resource scarcity and an ageing population. IMI employs some 11,000 people, has manufacturing facilities in more than 20 countries and operates a global service network. The Company is listed on the London Stock Exchange. Further information is available at www.imiplc.com.

IMI plc is registered in England No. 714275. Its legal entity identifier ('LEI') number is 2138002W9Q21PF

INDEPENDENT REVIEW REPORT TO IMI plc

Introduction

We have been engaged by the Company to review the financial statements in the interim financial report for the six months ended 30 June 2019 which comprise a Consolidated Interim Income Statement, Consolidated Interim Statement of Comprehensive Income, Consolidated Interim Balance Sheet, Consolidated Interim Statement of Changes in Equity, Consolidated Interim Statement of Cash Flows and related explanatory notes 1 to 15. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The financial statements included in this interim financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the financial statements in the interim financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial statements in the interim financial report for the six months ended 30 June 2019 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

Birmingham

25 July 2019

NOTES TO THE CONSOLIDATED

INTERIM FINANCIAL STATEMENTS

1. Significant accounting policies

Basis of preparation

This condensed set of financial statements has been prepared in accordance with IAS34 'Interim Financial Reporting' as adopted by the EU. The Group's annual financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU.

The directors are satisfied that the Group has sufficient resources to continue in operation for a period of at least 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in the preparation of the consolidated interim

financial statements.

This Interim Financial Statements are unaudited, but have been reviewed by the Company's auditor in accordance with the International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board. A copy of their unqualified review opinion is attached.

The comparative figures for the financial year ended 31 December 2018 are derived from the Group's statutory accounts for that financial year as defined in section 435 of the Companies Act 2006. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

This Interim Financial Statements have been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to IMI plc and its subsidiaries when viewed as a whole. This interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.

Accounting policies

The financial statements are presented in Pounds Sterling (which is the Company's functional currency), rounded to the nearest hundred thousand, except revenues and cost of sales, which are rounded to the nearest whole million. They are prepared on the historical cost basis except for pension assets, derivative financial instruments; financial assets classified as fair value through profit and loss or other comprehensive income; and assets and liabilities acquired through business combinations which are stated at fair value. Non-current assets and liabilities held for sale are stated at the lower of their carrying amounts and their fair values less costs to sell.

As required by the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority, the condensed set of financial

statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the

Company's consolidated financial statements for the year ended 31 December 2018 as described in the 2018 Annual

Report and Accounts, except where new or revised accounting standards have been applied as described in section (i) below.

During 2019, management have reviewed and amended the format of the income statement from that used in the 2018 Annual Report and Accounts. Changes have been made to the presentation of the income statement which enhance the users understanding of the Group's financial performance by presenting gross margin information on the face of the income statement and removing the additional disclosure of non-adjusting restructuring costs. This is a change in presentation only and has no impact on the prior year operating profit and profit after tax.

(i) New or amended EU Endorsed Accounting Standards adopted by the Group during 2019

Following the adoption of IFRS 16 'Leases', effective from 1 January 2019, the Group amended its accounting policies. The impact of the adoption of IFRS 16 'Leases' and the new accounting policies is set out in Note 9.

Noted below are the other amended and new International Financial Reporting Standards which became effective for the Group as of 1 January 2019, none of which has a material impact on the financial statements:

·; IFRIC 23 'Uncertainty over Income Tax Treatments'

·; IFRS 9 'Financial Instruments' - amendments to Prepayment Features with Negative Compensation

·; IAS 28 'Long-term Interests in Associates and Joint Ventures' - minor amendments

·; IAS 19 'Employee Benefits' - amendments

3. Segmental information

Segmental information is presented in the consolidated Interim Financial Statements for each of the Group's operating segments. The operating segment reporting format reflects the Group's management and internal reporting structures and represents the information that was presented to the chief operating decision-maker, being the Executive Committee. For the purposes of reportable segmental information, operating segments are aggregated into the Group's three divisions, as the nature of the products, production processes and types of customer are similar within each division. Inter-segment revenue is insignificant.

IMI Critical Engineering is a world-leading provider of flow control solutions that enable vital energy and process industries to operate safely, cleanly, 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.

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

Performance is measured by the Executive Committee based on adjusted operating profit and organic revenue growth which are defined in note 2. These two measures represent the two short term key performance indicators for the Group. Businesses enter into forward currency and metal contracts to provide economic hedges against the impact on profitability of swings in rates and values in accordance with the Group's policy to minimise the risk of volatility in revenues, costs and margins. Adjusted operating profits are therefore charged/credited with the impact of these contracts. In accordance with IFRS 9, these contracts do not meet the requirements for hedge accounting and gains and losses are reversed out of operating profit and are recorded in net financial income and expense for the purposes of the consolidated income statement.