Earnings call transcript: IMI PLC sees stock dip despite strong Q1 2025 performance

IMI PLC’s recent earnings call highlighted a robust performance in Q1 2025, with the company reaffirming its full-year guidance for mid-single-digit organic revenue growth. The stock, currently trading at $21.85, sits well above its 52-week low of $19.25 but below its high of $26.27. According to InvestingPro analysis, IMI appears undervalued based on its Fair Value metrics, despite investor concerns over a recent cyber attack and strategic uncertainties in its Transport sector.

Key Takeaways

• IMI PLC reconfirmed its guidance for mid-single-digit organic revenue growth.
• Group margins increased, with expectations to meet or exceed a 20% margin target.
• A recent cyber attack impacted sales by approximately 2%.
• The Transport sector is under strategic review.

Company Performance

IMI PLC reported a strong start to the year, with significant growth in its Process Automation and Climate Control segments. The company emphasized its focus on innovation and emerging markets, launching new connected products and targeting data centers. Despite these positive developments, the impact of a cyber attack on sales and strategic uncertainties in the Transport sector appear to have weighed on investor sentiment.

Financial Highlights

• Revenue growth: Mid-single-digit organic growth expected for the full year.
• Earnings per share: Projected between 120-136 pence.
• Group margins: Increased in Q1, with a target to hit or exceed 20% this year.

Outlook & Guidance

IMI PLC maintains its guidance for mid-single-digit organic revenue growth, aligning with InvestingPro’s revenue growth forecast of 4% for FY2025. The company expects its Process Automation segment to deliver a high single-digit percentage increase in shipments, while anticipating flat performance in its Industrial Automation segment. With a strong return on invested capital of 18% and healthy cash flows, IMI appears well-positioned to capitalize on potential infrastructure spending in Germany expected beyond 2026.

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Executive Commentary

"We continue to expect to deliver another year of mid-single-digit organic revenue growth in 2025," said Lloyd Pike, CEO. Commenting on the cyber attack, Pike noted, "Our systems were down for around ten days globally. It was horrendous." Despite these challenges, Pike remains optimistic, stating, "We expect to hit or even slightly exceed our 20% margin target this year."

Risks and Challenges

• Cybersecurity threats: The recent attack highlights vulnerabilities that could affect future operations.
• Strategic uncertainties in the Transport sector: A review is underway to address potential challenges.
• Tariff impacts: The company faces approximately £116 million in total exposure due to tariffs.
• Market conditions: Flat performance in the Life Sciences sector may impact growth.
• Global economic pressures: Potential macroeconomic factors could influence demand and profitability.

IMI PLC’s Q1 2025 performance showcased resilience and growth potential, yet strategic and operational challenges remain. The company’s ability to navigate these risks will be crucial in maintaining investor confidence and achieving its ambitious targets.

Full transcript - IMI PLC (IMI) Q1 2025:

Sarah, Moderator: Good morning. Thank you for attending today’s IMI’s first partner trading update. My name is Sarah, and I’ll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, press star one on your telephone keypad.

I would like to pass the conference over to our host, Lloyd Pike. Please go ahead.

Lloyd Pike, CEO, IMI: Good morning, everybody, and welcome to IMI’s first quarter trading update. I am joined here as normal by Dan Shook, our CFO. Hopefully, you have all had the chance to read through the press release this morning. While market conditions are highly uncertain, we are pleased to be reconfirming guidance for the full year. We continue to expect to deliver another year of mid single digit organic revenue growth in 2025, and EPS, we expect to be between a hundred and 20 9 pence and a hundred and 36p.

We saw continued strong momentum in process automation with orders up 7% organically in the first quarter and the order book now 13% higher than March 2024. We made further progress in the resilient, high margin process automation aftermarket, where organic orders were up another 19% in the first quarter. Climate control also delivered another good performance as we saw continued demand for our energy efficient products. The other sectors delivered as expected with life science and fluid control flat, industrial automation and transport lower than the prior year. I’m also pleased to report that group margins were up in the first quarter supported by demand for our innovative high value add solutions, our strong pricing power, significant aftermarket exposure, and the final benefits from our restructuring program.

As you all know, at IMI, we have had an extremely disciplined approach to capital allocation, and we are committed to the delivery of our financial framework. As such, we are announcing the strategic review of our transport sector. Whilst the sector has strong positions in its end markets, we will be assessing its ability to deliver our financial framework over the medium term. Before I hand back to the operator, I would like to provide a quick update on tariffs. Our teams have been incredibly busy working through all the exemptions and quantifying our likely exposure.

As things stand today, I can confirm that IMI’s major nonexemptive trade flows stand at about £50,000,000 per year from Mexico into The USA, Twenty Million Pounds per year from The EU into The USA, Ten Million Pounds from The UK, and £6,000,000 from China all into The USA. On top of that, we have had £30,000,000 per year from various other countries flowing to The USA and an estimated £5,000,000 of tariff effects from steel, aluminum, and other secondary tariffs. As demonstrated on a smaller scale when tariffs have been implemented previously, we believe that we are well placed to manage the direct impact of the currently proposed tariffs through pricing surcharges and our regional manufacturing footprint. We remain alert for any changes in customer behavior, and we will respond quickly to opportunities to unlock further growth. So with that, I’m gonna hand back to the operator who will manage the q and a session.

Thank you.

Sarah, Moderator: Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. To remove your question, press star followed by 2. Again, to ask the question, press star 1. As a reminder, if you are using a speaker phone, please remember to pick up your handset before asking a question.

We will pause here briefly as question are registered. Our first question comes from the line of Lusitan Mahindra Raja from JPMorgan. Please go ahead.

Lloyd Pike, CEO, IMI: Morning, guys. Thanks for taking my questions. I think I’ve got three, which I can take then if that’s easier. And the the first is just on transport and the strategic review. I I guess, can you give us a bit more color on on the reasons and and and, I guess, the timing?

So I guess I guess, why now? And then how we should think about the the the time line going forward in in terms of next steps and and and sort of is is it a sale or or is it sort of something you can do to sort of to sort of to sort of push that business a bit a bit further? So so maybe that was I should I do all three of my questions now? Yeah. Your line is terrible.

Sorry, lads. But carry on with your questions and then Sorry. We have to confirm that we’ve we’ve got the the equipment. Yeah. Okay.

I’m sorry about that. And and the the second is just on process automation. Obviously, very strong orders, particularly aftermarket. I guess, you you call out nuclear, but is there anything else in that sort of rather really strong or a bit softer that that’s worth lagging? And then I guess, then that is is is is very down.

And then I guess is is there any anything particularly driving that as as well? That’s the second question. And then the third is just on on tariffs. So very helpful color there in terms of where the imports are coming from. But in in terms of classified businesses, is there is there any business that’s more exposed to to those imports?

And and, again, how do your competitors fare in those specific specific end markets? Brilliant. Okay. I think I’ve got it right now. So first one on transport.

So strategically, have made good progress with transport, I have to say. We’ve moved manufacturing to some of our most competitive some of our best factories over the last couple of years. We have built a really strong leadership team. Okay. We have a really good leadership team, you know, with some newer members out of passenger car who completely understand, you know, how you compete and win in this industry.

But, you know, if we’re honest with ourselves, the rest of our mind made more progress. Right? You know, we we have moved returns and growth rates firmly in the right direction across IMI, and margins have gone from sort of 14% to close to 20%. And, you know, that’s not where we’re transported And we’re clear about our financial framework.

And as I said at the beginning of the call, you know, we’re actually committed to that financial framework. So, you know, I personally talked to the sector president, and we’re completely aligned. He has a great plan for improving that business. He’s obviously going to accelerate that plan now to improve the returns from transport. And then, you know, we’ll look at all the options, and we’ll see.

We’re we’re certainly not lush gonna buy or sell that business. It’s a good business. You know, it makes good returns. It it’s it’s certainly not gonna be, you know, sold in a hurry at a discount. I wanna make sure all shareholders understand that.

But we are gonna improve it. One way or the other, we’re gonna improve the situation for RMI. As I said, we’re completely committed to the financial framework. Did that capture because your line, as I said, wasn’t great. That’s Yeah.

Yeah. I know. I know. Timeline. In terms of timeline, obviously, we’re not gonna put it on.

I was certainly not gonna reduce the value of of the business by, you know, forcing any sort of timeline on I I think it’s very much less like the 20 to 30% of what was critical, you know, back in 2019 where 20 to 30% of critical was not hitting the financial framework. It was particularly poor on the margins. That part today, honestly, is is is obviously well in line with the rest of process automation. And actually, if we had sold it, it would have been a you know, it wouldn’t have been good in terms creation of shareholder value. So the team there, as you know, did phenomenally well.

I see it very much like that. And I think we reported on that. Obviously, every quarter, we reported on the progress on that. And then after two years, we said, actually, this is far too good. You know, we’re we’re definitely not gonna sell it.

We’re gonna retain it. So see a similar pattern with this, you know, with this exercise around strategic review of transport. The internal team is absolutely focused on on improving that business. And your second question was about process automation. Yeah.

I mean, phenomenal performance again with a review of the business again yesterday. And, yeah, that whole aftermarket strategy is really barring on all cylinders. Right? So lots of upgrades of our own valves, lots of upgrades of competitor valves, and really good parts orders in in the quarter as well. We called out the nuclear orders because well, one, because they it takes longer, obviously, on a nuclear upgrade.

We won’t be delivering those this year. So we said consistently, we expect process automation to deliver high single digit percentage increase in shipments this year. We absolutely still expect that lush. And, obviously, the strong aftermarket orders in the first quarter really underpin the performance of that, you know, gives us confidence in our overall business for the year. And that’s why we’re, you know, we’re confident in in our outlook and keeping the outlook exactly the same.

What I would say is that we called out the nuclear orders. The nuclear orders year on year was about 12,000,000 up, I think. If you strip those out, because they are multi year, then still aftermarket orders, I think, were up about 10% than in the first quarter. So still, you know, nicely double digit growth on aftermarket even when you take out that that higher nuclear order. So we feel good.

On the new construction side, we were slightly down, but that is just phasing of LNG, mainly LNG new construction orders. We’ve got a really good pipeline on the LNG new construction orders. And apart from, obviously, we called out last year, we got that multiyear marine order, which I think was about 35,000,000. So make sure you you, you know, you you can count that in your models because we keep counting that up. But, you know, if you look at the sort of underlying business, we think the construction issue will hold up well as well.

And then your last question was on tariffs. Yeah. So I went through, you know, all of the the trade flows. You know, we’ve done a lot of work as you can see. You know, we’ve we’ve obviously moved out the exempted trade flows.

We’ve looked at every way that we can, you know, if we’re we’re shipping from different countries, make sure that we minimize the impact of potential tariffs. And and that’s what we’re left with in terms of trade flows. In terms of the sectors that are impacted, actually now, because of what happened, you know, where tariffs have been applied very broadly across the world, Actually, it’s quite similar effect between transport, industrial automation with process automation. Again, depending on the, you know, the exact mix of shipments for this year, but just slightly less than those two. So but they’re the big three.

Obviously, climate’s not very much affected because it’s mainly a European business, life science is not not very much affected because it’s very regional in the way that, you know, we support customers. So it’s really those three last where the big impact is. Now, Lush, did I cover your questions adequately then? Yeah. Yeah.

I think that’s really appreciated. Thanks very much. Thanks. Thanks, Lush.

Sarah, Moderator: Thank you. The next question is from Christian Hendrikar with Goldman Sachs. You may proceed.

Christian Hendrikar, Analyst, Goldman Sachs: Morning, Roy. Morning, Dan. I wanna start on IA, if I may. I’m curious as to you previously guided on the sort of sixty day moving average for order intake. How did that trend in the quarter?

What did you see as well in April relative to the minus seven organic, which I think was affected to to cyber and and just thinking about conditions in demand overall. I’ll stop there.

Lloyd Pike, CEO, IMI: Yeah. Like, you know, good question, Christian. Yeah. 69,000,000 average orders is slightly up, Christian. I don’t wanna get too excited, but it is slightly up.

Jackie and the team doing a phenomenal job in terms of commercial excellence really driving that in IA. Obviously, that was the hardest hit area by cyber. Right? It’s it’s as you know, you know, we supply, you know, around 200,000 products. Right?

It has complex supply chains. Normally, that’s to our advantage in terms of, you know, how we can create good value for customers, in terms of service, and in terms of, you know, margins for ourselves to capture some of that value. But, obviously, when you get hit by a very severe cyber attack, then that creates problems within the supply chain, and that’s what happens. So so we will we have started to recover that. We we are not anywhere near that down in April, so that’s great.

I’m obviously not gonna report off April as such, Christian, but April was another factor in our confidence in reassuring around guidance overall, but also within IA. And, you know, so I’m gonna tell you, it was hardest hit. We do expect to recover quite a lot of that, but not all of it by the half year, Christian. And what we’re now saying about IA is that for the year because not so much because of cyber for the year, but because of the uncertainty in the markets, we expect IA to be roughly flat for the full year. But we expect process automation to be slightly better than we thought at our last update, obviously, due to the strength of the aftermarket orders.

Net, apart from FX, which is slightly worse, guidance is exactly the same as as where we were, Christian.

Christian Hendrikar, Analyst, Goldman Sachs: Thanks, Roy. Very clear. Can I follow-up on this just maybe more strategically or or thinking about the long term NIA given, you know, restore potential reshoring dynamics in The US, given the sort of trade dynamics? How do we think about your positioning there? Do you get a sense that customers are looking to expand capacity and that’s the sort of structural benefit?

And and how do we think about the timing of all of that?

Lloyd Pike, CEO, IMI: Yeah. I I think that that, you know, there’s long way to go with tariffs. Right, Christian? And everybody’s, you know, sort of thinking, okay, you know, exactly how will this play out. So I would say, right now, there’s more uncertainty.

Although, as I said, our moving average order is slightly up overall. I think that there will be some reshoring inevitably. So so we’re looking at, you know, some things that will now make a bit more sense to make a new estimate. It’s around the edges for us, I will have to say. And to do that, automation will inevitably be involved, Christian, for us and for other people because, you know, it’s very hard.

If you think you think about hourly rates, typically, The US, you you know, the total factory fully absorbed cost hourly rate is typically more than twice some of these other countries that you’ve had. So to actually compete from The US, well, let’s say, it’s not always easy to get the labor in The US, but you need to run the production lines. Automation is certainly in our minds, and it’s certainly in the minds of of our customers as well. So I would say it’s not an immediate thing because of that sort of uncertainty. We wanna see how this is all playing out.

But over time, I think we’ll play well into that, and I feel really good about where the industrial automation business is, both in terms of the sort of, you know, let’s call it, the overall market trend. I think that’s gonna be stronger than it’s been for a while. I think not only in The US, Christian, but also in Germany. Right? When Germany is a very significant market for us, it’s very significant market because not only we’ve got the domestic market, obviously, it’s huge export market from there.

And, you know, if Germany hopefully starts to spend the 500,000,000,000 that’s gonna invest in in infrastructure, Germany is one of our best automation market. So I think I think, you know, that sort of dynamic is just flat internally. This where we are with the business, the team, where Jackie’s got it, I think, know, I think we’re gonna make some good progress as that comes through the cycle. Actually, maybe just a a

Christian Hendrikar, Analyst, Goldman Sachs: a third and final one on process. You’ve talked about sort of aftermarket strength and and relative softness in OE. Could you what are you hearing from customers on the OE side? How do we think about the oil price sensitivity given WTI is now sub $60? You know, just thinking about demand dynamics as as we look into the rest of the year.

Lloyd Pike, CEO, IMI: Yeah. I I think so what we see at the moment, generally across the world, is still strong pipelines on the new construction side. Remember that oil and gas new construction is about 20% of process automation. So the most important thing about process automation now is that 60% of it is aftermarket and is, you know, most Christian, because the margins the gross margins are two and a half times in aftermarket what they are in new construction. Obviously, to feed the aftermarket, we do two things.

One is we upgrade our old valves and our competitors valves. As you know, that’s been very successful. Two is we’ve got a fee from the new construction side that installed base. And and on that side, of that 20%, around 60% is gas, and we think that the fundamentals for gas are still strong. And in fact, we had a business review on process automation yesterday, And and still the team is talking that, you know, they they believe as well that gap is gonna be, you know, strong for multiple years, put it that way.

Jonathan Hearn, Analyst, Barclays: Understood. Thank you.

Lloyd Pike, CEO, IMI: Thanks, Christian.

Sarah, Moderator: Thank you. The next question is from Andrew Sims with Berenberg. You may proceed.

Lloyd Pike, CEO, IMI: Good morning, gentlemen. Thanks for taking the questions. Just firstly on the life sciences side of things, another sort of it seems like it’s bouncing on the bottom still. Is is there any sort of signs of life there and conversations you’re having with customers as to whether I suppose, when or whether that’s that’s booked up maybe the back end of this year. Appreciate the comments getting easier, but any comment on that would be useful.

And then you mentioned, I suppose, some of the commercial side of things in IA, which the team is doing very well. I I I suppose you can expand on that and just maybe provide a few examples as to some of the changes which have been made and and and how that’s affecting the business. That’d great. Thank you. Yeah.

Brilliant. Yep. No. We we are not calling a recovery in life sciences. I think, you know, we’ve said this many times.

We basically forecast it flat for this year. And and there’s nothing in our forecast that re that relies on any market recovery. I I got to make that completely clear. This isn’t one of those forecasts where, you know, we’re suddenly relying on a big second half recovery in any market. We’re not doing that.

Really, what will change in terms of our sales, if you if you think about it, process automation shipment schedule. So we’ve got a, you know, a lot of shipments going out in q two. As usual, we’ll have a lot of shipments getting out in q four. And overall, we think that gets us to high single digit organic sales growth this year. And we map that project by project.

And the other thing that changes quite significantly is the transport comparator. Right? So transport is a very, very tough comparator in the first half just because our our our truck customers were absolutely accelerating through the first half of last year as they managed to procure all of the electronic components that they couldn’t get after the supply chain crisis after COVID. Obviously, that unwound in the second half. And in the second half of this year, our comparison is much easier.

That’s really the two components that mean that we get to mid single digit organic growth. So we’re not calling a recovery in life sciences. There are some good signals out there, however, that things are starting to improve. And and I know that one of our customers yesterday upgraded. So, obviously, there’s a bit of stock between us and them.

But one of our customers upgraded yesterday, which is good. And the use of reagents, you know, you think what’s happened is, you know, there’s been a an oversupply of the equipment during COVID. And, obviously, all of that new kit is out there, so people haven’t been, you know, replaced or buying new kit at such a fast rate. It’s the market’s pretty flat at the moment. But in terms of the reagents that are being used on the equipment, that has been picking up.

And that’s a good signal that the case is being used and that, you know, eventually, the new programs will come through. And in fact, our customers are now talking about launching new models, which, of course, they weren’t talking about, you know, for the last couple of years. So there are signs, but our outlook does not rely. You know, life science itself, remember, is 7% of IMI’s business. So we’re certainly not relying on a on a recovery in that market.

And then in terms of industrial automation, yeah, it’s really exciting. So what Jackie’s been doing is we’ve completely implemented world class CRM, basically IT systems across IA. And what he’s doing is ensuring that our data allows us to drive the best possible Salesforce efficiency. So we really got a much better picture now of where the biggest and best opportunities are. We’re driving Salesforce effectiveness and productivity, and the pipeline is really starting to improve in terms of projects that, you know, we’ve got.

There are opportunities for us to win, and we’re also doing a huge amount of Salesforce training to make sure that the sales people are best equipped to solve customer problems using, you know, our dazzling array of technical solutions that we have to solve those problems. And so that’s why I’m really excited. That commercial product is pretty much similar to what we’ve done across, certainly, you know, the rest of our mind in terms of commercial excellence, and then behind that, driving market led innovation, and then behind that, stripping the complexity out of the system. We’ve done a huge amount of that in I. So we’ve got five x factories in I o now.

The factories we’ve got are much better, And therefore, our Net Promoter Scores for customers, our customer satisfaction scores are now up at 60, whereas sort of five, six years ago, they would have been more like 10 to 20. So so that allows, you know, happy customers, cross sell to those happy customers, and then innovate into into those customers as well. And that that’s really the same pattern that we followed across the rest of our mind is making real progress now in IO. Great. Thanks.

Alright. Thank you, Drew.

Sarah, Moderator: Thank you. The next question is from Jonathan Hearn with Barclays. You may proceed.

Lloyd Pike, CEO, IMI: Hey, guys. Good morning. A few questions for me, please. Firstly, just coming back to transport. Can you say if you’ve had any external interest in that asset previously?

Has anyone looked to to to buy that? That was essentially the first one. The second one is just on client. Obviously, you’ve seen the strongest growth in q one plus 4%. But if you kind of look back to to this time last year, the comp is pretty easy.

As you go forward for climate, obviously, the year on year comps get tougher. What kind of growth can we expect from climate in ’25? And then the third one was just coming back to to process. Obviously, good order book. You’re you’re calling out high single digit growth for that business in ’25.

But just in terms of the book to ship within that business to meet that, how much book to ship do we need to get in the remainder of the year to to essentially hit that high single digit growth aspiration? Thanks. Yeah. But obviously, the book to ship is declining rapidly. I’ll let I’ll let Dan be on to the book to ship at the end.

In terms of transport, no. We haven’t had any, you know, what I would call proper interest in that business externally, Jonathan. So, you know, obviously, by putting it on the strategic review, we’ll see how that goes. Alright? That will that will obviously put it up there, we’ll see if there’s more interest in that business.

So that’s why it’s very important that our team really gets on and improves and moves towards our financial framework for transport just like the what was critical engineering team did back in 2019. In terms of process automation sorry. In terms of climate, you I’ll let Dan be the process automation in terms of book to ship. But in terms of climate, yeah, we see a you know, in terms of what customers are telling us, in terms of the sort of market feel, I was at the people ACAC show in Germany few weeks back. In terms of our new product launches as well, as you know, we we’ve got some really good new products, which is a more connected type.

The TA smart valves that we’ve we’ve talked about many times, that’s starting to get real traction. We’ve got pockets of the market as well that are small at the moment like data centers, but which are expanding quickly and which we’ve got real focus around as well, Jonathan. So when you put it all together in terms of climate, you know, and you think about what it’s achieved over the last five, six years, it’s pretty much mid single digit growth. And that’s what we see again this year. So despite the fact that, you know, the market itself, we don’t think it’s gonna be particularly fantastic.

We expect to deliver mid single digit growth in climate. And, Dan, do you want talk about book to ship

Dan Shook, CFO, IMI: in process? Yeah. I think we already talked about it on on the February call where our expectation is we’re still going to see a growing order book. And book to bill this year is to continue to move positively, Jonathan. And that, of course, with new construction orders coming in, in

Lloyd Pike, CEO, IMI: the first

Dan Shook, CFO, IMI: half and particularly on the upgrade and parts. That gives us good momentum. You saw it in the first quarter as well. There is a bit more book to ship to deliver on process this year relative to last year. But I think the momentum that you’ve seen kind of going through on the orders makes us comfortable that we’ll still hit that guidance of high single digits.

So yes, there’s a little bit more to deliver. First half is pretty much as you’d expect. It’s fully in the order book. I think the second quarter as we get the orders in, that’ll give us a good good comfort. So a little bit more on book to ship, but but but nothing that the team can’t can’t handle.

Lloyd Pike, CEO, IMI: Okay. Very clear, guys. Thank you very much. Relay, Jonathan. Thanks, John.

Sarah, Moderator: Thank you. The next question is from Stephane Klepp with HSBC. Please go ahead.

Stephane Klepp, Analyst, HSBC: Yeah. Hi. Morning, everyone. A a few leftovers, and I don’t want too much be too much of

Lloyd Pike, CEO, IMI: a nitpicky here. But if I

Stephane Klepp, Analyst, HSBC: look into the new construction orders in process automation and use the typical 40%, I calculated it’s down 10%. I mean, am I completely wrong there? I mean, you mentioned already what’s happening, but can you give a little bit more color on that one? And the second one, if I’m looking into the q two pickup, I mean, you haven’t been able to ship for ten days. How much of a of a pickup and how much of an order growth are are we are you basically implying is going to happen in in the second quarter to basically meet your Biden, particularly here interest is process automation and industrial automation again.

Lloyd Pike, CEO, IMI: Yeah. So so in terms of new construction, you’re bang on that, I’ll say. I’ll say you’re right. So 10% down. That translates to £10,000,000.

7. That’s £10,000,000. And Okay. That, as I said earlier, is basically LNG order phasing. So we just got a big LNG order q one last year, and we’re expecting bigger LNG orders q two this year.

And then throughout the year, you know, LNG picks up. So it really is LNG order phasing. The only thing I would just say that I I did say that is important. We did get that huge marine order in new construction. I’ll say this again.

35,000,000, you know, say last year. Just just just make sure that, you know, everybody understands. But by the end of the year, if you step out that multiyear marine order, which is obviously still nicely in our order books Yep. Then, you know, we expect new construction to be, you know, holding its own seven with the growth coming through again in the aftermarket, shifting the mix of the business more towards aftermarket, which again, obviously, helps us in terms of returns. Perfect.

Thanks. Oh, yeah. Thanks, Stefan. And then in terms of I yeah. I mean, the I think that the cyber incident very hard to measure exactly.

I mean, you think about it, we have resisted 300 cyber ransom attacks over the years, Stefan. Right? But this this one was a really, really severe one. You’re seeing it in the retailers at the moment. You know, these guys are getting more and more sophisticated.

And this was a particularly nasty one. Our systems, as you know, were down for around ten days globally. I mean, it was it was horrendous. So gotta thank all our people because the response to that, honestly, was incredible. Despite that incredible response, we estimate this is only an estimate that our sales were hit by across the group were hit by more than 2% in the first quarter.

And the bulk of that is is in automation, and the bulk of that is in industrial automation. Right? So so, yeah, we expect a much better better second quarter in industrial automation. And as I said, the sixty day moving average orders was slightly up. Actually, the orders in the first quarter, think, were only 2% down just to give you a, you know, against a more difficult quarter last year.

So, you know, that’s why we think industrial automation for the year will

Dan Shook, CFO, IMI: be probably flat seven. And and for clarity, we’ve we’ve had we’ve had 300 attempts from what we track with our cyber support. The lion’s share of those never get in. Yeah. But a handful have over the last five years, and and this one clearly was the the the most difficult to to manage through.

But, yeah, as you say, Roy, the the IT organization, but also everybody in IMI really came together and and and got us back up really, really quickly. Yep. Great. Splendid. I have another nitpicking one.

In life sciences, for

Stephane Klepp, Analyst, HSBC: the first half, you have been guiding minus oh, so a minus mid single digit organically. Now the first quarter was flat. So are we are you basically keeping sticking to that? I heard what you said before that you expect to set here, but the first half is down is was guided down mid single digit. So do you are you basically saying this is still the case and q two is going to see quite big lump?

Dan Shook, CFO, IMI: Yeah. Q two last year was had a nice yeah. It was a nice comp. So it’s a bit a bit tougher comp, Stefan. It was up, yes, it was up about 10% on Q1 sequentially.

So yes, we’re going to hold to that and ask us in July. Okay. That’s fair.

Lloyd Pike, CEO, IMI: Thank you, guys. Thanks, Nate.

Sarah, Moderator: Thank you. The next question is from Alexander Virgo with Bank of America. You may proceed.

Lloyd Pike, CEO, IMI: Yeah. Thanks very much. Morning, Roy. Morning, Dan. I wondered if I just wanted to pick up a little bit on your comment there on on the transport strategic review.

You talked about the comparability with the putting 30% of critical under strategic review. And, obviously, those businesses then responded incredibly well and and you then chose to keep them, as you said, to to the benefit of of of of the group. I’m wondering when you look at transport, you don’t presumably see quite the same source of potential there in terms of bringing that margin up into the broader group financial framework. Or am I wrong? And and and and that’s the wrong interpretation.

That’s the I guess that’s the question I’m I’m getting at. Thanks. Yeah. No. I I think, you know, way back in 2019, Alex, and, you know, I we were in about the position with what was critical engineering as we are with transport now.

Right? It was a big in fact, it was a bigger ask to get that part of the business, get their margins to where we, you know, we’re targeting than it is to move transport in terms of just the sheer quantum of what what needed to be done. And so I would say it’s very, very similar situation. The actions being taken, though, will obviously be different. Right?

So so in fiscal engineering at that time, that part of the business, you know, I was told, Alex, by the previous management for a decade that you could not develop aftermarket business in that segment, which is why, you know, we we went public with the strategic review and said, right, you know, either way, we’re gonna develop the aftermarket business and move the other margin significantly. And and, you know, we’re talking more than over a thousand Yeah. Basis points. Yeah. Yeah.

Yeah. Actually moved the margins back up with Mhmm. All, you know, different actions will be taken. Right? And lo and behold, Jackie, at that time, did a phenomenal job with that team, and that’s exactly what they did.

And now he told me what the margins were yesterday, honestly, in that part of business. And, you know, it would have been terrible to

Dan Shook, CFO, IMI: have sold it. But at that time, Alex, I was

Lloyd Pike, CEO, IMI: no more certain around that than than I am with transport, to be completely honest with you. But with transport, as I said, we’ve got a fantastic thing. We’ve got a team that is steeped in passenger car knowledge, you know, which is, as you know, very, very hardcore in terms of, you know, commercial capability and what you need to do. And they feel a good plan that we now need to accelerate. And that plan is different.

It’s not about the aftermarket. It’s much more about value engineering. It’s much more about making sure that the high margin new product we’ve got, we scale up. It’s much more around exiting low margin product. And we’ve moved a lot of the manufacturing to very competitive sites, is great, but we now also need to deliver supply chain efficiencies behind that as well.

We are delivering them, but we need to accelerate that as well. So so it’s a different sort of plan, Alex, but I would actually say, probably, that actually it’s gonna affect the position because I think we’ve got a stronger team, you know, in transport that really understand the markets and the dynamics to get on and deliver the financial framework. So so that that would say it’s probably slightly better situation, but it’s a lot to do as well. Yeah. Thanks.

That’s what that’s really helpful. I guess what I’m getting at is that we could end up without with with seeing the same situation here. Well, I I guess the the the explicit question is, does the transport business offer the opportunity to deliver 20% EBIT margins if you do and execute these actions in similar sorts of fashion to the way you you you the end result you gained in critical? Yeah. And the way I’d answer that, Alex, is there’s already parts of the transport business delivering the financial framework.

We just need more of it to do that. Yep. Alright. That’s helpful. Thank you.

Right. Thanks, Alex.

Sarah, Moderator: Thank you. The next question is from Mark Davis Jones with Stifel. You may proceed.

Lloyd Pike, CEO, IMI: Thank you. Morning, both. Firstly, can I just get back to the the German stimulus? Because, obviously, we’re looking at potentially quite a big change in what has been a very sluggish market. Firstly, would I be right in thinking that’s gonna be more of ’26 thing?

You’re not expecting any benefit of that this year. And secondly, do you think that reads across the climate as well as as IA in terms of potential benefit? And then my second question was one for Dan, maybe. This is gonna be the year when we saw another step up in cash conversion cash flow with restructuring fell away. Is that still very much the thinking, or is anything in the complexity coming out of tariffs meant you had to carry a bit more working capital or other costs associated with that would would limit that cash conversion?

Great. Well, as you very adequately put, you know, a big change in the sluggish market. I I think that’s that’s exactly right. I mean, Germany has been very, very important. Technically, you know, the market’s a great engineering market, but it has been sluggish for a long time.

I think, definitely, that is gonna be more, you know, 2026 and even beyond that before it really starts to kick in. Although, I think the confidence in the market is is what I was trying to portray earlier, really, Mark. Definitely feels stronger to me than it has for a while. And you’re absolutely right. It’s both IA and climate, and there may even be some process automation infrastructure type build as well, Mark.

So I wouldn’t rule that out, but it it’s gonna be yeah. I think climate industrial automation will should be the winners after that. I mean

Dan Shook, CFO, IMI: Yeah. Yeah. Mark, still still targeting and forecasting 90% cash conversion. No real change there. No at this stage, need to do anything different on working capital.

So we do expect we’ll continue migrate some of that additional stock out of the balance sheet. The one thing I’ll remind everybody, we talked about it in February, we will have another CapEx figure similar to last year as we complete construction on a number of new facilities. So that’s why we’re not seeing a higher cash conversion. There’s a bit of an offset to the working capital coming off the books as completing the modernization of a few facilities. So yes, so long way to say, still looking at 90%, Mark.

Lloyd Pike, CEO, IMI: Great. Thank you very much. Awesome. Thanks.

Sarah, Moderator: Thank you. Our last question is coming from the line of Margaret Shuley with Redburn. Please go ahead.

Jonathan Hearn, Analyst, Barclays: Morning, Roy. Morning, Dan. Thanks for taking my questions. I just had one because I think we’ve exhausted a a lot of them. And just to go back to transport, if you go through this review, ultimately, it does get sold, can you just give us some understanding of if there would be any stranded costs and what the capacity in those facilities would look like?

Because I do think they share some facilities with IA. Just a little more color on eventually, it does lead the group, how we should be thinking about that.

Lloyd Pike, CEO, IMI: Yeah. A good good question, Margaret. Yeah. That transport is honestly, transport was born out of industrial automation. I mean, that that’s that’s the point.

A lot of our industrial automation, fittings, valves, manifolds, systems were modified to be able to take the much harsher environment of of a being on a truck now. Right? So you’re absolutely right. You know, I think there’s about five factories which we share between transport and industrial. So it is integrated.

We have started the process of absolutely making sure that the transport team have complete clarity and ownership of their parts of the business, and we’ve been doing that over the last six, nine months, something like that. Yep. And so we have started that process. The stranded cost so so, you know, we’d have to have a look at things like tax. We put that to one side.

But in terms of stranded fixed cost, it will be pretty small in the overall scheme of things. In terms of the carve out, we are already adding a little bit of cost to transport, and we’ll we’ll we’ll have to add a little bit more as well to make sure that, you know, where we’ve got shared services, we are making sure there’s more of a a sort of delineation between transport and an industrial automation market. But but in terms of stranded costs that’s left with the business, in the remember transport’s only 8% of our sales. Right? So in the scheme of things, that would be relatively low.

Yep.

Jonathan Hearn, Analyst, Barclays: Very clear. Can can I squeeze one last one in? Sorry.

Lloyd Pike, CEO, IMI: I know

Jonathan Hearn, Analyst, Barclays: you have lot of questions. And thank you for that. Just given the state of the order book for process with the OE and aftermarket being higher, and then Jackie having been within LifeTech for a year now and some of the incentives or or changes that he’s making there. Can you just give us some color about how we should think about margin progression for the group, but also by division as we progress to the year if you can?

Lloyd Pike, CEO, IMI: Yeah. So, Margaret, so so overall, we expect to make progress on margins again this year. We expect to hit or even slightly exceed our 20% margin target this year. Obviously, automation, the automation platform has had tremendous progress on margins. We think that will be flat for this year purely because we’re now taking all of the cost of any rationalization projects above the profit line.

Right? And we said that we said that to investors That’d be right. Yeah. Last year. That was the end of that program.

Right? So we’re now absorbing 1 to 2p of EPS in other improvement programs that we’re running above the line. So that’s why we’re saying automation, know, on an underlying basis, we’ll make a bit of progress, but actually, what we report will be roughly flat. And then we expect to make the progress on the live tech side, which is currently below the 20% target, and and we expect that to to come through this year. And they will have some costs, to be honest with you, above the line in terms of rationalization, but they’re also getting some benefits from the programs that we run last year, and and we expect to see that come through.

So so that’s how we see the shape of margin improvement. Overall, margin improvement for the group again.

Jonathan Hearn, Analyst, Barclays: Very clear. Thank you very much.

Lloyd Pike, CEO, IMI: Thanks, Margaret. Yep.

Sarah, Moderator: Thank you. There are no questions waiting at this time. I’ll pass the conference back over to the management team for any further remarks.

Lloyd Pike, CEO, IMI: Excellent. Well, thanks for your time today. Think you can see that we’re we’re really pleased with the progress of the business. The the way it recovered from that cyber attack was frankly, exceptional. The orders in process automation and and the order booking process automation plus where we are with the other businesses gives us the confidence to reinforce guidance for this year.

So thanks very much, and see you at the half year. Thank you.

Sarah, Moderator: That concludes the IMEI first quarter trading update. Thank you for your participation. You may now disconnect your line.

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