Good morning, everybody. Thank you for taking the time to join us today. I am joined here, as usual, by Dan, our Finance Director. I'm just gonna take a moment to summarize a few key points from our IMS, and then we will take your questions. I'd like to begin by thanking all of our employees all around the world for their dedication to delivering our purpose-led strategy, breakthrough engineering for a better world. We continue to create solutions that help our customers become safer, more sustainable and more productive. It's been another good performance in the third quarter, with group revenue up 5% versus the third quarter of last year, and up 3% on an organic basis. Margins also improved as we further reduced complexity, expanded the aftermarket opportunity in automation, and delivered further growth in our attractive end markets.
Now, as previously announced, we adopted a sector-focused structure in July, and reporting is now aligned across two platforms. The new structure has been really well received, and we are already feeling the benefits of being even closer to our customers. Process Automation had another excellent quarter, with strong order intake and continued organic growth. Orders were up 15% organically, with a 24% increase in aftermarket. Revenue increased 8% in the quarter on an organic basis. Industrial Automation delivered another resilient performance despite some uncertain markets. Organic revenue was 1% higher than the same period last year. We see good demand for solutions that automate processes in a competitive labor market and have benefited from continued investments in reshoring. Climate Control revenue was flat on organic basis.
While we have felt the impact of recent trends in the European construction markets, underlying demand for our energy efficient solutions does remain solid. Life Science and Fluid Control organic revenues were 13% lower than the same period last year, and as expected, we did see customer destocking and reduced demand in the period, and we expect this to continue into the fourth quarter. The long-term fundamentals of the sector are strong, and we remain excited about the opportunities for growth. Transport saw organic revenue 20% higher than the same period last year. Finally, before we move to Q&A, a comment on guidance. Based on current market conditions, we are upgrading 2023 full year adjusted EPS guidance to a range of GBP 1.14-GBP 1.18 .
Okay, with that, I'm gonna hand back to the operator, who will manage the Q&A session for us. Thank you.
Thank you. As a reminder, if you would like to ask a question, please press Star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press Star followed by two. Again, to ask a question, please press Star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you have unmuted locally. Our first question today comes from the line of Lushanthan Mahendrarajah from JP Morgan. Please go ahead. Your line is now open.
Hi. Morning. Morning, guys. Thanks for taking my questions. The first is on Industrial Automation, which, you know, I think is clearly been more resilient than we anticipated. I guess how much of that is sort of the onshoring and the labor point and you know, how much of the backlog still supporting that? And I guess perhaps give us more color on what orders have been doing in the last couple of weeks.
Yeah, thanks, Lush. Good morning to you as well. Yeah, I think as I said on the last call, Industrial Automation orders have been slightly below last year for a while now, and so clearly we have been selling a bit out of the order book, you know, and that clearly supported Q3, and our Q4 guidance does include IA being slightly down in sales. So, you know, this sort of reduction in industrial activity that you can all see in the macro indicators, clearly is having an effect, but compared to previous sort of industrial recessions, automation, I would say, is holding up much, much stronger, particularly Industrial Automation, than I would have seen, you know, in my sort of 30+ years with IMI. So, yeah, there is a definite trend towards automation.
And Lush, you know, obviously, you know, talking to customers, but also ourselves, we are heavily focused on automation, more automation within our own factories. Automation is more cost effective than it's ever been, and the paybacks are shorter than I can remember, you know? So, there's definitely that sort of good, positive, underlying trend in the industry to automate more.
Okay. Thank you. And then the second question is just on Transport. Obviously, sort of a very, very strong number. I guess the comp, particularly in China, perhaps a bit easier, but just in terms of how do we think about that going into Q4 and perhaps next year as well, just given, I guess North America might be a bit tougher, et cetera.
Yeah, that, that's right, Lush. I, I think, you know, well, great job by Beth and the team. I was in our biggest plant on the Transport side down in Mexico a couple of weeks ago, and they really are flying. You can imagine, you know, it's not easy to ramp up production at that sort of rate, 20%+ . Yeah, as you said, you know, real strength, and, and China was a very weak comp last year. You're absolutely right. India, though, has been growing pretty consistently, and, you know, overall, you know, 20% is good response from the team. So pleased with that. As you say, there's a lot of catch up in that system, right?
You know, we don't expect ongoing 20% Transport volume increase, and yes, next year could be a bit tough, but we clearly haven't done our budgets yet. We do that over the next couple of weeks, so we'll get into detail on the trends. But yeah, there's been an element of catch up in this year. Obviously, our customers have now got components that they couldn't get, you know, and so they're running their production lines probably a bit quicker. I think you're absolutely right, Lush.
Okay. Thank you, and just last one for me on pricing. Have you done any sort of price increases since H1? And I guess just any sort of early thoughts on what may need to be done or not for next year?
Yeah. So, Lush, we immaterial price increases since the main price increases we did at the beginning of the year. You know, in normal times, we try and make sure we do that once, so that, you know, customers are clear on, you know, for their budgets and what they're gonna be spending. So immaterial what we've done since the beginning of the year on pricing. We are... You know, we did get good pricing again this year. We needed it, to be frank, 'cause inflation, particularly on the labor side, has stayed high, energy costs have stayed pretty high. So, you know, we're very comfortable. As we've said, margins will expand again this year.
You know, as you, if you look at our guidance, and as you know, margins have come up from sort of 14% a few years ago, you know, and, and, you know, we're well up, probably close to 100 basis points up again this year, right? If you just back work the guidance. So, so we've got good pricing power, and, and we're really pleased with that. As we go into next year, the issue again will be labor. You know, we, we're doing well in terms of labor retention globally. You know, and I think that's really important. There's a huge cost in training people of all levels, actually, and making sure we've got the best skills to grow for the future.
So again, labor will be an issue as we go into next year in terms of labor inflation, but again, we think, you know, we're well placed to cover that, you know, with our strong pricing power, Lush. So, yeah, we feel pretty good about where we are in the sort of whole labor and inflation equation. We think we're in a good place.
Okay, brilliant. Thank you very much for answering my questions. Thank you.
Thanks, Lush.
The next question today comes from the line of George Featherstone from Bank of America. Please go ahead. Your line is now open.
Morning, everyone. Thanks for taking the questions. First one would just be on the Industrial Automation business. Appreciate there's some encouraging underlying trends-
Right
that are happening there that, that obviously, have changed maybe the, the dynamic of the business relative to, PMIs, et cetera, this year. But I just wondered what the pipeline is really related to US reshoring that you've, that you've mentioned, and have you also managed to gain some share in, in, in the US in IA? That would be the first question.
Yeah. Interesting, George, that. It's a good point. I mean, actually, I mean, our strongest sales growth is actually in Asia, and the team down there are doing a cracking job, George, and I would say that in what we consider our total available market in the way that we compete, they're doing a very good job in Asia, 'cause China has not been easy, as you know. So, and that's what, half of our IA business in Asia? Something like that. So, I mean, it's pretty impressive the way the Asia team are competing. But, you know, if you come back to the U.S., obviously, you know, we acquired Bimba a few years ago. Bimba is very, very strong brand in actuation in the U.S.
Yeah, I went through this at the capital markets day, George, but the way that they compete, and particularly on the special side, the make -to -request side of the business is very, very impressive, right? They're very flexible, and that plays against the competition's business model, and, you know, it's a really good business model, and we've been getting better and better at it. Again, I was in our Rockford plant, which is a big part of that manufacturing in North America. That's probably four weeks ago now. Time flies, doesn't it? But, you know, and I was very impressed. I mean, they're really reducing lead times, and the whole sort of speed of response to customers, incredibly impressive coming out of that plant.
So, you know, I think, you know, we might be nibbling some market share in the U.S. You know, we'll see as we go forward. Certainly, we're holding our own, and I'm really pleased with that. And then Europe's tough, right, for IA, because Germany in particular, the industrial scene is tough, but again, generally, our customer response is pretty good. So yeah, I think, you know, overall, IA team doing well, and actually, because we've now combined the resources with Process Automation and because I've been traveling the world with Jackie, you know, going round and visiting all the businesses, and, as you know, I've spent more than half my career in that business, just making sure that we're, you know, getting up to speed as fast as possible.
I'm so, so excited about, you know, the combination of those businesses and what Jackie's plans are for them. And again, that'll take time to come through, but if you see what's happened in Process Automation, particularly on the aftermarket side, where we've combined real deep, intimate knowledge of the market, some pretty good IT systems in terms of data and the way we're using data, but then the Growth Hub innovation as well, you know, I'm, I'm super excited about the combination of those automation resources, you know, over the next few years, say, George. So, yeah, and, and in terms of IA, you know, I, I think I've said that, you know, we expect the fourth quarter to be slightly down.
What we look for is what everybody looks for, I think, which is, you know, a bit of an inflection in the PMIs, hopefully, you know, at some point next year, and then following that, you know, we should get pretty decent drop through in that area.
Okay. Thank you very much for that. And then Process Automation, you know, clearly, clearly very strong still. I just wonder if you could talk through the pipeline ahead. And do you think that with the orders momentum you got again in Q3, you can, you can reach GBP 1 billion of orders for the full year?
George, George, I think, George, you know, GBP 950 million is sort of, you know, the right sort of number. I think, I mean, that would be amazing in itself. You never know, George, 'cause as you know, it's a lumpy business. You never know. And Jackie and the Process Automation team has just been phenomenal, I have to say. So, you know, we've got great commercial people. They're working really hard. But, you know, what I am sure about is we're very competitive on new construction.
Yeah.
We really are. So if the projects are out there and the timing comes, because, you know, there's always a bit of, you know, debate on the when the timing is gonna fall, you never know, George. But I'd say GBP 950 million is a more sensible number for this year, and with GBP 950 million, the book-to-bill will be something like 1.2, right? So that's why we're confident that next year we will be delivering, all things being equal, we'll be delivering sort of double-digit sales growth in Process Automation, which is tremendously exciting to be in that position right now.
Okay. Very, very good to hear. And then just maybe one for Dan on free cash flow. I just wondered where you're tracking towards that move to GBP 300 million of free cash flow that you've talked about in the past.
Yeah. Thanks, George. Well, well on track. I think we're, we're building to that point. We still have some cash outflows for the restructuring that will continue for the next few years. I think that'll hold us below the GBP 300 million that I talked about in July. But we're certainly, you know, chipping away at the working capital as well. The supply chains are, you know, still need managing, so we're making sure we're continuing to focus on supporting the customers. I think that also helps us in the IA space, Roy, as well. We track net promoter scores. We really wanna make sure that all of our businesses are getting the positive feedback from the customers on on-time delivery, et cetera.
So all in, yeah, I don't think we're, we won't be there this year, and we'll have to watch it next year. We still have some cash outflows on restructuring as well, but certainly the 90% cash conversion feels pretty good for 2022, or 2023. What year are we in? Geez! Sorry about that.
Very good for 2023.
Yeah.
Yeah.
Yeah, exactly. Lost a year there.
Okay. All right. Thank you very much.
Thanks, George.
Thanks.
The next question today comes from the line of Christian Hinderaker from Goldman Sachs. Please go ahead. Your line is now open.
Good morning, Roy, Daniel. Thanks for the update this morning. Just wanna start, you talked about channel destocking within Life Sciences. I wonder if you could give us a sense of your views and broader visibility over inventory levels within both Climate Control and IA.
Within Climate Control-
Climate and-
-and IA, Christian, or, or within Life Sciences?
Or Life Sciences. Okay. Climate and IA?
You know, with the putting Life Sciences to one side, what's the view-
Ah, oh, I see. Gotcha.
Distributors within Climate Control and IA?
Oh, I see. Okay. Thanks, Christian. So I just want to be absolutely clear. So, so within IA, typically order books about two or three months is, is sort of our visibility. We use leading indicators, as I think you know, Christian, as well beyond that. So as I referred to, the sort of PMI tends to give us, you know, a reasonable guide, although, you know, as I said, you know, we seem to be doing better than, than that would indicate on this occasion. But I would still think as PMIs lift, typically there's a three to six-month lag, between that and, you know, industrial production improving and, and therefore IA improving.
So in terms of order book, as I said, you know, two to three months, we sort of think, you know, by the time we get to our sort of, you know, first of March results next year, that we'll have pretty good visibility on the first half for IA and, you know, and a guide for the full year, you know, which is obviously why we'll, we'll put out some guidance overall. On Climate Control, it's less than that because obviously a lot of that business is actually sold through wholesalers. We drive end market demand, you know, specification, we help with the design of the HVAC systems, but, you know, ultimately we sell through wholesalers. So typically there you're talking about two to three weeks worth of order book, so pretty sure.
Again, what we use is all sorts of construction indicators to try and understand where that business is going. What's very important in that business, I think couple of things. One is the energy saving, which is high up on a lot of customers' agendas. Two is, you know, the majority of that business at the moment is obviously into refurbishment, right? Which, which is why it's so nice and resilient, and, you know, I've said this. I think, Christian, to you, and certainly reasonably often, even in 2009, right, when the industrial world was coming off, I don't know, 8%-10%, that business, which was called Hydronics, came off something like 3%-4%, right? So it's very resilient because of the energy saving and the refurbishment part of the market.
Yeah. We did obviously have some stock level movements in that business late last year and into this year. We're not expecting any major movements. We think the stock levels are pretty normalized now. We, you know, we're not seeing any indications of build-ups or drop-offs. We never, you know, you can't be 100 % certain, but based on the sellout data, we think we shouldn't see any major movements.
In the stock, in the wholesaler.
Yeah, in the wholesaler stock position.
Does that answer your question, Christian?
It does indeed. Thanks, Roy and Dan. Maybe secondly, turning to your own working capital, I guess quite significant growth in some of the parts of the business where components are more made to order versus on shelf. I just wonder how we should think in that context about, you know, the sort of dynamics for inventories, but also receivables in the sort of coming quarters.
Yeah, I mean, I'll let Dan answer. I think overall cashflow is gonna be strong this year, right? I mean, so, so in overall terms, despite, you know, pretty high levels of capital spend investment for the future, cashflow is gonna be strong. But, Dan, do you want to talk specifically about?
Yeah, it's a good point. We will spend a bit more than depreciation on CapEx, again, making sure that our factories have the best equipment and can deliver timely and quality all the way through. So we're still making those investments. And yeah, Roy, you're right. The growth that we're seeing, you know, I'd expect our receivable days to be, you know, to not change too much. I think we're in a good position there. And then on the stock levels for the business, I gotta pull Process Automation out to one side. The rest of the business, we are chipping away at those inventory days and bringing them back down to kind of that pre-COVID level.
We're not 100% there, but we are bringing them down. Process Automation, the inventory really is a function of the order book, and obviously, you see the order book is up. And so we will need some inventory investment. That's all the valves that are working through the system for the new construction, mostly. So yeah. So overall, it's going to mean there will be some investment on the inventory side to support the growth, both in the Process Automation order book, but also the growth across the rest of the business.
Very good. Thank you, both.
Perfect. Thanks, Christian.
The next question today comes from the line of Aurelio Calderon Teje dor from Morgan Stanley. Please go ahead. Your line is now open.
Hi, good morning, Roy, Dan. Thanks for taking my questions. The first one to run, the new, obviously, the new organizational structure, and you've talked about some early benefits. I wonder if you could talk a bit more about what you are seeing in terms of those early synergies and also and kind of, same topic, if you can also talk about any M & A opportunities that you think could arise in the, in the kind of short, medium term for this new organizational structure.
Yeah, I mean, I'll talk a little bit about the M & A pipeline and then come on to the structure. So in M & A pipeline, it's pretty good. As you know, we've done four acquisitions in the last, what, 18 months, two years, something like that, Aurelio. And, you know, we tended to acquire into smart building space was the last one with Heatmiser. That's going well. You know, it's well on plan this year. Really pleased with that, actually, because, you know, for Climate Control, and, you know, again, Phil did a cracking job with this, really. For Climate Control, I think this year we'll now be at 25% of our sales in the connected space, which when you consider, you know, just a few years ago, that was 18%.
You know, before that, as you know, it was very mechanical, right? So, so I, I'm really pleased with the evolution, because that's obviously the fastest growing part of the market, and, it's a very profitable part of the market as well, Aurelio. So, so yeah, we've got a good M&A pipeline. Your recent acquisitions doing well. So, so I think we're in good shape on M&A. We are seeing opportunities, and we are, actually between us, you know, between the teams, actually rejecting quite a lot of opportunities as well. So, so there's plenty going on. We only want quality assets with those great long-term growth prospects in growth markets where, you know, us plus them really equals a lot more than the sum of the parts, right? And, and that's clearly the case with what we've bought.
And it needs to be the case with what we're gonna buy. So we'll continue to you know, maintain that high bar of selection. But pipeline's in pretty good shape, I would say. On the structure, yeah, so obviously early days, right? But as I said, traveling the world and just watching how the teams are working together, how they're starting to come up with ideas, and it's primarily around growth. As I said, when we launched the structure already, all right? Growth is the thing. How do we use that core automation technology, valves, actuators, the system-level approach that we're applying in areas like hydrogen. You know, how do we make sure that we take that capability and use it across all of the fastest-growing sectors for the future? And that's where the teams are really focused.
Of course, there is also more sharing of talent already happening, which is great. You know, we wanna get our very best people in front of our very biggest opportunities, and that's, you know, as it has evolved really over the last sort of four years, five years, you know, really concentrated on one IMI and just saying, "Okay, we as a company," and that's why, you know, the divisions, you know, have gone. There aren't gonna be, you know, that sort of level of division within the company. It's much more about one IMI, getting our best people in front of those big opportunities. So that's what I'm excited about, you know, the best use of our tech and our products and our people to really make sure that we grow, you know, as fast as we possibly can.
That's very helpful thinking. If I can squeeze one more. You've talked about very good order momentum in critical, whether it's billing or not, but it obviously very very order Process Automation, sorry, very very strong development. I wonder if you can talk about, obviously with your visibility into 2024 for the business, if you can talk about how you think margins are looking in that order intake or in that order book.
Yeah. So margins are roughly at the same level as they were at this point last year. So, so in terms of gross margins, I'm talking about in the order book, obviously, earlier, which is pretty good. We are making sure that we are increasing our installed base for the future, you know, which is obviously because as we do that, we want to win in new construction. So, so we're doing that because, as you know, we get this beautiful annuity of parts for, you know, a very long time because of the severe nature of the processes that Process Automation deals with. It's very sticky, so, so that's good. We're also investing heavily in the business, you know, and again, I haven't seen, you know, as I said to Jackie at the recent review, right?
I haven't seen so many growth opportunities, initiatives in Process Automation in all the time I've been involved in it. I've got to be honest with you, you know, and it's in new and exciting places, and the whole way that the Growth Hub concepts are working in that segment is really exciting. So, you know, there will be investment in that business. Of course, you know, we will expect to make bottom line margin progress next year in that segment and across IMI. Remember that we've got more benefits. We've got another GBP 13 million of benefits coming through from our program, which is de-complexifying the overall business, and, you know, as you know, a big chunk of that is in that overall automation platform.
And of course, it's always important to remember, even with a really good new construction backdrop, the new construction margins that we get are certainly accretive to the overall margins of that part of the business. Yeah, it's not like we're taking those at, at lower, lower gross margins. Typically, the new construction business comes through at around 25% gross margin, so it still supports us getting up to that 20%, as we go.
That's great to hear. Thank you very much, both.
Good.
Brilliant.
Thanks, earlier.
Thanks.
The next question today comes from the line of Mark Davies Jones from Stifel. Please go ahead. Your line is now open.
Thank you very much. Can I ask you the question that you thought you were asked earlier, but weren't, on the Life Sciences side? Obviously, you've indicated you think destocking continues through Q4. That's been going on for a long time now. What's your feeling on end demand and when we might see that coming to some sort of conclusion? Is it all just sort of COVID unwind, or is there something else going on?
Yeah, Mark, I think, you know, we've spent a lot of time looking at it. As you know, we talked to customers about it, and, you know, I think, as we've said in our press release, that it is stock unwind throughout the whole supply chain, plus market demand, right? And I think you've probably read the commentary like I have as well, Mark, in terms of, you know, the deep analysis that's been done. Clearly China, which it varies by customer, right? But China's sort of between, let's say, 10%-25% of their business, and clearly, demand has, you know, market demand has been lower there. I think that if you think about it, Mark, I think all...
You know, a big chunk of this obviously is, you know, money spent by the health insurance companies or by governments, ultimately, depending on which geography you're in. And I think that there's been a huge spend during COVID, and, you know, if you look at- if you take it on a sort of ten-year view, and there's plenty of examples of companies that put graphs out there, then, you know, there's a heavily normalizing period. Definitely, we've said Q4, we expect to sort of, you know, we're not expecting any miracles in Q4-
Yeah.
... that's for sure, right? It's, it's gonna stay at similar levels to Q3, and that's, that's where we think we are. And again, Mark, you know, and as we start to think about next year, we're not thinking about heroics for next year either, right? So we-we're not, in our normal way, we're not gonna suddenly say, "Well, the second half's gonna get a huge amount better." You know, that, that's our sort of base case. Yes, of, of course, it will improve, but, you know, we're not gonna expect heroics next year. I do think that the criticality of what these analytical instruments do is incredibly important, and I do agree with all the other commentary out there, that at some point you're gonna return. We've had, you know, we've had, what, decades of very, very strong demand.
I do, I do think we will return to that at some point. It's very hard to get clarity on what that point is, to be honest with you, Mark. So, you know, in our normal way, we will, we will play that reasonably safe as we go into next year.
And certainly the activity of our-
Yeah.
Yeah, the activity of our, of our engineers, the folks who are working closely with those customers, has not really slowed down. The next platforms continue to be developed, so we... Yeah, and, and the things that they're working on to make these machines do even more to diagnose what's going wrong with all of us is incredible. So that just gives us the confidence that this is, this still is, got a lot of legs. We've just got to get through this period.
Yeah. I think, you know, Beth Martin said... We, we took the whole board-
Yeah
out to our biggest life science facility in the U.S., Mark. Was that three weeks ago, was it?
Yeah, yeah.
Yeah, in between all the other travels. So, but it was absolutely, but Dan's point is fundamental, right? So, what we're doing to integrate more product into a sort of system-level design and how we're moving that for the future, Mark, is incredibly exciting. So as the new platforms come out for the OEMs, we will expect to get a greater share of wallet. So, and that's what's exciting for us, right? Is that we just keep, you know, incrementally notching up market share in what we think is still a very good long-term market space.
Great, that makes a lot of sense. Can I just ask more broadly on, on regional? Because we're, I don't think we've had that conversation yet, but in the trends you're seeing, obviously, China, tough, U.S. still pretty resilient across all your businesses, and Europe softer. Is that, is that the picture, or is there any change to that?
Yeah, no, I think that is a pretty good summary of where we are overall. So yeah, I think we've seen growth across U.S., Germany, and everywhere outside of China, and China's slightly down, Mark, across the business if I'm talking across the business.
Yeah.
Yeah.
So for us, China's not as bad as for a lot of people because the energy part is okay, you know, because they're building more LNG-receiving terminals, things like that. And again, Jackie and the team have got high win rates there, so, so, but it's still down a bit. Yeah, you're right.
Yep. Thank you. That's very helpful.
Thanks.
Thanks, Mark.
The next question today comes from the line of Jonathan Hearn from Barclays. Please go ahead. Your line is now open.
Hey, guys. Good morning. I just have a few questions, if I can. The first one, just coming back to price, but just focusing on Q3, can you just kind of break out the sort of the volume and price within Industrial Automation and also climate, please? That's the first one.
Yeah. So Jonathan... Thanks for that, Jonathan. Thanks for breaking out your questions as well. So we don't want to give, you know, we've got customer sensitivities, right, Jonathan? So we've got to be super careful with the amount of information we give out. But let me just say this: Overall, Q3, price was still strong, which meant that for the whole of IMI, volume was just very, very slightly down. That obviously was Life Sciences, which obviously dragged the, you know, the volumes down. That was the by far the biggest impact on that. And I would say that pricing is stronger in IA and less strong in Process Automation. So just to give you a sort of feel for, you know, how that sort of shapes out, I think that's probably the best I can give you.
Okay. And just the dynamics in climate, just in terms of that, is there anything you can say on that? Just in terms-
Yeah, so climate, I think climate's done, as I say, it's done really well. You know, Beth, Phil, really good job. And I look at all the peers, obviously, and, you know, it's only a guide, isn't it, Jonathan? But you look at the peers, and you look at their similar sectors, and, you know, I think we are outperforming, and I think that's down to what they've done in terms of customer service, brand, driving end user demand and specification has been really strong. So climate, actually, pricing was less than it has been in Q3, and that's partly because on the project side of the business, again, they've been driving a high win rate. And overall, pricing is still very positive, but it's sort of more around the group average. It's not above the group average.
It's probably slightly less than the group average, actually, in Q3, because they've been very sensibly pricing the different segments of the business. Overall, though, margins in that, in that area, you know, improving nicely, Jonathan.
Yep. Okay, very clear. Thank you. The second one was just on IA. I'm just wondering if you could sort of break down what you're seeing there between sort of original equipment and aftermarket. Are you seeing more resilience coming through on the aftermarket side?
Yes. Yeah, definitely. It's a typical situation, Jonathan, where aftermarket stays pretty resilient, right? People, you know, the only time I can remember the aftermarket really being hit, you know, and I've probably seen what, three, four recessions in the time, you know, it was 2009, right? And that was literally where people were, you know, closing down a proportion of their production lines. As long as they're gonna run their production lines, they need the spare parts. So, yes, I would say that's exactly what's happening.
Okay, fine. Thank you. And the final one was just on process. Can you sort of break out that aftermarket growth and, you know, maybe how much of that was upgrades, how much was parts? And just also looking into 2024, obviously, you've got that order book. How are we for capacity there? Are there any constraints, and I suppose linked to that, as we go into 2024 and that volume comes through, you know, that sort of overhead recovery in those businesses really start to tick up. So from a, I suppose, a leverage perspective, you know, it could be quite interesting for 2024. Is that fair to assume?
I think... Well, let's start with the aftermarket split Q3. So it's upgrades-
Yeah.
That were the strong. I mean, they were over 40% up in Q3. Now, you've got to be careful with quarters, even on aftermarket and process, right? But, I mean, and again, you know, that is bang in line with the strategy that Jackie presented, Jackie and the team, at our capital markets event, which must be what, Jonathan? Must be two or three years ago now, right? Two years ago, maybe. But, you know, where they're going in, they are helping customers that have problems with vibration or with noise or with reliability and replacing either the whole valve or part of the valve using some of the tech that we brought through from Growth Hub, right?
That upgrade valve business then means that once you've got your valve in place, it's very, very sticky in terms of the parts flow from then on, and that's why it's really, really important. You know, Jackie has been replacing mainly our valves, the old valves, you know, installed valves, but increasingly competitors' valves as well. And that, that is, you know, really good for the future of that business, because, as you know, the aftermarket, the margins are sort of, gross margins are two and a half times what they are in new construction, and that's what, you know, makes, because it's still a huge opportunity for us, as you know, in that install base. So that's the most, that's the strongest part. The second biggest part was parts.
Yeah.
That was, you know, it was double-digit increase. Field service was flatter in the quarter, but, you know, it's done pretty well year to date. So and as you know, you know, in terms of margin, most profitable bit is parts. Second, you know, is upgrades, and then field service is lower. So, yeah, it was very good in terms of the way that business is driving aftermarket upgrade business. And then on the second question, 2024, so, you know, as I said, you know, we're expecting double-digit sales increase in Process Automation next year. Clearly, as I said, book to bill, probably at the end of the year, around 1.2, Jonathan. But remember, you know, we have called out some nuclear orders, some marine orders that are multi-year.
So, you know, some of that business, you want to... You know, we're not gonna suddenly drive sales up 20% next year. I mean, we've got the aftermarket part that, you know, we need to take into account, but, you know, double digit we're comfortable with for next year in terms of sales increase. And, you know, that, that order book is good. You know, as you run through into 2025, it's all-
Yeah.
-it'll help us for the future. So, yeah, that's, that's where the order book is.
Just in terms of potential sort of, I suppose, obstacles to delivering on it, there are no sort of obvious constraints in-
Factory. Sure.
to delivering on that order book.
Again, an absolutely phenomenal job, and we noticed some of our competitors' lead times going out in the industry. But we've held ours and that is down to phenomenal work from Jackie, but also the whole team. You know, as I go around the factories, it's phenomenal, really, what they're doing to make sure that our own factories, but also the supply chain. And, you know, again, we spent a lot of time reducing the number of suppliers in Process Automation. So we used to have about 3,000, just round numbers, direct suppliers. We've now got 1,000, right? So that, that's much better in terms of us being further up their agenda. But at the same time, Jonathan, we took the number of single-source suppliers from 60 to about 6. So again, we've got options, right?
And again, we really look for making sure that we can keep the lead times down on our supply components and also that we can process it really quickly. So, you know, phenomenal job done so far, and, you know, again, you know, in most of our bigger factories, we are still not working three shifts everywhere, right? So we are on some of the bottlenecks, but, you know, generally across the piece, we've got, you know, capacity still to deploy.
Great. Thank you, guys. That's very helpful. Thanks.
Brilliant.
Thanks.
Thanks, Jonathan.
Our final question today comes from the line of Andrew Douglas from Jefferies. Please go ahead. Your line is now open.
Hi, guys. All of my questions have been answered. I do have one follow-up, though, on Life Sciences side. Can you tell me who are your largest customers in Life Sciences? Is it the government agencies and insurance companies, or is it the Life Sciences areas like Merck and Sartorius, something?
Yeah, I mean, I obviously, we won't quote names. Obviously, good to hear from you, Andy, by the way. But no, obviously, won't quote customer names, but our actual customers are the OEMs, right? So they are the people that are building the mass spec units, and you know who they are, Andy, right? So that is our actual customers. But obviously, where end demand is coming from, ultimately, is often you know, labs. It's you know, it's fundamentally you know, as I said, often government money eventually in some jurisdictions, not so much in the U.S., where the business is strong, but then ultimately you are down to you know, you still those end customers have got to make the investments for the OEMs to get the ball through. That's the only point I was trying to make.
Probably a bit clumsy, Andy.
No, no, I understand. And on the next platform comment that Dan made, I'm kind of working on the assumption that everyone's got all the ventilators they need. Is this next generation ventilators, or is it the kind of the next way to look after people during a pandemic?
Sorry, I was not talking about the ventilator side.
Yeah.
I think, you know, and I—oh, no, I was just about to say, I think ventilator technology is quite mature, and then I remembered that some, you know, that is a very foolish statement to make, Andy, because everything can evolve, right? So, but what I'm saying, it's not on the ventilator side, it's on the instrumentation side, which is where we took the board and where we could see that we were adding more. And what tends to happen, Andy, is that some of these really big customers have come to us and say, "Right, this particular part of the system doesn't work quite so well. Can you re-engineer a solution, or can you combine more things-
Yeah.
into the system? More, you know, valves, electronics, more control. And as we do that, we expand our share of wallet, that's all.
Wonderful. So that, that's, that's great. Okay. Well done.
Great. Thanks.
Thanks, Andy.
Thank you. There are no additional questions waiting at this time, so I'd like to pass the call over to Roy Twite for any closing remarks.
Great. Well, thank you. Thanks, everybody. Thanks for joining the call today. You know, all of our focus now is obviously on closing out the year really well. As I said, I'm, I'm really proud of the teams and what they're doing. You know, we do expect to make further progress in 2024. Of course, we're gonna update you on that in the first of March once we've run through all our budgets, got a bit more visibility. I think the positives, obviously, are the Process Automation order book, the resilience in both Industrial Automation and Climate Control. Again, I, I'm proud of that, what's happening there. Life Sciences clearly will come back at some point.
You know, exactly where that point is, as Mark was trying to push me, you know, I don't think anybody's particularly sure, but I think the fundamental underlying drivers are good. And of course, we've got more rationalization benefits coming through next year on, on top of the GBP 20 million this year, as you all know. So I just wish you all a great finish to the year and look forward to seeing you again early next year. Thank you.