Good morning, everyone, and welcome to IMI's 2024 Interim Results Presentation. I'm joined here, as usual, by Dan Shutt, our CFO. Before I start, I would like to let you know that after nearly 10 years with IMI, Dan Shutt, Group CFO, has decided to step down from the IMI board in 2025. I've got to say that Dan has been an absolutely fantastic partner to me, particularly over the last 5 years as a genuine CEO and CFO partnership. I will certainly really miss Dan, when he eventually does leave, but between now and then, there will be many opportunities for me to thank him for his incredible contribution to IMI. We'll obviously now start a Process to find his successor. This slide covers the key messages in the presentation.
The first thing to say is that the first half performance was completely in line with expectations. We delivered 5% organic sales growth and 6% organic adjusted operating profit growth. The adjusted operating margin was up another 10 basis points, and our complexity reduction program delivered GBP 4 million of benefits in the first half. I am pleased to announce that we are increasing the interim dividend by 10%, and in line with our disciplined approach to capital allocation, we are also announcing a GBP 100 million share buyback program. Finally, based on current market conditions, we are maintaining guidance. We still expect 2024 full-year adjusted EPS to be between 120 pence and 126 pence. Next slide, please. In July last year, we aligned our business to 5 customer-focused sectors to accelerate better world growth.
This structure has been really well received by our people and by our customers, and along with the successful rollout of our new visual identity and values, this has played a crucial role in transforming us into one IMI. We have made significant progress in the last year, and we are now taking the steps in the evolution of our operating model. I'm therefore pleased to announce that with immediate effect, all five sectors will report into Jackie Hu, who is appointed Chief Operating Officer of IMI. Beth Ferreira stepped down from her role as CEO of Life Technology and as a member of the executive committee on the tenth of June, and Beth will be leaving the business at the end of her notice period.
On behalf of the board and the exec committee, I would like to thank Beth for all her hard work since she joined IMI nearly four years ago. I'm really excited about this next step. It will bring us even closer to our customers and give us the opportunity to share more best practice across our sectors, ultimately helping us grow faster. Now, before I hand over to Dan, I'd like to provide a very quick refresher on our strategy and our financial framework. We continue to make good progress delivering our purpose-led strategy as our people solve key industry problems and help our customers become safer, more sustainable, and more productive. As you know, there are three key pillars to our strategy: improved customer satisfaction, market-led innovation, and complexity reduction.
These pillars are embedded into everything we do, and they are driving sustainable improvements in our financial KPIs, ultimately supporting the delivery of our financial framework. As a reminder, we want to deliver 5% organic growth, 20% operating margins, 90% cash conversion through the cycle, and we want to maintain our return on invested capital above 12% as we continue to create real shareholder value by deploying our capital both organically and through targeted M&A. With that, I'm gonna hand you back to Dan, who will talk through our results in more detail.
Thanks, Roy, and good morning, everyone. As always, I'm pleased to be able to take you through our first half results today. So next slide, please. So it was a strong first half as we delivered 5% organic revenue growth and 6% organic adjusted profit growth. Our adjusted operating margin increased by 10 basis points as we continue progress towards our 20% through-cycle target. Adjusted basic EPS was 1% higher than prior period and was impacted, as expected, by adverse currency and tax rate movements. Cash conversion was lower and reflects further working capital investment, mainly to support the Process Automation order book. And finally, I'm pleased to announce that we are increasing our proposed final dividend to 10%, reflecting the continued confidence we have in the business. Next slide. So firstly, some more detail around our revenue and profit performance.
Revenue increased to GBP 1.098 billion, with underlying business growth mostly offset by the impact of recent disposals... and foreign exchange, which created a 3% headwind in the first half. Adjusted operating profit increased to GBP 196 million. We delivered 6% organic growth, again, partly offset by recent disposals and foreign exchange. Next slide. So looking at the full income statement, as mentioned, we saw strong organic growth in both revenue and operating profit, with statutory results up 1% and 2% respectively. The net interest charge was in line with expectation at GBP 8.7 million, as our net debt position has reduced by GBP 166 million since June of last year. We saw a reduction in adjusting items in the period, largely reflecting the timing of our restructuring program.
This program delivered GBP 4 million of benefits in the first half, and we still expect to deliver GBP 15 million worth of benefits in the full-year. Next slide. Now, looking at the platforms and sector detail, the first thing to say here is that overall performance was in line with our expectations. Starting with automation, automation delivered strong growth, with revenue up 9% on an organic basis and margins increasing 100 basis points to 18.4%. Process automation had an excellent first half, with strong order intake up 9%, as shown at the bottom of the slide. Similar to last year, this includes a significant order, GBP 33 million, within our marine sector, which covers deliveries over a number of years. In addition to the marine order, we have seen particular strength in LNG aftermarket, hydrogen, and upstream oil and gas.
Organic revenue for the sector was up 19%. Industrial Automation delivered a resilient performance against softer markets in Europe and the Americas. Revenue was down 4% on an organic basis. Turning to Life Science & Fluid Control, as expected, the platform's revenue was down 1% organically in the first half due to very mixed end markets. Climate Control again demonstrated its resiliency, delivering 1% organic growth despite the weaker Europe construction markets and a strong prior year comparator. Demand for our energy-saving products, particularly in balancing and control, remained strong. Life Science & Fluid Control organic revenue was 13% lower than the prior period, which was as expected, given the strong first quarter comparator and continued softness in its markets. The long-term fundamentals of this sector are strong, and we remain excited about the opportunities for future growth when the end markets recover.
Transport revenue was up 13% organically. We continue to benefit from strong growth in Asia and our new product launches, supported by favorable regulatory tailwinds. As you can see, the Life Technology operating margins reduced to 17% in the first half, reflective of the lower sales and some mix effect between the sectors. Next slide. Regarding our cash performance, the continued strong growth in the Process Automation order book and our normal seasonality have led to additional working capital investments in the first half. We delivered GBP 130 million of operating cash flow and reduced net debt to GBP 606 million at the half- year. Net debt to EBITDA also reduced to 1.2x , towards the bottom end of our 1-2 times target range. Next slide.
As you all know, we maintain a disciplined approach to capital allocation, including a commitment to an efficient balance sheet. So today, we announce a GBP 100 million share buyback program. We'll look to transact this buyback over the next 6 months and still expect both our debt and leverage levels to come down at the full-year, giving ample headroom for organic and inorganic investment. Next slide. So the final slide before I hand back to Roy, the group outlook statement. As Roy already mentioned, we are maintaining guidance. We still expect full-year adjusted basic EPS to be between 120 and 126 pence. Our guidance assumes that the number of shares will reduce to 259 million at the year-end, with the accretive impact of our share buyback program largely offset by an increase in interest expense.
We also see more FX headwind than the 2% included in the previous guidance. So with that, let me hand back to Roy to talk you through the strategy update. Thanks, everyone.
Thanks, Dan. The first thing I want to say is that our Better World strategy continues to deliver results. We are building a track record of compounding profitable growth. As you can see on this slide, the adjusted EPS has grown at 12% CAGR since the strategy was launched in 2019, and we expect further growth in 2024. You can see on this next slide a reminder of how we have successfully improved the quality and the resilience of our portfolio over the last decade. We have rebalanced the geographic mix of our revenue. We've grown the aftermarket content to around 45% of sales in 2023, and we have increased our exposure to attractive long-term markets like life sciences, smart buildings, and automation.
The good news is that this hard work is clearly delivering results, and we have seen a significant improvement in our financial KPIs since the strategy was launched back in 2019. Okay, I wanted to spend some time today giving you a few examples of how our Better World strategy is delivering sustainable, profitable growth. Firstly, we continue to accelerate high-margin aftermarket growth in Process Automation. We are successfully deploying our innovative Retrofit3D technology to upgrade both our own and competitive valves. We're winning market share in the installed base and delivering GBP 14 million of orders in the first half of this year just on Retrofit3D. This growth hub project obviously has grown very, very quickly from its inception in 2019. Secondly, our continued focus on customer service, technical support is unlocking some interesting opportunities in Industrial Automation.
A great example here is how we are supporting a large Chinese electric vehicle OEM, helping them to expand their manufacturing footprint across Southeast Asia. In addition to a best-in-class technical solution, we were able to offer customer service locally, which was truly excellent. That, married with really good technical support, helped the customer unlock the maximum productivity benefits from our solution. Finally, the rapid expansion and demand for data centers, fueled by artificial intelligence, is presenting a really exciting opportunity for Climate Control. Data centers can consume up to 50x the energy per floor space of a typical commercial building, and they must be cooled to work efficiently. Installing energy-efficient Climate Control solutions is therefore absolutely critical to data center performance and profitability.
We delivered GBP 5 million of data center orders in Climate Control in the first half, and we're really excited about the opportunities for growth from here. Creating a better world is absolutely at the heart of our purpose at IMI. Our carbon intensity continued to improve in the first half, and both platforms have addressing actions that will continue to reduce our Scope 1, 2, and 3 emissions. We remain on track to deliver our longer-term targets. We also saw a significant reduction in health and safety incidents in the first half, and while we remain committed to an accident-free workplace, this is excellent progress. I'm also very proud to report that employee engagement remained very high in our recent survey and was up at 79% right across the global business.
So to summarize then, the key takeaways from today are, firstly, that the Better World strategy that we launched in 2019 continues to deliver results. I'm really pleased to report strong organic revenue and operating profit growth at 5% and 6% respectively. Secondly, we are taking the next steps in our evolution of our operating model as we adopt a new One IMI structure. This promotes the sharing of best practice right across the group, with an acute focus on accelerating growth. Third, and finally, as Dan said, based on current market conditions, we are maintaining our guidance. We still expect this year's full-year adjusted EPS to be between 100 pence and 126 pence. Okay, so I'm going to stop talking now and hand over to the moderator for Q&A, please.
If you'd like to ask a question on today's call, please press star followed by one on your telephone keypad now to enter the queue. When preparing to ask your question, please ensure you are unmuted locally. Our first question comes from Lush Mahendrarajah from JP Morgan. Lush, please go ahead. Your line is open.
Cool. Morning, guys, thanks for the presentation and thanks for taking my questions. I've got a few, if that's okay. Firstly, on Life Technology, margins to the second half, I guess how much of those GBP 11 million of restructuring benefits are in Life Technology? And then I appreciate it's a mixed impact in H1 as well from Transport being lower margin, but I'm not sure if you can tell us the different margins between the three businesses. But could you at least... Is it quite a substantial sort of difference between Transport and the other two in terms of the potential swing we could see the other way in the second half? The second is on Process Automation, just on that marine order.
You know, clearly, this is the second big one you've won now in two years. I guess how repeatable are these types of orders? You know, is this really it or, you know, is it something that could happen perhaps not every year, but you know, are there these sorts of projects out there where which can keep on sort of driving that. And then the third one is just on hydrogen. I think the order number there has gone from GBP 3 million to GBP 22 million year on year in the half, and quite a big move. I guess, you know, what exactly are those orders, you know, which divisions are they in?
In terms of deliveries, are these sort of multi-year contracts or, or are these sort of, shorter in terms of deliveries? So they're my three questions.
Brilliant. Well, yeah, good morning, Lush. Thanks for your questions. So the first one was about Life Technologies and the opportunity for improvement in the second half. Yeah, we think there's the two big effects, as you said, Lush, right? Which is that the majority of the GBP 11 million of restructuring benefits that we're gonna deliver in IMI in the second half will come through in Life Tech. So that's one big supporting factor.
Then the second thing is the mix that you recognize, and while it is obviously commercially sensitive to break down margins any further, I think, you know, everybody knows that the mix effect in the first half has worked against us, and the mix effect in the second half will definitely work for us because, you know, as we forecast all year, transport will have a more difficult second half, and the comparators in life sciences get a lot easier. So, yeah, put that all together, what that means is that we actually think that Life Tech full-year margins will actually be slightly up. So you can imagine the, you know, what's gonna happen in the second half, Lush.
That is backed up by what we've seen in the last couple of months, US, as well. So we're really not expecting anything miraculous in the second half. Second question was all about Process Automation. Yes. I mean, first of all, well done to Jackie again, right? 'Cause you got to recognize that Process Automation overall orders up 9%. Remember that they were up 30% in the first half of last year, so he's really building a very, very strong order book. And that, you know, Process Automation is almost 40% of IMI. So to have that strength of order book, you know, for the rest of this year, but also as we go into next year, is really impressive, and I'm really pleased with that. Yeah, of course, there are other opportunities within marine.
And what's really happened there, we put some new management into marine, a long-standing IMI person I've known for many years, and one of our best lean people. A couple of years ago, they went in and now, you know, we are recognized as one of the best suppliers in that market area, and they're absolutely flying. So we are picking up more orders, and there's more opportunity, for sure. So yeah, the short answer is yes, Lush, you know, we're quite optimistic about that. Third point is hydrogen. Yeah, it's really picking up now, hydrogen. There's five applications that we work across the whole of IMI. And again, as I've said many times, we're not, you know, putting any big balance sheet investments into this. We're really modifying existing technology.
We're using our oil and gas capability often, so, you know, the ability to handle complex materials, the ability to make sure we can seal very light gases. All of that, all of that capability and those products, we're, we're moving across into the hydrogen industry, which is pretty exciting, and it is growing pretty quickly. The biggest single application is using our valves actuator and the, what we call the balance of plant, all of that technology, digital technology, to enable a niche of smaller-sized electrolyzers. And the sort of projects we're winning are things like localized hydrogen, making hydrogen from, obviously, solar power locally, and then using that and dispensing it into hydrogen fuel cells.
And actually, the single biggest order was in Italy, and it's actually on a train system that's gonna run on hydrogen fuel cells from the airport to the city center. So, and that's the sort of thing that we're seeing in Europe. They do require, ultimately, obviously, government funding at the moment, but the overall prices are, you know, coming down and down and becoming more and more competitive. So, so our pipeline, Lush, again, if I was to tell you our pipeline, it, it'd probably put the share price through the roof, and I don't, I don't wanna do that because these projects do require funding. But there are, there are a lot of projects out there for hydrogen that we're, that we're working on. So, yeah, it's, it's, it's very encouraging. And of course, all of that came out of Growth Hub, right?
Those projects, in fact, I think every single hydrogen project we're doing came out of that Growth Hub thinking where, you know, we go in, we find customer problems, and we solve them at pace using our technology, and that's what's really gratifying, Lush. Does that answer your questions okay?
Okay. Yeah, that was brilliant. Thank you very much.
Great. Thanks, Lush.
The next question comes from Christian Hinderaker of Goldman Sachs. Christian, your line is open. Please go ahead.
Dan, sorry to hear of your departure, of course, Dan. I wanna start on Process Automation. If we adjust for the marine order, I get to 2.4% organic order intake, and you obviously had a very strong comp last year, and you talked to some of the areas of strength. I guess, just curious if there's any other areas that have slowed. I don't know if you wanna look on a sort of two-year stack basis, but how is sort of market activity holding up, and how do we think about the second half?
Yeah, I think to be fair, Christian, if you're gonna strip the one-off out of this year, you gotta strip it out of last year, right? So, you know, and I think you probably, Dan, get back to not far off.
Pretty close, yeah.
I think close, 8% was it?
26 million, I think-
Yeah
... last year and 33 this year. So-
I think, Christian, you know-
Around there
... if you're gonna strip, strip both sides out, then, you know, you're still at pretty good growth rates.
Yeah.
Obviously, within that, Christian, as you know, the really encouraging is aftermarket, you know, where the margins are 2.5x, gross margin is 2.5x what they are in new construction. That carried on growing at 8%, and for me, you know, that's the really good long-term opportunity for IMI. That install base, we can make it more efficient, we can make it safer, we can make it emit less, fugitive emissions. So, you know, coverage that Jackie's put in place, backed with growth, have the ability to innovate into that space, you know, leaves us pretty excited.
So yeah, I think, you know, to answer your question, overall market activity's still good, you know, and plenty of opportunities across oil and gas, across hydrogen, as we were just talking about, and, of course, the aftermarket, right? So, no, we feel pretty good about the activity in that space right now.
Let me just jump in. Thanks, Christian. Just to make it clear, everybody's fine, and I'm not going anywhere anytime soon. I will miss everyone, but it's been 25 years where the family's really supported me in my career, so this has been a decision where I put the family first. So, but everybody's good, and let's not talk about it for the next nine months.
Deal. That's a deal. Thanks, Christian. Does that answer your question, though, Dan?
Yeah, glad about that, Dan.
Yeah.
It does. Maybe another on Climate Control, if I may. A little bit of growth there. I think consensus was for an organic decline. One of your peers has reported a decline closer to 7% in the half, and we've had a number of the OEMs in the heat pump space warning in recent weeks. Just want to understand, you know, what your take is on that strength. Is this market share gain? You know, how much effect is there, if any, in terms of distributor inventory rebalancing? I think there's a bit of uncertainty in this market, so keen to clarify. Thank you.
Yeah, no, fair, fair question. Yeah, well, I've looked to the peers as well, Christian, and, yeah, it does make our performance look, look reasonable, you know? And I think we always said this year we expected to carve out some growth. For me, it comes back to the energy efficiency proposition of this business, you know? It's, it's got incredibly strong brands, good market positions. We have spent decades training customers in how to use the product. If they use the products correctly and they balance buildings, then, you know, they can save around 35%, typically around 35% of the energy cost. That is obviously incredibly important to the end user, while creating a comfortable indoor climate, and often temperature in buildings is one of the things that people are sensitive to. I'm sure everybody on the line is, right?
When it gets really hot, you don't, you know, you don't like it. When it gets too cold, you don't like it. So I think it's that value proposition, remembering that our products are typically only 2% or 3% of the cost of the system, but they can have a massive effect on the comfort and on the temperature within the system. And energy efficiency has definitely gone up the agenda. There's no doubt about it. Energy security, energy efficiency is up the agenda, and there are, you know, regulations. And, you know, the annoying thing about regulations, if I'm completely honest, is that they can come and go, but the overall tide, the overall flow of regulation is definitely in, you know, in the favor of energy efficiency.
So, that's why I think, you know, we're well-placed to, you know, continue to carve out some growth.
Thank you. I'll get back in the queue.
Great. Thank you.
Thanks.
The next question comes from Hemal Bhundia from UBS. Hemal, your line is open. Please go ahead.
Good morning, Roy and Dan. Thank you for taking my questions. I guess just wanted to follow up on last year's question. Could you give a bit of color on how much of Process Automation is LNG and hydrogen? And secondly, on transportation, what are you hearing from OEMs regarding second half orders and activity? Thank you.
Yeah, I'll take transport. Do you wanna talk a bit about Process Automation, Dan?
Yeah.
I'll start with transport. Do you wanna start?
Yeah, no, I can-
Yeah
... I can jump in.
Yeah.
I mean, LNG continues to be strong, and actually we're seeing much more in the aftermarket space. Clearly, there was a bit of, you know, changes with Biden's move on LNG trains in North America, but what quite frankly happened was more of the LNG projects outside of the US just kind of jumped the queue. So we're still seeing good activity there on the new construction side, but with the installed base, actually, we had a really nice first half of LNG orders. And I think upstream oil and gas still doing well.
I suspect people are recognizing with all the electrification going on, certainly gas is gonna be the transition fuel for us for some time, and we are still seeing very good demand for gas-fired turbines and our turbine bypass valves. So yeah, so all of that I think is playing well. As you know, as Roy already talked about, the marine orders are in good shape. Our expectation as we move forward with all of the upstream activity is we'll begin to see more and more downstream and petrochemical activity on the new construction as that part of the industry starts tweaking and changing the way in which they're managing the feedstocks.
I think that's, that's gonna give us some good legs, and, and clearly, we're, we're very set for the rest of this year, which sets us up for next. And yeah, we see that going quite well.
Yeah, so, you know, the normal sort of upstream-
Yeah
... moves through to downstream. That's a good point.
That's it.
But I think the specific question was, what percentage of the business is hydrogen? So hydrogen, I think-
Yeah
... in Process Automation was about GBP 19 million-
Yeah
... of orders in the first half.
Yeah.
Then the percentage of LNG overall, new construction aftermarket, it's just over 10%.
Yeah
... I think, Dan, of
Yeah
... of Process Automation. And then on transport, so transport, so what OEMs are saying in the U.S. and particularly Europe, second half is gonna be slower. And as we've said all year, I think at the beginning of the year, we actually said we expected transport to be slightly down this year. Obviously, we've done a bit better than we thought in transport, but we still expect to slow down in the second half. And remember, the second half of last year, the comparator gets much more difficult. So we expect this over this year now in transport to be flat to slightly down, is where we call it. So slightly better than we thought at the beginning of the year-
Yeah.
But still a more difficult second half.
Yep.
That's what the OEMs are saying.
Brilliant. Thank you so much.
Great. Thank you.
The next question comes from Mark Davies Jones from Stifel. Mark, your line is open. Please go ahead.
Thank you. Morning, Roy. Hi again, Dan. I got a few things. Can I take them separately, 'cause they're a little bit different? First was just, can you—I, I'm sure there are lots of moving parts here, but can you give any rough guidance on price versus volume in that first half growth rate? And in particular, are there any parts of the portfolio where price is now coming under pressure?
Yeah, brilliant. Oh, thanks, and thanks for spacing them out, Mark, as well. Save me writing it all down, otherwise.
Makes life easier, yeah.
I can't remember the first one. So roughly 5% organic growth, Mark, roughly half and half price and volume in that first half. Price under pressure, I mean, obviously, there's lots of competitive situations, but, I would say no real change. If, you know, if I look versus a year ago, no real change to now. We've still got real pricing strength overall. And Mark, I think you know where we've got, you know, particular pricing strength, you know, obviously areas like the aftermarket, areas where we've got super strong brands, you know, you know the normal places, but where we're doing our segmentation and making sure that in overall terms, you know, we're basically offsetting inflation.
That's what we've done in the first half, and in the full-year, you know, we'll look to offset or even maybe slightly beat inflation, I would say, in terms of our overall model.
Great. Second one was really focused on Industrial Automation, but more generally, your view of the sort of short cycle outlook, 'cause that's the one thing that might have got a little worse as we've gone through this year. I think we were expecting a better second half. Leading indicators in places like Germany and China are still pretty grim, so have you changed your view in any way on that part of the business?
I think, I think probably slightly, you're right, Mark, you know, because, you know, look at the PMI in Germany, it's still down. What was it? 43.5 last print, right? I mean, it-
Yeah
... it's still pretty tough out there, and, you know, we're seeing it in all the industrial companies. So, I think, you know, again, from what I've seen so far, we're slightly outperforming, we're slightly more resilient than other people. But yeah, I think, you know, what we're saying about Industrial Automation, if we look at our 60-day moving average, Mark, it's still slightly down-
Yeah
... very slightly down, right? So, yeah, we're not seeing any real recovery yet. It will come. It's just a question of when. We're certainly not banking on any recovery-
Yeah
... in our outlook, right, as we've said consistently.
Excellent. And then my last one was just on the management changes and the structural part of that. I understand what you're trying to do, but going forward, does that mean you run the business, possibly even end up reporting the business on the five underlying units rather than the two sectors that were recently formed? How does that shift, and does it give more responsibility to the heads of each of those five units?
Yeah, I mean, ultimately, those five sector heads are obviously very, very important, right? And I've been working very closely with three of them, as you can imagine, over the last, what, seven weeks, is it something like that? So absolutely, they're pivotal to our success. We are becoming market sector experts, which is where I wanted to take the company, because that's when you truly understand the sector and your customers' problems and where you play, how you win, right? And as I, as I've said on previous calls, the clarity of the strategy at the sector level is becoming better and better and better, and that is obviously contributing to our, to our overall growth. Having said that, the platforms remain incredibly important, and obviously, too much data at the sector level is commercially sensitive, as you can well imagine, Mark, right?
You know, we don't want to be stupid-
Yeah
... in terms of, you know, that situation. So in terms of the way we look at the business, we still look at it in terms of two platforms, and that's the way we're going to continue to report. I'm delighted, Jackie... You know, the most important thing for me is that Jackie moving into that role, I think you've all seen what he's done with Process Automation. He's already starting to do that, obviously, with Industrial Automation, really getting, you know, good market coverage, really good understanding, using data, using CRM to really make sure we've got the best market data we can possibly have, and then backing that up with some really good innovation coming through from Growth Hub. And you know, accelerating that development across the whole group is obviously what really excites me.
Yeah.
No need to redo your model again, Mark?
No. If that's what you're asking me to do.
Thank you very much. Thank you very much.
Thanks, Mark.
Thanks.
Next question comes from Andrew Douglas at Jefferies. Andrew, your line is open. Please go ahead.
Good morning, gents. Three quick questions from me, please. Going back to process, we talked about replacing competitor's valves in the last presentation. Is that momentum still continuing, or have your peers figured out what you're doing and tried to offset that? So what's going on in that, please?
Very, very good question. Very good. Now, as we've said before, it's actually very difficult, you know. It's an easy thing to say, isn't it, Andy, right?
Yeah.
But, you know, it takes a minimum of seven years to become a Valve Doctor, right? Because it's back to the point that if you're, you know, this is not ordinary aftermarket, right? This is aftermarket in big process plants, big LNG plants, big combined cycle gas power stations. And so to convince somebody to change to something that isn't the OEM, you know, you've got to have technical expertise, you've got to have a brand, you've got to have a proven track record, you've got to have references. It's not easy, believe me. I, you know, I've tried to do it, Andy, myself. It is not easy. So, the good news is, I think last year, in the first half, we roughly doubled the value of competitor valve upgrades, and in the first half of this year, we're up 5% again, Andy.
So yeah, we are continuing that momentum. You know, I was a bit worried that having done that huge jump, because obviously, some of these valves are huge, right?
Yeah.
You know, Andy, some of these Remosa valves, Z&J valves, so they're, you know, these are—this is what I would call a bit lumpy, right? But no, we've grown another 5% in the first half of this year, so we're continuing to... And, you know, as you know, what it does is two things. One is we get a nice margin sale, and roughly, the margins in upgrades are twice what they are in new construction because you're dealing with the end user. They get all the value from-
Yeah
... from the upgrade and the quality.
Yeah.
But also, then you get the parts as well, which is, as you know, is
That's right
... the real, you know, the good margin stuff. So, yeah, it's still moving in the right direction. Thanks, Andy.
Perfect. Well done. Can I ask Mark's question slightly differently? In terms of management change, I'm assuming we've seen no change at the SBU level?
At the what-
The president, the sector president level, you mean?
The Sector President, Sector President level.
The sector president level, Andy. So-
Yeah.
So at that level, very little change, I would characterize it as. Obviously, Phil retired, you know, what was that, last, end of last year-
Yeah
... was it? And you know, Stefano came in.
Yeah.
Stefano's up and running, and, you know, obviously, I've been dealing with his directors, as I said, for the last seven weeks. And within Process Automation, Jackie was the sector president, effectively, but his number two, Robbie, is now moving across. So he's being promoted into that position-
Okay
... so that he's got the capacity to make sure, you know, he can get into the other three sectors, Andy. So I would describe it as sort of minimal, you know, in... It's good news, really, because it's internal progression and, you know-
Yeah
... some promotion in there, so-
Yeah
... I think, you know, the feeling on the ground-
But nothing is, nothing in Life Tech?
Nothing what?
Nothing-
Nothing in Life Tech.
No, no, no.
Yeah.
No.
No.
Where do we think Jackie can make the most difference in Life Tech? Because it feels to me like Life Sciences is, you know, once the market recovers, you're back to good growth. Transport is just, you know, when the market gets back to good growth and fluids, when the IP recovers, you're in decent shape. So where can Jackie make the most difference there?
I, I think, Andy, you know, 'cause all, all of those things are sort of external effects, right? And in IMI, we always say, "Control the controllables," right? You know, whatever happens in the market, we want to outpace the market. So how, as an industrial company, how do you do that? You have better customer intimacy, better customer service. So effectively, you know, the three ways to grow, I know you know this, pretty obvious, right? You, you, one, you need fantastic customer satisfaction. And I should say that in IA, Industrial Automation, net promoter scores are now at 60, right? And that is world-class.
Yeah.
So they're at 60-
Wow
... in climate as well. So, you know, two areas now where we've moved customer service to a very, very high level. That's the first way, right? Keep the customers you've got and make them very, very happy. Once they're very happy, obviously, try and sell them more of your existing product, right? Once you've sold them more of your existing products, as much as you can, then obviously what we want to do is sell them more new product, and that's where Growth Accelerator, you know, really kicks in, and innovation, and that's what we always see as the opportunity. So really, those three steps, which is what Jackie's been obviously relentlessly going after in Process Automation, that will be, you know, very similar and really accelerating the success of Growth Accelerator, Growth Hub across those three sectors.
Because, you know, what we want to do is just keep compounding organic growth, whatever's happening in the cycle.
Yeah.
And that's always been my ambition, Andy, is to almost divorce ourselves from that, right? And just, you know, really make ourselves-
Yes
... a structural growth company, as I see it.
Okay, perfect. The last question, and I'll jump back in the line. A GBP 100 million buyback, nice, nice stuff, a bit earlier than I expected, but well done. Does that change the message on M&A, in terms of size of deals, your ability to do deals? Can you do an M&A, one or two pieces of M&A and a buyback? Can you just, just flesh that out a little bit?
Yeah. So I mean, we, we feel that a good deal for us, you know, is a bolt-on, you know, maybe just over GBP 300 million to, you know, well, 20 million, you know, to be frank with you-
Yeah
... if it's the right deal. You know, so, so we like those sort of bolt-ons because they play to our strengths. We know those markets, us plus the acquisition, the reason we're buying it is because we can accelerate the growth. You know, one plus one equals a lot more than two. So we still see those opportunities, Andy. But Dan has always said that the balance sheet efficiency, the best for us, is between one and two times net debt to EBITDA, and it doesn't take a rocket scientist to work out that, you know, pretty soon, as second half cash flow is always stronger, right? It's just the seasonality of the way, payments come through, that, you know, in the second half, if we didn't do anything, we were gonna be down to 0.8 net debt to EBITDA, right? And so just to maintain-
Yeah
... that level, you do the math, it's about GBP 100 million share buyback.... It still leaves us GBP 500 million, Dan?
Yeah, exactly.
Of dry powder, right?
Yeah. With EBITDA above GBP 500 million and 1 turn, it gives us the spare capacity to go after it. And the pipeline remains there. As you know, you know, we, we get into processes, sometimes, well, we walk away from a lot of things as well. We wanna be disciplined-
Yeah.
and we recognize you push those multiples on transactions too high, then it gets very hard to generate the shareholder value. So we're selective, but the pipeline is still absolutely there.
Yep.
More and more of those sector presidents are playing their role to get into their sectors and find those really nice bolt-ons that we can bring into the fold.
Superb. Thank you for that color there, guys. Really appreciate it. Thank you.
Brilliant.
Thanks, Andy.
The next question comes from Jonathan Hurn from Barclays. Jonathan, please go ahead. Your line is open.
Hey, guys. Good morning. Just a few questions from me, please. Firstly, just in terms of the guidance range, obviously, that's 120p-126p. You're flagging increased interest costs and obviously the FX headwind. And I would think if we look at consensus, it kind of sits in the middle. But the question is really is, you know, what needs to change, or how can we actually get to that top end of guidance at 126p? What is kind of underpinning that, please?
Yeah, brilliant. Yeah, so, so Jonathan, yeah, as you said, really, we've done two small upgrades this year, right? 'Cause we sold that small business, IMT, you remember that, and then, obviously, exchange rates have gone up against us by about another 1.5%, right? That's really what's happened. So that's why we firmly believe that when we looked at all the business plans, that GBP 123 is a good place to be, with a range around it.
Yeah.
Of course, the range around it, to get to the GBP 126, Jonathan, it's the normal things, right? More book-to-ship, aftermarket in Process Automation. IA does make a bit of a recovery Q4.
Yeah.
Climate, you know, you could see a way that climate, because the comparator gets easier second half, that actually the growth that we show will be higher in the second half. And, you know, the whole energy saving thing, as I said, proved to be resilient against strong comp, so you can see where climate could improve. And then, obviously, everybody's waiting for a life science recovery, right? And again, we're not banking on any of those things, but they're the sort of things that could push us to the top of that range, Jonathan.
Okay. Okay, very clear. Thank you. The second question is just on automation, just in terms of that profitability improvement. Obviously, 100 basis points year-on-year, but I know you don't disclose it anymore, but can you just sort of give us a little bit, kind of about how that breaks down between Industrial Automation and Process? Obviously, process is increasing margin, but in terms of that 100 basis points, is all of that attributable to process, in terms-
Yeah
... of increase in it? And in terms of industrial, what's happening there? Are margins going backwards a little bit?
Yeah, I mean, I think, yeah, broadly, yes. I think, you know, that, that's broadly right. So more than 100% of the margin increase was from Process Automation, as you'd expect, because we're seeing good growth, good aftermarket content. So that, broadly, yes. And then IA, volume's down. Jackie's doing a good job in terms of overall defense of the margins, but they are slightly down year-on-year. Yeah.
Okay. Very clear. And then lastly, just in terms of the order book for Process Automation, if we look at it in sort of monetary terms year on year, the big increase obviously is coming through in new construction. I think if we look at aftermarket, it's a lot smaller. But what's sort of underpinning that? Is that all the marine in terms of new construction, but are you also seeing sort of good demand in new construction from other areas as well?
Yeah, well, obviously, we talked earlier, Jonathan, about hydrogen, right? Which is really stepping up-
Okay
... from a small base. Oil and gas is staying at a similar high level to last year, where it shot up in terms of new construction.
Yeah.
And actually, power, as Dan said, Jonathan, power, you know, is new construction side holding up really well. So overall, there's nothing I looked at across the segments, Jonathan, and thought, you know, this is a turning point down. It's, the market activity is still good.
Yep.
Okay. Very clear, guys. Thank you.
Brilliant.
Great.
Thanks, Jonathan.
Thanks.
The next question comes from Thomas Rands from Davy. Thomas, your line is open. Please go ahead.
Thank you. Good morning, Dan, and Roy. Most of my questions have been asked, but there, there's two clarifications just on transportation. Since the Q1 update, does it feel as if the second half outlook has improved or got worse? You're saying, so expecting a slower second half versus the first half. I just wanted to kind of clarify the timing of the comments, and is it slightly better or slightly worse than what you were expecting at the last kind of guidance, please? And I'll come on to the second question then, mate.
I think, Thomas, from memory, it's... You remember this is 8% of our business, right? But from memory, second half transport is pretty much where we thought it would be. Just the first half's been a bit better.
A little bit better.
That's really it, really. So, you know, obviously, talk to our customers. There's really 14 big truck customers globally that make up a huge part of that business. You can imagine, Thomas, most of their information is public, because they're public companies, right? And, you know, so we use that. We use, you know, a mixture of forecasts, like the ACT forecast. And I don't think our second half's changed materially, Thomas, is the answer.
Okay, great. Thank you for clarifying. The second one is just on life sciences, and the kind of the destocking that we've seen through the first half. Are we, do you still see a bit of that? Is it very customer dependent? Anything you can add on that would be great. Thank you.
Yeah, so in terms of the way I'd characterize it is, is that last year, first half, it came down pretty sharply, orders I'm talking about. Second half, it stabilized, and we pretty well stabilized at that level. So it's sort of that, you know, that's what's happened. And again, we said at the beginning of the year, we're not gonna call a recovery. You know, we're not calling a recovery, right? And hopefully it does happen, sooner rather than later, but, you know, we certainly not put that into our outlook.
Okay. Thank you.
Thanks, Thomas.
We have time for one more question, so we'll move to the line of Harry Philips from Peel Hunt. Harry, please go ahead. Your line is open.
Yeah. Good morning again, everyone. Two swift ones. Just trying to gauge the comments around where working capital goes in the second half, 'cause obviously, as you said, you have a seasonal sort of build-up. But with the order activity, particularly in process, how does that sort of normalize or perform its normal seasonal pattern in the second half? And then the second is, just in terms of 19% organic growth in process through the first half, 9% increase in the order book, notwithstanding the marine order, what sort of delivery, sort of trajectory are we looking at in the second half and then on into 2025? Because it looks like now you're gonna get pretty good cover through the bulk of 2025 right now, in terms of showing good sort of mid-single-digit growth as a bare minimum for that year.
Yeah. Yeah. Hey, Harry. Yeah, you're spot on. We'll still see the order pattern improve in process, so there will still be investment in working capital there. I think it will be offset by our normal seasonality in places like climate, where we do a lot of the sales and cash collection. That's why, yeah, expect, as I said earlier, I think, we'll try to get it around 90, 90% cash conversion for the full-year. That will give us, yeah, probably 100% cash conversion for the second half. So we'll absorb the continued growth in the order book in Process Automation by pulling cash down in the other areas.
Yeah. Well, unless hopefully Process Automation, you know-
Thank you. I know, I know.
Base case, you know, we keep increasing the order book, and then of course-
Of course
... we'll need the working cap, right?
Yeah.
But yeah, in terms of our base case, Harry, I think-
Yeah
... that's exactly right.
I think that's what we're forecasting.
Yeah.
Yeah.
So that's great. And then your second question on automation, you're absolutely right. Process automation, we now think will grow a bit faster in terms of sales this year, Harry. Industrial automation, you know, a little bit less. Net-net, automation's pretty much, overall, pretty much bang where we thought it would be for the full-year, which is gonna be, you know, pretty, pretty excellent, organic growth, and I would say pretty similar to the first half overall for overall automation, Harry. Very high single digit-
And then also that cover building. Yeah, and that cover obviously building via process for 25 as well, so that underpins sort of-
Yeah
... stretches further out and gives the other businesses more time to recover if it is in the back end of this year, I guess.
Yeah, exactly.
Yeah.
I mean, on average-
Got it
... I think we've now got a 10-month order book in Process Automation. Again, you know, book-to-bill first half was just under 1.3. So of course, there's phasing, you know, we know that. We sell a lot more in December, we know all of that, but still in the first half, almost 1.3. That, you know, with a 10-month order book, that's, you know, as you say, starting to provide good air cover for first half of next year.
Yeah.
Yeah, I think one or two of your peers will take that, but then that's really helpful. Many thanks.
Yeah, appreciate it. Thanks, Harry.
Thanks, Harry.
Those are the questions we have time for today, so I'll hand back to the management team for concluding remarks.
Excellent. Well, you know, apart from one thing, which is obviously I'm gonna miss Dan, but that's not now, is it, Dan?
Yeah.
That's, that's for next year, right?
Yeah.
But until then, I think we are really excited. I'm really excited about the management change in Jackie going over all five sectors. I really think we're gonna see an acceleration of best practice across particularly the areas of customer coverage and innovation, the things that Jackie's done really well in Process Automation. Really excited about that, and, you know, we're looking forward to delivering more performance and more progress in the second half. Thank you.