Good morning, everybody, and welcome to IMI's 2024 preliminary results presentation. I am joined here, as usual, by Dan Shook, our CFO. And the first thing to say is that 2024 was another strong year for IMI, demonstrating the success of our growth strategy that we put in place five years ago. We delivered 4% organic sales growth and 10% organic adjusted operating profit growth. Adjusted operating margins were up another 100 basis points at 19.7%. And given the confidence we have in the business, we are increasing our medium-term margin target to 20%+ . Our return on invested capital remains strong, and we had another good year of cash generation with more to come. In fact, over the next three years, we expect to generate in excess of GBP 1 billion in free cash flow. We're also increasing the final dividend by 10%.
Given our disciplined approach to capital allocation, we're also announcing a further GBP 200 million share buyback program. Based on the current market conditions, we expect another year of strong financial and strategic progress in 2025. We expect full-year adjusted basic EPS to be between 129 p and 136 p after the share buyback, representing mid-single-digit organic revenue growth and margins above 20%. Finally, a quick update on the cyber incident. I am pleased to confirm that IMI has returned to normal operations. We swiftly reacted to contain the threat, working alongside external cybersecurity experts to protect our business and further enhance our IT security. Dan will provide further details later in the presentation. IMI is a global leader in fluid and motion control. We operate under a One IMI operating model targeted at delivering our financial framework.
Since 2019, we have achieved this through disciplined execution, leveraging our world-class engineering expertise and applying our best practices in commercial excellence, market-led innovation, and complexity reduction across our attractive growth markets. Our business is aligned to three enduring mega trends: Automation, energy efficiency, and healthcare demand. These underpin the delivery of sustainable, profitable growth. They also help us shape the future of fluid and motion control. So with that, I'm going to hand over to Dan to talk through the results in more detail.
Thanks, Roy, and good morning, everyone. I'm pleased to be able to take you through our 2024 results today, so as Roy mentioned, another really strong performance in 2024 as our growth strategy continues to deliver. Revenue increased 4% organically, adjusted operating profit was up 10% organically, and our adjusted operating margin was up another 100 basis points. Adjusted basic EPS was 5% higher than 2023, despite the FX and tax rate headwinds in the year. Cash conversion remains very strong, and I'm pleased to announce that we are increasing our final dividend by 10%, reflecting the continued confidence we have in the business, so firstly, some more detail around our revenue and profit performance. Revenue increased to GBP 2.21 billion, reflecting 4% organic growth, which was mostly offset by foreign exchange and the impact of recent disposals. Adjusted operating profit increased to GBP 436 million.
Organic profits increased by 10%, which was somewhat offset by disposals and FX. And as most will know, we have made significant progress delivering sustainable improvements in our margin since launching our growth strategy in 2019. As already mentioned, margins improved to 19.7% in the year, 550 basis points higher than the 14.2% delivered in 2019. We're very close to the 20% mark, and we do see scope for continued improvement coming from further growth in our attractive end markets, continued progress in aftermarket sales, our strong pricing power, and the final benefits from our restructuring program, which I'll update you on shortly. All these factors should see us improving margins over and above 20% in future years. And as such, as Roy mentioned, we are revising upward our medium-term margin target to 20%+ .
So looking at the full income statement, as mentioned, we saw strong organic growth and revenue and operating profit in the year. The net interest charge was in line with expectations at GBP 16.7 million as our net debt position has reduced by GBP 91 million during the year. You will see on the slide restructuring costs of GBP 48 million in 2024. This was higher than the estimate we gave at the beginning of last year and reflects additional projects completed in the second half. This has enabled us to increase the final program benefits in 2025 to GBP 10 million versus the GBP 7 million communicated earlier. This completes the program, which has transformed the business by consolidating or selling 20 sites since 2019 and over 30 in the last 10 years.
By transferring manufacturing into our best facilities, we have delivered a step change in customer service and employee engagement, creating an even stronger platform for accelerated growth. We will continue to look for efficiency opportunities within our current business, but any future costs will be taken into our underlying results rather than as an adjusting item. You'll see this on our outlook slide coming up. As expected, our adjusted tax rate for the year increased to roughly 24%, reflecting the U.K. rate increase and impacts from new minimum tax legislation. We do expect the rate to increase to around 25% in 2025. And finally, our adjusted basic EPS increased by 5% to GBP 122.5 in the year. Now, looking at the performance of the platforms and sectors, the first thing to say is that the overall performance was very much in line with our expectations.
Starting with automation, automation delivered strong growth with revenue up 8% organically and margins up 140 basis points to 20.5%. Process Automation had an outstanding year, delivering strong order intake as shown on the bottom of the slide. Orders were up 10% organically, with an 11% increase in aftermarket. We once again benefited from investments in energy security and the continued success of our competitor upgrade strategy in the aftermarket. We saw particular strength in downstream oil and gas, marine, and hydrogen during the year. Organic revenue was 15% higher than 2023 and 12% higher on an adjusted basis. Industrial Automation delivered a resilient performance despite the softer markets in Europe and the Americas. Organic revenue was 3% lower than the prior year and 6% lower on a statutory basis. Turning to Life Technology, as expected, organic revenue was 2% lower than the prior year.
However, margins were up 30 basis points to 18.4%, supported by GBP 10 million of restructuring benefits. Climate Control saw good demand for its energy-saving products, with revenue up 5% on an organic basis, and while the slowdown in European construction did have some impact, the sector continues to perform due to the retrofit demand for products that improve energy efficiency in HVAC systems. As expected, Life Science and Fluid Control organic revenue was 10% lower than the prior year, reflecting the continued softness seen across the global life science device market. Long-term fundamentals of this sector are strong, and we remain excited about the opportunities for growth, and Transport revenue was down 4% organically in the year, reflecting the anticipated reversal of our H1 growth performance due to the strong H2 comparator. We continue to see good underlying demand for our innovative solutions across the globe.
Continuing to cash flow, where we delivered further improvements during the year, supported by our profit performance. We saw a GBP 22 million working capital outflow in the year, with debtor and creditor increases in line with the top-line growth. Inventory levels grew in the year, largely reflecting the investment to support the record Process Automation order book. Now, we still hold higher stock levels in other sectors to support site transfers. But with the program completed, we will now begin to bring stock turns back up on those sectors. CapEx increased to GBP 92 million, with this increase being largely due to a one-off purchase of land that will become the home of our new Process Automation facility in North America. We expect CapEx in 2025 to be at a similar level as we finish construction of this facility.
The cost of the new facility will be effectively funded through the sale proceeds of our current property, which we will sell once fully vacated. As most will know, we will continue the investment into our facilities to keep IMI's operations both efficient and high-performing. You'll see on the slide that free cash flow increased again to GBP 263 million. Our net debt has reduced to GBP 548 million at year-end from GBP 639 million at the start of 2024. Net debt to EBITDA reduced to one times at the bottom of our target range. Now, as we deliver on our growth strategy and achieve our financial framework targets, the result has been a step change in free cash flow generation. You can see our free cash flow has improved significantly from GBP 158 million in 2022 to GBP 263 million in 2024.
We now see a clear pathway to delivering in excess of GBP 1 billion over the next three years. This will come from further growth, the normalization of working capital mentioned earlier, and the end of our restructuring program. You would have seen on the last slide, we had cash costs from restructuring of about GBP 40 million in 2024. Given that strong free cash flow, this slide is a reminder of our disciplined approach to capital allocation. Our priority is delivering consistent, profitable organic growth, so we continue to invest both in our people and operations to help accelerate solutions to solve our customers' most complex engineering problems. We will also pursue bolt-on acquisitions that enhance our position in attractive long-term growth markets and that provide financial returns in line with our strict criteria.
Since 2019, we have deployed over GBP 400 million in M&A, while at the same time increasing our fully burdened return on invested capital by 200 basis points from 11.4% to 13.4% last year. Last but certainly not least, we will continue to deliver returns to shareholders. Our progressive dividend is an important commitment we will maintain even while we invest in the business organically and inorganically. When we see situations where we expect leverage to fall below our one to two times target range, we will look to return capital to shareholders, which is why we have announced a further GBP 200 million share buyback today, which with the dividend means we expect to return over GBP 275 million to shareholders this year. Final slide before I hand back to Roy, our group outlook.
Based on current market conditions, we expect adjusted EPS to be between GBP 129 and GBP 136 in 2025. This guidance reflects continued organic growth in our Automation platform from the record order book and Process Automation and the resiliency within Industrial Automation. The Life Technology platform is expected to be broadly flat organically in the full year, but down in the first half. This reflects continued growth in our energy-efficient products and Climate Control, no forecasted recovery in Life Science and Fluid Control, and the strong first-half comparator in Transport. We expect further margin progression in the year, leading to an adjusted operating margin in excess of 20% in 2025, supported by further growth and the final benefits from our restructuring program. Although the program has finished, we will continue to identify efficiency opportunities to drive improvements in our current business.
Any one-off costs for these activities will now be taken into underlying operating profit, and we estimate that will impact the 2025 results by between 1p and 2p of EPS. There are a few other moving parts in our guidance this year. As you can see in the bridge, we are expecting to see our interest charge to increase to about GBP 18 million as a result of the share buyback and some debt refinancing. We also see the tax rate increasing to around 25% and our weighted average number of shares reducing to around 251 million. As things stand today, we do not see any material effects impact on sales and profits. This all gets us to our 129p-136p EPS range. And finally, Roy already mentioned the cyber incident.
Through the incredible hard work from our operations and IT teams, supported by the industry experts, we are very pleased that IMI is back to normal operations. As a result, the outlook EPS range fully reflects our current view of the limited impact of this incident on our underlying business. We will, however, recognize a one-off exceptional charge in 2025 to cover IT systems recovery, upgraded IT infrastructure, and advisory costs, which we estimate will be between GBP 20 million and GBP 25 million. So with that, let me hand back to Roy to talk you through the strategy update. Thanks, everyone.
Thanks, Dan. It is clear that our growth strategy continues to deliver results. We are building on a track record of compounding profitable growth. And as you can see on this slide, adjusted EPS has grown at an 11% CAGR since 2019.
IMI has been through a period of significant transformation in recent years, and as you saw on the previous slide, we are building a track record of compounding EPS growth supported by the delivery of our financial framework. We have delivered average organic growth of 4.7% over the last three years, supported by our leading positions in attractive long-term growth markets and our success in driving commercial excellence and market-led innovation. Our Growth Hub culture and processes remain at the very heart of what we do, and I am pleased to report that our teams delivered another record year of Growth Hub orders in 2024. As Dan mentioned, our operating margin increased to 19.7% in 2024 and is now 550 basis points higher than in 2019.
This significant margin improvement reflects accretive growth, the completion of our multi-year complexity reduction program, a strategic focus on the aftermarket, and our strong pricing power. Supported by further growth in our markets, we now believe that our business can deliver adjusted operating margins of 20%+ . Cash conversion remains high at 92%, and we are committed to deploying this cash to enhance shareholder returns. IMI has been strengthened by six complementary value-enhancing bolt-on acquisitions since 2019, with our fully burdened return on invested capital increasing to 13.4%, significantly higher than our 12% underpin and our 9% weighted average cost of capital. I also wanted to spend some time sharing with you a few examples of how our strategy aligns to structural growth themes and is successfully driving sustainable, profitable growth. Firstly, we saw further strong growth in our solutions for the hydrogen value chain.
Orders have scaled rapidly from GBP 7 million in 2022 to over GBP 60 million in 2024, and I am pleased to report that our innovative VIVO electrolyser system is now well established in the market. Secondly, the rapid expansion and demand for data centers continues to present an exciting opportunity for climate control. As you all know, energy efficiency and temperature control are absolutely critical for data center performance, and our fluid and motion control solutions can play a key role here, particularly in direct liquid cooling systems. We delivered GBP 7 million of data center orders in 2024, supported by our strong customer relationships right along the value chain and our dedicated sales resources. Finally, while it is still an emerging market, we see a good opportunity to deploy our Process Automation expertise to support the development of small modular reactors.
We are currently collaborating with the leading players in this space and see an opportunity to deliver between GBP 3 million and GBP 20 million of value per SMR. Targeted bolt-on acquisitions are a key part of our growth strategy. We have completed six acquisitions over the last five years and will continue to pursue acquisitions that enhance our position in attractive long-term growth markets and help us to compound profitable growth. We look for quality businesses that enhance our leadership position in fluid and motion control. We like acquisitions with differentiated technology that is mission-critical for our customers in core markets like automation, smart buildings, and life sciences. We then leverage our commercial, operational, and engineering excellence to create real synergies that deliver returns in line with our strict financial criteria. The acquisition of Heatmiser in 2022 is a great example of this.
More recently, we completed the acquisition of TWTG, a leading sensor solutions provider for EUR 25 million in October last year. TWTG is a great example of the sort of business that we're looking for. Their differentiated product portfolio greatly expanded our asset monitoring offering and presents a significant opportunity for us to accelerate aftermarket growth, particularly in Process Automation. Our people are key to the successful delivery of our strategy, and we empower them to grow our business. I am therefore very proud to report that employee engagement remained very high in our annual survey, with 79% of all employees seeing IMI as a great place to work. We also saw a significant reduction in health and safety incidents during 2024. We remain absolutely committed to an accident-free workplace, and this is excellent progress.
We also launched exciting new talent programs in the year to help our people develop, grow, and continue to create significant value for our customers. So, to summarize then, the key takeaways from today are, first, that our growth strategy continues to deliver strong results, and I am proud of our achievements in 2024 despite some mixed markets. Organic revenue grew 4%. The adjusted operating margin was up another 100 basis points, and our organic adjusted operating profit grew by 10%. Second, reflecting our disciplined approach to capital allocation, the strong balance sheet, and our confidence in future performance, we are announcing a further GBP 200 million share buyback in addition to the 10% increase in the final dividend. Third, and finally, we are targeting another year of strong financial and strategic progress in 2025.
Based on current market conditions, we expect this year's full-year adjusted EPS to be between 129p and 136p. Okay, so I'm going to stop talking there, and I'm going to hand over to the moderator for the Q&A, please.
To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask a question, please ensure that your device is unmuted locally. Our first question comes from the line of Christian Hinderaker of Goldman Sachs. Your line is open. Please go ahead.
Morning, Roy. Morning, Dan. Thanks for the questions. I want to start with the Process Automation order book, clearly very strong growth. I think it accelerated, if I'm not wrong, into the fourth quarter from the third. I'm just curious as to the underpinning that provides for 2025 and then maybe beyond, and how do we think about the phasing of the order book?
Yeah, excellent. Thanks, Christian. Good morning, everybody again. I think the Process Automation order book, Christian, was up nearly GBP 100 million across last year. So from the opening order book to the closing order book, it was up almost GBP 100 million. The book-to-bill was 1.12. Clearly, that did include that marine order that we called out that will ship over several years, not just 2025. But yeah, the order book's in really good shape, Christian, and that does underpin this year's growth. And we would expect very good growth again from Process Automation this year.
Thanks, Roy. Maybe secondly, on life sciences, I guess two parts here. Curious as to whether there are any significant new platform launches that the customer set in the next two years where you might have secured new content. And then secondly, how do we think about the inventory dynamics? And you've, I think, been cautious in not calling for recovery, but just a little bit of color there would be helpful.
Yeah, I think, Christian, we consistently don't call for recovery in this space. It's 7% of our business, the life science part. And many people have called a recovery and obviously fallen on their sword, right? We're definitely not going to do that. We haven't called a recovery in our outlook. On the platform side, we had a really good year, and we won several platforms for the future, both on analytical devices, but also on medical devices as well. So we are building for the future.
We're using this opportunity to carry on making sure we're on future platforms. But yeah, we're not calling a recovery. I think what some people are seeing is more use of the reagents, which is great. That doesn't directly affect us. But obviously, we hope that more use of the reagents means eventually more reordering of the kit. Clearly, people bought a lot of the analytical kit during COVID. They obviously bought a lot of ventilators as well during COVID. Plus, as you know, we consolidated some more sites last year, and our customers in particular bought some stock ahead of that as well. So that's why we think for us, we're calling a pretty flat year for Life Sciences, Christian.
Yeah, certainly the engineer to engineer and scientist to scientist work behind the scenes. And Christian, you know this is going at full pace. The new devices that our customers are developing are very cool, getting more tests, more precision, faster. So absolutely, it's there. It's just very hard to call when the launch of those new devices will come out.
Thank you both. Maybe just finally on climate control, could you add a bit of color? I'm surprised maybe by the strength in growth in the second half, given the weakness in particular in some of the resi space. Could you add some context around resi versus non-resi dynamics?
Yeah, I mean, it's a very, very strong second half, as you've noted. I think it was 8% growth. I mean, well done to Jackie, Stefano, and the team. Clearly, the big market move actually was geographic. It was the German market that was down in the first half, up in the second half.
That's more to do with more standards, more regulation around energy saving, Christian. And as you know, that's what really underpins that business. It's obviously its brilliant control capability around hitting the right indoor climate, but also the energy savings that we can get. And the regulation in Europe and the focus in Europe, and something like 90% of that business is European, is clearly on energy savings. So not so much of a diversification between commercial and residential for us. Remember that at the moment, the majority of that business is into refurbishment, obviously, on energy savings. So it's more that that's caused the increase, as well as obviously the self-help, the really great work, as I said, by Jackie and Stefano on our commercial excellence.
Thank you very much.
Thank you, Christian.
Thanks, Christian.
We have a question from Lush Mahendrarajah of JP Morgan. Please go ahead.
Morning, guys. And thanks for taking my question. I've got a couple, I think. The first is on just Industrial Automation. Could you just update us on what the 60-day moving average orders have been doing year on year or sequentially? That'd be helpful. Secondly, on Growth Hub, really good momentum there. Is that particularly geared to any of the sort of five divisions, or was a lot of that innovation sort of quite broad spread? And then just thirdly, on the margin target, how should we think about that 20%+ ? Are you putting a cap on that or a time frame? Some more detail possible around how you're thinking about that 20%+ margin target?
Yeah, I'll start with that one, actually, Lush, because I think that's pretty key to everybody. I've said on several of these calls, I never, ever wanted to cap the margin target. When we started this program of sort of our One IMI operating system focused on commercial excellence, focused on market-led innovation and complexity reduction, we were at 14% margins. I think it was 14.2% back in 2019. And obviously, we knew that we were going to completely reconfigure our manufacturing footprint, as Dan said in the presentation. We've done that. We've worked really hard.
That's a difficult program, but we've done that. 20 sites during the last five years, over 30 sites in the last 10 years, obviously starting in Process Automation. And we've also proven our pricing power consistently year in, year out. We've also improved the mix of the business in the Aftermarket as well. It's been a really good move in our overall margin profile. So we've done all of that.
I never wanted to cap margins 20%. I think as we looked at our five-year plan, Dan, we said, "Okay, we are fully investing in this business, both in OpEx and in CapEx." And by the way, we couldn't hit that 19.7% margin earlier. We actually increased investment in R&D and percentage of sales at the same time. And we've obviously focused on growth, invested in the team, invested in innovation. And our primary focus is still growth and investment in growth. And I don't want to lose that. But as we looked at the five-year plan, Lush, what became absolutely apparent is that over a reasonable period of time, with reasonable growth in our markets, and I expect that will change between Process Automation and Industrial Automation. I expect that mix will change of growth over the five years.
But as long as we get broadly supportive markets, as you know, we expect to deliver our financial framework in the medium term of 5% organic growth. Given that, we will drop through at more like 30% than 20%. And I'm sure that, Lush, your math is pretty good, right? You've already done the math. That would mean that we'd be at the end of the five years closer to 22% margins than 20% margins. And again, I'm not putting out a new margin target out there as such, but the sheer math says that we're going to drop through better than 20%. We feel good about pricing power. We feel good about what we're doing in the aftermarket. And we feel really good about what we're doing in Growth Hub because that is margin accretive.
Because as you know, what we're doing there with the innovation is solving acute customer problems, the problems that customers really care about, and that means that we add tremendous value for customers, and we capture good value ourselves as well. So if I just move into Growth Hub, actually, Dan, I'm going to let you talk about the 60-day moving average because I'll just talk about the whole thing, but as I move into Growth Hub, it's just tremendous what's happening, and I think Dan and I have just added another four or five projects. So we've probably got, I don't know, 14 or 15 projects now that are meaningful in that Growth Hub. Yes, it started in Process Automation, and I have to say, every time I meet the Process Automation team, they are absolutely the ones driving the projects we've got.
You saw what's happened to our VIVO electrolyser system, which is now really focused on that local transport network. The orders went above 50 million last year. I mean, it really is motoring. Yeah, across the rest of the sectors, we see really good projects now in climate. We're absolutely determined to drive up the percentage of sales from new products in climate. A lot of that is obviously the connected products. A lot of that is coming out of Heatmiser, which is really exciting. Not just Heatmiser on its own. Heatmiser, in connection with our existing products, things like our thermostatic radiator valves, and building a more connected circuit within the residential space, which again, will drive further growth. That's a really good space. Life sciences, as well, has got some good new products coming through.
And as I said, they're winning some future platforms. In transport, I don't want to leave transport out of this. They've managed to produce a very, very competitive system valve that will go into several systems on the truck. And in fact, they've already won contracts that will build our dollars per truck for the future. So yeah, in several spaces, in Industrial Automation, they're working on more analytics within the valves, more data-driven solutions for customers, which are our small and medium-sized OEMs. So yeah, it's spreading across the board. Clearly, it started in Process Automation, and they've done a really, really good job. But as Jackie's gone over as COO, and he's doing an excellent job of really spreading the best practices, our market-led innovation, our commercial excellence, and complexity reduction, really driving it harder across the whole company. So no, Lush, it's really spreading well.
So with that, I'll stop there. And Dan.
Yeah. So in terms of 60-day moving average, Lush, it is slightly negative in IA at the moment. Now, it's a little bit hard because obviously it's been impacted by the cyber event when we were offline there for a little bit. So hard to really read into it. Having said that, the recovery in these last couple of weeks has been good. As you'd expect, the softness in IA is mostly in Europe, where we're still seeing growth in Asia, growth in the Americas. And actually, the coverage for the full year doesn't look too bad. And as you read in the results, we're calling that kind of slightly down. So we feel like we're covered. And again, it's a little bit hard until we get past the cyber event, but nothing in there that suggests anything either way in a big way.
Yeah. IA is slightly down in the first half, Dan. Slightly up for the year.
Yeah, exactly.
Slightly up for the year.
Exactly. Yeah. Sorry. Thanks, Roy.
Does that answer your question? Lush,
I'll keep it helpful, guys. Thank you very much.
Yeah. Great. Thanks, Lush.
Yeah. Yeah. Really clear. Thank you.
We have a question from Andrew Douglas of Jefferies. Please go ahead.
Morning, gents. Three questions for me, please. Standard. First one is on the retrofit opportunity or progress you're making on Process Automation. I can't remember you talking about it on the call. So I just want to make sure that that's continuing at pace and how we are thinking about that as we go into 2025, please. Do you want to do one at a time? Might be easier.
Yeah. It's really helpful idea. Thank you. No, really great spending on upgrade valves last year. Yeah. And it actually accelerated. But I think in overall terms, we were over 20% up on competitor upgrade valves. So really, really strong. I still think we're getting sort of four or five competitor upgrades for every one that we're losing, Andy. So it's really, really good progress. And that will not only drive in orders, it will obviously drive profitable sales. As you know, Andy, roughly the margins on upgrades are about double what they are on new construction. But the real point is, once you've got that installed base, then it's that parts annuity, our highest margin level, which you then get for years and years and years because these are only the critical operations, right?
And because of that, we produce very high-quality parts. Customers know that. And they will come back to us as the OEM and continue that parts annuity. So no, really good progress from Jackie, Robbie, and the whole Process Automation team on that.
Perfect. You've announced a buyback, which takes that to even dial up about half a turn. You've still got loads of firepower for M&A. Just give me a feel for the M&A market that you guys are operating in. I know that one of your challenges is finding businesses that are sufficiently high quality for a sufficiently low multiple. Is that the ongoing challenge, or is it lack of available quality businesses out there?
No, the pipeline is full. I mean, we've reviewed the pipelines with the board this week. The pipelines are full. So I mean, no, there's plenty of companies out there.
As you know, Andy, we tend to target, well, preferably private companies where we build the relationship and buy them outside of a process. Not always possible, but that's our favorite method. TWTG, we were tracking it for a long time. We knew we wanted a sensor company to really help accelerate aftermarket growth in Process Automation. And I met again with the team just literally a few weeks ago. Fantastic team. So entrepreneurial and a great sensor, full band sensor. It's those sort of companies that we really think can accelerate the core business that will give us an even stronger position in fluid and motion control that we're after. Pipeline's good, but as you know, we're super disciplined on price. One of our key measures is ROIC, fully burdened ROIC with everything written back into it.
And yeah, we really like the way that's moved up, as Dan said in the presentation, more than 200 basis points. Clearly, we've got an underpin that we put out there in our financial framework. And we don't really want to go below that for very long, right, Andy? So it's about discipline. And you will know we walk away very often when the price goes too high for us to make good returns on an acquisition. So it's more about that than it is about the amount in the pipeline.
Okay. Cool. That's great. And then lastly, just on inventory and working capital normalization, it feels to me like you've got the benefits of kind of lower restructuring, lower kind of buffer stock coming through. But also, you've got continued growth in Process Automation, which will be higher than anyone else. And that's kind of WIP intensive. So am I right in thinking that as we get to maybe slightly more slowing growth in Process Automation in 2026, 2027, that's the next leg of growth in free cash flow as we go out, kind of looking two years? We won't get it this year because process will have another good year.
Yeah. I'll just make a comment on that, Andy, because I obviously hope that Process Automation order growth doesn't slow, right? And it's interesting because this year, we still see opportunity in conventional power, Andy. I'd say particularly in Asia, strong. And then nuclear, we see opportunity in nuclear as well. So I mean, let's see, right? Oil and gas is at a very, very high level. And gas, we still think LNG is going to be strong and all that stuff. But you're right. There's a lot of moving parts geopolitically. Who knows how that's all going to pan out? If growth does slow, then down.
Yeah. Yeah. So you do have to look at our stock levels in two buckets. The Process Aautomation business is absolutely much more around WIP for that order book. And as you said, 13% up. So that's supported. On the other side is maybe a little bit more traditional days of stock. And in those markets, as you say, as we've come off the restructuring program, we have held safety stocks to make sure we didn't let down customers as we were moving our production to our best facilities. So yeah, from that perspective, there's an opportunity to start bringing those back down. And you can do all the sums with the data that we've got to say, yeah, there's definitely some stock we can pull off. We'll start getting at that this year.
I don't think it'll come all the way through in 2024, but there'll be an opportunity for us to support the 90%+ cash conversion. And that will form a part of it. And that will be in 2024. And I suspect we'll, or sorry, 2025, and continue into 2026 as well. So yeah, so that's an opportunity to continue to generate the very good free cash flow that we're producing now.
That's perfect. Thank you very much, gents. Thank you. Brilliant.
Thanks, Andy.
We have a question from Stephan Klepp of HSBC. Please go ahead.
Yeah. Hi, morning, gents. I hope you can hear me. Can we elaborate a little bit further from leverage buybacks and cash generation? Because if I go through the math, it comes out that at the end of the year, despite buying back GBP 200 million, you will be again at the lower end of your target corridor. Is there a chance that you could reload and buy back more shares through the year? What would be the criteria for that? And would we have to wait for the end of the fiscal year, or could you just, after the completion of the program, just extend it? Let's go for the first, probably. Do you want me to go?
Yeah. Go on, Daniel.
Come on, Stephan. You're ready? So no surprise.
Yeah. I mean, I'm very happy. I mean, I wrote so much about it, but go on.
So no. Look, yeah, no surprise, your model is right. If we don't unlock any M&A, we'll probably be still somewhere around the bottom end of our 1x-2x leverage. Way too early to comment about what we might do if we get towards the back end of the year and that very good pipeline has not yielded anything kind of coming through.
Certainly, our preference, and again, it's why we maintain the dry powder even with GBP 200 million, that we'd like to deploy that with a number, another TWTG or Adaptas or Bahr. I mean, we've unlocked some really good ones. And I think more and more those small private companies recognize it's a great place to put their legacy to fold them into IMI. So just in case there are any of them listening in today, we love you all, and we'll keep talking with you.
Yeah. I think, Stephan, if you think about it, what did you say down in the presentation that we had returned GBP 700 million to shareholders over the last five years? You think about this year, Stephan, so probably we'll do the GBP 200 million share buyback, and the dividend will probably be over GBP 80 million, right? So that's GBP 280 million in a year. We're starting to really crank up the cash return to shareholders. Yeah, we would love to build the company further, exactly as Dan says. As I said, the pipelines are good, right? We just need some to come our way at the right price.
Yep. Okay. Understood. Yeah. Fair. Then on the margin plus, I mean, you explained it quite diligently. But I think in the past, you said as well, you would always like to forgo higher margins to invest more in higher growth levels. Since you have now changed the wording here with 20% +, is it more or less that you have become much more confident on the growth that IMI and the current setup can achieve? Is that how I should or we should understand it?
Yeah. I think that's definitely true. I'm certainly a lot more confident than I was five years ago because we're now much closer to customers. We're now innovating much more strongly, as you can see from the Growth Hub numbers. And of course, we've got a much, much better factory footprint where we've moved a lot of our manufacturing into our best factories, which have an incredible customer-focused culture around customer service. They obviously have a much more competitive cost base, and they really are superb operational outfits.
So yeah, if you put all that together, I'm definitely much more confident than I was back in 2019 in the growth of the company. And that's the most important thing. But on top of that, I was never trying to cap margins, Stephan. As I said on multiple calls, and I know it was read like that, but I just always wanted to achieve or get very close to that 20% because obviously a lot of people didn't believe me when I talked about it back in 2019 that that's what IMI could do. Where we are now is much better levels of investment and record capital investment last year. We're going to have a similar level this year. We've invested more in R&D, as you know, as a percentage of sales. So we really are ticking up.
And then when we did our five-year plans and reviewed all of that, actually, we can continue to invest fully in the business, which is what we'll do. And then we can still drop through, on average, about 30%, Stephan. And that's why the simple math takes you to improve margins.
Okay. Got it. Last one. Again, Process Automation. And because it's so important, can we be a little bit more specific on what kind of order growth, sorry, organic sales growth you're expecting? Because you must be sold out for 2025, for sure. And then what kind of momentum are you seeing in orders? I mean, you touched on that a little bit with saying energy there's an opportunity, but you said as well oil and gas at peak. And LNG, can we comment on all these points, please?
Yeah. So we see very good momentum. So Q4 orders were up 7%. But in aftermarket, whereas you know, Stephan, we make two and a half times the gross margins, they're actually up 18% in Q4. So we see good order momentum. We see good opportunities, as I referred to earlier, in conventional power, in nuclear power, and obviously in the aftermarket to continue the upgrade valve strategy, Stephan. So yeah, we would expect to sort of summarize that the order book at the end of this year will be higher again than the order book at the start of this year. So that would indicate, and I'm certainly not going to give any guidance on 2026 here today, but that would indicate that we feel pretty confident about what's happening in that business.
Yeah. And LNG, maybe, how much does it represent in Process Automation? And where are we there? Are we only seeing those things trickling through, or are we mid in the investment cycle for LNG or at the end?
Yeah. So we'll be about middle, I would say. So typically, we're sort of 18 months, two years after FID, depending on how fast the project goes, obviously. But yeah, so I'd say we're sort of middle. So that's why we very rarely get in the whole of Process Automation. I can probably only remember a handful in years and years. I mean, I've been sort of involved in it since, what, 2013, something like that. So a handful of orders that have been canceled, Stephan, because even in some of the oil and gas recessions that we had, tough ones during sort of 2014, something like that, people that start these projects, obviously, they tend to continue. So we're about middle.
Yeah, what we think is that the U.S. will now obviously return to exporting LNG, and that will be positive for us, obviously. Yeah, we feel good about where LNG is. It's about 10% of Process Automation altogether, something like that, Stephan.
Certainly, the aftermarket on the LNG side has been very, very strong, as you'd expect, because all of the projects that we've contributed to over the course of the last 10 years are running. We're getting the aftermarket as well. I think, as we said, when the change in the U.S. happened, the priorities of projects shifted a little bit more to the Middle East and maybe Australia. Maybe the priorities will shift back as well. Yeah, I'd agree. It's kind of in the middle of this. Every year, it just adds to the installed base, which gives us that aftermarket annuity.
Yeah. Wonderful. Can I tempt you to give us a comment on organic growth expectation, sales growth expectation for Process Automation?
Yeah. Yeah. Good point, Stephan. So it will be around high single digit is where we think Process Automation will be this year. So another convincing year of organic growth.
Yeah. Perfect. Super. Thank you so much.
Brilliant. Thanks, Stephan.
We have a question from Harry Phillips of Peel Hunt. Please go ahead.
Good morning, everyone. Two, please. Just curious around, with all the changes in the sort of manufacturing footprint and all the program you've undergone over the last few years and the growth in process against that backdrop. I mean, I should know the answer to this, but I don't. Is there any limitation in any part of the business process in particular where capacity might be an issue?
Secondly, just on CapEx, obviously, you're saying 90 again this year, depreciation 70. Given the returns you're getting out of investment at the moment, do you think CapEx should sort of stay at that slightly elevated level just to prime the pump for future growth? And then just lastly, Lush was asking the 60-day moving average, and then I got distracted, so I didn't hear the answer to that question. So if you could provide that again, that would be very helpful.
Yeah. Absolutely. So 60-day moving average. I'll just quickly do that one. Dan, I'm going to turn to you on CapEx, obviously, because I think you gave a good explanation in the presentation. 60-day moving average is slightly down in Industrial Automation. I think some of the data has been slightly skewed by the cyber incident, Harry, obviously, over that 60 days, but it's slightly down.
The order books are slightly up, actually, in that. And what we think is that sales will be slightly down first half in Industrial Automation, but then slightly up for the full year. So we're not calling any big recovery in industrial markets. That's what we see from our own business, Harry. So that's Industrial Automation. I'll just quickly do Process Automation capacity. Wow. The execution in Process Automation under Jackie, Robbie, Giuseppe, and Kevin, absolutely fantastic, I have to say. And CD. I mustn't forget CD. Really, I mean, you look at what they did in the fourth quarter, Harry. I'm sure you've already done the maths. But in terms of shipments, it really is a slick machine now in terms of the factories we've got. I would say that in terms of capacity, generally, we're only still running two shifts. There's still a third shift to go at.
And so generally, we're pretty good on capacity. Plus, Jackie and Robbie have been carefully outsourcing non-core processes to make sure we've got capacity for the core processes. So I'd say it's in pretty good shape. There's obviously some areas that we're increasing the capacity, and obviously, that's what the CapEx is partly for. But in general terms, they're ahead of the game in terms of the planning.
Yeah. Yeah. And yeah, and then on CapEx, so yeah, the fact that the CapEx we're spending not only is improving our facilities and making them more efficient, we're also getting a very modern footprint as well. And as I said, conveniently, as we've moved in the Americas, our Process Automation facility, the facility we're exiting has a lovely value that will enable us to cover the cash costs of that. So that just helps in the overall cash position.
But yeah, I think we do have a slightly higher CapEx run rate right now because of some of these bigger projects that we're running. But I would say we will always be, I believe, as we go forward in this next period, spending a bit more than depreciation. I mean, we're up around 1.4x, 1.5x right now because of those one-offs. But I think consistently, we should be around 1.1x or 1.2 x depreciation because we're always going to be on the front foot taking older machinery out, replacing it with machines that will do multi-axis, and we'll take five jobs and put it into one just to drive that efficiency, enable us to utilize the footprint more effectively so we can continue to grow with the footprint we've got.
Fantastic. That's excellent. Thank you.
Thanks, Harry.
Thanks, Harry.
In the interest of time, our last question comes from the line of Mark Fielding of RBC. Please go ahead.
Yeah. Morning. Thanks for fitting in my, I'd love to say last question, but it's going to be questions. You know that, don't you? But firstly, could I have a follow-on to the answers you were giving to Stephan earlier around Process Automation? I'm just actually curious in terms of those order numbers you quoted for aftermarket versus OE and Q4 and things. And just if there's meaningful delivery timeline differences between stuff you take in aftermarket and OE or whether actually they're all sort of in the same queue. And then tying that into, how do we think about the automation margin mix? Because as you flagged, you've got higher margins in the aftermarket.
I think in the wider automation business, IA must have been a bit more aftermarket-y in the last year or so that's been generally tougher. At some point, do you get a headwind from mix at all versus you get good leverage on the fact that the businesses are growing? I'm just trying to think about the little moving parts that could happen there. I've got another quite specific accounting question, but I'll just maybe hold there and let you answer those bits.
Right. Dan can take the accounting question. On aftermarket versus new construction in Process Automation, Mark, yeah, there's a big difference, right? Because obviously, on the new construction side, on the OE side, we're building valves, which can be the size of this room, which are 12-month to 18-month projects, even slightly longer in nuclear. So obviously, they're big, complex.
They require a lot of air testing, customer testing. Obviously, they're going into critical operations. On the aftermarket side, the lead time tends to be more like two, three, four months, something like that. So it's quite a big difference in terms of shipping. In terms of Automation mix, then lower margin is new construction Process Automation, obviously. And we've said that roughly the gross margins in the aftermarket are two and a half times. So if we did see a huge acceleration of new construction Process Automation, then that would be an adverse mix. Having said that, it would have to be a really huge acceleration, really, to knock that business now far below 20% margins, Mark. On the Industrial Automation side, yes, there is a mix change, if you like, the margin mix change, but it's much, much smaller.
It's much closer new construction to aftermarket in IA than it is in Process Automation. So as you think back, Mark, and you've known this business almost as long as me, right? So it's very, very infrequently that that really changes by more than a couple of hundred basis points the overall margin of Industrial Automation. And Dan, do you want to or Mark, do you want to ask your question on accountancy and Dan answer it?
Yeah. Exactly. This is a very specific one that I'm afraid it was an incoming I received that is beyond my accounting knowledge, a commentary for someone out in the market about your inventory impairment provisions having gone from sort of 11%- 12% to, since 2021, not having existed within your accounting. I think that's a misinterpretation, but I'd love Dan just to clarify that.
Yeah. Yeah. Thanks. Thanks, Mark. We're not sure where this is coming from. Just a general comment that if anybody has any insights about our accounting, please come and talk to us because we can clear it up. I think it refers to the note we have in our annual report. Yes, we did change the way in which we disclose some of the impairment and provisioning a while back, 2020 or 2019, but in no way has it changed the way in which we do our provisioning. In fact, the reason why we made that change is we actually tightened up our E&O provisioning policies, which means we're providing more quickly during the year and making sure we stay in front of it. The fact is, and it's on the page on the annual report, our provision as a percentage of the stock level has not changed.
It was 11%-12% five years ago. It's still 11%-12%. And we continue to charge into our results. We provide for the excess and obsolete. And yeah, we do. When you have a 10-foot bar stock and you make actuators from it and you're left with three inches at the end, you have to throw that away. And that's what the provision covers. And yeah, indeed, if we make product that ultimately we don't sell, we have to put that away. We're not impairing as much because we're providing more quickly into the accounts. But again, happy to talk to anybody who has something specific there. But I think someone's misinterpreting what's going on in our accounts. We absolutely have a fully provided stock level, and it's pretty apparent.
And since this might be the last question, let me just say and put it on the official record since it's the 28th of February, happy birthday to my son who turns 22 today. I just wanted to get that in the official record.
The only thing I would add to that, Mark, is obviously our cash growth is 92%, right? And we carefully watch profits to cash when we do our business reviews, right? We know ultimately it's about the cash you generate. And as Dan said, the provision as a percentage of inventory is the same as it was five years ago.
Yeah.
Very good.
And I think that's it.
Thank you. And happy birthday . Thank you.
Very good. I think, Moderator, that's the end of the question. So I'll probably just summarize by saying that obviously we're really proud of the record results. We're really pleased with the way the sort of One IMI operating system is working, and as I said, how Jackie's driving those best practices across the group. We're really pleased with the cash generation, and we're returning a lot of that, potentially more than GBP 280 million to shareholders this year. Thanks very much, everybody.