Good morning, thank you for attending today's IMI's first quarter trading update. My name is Sarah, and I'll be your moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you'd like to ask a question, press star one on your telephone keypad. I would like to pass the conference over to our host, Roy Twite. Please go ahead.
Good morning, everybody, and welcome to IMI's first quarter trading update. I am joined here, as normal, by Dan Shook, our CFO. Hopefully, you have all had the chance to read through the press release this morning. While market conditions are highly uncertain, we are pleased to be reconfirming guidance for the full year. We continue to expect to deliver another year of mid-single-digit organic revenue growth in 2025, and EPS we expect to be between GBP 1.29 and GBP 1.36. We saw continued strong momentum in process automation, with orders up 7% organically in the first quarter and the order book now 13% higher than March 2024. We made further progress in the resilient, high-margin process automation aftermarket, where organic orders were up another 19% in the first quarter. Climate control also delivered another good performance, as we saw continued demand for our energy-efficient products.
The other sectors delivered as expected, with life science and fluid control flat, industrial automation, and transport lower than the prior year. I am also pleased to report that group margins were up in the first quarter, supported by demand for our innovative high-value-add solutions, our strong pricing power, significant aftermarket exposure, and the final benefits from our restructuring program. As you all know, at IMI, we have had an extremely disciplined approach to capital allocation, and we are committed to the delivery of our financial framework. As such, we are announcing the strategic review of our transport sector. Whilst the sector has strong positions in its end markets, we will be assessing its ability to deliver our financial framework over the medium term. Before I hand back to the operator, I would like to provide a quick update on tariffs.
Our teams have been incredibly busy working through all the exemptions and quantifying our likely exposure. As things stand today, I can confirm that IMI's major non-exempted trade flows stand at about GBP 50 million per year from Mexico into the U.S.A., GBP 20 million per year from the EU into the U.S.A., GBP 10 million from the U.K., and GBP 6 million from China, all into the U.S.A. On top of that, we have had GBP 30 million per year from various other countries flowing to the U.S.A., and an estimated GBP 5 million of tariff effects from steel, aluminum, and other secondary tariffs. As demonstrated on a smaller scale when tariffs have been implemented previously, we believe that we are well placed to manage the direct impact of the currently proposed tariffs through pricing surcharges and our regional manufacturing footprint.
We remain alert to any changes in customer behavior, and we will respond quickly to opportunities to unlock further growth. With that, I'm going to hand back to the operator who will manage the Q&A session. Thank you.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. To remove your question, press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question comes from the line of Lushanthan Mahendrarajah from JPMorgan. Please go ahead.
Morning, guys. Thanks for taking my questions. I think I've got three, which I can take if that's easier. The first is just on transport and the strategic review. I guess, can you give us a bit more color on the reasons and, I guess, the timings? I guess, why now, and then how we should think about the timeline going forward in terms of next steps, and sort of is it a sale, or is it sort of something you can do to sort of push that business a bit further? Should I leave it there or should I do all three of my questions now?
Yeah, your line is terrible, sorry, Lush. Carry on with your questions, and then we'll have to confirm that we've answered you properly, yeah.
Okay, sorry about that. The second is just on process automation. Obviously, very strong orders, particularly aftermarket. I guess you call out nuclear, but is there anything else in that sort of really strong or a bit softer that is worth flagging? I guess, within that, is there any down? Is there anything particularly driving that as well? That was the second question. The third is just on tariffs, sort of very helpful color there in terms of where the imports are coming from. In terms of across the five businesses, is there any business that is more exposed to those imports? I guess, how do your competitors fare in those specific end markets?
Brilliant. Okay, I think I've got it right. First one on transport. Strategic review, we have made good progress with transport, I have to say. We've moved manufacturing to some of our most competitive, some of our best factories over the last couple of years. We have built a really strong leadership team. We've got a really good leadership team. We have some newer members out of passenger car who completely understand how you compete and win in this industry. If we're honest with ourselves, the rest of IMI have made more progress, right? We have moved returns and growth rates firmly in the right direction across IMI. Margins have gone from sort of 14% to close to 20%. That's not where transport is in terms of margins. We're clear about our financial framework.
As I said at the beginning of the call, we're absolutely committed to that financial framework. I've personally talked to the sector president, and we're completely aligned. He has a great plan for improving that business. He's obviously going to accelerate that plan now to improve the returns from transport. We'll look at all the options, and we'll see. We're certainly not, lush, going to buy or sell that business. It's a good business. It makes good returns. It's certainly not going to be sold in a hurry at a discount. I want to make sure all shareholders understand that. We are going to improve it. One way or the other, we're going to improve the situation for IMI. As I said, we're completely committed to the financial framework. Did that capture? Because your line, as I said, wasn't great, Lush.
[Yes, that was very helpful].
In terms of timeline, yeah, in terms of timeline, obviously, we're not going to put a timeline. We're certainly not going to reduce the value of the business by forcing any sort of timeline on it. I see this very much, like the 20-30% of what was critical back in 2019, where 20-30% of critical was not hitting the financial framework. It was particularly poor on the margins. That part today, honestly, is obviously well in line with the rest of process automation. Actually, if we had sold it, it would have been a—it would not have been good in terms of creation of shareholder value. The team there, as you know, did phenomenally well. I see it very much like that. I think we reported on that. Obviously, every quarter, we reported on the progress on that.
After two years, we said, "Actually, this is far too good. We're definitely not going to sell it. We're going to retain it." I see a similar pattern with this exercise around strategic review of transport. The internal team is absolutely focused on improving that business. The second question was about process automation. Yeah, I mean, phenomenal performance again. We had a review of the business again yesterday. That whole aftermarket strategy is really firing on all cylinders, right? Lots of upgrades of our own valves, lots of upgrades of competitor valves, and really good parts orders in the quarter as well. We called out the nuclear orders because, one, it takes longer, obviously, on a nuclear upgrade. We will not be delivering those this year.
We said consistently we expect process automation to deliver high single-digit percentage increase in shipments this year. We absolutely still expect that Lush. Obviously, the strong aftermarket orders in the first quarter really underpin the performance of that and give us confidence in our overall business for the year. That is why we are confident in our outlook and keeping the outlook exactly the same. What I would say is that we called out the nuclear orders. The nuclear orders year on year was about GBP 12 million up, I think. If you strip those out, because they are multi-year, then still aftermarket orders, I think, were up about 10% then in the first quarter. Still nicely double-digit growth on aftermarket, even when you take out that higher nuclear order Lush. We feel good.
On the new construction side, we were slightly down, but that is just phasing of mainly LNG New Construction orders. We have got a really good pipeline on the LNG New Construction orders. Apart from, obviously, we called out last year, we got that multi-year marine order, which I think was about GBP 35 million. Make sure you count that in your models because we keep counting that out. If you look at the sort of underlying business, we think new construction this year will hold up well as well. Your last question was on tariffs. Yeah, I went through all of the trade flows. We have done a lot of work, as you can see. We have obviously moved out the exempted trade flows.
We've looked at every way that we can, if we're shipping from different countries, make sure that we minimize the impact of potential tariffs. That's what we're left with in terms of trade flows. In terms of the sectors that are impacted, actually now, because of what's happened where tariffs have been applied very broadly across the world, actually, it's quite similar the effect between transport, industrial automation, with process automation, again, depending on the exact mix of shipments for this year, but just slightly less than those two. They're the big three. Obviously, climate's not very much affected because it's mainly a European business. Life science is not very much affected because it's very regional in the way that we support customers. It's really those three where the big impact is. Now, Lush, did I cover your questions adequately then?
Yeah, I didn't get that. Really appreciate it. Thanks very much.
Thanks, Lush.
Thank you. The next question is from Christian Hinderaker with Goldman Sachs. You may proceed.
Morning, Roy. Morning, Dan. I want to start on IA, if I may. I'm curious as to you previously guided on the sort of 60-day moving average for order intake. How did that trend in the quarter? What did you see as well in April relative to the minus 7% organic, which I think was affected to cyber and just thinking about conditions in demand overall? I'll start there.
Yeah, good question, Christian. Yeah, 60-day moving average orders is slightly up, Christian. I do not want to get too excited, but it is slightly up. Jackie and the team doing a phenomenal job in terms of commercial excellence, really driving that in IA. Obviously, that was the hardest hit area by cyber, right? As you know, we supply around 200,000 products, right? It has complex supply chains. Normally, that is to our advantage in terms of how we can create good value for customers in terms of service and in terms of margins for ourselves, capture some of that value. Obviously, when you get hit by a very severe cyber attack, then that creates problems within the supply chain, and that is what happens. We have started to recover that. We are not anywhere near that down in April. That is great.
I'm obviously not going to report on April as such, Christian, but April was another factor in our confidence in reassuring around guidance overall, but also within IA. I want to say about IA, it was hardest hit. We do expect to recover quite a lot of that, but not all of it by the half year, Christian. What we are now saying about IA is that for the year, not so much because of cyber for the year, but because of the uncertainty in the markets, we expect IA to be roughly flat for the full year. We expect process automation to be slightly better than we thought at our last update, obviously due to the strength of the aftermarket orders. Nets, apart from FX, which is slightly worse, guidance is exactly the same as where we were, Christian.
Thanks, Roy. Very clear. Can I follow up on this just maybe more strategically or thinking about the long term in IA, given potential reshoring dynamics in the U.S., given the sort of trade dynamics? How do we think about your positioning there? Do you get a sense that customers are looking to expand capacity, and that's the sort of structural benefit? How do we think about the timing of all of that?
Yeah, I think that there's a long way to go with tariffs, right, Christian? Everybody's sort of thinking, "Okay, exactly how will this play out?" I would say right now, there's more uncertainty. Although, as I said, our moving average orders are slightly up overall. I think that there will be some reshoring inevitably. We're looking at some things that will now make a bit more sense to make in the U.S. It is round the edges for us, I will have to say. To do that, automation will inevitably be involved, Christian, for us and for other people. Because it's very hard. If you think about hourly rates, typically the U.S., the total factory, fully absorbed cost, hourly rate is typically more than twice some of these other countries that you say.
To actually compete from the U.S., well, let's face it, it's not always easy to get the labor in the U.S. that you need to run the production lines. Automation is certainly in our minds, and it's certainly in the minds of our customers as well. I would say it's not an immediate thing because of the sort of uncertainty. People want to see how this is all playing out. Over time, I think we'll play well into that. I feel really good about where the industrial automation business is, both in terms of the sort of, let's call it the overall market trend. I think that's going to be stronger than it's been for a while. I think not only in the U.S., Christian, but also in Germany, right? Where Germany is a very significant market for us.
It's a very significant market because not only have you got the domestic market, but obviously it's a huge export market from there. If Germany hopefully starts to spend the EUR 500 billion that's going to invest in infrastructure, Germany's one of our best automation markets. I think that sort of dynamic is good. Plus internally, where we are with the business, the team, where Jackie's got it, I think we're going to make some good progress as that comes through the cycle.
Thanks, Roy. Maybe just a third and final one on process. You've talked about sort of aftermarket strength and relative softness in OE. What are you hearing from customers on the OE side? How do we think about the oil price sensitivity given WTI is now sub-$60? Just thinking about demand dynamics as we look into the rest of the year.
Yeah, I think so what we see at the moment generally across the world is still strong pipelines on the new construction side. Remember that oil and gas new construction is about 20% of process automation. The most important thing about process automation now is that 60% of it is aftermarket and is motoring, Christian, because the gross margins are two and a half times in aftermarket what they are in new construction. Obviously, to feed that aftermarket, we do two things. One is we upgrade our old valves and our competitors' valves. As you know, that's been very successful. Two is we've got to feed from the new construction side that installed base. On that side, of that 20%, around 60% is gas. We think that the fundamentals for gas are still strong. In fact, we had a business review on process automation yesterday.
The team are talking that they believe as well that gas is going to be strong for multiple years, put it that way.
Understood. Thank you.
Thanks, Christian.
Thank you. The next question is from Andrew Simms with Berenberg. You may proceed.
Morning, everyone. Thanks for taking the questions. Just firstly on the life sciences side of things, I mean, another sort of it seems like it's bouncing along the bottom still. Is there any sort of signs of life there in conversations you're having with customers as to whether I suppose when or whether that picks up maybe at the back end of this year? I appreciate comments getting easier, but any comment on that would be useful. Then you mentioned some of the commercial side of things in IA, which the team is doing very well at. I don't know if you can expand on that and just maybe provide a few examples as to some of the changes which have been made and how that's affecting the business. That'd be great. Thank you.
Yeah, brilliant. Yep. No, we are not calling a recovery in life sciences. I think we've said this many times. We basically forecast it flat for this year. And there's nothing in our forecast that relies on any market recovery. I've got to make that completely clear. This isn't one of those forecasts where we're suddenly relying on a big second half recovery in any market. We're not doing that. Really, what will change in terms of our sales, if you think about it, is process automation shipment schedule. We've got a lot of shipments going out in Q2. As usual, we'll have a lot of shipments going out in Q4. Overall, we think that gets us to high single-digit organic sales growth this year. We map that project by project. The other thing that changes quite significantly is the transport comparator, right?
Transport is a very, very tough comparator in the first half just because our truck customers were absolutely accelerating through the first half of last year as they managed to procure all of the electronic components that they could not get after the supply chain crisis after COVID. Obviously, that unwound in the second half. In the second half of this year, a comparator is much easier. That is really the two components that mean that we get to mid-single-digit organic growth. We are not calling a recovery in life sciences. There are some good signals out there, however, that things are starting to improve. I know that one of our customers yesterday upgraded. Obviously, there is a bit of stock between us and them. One of our customers upgraded yesterday, which is good.
The use of reagents, you think what's happened is there's been an oversupply of the equipment during COVID. Obviously, all of that new kit is out there. People haven't been replacing or buying new kit at such a fast rate. The market's pretty flat at the moment. In terms of the reagents that are being used on the equipment, that has been picking up. That's a good signal that the kit is being used and that eventually the new programs will come through. In fact, our customers are now talking about launching new models, which of course they weren't talking about for the last couple of years. There are signs, but our outlook does not rely. Life sciences itself, remember, is 7% of IMI's business. We're certainly not relying on a recovery in that market.
In terms of industrial automation, yeah, it's really exciting. What Jackie's been doing is we've completely implemented world-class CRM, basically IT systems across IA. What he's doing is ensuring that our data allows us to drive the best possible Salesforce efficiency. We've really got a much better picture now of where the biggest and best opportunities are. We're driving Salesforce effectiveness and productivity. The pipeline is really starting to improve in terms of projects that we've got that are opportunities for us to win. We're also doing a huge amount of Salesforce training to make sure that the salespeople are best equipped to solve customer problems using our dazzling array of technical solutions that we have to solve those problems. That's why I'm really excited.
That commercial front, it's pretty much similar to what we've done across certainly the rest of IMI in terms of commercial excellence. Then behind that, driving market-led innovation. Then behind that, stripping the complexity out of the system. We've done a huge amount of that in IA. We've got far fewer factories in IA now. The factories we've got are much better. Therefore, our net promoter scores for customers, our customer satisfaction scores, are now up at 60, whereas five, six years ago, they'd have been more like 10-20. That allows us happy customers, cross-sales to those happy customers, and then innovate into those customers as well. That's really the same pattern that we followed across the rest of IMI, making real progress now in IA.
Great. Many thanks.
Thank you, Andrew.
Thank you. The next question is from Jonathan Hurn with Barclays. You may proceed.
Hey, guys. Good morning. Just a few questions from me, please. Firstly, just coming back to transport. Can you say if you've had any external interest in that asset previously as anyone looked to buy that? That was essentially the first one. The second one is just on climate. Obviously, seeing the strongest growth in Q1, +4%. If you kind of look back to this time last year, the comp is pretty easy. As we go forward for climate, obviously, the year-on-year comps get tougher. What kind of growth can we expect from climate in 2025? The third one was just coming back to process. Obviously, good order book, you're calling out high single-digit growth for that business in 2025.
Just in terms of the book to ship within that business to meet that, how much book to ship do we need to get in the remainder of the year to essentially hit that high single-digit growth aspiration? Thanks.
Yeah, obviously, the book to ship is declining rapidly. I'll let Dan get onto the book to ship at the end. In terms of transport, no, we haven't had any what I would call proper interest in that business externally, Jonathan. By putting it under strategic review, we'll see how that goes, right? That will obviously put it up there, and we'll see if there's more interest in that business. That's why it's very important that our team really gets on it and improves and moves towards our financial framework for transport, just like what was critical engineering team did back in 2019. In terms of process automation, sorry, in terms of climate, I'll let Dan do process automation in terms of book to ship.
But in terms of climate, yeah, we see in terms of what customers are telling us, in terms of the sort of market feel, I was at the big HVAC show in Germany a few weeks back. In terms of our new product launches as well, as you know, we have got some really good new products which are more connected. So the TA- Smart valves that we have talked about many times, that is starting to get real traction. We have got pockets of the market as well that are small at the moment, like data centers, but which are expanding quickly and which we have got real focus around as well, Jonathan. When you put it all together in terms of climate and you think about what it has achieved over the last five, six years, it is pretty much mid-single-digit growth. That is what we see again this year.
Despite the fact that the market itself, we do not think it is going to be particularly fantastic, we expect to deliver mid-single-digit growth in climate. Dan, do you want to talk about book to ship and process?
Yeah. I think we already talked about it on the February call, where our expectation is we're still going to see a growing order book, and book to build this year is going to continue to move positively, Jonathan. That, of course, with new construction orders coming in in the first half, and particularly on the upgrade and the parts, gives us good momentum. You saw it in the first quarter as well. There is a bit more book to ship to deliver on process this year relative to last year. I think the momentum that you've seen kind of going through on the orders makes us comfortable that we'll still hit that guidance of high single digits. Yeah, there's a little bit more to deliver. The first half is pretty much as you'd expect. It's fully in the order book.
I think the second quarter, as we get the orders in, that'll give us a good comfort. A little bit more on book to ship, but nothing that the team can't handle.
Okay. Great takeaway. Thank you very much.
Brilliant, Jonathan.
Thanks, John.
Thank you. The next question is from Stephan Klepp with HSBC. Please go ahead.
Yeah. Hi. Morning, everyone. A few leftovers, and I do not want to be too much of a nitpicker here. If I look into the new construction orders in process automation and use the typical 40%, I calculated it is down 10%. I mean, am I completely wrong there? I mean, you mentioned already what is happening, but can you give a little bit more color on that one? The second one, if I am looking into the Q2 pickup, I mean, you have not been able to ship for 10 days. How much of a pickup and how much of an order growth are you basically implying is going to happen in the second quarter to basically meet your guidance, particularly here interest is process automation and industrial automation again?
Yeah. In terms of new construction, you bang on there, Jonathan. You're right. 10% down. That translates to GBP 10 million. GBP 10 million. That, as I said earlier, is basically LNG order phasing. We just got a big LNG order Q1 last year, and we're expecting bigger LNG orders Q2 this year. Throughout the year, LNG picks up. It really is LNG order phasing. The only thing I was going to say, as I did say earlier, is important. We did get that huge marine order in new construction, I'll say this again, GBP 35 million Q2 last year. Just make sure that everybody understands.
By the end of the year, if you strip out that multi-year marine order, which is obviously still nicely in our order books, we expect new onstruction to be holding its own, Stephan, with the growth coming through again in the aftermarket, shifting the mix of the business more towards aftermarket, which again, obviously helps us in terms of returns.
Perfect. Thanks.
Thanks, Stephan. In terms of IA, yeah. I mean, I think that the cyber incident, it's very hard to measure exactly. I mean, you think about it. We have resisted 300 cyber ransom attacks over the years, Stephan, right? This one was a really, really severe one. You are seeing it in the retailers at the moment. These guys are getting more and more sophisticated. This was a particularly nasty one. Our systems, as you know, were down for around 10 days globally. I mean, it was horrendous. I have to thank all our people because the response to that, honestly, was incredible. Despite that incredible response, we estimate, and this is only an estimate, that our sales were hit by, across the group, were hit by more than 2% in the first quarter.
The bulk of that is in automation, and the bulk of that is in industrial automation, right? Yeah, we expect a much better second quarter in industrial automation. As I said, the 60-day moving average orders were slightly up. Actually, orders in the first quarter, I think, were only 2% down, just to give you a against a more difficult quarter last year. That is why we think industrial automation for the year will be broadly flat, Stephan.
For clarity, we have had 300 attempts from what we track with our cyber support. The lion's share of those never get in, but a handful have over the last five years. This one clearly was the most difficult to manage through. Yeah, as you say, Roy, the IT organization, but also everybody in IMI really came together and got us back up really, really quickly.
Yeah. Great. Splendid. I have another nitpicking one. In life sciences, for the first half, you have been guiding minus or minus mid-single digit organically. Now, the first quarter was flat. Are you basically sticking to that? I heard what you said before that you expect a flat year, but the first half was guided down mid-single digit. Are you basically saying this is still the case, and Q2 is going to see quite a big slump?
Yeah. Q2 last year had a nice, yeah, it was a nice comp. It is a bit tougher comp, Stephan. It was up, yeah, it was up about 10% on Q1 sequentially. Yeah, we are going to hold to that and ask us in July.
Okay. Fair. Thank you, guys.
Thanks, mate.
Thank you. The next question is from Alexander Virgo with Bank of America. You may proceed.
Yeah. Thanks very much. Morning, Roy. Morning, Dan. I wondered if I just wanted to pick up a little bit on your comment there on the transport strategic review. You talked about the comparability with putting the 30% acritical under strategic review. And obviously, those businesses then responded incredibly well, and you then chose to keep them, as you said, to the benefit of the group. I'm wondering, when you look at transport, you don't presumably see quite the same sort of potential there in terms of bringing that margin up into the broader group financial framework. Or am I wrong? That's the wrong interpretation. I guess that's the question I'm getting at. Thanks.
Yeah. No, I think way back in 2019, Alex, and we were in about the position with what was critical engineering as we are with transport now, right? It was a big, in fact, it was a bigger ask to get that part of the business, get their margins to where we were targeting than it is to move transport in terms of just the sheer quantum of what needed to be done. I would say it is a very, very similar situation. The actions being taken, though, will obviously be different, right? In critical engineering at that time, that part of the business, I was told, Alex, by the previous management for a decade that you could not develop aftermarket business in that segment, which is why we went public with the strategic review and said, "Right.
Either we're going to develop the aftermarket business and move the margins significantly. We're talking, what, Dan, over 1,000 basis points?
Yeah.
We have to move the margins that far with it. Different actions will be taken, right? Lo and behold, Jackie at that time did a phenomenal job with that team, and that is exactly what they did. Now he told me what the margins were yesterday, honestly, in that part of the business, and it would have been terrible to have sold it. At that time, Alex, I was no more certain around that than I am with transport, to be completely honest with you. With transport, as I said, we have got a fantastic team. We have got a team that is steeped in passenger car knowledge, which is, as you know, very, very hardcore in terms of commercial capability and what you need to do. They have built a good plan that we now need to accelerate. That plan is different.
It's not about the aftermarket. It's much more about value engineering. It's much more about making sure that the high-margin new product we've got, we scale up. It's much more around exiting low-margin product. We have moved a lot of the manufacturing to very competitive sites, which is great, but we now also need to deliver supply chain efficiencies behind that as well. We are delivering them, but we need to accelerate that as well. It is a different sort of plan, Alex, but I would actually say probably that actually it's in a better position because I think we've got a stronger team in transport that really understand the markets and the dynamics to get on and deliver the financial framework. I would say it's probably a slightly better situation, but it's a lot to do as well.
Thanks, [that works]. That was really helpful. I guess what I'm getting at is that we could end up with seeing the same situation here. What I guess the explicit question is, does the transport business offer the opportunity to deliver 20% EBIT margins if you do and execute these actions in similar sort of fashion to the way the end result you gained in critical?
Yeah. The way I would answer that, Alex, is there's already parts of the transport business delivering the financial framework. We just need more of it to do that.
Yeah. All right. That's helpful. Thank you.
Thanks. Thanks, Alex.
Thank you. The next question is from Mark Davies Jones with Stifel. You may proceed.
Thank you. Morning, both. Firstly, can I just go back to the German stimulus? Because obviously, we're looking at potentially quite a big change in what has been a very sluggish market. Firstly, would I be right in thinking that's going to be more of a 2026 thing? We're not expecting any benefit of that this year. Secondly, do you think that reads across to climate as well as IA in terms of potential benefit? My second question was one for Dan, maybe. This is going to be the year when we saw another step up in cash conversion. Cash flow is restructuring fell away. Is that still very much the thinking, or is anything in the complexity coming out of tariffs meant you had to carry a bit more working capital or other costs associated with that would limit that cash conversion?
Great. As you very adequately put, a big change in a sluggish market. I think that's exactly right. I mean, Germany's last year has been very, very important. Technically, the market's a great engineering market, but it has been sluggish for a long time. I think definitely that is going to be more 2026 and even beyond that before it really starts to kick in. Although I think the confidence in the market is what I was trying to portray earlier, really, Mark, definitely feels stronger to me than it has for a while. You're absolutely right. It's both IA and climate, and there may even be some process automation infrastructure-type build as well, Mark. I wouldn't rule that out, but it's going to be, yeah, I think climate, industrial automation should be the winners out of that. And then cash. Yeah. Yeah.
Mark, still targeting and forecasting 90% cash conversion. No real change there. At this stage, no need to do anything different on working capital. We do expect we'll continue to migrate some of that additional stock out of the balance sheet. The one thing I'll remind everybody, we talked about it in February. We will have another CapEx figure similar to last year as we complete construction on a number of new facilities. That is why we're not seeing a higher cash conversion. There is a bit of an offset to the working capital coming off the books as we're completing the modernization of a few facilities. Yeah. Long way to stay. Still looking at 90%, Mark.
Great. Thank you very much.
Awesome. Thanks.
Thank you. Our last question has come from the line of Margaret Schooley with Redburn. Please go ahead.
Morning, Roy. Morning, Dan. Thanks for taking my questions. I just had one because I think we have exhausted a lot of them. Just to go back to transport, if you go through this review and ultimately it does get sold, can you just give us some understanding of if there would be any stranded costs and what the capacity in those facilities would look like? I do think they share some facilities with IA. Just a little more color on if eventually it does leave the group, how we should be thinking about that.
Yeah. Good question, Margaret. Yeah. Obviously, transport was born out of industrial automation. I mean, that's the point. A lot of our industrial automation fittings, valves, manifolds, systems were modified to be able to take the much harsher environment of being on a truck, Margaret. You're absolutely right. I think there's about five factories which we share between transport and industrial. It is integrated. We have started the process of absolutely making sure that the transport team have complete clarity and ownership of their part of the business. We've been doing that over the last six to nine months, something like that. We have started that process. The stranded costs, we'd have to have a look at things like tax. Put that to one side.
In terms of stranded fixed cost, it will be pretty small in the overall scheme of things. In terms of the carve-out, we're already adding a little bit of cost to transport, and we'll have to add a little bit more as well to make sure that where we've got shared services, we are making sure there's more of a sort of delineation between transport and industrial automation, Margaret. In terms of stranded costs that's left with the business, remember, transport's only 8% of our sales, right? In the scheme of things, that would be relatively low.
Very clear. Can I squeeze one last one in? Sorry. I know you have a lot of questions. Thank you for that. Just given the shape of the order book for process with OE and aftermarket being higher, and then Jackie having been within Life Tech for a year now and some of the incentives or changes that he's making there, can you just give us some color about how we should think about margin progression for the group, but also by division as we progress through the year, if you can?
Yeah. Margaret, overall, we expect to make progress on margins again this year. We expect to hit or even slightly exceed our 20% margin target this year. Obviously, automation, the automation platform, has had tremendous progress on margins. We think that'll be flatter this year purely because we're now taking all of the costs of any rationalization projects above the profit line, right? We have said that to investors.
February. Yeah.
Last year. That was the end of that program, right? We are now absorbing one to two-tenths of EPS in other improvement programs that we are running above the line. That is why we say automation, on an underlying basis, will make a bit of progress, but actually what we report will be roughly flat. We expect to make the progress on the Life Tech side, which is currently below the 20% target, and we expect that to come through this year. They will have some costs, to be honest with you, above the line in terms of rationalization, but they are also getting some benefits from the programs that we ran last year, and we expect to see that come through. That is how we see the shape of margin improvement. Overall margin improvement for the group again.
Very clear. Thank you very much.
Thanks, Margaret. Yep.
Thank you. There are no questions waiting at this time. I'll pass the conference back over to the management team for any further remarks.
Excellent. Thank you for your time today. I think you can see that we're really pleased with the progress of the business. The way it recovered from that cyber attack was, frankly, exceptional. The orders in process automation and the order book in process automation, plus where we are with the other businesses, gives us the confidence to reinforce guidance for this year. Thank you very much, and see you at the half year. Thank you.
That concludes the IMI First Quarter Trading Update. Thank you for your participation. You may now disconnect your line.