Thank you. Good morning, everybody. Thank you for taking the time to join us today. I am joined here, as usual, by Dan, our Finance Director. I will just take a moment to summarize the highlights from our IMS before we move to Q&A. I'd obviously like to begin with a very big thank you to all of our employees for their continued support, commitment, and contribution towards delivering our purpose-led strategy: breakthrough engineering for a better world. It has been another excellent performance as we recorded our ninth consecutive quarter of organic growth. Group revenues were up 16% versus the fourth quarter of last year and up 8% organically, with all three divisions delivering improved margins. Integration of our recent acquisitions is progressing well and it's unlocking exciting new opportunities for growth and delivering synergies in line with our business cases.
Our restructuring program continues to reduce complexity and remain firmly focused and on track to deliver the expected benefits. In Precision Engineering, lead indicators have continued to be resilient, particularly in Industrial Automation. Organic revenue for Precision Engineering grew by 4% in the quarter, with Industrial Automation organic revenues 3% higher than the same period last year, while Life Sciences delivered organic growth of 2% and transportation was up 10% on the same basis. Critical Engineering had another excellent quarter. A real highlight for me has been the organic order intake, which was up 50% on the prior year, including a GBP 26 million order within our marine sector, which covers deliveries in the coming years.
We set out a plan to accelerate aftermarket growth when we launched our strategy in 2019. The hard work from Jackie and the team over the last three years is clear to see. Organic orders grew by 47% in the period for aftermarket. This aftermarket growth has been driven by many of the division's self-help initiatives, with upgrade orders up 87% to nearly GBP 50 million in the quarter. A number of the aftermarket orders are nuclear and petrochemical and will not be shipped until 2024. The good momentum in new construction has also continued, with 55% growth in organic orders during the first quarter. The order book is 36% higher than the same period last year, reflecting the continued strong demand in our energy and marine end markets.
We now expect the Critical organic revenues will be up low double-digits, slightly increasing from our previous high single-digit guidance. Hydronic Engineering organic revenue was up 12% as we continue to see demand for our energy-saving products. Adjusted revenue was 25% higher than the same period last year, with Heatmiser integrating really well and providing a positive contribution to performance in the quarter, slightly ahead of our business case. Following a strong first quarter performance and based on current market conditions, we now expect 2023 full year adjusted EPS to be in the range of 112 GBX-117 GBX. We continue to expect that IMI Critical and IMI Hydronic 2023 organic revenues and margins will be higher than 2022.
Based on the latest market indicators, we now expect that IMI Precision's 2023 organic revenue will be broadly in line with 2022, with margins higher than last year. We remain confident in delivering our growth targets and the 20% operating margin target through the cycle and over time. Okay. With that, I'm gonna hand you back to the operator, who will manage the Q&A session for us. Thank you.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question today goes to George Featherstone of Bank of America. George, please go ahead. Your line is open.
Hi. Morning, Roy. Morning, Dan. Morning, everyone. Thanks for taking the questions. First one would just be on the strong start of the year in Critical. How should we think about the visibility that you now have in this business from that, very strong order book?
Right. Morning, George. Yeah, I think that the whole environment for Process Automation, you know, Critical's environment has obviously taken a step up. I think probably, George, we've been surprised at how quickly some of the orders that are coming through to improve energy security and around LNG and things like that for countries. Yeah, it's a strong environment and, you know, we're feeling very good obviously about this year, which is why we raised the guidance now to sort of low double-digit growth in Critical. George, I mean, the other good news for us is we're already building next year's order book, right? You know, we would think that all things being equal, that the order book at the end of this year in Critical will be double digit up again, you know?
You know, we're feeling very good about the environment. Our win rates are high. Actually, you know, every market now in Critical, power, oil and gas. Obviously LNG, obviously defense, you've seen that GBP 26 million order that we've won in there. Every single market now is, you know, strong tailwind and Jackie and the team are just doing really well in terms of winning. Yeah, we feel good about this year and we're starting to feel better about next year. The other thing I should add actually, George, is that, you know, aftermarket orders are as high as they are. Obviously, you've seen a big part of those upgrade valve orders, which has been the strategy for a while, but now is being helped by the market as well.
Those upgrade valves are obviously on a similar lead time as a new valve. They are actually, you know, the ones that we won in the first quarter, most of that will ship next year as well. Yeah, we're feeling good about this year and increasingly good about next year, George.
Thanks very much. Then maybe one on Precision Engineering. Your outlook here is clearly, you know, a bit more positive than it was at the full year results. What's driving this? Has the business decoupled in any way from the lead indicators that you'd normally track in this particular cycle?
I think I'll be very brave to say that, George. It's decoupled, right. You know, I think the positive news is, you know, Industrial Automation sales were up in the 1st quarter 3%. That, you know, Beth, the team, that was really good to see that come through. Actually, the order book at the end of the 1st quarter in Industrial Automation was up slightly as well, George. That was good. Talking to customers and, you know, we said, you know, the lead indicator, the market leading indicators, even the PMIs didn't come off as much as, you know, some feared. We definitely feel better about the 2nd quarter.
We, you know, I suppose the sort of third and fourth quarter, we haven't got brilliant visibility and actually within our guidance, so within the 112 pence to 117 pence, we are still forecasting that the second half will be worse for Precision than the first half. You know, hopefully, George, there is a level of decoupling, right? Actually we do better than even that. You know, we're still being a little bit conservative, hopefully, because consumers will still come under pressure. We know, you know, with interest rates continuing to rise with energy costs higher. You know, at some point, you know, we're not forecasting a decoupling. We would certainly like to see a decoupling though, George, and that would be great news.
I suppose the other thing to say is that certainly in the market, the reason why we think we're doing a bit better than we thought is all around the pressure on automation because of the higher, labor costs, you know, and the need to automate supply chain. You know, that underlying driver is still strong.
Okay. Thank you very much, guys.
Thanks, George.
Thanks, George.
Thank you. The next question goes to Christian Hinderaker of Goldman Sachs. Christian, please go ahead. Your line is open.
Yes, good morning, Roy, Dan, and thank you for the time. First I want to talk about your thoughts on the sustainability of the current demand, I guess within Critical in particular, and as it relates to new construction. I think if we back out the GBP 26 million marine order, it looks like Critical order growth was around 20%, but that's without sight of the 1Q 2022 comp. I just wanna understand the context here in terms of price cost, but also what's sort of fundamentally driving that in terms of customer behavior. You talked about lead times now being more than 9 months. I guess wonder how that changed versus history, and whether that extended lead time is effectively meaning that your order intake is growing at a higher pace.
Then I'll come back to the other two.
A brilliant question. Yeah, and on sustainability, I mean, we feel very good about the Critical Engineering market. I think, you know, there's a lot of activity, Christian, you know, I would say right now. As we continued into April, we're still seeing, you know, very strong activity in Critical Engineering. I think most people feel that LNG in particular is gonna be strong, you know, for the, well, for the foreseeable future, right? For the medium term, it's gonna be strong. It certainly feels like that. You know, particularly investment activity in the Middle East particularly is very, very high. That's good because, we mentioned that we have put our own facility into the Middle East, which was completed sort of third quarter of last year.
Now Jackie and the team are starting to reap the rewards of that as well. You know, we feel very well positioned for the Middle East. Our win rates are really high. Then you've got the receiving terminals obviously going into Europe, China, and our win rates in China have been very high as well. LNG, I think, you know, Christian, feels very good to us at the moment and good for the foreseeable future. The rest of oil and gas is also strong and you can see that across some of our peers as well. We think, you know, that's in a good position. We actually, you know, if you look at the comparator, it wasn't a weak comparator for Critical by any means.
You know, we called out that defense order because we'll deliver that over the next few years rather than our normal sort of 12 to 18 months. You know, you'd have to put some of that order back in, right? You can't just strip the whole thing out. I think, yeah, new construction feels strong. Aftermarket still feels very strong, as I said on the last call. Operators working their facilities hard, you know, in conjunction with our aftermarket strategy, you know, which is firing on all cylinders. I think we feel, you know, pretty good about the sort of, you know, the sort of next periods, if you like, in terms of critical demand, Christian.
Thanks, Roy. Maybe we can come on to the supply chain side, I guess both on your side of the business. I think at the full year results, we were talking, that you'd had some customer destocking and issues with component supply and electronics, and also freight. I just wonder how that's developed in the quarter.
Yeah, it's gradually getting better, I would say, Christian. How has it affected us? Well, I think in Hydronics we've benefited actually in the first quarter from some wholesaler restocking. You know, if you probably look to underlying sales in the first quarter, they'd be, you know, 2%-3% lower if it wasn't for something like that, Christian, if it wasn't for some wholesaler restocking. You know, I think that's obviously it hit us in the fourth quarter last year, as you know, it slowed growth. I think it was down at 2% in the fourth quarter, but it came back strongly, as you can see in the first quarter. The other area it's affected us is in Life Science, so we only grew at 2%, and that is definitely customer destocking.
Underlying demand is the opposite there. It's up sort of, you know, mid to high single digits in terms of our customer sell out. You know, we feel good about sort of Life Science recovery second half. Then more generally, I think, you know, we're starting to see much better supply now of electronic components. You know, we've seen that into Heatmiser now, which is reassuring. You know, Heatmiser grew double-digit first quarter, so we're starting to see that ease. I think generally things are getting better. You know, boats are getting into ports faster, and, you know, even electronics is starting to improve, Christian. Yeah, you know, I think we feel better about supply chains right now.
Thanks, Roy. That's all from me.
Great. Thanks, Christian.
Thank you. The next question goes to Andrew Douglas of Jefferies. Andrew, please go ahead. Your line is open.
Morning, gents. The obligatory, three questions from me, please. You've, you've kind of answered this, but I wouldn't mind just going to a bit more detail on LNG. In terms of the progress that you're making there, do you think this year is when you win all of your awards for the next 2-3 years? Or do we still see awards coming through in LNG over the next 2-3 years, which means that we have, you know, 4-5 years visibility, if that makes sense. Just on that, the win rate comment, my understanding is particularly with one of the your larger customers, that you pretty much win all of their LNG work. Is that still fair? That's my first question.
Second question is just on transportation inside Precision, you know, +10% is a good number, given the backdrop. Can you just give us a little bit of help from a regional perspective, U.S., Europe, and China, just to see where the strength is there? Dan, no free pass for you, I'm afraid. Can you just talk to us about cash, how cash is doing in the first half or I guess first quarter, first half? Any thoughts full year would be great.
Well, Andy, good morning to you, and thanks for bringing Dan into the conversation.
Hey, Andy. It's about time. It's about time. It's about time.
Yeah. The one question I missed, Andy, was the one about 10% you said. What was that?
Transport.
On transport.
Was it railway?
Transport. Okay. Yes. Got it.
Transport and precision. Yes. A nice number.
Yeah.
Yeah.
Got it. Got it. You know, it's very good. Then again, you know, Beth, Steve, and the team doing a great job actually in that segment. Really pleased. Yeah, LNG awards. I talked to a customer very recently, a big customer in the last week, Andy, on LNG, and they feel that there will be further awards, right? This, the LNG, you know, contribution to energy security, is gonna be pretty significant, right? Yeah. I think awards over the next two, three years, as you said, is the base case. It's the most probable outcome. I still think, you know, we're really only seeing the sort of beginning of this.
There's gonna be more receiving terminals, more compression terminals, yeah, I think LNG is a vital part of energy transition as well. Win rates, yeah. Hi, Andy. You know, again, Jackie and the team, and this is, as you know, years' worth of work, years' worth of value engineering, making sure we're competitive, make sure, you know, what Jackie's added is really strong customer coverage. You know, obviously, as you know, into the aftermarket. Really, you know, we implemented CRM. It was a big and difficult investment, as you can remember, but all done, you know, a few years ago. Now our mapping of the installed base is well, very strong. Then we throw on top of that Growth Hub and the innovations with things like Retrofit 3D aerosol and those teams.
You know, win rates are really high. Yeah, we, you know, we are strong in LNG exactly as you indicated, Andy. Transport. Yeah. Interesting. Transport. Actually within that, rail was the strongest, as you probably expected, Andy. Rail really strong. That is actually strong, pretty strong globally. In terms of commercial vehicles, we're obviously seeing a China rebound, right, as we expected, and that's probably the biggest call-out, I would say, in terms of the regions.
Yeah.
Dan, on cash, anything?
Yeah.
On cash? I mean, a good quarter, right.
Yeah. Good, good first quarter, Andy, and as Roy already said, the supply chains are getting a bit better. We're getting at some of the stock and bringing that down. Now, with the orders coming in with Critical, there'll be an offset there 'cause we'll need to start building for those, for those orders. Overall, I think we're still on track for a good first half, but I'd still say we'll probably see more of the cash delivery in the second half of the year as we go through.
Wonderful.
Yeah. Probably the only thing I should add is that CV was up across all the regions actually.
Yeah.
You know. China's strong rebound is the big standout.
Yeah.
You know, it's up across all the regions, yeah.
Yeah. Superb. Thanks guys. Well done.
Brilliant.
Thanks Andy.
Thank you. The next question goes to Jonathan Hurn of Barclays. Jonathan, please go ahead. Your line is open.
Hey guys. Good morning. Just a few questions from me, please. Firstly, just starting on Critical. Can you just talk a little bit about the margin within the order book for Critical? Obviously, you've had a bump up in terms of new construction. Can you just tell us how that margin is sort of trending year-on-year in the order book, please? That was the first one.
Yeah, thanks, Jonathan. Yeah, margin's about the same place as they were this time last year, you know, which is good. As you know, you know, we're expecting to be up on margin this year in terms of our guidance. Then we've still got some restructuring benefits to come through next year as well, Jonathan, as you know. As we said on the last call, you know, we are pausing any footprint changes while we absolutely prioritize, you know, the order intake and obviously the shipment of all the orders and customer service and win rates ultimately. That will come through, you know, next year and the year after we see as we mapped out for you, Jonathan, more benefits from that restructuring program into Critical.
Great. It's very clear. Secondly, just staying on Critical, can you just talk us about the capacity there within that business? Are you fully booked for 2023 for Critical, or is there still some more availability if things continue to come through from the order book?
I mean, in terms of new construction, as you know Jonathan, 12-18 months lead time, right? We're pretty much fully booked on new construction. In terms of aftermarket book to ship, still aftermarket book to ship to go. In terms of capacity, we're fine in terms of aftermarket capacity. In terms of new construction capacity, actually 2 of our bigger plants, 2 of our best plants as well, actually, India, South Korea, still only working on just over 1 shift, Jonathan. You know, in terms of our own internal capacity, we're in pretty good shape in Critical. Obviously, supply chains we expect will come under pressure though, obviously, because most people in sort of Process Automation are seeing a lift. Those sort of larger castings.
We've done a lot of work on the supply chain, as you know, you know, and we've, you know, reduced the number of single source suppliers from, I think it's about 60 to about 6. We've got more options. You know, at some point if this continues at anything close to this rate, I'd expect the supply chain to start to see some slightly longer, you know, delivery times. Yeah, so far internal capacity looking good and so far supply chain holding up well.
Yeah. Great. Great. Maybe just sort of one final one on Precision just in terms of Industrial Automation. Can you just give us a feel for the sort of progress of aftermarket within that, within Q1? Is that where most of the demand has been or has it been sort of more on the OE side?
It's been pretty balanced actually. I mean, aftermarket is still running around 40% of the overall for Industrial Automation, nice strong aftermarket. Yeah, OE holding up as well, Jonathan. It's pretty balanced at the moment. As I said, you know, we're still seeing strong demand for automation, but, you know, you talk to some customers, particularly in North America, and the feedback we're getting is that, you know, still I suppose uncertainty around Q3, Q4, right? In terms of Industrial Automation. That's why we're still forecasting, as I said, a slight tapering off when you compare half one of this year to half two.
That's very clear. Thanks a lot, guys. Thank you.
Great. Thanks, Jonathan.
Thanks, Jonathan.
Thank you, and as a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. Our next question goes to Mark Fielding of RBC. Mark, please go ahead, your line is open.
Yeah, morning. Can I just ask a bit about pricing and the impact it's had? Can you maybe talk about pricing in the overall number and by division and, you know, that implication, I suppose, that are we actually in positive volumes in Precision or is it still more in a sort of steady state in that area? Then obviously how big a kicker it was in something like that very strong Hydronics number as well.
Yeah. I mean, I would just give you a rough idea, Mark, without getting too commercially sensitive. Pricing overall is now moving back towards, you know, more 50% of the overall 8% growth Mark. You know, it gets, you know, unit volumes up now, you know, across the piece. As you know, in Hydronic we had more inflation and we passed more of that through. You know, that's a bit more price than that average and Critical is a bit less. You know, to give you an overall picture, it's nice now to see volume, unit volume coming through again.
Great. Thanks. Just quickly on hydronic, I mean, obviously you already flagged that sort of 2%-3% wholesaler restocking benefit. How do you think about the pattern through this year, you know, as the supply chain, you know, generally is a bit more normal in the world, should this stop being such a sort of changing factor as well and, you know? What do we think about specifically for sort of Q2 H2 on that impact?
Yeah. What we think is that Hydronics will grow sort of mid to high single digits this year. You know, that's where we still see sort of underlying demand, you know, with some of these ups and downs. You know, we're pretty encouraged because Dan and I, Mark, you know, we saw you there, but at the ISH show, and we talked to a lot of customers there and Germany, you know, where the show was, is sort of 25% of the overall business, but it's backed up by other customer visits that they see strong demand for energy saving product. I know a lot of other people are calling out, you know, reduced demand on sort of residential construction, but at the moment, our customers are saying, yeah, but demand for energy saving products is still there.
That's why we think mid to sort of high single digits, Mark.
Actually just one follow-up to a link to my first question. When we think about the full year comments you've made there, and obviously Critical as well, you know, as the year goes, I assume that that pricing input, you know, takes us further from sort of 50% to, you know, How much of that is priced in the full year number?
Yeah, it will start. That's right, it will start to taper for sure because as you know, we were very early on pricing. You know, as soon as those inflation indicators were going the wrong way, Mark. Yeah, our pricing will start to taper.
Great. Thank you.
Thanks, Mark.
Thank you. The next question goes to Mark Davies-Jones of Stifel. Mark, please go ahead. Your line is open.
Sorry, can you hear me now? Hello?
Yeah. Hi, Mark.
Hi. Sorry about that.
Yeah.
Apologies. I was just asking on the aftermarket side, in Critical, are you seeing on the power side a benefit from life extension on some of those fossil power plants? Is that one of the things supporting activity at the moment, or is that just in the round?
I think certainly, you know, we are seeing a good.
Yeah.
in terms of power aftermarket. If we look at our gas power aftermarket Q1, up 40%, Mark, you know. I think there's all sorts of things going on here, aren't there? You know, probably part of it is that, but part of it is more cycling, part of it, you know, with renewables and all of those sort of effects. Part of it is, you know, things around just making sure that the power grids are actually in good, you know, good working order. I mean, it's incredible, Mark, what's happening. We were talking to Jackie, you know, in Critical about China, the sheer amount of electric vehicles going into China is, you know, on a global scale, unbelievable.
Jackie was explaining, you know, what that's doing in terms of electrical outlets, electrical grid in China, and even, as I said earlier, even coal power going in just to enable...
Yeah.
the grid to keep up. Yeah, I think, you know, EVs are having an effect, particularly in China, but you know, obviously in other parts of the world as well. I think it's not as simple as one effect. There's lots of effects going on, but electrification is obviously a very strong trend and, you know, that will be met through all sorts of means, I'm sure.
Okay. Thank you.
Thanks, Mark.
Thank you. As a final reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. Our next question goes to Richard Paige of Numis. Richard, please go ahead. Your line is open.
Thank you. Morning. Just one simple one from me. Obviously Q1 performance better than I'd put in. With your commentary on Industrial Automation in the second half, I'm just wondering how we should think about the shape of profits in your full year guidance. I think you're traditionally sort of EBITs 44%-45% H1 weighted. How, how are you thinking about the year at the moment, please?
Yeah, I think we, you know, we're probably similar to a pretty normal sort of pattern, I think, Richard. You know, we're thinking about, yeah, I would say, you know, within the bounds of reason a normal sort of pattern.
Yeah.
You know, the normal things that affect that, Richard, Critical, second half weighted, heating season in Hydronics. You know, similar patterns we think this year to sort of traditional ones.
Okay. Thank you.
Thank you very much.
Thank you. We have no further questions. I'll hand back to Roy for any closing comments.
Excellent. Well, thanks for your time this morning. As you can see, you know, we're really proud of the team, really proud of the work that they're doing and, you know, I literally can't remember a stronger first quarter for IMI. We feel good about, you know, where the markets are and where our business is right now. Thank you very much.