IMI plc

Good morning everybody and welcome to IMI's 2025 interim results presentation. I am joined here as usual, but sadly for the last time by Dan Shook. I'd also like to extend a very warm welcome to Luke Grant, who many of you already know and is joining the presentation for the very first time. This slide covers the key messages in the presentation, and the first thing to say is that it was another good performance in the first half. We delivered 2% organic sales growth and 5% organic adjusted operating product growth. Adjusted operating margins were up another 30 basis points, and we delivered an outstanding £64 million of orders through our innovative growth hub. And I would like to express a personal thank you to everyone across IMI for their hard work and dedication during the first half. To deliver this performance amid the market uncertainty and to recover so quickly from the cyber incident reflects a tremendous effort from all of our people. I'm also pleased to report that the £200 million share buyback announced in February is now complete. and that we are once again raising the interim dividend by 10%, reflecting the continued confidence that we have in the business. With the completion of the buyback, we have now returned over £1 billion to shareholders since the start of 2019. The strategic review of transport is progressing. Our sector team is developing a detailed plan to accelerate improved financial returns and we continue to assess all strategic options. There is strong momentum in IMI heading into the second half, underpinned by a record order book in process automation, continued strong demand in climate, and improving trends and catch-up shipments in industrial automation, as well as supportive order books in both transport and life sciences and fluid control. I'm therefore pleased to reconfirm our guidance for 2025. We are on track to deliver our fourth consecutive year of mid-single-digit organic revenue growth, and we continue to expect that full-year adjusted basic earnings per share will be between 129 pence and 136 pence. With that, I'm going to hand over to Dan to talk through the first half results in more detail.

Thanks, Roy, and good morning, everyone. I'm pleased to be able to take you through our first half results today one more time. Here we go. As Roy mentioned, another good performance in the first half. Revenue increased by 2% organically, adjusted operating profit was up 5%, and our adjusted operating margin increased another 30 basis points. Adjusted basic EPS was 3% higher than the prior period as adverse currency and tax rate movements were offset by the reduction in outstanding shares. Operating cash conversion was very strong, and we are pleased to be increasing our proposed interim dividend by another 10%. So firstly, some more detail around our revenue and profit performance. We delivered 2% organic revenue growth, but due largely to a weaker U.S. dollar, our statutory revenue was slightly lower. Adjusted operating profit increased to 198 million pounds. Organic profits increased by 5%, which was again offset by FX. Looking at the income statement, as mentioned, we saw good growth in revenue and operating profit in the year. The net interest charge was broadly in line with last year at 8.6 million pounds, despite the share buyback, and the adjusted tax rate increased from around 24% to roughly 25%, in line with our guidance for the full year. Now, as I'm sure you are aware, IMI was subject to a very serious cyber attack in the first quarter. Thanks to the incredible efforts of our people, supported by industry experts, we were able to limit the impact to temporary operational disruption. The second quarter organic revenue growth of 6% reflects the catch-up on sales that we expect to complete in H2. As expected, we have recognized a one-off exceptional charge of $25.4 million in the first half. That covers IT system recovery, risk management, upgraded IT infrastructure, and advisory costs. Now, looking at the performance of the platforms and sectors, which was very much in line with our expectations. Starting with automation, automation delivered good growth with revenue up 3% organically and margins in line with the prior period at 18.4%. Process automation had an excellent first half, delivering strong order intake as shown at the bottom of the slide. Adjusting for the one-off multi-boat marine order last year, Orders were up 7% organically, with particular strength in power and nuclear. We made further progress in the high-margin aftermarket where organic orders were 10% higher than last year. Organic revenue was 8% higher than the prior period, and the order book was up another 5%. Industrial automation organic revenue was 4% lower than the same period in the prior year, reflecting the one-off impact from the cyber incident and softer industrial activity in Europe and the Americas. The business is rebuilding momentum. It was flat organically in Q2 and will benefit in the second half from further catch-up of shipments impacted by the cyber incident. And turning to life technology, as expected, organic revenue was 1% lower than the prior year. However, margins improved by 80 basis points to 17.8%, supported by the final benefits from our footprint optimization initiatives. Climate control delivered another strong performance in the first half, as we saw continued demand for our products that reduce energy consumption in buildings. including the benefit from our growing portfolio of smart, connected products. Organic revenue was 5% higher than the prior year period. Life science and fluid control organic revenue was 5% lower than the prior period. Now, the life science sales were only slightly down in the first half, with good order intake, with a book to bill in H1 was 1.1 times. The fluid control sales were more impacted by the cyber incident, but it is recovering well and also has a strong order book heading into the second half. Transport revenue was down 9% organically in the first half. This was in line with expectation given the 13% organic growth delivered in the first half of 2024. So continuing to cash flow, our adjusted operating cash flow was 21% higher than the prior period, supported by the strong profit performance and good working capital management. Inventory levels rose in the first half, but this is due to our normal seasonality plus investment to support the process automation order book growth. The inventory position reduced by 21 million versus the same point last year, despite the process automation order book increasing by over 45 million pounds. We are actively managing the position to ensure we reduce stocks in the second half while maintaining customer service levels. Free cash flow was lower than the prior period, largely due to the one-off exceptional costs associated with the cyber incident and a £26 million loan we have made to our UK pension scheme to support the final wind-up process. The loan is providing flexibility to the scheme as it manages its remaining illiquid investments. We expect it to be partially repaid in the second half. Now, when I joined IMI in 2015, our UK scheme had roughly £1.3 billion in liabilities. So to now be in the final wind-up stage is really great, and it reflects a tremendous effort from our team over the last 10 years. Our net debt has increased from £548 million at the beginning of the year to £738 million at the half-year. This principally reflects the successful execution of our $200 million share buyback and the $54 million dividend payment. Net debt to trailing 12-month EBITDA was 1.4 times, which continues to give us the capacity to invest in both organic and inorganic growth opportunities. So with that, let me hand over to Luke, who will be covering the outlook today. Thanks everyone.

Thanks Dan. As Roy mentioned, with the completion of our 200 million share buyback, I'm very pleased to report that we have now returned over 1 billion to shareholders since the start of 2019. This has been supported by significant improvements in our free cash flow and you can see on the slide that we see a clear pathway to delivering further improvements. We expect to deliver over one billion of free cash flow over the next three years, supported by further growth and the normalisation of working capital. We have an extremely disciplined approach to deploying this capital, prioritising investments in our people, processes and operations that accelerate organic growth. We will also pursue bolt-on acquisitions that enhance our position in attractive long-term growth markets and that deliver results in line with our strict financial criteria. maintaining a progressive dividend and we will look to return capital to shareholders should leverage fall sustainably below a one to two times net debt to EBITDA target range. At the end of the first half, net debt to EBITDA was 1.4 times towards the midpoint of that range. We are on track to deliver our fourth consecutive year of mid single digit organic growth in 2025. We continue to expect that full year adjusted basic EPS will be between £129 and £136. Our guidance assumes that the full year adjusted operating margin will be around 20% and that our interest charge will be slightly higher than our previous guidance. The tax rate is still expected to increase to around 25%, and we expect that the weighted average number of shares will reduce to $249 million at the year end. Exchange rates have been volatile in recent weeks, but as things stand, we see a 1.5% headwind to profits in the full year. We'll be keeping a close eye on how this develops in the second half. With that, I'm going to hand over to Roy, who will talk you through the strategy update.

IMI is a global leader in fluid and motion control with a compelling value proposition. Our solutions typically represent a small part of the total system cost but have a significant positive impact on end customer outcomes. This drives growth, customer loyalty and strong pricing power. We are well placed to support our customers in the attractive aftermarket. Our business is aligned to three long-term structural growth trends, automation, energy efficiency, and healthcare demand. These powerful drivers support the delivery of sustainable, profitable growth. And all of this is underpinned by our One IMI operating model. The One IMI operating model is a proven platform for value creation and sustainable growth. designed to deliver our financial framework. By applying a consistent approach rooted in commercial excellence, market-led innovation and continuous improvement, we are creating significant value for shareholders. Commercial excellence remains at the heart of our growth strategy. We are focused on creating ever more value for our customers through premium service, technical support and disciplined sales execution. We have significantly improved customer satisfaction scores and we leverage these relationships to co-create high value add solutions. All of this is supported by significant investments that we have made in our people, in our processes and our operations. including in data and digital, which I will touch on later in this presentation. Our unique market-led approach to innovation is creating real value. Grounded in deep customer insight and executed through our entrepreneurial growth hub model, we develop solutions that address industry-wide problems. We leverage our strong customer relationships to gain a deep understanding of our customers needs before moving at pace to validate solutions and full market potential. Through this process, we minimize upfront investment before rapidly bringing validated solutions to market once our customers endorsement has been fully secured. We delivered 64 million pounds of growth orders in the first half with a strong pipeline of opportunities across IMI. And as Luke mentioned, we also pursue attractive bolt-on acquisitions. Since 2019, IMI has been strengthened by six complementary acquisitions, while our fully burdened return on invested capital has increased to 13.4%, significantly higher than our 12% underpin and our weighted average cost of capital. Finally, with our full multi-year restructuring program now complete, our focus is on continuous improvement. Whilst IMI now operates from a leaner, stronger platform, we will continue to identify programs to improve efficiency, reduce complexity and better serve our customers. Restructuring costs associated with our current business are now being taken into underlying operating profit. I also wanted to spend some time sharing a few examples of how we are executing our one IMI operating model across the business. Firstly, our investments in data and digital are accelerating high margin aftermarket growth. Through the hard work from our process automation team, we have built a full database of over 200,000 valves in our installed base. Using this database, we are able to identify key aftermarket opportunities and prioritize our sales efforts. We estimate that this has had at least a £70 million positive impact from this initiative alone on our order intake over the last two years, with more to come. Secondly, the excellent progress we have made expanding our range of connected products. Smart connected products make up roughly 25% of climate control sales now. And there is a strong growing demand for the precision, the insight and the convenience that these connected solutions offer. In March 2025, we launched a new electronic thermostatic radiator valve that leverages HeatMizer's technology and can be controlled via an app. This is an incredibly exciting new opportunity and presents us with a significant opportunity to scale across our European markets and in over 200,000 homes in the Heatmiser ecosystem. Finally, we are focused on driving excellent customer service and productivity through continuous improvement. In industrial automation, we win in highly customized applications where fast response to customers is absolutely crucial. And there is lots of great work across the sector and our Rockford facility is an excellent example. The team have built a digital twin of the site to facilitate layout simulations and optimizations in real time, drastically reducing lead time to customers and improving flow. Our people and culture are the foundation of the One IMI operating model, and we've put a lot of effort into building a culture of ownership, culture of accountability, and customer focus. And this has played a key role in IMI's transformation over the last six years. As you can see on the screen, it's supported by a significant increase in productivity. We are focused on embedding a performance-driven mindset and have made significant investments in our people to help them grow, develop and continue creating significant value for customers. We are committed to targeted development at every level and have launched a range of new training programs in the first half. We also ensure that our top talent regularly moves across the group, enabling us to leverage best practice and develop the next generation of leaders. Congratulations to Tarak on his appointment to the most senior position with industrial automation. Another key driver of significant productivity gains is our absolutely relentless focus on continuous improvement. A great example of this is in our burnout facility in Czech Republic, where they identified over 600 improvement initiatives in the first half of this year alone, as they continue to reduce complexity and improve customer service every single day. All of this is supported by employee engagement. And I'm very proud to report that 79% of all our employees would recommend IMI as a great place to work in our recent survey. As you've seen on the previous slides, IMI has been fundamentally transformed over the last six years. We are executing the growth strategy and we are on track to deliver our financial framework. As a reminder, we want to deliver 5% organic growth operating margins of 20% plus, cash conversion above 90% and maintain our fully burdened return on invested capital above 12% as we continue to create significant value by deploying our capital both organically and into targeted bolt-on acquisitions. It is clear that our growth strategy continues to deliver great results And as you can see on this slide, we have built a track record of compounding profitable growth. Adjusted EPS has grown at 11% CAGR since 2019, and we expect further progress in 2025. So, to summarize then, the key takeaways from today are, first, that our growth strategy continues to deliver results. and I'm proud of our achievements during the first half. Organic revenue grew by 2%, adjusted operating margin was up another 30 basis points and our organic adjusted operating profit grew by 5%. Second, that there is great momentum within our business as we head into the second half and we are on track to deliver our fourth consecutive year of mid single digit organic revenue growth. Third, and finally, as Luke said, we are reconfirming our EPS guidance range. We continue to expect that this year's full year adjusted EPS will be between 129 pence and 136 pence. Okay, so I'm going to stop talking there and turn over to the moderator for the Q&A, please.

If you wish to ask a question, please press star followed by one on your telephone keypad now. If for any reason you want to remove your question from the queue, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Andrew Douglas from Jefferies. Your line is now open. Please go ahead.

Good morning, gentlemen. Thank you for the presentation and welcome, Luke. I've got three questions, the standard three questions. But beforehand, I just want to say on behalf of all the analysts who've worked with you over the last 10 years, Dan, thank you for everything that you've done for us. You've been an absolute genuine pleasure to work with. So I think on behalf of everyone, I just want to wish you well for whatever comes next for both you and the family. So thank you for that. Over to questions. Can we just talk about process automation, please? You flagged the order book was going to be under a little bit of downward pressure on the OE side due to marine, so I think that's all well understood. Can you talk about what you see over the next kind of 12, 18 months? I think hydrogen was a reasonably tough comp for you in the second half of last year. Can I just make sure that we're confident of process automation continuing to grow as a division next year and just how well that's underpinned by the order book? Secondly is on the slightly more cyclical bits. You've talked about order books improving in IA, in fluid control and life sciences. Can I just quadruple check that that is over and above recovery post the cybersecurity incident? Just make sure that I understand that. And then last but by no means least is on the share buyback. Share buyback's finished. You're going to be round about one times by year end. Was there a debate about whether we should just do another 200 million now because you've got plenty of firepower, or do you have a strong M&A pipeline?

Thank you. Well, thanks, Andy. Yeah, I totally agree on your comments on that. Yeah, it's been fantastic working with Dan. But, you know, Luke, we're in safe hands. So, you know, welcome to Luke's first presentation. I'll take the first two and then I suggest, Luke, you talk about the share buybacks. Yeah. So process automation, Andy, in short, you know, the order book's up 5% despite the multi-year marine contract that we called out over the last few calls. So we're pleased with the situation. That's it. As you know, 60% of that division is aftermarket and the gross margins in aftermarket are two and a half times higher. what they are in new construction. So the good news was that aftermarket orders up another 10% in the first half. Jackie, Robbie and the team just driving the whole upgrade valve strategy. which, you know, we go in, we swap out either our old valves or increasingly the competition's valves that aren't working for the customer, that are providing reliability issues or noise or vibration issues, and that strategy continues to pay dividends. So, yeah, we think we're going to finish the year with the order book higher again, and that would lead us, you know, naturally into growth again for next year and a year. So we feel very good about where process automation is. The second question was on the sort of short cycle businesses. IA, yeah, I mean, the good news is, yes, we've got, you know, a higher order book, which is partly catch up on IA because of the effects of the cyber incident. There's no doubt about that. But we're also seeing in the order run rate a pickup to what I would call growth now, Andy. So, you know, it was slightly ahead. We're now seeing growth. sort of consistent with our outlook for the second half which is around um you know three four percent growth for the second half in ia so so you know we we are encouraged by that you know we'll see whether it's a sustained recovery as you know there's still lots of moving parts in the global economy you know there's still you know lots of settling down to do isn't there with things like the tariffs and stuff but but you know the encouraging thing is we're making progress and um on the IA team honestly I haven't seen IA in better shape for as long as I can remember what Jackie has done with that sector of our business as I said on the presentation we brought Tarak now he's been with IMI something like 10 years he's very successful in process automation he moved across into IA well over a year ago now he's done very well there and now He's going to be set to head. I'm really pleased of that. Again, a bit like Luke, we've moved people through, developed them, and now where we are with the strategy and the team, we're in a good position to end it. Similar thing, particularly on the fluid control part of life science and fluid control, that we've got a good order backlog, partly because of the effects of the cider instance, so part of it is catch-up. On the life science side though, Andy, customer order schedules are definitely showing growth for the second half. And I think we'll deliver growth in that segment in the second half. Again, on the life sciences side, I'm not calling a sustained recovery. Again, we all look at the news, right? There's been enough profit warnings over the last few weeks in that sector. Obviously, we've got the issue with the U.S. funding and stuff. So I'm definitely not calling a sustained recovery, but at least in the second half. We think we're going to show growth and customers are talking about new product launches and we are winning future platforms. So again, the team there, Kevin's doing a really good job. I think we're really focused in the right areas. And, you know, I think over a period of time, we'll see that return to growth as, you know, the aging population, all of those dynamics and the propensity to spend more money on health. But, you know, certainly second half, we see growth. And Luke, do you want to cover share buying?

Yeah, of course, yes. Morning, Andy. I think, as you said, the leverage at the half year is 1.4 times net debt to EBITDA, and I think we expect to delever to about 1.1 times come the year end, and that would be sort of our normal rate of delevering. It's roughly about half a times I think we've just completed our last tranche of 200 million just this week. And we are going to continue to look at share buybacks as we get sustainably below the one times range. So that will probably happen sometime in the next 12 months. The other thing I would always say is that, you know, capital allocation, we take very seriously. We look at the M&A pipelines. They continue to be strong. We continue to review opportunities. So we'll always look at it through that lens as well.

Thank you very much.

Excellent. Thanks, Andy. Appreciate it.

Thank you. Our next question comes from Christian Hinderaker from Goldman Sachs. Your line is now open. Please go ahead.

Morning, everyone. And I'll, of course, echo Andy's sentiments and thanks to Dan and welcome to Luke. If I can come back to the run rate growth comments in IA, 3% to 4%. I just want to clarify if that was in quarter or after the end of June. I guess interested as well within IA to understand relative growth dynamics across Europe and the Americas. I'll start there.

Yeah, brilliant question. Sorry, I should have said, we use our standard 60-day moving average order income rate and it's that 60 day moving average because over the years we found that's been the best sort of smooth average predictor of what's happening, at least in the next quarter or so. The order book is about three months in IA, as you know, so it's not a process automation full 12 months, but it is a pretty good indicator. And in terms of Europe, US, both have returned to growth, actually, Christian, which is good news. It's not just one area, you know, taking it all. It's actually growth across both of the major regions. So, yeah, that's encouraging.

Thank you, Roy. Maybe it's a bit early, but you touched on the strategic review in transport. I guess curious as to when we might receive sort of full context there. And then also in terms of the growth expectations for that segment as we enter the half that are built into your guidance.

Yeah, so I'll start with that. So transport... Second half will be down, I would say, nowhere near as down as the first half. Remember, we grew at 13% in the first half of last year. as all the OEMs caught up, you know, managed to get the components that they needed post-COVID. So first half was against a very difficult comparator. Second half, well, if we look at it consecutively, we see that first and second half sales will be about the same is the way we see it, Christian. In terms of the review, the review is progressing well, as I said. You know, the internal team, we've done a couple of reviews with them and they're building their plan. We've got a very, very strong internal team now, and they are absolutely committed to improving the financial returns. I've absolutely no doubt about that. As I've said before, we've bought in some real heavyweights from Passenger Car, and they really know exactly what they're doing. And that means increasing the amount of value engineering we're doing. Really, you know, making sure that our new products are accreted to margins and then, frankly, exiting some poorer business. And, you know, so that really is the sort of three point game plan. They're doing the detailed, you know, the detailed plans behind that. And we continue to, you know, look at external options. As I said on the last call, though, Christian, I don't expect this to be a quick thing. We're going to optimize for value, not for speed. And I see this very much in the same way as we did the 20% to 30% of what was critical back then, you know, which has, as you know, been an incredibly effective driver of shareholder value for IMI. Does that answer your question okay?

Thank you. Maybe just... It does, very clear. Just a quick final one then on the tariff situation. Can you just clarify, have you put through price increases as part of your actions, and if so, in what form?

Yeah, Christian, so, again, I mean, Jackie and all of the teams have done an incredible job with this, really, because, as you know, it's been a moving picture, to say the least, in the first half. They have managed to mitigate a lot of the effects of tariffs through things like exemptions, which is incredibly intensive in terms of documentation and everything. But they've done that. We've rerouted some supply chains as well. We've got our global footprint. We brought that into play. What remained, Christian, was about £4 million of impact that we couldn't avoid. And we had passed that through in the form of surcharges mainly to customers. And customers have understood why we've had to do that. So that's the sort of extent of it in the first half. Again, it's a moving picture. But at the moment, our base case is, is that in the second half, the effect will be just over twice that, just over twice the $4 million. And again, we're in a good place to mitigate that effect as well.

Thank you, and keep in touch, Dan.

Excellent. Thanks, Christian. Thanks, Christian.

Thank you. Our next question is from Lush Mahendra Raja from J.P. Morgan. Your line is now open. Please go ahead.

Morning, guys. Thanks for taking my questions, and I just want to echo the views before. Welcome, Luke and Stan, and best of luck on the next step. It's been great meetings at IMI, and I've really enjoyed getting to know you and working with you, and look forward to staying in touch. I've got... three questions, I think, if that's okay. The first is just on tariffs and it's helpful for quantifying the impact. lean into any specific business in particular? And I guess, have you seen anything in there, you know, whether it's sort of pre-buys ahead of tariffs or, you know, just given your cost base versus some of your peers, have you seen any sort of shifts in market share on the fringes? I'm just interested in that. So that's the first question. Second question is, is just on process automation again and sort of orders and then this sort of helpful color earlier but I guess could you give us a bit more sort of detail on some of the sort of moving parts and then market-wise I know you called out sort of power and then nuclear in particular but which is interesting sort of what you're seeing elsewhere maybe oil and gas etc as well And then the third question was just on life sciences. You know, I know you sort of touched on the sort of, the orders there, but as you said, there's been sort of mixed reporting so far from some of the big guys. I guess, why do you think your order's been so good in the first half and I guess give you that confidence into the second half?

Brilliant. Yeah, thanks, Lash. Yeah, so tariffs first. So tariffs, as I said, £4 million impact in the first half, completely offset through the actions that we took. The big impact for us are in industrial automation and in transport lush. They're really the two big ones. And the single biggest impact at the moment is Mexico. So our flows from Mexico into the U.S. Some of that has been, you know, offset through exemptions, but it's still the biggest impact once we've got all the exemptions we can get. In terms of market share, you said as well on tabs. Yeah, very interesting. we are obviously taking any opportunity that we can to take market share from these changes in tariffs. And what's been interesting is Jackie told me last week that we've actually won some business in Asia from the reciprocal tariffs on the back of that. So, yes, around the edges, I think because we've got a global footprint and some of our smaller competitors obviously haven't, you know, there will be opportunities and we're alert to them. So, yeah, I'm really pleased with that. Process automation orders, where we see real strength this year is nuclear, both on the new construction side and in the aftermarket. But interesting that we're winning some big new construction orders now in the UK, actually, Lush. LNG, as I said on the last call, second quarter orders were really strong. And actually, we see LNG obviously continuing through the second half and into the full year. And then conventional power. we're seeing a real surge in conventional power. And I think you probably know, Lush, that the order books of some of our customers are now at record levels on conventional power, particularly combined cycled gas. So, yeah, actually, that's been a real lift. It shouldn't be a surprise, I suppose, because, you know, typically, you know, we see an order a couple of years, a year and a half, couple of years, you know, after final investment decision on a lot of these things. And if you think about it, You know, data centers, AI, EV, you know, what's driving this? We talked about it a few years ago that this was going to drive a resurgence, but definitely our customers have got record order books now, and that bodes well both for new construction and then obviously for aftermarket that we'll generate in the longer term. And then the last one was about life sciences. You're right, I mean, very mixed reporting. We have got some particular platforms that, that are recovering nicely. And if I think about sort of the one that's moving the most, it's where our customer has been able to do the test in the doctor's surgery rather than in the laboratory. And this particular equipment can test for I think it's over 200 different pathogens and literally give you a result within, you know, less than an hour. It's that sort of thing, lush. And it really, you know, is recovering well into the second half. So that's the, you know, if that helps at all, that's the, you know, single biggest win. But I would say generally across the patch, you know, the despotting, at least, at least with our customers, is less. And therefore, you know, we're starting to see a bit of a pickup. Remember, life sciences is only 7% of our business, and I'm not calling a sustained recovery. I certainly think, Lash, it's going to continue to be bumpy, right, particularly with, you know, you look at some of the U.S., you know, reductions in investment and so on. But at least for the second half, we're seeing, you know, a nice order book and good order patterns, let's put it that way.

Okay. Thanks, Lash. Really helpful.

Thanks, Lash. Cheers, Lash. Thanks.

Thank you. Our next question comes from Jonathan Hearn from Barclays. Your line is now open. Please go ahead.

Hey, guys. Good morning. Just a few questions for me, please. A couple of them sort of clarifying things that have been touched earlier. But firstly, just coming back to the process, just looking out for that to 26. Obviously, you talk about the order book, but that's sort of the growth of that business in 26 years. If you look at the order book, obviously it's plus five at the first half. Is that the kind of level of growth we should expect for process in 2026? And also, Roy, if you could just give us how much book to ship you need to do in H2 to meet the forecast for 2025. That was the first question. Second question was just coming back to IA. Obviously, you're saying sort of 3% to 4% growth coming through in the second half of that business. Just to understand, how much of that 3% to 4% is actually that order book catch up or delivery catch up to them, stuff that was delayed in the first half. Is that sort of half of that three to four? And then the third question was just on, sorry, it was on hydronic or climate. If we look at that, obviously great performance in the first half plus five. If we look into the second half, that comp actually gets a lot tougher for that business in H2. Do you still think you can do 5% growth in H2? And if so, what's sort of really driving that performance there?

Thanks. Jonathan, as usual, you know, we get through a lot of questions and you asked three really good ones, you know, so really appreciate that. On the process automation order book, I mean, you know, we're not going to forecast next year yet, Jonathan. It was a child's strike. But, you know, it was up 5% at the half year, despite, you know, that big marine order, which is multi-year. aftermarket growing at 10%. We do think the order book will be higher at the end of this year. I mean, let's see how much higher, but good momentum in that business. As I said, particularly on conventional power, you know, conventional power is about 25% of process automation. 5% is new construction and 20% is aftermarket, right? So that's nice that that sort of reasonably big power has got some nice momentum behind it. You've got LNG going really well as well, Jonathan, so that's good. And then, you know, nuclear, as I said, seems to be picking up. So, yeah, let's see. But, you know, right now, as I said, we think we'll finish the year with a better order book than we came into it. And that would mean that we'd grow a bit again next year. Book-to-ship, yeah, we've got £15 million more book-to-ship this year than at this point last year. So on book-to-ship, we feel good, right? Because book-to-ship, obviously, we've got most of the new construction orders because they tend to be 12-month later. This is aftermarket, and as you can see, the momentum at aftermarket is great. So we feel fine about where book-to-ship is. IA, so of the sort of 3% to 4% growth, Let's say very, very roughly, Jonathan, about a quarter of it, a quarter to a third of it is backlog catch-up, and then the rest is order momentum. So you could give you a rough idea of the breakdown of that. And then in terms of climate, yeah, I mean, climate, wow, again, fantastic. performance first half. Stefano and the team doing a cracking job. And what's really grown there is the 25% of that business that's connected products is really providing momentum. The TA SmartValve, we've talked about it a lot. That's really taken off now. So, yeah, that's what we see. Jonathan, I would say certainly within our guidance is about similar levels of growth as the first half. As you know, the heating season, how strong that is can determine, you know, a bit of that growth. So, you know, we can't predict it exactly, but, you know, we would expect all things equal that because our products generate an energy saving, you know, and I think, you know, you've seen some of the peers that have had, you know, difficult results, right? But because we're very focused on energy saving while providing a very comfortable environment indoor climate, making sure that we nail that. Because we've got market-leading brands, market-leading shares, you know, we do feel pretty good. That business continues to grow and generate excellent returns, Jonathan. So, yeah, you know, that's why we feel, even though, as you said, it's a more difficult comparator second half, when we look at all of the component parts within there, we feel comfortable with that level of growth. Does that answer all your questions?

Thank you very much. Yeah, absolutely. That's great. Thanks very much, Roy. And likewise, I just like to say or express the same sort of gratitude to Dan for his time over the last 10 years. Thanks very much and good luck for the future.

Cheers, Jonathan. You're a star.

Thank you. Our next question comes from Colwinder Rajpal from Alpha Value. Your line is now open. Please go ahead.

yeah good morning gentlemen so just wanted to understand the extent of the data center business within your group I would presume most of it falls under climate control and probably a small part of it but just wanted to understand how has that business been growing and are there any other divisions that

Yes, Corvinda, yeah. So within climate, I think last year the orders, I want to say, were sort of six, seven million pounds, specifically around data centres. In the first half, we've done about the same number of orders, that amount of orders in climate on data centres. I think we did about six million in the first half. So we're probably double what we did last year. The interesting thing on climate, actually, Corvinda, is that we typically get all the sort of three or four years after the data center is announced that it's going to be built. So that's very encouraging, obviously, because that means that, you know, as all these data centers come through, we would expect that number to increase nicely. At the moment, Corvinda, though, by far the bigger effect is the effect it's having on process automation, right? Because energy demand, as I said earlier in the call, right? Roughly 25% of process automation is conventional power. And, you know, we are seeing that our customers particularly in combined cycle gas power stations, their order books are just at record levels. They can, you know, not make combined cycle gas power stations as fast as they need to, right? So that is obviously providing a nice pull through for us, the power that's data using, that secondary effect. Absolutely.

Right. And then is there any aspiration to maybe grow the data center piece a little bit more through investments in growth hub or through innovation?

Yeah, I mean, absolutely. So within climate, there's a focus team that's actually pulling on people outside the climate that are using absolutely growth hub themes, growth hub techniques to grow that business. Absolutely, Corbyn. So yeah, we see it as a very strong area for years to come. And yeah, absolutely.

And lastly, just wanted to go back to slide 17 where we see the aftermarket metrics. So is the aspiration there to go from bottom right to top right? Is that reading correct?

Oh, the aftermarket potential versus the aftermarket performance.

Yeah. I think the – so the aspiration with the aftermarket, Govinda, is that – As I said, we have mapped our own assets and we continue to improve our ability to help customers identify earlier and earlier whether they're going to have a problem with one of our installed valves. And that's 200,000 valves, right? The other opportunity is obviously the 300,000 installed severe service valves from our competition. And we grew that. Upgrade valves were up 17% in the first half, 17%, another 17%, right? And competitor upgrade valves were up another 12% on volumes, right? So it's really, you know, that strategy that Jackie, Robbie, and the teams are driving that means that we see a lot of runway improvement for years to come in the aftermarket within process automation. So, yeah, our ambition is just it's a highly technical cell. As you know, we've got valve doctors. They're the most advanced applications engineers in the industry. You know, when they come out of universities with an advanced degree, it typically takes them another seven years to qualify as a valve doctor. And that's through gaining lots and lots of application knowledge. Most of these process plants and power plants are different. They're all unique. So it requires a lot of engineering knowledge to go in and then actually do an upgrade ourselves. But that's our ambition, to keep growing that very, very profitable space to obviously carry on generating huge, huge amounts of cash out of that, which is now, let's face it, IMI's biggest profit pool after market process automation.

Okay. Thank you very much. Super helpful comment.

Cheers. Thanks.

Thank you. Our next question comes from Mark Davies-Jones from Stevehall. Your line is now open. Please go ahead.

Thanks very much. And of course, I join in the virtual round of applause for Dan. It's difficult to do when we're not in the room, but yeah, share those sentiments. A couple of slightly more niche questions, if I may. The latest bit of Trump tariff nonsense overnight, they seem to be slamming something extreme on Switzerland. I remember from COVID days there were some specialist miniature valves produced out of Switzerland. I know it's just breaking news, but I don't know if there is material manufacturing still there, and that's anything you could comment on. But more broadly on tariffs, we are beginning to hear some companies suggesting there is more resistance to simply passing through cost tariffs. Are you beginning to see any signs of that? And is that a concern through the back end of the year?

Thanks, Mark. I'll start with passing through costs, actually. So passing through costs, we obviously do everything else first, Mark, right? You know, we try and get exemptions. We try and reroute supply chains. But in the end, you know, certain things, I think I said on the last call, Mark, right, manufacturing costs outside the US in some of our factories are so competitive that they can be you know even after tariffs literally half um you know what we can make it for in the US right so so you get to the point where you know and I have to say in our case yes of course customers question it of course I mean but you know when you go through the logic And in the end, you know, you're typically talking about a mid single digit increase for a lot of people on a product or component or system that is, you know, normally in our case, a very, very small part of the overall cost of their system. but obviously a vital part of the cost of their overall system and the way it performs for their customers. So, you know, I think in the end, you know, we do our absolute best. But, you know, as I said in the first half, we completely offset the $4 million that we couldn't do anything about. And then on Switzerland, well, yeah, that is breaking news, isn't it? Yeah, we will.

It's unfair, I know.

I'll try and frame it for you, Mark. So those are, again, tiny valves where the tolerances, I mean, we are one of only, I would say, two or three companies globally, as you saw in COVID, right, that can make these valves.

I can tell you a story about that.

I won't tell you. You know, because during COVID, obviously, some other people thought they could make those valves. Yeah. Even some of the most advanced manufacturing companies in the world thought they could make them. But they obviously couldn't, right? Because you're literally dealing with micron-level tolerances. You know, so literally, you know, one-fiftieth of a human hair and... Sat tolerances typically, you know six to ten tolerances that go inside a proportional valve that has Tens of thousands of settings to go inside of a ventilator that will keep you alive When you're in a coma, I mean, you know, the technology is quite frankly amazing So yes, and again, this is going to be a bit of a guess to be honest with you mark. We might have five to ten million pounds of that sort of product and that would flow out of Switzerland into the US. So, you know, we will obviously, you know, look at it. If that becomes an enduring thing, we have got, we did build extra capacity, obviously, during COVID, obviously, mainly to save lives. So, you know, we will have options as usual and we will be agile around it if that becomes an enduring thing. But, you know, in the scheme of things, I don't think it's going to be a massive thing for us.

Thank you very much. And if I can ask a slightly odd question, was there anything positive to come out of the cyber attack in terms of what you've learned from that process and where your systems are now?

Wow, that's a really good question because at the time it felt, you know, not positive, Mark, but do you know what? The recovery, the 6% growth in Q2 from our teams, and I was out visiting three of our German sites in the last couple of weeks and And the response was, frankly, absolutely fantastic. So we have this sort of saying around one big team. The amount of teams that pull together, Mark. So our French sales team, I met the leader of the French sales team. He was there in Germany. with us and the whole French sales team, 20 of them, moved in to manually put orders in with the Germans, just to give you one example of what happened globally. And so that feeling of spirit, team spirit, to overcome a violent adversity like COVID or like, you know, the inflation that we had, you know, with the sort of cost of living crisis and all that. Those things just bring us together and ultimately make you stronger. If you survive it, you become stronger. Of course, we are investing in the second half. in more IT security and more IT infrastructure. There is no doubt about that. We've done a fundamental external review. And, you know, there's lots of things. I'll let Luke just touch on two or three of them. But there's lots of things that we're going to do because ultimately, you know, I read the other day, Mark, that there's about a billion phishing emails a year now. The average number of people clicking on them still is about 5%. We're actually at 3% now, so we're training, training, training. But if you click on that official email, it's obviously a risk, right? That's the main way people tend to get into your systems. And then it's what you do to make yourself... the place where the attackers, you know, the hardest door to knock on, right? Because they're obviously improving every day and it's a race. But Luke, do you want to just touch on the sort of things we're doing?

Yeah, I think maybe just to add, you know, there's probably three things I'd call out. I think Roy touched upon one, which was just all the work we're doing on phishing and the efforts around training in the business. I think the second one is the IT security team itself. We're more than doubling in size and most of those people are joining in the coming weeks. And then the last one is just investing in more tools, so we'll have more multi-layered tools than we've ever had before, and really just going for the top-end tools at every single stage of our IT security setup. Thanks, Mark. Yeah, excellent.

Yeah, I agree. So lots of stuff, Mark, that we've learned. Luke is now, you know, a fantastic IT security expert already, you know, and we're still learning, right? This is only going to get more difficult. You know, AI is going to make this more difficult. But, yeah, it's a race, and we want to try and stay ahead in the race, yeah.

Fantastic. Many thanks. Cheers.

Thank you. Our next question comes from Richard Page from Deutsche Neumis. Your line is now open. Please go ahead.

Hi, morning all. And obviously echoing again for Dan, if it's getting boring, fantastic legacy to have left behind. But before you put your feet up in Dubai, my leaving present to you is a question on the pension. Obviously a great legacy to reduce those liabilities to £1.3 billion. But can you just explain what's going on in terms of that loan in what future cash costs and obviously the ultimate buyout of that scheme, please? And then just a second one, process automation. Just some clarity. I notice it's a small thing, but on the sales as a service, it's dropped from 40 million to 25 million. I assume that relates to process automation. Just explain those moving parts as well, please. Thank you.

Richard, thanks for the parting gift here. Pensions, yes, yeah. No, really, really great journey. And as you'd expect, when we had $1.3 billion, we had a number of asset classes, including some of these longer-dated private equity investments. Most of that we've been able to turn into cash. There's just this final tail. And as we're going through the buy-in and the buy-out, we don't want to – you know, we don't want to – leave money on the table by trying to accelerate the liquidation of those. And given the balance sheet we've got, it was just an easy decision. We'll put some capital into the, into the trust. That'll give them the time over the next 12 plus months to, to wind the whole thing down. We'll, we'll, we'll likely get some of that cash back already in the second half of this year. And then we'll watch how it all, all winds down. But yeah, But, yeah, very pleased. I told Adrian, who's in charge of it, get it done, otherwise I'm showing up at the AGM and asking tough questions of Luke next May.

Keep talking. So that's pensions. Field service, basically it's reverted to the mean, Richard. So field service, we won a big contract. It was in Texas last year, in the half year last year, and we reverted pretty much back to our normal sort of run rate of field service. Field service is important because some customers say, require us to do more work around things like startup of the plant and things like that. It's also important because we get insight on valves that could cause problems, right? But it tends to sort of revert to the main Richard, whereas it's the upgrade valve part of process automation. And then the very good margin parts business on the back of that, that's obviously where the growth strategy is. Brilliant.

Thank you. Thanks, Richard. Thanks, Richard.

Thank you. Our next question is from Harry Phillips from Peel Hunt. Your line is now open. Please go ahead.

Yeah, hi. Good morning, everyone. I think I'm going to use my standing as the oldest leg on the circuit to maybe just conclude with a few thoughts on Dan. Just really, what an amazing 10 years. This very quiet, unassuming person who turned up all that time ago. Yeah, quite an amazing innings. But I know people are busy. So just very simply, Dan, your contribution to where IMI is today is absolutely enormous, very hard to overstate your impact. And you've set an enormously high bar for Luke, which I'm sure he's going to appreciate greatly. Legacy is a much overused word, but I think it is extremely appropriate here. And I think I can say on behalf of us all on the call and elsewhere, your help, support, guidance, wisdom have been huge and much appreciated over that period. And also you've made it fun, which is particularly important. May you enjoy your family life. May it be long and joyful. Slap on a sun cream. Improve your golf. The Giants might even have a winning season. But very simply, Dan, we're going to miss you hugely and very good luck for the future.

wow um okay that's not fair harry are we are we ready to finish up or any more questions harry is that it well all right thank you harry um Okay. Firstly, I got to even it up from February. Happy birthday, Katie, my daughter. She's got her birthday coming up in a couple of weeks. If I didn't do that, it could have been a very tough family event going forward. Sentiment right back to everybody on the call. You know, you all, the analysts, have made it fun back. The investors, everybody, you've supported me. I've learned a tremendous amount. And you've challenged along the way, which has helped us deliver this great company to the position it is today. I know their employees on the call and they'll listen later. It's been just such a privilege to be a part of this great organization. And, yeah, again, it's been fun to learn about these incredible products, like these incredibly small valves that come out of Switzerland, just brilliant. And, yeah, the exec – My friends right here, Roy, you've been an incredible boss. You've been an incredible colleague, and you know it. You've been a great friend as well. It's just been tremendous. Yeah, Luke, bar's high, but you all know Luke almost as well as I. You're going to smash it out of the park. And, yeah, I won't say goodbye. Not sure what we'll do. Definitely maybe a little bit more golf. Thank you, Harry. I don't think the Giants are going to be doing any good anytime soon, but eventually. But I won't say goodbye. I'll just say until the next time. It's just been an absolute privilege. And for those of you who know, I'm going to take a selfie right now to commemorate. Yeah. Yeah, many thanks. We'll see you all soon.

Well said, Dan. Well, thanks to everybody on the call, but my main thanks are to Dan, and well done for holding it together. Well said, Harry. Totally. We've had, as you can imagine, A couple of big leaving dues for Dan, including a Dan fest, because that is the outpouring of love from this organisation for you, Dan. And it really has been a brilliant 10 years. And you've been an amazing partner. And, yeah, we're going to miss you. Thanks, everybody. And I'm sure we'll all catch up soon. Thank you.