IMI plc (IMI) Earnings Call Transcript & Summary

Good morning, everybody. Thank you for taking the time to join us today. I'm joined here as usual by Dan, our Finance Director. I'm just going to take a moment to summarize a few key points from our IMS and then we will take your questions. And I'd like to begin by thanking all of our employees all around the world for their dedication to delivering our purpose-led strategy, breakthrough engineering for a better world. We continue to create solutions that help our customers become safer, more sustainable and more productive. And it's been another good performance in the third quarter, with group revenue up 5% versus the third quarter of last year and up 3% on an organic basis. Margins also improved as we further reduce complexity, expanded the aftermarket opportunity in automation and delivered further growth in our attractive end markets. Now as previously announced, we adopted a sector-focused structure in July. And reporting is now aligned across 2 platforms. The new structure has been really well received, and we are already feeling the benefits of being even closer to our customers. Process Automation had another excellent quarter with strong order intake and continued organic growth. Orders were up 15% organically with a 24% increase in aftermarket. Revenue increased 8% in the quarter on an organic basis. Industrial Automation delivered another resilient performance despite some uncertain markets. Organic revenue was 1% higher than the same period last year. We see good demand for solutions that automate processes in a competitive labor market and have benefited from continued investments in reshoring. Climate Control revenue was flat on an organic basis. Whilst we have felt the impact of recent trends in the European construction markets, underlying demand for our energy efficient solutions does remain solid. Life Science and Fluid Control organic revenues were 13% lower than the same period last year. And as expected, we did see customer destocking and reduced demand in the period. And we expect this to continue into the fourth quarter. The long-term fundamentals of the sector are strong, and we remain excited about the opportunities for growth. Transport saw organic revenue 20% higher than the same period last year. Finally, before we move to Q&A, a comment on guidance. Based on current market conditions, we're upgrading 2023 full year adjusted EPS guidance to a range of 114p to 118p. Okay. With that, I'm going to hand back to the operator who will manage the Q&A session for us. Thank you.

[Operator Instructions] Our first question today comes from the line of Lushanthan Mahendrarajah from JPMorgan.

The first is on Industrial Automation, which I think has clearly been more resilient than we anticipated. I guess how much of that is sort of the onshoring and the labor point and how much is the backlog still supporting that? And I guess perhaps give us some more color on sort of what orders have been doing in the last couple of weeks.

Yes. Thanks, Lush. Yes, I think as I said on the last call, Industrial Automation orders have been slightly below last year for a while now. And so clearly, we have been selling a bit out of the order book. And that clearly supported Q3, and our Q4 guidance does include IA being slightly down in sales. So this sort of reduction in industrial activity that you can all see in the macro indicators clearly is having an effect. But compared to previous sort of industrial recessions automation, I would say, is holding up much, much stronger, particularly Industrial Automation, then I would have seen in my sort of 30-plus years with IMI. So yes, there's a definite trend towards automation unless, obviously, you're talking to customers, but also ourselves, we are heavily focused on automation, more automation within our own factories. Automation is more cost effective than it's ever been, and the paybacks are shorter than I can remember. So there's definitely that sort of good, positive underlying trend in the industry to automate more.

Okay. And then the second question is just on transport, is sort of a very, very strong number, I guess, the comps, particularly in China and perhaps a bit easier, but just in terms of how do we think about that going into Q4 and perhaps next year as well, just given, I guess, North America might be a bit tougher, et cetera.

Yes, that's right. I think well, great job by Beth and the team. I was in biggest plant on the transport side down in Mexico a couple of weeks ago, and they really are -- you can imagine, it's not easy to ramp up production at that sort of rate, 20% plus. Yes, as you said, real strength and China was a very weak comp last year. You're absolutely right. India though has been growing pretty consistently. And overall, 20% is good response from the team so I'm pleased with that. As you say, there's a lot of catching up in that system, right? We don't expect ongoing 20% transport volume increase. And yes, next year could be a bit tough. We clearly haven't done our budgets yet. We do that over the next couple of weeks. So we'll get into detail on the trends, but yes, there's been an element of catch-up in this year. Obviously, our customers have now got components that they couldn't get and so they're running their production lines probably a bit quicker. I think you're absolutely right, Lush.

Okay. And just last one for me on pricing. Have you done any sort of price increases since H1 and I guess, just any sort of early thoughts on what may need to be done or not for next year?

Yes. So Lush, we -- immaterial price increases since the main price increases we did at the beginning of the year. In normal times, we try and make sure we do that one so that customers are clear on for their budgets on what they're going to be spending. So immaterial what we've done since the beginning of the year on pricing. We did get good pricing again this year. We needed it to be frank, because inflation, particularly on the labor side stayed high, energy costs have stayed pretty high. So we're very comfortable. As we've said, margins would expand again this year. If you look at our guidance and as you know, margins have come up from sort of 14% a few years ago, and we're well up probably close to 100 basis points up again this year, right? If you just backward the guidance. So we've got good pricing power, and we're really pleased with that. As we go into next year, the issue again will be labor. We're doing well in terms of labor retention globally. And I think that's really important. There's huge cost in training people of all levels actually and making sure we've got the best skills to grow for the future. So again, labor will be an issue as we go into next year in terms of labor inflation, but again, we think we're well placed to cover that with our strong pricing power, Lush. So yes, we feel pretty good about where we are in the sort of whole labor and inflation equation, we think, we're in a good place.

The next question today comes from the line of George Featherstone from Bank of America.

Good morning, everyone. First one would just be on the Industrial Automation business. I appreciate there's some encouraging underlying trends that are happening there that obviously have changed maybe the dynamic of the business relative to PMIs, et cetera, this year. But I just wondered what the pipeline is really related to U.S. reshoring that you've mentioned? And have you also managed to gain some share in the U.S. That would be the first question.

Yes. Interesting, George. That is a good point. I mean, actually, I mean, our strongest sales growth is actually in Asia, and the team down there are doing a cracking job George. And I would say that in what we consider our total available market in the way that we compete, they've done a very good job in Asia because China has not been easy, as you know. So -- and that's what -- half of our IA business in Asia, something like that. So I mean it's pretty impressive the way the Asian team are competing. But if you come back to the U.S., obviously, we acquired Bimba a few years ago. Bimba is very, very strong brand in actuation in the U.S. Yes, I went through this capital market section. The way that they compete and particularly on the special side, the major requests side of the business is very, very impressive, right? They're very flexible, and that plays against the competition's business model, and it's a really good business model. And we've been getting better and better. Again, I was in our Rockford plant, which is a big part of that manufacturing in North America, it's probably 4 weeks ago. Now, time flies, doesn't it? But -- and I was very impressed. I mean they're really reducing lead times, and the whole sort of speed of response to customers incredibly impressive coming out of that plant. So I think we might be enabling some market share in the U.S. We'll see as we go forward. Certainly, we're holding our own, and I'm really pleased with that. And then Europe is tough for IA because Germany, in particular, the industrial scene is tough. But again, generally, our customer response is pretty good. So yes, I think overall, I see doing well. And actually, because we now combine the resources with process automation and because I've been traveling the world with Jackie going around and visiting all the businesses and as you know, I spent more than half of my career in that business, just making sure that we're getting up to speed as fast as possible. I'm so excited about the combination of those businesses and what Jackie's plans are for them. And again, that will take time to come through. But if you see what's happened in process automation, particularly on the aftermarket side, where we've combined real deep intimate knowledge of the market, some pretty good IT systems in terms of data and the way we're using data. But then the growth of innovation as well, I'm super excited about the combination of those automation resources over the next few years, say, George. So yes -- and in terms of IA, I think I've said that we expect the fourth quarter to be slightly down. What we look for is what everybody looks for, really, which is a bit of an inflection in the PMIs, hopefully, at some point next year and then following that. We should get pretty decent drop-through in that area.

Okay. And then process automation, clearly very strong still. I just wonder if you could talk through the pipeline ahead. And do you think that with the orders momentum you got to get in Q3, you can reach 1 billion of orders for the...

I think, George, GBP 950 million is sort of the right sort of number. I think I mean that would be amazing in itself. You never know, George, because as you know, it's a lumpy business. You never know. And Jackie and the process automation has just been phenomenal, I have to say. So we've got great commercial people. They're working really hard. What I am sure about is we're very competitive on new construction. We really are. So if the projects are out there and the timing comes because there's always a bit of debate on when the timing is going to fall. You never know, George. But I'd say GBP 950 million is a more sensible number for this year. And with GBP 950 million, the book-to-bill will be something like 1.2, right? So that's why we're confident that next year we will be delivering -- all things being equal, we'll be delivering sort of double-digit sales growth in Process Automation, which is tremendously exciting to be in that position right now.

Okay. Very good to hear. And then just maybe one for Dan on free cash flow. I just wondered where you're tracking towards that move to GBP 300 million of free cash flow that you've talked about in the past.

Yes. Thanks, George, well on track. I think we're building to that point. We still have some cash outflows for the restructuring that will continue for the next few years. I think that will hold us below the GBP 300 million that I talked about in July, but we're certainly chipping away at the working capital as well. The supply chains are still -- it still need managing. So we're making sure we're, we're continuing to focus on supporting the customers. I think that also helps us in the IA space, Roy, as well. We track Net Promoter Scores. We really want to make sure that all of our businesses are getting the positive feedback from the customers on on-time delivery, et cetera. So all in, yes, I don't think -- we won't be there this year, and we'll have to watch. And next year, we still have some cash outflows on restructuring as well. But certainly, the 90% cash conversion feels pretty good for 2022 -- for 2023. What year are we in? Geez. Sorry about that.

So good for 2023.

Yes. Yes, exactly. Lost a year there. Thanks, George.

The next question today comes from the line of Christian Hinderaker from Goldman Sachs.

Thanks for the update. I just want to start -- you talked about channel destocking within Life Sciences. I wonder if you could give us a sense of your views and broader visibility over inventory levels within both Climate Control and IA.

Within Climate control and IA, Christian, or within Life Sciences?

Or life sciences.

Putting Life Sciences to one side. What's the view on [indiscernible] and distributors within Climate Control and IA.

I see. Okay. Your name is Christian so I just want to be absolutely clear. So within IA, typically, order book is about 2 or 3 months is sort of our visibility. We use leading indicators, as I think you know, Christian as well beyond that. So as I referred to the sort of PMI tends to give us a reasonable guide. Although as I said, we seem to be doing better than that would indicate on this occasion. But I would still think as PMIs lift, typically, there's a 3- to 6-month lag between that and industrial production improving and therefore, IA improving. So in terms of order book, as I said, 2, 3 months, we sort of think the time we get sort of 1st of March results next year with a pretty good visibility on the first half for IA and a guide for the full year, which is obviously why we'll put out some guidance overall. On climate control, it's less than that because, obviously, a lot of our business is actually sold through wholesalers. We drive end market demand, specification, we help with the design of the HVAC systems. But ultimately we sell-through wholesalers. So typically, there, you're talking about 2 or 3 weeks' worth of order books, I'm pretty sure. Again, what we use is all sorts of construction indicators to try and understand where that business is going. What's very important in that business, I think a couple of things, one is the energy saving, which is up a lot of customers' agendas. Two, is the majority of that business at the moment is obviously into refurbishment, right, which is why it's so nice and resilient. And I've said this I think Christian to you, and that's certainly reasonably often. Even in 2009, right, when the industrial world was coming up, I don't know, 8%, 10%, that business, which was called Hydronics, came off something like 3% or 4%, right? So it's very resilient because of the energy saving and the refurbishment part of the market.

Yes. And we did obviously have some stock level movements in that business late last year and into this year. I don't -- we don't -- we're not expecting any major movements. We think the stock levels are pretty normalized now. We're not seeing any indications of buildups or drop-offs. We never -- you can't be 100% certain, but based on the sell-out data, we think it's -- we shouldn't see any major movements...

In the stock in wholesale.

Yes, the wholesaler stock position.

Does that answer your question, Christian?

It does indeed. Maybe secondly, turning to your own working capital, I guess, quite significant growth in some of the parts of the business where components are more made to order versus on shelf. I just wonder how we should think in that context about the sort of dynamics for inventories but also receivables in sort of coming quarters?

Yes. I mean I'll let Dan answer. I think overall cash flow is going to be strong this year, right? I mean so in overall terms, despite pretty high levels of capital spend investment for the future, cash flow is going to be strong. But Dan, do you want to add specifically about?

Yes, it's a good point. We will spend a bit more than depreciation on CapEx, again, making sure that our factories have the best equipment and can deliver timely and quality all the way through. So we're still making those investments. And yes, Roy, you're right. The growth that we're seeing I'd expect our receivable days to be -- to not change too much. I think we're in a good position there. And then on the stock levels, for the business, I got to pull process automation out to one side. The rest of the business we are chipping away at those inventory days and bringing them back down to kind of that pre-COVID level. We're not 100% there, but we are bringing them down. Process automation, the inventory really is a function of the order book. And obviously, you see the order book is up, and so we will need some inventory investment. That's all the valves that are working through the system for the new construction mostly. So yes, so overall, it's going to mean there will be some investment on the inventory side to support the growth both in the process automation order book, but also the growth across the rest of the business.

The next question today comes from the line of Aurelio Calderon Tejedor from Morgan Stanley.

The first one is around the new -- obviously, the new organizational structure, and you've talked about some early benefits. I wonder if you could talk a bit more about what you're seeing in terms of those early synergies and also kind of same topic, if you can also talk about any M&A opportunities that you think could arise in the kind of short, medium term for this new organizational structure?

Yes. I mean I'll talk a little bit about the M&A pipeline and then come on to the structure. So an M&A pipeline is pretty good. As you know, we've done 4 acquisitions in the last 18 months, 2 years, something like that earlier. And we tended to acquire into smart building space was the last one with Heatmiser that's going well. It's well on plan this year, but really pleased with that actually because full climate control, and again, Phil did a cracking job with this, really. The climate control, I think this year, will now be at 25% of our sales in the connected space, which when you consider just a few years ago, that was 18%. Before that, as you know, it was very mechanical, right? So I'm really pleased with the evolution because that's obviously the fastest-growing part of the market, and it's a very profitable part of the market as well Aurelio. So yes, we've got a good M&A pipeline. Recent acquisitions doing well so. So I think we're in good shape on M&A. We are seeing opportunities, and we are actually between the teams actually rejecting quite a lot of opportunities as well. So there's plenty going on. We only want quality assets with those be the long-term growth prospects in growth markets where us plus them really equals a lot more than the sum of the parts, right? And that's clearly the case with what we pull, and it needs to be the case with what we're going to buy. So we'll continue to maintain that high bar of selection. But pipeline is in pretty good shape, I would say. On the structure, yes, so obviously, early days, right? But as I said, traveling the world and just watching how the teams are working together, how they're starting to come up with ideas, and it's primarily around growth. As I said, when we launched the structure Aurelio, right? Growth is the thing how do we use that core automation technology valves, actuators, controls, the system-level approach that we're applying in areas like hydrogen. How do we make sure that we take that capability and use it across all of the fastest-growing sectors for the future. And that's where the teams are really focused. Of course, there is also more sharing of talent already happening, which is great. We want to get our very best people in front of our very biggest opportunities, and that's that -- as we -- it's evolved already over the last sort of 4 years, 5 years, really concentrated on one IMI. And just say, okay, we, as a company, and that's why the divisions have gone. There aren't going to be that sort of level of division within the company. It's much more about one IMI getting our best people in front of those big opportunities. So that's what I'm excited about. The best use of our tech and our products and our people to really make sure that we grow as fast as we possibly can.

That's very helpful. And if I can squeeze one more. You've talked about very good order momentum in critical, whether it's filling or not, but obviously very, very -- or process automation, sorry, very sudden development. I wonder if you can talk about, obviously, with your visibility into '24 for the business if you can talk about how you've seen margins are looking in that order intake or in that order book.

Yes. So margins are roughly at the same level as the at this point last year. So in terms of gross margins, I'm talking about and the order book, obviously, Aurelio, which is pretty good. We are making sure that we are increasing our installed base for the future, which is obviously because as we do that, we want to win in new construction. So we're doing that because, as you know, we get this beautiful annuity of parts for a very long time because of the severe nature of the processes, the process automation deals where it's very sticky. So that's good. We're also investing heavily in the business. And again, I haven't seen -- as I said to Jackie at the recent review, I haven't seen so many growth opportunities, initiatives in process automation in all the time I've been involved in it. I've got to be honest with you, and it's in new and exciting places. And the whole way that the growth hub concepts that are working in that segment is really exciting. So there will be investment in that business. Of course, we would expect to make bottom line margin progress next year in that segment. And across, I might remember that we've got more benefits, another GBP 13 million of benefits coming through from our program, which is decomplexifying the overall business. And as you know, a big chunk of that is in that overall automation platform.

And of course, it's always important to remember, even with a really good new construction backdrop, the new construction margins that we get are certainly accretive to the overall margins of that part of the business. Yes. It's not like we're taking those at lower, lower gross margins. Typically, the new construction business comes through at around 25% gross margin. So it still supports us getting up to that 20% as we go.

The next question today comes from the line of Mark Davies Jones from Stifel.

Can I ask you the question that you thought you were asked earlier, but weren't on the Life Sciences side. Obviously, you've indicated you think destocking continues through Q4. That's been going on for a long time now. What's your feeling on end demand and when we might see that coming to some sort of conclusion? Is it all just sort of COVID unwind? Or is there something else going on?

Yes, Mark, I think we spent a lot of time looking at this and we talk to customers about it. And I think as we've said in our press release that it is stock unwind throughout the whole supply chain plus market demand, right? And I think you probably read the commentary like I have as well, Mark, in terms of the deep analysis that's been done. Clearly, China, which it varies by customer, right, but China is sort of between, let's say, 10% and 25% of their business and clearly, demand has -- market demand has been lower there. I think that -- if you think about it, I think in all -- the big chunk of this obviously is money spent by the health insurance companies or by governments ultimately, depending on which geography you're in. And I think that there's been a huge spend during COVID. And if you look -- if you take it on a sort of 10-year view, and then there's plenty of examples of companies that put graphs out there, then there's a heavily normalizing period. Definitely, we said Q4, we expect to sort of -- we're not expecting any miracles in Q4. That's for sure, right? It's going to stay at similar levels to Q3 and that's where we think we are. And again, Mark, as we start to think about next year, we're not thinking about it for next year either, right? So we're not in our normal way, we're not going to suddenly say, well, the second half is going to get a huge amount better. That's our sort of base case. Yes, of course, it will improve, but we're not going to expect heroics next year. I do think that the criticality of what these analytical instruments do is incredibly important, and I do agree with all the other commentary out there that at some point, you're going to return. We've had, what, decades of very, very strong demand. I do think we will return to that at some point. It's very hard to get clarity on what that point is to be on initial demand. So in a normal way, we will play that reasonably safe as we go into next year.

And certainly, the activity of our engineers, the folks who are working closely with those customers has not really slowed down. The next platforms continue to be developed. So we -- and yes, the things that they're working on to make these machines do even more to diagnose what's going wrong with all of us is incredible. So that just gives us the confidence that this is -- this still has got a lot of legs. We've just got to get through this period.

Yes. I think Beth, Martin said, we took the whole Board so our biggest life science facility in the U.S. market? Or was that 3 weeks ago -- in between all the other travels, but it was absolutely, but Dan's point is fundamental, right? So what we're doing to integrate more products into a sort of system level design and how we're moving that for the future, Mark, is incredibly exciting. So as the new platforms come out for OEMs, we would expect to get a greater share of wallet. So -- and that's what's exciting for us, right, is that we just keep incrementally notching up market share in what we think is still a very good long-term market space.

Great. That makes a lot of sense. Can I just ask more broadly on regional because I don't think we've had that conversation yet. But in the trends you're seeing, obviously, China tough, you are still pretty resilient across all your businesses in Europe softer. Is that the picture? Or is there any change to that?

Yes. No, I think that is a pretty good summary of where we are overall. So yes, I think we've seen growth across U.S., Germany, and everywhere outside of China, and China is slightly down, Mark, across -- if I'm talking across the business. So for us, China is not as bad as for a lot of people because the energy part is okay because they're building more LNG receiving terminals, things like that. And again, Jack and the team got high win rates there. So -- but it's still down a bit. Yes, you're right.

The next question today comes from the line of Jonathan Hurn from Barclays.

I just had a few questions, if I can. The first one, just coming back to price, but just focusing on Q3. Can you just kind of break out the sort of the volume and price within Industrial Automation and also climate, please? That's the first one.

Yes. So Jon, thanks for that, Jonathan. Thanks for the next questions as well. So we don't want to get -- we've got customer sensitivities, right, Jonathan. So we've got to be super careful with the amount of information we give out. But let me just say this. Overall Q3 price was still strong, which meant that for the whole of IMI volume was just very, very slightly down, that obviously, was life sciences, which obviously dragged the volumes down. That was by far the biggest impact on that. And I would say that pricing is stronger in IA and less strong in process automation. So just to give you a sort of feel for how that sort of shapes out, I think that's probably the best I can give you.

Okay. And just the dynamics in climate, just in terms of that, is there anything you can say on that?

Yes. So climate, I think climate is done, as I say, it's done really well. Beth, Phil really good job. And look all the peers obviously and it's only a guide, isn't it, Jonathan, but if you look at the peers and you look at their similar sectors. And I think we are outperforming. And I think that's down to what they've done in terms of customer service, brand driving end-user demand and specification has been really strong. So climate actually, pricing was less than it has been in Q3, and that's partly because on the project side of the business, again, they've been driving a high win rate. And overall pricing is still very positive, but it's sort of more -- sort of around the group average. It's not above the group average. It's probably slightly less than the group average actually in Q3 because they've been very sensibly pricing the different segments of the business. Overall, though, margins in that area, improving nicely, Jonathan.

Okay. Very clear. The second one was just on IA. I'm just wondering if you could sort of break down what you're seeing there between sort of original equipment and aftermarket. Are you seeing more resilience coming through on the aftermarket side?

Yes. Yes, definitely. It's a typical situation, Jonathan, where aftermarket stays pretty resilient, right? People -- the only time I can remember the aftermarket really being hit, and I've probably seen what 3, 4 recessions in the time, it was 2009, right? And that was literally where people were closing down a proportion of their production lines. As long as they're going to run their production lines, they need the spare parts. So yes, I would say that's exactly what's happening.

Okay. And the final one was just on process. Can you sort of break out that aftermarket growth, maybe how much of that was upgrades, how much was parts? And just also just looking into 2024, obviously, you've got that order book, how are we for capacity there? Are there any constraints? And I suppose linked to that, as we go into '24 and that volume comes through, that sort of overhead recovery in those businesses really start to tick up. So from a -- I suppose, a leverage perspective, it could be quite interesting for '24, is that fair to assume?

I think, well, let's start with the aftermarket split Q3 so it's upgrades that were strong. I mean they were over 40% up in -- now you've got to be careful with quarters even on aftermarket end process, right? But I mean, and again, that is bang in line with strategy that Jackie presented -- Jackie and the team and our capital markets event, which must be what Jonathan, it must be 2 or 3 years ago now, right, 2 years ago maybe. But where they're going in, they are helping customers that have problems with vibration or with noise or with reliability and replacing either the whole valve or part of the valve using some of the tech that we brought through from Growth Hub, right? And that upgrade valve business then means that once you got your valve in place, it's very, very sticky in terms of the parts flow from then on. And that's why it's really, really important. And Jackie has been replacing mainly our valves, the old valves, installed valves, but increasingly competitors valves as well. And that is really good for the future of that business because as you know, the aftermarket, the margins sort of gross margins at 2.5x what they are in new construction, and that's what makes -- because it's still a huge opportunity for us, as you know, in that installed base. So that's the most -- that's the strongest part. The second biggest part was parts. That was a double-digit increase. Field service was flatter in the quarter, but it's done pretty well year-to-date. So as you know, in terms of margin, most profitable business is parts. Second is upgrades and then field services is lower. So yes, it was very good in terms of the way that business is driving aftermarket upgrade business. And then on your second question, 2024, so as I said, we're expecting double-digit sales increase in process automation next year. Clearly, as I said, book-to-bill probably at the end of the year around 1.2, Jonathan. But remember, we have called out some nuclear orders, some marine orders that are multiyear. So some of that business, we're not going to suddenly drive sales up 20% next year. I mean we've got the aftermarket part that we need to take it into account. But double digit, we're comfortable with for next year in terms of sales increase. And that order book is good as you run through into 2025. It will help us for the future. So yes, that's where the order book is.

Just in terms of potential sort of, I suppose, of calls to delivering there are no sort of obvious constraints in factories as to delivering on that order book.

Again, an absolutely phenomenal job. And we noticed some of our competitors lead times going out in the industry, but we've held us and that is down to phenomenal work from Jackie, but also the whole team, as I go around the factories. It's phenomenal really what they're doing to make sure that our own factories, but also the supply chain. Again, we spent a lot of time reducing the number of suppliers in process automation. So we used to have about 3,000, just round numbers, direct suppliers. We've now got a 1,000, right? So that's much better in terms of us being further up their agenda. But at the same time, Jonathan, we took a number of single source suppliers from [ 60 ] to about 6. So again, we've got options, right? And again, we really look for making sure that we can keep the lead times down on our supply components and also that we can process it really quickly. So phenomenal job done so far. And again, in most of our bigger factories, we are still not working 3 shifts everywhere, right? So we are on some of the bottlenecks, generally across the piece, we've got capacity still to deploy.

Our final question today comes from the line of Andrew Douglas from Jefferies.

All of my questions have been answered. I do have one follow-up there on my financial side. Can you tell me who are your largest customers in Life Sciences? Is it these government agencies and insurance companies? Or is it the Life Sciences [indiscernible].

Obviously, won't quote names, obviously, good to hear from you, Andy, by the way. But obviously, don't quote customer names, but our actual customers are the OEMs, right? So they are the people that are building the mass spec units, and you know who they are, Andy, right? So that is our actual customers. But obviously -- and demand is coming from ultimately is often labs. It's fundamentally, as I said, often government money eventually in some jurisdictions, not so much in U.S., where the business is strong. But then ultimately, you are down to -- still those heading adding customers have got to make the investments for the OEMs to get the pull-through. That's the only point I was trying to make, probably a bit clumsy, Andy.

No, no, I understand. And on the next platform comment that Dan made, I'm kind of working on assumption that everyone's got all the ventilators they need. Is this next-generation ventilators or is it the kind of the next way to have the people join the [ pandemic ]...

Sorry, I was not talking about the ventilator. I think -- I was just about to say, I think ventilator technologies is quite mature. And then I remember that that's very foolish statement to make, Andy, because everything can evolve, right? So -- but what I'm saying, it's not on the ventilator side. It's on the instrumentation side, which is where we took the Board and where we could see that we were adding more. And what tends to happen, Andy, is that some of these really big customers have come to us and say, right, this particular part of the system doesn't work quite so well. Can you reengineer a solution? Or can you combine more things into the system more valves, electronics, more control. And as we do that, we expand our share of wallet. That's all.

Right Thanks, Andy. Thank you. There are no additional questions waiting at this time. So I'd like to pass the call over to Roy Twite for any closing remarks.

Great. Well, thank you. Thanks, everybody. Thanks for joining the call today. All of our focus now is obviously on closing out the year really well. As I said, I'm really proud of the teams and what they're doing. We do expect to make further progress in 2024. Of course, we're going to update you on that in the 1st of March once we've run through all our budgets got a bit more visibility. I think the positives obviously are the process automation order book, the resilience in both industrial automation and climate control. Again, I'm proud of that. What's happening there. Life Sciences clearly will come back at some point. We exactly where that point is, as Mark was trying to push me. I don't think anybody is particularly sure, but I think the fundamental underlying drivers are good. And of course, we've got more rationalization benefits coming through next year on top of the GBP 20 million this year, as you all know. So I just wish you all a great finish to the year and look forward to seeing you again early next year. Thank you.