IMI plc (IMI) Earnings Call Transcript & Summary

Good morning. Thank you for attending today's IMI's First Quarter Trading Update. My name is Sarah, and I'll be your moderator today. [Operator Instructions] I would like to pass the conference over to our host, Roy Twite.

Good morning, everybody, and welcome to IMI's First Quarter Trading Update. I am joined here as normal by Dan Shook, our CFO. Hopefully, you have all had the chance to read through the press release this morning. While market conditions are highly uncertain, we are pleased to be reconfirming guidance for the full year. We continue to expect to deliver another year of mid-single-digit organic revenue growth in 2025 and EPS, we expect to be between 129p and 136p. We saw continued strong momentum in process automation with orders up 7% organically in the first quarter and the order book now 13% higher than March 2024. We made further progress in the resilient, high-margin Process Automation aftermarket, where organic orders were up another 19% in the first quarter. Climate Control also delivered another good performance as we saw continued demand for our energy-efficient products. The other sectors delivered as expected with Life Science and Fluid Control flat, Industrial Automation and Transport lower than the prior year. I am also pleased to report that group margins were up in the first quarter, supported by demand for our innovative high value-add solutions, our strong pricing power significant aftermarket exposure and the final benefits from our restructuring program. As you all know, at IMI, we have had an extremely disciplined approach to capital allocation, and we are committed to the delivery of our financial framework. As such, we are announcing a strategic review of our transport sector. Whilst the sector has strong positions in its end markets, we will be assessing its ability to deliver our financial framework over the medium term. Before I hand back to the operator, I would like to provide a quick update on tariffs. Our teams have been incredibly busy working through all the exemptions and quantifying our likely exposure. As things stand today, I can confirm that IMI's major non-exempted trade flows stand at about GBP 50 million per year from Mexico into the U.S.A. GBP 20 million per year from the EU into the U.S.A., GBP 10 million from the U.K. and GBP 6 million from China all into the U.S.A. On top of that, we have had GBP 30 million per year from various other countries flow into the U.S.A. and an estimated GBP 5 million of tariff effects from steel, aluminum and other secondary tariffs. As demonstrated on a smaller scale when tariffs have been implemented previously, we believe that we are well placed to manage the direct impact of the currently proposed tariffs through pricing surcharges and our regional manufacturing footprint. We remain alert to any changes in customer behavior, and we will respond quickly to opportunities to unlock further growth. So with that, I'm going to hand back to the operator, who will manage the Q&A session. Thank you.

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

I think I've got 3, which I can take a turn, if that's easier. The first is just on Transport and the strategic review. I guess, can you just give us a bit more color on the reasons and I guess the timing. I guess, why now? And then how we should think about the time line going forward in terms of next steps? And sort of is it a sale? Or is it sort of something you can do to sort of push that business a bit further? Should I do all 3 of my questions now?

Yes. Your line is terrible. Sorry, Lush, but carry on with your questions and then we have to confirm that we've understood correctly. Yes.

Okay. And the second is just on Process Automation, obviously, very strong orders, particularly aftermarket. I guess you called out nuclear, but is there anything else in that sort of really strong or a bit softer that that's worth flagging? And then I guess, within that, is OE down? And I guess, is there anything particularly driving that as well? So that's the second question. And then the third is just on tariffs, so very helpful color there in terms of where the imports are coming from. But in terms of across the 5 businesses, is there any business that's more exposed to those imports? And I guess, how do your competitors fare in those specific end markets?

Okay. I think I've got it right. So first one on Transport. So strategic review, we have made good progress with Transport I have to say. We've moved manufacturing to some of our most competitive and some of our best factories over the last couple of years. We have built a really strong leadership team, okay? We've got a really good leadership team with some newer members out of passenger car who completely understand how you compete and win in this industry. But if we're honest with ourselves, the rest of IMI has made more progress, right? We have moved returns and growth rates firmly in the right direction across IMI. And margins have gone from sort of 14% to close to 20%. And that's not where Transport is in terms of margins. And we're clear about our financial framework. And as I said at the beginning of the call, we're absolutely committed to that financial framework. So I personally talked to the sector President, and we're completely aligned. He has a great plan for improving that business. He's obviously going to accelerate that plan now to improve the returns from Transport. And then we'll look at all the options, and we'll see. We're certainly not, Lush, going to fire sell that business. It's a good business. It makes good returns. It's certainly not going to be sold in a hurry at a discount. I want to make sure all shareholders understand that. But we are going to improve it. One way or the other, we're going to improve the situation for IMI. And as I said, we're completely committed to the financial framework. Did that capture -- because your line, as I said, wasn't great, Lush.

Yes.

In terms of time line, obviously, we're not going to put a time line. We're certainly not going to reduce the value of the business by forcing any sort of time line on it. I see this very much, Lush, like the 20% to 30% of what was Critical back in 2019, where 20% to 30% of what was Critical. Back in 2019, where 20% to 30% of Critical was not hitting the financial framework. It was particularly poor on the margins. That part today, honestly, is obviously well in line with the rest of process automation. And actually, if we had sold it, it would have been -- it wouldn't in terms of creation of shareholder value. So I think on the team there, as you know, did phenomenally well. I see it very much like that. And I think we reported on that. Obviously, every quarter, we reported on the progress on that. And then after 2 years, we said, actually, this is far too good. We're definitely not going to sell it. We're going to retain it. So I see a similar pattern with this exercise around the strategic review of Transport. The internal team is absolutely focused on improving that business. Your second question was about Process Automation. Yes, I mean, phenomenal performance again with a review of the business again yesterday. And yes, that whole aftermarket strategy is really firing on all cylinders, right? So lots of upgrades of our own valves, lots of upgrades of competitor valves and really good parts orders in the quarter as well. We called out the nuclear orders because, well, one, because they -- it takes longer, obviously, on a nuclear upgrade, we won't be delivering those this year. So we've said consistently, we expect Process Automation to deliver high single-digit percentage increase in shipments this year. We absolutely still expect that large. And obviously, the strong aftermarket orders in the first quarter really underpin the performance of that and gives us confidence in our overall business for the year, and that's why we're confident in our outlook and keeping the outlook exactly the same. What I would say is that we called out the nuclear orders. The nuclear orders year-on-year is about GBP 12 million up, I think. If you strip those out because they are multiyear, then still aftermarket orders, I think, were up about 10% in the first quarter. So still nicely double-digit growth on aftermarket even when you take out that higher nuclear order. So we feel good. On the new construction side, we were slightly down, but that is just phasing of LNG, mainly LNG new construction orders. We've got a really good pipeline on the LNG new construction orders. And apart from, obviously, we called out last year, we got that multiyear marine order, which I think was about GBP 35 million. So make sure you account that in your models because we keep counting that. But if you look at the sort of underlying business, we think new construction this year will hold up well as well. And then your last question was on tariffs. Yes. So I went through all of the trade flows. We've done a lot of work, as you can see. We've obviously moved out the exempted trade flows. We've looked at every way that we can -- if we're shipping from different countries, make sure that we minimize the impact of potential tariffs. And that's what we're left with in terms of trade flows. In terms of the sectors that are impacted, actually now because of what's happened where tariffs have been applied very broadly across the world, actually, it's quite similar the effect between Transport, Industrial Automation with Process Automation, again, depending on the exact mix of shipments for this year, but just slightly less than those 2. So -- but they are the big 3. Obviously, Climate is not very much affected because it's mainly a European business. And Life Science is not very much affected because it's very regional in the way that we support customers. So it's really those 3, Lush, where the big impact is. Lush, did I cover your questions adequately then?

Yes, I think you did. I really appreciate it.

The next question is from Christian Hinderaker with Goldman Sachs.

I want to start on IA, if I may. I'm curious as to -- you previously guided on the sort of 60-day moving average for order intake. How did that trend in the quarter? What did you see as well in April relative to the minus 7% organic, which I think was affected to cyber and just thinking about conditions in demand overall. I'll stop there.

Yes. Good question, Christian. Yes, 60-day moving average orders is slightly up, Christian. I don't want to get too excited, but it is slightly up. Jackie and her team are doing a phenomenal job in terms of commercial excellence really driving that in IA. Obviously, that was the hardest hit area by cyber, right? It's as you know, we supply around 200,000 products, right, as complex supply chains. Normally, that's to our advantage in terms of how we can create good value for customers in terms of service and in terms of margins for ourselves, capture some of that value. But obviously, when you get hit by a very severe cyberattack, then that creates problems within the supply chain, and that's what happens. So we have started to recover that. We are not anywhere near that down in April. So that's great. I'm obviously not going to report on April as such, Christian. But April was another factor in our confidence in reassuring around guidance overall, but also within IA. And so when I say IA, it was hardest hit. We do expect to recover quite a lot of that, but not all of it by the half year, Christian. And what we're now saying about IA is that for the year, because -- not so much because of cyber for the year, but because of the uncertainty in the markets, we expect IA to be roughly flat for the full year, but we expect Process Automation to be slightly better than we thought at our last update, obviously, due to the strength of the aftermarket orders. Net, apart from FX, which is slightly worse, guidance is exactly the same as where we were, Christian.

Very clear. Can I follow up on this just maybe more strategically or thinking about the long term in IA, given potential reshoring dynamics in the U.S. given the sort of trade dynamics. How do we think about your positioning there? Do you get a sense that customers are looking to expand capacity and that's a sort of structural benefit? And sort of how do we think about the timing of all of that?

Yes. I think that -- there's a long way to go with tariffs, right, Christian. And everybody is sort of thinking, okay, exactly how will this play out. So I would say, right now, there's more uncertainty, although, as I said, our moving average orders are slightly up overall. I think that there will be some reshoring inevitably. So we're looking at some things that will now make a bit more sense to make in U.S., but it is around the edges for us, I will have to say. And to do that, automation will inevitably be involved, Christian, for us and for other people because it's very hard. If you think about hourly rates, typically, the U.S. the total factory fully absorbed cost hourly rate is typically more than twice some of these other countries that you -- so to actually compete from the U.S., where let's face it, it's not always easy to get the labor in the U.S. that you need to run the production lines, automation is certainly in our minds, and it's certainly in the minds of our customers as well. So I would say it's not an immediate thing because of the sort of uncertainty. We want to see how this is all playing out. But over time, I think we'll play well into that. And I feel really good about where the Industrial Automation business is, both in terms of the sort of, let's call it, the overall market trend. I think that's going to be stronger than it's been for a while. I think not only in the U.S., Christian, but also in Germany, right? When Germany is a very significant market for us. It's a very significant market because not only have you got the domestic market, but obviously, it's a huge export market from there. And as Germany hopefully starts to spend the EUR 500 billion that's going to invest in infrastructure, Germany is one of our best automation markets. So I think that sort of dynamic is good plus internally where we are with the business, the team, where Jackie's got -- I think we're going to make some good progress as that comes through the cycle.

Maybe just a third and final one on process. You've talked about sort of aftermarket strength and relative softness in OE. Just what are you hearing from customers on the OE side? How do we think about the oil price sensitivity given WTI is now sub-$60? Just thinking about demand dynamics as we look into the rest of the year.

Yes. I think -- so what we see at the moment, generally across the world is still strong pipelines on the new construction side. Remember that oil and gas new construction is about 20% of process automation. So the most important thing about process automation now is that 60% of it is aftermarket and is [indiscernible] because the margins -- the gross margins are 2.5x in aftermarket what they are in new construction. Obviously, to feed that aftermarket, we do 2 things. One is we upgrade our old valves and our competitors' valves. As you know, that's been very successful. Two is we've got to feed from the new construction side, that installed base. And on that side, of that 20% around 60% is gas, and we think that the fundamentals for gas are still strong. And in fact, we had a business review on Process Automation yesterday. And still, the team is talking that they believe as well that gas is going to be strong for multiple years, put it that way.

The next question is from Andrew Simms with Berenberg.

Just firstly, on the Life Sciences side of things, I mean, another sort of -- it seems like it's bouncing along the bottom still. Is there any sort of signs of life there, any conversations you're having with customers as to whether -- as to when or whether that picks up maybe at the back end of this year. I appreciate comps getting easier, but any comment on that would be useful. And then you mentioned some of the commercial side of things in IA, which the team is doing very well. I don't know if you can expand on that and just maybe provide a few examples as to some of the changes which have been made and how that's affecting the business, that would be great.

Yes, Brilliant. No, we are not calling a recovery in Life Sciences. I think we've said this many times. We basically forecasted flat for this year. And there's nothing in our forecast that relies on any market recovery. I have to make that completely clear. This isn't one of those forecasts where we're suddenly relying on a big second half recovery in any market. We're not doing that. Really, what will change in terms of our sales, if you think about it, is Process Automation shipment schedule. So we've got a lot of shipments going out in Q2. As usual, we'll have a lot of shipments going out in Q4. And overall, we think that gets us to high single-digit organic sales growth this year, and we map that project by project. And the other thing that changes quite significantly is the Transport comparator, right? So Transport has a very, very tough comparator in the first half just because our truck customers were absolutely accelerating through the first half of last year as they managed to procure all of the electronic components that they couldn't get after the supply chain crisis after COVID. Obviously, that unwound in the second half. And in the second half of this year, our comparator is much easier. That's really the 2 components that mean that we get to mid-single-digit organic growth. So we're not calling a recovery in Life Sciences. There are some good signals out there, however, that things are starting to improve. And I know that one of our customers yesterday upgraded. So obviously, there's a bit of stop between us and them. But one of our customers upgraded yesterday, which is good. And the use of reagents -- I think what's happened is there's been an oversupply of the equipment during COVID. And obviously, all of that new kit is out there, so people haven't been replacing or buying new kit at such a fast rate. It's the market is pretty flat at the moment. But in terms of the reagents that are being used on the equipment, that has been picking up. And that's a good signal that the kit is being used and eventually the new programs will come through. And in fact, our customers are now talking about launching new models, which, of course, they weren't talking about for the last couple of years. So there are signs, but our outlook does not rely. Life Sciences itself, remember, is 7% of IMI's business. So we're certainly not relying on a recovery in that market. And then in terms of Industrial Automation, yes, it's really exciting. So what Jackie has been doing is we completely implemented world-class CRM, basically IT systems across IA. And what he's doing is ensuring that our data allows us to drive the best possible sales force efficiency. So we've really got a much better picture now of where the biggest and best opportunities are. We're driving sales force effectiveness and productivity and the pipeline is really starting to improve in terms of projects that we've got. There are opportunities for us to win. And we're also doing a huge amount of sales force training to make sure that the salespeople are best equipped to solve customer problems using our dazzling array of technical solutions that we have to solve those problems. And so that's why I'm really excited. That commercial front. It's pretty much similar to what we've done across certainly the rest of IMI in terms of commercial excellence and then behind that, driving market-led innovation and then behind that, stripping the complexity out of the system, and we've done a huge amount of that in IA. So we've got far less factories in IA now. The factories we've got are much better. And therefore, our Net Promoter Scores for customers, our customer satisfaction scores are now up at 60, whereas sort of 5, 6 years ago, they would have been more like 10 to 20. So that allows us happy customers, cross-sell to those happy customers and then innovate into those customers as well. And that's really the same pattern that we followed across the rest of IMI is making real progress now in AI.

The next question is from Jonathan Hurn with Barclays.

Just a few questions for me, please. Firstly, just coming back to Transport. Can you say if you've had any external interest in that asset previously as anyone looked to buy that? That was essentially the first one. The second one was just on Climate. Obviously, you've seen the strongest growth in Q1, plus 4%. But if you kind of look back to this time last year, the comp is pretty easy. As we go forward for Climate, obviously, the year-on-year comps get tougher. What kind of growth can we expect from Climate in '25? And then the third one was just coming back to Process. Obviously, good order book. You're calling out high single-digit growth for that business. in '25. But just in terms of the book to ship within that business to meet that, how much book to ship do we need to get in the remainder of the year to essentially hit that high single-digit growth aspiration?

Obviously, the book to ship is declining rapidly. I'll let Daniel answer the book to ship at the end. In terms of Transport, no, we haven't had any, what I would call, proper interest in that business externally, Jonathan. So obviously, by putting it under strategic review, we'll see how that goes, right? That will obviously put it up then we'll see if there's more interest in that business. But that's why it's very important that our team really gets on and improves and moves towards our financial framework for Transport, just like the -- what was Critical Engineering team did back in 2019. In terms of Process Automation, sorry, in terms of Climate, I'll let Dan do the Process Automation in terms of book to shift. But in terms of Climate, yes, we see -- in terms of what customers are telling us, in terms of the sort of market feel, I was at the big HVAC show in Germany a few weeks back. In terms of our new product launches as well, as you know, we've got some really good new products, which are more connected. So the TA-Smart valve that we've talked about many times, that's starting to get real traction. We've got pockets of the market as well that are small at the moment like data centers, but which are expanding quickly and which we've got real focus around as well, Jonathan. So when you put it all together in terms of climate, and you think about what it's achieved over the last 5, 6 years, it's pretty much mid-single-digit growth. And that's what we see again this year. So despite the fact that the market itself we don't think is going to be particularly fantastic, we expect to deliver mid-single-digit growth in Climate. And Dan, do you want to talk about book to ship in process?

Yes. I think we already talked about it on the February call where our expectation is we're still going to see a growing order book and book-to-bill this year is going to continue to move positively, Jonathan. And that, of course, with new construction orders coming in, in the first half and particularly on the upgrade and the parts, that gives us good momentum. You saw it in the first quarter as well. There is a bit more book to ship to deliver on process this year relative to last year. But I think the momentum that you've seen kind of going through on the orders makes us comfortable that we'll still hit that guidance of high single digits. So yes, there's a little bit more to deliver. The first half is pretty much as you'd expect. It's fully in the order book. I think the second quarter, as we get the orders in, that will give us a good comfort. So a little bit more on book to ship, but nothing that the team can't handle.

The next question is from Stephan Klepp with HSBC.

A few leftovers, and I don't want to be too much of a nitpicker here. But if I look into the new construction orders in Process Automation and use a typical 40%, I calculate it's down 10%. I mean, am I completely wrong there? I mean you mentioned already what's happening, but can you give a little bit more color on that one? And the second one, if I'm looking into the Q2 pickup, I mean, you haven't been able to ship for 10 days. How much of a pickup and how much of an order growth are we -- are you basically implying is going to happen in the second quarter to basically meet your guidance, particularly here interest is Process Automation and Industrial Automation again.

Yes. So in terms of new construction, you bang on there, Stephan. You're right. So 10% down. That translates to GBP 10 million. And that, as I said earlier, is basically LNG order phasing. So we just got a big LNG order Q1 last year, and we're expecting bigger LNG orders Q2 this year. And then throughout the year, LNG picks up. So it really is LNG order phasing. The only thing I would just say, as I did say earlier, is important, we did get that huge marine order in new construction, I'll say this again, GBP 35 million Q2 last year. So I want to just make sure that everybody understands. But by the end of the year, if you strip out that multiyear marine order, which is obviously still nicely in our order books, then we expect new construction to be holding its own, Stephan, with the growth coming through again in the aftermarket, shifting the mix of the business more towards aftermarket, which again obviously helps us in terms of returns.

Thanks, Stephan. And then in terms of IA, yes, I mean, the -- I think that the cyber incident is very hard to measure exactly. I mean you think about it, we have resisted 300 cyber ransom attacks over the years, Stephan, right? But this one was a really, really severe one. And you're seeing it in the retailers at the moment. These guys are getting more and more sophisticated. And this was a particularly nasty one. Our systems, as you know, were down for around 10 days globally. I mean it was horrendous. So I've got to thank all our people because the response to that, honestly, was incredible. Despite that incredible response, we estimate, and this is only an estimate, that our sales were hit by -- across the group were hit by more than 2% in the first quarter. And the bulk of that is in automation and the bulk of that is in Industrial Automation, right? So yes, we expect a much better second quarter in Industrial Automation. And as I said, the 60-day moving average orders are slightly up. Actually, orders in the first quarter, I think, were only 2% down just to give you -- against a more difficult quarter last year. So that's why we think Industrial Automation for the year will be broadly flat, Stephan.

And for clarity, we've had 300 attempts from what we track with our cyber support. The lion's share of those never get in, but a handful have over the last 5 years, and this one clearly was the most difficult to manage through. But yes, as you say, Roy, the IT organization, but also everybody in IMI really came together and got us back up really, really quickly. Yes.

Great. Splendid. I have another nitpicking one. In Life Sciences for the first half, you have been guiding minus mid-single digit organically. Now the first quarter was flat. So are we -- are you basically keeping -- sticking to that? I heard what you said before that you expect a flat year, but the first half is down -- it was guided down mid-single digits. So do you -- are you basically saying this is still the case and Q2 is going to see quite a big slump?

Yes. Q2 last year was -- had a nice -- was a nice comp. So it's a bit tougher comp, Stephan. It was up -- yes, it was up about 10% on Q1 sequentially. So yes, we're going to hold to that and ask us in July.

The next question is from Alexander Virgo with Bank of America.

I wondered if -- I just wanted to pick up a little bit on your comment there on the Transport strategic review. You talked about the comparability with the -- putting the 30% of Critical under strategic review. And obviously, those businesses then responded incredibly well and you then chose to keep them, as you said, to the benefit of the group. I'm wondering, when you look at Transport, you don't presumably see quite the same sort of potential there in terms of bringing that margin up into the broader group financial framework. Or am I wrong and that's the wrong interpretation? I guess that's the question I'm getting at.

Yes. No, I think way back in 2019, Alex, and we're in about the position with what was Critical Engineering as we are with Transport now, right? It was a big -- in fact, it was a bigger ask to get that part of the business, getting their margins to where we were targeting than it is to move Transport in terms of just the sheer quantum of what needed to be done. And so I would say it's a very, very similar situation. The actions being taken, though, will obviously be different, right? So in Critical Engineering at that time, that part of the business I was told, Alex, by the previous management for a decade that you could not develop aftermarket business in that segment, which is why we went public with the strategic review and said, right, either we're going to develop the aftermarket business and move the margin significantly, we're talking what, Dan, over 1,000 basis points [indiscernible] move the margin or different actions will be taken, right? And lo and behold, Jackie at that time did a phenomenal job with that team, and that's exactly what they did. And now he told me what the margins were yesterday, honestly, in that part of the business, and it would have been terrible to have sold it. But at that time, Alex, I was no more certain around that than I am with Transport, to be completely honest with you. But with Transport, as I said, we've got a fantastic team. We've got a team that is steeped in passenger car knowledge, which is, as you know, very, very hard core in terms of commercial capability and what you need to do. And they've built a good plan that we now need to accelerate. And that plan is different. It's not about the aftermarket. It's much more about value engineering. It's much more about making sure that the high-margin new product we've got, we scale up. It's much more around exiting low-margin product. And we've moved a lot of the manufacturing to very competitive sites, which is great, but we now also need to deliver supply chain efficiencies behind that as well. We are delivering them, but we need to accelerate that as well. So it's a different sort of plan, Alex. But I would actually say probably that actually it's in a better position because I think we've got a stronger team in Transport that really understand the markets and the dynamics to get on and deliver the financial framework. So I would say it's probably slightly better situation, but it's a lot to do as well.

That's really helpful. I guess what I'm getting at is that we could end up with -- we're seeing the same situation here. But I guess the explicit question is, does the Transport business offer the opportunity to deliver 20% EBIT margins if you do and execute these actions in similar sort of fashion to the way the end result you gained in Critical.

Yes. The way I would answer that, Alex, is there's already parts of the Transport business delivering the financial framework. We just need more of it to do that.

The next question is from Mark Davies Jones with Stifel.

Firstly, can I just go back to the German stimulus because obviously, we're looking at potentially quite a big change in what has been a very sluggish market. Firstly, would I be right in thinking that's going to be more of a '26 thing? You don't expect seeing any benefit of that this year? And secondly, do you think that reads across to Climate as well as IA in terms of potential benefit? And then my second question was one for Dan maybe. This is going to be the year when we saw another step-up in cash conversion cash flow as restructuring fell away. Is that still very much the thinking? Or is anything in the complexity coming out of tariffs meant you had to carry a bit more working capital or other costs associated with that would limit that cash conversion?

Great. As you very adequately put, a big change in a sluggish market. I think that's exactly right. I mean Germany for us has been very, very important. Technically and as a market, it's a great engineering market, but it has been sluggish for a long time. I think definitely, that is going to be more 2026 and even beyond that before it really starts to kick in, although I think the confidence in the market is what I was trying to portray earlier really, Mark, definitely feels stronger to me than it has for a while. And you're absolutely right. It's both IA and Climate, and there may even be some process automation infrastructure type build as well, Mark. So I wouldn't rule that out. But it's going to be -- yes, I think Climate, Industrial Automation will -- should be the winners out of that. And then cash.

Yes, Mark, still targeting and forecasting 90% cash conversion. No real change there. No -- at this stage, no need to do anything different on working capital. So we do expect we'll continue to migrate some of that additional stock out of the balance sheet. The one thing I'll remind everybody, we talked about it in February. We will have another CapEx figure similar to last year as we complete construction on a number of new facilities. So that's why we're not seeing a higher cash conversion. There's a bit of an offset to the working capital coming off the books as we're completing the modernization of a few facilities. So yes, so a long way to say, still looking at 90%, Mark.

Our last question has come from the line of Margaret Schooley with Redburn.

I just have one because I think we've exhausted a lot of them. And just to go back to Transport, if you go through this review and ultimately, it does get sold, can you just give us some understanding of if there would be any stranded costs and what the capacity in those facilities would look like? Because I do think they share some facilities with IA. Just a little more color on if eventually it does leave the group, how we should be thinking about that?

Yes. Good question, Margaret. Transport is -- obviously, Transport was born out of Industrial Automation. I mean that's the point. So a lot of our Industrial Automation fittings, valves, manifolds, systems were modified to be able to take the much harsher environment of it being on a truck ,Margaret. So you're absolutely right. I think there's about 5 factories which we share between Transport and Industrial. So it is integrated. We have started the process of absolutely making sure that the Transport team have complete clarity and ownership of their part of the business. So we've been doing that over the last 6, 9 months, something like that. And so we have started that process. The stranded costs -- so we'd have to have a look at things like tax. But put that to one side. But in terms of stranded fixed cost, it will be pretty small in the overall scheme of things. In terms of the carve-out, we are already adding a little bit of cost to Transport, and we'll have to add a little bit more as well to make sure that where we've got shared services, we are making sure there's more of a sort of delineation between Transport and Industrial Automation, Margaret. But in terms of stranded cost that's left with the business, in the -- remember, Transport is only 8% of our sales, right? So in the scheme of things, that would be relatively low.

Very clear. Can I squeeze one last one in? Sorry, I think it's a lot of questions. Just given the shape of the order book for process with OE and aftermarket being higher and then Jackie having been within Life Tech for a year now and some of the incentives or changes that he's making there. Can you just give us some color about how we should think about margin progression for the group, but also by division as we progress through the year, if you can?

Yes. So Margaret, so overall, we expect to make progress on margins again this year. We expect to hit or even slightly exceed our 20% margin target this year. Obviously, Automation, the Automation platform has had tremendous progress on margins. We think that will be flatter this year purely because we're now taking all of the cost of any rationalization projects above the profit line, right? And we've said that and we said that to investors last year. That was the end of that program, right? So we're now absorbing 1p to 2p of EPS in other improvement programs that we're running above the line. So that's why we think Automation on an underlying basis will make a bit of progress. But actually, what we report will be roughly flat. And then we expect to make the progress on the Life Tech side, which is currently below the 20% target, and we expect that to come through this year as they will have some costs, to be honest with you, above the line in terms of rationalization, but they're also getting some benefits from the programs that we run last year, and we expect to see that come through. So that's how we see the shape of margin improvement. Overall, margin improvement for the group again.

There are no questions waiting at this time. I'll pass the conference back over to the management team for any further remarks.

Excellent. Well, thanks for your time today. I think you can see that we're really pleased with the progress of the business. The way we recovered from that cyberattack was frankly exceptional. The orders in Process Automation and the order book in Process Automation, plus where we are with the other businesses gives us the confidence to reinforce guidance for this year. So thanks very much, and see you at the half year. Thank you.

That concludes the IMI's first quarter trading update. Thank you for your participation. You may now disconnect your lines.