IMI plc (IMI) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the IMI plc Interim Results 2026. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Roy Twite, CEO, to begin. Please go ahead.

Good morning, everybody, and welcome to IMI's 2026 Interim Results Presentation. I am joined here today by our CFO, Luke Grant. Together, we're going to take you through what was a strong first half performance, and I'd like to begin by thanking our people. It is a real privilege to lead such a talented and committed team. And this first half performance is a direct reflection of their hard work and their dedication. We delivered 5% organic revenue growth in the first half with growth across all of IMI. Organic adjusted operating profit was 8% higher than the same period last year. Growth Hub continues to deliver with orders up 22% to GBP 78 million despite a strong prior year comparator. And we saw a significant improvement in free cash flow generation. We are committed to deploying this capital for growth and to enhance shareholder returns. We returned over GBP 300 million to shareholders in the first half and are declaring another 10% increase in the interim dividend. I am pleased to reconfirm our full year guidance. We are on track to deliver our sixth consecutive year of mid-single-digit organic revenue growth. And we continue to expect full year adjusted EPS to be between 136p and 142p. Importantly, excluding any contribution from Truflo Marine, we expect to deliver our typical 45% half 1 to 55% half 2 EPS weighting. IMI has been fundamentally transformed since we launched our growth strategy in 2019, delivering a 10% EPS CAGR as we create significant value for shareholders. At the heart of this is the One IMI operating model. Our relentless focus on commercial excellence, market-led innovation and continuous improvement, all underpinned by our performance culture. Supported by the 3 long-term megatrends of Energy, Automation and Healthcare, we remain confident in our ability to continue compounding earnings growth over the medium term. Okay. With that, I'm going to hand over to Luke.

Thank you, Roy, and good morning, everybody. I'm pleased to be able to take you through our strong first half performance. Our One IMI operating model continues to drive consistent high-quality results and the first half of 2026 was no exception. Revenue was 5% higher organically and organic adjusted operating profit was up 8%. The adjusted operating margin was 50 basis points higher at 18.7%, reflecting strong operating leverage and continued growth in the high-margin aftermarket, partly offset by our previously communicated cybersecurity investments. Adjusted basic EPS increased to 63.4p, reflecting the strong operational performance and the benefits of our disciplined approach to capital allocation. Cash conversion was 96%, and we saw a significant improvement in the free cash flow generation during the period. Following the strong performance and reflecting our confidence in the business, we're pleased to declare another 10% increase in the interim dividend. Turning briefly to the revenue and profit bridges. Organic revenue was 5% higher with a modest tailwind from foreign exchange. Adjusted operating profit increased to GBP 217 million with organic adjusted operating profit up 8% year-on-year. Disciplined execution of the One IMI operating model has delivered a 580 basis point margin expansion since 2019, taking us to 20% in 2025. We remain confident in further progression over the medium term. Our strong operating leverage means we expect to deliver a drop-through of around 30% over the medium term. Turning to the income statement. As mentioned, we saw good organic revenue and profit growth in the period. The net interest charge was broadly in line with last year at GBP 8.4 million, and the tax rate increased to 26.2%, broadly in line with our guidance for the full year. Adjusted basic EPS increased by 13% to 63.4p in the period. Looking now at the performance of the platforms and sectors. Automation delivered good growth with revenue up 5% organically. Process Automation had another strong first half. Order intake was up 12% organically, including a significant GBP 48 million New Construction Nuclear order, which covers deliveries over more than a decade. New Construction orders were up 20% organically and high-margin aftermarket orders were 7% higher. The Process Automation order book at the end of June was 10% higher than the prior year. Industrial Automation organic revenue was 5% higher, principally reflecting improved levels of industrial activity and a softer first half comparator. Turning to Life Technology, where organic revenue was also 5% higher. Climate Control organic revenue was 4% higher, reflecting continued demand for our energy-efficient and smart-connected solutions. Data center orders were GBP 18 million in the first half, significantly higher than the GBP 6 million in the first half of 2025. Life Science & Fluid Control organic revenue was 5% higher, supported by resilient healthcare demand and a softer first half comparator. We now expect higher in 2026. Transport organic revenue was 8% higher as the heavy-duty truck market began to recover. Reflecting improving market conditions, we now expect Transport to deliver mid-single-digit organic revenue growth in 2026. The strategic review remains ongoing, and the team continues to execute well. Finally, I'd like to provide a quick update on the Middle East. Shipments to the region in the first half were modestly ahead of the expectations we set out in our Q1 trading update. Our full year expectations for shipments into the region remain unchanged, and our guidance assumes that conditions allow for planned shipments to be delivered by the end of the financial year. Turning now to cash flow, where we delivered a significant improvement during the first half. Adjusted operating cash flow was GBP 208 million, up 32% on the prior period, reflecting the strong profit performance and continued good working capital management. I want to say a big thank you to our commercial and operational teams across the business who continue to manage working capital exceptionally well. Working capital showed an GBP 8 million outflow in the period, much improved on a GBP 42 million outflow in the prior period and follows on from an inflow in the full year 2025. Free cash flow was GBP 171 million, significantly higher than the GBP 30 million delivered in the first half of 2025. This reflects the strong operating cash flow performance, together with the non-repeat of the one-off items called out in 2025. We continue to invest in new capacity and capability across IMI with CapEx of GBP 38 million in the first half, representing 1.2x depreciation. Net debt at the end of June was GBP 673 million with the net debt-to-adjusted EBITDA at 1.2x, comfortably within our 1x to 2x target range. IMI is a highly cash-generative business with a clear and disciplined approach to capital allocation, prioritizing investments in our people, processes and operations that accelerate organic growth. In the first half, we opened 3 new world-class facilities and made significant investments in Growth Hub and data and digital across IMI, which are all key enablers of our One IMI operating model. We remain committed to a progressive dividend and are very pleased to be declaring a 10% will also pursue targeted bolt-on acquisitions that enhance our positions in attractive long-term growth markets. Since 2019, we have deployed over GBP 400 million into bolt-on acquisitions, whilst increasing our fully burdened return on invested capital by 260 basis points to 14%. Our M&A pipeline remains strong, and we will continue to seek targeted bolt-on opportunities that complement our organic growth model, providing access to differentiated, scalable technology and expanding our installed base and aftermarket positions whilst delivering returns in line with our strict financial criteria. Finally, we will look to return surplus capital to shareholders should net debt-to-adjusted EBITDA fall sustainably below our 1x to 2x target range. Our GBP 500 million share buyback program announced at our full year results is progressing as planned with GBP 250 million completed as at the 30th of June 2026. By deploying our growing cash flows into organic growth, targeted bolt-on acquisitions and value-enhancing share buybacks, we are confident we can continue our track record of compounding EPS and free cash flow per share growth. Turning now to the outlook. Following our strong first half performance, we are reconfirming our full year guidance. We remain on track to deliver our sixth consecutive year of mid-single-digit organic revenue growth in 2026, and we continue to expect full year adjusted basic EPS to be between 136p and 142p. We continue to expect that the adjusted operating margin will be flat to slightly up in 2026 with strong operating leverage, offset by our previously communicated cybersecurity investments. Our guidance assumes that the disposal of Truflo Marine completes in the third quarter of 2026, that shipments to the Middle East for the full year are unchanged from the expectation set out during our Q1 trading update and that foreign exchange rates do not have a material impact on full year sales and profits. We are assuming a net interest charge of approximately GBP 20 million, a tax rate of around 26.3% and a weighted average number of shares of 239 million following completion of the GBP 500 million share buyback program. As Roy previously mentioned, excluding Truflo Marine, we expect our typically -- typical H1, H2 EPS profile of around 45% to 55%. If completion takes place as assumed, our reported EPS profile is likely to be more H1 weighted, reflecting Truflo Marine's contribution ahead of the disposal. With that, I'll hand back to Roy, who will take you through the strategy update.

Thanks, Luke. Since launching our growth strategy in 2019, we have deliberately aligned our business to 3 long-term megatrends: Energy, Automation and Healthcare. These structural drivers provide significant opportunities to create long-term value and will underpin our delivery of profitable growth in the years to come. IMI is a global leader in fluid and motion control, with a compelling value proposition. Our solutions typically account for a small share of the total system cost but have an outsized positive impact on end customer outcomes. This drives growth, customer loyalty and strong pricing power. It also positions us well to serve the attractive aftermarket, which today represents around 45% of IMI's sales. Our business is built on the strength of our One IMI operating model. By applying a consistent approach rooted in commercial excellence, market-led innovation and continuous improvement, we are creating significant value for shareholders. Over half of IMI's sales are directly supported by rising energy demand and energy efficiency. I wanted to provide an update on how this long-term megatrend is driving sustainable, profitable growth. Firstly, in conventional power, where IMI is a key supplier to the large gas turbine OEMs. We continue to see strong demand in the first half with organic order intake up 24% and New Construction actually doubling. This is being driven by widespread electrification and the need for stable, reliable energy to power data centers. Our customers now have multiyear order books that give us confidence in the growth opportunities ahead. Nuclear also continues to be an exciting area for IMI. We won GBP 51 million of New Construction orders in the first half, including the GBP 48 million New Construction order that Luke mentioned earlier. This is one of our largest ever contracts with revenue to be recognized over more than a decade. We also continued to see strong momentum in the higher-margin aftermarket with orders up 33% organically year-on-year. Thirdly, LNG, IMI's control solutions play a significant role right across the LNG value chain. And as previously highlighted, we are particularly excited about the significant opportunity to support new liquefaction capacity additions. Organic order intake in Energy was up 56% in the first half with New Construction up 67% and Aftermarket up 36%. With strong customer relationships and leading technology, we see a clear pathway to sustained growth. And finally, data centers. The rapid expansion of data center capacity is not only driving energy demand, it's also creating an exciting opportunity for Climate Control. Our innovative solutions play a key role in supporting energy efficiency and thermal management, and we won GBP 18 million of orders in the first half, up from GBP 6 million in the first half of 2025. The global pipeline of opportunities continues to grow. Growing the aftermarket is a key strategic priority for IMI. Our aftermarket exposure has expanded from around 35% in 2014 to approximately 45% in 2025, and it is central to how we create significant value for our customers and drive long-term returns for shareholders. Our aftermarket revenues are mission-critical to customers' operations, largely funded through OpEx rather than CapEx and supported by long-term customer relationships. This gives us recurring revenue at high margins and stronger returns. In Process Automation Aftermarket, the aftermarket now accounts for around 60% of orders. And as you can see on this slide, we've grown order intake at an 11% CAGR since 2020. This growth is underpinned by our installed base of more than 200,000 severe service valves, where our parts, upgrades and services help our customers run their most critical operations safely, efficiently and profitably. As many of you will be aware, our innovative retrofit 3D technology uses 3D printing to fit our complex designs into installed valves. We are continuously finding ways to improve this process, and I'm really proud of the innovation coming from our teams. A great example of this is our team in Korea, who have combined our engineering expertise with AI-enabled tools to accelerate the design of our bespoke 3D Disck Stacks, reducing engineering time by more than 90%. This means we can respond much more rapidly to customers and continue to grow the recurring high-margin aftermarket. IMI now consistently delivers against our financial framework, and we have built a strong track record of compounding earnings growth. Over the last 5 years, we have delivered average organic revenue growth of 5%, supported by our leading positions in attractive long-term growth markets and our success in driving commercial excellence and market-led innovation. The adjusted operating margin has expanded to 20%, and we continue to see opportunities for further progression over the medium term. Cash conversion remains very strong, and our fully burdened return on invested capital is meaningfully higher than our 12% underpin and well above our weighted average cost of capital. None of this would be possible without the more than 10,000 people right across IMI. And I want to take this opportunity once again to thank each and every one of them. Our people and performance culture are the foundation of our One IMI operating model. And we've worked hard to build a culture rooted in ownership, customer focus and innovation. And we are continuing to make significant investments in our people to help them grow, develop and create value for our customers. The image on the left-hand side of this slide is from the recent IMI Way Day, which this year focused on solving our customers' challenges. It really was an inspiring day and a great reminder of the pride and dedication of our teams right across IMI as our people work together to create great solutions. As you can see on the right-hand side of this slide, this focus on our people and performance culture is delivering real results. Added value per employee has grown by 30% since 2019, while employee engagement remains at very high levels. Just to close, 3 key messages to take away today. Firstly, we delivered a strong first half performance with organic growth across IMI, a significant improvement in cash generation and over GBP 300 million returned to shareholders. Secondly, we remain on track to deliver our sixth consecutive year of mid-single-digit organic revenue growth. And thirdly, we are reconfirming our full year guidance. We continue to expect adjusted EPS to be between 136p and 142p. Thank you. I will now hand over to the moderator for the questions and answers.

[Operator Instructions] Question goes to Christian Hinderaker of Goldman Sachs.

I want to start on Process Automation, please. Very strong growth you saw in OE within the power market. I guess interested in your outlook there over the next few years, given some capacity expansion comments we've heard from the turbine makers. How do you expect that to affect your business? And then also the aftermarket capture piece. I saw I think you had 1% growth in the half. I guess there's a comp effect here. But as we think about that expansion in your installed base on OE, when might we see that pick up on the aftermarket side?

Brilliant. That's a great question. Thanks, Christian. Yes, obviously really pleased that conventional power orders doubled in the first half to GBP 64 million, Christian. So really, really good performance. And as you know, our customers that are actually building the power stations have got multiyear order books now. So we're very pleased with the medium- to long-term outlook for that segment. What I would say is, obviously, it won't continue to double, right? I mean, as I said on the last call, this is going to be constrained by the ability to speed up the construction of those power stations. But nonetheless, it's going to be good for quite a few years, I would think, within that sector. On the aftermarket side, you are right, Christian, that just within that segment, within the conventional power segment, aftermarket orders up 1%. And what we see is that typically, a couple of years after the valve is installed, we start to see aftermarket at about 10% of the New Construction value on average, Christian. That number can go up a bit if the power station is cycling a lot, and it can come down a bit if it's sort of acting as baseload. But on average, that's what we see. And that's what we love because we've now got something like 206,000 installed valves, severe service valves, not just in power, but across all the segments. And that's what's generating that beautiful long-term high-margin aftermarket stream of revenue that comes through. I would say just so that everybody is clear on the call, our overall aftermarket orders across Process Automation were actually up 7% in the first half, so which is great, right, because that underpins this year and starts to even move into some delivery for next year as well. So yes, that's where we see the power sector. I think the good news as well is that's conventional power that you focused on, Christian, but obviously, Nuclear, we won that nice Nuclear order, which, as I said, will be delivered over more than a decade. It's several reactors over more than a decade. But Nuclear Aftermarket as well, we saw good strength in the first half, as I said, and that was up 33%, right? So we're starting to see Nuclear Aftermarket improve. And in the longer term, I think we'll see Nuclear New Construction as we've been consistently saying, we'll see some good opportunities there. Does that answer your question, Christian?

It does, Roy. And just moving then to in the growth Q-on-Q. I appreciate the comp was a bit easier. I guess Q3, we've then got a tougher comp. But can we just sort of think about the underlying demand you're seeing there? Has that improved? How do you expect that to play out through H2?

Sorry, Christian, we just lost the first part of your question there. Which sector?

Sorry. Life Sciences.

Yes, Life Sciences. Yes. So Life Sciences, so we've moved up our guidance slightly on that Life Science & Fluid Control sector from sort of stable to modest growth. So yes, we are seeing some improved demand, I would say, in that sector. It's modest, Christian. I don't want anybody to get carried away. We're not returning to the glory years yet on analytical devices by any means. But yes, there is, I would say, more consistent growth, modest growth in that sector.

Understood. And maybe thirdly, a little bit more strategic in terms of questioning. When we think about your growth initiatives, you've really scaled the Growth Hub initiatives over the years, innovated with the Retrofit3D and you've obviously got some emerging but higher growth opportunities for Climate Control now in data centers. When we think about your capital allocation priorities, i.e., buyback versus M&A, how do we think about those given you've shown, I would say, good ability to grow in higher growth segments? How are you thinking about M&A and the capacity to move into some of those more attractive growing markets?

Yes. I'll talk a little bit about Growth Hub, because I can't resist now that you've asked the question. But then if you just want to carry on with capital allocation, Luke, after that. Yes. I mean, Growth Hub, fantastic, right, for orders to be up 22% in the first half. We did a brilliant event in California, where we had every single sector pitching. And then our IMI Way Day, where we involved all 10,000 people, we did mini -- what I would call, mini sprints to just again, really focus our whole culture of the company on customers, on finding customer problems, validating customer problems that customers are really prepared to pay to solve. And that has created another wave of ideas, Christian. So yes, investment in organic growth has been and will be our absolute clear priority, right? We all know that if we can consistently grow organically, the returns on that, the reduced risk on that. Let's face it, the sort of virtuous spiral of opportunities for our people to develop our people, grow our people and the culture that, that brings. And again, we just did our employee survey, and 79% of people said, IMI is a great place to work. And that's what we want, is just to keep building on that momentum. Because that -- yes, that virtuous spiral, we know creates huge value for everybody. So Luke, do you just want to talk a little bit about capital allocation?

Yes. I'll really just build on what Roy said, I always say our capital allocation is very purposeful in the way it's laid out. So if you think -- as Roy said, organic growth is the absolute #1 thing we think about -- when we think about capital allocation, you look at how much we're investing in the business. We're putting record levels of salespeople into the Aftermarket and Process Automation, investing in data centers and Climate Control. And that's what we're really driving and focusing on. I think, as you said, with the share price improvement, we definitely look at M&A second from capital allocation perspective, and we're still looking at exactly what we talked about on the last call is things like severe service valve companies with underserviced aftermarket or technology companies that are in nice adjacencies that feed into each sector. So I think putting more time and effort in M&A has definitely been a focus in recent months, and we're continuing to do that. And then, as we then look at the any left over capital to allocate, we think share buybacks deliver good returns. And then also, we've continued to progress the dividend at a good clip with very healthy cover.

Does that answer your question?

Yes.

The next question goes to Chitrita Sinha of JPMorgan.

I've got three, and I'll take them one by one. So just firstly, regarding the unchanged guide. I mean, clearly, a very strong performance in the first half, and you've seen very good order momentum in PA as well. I just wanted to get some of the moving parts in H2, which has led to you leaving the guidance unchanged for the year.

Appreciate that. Yes. I think what everybody should understand is that, last year was quite an unusual shape because of what happened with cyber, right? So first half, we were hit. Second half, we did a lot of catch-up. What that meant was in the first half of last year, we grew about 2%. Actually, it's just slightly less than 2%. And in the second half, we grew 9%, right? So in terms of comparators, it's an unusual effect this year. What I always check is obviously both comparators, but then sequentially. And when we look sequentially, if we strip out Truflo Marine, we're at our standard 45% to 55% half 1 to half 2 on EPS. And that would get us to about where consensus is, which is about 140p, 140.5p, something like that. And Chitrita, that makes a lot of sense for us given what's happening in the world. Clearly, externally in the external markets, there's a lot going on. Obviously, we've got the Middle East, but we've also got difficult German industrial production. We've got tariffs. There's various moving parts. So what we feel consensus, given all of these effects, is in about the right place.

Very clear. And then my second question is just on Middle East as well. I mean, in the last update, I believe you said that there's about a maximum of GBP 30 million orders that might be at risk of being pushed out. But it seems like from your comments that there's been positive development in the half. So could you please provide a bit more color on the latest there, please?

Yes, Chitrita. So obviously, on the last call, literally, things were just evolving, weren't they? Just literally a few days. So I'd say you're absolutely right. We've given out the numbers, everybody knows what our numbers are for the Middle East. I do feel a bit more confident now about delivering the year. And just recently, Luke and I have just checked July shipments, and they are bang in line with our plan, Chitrita. So despite the sort of raised events that were happening in July, it does seem to us that customers really want our spare parts, in particular, particularly the aftermarket parts and we're seeing good shipments. So I would say, yes, there is still a GBP 30 million risk, but it's a much reduced risk than when I last talked to you.

Great news. And then finally, just on Industrial Automation, maybe a bit more color here on what is the 60-day moving average looking like?

Yes. So Industrial Automation, obviously did well in the first half, but that was against a softer comparator because of cyber. Still nice to see it growing at 5%. Team is doing well, working really hard. That is a very high mix business where you're supplying a whole series of components to make a system. And therefore, the supply chain complexity is high, and we've been investing to reduce the supply chain complexity and improve -- effectively improve response to customers. In the second half of last year, though, Chitrita, obviously, what we're going to see is a much harder comparator because there was catch-up as we went through the cyber event. In terms of our 60-day moving average, we've done our best to sort of normalize that. It's worked hard on the numbers. And I think the way I'd characterize it is that it's slightly up, sort of 2% up as we go into the second half. That number will vary a bit now, though, Chitrita, honestly, as we go into the sort of European holiday season. But just to give you a rough idea, that's about where it is at the moment on orders. That's orders, obviously.