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IMI PLC (IMIAF) (Q2 2024) Earnings Call Highlights: Strong Organic Growth and Strategic Initiatives

GuruFocus News
·4 min read

  • Organic Sales Growth: 5% in the first half.

  • Organic Adjusted Operating Profit Growth: 6% in the first half.

  • Adjusted Operating Margin: Increased by 10 basis points.

  • Revenue: GBP1.098 billion, with a 3% headwind from disposals and foreign exchange.

  • Adjusted Operating Profit: GBP196 million.

  • Adjusted Basic EPS: 1% higher than the prior period.

  • Cash Conversion: Lower due to working capital investment.

  • Net Debt: Reduced by GBP166 million since June of last year, now at GBP606 million.

  • Net Debt to EBITDA: Reduced to 1.2 times.

  • Interim Dividend Increase: 10% increase announced.

  • Share Buyback Program: GBP100 million announced.

  • Automation Revenue Growth: 9% organic growth, with margins increasing by 100 basis points to 18.4%.

  • Process Automation Order Intake: Up 9%, including a significant GBP33 million marine sector order.

  • Industrial Automation Revenue: Down 4% on an organic basis.

  • Life Technology Revenue: Down 1% organically.

  • Climate Control Revenue: 1% organic growth.

  • Life Science and Fluid Control Revenue: 13% lower than the prior period.

  • Life Technology Operating Margins: Reduced to 17%.

  • Full Year Adjusted EPS Guidance: Expected to be between 120p and 126p.

Release Date: July 26, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • IMI PLC (IMIAF) reported a 5% organic sales growth and a 6% organic adjusted operating profit growth for the first half of 2024.

  • The company announced a 10% increase in the interim dividend, reflecting confidence in its business performance.

  • A GBP100 million share buyback program was announced, indicating strong capital allocation discipline.

  • The complexity reduction program delivered GBP4 million in benefits in the first half, with expectations to deliver GBP15 million for the full year.

  • IMI PLC (IMIAF) maintained its guidance for the full year, expecting adjusted EPS to be between 120p and 126p, showcasing stability in its financial outlook.

Negative Points

  • The adjusted basic EPS was only 1% higher than the prior period, impacted by adverse currency and tax rate movements.

  • Cash conversion was lower due to further working capital investment, primarily to support the process automation order book.

  • Life technology's operating margins reduced to 17% in the first half, reflecting lower sales and mix effects.

  • Industrial Automation faced a 4% decline in organic revenue due to softer markets in Europe and the Americas.

  • The company experienced a 13% decline in organic revenue for Life Science and Fluid Control, attributed to strong prior year comparators and continued market softness.

Q & A Highlights

Q: Can you provide more details on the restructuring benefits in Life Technologies and the impact on margins? A: (Daniel Shook, Finance Director) The majority of the GBP11 million restructuring benefits will be realized in Life Technologies in the second half. The mix effect in the first half was unfavorable, but it will work in our favor in the second half. We expect Life Technologies' full-year margins to be slightly up.

Q: How sustainable are the large marine orders in process automation, and what is driving the increase in hydrogen orders? A: (Daniel Shook, Finance Director) The marine orders are repeatable, and we are optimistic about future opportunities. The increase in hydrogen orders, from GBP3 million to GBP22 million, is driven by our existing technology adapted for hydrogen applications, such as localized hydrogen production and fuel cell projects.

Q: What is your outlook for process automation and the impact of the marine order on organic growth? A: (Roy Twite, Chief Executive) Even without the marine order, process automation shows strong growth. The aftermarket, which has higher margins, continues to grow at 8%. We feel positive about market activity across oil and gas, hydrogen, and the aftermarket.

Q: Can you elaborate on the climate control performance and its resilience compared to peers? A: (Roy Twite, Chief Executive) Our strong performance is due to our energy efficiency proposition. Our products, though a small part of the system cost, significantly impact energy savings and indoor climate comfort. Energy efficiency is increasingly important, supported by regulations.

Q: How does the GBP100 million share buyback affect your M&A strategy? A: (Roy Twite, Chief Executive) The buyback maintains our balance sheet efficiency within our target range of 1-2 times net debt to EBITDA. We still have ample capacity for bolt-on acquisitions, which we prefer for their growth acceleration potential.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.